Author: financial

The government has tasked the department charged with simplifying our present tax system with taking a fresh look at inheritance task. The scope of their review has just been published. It says:

The review will consider how key aspects of the current IHT system work and whether and how they might be simplified. This will include a combination of administrative and technical questions such as:

• The process around submitting IHT returns and paying any tax, including cases where it is clear from the outset that there will be no tax to pay;
• The various gifts rules including the annual threshold for gifts, small gifts and normal expenditure out of income as well as their interaction with each other and the wider IHT framework;
• Other administrative and practical issues around routine estate planning, compliance and disclosure, including relevant aspects of probate procedure, in particular in relation to situations which commonly arise;
• Complexities arising from the reliefs and their interaction with the wider tax framework;
• The scale and impact of any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules, relevant aspects of the taxation of trusts, or interactions with other taxes such as capital gains tax; and
• The perception of the complexity of the IHT rules amongst taxpayers, practitioners and industry bodies.

Potentially, this could result in legislation being presented to parliament that radically changes the present planning options usually considered by UK taxpayers to minimise IHT liabilities.

We are still some way from any changes being actioned, but we will be keeping a weather eye on the situation and will advise clients if the rules do change.

A new legal requirement is included in the Finance (No. 2) Act 2017 that creates an obligation for anyone who has undeclared UK tax liabilities that involve offshore matters or transfers to disclose the relevant information about this non-compliance to HMRC by 30 September 2018.

Failure to disclose the relevant information to HMRC on or before 30 September 2018 will result in the person becoming liable to a new penalty. The new failure to correct penalty is likely to be much higher than the existing penalties, with a minimum penalty of 100% of the tax involved.

To avoid becoming liable to these new higher penalties, a person must correct the position by no later than 30 September 2018. If they do this, the tax and interest will be collected, and the existing penalty rules will apply.

The purpose of the Requirement to Correct (RTC) legislation is to require those with undeclared offshore tax liabilities (relating to Income Tax, Capital Gains Tax or Inheritance Tax for the relevant periods) to disclose those to HMRC on or before 30 September 2018.

This will allow HMRC to take the appropriate action, for example, the collection of tax, interest and any penalties due under the appropriate legislation currently in force. This will ensure that those with offshore interests pay the correct amount of tax. Where taxpayers are unsure whether they have undeclared offshore tax, they will need to review their affairs to check whether action is needed.

30 September 2018 was chosen as the final date for corrections as this is the date by which more than 100 countries will exchange data on financial accounts under the Common Reporting Standard (CRS).

CRS data will significantly enhance HMRC’s ability to detect offshore non-compliance and it is in taxpayers’ interests to correct any non-compliance before that data is received.

If taxpayers are unsure whether they have undeclared UK tax liabilities that involve offshore matters or transfers, they should check their affairs and if necessary put things right before they become liable to the new FTC penalties that will come into force on 1 October 2018.

Please call if you need more information.

In a recent hearing before a tax tribunal, HMRC led the charge to insist that bicarbonate of soda (BoS) was a chemical not a food of a kind used for human consumption.

Why was this important?

HMRC had issued an assessment amounting to £291,000 to hapless food company, Phoenix Foods Ltd, as they had treated the sale of BoS to their customers as a zero-rated supply, and HMRC insisted that BoS was a chemical, an additive, and should have been a standard rated supply.

For non-culinary readers, BoS is a raising agent used when cooking cakes and certain types of bread. It helps to make the end-product light and fluffy!

Phoenix sold BoS to supermarkets who stacked the ingredient with other cooking essentials. BoS also features regularly in recipe books as a required ingredient.

The Tribunal judges had to endure lengthy presentations by food experts from both sides of the argument, but in the end decided that common sense needed to prevail.

Their decision reads:

“… in our view, the supply by Phoenix of bicarbonate of soda in a form that was intended for use primarily as a baking ingredient was a supply of “food of a kind used for human consumption”.

Accordingly, this judgement underlines the notion that it is necessary to examine the supplies made and their intended use by the consumer rather than consider other factors, such as alternative uses that the product could be turned: for example, BoS is also used as a cleaning agent.

As a result, Phoenix Food’s appeal was upheld and HMRC will need to decide if they want to take the case to a higher court. Hopefully, some of the lower court’s pragmatism will influence HMRC to let the matter rest.

The Intellectual Property Office has issued commentary on the future of intellectual property (IP) issues following Brexit. We have copied in blow some of their comments to clarify various issues for companies with existing registered IP, or that have applications in progress.

Trade marks

The UK system for protecting trade mark rights is not affected by the decision to leave the EU. While the UK remains a full member of the EU then EU Trade Marks (EUTM) continue to be valid in the UK. When the UK leaves the EU, an EUTM will continue to be valid in the remaining EU member states.

We recognise that owners of existing EU trade marks want clarity over the coverage of those rights when the UK leaves the EU. We continue to engage closely with right holders and a wide range of stakeholders on this issue. The government is looking at various options and we are discussing the best way forward with users of the system.

Designs

The UK system for protecting registered and unregistered designs is not affected by the decision to leave the EU.

Registered Community Designs (RCD)

While the UK remains a full member of the EU, Registered Community Designs (RCD) continue to be valid in the UK. When the UK leaves the EU, an RCD will cover the remaining EU member states. We recognise that owners of existing RCDs want clarity over the coverage of those rights when the UK leaves the EU. We continue to engage closely with right holders and a wide range of stakeholders on this issue.

The Hague System

The government intends to ratify The Hague Agreement to join this international system in a national capacity. The Hague System for the International Registration of Industrial Designs allows for registration of up to 100 designs in over 66 territories through filing one single international application.

Unregistered designs

While the UK remains a member of the EU, designs, including patterns, may be automatically protected in the EU as ‘unregistered community designs’. This gives your design 3 years protection from copying.

Unregistered protection for designs will continue to exist through the UK unregistered design right and by using copyright. We are discussing options with designers and other users to ensure that the protection provided is fit for purpose.

European patents

The UK’s exit from the EU will not affect the current European patent system, which is governed by the (non-EU) European Patent Convention. UK businesses can continue to apply to the European Patent Office for patent protection which will include the UK. Existing European patents covering the UK are also unaffected.

Copyright

While the UK remains in the EU, our copyright laws will continue to comply with the EU copyright directives, and we will continue to participate in EU negotiations. The continued effect of EU Directives and Regulations following our exit from the EU will depend on the terms of our future relationship.

The UK is a member of a number of international treaties and agreements. This means that UK copyright works (such as music, films, books and photographs) are protected around the world. This will continue to be the case following our exit from the EU.

As readers will observe, there is some certainty in the IPO’s comments, but a lot of the detail is still to be agreed. Watch this space for more news as it develops.

A further package of support for the businesses and workers affected by Carillion’s liquidation was announced Saturday 3 February, by Business Secretary Greg Clark.

Through delivery partners that include all the major high street lenders, the British Business Bank will provide support to make available up to £100 million of lending to small businesses who may not have the security otherwise needed for conventional bank lending using its Enterprise Finance Guarantee programme.

This will be of benefit to small businesses, including the chain of subcontractors to Carillion, who may not have sufficient assets as security to access conventional loans. These guarantees can be used to support overdraft borrowing and refinancing of existing debt.

The UK’s leading banks have also furthered their commitment to provide support to those affected with UK Finance confirming additional support for personal banking customers concerned about overdraft, mortgage or credit card repayments, as well as further financial support for small businesses to provide short-term relief to help keep them afloat.

Business Secretary Greg Clark said:

We want to signal very clearly to small and medium sized businesses who were owed money by Carillion that they will be supported to continue trading.

The banks have responded to my request by agreeing to support businesses and individuals affected. This further guarantee will help those businesses who may not be able to provide the usual security for a loan.

I will continue to work closely with business organisations, trade unions and banks to actively support those affected by Carillion’s insolvency.

This package is in addition to the more than £200 million already announced by Lloyds Banking Group, HSBC and RBS.

HMRC has stopped thousands of taxpayers from receiving scam text messages, with 90 percent of the most convincing texts now halted before they reach their phones.

The milestone comes during Take Five To Stop Fraud Week, with the tax authority working to raise awareness of the tell-tale signs of fraud ahead of the Self-Assessment deadline.

Fraudsters alleging to be from HMRC send text messages to unsuspecting members of the public. In these messages they will make false claims, such as suggesting they are due a tax rebate. Messages will usually include links to websites that harvest personal information or spread malware. This can in turn lead to identity fraud and the theft of people’s personal savings.

HMRC will never contact customers who are due a tax refund by text message or by email.

Reports of this type of fraud have quickly increased in volume over the last few years. People are 9 times more likely to fall for text message scams than other forms like email because they can appear more legitimate, with many texts displaying ‘HMRC’ as the sender, rather than a phone number.

HMRC, working with public and private partners, began a pilot in April 2017 to combat these messages. The new technology identifies fraud texts with ‘tags’ that suggest they are from HMRC and stops them from being delivered.

Since the pilot began, there has been a 90% reduction in customer reports around the spoofing of these specific HMRC-related tags on SMS and a five-fold reduction in malicious SMS reports. The initiative has helped reduce reports of these scams from over 5,000 in March 2017, before the new programme was introduced, to fewer than 1,000 in December 2017. This progress comes after similar successes in tackling fraudulent emails and websites.

In the last 12 months, HMRC has initiated the removal of 16,000 malicious websites, meaning even if the texts are delivered, the associated phishing website is likely to have been removed.

By introducing technical controls, HMRC has also stopped customers receiving over 300 million emails purporting to come from the tax authority.

HMRC is working with the National Cyber Security Centre to further this work and extend the benefits beyond HMRC customers.

A family claiming the weekly Child Benefit (currently, £20.70 a week for eldest or only child and £13.70 a week for additional children) may get an unwelcome tax bill if either parents’ income exceeds £50,000 during a tax year.

A tax charge was introduced a number of years ago, known as the ‘High Income Child Benefit Charge’ (HICBC), if either parent had income over £50,000 and:

• either partner received Child Benefit, or
• someone else received Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep.

It doesn’t matter if the child living with you is not your own child. The charge was introduced to recover Child Benefits from higher income earners.

You may not have considered the HICBC before if your incomes were below the £50,000 cap, but if your income for 2017-18 is likely to exceed this amount you should be aware of the following.

• Before 6 October 2018, the parent with the higher income for 2017-18 (more than £50,000) will need to register to submit a self-assessment tax return and pay and HICBC due – unless they are already registered in which case they will need to enter the amount of Child Benefit received on the return and pay any tax due.
• The parent with the higher income, even if they were not the person claiming the Child Benefit, will need to make this declaration.

1% of the Child Benefit received will be recovered by HMRC’s HICBC for every £100 the highest earner’s income exceeds £50,000. Accordingly, once the highest income exceeds £60,000 all the Child Benefits received will be reclaimed.

To avoid the charge, it is possible to decline Child Benefits in the first place. To summarise:

• Parents where the highest income is below £50,000 will not be affected and can continue to claim Child Benefit with no tax claw back.
• Parents where the highest income is above £50,000 but below £60,000 will be affected and will need to pay the appropriate HICBC.
• Parents where the highest income is over £60,000 may be advised to decline future Child Benefit claims as all benefits received will be clawed back by the HICBC.

There are strategies that you could use to reduce your taxable income below the £50,000 or £60,000 thresholds as these are calculated net of any allowable deductions. Please call if you would like more advice regarding these deductions.

The Low Incomes Tax Reform Group (LITRG) has welcomed a recent announcement by the Government that there will be a one-year delay before the removal of Class 2 National Insurance contributions (NICs) to enable consultation on the impact of its abolition on the self-employed with low incomes.

If Class 2 NICs were abolished, those with profits below the small profits threshold (currently £6,025) would currently have to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they want to build up an entitlement to contributory benefits such as the state retirement pension. LITRG is keen for a way to be found for the low-income self-employed to continue to be able to make affordable savings towards their pension at a rate like the present Class 2, perhaps by introducing a lower rate of Class 3.

LITRG Chair Anne Fairpo said:

“We welcome the announcement by the Government that they intend to consult with organisations such as ours which have concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. We look forward to working with the Government to lessen the risk of unintended consequences.

“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the State Pension.

“We welcome the breathing space on this matter because of our concerns that the abolition of Class 2 was being rushed through without adequate further consultation, together with a lack of publicity and guidance for the people affected.”

The delay means the measures in the unpublished NIC Bill will now take effect one year later, from April 2019. This includes the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.

The Office of Tax Simplification (OTS) published a report setting out a range of proposals for simplifying VAT. According to the OTS the tax is showing its age. What was meant to be a simple tax has become highly complex and it has not kept pace with changes in society.

The most significant issue identified in the report is the VAT registration threshold – the turnover level above which a business must enter the VAT system and charge VAT on its sales. At £85,000 the UK has one of the highest levels in the world.

By enabling many small businesses to stay out of the VAT system the high threshold is a form of simplification, but it’s an expensive relief, costing around £2bn per annum, and evidence strongly suggests that many growing businesses are discouraged from expanding beyond this point. The report looks at options for reducing the current ‘cliff edge’ effect resulting in a very visible bunching of businesses just before the VAT threshold, and an equally large drop off in the number of businesses with turnovers just above the threshold. Also examined are the advantages and disadvantages of lowering or increasing the threshold.

VAT has many ‘quirks’. For example, it is well known that a Jaffa cake is a cake (zero-rated) rather than a chocolate-covered biscuit (taxed at 20%). Less well known is that while children’s clothes are zero-rated, including many items made from fur skin, items made from Tibetan goat skin are standard-rated. And a ginger bread man with chocolate eyes is zero-rated but if it has chocolate trousers it would be standard rated. VAT zero rates cost over £45bn per annum to maintain. EU law limits options to make changes in this area but there is a longer-term opportunity to significantly improve the efficiency, simplicity and fairness of the UK VAT system.

The OTS report, will need to be examined in some detail. It will be interesting to see if we could achieve a real simplification of this complex tax or if, yet again, smaller businesses are required to absorb more red tape and tax burden while larger concerns with stronger lobbies and resources continue to avoid liability.

If a parent owes child maintenance, deductions to recover that debt can currently only be made from a bank or building society account held solely by them.

Unfortunately, a small minority of parents are cheating their way out of supporting their children by putting their money into a joint account with a partner.

New laws will be brought in to allow deductions to be made from joint accounts to recover child maintenance arrears.

It is believed that by closing this loophole this could stop many parents getting away with not paying their child maintenance each year – leading to more than £390,000 additional child maintenance being collected.

The recent government’s response to a public consultation on joint account deductions has been published. This sets out how deduction orders against joint accounts will work and the safeguards that will be in place to protect the other holder of the joint account.

These include:

• a deduction order only being imposed on a joint account when the paying parent does not have their own account, or there is not enough money in their own account
• only funds belonging to the paying parent being targeted, as before a deduction order is made on a joint account, data on that bank account will be collected and bank statements examined to establish which money in the account belongs to the paying parent
• existing safeguards already in place for deduction orders for child maintenance will apply to this new power, including the maximum deduction rate on regular orders being set at 40% of the paying parent’s weekly income
• both account holders will be given the right to make their case before a deduction order is made

The new power will come into effect early next year.