MHA | Simplification and modernisation of the UK Tax system

Simplification and modernisation of the UK Tax system

Posted on: May 24th 2023 · read

Cars driving around a bend

In late April the Government announced its technical tax policy proposals to aid the simplification and modernisation of the tax system, as well as tackle non-compliance and make the system fairer for taxpayers and better for traders. Whilst many of the proposals will not directly impact the Not for Profit sector, listed below are details of several which might:

1. Charities tax compliance consultation

A consultation with the Charity sector has also been launched to tackle non-compliance and thus protect the integrity of the sector. Many charities are able to benefit from tax relief if certain rules are met, however the Government acknowledges that many of these rules aren’t working as intended.

The consultation is inviting views on:

  • Tainted charity donations
  • Approved charitable investments
  • Non-charitable expenditure
  • Charity filing obligations

2. Off-payroll working consultation

The Government is considering a potential legislative change regarding off-payroll working rules.

HMRC is aware that issues can arise when off-payroll workers are not correctly processed through a charity’s payroll. This issue arises when both the charity make the correction and pay over the underpaid PAYE as the deemed employer as well as the worker and their personal service company also making tax and National Insurance contributions (NICs) on the same income. The consultation seeks input on a potential change to the rules to allow HMRC to set-off the tax and NICs already paid against the PAYE liability, resulting in a more equitable distribution of the cost of the worker’s tax liability. 

The Government has launched a technical consultation to understand how the proposed changes would impact the various parties effected. The consultation ends on 22 June 2023.

3. Gift Aid

The Government have committed to continue working with charities to improve the way that Gift Aid works and look at ways the administrative burden can be minimised through the use of digital technology.

4. Transfer pricing

The government will publish a consultation in May on simplifying and updating transfer pricing legislation, ensuring its application is clear and that outcomes remain consistent with underlying policy intention, international standards and the UK’s bilateral treaties.

As well as proposals for future changes, some changes have already been made, such as the simplification of end-of-year Retail Gift Aid letters. End-of-year letters to donors are a compulsory part of operating a Retail Gift Aid scheme using a ‘non-standard’ method (i.e. Methods A or B), however an end-of-year letter is only required where donations in a given year are above £20 or every three years as long as this is part of the retail Gift Aid terms and conditions agreed by the donor.

The new HMRC template represents a substantial simplification:

  • It provides a single figure covering the total Gift Aid claimed compared to up to 12 figures in the old letter.
  • The length of the mandatory content has been reduced significantly.
  • Around half of the mandatory content can be provided on the reverse of a printed letter or at the bottom of an email as additional information.
  • For 2023, HMRC has indicated that it is content for either the new template or old template letter to be sent, but the new letter will be compulsory from next year.

Dialogue continues between HMRC and sector representatives including the Charity Tax Group and Charity Retail Association in relation to simplifying the full suite of retail Gift Aid template letters, which should be in place for 2024.

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