The tax consultations that could affect your pocket
The government has released a number of tax consultations and Hargreaves Lansdown analyses those that could affect your pocket most.
The tax consultations released by the government can be found here.
Among the ones that could affect your pocket are:
From 2023, self-assessment payments may have to be made more often – and closer to the time the money is earned.
Air passenger duty on domestic flights may be cut – and higher bands introduced for longer flights.
A clampdown on holiday lets will stop people claiming that they let out their second homes in order to gain tax benefits.
Inheritance tax reporting will be simplified for estates where no IHT is due.
HMRC will have more powers to shut down tax avoidance schemes that turn income into untaxed loans.
Sarah Coles, personal finance analyst, Hargreaves Lansdown, said:
“The government got its tax-related spring cleaning out of the way in one fell swoop. It swept up a motley collection of consultations and reports in a single announcement, and dumped them out in the street for everyone to pick over. In among the sweepings are some announcements that could affect your pocket.
“Self-assessment is set to change by 2023. Rather than doing an annual return and bi-annual payments, HMRC wants to see people file as they go along, and pay far more regularly. It’s easy to see why HMRC likes the idea, because it’ll bring forward tax payments, and it hopes it‘ll ensure people pay more of the tax that falls due. At the moment, the tax gap is at a record low of 4.7%, but it is hoping to shrink this further. However, anyone who works for themselves will be wary of changes that sound like even more admin they have to squeeze in on top of a full-time job.
“Air Passenger Duty had to conform to EU rules, so outside the EU the government is free to tweak. It looks distinctly like these tweaks will include a lower rate for domestic travel and more bands to enable them to charge more for longer distances. The climate change committee had called for a frequent flyer charge, and while the government has agreed to consult on it, it has said from the outset that it doesn’t like the idea – because this group of people will already be paying more tax on every flight, which should be enough of an incentive to persuade them to spend more time on the ground.
“Changes to inheritance tax admin were pre-announced. They’ll come as a huge relief to hundreds of thousands of people dealing with estates where inheritance tax is never going to be due, and yet they still have to jump through all sorts of needless administrative hoops at the worst possible time.
“If you have a second home that you’ve been telling HMRC is a holiday let for tax purposes, then changes afoot could throw a spanner in the works. In future it looks like you’ll have to prove how long your holiday let has been rented to other people during the year. And if you don’t really rent it out, it will be taxed as a second property.”
Changes to self-assessment
The government plans to extend the ‘making tax digital’ system to self-assessment from April 2023. It’s consulting on how to use this to get self-employed people to pay tax more frequently, and closer to the point at which they make the money.
Air Passenger Duty
The government says it wants to balance the need to promote travel across the UK with the need to meet emissions targets, so it is consulting on changing the way air passenger duty works.
To keep people travelling across the UK, it originally exempted the return leg on any domestic flight, but it dropped this in 2001 over concerns from the EU. It isn’t keen to adopt this approach again, because it’s complicated to work out when a journey is actually a return – especially when it’s often cheaper to buy two singles. Instead it is suggesting a new band for domestic flights.
It’s also suggesting more bands for international travel, so the higher emissions of much longer flights are reflected in higher charges.
IHT
From 1 January 2022, the government will simplify reporting regulations so over 90% of non-taxpaying estates won’t have to complete inheritance tax forms.
Grieving families can face a horrible administrative hassle at the worst possible time, and completing inheritance tax forms when there’s no chance the estate is subject to inheritance tax was a major part of it. The change will spare over 200,000 estates this needless administrative headache.
Holiday lets
The government will change the criteria for establishing whether a holiday rental property is valued for business rates, to account for the days when the property is actually rented. This is designed to avoid people pretending to have a rental property investment – to save tax – when actually they have a second home.
Tackling ‘disguised remuneration’
HMRC is struggling to tackle companies that promote ‘disguised remuneration tax avoidance’. This is essentially where instead of being paid direct, you arrange for your salary to go to an umbrella company, which pays you partly in income and partly as a non-repayable loan. This means you pay less tax because there’s no income tax on the loan. However, when HMRC catches up with the promotor, taxpayers have to repay the tax they avoided.
The government set out steps to make it easier to close companies down who promote these schemes and seize their assets, as well as alerting taxpayers to the risks, and helping them extricate themselves if they’re already involved.
Other announcements:
- Dormant assets scheme
There has been ongoing work to expand this scheme from savings accounts to include other types of dormant assets – including investments. The government has confirmed it will bring in legislation to make this possible.
- Office of Tax Simplification
The Treasury will conduct a review of how effectively this department works and talk to external experts to decide how it could be more effective in future.
- Guaranteed Minimum Pensions
The government also responded to the consultation on how to deal with indexation of the GMP. These are provided by public sector schemes in return for contracting out of the state second pension. Until 5 April 2021 these payments have been rising in line with inflation as an interim solution, and the government has now adopted it as a permanent one.
- Taxation of Trusts
The government has been consulting since 2018 on whether the taxation of trusts is transparent and fair. It has concluded that there’s not a great deal of demand for reform at the moment.
Kindly shared by Hargreaves Lansdown
Main photo courtesy of Pixabay
