Angela Clegg outlines changes scheduled for April 2022 involving uncertain tax treatments, plastic packaging tax, residential property developer tax, MTD for VAT, trading licences, QAHCs, reliefs for the creative sector, tonnage tax, and national insurance.
We know that there will be a fiscal event on 23 March, but at the time of writing it is unclear whether this will be a Budget or a Spring Statement. Regardless of any changes this might bring, there are numerous measures already planned and legislated for.
Notification of uncertain tax treatment
From 1 April 2022, a new requirement will apply for large businesses to notify HMRC of any uncertain tax treatments they have adopted in their corporation tax, income tax (via self assessment or PAYE) and VAT returns. Large businesses are broadly defined as having UK turnover exceeding £200m and/or UK balance sheet total exceeding £2bn. More detail can be found in the November 2021 issue of TAXline.
There are two triggers that would cause a position to be classed as uncertain and require notification. These are:
- where a provision has been recognised in the accounts of the company or partnership to reflect the probability that a different tax treatment will be applied to a transaction to which the amount relates; or
- if the tax treatment applied in arriving at the amount relies (wholly or in part) on an interpretation or application of the law that is not in accordance with the way in which it is known that HMRC would interpret or apply the law.
Where the tax return concerned is an annual return (eg, a corporation tax return), the notification must be given on or before the date on which the return is required to be made. For non-annual returns (eg, VAT and PAYE returns) the notification date depends on the trigger. For criterion 1, the deadline for reporting will be on or before the last PAYE or VAT return following the financial year end in which the provision is recognised in the accounts. Where criterion 2 is in point, a notification is to be made on or before the date on which the last PAYE or VAT return for the financial year is required to be made.
Plastic packaging tax (PPT)
The UK PPT is to be introduced with effect from 1 April 2022. Businesses must register within 30 days of becoming liable to pay PPT (ie, by 30 April 2022 for those who are immediately within the scope of the regime). Finance Act 2021 (FA 2021) provides that a business needs to register for PPT if it manufactures and/or imports 10 tonnes of plastic packaging within the scope of the tax in a 12-month period. PPT in the UK is set at a rate of £200 per tonne of plastic packaging components that have less than 30% recycled content.
There are registration, record keeping, evidence and sampling requirements. Businesses need to ensure they have adequate evidence to support their filings, even where no tax is due. PwC’s specialist team discussed the issues involved in more detail in the December 2021 issue of TAXline.
HMRC will require quarterly returns providing information such as the quantities of taxable components manufactured or imported in the period, quantities of non-taxable components that meet the recycled content threshold, quantities of exempt components and details of taxable components on which the tax is deferred or an export credit is claimed. Clearly, significant due diligence is going to be required to meet these detailed compliance requirements and to keep abreast of HMRC’s evolving guidance.
Residential property developer tax
The Autumn Budget confirmed the introduction of a new tax on the largest residential property developers with effect from 1 April 2022. The rate of tax is 4%, with an annual developer’s allowance of £25m applied on a group basis. Build-to-rent developments are not in scope and certain types of housing are excluded, such as student accommodation and care homes. Similarly, some not-for-profit organisations such as housing associations will be exempt from charge.
Making Tax Digital (MTD) for VAT
MTD imposed new VAT reporting and record keeping requirements from April 2019. The requirements do not currently apply to VAT-registered businesses with taxable turnover below the VAT threshold (eg, those that have registered voluntarily). However, the requirements will be extended to all VAT-registered traders from April 2022. ICAEW’s MTD hub provides more information (icaew.com/MTD).
Tax checks on licence renewals
The concept of conditionality – making registration for tax a condition for renewing certain trading licences – has been mooted for a number of years. However, from 4 April 2022, tax checks will be a reality and will apply to the renewal of certain licences in England and Wales, including private hire vehicles and scrap metal collectors. A tax check will confirm applicants are registered for tax, if necessary.
First-time licence applicants will not be required to complete the check, but they will be directed to HMRC guidance around fulfilling their tax obligations. In subsequent years, applicants will have to obtain a tax check reference code, which they can get by submitting their details into HMRC’s online service (available from 7 March 2022). The licensing body will use this to confirm with HMRC that the applicant has completed a tax check. The licensing body will then reach a decision on the licence in the usual way.
Similar checks will apply in Scotland and Northern Ireland from April 2023.
New tax regime for qualifying asset holding companies (QAHCs)
From April 2022, those companies that meet the criteria to be a QAHC will be taxed differently to other UK companies. The new rules form part of a wider review of the UK funds regime in a bid to enhance the UK’s competitiveness as a location for asset management and investment funds. The ownership conditions required to qualify as a QAHC are complex. In simple terms, the QAHC needs to be owned by at least 70% ‘good’ investors – broadly funds or institutional investors.
The following are some of the key differences in how QAHCs are taxed:
- The requirement to withhold UK tax on interest is removed for QAHCs – originally this was only expected to apply to shareholder debt, but has been extended to any debt incurred by the QAHC.
- The rules provide an exemption from UK tax for non-UK real-estate disposals by a QAHC, and the exemption from tax on non-UK rental income. Historically, the lack of these exemptions has hindered the establishment of real-estate funds targeting non-UK investment in the UK.
- QAHCs can obtain tax deductions for interest on profit-linked loans – these would otherwise be treated as non-tax-deductible distributions.
- Despite being UK tax resident, to some extent profits repatriated by QAHCs may be eligible to be treated as non-UK situs for non-domiciled investment managers where some or all of the underlying investments are outside the UK.
- In most cases, any premium paid by a QAHC when it buys back its own shares will be treated as a repayment of capital rather than an income distribution in the hands of a UK investor.
- Simplification of the corporate interest restriction rules to make the deductibility of interest by QAHCs less complex.
Further details can be found in the January 2022 issue of TAXline.
Increase in reliefs for the creative sector
The Autumn Budget 2021 announced an immediate generous increase to the rates of cash tax credit that museums, galleries, theatres and orchestras may claim on qualifying expenditure. These measures are a much-needed boost for organisations badly hit by public closures during the pandemic.
In addition to the rate changes, there were some minor clarifications regarding the types of production that can qualify and changes to ensure that the reliefs that apply from April 2022 are better targeted.
Changes to creative sector reliefs were covered in more detail in the February 2022 issue of TAXline.
Tonnage tax reform
Tonnage tax is an alternative method of calculating corporation tax profits that qualifying shipping companies can elect to apply for a prescribed period. Under these rules, a set profit is deemed to be earned for tax purposes by each eligible ship operated by the company by reference to the net tonnage of the ship concerned.
The following are some of the reforms:
- Reducing the period in which an election is in force from 10 years to eight years.
- HMRC will be given the power to admit elections made outside the normal period allowed where there appears to be a good reason to do so.
- Complex flagging rules introduced in 2005 will be removed. Practically, this means that eligible companies will have more freedom to register their ships in other territories, but remain subject to the UK tonnage tax regime.
- Rules relating to the taxation of distributions from overseas shipping companies will be amended to remove reference to “control by companies resident in EU member states”. As such inter-company distributions are now generally exempt from tax, this change will have a practical impact in very limited circumstances.
Freeport national insurance contributions (NIC) relief
From 6 April 2022, employers operating in a freeport tax site will pay a 0% rate of class 1 employer’s NIC in relation to newly created jobs. This relief will apply to earnings up to a limit of £25,000 per annum paid to each qualifying employee during the first three years of their employment.
The NIC Bill 2021 sets out the detailed conditions that must apply to claim the relief. Broadly, these are:
- employees begin a new employment with a freeport employer on or after 6 April 2022 but no later than 5 April 2026; and
- the freeport employer reasonably expects them to spend at least 60% of their working time at a single freeport tax site in which the employer has business premises.
Earnings will not be eligible for freeport relief if the individual was previously employed by the freeport employer, or by a connected person, at any time during the two-year period that ends with the date on which the new freeport employment begins.
Increase in dividend and NIC rates
NIC and dividend tax rates will increase by 1.25 percentage points across the UK from April 2022. The extra NIC raised in 2022/23 is to support the NHS and equivalent bodies across the UK.
Coming to an end
In a bid to provide aid for struggling businesses, the government extended the period that trading losses could be carried back for tax relief purposes for relevant accounting periods ending between 1 April 2020 and 31 March 2022. From April 2022, this extension will no longer apply.
Most other COVID-19-related tax easements will also stop at the end of the 2021/22 tax year. This includes the various income tax exemptions that were brought in to facilitate working from home during the pandemic.
The Chancellor confirmed a series of tax freezes in the Spring Budget 2021. As planned, the income tax allowances and thresholds, capital gains tax annual exempt amount and inheritance tax nil rate band remain unchanged. Similarly, ISA, Junior ISA and Child Trust Fund allowances have not changed at £20,000, £9,000 and £9,000 respectively.
About the author
Angela Clegg, Business Tax Manager, Tax Faculty