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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.

4th Jan 2021
Tax Writer Taxwriter Ltd
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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.      

SEISS deadline

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.

Spring Budget

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.    

Off-payroll working

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. 

Local elections

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. 

P11D season

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

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. 2021 promises to be another interesting year, so hold on tight if you thought 2020 was bad…

Replies (13)

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By Michael C Feltham
04th Jan 2021 11:40

"A more fundamental tax hike will be needed to raise enough to “balance the books” ".

I haven't a wee clue where he plans to raise the tax revenue needed!

The country is skint; national borrowings are rising by the minute and any punitive increases will prevent a nascent recovery, throw hundreds of thousands - more - out of work - thus increasing social spending costs, etc.

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Replying to Michael C Feltham:
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By AndrewV12
04th Jan 2021 13:42

I think it will take years to balance the books, but there may be a solution (part solution anyway), if the Chancellor is brave enough he may wish to introduce a windfall tax on the usual suspects, Amazon, netflix, Facebook, Mc Donald's, Starbucks, Costa coffee, Vodafone, EE ..............

Tax them whilst you can café Nero, one of the usual suspects went into a CVA in 2020.

It wont be easy but it will be un-controversial. I lot more palatable than raising VAT or NI...........
It may be a long term project.
who knows.

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Replying to AndrewV12:
By Kentwillumsen
04th Jan 2021 14:12

I doubt a "windfall" tax on foreign (mainly US) business would be allowed without reprisals.
However the chancellor could introduce a sales tax with no or limited deductions, that would equalise tax on foreign and domestic business, as well as equalise on-line and high-street business if replacing business rates as well.
Sales tax is now possible, as VAT used to be an EU requirement.

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Replying to Kentwillumsen:
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By AndrewV12
04th Jan 2021 14:28

Hi, that's sort of what I was getting at.

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By AndrewV12
04th Jan 2021 13:25

And we were led to believe the Conservative Party is the party of business and cutting red tape, me thinks not.

Mind you Boris did say during campaigning for the brexit vote '**** business'.

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Replying to AndrewV12:
By Kentwillumsen
04th Jan 2021 14:58

Agree, the introduction of IR35 proves the Conservatives are anti small business and pro red tape that favours large business

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Replying to Kentwillumsen:
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By Michael C Feltham
04th Jan 2021 17:46

@Kent:

Excepting, of course, it was introduced by Labour, thanks to the odious Dawn Primarolo...

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By abaccserv
04th Jan 2021 13:38

A simple question I hope. I have an online seller supplying goods to the EU ( both business and individuals ) The goods to individuals rarely exceed £50 in value, does he continue to charge VAT to the individuals ?

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Replying to abaccserv:
Jason Croke
By Jason Croke
04th Jan 2021 14:50

abaccserv wrote:

A simple question I hope. I have an online seller supplying goods to the EU ( both business and individuals ) The goods to individuals rarely exceed £50 in value, does he continue to charge VAT to the individuals ?


B2C sales from UK to EU are now zero rated exports, so zero rated invoice to customer....however, when the goods arrive in the EU destination, the customer may find the parcel is held by their local customs/post office - they may get lucky and the product is delivered or if they are unlucky, they'll get a card from their post office asking them to pay import VAT on the goods before they can be delivered. A disclaimer on the website might be useful, along the lines of "customer is liable for import VAT" so that the customer knows the price they pay on the website might not be the final price.

From July 2021, the element of luck is removed, the UK online seller will be required to register for One Stop Shop (OSS), the UK supplier then charges VAT to the Eu consumer at whatever the prevailing VAT rate is in the consumers Country, so sell to a French consumer charge French VAT, sell to an Italian consumer, charge Italian VAT.

UK Supplier then files a single "OSS" VAT return, remits all the VAT charged and paid by the customer, the one return saves registering in every EU member state. UK supplier has to decide where they want to register for OSS, it can't be the UK, so perhaps Ireland or Malta (forms will be in English). If UK supplier registers for OSS in say Ireland, they file the OSS return and Ireland is responsible for distributing the various bits of VAT to France, Italy, etc.

So for now, zero rated and customer might/might not get stuck with import VAT, after July charge the local VAT rates where the customer is. This only applies to goods under £135. Note that the £135 is the package value, so if customer orders 3 things each costing £50 and shipped as one package then the 3 items will exceed the £135 threshold.

Thanks (2)
Replying to Jason Croke:
By Kentwillumsen
04th Jan 2021 15:20

Registering for OSS may be optional, what is your view on this?
https://ec.europa.eu/taxation_customs/business/vat/modernising-vat-cross...
Saying at the end of the page re import scheme:
"Where the import OSS is not used, a second simplification mechanism will be available for imports. Import VAT will be collected from customers by the customs declarant (e.g. postal operator, courier firm, customs agents) which will pay it to the customs authorities via a monthly payment."

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Replying to Jason Croke:
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By abaccserv
04th Jan 2021 16:47

Jason Croke wrote:

abaccserv wrote:

A simple question I hope. I have an online seller supplying goods to the EU ( both business and individuals ) The goods to individuals rarely exceed £50 in value, does he continue to charge VAT to the individuals ?

B2C sales from UK to EU are now zero rated exports, so zero rated invoice to customer....however, when the goods arrive in the EU destination, the customer may find the parcel is held by their local customs/post office - they may get lucky and the product is delivered or if they are unlucky, they'll get a card from their post office asking them to pay import VAT on the goods before they can be delivered. A disclaimer on the website might be useful, along the lines of "customer is liable for import VAT" so that the customer knows the price they pay on the website might not be the final price.

From July 2021, the element of luck is removed, the UK online seller will be required to register for One Stop Shop (OSS), the UK supplier then charges VAT to the Eu consumer at whatever the prevailing VAT rate is in the consumers Country, so sell to a French consumer charge French VAT, sell to an Italian consumer, charge Italian VAT.

UK Supplier then files a single "OSS" VAT return, remits all the VAT charged and paid by the customer, the one return saves registering in every EU member state. UK supplier has to decide where they want to register for OSS, it can't be the UK, so perhaps Ireland or Malta (forms will be in English). If UK supplier registers for OSS in say Ireland, they file the OSS return and Ireland is responsible for distributing the various bits of VAT to France, Italy, etc.

So for now, zero rated and customer might/might not get stuck with import VAT, after July charge the local VAT rates where the customer is. This only applies to goods under £135. Note that the £135 is the package value, so if customer orders 3 things each costing £50 and shipped as one package then the 3 items will exceed the £135 threshold.

Thank you for the detailed reply, that is broadly the answer I had given with the exception of the OSS. I'll be honest I wasn't even aware of that, sounds like jolly good fun.

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By moneymanager
04th Jan 2021 17:06

"What to expect in tax"

There will be a lot of deckchair shuffling but the principle trajectory of the "Covid scare" is:

a) more, a lot more of both direct and indirect tax and especially related to assets e.g. unavoidable property charges like Council Tax then, after a period of some three to four years

b) nil, after ALL liquid and near liquid assets have been exhausted, the lessliquid will, that should really read "will be" crashed, quite deliberately

this renders all, everywhere, vassals of a tyrannical world government, you can take your pick from Orwell or Huxley, but Huxley's notion of people " willingly giving up their freedoms in order to be free" seems to be on the "vaccinate and you can fly" money.

Happy New Year? It can be but we have to want it enough.

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By TalkSense
05th Jan 2021 21:55

Thank you Rebecca for this very helpful, well thought out article.

More like this please Accountingweb

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