From the tax perspective, what was not said in the Queen’s speech was as significant as what was said.
Let's start with what we know. A National Insurance Contributions Bill will legislate for NIC changes announced in Budget 2016 and Autumn Statement 2016. We think these changes will relate mainly to the abolition of class 2 NIC and also to ‘disguised remuneration’. Documents published with the Queen's speech indicate that the March 2017 Budget proposal to reform class 4 NIC for the self-employed, which were abandoned as a result of protests, will not be reactivated. There will also be a Customs Bill to ensure that, after Brexit, the UK has stand-alone regimes for Customs and for VAT.
This takes us to the less certain areas. The legislative programme for this parliament will include three finance bills to implement Budget decisions. Following the pattern laid down by Chancellor of the Exchequer Philip Hammond, one of these is likely to be published in autumn 2017 with legislation which will come into force in April 2018. Similarly, as this is an extended session of Parliament, there will be another finance bill in autumn 2018, with provisions coming into force in April 2019.
This brings us to the third Finance Bill promised in the Queen's speech. This will be the Summer Finance Bill 2017 which could in principle be published relatively soon although we do not yet have a date for this. Nor do we know the content apart from a general statement that it will include a range of measures including those to tackle tax avoidance.
On 24 April, the government and opposition agreed to withdraw all the proposed changes to the taxation of non-domiciled individuals that were due to have taken effect from 6 April 2017. Regardless of whether one thinks that this legislation is a good or bad thing, it had been drafted after careful consideration and wide consultation. Given all of this work, the decision to withdraw the legislation after the date it was due to take effect came as a surprise to many.
It might be thought that withdrawing the legislation would be good news for non-doms, since the proposed new rules are stricter than the existing ones. In many cases, however, this will not be true. Because the new rules were due to apply from 6 April 2017, many non-doms have acted already based on the draft legislation, by selling assets relying on a new rebasing relief, and by bringing funds to the UK relying on a new cleansing relief. Both reliefs have currently been withdrawn, potentially creating large tax bills for the people who relied on them.
On the face of it, it would be a simple matter for the government to reinstate the draft legislation in full, and for it to be enacted with a commencement date of 6 April 2017. This would provide certainty to all concerned, and would reflect the way that many non-doms acted in good faith to prepare for the expected introduction of this new legislation. However, as the saying goes, that was then and this is now. It is not beyond the bounds of political possibility that other parties in Parliament might wish to reopen the debate on the non-dom legislation and change it, perhaps making it even tougher than it already is.
Making Tax Digital (MTD)
By contrast with the non-dom changes, MTD will affect most individuals and businesses in the UK. It’s in everybody’s interest that MTD should operate as intended. Compliance with the filing requirements of the tax system should be as simple and certain as possible for everybody. But that won’t happen if the project is rushed, if pilots are inadequate, if the software cannot cope.
Even before MTD is introduced, HMRC seems to have given up the battle to provide software which allows people to file their tax returns in accordance with the law of the land. The current online self-assessment filing software used by HMRC, and specified by HMRC for independent software houses, is known to be incorrect in certain circumstances. That means many people will this year not be able to file correct returns online. They will have to use paper instead. On its own, this would be bad enough. But against the background of the rush to implement MTD, it's little short of a national disgrace.
Despite concerns expressed by parliament in its last session, and notwithstanding some small concessions granted by the Chancellor of the Exchequer, we are concerned that MTD will be pushed through with both businesses and individuals suffering a botched introduction.
Ministerial fiat is not sufficient to guarantee success. Parliament must be given proper time to scrutinise the legislation which will underpin MTD. I still have a major concern that a much more radical overhaul of the taxes acts will be required to bring the machinery of tax administration up to date. We already know from many recent tribunal decisions that the legislation, and associated HMRC practices, is creaking under the strain of the existing system. In the debates on the Queen's speech, we therefore hope that MPs will challenge the ministers responsible for HMRC to explain why they are allowing inaccurate software to be used this year, and what they will do to guarantee that MTD will achieve its tax-raising objectives without imposing impossible and contradictory demands on businesses and individuals.
For more information please contact George Bull, or your usual RSM contact.