Tax Faculty submits its comments
The Government published on 11 December 2012 draft clauses for inclusion in FB 2013 with a deadline for comment of 8 February 2013. The Finance Bill will be published on 28 March 2013.
Tax Faculty submitted 17 separate TAXREPs to the various HMRC specialists in respect of the draft clauses for which they are responsible (TAXREPs 4-20/13) and we also produced a compendium TAXREP (21/13) including all these detailed comments with some overarching ones. We submitted this compendium TAXREP to the Exchequer Secretary, David Gauke, and to Edward Troup and Jim Harra at HMRC.
Our overarching comments TAXREP 21/13
Please read our overarching comments in TAXREP 21/13 which we set out under the following heads:
- Tax policymaking needs to be improved;
- Tax simplification remains as elusive as ever;
- Consultation needs to be improved;
- Tax avoidance;
- Give HMRC time to recover; and
- Estimated compliance costs for changes (particularly for RTI) are far too low;
Withdrawing a notice to file a self-assessment return TAXREP 4/13
We welcome the proposal to introduce a statutory basis on which HMRC may withdraw a notice to file a self-assessment return, something it has been doing in practice for a while now. We see the proposals as sensible and workable and we have suggested that HMRC introduce a similar measure for corporation tax returns.
RTI compliance – penalties TAXREP 5/13
In principle the penalty regime looks sensible. Given that so much of how RTI will work is unresolved and more complex employment circumstances are largely untested, the previously-announced relaxations to the penalty regime for 2012/13 and 2013/14 are essential and welcome. RTI will impose burdens and costs on employers and penalties may arise for failing to do the impossible – reporting monthly instead of on or before payday would solve this dilemma. The impact assessment should be updated using realistic figures.
General Anti-Abuse Rule TAXREP 6/13
The extension of the GAAR to IHT is inevitably going to cause some uncertainty which a clearance procedure would have alleviated. The guidance is going to be key to the adequate functioning of the GAAR and the work of the Interim Advisory Panel is going to be vital in drafting good guidance which is to be published in final form at the time the Finance Bill appears on 28 March.
Deferral of payment of corporate “exit charges” TAXREP 7/13
We believe that the proposed legislation will still not be compliant with the EC Treaty provisions and that the deferral needs to be up to the time the asset is actually disposed of. We also believe that there ought to the possibility of deferral of the charges that can arise when a company ceases to be UK resident or UK trustees resign and are replaced by trustees of another EU or EEA state.
UK group relief rules – amendment TAXREP 8/13
There is to be a change in UK law to reflect the CJEU decision in Philips Electricals and to allow group relief for losses of UK Permanent Establishments of EEA companies but we still believe that the conditions that will be imposed in order for this relief to be permitted are more onerous that are permissible under EU law.
Tax residence and ordinary residence TAXREP9/13
This is probably a case of be careful what you wish for. What we wanted and needed was a clear and simple statutory definition of tax residence and what we have is a statutory definition that is very complex and except in the extremes will be almost impossible for the man on the Clapham omnibus to follow and understand.
Cap on unlimited income tax reliefs TAXREP10/13
Whilst we understand the need to protect the public purse we believe that restricting tax relief on commercial losses and interest paid on loans for commercial purposes runs contrary to the government’s aim to stimulate and grow the economy.
Attribution of gains to members of closely-controlled non-resident companies and transfer of assets abroad TAXREP11/13
The changes to this anti-avoidance legislation are required to make the UK compliant with EU requirements. We do not think this has been achieved in this second draft of the changes needed.
Ensuring the fair taxation of residential property transactions TAXREP12/13
This is yet another unwieldy piece of draft legislation designed to discourage the acquisition and ownership of residential properties by non-natural persons.
Vulnerable beneficiary Trusts TAXREP13/13
The original definition of vulnerable beneficiaries has been extended to include claimants of the standard level as well as the enhanced level of benefit which is welcome. However, we are still of the view that the opportunity should be taken to have a complete overhaul of the regime for vulnerable beneficiary trusts such that they are tax neutral in all aspects. There seems to be a problem with the drafting of the legislation that will have a consequential effect on all bereaved minor trusts and 18-25 trusts.
Employee owner shares – CGT exemption TAXREP 14/13
The policy of exempting such shares from CGT is welcome but the legislation needs to be rewritten to make the policy work. There are numerous other tax and non-tax points that need to be resolved if the overall scheme is to achieve government objectives.
Enterprise management incentive – CGT entrepreneurs relief TAXREP 15/13
Extending the qualifying period to include the time for which an option was held is welcome (it is in accordance with our previous representations) but the legislation needs to be rewritten as it has lengthened the qualifying period from a year to a year and a day.
Cash basis for small business TAXREP 16/13
We are increasingly concerned that this will not be the simplified system proposed by the Office of Tax Simplification, but rather will just be an alternative system.
Following discussions with HMRC and mindful of the likelihood that this legislation will proceed with only minor changes from 6 April 2013, we suggest the following matters could still realistically be addressed at this stage:
- The proposals for the cash basis as currently drafted are not suitable for partnerships. These should be excluded until the problems have been resolved.
- The easiest and most pragmatic solution to small quantities of goods being taken for a proprietor’s own use would be to disapply the ‘Sharkey v Wernher’ legislation, s 172B, ITTOIA 2005.
- Sideways loss relief, capped at £50,000, should be allowed.
- The ability to move between the cash and accruals basis each year makes the system more complicated than it needs to be and means that anti avoidance legislation is needed. We have heard HMRC’s concerns about this complexity and have had meetings to discuss the issue. We have suggested restricting an individual’s choice to move between cash and accruals accounting to once every five years, unless the business exceeds the income limit or unless there are other commercial reasons to change. This rule follows the existing rule restricting a change of accounting date, s217(4), ITTOIA 2005.
Trade profits: deductions allowable at a fixed rate TAXREP 17/13
We are broadly supportive of the proposals to allow a system of fixed rate deductions but consider that:
- The amounts specified for deductions are too low.
- There should be only one rate for using a private car for business, being 45 pence a mile. This could more easily align with the Universal Credit rules which are based on monthly rather than annual usage.
- The requirement to keep a record of hours spent using a home for business purposes represents an additional administrative burden, which cuts across the purpose of this proposal.
Temporary increase in annual investment allowance TAXREP 18/13
The rate of Annual Investment Allowance (AIA) is increased from £25,000 to £250,000 between 1 January 2013 and 31 December 2014.
We support this increase which applies to qualifying capital expenditure on plant and machinery and integral features, although the supporting calculations will be complex for businesses caught up in the transition. Very many businesses will have a basis period spanning either the decrease in rate or the increase in rate. Some will span both. It will be very important to have clear guidance from HMRC on how to handle this and we suggest a calculator tool will be needed on the HMRC website.
Extension of IR35 for income tax to officers TAXREP 19/13
IR35 already extends to officers for National Insurance. The proposed change equalises the tax treatment of office holders engaged through third parties with the treatment under the relevant National Insurance legislation. In our view, officers are already in the same position as individuals who would be in an employment relationship if engaged directly for NIC.
Disincorporation relief TAXREP 20/13
We welcome the proposal for a disincorporation relief. However, there are two aspects of the draft legislation which we think are too restrictive and should be amended:
- The £100,000 limit on the total value of qualifying assets is too low. We recommend that it should be set in line with the EU definition of a micro-company.
- The relief should not be introduced just for a five year period. It should be a permanent part of company tax legislation in the same way as the reliefs for incorporation.