March 2021 / United Kingdom

Following the 2021 Budget announcement, on 23 March 2021, the United Kingdom published a range of tax administration and policy updates. The aim of the new proposed tax administration and policy measures is to support wider improvements in the UK tax system and include, without being limited to, the following:

• digitalization of the tax system ("Making Tax Digital") through investment in digital infrastructure;
• reduction of inheritance tax reporting requirements through simplification of reporting regulations from January 2022;
• introduction of mandatory professional indemnity insurance for all tax advisers;
• enactment of measures against promoters of tax avoidance through closing down companies that promote avoidance schemes and disqualifying their directors;
• adoption of measures to ensure that taxpayers comply with their UK tax obligations regardless of where their income or gains are made ("No Safe Havens");
• review of business rates, including the overall level of tax, revaluations, administration and billing, and alternatives to business rates;
• technical updates to the UK pension tax rules;
• implementation of a UK Emissions Trading System to replace its participation in the EU Emissions Trading System;
• introduction of new rules to prevent value shifting value added tax (VAT);
• introduction of sanctions to prohibit tobacco duty evasion and the sale of illicit tobacco;
• update of the transfer pricing requirements for UK businesses; and
• extension of the social investment tax relief sunset provision until April 2023.

Further details can be accessed here.

The off-payroll working rules

The off-payroll working rules can apply if a worker (sometimes known as a contractor) provides their services through their own limited company or another type of intermediary to the client.

An intermediary will usually be the worker’s own personal service company, but could also be any of the following:

• a partnership
• a personal service company
• an individual

The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same Income Tax and National Insurance contributions as employees. These rules are sometimes known as ‘IR35’.

The client is the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer or end client. The client will be responsible for determining if the off-payroll working rules apply.

Who the rules apply to

You may be affected by these rules if you are:

• a worker who provides their services through their intermediary
• a client who receives services from a worker through their intermediary
• an agency providing workers’ services through their intermediary

If the rules apply, Income Tax and employee National Insurance contributions must be deducted from fees and paid to HMRC. In addition, employer National Insurance contributions and Apprenticeship Levy, if applicable, must also be paid to HMRC.

Employment status for tax purposes is whether a worker is employed or self-employed. It’s used to determine the taxes the worker and client need to pay.

When the rules apply

The rules apply if a worker provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly.

A contract for the purpose of the off-payroll working rules is a written, verbal or implied agreement between parties.

The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not.

Before 6 April 2021

If you’re a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.

If you’re a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.

From 6 April 2021

From 6 April 2021 the way the rules are applied will change.

All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.

If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.

Source: HM Revenue & Customs

On 18 March 2021, HM Revenue and Customs (HMRC) issued further guidance and examples for non-UK resident companies that are party to a derivative contract for the purpose of their UK property rental business.

In particular, profits and losses from derivative contracts used as part of the United Kingdom (UK) property business are treated in a similar way to loan relationships, meaning that the credit and debit amounts of a derivative contract are included in the calculation of the non-trading loan relationship profit or deficit for the period. In addition, non-UK resident companies carrying out UK property rental businesses may opt into the Disregard Regulations, and hence "disregard" fair value movements and instead bring these amounts into account in line with the hedged item. Further guidance and examples may be found here.

Until 5 April 2020, non-UK resident companies that carried on a UK property rental business were subject to UK income tax on profits of that business at a rate of 20%. From 6 April 2020, this has changed and those companies have been instead subject to UK corporation tax on their profits (including profits from loans or derivative contracts that a non-UK company has entered into for the purpose of their UK property business) at a rate of 19%.

This measure formed part of the UK government's objective to align the UK tax treatment of UK and overseas investors in UK property, with the aim of reducing the incentive to hold property through offshore structures.

On 30 March 2021, HMRC published a manual providing guidance on the tax implications that can arise from transactions involving cryptoassets. The manual consists of the following sections:

• an introduction, where various definitions are provided, including, without being limited to, cryptoassets, distributed ledger technology, exchanges, public and private keys, and wallets;
• tax implications for individuals, where clarifications are provided on the circumstances under which individuals are liable to pay income tax or capital gains tax, as well as other taxes, such as inheritance tax; and
• tax implications for businesses, where clarifications are provided on how HM Revenue and Customs (HMRC) will tax transactions that involve businesses and companies (including sole traders or partnerships).

HMRC clarifies that, as the underlying technology and the areas in which cryptoassets are used continues to develop, the specific facts of each case will need to be established before applying the relevant tax provisions, while the views expressed in the manual may evolve further.