1. GENERAL
1.1 Measuring the tax gap
HMRC has published its 'tax gap' estimate for 2014/15 at £36bn or 6.5% of theoretical tax liabilities. £2.2bn or just 6.1% of the gap is avoidance. The hidden economy, evasion and criminal attacks together account for £16.2bn or 40.8% of the gap.
The overall level of the gap has remained at roughly the same level for the last ten years in monetary terms. In contrast to the profile given in the media to the level of corporation tax paid by multinationals and big businesses, corporation tax accounts for only 10% of the tax gap, compared to 35% for VAT and 43% for income tax, NIC and CGT. As far as tax payer type is concerned, over half was down to SME's, which may account for the some of Government's concentrating on them for Making Tax Digital (MTD).
The comparison of MTD to Real Time Information (RTI) for employers, may not be appropriate as the underlying issues are quite different – RTI was in part about accelerating the payment of PAYE and NIC, which the tax gap figures indicate may have been successful, whereas HMRC indicate that much of the tax gap for SMEs seems to mostly relate to errors in returns as opposed to late payment.
1.2 Responses to the consultation on Help to Save1
A response to the July 2016 consultation on the framework for implementation and policy design of the Help to Save scheme has been published. The Government has decided to operate the bonus in a similar way to the help to buy ISA, so that the bonus will be calculated on the highest balance in the two year bonus period. We do not anticipate there will be any material tax implications for the account holder.
The message from the respondents was a request for simplicity for accountholders, provider(s) and the government administrator. Having considered the responses, the government has decided the following:
- NS&I will be the single provider for all Help to Save accounts;
- the accounts will automatically roll-over after two years for a second two year term;
- the bonus will be decided on the basis of the highest balance achieved by the saver in each two year term;
- after four years, the accounts will be rolled over into successor accounts. Help to Save scheme savers are unlikely to need an ISA wrapper to receive interest tax free from their successor help to save account;
- eligibility for the scheme will not be restricted by existing savings and monthly payments cannot be made in excess of the £50 limit, for example, to catch up after a missed payment.
The new accounts will be available by April 2018.
1.3 Updated HMRC DOTAS guidance
HMRC has published its updated guidance on the disclosure of tax avoidance scheme provisions (DOTAS).
The guidance now incorporates updates for sections on the following hallmarks which were updated or introduced as new from 23 February 2016 and where the tax concerned is income tax, capital gains tax or NIC:
- the amended standardised tax product hallmark (hallmark 5), which has dropped grandfathering and includes other changes;
- the amended loss schemes hallmark (hallmark 6);
- the new financial products hallmark (new hallmark 9).
The flow charts on pages 26 and 27 of HMRC's guidance do not yet incorporate hallmark 9, so may need to be updated.
www.gov.uk/government/uploads/system/uploads/attachment_data/file/560047/dotas-guidance.pdf
1.4 Global platform for collaboration on tax
The International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG) have launched a 'platform for collaboration on tax'.
This is a joint initiative aimed at intensifying cooperation on tax issues between the four groups, with a view to strengthening their support for the benefit of developing countries. They propose to create a new platform as a central vehicle for their enhanced cooperation, enabling them to develop a common approach, deliver joint outputs, and respond to requests for a global dialogue on tax matters.
www.un.org/esa/ffd/events/event/ie-side-event-collaboration-on-tax.html
1.5 HMRC's duty of confidentiality
The Supreme Court has delivered a powerful judgement reinforcing the common law duty that public bodies owe and HMRC owes to the taxpayer.
This Ingenious case, R (on the application of Ingenious Media Holdings plc and another) v HMRC [2016] UKSC 54, examined the extent of the operation of Commissioners for Revenue and Customs Act 2005 that sets out both that duty and exceptions to it. Lord Toulson, for a unanimous Supreme Court, made it clear that notwithstanding the statute, there was an underlying common law duty that where information of a personal or confidential nature is obtained or received in the exercise of a legal power or in furtherance of a public duty, the recipient will in general owe a duty to the person from whom it was received or to whom it relates not to use it for other purposes. He went on to rule that any statutory derogation from that principle was to be construed narrowly.
On the arguments on HMRC's behalf, he added:
As to the justifications put forward by HMRC, a general desire to foster good relations with the media or to publicise HMRC's views about elaborate tax avoidance schemes cannot possibly justify a senior or any other official of HMRC discussing the affairs of individual tax payers with journalists.
www.bailii.org/uk/cases/UKSC/2016/54.html
1.6 Revenue Scotland revises its view on partial Charities relief from LBTT
Revenue Scotland now accepts that a charity may be able claim Charities relief from Land and Buildings Transaction Tax (LBTT) in respect of its share where a charity is one of a number of buyers who are, or who will become common owners if the appropriate criteria are met.
Its guidance has now been amended and explains how to calculate partial Charities relief. Revenue Scotland has also confirmed that if partial Charities relief could have been claimed in the past but was not, it may now be claimed. This can be either by amending the relevant return online, or by writing to Revenue Scotland, as appropriate.
www.revenue.scot/news/news/revenue-scotland-revises-view-partial-charities-relief
1.7 HMRC Agent update
HMRC's October/November 2016 agent update includes points on digital age engagement, developments on HMRC processes, class 2 NIC compliance and Making Tax Digital (MTD).
- Digital age engagement: the update advises tax agent not yet involved in 'digital working together' that would like to be to contact their professional body (for example, CIOT or ICAEW).
- Open issues register: HMRC has engaged 3,000 new customer service staff since 2015 to help with issues such as delays in self-assessment repayments. The ability to complete and saving of HMRC forms online has been raised as a priority project.
- Class 2 NIC and self assessment – a number of practical compliance issues are outlined.
HMRC's Agent Services team is focusing on deliverables to support MTD for Business for self assessment.
These include:
- a new Online Agent Authorisation (OAA) service for commercial software that will allow agents to be appointed to represent clients for MTD for self assessment;
- a basic agent subscription process to collect data and undertake minimal checks required under MTD;
- agent access to Application Programming Interface (API) that delivers HMRC services via third party software. The API giving agents access to Marriage Allowance is scheduled for October/November.
Following the launch of the Marriage Allowance API, the plans are to deliver and roll out MTD services from December 2016 to a small number of agents, making iterations in preparation for being ready for MTD's public beta testing in April 2017.
www.gov.uk/government/uploads/system/uploads/attachment_data/file/560850/Agent_Update__WT_56.pdf
2. PAYE AND EMPLOYMENT
2.1 Response to consultation on NIC elections for share schemes
HMRC has published a response to its April 2016 consultation on the need for the continued availability of an employment related securities NIC election. There is still a need and the election facility will therefore be retained.
2.2 Cancellation of secondary annuity market plan
HM Treasury has announced that the Government has decided not to take forward plans to introduce a secondary annuities market.
The Economic Secretary to the Treasury, Simon Kirby, said:
'Allowing consumers to sell on their annuity income was always dependent on balancing the creation of an effective market with making sure consumers are properly protected.
It has become clear that we cannot guarantee consumers will get good value for money in a market that is likely to be small and limited.
Pursuing this policy in these circumstances would put consumers at risk – this is something that I am not prepared to do.'
In the light of recent changes to the pension rules and the above announcement, please get in touch with a member of the S&W financial services team if you would like to discuss the other options available for managing your pension investments.
www.gov.uk/government/news/government-cancels-plans-to-create-a-market-for-secondary-annuities
3. BUSINESS TAX
3.1 Extension of interim securitisation regime
HMRC has announced that it will extend the interim securitisation regime. The few companies that remain within it can continue to be taxed on their actual cash profit rather than their accounting profit. The interim regime was due to expire by 1 January 2017, but will be extended until the end of 2036.
Existing regulations will be amended so that securitisation companies taxed under that regime can continue to use UK generally accepted accounting practice as it stood at 31 December 2004 as the basis for their tax computations. The amendment affects securitisation companies that existed before the introduction of the permanent securitisation regime in 2006.
HMRC indicates there is still a relatively small number of companies within the interim regime with securitised assets with a life of 25 years or more. These companies would be adversely impacted by the change of tax treatment from the expiry of the interim regime.
The regulations are expected to come into force in December 2016.
4. VAT
4.1 Updates to HMRC's VAT Finance manual
We have been informed that HMRC has updated its VAT Finance manual as follows:
- VATFIN2450 Payment handling/processing - CJEU judgments in Bookit and National Exhibition Centre;
- VATFIN5700 SIPPS;
- VATFIN4600 Trading Platforms;
- VATFIN5550 Crowdfunding;
- VATFIN5100 Exemption for management of special investment funds– updated to include CJEU judgement in Fiscale Eenheid X;
- VATFIN5120 Exemption for management of special investment funds: Pension funds – updated to include ATP Pension services;
- VATFIN5350 Meaning of 'management' – updated to include ATP Pension Services and Fiscale Eenheid X.
Also updated is VATFIN3255, to include the Upper Tribunal reference in DPAS to the CJEU.
4.2 VAT MTIC case
The Upper Tribunal (UT) has followed the First-tier Tribunal in deciding that Prizeflex Limited either had actual knowledge, or should have known, that the mobile phone transactions it entered into in May and June 2006 were connected with fraud.
4.3 Registration of a UK VAT representative
From 7 November 2016, HMRC has the power to refuse to register, or to cancel the existing registration of, a VAT representative of a non-EU established business, where it is satisfied that the representative is not a fit and proper person to act in that capacity.
It is currently unclear as to which of several definitions HMRC has of 'fit and proper' will be used.
www.legislation.gov.uk/uksi/2016/989/pdfs/uksi_20160989_en.pdf
4.4 VAT status of grant of rights for craft fair pitches
Was the supply of a pitch at a craft fair a supply of immovable property? The Upper Tribunal (UT) considered that the supply had an overwhelming element of the services of the provision of a craft fair and should therefore be a single standard rated supply.
In June 2015, the First-tier Tribunal (FTT) held on the facts of the Kati Zombory-Moldovan case that a contract between a craft fair organiser and a stallholder to use a stall pitch to sell craft goods was an exempt supply of the right to occupy land (a licence). Each stallholder was allocated a particular pitch, rather than being able to set up a pitch at any place on the craft fair site.
The UT held the contract between Kati Zombory-Moldovan trading as Craft Carnival and the stallholder, meant Craft Carnival had significant responsibilities for organising a high-quality, expertly run craft and garden fair, rather than just the provision of a pitch.
www.bailii.org/uk/cases/UKUT/TCC/2016/433.html
www.bailii.org/uk/cases/UKFTT/TC/2015/TC04538.html
4.5 Which entity in a VAT group has the right to recover overpaid VAT?
In the joined cases of MG Rover/BMW and Lloyds Bank/Standard Chartered, the Upper Tribunal (UT) has held that where a VAT group member submits a reclaim for overpaid VAT, it makes that submission as agent for the VAT group. The VAT group member is the person entitled to receive the repayment arising. The First-tier Tribunal (FTT) held in the case of MG Rover/BMW that when a member of the VAT group left, the right to receive payment for VAT it had overpaid remained with the company leaving the VAT group. The UT has reversed that decision.
The FTT decision in Standard Chartered/Lloyds was that it was the VAT group that made the claim that was entitled to receive the payment, even if the company who had borne the cost of the overpaid VAT had left the group. The UT has confirmed this.
There are some procedural issues which HMRC will need to deal with. HMRC will be required to check which VAT group the claim relates to and to inform the claimant that the claim will only be recognized as one on made on behalf of the VAT group the company was a member of at the time the claim relates to. Whether or not the relevant VAT group wishes to accept the repayment claim will be a decision for that VAT group. For example, a claim for repayment may have partial exemption implications for the VAT group.
Contrary to a previous UT decision, the UT also decided that, in the absence of conflicting authority, it should follow the Scottish Court of Sessions, here the case of Taylor Clark Leisure. We understand HMRC has been given leave to appeal the Scottish Court of Sessions decision in Taylor Clark Leisure to the Supreme Court.
www.bailii.org/uk/cases/UKUT/TCC/2016/434.html
www.scotcourts.gov.uk/search-judgments/judgment?id=ad3919a7-8980-69d2-b500-ff0000d74aa7
5. AND FINALLY
Big Win for HMRC
You wonder how hard they tried. At the time of going to press, HMRC hadn't commented on the case of R v HMRC ex parte Ingenious Media Holdings plc and another, mentioned above, but when it does it will be fascinating to see what it says.
The problem with this case is its soap opera qualities: off-the-record briefings; journalist newshounds; 'scams for scumbags'. You couldn't make it up.
If you see past these lurid details, though, and look at it in the And finally way, an interesting question emerges. What would have happened if the decision had gone the other way?
HMRC may break confidentiality to brief journalists - and others. In fact, there are times when it would be advisable. In fact, it is part of the job to brief. Come to that, why didn't officers brief when they needed to? 'May' becomes 'must', and omission becomes failure. Does anyone really think that HMRC would have preferred that?
Ingenious are understandably trumpeting this case as a win; but we bet that somewhere in Parliament Street, if you listen intently, you will hear quiet sighs of relief.
Footnotes
1. The Help to Save scheme as detailed in the 2016 Budget is designed to help those on low incomes save a 'rainy day' fund. To be eligible, individuals must be in work and in receipt of universal credit or working tax credit. The scheme is based on participants saving between £1 and £50 per month for two years, after which time they will receive a bonus of 50% of their balance, meaning that the maximum value of an account would be £1,800 after two years. Accounts can be rolled over for a further two year term and the maximum total balance after four years will be £3,600 (including all bonuses).
