Tax updates: July 2019
In this month’s round up of tax news concerns over the number of unregulated tax agents, return of film fund tax breaks, small businesses account for largest percentage of tax gap, HMRC cracks down on fake phone calls and France tops list for providing unlawful tax breaks
1 Jul 2019
An estimated 43,000 tax agent firms are working in the UK with around a third of agents operating outside the self-regulatory environment of any of the leading professional bodies, highlighting concerns about the quality of tax work and protection for clients, according to independent research, commissioned by HMRC, into the role of professional bodies in the regulation of tax agents.
Although HMRC has no regulatory powers over tax agents, a catch-all term that includes accountants, bookkeepers and tax advisers, the government strongly recommends that tax agents adhere to the Professional Conduct in Relation to Taxation (PCRT) standard, which was tightened up in 2016 following efforts to clamp down on the abuse of aggressive tax avoidance.
Work is on schedule for the opening of HMRC’s new Scottish headquarters in Edinburgh in spring 2020, which will form the centrepiece of a newly built, high-tech government hub.
The opening, scheduled for next April, will see many of HMRC's Scottish based staff move to a new UK Government Hub in central Edinburgh and is part of a £240m redevelopment of the Waverley area of the City.
The new buildings will be headquarters for multiple UK wide public sector departments, although HMRC will be the largest tenant with around 2,600 full-time permanent staff on site.
Transport minister Jesse Norman has been named as financial secretary to the Treasury, as previous minister Mel Stride becomes leader of the House of Commons after the resignation of Andrea Leadsom.
In his new role Norman will be responsible for strategic oversight of the UK tax system including direct, indirect, business, property and personal taxation and take overall responsibility for the finance bill.
The introduction of blanket disclosure means all UK trusts will have to register details of their ownership on the UK Trust Register from next year, resulting in millions of additional registrations.
The Association of Taxation Technicians (ATT) is warning that the extension of registration rules will put trustees at risk of civil and criminal sanctions if they fail to comply when the new rules come into force from March 2020.
The EU’s fifth money laundering directive (5MLD) came into force in July 2018 and means that the UK must implement the new rules for trusts by March 2020.
The British Film Institute (BFI) is backing a so-called ‘new breed’ creative content Enterprise Investment Scheme (EIS) fund, which will offer investors the opportunity to put money into UK film and screen companies’ productions, to meet demand from streaming services.
Tax incentives on film schemes have had a chequered history, with a number of earlier schemes found to be vehicles for tax avoidance.
The new fund will be managed independently, but in association with the BFI, which says all investments will have received advance assurance from HMRC before any capital is engaged.
HMRC has made £1.8m in refunds to nearly 5,000 taxpayers as a result of cancelling ‘failure to notify’ penalties in high income child benefit charge (HICBC) cases, on the grounds they had a reasonable excuse.
The raft of cases related to higher rate taxpayers who had not informed the tax authority that they would opt out of child benefits as they earned over £50,000 after complicated changes to child benefit payments introduced by former Chancellor George Osborne from 2013.
The lack of awareness about the complexities of HICBC was also highlighted in the latest research into the rollout of the changes to child benefit with criticisms about the poor communications from HMRC and the tone of penalty demands.
In response to concerns that changes to pension taxation due to reductions in the tapered annual allowance has resulted in highly paid NHS medial staff cutting their hours or retiring early, the government is to consult on a way to make pensions more flexible for senior clinicians delivering frontline care.
The British Medical Association (BMA) has warned that the annual allowance cap created an incentive for GPs and other senior medical staff to either reduce the hours they worked for the NHS or quit the NHS altogether.
The amount of uncollected tax has hit £35bn, with small businesses accounting for the largest percentage of the tax gap at £14bn while VAT evasion remains a major drain on tax revenues.
The actual revenue lost is starting to creep upwards again, increasing £2bn in just 12 months to £35bn, and it has shot up from £30bn just two years ago.
Small businesses account for 40% of the tax gap with £14bn in unpaid tax for reasons of failure to take reasonable care, legal interpretation or errors.
The government is cracking down on the abuse of renewable energy certificates where fraudsters get involved in complex reselling to steal VAT payments and deprive the Exchequer of revenue.
This is an anti-fraud measure which came into force on 14 June without consultation due to HMRC concerns that this type of VAT fraud was becoming prevalent.
It removes the opportunity for fraudsters to charge VAT and then go missing before paying it over to the Exchequer in Missing Trader Intra-Community (MTIC) VAT fraud, more commonly known as carousel fraud.
HMRC has finally published guidance for businesses and tax agents about changes to the restriction rules on corporation tax relief for some acquisitions of goodwill and relevant assets, which came into force on 1 April 2019.
As a result, businesses can now get relief on purchases made on or after 1 April 2019 if the goodwill and relevant assets are purchased when buying a business with qualifying intellectual property (IP); if the business is liable to corporation tax; and if the relevant assets (including goodwill) are included in the company accounts.
HMRC is consulting on the operation of insurance premium tax (IPT) in a bid to stop artificial manipulation of fees and commission to avoid the tax and is considering anti-avoidance measures.
HMRC is also looking at captive insurers, which are owned and controlled by their parent entity, and is gauging reaction on whether to require captives to declare their parent company. HMRC sees these as a vehicle for tax avoidance, stating that ‘captives are commonly located in overseas tax jurisdictions which can lack transparency’.
HMRC has deployed new defensive controls to protect abuse of its phone lines in a bid to put an end to fraudsters spoofing the tax authority’s most recognisable helpline numbers.
The controls, created in partnership with the telecommunications industry and Ofcom, will prevent spoofing of HMRC’s most used inbound helpline numbers and are the first to be used by a government department in the UK.
Fraudsters have increasingly mimicked legitimate HMRC helpline numbers (often beginning with 0300) to dupe taxpayers and steal money. Last year alone, HMRC received over 104,000 phone scam reports, a very substantial rise from 7,778 the previous year and just 407 in 2016/17.
Making tax digital
Anyone who cannot find suitably accessible software to comply with the Making Tax Digital for VAT rules should apply to HMRC for a temporary exemption, for example for age or disability reasons, says the Low Incomes Tax Reform Group (LITRG).
HMRC is not providing in-house software for Making Tax Digital for VAT and is pushing taxpayers to buy commercial software. However, there are still very few packages available for taxpayers who have accessibility needs.
HMRC has updated guidance for NHS employees attending widening access training scheme (WATS) courses to explain changes from 1 September 2019.
For courses starting from 1 September 2019 income tax and National Insurance contributions (NICs) are due on payments made to NHS employees attending these courses. This is because payments are salary and not scholarship income. Previously, income tax and NIC were deducted by the employer, and the employee was entitled to claim a refund. The guidance has been updated to explain that no refunds of income tax and National Insurance contributions can be made for WATS courses starting on or after 1 September 2019.
International efforts to increase automatic exchange of information on financial accounts has resulted in deposits held by companies or individuals in international financial centres falling by a third in the past decade, analysis by the OECD show.
OECD figures show more than 90 jurisdictions participating in a global transparency initiative under the OECD’s common reporting standard (CRS) since 2018 have now exchanged information on 47m offshore accounts, with a total value of around €4.9 trillion (£4.3 trillion).
Preliminary OECD analysis suggests automatic exchange of information is having a substantial impact on bank deposits in international financial centres (IFCs). Deposits held by companies or individuals in more than 40 key IFCs increased substantially over the 2000 to 2008 period, reaching a peak of $1.6 trillion by mid-2008.
These deposits have fallen by 34% over the past 10 years, representing a decline of $551bn.
The European Commission has issued warnings about more than 380 potentially unlawful tax breaks in the last five years, with France being singled out for contravention of state aid rules, as well as low-tax jurisdictions like Ireland, Netherlands and Luxembourg.
There have been 385 tax breaks which may be unlawful under EU state aid rules over the last five years (as at year-end 31 March 2019), says Pinsent Masons, the international law firm. This is part of the EU drive against aggressive corporate tax avoidance by multinationals.
The OECD has set a timetable to develop a global framework for the digital taxation of multinationals with 2020 set as a deadline to finalise the rules, which are likely to include a wider remit than just digital tax to capture intangibles and IP.
The OECD is keen to avoid fragmentation of the tax rules and is now pressing ahead with plans to introduce a global digital tax framework for taxing multinationals. It has now issued a programme of work setting out how it will achieve a new global agreement.
The government is consulting on draft legislation to extend the scope of royalty withholding tax by charging multinationals income tax on offshore receipts related to intangible property (ORIP) including brands and patents, set out in Finance Act 2019. The rules extend current withholding tax on royalties and are retrospective, effective from 6 April 2019.
The measure is targeted primarily at large multinationals resident in low tax jurisdictions which are liable for intangible property (such as brands, patents and copyrights) where those amounts relate to the sale of goods or services in the UK.
Reporting by Sara White, Pat Sweet