Tax administration and maintenance day

As anticipated, the government published over 20 announcements on 27 April 2023, covering a wide range of taxation areas. We list these below, with our comments on some of the more important/interesting topics.

Simplification and modernisation of the tax system

Help to Save scheme reform consultation

HMRC information and data powers - call for evidence – The government is seeking views on refining its existing information powers, potentially differentiating them and the associated penalties depending on taxpayer’s circumstances and how collaboratively they engage with HMRC and making it easier to obtain information from third parties with whom the taxpayer is related such as a company of which the taxpayer is a director. The call for evidence also considers some fundamental principles of data powers and responsibilities as a precursor to potential pre-population of tax returns.

New legislative pilots – discussion document

Customs treatment of post and parcel exports - consultation

Customs Advance Valuation Ruling Service launched

HMRC launched the Advance Valuation Ruling Service (AVRS), which importers can use to seek legal certainty that their chosen customs valuation method is correct. The aim is to make it simpler to work out costs ahead of goods shipments.

Importers of goods must value their goods and calculate their import VAT and Customs Duty. Traders will be able to use this optional service to apply online for an Advanced Valuation Ruling, requesting HMRC to confirm that the method used to calculate the goods’ value is correct. HMRC will confirm that the application is accepted within 30 days and respond on the correct valuation method within 90 days. HMRC’s ruling is legally binding for three years so the trader will be able to use this information to calculate the value of goods on their import declaration. 

AVRS will be available alongside existing tariff and origin services and brings the UK into line with other countries who already offer this service. 

Tax treatment of cryptoasset transactions in Decentralised Finance lending and staking – consultation

The government is consulting on a change to the current guidance around how De-Fi lending and staking is treated from a UK tax perspective.  The current guidance imposes a CGT charge (in most circumstances) where crypto is lent or staked, on the basis that there is a transfer of beneficial ownership, and a further charge when the De-Fi returns are received.  The current guidance is complex, and relies on a number of different factors which can result in different treatments to the initial transfer of tokens and returns.  The proposals under consultation are looking to simplify this position by effectively disregarding from CGT the initial transfer and instead looking at what is returned and applying tax on what is happening economically.  

We welcome the continuing consultation into this area and the recognition from HMRC that the current guidance on De-Fi is complex and can lead to unintended tax consequences.
 

HMRC Data gaps consultation response

The government intends publishing draft legislation for consultation, requiring employers to submit data on employee hours worked via Real Time Information PAYE reporting. Additional data will need to be submitted via tax returns including on close company director’s dividends.

Modernisation of the Stamp Taxes on Shares framework - consultation

HMRC is seeking views on proposals to modernise the Stamp Taxes on Shares framework by replacing Stamp Duty and Stamp Duty Reserve Tax with a new single tax on Securities. Its proposals for any new single tax cover the key elements including liability, tax base, geographical scope, compliance regime, exceptions and reliefs, and also its assessment and administration.

Reserved Investor Fund - consultation

Diverted profits tax, transfer pricing and permanent establishment reform

The government will publish a consultation in May on simplifying and updating the following legislation:

• Diverted profits tax (increased rate on diverted UK profits)
• Transfer pricing (related party transactions)
• Permanent establishments (right to tax non-resident entities with a UK business presence)

The government’s aim is to future proof diverted profits tax and ensure that it continues to operate; and to ensure that the transfer pricing legislation is clear, easy to apply and in line with current interpretations of tax treaties and the latest OECD transfer pricing guidelines.

Future of Gift Aid

The government will continue to engage with the charities sector to improve the way that Gift Aid works in order to minimise administrative burdens through the use of digital technology.

Updating the VAT Terminal Markets Order legislation

The government intends to update the Terminal Markets Order (TMO) legislation to clarify the VAT treatment of exchange traded commodity transactions, and will consult on the technical detail later this year. The government will also amend the TMO legislation to fulfil its commitment to bring the UK Emissions Trading Scheme fully into the scope of the TMO.

Tackling the tax gap

Tackling non-compliance in the umbrella company market

The government will shortly publish a summary of responses to the 2021 call for evidence on the umbrella company market, and a consultation on policy options to regulate umbrella companies and to tackle non-compliance in this market.

Repayment agents - protecting customers claiming tax repayments - the government will require repayment agents to register with HMRC. Repayment agents will need to register (within a three-month window) from 2 May 2023. 

Construction Industry Scheme reform - consultation

Charities compliance measures - consultation

Business tax debt collection modernisation – consultation response – The government intends improving HMRC’s ability to collect tax debts by, amongst other things, working towards:

• Empowering HMRC to seize goods from third party warehouses and other premises which are not business’ principal places of business;
• Extending HMRC’s direct recovery of debt powers to include monies in digital wallets;
• Requiring security deposits from businesses who repeatedly, intentionally do not pay the taxes they owe:

Employee Ownership Trusts

The government will publish a consultation later this year on the use and effectiveness of the Employee Ownership Trust (EOT) tax regime, to ensure that the reliefs are targeted closely at incentivising EOTs as an employee ownership business model whilst preventing the reliefs from being used for unintended tax planning.

Further tax policy and administrative announcements

National Insurance credit changes - The government recognises concerns that some eligible parents who have not claimed Child Benefit could miss out on their future entitlement to a full State Pension. The government will address this issue to enable affected parents to receive a National Insurance credit retrospectively. Further details of next steps will be set out in due course.

HMRC powers and safeguards evaluation - report

Off-payroll working: calculation of PAYE liability in cases of non-compliance - consultation

Background

Following the changes to the IR35 rules which transferred the liability for PAYE/NIC where contractors engaged through limited companies who are deemed employees for tax purposes from the limited company to the engaging entity, there have been a number of cases where HMRC has sought PAYE/NIC on payments that had already been subjected to some extent to tax.  This has included a number of high-profile cases involving media personalities.

Although there is an established methodology for offsetting income tax and Class 4 NIC paid by self-employed individuals who are later deemed employees against PAYE and Class 1 NIC sought from their purported employer, there is currently no similar mechanism where that income has been paid to the worker via a limited company and that company has paid Corporation Tax while the individual has paid income tax on dividends paid from their company.  This has led to cases of double taxation on the same income, and this consultation seeks to potentially address this issue.  The consultation is open until 22 June 2023.

BDO view

Ultimately this is a positive development.  The current situation requiring refiling of accounts and tax returns is complex, time consuming and potentially unworkable in certain circumstances, due to the different taxes involved having differing retrospective adjustment time windows.  This would also give employers of recategorised workers greater consistency between those engaged directly and those engaged via limited companies – a consistency that should reflect the fact that the PAYE/NIC treatment for the engaging organisation is now essentially the same.

Besides exactly how this offset mechanism would manifest itself - should it be implemented - there is a question over retrospective application.  The IR35 rules for the public sector for public sector organisations changed with effect from 6 April 2017, while for larger private and third sector bodies the change took place from 6 April 2021.  To manage employers’ expectations, especially during an enquiry, it is hoped that any offset mechanism is retrospectively applied back to those changes in legislation.

For more information please contact Caroline Harwood, John Chaplin or Dawn Register.
 

Plastic Packaging Tax

The government will consult later this year on allowing a mass balance approach for calculating the proportion of recycled content in chemically recycled plastics, for the purposes of the Plastic Packaging Tax.

HMRC’s evaluation list - update

 

 

Subscribe to receive the latest BDO News and Insights

Please fill out the following form to access the download.