What the new tax changes hold in store – a peek into the proposed Finance Act of 2019
The proposed Finance Act 2019 in its draft form, popularly known as the Finance Bill is out and has set to rest a lot of speculations. As usual the draft has resulted in some hailing the bill in its draft form, while others may not be so enthused – this entirely depends on its impact on individuals. However, there is some good news upfront – the draft bill has not introduced any laws on IR35 in the private sector. This was anticipated with apprehension, considering the ramifications of IR35 in the public sector. Here’s a quick look at some of the more important provisions that will impact taxes and benefits.
Tying more knots in Capital Gains Tax
Disposal of residential property that attracts CGT will now involve twice the paperwork than earlier, with a very small window for compliance. Residents of the UK who sell residential property will now have to submit a self assessment return to the HMRC, in addition to a CGT return within a 30 day period. Capital gains Tax will also need to re remitted within the 30 days of disposal. Only in situations where tax is not applicable will a CGT return not be mandatory. This will apply to instances where the individual accrues a loss from the disposal, or if relevant relief is applicable.
The good and the bad of Making Tax Digital
Under the proposed Act, late filing of income tax and VAT reports will attract a penalty, based on a points system. Tax payers who submit their MTD reports late will end up having to pay a penalty if the accumulated points cross a certain specified limit, which will vary across categories. As with all other provisions, the option of appeals will be extended to tax payers. This is the classic a carrot and stick policy – tax payers who comply with the deadlines after having failed to do so earlier, will get the benefit of the points abating after a period.
Surcharge replaced by interest on late payment of VAT
Businesses and civil organisations that pay Corporation Tax, ITSA and VAT will now have to pay simple interest on the due payment, from the date the payment was to be made till the date the payment was actually made. This will replace the surcharge system that has been in effect till now for VAT. It will now become similar to ITSA and Corporation Tax provisions where interest is calculated for late payments. Businesses that do not make payments on time will feel the pinch, and entities that act on behalf of taxpayers need to understand and explain the same to their clients.
Entrepreneurs’ Relief – on gains post-dilution of stake
This offers relief to founders of companies to obtain relief for gains after their stake has diluted below the threshold of 5%. In an effort to help entrepreneurs and businesses, the government has proposed that entrepreneur relief can be obtained even after shareholding dips below 5%, as a result of a new share issue for the purpose of mopping up investment. This will give founders the freedom to seek external investment to fuel the growth of enterprise. However, this mandates the need for taxpayers to educate clients on the need for choosing Elections A or B or both for this purpose. This relief can safely be assumed as one with a catch, that founders need to be fully aware of, when seeking relief.
Simplified benchmark scale rates and abolition of receipt checking
Employers need no longer check the bills of employees who claim subsistence allowance for work related travel. Employers will now only have to verify that the journey has actually been undertaken by the employee, as the receipt checking will be abolished when FA 2019 comes into force. This provision changes the concessionary accommodation and subsistence Overseas Scale Rates into a statutory basis, while dispensing with the need for receipts. This will certainly come as a huge relief, simplifying the process further.
While most of the other statutory provisions with regard to the period available to taxpayers and the HMRC are more or less the same, some provisions have changed. The Bill may undergo changes during the Budget or as a result of accepted representations during the consultation period. Subject to the passing of the bill next year, this will become the Financial Act of 2019. While this has implications for tax payers and businesses, it needs to be carefully understood and practiced by entities advising tax payers and businesses. The onus is on tax advisors to help tax payers understand the finer points and provisions of the proposed bill either in its present or future form.