The truly dreadful year of 2020 is behind us, so what will we face in 2021? For a start, there is Brexit, at least two Budgets, and new VAT rules on top of all the usual tax issues.
In 2020 planning was pretty much pointless, as almost every week there was yet another tax-related announcement from the Treasury. I counted at least half a dozen mini-Budgets, but there might have been more; they’ve all now merged into a migraine-inducing blur for me. So, what is likely to happen in 2021:
Tax Changes 2021: Brexit changes
I have done my level best to warn businesses about the new arrangements that apply from 1st January 2021 but because the rules governing them are being constantly amended, I would advise visiting the government Q&A website: https://www.gov.uk/transition-check/questions to check what further amendments to the rules have been made. You will be pleasantly surprised to find that it is very useful if a bit longwinded.
One imminent deadline is the filing date for the last VAT MOSS return for 2020 (business supplies of digital services to EU countries), which is due by 20th January 2021. All sales of digital services by UK suppliers from 1st January 2021 will have to be reported under the non-union VAT MOSS scheme, which requires a different VAT registration in an EU country (ie not the UK).
There will be further practical details to emerge in the coming weeks no doubt.
Tax Changes 2021: Self-assessment Tax Returns
I pretty much covered this in Blog on 1st January “Waive Late Filing Penalties” and yet again last Friday, but neither HMRC boss Jim Harra nor Chancellor Rishi Sunak have not made any further announcements on the subject since, despite the problems caused by the latest lockdown.
Unfortunately, as at today’s date there is no change to the tax return filing deadline of 31st January 2021, but HMRC have promised to be more flexible on appeals and penalties for late returns. I have to say; this promised flexibility is thin gruel as the tax tribunals regularly allow late appeals in any case.
Where HMRC considers the taxpayer has a reasonable excuse, the late filing penalty will be cancelled. Coronavirus can be a reasonable excuse if the taxpayer can provide an explanation as to how the pandemic affected their ability to file on time.
Tax Changes 2021: SEISS help for the self-employed
Support for the self-employed has always lagged behind that for employers and their staff. Individual traders must apply for the third SEISS grant no later than on Friday 29th January 2021, and this will be based on their average annual profits for the tax years 2016/17 to 2018/19. A fourth SEISS grant to cover three months from February to April 2021 has been promised, but no details of this have been published thus far.
Regretfully, there is still no help for the tens of thousands of individuals who became self-employed in the last 2 years.
Tax Changes 2021: VAT reverse charge
The VAT domestic reverse charge procedure is an anti-fraud measure designed to counter criminal attacks on the UK VAT system by means of sophisticated fraud in the construction industry.
Unless there is yet another delay (it’s been put back twice already) the VAT domestic reverse charge for the construction industry will take effect from 1st March 2021. Large construction firms are prepared, but, in my experience, many smaller firms are not. No doubt, once again, it will be down to other accountants and me to help their clients understand what they need to do.
However, those nice people at Ross Martin have published a very useful guide, including several helpful examples. So, for more information visit: https://www.rossmartin.co.uk/vat/vat/4137-construction-industry-vat-reverse-charge-at-a-glance
Tax Changes 2021: Budget Mark 1
Ignoring the mini-budget a few days ago, the first proper Budget of 2021 will be presented on 3rd March 2021. Former Chancellor Philip Hammond has suggested that Rishi Sunak will seek to raise taxes to pay for the Covid-19 business support schemes in two stages. He’s likely to start with a set of tax increases which the public will support by targeting those individuals and organisations who have little or no voting power: corporations, foreigners living in the UK and wealthy individuals.
A more fundamental tax hike will be needed to raise enough to “balance the books”, as Sunak vowed to do at the Conservative Party conference in October 2020. This second stage of tax increases will probably be largely npushed back until the economy has recovered, not realistically likely until after the 2024 general election. Then, Chancellor will have to look seriously at raising the rates of one or more of the big three taxes (VAT, Income tax and National Insurance) to collect the sums required.
Tax Changes 2021: IR35
The long-running saga of individuals sub-contracting their services to one organisation, should finally conclude on 6th April 2021. This is when the revised IR35 rules come into force:
- Public sector rules will remain the same; with obligatory checks on the proper tax status of contractors to ensure that appropriate PAYE deductions have been made at source.
- Private sector rules will change for medium and large businesses, with the onus being placed on them to determine the tax status of contractors (and the making of appropriate payments to HMRC).
- The rules are not changing for those contractors providing services to small businesses, which are defined as businesses with less than 50 employees or less than £10.2m annual turnover.
Tax Changes 2021: The end of Coronavirus Job Retention Scheme
In December 2020 the Chancellor extended the support for employers under the CJRS or furlough scheme to 30th April 2021. This is the second time it has been extended and I’m certain that the further extension to 30th April has absolutely nothing to do with the local elections due on 5th May, or am I just being cynical?
Tax on benefits (P11D)
The course of the coronavirus pandemic in the UK is almost exactly fitting into the 2020/21 tax year, during which many employees have been required to work at home or in different environments with varying degrees of support from their employer.
The employee benefits and expenses provided in the tax year must be reported to HMRC by 6th July 2021, but as HMRC introduced many Covid-related concessions to the benefit in kind rules, such as claiming tax relief on many domestic costs when you work from home, it will be a minefield to report everything correctly.
Tax Changes 2021: What else?
All of the above takes us up to mid-July 2021, but there will almost certainly be an Autumn Budget and many other tax surprises, not to mention the elephant in the room, Coronavirus. 2021 promises to be another roller-coaster year, so hold on tight if you thought 2020 was bad………
As ever, if you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.