Agenda Criminal Finance Act 2017 HMRC announcements Creative - - PowerPoint PPT Presentation

• Criminal Finance Act 2017
• HMRC announcements
• Creative industry tax reliefs
• Penalties for late non resident CGT returns
• Recent tax cases
• SEIS before EIS
• PPR – no minimum period of residence?

Agenda

Criminal Finances Act

• Deals with AML, Terrorism Funding and a new corporate
• ffences of failure to prevent facilitation of tax evasion
• Hits all corporates and partnerships
• Two offences – UK evasion and matters which are evasion

in other countries

• Hits where facilitation is undertaken by staff, sub

contractors, consultants…………… (associated persons)

Criminal Finances Act 2017

• Strict offence – no need for mens rea or financial gain
• Applies from 30 September – gentle touch initially?
• For a corporation to be liable, there are three stages:
• Criminal tax evasion by a taxpayer (either an individual or

legal entity) under the existing criminal laws (UK or abroad)

• Criminal facilitation of this offence by an 'associated person'

(broadly an employee, agent or other person performing services for or on behalf) of the relevant body.

• The relevant body failed to prevent the associated

person from committing the criminal facilitation.

Criminal Finances Act 2017

• A business will be guilty of an offence if an associated

person commits a UK tax evasion facilitation offence. A tax evasion facilitation offence consists of any of the following:

• Stage 1 - criminal tax evasion by a taxpayer under existing

law;

• Stage 2 - criminal facilitation of this offence by an

“associated person” of the corporation i.e. anyone who performs services for or on behalf of the business; and

• Stage 3 - the corporation failed to prevent its

representative from committing the criminal act at Stage 2.

• There does not need to be a conviction for either Stage 1
• r Stage 2 for the third stage to apply.

Criminal Finances Act 2017

• Matilda, Australian domiciled, has been living in the UK

and working in the hospitality business for years.

• She asks Kate, an Associate at the local law firm she

uses (where she is a big client) to do the licencing and land transactions on her business activities and to get agents in Bermuda and Bahamas to set up several companies so she could put ‘surplus’ funds there.

• Due to Kate’s involvement in Matilda’s business affairs,

there is no doubt that she could not have known that there were no surplus funds.

Case Study 2

• When Kate asked Matilda where the surplus funds are

coming from, Matilda says she will take her substantial business elsewhere unless Kate sets the companies up and not to ask questions.

• Kate proceeds as the partner for whom she works is

very keen on growth of their portfolio but not very approachable.

• Some time later, after an HMRC investigation, Matilda

admits to substantial UK tax evasion from undisclosed takings amongst many other offences.

Case Study 2

• Stage 1 has been satisfied.
• Stage 2 is satisfied as Kate knew that the payments

were illegal and she had facilitated this by assisting with setting up the infrastructure.

• For the Solicitors’ Partnership, Stage 3 would depend
• n whether the Legal Firm could demonstrate that it had

reasonable procedures to prevent Kate from undertaking Stage 2.

• This may be difficult given what is implied regarding the

culture in the firm.

Case Study 2

• Potentially unlimited
• Will be based on each offence which was not prevented
• So for Case Study 2, we would be talking about all the

tax and penalties levied on Matilda

• What about a systemic problem like a repeated payroll

problem?

• Also – reputational damage – HMRC name and shame,

and if applying for Gov’t business etc would you be a “fit and proper person”?

Penalties

The relevant body has a defence if:

• It has put in place ‘reasonable prevention

procedures’ to prevent its associated persons from committing tax evasion facilitation offences, or

• It is unreasonable to expect the relevant body to have

the procedures in place.

Defences

Overview of 6 principles

HMRC Announcements and other developments

• HMRC Guidance on 7 company tax reliefs:
• certain films
• high-end television programmes
• children’s television programmes
• animation programmes
• video games
• theatrical productions and
• orchestral concerts

Creative Industry Tax Reliefs

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• Companies are entitled to either:
• an additional tax deduction (the enhancement) of 100%
• f enhanceable expenditure (the lesser of UK

qualifying expenditure or 80% of total qualifying expenditure)

• if a loss is surrendered - 25% of the loss up to the

amount of enhanceable expenditure

• The maximum amount that can be claimed is the lower
• f the enhanceable expenditure for that accounting

period or the amount of the loss.

Film, Animation, High-end Television and Children’s Television Tax Relief

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• Qualifying companies can claim an additional deduction

in respect of qualifying expenditure on the game:

• additional deduction is calculated on EEA expenditure

(subject to the subcontracting cap) or 80% of the total expenditure, if less

• enhancing the expenditure by 100%
• If the company makes a loss, it may surrender this for a

25% payable video games tax credit:

• the surrenderable loss is the loss in the period or if less

the available qualifying expenditure in the same period

Video GamesTax Relief (from 1 April 2014)

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• Relief is by way of an additional deduction when

calculating the taxable profits or losses of the separate theatrical trade. This will either reduce the taxable profits or create or enhance a loss, a proportion of which can be surrendered for a tax credit.

• The additional deduction is the lower of:
• 80% of the total expenditure on producing the game or

the theatre production

• the EEA expenditure
• Payable credit, 25% for touring productions, and 20%

for others

Theatre and Orchestra Tax Relief

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• You must tell HMRC within 30 days of conveyance
• You must report the disposal online using the non-resident

CGT return, even if:

• you’ve no tax to pay
• you’ve made a loss
• you’re registered for Self Assessment
• you’re registered with HMRC for Corporation Tax
• you send HMRC Annual Tax on Enveloped Dwellings

(ATED) or ATED-related Capital Gains Tax returns

Reporting disposals of UK property by non- residents to HMRC

• Initial £100 penalty, regardless of whether or not there is a

liability

• After 3 months, a daily £10 penalty to a maximum of £900,

regardless of liability

• After 6 months £300 or 5% of the tax due, whichever is the

larger amount (i.e., a minimum £300)

• 12 months £300 or 5% of the tax due, whichever is the

larger amount (i.e., a minimum £300)

• So that’s a minimum £1,600 per person for a 12 month

delay

Late Filing Penalties out of proportion?

• Freedom of Information request:
• 1. 20,264 NRCGT returns have been filed
• 2. 1,583 show tax due of £7,688,004
• 3. 7,356 were late (36%)
• 4. Late filing penalty issued for 4,022 resulting in penalties
• f £3,338,910.
• Thus approximately 30% of the revenue from NRCGT is

penalties!

Late Filing Penalties out of proportion?

• HMRC updated claim form
• HMRC will need at least 2 months to reply
• Allow time so that can use in SA return
• Form sets out information to be provided
• Shares
• Goodwill
• Land
• Other assets

CG34 Post Transaction Valuation Check

• 60 situations where HMRC computer did not calculate tax

correctly for 2016/17!

• Interaction between new dividend allowance, savings

allowance and personal allowance

• Cannot file online but submit paper return with covering

letter!

• HMRC are have introduced a “fix” for some of exclusions 23

October 2017

• Check with your software provider

Self- Assessment Filing “Exclusions”

• New CGT relief for long term investors in unquoted trading

companies

• Not employees, directors, nor associates
• 10% CGT on first £10m of lifetime gains
• Must be new issue of shares for new consideration
• Issued on after 16 March 2016
• Held for at least 3 years
• Anti-avoidance to ensure genuine commercial investment

Guidance on New CGT Investors Relief

Self-employed NICs – current system

Self-employed NICs - proposal

Recent tax cases

• GDR Food Technology Ltd v HMRC [2016] UKFTT
• X-Wind Power Ltd v HMRC [2017] UKUTT
• Innovate Commissioning Serv Ltd v HMRC [2017] FTT
• Must claim SEIS before EIS
• EIS1 completed for initial investors Sept 2012
• Further investment April 2014
• No SEIS as EIS investment made first
• In both cases should have submitted SEIS1!
• Seed EIS relief denied

SEIS before EIS, and use the correct form!

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• 50% income tax credit*
• Max £100,000 @ 50% each tax year
• Plus 50% of gains tax free
• Disposal exempt from CGT*
• * Provided not connected
• Capital loss relief v income if company goes bust

Tax breaks for SEIS investor

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• Newly incorporated company: < 2 years prior to issue of

shares

• < £200,000 gross assets prior to share issue
• < 25 employees when shares issued
• Unquoted companies only
• Must not be in partnership
• Carrying out qualifying business activity (as EIS)
• Max £150,000 share issue qualifies for relief

Seed EIS – Qualifying Company

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• Example:
• Invest £20,000 in qualifying SEIS company(s)
• Deduct £10,000 (50%) from income tax liability
• £10,000 (50%) of any gains exempt
• Hold 3 years – no CGT when shares sold

Tax breaks for SEIS investor

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• Company may obtain advance assurance that trade

qualifies (HMRC Small Company Enterprise Centre)

• Once shares have been issued the company applies to

HMRC SCEC on Form SEIS 1 (after trading 4 months)

• HMRC issue SEIS 2 to company + SEIS 3 forms for

investors

• Investors can only claim SEIS relief once SEIS 3

received

• Must claim SEIS before EIS

SEIS Procedure

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• Loan by director to company
• £16,000 p.a. credited to DLA each year – interest?
• HMRC argued that these credits were earnings
• FTT agreed with HMRC
• Despite amounts being written off by PYA
• PAYE and NIC due – “payment date” earlier of when

credited to DLA or when paid

Credits to DLA taxed as earnings

32

• 3 years for any reason*
• Any periods whilst working abroad*
• Up to 4 years working elsewhere in UK*
• * Actual occupation at some time before and after
• Last 18 months owned (was 36m)
• NB - Letting relief lower of:
• £40,000
• Gain attributable to let period
• Gain exempted due to PPR

Private Residences – Deemed occupation

• If 2 or more residences
• May elect which is principal residence
• Only one at time
• Switch back and forth
• Last 18 months owned then exempt (was 36m)
• Acceptable tax avoidance per GAAR guidance

Private Residence Planning

• Stephen Bailey v HMRC – FTT decision
• Bought property in Richmond Feb 2008 via his property

development company

• Intended to live in with partner and children
• Actually lived there 2 ½ months
• Could only get buy to let mortgage – couldn’t live there
• Lived in another property in Maidstone (no election)
• Tenant died, moved in to redecorate
• Sold August 2010 – owned less than 3 years = Exempt!

Not Minimum Period of Residence for PPR

• Contrast with Moore v HMRC – FTT decision
• Property initially a “Buy to Let”
• Marriage break up – “moved in” to property 12.11.06
• Council tax records support this
• Property sold 22.7.2007 = 8 months later
• Put property on market with Estate Agent – 22.4.2007
• Date moved in with new girlfriend? – unclear
• Post delivered to girlfriend’s address (2nd wife)

Not a Residence for CGT PPR

• HMRC’s view - Mr Moore’s occupation did not have

the degree of permanence, continuity or expectation

• f continuity necessary for the property to qualify as

his only or main residence for the purposes of sections 222 and 223 TCGA.

• Goodwin v Curtis – “A person’s ‘home’ was to be

distinguished from a property which the person temporarily occupied”

• FTT rejected taxpayers appeal – NOT PPR

Not a Residence for CGT PPR