UK: Weekly Tax Update - 1 February 2016

Last Updated: 4 February 2016
Article by Smith & Williamson

1. General news

1.1 HMRC vision for Customs in 2020

HMRC sees itself as the leading Customs authority in 2020.

Recognising the pressure to reduce Government costs and to become more efficient, HMRC has set out its vision for its Customs services in 2020. In broad summary, it seeks to be recognised globally as being the world's leading Customs authority for facilitating legitimate trade while protecting our society and growing our economy. The document sets out the current position and how the Customs unit proposes to achieve its aim.

1.2 Refusal of many Liechtenstein disclosure facility benefits to EBT applicants

The High Court has held that HMRC acted in a fair and appropriate manner in refusing the majority of the benefits of the Liechtenstein disclosure facility (LDF) to certain applicants.

The LDF applications were made through BDO, who had had discussions with HMRC early in July 2013.

Those discussions seemed to indicate that the LDF facility would be available in cases similar to those involved with the applicants, City Shoe Wholesale Ltd (City). By 31 July 2013, that position was no longer certain. The claimants' LDF applications were submitted between August and December 2013 and the status of these applications was put on hold while HMRC considered matters. Eventually, HMRC determined the majority of the LDF benefits were not available to the claimants.

Other applicants with similar circumstances to City, who had submitted LDF applications prior to July 2013, had had their applications successfully dealt with. The claimants sought judicial review on the grounds that their similar circumstances did not receive the same favourable treatment. The High Court held that HMRC had acted properly and fairly in limiting the benefits of the LDF in the way they had, after appropriately weighing up the interests of the public generally and the taxpayer.

Note: One of the Commissioners' witness statements indicated that two specific concerns were expressed at the meeting at which HMRC decided if EBT users could use the LDF. One related to the potential unfairness to other EBT users whose circumstances were identical except that they did not have any offshore assets in 2009 – a precondition to the application of the LDF.

There may be an argument that such a potential unfairness is also relevant where UK taxpayers without offshore assets in 2009 were excluded from the LDF and had to settle with HMRC in the normal way.

1.3 Persons with significant control of LLPs

The long-awaited draft regulations on the recording and reporting of persons with significant control (PSC) in LLPs have been issued.

The regulations are due to take effect from 6 April 2016, though some reporting requirements and record keeping options are not due to apply until 30 June 2016. Draft guidance on the meaning of PSCs for both companies and LLPs can be found on the Companies House website.

A PSC of an LLP is defined as meeting one of the following conditions:

  1. An individual directly or indirectly holding the right to share in more than 25% of the surplus assets of the LLP on a winding up;
  2. An individual holding directly or indirectly more than 25% of the rights to vote on those matters to be decided on by a vote of the members of the LLP;
  3. An individual directly or indirectly holding the right to appoint or remove the majority of persons entitled to take part in the management of the LLP. This includes the right to remove those with the majority of voting rights at meetings of the management body;
  4. An individual having the right to exercise significant influence or control over the LLP, or who actually does so; or
  5. Any trust or non-legal person satisfying any of the above and an individual who exercises significant influence or control over that trust or non-individual.

From 6 April 2016, LLPs will be required to keep a register of PSCs. From 30 June 2016 onwards existing LLPs will be required to send their PSC register information to Companies House with their confirmation statement (which replaces the annual return) while newly-incorporated LLPs will need to provide similar information on incorporation.

If you would like to discuss the implications of these draft regulations and the reporting requirements for your business, please get in touch with your usual Smith & Williamson contact.

1.4 Making tax digital – 'myth buster'

HMRC has published a document, which it describes as a 'myth-buster', in answer to questions raised by taxpayers and their agents around their 'making Tax Digital' project.

The key questions that businesses, landlords and their agents have been asking is around the requirement to submit something to HMRC four times a year and in what format this will be. HMRC has responded in the document stating:

'Businesses will not need to file four tax returns a year. The new digital accounts will integrate all the different information businesses already provide to HMRC into a simple, streamlined system. Instead of one big, onerous tax return each year once a quarter businesses can check that the information they are collecting digitally is correct, and simply click "send" to update HMRC.'

Although it is so far unclear how businesses will get from their current mixture of accounting software, Excel spreadsheets and other documentation and information to the 'simply click "send"' stage, we understand that HMRC plans to consult on this prior to taking any decisions. There should therefore be plenty of opportunity to input before decisions are taken.

HMRC indicate that 'These changes will contribute to our target to reduce business burdens by £400m.'

1.5 Amended list of DOTAS schemes relevant for accelerated payment notices (APNs)

HMRC has updated its list of schemes given DOTAS numbers for which they may issue an APN to remove the following scheme reference number from the list: 64863085.

2.Private client

2.1 Self-assessment deadline for those affected by flooding

Although now too late for those affected, HMRC indicated on 25 January that those affected by the recent flooding and with a genuine reasonable excuse, could have extra time to file their self- assessment returns if they notified HMRC by 31 January 2016. In such circumstances HMRC do not intend to issue penalties.

For those affected by the flooding who did not spot this message, and who have a reasonable excuse for filing late, it will be necessary to appeal penalties in the normal way.

3.PAYE and employment

3.1 Employment allowance

From 6 April 2016, the 'employment allowance', which an employer meeting the required conditions can deduct from class 1 NI liabilities, increases from £2,000 to £3,000.

We understand that a statutory instrument has been drafted to ensure that a company cannot qualify for an employment allowance where all the payments of earnings in a tax year are paid to or for the benefit of one employed earner only who is also a director of the company at the time the payments are made.

The CIOT has raised concerns that the draft statutory instrument can be easily sidestepped; for example, by appointing and paying another director such as a family member, or by ensuring at least one payment is made when the recipient individual is not a director.

It will be interesting to see if the draft 'excluded companies' regulations will be amended before finalisation.

3.2 HMRC pension schemes 28 January newsletter

HMRC's January pension schemes newsletter has been issued and covers the following points:

  • Inheritance tax treatment of pension scheme drawdown funds on death: draft legislation is to be included in Finance Bill 2016;
  • Pension flexibility: how to report payments arising from flexibility through the RTI system from 6 April 2016;
  • Relief at source – annual returns of individual information. For the 2015/16 tax year onwards the issue date of the Notices concerning annual returns has changed from February to January. The filing deadline for the 2015/16 return remains 5 October 2016. The filing deadline for the 2016/17 annual return will be brought forward to 5 July 2017, to enable HMRC to respond to scheme administrators regarding which members should receive relief at the Scottish rate;
  • Lifetime allowance reduction: an explanation as to why interim protection cannot be made before 6 April 2016;
  • Annual allowance: further information on how the annual allowance rules will work for the 2015/16 and 2016/17 tax years; and
  • Annual allowance (AA) information consultation: the AA information that pension scheme administrators are required to provide to a scheme member for 2015/16 onwards, so the member can determine whether or not they may be liable to an AA charge.

4.Business tax

4.1 Transactions in securities clearances

In response to a letter from the CIOT, HMRC has sent the following helpful response, to clarify how clearances will be dealt with in the transitional period until Royal Assent of the proposed changes in the transactions in securities legislation in the Finance Bill 2016 draft clause 16.

HMRC's response says:

'Thank you for your comments regarding the proposed changes to the Transactions in Securities legislation. We fully appreciate the concerns that you raise and have been discussing potential solutions.

Firstly, I can confirm that the Clearance and Counteraction team are already using the following wording where they believe that a clearance given now might not be valid should the proposed changes be brought in on 6 April 2016:

The Board take the view that the notification given in this letter may become void with effect from 6 April if the proposed changes to the transactions in securities provisions which were published on 9 December 2015 come into effect as drafted.

I can also confirm that the team have also been providing a view on the matter where they have been specifically asked. Following your feedback, and representations received from various other parties, the Clearance and Counteraction have agreed that it would be helpful to go further than this. Starting now, all clearances will contain either the wording quoted above, or the following wording (or variants thereof):

The Board consider that this clearance will not be affected by the proposed changes to the transactions in securities provisions which were published on 9 December 2015.

Assuming that the proposed legislation is passed by Parliament, there will be a slightly different issue from 6 April 2016 until Royal Assent is received. I can also confirm that during this period both clearance and refusal letters will contain similar wording to the above in order to provide the applicant with as much certainty as is possible. The precise wording is currently the subject of discussion with HMRC Solicitors.

I can confirm that I am happy for you to publish this letter, or to publicise the content in any way you deem necessary, as I agree it will be useful to circulate the information as widely as possible. I hope that this satisfies your concerns, but if you or your members have any further issues that you would like to discuss, please let me know. Otherwise, I look forward to you receiving your reply to the consultation.'

To continue reading this update, please click here

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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