Insights

The government has launched new proposals to effectively bring forward the future payment of taxes for millions of individuals and small businesses from 2024. This is all part of its future vision for a real-time tax system, rather than tax being paid in arrears.

From a revenue protection and collection point of view, real-time tax is a far better and safer arrangement for the government. It has now paid out billions of pounds in support payments and grants to UK taxpayers as a result of Covid and needs to re-balance the books. Paying tax in arrears is far more likely to result in losses occurring as people default. At the moment this proposal is just at the consultation stage and although not definite, real-time tax payment is very likely to be introduced in the not too distant future.

Real-time payments for self-assessment and corporation tax

Although it will be some time before it impacts taxpayers it is worth being aware of what is on the horizon. If these proposals do come into effect, they will apply to self-assessment personal tax and corporation tax initially. Almost every country in Europe is introducing real-time tax payments and busines owners in the UK will already be familiar with real time VAT (Making Tax Digital for VAT). There are other regimes operating elsewhere in Europe.

The UK capital gains tax regime has already been amended to reflect the wider move towards real-time payment. Currently, when a residential property is sold and capital gains tax is payable, that tax due must be paid in full, and the appropriate tax return filed, no later than 30 days after the transaction.

A helping hand for cashflow

The government is suggesting that by bringing forward the payment of income tax self- assessment and corporation tax for small companies, it will be helping them manage their cash flow more easily. However, when the change is first introduced, it could create a cash flow problem, because two years’ worth of tax is likely to be due in a single year.

In addition to these changes, the Treasury has confirmed plans to introduce further anti avoidance measures to reduce the tax gap. This will include closing down tax avoidance schemes and their promoters, plus freezing the assets of those involved to ensure their taxes are paid in full.

Business rates loophole for holiday homes to close

A range of other tax avoidance measures were announced that will close the many loopholes in existence that are used by taxpayers. One example is the avoidance of council tax payments by second homeowners. Currently it is possible to register for business rates on a second property on the basis that it is a furnished holiday let, and yet not consistently be renting it out to satisfy the necessary requirements.  According to the Treasury there are 60,000 holiday homes registered to pay business rates in England and only 4% actually qualify to do so. Following this consultation, holiday homeowners will only qualify for business rates relief if they are actually renting their properties on a commercial basis for a minimum period.

IHT rule simplification

The government has also confirmed its intention to simplify the inheritance tax rules for smaller estates. From 1 January 2022, HMRC’s standard inheritance tax forms will no longer be required for estates that are under the current IHT nil rate band threshold of £325,000 per person or £650,000 for a married couple. In addition, a printed signature will be permanently acceptable on IHT returns.

If you would like practical tax advice on any matter relating to your business or personal affairs, please contact partners@rjp.co.uk.