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 Date set for publication of Finance Bill 2020
The Financial Secretary to the Treasury has announced that Finance Bill 2020 will be published on 19 March 2020.
The Finance Bill will be available eight days after the Budget, which is to be delivered on 11 March 2020. The Government has confirmed that it is committed to the draft legislation published in July 2019, though this is subject to the 2020 Budget.
2. Private client
2.1 CA upholds pension unauthorised payment charge
The CA has agreed with the FTT and UT in upholding the unauthorised payment charge and surcharge on a transfer out of the taxpayer’s pension. At this hearing, the taxpayer disputed that the initial transfer of funds met the definition of ‘payment’, and that the HMRC assessment was valid, but lost on both points.
The taxpayer entered into a scheme whereby the funds in his pension were ultimately transferred to a company where he could control the investments, including in assets in which registered pension schemes are not permitted to invest. The first step was a payment from his pension scheme to a new pension. The FTT held this to be an unauthorised payment as the new scheme was not established under a valid trust, and charged penalties.
At this hearing, the taxpayer argued that as the recipient was not established properly the payment was ineffective, as in breach of trust, and title to the money had not left the pension scheme when the ‘payment’ was made. The CA rejected this, deciding that a practical view should be taken. The funds had left the pension scheme, and now been controlled by the taxpayer for over ten years, so in practice the definition of payment was met.
The second ground related to the fact that HMRC’s initial assessment has been on a later step in the scheme, so the taxpayer held that it was not a valid assessment of the step now agreed to be the unauthorised payment. The CA decided that the scope of the assessment was wide enough to encompass the earlier transfer, rejecting the taxpayer’s more narrow reading.
One judge criticised the taxpayer’s arguments, stating ‘Both grounds seem to me to be examples of tax litigation as a board game, with large prizes for the winners’. He noted that had the court allowed the appeal the charge to tax would become ineffective in the most egregious cases of use of tax schemes.
Clark v HMRC  EWCA Civ 204
2.2 Pension equalisation could trigger tax charges
Concerns have been raised that increases in pension funds under the new equalisation rules could cause taxpayers to breach the lifetime allowance. In some cases, this would result in tax charges.
Following a court ruling, some pension schemes will be increasing the value of a portion of members’ funds as part of a new legal requirement to equalise funds between male and female members. Concerns have been raised that in some cases this will cause the funds to exceed the lifetime allowance. If this cap is breached, tax charges apply, though HMRC has confirmed that taxpayers who have already taken out lifetime allowance fixed protection will not be affected. Other taxpayers can apply to make a late notification for protection, though HMRC has not indicated that these will necessarily be accepted.
3. Trusts, estates and IHT
3.1 Further HMRC comments on IHT on overseas property Q&As
The professional bodies have obtained further clarification from HMRC on two questions about the extension of IHT to overseas property representing UK residential property, on which their views previously differed from HMRC’s. These both relate to collateral on loans.
After discussions with the professional bodies, HMRC has clarified the treatment of collateral for a relevant loan. It notes that the legislation is not intended to interfere with normal banking arrangements, and agrees that where the lender has a general right of set-off against the taxpayer’s other funds, this will not necessarily mean that all the funds are within the UK IHT net. The treatment may depend on the facts of a particular case.
The second point relates to the deductibility of relevant loans against collateral that has been brought into the UK IHT net. HMRC has now agreed that in the example supplied by the professional bodies, the loan is deductible.
3.2 HMRC Trusts and Estates Newsletter
The latest edition of the HMRC Trusts and Estates Newsletter has been released, with reminders on various points and an announcement that IHT can now be paid directly from NS&I accounts.
Points raised include the following:
- A reminder of the CGT changes coming in on 6 April;
- A reminder to register trusts on the TRS, though the ability to make changes to submitted data is currently restricted to a pool of testers;
- A note that the technical consultation on the fifth EU anti-money laundering directive; and
- A note that NS&I has joined the direct payment scheme, such that IHT on an estate can now be paid directly from the deceased’s NS&I accounts.
4. PAYE and employment
4.1 HMT releases its report on the changes to the off-payroll working rules
HMT has published its report on the review of the off-payroll working rules, which will take effect on 6 April 2020. It confirms that there will be a ‘soft landing’ for penalties in the first year of the reforms.
The report reiterates that the off-payroll reforms currently in force in the public sector will apply to the private sector from 6 April 2020. Penalties will not, however, be imposed in the first year, except in relation to deliberate non-compliance. HMRC has committed to commissioning external research to review the impact of the new rules in October 2020. The report makes clear that HMRC will not open historical enquiries on the basis of information obtained under the implementation of the reforms. It also notes that new legislation will be passed to impose a legal obligation on clients to provide information on their size to clients and agencies. This information is necessary for agencies and workers to comply with the reforms. Legislation will also be amended to exclude wholly overseas organisations with no UK presence from the regime.
The Employment Status Manual has been updated the reflect the changes announced in this report.
Policy paper - Review of changes to the off-payroll working rules: report and conclusions: www.gov.uk/government/publications/review-of-changes-to-the-off-payroll-working-rules-report-and-conclusions
Communication resources: www.gov.uk/government/publications/off-payroll-working-rules-communication-resources
4.2 HMRC succeeds in another off-payroll TV presenter case
The FTT has ruled that the contract between Eamonn Holmes and ITV amounted to an employment relationship under the IR35 laws. Mr Holmes’ expertise meant he required less oversight from ITV, but this did not mean ITV lacked control over the relationship.
Mr Holmes lost his appeal against determinations by HMRC regarding his engagement with ITV through his personal service company. The central issue was the degree of control exercised by Mr Holmes by virtue of his extensive experience in television presenting. The FTT agreed with HMRC that a lesser degree of oversight due to the presenter’s expertise did not mean ITV lacked the control needed for an employment relationship. ITV may have taken a collaborative approach with Mr Holmes, but it retained ultimate control over the final programme. If, therefore, the service company had not been used, an employment relationship would have existed. The FTT agreed with HMRC’s decision that the IR35 rules applied, and Mr Holmes was subject to employment tax and NICs as if he had been employed by ITV.
Red, White and Green Limited v HMRC Appeal number TC/2017/03624
4.3 Refunds for voluntary restitution paid under the loan charge
A scheme has been drafted to facilitate the repayment of the loan charge where the liability was extinguished by the changes made in the recent review of the regime.
A review of the loan charge was undertaken by Sir Amyas Morse in late 2019. As a result, the laws were amended to exclude particular loans. This included loans taken out prior to 9 December 2010 and qualifying loans for unprotected years before 6 April 2016 where the use of the loan scheme was disclosed to HMRC. Some taxpayers had, however, already settled their liabilities in respect of those loans. The proposed Disguised Remuneration Repayment Scheme will facilitate the repayment of those funds. The draft regulations require affected taxpayers to apply for repayment before 1 October 2021.
4.4 Five arrests made under suspicion of loan charge fraud
It has been reported that five people have been arrested on suspicion of fraud in relation to the loan charge. HMRC has confirmed that it is investigating at least 200 other people who are suspected of criminally enabling tax fraud.
The individuals arrested are suspected of promoting arrangements to circumvent the loan charge. The arrests followed searches of several properties across England and Northern Ireland.
5. Business tax
5.1 New guidance for Collective Investment Vehicles and chargeable gains
HMRC has published new guidance on the transparency and exemption elections for Collective Investment Vehicles (CIVs). These elections prevent multiple charges to tax where the CIV and the investor may both otherwise be taxed on a gain.
Non-UK resident CIVs are subject to CT on disposals of UK property under the non-resident chargeable gains rules introduced in April 2019. The transparency election allows qualifying CIVs to be treated as partnerships for the purposes of taxing chargeable gains on UK property. The exemption election allows a qualifying CIV to be treated as exempt from CT on chargeable gains on UK property. These elections prevent the double taxation that may otherwise occur where a CIV is taxed on the property gain and the investor is taxed on the gain arising on disposal of his interest in the CIV. The new guidance provides a summary of the qualifying criteria for these elections. It also explains how to make the elections and includes reporting templates.
6. Tax publications and webinars
The following client webinars are coming up over the next few months.
- 17 March 2020: S&W Sessions: The Budget
7. And finally
7.1 Dear Chancellor, about your Budget…
Our wish list has no tax. Are you just fed up with the same old tax chestnuts cropping up this time of year as we approach the Budget? Pensions, Land taxes, capital taxes - the usual suspects are dusted off time and time again and through sheer persistence the punters are right every now and then. They are just a negative wish list; please don’t touch pensions, big houses and so on. We’ve all got used to discounting them and we know the Chancellor will go his own way to raising the money that we can only guess.
As an alternative approach to reform, we’d like to see the Budget economics separated from tax. If the chancellor needs to raise so much, once we know the number in a real Budget, we can then debate later the mechanics for how he does it. That way we are all honest about where the money is otherwise to come from if our pet project for tax reduction goes through. Even better, we get to get the tax law right without the economics getting in the way. Oh please!
And while we are at it, our tax code is out of control. President Trump introduced a two-regulations-abolished-for-one new-regulation-introduced rule: how about something similar for tax? Not less tax. Just less taxation.
Two Budget proposals; no tax, but ah! two dreams.
|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
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.