1.1 Ministerial reshuffle
In last week's ministerial reshuffle, the Rt. Hon. Mel Stride MP has retained his role as the Financial Secretary to the Treasury.
Robert Jenrick MP has been appointed Exchequer Secretary to the Treasury. His role includes ministerial responsibility for charity taxation.
1.2 Growing challenges facing HMRC – Public Accounts Committee (PAC) report
The PAC has published a report highlighting concerns for the taxpayer from the growing challenges faced by HMRC.
The report notes that HMRC is undertaking 15 major transformation programmes and faces additional pressure as a result of Brexit. The report advises that HMRC, together with the Treasury, will need to make decisions on how it allocates limited resources to its operations to increase tax revenues, protect performance levels, prioritise its transformation and estate programmes, and invest in measures to tackle tax evasion, fraud and error.
The Committee Chair, Meg Hillier MP commented that 'HMRC's customer service has improved on the appalling levels of recent years but its claims about call-answering times don't stack up. Any new deterioration would be wholly unacceptable.'
1.3 CIOT's letter to HMRC regarding the new anti-forestalling rules
The CIOT has written to HMRC asking for the new anti-forestalling rules to be formalised as soon as possible, at least in draft legislation.
Further to the announcement in the Autumn Budget on taxing gains made by non-residents on UK immoveable property, the CIOT has written to HMRC raising 'an immediate issue of concern' in relation to the anti-forestalling rule that came into effect from 22 November 2017.
HMRC has published a technical note covering the anti-forestalling rule. The aim of the rule is to target arrangements involving the abuse of double taxation arrangements to put a disposal outside the charge to tax on gains accruing to non-residents that will come into force in April 2019.
The CIOT states that 'to impose an obligation on taxpayers by means of technical note rather than through the publication of draft statute does not appear to us to reflect a fair balance between the powers of the tax collector and the rights of taxpayers.'
The CIOT therefore requests that a draft clause is published as soon as possible to reflect the proposed statutory terms of the anti-forestalling rule.
1.4 First year allowances for zero-emission goods vehicles and gas refuelling equipment
Further to the Autumn Budget, regulations have been made for first year allowances (FYA) for zero-emission goods vehicles (ZEGV) and gas refuelling equipment (GRE) to be extended for three years, which are effective from 1 April 2018.
The scheme allows businesses and individuals to claim a full deduction on ZEGV and GRE in the year of purchase.
The ZEGV scheme is now scheduled to end on 31 March 2021 for CT and 5 April 2021 for IT, while the GRE scheme is now scheduled to end on 31 March 2021, for both CT and IT.
2. PRIVATE CLIENT
2.1 FTT allows appeal against daily penalties for late filing of Self Assessment
The FTT found that HMRC had failed to show that a Notice sufficient to satisfy FA 2009 Sch. 55 (4), which charges penalties for failure to file on time, was given to the taxpayer.
FA 2009 Sch.55 para 4(1)(c) provides that HMRC must 'give notice to [the taxpayer] specifying the date from which the penalty is payable.'
HMRC was unable to produce a copy of any notice the taxpayer was given specifying the date from which the penalty was payable. The FTT accordingly set aside the penalties. Notably, the FTT reached a decision for the appellant notwithstanding he did not attend and was not represented.
Halfaoui v HMRC  UKFTT 13 (TC)
2.2 Statements of account
Payments on account may not appear on self-assessment statements (both paper and online) being issued shortly. These should therefore be checked carefully to ensure a 31 January 2018 payment on account is not missed.
The ICAEW has commented that 'there has been a recurrence of the issue where payments on account (for 2017/18) do not appear on statements (paper and online). HMRC introduced a fix to correct this issue in December 2017, but it seems that this fix may have missed some cases. It may be appropriate to advise clients who rely on HMRC statements to check that the payment on account due on 31 January 2018 is included in the sum they expect to pay.'
(see Self Assessment edition of agent update has been published)
2.3 Invalid late filing penalties
The FTT found that late filing penalties issued by HMRC were invalid, as the notice to file a return was not issued for a correct purpose.
Insufficient tax was deducted through the taxpayer's PAYE and as a result, he was sent a tax calculation (Form P800) showing an underpayment. The taxpayer did not pay this amount, which HMRC said was not capable of being coded out. A notice to file a return was subsequently given by HMRC and late filing penalties were raised.
The FTT found that the penalties were invalid, as the notice to file a return had only been issued to establish an enforceable debt arising from self-assessment, not for a purpose set out in TMA 1970 s.8(1), which is to establish the amount on which the taxpayer is chargeable to IT and CGT. HMRC did not need to establish the taxpayer's income or the tax payable as this had already been detailed in the P800.
The FTT went on to find that if this was not the correct interpretation, in any event, it would have reduced the penalties to nil as there were special circumstances. HMRC had not reviewed the taxpayer's PAYE code adequately, giving rise to the underpayment. HMRC had also not considered why the underpayment could not be coded out. The imposition of the penalties was also not in accordance with the clear compliance intention of the legislation.
The FTT also commented that the decision is in line with the philosophy behind the simple assessment rules that now apply.
Goldsmith v HMRC  UKFTT 5 (TC)
3. PAYE AND EMPLOYMENT
3.1 Dynamic coding
HMRC will be sending out the 2018/19 tax codes to employees and employers shortly. Taxpayers should be aware of the potential effect on their tax codes of dynamic coding, which will speed up the collection of employee underpayments. HMRC will now usually collect such underpayments by the end of the tax year in which they are identified rather than over a number of tax years. This has caused some challenges for both employers and employees.
As the 2018/19 tax codes are issued over the next few months, employers could face challenging questions and individuals should be aware of the impact on their tax codes. Employees with one-off or irregular payments are advised to check and update, if necessary, any estimated income figures.
4. BUSINESS TAX
4.1 Tax relief on contributions a 'pre-condition' for pan-European pension
The European Parliament committee on economic and monetary affairs has acknowledged evidence that the crucial role tax relief on contributions plays in driving consumer choice for pensions will be a barrier to the creation of a harmonised pension product.
In June 2017, the EC adopted a proposal for a regulation on a new pan-European personal pension (PEPP) product. PEPP is a voluntary retirement plan made available to all individuals that will be portable across EU member states. It is designed to be simple and cost-effective, offering a wider choice to save in European market.
The proposal was supplemented with a recommendation on tax treatment, which encourages member states to grant PEPPs the same tax relief as national personal pensions products even if it does not meet all of the national criteria for tax relief.
The European Parliament's committee on economic and monetary affairs (ECON) published a working paper on the Commission's proposal, which cites Ernst & Young's findings that tax incentives on contributions are a 'pre-condition for PEPP to succeed' and the 'main driver for consumer choice' in pensions.
Whilst the majority of member states provide tax incentives for individual pension saving, the conditions for favourable tax treatment, and the method in which it is granted, varies from one member state to another.
The ECON committee acknowledges the implications of Ernst & Young's 's finding, making any sort of harmonised product difficult to achieve in the face of wide variations between member states in tax reliefs for individual pension savings.
4.2 The entry into force of new rules to prevent tax evasion and money laundering
The EC has welcomed the entry into force of new rules obliging member states to give tax authorities access to data collected under anti-money laundering legislation.
From 1 January 2018, national tax authorities have direct access to the relevant information, which includes the beneficial owners of companies, trusts and other entities, as well as customer due diligence records of companies.
The amended rules in the Directive on Administrative Cooperation (Directive 2011/16/EU) enables tax authorities to respond quickly and efficiently to cases of tax evasion and avoidance, in particular, the fight against the types of structures highlighted in the 'Paradise Papers' that transpired in November 2017.
5.1 'Elida Gibbs' discounts in pharmaceutical supply chain
The CJEU agreed with the Advocate General (AG) that Member States are not allowed to treat discounts in a pharmaceutical supply chain differently for VAT purposes depending on whether the supply chain involves public health insurance or private health insurance.
The principle established in Elida Gibbs (C-317/94) is that discounts given via vouchers by a manufacturer at the head of a supply chain to the ultimate consumer of its products reduce the taxable amount of the manufacturer's supply. This applies even if there is no contractual link between the two parties.
Established German case law is that Elida Gibbs applies to discounts provided by pharmaceutical companies to pharmacies and wholesalers with respect to public health insurance funds, as the latter are deemed to receive these supplies under domestic law.
In this case, the question was how this principle applies to the supply chains involving private health insurance funds.
The company involved, Boehringer, supplied pharmaceutical products via wholesalers to pharmacies. The pharmacies sold these products to private individuals with private health insurance and charge VAT. The individuals were reimbursed by their health insurance company. Boehringer gave a rebate to the private health insurance company as required by statutory provision.
Germany and the UK argued that the private health insurance funds were not in the supply chain and were not the recipients of Boehringer's supplies. Further, they argued that there could not be a breach of the principles of equal treatment and fiscal neutrality, as the rebates paid by Boehringer in the different supply chains were not comparable.
The Court confirmed, however, that the VAT principles require that Boehringer's taxable amount must take into account the discount made to private health insurance companies.
The Court held that in light of the principles defined in Elida Gibbs regarding the determination of the taxable amount, the discount granted under national law by a pharmaceutical company to a private health insurance company resulted in a reduction of the taxable amount in favour of that pharmaceutical company. This was where it supplied medicinal products via wholesalers to pharmacies who in turn made supplies to persons covered by private health insurance that reimbursed the purchase price of the medicinal products to persons it insured.
Boehringer Ingelheim Pharma GmbH & Co. KG (Boehringer) (C-462/16),
5.2 Flat rate scheme for farmers
Following its reference to the CJEU, the UT has now ruled in the case of Shields & Sons Partnership and allowed the farming taxpayer's appeal against revocation of the flat-rate scheme.
The case was about how much discretion a member state has when implementing the optional flat-rate scheme. The flat-rate scheme for famers allows a farmer to simplify its VAT process by paying a fixed rate of VAT to HMRC and keeping the difference to the amount charged to his customer.
When it transpired that Shields & Sons Partnership recovered substantially more through the flat-rate scheme than it would have done if registered for VAT normally, HMRC revoked the farmer's certificate to participate in the scheme for that reason and the taxpayer appealed. The CJEU agreed with the AG that farmers can only be excluded from the flat-rate scheme based on the reasons set out in the VAT Directive. The CJEU further clarified that farmers who are found to be recovering substantially more as members of the common flat-rate scheme for farmers than they would otherwise cannot constitute a 'category of farmers' within the meaning of that provision.
5.3 Disclosure of tax avoidance schemes for VAT and other indirect taxes
HMRC have released Notice 799 about what to do with regard to promoting or using arrangements from 1 January 2018 that will or are intended to provide the user with a VAT or other indirect tax advantage when compared to adopting a different course of action.
The Notice includes information on:
- the arrangements to be disclosed to HMRC;
- the responsibility to disclose notifiable proposals or arrangements to HMRC;
- what is a 'promoter' and an 'introducer' of notifiable proposals;
- the obligations of a promoter, introducer and user of notifiable arrangements;
- what your obligations are as an introducer of a notifiable proposal; and
- how to make a disclosure to HMRC.
6. AND FINALLY
The Power of the Press (2)
Regular readers will recall the awesome result of our Budget pension representations in 2016 that were entirely adopted by the Chancellor. We were moved to report our complete success in persuading the Government not to make further pension alterations in that Budget. We shall have to be careful: we have been even more bold in our suggestions and have been rewarded beyond our imagination.
We refer of course to our campaign of just before Christmas over supermarkets and their plastic bags. Admit it! You read here first the extraordinary Freedom of Information Request about the success of the Single Use Carrier Bags Charges (England) Order 2015 and our welcome of similar charges (Update of 12 December).
Well; it seems no sooner had the Christmas lunches gone down than there has been a Government response from Michael Gove, the Environment Secretary considering widening the charge. The response culminated in the Prime Minister's pledge to look to eliminate plastic waste by 2042. That was certainly more than we asked for, but definitely welcome.
We are seriously thinking of changing our articles' title from 'And finally' to 'And next, please'.
We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2018.