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We’re pretty much over half way through 2017, and this year is all about grappling with some interesting tax issues which lie on the horizon (and this doesn’t even take into account the possibility of a change in government and Brexit negotiations).

We outline exactly what you should be aware of in the oncoming month below, but in the meantime; if you have any tax questions, contact the DPP Tax Fraud team on the link below.

1. Notifying clients

Chartered accountants who deem themselves as “specified relevant persons” (which include tax agents and advisers, solicitors and financial advisers) need to consider whether they are required to send any of their clients information on HMRC changes which include:

  • HMRC will soon have access to data on overseas financial accounts
  • There are opportunities to disclose information on overseas financial matters.
  • There are consequences for those who withhold back any relevant information.

This notification needs to be sent to the appropriate clients before 31st August 2017. If not, the adviser could face a fine of £3,000.

2. New penalties

The government have notified the public that new penalties will be imposed as part of their on-going initiative to tackle tax evasion. These include:

Penalty for failing to correct (linked to the new requirement to correct)

Thanks to the introduction of Common Reporting Standard (CRS), the end of 2018 should see HMRC receiving more data on offshore accounts. A “requirement to correct” past offshore tax evasion (issues existing up to and including 5 April 2017) by 30 September 2018, is being introduced by Finance Bill 2017. Those people who have not corrected this by 30 September 2018 will face the tougher “Failure to Correct” penalty. The intention is to provide a strong incentive for taxpayers to review their offshore affairs, to come forward and put them in order before HMRC receives the full CRS data.

More details can be found here.

Penalty for participating in VAT fraud

Missing Trader Intra-Community (MTIC) fraud has so far proven trick to stamp out for HMRC. And despite making some headway in recent years, it still costs the exchequer up to £1bn per year.

The reason behind this new penalty is down to an issue showing misalignment between the existing error penalty regime and the “knowledge principle” – which is used in tackling serious VAT fraud, such as MTIC.

Subject to any changes made as the Bill moves through the parliamentary process, businesses and some company officers (where appropriate) will face a 30% fixed rate penalty if it is proven that they knew or should have known, that their transactions were connected with VAT fraud.

Penalty for “enablers of tax avoidance which is defeated”

This penalty intends to stop “enablers” – those who are profiting from allowing tax abuse to take place, but at the same time, ensure that most professionals provide advice on genuinely sound commercial arrangements for their clients regarding tax obligations.
The new penalty has been introduced to:

  • Apply to abusive schemes defeated by HMRC.
  • Impose a fixed 100% fee-based penalty on everyone in the supply chain.
  • Apply to advice provided after Royal Assent to the Finance Bill 2017.

3. Making tax digital

The movement to Making Tax Digital (MTD) has been pushed back to April 2019 for most small businesses.

This has begun already as many businesses have taken up with a new accountancy package this spring in order to get 12 months’ practice under their belts for the 2018/2019 tax year.

Overlap relief – a potential problem for many businesses – has been looked into. The accounting date, under normal change-of-accounting-date rules, can be moved forward only six months at a time. This allows businesses to absorb some overlap relief now rather than be impacted in the cessation period.

4. Reforms to corporation tax loss relief

Implemented in April 2017, the reforms are as follows:

Greater flexibility will be granted to any losses from 1 April 2017 going forward. It will be possible to set them against the total taxable profits of a business and individuals within that group.

Despite this, large companies will be affected by the restriction to amount of profit that will be restricted can be relieved by carried-forward losses to 50%, subject to an allowance of £5m per stand-alone company or group.

5. The new corporate interest restriction

From April of this year, businesses have had to get to grips with the new corporate interest restriction which outlines that:

Businesses will be able to deduct up to £2m of net interest expense and similar financing costs in the UK on a yearly basis. This of course, only affects bigger businesses.

Above this £2m threshold deductions for net interest expense will be capped at the higher of:

  • 30% of taxable earnings before interest, taxes, depreciation and amortisation (EBITDA) in the UK (this is referred to as the “fixed ratio rule”); or
  • A proportionate share of the worldwide group’s net interest expense, equal to UK taxable EBITDA multiplied by the ratio of worldwide net interest expense to worldwide EBITDA (referred to as the “group ratio rule”).
  1. There will be a Public Benefit Infrastructure exemption to try to protect investment in infrastructure that has a public benefit.
  2. The current debt cap rules will be repealed, but in order to prevent abuse a modified debt cap regime will be included to limit deductions to the net interest expense of the worldwide group.

6. Improvements to SSE

SSE is the substantial shareholdings exemption (SSE) which allows an exemption on capital gains/losses and corporation tax based on the disposing of a number of substantial shareholdings.

It has been put in place to make sure that corporation tax charges on share disposals does not necessarily influence business decisions, or tempt companies to create complicated offshore holding structures.

However, this has drawn some criticism that it is not relevant enough to the tax landscape of 2017 and beyond. This is what prompted the consultation in 2016, which discussed whether SSE could be made simpler, more understandable and more internationally competitive. This brought about these changes in April 2017:

  • Removing the investing company trading condition. This should improve certainty for those making decisions on corporate disposals.
  • Extending the period over which the SSE requirement can be satisfied from 12 months within two years, to 12 months within six years prior to disposal. This should provide more certainty where companies dispose of shareholdings in several tranches.
  • Removing the post-disposal investee trading condition. This should improve certainty that SSE will apply where it may be difficult to ascertain the trading status of the activities of the company being disposed of immediately after the disposal.
  • Introducing a broader exemption for companies owned by qualifying institutional investors. This should make the UK a more attractive location for institutional investors to locate their investment holding platforms.

7. Employment tax

There are six key changes to the calculation and implementation of employment taxes that CAs need to know about in 2017:

  • Employee shareholder relief is to be abolished.
  • Salary sacrifice/exchange schemes have been restricted.
  • The National Living Wage increases to £7.50 from April 2017.
  • Public sector contractors no longer have the right to be treated as “self-employed” where they are engaged via a personal service company.
  • The government has pledged £13 million to boost management skills and productivity.
  • A green paper on executive pay will be published and gender pay gap reporting requirements are being introduced.

Thanks to ICAS for highlighting these issues.