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 Updated OECD guidance on tax treaties and COVID-19
The OECD has issued updated guidance on how double taxation agreements should be interpreted in the light of the current pandemic. The OECD takes the view that the pandemic generally should not result in changes of tax residence. It may, however, result in changes to the right to tax employment income.
The guidance covers three areas: permanent establishments (PEs), tax residence and income from employment. The OECD does not expect that temporary changes in staff location due to the pandemic would cause a PE to be created. These movements are unlikely to be permanent, and the conclusion of contracts in a different jurisdiction is unlikely to be habitual. Similarly, temporary changes in location are unlikely to result in a change of tax residence for individuals or companies. For individuals, the outcome of the tie-breaker test should not be affected by temporary relocations. For companies, temporary relocations of senior staff should not outweigh the other factors to be considered when determining residence. There may, however, be changes to the taxation of employment income where an individual carries out employment in a different jurisdiction. The new jurisdiction in which the work is undertaken may have primary taxing rights. This could result in new withholding and administrative requirements for the employer and employee.
These views are those of the OECD Secretariat. Tax authorities are not bound to follow the guidance.
1.2 CIOT urges Government to consult on tax changes
The CIOT has submitted representations for the Spring Budget, currently planned for 3 March, advising that the Government should undertake consultations on property income, CT, and CGT. It suggests that areas of these taxes could be improved, aiding taxpayers recovering from the economic impact of the pandemic.
On CGT, the CIOT has carefully considered the recent recommendations from the Office of Tax Simplification (OTS) report. These are wide-ranging, including a suggestion to align rates with IT. The CIOT suggests that a consultation on the future role and shape of CGT in the tax system would help to inform this debate. The OTS report did not address wider tax policy issues. A consultation should consider how to improve revenue with the fewest adverse consequences, and whether or not now is the time for fundamental reform.
On property income, the CIOT has requested a consultation on the basis period for property income when making tax digital (MTD) is introduced, aiming to align it with trading income. MTD is due to become mandatory in April 2023, requiring landlords and sole traders to report income online. The CIOT is concerned that the mismatch between trading basis periods, and the tax year, will create a mismatch in reporting for sole traders who also have property income. If VAT registered, such an individual could face having to make fifteen updates every twelve months.
On CT, the CIOT has made more recommendations, including permitting businesses to carry back losses three years, increasing capital allowances permanently, clarifying the rules on re-organisations and ownership changes and simplifying transfer pricing following Brexit.
2. Private client
2.1 Late filing penalties postponed to 28 February
Self-assessment taxpayers will not be charged the usual £100 late filing penalty if they miss the 31 January filing deadline, provided that they file online by 28 February. Returns submitted in February will still be counted as late for all other purposes, and the tax payment deadline of 31 January remains unchanged.
This is not a formal change to the filing deadline; it is just a change to the penalty charging regime on late returns. HMRC is still asking as many taxpayers as possible to file their returns by the deadline.
If tax is not paid by 31 January, late payment interest will be applied from 1 February. If necessary, payment can be made before a return is filed.
Taxpayers who are having difficulty in paying can ask HMRC for a ‘time to pay’ arrangement, but HMRC will not agree to these before a return is filed. These taxpayers should file the return as soon as possible, and contact HMRC to discuss the payment plan options afterwards.
3. PAYE and employment
3.1 No further delays to IR35 reform
The Financial Secretary has confirmed that the reforms to off-payroll working in the private sector will not be delayed again due to the pandemic.
The statement was given in a response to a written question for HMT. Rt. Hon. Jesse Norman MP stated that the Government remains committed to introducing the policy as enacted by Parliament. The changes are to come into effect on 6 April 2021.
3.2 HMRC guidance on COVID-19 issues for non-resident and non-domiciled employees
HMRC has issued further guidance for non-UK residents and UK residents who are eligible for overseas workday relief (OWR).
The guidance notes that in general, employment income earned while a non-UK resident is stranded in the UK during the pandemic is not subject to UK income tax if it is taxed in the individual’s home jurisdiction. Evidence will need to be provided that they were prevented from leaving the UK during the period.
For UK residents eligible for OWR, a day spent working in the UK does still count as a UK workday, even if the individual had been prevented from leaving the UK by the pandemic travel restrictions.
4. Business tax
4.1 Wet signatures required for corporate non-resident landlords
HMRC has confirmed to the CIOT that income tax returns for corporate non-resident landlords must be signed with physical signatures.
The CIOT asked HMRC if scanned signatures or e-signatures would be accepted for submissions of the 2019/2020 income tax returns for corporate non-resident landlords (Forms SA700). The SA700 is a paper form. It cannot be submitted online. HMRC has confirmed that only physical, or ‘wet’, signatures will be accepted. Forms SA700 signed with scanned or electronic signatures will not be valid.
4.2 New protocol to the UK/Germany tax treaty
A new protocol will introduce new provisions into the UK/Germany Double Taxation Convention (DTC). It will not amend the withholding tax rates in the DTC.
The changes are in line with standard provisions in the OECD Model Taxation Convention. They include a principal purpose test to prevent tax treaty abuse and an anti-avoidance provision for permanent establishments. The protocol will come into force after Parliamentary procedures have been completed and diplomatic notes have been exchanged. A joint declaration was also signed, which facilitates further negotiations to amend the DTC by the end of the year.
5.1 How to deal with errors in deferred VAT
HMRC has published guidance explaining what to do about errors in VAT returns covered by the VAT deferral in 2020.
Businesses were able to defer VAT due between 20 March and 30 June 2020 as part of the Government’s economic support package. The deferred VAT is due on 31 March 2021, unless the business opts in to pay by instalments under the VAT deferral new payment scheme. The updated guidance explains how to correct errors in VAT returns covered by the VAT deferral period. Businesses should complete Form VAT652 and send it to the VAT Error Correction Team. If the error results in additional VAT payable, that amount is due for payment by 31 March 2021 unless included in the new payment scheme. To include the additional payments in the new payment scheme, the business must contact HMRC by 29 January 2021. Additional amounts cannot be included in the new payment scheme after a business has opted into it.
6. Tax publications and webinars
The following client webinars are coming up over the next week.
7. And finally
7.1 The struggle is real
Tax may often be compared to the labours of Hercules, but last week, a judge struck a chord in our hearts with the analysis below, of just how important one word in the legislation can be. Domicile partial closure notices have had an exciting journey through the courts, with different judges making diametrically opposed findings on the same point. With so many struggling, what are taxpayers supposed to do in the meantime?
We can but hope that the courts will eventually pin down Proteus, whatsoever his shape, and extend our particular appreciation for the judge’s handy footnote.
85. We accept that, as a matter of language, domicile or a claim to the remittance basis is capable of being a ‘matter’ arising in the course of an enquiry. Viewed in isolation, the word ‘matter’ is undoubtedly protean in nature. However, even Proteus yielded up his secrets when he was captured and held fast, so it is necessary to fasten down the legislation and determine whether the FTT’s wide construction of it was correct.
 - By Menelaus according to Homer and by Aristaeus according to Virgil.
|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.