Following Lord Carter’s recommendations and consultation by HM Revenue & Customs (HMRC) and Companies House, the Government will work to provide a single online filing facility by 2010.
To encourage earlier filing and give businesses certainty sooner, from 2008 the period during which an enquiry can be opened into a corporation tax return will be tied, for most companies, to the actual date HMRC receives the return rather than a fixed filing date.
HMRC will review the impact of these changes.
Construction Industry Scheme
The new Construction Industry Scheme will be introduced on 6 April 2007. An increasing proportion of sub-contractors in the current scheme do not have their full tax and national insurance liabilities met by their deductions. To reduce the additional payments due after the end of the year, the new scheme will have a standard deduction rate of 20%.
To enable unregistered sub-contractors to start work sooner and encourage them to register, the higher deduction rate will be 30%.
The Government remains concerned about the tax-motivated incorporation of the self-employed, which involves businesses taking advantage of structural differences in the tax and national insurance contributions (NICs) treatment that applies to companies. The Government will therefore continue to review how the system could be modernised, made simpler, more efficient and more competitive.
Following consultation with businesses, the Government will bring forward changes in Finance Bill 2007 to clarify the VAT rules on business records when a business is sold as a going concern. The rules will be amended so that the seller will keep the business records in all but a few specified cases and the information that must be passed to the buyer will be set down in law. This simplification measure will help businesses to retain or acquire the records necessary to ensure compliance with their tax obligations without imposing additional complexity or cost.
Partial Exemption Special Method
A business that makes both taxable and exempt supplies (known as a partly exempt business) must operate a partial exemption method to calculate how much VAT it can recover on its costs. Many large partly exempt businesses operate a ‘tailor-made’ special method that must be approved by HMRC before use.
Following informal consultation with affected businesses, the Government will introduce from 1 April 2007 changes to the VAT rules that allow partly exempt businesses to use bespoke calculation methods to agree how much VAT they can recover. For the vast majority of the 20,000 businesses affected, these changes will simplify and speed up the administrative process for agreeing special methods of declaration. These changes will also require businesses to confirm that their proposed method gives a fair tax result. The new rules will also allow businesses to include the VAT on certain overseas supplies within their calculation method, which they currently have to reclaim separately.