2021: What to expect in tax
The horrendous year of 2020 is behind us, so what do you need to prepare for in 2021? There will be Brexit, Budgets, and new VAT rules on top of all the usual compliance challenges.
Planning was pointless in 2020, as almost every week there was yet another tax-related announcement from the Treasury. I counted four mini-Budgets, but there could have been more; the first one was a fever-induced blur for me.
This is what is currently on my planning board for 2021:
Braced for Brexit
VAT and customs duty supremos Jason Croke and Neil Warren have done their level best to warn businesses about the new arrangements that apply from 1 January 2021 in our Brace for Brexit series. There will be further practical details to emerge no doubt, so keep an eye out for further articles from Jason on Brexit realities.
One imminent deadline is the filing date for the last VAT MOSS return for 2020, due by 20 January 2021. All sales of electronic or broadcasting services by UK suppliers from 1 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).
Self assessment season
The tax return filing deadline for 2019/20 returns remains at 31 January 2021, and penalties for late returns will be issued automatically as usual.
However, HMRC will allow taxpayers and tax agents up to 90 days to appeal against those late filing penalties, instead of the standard 30 days. This 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 explains how the pandemic affected their ability to file on time.
Support for the self-employed has always lagged behind that for employers. Individual traders can apply for the third SEISS grant before midnight on Friday 29 January 2021, and this will be based on their average annual profits for the tax years 2016/17 to 2018/19.
Sunak promised a fourth SEISS grant to cover three months from February to April 2021, but there are still no details of that.
VAT: Domestic reverse charge
Unless there is another delay (and it has been delayed twice already) the VAT domestic reverse charge for the construction industry will take effect from 1 March 2021. Large construction firms are prepared but many smaller firms may not be. Once again it will be down to accountants and tax advisers to help their clients understand what they need to do.
The first Budget statement in 2021 will be presented on 3 March 2021, and I will be gathering a team of tax experts to comment on what Rishi Sunak throws at us.
In September former Chancellor Philip Hammond suggested that Sunak will seek to raise taxes to pay for the Covid-19 business support schemes in two stages. The first set of tax increases may be imposed for demonstrational and political purposes on those who have little or no voting power: corporations, foreigners 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. Hammond thinks this second stage of tax increases will be pushed back to after the 2024 general election. At this point then Chancellor will have to look seriously at raising the rates of three big taxes (VAT, income tax and NIC) to collect the sums required.
The long running off-payroll saga should finally come to a conclusion on 6 April 2021, when the revised version of the IR35 rules is imposed for certain private sector contracts. From that date there will three different sets of IR35 rules in place for:
- public sector contracts
- private sector contracts with large and medium sized engagers
- private sector contracts with small engagers
Expect a number of hiccups before the finish line is crossed.
Coronavirus support ends
On 17 December Chancellor Sunak extended the support for employers under the coronavirus job support scheme to 30 April 2021. The CJRS was due to end on 31 October, then with only five hours to go it was extended to 31 March 2021. I’m sure the further extension to 30 April has absolutely nothing to do with the mega-election day less than a week later, but is solely related to the high level of business and social restrictions now imposed across most of the UK.
On 6 May there will be the largest number of local and mayoral elections in the UK since the 1970s, as the 2020 local elections were postponed to 2021. There are also elections for police and crime commissioners, the London Assembly, the Scottish and Welsh Parliaments. All this adds up to a big opportunity to send a message to the government in a way that politicians will understand.
The course of the coronavirus pandemic in the UK almost exactly fitted 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 2020/21 must be reported to HMRC by 6 July 2021, but HMRC introduced many Covid-related concessions to the benefit in kind rules. Its going to take a significant degree of organisation to report everything correctly.
Finance Act 2021
As night follows day there will be another Finance Bill after the Spring Budget, which will be pushed through Parliament with the usual in-depth scrutiny, to be passed as Finance Act 2021. Topics to watch out for include:
- MTD extended to corporation tax and complex partnerships
- Regulation of the tax profession
- Changes to the construction industry scheme
- Measures to tackle promotors of tax avoidance
- Expanding HMRC powers
- Changes to due dates for tax payments
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. 2021 promises to be another interesting year, so hold on tight if you thought 2020 was bad…