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 Support for businesses affected by COVID-19
The Government has announced a range of measures to support individuals and businesses affected by the disruption caused by Coronavirus COVID-19.
The following temporary support measures are available:
- businesses that need to continue to pay workers who are idling, described as ‘furlough’ will be reimbursed for 80% of wage costs if they do not lay them off;
- all VAT payments have been deferred until the end of June;
- a dedicated helpline for individuals and businesses that are struggling to meet their tax payment obligations;
- some small and medium-sized businesses will be able to reclaim statutory sick payments made to staff;
- business rates will not be imposed in 2020/21 on retail, hospitality and leisure businesses in England;
- cash grants of £25,000 will be paid to retail, hospitality and leisure businesses operating from smaller premises;
- cash grants of £10,000 will be paid to businesses currently eligible for small business rate relief or rural rate relief;
- a new COVID-19 Business Interruption Loan Scheme will issue loans from the British Business Bank. These will be focused on small and medium-sized businesses and are interest free for 12 months; and
- under a new COVID-19 Corporate Financing Facility, the Bank of England will buy short-term debt from larger companies. This is intended to help businesses meet short-term cash flow obligations.
1.2 Late tax payment interest reduced to 0.1%
The rate of interest that HMRC charges on late tax payments has been cut twice, and is now at 0.1%, following the two reductions in the Bank of England base rate. Revenue Scotland will also use this rate, but has so far only announced a reduction to 0.25%.
Following the Bank of England rate cuts to 0.25% on 11 March and 0.1% on 19 March, HMRC announced corresponding decreases in late payment interest on tax payments. The changes are effective as follows:
- for non-quarterly instalment payments, the cut from 0.75% to 0.1% will apply from 30 March; and
- for quarterly instalment payments the 0.25 rate applies from 23 March, and the 0.1% rate from 7 April. 0.75% applies before 23 March.
Revenue Scotland has reduced its late payment interest rate to 0.25%, effective from 17 March, and is likely to announce a cut to 0.1% shortly. Interest is normally applied to tax paid late even under time to pay arrangements.
1.3 GAAR panel opinion on miscellaneous income losses
The panel has decided that arrangements designed to produce an income tax loss and a CGT free gain were ‘not a reasonable course of action in relation to the relevant tax provisions’.
The arrangement considered by the panel consisted of an individual entering into two contracts. Both entitled the individual to payments in securities in exchange for cash, and the amounts depended on the value of an index at a set date. The outcome of the arrangements was that the individual made a loss on certificates of deposit, and a gain on gilts, which was exempt from CGT.
HMRC challenged the arrangements under GAAR, on the grounds that a tax deduction was claimed but no economic loss suffered, and that no one would enter into the arrangements but for the tax advantage. The promoters noted that under the contracts a profit was possible, if the index was within 0.3% of a set amount, and that the two contracts should be considered as separate arrangements.
The panel found that the arrangements were within GAAR as the transactions were for a tax advantage, and contrived and artificial. Using the arrangements was not a reasonable course of action in relation to the relevant tax provisions.
1.4 HMRC's new strategy on tackling tax avoidance schemes
HMRC has published a new strategy on challenging and dealing with promoters of mass-marketed tax avoidance schemes.
In many cases, taxpayers who enter into tax avoidance schemes ultimately suffer more severe consequences than those who sold them the schemes. As part of its work to tackle tax avoidance, HMRC has published a new strategy on tackling scheme promoters.
The strategy includes strengthening HMRC’s powers, disrupting the supply chain for promoters, and deterring taxpayers from entering into schemes. HMRC will collaborate with partner bodies; for example, working with the Insolvency Service to consider disqualifying company directors who promote tax avoidance.
1.5 ICAEW advises on deferring tax payments
The professional body for chartered accountants has published practical tips on negotiating tax payment deferrals with HMRC.
Further to Government guidance on time to pay arrangements, including a new helpline specifically for those impacted by the pandemic, the ICAEW tax faculty has shared practical tips for taxpayers on negotiating these arrangements. These include contacting HMRC one to two weeks before the tax is due, ensuring that up to date cash flow forecasts are used, how much can be deferred and for how long, and which tax debts to prioritise.
1.6 Call for evidence on raising standards in the market for tax advice
As announced in the Budget, the Government is seeking views on raising standards in the market for tax advice. The full call for evidence has now been published, with a deadline for comments of 28 May 2020. It confirms that any reform will be subject to a full consultation.
The stated aim is to protect customers and improve transparency, and a number of potential options are set out in the call for evidence. The Government is seeking views and evidence on issues including the following:
- the scope of the market for tax advice and services;
- the characteristics of good and bad practice;
- current government interventions;
- international models; and
- possible approaches to raising standards.
This follows the Government’s strategy for tax agents published in 2014, and considerable work by the professional bodies that regulate the majority of tax advisers. The CIOT has welcomed the launch of the call for evidence, and is looking to work with the Government on enhanced consumer and exchequer protection. It notes however that 30% of tax agents are not members of any professional body, and many promoters of tax avoidance schemes are not tax agents at all.
1.7 Draft Finance Bill 2020 published
The draft Finance Bill has been published, with explanatory notes. There are relatively few changes from the Budget announcements.
The key changes from the Budget announcements are as follows, which we have covered more fully elsewhere:
- a delay to the implementation of new insolvency rule to make HMRC a preferential creditor;
- a delay to the off-payroll working rules; and
- Entrepreneurs’ Relief has been renamed.
More detail is given on various other announcements, including the new Digital Services Tax.
The draft Finance Bill is technically 2019-21, but we will refer to is as Finance Bill 2020 as that is the term the Government is using.
2. Private client
2.1 Technical note on Entrepreneurs’ Relief published
The Government has published a technical note on the changes to Entrepreneurs’ Relief (ER) announced in the Budget, with details of the anti-forestalling rules.
The note confirms the reduction in the lifetime limit confirmed in the Budget. The limit applies to transactions exchanging on or after 11 March, with no transitional rules. Earlier transactions that did not reach completion before that date are also subject to the new limit, unless the contract was wholly commercial and there was not a tax advantage motive for the arrangements. In that case, a specific extra claim for relief must be made.
The new limit will also apply to share reorganisations and some share exchanges between 6 April 2019 and 11 March 2020. In any scenario where the rules are unclear, taxpayers can apply for to the non-statutory clearance service.
2.2 Self-employed: July income tax payments deferred to January
For the self-employed, self assessment income tax payments on account due in July have been deferred by six months as part of the Chancellor’s support for workers in the current situation.
The Chancellor has announced that income tax payments due in July under the self assessment system will be deferred to January 2021 for the self-employed. This deferral applies automatically, and is part of a package of measures to support workers during the current crisis. No interest nor penalties will be applied. July payments are payments on account against the year’s total tax liability, the balance of which is always due in January.
It remains unclear how the self-employed will be distinguished from other payers of payments on account.
2.3 Entrepreneurs’ Relief renamed in Finance Bill
Entrepreneurs’ Relief (ER) is henceforth to be known as ‘business asset disposal relief’. This change has been included in the draft Finance Bill published last week.
It was announced in the 11 March Budget that the lifetime limit for ER would fall by 90% to £1m. The draft Finance Bill, which has now been published, confirms that change and also includes a change of name. ER will be known as ‘business asset disposal relief’ once the Bill has been passed.
2.4 Paper tax returns will no longer be issued automatically
HMRC will no longer post blank tax returns to self assessment taxpayers automatically. Those who wish to file on paper can request one.
Currently, HMRC posts a blank copy of the tax return form to all self assessment taxpayers with the notice to file their return, although 94% file online. HMRC will not do so automatically this year, as part of paper-saving measures. Any taxpayer who wishes to file on paper can download the form online, or call HMRC to ask for a copy to be posted to them.
Notices to file tax returns will still be posted, with information on accessing online personal tax accounts with HMRC.
2.5 HMRC urges preparation for residential CGT change
Major changes to CGT on residential property apply from 6 April, including a 30 day deadline to report sales and pay tax.
HMRC has issued a reminder to taxpayers that the CGT changes announced in Budget 2018 are due to come in on 6 April 2020. Taxpayers will be required to report sales of residential property to HMRC within 30 days of completion, and pay any CGT due. Restrictions to private residence relief will also apply.
2.6 Paddock found to be part of residential property
SDLT was found to be chargeable at residential rates on a property with a paddock, as it was part of the grounds, not agricultural land on its own. It was held to have no ‘self-standing function’.
Where part of a property is non-residential, the whole is property is subject to a reduced rate of SDLT on sale. If land is simply part of a property’s ‘grounds’ the whole transaction is subject to the higher residential rates. The taxpayer had filed her SDLT return on the basis that a paddock attached to the property was non-residential, so the reduced rate applied. HMRC challenged this, arguing that it was part of the grounds. Historically, the paddock had been part of a neighbouring farm, so used for agriculture.
The FTT found for HMRC, based on the technical definition of ‘grounds’, which is not defined in the legislation. The judge commented that it was not enough for the land to be sold with the building, but its use or function must be considered. The paddock did not have a ‘self-standing function’ at the time of sale, but was an appendage, so part of the grounds.
Myles-Till v HMRC  UKFTT 127 (TC)
3. PAYE and employment
3.1 Consultation opens on tackling Construction Industry Scheme abuse
HMRC is carrying out a consultation on new measures to prevent abuse of the Construction Industry Scheme (CIS).
The proposed changes to the CIS rules were announced in the 2020 Budget. There are three main areas under consideration:
- new powers to enable HMRC to correct the amount of CIS deductions claimed by sub-contractors on employer returns;
- clarifications of some of the CIS rules; and
- options for preventing fraud in the construction supply chain.
This consultation closes on 28 May 2020. The measures are expected to come into effect at different times, starting in April 2021.
3.2 Employer bulletin published
HMRC has published the latest edition of its employer bulletin, focusing on Budget announcements.
The issues covered include:
- the new helpline for time to pay arrangements relating to COVID-19;
- reimbursements for statutory sick pay; and
- a summary of measures announced in the Budget, including on employee benefits.
4. Business tax
4.1 HMRC opens new consultations
As announced in the 2020 Budget, the Government is seeking views on several aspects of the tax regime. Three new consultations in respect of businesses have now commenced.
The following consultations have now opened:
- notification of uncertain tax treatment by large businesses: the Government has proposed a new reporting requirement for large businesses. Disclosures will be required where a business takes a tax position that HMRC is likely to challenge. This consultation closes on 27 May 2020;
- hybrid mismatch rules: this consultation focuses on the operation and impact of the double deduction and acting together rules. This consultation closes on 29 May 2020; and
- the tax impact of the withdrawal of the London Inter-bank Offered Rate (LIBOR): HMRC is seeking views on the possible tax impacts of the reforms to the LIBOR. This consultation closes on 28 May 2020.
Notification of uncertain tax treatment by large businesses: www.gov.uk/government/consultations/notification-of-uncertain-tax-treatment-by-large-businesses
Hybrid mismatch rules: www.gov.uk/government/consultations/hybrid-and-other-mismatches
4.2 Updated guidance on exemptions for Collective Investment Vehicles
HMRC has updated the guidance on who can make an exemption election for a Collective Investment Vehicle (CIV).
The guidance now confirms that an exemption election may be made by the fund manager or by someone authorised to act on behalf of the fund manager. The election exempts a CIV from UK CT on chargeable gains, preventing double taxation from arising.
4.3 New HMRC manual on the Digital Services Tax
The Digital Services Tax (DST) manual sets out HMRC’s position on the operation of the new DST.
The Chancellor confirmed in the 2020 Budget that the UK DST would come into force on 1 April 2020. The manual provides guidance on how HMRC interprets the new laws and how it the DST will be administered. The DST will impose a 2% tax on particular types of revenue of very large businesses that derive value from UK users of search engines, social media services and online marketplaces.
4.4 Research and Development consultations
The outcome of the consultation into preventing abuse of Research & Development (R&D) relief by small and medium-sized businesses has been published. A new consultation has opened on changes to the design of the measure.
A consultation was held in spring in 2019 to examine proposals to prevent abuse of R&D relief by small and medium-sized businesses. These proposals, which were announced in the 2018 Budget, would cap R&D tax credits at three times the company’s total PAYE and NICs liability in that year. The responses to the consultation generally supported the proposals. Specific concerns were raised in regard to the business models used by early-stage businesses in the life sciences sector.
The introduction of this cap will be delayed until April 2021, as announced in the 2020 Budget. A new consultation has been opened to discuss further changes to minimise the impact of the cap on businesses. The consultation closes on 28 May 2020.
5.1 VAT deferral for all businesses
All VAT payments until 30 June 2020 are to be deferred to April 2021. This deferral is part of the Government’s economic package to support businesses during the disruption caused by COVID-19.
This measure applies to all VAT payments from 20 March 2020 to 30 June 2020. It is optional; businesses can choose to pay VAT during this period. The quarterly VAT returns affected by the deferral are periods ending February 2020, March 2020 and April 2020. For most businesses, the payment dates for these returns are 7 April 2020, 7 May 2020 and 7 June 2020, respectively. This will mean that every business on quarterly VAT accounting will be able to defer payment for one VAT period.
The mechanics of the deferral have not yet been disclosed. HMRC has, however, confirmed that direct debits for amounts due in the deferral period should be cancelled. If they are not, HMRC will treat the business as choosing not to defer the liability and accept the payment as usual.
6. Tax publications and webinars
The following client webinars are coming up over the next few months.
- 26 March 2020: Coronavirus - managing your business cashflow
6.2 Tax publications
Our Coronavirus hub is designed to answer your key questions and will be updated regularly over the next few months. It contains a number of detailed articles on the measures introduced to help with the financial impact of COVID-19.
7. And finally
7.1 Subliminal messaging
The last few weeks have been momentous for all of us, but few people have been thrust to the forefront of the crisis like Rishi Sunak. Within a mere fortnight, he has delivered both a landmark Budget and an unprecedented economic rescue package to combat the disruption of COVID-19. These announcements have, quite rightly, been widely advertised to inspire confidence and lift morale.
One quieter move went almost unnoticed. Entrepreneurs’ Relief – which was restricted by 90% in the 2020 Budget – has been renamed ‘business asset disposal’ relief. Or, if you will, BAD relief.
What better way to prepare us for its eventual abolition? When the world has once again been put to rights and we resume the conversation over effective tax relief, we will have been calling it BAD relief for so long that the opinion will have sunk into our united consciousness. And, of course, we must abolish bad tax reliefs.
Well played, Mr Sunak. Well played indeed.
|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|