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If you worked in any of these countries, you could be due a Tax Refund

Uk Tax Round-Up

#TaxTipsUK #TravelTipsUK

Realizing the importance of the case, my men are rounding up twice the usual number of suspects - Captain Renault

As we blogged a while back, so much is currently happening in the world of UK tax it's a full time job just to keep up. We thought however that it would be a good idea to bring you up to speed on the last 3 - 4 months worth. We're keeping it short and sweet here as we have a lot to get through! As you'll see, the Coalition's promise to consult the industry is proving a double edged sword - there are so many consultations going on that even the professional bodies have penned articles under the "Be Careful What You Wish For" banner!

And on a side note: the Coalition brought in the Office for Tax Simplification (OTS) after they came to power - they should realise that cutting the complexity is but half the job, the other is offering a stable tax system. With so much change on-going in the UK tax system "stability" is not the word which springs to mind. Below we have only addressed the "major" consultations that affect Individuals. Anyone wanting to see a full list of consultations across the whole tax spectrum, click here.

Consultation 1 - Statutory Residency Test (SRT)

We blogged back around budget time that we were in favour of a SRT given the current confusion in borderline cases. We are happy to see the coalition bring this forward. The plan is to enact the SRT for 6 April 2012. The test is a matrix type test: given the number of days in the UK, different weight is given to your ties (family, business) to the UK. The industry seems sanguine about the test so we expect it to go through largely unchanged. We'll be posting an easy to use residency calculator as soon as we get confirmation that the SRT is final and you'll be able to answer basic questions and receive a definite answer as to your residency status. Anyone who wants to have a "play" around with a test calculator can try this one. You should pay special attention to the red text at the bottom of the page though! And be aware that the SRT is not retrospective so years to 5 April 2012 will remain under the old rules.

Consultation 2 - Non Dom Changes

Labour started the ball rolling with this back in Finance Act 2008 (FA 2008). The Coalition is consulting on minor tweaks and we're promised that these will be the final tweaks for this Parliament. The basic changes are as follows:

  • The Remittance Basis Charge (RBC) will jump from £30k to £50k for non-doms in the UK for 12 out of the last 14 years;
  • Remittances to the UK for inward investment are not to be treated as remittances for the purposes of levying tax; and,>
  • There is some small tidying up of the rules on that most complex of areas: nominated income. Worth mentioning in passing here, and unrelated to the consultation, is that the US IRS has confirmed that the RBC will be viewed as a legitimate tax under the terms of the UK-US tax treaty. Great! That only took 3 years which kind of illustrates how little foresight Labour actually gave to the non-dom changes in 2008. If I recall correctly, the whole concept of nominated income was introduced to make sure that the RBC wasn't technically a charge but rather a tax for the purposes of tax treaties. So at least the added complexity hasn't been completely fruitless.

It is worth recalling Max Planck's words that "a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it."  I suspect we are watching the beginning of the end of the non-dom ruling as successive Governments will continue in this vein and non-doms will overtime acclimatise to a continually restricted system before, eventually, the whole thing will probably be shelved to minimum consternation. Doubters should review the evolution of National Insurance since Beveridge's 1942 report and the introduction of the 1946 Act. One inalienable truth about tax (NIC being a tax in all but name these days) is that once it is introduced and Government gets used to spending the money, it's very difficult to go back. Income tax was originally introduced as a short term measure - so much so that they decided it had to be enacted annually, a characteristic which remains to this day. Anyone thinking income tax may not be enacted next year however is having a flight of fancy!

Consultation 3 - PAYE and Real Time Information (RTI)

This could be a post in itself but as a brief overview: employers currently only report payroll information to HMRC once a year. RTI intends to make employers report to HMRC at each payroll date. The idea is that if HMRC have real time information they can adjust coding notices during the tax year and ensure that taxpayers pay the correct tax rather than relying on year end reconciliations. RTI is also supposed to backend into the DWP's Universal Credit (announced by Ian Duncan Smith in Oct 2010). The preferred reporting channel is BACS.

Most responses to the consultation have agreed that it is a nice idea but the proviso has been whether HMRC can deliver the IT systems to support this. This has been a major concern especially given the time frame involved; the intention is for test cases to be rolled out in 2012 and for it to be live in 2013. As some commentators have pointed out, HMRC has struggled to deliver some of its IT projects in the past and this is such an invasive change that it needs water tight testing before implementation. Other comments have been around reporting for employers using cheques, without access to IT systems or internet access.  

Consultation 4 - "Merging" NIC and PAYE

We've blogged extensively on this back at budget time - Budget 2011 Summary. Since then it seems that the Chancellor may have paid some heed to Nigel Lawson's "elephant trap" comments and seems to have tip toed away from a full merger. The consultation is basically an open ended call to the industry to provide its thoughts. We suspect that the merger may be shelved but we shall wait and hope to be proved wrong.

Consultation 5 - HMRC's Engagement with Agents

There is also a massive consultation going on re. regulating agents, giving agents greater powers to make changes and how HMRC should deal with dishonest agents. Taxback.com fully and whole heartedly welcomes this initiative. We are currently drafting our response to the consultation but in brief we are fully supportive of the regulation of tax agents in the UK market. We will post our response to the condoc here once it has been submitted and we will bring you more details of the consultation than we can fit into this snap shot.

HMRC - Having a Hard Time. Still.

HMRC have continued to have a hard time of it recently. Apart form the embarrassing admission that it didn't order enough paper to send out the 31 July Statements of Account to self assessment taxpayers, it has also taken heavy criticism from the Treasury Select Committee (TSC). We blogged back in Oct 2010 that the TSC had opened an investigation into HMRC after the negative media comments around the PAYE fiasco in 2010.

The TSC has recently reported its findings. The full report is here. The executive summary gives a good indication of the main report (the italic is our comment, the underline our emphasis):

"Following an inquiry by the Treasury Sub-Committee, the report identified serious concerns in a number of areas, including:

  • Unacceptable difficulties contacting HMRC by phone during peak periods (HMRC answered c 46% of calls)
  • Endemic delays in responding to post (only 60% of post was processed within 3 weeks and we personally have been told on occasions that the post backlog was running at 2 - 3 months)
  • An increasing focus on online communication that may exclude those without reliable internet access (which is interesting given that they generally approve of RTI which is at present intended to be totally online with very little consideration given to those not online)

The committee recognised that the Department performs a crucial role and operates under significant external pressures including continuing resource reductions, deficiencies in tax legislation and the legacy of the merger.

It acknowledged the commitment of management to tackling these problems and the dedication and professionalism of HMRC staff. However, it concluded that the Department has a difficult few years ahead of it, as it attempts to improve its service to taxpayers and benefits claimants, stabilise the PAYE system and introduce Real-time information.The sub-committee is holding further hearings on HMRC's compliance work, and the committee may report on this later in the year."

Anyone who has an interest in the operation of UK tax is strongly recommended to read the report in full. There are also some clips of HMRC Excom (executive committee) in front of the TSC which are worth watching and can be found on YouTube. 

Conclusion

We've only brought you a snapshot of the main issues. No time today to mention:

  • The UK-Swiss tax deal which is generating some harsh criticism (we'll bring you some detail on this later this week - details are as yet still scarce);
  • HMRC's mounting losses in front of the courts in relation to IR35; a system that the Coalition looked like they were going to scrap but which they ended up asking HMRC to offer more guidance on. The continuing losses put a question mark over whether HMRC are best placed to do this or if this is even a realistic solution any more;
  • HMRC's other losses in front of the courts where:
    • their "reasonable excuse" guidelines have been declared illegal;
    • they have been found to be abusing "Discovery Assessment" powers (the case concerned an underwriter at Lloyd's the insurer)The sheer volume of cases that are pending at the Tribunal
  • Reports that significant changes are a foot within HMRC in advance of the next staff survey (they scored 103rd out of 103 last year);
  • Continuing questions over HMRC's investigations into large corporates;
  • The promise of further arrests of tax evaders.

May you live interesting times. Indeed!