UK: Weekly Tax Update - 18 January 2016

Last Updated: 19 January 2016
Article by Smith & Williamson

1. General news

1.1 HMRC Scottish Rate guidance

HMRC has highlighted the importance of notifying it of a change of address when moving across borders within the UK.

HMRC will initially assume an individual is a Scottish taxpayer if the taxpayer's address it holds is in Scotland. Letters are going out checking this with such individuals and HMRC will be following this up with PAYE coding notices for 2016/17 showing 'S' PAYE codes, where this assumption has not been challenged.

It is the employee's rather than the employer's responsibility to update HMRC of any change of address.

HMRC has asked employees or pension scheme members who disagree with their tax code to refer to the guidance on the Scottish rate of Income Tax before contacting HMRC.

1.2 HMRC withdraws 2000 APNs in respect of Montpelier Scheme

It has been reported that HMRC has withdrawn 2000 Accelerated Payment Notices (APNs) in respect of a specific tax scheme promoted by Montpelier on the basis that the scheme was not notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) regime even though it was in fact notified.

This appears to be a correct interpretation of the legislation by HMRC, so should perhaps not be seen as a technical development; nevertheless, taxpayers who have received APNs or their partnership schemes equivalents may wish to double check if the same principle could apply in their case.

1.3 HMRC's 'Your charter' adds more obligations

HMRC has amended its 'Your charter', which sets out the basic rights and obligations for persons that deal with HMRC. The original version of 'Your charter', published in November 2009 included 9 rights (what we could expect from HMRC) and three obligations (what HMRC could expect from us, as taxpayers, tax credit claimants and in other capacities). The 2009 version followed extensive consultation. The updated version contains six rights and six obligations, demonstrating our changing times. There was no open consultation on the changes. Some may say it is less of a 'Your charter', more of an 'HMRC's charter'.

Deleted from the list of rights is to 'treat you even-handedly'. Added to the responsibilities are explicit duties to 'Keep accurate records and protect your information', 'Know what your representative does on your behalf' and 'Respond in good time'. It is worth being aware of the contents.

'Your charter' is not to be confused with the original Inland Revenue Taxpayer's Charter, published in the 20th century, which was engraved on wood and hung on a wall at Somerset House, until it was allegedly lost in an office move this century.

1.4 HMRC 'Your charter annual report'

HMRC has published the 'Your Charter Annual Report: 2014 to 2015'. This covers HMRC's delivery against Your Charter, including progress and priorities for further improvement, such as

  • introduction of 22 new digital products and services – although some of these seem to be at a very early stage of the 'agile technology' development phase
  • dealing with calls from customers – from a low point of 54% of call attempts being answered in the first quarter of the financial year to handling 89% of calls on the deadline day for tax credits renewals
  • providing new ways for people to get in touch – eg webchats, secure messaging and social media
  • improving the support given to people who need extra help
  • creating a new Counter-Avoidance Directorate – note that avoidance represents 8% of the latest tax gap figures, whereas evasion, criminal attacks and the hidden economy make up 46%
  • streamlining processes with a 'Once and Done' initiative

1.5 Deduction of tax at source from interest on peer to peer (P2P) lending

HMRC has announced that in the period before the Government makes any necessary changes to the legislation, interest payments made on P2P loans may be made without deduction of tax.

The Government is in the process of changing the obligation to deduct tax from interest paid on P2P loans. A consultation took place over the summer of 2015 and the legislation will be amended to clarify how any obligations will apply in the future. Further information about this will be released as it is available.

Non deduction of tax on P2P interest payments will apply to interest payments made by:

  • a UK borrower to a UK P2P platform;
  • a UK P2P platform to whomever; and
  • any intermediary to or from a UK P2P platform.

In each case, the P2P platform must be authorised by the Financial Conduct Authority.

Once the legislation has been amended, HMRC will issue further guidance as appropriate.

1.6 EU tax commissioner priorities for 2016

European tax Commissioner Pierre Moscovici recently discussed with MEPs plans for work in 2016. He commented on base erosion and profit shifting (BEPS), a consolidated common corporate tax base (CCCTB), country by country reporting and other matters including the standard of information exchange on tax rulings. Signing up to a common corporate tax base (CCTB) would involve member states ceding further control over tax to a centralised EU body. While this may serve the purpose of centralised administrators it appears difficult to see member states agreeing to this in the short term given the current climate.

On BEPS Mr Muscovani promised to present an ambitious package to counter tax avoidance by the end of January. He also mentioned the tax transparency package and the action plan for corporate taxation initiatives already under way.

The Commission is in favour of a consolidated common corporate tax base (CCCTB), but is taking a two- phase approach starting with the common corporate tax base (CCTB). Consolidation should follow in phase two.

The impact assessment was under way for the EU Parliament's recommendation of requiring public country by country reporting by multinationals of profits made and taxes paid, and proposals are due to be forthcoming, probably in the spring of 2016.

1.7 Response to consultation on register of people with significant control

The response has been published to the Department of Business Innovation and Skills' consultation on draft regulations for implementing the register of people with significant control (PSC), including proposals for LLPs.

The Government will exempt UK companies from having to maintain a PSC register where they have voting shares admitted to trading on a regulated market in an EEA state, Japan, the USA, Switzerland and Israel.

The conditions for the register are set out in Small Business, Enterprise and Employment Act 2015.

The draft regulations will be changed so that if a person already meets one of the first three specified conditions (concerning ownership of shares, voting rights, or the right to appoint or remove directors), the company does not have to record in its PSC register if and how the person meets the fourth specified condition, namely having the right to exercise significant influence or control over the company.

There is a separate fifth condition that refers to whether a trust or partnership meets any of the other four conditions and the person concerned has the right to exercise significant influence or control over that trust or partnership.

A fixed fee of Ł12 per request will be prescribed for requiring a company to provide a copy of some or all of its register.

The Government will implement protection for individuals on the grounds of serious risk of violence or intimidation due to the company's activity, or to the circumstances specific to an individual PSC and their link to the company.

The transitional rule of a 28 day time limit for an individual to divest themselves of an interest to avoid being a PSC will be extended to 12 weeks.

Where a limited partnership or foreign equivalent holds shares or rights in a UK company, limited partners that do not take part in the management of that limited partnership will not meet the first three conditions for significant control just by virtue of being a limited partner.

The Government proposes to use the following indicators for significant control of an LLP:

  • rights over surplus assets on winding up;
  • voting rights;
  • rights to appoint or remove the majority of those involved in management of the LLP; and
  • other significant influence or control, to be explained in statutory guidance.

1.8 New Independent Adjudicator

HMRC has announced the appointment of Helen Megarry, currently Deputy Housing Ombudsman, as the new Independent Adjudicator for HM Revenue and Customs (HMRC), the Valuation Office Agency and the Insolvency Service, to succeed Judy Clements OBE, in April 2016 when Judy's fixed term appointment ends.

The Independent Adjudicator plays an important role. It is acknowledged in the tax profession, by the public and in HMRC that Judy Clements has championed the rights of complainants. She has also helped HMRC to improve the way it handles formal complaints.

2. Private client

2.1 Self assessment appeal

HMRC has updated the form SA370 to appeal against Self Assessment penalties for sending late tax returns or payments. The accompanying notes set out some examples of circumstances where HMRC may accept a reasonable excuse for late filing of a return.

These include circumstances such as unavailability on online services.

2.2 Reforms to the taxation of non-domiciles

HMRC has confirmed that as the consultation on these reforms closed on 11 November 2015 and therefore the published draft legislation published in December 2015 could not take into account any of the representations made during the consultation, HM Treasury will publish a response to the consultation in early 2016, alongside further draft legislation covering the income tax and capital gains tax aspects of these reforms.

Any further changes required to the draft IHT provisions, including transitional provisions, are due to be published at that time. Legislation, for Finance Bill 2017, is to be developed to charge Inheritance Tax on indirectly-held UK residential property, and a consultation on this measure is expected early this year.

These reforms are due to be effective from 6 April 2017.

2.3 Flexible ISA guidance

HMRC has published the changes that are due to be made to the ISA guidance to take account of new flexible ISAs, which can allow a saver to replace in the same tax year cash they have withdrawn, without counting towards the annual subscription limit. Existing ISAs would have to be converted to flexible ISAs for the new rules to apply. The measure is due to have effect from 6 April 2016.

Flexible ISA withdrawals are to be deemed to be firstly of current year subscriptions, and secondly of previous year funds. Replacements will be deemed to be firstly of previous year funds, and secondly of current year subscriptions. Replacement of flexible ISA previous year funds withdrawn must be made to the account from which the withdrawal was made, and in the same tax year as the withdrawal.

Where HMRC makes a direct debt recovery from a flexible ISA, this will not count as a withdrawal of cash by the investor and cannot be replaced without the subscription counting towards the annual subscription.

In some cases non-resident investors will be able to replace certain funds in flexible ISAs. The guidance includes further details on this and around transfers, opening and closure of flexible ISAs.

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Smith & Williamson LLP: Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International. The word partner is used to refer to a member of Smith & Williamson LLP The Financial Conduct Authority does not regulate all of the services or products discussed in this publication.

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