Agenda this Month Requirement to Correct Other HMRC announcements - - PowerPoint PPT Presentation

• Requirement to Correct
• Other HMRC announcements and other tax developments
• Recent tax cases

Agenda this Month

Requirement to Correct Deadline 30 September !

• RTC obliges taxpayers to make a disclosure of unpaid tax
• n assets, income and activities in other countries and

transfers from the UK to other countries

• Taxpayers need to act before 30 September 2018 to

avoid incurring much higher penalties

• Agents urged to check whether any clients need to make

a RTCorrection and help them to come forward

• Use Worldwide Disclosure Facility
• From 1 October 2018, the minimum penalty 100% of the

tax owed plus possible asset based penalty

Requirement to Correct (RTC)

• Where a penalty applies, there will be a standard penalty

equivalent to 200% of the tax liability which should have been disclosed to HMRC under RTC

• This penalty can be reduced to reflect any combination of

the following factors:

• level of co-operation with HMRC
• the quality of disclosure to HMRC (including telling

HMRC of anyone who helped enable non-compliance)

• Minimum penalty 100%, 150% if prompted

RTC Penalties

• The reduction you will receive will depend on how much

assistance you give us. For:

• telling - up to 30% of the maximum reduction
• helping - up to 40% of the maximum reduction
• giving access to records - up to 30% of the max.
• To receive the full reduction you must also provide

additional information to us about anyone who encouraged, assisted or facilitated you to carry out

• ffshore tax evasion or non-compliance.

RTC Penalties

• Where the tax exceeds £25,000 in any tax year,
• and you knew you had relevant offshore non-compliance
• and did not correct it
• the asset based penalty at Sch 22 to FA 2016 will apply.
• This means a penalty of up to 10% of the value of

assets connected to the failure will be charged.

• This is in addition to the standard penalty detailed above.

RTC – Asset Based Penalty

• Where it can be shown that you moved assets to avoid

having details reported to HMRC under international agreements on exchange of information.

• The penalty is equivalent to 50% of the amount of the

standard penalty and is charged in addition to the standard penalty.

• In more serious cases and in addition to the penalties

detailed above, if more than £25,000 tax per investigation is involved and you knew you had relevant offshore non- compliance and did not correct it, HMRC may publish your details.

RTC – Offshore Asset Moves Penalty

• HMRC recognise that there are circumstances when a

person takes advice in good faith but then has tax non- compliance that should be corrected because the advice was wrong.

• The RTC contains specific rules governing when you

cannot claim to have a reasonable excuse because you relied on advice that turned out to be wrong or if HMRC challenge and establish a liability.

• However, if you relied upon advice to complete tax

returns you may have a reasonable excuse so you will not be liable to a FTC penalty for not correcting the position on or before 30 September 2018.

Relying on Professional Advice

• Ian was unsure as to his correct domicile status and

sought advice from a large firm of accountants. The firm advised that in their view he was non UK domiciled

• The firm then advised Ian on how to structure his affairs

to pay less tax on his foreign income. Ian did not make a correction under the RTC because he believed, based on the advice received, that he had no correction to make.

• Some years later HMRC challenged Ian’s domicile status

and after a lengthy enquiry established that he was actually domiciled in the UK.

• Ian owed tax in relation to his offshore income for 2013 to
• 2016. Ian should have made a correction under the RTC.

Example 9 – “Reasonable excuse”

• Ian claimed that he had a reasonable excuse because he

had taken and followed appropriate advice and claimed that the incorrect advice is not disqualified. The incorrect advice related to his domicile status.

• The advice was given by someone with
• the appropriate expertise,
• took account of all of his relevant circumstances
• and did not relate to avoidance arrangements.

The advice was not therefore disqualified and Ian did have a reasonable excuse = no RTC penalty

Example 9 – “Reasonable excuse”

• The RTC rules specify you cannot rely on advice as

providing a reasonable excuse in certain circumstances:

• if the advice is given by an interested person, or as a

result of arrangements made between an interested person and the person giving the advice

• if the person giving the advice did not have the

appropriate expertise

• where the advice failed to take account of all your

relevant circumstances or

• if the advice was addressed to, or was given to, a

person other than you

Not “Reasonable Excuse”

• Concession - used to gain certainty that no tax due
• “Information you must supply when making a disclosure

that no tax is due”

• HMRC will look at all nil disclosures and may

query/investigate them

• HMRC will not seek a FTC penalty if all relevant facts are

disclosed - taxpayer treated as having made a correction

• Only for taxpayers not under enquiry and should not be

used where the taxpayer is under enquiry

Nil Liability Disclosure

Other HMRC Announcements and Tax Developments

• Class 2 for self-employed was due to end 5.4.2019
• Only £2.95 a week = £153 p.a.
• If profits > £6,205
• Many on low / zero profits continued to pay to maintain

contribution history

• Proposal – based on Class 4 – profits over £8,424 p.a.
• Alternative – Class 3 = £14.65 pw. = £761.80

Class 2 NICs to continue

Self-employed NICs – current system

• Digital tool on HMRC website
• Used by public sector employers to check status for IR35
• HMRC have tested against decided IR35 cases
• 22 out of 24 gave same decision
• 2 cases CEST determined employed:
• Castle Construction (Chesterfield) Ltd
• Novasoft Ltd

Check Employment Status for Tax (CEST)

Advisory Fuel Rates – 1 September 2018 (NB New Electric car rate 4p)

Engine Petrol Diesel LPG < 1400 cc < 1600cc 12p (11p) 10p 7p 1400–2000 1601 - 2000 15p (14p) 12p (11p) 9p > 2000 cc 22p 13p 13p (14p)

• Interest on late paid tax increased to 3.25%
• From 13 August 2018 for quarterly instalment payments,

and 21 August 2018 for non-quarterly instalment payments.

• Interest on tax overpaid remains at 0.5%

Interest on late paid tax increased by 0.25%

• Submitting IHT returns and paying tax, particularly where it

is clear from the outset that there will be no tax to pay;

• The various gifts rules including the annual exemption,

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 the probate procedure;

• Complexities arising from the reliefs and their interaction;
• The impact on taxpayers' decisions, investments, asset

prices or the timing of transactions; and

• The perception of the complexity of the IHT rules

OTS – Simplification of Inheritance tax

• Meeting between OTS and CIOT:
• Increase annual exemption - £10,000 suggested,

abolish carry forward and marriage exemption

• Increase small gifts to £500
• Keep normal expenditure out of income
• Remove/simplify RNRB – “close inheritor” rules
• BPR before APR
• 50% BPR on assets owned personally – remove control

test – 20% significant holding

Simplification of Inheritance tax

• Meeting between OTS and CIOT:
• Simplify the administrative process
• Particularly where no tax due to NRB or TRNB
• No need for full IHT400?
• Liability of PRs on failed PETs – statutory right of

recovery from beneficiaries

• Simplify 10 year anniversary charge on relevant

property trusts – undistributed income

Simplification of Inheritance tax

Recent tax cases

IHT BPR for holiday cottage business???

• PRs of Mrs Graham (deceased) v HMRC
• Mrs G owned country house hotel and 4 holiday

cottages in Scilly islands

• Visitors to Cottages provided with extensive services in

addition to hire of cottages

• Furnished holiday lets for IT and CGT
• BPR for IHT ? not if business mainly of making or

holding of investments

No BPR for holiday cottage business

Services included:

• a swimming pool and sauna,
• games room, barbecue area,
• bike shed with bicycles available for hire.
• separate guest lounge for arriving and departing guests
• on arrival guests were offered hot drinks and snacks
• helped to their accommodation and given a welcome

pack, which included a weekly itinerary of activities on the island.

BPR for holiday cottage business?

Services included:

• Each flat was supplied with flowers, home-made

marmalade, bread and sometimes wine, and also milk, tea and coffee etc.

• Guests were allowed to take herbs and seasonal

produce from the garden such as tomatoes from the greenhouse,

• Groceries ordered by guests were unpacked by the

staff.

BPR for holiday cottage business?

• Contrast - Executors of Mrs Marjorie Ross
• FTT held that qualified for IHT BPR – not business

mainly of making or holding of investments

• The extent of additional services could be such that

the preponderance of activity was not investment

• activity. Overall this was an exceptional case which

did, just, fall on the non-mainly-investment side of the

• line. The pool, the sauna, bikes, and in particular the

personal care lavished upon guests distinguished it from

• ther “normal” actively managed holiday letting

businesses; and the services provided more than balanced the mere provision of a place to stay.

No BPR for holiday cottage business

Must claim EIS income tax relief to get CGT exemption

29

• Ames v HMRC [2018] UKUTT
• Set up indoor skydiving simulator in Milton Keynes
• Invested £50,000 in Skyventure UK Ltd => AirKix
• Only £42 income so no claim for EIS income tax relief
• Sold shares for £333,000 = CGT £73,000
• Incorrect advice from HMRC?
• Made late claim for income tax relief
• EIS CGT exemption denied
• Upper tribunal – HMRC to reconsider allowing late claim

Must claim EIS income tax relief to get CGT exemption

30

• Up to personal allowance £11,850 p.a.
• OR NIC threshold £8,424?
• Is £3,000 employment allowance available?
• Just £411 NIC on £8,424 => £11,850
• £11,850 saves £4,977 (42%) if spouse higher rate
• But can the wages be justified?
• See William McAdam case:

Spouses Wages

• Tax enquiry into plumber – understated takings and

wife’s wages 2009/10 – 2013/14

• Paid spouse £90 a week = £4,680
• For answering phone, bankings, admin tasks
• Not wholly and exclusively? Excessive?
• HMRC argued only 3 hrs a week @ £8/hour
• Restricted to £1,344
• FT Tribunal agreed – no evidence to support wife’s

level of activity in the business

• What if director or partner?

Spouses Wages – McAdam case

‘Client’ ‘Intermediary’

Service company/partnership

‘Worker’

IR35 – Central presumption: Hypothetical Contract

• Jensal Software Ltd v HMRC (2018) FTT
• JSL supplied project based software services to private

and public sector via a agency C

• Mr W (director and major shareholder) designing new

Universal Credit workflow system for DWP

• Via a series of contracts between C and JS Ltd, W's

services were engaged on a fixed term or for a series of fixed term contracts

• HMRC argued IR35 personal service company rules

applied

IR35 did not apply to software contractor

• (i) mutuality of obligation to perform personally

work offered … to create a contract of service”;

• (ii) whether worker was subject to “a sufficient degree”
• f control in terms of what was to be done, and where,

when and how it was to be done;

• (iii) the existence of a right to substitute, irrespective
• f whether or not that right was exercised in practice;
• (iv) whether the worker was in business on his own

account

• (v) the duration of the contract, degree of continuity and

whether the worker was “part and parcel” of the

• rganisation

Factors considered

• Jensal Software Ltd v HMRC (2018) FTT
• The mutuality of obligation did not of itself demonstrate

a contract of services.

• There was no contractual obligation beyond DWP

paying an agreed daily rate.

• Each contract lasted a short duration and there was no

contractual obligation for the DWP to provide continuous work.

• The level of control fell far below the sufficient

degree required to demonstrate a contract of service

IR35 did not apply to software contractor

Self-Employed Referees? Who’s in control?