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What lies beneath the Chancellor’s 2021 Budget? TaxationWeb’s Lee Sharpe at the main points to come out of the Budget Speech… and the woodwork.

Introduction

Having spent roughly the last twelve months desperately shaking the self-same magical money tree whose very existence his predecessors spent years (if not careers) denying, some of the figures set out by the Chancellor are now so large that they make sense mathematically but nevertheless don’t… quite… compute. I may need a bigger calculator. Or at least one that works. More on that later.

In terms of the Budget announcements, as we have come to expect of government of late, much of the more juicy stuff was leaked to friendly news outlets in the preceding few days. Evidence that a leetle more such market analysis may have been in order could, perhaps, be found in the tumbleweed-heavy silence that met the Chancellor’s expectant pause for applause when he announced the government’s plans for free ports. Maybe his colleagues and compatriots missed their cue – he’d certainly primed them by highlighting that the measure would have been impossible but for our divorce from the EU, which would normally excite some sectors of the audience – alas, maybe it was all a bit too much. Or maybe they were wary of inviting the wrath of constituent importers and exporters contending with the car crash wrapped in a train wreck, liberally seasoned with a meteor strike, that is the cross-border movement of goods right now. (And forever more, amen).

Documents are as follows:

Chancellor’s Budget Speech

Budget 2021 Red Book

General Budget Documents

Overview Of Tax Legislation And Rates (OOTLAR)

Budget Tax Documents including separate Tax Information and Impact Notes (TIINs)

The government appears to have given up on trying to put these papers into a single manageable .pdf document, presumably because it’s hard (and of course it’s harder to change, when you think nobody’s looking).

Reference are to the OOTLAR unless noted as Red Book (“RB”)

WHATEVER IT TAKES (PANDEMIC MEASURES)

Keen to prove Rishi’s the man who can in a crisis, further pandemic emergency measures have been confirmed / announced, as follows:

Coronavirus Job Retention Scheme (CJRS) to be retained for a further 5 months to the end of September 2021 (RB 2.14)

The details appear to be as follows:

Note that it seems likely that the Chancellor is banking on the government’s contribution by September being quite low, as more and more businesses are able to open / function as normal.

Self-Employed Income Support Scheme (SEISS) also extended (RB 2.15, 2.16)

4^th SEISS Grant – worth 80% of 3 months’ worth of average trading profits, and claimable from late April. It seems claimants will have to have filed a 2019/20 tax return. Of course the first 3 SEISS grants were based on taxpayers’ 2018/19 results, thereby excluding a claim from those who had commenced in 2019/20.  This will now mean that people who started self-employment in 2019/20 (and have already filed a tax return) will also now be in a position to claim. The number of potentially eligible claimants is apparently expected to rise by more than 600,000.

While we await further details, the inference is that average results will now be based, at least partly, on 2019/20 self-employment pages. This may in turn mean that some traders’ average profits will have ‘started’ to fall, in response to the start of the pandemic early last (calendar) year, but much will depend on the basis period adopted for the 2019/20 tax return. The award will be 80% of the average of 3 months’ trading profits, capped at £7,500.

5^th SEISS Grant – the grant will be split according to a turnover test – presumably comparing the 2019/20 results, as returned to HMRC, with current results?

• Individual traders whose turnover has fallen by 30% or more will be eligible for a further “full” award of 80% of 3 months’ worth of trading profits, capped at £7,500
• Individual traders whose turnover has fallen by less than 30% will get an amount of 30% of 3 months’ worth of trading profits, capped at £2,850 (NB 3/8ths of £7,500 is £2,812.50 but it’s presumably rounded up to the nearest £50)

This final grant will be claimable from late July and further details will follow, but will presumably require some more detailed self-certification than in the past. Note that the maximum award is meant to cover a period of 5 months, despite remaining pegged at 3 months’ worth of average profits. As with the CJRS, the Chancellor’s rationale may be explained by a hope that more businesses will be more active /profitable by September.

Two further developments with regard to the SEISS:

(1.12) Finance Bill 2021 will update the legislation to ensure that grants received on or after 6 April 2021 will be treated in the year of receipt. Partnership claims aside, the current legislation simply says that all SEISS payments are taxable in 2020/21, which in theory meant that you would be taxed on the 4^th and 5^th SEISS grants the year before you actually received them (FA 2020 Sch 16 Para 3(3)). The change in the legislation will mean that SEISS received in late April 2021 and July 2021 will be taxable as trading income of 2021/22. The exception in the case of a payment made to a partner distributed among the partnership will be unchanged.

(1.13) The legislation will also be updated to facilitate HMRC’s recovery of SEISS grants for which the claimant was eligible at the time, but subsequently prove not to be, or to be excessive.

Restart Grants (RB 2.43)

Following on from the business rates-based grants scheme that ends in March 2021, there will be a fresh round called “Restart Grants” in April 2021:

• Up to £6,000 per premises for non-essential retail businesses
• Up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses

Recovery Loan Scheme (RB 2.42)

A new scheme with government backing of 80% against loans between £25,000 and £10million, available to all businesses of any size (including those that have already benefitted from the ‘original’ coronavirus loan offerings)

Business Rates Reliefs (RB 2.47)

Eligible retail, hospitality and leisure properties in England will continue to benefit from 100% business rates relief for the 3 months from 1 April 2021 to 30 June 2021.

This will be followed by 66% business rates relief for the 9 months from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties.

Nurseries will also qualify for relief in the same way as other eligible properties.

There will also be provision for businesses to get tax relief on any repayments of business rates relief received, so that they are no worse off than if they had paid the higher amount of business rates in the first place. This will apply across the UK (RB 2.49)

(1.40) Reduced VAT Rate for Tourism and Hospitality to Continue

Hospitality, hotel/holiday accommodation and attractions admission charges will continue to benefit from reduced rate(s):

• 5% for the first 6 months to 30 September 2021
• 12.5% for the next 6 months 1 October 2021 to 31 March 2022

Following which, it will revert to the standard rate. The Flat Rate Scheme will be tweaked so as effectively to accommodate the new 12.5% rate.

(1.56) Stamp Duty Land Tax (SDLT) Holiday Extended

The residential property nil rate band for properties in England and Northern Ireland will be:

• Held at £500,000 for a further 3 months from 1 April 2021 through to 30 June 2021
• Temporarily stepped down to £250,000 for the next 3 months from 1 July 2021 to 30 September 2021 (note that First Time Buyer Relief will not be disapplied during this period)
• Revert to the standard £125,000 from 1 October 2021

Mortgage Guarantee Scheme (RB 2.25)

The government will introduce a new mortgage guarantee scheme in April 2021, that will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5% on homes with a value of up to £600,000. Under the scheme, all buyers will have the opportunity to fix their initial mortgage rate for at least five years if they wish. The scheme, which will be available for new mortgages up to 31 December 2022, will increase the availability of mortgages on new or existing properties for those with small deposits.

The cynic in me wonders if the limit could/would have been just £500,000 before the SDLT ‘holiday’ above pushed demand – and prices – through the proverbial roof.

Other “Housekeeping Measures” Dealing with the Pandemic

(2.4) Temporary Income Tax exemption / NICs disregard for the employer reimbursement of the cost of relevant home office equipment will be extended to 5 April 2022.

(1.13) Retrospective 2020/21 Income Tax exemption for employer reimbursement of COVID-19 antigen test

(1.14) Extension of the Income Tax exemption / NICs disregard for employer-provided (and now employer-reimbursed) COVID-19 antigen tests for 2021/22

Note the antigen tests are to test for “live” virus, while antibody tests (which are not covered in these provisions) are to see if someone has previously had the virus. The immediacy of the “live” test effectively clears someone to work at a given point in time. That’s my Biology “O” Level working overtime.

Universal Credit – temporary £20 per week enhancement to be retained for a further 6 months, to September 2021 (RB 2.19). Other easements for UC and Working Tax Credit have also been provided.

Apprenticeships in England - The government will extend and increase the payments made to employers in England who hire new apprentices, for the 6 months to 30 September 2021, at £3,000 per new hire. This is in addition to the existing £1,000 payment the government provides for all new 16-18 year-old apprentices and those aged under 25 with an Education, Health and Care Plan, where that applies (RB 2.30)

NB for Corporation Tax Changes and Trading Loss Reliefs Temporary Extensions - See “Back to the Future Parts 1 & 2” below for further details.

CONSULTATIONS AND (RELATIVELY) FRESH DEVELOPMENTS

(1.33) Capital Allowances “Super-Deduction” – Qualifying investments in eligible brand new plant and machinery – but only by companies – will get:

• 130% relief if a main-rate asset, or
• 50% relief if a special-rate asset

Covers expenditure incurred from 1 April 2021 and before 1 April 2023, but not contracts entered into before Budget Day, 3 March 2021; also, further conditions will apply to credit sales / Hire Purchase-type arrangements. The measure is supposed to encourage “cash-rich” companies to invest in plant capital, ahead of the introduction of the new 25% CT rate, so the special rate will need to be apportioned if the Accounting Period of expenditure straddles 1 April 2023 (as well as the qualifying expenditure having to be incurred prior to that date in the first place). There will also need to be special rules dealing with disposal values, as the proceeds adjustment would otherwise be limited (simply) to 100% of the original cost.

(1.34) There is also the extension to the temporarily-increased £1million Annual Investment Allowance, to 31 December 2021, in recognition of the fact that many businesses hoping to have made qualifying investments within the original window (up to 31 December 2020) may have been stymied by events beyond their control.

(2.18) Research & Development – The government will carry out a review of R&D tax reliefs, with a consultation published alongside the Budget. The review will consider all elements of the two R&D tax relief schemes, with the objective of ensuring the UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted.

(1.24) Preventing Abuse of R&D Relief for Small and Medium-Sized Enterprises – Meanwhile, for accounting periods beginning on or after 1 April 2021, the amount of SME payable R&D tax credit that a company can receive in any one year will be capped at £20,000 plus three times the company’s total PAYE and National Insurance contributions liability, in order to deter abuse. This £20,000 de minimis is new. Also, the company will seemingly be exempt from the cap if:

• Its employees are creating, preparing to create or managing Intellectual Property (IP) and
• It does not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons

(2.17) Enterprise Management Incentive (EMI) Schemes – a consultation alongside the Budget on whether and how to expand the current Enterprise Management Incentive scheme to ensure it offers effective support for high-growth companies seeking to recruit and retain key employees, and remains internationally competitive.

(1.29) Enterprise Management Incentive (EMI) Schemes – a time-limited exception to Working Time Arrangements, to help prevent withdrawal of EMI status just because employees have been furloughed in the pandemic.

Free Ports

Free ports have been announced for England at:

• East Midlands Airport
• Felixstowe and Harwich
• Humber
• Liverpool City Region
• Plymouth
• Solent
• Thames
• Teesside

Other sites may be designated free in the devolved nations

Free ports will include designated zones eligible for:

(1.35) Enhanced Structures and Buildings Allowance straight-line rate of 10% rather than the standard 3% (so long as brought into use on or before 30 September 2026)

(1.36) Enhanced Capital Allowances of 100% for expenditure incurred on or before 30 September 2026, on brand new plant and machinery for use within free port tax sites, but then subject to clawback if its primary use is outside a free port tax site within 5 years of acquisition or being brought into use.

(1.57) Stamp Duty Land Tax Relief for purchases made up to 30 September 2026 on land or property acquired for and used in “a qualifying commercial manner”, subject to a 3-year clawback period

Full Business Rates Relief for new businesses, and certain existing businesses where they expand onto the designated tax sites, up until 30 September 2026 (RB 2.115)

Employer NICs relief for people eligibly employed at a free port tax site from April 2022 (subject to parliamentary approval) up to at least April 2026 (and potentially a further 5 years to April 2031) (RB 2.115)

PAYING FOR IT ALL: BACK TO THE FUTURE (FREEZING BANDS, CORPORATION TAX AND LOSS RELIEF MEASURES)

Freeze! Everything!

“This government is not going to raise the rates of Income Tax, National Insurance, or VAT. Instead, our first step is to freeze personal tax thresholds.”

A lot of things have been frozen, so that fiscal drag will do much of the Chancellor’s dirty work for him, and mean that many people will end up paying more tax in the long run:

• (1.2) Personal Allowance will be increased to £12,570 from 2021/22 (in line with CPI as intended) and stay there up to and including 2025/26.
• Higher Rate Threshold will likewise increase to £50,270 from 2021/22 and stay there until 2025/26. (Note devolved administrations hold sway over the bands for earnings or, strictly, non-savings, non-dividend income). These measures combined are estimated to recoup almost £20billion by the end of 2025/26, according to Table 2.1 of the Budget Red Book
• The NIC Upper Earnings Limit and Upper Profits Limit will remain aligned with the Higher Rate Threshold throughout
• (2.76) CGT Annual Exemption will likewise be frozen at £12,300 until the end of 2025/26, saving a relatively modest £65million (although note the Chancellor made no promise as regards CGT rates, either).
• (1.6) IHT Nil Rate Band will remain at £325,000 up to and including 2025/26
• Likewise the Residence Nil Rate Band will remain at £175,000 until 2025/26; these measures should together yield a further c£1billion up to and including 2025/26
• (1.4) Pension Lifetime Allowance will rise to £1,073,100 for tax years 2021/22 and then the link to CPI will be negated for the next four years up to and including 2025/26, recovering a further £1billion to the end of 2025/26
• (2.6) VAT registration threshold will remain at £85,000 for a further 2 years up to 31 March 2024, and the de-registration limit will likewise remain at £83,000, resulting in a combined Treasury saving of £480million

Last time a Chancellor promised no tax rises like this, we found a couple of years down the line that our dividend income was suddenly… a lot more expensive. Thanks to increased tax on dividends. Presumably this Chancellor is cut from a different cloth. Certainly, the plan to freeze many tax thresholds is out and proud. Table 2 of the Red Book projects that these frozen thresholds, etc., will garner more than £20billion by the end of 2025/26. However, these are dwarfed by the yield expected from the rise in Corporation Tax Rates (below)

(1.20 / 1.22) Back to the Future Part 1 – Some New But Mostly Kind of Old CT Regime

Corporation Tax rates are set to increase (back) up to 25% from FY2023 (Fiscal Year commencing 1 April 2023). We last saw rates this high (well, 26% at least) in FY 2011.

The Chancellor will, however, protect modest profits by re-introducing a Small Profits Rate for CT of 19% - i.e., it will stay at 19% as now for companies making taxable profits of up to £50,000. This will not, however, apply to Close Investment-Holding Companies, as previously defined. Those Family Investment Companies that cannot lay claim to predominantly property business (rental) income will doubtless be hoping that this is a short-lived trip down memory lane. But they may well be disappointed.

We shall see the return of “associated companies” rules to prevent disaggregation of business profits between several companies under common control.

There will also be a marginal rate of Corporation Tax where profits fall between the Small Profits threshold of £50,000 and the Main Rate Threshold of £250,000. My hazy recollection of the corresponding formula puts this at a Marginal Rate of 26.5%. 

I understand that a significant number of small / family company owners have received comparatively little in the way of pandemic support so far. Asking them then to bear a 6% hike in Corporation Tax would probably have been received rather badly, so carving out some respite by keeping a lower Small Profits rate was probably a wise decision. But of course that small lower band could be reduced, or withdrawn, in time.

(1.23) Back to the Future Part 2 – Temporary Extension of Carry-Back of Trading Losses (Corporation Tax and Income Tax)

Similar to the last “once in a lifetime” global economic crisis measures introduced in FA 2009 s 23, Sch 6, Income Tax losses in either or both of the two tax years 2020/21 and 2021/22, and Corporation Tax losses in either or both of the two fiscal years ending 31 March 2022, may be carried back up to 3 years (i.e., 2 more than usual for an ongoing trade).

Unlike the paltry sums allowed in 2009, however, each year of loss can carry back losses of up to £2million, against Yr -2 / Yr -3 in aggregate (as usual, no restriction for losses carried back to the preceding Year’s loss Yr -1).

Of course losses will still be carried back to offset against most recent years first.

Where there is a group, then the £2million per year of loss cap applies to the group as a whole

Interestingly, for Corporation Tax:

• Losses are claimable against total profits
• If an earlier Accounting Period to which losses are being carried back is less than 12 months’ duration, there is no corresponding restriction of the overall cap.
• “Small” claims of up to £200,000 can be made outside of the return – including before a return for the period of loss has been submitted, so long as it is after the period of loss itself has ended and it can be quantified appropriately.

For Income Tax:

• There is no cap at the partnership level – so each individual can carry back up to £2million of losses from 2020/21 to 2018/19 and 2017/18 under this extension, (and similarly again for losses in 2021/22 but for 2019/20 and 2018/19)
• But this Income Tax loss extension applies to losses carried back against earlier profits of the same trade, not against general income, so actually it is conceivable that the standard “losses against general income of the current/previous tax year” route may be preferable, or prioritised, despite the corresponding restrictions for claims against general income (it seems this loss extension can be claimed alongside a standard claim against general income – albeit not to the same target year – or in the absence of such a claim, although further detail will be welcome)
• Relief against Class 4 NICs will also be available
• A claim may be made for losses from Furnished Holiday Accommodation
• There is no corresponding “small claim” route set out but a claim involving more than one year can be made outside of a Self Assessment tax return anyway.

See Extended Loss Carry Back for Businesses for further information

Brewster’s Millions: HMRC Shows You How to Lose £300+ Million Without Making a Song and Dance about it (or even a decent Film)

One might – with good reason – ask why I chose to include this measure in the “Paying for It All” section. That is because, in ways I cannot quite fathom, the Red Book forecasts at page 43 that this temporary increased flexibility in losses will result in a net yield of £100million to the Exchequer by the end of 2025/26 (maybe because more businesses will survive and claim losses at 19% now, but then pay more/higher rates of Corporation Tax in the long run..?) Interestingly, however, the corresponding Tax Information & Impact Notice (TIIN) published by HMRC suggests that the policy will have cost £220million by 2025/26. The difference appears to be attributable to the TIIN’s estimate that the Exchequer will lose £160million in 2024/25, rather than recover it, as per the Red Book. It must be said that the +£160million recovery in 2024/25 per the Red Book actually makes rather more sense here, given that the most significant outflows from the Exchequer must surely arise while the special loss regime is actually available, rather than a full 3 years after it has ended in 2024/25? 

We have noted previously – in this article and beyond – as to HMRC’s questionable proficiency with a calculator, but are we really at the point where £320million can get lost down the back of the proverbial sofa? I mean, there are fat fingers, and then there are thick skulls and dodgy spreadsheets. Of course, it is entirely possible – likely, even – that both forecasts will prove to be wrong. For now, suffice it to say that HMRC appears to have achieved - with minimal effort thanks to "going digital" - something that took Richard Pryor almost a month, over 30 years ago. And to think I had my doubts about HMRC and being able to pull off Making Tax Digital, and whether or not they could be trusted to mark their own homework when it came to supposedly narrowing the Tax Gap. (Yes, I know it was only $30million at first. Give it time.)

However, the £320million “difference of opinion” on whether temporarily extending losses helps or hinders actually does pale into insignificance, when compared to the fact that the increase in the Main Rate of Corporation Tax to 25% is calculated per Table 2.1 of the Red Book to accrue almost £48billion by the end of 2025/26 – an enormous sum. Note, in particular, that nowhere does it say that the increase in the Main Rate of CT is temporary.

More commentary on these projections towards the end of this article.

General Compliance Measures Supposedly Announced

1.68 Interest Harmonisation Across the Taxes and Penalties Reform for Late Returns / Payment – as long-trailed for a number of years now, a new regime will be introduced to complement the introduction of MTD for VAT (for all businesses) and MTD for Income Tax.

Late Submission Penalty

A fixed penalty of £200 for late filing on reaching a points threshold, depending on submission frequency (one point will accrue for each failure):

• Annually = 2 points
• Quarterly = 4 Points
• Monthly = 5 Points

A penalty point accrued will expire after 24 months, so long as the relevant points threshold is not reached. Otherwise, all points will expire when the taxpayer meets their filing obligations throughout the period:

• For annual returns, 24 months
• For quarterly returns, 12 months
• For monthly returns, 6 months

Late Payment Penalty

Comprises 2 components:

First Charge

 A second charge will also become payable from Day 31 and will accrue on a daily basis, based on amounts outstanding. As with the first charge, the taxpayer can agree a TTP arrangement with HMRC. The penalty will stop accruing from the date a TTP arrangement is agreed.

The taxpayer can claim a reasonable excuse against the imposition of points or penalties.

The TIIN forecasts a net increase in yield of more than £150million a year. Frankly, the rates of these proposed penalties are such that I shouldn’t be surprised if that proves a conservative estimate.

Finally, bear in mind that, based on the TIIN, you have to agree Time To Pay – with HMRC. So HMRC exercises power over both the imposition of penalties and Time To Pay. And HMRC has historically been very inconsistent in terms of its approach to granting such arrangements, such as if you’ve ever had one before, or defaulted, etc., etc. Approaching HMRC to ask for Time To Pay while HMRC knows that a substantial penalty will be due if it refuses, seems highly inappropriate.

2.15 New Powers to Tackle Electronic Sales Suppression

The government will make new offences for the possession, manufacture, distribution and promotion of electronic sales suppression software and hardware.

There will also be electronic sales suppression-specific information powers allowing HMRC investigators to identify developers and suppliers in the electronic sales suppression supply chain and to access software developers’ source code and the locations of code and data. Am I alone in wondering exactly what powers and relatively unusual, if not unique, sets of skills HMRC is intending to employ? It all sounds a bit James Bond at this stage.

While I don’t disagree that sales suppression of any kind is wrong, I find it ironic that HMRC has spent years lecturing everyone about the evils of cash-based businesses, and how going digital will pretty much save the world, only now to need even more powers to combat the presumably hitherto unforeseen fresh perils of a digital economy.  

1.64 Adopting OECD Reporting Rules for Digital Platforms

In a similar vein, the government will be introducing rules that will require digital platforms to send information about the income of their sellers to both HMRC and to the seller themselves, but not before January 2024.

This will supposedly help taxpayers in the sharing and gig economy get their tax right, and help HMRC to detect and tackle tax evasion when they do not. I trust that this new regime will apply only where there is actual taxable income. Because, obviously, what the world needs right now is a transaction levy if I offer to lend to Mrs. Miggins at No. 36 the use of my lawnmower for the afternoon. A consultation will take place in Summer 2021, where HMRC’s position on “sharing” will hopefully be clarified. And where someone will, hopefully, remind HMRC of the “money’s worth” principle, and that not all social interactions are, or should be, susceptible to a tax charge, no matter how much Hector the Inspector is all in a fluster over his reportedly diminishing tax base.

Investment in Compliance Activity

The Red Book also sets out that the government intends to invest a further £180million in 2021/22 for additional resources and new technology for HMRC, but expecting a yield of more than £1.6billion, primarily through recruiting additional compliance staff to increase its ability to target non-compliance through illicit financial flows, and continuing to fund compliance work on the loan charge, historic disguised remuneration cases and early intervention to encourage individuals to exit tax avoidance schemes. While this is interesting in itself, it appears to omit that the actual spend per Table 2.1 (see page 43) is over £1billion, with the aim of recovering around £2.2billion (see line 38). At least the government is consistent when it comes to calculations involving the loan charge: they never withstand more than passing scrutiny (RB 2.104)

Technical Updates

(1.63) Conditionality: Licensing in England and Wales – as trailed in Budget 2020, certain traders, such as taxi drivers and scrap metal dealers, will not be able to renew their licence with their respective Local Authority until they have been ‘cleared’ as compliant with HMRC. The latest TIIN merely refers to their having “an obligation to notify their chargeability to tax”, whereas last time I looked at the draft legislation, I got the distinct impression that the government was gravitating towards requirements for returns to be filed and that the taxpayer provide “information about any relevant authorised activity income”. At this stage it is difficult to say if the TIIN is reflecting a newly-pared-back (reasonable) approach or is being economical with the truth.

(1.18) CGT Relief for Gifts of Business Assets – Panick ye not, this is merely to do with disapplying gift relief for disposals made by non-residents who control the company to which the business asset is being given. So far.

(1.58) The previously-announced 2% Surcharge on SDLT, for Purchases of Residential Property in England and Northern Ireland by non-residents, will go ahead from 1 April 2021 as planned. There is a pay now, reclaim later approach to non-residents who are in the process of becoming UK-resident. The definition of residents does not follow the Statutory Residence Test but is for SDLT purposes here. There is also provision for when married couples / civil partners are buying, and one is UK resident but the other is not.

(1.67) Amending HMRC’s Civil Information Powers to allow HMRC to issue a “Financial Institution Notice” to a bank or similar, requesting information about a named individual without requiring their permission or that of a tribunal. Ostensibly the measure is necessary so that HMRC can streamline its response to enquiries from other tax authorities but also happens to cover dealing with HMRC’s own tax debts. HMRC is supposed to be reporting annually on its use of these new measures.

(1.62) Follower Notices and Penalties - the government will legislate in Finance Bill 2021 to change the penalties that may be charged to people receiving Follower Notices as a result of using avoidance schemes. The rate of penalty will be reduced from 50% to 30% of the tax in dispute, but a further penalty of 20% will be charged if the tribunal decides that the recipient of a Follower Notice continued their litigation against HMRC’s decision on an unreasonable basis.

(1.50) Plastics Packaging Tax – will go ahead from 1 April 2022, broadly at the rate of £200 per tonne of any plastics packaging that contains less than 30% recycled plastics content. However, small-scale importers (less than 10 tonnes of packaging) will be exempted.

(1.11) Income Tax Exemption for Financial Support Payments to Potential Victims of Modern Slavery and Human Trafficking. Astonishing that these were not made exempt at the outset.

THINGS NOTABLE BY THEIR ABSENCE

Brexit If you’d have told me that the first Budget after formally/fully/finally leaving the EU would not actually mention the word “Brexit” – not even once – then I’d have probably tried to sell you a magic money tree. The Chancellor did of course claim the foundation of free ports as an opportunity open only now that we have left the EU but, clearly, all of our current financial and economic woes are down to the pandemic, stupid. It’s almost as if the issue of Brexit were taboo, and not an issue whose legacy will probably outlast the pandemic by decades. Maybe the Chancellor’s colleagues were so quiet about congratulating the Chancellor on his free ports announcement, as noted above, because they figured that even acknowledging our exit from the EU indirectly was covered by the Brexit omerta. (Or maybe it was because they knew that the EU already has nearly a hundred of them, so making 8 more is not really the ground-breaking achievement it was claimed to be).

CGT The Chancellor gave no reassurance that CGT rates would not rise. I should not be at all surprised if the Chancellor fully expects the Office of Tax Simplification’s Capital Gains Tax Review to result in tax rises, in the end, but… well, honesty can be a virtue, but too much honesty might taint the brand.

Green Homes Grant This was announced only last year in the teeth of the pandemic to reassure everyone of the government’s commitment to going green. There were more references to going green in the Budget Speech but nothing on the fact that the Grant has just been extended by a year to 31 March 2022. Of course the extension has proved necessary because of what I think economists refer to as a “supply-side issue” – the number of engineers registered under the Scheme to fit eligible installations is woefully inadequate (likewise, reportedly, the system for processing applications).

Loan Charge Mark will not permit me to comment as freely as I should like as regards the Loan Charge. Suffice it to say that HM Treasury’s and HMRC’s apparent conduct in relation to the Loan Charge is, in my opinion, astonishing. But not in a good way. As an aside, when I wrote last year that I could not but “wonder at Sir Morse’s confidence that having his support team seconded entirely from HMRC and HM Treasury did nothing to colour his appreciation of the matters at hand”, I did not expect to read, a year later, that HM Treasury had apparently also done a remarkable job of picking the supposedly independent expert witnesses. The remarks I made are not repeatable in such a genteel publication as this.

High Income Child Benefit Charge (HICBC) The HICBC is an abomination whose mechanism in the detail was devised by someone clearly more comfortable with the rules for clawing back benefits than they were with the concept of independent taxation. It was conceived of by a previous Chancellor out of spite, I think, when his original proposals were rejected as unworkable. (I fancy it may have been considered a challenge – i.e.: “Unworkable? I’ll show you unworkable”). We are where we are. But where we are is with a Higher Rate Threshold now at £50,270 and a starting threshold for the clawback of Child Benefit still at £50,000. And nobody at HM’s Treasury or Revenue & Customs appears to stand possessed of the requisite scintilla of apprehension to join those dots. From memory, the legislation would be very straight forward to adjust. Imagine how much more straightforward it would be for taxpayers to understand, and to accommodate. And how much easier it would then be for countless people to avoid unnecessary penalties – ah, OK, silly me.

Conclusion: “Unpopular but Honest”? Back to the Future (Again)

In his Budget Speech, the Chancellor said, “I recognise [these decisions] might not be popular. But they are honest.” I am not sure how decisions themselves can be honest, although I suppose that they could be honestly reported. I infer that the Chancellor meant that the impact of those decisions was being presented to the public in an honest manner.

A couple of points.

Waaay back in June 2010, a freshly-minted Chancellor of the Exchequer sought to persuade us that his “tough but fair” Emergency Budget would support an “enterprise-led recovery”, by incrementally reducing the rate of Corporation Tax by 4%, from 28% in 2011 to 24% in 2014, which would in due course work miracles for the UK economy, as it would serve to increase the country’s overall competitiveness and Gross Domestic Product by attracting more companies to the UK (at least, I think that was the long-term logic espoused at the time). The loss of tax revenues directly attributable to this measure would be a mere £2.7billion per year, by 2014/15. Again: the government reckoned in 2016 that a 4% reduction in the main rate of Corporation Tax would result in a direct loss to the Exchequer of just £2.7billion per year.

(Note that late 2010's Chancellor was rather less forthcoming at the time about his plans also to reduce the main rates of Capital Allowances afforded businesses that were investing in plant and machinery, etc., to 18% and 8%, as that would have been quite difficult to explain, when claiming that businesses would enjoy much lower costs of investment. To be clear, this measure was “costed” separately in the Budget, and was not factored into the projected annual tax revenue forfeit to reducing the main rate of Corporation Tax by 4%, as above. More on encouraging capital investment – or not – later below.)

Next, in his 2011 Budget, that same Chancellor pledged to reduce Corporation Tax rates by a further 1% per annum to 23% – an overall reduction of 5% by 2014/15 - which would cost the Exchequer a further £1billion per annum by 2014/15.

Then, in his 2012 Budget, that same Chancellor announced he would reduce Corporation tax rates by a further 1% to 22% per annum – an overall reduction of 6% from 2014/15 – at a further cost of £820million in 2014/15.

To summarise, reducing the main rate of Corporation Tax from 28% in 2010/11 to 22% in 2014/15 – a fall of 6% – was forecast to cost the Exchequer just £4.5 billion per year, in aggregate, from 2014/15 (actually, it works out quite a bit less than this, if one looks at the aggregate revised figures in the 2012 Budget).

Yet, strangely, increasing the main rate of Corporation Tax from 19% to 25% in 2023/24 - yes, an increase of 6% - will yield more than £16billion in 2024/25?

I do not think that our economy has almost quadrupled in size since 2014/15 – far from it. Rather, I think the latest Chancellor’s obvious volte face has revealed some major flaws – or significant inconsistencies, at the very least – in methodology adopted over the last few years, ‘twixt Mr. Sunak and his recent predecessors.

As regards which of either the current or previous forecasts is “more right”, I would draw your attention to an article from July 2016 – When in Doubt, Stop Digging – in which we highlighted a then-recent United Nations Report, which said of the UK’s tax policy:

“The Committee is concerned about the adverse impact that recent changes to the fiscal policy in the [UK], such as the increase to the inheritance tax limit and to the Value Added Tax, as well as the gradual reduction of the tax on corporate incomes, are having on the ability of the State party to address persistent social inequality and to collect sufficient resources…” (emphasis added)

It is worth pointing out that, by the time of that Report, the same Chancellor had used the 2012 Autumn Statement, the 2013 Budget and the 2015 Summer Budget to further reduce the headline Corporation Tax rate to just 19% and, broadly at the time of the UN Report itself, was openly mooting a reduction in Corporation Tax rates to 15% - or even less.

It is also worth pointing out that, while Corporation Tax receipts might seem to have risen significantly in the last few years or so, in fact they have only recently come close to their pre-Global Financial Recession peak of 2007/08, after adjusting for the significant inflation we have experienced since. Likewise, broadly, (and generously), as a proportion of total tax receipts.

We’ve Never Tried This Before …or Have We..?

The current Chancellor has tried to suggest that we are contemplating something entirely new, in terms of using enhanced tax relief to encourage capital investment in plant and machinery. Anyone who has been advising on tax for longer than the last decade will know this claim to be… somewhat nicely targeted in its veracity.

While it may indeed be true that the UK tax regime has not previously adopted a 130% rate of relief from Corporation Tax on qualifying brand-new plant and machinery, (as noted above, the new measure applies only to companies), we have very much had:

• “Super-Deductions” from Corporation Tax – as for qualifying expenditure on Research and Development, and
• Much better incentives specifically for large-scale investments in plant and machinery than we have right now – First Year Allowances, and a meaningful annual rate of relief

Seen in the context of recent Chancellors’ war of attrition against tax relief for investment in plant and machinery, (aside from reductions already noted above, we have seen the withdrawal of the renewals basis from 2016, and the “special” rate for long-life assets, etc., further reduced to just 6%pa as recently as the 2018 Budget), this does not seem so much “entirely novel” as simply reversing a key trend in the last decade’s tax policy.

Stepping back a little further to take in the obvious about-face in terms of overall Corporation Tax rates, I suggest that we are not really looking at something new, so much as something very, very old. In dog years, at least. Plus ca change.