On 12 November 2020 the UK government published for consultation further draft legislation in relation to the Finance Bill 2021. Comments are invited by 7 January 2020.

This follows the publication of draft legislation on 21 July 2020 in relation to income tax, corporation tax, stamp duty land tax, the Annual Tax on Enveloped Dwellings, value added tax (VAT), anti-avoidance and other matters.

The final contents of the Finance Bill 2021 will be included in the budget announcements for 2021 which have been delayed until the spring of 2021 owing to the pandemic.

Tax impact of withdrawal of LIBOR

Amendments are being made to three statutory references to LIBOR in the provisions on leasing, which will contain references to the ‘incremental borrowing rate’ instead of the LIBOR rate. HMRC will have the power to permit any unintended tax consequences from the withdrawal by taxpayers from LIBOR and other benchmark rates to be dealt with in secondary legislation.

Hybrid and other mismatches

Changes are to be made to the hybrid and other mismatches regime to ensure that the regime operates as intended.

Changes to the R&D Tax Credit for SMEs

The draft legislation aims to prevent the abuse of research and development (R&D) tax relief by small and medium companies (SMEs). The legislation would limit the amount of R&D tax credit claimed by an SME to GBP 20,000 plus 300% of the taxpayer’s total liability to Pay as you Earn (PAYE) and National Insurance Contributions in the relevant period.

Plastic Packaging Tax

The plastic packaging tax would apply to plastic packaging produced in, or imported into, the UK where it does not contain at least 30% recycled plastic. Plastic packaging is defined for the purposes of the legislation as packaging that is predominantly plastic by weight. The tax would take effect from April 2022.

Changes to tackle Construction Industry Scheme abuse

HMRC would have the power to amend the CIS deduction amounts claimed by sub-contractors on their Real Time Information Employer Payment Summary returns. The power could be used by HMRC to correct errors or omissions relating to the claims.

The draft legislation also clarifies that it is only where a sub-contractor directly incurs the cost of materials purchased to fulfil a construction contract that the relevant cost is not subject to deduction under the CIS.

Deemed contractors

The rules will be amended in relation to deemed contractors, which are entities operating outside the construction sector that need to operate the CIS. These businesses will need to monitor the level of construction expenditure regularly, not just at the end of each period, and should apply the CIS when construction expenditure is more than GBP 3 million within the previous twelve months.

CIS registration penalty

The penalty for supplying false information when applying for gross payment status, or payment under deduction, within the CIS is amended to include individuals and companies that encourage a person to supply a false statement or false document in support of an application; or themselves supply a false statement or document to enable another person to register.