Agenda this Month • Requirement to Correct • Other HMRC announcements and other tax developments • Recent tax cases
Requirement to Correct Deadline 30 September !
Requirement to Correct (RTC) • RTC obliges taxpayers to make a disclosure of unpaid tax on 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
RTC Penalties • 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 offshore tax evasion or non-compliance.
RTC – Asset Based Penalty • 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 – Offshore Asset Moves 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.
Relying on Professional Advice • 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.
Example 9 – “Reasonable excuse” • 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
Not “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
Nil Liability Disclosure • 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
Other HMRC Announcements and Tax Developments
Class 2 NICs to continue • 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
Self-employed NICs – current system
Check Employment Status for Tax (CEST) • 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
Advisory Fuel Rates – 1 September 2018 (NB New Electric car rate 4p) Engine Petrol Diesel LPG < 1400 cc 12p (11p) 7p < 1600cc 10p 1400 – 2000 15p (14p) 9p 1601 - 2000 12p (11p) > 2000 cc 22p 13p 13p (14p)
Interest on late paid tax increased by 0.25% • 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%
OTS – Simplification of Inheritance tax • 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
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
Recent tax cases
IHT BPR for holiday cottage business???
No 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
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.
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