October 2021 Tax Update

Deadlines

Registration for self-assessment should have been done by 5 October 2021 for the tax year ending 5 April 2021. If you’ve not yet done this, there’s still time and as long as the return is filed and the tax paid by 31 January 2022 HMRC should not charge a penalty for late registration.

31 October 2021 – paper submission of self-assessment tax returns.

MTD for ITSA delayed

A second delay has been announced to the quarterly digital reporting for landlords and the self-employed which was due to come into force from April 2023.

In recognition of the challenges faced by many UK businesses over the course of the pandemic, and following stakeholder feedback, HMRC have released a statement that MTD for income tax self-assessment will now be introduced from April 2024.

General partnerships will not be required to join MTD for ITSA until April 2025 and other types of partnership at a yet to be announced later date.

This delay will also affect the introduction of the new penalty scheme for late filing and late payment of income tax which will now be introduced for those who are mandated for MTD for ITSA in the tax year beginning April 2024, and for all other income tax self-assessment customers from April 2025.

Residential Property Developer Tax

Residential Property Developer Tax

HMRC has launched a consultation on the residential property developer tax (RPDT), which is part of remediation for cladding removal. It is proposed that the tax will apply to accounting periods ending on or after 1 April 2022 (apportioned as necessary).

The RPDT will affect companies (not individuals or partnerships) that are within the charge to corporation tax and undertake UK residential property development activities.

Residential property development activities include dealing in residential property, designing it, seeking planning permission in relation to it, constructing or adapting it, marketing it, managing it and any activities ancillary to any of these other activities.

The draft legislation states that the tax will be charged on residential property developers with profits exceeding the developer’s allowance in a chargeable accounting period. The legislation does not yet state what the allowance threshold will be and it is anticipated that this is aimed at large companies although smaller companies may be brought within the regime as the allowance is divided by the number of companies within a group and prorated where the accounting period is less than a year. The rate of RPDT is yet to be announced.

The draft legislation also includes anti-forestalling measures using any arrangements entered on or after 29 April 2021 where the main purpose is to secure a tax advantage.

The consultation period ends on 15 October 2021.

Furlough

As furlough came to an end on 30 September, it has been announced that £1.3bn has been paid back to HMRC but businesses which had overclaimed or decided they no longer needed the support – likely because they performed better than expected during the pandemic.

The government has estimated that up to 10% of furlough claims have been made incorrectly, with fraud suspected to make up a significant proportion. HMRC is cracking down on those who fraudulently claimed furlough through a taskforce team of 1,250 tax investigators. It is reported that HMRC are undertaking around 30,000 compliance checks which will only increase with the hope of recovering over £1bn of mistakenly claimed furlough money over the next two years.

If businesses do discover an error, it is prudent for them to make a voluntary disclosure as soon as possible in order to mitigate the penalty position. Particularly as the CJRS legislation indicates that any inaccuracy can be treated as deliberate and concealed (a maximum penalty of 100% of the potential lost revenue).

Let Property Disclosures

Let Property Disclosures

The number of disclosures by overseas landlords fell by approximately 36% in the last year, from 390 to 248. The disclosures of underpaid tax were made to HMRC via its let property campaign under which HMRC may send out warning letters (prompted disclosure) or the taxpayer may notify HMRC that they have undeclared rental income (voluntary disclosure). In either case the individual has 90 days to calculate the rental profits and the tax thereon.

Failure to declare and pay the tax may result in a full investigation by HMRC who are becoming increasingly effective at identifying landlords who are not paying the correct amount of tax on their rental income.

HMRC uses various global data sharing initiatives to obtain bank statements for foreign bank accounts used by overseas landlords. It also reviews data from tenancy deposit schemes, land registry and the electoral register to cross-reference landlords against those declaring rental income.

The let property campaign can be used by UK residents or non-UK residents to notify HMRC that they have undeclared rental income. The penalties for deliberately concealing UK income can be 100% although reductions are normally given for making a unprompted disclosure, assisting HMRC with the calculation of the tax, providing access to requested information, and doing with in a timely manner.

If you would like to discuss any concerns you have in this regard please do not hesitate to contact us.

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