TAX FACULTY – WEEKLY NEWS UPDATE

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Newswire: 892

This is a summary of the key tax events for the week ended 17 December 2017. It has been compiled by Anita Monteith, Jane Moore and Ian Young. This newswire contains all the individual postings we have made to the Tax Faculty website over the past seven days. It includes both news items (ion.icaew.com/taxfaculty) and new discussions (ion.icaew.com/Taxforum).

CONTENTS

A Happy Christmas to newswire readers 2

TAXtalk December 2017 looks at HMRC's plans to close the tax gap and at cyber security 2

Start a tax discussion on our forum today 2

ICAEW launches new Personal Financial Planning Community 2

Reminder – HMRC will not accept personal credit card payments after 12 January 3

Finance (No 2) Bill 2017-19 – progress 3

HMRC publishes departmental plan 4

Agent Update 63: latest news for tax agents from HMRC 5

Latest HMRC Employer Bulletin published 6

PAYE RTI post implementation review published 7

Making Tax Digital small business survey 8

Trust registration service filing deadline – update at December 2017 9

Large Business Risk Review consultation – ICAEW response 10

Large companies – restriction in the use of carried-forward losses – draft guidance 10

Consultation on the hidden economy and public sector licensing 11

The GAAR advisory panel issues three new Opinion Notices 12

Banks’ contribution to the public finances 13

OECD Mutual Agreement Procedure – 2016 statistics 14

Overpaid VAT will attract only simple interest: final judgment in Littlewoods 14

VAT: agreement on simpler and more efficient rules for businesses that sell goods online15

Tax Faculty activity report to December 2017 16

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A Happy Christmas to newswire readers This newswire (sent on 18 December) is the last newswire of 2017. Our next newswire will be in the new year, on 8 January 2018. We would like to send all our readers the Tax Faculty’s best wishes for Christmas and New Year.

TAXtalk December 2017 looks at HMRC's plans to close the tax gap and

at cyber security The final TAXtalk of 2017 is now available to view again. Anita Monteith was joined by Jane Moore, editor of TAXline, and Mark Taylor, Technical Manager in the IT Faculty and cyber security specialist. The inventiveness of IT criminals never ceases to surprise us as they become increasingly entrepreneurial. After a brief description of the new Budget and Finance Bill timetable, discussion moved on to some new measures HMRC has been taking to close the tax gap. These include the current campaigns targeting landlords and second incomes of employed people, as well as the ongoing matter of offshore income. A recent nudge letter suggesting problems with inadequate iXBRL tagging was also of some concern. We also discussed the new consultation targeting the hidden economy which contains proposals to link applications for licences (taxis, landlords, market stall traders etc) to evidence of tax compliance. Mark Taylor then talked about business resilience to cyber crime and also the new GDPR (date protection) regulations coming into effect in May 2018. He explained some steps tax practitioners and businesses should be taking to protect themselves and that new engagement letters dealing with this will be published early next year. Watch this TAXtalk to pick up some useful tips. If you have criminal activity to report, go online to Actionfraud.police.uk or call 03001232040.

Start a tax discussion on our forum today The issue with readers not being able to start new discussions on the Tax Faculty’s tax forum has now been resolved. We had been experiencing a technical issue which prevented the wider membership starting new threads, but it is now working again. If you have a tax issue on which you would like others to express views, why not start a new discussion now?

ICAEW launches new Personal Financial Planning Community ICAEW is keen to encourage members to play a wider role as ‘personal finance director’ to help SME owner/managers and their families manage their personal financial and investment affairs. To this end ICAEW has recently launched a Personal Financial Planning Community and a Lifetime Wealth Planning Guide.

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Personal financial planning is an area in which ICAEW chartered accountants are able to use their skills and experience and trusted relationships to deliver complementary services and work with other professionals to help clients and their families manage their personal finances. This increasingly important area of professional advice typically involves aspects of lifetime cash-flow modelling, investments, pensions and retirement planning, tax and estate planning, probate and personal insurances. The Personal Financial Planning Community www.icaew.com/pfp is free to join and offers material on regulation, pensions, investments, tax and estate planning, probate and practice development. The Lifetime Wealth Planning Guide revolves around a case study. It takes the reader through the experience of Peter Pickle, a retiring SME owner, who seeks the advice of a financial planning mentor to take him through his retirement and wealth planning. Steve Pipe, business mentor to the accountancy profession, who spoke at the 13 December Community launch event, has posted his reaction to the launch of this exciting ICAEW initiative: “For me, the best thing to come out of the day was the suggestion from the ICAEW that we can now start offering a personal finance director service to our clients. To me, that label is genius. Not only is it eye-catching and memorable, but it also makes it very clear that this is something new and important. Something that will be really valuable to your clients, and really profitable for you.” Read his comments in full at www.stevepipe.com/blog/pfp

Reminder – HMRC will not accept personal credit card payments after 12

January As we explained in an earlier news item, HMRC will no longer accept payments by personal credit card after 12 January 2018. The reason of the change is that from 13 January, the EU Payment Services Directive 2 prohibits merchants (including HMRC) from recharging associated fees back to customers. HMRC will not absorb the cost of credit card fees as this would be a cost to the public purse. Payments by debit card or corporate credit card will continue to be accepted. The timing means that taxpayers who wish to pay their 31 January 2018 self assessment liabilities by personal credit card will need to make the payment by 12 January or use and alternative payment method. The Tax Faculties guide Paying tax to HMRC covers this change and the range of payment methods available.

Finance (No 2) Bill 2017-19 – progress The second Finance Bill of the current parliament was published on 1 December 2017. You can access the Bill and all the accompanying documents by clicking here. The Finance Bill had its second reading on Monday 11 December 2017. You can read the debate in Hansard. There will be two days of debate in the Committee of the Whole House on Monday and Tuesday, 18 and 19 December, before the Bill goes to the Public Bill Committee for a maximum of eight sessions

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beginning on 9 January 2018. The intention is that the Public Bill Committee will complete its deliberations no later than Thursday 18 January 2018. The Committee of the Whole House will consider the following clauses:

• Bank levy: new clauses and schedules tabled re clause 33 and Schedule 9

• Stamp Duty Land Tax: Clause 40 and Schedule 11

• Income tax treatment of armed forces’ accommodation allowances: existing regulations to require affirmative approval by the House

• Effect of the Bill on equity: new clause and schedule The new clauses and schedules are on the Parliamentary website for which the link is at the top of the page. They are on the same parliamentary page as the Bill itself.

HMRC publishes departmental plan On 14 December HMRC published its latest departmental plan. The plan sets out HMRC’s objectives and how it will achieve them. The plan begins by stating that HMRC aspires to be a world-class organisation underpinned by its four values: being professional, acting with integrity, showing respect and being innovative. The three main objectives set out in the plan are: 1. Maximise revenues and bear down on avoidance and evasion In the year 2016/17, tax revenues rose by £38.1bn to £574.9, an increase of 7% over the previous year as compared to about a 3% rise in inflation. The plan is to deliver compliance revenues of £28bn in 2017/18, although this appears to be nearly £1bn lower than the previous year. ICAEW has a general concern that this objective should be to collect the right amount of tax due under the law rather than to “maximise revenues”. As anyone involved in tax knows, words matter and maximising revenue is not the same as collecting the right amount of tax. 2. Transform tax and payments The plan confirms the continued investment of £1.3bn to make HMRC one of the most digitally advanced administrations in the world. HMRC will continue to roll out and develop digital tax accounts, enabling taxpayers (and their authorised agents) to see all their tax affairs in one place, and be able to check at any time that their details are complete and correct. We welcome the confirmation that authorised agents should be able to see all that their clients see, as, in the past, the roll-out of digital services for agents has lagged behind those provided to taxpayers. HMRC will be supporting the government’s plans for a smooth and orderly Brexit and making any changes needed to the tax and customs system to achieve that. As for HMRC’s performance statistics for 2016/17, they showed a steadily improving picture during the year, although the statistics for the first two quarters of 2017/18 give us some concern that standards have slipped back to where they were at the start of 2016/17; for example the target for telephone waiting time has slipped back to five minutes having been under four minutes in the three months ended 31 March 2017 3. Design and deliver a professional, efficient and engaged organisation In terms of HMRC’s staff, it will “continue to make consistent positive progress towards achieving the Civil Service Employee Engagement Index benchmark”. Quite what that is and how HMRC fares as compared to other departments is not readily apparent.

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The plan to move to 13 regional offices continues, not without some controversy both as regards the plan itself and the nature and length of the leases on the new premises. More generally, there is a clear worry that HMRC may not have the resources to deliver all of the projects it has on hand to the timescales that have been set. At the recent hearings before the Treasury Committee and Public Accounts Committee, HMRC’s CEO Jon Thompson stressed that HMRC will struggle to deliver Brexit on top of its ambitious change programme and the rollout of digital services. As Brexit preparations move up a gear, it is important to ensure that HMRC either has the resources needed to deliver on the plans or, if not, that there is a realistic reappraisal of the projects on hand and their deliverability.

Agent Update 63: latest news for tax agents from HMRC HMRC has published its latest bi-monthly round up of developments in tax. In Agent Update 63 it highlights the top articles as:

• Autumn Budget 2017 announcements, see the Tax Faculty summary

• Fulfilment house due diligence scheme which will open for online applications on 1 April 2018

• Annual tax on enveloped dwellings (ATED) 2018/19 returns. The old online forms will be withdrawn on 31 March 2018 and the ATED digital service will need to be used to file 2018/19 returns.

Other articles of interest include: Compliance updates There are several updates on compliance issues:

• Disguised remuneration: detailed settlement terms and a spotlight on the supreme court decision in the Rangers case

• HMRC’s card transaction campaign

• Worldwide disclosure facility Termination payments and sporting testimonials: changes to the income tax and Class 1 NIC treatment of such payments will apply from 6 April 2018. The Class 1A employer NIC charge will start from April 2019. Bank and building society interest: HMRC has started to use interest information from banks and building societies in tax codes and PAYE calculations, see the Tax Faculty news item. Marriage allowance: claims to marriage allowance on behalf of deceased partners can now be made and backdated by up to four years. Coding out of self assessment liabilities: a reminder that a self assessment liability can be collected through a 2018/19 PAYE tax code if all the following conditions apply:

• the tax due is less than £3,000,

• there is a PAYE record, and

• the 2016-17 paper tax return was submitted by 31 October 2017 or online by 30 December 2017 (not the usual 31 January 2018 deadline for online filing).

Submitting self assessment tax returns: there must be an active self assessment account for a taxpayer before a tax return is submitted to HMRC; where there is an existing inactive UTR it is necessary to re-register before filing. If this step is not followed HMRC is likely to also issue a P800 tax calculation. See the Tax Faculty news item.

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Working Together Working Together now operates through the HMRC agent forum and the activities of the Issues Overview Group. Members are encouraged to join and participate in the agent forum. A recording of a Talking Points webinar about the forum is now available. The Working Together section of the update also includes useful information on the Agent Services Account, agent access to the Trust Registration Service and pre-population of client data (employments, income, tax, benefits, Class 2 NICs and Marriage Allowance) in commercial self assessment software.

Latest HMRC Employer Bulletin published HMRC has published the latest edition of its Employer Bulletin, the bi-monthly technical update for employers. The leading article summarises the 22 November Budget employment taxes announcements:

• Employee expenses: the government will consult in 2018 on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs, remove the requirement for employers to check receipts for expenses paid under the benchmark scale rates system from April 2019, place the existing concessionary accommodation and subsistence overseas scale rates on a statutory basis from April 2019 and work with external stakeholders to explore possible improvements to the guidance on employee expenses.

• The government will also consult in 2018 on off-payroll working in the private sector and Matthew Taylor’s review of modern working practices.

• There is news on changes to company car tax diesel supplement, company car and van taxation and employer-provided charging for electric vehicles.

Finance (No.2) Act 2017 includes the following which relate to the current year 2017/18 onwards:

• The time limit for making good taxable benefits in kind has changed to 6 July following the tax-end.

• The first £500 worth of pension advice provided by or reimbursed by employers can now be paid without reporting this to HMRC or paying tax on the benefit.

• Employers can provide their employees with legal advice or indemnity insurance in relation to their employment without a tax charge on the benefit.

There are also articles on:

• Getting PAYE real time information right.

• Improvements to the apprenticeship service.

• Changes to company cars, which can now be notified on form 46(car) using a new online service.

• Optional payroll arrangements (OpRA), including a reminder that pay arrangements that fall within OpRA include cases where the remuneration package is expressed on the lines of “£xxx plus allowance” where the allowance can be swapped for a benefit in kind, most commonly a car.

• Changes to the way in which tax and NIC can be paid to HMRC.

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PAYE RTI post implementation review published HMRC has published its post implementation review (PIR) of the PAYE real time information (RTI) programme. While some time has passed since Spring 2016 when the Tax Faculty presented our evidence both oral and written (ICAEW REP 163/16) to HMRC’s review team, much of what we said then still applies and we are delighted that HMRC has published its report,

We welcome the candour of the report and the focus on lessons to learn, for example the need for all versions of HMRC’s records to be consistent and for agents to be able to view them, and the acknowledgement of the doubts expressed over burdens/savings. There are lessons for Making Tax Digital (MTD) and it is good to see them identified here. The object of the PIR was to address the following:

• Did the programme achieve what it set out to do?

• How is RTI performing more than three years after it started?

• What needs to be done to improve performance and make best use of this strategic asset for government?

Did the programme achieve what it set out to do? The report says that:

• The evidence is that the programme did achieve what it set out to do and the changes were positive. Considering the scale (1.5 million employers) and pace, the introduction of RTI for many, but not all, businesses went relatively smoothly.

• There have been cost savings, for example of £64m for HMRC and £292 per annum for employers, along with a one-off PAYE cash flow benefit to the exchequer of £81m and tax credit savings of £672m, as well as additional costs, including £292m one-off and transitional costs for employers and £307m for HMRC to implement RTI.

Tax Faculty comment: We presume that it is only the year one cost saving that was negated by transitional costs, but remain sceptical over whether there really are ongoing cost savings. We should welcome clarification of how the figures have been arrived at. How is RTI performing more than three years after it started? The report says that:

• RTI is performing well with HMRC processing RTI for over 40 million employees and occupational pensioners. A proportionately small number of data issues and mismatches between HMRC and employer records continue to be time consuming and potentially costly to resolve for employers, agents and HMRC. This is exacerbated by the delay in providing a real time view of RTI data for employers and agents to check against their own records, and the process for amending submissions.

• The consensus remains positive the that the changes were necessary and have modernised PAYE practices and reduced error and fraud. HMRC accepts the lessons to be learned on consultation, communication and implementation.

Tax Faculty comment: We are not convinced that RTI is working as smoothly as this summary suggests. In HMRC’s records there are still too many instances of duplicated employments (especially following employer payroll software provider changes or business restructurings) and incorrectly recorded liabilities and payments, which continue to lead to inappropriate (and sometimes distressing) contact from HMRC’s ‘field force’ (ie in-house debt collectors) which makes employers who use agents think that their agent has done something wrong. Also it should be borne in mind that the large absolute number of PAYE schemes and individual employee records means that expressing error rates in percentage terms can overshadow the fact that a small percentage of errors impacts a huge number of individual records.

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What needs to be done to improve performance and make best use of this strategic asset for government? The report says that:

• There is still much to do to ensure that employers find it easier to understand and comply with their obligations.

• Communications are not reaching all employers and some small employers are still struggling. HMRC has set up a team to think more innovatively about how to reach smaller employers and provide them with the clarity that they need and involve external experts and employers earlier when changing guidance or processes.

• Regarding data quality and mismatches, HMRC proposes to support employers to apply best practice and offer ‘once and done’ support to employers and agents, and, to enable employers and agents to view HMRC’s records and more easily update current or past years, is prioritising development of digital solutions to provide a real time view of liabilities and payments data and to facilitate amendments and reporting of information currently submitted in EPS.

• To exploit better the information embedded in RTI, HMRC is working towards ensuring that more tax codes are correct in year so fewer individuals end the tax year owing tax or being owed a repayment, pre-populating RTI data in personal tax accounts and self assessment, and improving the student loan repayment process.

Tax Faculty comment: We welcome the recognition of shortcomings but are concerned that some of the proposed solutions outlined in the report will not resolve underlying problems even if they are delivered by the target date of 31 March 2019. For example, we have long expressed the view that the earlier year update (EYU) should be changed so that users input what the figures should be rather than by how much the figures in HMRC’s records, which are not necessarily known by employers and where available may be wrong, should be changed. HMRC told us in late 2014 that EYU redesign was being worked on, so we are disappointed to read in the PIR report (in Appendix B) that the latest change proposal is limited to making HMRC’s figures more easily accessible. What do you think of how RTI is working now and of the PIR? Please post a comment below.

Making Tax Digital small business survey Ipsos MORI has published the findings from its research which looked at small business and landlord engagement with Making Tax Digital (MTD). The research, involving 2,900 businesses and landlords, took place between September and December 2016 when it was anticipated that businesses and landlords with turnover above £10,000 would be required to report quarterly for income tax. Since then the timetable has of course changed and the focus has shifted to VAT reporting from April 2019 for VAT registered businesses with turnover above the VAT threshold. The key findings from the research were: Using digital tools for tax – as expected, small businesses and landlords rely heavily on spreadsheets and paper documents. Just 26% of the population used software (including apps) to carry out tax-related tasks, although this rose to 52% where the business was liable to corporation tax. Barriers to compliance – some taxpayers explained their concerns about complying with the new rules. In particular they were worried about whether they had sufficient IT skills to use software and the time that would be needed to provide information more frequently.

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Engagement and support needs – the research confirmed that businesses would be more willing to make the transition to MTD if the value of doing so outweighed the administrative burden. In fact some taxpayers commented that they would rather pay a penalty than comply if that were cheaper. Guidance and support on how to prepare for MTD was requested by 40% of those spoken to and the survey revealed that most would ask an accountant or agent for support (72%).

Trust registration service filing deadline – update at December 2017 As reported in our news item the deadline for registering an existing trust with a tax liability in 2016/17 is unmoved at 31 January 2018 but no penalties will be charged if the trust is registered before 5 March 2018. Many agents do not think the relaxation of penalties is a help; when trustees engage agents to do work on their behalf there is an expectation that the agent will be compliant with the legislation, not just that the filing will not attract a penalty. The engagement letter generally says that the client must be compliant and it is only late information from the client that can excuse non-compliance in terms of filing deadlines. Lack of time due to unavailability of the system provided by HMRC is not a reason for non-compliance. We asked HMRC why they had chosen to relax the penalty but not extend the deadline: was it simply for expedience to save amending the statutory instrument which fixes the 31 January deadline? The response from HMRC is: “The objective here is to allow trustees to submit registration after 31 January 2018 without being penalised by HMRC and this can be achieved within the existing legislative framework. A trustee or an agent, acting on behalf of trustees, submitting registration after 31 January 2018 but by no later than 5 March 2018 will in our opinion still be compliant with the legislation given our announcement below. “Important information regarding the Trusts Registration Service The Trust Registration Service (TRS) is an important tool for the UK government in meeting its obligations to tackle money laundering and it is important that the register is complete, but it is also important that we enable and support trustees and agents to comply with these new requirements, rather than simply enforce non-compliance. “We have listened to your feedback about initial difficulties with this new service and the pressures this is placing on agents at a very busy time. Therefore, for this, the first year of operation only, HMRC will not impose a penalty on the trustees of taxable relevant trusts if the trustees, or an agent acting on behalf of the trustees fail to register on TRS by 31 January 2018 but do so no later than 5 March 2018. This applies for both trusts which are already registered for Self-Assessment (SA) and those which do not require to be registered for SA. “We recently announced an extension to the Trusts Registration Service (TRS) deadline for new trusts that need a Unique Taxpayer Reference for Self Assessment. Trusts which have incurred a liability to income tax or capital gains tax for the first time in the tax year 2016 to 2017 will need to complete registration on the TRS by no later than 5 January 2018. This extension continues to remain in place for both trusts and complex estates, and is for the first year of the TRS only.” Based on this explanation, trustees and agents will still be compliant provided they register the trust on or before 5 March 2018.

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Large Business Risk Review consultation – ICAEW response HMRC undertook a review of its risk assessment approach to large business over a 12 week period from 13 September to 6 December 2017 Large Business Compliance – enhancing our risk assessment approach. ICAEW submitted its response ICAEW REP 132/17. The purpose of the consultation was explained in the consultation document as follows: “The Business Risk Review (BRR) is a core feature of how HMRC manages the tax compliance of the largest businesses. Customer Relationship Managers (CRMs) currently conduct a periodic BRR of each large business, assessing their risk profile and placing them into a binary ‘low risk’/‘non-low risk’ category. This assessment is a key determinant of the level of scrutiny and resource the business receives from HMRC. The process, while still effective, has undergone limited change since its introduction 10 years ago. “We are seeking your views on how a refreshed BRR approach, potentially with more (e.g. 4-5) risk categories tailored to the tax risks encountered in the large business population, will support: i) HMRC maintaining a shift in large business compliance behaviours; and ii) Providing greater clarity and confidence for large businesses – for example, the BRR could place businesses into a low risk, low-moderate risk, high-moderate risk, high risk and significant risk category.” In its response ICAEW set out some concerns about the current relationship between large business and the HMRC Large Business Directorate and at the beginning of its response explained its general concerns as follows: “The UK has been at the forefront of the development of enhanced cooperation and now, more recently, cooperative compliance. “The system works best when there is genuine cooperation between large business and HMRC and each side fulfils their appropriate obligations. “The determination of the risk posed by a particular large business is clearly an important consideration in determining the extent to which that particular large business is subject, or not, to more invasive investigation and audit to determine that the tax outcomes are appropriate. “The general approach is set out in the HMRC Manual Large Businesses – Introduction “Risk Review is an important element of the good working of this relationship, but we would urge HMRC to look more broadly at the current working of this model which we believe is suffering some problems. Our members inform us that HMRC is often not able to give certainty to its business customers on complex tax issues and there is an inability to be forthright in reaching conclusions on particular issues. Cooperation requires both sides to fulfil their obligations. We have set out some concerns in response to question 13 below.” The concerns which we set out in answering question 13 are reproduced below: “Where there is a significant transaction then HMRC should be more open about giving absolute certainty in answering requests for clearance. If the taxpayer is being open in its request then HMRC should not be reluctant in providing the required certainty.”

Large companies – restriction in the use of carried-forward losses –

draft guidance This measure was announced in the March 2017 Budget but it did not make it into the pre General Election Finance Act 2017. It was “revived” in the first Finance Bill of the current parliament and became law in F (No 2) Act 2017.

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Draft guidance for comment HMRC published general draft guidance in July 2017 for comment by the end of September. It then published a second tranche of draft guidance in November 2017 covering more technical aspects of the rules including group relief for carried-forward losses and the relaxation of carried-forward non-trade losses. The second tranche of the draft guidance is for comment by 5 January 2018. The most recent draft guidance Reform of Corporation Tax Loss Relief: draft guidance on commencement provisions, published at the beginning of December, covers the commencement rules and how you deal with accounting periods which straddle the 1 April 2017 start date for the new regime. There are also hyperlinks to the earlier guidance. The deadline for comment on this latest guidance is 9 February 2018. Please contact Ian Young ian.young@icaew.com if you have any comments you would like ICAEW to make in our response. The new rules With effect from 1 April 2017, companies with profits in excess of £5m will no longer be able to reduce profits to nil by using relief for carried-forward losses. For example, a company with £12m chargeable profit will be able to cover only a maximum of £8.5m profits by carried-forward losses. The £5m deduction plus 50% of the £7m profit in excess of that £5m deduction. The result of this is that the company will pay tax on £3.5m. Where a company is a member of a group, the £5m deduction is shared amongst the group members as they see fit. The allowance is allocated to companies that are members of the group by a nominated company. Most small companies or groups are unlikely to be affected because their profits will be less than £5m. The restriction has effect for profits arising from 1 April 2017 but applies to all losses carried forward, including those carried forward at that date.

Consultation on the hidden economy and public sector licensing HMRC has published a consultation on Tackling the hidden economy: public sector licensing. In essence, the idea is that taxpayers who need to obtain a license in connection with their work will have to show that they are compliant for tax. This idea has featured in previous consultations about the hidden economy, where it was referred to as ‘conditionality’ because it would make compliance with certain tax obligations a condition of holding some licences. The consultation suggests licensing regimes which could be suitable for this process. These include:

• private security

• taxi and private hire vehicles

• waste management

• houses in multiple occupation and selective licensing in the private rental sector

• scrap metal, and

• retail and trade, including market trading. HMRC proposes that the principles of this process would include:

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• New applicants should be signposted by the licensing authority towards tax obligations and HMRC services, to ensure that they understand their taxable status and are able to register as soon as possible after they begin trading.

• For those renewing licences, checks would apply too ask applicants to confirm and provide evidence of their tax-registration status.

The government would not expect licensing authorities to provide advice to applicants on their tax status. Applicants requiring particular support or advice could be directed towards appropriate HMRC services. It is not clear whether the licensing authorities would be required to send the information they have gathered to HMRC. At this stage HMRC is considering what approach to take and is inviting comments. HMRC is aware that the process will impose an admin burden on both applicants and licensing authorities and is seeking to minimise that. The consultation was published on 8 December 2017 and runs until 2 March 2018. The Tax Faculty will be responding – please send any comments to jane.moore@icaew.com by 9 February. We would be particularly interested in comments about the likely admin burden and the practicalities of the proposed process.

The GAAR advisory panel issues three new Opinion Notices The General Anti-Abuse Rule (GAAR) was enacted in Finance Act 2013 following a long period of consultation, between 2010 and 2013, in which ICAEW was heavily involved. The GAAR is designed to bring to an end abusive tax arrangements which fall foul of a double reasonableness test; that is, “arrangements which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions.” Cases are referred by HMRC to the GAAR Advisory Panel to ensure that they do genuinely fall foul of the double reasonableness test. Paragraph B14.1 of the GAAR guidance states: “The procedure for applying the GAAR to any arrangement requires that the proposed application of the GAAR should be put before an advisory panel, independent of HMRC, who will give their opinion (or opinions if they are not unanimous) as to whether the arrangements in question constitute a reasonable course of action.” Latest Opinion Notices Of the three Opinion Notices, two concern similar facts to the first Notice involving the use of gold bullion and an employee benefit trust to avoid income tax and NIC charges. In the first case the events took place before NICs were covered by the GAAR. The two Opinions can be viewed by clicking here and clicking here. You can read our report on the first Opinion Notice by clicking here. The other Opinion Notice involves the use of an offshore trust to provide monies to the sole shareholder/director of a company from which the individual had a loan of £460,000 on which tax would otherwise have been payable under the loan to participators legislation. The scheme involved both the company and the individual in a composite set of arrangements and you can view the Opinion Notice here. The various steps that were taken were agreed by the GAAR panel to be abnormal and contrived and in the Opinion Notice it states:

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“8.2 The Trust and splitting of the Trust interests in this case appears to be designed to manufacture (at no cost other than trust set up costs) an asset that is not a loan and can be sold to a wholly-owned affiliate. “8.3 In addition to the overall use of the Trust and the Trust interests being contrived and abnormal, there are a number of specific features we regard as contrived and abnormal:

a) Mr A buying a trust interest where the only trust asset is intended to be an interest free loan to himself, the amount of the loan being substantially the same as the purchase price he pays for the trust interest; b) entering into arrangements for over 120 years where the underlying asset is a loan to an adult individual and where little regard is paid (as far as we can see) to what happens if the loan is repaid on Mr A’s death or otherwise before the expiry of that period; and c) a contract for the purchase of an income stream (the primary interest in the Trust) that contains none of the purchaser protections you would typically see in a third party transaction.

8.4 Using a trust in this way to achieve a commercial goal is both contrived and abnormal.”

The Panel also decided that what was done was not consistent with the principles on which the relevant legislation is based and the policy objectives of that legislation, nor was there a shortcoming in the relevant legislation that was being exploited. It was also determined that what was being done was not consistent with established practice accepted by HMRC

Banks’ contribution to the public finances The third PwC study of the Total Tax Contribution of the UK banking sector covered the period to 31 March 2017 and for the majority of the banks this will have included their accounts to 31 December 2016. In the foreword to the latest report Andrew Packman from PwC writes: “The UK banking sector has faced a number of challenges, including persistently low interest rates and lower return on equity since the financial crisis. In the coming years, challenges include the likelihood of continuing low interest rates, together with Brexit uncertainty and other forms of potential disruption from technology and new market entrants. This report suggests that the banking sector is in a strong position to face these challenges, but also highlights the scale of potential impact on the public finances if the level of UK banking activity changes. Since 2007, gross value added (GVA) of the banking sector has fallen while tax revenues have been increasing. As other financial centres compete for banking activity, the UK needs to ensure that it remains competitive and maintains its position as the world’s leading financial centre. This report emphasises the significant contribution made as a result of high-skilled jobs in this sector, which reinforces the UK’s need to allow access to talent.” The taxes borne and collected for the banking sector, extrapolated in the main from the data provided by survey participants, came to £19bn and £16.4bn in taxes borne and collected respectively. One noticeable change is that corporation tax as a percentage of total taxes borne is now 25% compared with 10% in the previous year. It represents nearly 10% of total government corporation tax receipts. Bank surcharge payments were £1.1bn and bank levy £3bn. Other major taxes borne were: Employment taxes £4.7bn Irrecoverable VAT £4.5bn

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Employment taxes represented nearly 85% of the taxes collected, £13.7bn out of a total of £16.4bn. The study also compares the contribution of UK and foreign banks which took part in the survey and while both contributed equally to the Total Tax Contribution the UK banks had a bigger percentage, 60%, of taxes borne.

OECD Mutual Agreement Procedure – 2016 statistics Dispute resolution (Action 14) is one of the four minimum standards of the OECD BEPS (Base Erosion and Profit Shifting) Action Plan which member countries of the Inclusive Framework need to abide by. This is because it was recognised that the effectiveness in resolving disputes about the correct interpretation of the provisions of double tax treaties was going to be of paramount importance with the changes to the tax treaties which are rather more nuanced and subjective than those they are replacing. OECD has now published its latest, 2016, figures of the speed with which such disputes are being resolved under the Mutual Agreement Procedure. This is in the form of tables on the website rather than a downloadable document. The number of open disputes went down from 8,000 at the beginning of 2016 to just under 7,200 at the end. The average time taken to close MAP cases is 30 months in transfer pricing cases and 17 months in other cases. This is longer than in the 2015 report but the figures are not comparable as the 2016 figures now include the majority of the countries that are members of the Inclusive Framework. The UK 2016 statistics are available by clicking here. The number of open cases has gone up from 262 at the beginning of the year to 314. The statistics for all the Inclusive Framework countries that are currently available can be reviewed by clicking here. 66 countries are listed while 21 countries are listed in the footnote as not yet having submitted MAP statistics. There will be additional countries when next year’s statistics are published as membership of the Inclusive Framework now stands at more than 100.

Overpaid VAT will attract only simple interest: final judgment in

Littlewoods HMRC has issued Revenue and Customs Brief 5 (2017) to explain its position following the Supreme Court judgment in Littlewoods Limited and others. Littlewoods Limited and others claimed a refund of overpaid VAT for commissions on mail order sales. This VAT was repaid together with simple interest due under VAT Act 1994. They then argued that the interest already paid to them was inadequate and that they were entitled to compound interest, both as a matter of EU law and also as a matter of English domestic law. The Supreme Court found in favour of HMRC, ruling that the simple interest at statutory rates paid to the claimants is sufficient to vindicate the EU law right to an adequate indemnity and that it is unnecessary for compound interest to be paid. This litigation is now final. Claims for compound interest on overpaid VAT or for any compensatory amounts other than simple interest under the provisions of the VAT Act 1994 will not be paid by HMRC. It will invite claimants to withdraw their claims and any related appeals to the Tribunal.

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There are a number of claims where the underlying tax litigation is not yet final. Those underlying issues should now proceed. Previous Revenue and Customs Briefs 9/2015 and 20/2014 issued about this litigation are now withdrawn.

VAT: agreement on simpler and more efficient rules for businesses that

sell goods online An agreement has been reached by the Economic and Finance Ministers of EU Member States on a series of measures to improve how VAT works for online companies in the EU. The new system is expected to make it easier for consumers and businesses, in particular start-ups and SMEs, to buy and sell goods cross-border online. It should also help Member States to recoup the current estimated €5 billion of VAT lost on online sales every year. The new rules will come into force progressively by 2021 and will:

• Simplify VAT rules for start-ups, micro-businesses and SMEs selling goods to consumers online in other EU Member States. VAT on cross-border sales under €10,000 a year will be handled according to the rules of the home country of the smallest businesses. SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 annually. These measures will enter into force by 1 January 2019.

• Allow all companies that sell goods to their customers online to deal with their VAT obligations in the EU through one online portal in their own language. Without the portal, VAT registration would be required in each EU Member State into which they want to sell – a situation cited by companies as one of the biggest barriers for small businesses trading cross-border.

• Make large online marketplaces responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers. This includes sales of goods that are already being stored by non-EU companies in warehouses within the EU which can often be used to sell goods VAT free to consumers in the EU.

• Address the problem of fraud caused by a previously misused VAT exemption for goods valued at under €22 coming from outside the EU which can distort the market and create unfair competition. Previously, fraudsters had been able to mislabel high value goods in small packages as having a value under the threshold of €22, making the goods exempt from VAT and creating a gap of €1 billion in revenues which would otherwise have gone to the budgets of EU Member States.

The One Stop Shop for sales of online goods is due to come into effect in 2021 to give Member States time to update the IT systems underpinning the system. Further information can be found using the following links: Q&A on VAT for e-commerce Commission proposal for EU VAT reform Action Plan on VAT – Towards a single EU VAT area Digital Single Market strategy Digital Single Market - Modernising VAT for cross border e-Commerce

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Tax Faculty activity report to December 2017 This report highlights some of the Tax Faculty’s activities since the last report published in October 2017, and what we are working on at the moment. 1. Highlights Tax Faculty activity has been driven by the Autumn Budget 2017 on 22 November 2017 and by legislation: Finance (No. 2) Act 2017 received royal assent on 16 November 2017 and was closely followed by the publication of Finance Bill 2017-18 on 1 December 2017 alongside a number of new consultation documents which are listed below. The annual Hardman lecture on Tuesday 14 November 2017 was given by Mary Monfries, on the theme of “The vital role of the profession in building a world of strong economies”. 2. Significant meetings and other activity in the period On 16 October Frank Haskew and Anita Monteith met Beth Russell, Director General Tax and Welfare, HM Treasury, to discuss the new tax policy making timetable and areas of current concern. On 26 October Anita visited a member in Shepton Mallet to observe the filing of quarterly updates by an ICAEW member who is in the MTDb pilot for several of his business clients. On 27 October Ian Young and Anita Monteith met the Guangxi Local Taxation Bureau. Ian Young also met a delegation from the Philippines’ government and parliament to advise them on Taxpayer Charters. On 30 October Anita Monteith met Mel Stride with the Tax Professionals Forum, to discuss the new Budget and legislative timetable and its impact on the tax policy making process. On 16 November Anita Monteith attended the Cyber Aware Industry Forum. On 20 November Sarah Ghaffari attended the All Party Parliamentary Group (Responsible Tax) chaired by Dame Margaret Hodge on the topic of the gig economy. Ian Young attended meetings of the same group on 6 November (What is responsible tax and why is it important?), 7 November (on the Paradise papers) and 23 November (on Brexit). On 29 November Frank Haskew, Anita Monteith and Paul Aplin met Mel Stride, the Financial Secretary to the Treasury and discussed a number of current topics including the Trust Registration Service and Making Tax Digital. On 4 December Anita Monteith participated in a round table discussion on the Gig Economy hosted by PWC. Topics covered included the impact of the growth of the sector and A Framework for modern employment, Second Report of the Work and Pensions Committee and First Report of the Business, Energy and Industrial Strategy Committee. On 5 December Frank Haskew gave evidence to the Treasury Committee on the November 2017 Budget and related topics, including extending IR35 to the public sector, the SDLT exemption for first-time buyers, the freezing of the VAT threshold and proposals to counter online VAT fraud. On 5 December Anita Monteith attended the Future of Work for All Labour Party conference at which the Labour party’s response to the Taylor report was discussed, together with the party’s proposals to improve the quality and availability work in the UK. On 5 December Frank Haskew and Anita Monteith attended a roundtable event in the Houses of Parliament on the implications of Brexit on Customs and Duties. On 11 December Frank Haskew attended a meeting of HMRC’s Tax and Accounting Group, which discussed the tax implications of various developments in IFRSs.

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On 11 December Paul Aplin, Carl Bayley, Mary Monfries and Frank Haskew attended a CIOT roundtable meeting with Edward Troup at the CIOT. On 13 December, Frank Haskew and Caroline Miskin attended a meeting with HMRC to discuss its tax agent strategy including the roll-out of digital services for agents. 3. Media and other public appearances Anita Monteith appeared on Moneybox Live on Budget day. Caroline Miskin appeared on You and Yours on 12 October 2017 to discuss simple assessment. Caroline also spoke to the South West London Chartered Accountants tax group on 8 November 2017 on this topic. Sue Moore did various interviews at FT Advisor on Budget Day and contributed to their Budget Day blog. Anita Monteith was quoted in the Daily Telegraph in a front page story on the HMRC consultation on tax self assessment fines. She was also quoted in the Mail Online on HMRC on the same topic, and in the Sunday Times and Times Online on the changes to the rent-a room relief. 4. News from the technical committees Practitioner tax The Practitioner Tax Committee met on 29 November 2017 and discussed current issues affecting practitioners, including P800s and simple assessment, and the roll out of agent services, in particular agent access to the Trust Registration Service and the new agent services account. Frank Haskew and Caroline Miskin represented ICAEW at the Joint Initiative Steering Group on Monday 30 October 2017 and ICAEW hosted the Issues Overview Group on 12 December 2017. Making Tax Digital The Tax Faculty submitted comments on the draft regulations for income tax and on the overview of the regulations for VAT. We are still awaiting the draft VAT regulations. There have been a number of meetings with HMRC including on communication plans and a meeting of the Joint VAT Consultative Committee sub-group on MTD for VAT. The webinar programme resumed with a webinar on MTDb on 8 November and one MTDi on 14 November 2017. SME business tax Sarah Ghaffari attended the IR35 Forum on 11 December 2017. The SME business tax committee met on 18 December 2017 to consider Finance Bill 2017/18 clauses and various consultations published in early December. Private Client Committee The committee has been working on the non-dom changes in the various Finance Bills and also on arguing, successfully, for deadline extensions and further clarifications on what is required in connection with the Trust Registration Service. We met the OTS in relation to their review of IHT and how it can be simplified. We attended the HMRC-run Expat Forum on 20 November and the Capital Taxes Liaison Forum on 8 December.

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Enquiries and Appeals Committee The committee met on 13 December and considered the current consultations on the Hidden Economy and on MTD compliance, the Budget proposals to extend the assessment time limits for offshore non-compliance, and HMRC’s current compliance activities including ‘nudge letters’. We attended the Compliance Reform Forum in November and a meeting with HMRC on 14 December to discuss the EU and OECD proposal for mandatory disclosure of information. 5. Publications TAXline TAXline: November 2017 In this issue of TAXline, Robin Williamson outlines what personal representatives need to know when it comes to income tax and capital gains on estates; Ian Young examines the effect of human rights charters on taxpayers’ rights at home and abroad; Lynnette Bober explains the new rebasing relief available to foreign domiciliaries and John Cassidy assesses HMRC’s latest nudge letters. TAXline: December 2017 In this month’s editorial, Frank Haskew looked back at the past year and identified the crucial developments in tax. There is a report of the Hardman Lecture, and articles about the changes affecting non-doms, MTD agent filing, and the work of the OTS. Plus a Christmas appeal for support for the work of the tax advice charities from the Bridge the Gap campaign. TAXguides The following TAXguides have been published since the last report: TAXguide 23/17: VAT MOSS TAXguide 22/17: TAAR very much TAXguide 21/17: the tax implications of Brexit TAXguide 20/17: Intermediate guide to the taxation of trusts TAXguide 19/17: The high income child benefit charge TAXguide 18/17: HMRC determinations and special relief TAXguide 19/17: High income child benefit charge TAXguide 20/17: An intermediate guide to the taxation of UK trusts TAXguide 21/17: The tax implications of Brexit TAXguide 22/17: TAAR very much TAXguide 23/17: VAT Mini One Stop Shop We also published our detailed commentary on the Autumn Budget and updated our Tax rates and allowances summary. Find it at http://www.icaew.com/en/technical/tax/working-with-hmrc/uk-tax-rates-allowances-and-reliefs 6. Events Tax Faculty Webinars and TAXtalk The Tax Faculty has run six webinars since the last report: Keeping safe in a digital tax world Making Tax Digital (MTD) may have been put back a year, but it isn’t going away. MTD for VAT starts in 2019 and tax continues to move into a digital age. Intermediate guide to the taxation of UK Trusts Following on from the very popular Elementary guide to the taxation of UK trusts it is time to take a step up to the intermediate guide.

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Demystifying Making Tax Digital The focus of Making Tax Digital (MTD) has changed, but the general direction of travel has not. Demystifying MTD Simple Assessment and MTDi Simple Assessment has received a mixed reception from the profession and in the media. Budgets, Bills and Acts - a practical overview of recent tax changes 2017 has been a bumper year for budgets, finance bills and finance acts – are you up to date? TAAR very much - Reconstructions and winding up In this webinar Sarah Ghaffari will be joined by Pete Miller to discuss the tax implications of corporate reconstructions, from the tax treatment of distributions to stamp duty charges. Monthly TAXtalks have also continued. Tax Club Tax Club met on 23 October 2017 when Dana Ward gave an update on the Criminal Finances Act and on 13 November 2017 when Keith Gordon gave an update on recent tax cases. Tax Club will resume in early 2018, see www.icaew.com/taxclub for details and various resources available to ICAEW members. 7. Representations and consultations Tax representations submitted The following representations have been submitted since the last report: ICAEW REP 132/17 Large Business Compliance - Enhancing our risk assessment approach ICAEW REP 131/17 Penalties for enablers of defeated tax avoidance ICAEW REP 128/17 Making tax digital for VAT - legislation overview ICAEW REP 127/17 Trust Registration Service ICAEW REP 126/17 Making Tax Digital for income tax: Secondary and tertiary legislation. ICAEW REP 120/17 FB 2017-18 Settlements: anti-avoidance ICAEW REP 119/17 Termination payments: removal of foreign service relief ICAEW REP 117/17 Tax Policy: Autumn budget, making tax digital, finance bill and longer term recommendations for a better tax system ICAEW REP 116/17 Budget Autumn 2017 - to submit representations as part of the policy-making process ICAEW REP 115/17 Partnership taxation: proposals to clarify the tax treatment ICAEW REP 113/17 Employment income provided through third parties ICAEW REP 111/17 Tax Challenges of the Digitalized Economy ICAEW REP 110/17 Delivering a tax cut for small businesses: A new small business rates relief scheme for Wales ICAEW REP 109/17 Domicile, off-shore trusts, overseas property etc ICAEW REP 108/17 FB17-19 clause 34-35 schedule 11-12 Disguised remuneration loan charge

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Open consultations Consultations on which responses are being developed by committee volunteers and faculty technical managers are as listed below. We would welcome your comments well before the issuing body’s deadline so we have time to consider them:

Subject matter External deadline

Contact

Venture capital trusts: share exchanges

2/1/2018 Ian Young

Fair taxation of the digital economy

3/1/2018 Ian Young

Corporate tax and the digital economy

31/1/2018 Ian Young/Sarah Ghaffari

Gains by non-residents on UK immovable property

16/2/2018 Sue Moore

Rent a room relief –call for evidence

23/2/2018 Sue Moore

Royalty withholding tax 23/2/2018 Ian Young/Sarah Ghaffari

VAT and vouchers

23/2/2018 Neil Gaskell

Corporate interest restriction: leases 28/2/2018 Ian Young/Sarah Ghaffari

Plant and machinery lease accounting changes 28/2/2018 Ian Young/Sarah Ghaffari

MTD interest harmonisation and sanctions for late payment

2/3/2018 Caroline Miskin

Tackling the hidden economy: public sector licensing

2/3/2018 Jane Moore

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