Tax isn’t considered sexy by most so forgive me if I start this business tax roundup with a reference to the past year’s hit TV drama (or – depending on your age – the 80s synth-pop banger of the same name). But the tax world is getting a lot more sinful, in a number of ways.
2022 will welcome into the world a brand-new sin tax. The modern sin is non-sustainability, so a new plastic packaging tax joins the duties we pay on alcohol, tobacco, and sugar in soft drinks. The new tax applies from 1 April 2022. Luxury and premium brands might find themselves hit by the tax either directly (by importing into the UK goods which are already contained within plastic packaging) or indirectly (if they purchase plastic packaging in the UK from a manufacturer who has already had to pay the tax). The rate of the tax is £200 per tonne of plastic packaging, and only businesses which either import or manufacture at least 10 tonnes of plastic packaging per year need to register. While some luxury and premium brands will end up paying the plastic packaging tax, it isn’t expected to have a large impact on the sector. That’s because packaging which consists of at least 30% recycled plastic is excluded from the charge. The long-term trend towards sustainable packaging, which luxury consumers are happy to support with their wallets, and the low rate of the new tax means it won’t typically dent the margins on high-value luxury products even if they are swaddled in plastic.
The bigger sin in the tax world is being committed by the Chancellor himself – the sin of complexity. It seems there’s no problem in the world which can’t be fixed by a new tax. Ever since the Office for Tax Simplification was set up in 2010, with a brief to review and simplify the UK’s tax code, they have been fighting a rear-guard action against HM Treasury whose actions have caused the UK tax code to balloon in size.
The flagship new tax of the past 12 months is the Health & Social Care Levy which will add a chunky 1.25% to the UK payroll bill of any business (being the additional employer tax element). The cost to business might be even more if employers feel they need to raise salaries to compensate employees for the 1.25% hit that the employees are themselves facing. Executive remuneration will likely come under scrutiny. The drivers will only increase for businesses to find methods of equity remuneration that could deliver capital gains, since capital gains remain – for now – favourably taxed. These new changes also come in from April 2022, initially as an increase to National Insurance Contributions before blossoming into a wholly separate tax from 2023.
More complexity may also be coming down the track in the form of a brand new online sales tax. This has been rumoured for a while and the October 2021 Budget confirmed that we should expect a consultation document ‘shortly’. It’s part of an effort to keep high street shopping viable against the seemingly unstoppable march of online retail. Of course, luxury brands could find themselves on either or (more likely) both sides of that particular division. Rumours suggest the online sales tax might be an additional 2% charge on online sales in the UK. The logistical and administrative challenges for businesses of introducing such a tax are considerable (it would require different mechanisms and systems to Value Added Tax). The online sales tax has a lot of critics and it may yet die before ever seeing the light of day. The Treasury released a raft of consultation documents on 30 November last year but the online sales tax consultation was notable for its absence, suggesting that the Treasury is finding it harder to articulate the proposal than it imagined. Our sinning Chancellor may yet repent.
All of these complexities pale into insignificance compared to the Grand Daddy of them all – Brexit. 1 January 2022 saw the latest tightening of import declaration rules, and various other regulatory and export checks, with further changes (mostly for food and veterinary products) coming in later this year. Fortunately, Postponed VAT Accounting is still available for UK VAT-registered importers, but all of this change puts further strain on supply chains that are creaking already. Luxury brands need to make sure that every link in their chain is robust and that – where they are acting as importer to or exporter out of the UK – their systems have been updated for the more stringent declaration rules.
By Matthew Rowbotham, Corporate Tax – Lewis Silkin
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