UK: Weekly Tax Update - July 27, 2015

Last Updated: 29 July 2015
Article by Tina Riches

1 General news

1.1 OTS to report on closer alignment of income tax and NIC

The Government has requested the Office of Tax Simplification (OTS) to undertake a study on the closer alignment of income tax and National Insurance contributions. The OTS will report before the Budget next year.

This requested report has been trailed in the national press as a potential merger of the two systems, which would be a radical and exciting development. This does, however, seem to overstate the intention behind the exercise.

The OTS will be reviewing the costs and benefits of closer alignment, looking at the case for change, including the burdens and distortions of the present system. It is also specifically looking at bringing the two systems closer together in relation to earned income for employees and employer and the self-employed. This could have very significant implications, particularly for the self-employed, including partners in partnerships and members of LLPs, as the overall NIC rate they pay is significantly lower than that paid on behalf of employees by their employers and the employees themselves.

It will not be looking at any extension of NIC; for example to dividends, property income or pensions.

www.gov.uk/government/publications/ots-review-of-income-tax-and-national-insurance-tor

1.2 HMRC response to withdrawal of extra statutory concessions

HMRC proposed in October 2014 to withdraw three extra statutory concessions (ESCs) following the House of Lords decision in the Wilkinson case (R v IRC ex parte Wilkinson [2005] UKHL 30).

These were:

  • professional remuneration administrative practice (the concession that allows professional practitioners to treated incidental income from an office or employment as trading income for tax purposes);
  • (tax-free) sports testimonials; and
  • roll-over on depreciating assets. (This ESC ensures a CGT charge does not arise where roll-over relief has been claimed and the claimant later dies).

Following the responses received, the action HMRC will take is as follows:

Professional remuneration administrative practice: HMRC is going to consult more widely in the coming months and will consider mitigation options for affected groups.

Sports testimonials: the Government has, in fact, already announced a further consultation as reported in our Update of 13 July 2015.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/442892/Tax_Treatment_of_Income_from_Sporting_Testimonials_-_Proposals_for_Legislation.pdf

Rollover into depreciating assets: there will be further clarificatory guidance and the ECS will be withdrawn from April 2016.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/446438/Withdrawal_of_extra-statutory_concessions_-_summary_of_responses.pdf

1.3 HMRC detailed guidance notes for charities

HMRC has issued guidance notes on how the tax system operates for charities.

www.gov.uk/government/publications/charities-detailed-guidance-notes

1.4 Further consultation: strengthening sanctions for tax avoidance

Following consultation earlier in 2015, HMRC has issued a further consultation on detailed measures for serial avoiders, serial promoters and the introduction of further penalties in cases caught by the General Anti-abuse Rule (GAAR).

The consultation will run until 14 October.

1) Serial Avoiders. In outline, the regime proposed for serial avoiders is to have a warning period from the date of the first failed scheme, lasting up to five years, with a risk of a surcharge on a second failed scheme entered into within that period (and a renewal of the warning period from the second scheme.) There would be additional reporting requirements for merely entering a second scheme within the period and sanctions if a third or further scheme that failed was entered into during a warning period including naming and the restriction of other reliefs;

2) Penalties for the GAAR. The present GAAR regime is designed to return the taxpayer to the position he should have been in had the avoidance not been undertaken. It is thought this is not of itself enough of a deterrent, since those entering schemes caught by the GAAR could have an appetite for risk. Penalties are likely to be 60% of the tax counteracted. This compares with an equivalent 70-100% for deliberate concealment. Draft legislation will be published with the Autumn Statement;

3) Serial Promoters. There is to be a new threshold condition for the Promoters of Tax Avoidance Schemes (POTAS) legislation introduced in 2014. Threshold conditions are used to identify promoters as high risk. This is proposed to be identification of promoters by criteria wider that current defeated DOTAS schemes and will include schemes caught by the GAAR, schemes caught by a follower notice or defeated by a Targeted Anti-avoidance Rule.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/447320/Strengthening_Sanctions_for_Tax_Avoidance_-_A_Consultation_on_Detailed_Proposals.pdf

1.5 Consultation: data-gathering powers extension and the hidden economy

HMRC has issued a consultation document on tackling the hidden economy: extension of data-gathering powers. The consultation will run until 14 October 2015.

The Government intends to legislate to extend HMRC's data gathering powers to help it tackle those failing to declare their income. The hidden economy in 2012/13 represented, it is thought, £5.9 billion, some 17% of the tax gap, almost twice the amount not collected due to tax avoidance.

HRMC already has powers to collect bulk data from merchant acquirers, being those who process credit and debit card transactions. This is proposed to be extended to electronic payment providers, who are similar to merchant acquirers, but where the transaction is in other digital forms, and to business intermediaries. These businesses can take many forms – permitting customers, for example, to make orders, purchases or reservations of various kinds. These increasingly operate on digital platforms. These kinds of third parties can provide data in bulk that can be helpful in identifying the activities of a large number of traders.

The consultation notes that there would need to be a safeguard against self- incrimination and that the requirement should not be unduly burdensome on the third party who is, after all, not responsible in any way for the activities, or non-compliance of the traders involved.

www.gov.uk/government/consultations/simplification-of-the-tax-and-national-insurance-treatment-of-termination-payments

1.6 Refusal to read T&Cs: a reasonable excuse for failure to file online

A barrister refused to tick the box to confirm he had read HMRC's online filing terms and conditions (T&Cs) so was unable to file his VAT return online. His claim that he had a reasonable excuse for his failure to file on time online was allowed by the First- tier Tribunal (FTT). The FTT held that the terms and conditions tick box pre-condition to filing an online return was unlawful and therefore Mr Garrod had a reasonable excuse for refusing to tick it and filing by another means. No doubt we can expect HMRC to appeal and/or seek to make it a legal requirement to read the T&Cs and confirm that has been done. www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKFTT/TC/2015/TC04537.html&query=Neil+and+Garrod&method=boolean

1.7 Digital Tax Accounts

HMRC has published two roadmaps that show their plans for the development digital tax accounts for both business and individual taxpayers. The purpose of the Digital Tax Accounts is to bring HMRC services and information together into one place and in due course do away with the need for paper communications.

More information is on the HMRC Blog at:

https://hmrcdigital.blog.gov.uk/2015/07/15/the-journey-to-digital-tax-accounts/

The roadmaps are available at:

Business Tax Account Roadmap:

https://hmrcdigital.blog.gov.uk/wp-content/uploads/sites/20/2015/07/Business-Tax-Account-Roadmap.pdf

Personal Tax Account Roadmap:

https://hmrcdigital.blog.gov.uk/wp-content/uploads/sites/20/2015/07/Personal-Tax-Account-roadmap.pdf

2 Private client

2.1 Response to consultation on remittance basis minimum claim period

The Government has published responses to its consultation on introducing a possible minimum three year period for claiming the remittance basis. It comments:

'As a result of significant reforms to the taxation of non-UK domiciled individuals and the responses to the consultation, the government announced at Summer Budget 2015 that it will not introduce a minimum claim period for the remittance basis charge.'

www.gov.uk/government/uploads/system/uploads/attachment_data/file/446552/Summary_of_responses_to_minimum_claim_period_consultation__July_2015_.pdf

2.2 Rent a room relief

SI 2015/1539 increases the limit for rent-a-room relief from £4,250 to £7,500 for the 2016/17 tax year onwards.

www.legislation.gov.uk/uksi/2015/1539/pdfs/uksi_20151539_en.pdf

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We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2015

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