1.1 Professional bodies update guidance on tax planning – wef 1 March 2017
Seven professional bodies with an interest in tax have published updated Professional Conduct in Relation to Taxation, the guidance on the standards expected of tax advisers, to take effect from 1 March 2017. The sections covering standards around tax planning, particularly in relation to the facilitation and promotion of tax avoidance have been expanded, following a Government challenge set in March 2015.
In a joint press release, the professional bodies state that they have strengthened the five fundamental principles of their existing guidance, namely: integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Five new 'Standards for Tax Planning' have been added that their members must observe.
The new standards include a standard on 'tax planning arrangements' requiring that members must not create, encourage or promote tax planning arrangements or structures that set out to achieve results contrary to the clear intention of Parliament in enacting the relevant legislation, or are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.
The press release indicates that the bodies believe the guidance strikes 'an appropriate balance' between making it clear that the behaviour of the minority of advisers who continue to facilitate and promote tax avoidance schemes is unacceptable and enabling their members to continue with tax planning work to help ensure their clients pay the right amount of tax as intended by law.
The professional bodies consulted with HMRC throughout the process and HMRC has endorsed the updated guidance.
The new guidance, some FAQs and a letter from the FST Jane Ellison, MP is at:
1.2 HMRC guidance for those receiving letters about overseas assets
HMRC has issued guidance for those UK residents receiving HMRC client notification letters from an adviser, agent or financial institution - concerning international tax compliance.
It advises recipients to check that their tax affairs are up to date and to disclose any undisclosed tax liabilities relating to foreign income or assets. The responsibility for sending these letters lies with various financial institutions and financial service providers such as tax advisers and IFAs. This note suggests that taxpayers need to take action; this should not, however, mislead the taxpayer into thinking something is necessarily wrong. The letters are not targeted beyond the individuals being resident and having overseas tax affairs.
Letters are due to be sent by 31 August 2017.
1.3 HMRC guidance on serial tax avoidance
HMRC has issued a factsheet concerning serial tax avoidance when HMRC is entitled to issue warning notices. The notices will require taxpayers to provide information on any tax avoidance scheme they use during a five year period from the day after the date of the notice.
A serial tax avoidance scheme notice can be given within 90 days of the date a 'relevant defeat' is incurred. 'Relevant defeat' can include:
- GAAR counteraction;
- counteraction of a DOTAS disclosed scheme; and
- the receipt of a follower notice that is not withdrawn and where corrective action has been taken.
The serial tax avoidance legislation was enacted in FA2016 and does not apply to schemes entered into before 15 September 2016 and defeated by HMRC before 6 April 2017.
If HMRC defeats a tax avoidance scheme that a taxpayer used during a warning period, HMRC may impose certain sanctions, although it cannot impose these sanctions if the scheme was entered into before 15 September 2016, when the legislation came into effect.
1.4 UK and Columbia double tax agreement
The United Kingdom and Colombia signed a double taxation agreement on 2 November 2016.
2. PRIVATE CLIENT
2.1 Could discovery be used to assess the user of a tax avoidance scheme?
The First-tier Tribunal (FTT) has held that although HMRC made a discovery of an insufficiency of income tax, nevertheless, although the action that led to the loss was deliberate, the loss itself was not brought about deliberately. As a result, the discovery assessment was invalid and HMRC could not rely on the extended time limit of 20 years to enquire into the appellant's tax affairs.
The appellant Raymond Tooth's 2007/08 tax return was filed electronically on 30 January 2009 with a white space disclosure note about the scheme used, including the fact that it had been disclosed under DOTAS, but no scheme reference number had been issued at that time. HMRC enquired into the return and the losses claimed using the scheme on 14 August 2009. It was not until 24 October 2014, however, that a discovery assessment was raised.
In addressing whether or not there had been a discovery, the FTT noted the low threshold necessary for there to be a discovery and agreed that the assessing officer did make a discovery of insufficiency of tax in October 2014, without the need for the discovery of 'something new'.
It was then necessary to consider whether or not the appellant or his advisers had brought about the loss deliberately (TMA 1970 s.29(4)) as it was incorrectly prepared as HMRC contended. Due to problems with the third party tax return software, recognised by HMRC, the loss claimed in respect of the failed tax avoidance scheme was entered on the 'wrong' pages of the tax return by way of a workaround by Mr Tooth's accountants. As a result, instead of generating a free-standing tax credit, the workaround resulted in loss relief incorrectly being given immediately and automatically.
The FTT commented that a 'causal link' was required between the insufficiency of tax and the deliberate action, and held that neither Mr Tooth, nor his advisers were aware of the effect the workaround would have. It therefore followed that there was nothing Mr Tooth, or a person acting on his behalf, did that deliberately brought about an insufficiency of tax.
2.2 No penalties where incorrect professional advice was obtained and relied upon
In a case concerning the incorrect claiming of private residence relief for a portion of the gain on a residential property disposal, the First-tier Tribunal (FTT) has held that a penalty for inaccuracy (FA 2007 Sch 24 para 1) could be set aside as the taxpayer had relied on professional advice, even though that advice was wrong.
On the advice of their accountants, the appellants, Mr & Mrs Carrasco, made a claim for private residence relief (PRR) in their tax returns, in respect of the sale of a property, which was their main family residence for a period of time only after exchange of contracts for its sale. They subsequently withdrew their appeals against the denial of PRR, but continued with their appeals against the penalty assessments.
The FTT noted that tax rules are 'generally complex and often convoluted', and taxpayers may need to rely upon the expertise of a professional adviser who has, or who professes to have, expertise in tax matters when filing a tax return, even if the taxpayer themselves has a basic knowledge of tax.
The FTT added that it will 'nearly always' be reasonable for a person to rely on professional advice sought from a professed expert in the applicable discipline, 'unless there are factors to the knowledge of the recipient of the advice which indicate to him/her that it ought not to be relied upon.' The FTT considered Mr & Mrs Carrasco did take reasonable care to avoid an inaccuracy so that the penalty assessments raised by HMRC should be cancelled.
3. PAYE AND EMPLOYMENT
3.1 Employment law obligations and taxi drivers
An employment tribunal has held that Uber taxi drivers were entitled to the national minimum wage and holiday pay. The case illustrates it is possible for employers using self-employed personal service workers to have holiday pay and national minimum wage obligations. While no tax issues were considered, the difference between employment law and tax rules for such workers is currently being reviewed by the Government and there may be tax implications for the parties in due course.
The Uber structure has three entities as far as the UK is concerned:
- Uber bv (UBV) – a Dutch entity holding the legal rights to the Uber application;
- Uber London Ltd (ULL), which holds a private hirer vehicle licence for operating in London and which organises the invitation and acceptance of the bookings;
- Uber Britannia Ltd (UBL), which holds the private hire vehicle licences for locations outside London. The case only looked at taxi drivers operating in London, so there was no further reference to UBL.
Uber has 30,000 registered drivers in the London area and around 2 million passengers registered to use their service in London.
The contract between the driver and the Uber business was with UBV. The idea was that UBV did not provide any transport services, but merely the mechanism for concluding fares and rides between the taxi customer and the driver. ULL acted as the agent between the driver and UBV in recording the bookings, disciplining drivers and so on. Invoicing was organised by UBV on behalf of the driver, with UBV paying the driver net of its commission.
The employment tribunal found that UBV controlled the contract with the passenger, did not permit the driver to negotiate the customer fee, subjected the drivers to particular conditions, and would typically bear the cost of any customer non-payment. It found that the worker's work time started when they entered the fare territory and had the Uber app switched on. It also indicated the nature of the relationship of the taxi driver with Uber would make it difficult to say that the driver was in business on his own account.
The employment tribunal held that the drivers were actually providing personal services as workers for ULL, giving them holiday pay and national minimum wage entitlements. If the tribunal was wrong on the employing entity, then UBV was their 'employer'.
Working relationships between taxi drivers and businesses organising taxis for customers and the related tax issues, direct and indirect, can be complex, as illustrated in the recent case of Metro Cars.
The Metro Cars case is at:
www.financeandtaxtribunals.gov.uk/judgmentfiles/j9336/TC05358.pdf, see Update 19/9/16 item 4.2
3.2 Employer financed retirement benefits and trivial benefits
SI 2016/1036 amends the employer financed retirement benefit regulations exempting specified benefits from the charge to employment tax.
The amendment provides for a qualifying person to be exempt from employment tax on the provision of trivial benefits to, or in respect of, a former employee that would have been exempted had they been provided to or in respect of a current employee.
The amendment has effect for the 2016/17 tax year.
3.3 Determining which employee should be taxed on a benefit
In assessing which of a choice of family employees should be assessed on the benefit of care home fees paid by an employer on behalf of an employee, the First-tier Tribunal (FTT) has held that the list in ITEPA 2003 s.721(4), which sets out the people that are members of a person's family, is in the order in which family members should be assessed.
The FTT found that, on the instructions of her father, Ms Sarah Baylis had acted as an authorised disclosed agent on behalf of the family company, Val Wyatt Marine Limited (VWML), of which she was the finance director, when signing a contract for the company to pay a care home to provide care for her mother. Sarah's father was the managing director and majority shareholder of VWML and the FTT also held that the resulting benefit-in-kind was chargeable on him, in preference to his daughter.
HMRC had contended that Sarah Baylis had personally contracted with the care home, with the company paying the fees, but that if it was decided that the company had contracted, it was the company that could decide the employee who should be assessed on the benefit. The company had in fact chosen Ms Baylis.
The FTT considered the hierarchy of family members in ITEPA 2003 s.721(4), noting that 'spouse' was at the top, coming before 'parent'. It held this hierarchy would apply in assessing which family member should be assessed on the benefit. The FTT also considered that even if this hierarchy was not applied and it fell to an employer's discretion to decide which of two employees bore the liability of the benefit, assuming the employee had a right of appeal, it would still find that the benefit should have been borne by Mr Baylis. On the facts presented to it, Mr Baylis consistently assumed financial responsibility for his wife and instructed his daughter to effect the arrangements for the company to pay.
3.4 Social Security Regulations: clarity for workers who perform duties abroad
HMRC has clarified that from November 2016 four categories of travel expenses incurred in respect of employees who perform duties abroad are excluded from the charge to Class 1A National Insurance Contributions.
The categories are:
- travel between employments where duties are performed abroad;
- travel costs and expenses where duties are performed abroad: earner's travel;
- travel costs and expenses where duties performed abroad: visiting spouse/civil partner or child's travel; and
- foreign accommodation and subsistence costs and expenses for overseas employments.
3.5 Class 1 NIC for UK continental shelf workers
HMRC has updated the Social Security (Contributions) Regulations 2001 (SSCR) for secondary class 1 contributions for UK Continental Shelf Workers.
The update will ensure the regulations works as intended by updating the cross-references to refer to current rather than obsolete legislation.
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.