Taxation and trusts; New guidance on vulnerable customers, report on wealth tax and more.

• Review of business rates: The potential of an online sales tax
• January borrowing comes in at less than expected
• A budget of two halves 
• Report on wealth tax

• Self-assessment returns delayed

• Vulnerable Clients – New FCA guidance now finalised
• Help to Buy ISAs – Quarterly statistics released
• New fuel rates for company cars
• HMRC appeal removes entrepreneurs’ relief on shares sold by a trust
• More than 264,000 help to save accounts opened
• Pre-pack sales to face mandatory independent scrutiny
• Pre-pack sales to face mandatory independent scrutiny

 

 

 

Review of business rates: The potential of an online sales tax

(AF2, JO3)

A fundamental review of business rates was announced by the Chancellor at last year’s Budget, and a call for evidence was published in July 2020 to seek stakeholders’ views on key issues including reforming the rates multiplier and looking at alternative ways of taxing non-residential property.

The call for evidence closed last year and the Government is currently considering responses. An interim report, which will include a summary of responses to the call for evidence, will now be published on 23 March, along with a number of tax documents, consultations and calls for evidence on a wide-range of tax-related issues. And a final report will be published in the Autumn.

As we commented earlier on rumours that the Chancellor had been considering corporation tax increases, the Treasury’s review of business rates considered the suggestion of a potential online sales tax. The argument being that the business rates system creates a distortion within the retail sector, favouring online retailers that can operate without the high-value properties that are a feature of more traditional retail. This, said the Government, has led to proposals that a tax on companies based on their online sales could be used to fund a business rates reduction for retail properties. The Treasury’s review posed the following questions:

• What would be the benefits and risks of introducing an online sales tax?

• Which services and products do stakeholders think should be subject to an online sales tax and what evidence is there to support this?

• What evidence is there for the effects of an online sales tax, for example, on changes in consumer behaviour, or prices?

• How could an online sales tax affect the distribution of taxation?

However, some stakeholders, including many retailers, are opposed to such a tax. As a fundamentally different tax from business rates, some have raised concerns that an online sales tax would simply increase the costs for consumers of many regularly purchased items or make it harder for offline retailers to adapt to changing consumer habits and establish their own online presence. There is also a risk that an online sales tax could, subject to its scope, be distortive and incentivise the bundling together of certain online purchases of goods and services. Others have highlighted that businesses occupying more property or more valuable property should expect to pay more under the normal workings of a property tax and that an online sales tax would penalise more efficient or innovative businesses. These stakeholders have also argued that rate reductions for offline retail incentivise inefficient use of the property and ultimately lead to higher rents, with the benefits accruing not to retailers or consumers but to landlords.

Historical trends in online retail sales, and the more recent increases driven by COVID-19, suggest that while an online sales tax would not replace business rates, it could still provide a sustainable and meaningful revenue source for the Government. While the scope of an online sales tax would need further consideration, it could be levied on the revenues that businesses generate from online sales to UK customers, and focused on sales in direct competition with those carried out through physical premises.

The Government added that, as an online sales tax would be unlikely to raise revenue sufficient to replace business rates, any such tax would be expected to exist alongside business rates. So, it will be interesting to see read the announcement on this on 23 March.

Source: HM Treasury News story: Business Rates Review Update – dated 19 February 2021.

 

 

January borrowing comes in at less than expected

(AF4, FA7, LP2, RO2)

Government borrowing was considerably lower than expected in January, but the latest figures are still setting unwelcome records.

On Friday 19 February the Office for National Statistics (ONS) published the last public sector borrowing data to emerge before the Chancellor gave his Budget on 3 March. They were much better than expected by the market, although in any other year the numbers would have been classed as dire:

• Public sector net borrowing (PSNB) in January 2021 is estimated to have been £8.8bn, £18.4bn more than a year ago but well below market expectations of £24.5bn, according to Reuters. January usually produces a surplus, thanks to self-assessment tax receipts, but not this year. Thus, this January’s deficit is the first for 10 years and, almost inevitably, the highest ever for the month since records started in 1993.

• For the first ten months of this financial year, total borrowing amounted to £270.6bn, £0.2bn below last month’s figure but £222.0bn above the corresponding figure for 2019/20. The fall in the total between December 2020 and January 2021 is the consequence of more revisions to earlier months’ numbers by the ONS – for example, central Government expenditure was revised down by £6.1bn. Surprisingly, this was mainly due to downward adjustments in Department for Health and Social Care spending over the past few months.

Despite the downward revision, the year-to-date outturn was once more the highest borrowing on record for the (ten-month) period.

• Overall Government debt rose to £2,114.6bn, £328.6bn (18.4%) higher than a year ago. As a percentage of UK GDP, debt was 97.9% in January, a 1.5% fall from the original December figure that reflects both the revised figures and the rolling adjustment to the GDP figure. Nevertheless, once the tweaks are considered, the figure remains the highest since “the early sixties”.

• Self-assessment income tax receipts were £16.8bn in January 2021, £1.4bn higher more than twelve months ago. However, this number needs to be treated with caution as it includes payments on account that were deferred from July 2020.

• The Office for Budget Responsibility (OBR) has produced a shorter than usual monthly commentary on these borrowing figures. It notes that there is now a £69.3bn gap between the ONS data and the OBR’s monthly profile forecast for cumulative January borrowing, which was issued in November. It attributes £29.4bn of the difference to the OBR’s upfront recognition of future write-offs associated with the pandemic loan schemes, something which has not yet made it into the ONS figures. That still leaves projection and estimated reality nearly £40bn adrift, which the OBR attributes mainly to a combination of higher than expected self-assessment income and lower than expected central Government expenditure.

The OBR highlighted that departmental resource underspending, which it had expected to reach £12bn in 2020/21, now looks set to be “even greater”. This will have been good news for the Chancellor as he prepared for 3 March. For now, the spectre of a deficit of £400bn for 2020/21 has disappeared, although it is still likely to be north of £350bn – over six times that of 2019/20.

Source: ONS: Public sector finances, UK: January 2021 – dated 19/2/21 / OBR 19/2/21

 

 

 

A budget of two halves?

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3, RO4, RO5, RO7, RO8)

The Treasury is splitting off publication of some consultation documents from the main Budget Day documentation dump. The Government has announced that some documents and consultations that would traditionally be published at the Budget will instead be published on 23 March.

Anybody who has been involved in examining what emerges from the Treasury and HMRC on a Budget Day will know that the blitz of documentation is enormous. Alongside the three main documents:

• Budget Red Book (128 pages in 2020);

• HMRC/Treasury Overview of Tax Legislation and Rates (often called OOTLAR – 180 pages); and

• OBR’s Economic and Fiscal Outlook (226 pages)

Come a raft of other consultation papers, calls for evidence, review findings and sundry reports and statements.

The Treasury’s love of a paper tsunami is one reason why interesting nuggets – such as last November’s announcement of personal allowance indexation – can take a time to be discovered. It was therefore interesting to see a press release from the Treasury issued very recently which announced that the Government will ‘publish a range of tax consultations and calls for evidence on 23 March’, 20 days after the Budget proper.

According to the Financial Secretary to the Treasury, Jesse Norman, these consultation announcements will not be high profile measures and won’t require legislation in the next Finance Bill or have an impact on the Government’s finances.

A letter accompanying the press release, that was sent to the Chair of the Treasury Select Committee, says Mr Norman will “lay a Command Paper, ‘Tax policies and consultations (Spring 2021)’, before the House on 23rd March which will contain further announcements relating to tax policy. The Command Paper will include a number of consultations, most of which will be published on the same day. Several of these consultations are an important part of the Government’s 10-year tax administration strategy, ‘Building a trusted, modern tax administration system’, which [was] published in the Summer of last year. This strategy paper focused on digitalisation of the tax system.

This means several of these consultations are likely to be covering the following:

• Making Tax Digital – next steps;

• Digitisation of tax administration;

• An exploration of appropriate timings and frequency for the payment of different taxes; and

• Opportunities to modernise tax administration, such as:

• simplified registration processes, so that businesses need only register once with HMRC for all taxes, rather than navigating different rules, processes and deadlines for different taxes;

• smarter use of data on taxpayers and their activities – pre-population of tax returns, including with data from third-parties (the Office of Tax Simplification has been reviewing this).

The Government has also confirmed that an interim report on its review of business rates, and the potential of an online sales tax, will be published on 23 March.

However, Mr Norman also confirmed that the announcements which have implications for the Government’s finances, that need to be captured in the Office for Budget Responsibility’s economic and fiscal outlook, and announcements of measures to be legislated in the Finance Bill, will be made on Budget day, on 3 March, in the normal way.

On the face of it, this could, in the main, just be publication on 23 March of more long-term proposals for digitalising tax, and, in the process, speeding up data and revenue collection. However, it might also be about kicking off consultation on any new taxes which were announced on 3 March with details to follow. In that case, Budget Day might mark the day from which anti-forestalling measures take effect.

Source:  HM Treasury News story: Government to publish a range of tax consultations and calls for evidence on 3 March – dated 18 February 2021.

 

 

Report On Wealth Tax

(AF1, RO3)

The UK Wealth Tax Commission has published a follow-up set of FAQs on its report. The final report of the Wealth Tax Commission, published in December, gained considerable attention, not only in the UK. Mel Stride, Chair of the influential Treasury Select Committee, told Times Radio “I think that [a one-off wealth tax] is probably nearer the end of the spectrum of the possible/question mark/desirable than an annual wealth tax”, according to Reuters. However, Rishi Sunak is said to be against the idea. Across the Atlantic, the report prompted a parliamentary motion in Canada calling for a one-off wealth tax that could be used to fund that country’s planned "Inclusive Recovery Fund".

The Wealth Tax Commission is keeping up the pressure by publishing a list of frequently asked questions based on the most common queries it has received. If you want to know the answers to such FAQs as:

• How can we trust that this tax will be a one-off?

• Are wealth taxes only popular because people think they won’t have to pay themselves?

• What do economists think about wealth taxes generally?

• Would the Queen have to pay?

The answers are to be found here.

As we have said before, Rishi Sunak already has two reports on capital taxes – inheritance tax (IHT) and capital gains tax (CGT) – sitting on his desk. Rather than adding a third tax that would not be popular with many in his party, he might prefer to overhaul that pair first and work out what extra he has to find.

There is also an interesting economic argument that increasing corporation tax, as rumoured in the Press, has similar effects to an annual (and more broadly targeted) wealth tax, but with much less visibility.

Source: Wealth Tax Commission: A wealth tax for the UK: Frequently Asked Questions – dated 22 February 2021.

 

 

Self-assessment returns delayed

(AF1, RO3)

According to a recent press release from HMRC, while 10.7 million taxpayers filed their self-assessment return by 31 January 2021, more than 1.5 million taxpayers missed this deadline and are still to file their tax return.

The payment deadline for self-assessment is normally 31 January and interest is charged from 1 February on any amounts outstanding. In addition, a 5% late payment penalty is also charged on any unpaid tax that is still outstanding on 3 March. Although this year, due to the pandemic, HMRC is giving taxpayers more time to pay or set up a payment plan.

Taxpayers can pay their tax bill or set up a monthly payment plan online at GOV.UK. However, taxpayers need to do this by midnight on 1 April to prevent being charged a late payment penalty.

The payment plan allows taxpayers to spread the cost of their self-assessment tax bill into monthly instalments until January 2022 – please see HMRC’s recent press release.

In summary, the self-assessment timeline for the 2019/2020 tax year is as follows:

• 31 January 2021 – self-assessment deadline (paying and filing).

• 1 February 2021 – interest accrues on any outstanding tax bills.

• 28 February 2021 – last date to file any late tax returns to avoid a late filing penalty of £100.

• 1 April 2021 – last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment penalty.

• 1 April 2021 – last date to set up a self-serve Time to Pay arrangement online.

Sources: HMRC Press release: File Self Assessment tax returns now to prevent penalties – dated 22 February 2021.

19 February – HMRC Press release: More help for Self Assessment taxpayers.

 

 

Vulnerable Clients – New FCA guidance now finalised

(AF1, AF2, JO3, RO3)

The Financial Conduct Authority (FCA) has published final guidance clarifying its expectations of firms on the fair treatment of vulnerable customers.

Last July, the FCA published draft guidance for firms to do more to protect vulnerable customers, so that they are consistently able to achieve outcomes that are as good as everybody else. This followed on from a period of consultation the year before that. The FCA has now finalised that guidance.

The FCA says it will continue to hold firms to account for their treatment of vulnerable customers. Firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers.

Firms are reminded that, in treating customers fairly, they should also be aware of their obligations under the Equality Act 2010. It is likely that a breach of the Equality Act, for example, failure to provide reasonable adjustments for disabled people, will also be a breach of the FCA’s rules.

The FCA has also published a Memorandum of Understanding (MoU) with the Equality and Human Rights Commission (EHRC). This MoU sets out how the FCA will co-operate and work with the EHRC on equalities issues to help protect people in financial services markets. Sharing information and expertise will help the EHRC and the FCA to act on equalities issues that arise. 

This MoU is also intended to support the FCA’s efforts as it seeks to eliminate discrimination and advance equality of opportunity in line with its obligations under the Public Sector Equality duty.

Nisha Arora, Director of Consumer & Retail Policy, said:

“While some firms have made significant progress, we want to see all firms across sectors taking steps to understand and respond to the needs of their customers, particularly those who are most vulnerable to harm.”

“We also remind customers to tell your providers if you have specific needs – whether that’s due to ill-health making it difficult to access a service, or a recent emotional or financial shock that is impacting your finances. Doing this will help firms support you.”

Source: FCA News: FCA launches guidance for firms on the fair treatment of vulnerable customers – dated 23 February 2021.

 

 

Help to Buy ISAs – Quarterly statistics released

(FA5)

HMRC’s latest quarterly statistics on Help to Buy ISAs have been released. These cover the period from 1 December 2015 to 30 September 2020.

The statistics show that since the launch of the Help to Buy ISA, 359,250 property completions have been supported by the scheme and 472,702 bonuses have been paid through the scheme with an average bonus value of £1,028.

The mean value of a property purchased through the scheme is £174,281 compared to an average first-time buyer house price of £204,964 and a national average house price of £244,513.

The table below shows the number of property completions supported by the scheme broken down by property value.

The figures also show that:

• the highest number of property completions with the support of the scheme is in the North West, Yorkshire and The Humber.

• the lowest number is in the North East and Northern Ireland.

• 0% of first-time buyers that have been supported by the scheme were between the ages of 25 to 34.

• the median age of a first-time buyer in the scheme is 28 compared to a national first-time buyer median age of 30.

Source: HM Treasury Official Statistics: Help to Buy: ISA Scheme Quarterly Statistics: December 2015 to 30 September 2020 – dated 18 February 2021.

 

 

New fuel rates for company cars

(AF2, JO3)

HMRC has announced the new fuel rates for company cars applicable to all journeys from 1 March 2021 until further notice.

The rates per mile are based on fuel prices and adjusted miles per gallon figures.

For one month from the date of the change, employers may use either the previous or the latest rates. They may make or require supplementary payments, but are under no obligation to do either. Hybrid cars are treated as either petrol or diesel cars for this purpose.

Rates from 1 March 2021:

Engine size	Petrol	LPG	Engine size	Diesel
1,400 cc or less	10p	7p	1,600 or less	9p
1,401cc to 2,000cc	12p	8p	1,601cc to 2,000cc	11p
Over 2,000cc	18p	12p	Over 2,000cc	12p

Rates from 1 December 2020:

Engine size	Petrol	LPG	Engine size	Diesel
1,400 cc or less	10p	7p	1,600 or less	8p
1,401cc to 2,000cc	11p	8p	1,601cc to 2,000cc	10p
Over 2,000cc	17p	12p	Over 2,000cc	12p

Advisory Electricity Rate 

The Advisory Electricity Rate for fully electric cars is 4p per mile.

Electricity is not a fuel for car fuel benefit purposes.

Source: HMRC Guidance: Advisory Fuel Rates – dated 24 February 2021.

 

 

 

HMRC appeal removes entrepreneurs’ relief on shares sold by a trust

(AF2, JO3) 

The Upper Tax Tribunal (UTT) has decided that an individual needs to be a qualifying beneficiary for a full year ending less than three years before the disposal in order for the disposal to benefit from entrepreneurs' relief, overturning a previous First-tier Tax Tribunal decision.

In the case of Quentin Skinner 2005 Settlements -v- HMRC [2019] UKFTT 0516, the First-tier Tribunal (‘FTT’) allowed claims for entrepreneurs’ relief (now business asset disposal relief) by the beneficiaries of three trusts on the basis that they did not need to be ‘qualifying beneficiaries’ throughout the period of at least one year in the final three years before disposal.

HMRC appealed the decision. At the UTT, it argued that the legislation assumed that the relief was in some way for the individual's benefit because the gain was set against the individual's lifetime limit of (as it was then) £10 million and a claim for the relief presumed a 'substantial, enduring link between the individual's business interests and the interest in possession in the trust.’ This, it said, was the reason for the one-year qualifying period. ‘By contrast,’ it argued, ‘a requirement for the beneficiary to have such an interest in possession only on disposal would turn the legislation into a tick-box exercise whereby the relief could be accessed when the individual had no substantial connection to the shares disposed of and did not enjoy any income from them.’

The UTT agreed with these arguments and upheld HMRC's appeal. Beneficiaries were only entitled to the relief if they themselves had been qualifying beneficiaries for a full year ending less than three years before the disposal, it said, and the FTT had made an error of law in holding otherwise. The FTT had assumed the very thing that needed to be established, namely that parliament was extending the 'entrepreneurial connection' in the ordinary individual case to the trustee disposal case, whereas in fact, the two cases are 'expressly and inherently different'.

The UTT, therefore, rejected the Skinner trusts' claim for entrepreneurs' relief (HMRC v Quentin Skinner 2005 Settlement, 2021 UKUT 0029 TCC).

Business asset disposal relief and trusts

Business asset disposal relief may be available where trustees of a settlement dispose of trust property that consists of either shares in, or securities of, a qualifying beneficiary’s personal trading company, or assets used in a qualifying beneficiary’s business.

The relief will only be available if there’s an individual with a life or absolute interest in possession under the trust, or under the part of the trust which includes the property in question (a ‘qualifying beneficiary’).

According to HMRC’s guidance, for the relief to be available on the disposal of shares or securities then throughout the period of one year (two years for disposals from 6 April 2019) ending within the three years prior to disposal:

• the company must have been the qualifying beneficiary’s personal company (this means the beneficiary holds at least 5% of the company’s ordinary share capital), and a trading company (or holding company of a trading group);

• the qualifying beneficiary must have been an officer or employee of that company (or an officer or employee of one or more members of the trading group); and

• the qualifying beneficiary must have had the interest in possession throughout the relevant period, which was one year in this case.

Many professional advisers have taken the view for some time that HMRC’s interpretation of the legislation was not correct. However, the UTT’s decision in this case confirms the guidance in HMRC’s Help Sheet 275 as well as in its manuals CG63985 in this case.

It will be interesting to see whether the taxpayers decide to appeal.

Source: STEP News: HMRC appeal removes entrepreneurs' relief from trust beneficiaries – dated 18 February 2021

 

 

More than 264,000 help to save accounts opened

(AF4, FA7, LP2, RO2)

HMRC published the latest Help to Save statistics (August 2020 to January 2021) on 26 February 2021.

Help to Save is the Government-backed savings scheme that allows individuals to earn a 50p bonus for every £1 saved over four years. The 50% bonus is payable at the end of the second and fourth year and is based on how much account holders have saved.

Account-holders can save up to £50 a month. If they save the maximum amount each month for four years, they could save £2,400 and earn £1,200 in bonus payments.

More than 42,000 new Help to Save accounts were created between August 2020 and January 2021.

Almost 217,000 individuals have made a deposit to their Help to Save account. Of those depositing into their savings account, the average monthly deposit per person is £48, as at 31 January 2021.

The total deposits to the scheme in the six-month period, August 2020 to January 2021, exceeded £40 million. This is the highest recorded amount saved in a six-month period since the scheme began in September 2018.

Individuals can open a Help to Save account if any of the following applies. They are:

• receiving Working Tax Credit;

• entitled to Working Tax Credit and receiving Child Tax Credit;

• claiming Universal Credit and they (with their partner, if it’s a joint claim) earned £604.56 or more from paid work in their last monthly assessment period.

Eligible individuals can set up a Help to Save savings account at any time until September 2023. Accounts are open for four years and individuals can make deposits as many times as they like, without going over the monthly saving limit of £50.

Individuals can also withdraw money at any time, although this may affect their 50% bonus payments.

The first bonus payment has already been paid out to thousands of individuals, who opened accounts between 12 September 2018 and February 2019.

 

 

Pre-pack sales to face mandatory independent scrutiny

(AF2, JO3)

A pre-packaged sale in administration, whereby the sale of all or part of the business is arranged prior to the company entering formal insolvency and realised on or immediately after the appointment of the administrator, is a valuable business rescue tool. Pre-pack sales help to avoid a deterioration of the value of the company’s business between appointment of the administrator and sale, meaning there is more money available for creditors, including the pension scheme. In most cases where pre-packs are used, the only alternative would be the collapse of the business and the loss of all employees’ jobs.

However, concerns have been raised that arrangements may not always be in the best interests of creditors. For example, where the sale is made to a connected party, such as the company’s directors or shareholders.

The new laws are intended to improve confidence and transparency in pre-pack administration sales, giving the general public and creditors reassurance that their interests are being protected alongside that of the distressed business.

The Government has now laid draft regulations in Parliament. The regulations will come into effect once they have been debated and passed in both Houses of Parliament. The legislation will apply to England, Scotland and Wales. Insolvency matters are devolved in Northern Ireland.

Source: Department for Business, Energy & Industrial Strategy Press release: Pre-pack sales to face mandatory independent scrutiny – dated 25 February 2021.

 

 

Pre-paid funeral plans – FCA launches new consultation

In November, the Treasury announced it would make regulations bringing the sale and administration of funeral plans within the Financial Conduct Authority (FCA)’s remit, following concerns raised in the media and by consumer groups about the conduct and financial soundness of some pre-paid funeral plan providers. This will happen from July 2022.

Funeral plans are most commonly backed either by assets held in trust or by a whole of life assurance policy.

Currently, funeral plan providers can seek registration with the Funeral Planning Authority (FPA), a self-regulatory body for the sector.

The FCA’s latest consultation lays out how it will improve standards in the sector. Its proposals intend to ensure that:

• products meet the individual needs of consumers – the FCA will ban the sale of products which do not provide for funeral services in almost all circumstances on the individual's death;

• plans are sold fairly, including a ban on cold-calling to prevent consumers being pushed into taking out plans which may not be right for them;

• the price of plans are fairly valued, with firms stopped from using additional fees to drive profits and a ban on commission payments to intermediaries;
• consumers have access to the Financial Services Compensation Scheme and Financial Ombudsman Service from day one, should things go wrong.

What firms must do to prepare

All firms in this sector now need to consider how FCA regulation impacts their business and begin to make the necessary preparations. 

Over the coming months, the FCA will be providing a range of help and guidance to assist firms in preparing applications and getting ready to be regulated by the FCA.

They will need to:

• apply directly to the FCA for authorisation from September 2021 or, if appropriate, submit notification to become an Appointed Representative;

• apply as soon as possible after the application gateway opens in September 2021 – applications made after 1 November 2021 may incur a higher application fee;

• ensure they meet the FCA’s standards to be authorised and, once authorised, follow the FCA’s rules;

• pay an application fee and then annual fees, based on turnover.

Those funeral plan providers that cannot meet the FCA’s standards, set out in this paper, or those which are not authorised before July 2022, are expected to cease trading in relation to funeral plans in an orderly way. This should take place before FCA regulation takes effect. Carrying on regulated business without authorisation after rules take effect is a criminal offence.

The FCA anticipates that the Funeral Planning Authority will continue to regulate providers of prepaid funeral plans registered with them, until FCA regulation begins in July 2022.

The FCA is asking for feedback on the draft rules and is asking for responses by 13 April 2021.

Source: Consultation document issued 2 March 2021