Tax Update provides you with a round-up of the latest tax developments. Covering matters relevant to individuals, trusts, estates and businesses, it keeps you up-to-date with tax issues that may impact you or your business. If you would like to discuss any aspect in more detail, please speak to your usual Smith & Williamson contact. Alternatively, Ami Jack can introduce you to relevant specialist tax advisors within our firm.
1.1 OECD reports on the taxation of crypto-assets
The OECD has published a report on the tax risks associated with virtual currencies and other crypto-assets. The report identifies particular areas that tax authorities should consider when developing domestic tax policy.
The report identifies four main challenges to the taxation of crypto-assets: the lack of centralised control, the anonymity of owners, valuation difficulties and the hybrid characteristics of these assets. The rapid changes in both the technology facilitating virtual currencies and the currencies themselves also present tax policy challenges. The report describes the tax treatments currently adopted by some jurisdictions, and provides general insights into key considerations for policymakers. These include the need for specific guidance on how virtual currencies relate to existing tax rules, and the extent to which the taxation of virtual currencies should be consistent with the tax treatment of other assets. It also highlights emerging developments that should be considered by tax authorities.
1.2 Tax at the Conservative party conference
The Conservative party conference did not include any major tax announcements. The focus was a reiteration of the COVID-19 economic measures, with an acknowledgement that this is not the moment to set long term plans.
The CIOT has produced a full report on the conference, which is linked below.
1.3 Public Accounts Committee recommends changes to the tax gap statistics
The Public Accounts Committee (PAC) has expressed concern over HMRC’s calculation of the tax gap and its communication of the tax gap statistics. It has also called on HMRC to explain how it will change its compliance approach and its assessment of the costs of complying with Making Tax Digital (MTD).
The tax gap is HMRC’s estimate of the difference between the tax owed and the tax paid in the UK. The PAC has recommended that HMRC takes several actions to improve the reliability of these figures and to reduce the tax gap in the future. The PAC concluded that it is misleading for HMRC to report the tax gap as a single number, and recommends that it be replaced by a range. It recommends that HMRC should write to the PAC to explain how it intends to change its approach to compliance in light of the COVID pandemic. It has also recommended that HMRC assesses the reasonableness of the costs and administrative burdens incurred by taxpayers to implement MTD. The CIOT supported this recommendation in a subsequent press release.
The Chief Executive and First Permanent Secretary of HMRC, Jim Harra, has responded to the PAC in an open letter. He has rejected the PAC’s conclusion that HMRC presented the tax gap figure misleadingly. He also notes that the PAC’s characterisation of HMRC’s tax gap statistics is ‘wholly unfair and unsubstantiated’. HMRC is expected to respond to the PAC’s recommendations in due course.
2. Private client
2.1 COVID-19: HMRC waives daily late filing penalties
Reports indicate that HMRC will not charge daily late filing penalties on 2018/19 returns, to reflect difficulties taxpayers may have experienced over the course of the pandemic. These apply to tax returns over three months late. The £100 immediate penalty for a late filed return, and additional penalties for returns over six months late, are likely still to apply.
Normally, HMRC charges late filing penalties of £10 a day for returns more than three months late, for a maximum of 90 days. Taxpayers who did not take action to file a return in May, June, or July could incur a total penalty of £900 assuming the normal deadline applied to them. As many taxpayers experienced difficulties in that period HMRC has indicated that it will not charge daily penalties for 2018/19 returns.
The online HMRC guidance has not yet been changed to reflect the position, nor has the calculator for taxpayers to estimate their own penalties.www.icaew.com/insights/tax-news/2020/oct-2020/self-assessment-late-filing-daily-penalties-waived
2.2 COVID-19: HMRC investigates sole trader support claims
HMRC has written to 24,000 taxpayers who claimed grants under the COVID-19 self-employment income support scheme to check if they were trading, and therefore eligible for the grant.
The taxpayers are those who were invited to make a claim, and did so, but had previously advised HMRC that they planned to stop trading. HMRC is writing to check whether or not they are in fact actively trading, and if not whether or not the cessation was prior to claiming a grant.
There are provisions in place that will allow claimants to avoid penalties if they contact HMRC and repay any overclaimed grant in good time.
2.3 CGT 30 day returns can now be amended online
HMRC has upgraded the functionality of the online CGT reporting system for residential property disposals such that returns filed using it can now be amended online if necessary.
Previously, these returns could only be amended by phoning HMRC or writing to them.
2.4 HMRC ‘nudge’ letters: deferred consideration
HMRC has announced a new campaign of ‘nudge’ letters, sent to taxpayers as a prompt to ensure the tax return is correct before it is submitted. The new letters target those receiving deferred consideration on disposal of UK shares.
These letters will be sent to individuals that HMRC believes have disposed of shares in an unlisted company, where the consideration includes an element of deferred consideration. These taxpayers will not necessarily have failed to report this, as the return may not have been submitted, or it may not yet have come into charge, so this is partly an educational campaign to inform taxpayers of the correct reporting procedure. The letters will signpost taxpayers to relevant HMRC guidance, and a dedicated helpline.
2.5 HMRC asks taxpayers to explain discrepancies in 2018/19 returns
HMRC is issuing letters to prompt taxpayers to correct suspected errors relating to four types of tax in their returns. These relate to discrepancies between information HMRC has received from external sources, and what the taxpayer has reported, regarding residential property disposals, ATED, investment income, and employment benefits in kind.
Individuals that HMRC believes have failed to report a taxable residential property disposal in 2018/19, will be contacted, principally those selling a second home. The letters will ask taxpayers to consider whether or not CGT could be due on the disposal, and explain their reporting options. HMRC ran a similar campaign last year, which is reported to have had a 15% success rate.
Corporates that have purchased a property worth over £500,000, and have not filed an ATED return, will be contacted this month, and asked to submit one or explain why ATED does not apply.
Taxpayers on whose 2018/19 returns the investment income figures do not match information HMRC has received from financial institutions will be contacted in October or November. These letters will contain details of the accounts and information HMRC has received to assist taxpayers in preparing their 2019/20 returns, and amendments to the 2018/19 returns may be required.
Taxpayers for whom HMRC has received benefit in kind information from their employers that does not match their 2018/19 tax returns will be contacted in October or November. The letters will ask them to check their returns against the P11d form from their employer, and will contain information on how to amend the returns.
3. PAYE and employment
3.1 Employer Bulletin 86
The latest Employer Bulletin provides an update on how Brexit and the economic stimulus measures will affect employers.
It includes information on:
- how to obtain financial support under the Job Retention Bonus and Job Support Scheme;
- the support available on forthcoming changes to the off-payroll working rules;
- changes to NICs and social security agreements with EU Member States; and
- actions an employer may need to take where an employee is affected by the disguised remuneration loan charge.
3.2 New online portal to claim home working tax relief
Employees who are required to work at home can claim tax relief at a flat rate of £6 a week if their employer does not pay them an allowance for this, or cover expenses. HMRC has opened a new online portal to make it easier for employees to make a claim.
The relief will generally be given by adjusting the employee’s PAYE code. It can be backdated, as the portal asks for the date on which homeworking began. If employees are unsure when they will return to the office they can still make a claim, as HMRC has decided to apply the relief until 5 April 2021 regardless. If homeworking continues after this date then a new claim number be submitted.
The service requires a Government Gateway ID, which you will have if you have previously set up a personal tax account or used some other online services. This is simple to set up if you do not have one already.
4. And finally
4.1 Staring down
We can hardly bear it. We nearly choked on our marmalade sandwiches when we saw the report by the Public Accounts Committee (PAC) at 1.3 above commenting on HMRC’s reporting on the Tax Gap. We were a turmoil of emotion: delight that the PAC had clearly been following our reports on the Tax Gap in the guise of Paddington’s Planks over the last few years. Such is the power of the press (us) that the highest in the land, Parliament itself, took up our cause. We were, though, mortified at the lack of official recognition for our pioneering campaign, but we will treat this with appropriate resignation; we are just happy it’s we’ve brought it to the fore.
On the other hand, if HMRC did take up the recommendations, our delightful annual tease will be no more. We will have to think deeply where the hard stare will turn its attention next.
|ATT – Association of Tax Technicians||ICAEW - The Institute of Chartered Accountants in England and Wales||CA – Court of Appeal||ATED – Annual Tax on Enveloped Dwellings||NIC – National Insurance Contribution|
|CIOT – Chartered Institute of Taxation||ICAS - The Institute of Chartered Accountants of Scotland||CJEU - Court of Justice of the European Union||CGT – Capital Gains Tax||PAYE – Pay As You Earn|
|EU – European Union||OECD - Organisation for Economic Co-operation and Development||FTT – First-tier Tribunal||CT – Corporation Tax||R&D – Research & Development|
|EC – European Commission||OTS – Office of Tax Simplification||HC – High Court||IHT – Inheritance Tax||SDLT – Stamp Duty Land Tax|
|HMRC – HM Revenue & Customs||RS – Revenue Scotland||SC – Supreme Court||IT – Income Tax||VAT – Value Added Tax|
|HMT – HM Treasury||UT – Upper Tribunal|
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.