General tax matters

Making tax digital

The Government will not be publishing its response to the making tax digital consultations until January 2017.

In Budget 2015, the Government announced its intention to digitise the tax system by 2020. Given the scale of these changes, it was expected that considerable consultation with taxpayers, tax agents and the software industry would be required before implementation.

To date, six consultation documents have been issued and the consultation period closed on 7 November 2016. These include two consultations around simplifying the tax legislation for small unincorporated businesses and unincorporated landlords.

The government expects to publish its response to the consultations, together with draft legislation to take this forward in January 2017.

While an aim of simplifying the self-assessment system is to be applauded, concerns remain that some aspects of making tax digital will increase compliance burdens for businesses and landlords given the requirement, not only to retain records digitally, but also to submit information to HMRC quarterly, that is on a more frequent basis than is currently required.

There are also deep concerns about the timescale HMRC has set out to introduce this new system, which does not seem to provide adequate time for businesses, their agents and software suppliers to get adequate systems and processes in place.

It will be important to ensure these concerns are addressed in the Government’s response to the consultations in January.

With many taxpayers expected to be using the new digital system from 2018, and some in a pilot from 2017, it is hoped that further detail is provided soon so that the taxpayers and their agents can adequately prepare for this substantial change to the UK tax system.


Tax simplification

Tax simplification has been an on-going process and one that is also reflected in the streamlined Budget timetable, with an Autumn Budget and a Spring Statement from 2018.

Following the recent reviews by the Office of Tax Simplification (OTS) , including one on the alignment of income tax and NICs, the Government has now asked the OTS to carry out reviews on aspects of the VAT system and on stamp duty on share transactions.

Making tax simpler and having a single fiscal major event each year will help bring certainty to individuals and businesses. 


Tax enquiries: closure rules

Legislation will be introduced to provide both HMRC and taxpayers with earlier certainty in respect of individual matters on larger enquiries.

Tax enquiries are the method through which HMRC can investigate a tax return.

Concerns have been raised that taxpayers, who are subject to long-running enquiries, are often faced with many years of uncertainty regarding their tax affairs because the whole tax return remains 'open' throughout this enquiry process.

Legislation is to be introduced, therefore, to provide some certainty for taxpayers and HMRC in these circumstances.

Little detail has been provided on the specifics around these closure rules. HMRC already has powers to bring to a close to part of an enquiry, while keeping specific aspects open, although these are rarely used due to the complexity of the process. Simpler rules to permit taxpayers to trigger the closure would be welcome and help provide a level playing field. No date for the change has been set.

It will be important to ensure that the specific legislation provides sufficient safeguards for taxpayers, to prevent aspects of their tax affairs remaining open indefinitely with little progress made towards resolution. 


Removing the effects of the limitation act from national insurance

From April 2018, national insurance will be removed from the effects of the Limitation Act 1980 and the Northern Ireland equivalent.

Unlike other taxes, such as income tax, NIC is currently subject to the Limitation Act 1980, which means any claim by HMRC for unpaid contributions can be made no later than 6 years after the statutory due date.

The removal of the effects of this act on NIC brings it in line with other taxes that allow HMRC to go back over longer periods of time.

Although described as an ‘alignment’, this change increases the powers of collection HMRC has over NIC. We will await the consultation to see the finer details. 


Penalties for those enabling tax avoidance arrangements

A penalty regime is to be introduced for those who enable other individuals, or businesses, to use tax avoidance arrangements that subsequently fail.

As part of the Government’s commitment to deter taxpayers from engaging in tax avoidance, a new penalty will be introduced for any person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC.

The Government also confirmed that it will be made clear that the defence from penalties of having taking reasonable care will not include having relied on non-independent advice such as generic third party legal advice provider by the promoter.

The Government continues to tighten the screws on both those who market and those who use tax avoidance schemes.

Both of these changes were announced as part of the 2016 Budget and have been subject to consultation. Draft legislation is expected shortly at which stage we can ascertain the full scope of the changes.


Requirement to correct past offshore non-compliance

As announced at Budget 2016, the Government will legislate to introduce a specific requirement for taxpayers to correct past offshore non-compliance.

As part of the Government’s commitment to tackling offshore tax evasion, legislation is to be introduced to compel those with offshore interests who have yet to put their UK tax affairs in order to do so ahead of the widespread adoption of the common reporting standard (CRS). Those who ‘fail to correct’ are to face sanctions.

Consultation on the proposal took place over the summer of 2016. Although the response has not yet been published, it appears that the Government will push ahead with this legislation.

The consultation suggested a date of 30 September 2018 for the ‘requirement to correct’ obligation to be met. If this is to be the date within the final legislation, it will leave little time for those who need to correct non-compliance to do so.

Specifics around scope and the related penalty regime are still to come but it appears that this will be the ‘last chance’ to declare before HMRC receives the full CRS data.


Requirement to register offshore structures

The Government will consult on a new legal requirement for intermediaries to notify HMRC of 'complex' offshore structures arranged for clients and related 'client lists'.

The Government has announced that it will consult on a legal requirement for ‘intermediaries’ who arrange ‘complex’ offshore structures for clients who hold money offshore to notify HMRC of the structures and the related client lists.

As yet, the proposed definition of ‘offshore structures’ has not been published, but this will presumably cover trusts and non-UK companies. It is also not clear how the Government proposes to determine what structures are ‘complex’ for the purposes of the proposed notification requirements.

The proposals can be seen as part of the gradual tightening of tax anti-avoidance rules, together with increased sharing of financial information between governments, under the common reporting standards. We will need to wait and see the detail within the consultation when it is released. 


Tackling the hidden economy, improving debt collection and supporting struggling businesses

A range of measures and consultation aimed at tackling the hidden economy, improving debt collection and helping struggling businesses has been announced.

Using external analytical expertise HMRC will develop its ability to identify emerging insolvency risk, tailor its debt collection activity and provide support for struggling businesses. HMRC’s data gathering powers will also be extended to money service businesses to help identify those operating in the hidden economy.

In addition, the Government is considering making access to licences or services for businesses conditional on being registered for tax. More details to be set out at Budget 2017.

These announcements follow consultation in the late summer. These measures demonstrate the increasing powers and use of data by HMRC. They mark further progress in HMRC’s drive to reduce the ‘tax gap’. It is in areas such as these where HMRC’s efforts on reducing the tax gap may be most effective, rather than the hugely costly exercise from businesses’ perspective of the proposed quarterly reporting under making tax digital. 


Read our full commentary here.

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