As 2020 passed the baton to 2021, any optimism we may have been harbouring about a gradual return to normality, as the vaccination programme began its rollout, was badly dented by another lockdown and the inevitable economic disruption that entails.
Nonetheless, there remain reasons to be cheerful, not least the approval of both the Oxford / Astra-Zeneca and the Moderna vaccines at the beginning of January, the gradual lengthening of the days and with that the promise of warmer weather.
Although the last 12 months have proved that predictions are a mug’s game, we summarise below what is in the pipeline:
Coming up fast…
April 2021 – changes to IR35 rules for the private sector
Off-payroll working rules (often known as IR35) were originally introduced to address a form of perceived tax avoidance where individuals could avoid paying employee income tax and national insurance contributions (NICs) by providing their services to clients through an intermediary, such as a personal service company (PSC).
In April 2017, the public sector was required to comply with new IR35 rules whereby the employer was responsible for determining whether or not an individual providing their services via a PSC should be considered an ‘employee’ for tax purposes. From April 2021, the private sector is being brought in line with the public sector and all medium and large private sector businesses are legally obliged to comply with these IR35 rules. If an individual is an ‘employee’ for tax purposes the company will be responsible for income tax and NICs. During the first year these rules applied to the public sector, It was estimated by HMRC that the reform raised £550 million in income tax and NICs in the first year. Please see our related articles for more details.
Post-Brexit VAT landscape
The numerous variations in how, when and where VAT will be applied when importing goods into, and exporting from, GB makes the VAT landscape look challenging for businesses. How and when your business needs to account for VAT will depend on you understanding your supply chain, where the difficult elements lie, and managing the associated risk. For instance, if you import in bulk but also rely on smaller consignments to ‘top-up’, different VAT rules will apply.
One of the most widely reported changes is the requirement for VAT on goods worth £135 to apply at the point of sale, rather than point of importation – and the seller is responsible for accounting for the VAT. This has particular resonance for online marketplaces which act as the ‘de facto’ seller and thus will be responsible for accounting for VAT. A number of news stories have covered the effect of this requirement where the price of many goods increased by 20% overnight leading many to speculate that some overseas sellers have been thus far avoiding their VAT liabilities. VAT liability is not straightforward and there are likely to be further changes in the pipeline. Our VAT partner is posting regular updates, the latest is here.
As it became clear just before Christmas that restrictions were unlikely to end any time soon, the Chancellor announced that he would postpone the end of the Coronavirus Job Retention Scheme (commonly known as Furlough from 31 March 2021 to 30 April 2021. The rules around eligibility and operation have not changed – employers can still furlough workers on a part-time basis according the degree of flexibility required and claim 80% of a worker’s wages or £2,500 whichever is the lower. What is not clear is whether the Job Support Scheme (JSS), originally scheduled to come into place from 1 November 2020, and the Job Retention Bonus (a proposed £1,000 one-off payment to encourage firms to retain previously furloughed staff), both of which are now on hold, are likely to be resurrected once the Furlough Scheme has ended. You can find more from our latest furlough article.
For those businesses that were required to shut because of the restrictions imposed by the third lockdown, the Chancellor announced they would be eligible for a grant of up to £9,000 per property depending on its rateable value. The funding is available via local authorities and you will find relevant information relating to the grants on their websites.
Budget – 3 March 2021
With government borrowing already exceeding £400bn, there is an expectation that the Chancellor will need more than rapid economic recovery to get the country’s finances under control. Rishi Sunak has ruled out rises in income tax, NIC and VAT leaving him with limited room for manoeuvre. According to observers, the areas that appear to be attracting the Chancellor’s attention are a one-off wealth tax, changes to capital gains tax (including reducing Entrepreneur’s Relief) and inheritance tax (potentially scrapping the Residential nil-rate band or subjecting inherited pension pots to inheritance tax), and changes to pension relief for higher rate taxpayers.
One of the inevitable changes wrought by our exit from the EU is the need to check that existing contracts which remain in force are still fit for purpose. Businesses should review their contracts to check if Brexit has impacted their ability to perform their contracts, affected the costs of performance, or altered any obligations under the contract, and whether those contracts continue provide protection as they currently stand. It goes without saying that any new contracts should be drafted to take account of any new trading conditions. You can find more detail here.
One for later…
The Divorce, Dissolution and Separation Act 2020 received Royal Assent in June 2020 but is not expected to be implemented until autumn 2021 (pending the outcome of a consultation into the proposed amendments to parts 6 & 7 of the Family Procedure Rules 2010 which provides the procedural framework for new law).
Although the ground for divorce will remain ‘irretrievable breakdown’, couples will have to provide a statement as evidence that the marriage is over, rather than relying on one of five facts to prove the case. The two-stage process, namely the decree nisi and the decree absolute, will remain; couples can apply jointly, as well as individually, to start divorce proceedings; a divorce will no longer be able to be contested; and the whole process will take a minimum of six months to complete so that both parties have sufficient time to reflect fully on their course of action.
This approach, the government believes, will allow couples to reach agreement in an orderly fashion, reducing the acrimony and hostility often engendered by the current system. This is a significant change to our divorce laws which have not been updated for over fifty years and will now reflect the reality of modern marriage / civil partnerships.
Watch this space…
Following a Law Commission report in 2020 on leasehold enfranchisement, the government has promised to reform leasehold law by simplifying the process by which owners of house or flat leaseholds buy or extend their lease. No timetable has been suggested but the potential reforms include the right to extend a lease up to 990 years, prohibiting the charging of excessive fees for doing so, and capping ground rents. In addition, a ‘Commonhold Council’ will be established to enable flat leaseholders to own their homes jointly as part of a commonhold association. Controversially, the government has also included retirement ‘villages’ in these proposals which had not originally been expected to be part of these reforms.
Modernisation of the Wills Act 1837
In 2017 the Law Commission launched a consultation on reforming the law relating to the creation of wills. The project was suspended but the pandemic has reopened the case for reform with the temporary amendment of the Wills Act 1837 to allow remote witnessing. Although many practitioners have genuine concerns about the increased danger of testators being subject to undue influence when signing their wills via video link as well as issues around testamentary capacity, it appears to be generally recognised that legislation created in the 19th century needs to be updated to reflect the digital reality of the 21st century. Whether the government proposes to revisit the modernisation of the Act this year or next remains to be seen.