This is a summary of the key tax events for the week ended 24 June It has been compiled by Anita Monteith, Jane Moore and Ian Young.

Transcription

1 TAX FACULTY WEEKLY NEWS UPDATE Newswire: 917 This is a summary of the key tax events for the week ended 24 June It has been compiled by Anita Monteith, Jane Moore and Ian Young. This newswire contains all the individual postings we have made to the Tax Faculty website over the past seven days. It includes both news items (ion.icaew.com/taxfaculty) and new discussions (ion.icaew.com/taxforum). CONTENTS All change for buy to let landlords join our webinar on 9 July 1 Pre-population of bank and building society interest 2 Self employed plumber a worker, so entitled to employment rights 2 Trust registration service year two 3 Requirement to correct HMRC letters 4 Tax abuse and insolvency 4 Capital allowances versus depreciation Office of Tax Simplification publishes its report 5 MTD, fulfilment houses and company UTR news in Agent update 66 5 HMRC s June 2018 Employer Bulletin published 6 State Aid cases involving taxation recent cases 7 Large businesses requirement to publish their tax strategies 8 All change for buy to let landlords join our webinar on 9 July It has long been said that every time the chancellor stands up, tax professionals are in work for another year but one group of taxpayers hit with several changes in very quick succession are the buy to let landlords. This is the topic for the Tax Faculty s next webinar, on Monday 9 July Many of the changes were introduced by George Osborne when he was chancellor; some of these are still trickling through and there are more still in the pipeline. Trying to keep up to date with all the changes in property taxation is becoming a full-time job particularly as there is no cohesive pattern to the changes to the taxation of property. Some of the changes seem to be pushing the private landlord down the corporate route rather than personal ownership but that is not a stated government policy. Will future changes penalise the corporate landlord? There have been many changes affecting the calculation of the taxable rental profit in the 2018 tax return, how much interest is allowable, what if there is a loss, what basis should the accounts be prepared under, what can be claimed as tax allowable when new furniture/white goods have been bought, what travel expenses can be claimed? For the answer to these questions and others, register for our property webinar which takes place on 9 July at 11:00. Sue Moore, private client technical manager at the Tax Faculty, will give a roundup of the changes in place and still to come, together with practical tips. For example, did you know that you can now claim the fixed mileage rate for travel to and from the rental property? 1

2 Tax Faculty webinars are free to faculty members. Non-members can register for a small charge. Pre-population of bank and building society interest HMRC has confirmed its plans for populating bank and building society interest in income tax calculations for 2017/18 and in tax codes for 2018/19. Taxpayers in self assessment There will be no pre-population of bank and building society interest in 2017/18 self assessment (SA) tax returns or in 2018/19 tax codes for taxpayers who are required to complete SA returns. The work that HMRC had been doing on pre-population for taxpayers in SA has been put on hold following their review and reprioritisation of current projects. Taxpayers in PAYE and not in self assessment HMRC will be using interest data for 2017/18 from banks and building societies to: Populate PAYE income tax calculations for 2017/18. This will result in a P800 tax calculation or a PA302 simple assessment being issued if the correct amount of tax has not been paid (a 50 tolerance is applied to underpayments); The interest figure for 2017/18 will also be used to determine the tax code for 2018/19 on the assumption that the amount received will not change significantly. HMRC carried out a similar exercise using interest data for 2016/17 from banks and building societies but only used the data received for sole accounts. When processing the 2017/18 data HMRC will use data for both sole and joint accounts. HMRC will assume that interest on joint accounts is shared equally between the joint account holders taxpayers or their agent will need to contact HMRC to correct the information where the beneficial interest is not shared equally. HMRC s plan for the future is to obtain and process interest data from banks and building societies more frequently than the current annual reports but this work has also been put on hold following their review and reprioritisation of current projects. Checking and querying incorrect interest figures Taxpayers who are not in self assessment should check the information on which HMRC has based their PAYE income tax calculation, at least annually. HMRC generally carries forward figures for personal pension contributions, gift aid, employment expenses and other income, assuming they remain the same from year to year, so they are frequently out of date and therefore incorrect. The information being used by HMRC is shown on PAYE coding notices and on P800 and PA302 calculations but many unrepresented taxpayers are not aware of the need to check these documents. When advising HMRC of figures for interest income it is important to provide a separate figure for each account. This is particularly important during the period before HMRC has processed the data from banks and building societies, to avoid HMRC subsequently overwriting (incorrectly) the figures provided. If an HMRC contact centre officer says that they need only one figure it is advisable to insist on providing the full breakdown by account. HMRC contact centre staff have recently been reminded of the importance of entering the data for each account separately. Where the data for a particular account differs from that provided by a bank or building society and the taxpayer can provide documentary evidence, HMRC will take the issue up with the bank or building society rather than expecting the taxpayer to do so. Self employed plumber a worker, so entitled to employment rights The Supreme Court (SC) has dismissed appeals against the decision of the Employment Tribunal (ET) (and the Employment Appeal Tribunal and the Court of Appeal) that a plumber who was selfemployed for tax and VAT-registered was a limb (b) worker under the employment rights Act 1996 (ERA 1996) and an employee under s83(2)(a) Equality Act 2010 (EA 2010). 2

3 The judgment was handed down on 13 June 2018 in the case Pimlico Plumbers and Another v Smith [2018] UKSC 29. The case concerned the status of Gary Smith, who undertook work for Pimlico Plumbers (PP) as a self-employed for tax and VAT-registered plumber in the period 2005 to 2011 and whose contract was terminated after he suffered a heart attack. The court mined the case law surrounding the two elements of s230(3)(b) ERA 1996, (known as limb (b) ), namely the individual undertaking to perform personally any work or services for the other party to the contract who is not a client or customer of the individual. Under personal performance, the SC upheld the ET s finding that the dominant feature of Mr Smith s contracts with PP was an obligation of personal performance. Limitation of his ability to appoint a substitute was significant any substitute had to be from the ranks of those bound to PP by an identical suite of heavy obligations. On the client or customer point, the SC agreed with the lower courts decision that PP was not a client or customer of Mr Smith. The contract cast obligations on the parties not only during the performance by Mr Smith of the successive assignments for PP but also during the periods between his work on assignments, i.e. it was an umbrella contract. Other features of the contract militated against PP being a client or customer of Mr Smith, for example the obligations on Mr Smith to wear the PP uniform, use a PP van and carry a PP ID card, and the terms of payment which betrayed a grip inconsistent with being an independent contractor. The SC s decision that Mr Smith is a limb (b) worker and an employee under s83(2)(a) EA 2010 means that the ET can consider Mr Smith s claims for sick pay, paid holiday and disability discrimination. Trust registration service year two All has been quiet on the trust registration service (TRS) since the big push to get express trusts registered by the 5 March 2018 deadline if they had a tax consequence in the 2016/17 tax year. The TRS is the government s response to the fourth money laundering directive, see our earlier news items. This year all that is required is: for trusts that had a tax consequence in 2017/18, but did not have one in 2016/17, to be registered. The deadline for this is 5 October 2018; and for the details entered for the previous tax year to be checked and corrected/amended as necessary, with a deadline of 31 January The first requirement can be carried out, but at present the second cannot. If an amendment is required to previously inputted information the ability to amend online is not available. It is currently estimated that the amendment facility will be online around July 2019 a 15-month delay. In the meantime the tick box on the SA900 trust tax return Q20 asking if the TRS has been checked and updated can be left blank as the TRS cannot be updated. Changes to the lead trustee or the correspondence address should be notified to HMRC in writing but otherwise changes can be held over until the functionality is on the TRS. HMRC recently hosted a meeting to find out lessons learned around the TRS. We have permission to publish the minutes, which can be accessed below. As you will see from the minutes the next phase to look forward to is the fifth money laundering directive with an implementation deadline of March

4 Requirement to correct HMRC letters In the last few days HMRC has been sending out letters reminding taxpayers that all their foreign income and assets, where there might be tax to pay, should be declared to HMRC before 30 September 2018 under the requirement to correct rules, before stiffer new penalties come into effect. Clients need to be reminded that where there may be omissions (eg, rent from overseas property) they must make a disclosure before 30 September From 1 October 2018, penalties of 150%-plus will apply for those who fail to pay all the tax due relating to offshore matters, rather than typically 10% to 40% under the WDF. Taxpayers (or agents on their behalf) can use the worldwide disclosure facility (WDF) to correct past offshore non-compliance if it is not possible to simply make an amendment. However, the WDF offers no immunity from fraud, so in some cases using the contractual disclosure facility may be a better route. With the increased amount of data collected by HMRC under the automatic exchange of information agreements, in particular via the common reporting standard (CRS), the chance of errors or omissions being detected is much greater. By September 2018 over 100 jurisdictions will be sharing information under the CRS. There are no safe havens. HMRC has collected in the region of 3 billion over recent years in additional tax, penalties and interest from the UK s international agreements and disclosure facilities. Tax Faculty members can find more information in an article The requirement to correct and new penalties in May 2018 TAXline. Tax abuse and insolvency On 11 April 2018, ICAEW published its response to HMRC s discussion document tax abuse and insolvency. In the discussion document, HMRC believes that the insolvency process is being abused by a small minority of taxpayers who are abusing the system. The document suggests a number of possible options for tackling this problem including the potential transfer of tax liabilities from the company to the directors/controlling minds who abused the insolvency system and potentially making them jointly and severally liable for tax debts on insolvency. In our response, we said that HMRC should provide more evidence about the scale of the perceived problems before any decisions are made about what new measures are required. The proposed measures are potentially penal in nature and it is essential that any measures are properly targeted. We would have thought that in the examples highlighted in the document, HMRC would already have a number of tools in the box to tackle such behaviours. Government policy is to promote an entrepreneurial society and, as such, the possibility that a business might fail and be resurrected should not, in itself, trigger such provisions. That said, it is right that those involved in multiple failures could and should receive far greater scrutiny by the relevant authorities and at a much earlier stage. It is also important to remember that, before the Enterprise Act 2002, HMRC was a preferential creditor, but a policy decision was taken to remove this priority and that policy has continued to the current day. Clearly abuses and/or illegal acts should be tackled, but it serves as a reminder that HMRC is now simply an unsecured creditor and, like other unsecured creditors, runs the risk of losing out when insolvency occurs. We also note that the auditing and filing requirements for smaller companies are also much less onerous than they were in the past. Further, it is possible to set up a company using the Companies House portal with no money laundering or due diligence procedures needed. A balance needs to be struck between making it easy to set up and run a business and making it too easy for those rules to be exploited by the unscrupulous. 4

5 Capital allowances versus depreciation Office of Tax Simplification publishes its report The Office of Tax Simplification (OTS) has published a report which considers the options for replacing capital allowances with depreciation. The Tax Faculty submitted a letter to the OTS for consideration as part of the call for evidence phase, in which we explained that although this could make the tax rules simpler for some businesses there would be challenges for others (while also noting that small businesses generally use the annual investment allowance which gives tax relief in full for tangible assets.) We also questioned whether it was the right time to introduce further change to the tax code given both Brexit and Making Tax Digital are on the horizon for many - see ICAEW rep 137/17. The 88-page OTS report looks at whether any such transition would be practical and what the financial impact might be. In its summary conclusion the report says: Replacing CAs with depreciation would be a radical change. It could be done and this report describes how. It is not clear that it should be done. The long term benefits it would deliver would not be enough to make the disruption worthwhile. However, nothing in this review has made the structure of the CA regime seem simple. It is complicated and at times unfair as between different businesses. The only benefit of the way that tax relief is currently given is that it exists already and some people are familiar with it. The CA system should be improved. Ways of achieving this are set out in this report. Some can happen quickly, others will take longer to implement. This detailed review of the capital allowances regime follows the OTS previous report on the simplification of the corporation tax computation. MTD, fulfilment houses and company UTR news in Agent update 66 Agent update 66, the summer edition, has now been published and includes articles covering current favourite, Making Tax Digital, as well as articles on the Fulfilment House Due Diligence Scheme and the digitisation of Venture Capital Trusts from 31 March On MTD, there is emphasis on what agents can do now to plan and prepare their own businesses as well as those of their clients. This remains a difficult subject for HMRC to really market and gain much publicity, since the only real software for businesses to try out is for income tax, while the VAT products are still being built and tested. The VAT service is in an invitation only phase and GOV.UK written guidance is not yet available. For information on VAT eligibility, visit HMRC s digital guidance at Help and support for Making Tax Digital. The pilot will be opened up more widely later this year. The Agent update explains: Even if your clients are not eligible to join yet, or don t want to, encouraging them to start keeping digital records now if they don t already will make the transition much more straightforward later. You can sign up a client to the MTD Income Tax pilot now. Currently, the client will need to be a sole trader with income from one business and/or have income from property (excluding furnished holiday lettings). For more information about the service and business eligibility, please visit, Use software to send Income Tax updates. To help prepare your clients it will be good practice to support them in keeping records of their income and expenses digitally through software. You can also help your clients to sign up for a Business Tax Account, as some MTD services will be hosted in that account. This is explained in more detail on our own pages at 5

6 Fulfilment House Due Diligence Scheme applications There is also a reminder about the looming deadline, 30 June 2018, for Fulfilment House Due Diligence Scheme (FHDDS) applications. The scheme relates to UK businesses that store any goods imported from outside the European Union (EU) that are owned by, or on behalf of, someone established outside the EU. These businesses must apply for approval by HMRC, if those goods are offered for sale in the UK. Businesses that started trading on or after 1 April 2018 need to apply on or before 30 September There are penalties of up to 3,000 for late applications. Registered businesses must carry out certain checks and keep records from 1 April If a business meets the criteria of this scheme but does not have approval from HMRC, they will not be allowed to trade as a fulfilment business from 1 April 2019 and risk a 10,000 penalty and a criminal conviction. Businesses that only store or fulfil goods that they own, or only store or fulfil goods that are not imported from outside the EU, are not required to register. More information, including how to register, can be found at, Apply for the Fulfilment House Due Diligence Scheme (Notice FH1). Digitalisation of Venture Capital Trust (VCT) return From 31 March 2018, paper VCT returns are no longer accepted by HMRC. If your client needs to complete the VCT regulation 22/22A return, they will have been sent a new template spreadsheet and user guide. Guidance will be available on GOV.UK, and more information will be provided in the next Agent Update. Company Tax Unique Tax Reference (UTR) For security reasons HMRC is unable to provide details of a company s UTR over the telephone. HMRC issues a UTR to all new companies on registration and in the future, if your clients register at Companies House at Register your company, Register online, Register Now, they will also be able to see their UTR online once the registration details have been passed to HMRC. HMRC s June 2018 Employer Bulletin published HMRC has published its June 2018 Employer Bulletin, a bi-monthly update for employers, payroll bureaux and advisers. The leading article is on filing end-of-year employer-provided benefits-in-kind and expenses forms P11D and P11D(b) for 2017/18. This links to the forms and HMRC guidance. These forms must be submitted to HMRC by 6 July (don t forget also to give BiK information to employees by 6 July). P11Ds are required for all employees to whom a BiK was provided or non-exempt expenses paid which were not payrolled. Class 1A NIC needs to be accounted for on P11D(b), including for employees whose BiK were payrolled. Payment of Class 1A must reach HMRC by 19 July if by cheque or 22 July if electronic. If no BiK or non-exempt expenses were paid during 2017/18 and HMRC issued a paper P11D(b), an electronic notice to file or a reminder letter, it will be necessary for file a declaration that no return of Class 1A NIC is due, otherwise HMRC will chase for forms P11D/P11D(b) that are not due. Some tips from HMRC: Don t put 6 or 5 April as start or end dates for BiK where they were provided across the yearend unless those dates were genuinely the start or end dates for particular BiK. If submitting a paper P11D(b) don t forget to sign it. 6

7 Submit only one P11D(b) per PAYE scheme as the latest P11D(b) filed overwrites previous forms submitted for the year so don t file one, say, for directors and one for other staff or separate forms for different branches. On P11D(b), if an entry is needed in Adjustments in Part 4, leave Part 1 Box C blank. On P11D, where a beneficial loan has been provided, complete all parts of Section H. Paper forms P11D and P11D(b) must be sent to: P11D Support Team BP1102 HMRC Department 1250 Newcastle NE98 1ZZ There is also an article on BiK with cash allowances, flexible benefit packages and salary sacrifice. These now all come under the generic term optional remuneration arrangements (OpRA). All pre-6 April 2017 BiK moved into the new rules from 6 April 2017 save for cars, accommodation and school fees which remain under the old rules until April 2021 unless renewed or varied (school fees remain under the old rules until 2021 and can be varied or renewed provided the arrangement relates to the same child and school). When completing P11Ds for cars be sure to enter the correct CO2 emissions and all accessories, capital contributions and private use payments. A capital contribution is a one-off payment towards buying the car and private use payments are monthly or annual payments for the use of the car. Both must be made out of net pay. Other articles include national minimum wage rates (we would mention that the April 2018 rates commenced on the first day of the first pay period from 1 April 2018), student loan start notices, updating HMRC s Basic PAYE Tools (ensure the automatic update setting is on Yes ) and the public consultation on off-payroll working in the private sector (which we shall be responding to). Finally, don t miss out you can sign up for alerts which tell you when Employer Bulletin is published. If you have any comments on Employer Bulletin, either contact the editor at HMRC or post a comment below. State Aid cases involving taxation recent cases On 20 June 2018 the European Commission Competition Directorate issued a Press Release announcing its decision that the rulings that Luxembourg had given Engie, formerly known as GDF Suez, in relation to financing structures for two of its operations had resulted in State Aid and that the company is to be asked to pay 120m to Luxembourg. The full judgment will be published, in redacted form, when the commercially sensitive information has been blanked out from the judgment. That same week the Competition Directorate also published its annual report for 2017 plus the staff working paper covering the content of that annual report. The opening paragraph of the tax part of the report states: Confidence in the EU single market depends on creating a level playing field for companies to compete on merit, also when it comes to taxation. For example, a Member State cannot give tax benefits to multinational groups which are not available to stand alone companies (often local businesses), since that would severely distort competition. Developments over the past 12 months In October 2017 the Competition Directorate announced that it had decided to require Luxembourg to recover 250m from Amazon. The detailed letter which set out the reasoning can be accessed by clicking here. 7

8 The Commission also opened, that same month, an investigation into the UK CFC regime, and the group financing exemption, and, in December 2017, into the Netherlands rulings in favour of Ikea. The detailed cases against the UK and Netherlands can be read by clicking here for the UK and clicking here for the Netherlands. The Competition Directorate website has a page devoted to all the State Aid cases which you can access by clicking here. You can read our ICAEW, short, published analyses of each of the earlier cases by clicking on the links below: Luxembourg and Amazon UK CFC regime Netherland and Ikea Large businesses requirement to publish their tax strategies Large businesses have been required to publish details of their tax strategy since 2017 and HMRC has just updated the guidance that it issued in 2016 when the relevant legislation was going through parliament. The updated guidance provides more information about the companies/groups that must publish and when they must do so. The guidance Publish your large business tax strategy provides details on: who must publish a strategy who s responsible for publishing the strategy what must be in your strategy where to publish your strategy when your strategy must be published penalties Large businesses with turnover over 200m or a balance sheet greater than 2bn must publish their tax strategies. Also groups that exceed the OECD country by country reporting threshold of 750m will also need to publish their tax strategy. In terms of the strategy and how risk is managed the HMRC guidance states: What must be in your strategy Your tax strategy should be approved by your Board of Directors, be in line with the overall strategy and operation of your business and include: details of the paragraph of the legislation it complies with the financial year the strategy relates to how your business manages UK tax risks your business s attitude to tax planning the level of risk your business is prepared to accept for UK taxation how your business works with HMRC any other relevant information relating to taxation It does not need to include the amounts of taxes and duties paid as part of your tax strategy, or information that might be commercially sensitive. How your business manages UK tax risks Include all information that demonstrates your business s approach to risk management and governance. This may include, but is not limited to: 8

9 how your business identifies and reduces inherent tax risk due to the size, complexity and extent of change in the business the governance framework you use to manage tax risk the levels of oversight and involvement of the Board of Directors a high level description of any key roles, responsibilities, systems and controls in place to manage tax risk Your business s attitude to tax planning Outline your business s attitude towards tax planning and give details relating to UK taxation. Also include all information regarding the approach your business has towards to tax planning, including: details of any code of conduct your business has for tax planning an outline of what influences your business s tax planning and how this affects your tax strategy your approach to structuring tax planning an explanation of why you might seek external tax planning advice The level of risk your business is prepared to accept for UK taxation Explain: what levels of risk your business is prepared to accept, and give details of the internal governance process for measuring this the influence relevant stakeholders have 9

10 ICAEW Tax Faculty Chartered Accountants Hall T +44 (0) Moorgate Place E taxfac@icaew.com London EC2R 6EA icaew.com/taxfac Copyright ICAEW 2018 All rights reserved. If you want to reproduce or redistribute any of the material in this publication, you should first get ICAEW s permission in writing. ICAEW will not be liable for any reliance you place on the information in this material. You should seek independent advice. Laws and regulations referred to in this publication are stated as at the date of publication. Every effort has been made to make sure the information it contains is accurate at the time of creation. ICAEW cannot guarantee the completeness or accuracy of the information in this publication and shall not be responsible for errors or inaccuracies. Under no circumstances shall ICAEW be liable for any reliance by you on any information in this publication. About ICAEW ICAEW connects over 149,000 chartered accountants worldwide, providing this community of professionals with the power to build and sustain strong economies. Training, developing and supporting accountants throughout their career, we ensure that they have the expertise and values to meet the needs of tomorrow s businesses. Our profession is right at the heart of the decisions that will define the future, and we contribute by sharing our knowledge, insight and capabilities with others. That way, we can be sure that we are building robust, accountable and fair economies across the globe. ICAEW is a member of Chartered Accountants Worldwide (CAW), which brings together 11 chartered accountancy bodies, representing more than 1.6 million members and students globally. About the Tax Faculty Internationally recognised as a source of expertise, the Tax Faculty is a leading authority on taxation. It is responsible for making submissions to tax authorities on behalf of ICAEW and does this with support from more than 130 volunteers, many of whom are wellknown names in the tax world. 10