Finance and Tax Blog for individuals and companies

To deal more efficiently with queries HMRC announced yesterday a dedicated Civil Disorder helpline 0845 366 1207 to provide comprehensive advice and deal sympathetically with problems currently faced by businesses and individuals adversely affected by recent civil disorder.

In particular, HMRC will:

• agree payment schedules with those who are unable to pay their tax bills due to short-term financial difficulties;
• discuss practical solutions where businesses and individuals cannot meet their other obligations to HMRC – for instance, their records have been lost or destroyed in the disturbances; and
• review in the circumstances, and whenever possible, any penalties imposed and withhold additional surcharges that would normally be triggered by missed deadlines.

When calling the helpline it would be useful to have your relevant taxpayer reference number to hand e.g. Unique Taxpayer Reference or National Insurance Number for self assessment taxpayers, or VAT number for VAT-registered businesses.

Under FACTA 2010 US taxpayers holding financial assets outside the US must report these to the IRS on a new Form Number 8938 which was released in draft in June 2011. In particular the information reporting rules apply for assets held since 1 January 2011 and require US individuals with interests in non-US bank accounts, brokerage accounts, pension plans, companies, partnerships, investment funds and other financial assets to file this new form with their US tax return in 2012. This significantly increases the compliance burden for those firms in the financial services industry acting on behalf of such US individuals.

In Budget 2011 the Government announced that it would introduce a statutory definition of UK tax residence (SRT – Statutory Residence Test) for individuals to create clear rules and provide greater certainty for taxpayers. It will apply to income tax; capital gains tax; and inheritance tax.

Its intention is to replace the current rules which have been evolved in practice and from case law over a long period of time. The Government issued a consultation on 17 June 2011 proposing new full statutory rules to define tax residence including reform of the concept of ordinary residence that is transparent, objective and simple to use.

To provide a fair way of determining residence for those with more complicated affairs the Government proposes that the SRT should take into account both the amount of time the individual spends in the UK and the other connections they have with the UK. However, to avoid the complexity of current case law:

• the test should not take into account a wide range of connections;
• relevant connections should be simply and clearly defined; and
• the weight and relevance of each connection should be clear.

To enable the SRT to provide both for those with straightforward affairs and those
whose tax residence position is more complicated, the Government proposes that the test will have three parts:

• Part A contains conclusive non-residence factors that would be sufficient in
  themselves to make an individual not resident
• Part B contains conclusive residence factors that would be sufficient in themselves
  to make an individual resident
• Part C contains other connection factors and day counting rules which will only
  need to be considered by those whose residence status is not determined by Part A
  or Part B

Following the consultation draft legislation will be published before Budget 2012.

In Budget 2011 the Chancellor announced a 10% reduction in the rate of inheritance tax from 40% to 36% where a person dies on or after 6 April 2012 and makes a qualifying gift to a charity registered with the Charity Commission. Under current rules gifts to charity are exempt from IHT. The new rate will apply where a person gives away at least 10% of their net estate to a charity.

HMRC have now published a consultation on the possible application of the detailed rules on this measure. The net estate is arrived at after taking off exemptions for gifts; relief for business property assets; and the nil rate band of £325,000. This measure may not benefit everyone and it will be necessary to look at the figures involved to find the breakeven point on any post tax advantage.

The Finance Act 2011 has brought into effect major changes to pensions that will affect all individuals in company and personal pension schemes. From 6th April 2011 the legislation amends the rules on pension tax relief and brings to an end the so-called compulsory annuitisation at age 75. In summary the key points are:

• Reduction in the Lifetime Allowance from £1.8m to £1.5m from 6 April 2012. However, transitional measures are intended to assist anyone who is covered by existing protection or has been planning pension savings based around the £1.8m limit;
• Reduction in the maximum annual pension contribution from £255,000 to £50,000 from 6 April 2011. However, any unused allowance can be carried forward for three years;
• Removal of the anti-forestalling regulations from 6 April 2011, meaning tax relief on pension contributions will be available at an individual’s highest marginal rate, including relief at 50% for higher rate tax payers;
• In the meantime the existing anti-forestalling measures will continue to restrict higher rate tax relief for certain individuals from 22 April 2009 through to 5 April 2011;
• Removal of the so-called compulsory annuitisation at age 75;
• Increased flexibility to take pension benefits out of a pension, including the ability to take 100% of the fund value in any one year from age 55 onwards;
• From Age 55 individuals will be able to buy an annuity or access the new Drawdown Pension
• Changes to the treatment of payments from a pension scheme upon death

HM Treasury announced on 27 May 2011 a consultation of removal of 36 tax reliefs following work by the Office of Tax Simplification (OTS).

The Chancellor established the OTS, in July 2010, to identify reliefs including tax concessions that should be simplified or repealed to help achieve a simpler tax system and remove complexity. The OTS published an interim report in December 2010 (referred to in an earlier briefing note). In Budget 2011, the Chancellor announced his decision to abolish 43 tax reliefs following the publication by the OTS of its final report in March 2011 of the review into all tax reliefs, allowances and exemptions, for businesses and individuals, across all the taxes administered by HM Revenue & Customs.

This consultation is seeking additional evidence on the impacts of removing 36 of these reliefs, and comments on the transitional arrangements that might help to minimise these impacts.

The 2011 Budget increased the tax incentive for individuals and companies making charitable gifts. Where a company makes a donation to charity it can claim a deduction from its profits and reduce its corporation tax payable. Some charities like to reciprocate by offering benefits in return such as free tickets to a fundraising event or publishing acknowledgement of a company’s support. Where a company receives such benefits from a charity it can lead to a loss of tax relief if the value exceeds 5% of donations over £1,000. However, some minor benefits can be ignored such as simple acknowledgements not amounting to advertising.

In October 2010 the Government announced a new tax free Junior Individual Savings Account to replace the withdrawal of the Child Trust Fund scheme (CTF). All UK resident children under the age of 18 who do not have a CTF will be eligible for a Junior ISA which is expected to be available in the autumn. We await details of the annual amount that can be invested but key features:

• All returns will be tax free;
• The account will be opened and managed by the person having responsibility for the child;
• Investments will be available in cash or stocks and shares;
• However, there will be no Government contributions into the account; and
• It is also the intention to back date the eligibility for the new account to ensure that no child born after the end of the CTF will miss out

From 6 April 2012 income tax will be deducted at source from taxable interest on new qualifying time deposits accounts (QTD). Currently interest can be paid gross subject to eligible conditions on a QTD of at least £50,000. The new regulation will be published in Finance Bill 2012.

Following a recommendation by the Office of Tax Simplification the Government has announced that it will consult later this year on how to integrate the operation of income tax and national insurance contributions. The aim is to remove distortions created by the tax system, reduce burdens on business and improve fairness for individuals. However implementation of this measure is likely to be administratively complex and will involve a wide range of policy issues.

Also in the autumn the Government will consult on how the administration of the personal tax system can be more transparent for individuals including the introduction of a new online tax calculator for working out the overall effective tax rate and amount of annual tax and NICs to pay.