This is a summary of the key tax events for the week ended 21 August It has been compiled by Anita Monteith, Jane Moore and Ian Young.

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1 WEEKLY NEWS UPDATE NEWSWIRE 826 This is a summary of the key tax events for the week ended 21 August 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 ( and new discussions we have added to our forum ( Contents News items: 1. New rate of interest on late paid tax 2. HMRC s Making Tax Digital webinars 3. HMRC s latest customer survey results individuals, small business and agents 4. IR35: Moving the responsibility for public sector contracts 5. Latest HMRC Employer Bulletin 6. Webinar entrepreneurs relief your questions answered 7. Taxation of non-uk domiciliaries 8. Strengthening tax avoidance sanctions and deterrents: the latest government proposals New rate of interest on late paid tax Rate falls to 2.75% from 23 August 2016 The reduction in the bank base rate to 0.25% from 4 August 2016 has resulted in a corresponding reduction in the rate of interest charged on tax paid late. The late payment interest rate is calculated as bank base rate plus 2.5%. It therefore falls from 3.0% to 2.75% with effect from 23 August This applies to all unpaid tax and duties, with the exception of interest on quarterly instalments of corporation tax, which is charged at 1.25% (reduced from 1.5%) with effect from 15 August The rate of interest on overpaid tax is calculated as bank base rate minus 1%, but with an overriding minimum of 0.5%. The rate therefore remains unchanged at 0.5%. Full details of current and previous HMRC interest rates can be found in the updated Interest rates for late and early payments

2 HMRC s Making Tax Digital webinars Huge consultation begins with a webinar series On 15 August, HMRC published six consultation documents explaining the government s proposals to Make Tax Digital. These will also introduce new record keeping requirements for businesses and change a considerable amount of the administration of the UK tax system. We wrote short briefings on these and all are available from our news item, Making tax digital: HMRC issues six consultation documents. HMRC has now announced a programme of webinars and face-to-face events across the UK which will provide more detail on the consultations and an opportunity to ask questions and give feedback. The details are: Webinars These run for one hour and you will be able to ask questions during the presentation and get answers from the HMRC host. The webinar dates are: 6 September 2016, 1pm to 2pm 9 September 2016, 11am to midday 14 September 2016, 3pm to 4pm 15 September 2016, 11am to midday 19 September 2016, 2pm to 3pm 21 September 2016, 3pm to 4pm 22 September 2016, 11am to midday 27 September 2016, 1pm to 2pm You can register in advance, and you should log in at least 5 minutes before a live webinar is due to start. Face-to-face events HMRC to register your interest, giving: your nearest city the consultation document or subject area you re interested in HMRC will respond to you with details of the date, time and location of an event. The Tax Faculty will be announcing a series of webinars and events of our own shortly, as we begin to inform members about the detailed proposals and gather your views. HMRC s latest customer survey results individuals, small business and agents How do each of these groups perceive HMRC s efficiency, fairness and effectiveness? HMRC has published the results of its latest customer survey Individuals, Small Business and Agents Customer Survey 2015 HMRC has been conducting surveys of its customers since This latest survey has a new structure and approach. It covers the following areas: Interactions with HMRC in the previous 12 months Rating of customer experience 2

3 Perceptions of HMRC, both general and in relation to compliance Demographics The fieldwork was conducted between September and November The results are not comparable to the previous surveys but will act as a baseline for future years. In brief, the results of the survey show: Individuals Online services were rated more positively than telephone helplines. Overall 61% of individuals who had interacted with HMRC in the previous 12 months rated the experience as being positive. The most important driver of good experience was the fundamental issue of HMRC getting the transaction right. Other keys factors were: the acceptability of the time taken to reach the end result, having systems that prevented mistakes, and queries and issues being resolved. 35% of individuals felt that HMRC was efficient, 38% rated it as fair and 41% as effective. A very significant 71% of individuals felt that income tax evasion is widespread with just over half of those surveyed feeling that someone evading tax is likely to be caught and 40% thinking that HMRC is putting the right amount of effort into reducing tax evasion. 80% felt that it was unacceptable to evade income tax or make inaccurate tax credit claims. Small business Small businesses also rated online services more positively than telephone helplines and 72% reported positive experiences of interacting with HMRC. The main drivers of good experience were similar to those for individuals, as were the scores for efficiency, fairness and effectiveness. Small businesses were much less likely to think that evasion is widespread (27%) and 65% thought that evaders were likely to be caught. 53% felt that HMRC was putting the right amount of effort into countering evasion and 90% felt that tax evasion is unacceptable. Agents Agents reported a lower level of overall positive experience at 40%, and the score for HMRC s efficiency was also lower at only 17%. Agents were asked a smaller number of questions about compliance. Over half (56%) agreed that it was likely that regular evaders would be caught and 47% felt that HMRC was dedicating the right level of effort to reducing tax evasion. It will be very interesting to see how the results of the survey move in future years. IR35: Moving the responsibility for public sector contracts Response to consultation on off-payroll working in the public sector: reform of the intermediaries legislation The Tax Faculty has submitted its response to the consultation document Off-payroll working in the public sector: reform of the intermediaries legislation published by HMRC in May 2016, see ICAEWREP 127/16. The proposal announced in Budget 2016, is that from April 2017, the government will make public sector bodies (PSBs) and agencies responsible for operating the tax rules that apply to off-payroll working in the public sector. 3

4 The list of public bodies caught by the Freedom of Information Act definition is lengthy and comprehensive. It is possible that the intermediary nearest to the PSC may not actually know that the client at the top is on this list. This problem could be resolved by imposing a requirement on the PSB client to tell the worker and the intermediary paying the worker of its PSB status. We are concerned that PSBs are likely to be more risk averse than personal service companies when assessing whether or not a particular contract is caught by the IR35 legislation. This will result in the IR35 rules being applied more frequently and in cases where tax law does not indicate employment status. While we consider that this proposal might work where a contract is directly between the PSB and the personal service company (PSC), moving the responsibility away from the PSB where an agency is involved would make it increasingly difficult to establish the full and correct facts of how the engagement is implemented. The decision should remain with the PSB. Our key points are listed below. 1. One of the practical problems when implementing the existing rules, is that it can be very difficult for the PSC to obtain a copy of the contract between the client and the agency/next intermediary down the chain. If there is a chain involved this problem would simply be replicated for the agency nearest to the PSC under the current proposals 2. If the responsibility and liability rest with the PSB, there is a further practical difficulty that the departments responsible for procurement, payroll and where the worker is actually working, may be remote from one another. In such cases, those involved may not even realise that the relationship is one which needs to be considered for the PSC legislation. It may also be difficult to obtain a copy of the contract in time to apply RTI in cases where it is felt necessary to put the worker on the payroll. 3. It is possible that due to a lack of expertise and/or to save administrative costs and to manage risk, some PSBs will adopt a blanket rule that all PSC workers must be put on the payroll, even where IR35 may not apply. The consequences would be: cost increases to PSBs, or use of an agency to by-pass the rule. 4. Where workers are in greater supply, PSBs taking on workers using an agency often set a fixed price for work. Under these proposals, overcautious operation of PSC rules by the agency will usually see the worker effectively forced to suffer the cost of the employers NIC as the agency seeks to retain its profit margin. 5. If working for a PSB is perceived to be taxed more harshly than for private sector companies, PSBs may find it harder to attract more specialist talent or will have to pay more for it. 6. This change does not give employment rights any more than the PSC legislation does currently. This will be very confusing and even misleading for workers affected. 7. People engaged through PSCs who work in both the public and private sectors will find their tax affairs more complicated. 4

5 Latest HMRC Employer Bulletin Consultations on employment matters, and updates and reminders for employers and their advisers HMRC has published the August 2016 edition of its Employer Bulletin This latest update for employers and their advisers highlights: New consultation on payroll and employment tax matters The Apprenticeship Levy A warning about telephone scams We have also mentioned below a few other items that may be of interest. New consultations The latest consultation on payroll and employment matters have been covered in Tax Faculty news items here is a summary with links to our items. Alignment of dates for making good on benefits-in-kind Consultation on aligning the dates by which employees have to make good the cost of their employer-provided benefits-in-kind. Simplifying the PAYE settlement agreement process Consultation on simplifying the process for agreeing and reporting items in employers PAYE settlement agreements. Salary sacrifice for the provision of benefits-in-kind Consultation on limiting the range of employee benefits-in-kind that attract income tax and NIC advantages when provided under salary sacrifice arrangements. Simplification of the tax and National Insurance treatment of termination payments A consultation on draft legislation, following the summer 2015 consultation on termination payments. Payrolling non-cash vouchers and credit tokens The government has published draft regulations and an explanatory memorandum for technical consultation. The draft regulations allow employers to voluntarily payroll the benefit of non-cash vouchers and credit tokens provided to employees. Automatic penalties for late intermediary returns Those classed as employment intermediaries, who have to submit quarterly returns to HMRC, will start to receive automatic penalties for late returns from 5 August National Insurance numbers with KC prefix HMRC says a small number of National Insurance numbers (NINOs) with prefix KC were issued recently and may be causing some problems for employers. The NINOs with the prefix KC are valid and individuals receiving them should use them as normal. If you are experiencing issues when submitting Real Time Information (RTI) data for an employee with a KC NINO, the following steps should be taken: the NINO field should be left blank you should make sure the employee address field is completed in these cases if you/your employee has a KC NINO, there is no need to request a new one. Basic PAYE tools HMRC says a number of users have reported Basic PAYE tools (BPT) running slowly and taking over two minutes to change between screens, then displaying the not responding error message, despite their computers meeting the published requirements. 5

6 When it investigated further, HMRC found that the users were trying to use BPT beyond its intended capacity. It reminds employers that BPT was designed to be used by small employers with nine or fewer live employees. It should not be used for multiple employers of that size. Users dealing with more than one employer may need to look at third party commercial software. Webinar entrepreneurs relief your questions answered Partnerships, jointly held shares, post cessation disposals and more On 26 June, Pete Miller and Sarah Ghaffari hosted a webinar which outlined the recent changes to entrepreneurs relief. During the webinar, Pete explained that a number of clauses (clauses 73-75) in Finance Bill 2016 were introduced to rectify unintended consequences of Finance Act 2015, in relation to partnerships, associated disposals and joint ventures. Numerous amendments have been made to these clauses throughout the parliamentary process, so if you are struggling to get your head around all the recent changes you may find this webinar useful. It is available to Tax Faculty members only, so if you aren t a member, why not join now under our special half year off for just 54? Several questions were asked during the session, which we did not have time to answer. These questions have been now been answered and can be found in our webinar questions and answers sheet. Taxation of non-uk domiciliaries Summary of responses to the 2015 consultation, and a new consultation about IHT on UK residential property In 2015 the government consulted on proposed reforms to the taxation of non-uk domiciliaries ( non-doms ). It has now published a summary of responses to that consultation plus new consultations on two areas: applying inheritance tax (IHT) to UK residential property, and improving the business investment relief scheme. Reforms to the taxation of non-doms were announced in the 2015 summer budget, followed by consultation documents in September ICAEW responded to the consultation in TAXREP 59/15. This first consultation looked at introducing deemed domicile for income tax and capital gains tax (CGT) currently it applies just for IHT and changing the rules for when an individual becomes deemed domiciled in the UK. HMRC is planning to go ahead with these changes from April 2017 and has published draft legislation for comment. The responses to the 2015 consultation and new consultations are in Reforms to the taxation of non-domiciles: further consultation, published on 19 August The deadline to respond to the new consultations is 20 October Deemed domicile The deemed domicile rule in place for IHT is that an individual becomes deemed domiciled after being present in the UK for 17 out of the last 20 years. They do not have to be complete years, and arrival in the UK on 5 April will count as one year. The consultation envisaged a change to make the rule 15 out of 20 years, but looking at years the individual is classed as UK resident rather than mere presence in the UK. This change is going ahead from April 2017 as outlined in the consultation document. 6

7 The response outlines the proposed treatment of some transitional matters relating to the introduction of deemed domicile, including the treatment of assets sold during a period of nonresidence, returning non-doms who has left the UK before becoming deemed domiciled under the 17 out of 20 years rule, rebasing foreign assets for CGT purposes and dealing with mixed funds of capital and income. Non-doms who created offshore trusts before becoming deemed domiciled will not be taxed on trust income and gains retained in the trust; the consultation proposed basing new rules on the taxable value of benefits received by the deemed domiciliary but after consultation this idea will not be pursued. Instead, changes will be made to the application of s86 and s87 of TCGA 1992 to, in effect, apply the charge to deemed domiciliaries in the same way as they apply to UK domiciliaries. Following the consultation the 2,000 de minimis rule which allows non-doms to have unremitted income and gains of this level, without having to opt for the remittance basis and without having to account for UK tax, will remain in place. The proposed changes to the deemed domicile rule meant that the UK domicile status would remain with the individual for six years after leaving the UK. This was not the intent and following the consultation changes will be made such that as now the deemed domicile status will fall away after four years outside the UK. The proposal to treat UK born individuals as immediately UK domiciled when they return to the UK with a two-year period of grace for IHT remains unchanged as do the proposals regarding offshore trusts for these returning UK domiciliaries; income and gains arising in an offshore trust created while the individual was non-uk domiciled will be taxed on an arising basis whilst the individual is resident in the UK and the trust will become liable to UK IHT charges. The HMRC document includes draft legislation for comment, plus explanatory notes. New consultation: IHT on UK residential property Under current IHT rules non-doms are only liable to IHT on property situated in the UK. Many non doms own their UK residential property via an offshore structure and thus take the value of the property outside the scope of UK IHT. The proposal is to remove UK residential property owned by offshore structures from the definition of excluded property such that from April 2017 all residential property will be within the charge to IHT whether held directly or indirectly. One model for the definition of residential property is to use the same definition as the one for nonresident CGT introduced in Finance Act This excludes care or nursing homes, any building with 15 bedrooms or more purpose built for students and occupied as such, and prison and military accommodation. An alternative is to use the definition from the annual tax on enveloped dwellings legislation but this will require more amendments than the CGT definition. The consultation considers what valuation should be used for the property and the question of liability and accountability. Along with other professional bodies ICAEW asked that the government give consideration to allowing some concessions regarding stamp duty land tax if individuals choose to de-envelope their UK residential property. The consultation makes it clear that there is no intention to provide an incentive to de-enveloping. New consultation: business investment relief Business investment relief was introduced in April 2012 to encourage individuals who are taxed on the remittance basis to invest their foreign income and gains in businesses in the UK. 7

8 The government believes that business investment relief can be amended and expanded to make an even greater contribution to the UK economy and is asking for ways the scheme could be changed and simplified as well as comments on the tax avoidance provisions. If you have any comments on the consultation please post them below or Strengthening tax avoidance sanctions and deterrents: the latest Government proposals New measures aimed at those who design, facilitate and promote tax avoidance arrangements On 17 August 2016 HM Revenue & Customs (HMRC) published the latest consultation document setting out the Government s proposals for further measures to tackle tax avoidance. What is it about? In this latest consultation document, the proposed measures are not aimed at the taxpayer who may have entered into a scheme but instead target those who design, facilitate and promote tax avoidance arrangements. The Government is proposing that such people, referred to as enablers, would be subject to penalties where a tax avoidance scheme they were involved with has been defeated. The idea behind these proposals is to discourage the supply of tax avoidance arrangements by stopping them at source. These proposals are the latest in a long line of measures to tackle tax avoidance: the first indication that promoters were in the firing line for penalties was in the March 2015 consultation document, Tackling tax evasion and avoidance, where para 3.31 included the following statement: the government will consider whether it should introduce new surcharges or penalties for all avoiders. It should not be worthwhile to seek out and pay for an avoidance scheme and the advice on its use in an attempt to pay less tax than is due. The government will explore how to ensure promoters and users feel the full impact of their scheme being defeated in the courts. Who is being targeted? The Government s aim is to stop promoters trying to sell tax avoidance schemes by applying a penalty on them when those schemes are defeated. However, it is proposed that the target of the measure is wider than just those who might be usually considered as promoters, ie. those who create, design and promote a tax avoidance scheme. The proposed target of the measure is enablers of tax avoidance arrangements, and potentially will include: anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements and without whom the arrangements as designed could not be implemented. This is clearly a much wider group than a typical promoter, although in order to apply, a person must benefit from implementing the arrangement. Para 2.9 states that it will therefore include: those who develop, or advise/assist those developing, such arrangements and schemes; Independent Financial Advisers, accountants and others who earn fees and commissions in connection with marketing such arrangements, whether or not their activities amount to the promotion of arrangements; and company formation agents, banks, trustees, accountants, lawyers and others who are intrinsic in, and necessary to, the machinery or implementation of, the avoidance. An enabler would include a tax adviser advising a client to implement a tax avoidance arrangement or scheme. It would also include a tax adviser who received, for example, a commission for 8

9 introducing a client who entered into a tax avoidance scheme. It would appear not to include an adviser who did no more than suggest his client went to speak to someone who promoted tax avoidance schemes, although the document goes on to suggest that such a person might be caught if subsequently they did not make proper disclosure of the scheme. This wide definition means that in respect of any one tax avoidance scheme and individual taxpayer, there could be multiple enablers. What is a defeated scheme? A penalty could only be applied if a particular scheme had been defeated. It is proposed that for these purposes, a defeat will follow the new rules currently in the Finance Bill 2016 aimed at strengthening the existing Promoters of Tax Avoidance (POTAS) rules. A relevant defeat can arise in respect of any one (or more) of the following situations: the scheme has been counteracted by the GAAR; a Follower Notice has been issued; the scheme is notifiable under DOTAS or the VAT Disclosure Regimes; or the scheme has been the subject of a targeted avoidance-related rule or unallowable purpose test contained within existing legislation. This definition is likely to cover most tax avoidance schemes and arrangements. The proposal highlights the increasing importance of the GAAR in UK tax legislation. It follows on from the proposed new 60% penalty on taxpayers (also included in the Finance Bill 2016) if it is subsequently found that any scheme or arrangement was counteracted by the GAAR. A relevant defeat will arise on a final determination by a tribunal or court. However, it will also apply if the taxpayer and HMRC agree that the arrangements do not work. The relevant defeat would be the trigger for potential penalties on an enabler regardless of what penalties (if any) are levied on the taxpayer who used the scheme. This trigger may have the unfortunate effect of discouraging the settlement of tax avoidance cases. What are the proposed penalties? The paper invites views on what level of penalties might be applied, how they might be calculated and whether they might be subject to a cap. Suggested approaches are 1) to base the penalty on the benefit to the enabler, or 2) to base it on the amount of tax sought to be avoided by the taxpayers who were helped by the enabler. Under the latter approach, where a tax avoidance scheme was promoted through various enablers, the actual level of penalty on each enabler would depend upon the number of taxpayers they helped. It is proposed that any penalty rules would follow the existing penalty rules for careless behaviour set out in Sch 24 of the FA 2007, with potential mitigation of the penalty depending upon the nature, timing and quality of any disclosures made by the enabler about their enabling of the defeated scheme. It is proposed that the safeguards will include a number of exemptions (presumably with suitable modifications) based on the existing DOTAS tests and which will include: employees, unless there is no other UK-resident promoter; the benign test the person gave advice but was not responsible for the design of any element of the scheme that contributed to the tax advantage; the non-adviser test the person gave advice but it wasn t tax advice (eg company law or accounting); and the ignorance test the person could not reasonably be expected to have had sufficient information to know whether a scheme was notifiable under DOTAS. How long is the consultation period? The consultation runs from 17 August 2016 to 12 October It looks likely that any draft legislation would be published and included as part of the Finance Bill

10 Comment ICAEW supports reasonable measures by the Government to tackle tax avoidance. The actions of a small minority in promoting what are often highly dubious tax avoidance schemes are a matter of public concern and it is reasonable for the Government to take action against those who promote them. It is clearly important that any such measures are properly targeted and do not catch the vast majority of reputable firms giving ordinary tax advice. It has been a matter of concern to ICAEW that many promoters appear to operate outside of any professional rules or oversight. As a professional body, ICAEW does not expect its members to be involved in the creation, facilitation and promotion of aggressive tax avoidance schemes. This expectation on members will be enshrined in the forthcoming update of the Professional Code of Conduct in relation to Taxation (the PCRT) to which ICAEW is a signatory. We would therefore not normally expect our members to be the target of these rules. However, the potentially wide definition of enabler and what arrangements might be caught will present problems for members and could see them potentially caught by these rules. For example, could a member firm be an enabler where it acts as a tax agent and submits a return for a taxpayer, which includes a tax avoidance scheme, which the member did not advise on? While it is clearly not the intention that they are caught, it appears that they could be if HMRC thought that insufficient disclosure was made on the return. More generally, the UK tax code is extremely long, is highly complicated and is often uncertain in how it applies, the GAAR test being a case in point, all of which will mean that some tax planning by members could fall foul of these rules. It will therefore be vital to ensure that these rules are properly targeted and are reasonable and proportionate. HMRC will need to work with the professional bodies to ensure that, in addition, there are established procedures and guidance to help reputable advisers ensure they discharge their legal and professional duties to their clients (as set out in the PCRT for example), but at the same time do not get caught up within these provisions. Will these measures drive out of the market those who promote aggressive tax schemes? It ought to drive out UK based promoters and should help to make lawyers think twice before giving an opinion which is used to help market a tax planning scheme. But there is a danger that it may also drive the UK tax avoidance industry even further offshore. There is also a danger that these measures could have unintended consequences. For example, it may force up PII premiums for the giving of any tax advice, potentially pricing out ordinary taxpayers from receiving proper advice and thereby damaging overall compliance. 10