ICAS tax team reports on its work in May
Charlotte Barbour reports on the work of ICAS Tax over the last month.
As well as the annual Spring Update roadshow when the ICAS tax staff have been delighted to present to over 400 attendees, and across 11 locations, there have been consultation responses submitted to HMRC; an interesting report issued by the OTS to which ICAS contributed its views; and a number of meetings with the HMRC and the OTS.
ICAS has responded to the following consultations:
Capital Gains Tax - Private Residence Relief
ICAS has commented on the consultation ’Capital Gains Tax: Private Residence Relief: changes to the ancillary reliefs’, issued jointly by HMRC and HMT, in which there are two proposals to restrict private residence relief for capital gains tax from April 2020.
One proposal is to halve the final exemption period from 18 months to 9 months and ICAS has commented that this could be disadvantageous to those who are divorcing or dissolving a civil partnership; the second proposal is to restrict the availability of lettings relief to periods where the owner is in shared occupation with the tenant – note that this latter proposal will have retroactive effect to periods prior to April 2020. Both these measures will extend the scope of capital gains tax.
The consultation also contains a proposal to legislate ESC D49 – and ICAS has recommended that two recent tribunal decisions be reflected in this (McHugh and Desmond Higgins).
SME Research and Development
Research and development (R&D) is vital to UK business, and tax relief for R&D offers significant support to businesses, especially when investment expenditure is high and businesses are loss-making.
Loss-making SME businesses are entitled to a special form of R&D relief through which they can obtain cash in exchange for losses of 14.5% of the value of the loss surrendered. While tax relief has had a positive impact on R&D, there have also been fraudulent claims.
To reduce the effect of fraudulent claims, HMRC is proposing to cap R&D tax relief for SME companies at three times the claimant company’s total Pay As You Earn (PAYE) and National Insurance Contributions (NICs) liability for the year. This approach has been adopted to target companies using off-shore arrangements, where research and development activity in the UK may be minimal.
The consultation on the new proposals asks eight questions about the likely impact of the changes.
In its response ICAS highlights concerns over policing of the R&D system as a whole and the potential for arbitrary restrictions to adversely impact bona fide claims. If a cap is introduced, then easements outlined in the consultation, such as the ability of companies to carry forward capped expenditure to future years are essential.
IR35 Off Payroll working in the private sector
ICAS has hosted a meeting in CA House with HMRC officials, which was attended by members of the OMB Taxes Committee and the Employment Taxes Working Group, to discuss the IR35 proposals. A submission has also been made by ICAS.
Stamp Duty Land Tax: non-UK resident surcharge consultation
As well as submitting a response to this consultation document, ICAS attended a stakeholder consultation meeting with HMRC and HMT officials dealing with the consultation in April. ICAS noted that consideration should perhaps be given to whether the government’s objectives could be achieved without the introduction of the proposed surcharge – and that the Scottish Government has apparently chosen not to impose a non-resident LBTT surcharge – but has instead increased the rate of the LBTT Additional Dwellings Supplement from 3% to 4%.
Talking of LBTT – the Scottish Parliament’s Finance and Constitution Committee hosted a round table evidence session on Additional Dwelling Supplement, to which ICAS contributed.
ICAS has an ongoing role to assist members in practice in their work as agents. We noted with interest that the Office of Tax Simplification has issued its report on ‘Simplifying everyday tax for smaller businesses’ in which there are two recommendations that ICAS would wholeheartedly support. These are:
- HMRC should appoint a senior official to oversee and prioritise implementation of the Agent Strategy. (Recommendation 4)
- HMRC should routinely build agent awareness and needs into system design and improvement and its related guidance. (Recommendation 5)
ICAS tax supports the work of the OTS and we were pleased the ICAS Owner Managed Business Taxes Committee was able to meet with the OTS to discuss their project. ICAS has consistently called for agents to be properly recognised.
The Agent Online Forum is designed to interact with other agents and HMRC experts to discuss topical issues and processes – ICAS tax staff post items on this, for instance on MTD recently, and members may find it helpful to use it to report any generic issues.
Office of Tax Simplification
ICAS staff met with the OTS to discuss the topic of pensions and tax relief, including the issues with Scottish income tax and its interaction with tax relief. A difficult one to simplify!
Making Tax Digital
The ICAS team continues to put forward member views and concerns around the MTD project. ICAS staff have participated in the following MTD Forums
- Software Advisory Group which is attended by software providers, the professional bodies and HMRC
- Joint VAT Consultative Committee subgroup on MTD, which is a key forum in which to discuss both technical and practical MTD issues.
- Virtual Comms Group, which is a monthly phone call between HMRC and the professional bodies and provides a useful forum in which to share communications.
- And Philip McNeill continues to provide updates with the latest on MTD.
Last but not least, please send any views or comments to the ICAS tax team.