UK: Weekly Tax Update - Monday 17 June 2013

Last Updated: 25 June 2013
Article by Smith & Williamson

1 General news

1.1 HMRC's programme on double tax agreements

HMRC plans to begin negotiations on Double Tax Agreements (DTAs) and Protocols with Bulgaria, Sweden, Tajikistan and Tanzania. Further announcements may be made as additional negotiations are arranged. HMRC also plans to take forward work on DTAs and Protocols with Austria, Belgium, Canada, Croatia, Germany, Iceland, Japan, Kosovo, Malawi, Panama, Portugal, Russia, Senegal, Thailand, Turkmenistan, the USA and Zambia, and on Tax Information Exchange Agreements (TIEAs) with Andorra, Macau and Monaco.

It comments that negotiations with other countries will be announced when the appropriate opportunity arises.

1.2 Provisional amendments principally to provisions on ATED

A number of amendments have provisionally been proposed (on 12 June) to Finance Bill 2013 principally to the ATED regime, the main changes to which refine the way the charitable company relief (clause 148) works and the exclusion from charge of connected person interest of £500,000 or less (currently only relevant to superior and inferior interests as per clause 108).

1.3 Appeal against the late filing daily penalty

The First-tier Tribunal (FTT), in the case of Robert Morgan and related appeal (TC02720), has upheld an appeal against the 'automatic' imposition of the £10 daily penalty for the late filing of a tax return by more than three months.

The key areas under consideration in this case were that, for the imposition of a daily penalty, paragraph 4(1)(b) of Sch 55 FA 2009 requires that "HMRC decide that such a penalty should be payable" and 4(1)(c) "HMRC give notice" to the person.

HMRC argued that the "HMRC decide" requirement was met by a high level policy decision that all taxpayers more than 3 months late filing their SA returns should automatically be charged daily penalties in conjunction with the computer making a 'decision' under its programme in accordance with this policy for those cases meeting the criteria. The conclusion of the FTT (by casting vote of the Judge) was that a high-level decision by HMRC officers to charge daily penalties on all taxpayers in default, who meet certain parameters, is within paragraph 4.

The appeals against the daily penalties were allowed on the basis that HMRC had not met the conditions to "give notice to P specifying the date from which the penalty is payable".

HMRC's case was that this notice was contained within two notifications: the "Self Assessment – Tax return and payment reminder" ("the SA Reminder") and the notice of the liability to the £100 fixed penalty under paragraph 3 Sch 55 FA 2009 (the form SA326D).

In the view of the FTT these did not constitute a notice, as required under the legislation, as there were not specific enough. These general notes were couched in terms of daily penalties "may" and "can" arise and where were given these would be by reference to possible ones depending on situations. In addition there was an issue in timing as to whether a "notice" could be given before the events and trigger point had actually occurred to which it would relate.

Although only a FTT decision, and therefore not binding, it will have serious implications for HMRC's procedures and provide the framework for appeals by others.

1.4 New numbers for HMRC helplines

New telephone numbers are being introduced for VAT, National Insurance, Income Tax and the Self Assessment textphone helplines. You should only call the new numbers if you have questions about these specific subjects. You will still be able to use the 0845 numbers for about the next 18 months. Other 0845 numbers will change in the coming months as part of a rolling program to give customers cheaper access to HMRC helplines.

2 Private client

2.1 Pensions: Individual protection from the Lifetime Allowance Charge

HMRC has now issued its consultation document on the application of the proposed Individual Protection 2014 (IP14) protection, in addition to the Fixed Protection 2014 (FP14) which is already being legislated for, to provide greater flexibility in protecting pension savings built up prior to 6 April 2014 from a Lifetime Allowance (LTA) charge as a consequence of the reduction of the LTA, from £1.5m to £1.25m, in April 2014. The protection in either case is subject to a limit of £1.5m, ie the current maximum, or the standard LTA for the year when benefit crystallisation event (BCE) arises if greater.

As a reminder, the LTA was introduced in 2006 to effectively put a limit on the accumulated value of tax advantaged pensions savings that an individual can benefit from. When a BCE arises its value is compared to the portion of previously unused LTA and any excess is then subject to a LTA charge. Without any form of protection the reduction in LTA would mean an LTA charge applying to pension savings built up on an assumption of the LTA remaining at least at its current level.

Individuals applying for FP14, with a deadline of 5 April 2014, retain a LTA of £1.5m but will forfeit this if they make any further contributions to a money purchase arrangement, or savings in a defined benefit arrangement increase above a prescribed percentage, on or after 6 April 2014. Any new pension savings or excessive benefit accruals on or after 6 April 2014 mean that the individual goes back to being tested against the standard LTA of £1.25m, or whatever the standard LTA is when benefit crystallisation event arises.

Although FP14 provides protection for growth in value of current savings and accrued benefits to be measured against at least the current LTA it does not address two common issues that arise: being able to add to the fallen value of pensions savings or having to lose out where it is not possible to renegotiate a remuneration package to recognise stopped employer's contributions or the curb on additional benefit accruals in another way.

The proposal is for IP14 to give individuals a personalised LTA based on the value of their post A-day BCEs, pre A day pensions in payment and relevant pension savings at 5 April 2014 (up to £1.5m). The value as at 5 April 2014 needs to be over £1.25m and this personalised LTA will apply until such time as it is exceeded by the standard LTA. The Government is considering a three year time of 5 April 2017 for notification for reliance on IP14 so as to give adequate time to obtain the valuations needed for making a decision and for the application.

Individuals will be able to apply for both FP14 and IP14, subject to meeting the eligibility conditions. It is intended that IP14 will also be open to those with fixed protection in 2012 (FP12), that could be applied for in the run up to the reduction in LTA from £1.8m to £1.5m in April 2012. In either case the fixed protection will take precedence.

It is proposed that those with primary protection and enhanced protection in respect of the 2006 A-day changes will be excluded from applying for IP14.

2.2 Gift aid schemes

HMRC has published an update to its spotlights on avoidance schemes as follows:

Gift Aid with no real gift - update

The Gift Aid rules allow charities to claim a repayment of tax on qualifying donations of money by individuals. Donors who pay higher and additional rates of tax can claim tax relief on the difference between their marginal rate of tax and the basic rate of tax.

Project 2010 is a scheme designed to exploit these rules and the previous spotlight on 'Gift Aid with no real gift' explained how avoidance schemes like Project 2010 were structured. HMRC said that they would challenge the use of this scheme and would litigate where appropriate.

HMRC is now preparing to take legal action, but will first contact the remaining users of this scheme to invite them to reconsider their position and let HMRC know if they wish to withdraw their claims.

3 PAYE and employment matters

3.1 RTI Basic tools

HMRC has issued an updated version of its RTI basic PAYE tool.

3.2 Extension of the RTI relaxation to monthly reporting for small employers

In a statement issued 12 June 2013, HMRC said:

After listening to stakeholders, HMRC has today announced that it will be seeking to extend the temporary relaxation of the new reporting rules for businesses with fewer than 50 employees from October 2013 until April 2014, and that this relaxation will come to an end at this point. The extension means that businesses will not be required to change their approach halfway through the tax year.

HMRC also said:

HMRC is continuing to work with businesses over the coming months to identify whether there are any specific circumstances with on-or-before reporting that it needs to cater for in the longer term.

3.3 Address for sending P11Ds to HMRC

The processing of paper forms P11D and P11D(b) has now been centralised and will be dealt with throughout the year by the National Insurance Contributions and Employer Office (NIC&EO) in Longbenton.

NIC&EO will process paper forms P11D and P11D(b) for the 2012-13 and earlier tax years, as well as amendments to forms P11D and P11D(b) for all tax years. Employers and agents should send them to the following address:

HM Revenue & Customs (NIC&EO)

Room BP2101
Lindisfarne House
Benton Park View
Newcastle upon Tyne
NE98 1ZZ

To view the complete update, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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