LexisNexis GLP Index: tax law

Will demand for tax law grow, decline or simply stay the same in 2023?

The LexisNexis GLP Index pulls together the latest datapoints to provide some powerful predictions on the future of tax law.

Despite the economic environment, tax law is predicted to grow in demand in 2023.

That's according to the latest GLP Index, which pulls from hundreds of datapoints to predict demand for legal expertise across multiple practice areas.

To measure the demand for tax law as a practice area, the GLP Index looked at a broad range of datapoints. This included everything from stamp duty taxes, to the number of taxpayers and registered traders, to structural and non-structural tax reliefs, to VAT receipts and dozens more.

The index revealed that demand for tax law has grown exponentially since the lockdown. After falling -12% in 2020 as a result of the pandemic, demand for tax law increased by +27% in 2021. Demand is predicted to grow by +9% in 2022 and will again in 2023 by 4%.

Scroll down for a few of the most interesting trends driving change across tax law.

Tax law is predicted to generate by 4% more work in 2023 than in 2022

The latest annual statistics on HMRC tax receipts shows total taxes increased by 22.5% in 2021 to 2022 from the year before, jumping from £583.9 billion in taxes to £715.5 billion.

The majority of these taxes (56%) came through from Income Tax (IT), Capital Gains Tax (CGT), and NICs combined - a trend which has been in place for a decade now. The next largest contributors are VAT and Corporation Tax, equating to an average 21% and 9% of total receipts respectively.

When looking at the latest monthly statistics, the total HMRC receipts for April 2022 to December 2022 are £553.2 billion, which is £48.0 billion higher than in the same period a year earlier.

Head of LexisNexis PSL Tax, Aredhel Johnson, says HMRC continues to crack-down on tax avoidance promoters.

"The February 2023 launch of two new HMRC Manuals, being the Litigation and Settlement Strategy Manual and the Alternative Dispute Resolution Manual, could suggest that HMRC is ready and willing to continue to litigate in order to recover what it considers to be unpaid taxes."

Johnson, who worked in Squire Patton Boggs's Tax Strategies & Benefits team before moving to LexisNexis, also pointed out that the government's £79m investment over the next five years, as announced in the Autumn Statement 2022, will enable HMRC to allocate additional staff to tackle more cases of serious tax fraud and address tax compliance risks among wealthy taxpayers. This investment is forecast to bring in £725m of additional tax revenues over the next five years.

"The continuous change in tax law, both through legislative changes (such as those enacted by the Finance Act 2023, and those to be enacted by the Spring Finance Bill 2023) and through case law, means there is always a constant need for legal tax advice," says Johnson.

"In particular, the forthcoming R&D changes and the implementation of a multinational top-up tax in the UK, both regimes initially published in July 2022, will see an increased need for affected businesses to ensure they are fully compliant whilst structuring their affairs in a manner which takes full advantage of any tax reliefs."

VAT receipts dropped noticeably during the pandemic, from £189.4 million to £161.8 million between 2019-20 through to 2020-21. However, this increased by 55% in 2021-22 when compared with 2020-21.

The Wholesale and Retail sectors are the largest contributors to net Home VAT liabilities. Just on three-quarters (75%) of total net Home VAT declared was paid by traders with an annual turnover greater than £10 million.

The latest monthly statistics from HMRC show receipts for April 2022 to December 2022 are £116.7 billion, which is £21 million higher than in the same period a year earlier.

The new VAT penalty regimes, effective from 1 January 2023, introduce a points-based system for late submissions, says Johnson, who is also a Chartered Tax Adviser.

"This will see businesses accrue penalty points for instances of default before incurring fixed financial penalties once a points threshold is reached and tax-geared penalties for late payment of VAT."  

The new penalty regimes will replace the default surcharge regime in respect of VAT and returns relating to periods commencing on or after 1 January 2023. However, the default surcharge regime will continue to apply in respect of earlier periods, Johnson points out.

"The need for businesses to be aware of and ensure compliance with their VAT administrative obligations has never been greater. In particular, the introduction of the new penalty regimes for future periods (and continued application of the default surcharge regime for historic periods) will increase the need for competent and thorough VAT advice."

Stamp tax receipts increased significantly between 2020-2021 and 2021-2022. Total stamp tax receipts jumped by 50% from £12,345 million to £18,465 million.

Stamp Duty Land Tax (SDLT) receipts went up 63%, from £8,670 million to £14,100 million, while stamp taxes on shares and other liable securities (SDRT and SD) went up 19% from £3,675 million to £4,370 million.

Residential SDLT receipts have also gone up, rising 69% from £6,010 million to £10,170 million. Non-residential SDLT receipts rose by 48% from £2,660 million to £3,930 million

London was the area with the highest amount of SDLT receipts, at £5,085 million or 36% of total SDLT receipts.

"The application of the SDLT legislation to residential and mixed-use property is an area in a state of genuine flux," says Johnson.

This is due to the impact of three factors, she says. Firstly, the HMRC’s recent relative degree of success in challenging abusive or marginal claims for multiple dwellings relief in the tribunal alongside the constant evolution of the case law prescribing the parameters of what constitutes a dwelling or residential property for SDLT purposes. Secondly, the awaited response to HMRC’s consultation on the proposed reforms of the legislation relating to mixed-property purchases and multiple dwellings relief intended to create a fairer system and counteract incorrect or abusive claims. Thirdly, increases to the residential nil-rate thresholds announced in Growth Plan 2022 (which were placed on a temporary footing by the Chancellor in Autumn Statement 2022). 

"Businesses and advisers will need to monitor this area closely over the short-term as reform of any magnitude in this area will likely create challenges and opportunities for businesses in equal measure", says Johnson.