MTD 2.0
In addition to the eight policy papers, the government has released draft regulations which provide the operational machinery of Making Tax Digital for income tax and for VAT.
This is in spite of the fact there has been no comprehensive consultation paper on MTD for VAT, or MTD for complex businesses – which covers large partnerships and all companies.
The six MTD consultation papers which were released in August 2016, focused on small unincorporated businesses and only mentioned VAT as a side issue. The full ramifications of end-to-end digital reporting for VAT have not been fully explained to, or discussed by, the businesses which will be affected.
Eight tax changes
I have briefly described below the issues at the core of each of these policy changes, further detail and how to respond can be found in the policy documents.
If you have views on any of these policy areas, do respond to HMRC, or send your comments to your professional body who will make representations on your behalf. The changes in the area of partnership taxation will be of particular interest to the larger accountancy firms.
Termination payments
The rules on termination payments are to be tightened up with effect from 6 April 2018, in particular the £30,000 cap will apply to NIC as well as for income tax.
The draft law for the revised termination payments exemptions is published as clause 5 of the second Finance Bill 2017 (which will become F(no.2)A 2017).
But its seems the legislation drafter needed a bite at restricting termination pay exemptions. The unlimited relief for foreign service is to be removed from 6 April 2018, although it will be retained for seafarers.
Disguised remuneration
The new tax charge (loan charge) on contractors loans, which are not fully repaid by 5 April 2019, is introduced by the second Fi Bill 2017, Sch 11. But this policy paper announces changes to that law, which in general strengthen HMRC’s hand against the taxpayer. The changes include:
- A new close company 'gateway' to the tax charge to catch the owners of close companies, to ensure the tax charge doesn’t rest on the company which may then be liquidated.
- Genuine commercial arrangements which don’t have a tax avoidance purpose will not be caught by the loan charge.
- Where the loan could be caught by the loan charge and also by corporation tax charge for loans to participators in close companies, only the loan charge will apply.
- Requirements for the taxpayer and others to provide information to HMRC for the purposes of calculating the loan charge.
Partnership taxation
This is policy change is presented as a clarification of the tax treatment of partners, including partners who are themselves trustees or other partnerships. The main change is that partnership profits will have to be allocated for tax purposes in the same ratio as the commercial profits. Also, a new dispute mechanism will be introduced to resolve disagreements about the allocation of taxable profits between partners, which was the issue at the heart of Morgan & Self v HMRC (TC00046).
Pensions registration