The ICAS point of view: five more tax consultation responses
The bumper season for tax consultations and calls for evidence continues. Susan Cattell looks at 5 more recent responses submitted by ICAS.
CGT: Payment window for residential property gains (payment on account)
The government originally announced that it intended to introduce a 30-day payment window for CGT arising from the sale of residential properties in the Autumn Statement 2015. Implementation was deferred but the change is now intended to take effect from April 2020.
This was a technical consultation on:
- how the amount payable will be calculated;
- the administration of the payments; and
- changes to the existing CGT payment on account system for non-residents who dispose of UK residential property.
In addition to commenting on these points, the ICAS response also questioned the justification for introducing the 30-day payment window and expressed significant concerns about the practicalities of complying with the new regime.
Calculating a CGT liability can be a complex and lengthy process, particularly where valuations are required. A CGT liability can also arise where no money has been received, for example where a gift has been made. Furthermore, the CGT rate to be applied to a disposal will depend on the level of income for the tax year – which may not be known at the time of the disposal.
Making a ‘payment on account’ within 30 days will present significant practical problems in some cases and could give rise to unfairness. The consultation document does not address complications which will arise from trying to deal with a gain in-year when the CGT rules and reliefs are designed to work on the basis of the whole tax year. These are discussed in detail in the response.
Experience with the NRCGT regime indicates that lack of awareness of the need to make a return within 30 days will be a significant problem. HMRC will need to undertake an extensive communications campaign to raise awareness of the new regime amongst taxpayers likely to be affected, tax agents and other relevant advisers (including solicitors and licensed conveyancers).
It is essential that before this new regime is introduced, the IT system for dealing with the reporting requirements is in place and has been properly tested by both taxpayers and agents. The very poor experience of the introduction of the Trust Registration Service should not be repeated.
The ICAS response also suggested that HMRC should review the operation of the penalty regime for late returns for both NRCGT and the proposed regime for UK residents. A penalty structure designed largely for annual returns does not appear to be working appropriately for returns due 30 days after the transaction.
Office of Tax Simplification inheritance tax review: call for evidence
The Chancellor of the Exchequer and the Financial Secretary to the Treasury had requested that the OTS carry out a review of a range of aspects of Inheritance Tax and how it functions, to identify simplification opportunities. The OTS called for evidence to inform its review.
The ICAS response supported reform and simplification of IHT in the long term but did not believe that major reform now (particularly to APR and BPR) is desirable or practical, against the backdrop of Brexit. The immediate focus should be on administrative improvements and the simplification of the lifetime gifts regime, which was discussed in detail in the submission. This would facilitate compliance and simplify one area which causes difficulties, without creating uncertainty and unintended consequences.
Wider reform of IHT, particularly significant changes to APR and BPR, should not be considered in isolation because of the interaction with other areas of the tax system and the risk of unintended consequences. ICAS, therefore, supported the OTS call, in its recent Business Lifecycle Report, for “a detailed review of the tax system as it operates on key events in the business lifecycle, to help the UK economy to maximise its opportunities and to make the system clear and simple for companies to understand and use.” This review should include consideration of the two significant IHT reliefs – BPR and APR – and their interaction with other reliefs.
Agricultural policy is a devolved matter. ICAS, therefore, believes that any review of IHT needs to take into consideration land law. Any proposals that may emerge relating to agricultural property relief should also be tested with the agricultural departments of each devolved government. With APR it is important that the policy rationale is set in the context of wider government policy for agriculture.
The role of online platforms in ensuring tax compliance by their users
This was a government call for evidence on the role online platforms could play in tax administration and helping platform users to meet their tax obligations. The ICAS response concentrated on direct tax because there is a separate consultation taking place on a possible split payment mechanism for VAT.
Difficulty accessing the right information is a significant barrier to users of online platforms understanding their tax obligations and complying with them. It is very difficult for non-specialists to locate relevant information on GOV.UK. The existing guidance also needs to be improved and expanded to make it more useful once individuals do locate it.
ICAS sees considerable scope for online platforms to help users by signposting relevant information and providing users with statements of income generated via the platform. However, HMRC would also need to develop its guidance and provide examples to assist users to understand how it applies to their circumstances. Signposting will only be effective if it takes individuals to guidance which helps them to comply.
ICAS does not believe that there is scope for any form of withholding tax to be applied, for direct tax, by online platforms. The UK direct tax system is too complex, and any withholding tax would be likely to prompt a large volume of repayment claims and queries to HMRC.
However, there is scope for voluntary reporting by online platforms, ie where an individual opts to have the platform report their income to HMRC for pre-population into a return. There is also scope for compulsory reporting by online platforms, ie requiring platforms to report information about users to HMRC (in the same way as banks and building societies report interest income). Accurate matching of data would be essential.
Tax abuse and insolvency and extension of the existing security deposit legislation to CT and CIS
These two consultations discussed proposals to tackle those who deliberately do not pay the tax they owe.
The HMRC consultation on Tax Abuse and Insolvency proposed measures to address the small minority of taxpayers who abuse the insolvency regime in trying to avoid or evade tax liabilities (including through phoenixism). The second consultation set out how HMRC intends to implement the government announcement in the Autumn Budget 2017 that it would extend the existing security deposit regime to cover CT and CIS.
ICAS supports the efforts of the Government to take appropriate steps to deter and deal with abuses of insolvency processes and to minimise the tax gap between what is due to HM Revenue & Customs and what is paid. However, it is important that any measures do not undermine the UK rescue culture for financially distressed businesses. A useful meeting was held between ICAS and HMRC officials dealing with the consultation to discuss the proposed actions.
The ICAS response broadly supported one of the two possible approaches proposed: the extension of the transfer of liability to CT. It did not support the use of joint and several liabilities due to concerns around identifying appropriate safeguards and the possible finance funding risk to the business. Transfer of liability could be more effectively targeted, and it would be much easier to include appropriate safeguards.
ICAS does not believe that the measures proposed in the Tax Abuse and Insolvency consultation would generally be appropriate to tackle phoenixism because of the risk of undermining the UK’s rescue culture. Extending the security deposit legislation to CT – proposed in the separate consultation on extending the security deposit legislation to include CT and CIS deductions – could be used more effectively to target abusive phoenixism. The ICAS response to this consultation therefore broadly supported the proposed extension, whilst stressing the need for a targeted approach and also discussing some practical difficulties which could arise because of the nature of CT as a profits-based tax due by reference to accounting periods.
Let ICAS know what you think about tax proposals
ICAS submits responses to many of the tax consultations and calls for evidence issued by the government and the Office of Tax Simplification. It is important that we hear members’ views about proposals the government is putting forward. Some consultations ask for comments on specific questions – others are more general calls for evidence. ICAS responses aim to raise any member concerns but also to make constructive suggestions on how government tax policies can be successfully implemented.
You can find out about open and closed tax consultations (and any resulting legislation) from the government consultation tracker. If you have any comments on open consultations let us know as soon as you can – don’t wait for the deadline for responses!