Tax Day – went with a whimper.

Author Image Les Cameron Head of Technical
8 minutes read
Last updated on 23rd Mar 2021

The Command Paper, ‘Tax policies and consultations (Spring 2021)’ has been published alongside various calls for evidence and consultations.

There was as expected further proposals on dealing with tax avoidance and modernisation of the tax system in line with the government’s 10-year tax strategy.

There’s not much of material interest to the financial planner (unless you like aggressive tax avoidance schemes I suppose) but there are various minor points to note.

Tax Administration.

The government are investing £95million in digital infrastructure for the tax system. 

This funding is intended to develop single digital account and single customer record. The intention is it will be a one stop shop where people can view and engage in their tax affairs in one place. This will include, in the first phase of the account, new ‘once and done’ tax registration and change of circumstances services.

On top of that HMRC are looking to enhance their ability to collect and receive payments, helping taxpayers to budget and manage their finances. This includes expanding the Self-Serve Time to Pay service to more taxes, after its success in supporting taxpayers during the peak of Self-Assessment payments made in 2021.

Alongside this making tax digital will be expanded out to Income Tax Self-Assessment from April 2023.

Paying your tax

The government is publishing a call for evidence to begin to explore the opportunities and challenges of more frequent payment of income tax within Income Tax Self-Assessment, and of corporation tax for small companies, based on in-year information.

Raising standards in the tax advice market

The government is publishing a consultation on raising standards in the tax advice market, following a call for evidence in 2020. This will seek views on the definition of tax advice and a requirement to make professional indemnity insurance compulsory for all tax advisers, with a view to improving tax advice and providing taxpayers with better access to redress where they have received bad advice.

There is currently no standard definition of ‘tax advice’ or ‘tax adviser’ in legislation, so this is perhaps the key issue to determine those who need to seek PI Insurance.

The government proposes that such a definition should be drawn widely to encompass the wide and diverse range of activities and functions that can include tax advice. The scope would encompass those that may not think that they are tax advisers, but if at least a part of their function they do provide advice that alters the tax position of those they are advising they have given tax advice. Technically a family member or friend helping with a tax return is giving tax advice, although the government does not propose that these are included in the definition nor should they need PI insurance!

It would appear financial advisers would come under the definition of tax advisers as examples called out were: 

  • a financial adviser, who in the course of providing investment advice to a client, advises on the most tax efficient ways to invest
  • a financial adviser providing advice on long-term estate planning including setting up a trust
  • A family office advising on wealth and investment management for a high net worth family, including the tax implications of any recommended actions

Could almost all financial advice fall under these categories? Is advising on a cash ISA advising on a tax efficient way to invest? 

The government are also seeking views on whether tax software should be included in the definition of tax advice.

And as those in financial advice are well aware, there is a distinction between guidance and advice, which the government are asking the question if s the financial services could be replicated here too, or if any other option should be on the table.

The full paper, questions and response deadline and methods can be found here.

The question for financial advisers who may now also be tax advisers is, are my current PI arrangements adequate? Hopefully!

Reducing inheritance tax reporting requirements

Following recommendations by the Office of Tax Simplification, the government will reduce administrative burdens for those dealing with inheritance tax.

Reporting regulations will be simplified later this year so that from 1 January 2022 over 90% of non-taxpaying estates each year will no longer have to complete inheritance tax forms for deaths when probate or confirmation is required.

In addition, the current temporary provision for those dealing with a trust or estate to provide an inheritance tax return without requiring physical signatures from all those involved will be made permanent.

Offshore Taxation

Today discussion paper “helping taxpayers get offshore tax right” follows the Spring Statement 2019 publication “No Safe Havens 2019” and seeks views on helping taxpayers get offshore tax right first time where possible and avoiding penalties.

Data sharing (e.g. Common Reporting Standards), high quality guidance, educational content for social media and digital prompts are some areas that have been highlighted as ways to improve accurate tax returns for overseas income and gains.

The subtext is that if you have offshore investments make sure you are reporting them accurately.

But this paper is unlikely to be of much interest for mainstream UK financial planners where overseas investments are likely to be insurance bonds issued by the overseas arm of a UK life office. This is because gains on policies issued after 5 April 2000 are reported to the client by the life office sending a chargeable event certificate.

Therefore, client’s with offshore insurance bonds issued after 5 April 2000 will be prompted and therefore have an opportunity to submit an accurate tax return.

The requirement to issue chargeable event certificates is different for policies issued before 6 April 2000. For further information on chargeable event certificates for clients with pre 6 April 2000 policies please see section 9 of our Offshore Bonds Taxation explained article.

Review of the Office of Tax Simplification (OTS)

This wasn’t something the government decided to do it’s something they have to do by law.

Their review will examine the effectiveness of the OTS in providing advice and recommendations on simplifying the tax system and look at ways to improve the service.

Dormant Assets Scheme expansion

This has been on the go for several years and the government will make changes in a

future Finance Bill to facilitate the inclusion of the asset groups that will be in scope of the expanded scheme. The expansion relates to Capital Gains Tax and pensions tax legislation.

Pensions tax technical updates

Tax relief has had a reprieve again.

There looks to be some minor amendments to the annual allowance “scheme pays” rules to allow the government to sort out the issues with public sector pensions created by the ‘McCloud case’.

This relates to the age discrimination found to have been effected when public sector pensions moved to a CARE scheme. Some older workers were allowed to remain in the final salary scheme for longer. The solution - allowing some people to return back to the final salary scheme means that annual allowance excess will have been triggered for earlier tax years. This brings to light issues with schemes being able to settle charges from previous tax years. These are likely to be highly technical amendments and as there was no accompanying document we don’t if this will apply to all schemes or just the public sector, and what if any changes will be made. Given the example given we suspect changes to scheme pays deadlines.

Taxation of trusts

Those with good memories may recall that a consultation The Taxation of Trusts: A Review was carried out between November 2018 and February 2019.

Its aim? To seek views and evidence on whether and how to make trusts more transparent and their taxation fairer or simpler. Much activity followed – an HMRC workshop with interested parties, separately HMRC also met with representatives from the insurance industry and a ‘Big 4’ accountancy firm, and just over 100 formal responses were received.

A lot of ground was covered. 

For example:

  • Does adherence to the principles of transparency, fairness and neutrality, and simplicity deliver an effective trust taxation system?
  • Can trust transparency be further enhanced?
  • Thoughts on the UK’s approach to the tax residence of trusts? 
  • Should there be targeted reform to the IHT regime as it applies to trusts?
  • Should there be simplification of the vulnerable beneficiary trust regime?

The outcome? 

The government have now advised that “the responses did not indicate a desire for comprehensive reform of trusts at this stage.”

There is therefore to be no wholesale changes to trust taxation. 

The issues raised will however be kept under review by the Government to ensure that the long term approach to trust taxation remains on track. In the shorter term of course, we may encounter specific areas of trust taxation dealt with on a case-by-case basis.

Future uncertainty can lead to delays in current planning and with that in mind, this is good news for mainstream financial planning. Trusts play an important part in IHT and estate planning strategies and it is important that clients have confidence in the stability of the potential tax implications to implement those planning ideas.

In short, steady as she goes for trust planning.

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