September 2021 / United Kingdom

During his speech in the House of Commons taking place on 7 September 2021, the United Kingdom (UK) Prime Minister, Boris Johnson, announced the country's plan ("Building Back Better") to financially support social care and the UK's National Health Service (NHS), in light of the adverse effects of the ongoing COVID-19 pandemic. The plan consists of the following tax measures:

• a 1.25% increase in Class 1 (i.e. employee) and Class 4 (i.e. self-employed, including partners) national insurance contributions (NICs), applying to the main and higher rates; and
• a 1.25% increase in dividend income tax rates.

The aforementioned increases will take effect as from April 2022.

According to an illustrative impact modelling assessment effectuated by the HM Treasury and presented in a policy paper published today, the Building Back Better plan will result in:

• lower-income households being the large net beneficiaries, with the poorest households gaining the most (as a proportion of income);
• the 20% highest income households contributing more than 40 times what the 20% lowest income households will have contributed; and
• over 1/3 of the overall tax increases (and over 1/2 of the increase in dividend income tax rates) coming from the top 10% of the UK households, with the majority coming from the top 20% of UK households.

The UK and Switzerland have signed a landmark agreement which will benefit citizens who live and work abroad in either country.

• UK and Switzerland deal will ensure citizens living or working in either country can receive healthcare and an uprated state pension
• UK and Swiss citizens will have access to necessary healthcare when visiting either country

The UK and Switzerland signed a landmark agreement today which will benefit citizens who live and work abroad in either country by ensuring they are able to receive healthcare cover and uprated state pensions, amongst other social security entitlements. It will also allow eligible individuals travelling to either country to access necessary healthcare when abroad using a European Health Insurance Card (EHIC) or its UK successor, the Global Health Insurance Card (GHIC).

The Convention on Social Security Coordination, which benefits citizens of both countries also supports business and trade by ensuring that cross-border workers and their employers are only liable to pay social security contributions in one state at a time.

Foreign, Commonwealth and Development Office Minister, Nigel Adams who signed the agreement today said:

I am pleased to be able to sign the UK-Switzerland Convention on Social Security Coordination. This will help give people certainty over their future incomes, ensure our citizens can continue to receive reciprocal healthcare and support business and trade links between our two countries.

The agreement covers a wide range of social security benefits for eligible individuals. Those living abroad in either country will be able to receive healthcare, uprated pensions and other benefits. This includes healthcare cover for UK state pensioners, those exporting maternity allowance, and certain categories of cross-border workers.

The Convention will come into force later in the year.

Source: Foreign, Commonwealth & Development Office

   

The government is extending the requirement to operate Making Tax Digital (MTD) to the 4.2m taxpayers with business and/or property income over £10,000, including landlords, sole traders and partnerships, for their Income Tax obligations. These changes will apply to businesses, self-employed individuals and landlords who have profits chargeable to Income Tax and pay Class 4 National Insurance contributions (NICs).

General description of the measure

Making Tax Digital (MTD) is the first phase of the move towards a modern, digital tax service fit for the 21st century. It supports businesses through their digitalisation journey and provides a digital service that many have come to expect in their everyday lives. MTD and its extension forms a crucial building block in the government’s 10-year strategy, ‘Building a trusted, modern tax administration system’, published 21 July 2020, to make the tax system more resilient and effective, to boost business productivity, and better support taxpayers. The Government recognises the challenges faced by many UK businesses as the country emerges from the pandemic over the last year. In recognition of this and of stakeholder feedback, we will now be introducing MTD ITSA a year later, in April 2024 instead of April 2023. MTD ITSA builds on the successful introduction in April 2019 of MTD for those VAT-registered businesses with taxable turnover above the VAT threshold and will follow the introduction of MTD for VAT-registered businesses with turnover below the VAT threshold from April 2022. There is a growing body of evidence, from research and insights from taxpayers already operating MTD VAT, which demonstrates that MTD is securing a range of benefits for those that use it in practice. MTD users are reporting that preparing and submitting returns is easier, and that MTD has increased their confidence in managing tax affairs and using technology. Over a quarter of VAT-registered businesses below the VAT threshold have voluntarily chosen to join MTD VAT, demonstrating that a modern, digital approach to managing tax can work for businesses of every size. Many of these businesses will also have Income Tax obligations and will be keen to operate MTD ITSA. Under MTD, businesses must keep digital records and use third-party software to submit their tax returns to HM Revenue and Customs (HMRC). Under the changes, those mandated to use MTD ITSA will need to keep records of their income and expenditure digitally and send a quarterly summary of income and expenses, and an end of year report, using MTD compatible software (or applications). The software these businesses use must be MTD enabled, and capable of receiving information from HMRC digitally via HMRC’s Application Programming Interface (API) platform. More information can be found at Making Tax Digital (MTD) – Customer Costs and Benefits for the Next Phases of MTD where the impacts, costs and benefits to businesses and individuals of the next phases of MTD expansion (ITSA and VAT) together, set out in further detail.

Policy objective

MTD and its extension forms a crucial building block in the government’s 10-year strategy to make the tax system more resilient and effective, to boost business productivity, and support taxpayers. UK businesses and individuals are increasingly turning to digital tools and it is vital that the UK’s tax administration system keeps pace. MTD aims to help tackle the part of the tax gap caused by error and failure to take reasonable care, by removing opportunities to make certain types of mistakes in preparing and submitting tax returns. It does not change businesses’ tax liability or payment obligations, but reduces scope for error, and allows for better customer interaction and guidance through digital prompts and nudges. This in turn contributes to a reduction in the tax gap, supporting public services and levelling the playing field for businesses. The projected gains to the Exchequer resulting from MTD reflect the reduced scope for error. Businesses that move to real-time record keeping using accounting software may experience significant productivity benefits, as their software provides an up-to-date picture of their finances and may also provide additional functionality to integrate record keeping with other business processes. This can further reduce time spent on administration, allowing businesses to spend their time serving customers, innovating, growing and creating jobs. Businesses will therefore also save time through processes that help them get their taxes right first time and reduce the chances of time spent putting errors right at a later stage. Less time spent on tax administration has scope to cut stress and allow businesses to focus on their most pressing business priorities.

Background to the measure

Originally announced at Budget 2015, and following formal consultation in 2016, the first phase of MTD was implemented from April 2019. For VAT periods starting on or after 1 April 2019, VAT-registered businesses with a turnover above the VAT registration threshold have needed to keep their records digitally and provide their VAT return information to HMRC through MTD-compatible software. In July 2020, the government published ‘Building a trusted, modern tax administration system’, which set out a vision for the future of tax administration in the UK, designed to improve its resilience, effectiveness and support for taxpayers. A long-term strategy of focused, collaborative and transparent improvement of the tax administration system has the potential to yield huge benefits, both for individual taxpayers and businesses. It also contributes to the collective strength and resilience of the country as a whole. Extending MTD is a critical building block for this, with the expansion of mandatory MTD VAT from April 2022 and the introduction of mandatory MTD ITSA from April 2024, a year later than announced in July 2020.    

Following a statement made by the United Kingdom (UK) Chief BREXIT negotiator, David Frost, who announced the extension of the post-BREXIT "grace period" with respect to customs declaration requirements applying to goods entering Northern Ireland for an indefinite period, the European Commission (EC) highlighted the importance of the EU-UK Withdrawal Agreement as an international agreement. According to the EC, "the Protocol on Ireland/Northern Ireland (the Protocol) is an integral part of the Withdrawal Agreement, as well as the agreed solution between the UK and the EU to the problems caused by BREXIT for the island of Ireland. Both sides are legally bound to fulfil their obligations under the Agreement."

More specifically, the EC emphasized the fact that they will not agree with a renegotiation of the Protocol. Instead, the EC will continue working towards the achievement of stability, certainty and predictability, in order to protect the operation of the single market and to guarantee that businesses and citizens in Northern Ireland will reap the full benefits of the Protocol and, in particular, the access to the single market the Protocol provides.

Finally, the EC stated that they are not moving to the next stage of the infringement procedure launched in March 2021 nor will they open any new infringement procedures for now.

Note: Since 1 January 2021, the UK is a third country for customs duties and value added tax (VAT) purposes. However, the Protocol provides that the movement of goods between EU Member States and Northern Ireland will still qualify as intra-Community transactions. At the same time, the movement of goods between Northern Ireland and the rest of the UK will be considered as export and import transactions, requiring customs declaration formalities.