OTS outlines alterations to IHT system

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In a new report, the Office of Tax Simplification (OTS) has outlined a series of recommendations designed to ‘simplify the UK’s inheritance tax (IHT) system’.

In the report, the OTS urged the government to reduce the current seven-year gifting rule to five years. It also suggested abolishing the taper relief system and replacing the many forms of lifetime gifts with a ‘personal gift allowance’.

In addition, the OTS recommended reducing the complexity in the interaction between IHT and capital gains tax (CGT).

Commenting on the report, Bill Dodwell, Tax Director at the OTS, said: ‘The taxation of lifetime gifts is widely misunderstood and administratively burdensome.

‘We recommend replacing the multiplicity of lifetime gift exemptions with a single personal gift allowance, to be set at a sensible level, and incorporating an increased lower threshold for small gifts.

‘Where there is IHT to pay on lifetime gifts, the OTS recommends the government explores options for simplifying and clarifying the rules on who is liable to pay this tax, and how the £325,000 threshold is allocated between different recipients.’

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UK tax gap ‘remains low’

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New data published by the government has revealed that the UK tax gap for 2017/18 stands at 5.6%, meaning that HMRC collected 94.4% of tax due in 2017/18.

The tax gap is the difference between the amount of tax that should be paid to HMRC and what is actually paid, and arises for a number of reasons. According to HMRC, many taxpayers ‘fail to take reasonable care when calculating and submitting their tax return’, while others ‘fail to understand the ‘legal interpretation’ of what is required’.

These behaviours constitute the largest proportion of the tax gap, while criminal attacks, tax evasion and avoidance make up the rest.

The tax gap for income tax, national insurance contributions (NICs) and capital gains tax stands at 3.9% for 2017/18. Meanwhile, the tax gap for VAT shows a ‘long-term reduction’, totalling 9.1% for 2017/18 – a significant drop from 2005/06’s figure of 12.2%. The tax gaps for all other taxes, including duty-only excise tax, corporation tax and avoidance tax, have also decreased since 2005/06.

Commenting on the report, Jesse Norman, Financial Secretary to the Treasury, said: ‘The UK’s low tax gap underlines both how the vast majority of people are paying the correct amount of tax, and how effective HMRC has been in its efforts to clamp down on tax evasion and avoidance.’

Self-assessment tax returns are notoriously complex, and many individuals can be susceptible to making errors. That is where we can provide assistance – contact us for more information.

Business and Tax Round-up

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Chancellor brings forward apprenticeships reforms in Spring Statement

Chancellor Philip Hammond delivered the 2019 Spring Statement on Wednesday 13 March, and brought forward the £700 million reforms for business apprenticeships previously announced in the 2018 Autumn Budget.

Mr Hammond also announced that the halving of the Apprenticeship Levy co-investment rate from 10% to 5% takes effect from April 2019. The increase (from 10% to 25%) in the amount that employers can transfer to their supply chains also takes effect from April. Please note that these changes only apply in England.

Other measures announced by the Chancellor in the Spring Statement include a review of the latest international evidence on the impact of minimum wages, to ‘inform future National Living Wage (NLW) policy after 2020’, and the allocation of £53 million in funding from the third wave of the Local Full Fibre Networks challenge fund.

Additionally, up to £260 million was made available for investment into the Borderlands area as part of the Borderlands Growth Deal.

Government launches consultation on ‘plastic packaging tax’

The government has launched a consultation, outlining its proposal to introduce a tax on plastic packaging with less than 30% recycled content.

The ‘plastic packaging tax’ was announced in the 2018 Autumn Budget and is set to be introduced in 2022. The tax will be UK-wide, and the government has stated that it is ‘committed to working closely with the devolved administration’ on its design.

In its ‘call for evidence’ on the matter, which was made last year, the government received a record number of responses. It found that using recycled plastic is ‘often more expensive than using new plastic’, despite it being better for the environment.

According to the government, plastic packaging accounts for 44% of the plastic used in the UK. The UK generates over two million tonnes of plastic packaging each year.

In this consultation, the government is seeking views on the design of the new plastic packaging tax. In addition, it is looking at how best to implement the tax without causing ‘administrative disruption’.

The government is also seeking to create ‘economic incentives’ to encourage manufacturers to produce sustainable packaging.

The next steps in regard to the new tax will be outlined during the 2019 Budget. The government intends to publish draft legislation on the matter in 2020.

HMRC urges couples to claim Marriage Allowance

HMRC has urged 700,000 couples to claim the Marriage Allowance in order to save tax.

Introduced in April 2015, the Marriage Allowance enables spouses to transfer a fixed amount of their personal allowance (PA) to their partner. The option is available to couples where neither pays tax at the higher or additional rate. If eligible, one partner will be able to transfer 10% of their PA to the other partner. In 2019/20, taxpayers are able to transfer £1,250 (compared to £1,190 for the 2018/19 tax year).

For those couples where one person does not use all of their PA, the benefit will be up to £250 in 2019/20 (20% of £1,250).

Commenting on the allowance, Mel Stride, Financial Secretary to the Treasury, said: ‘It is encouraging to see so many people taking advantage of the tax relief.

‘Married couples who are yet to sign up for this great scheme – you too can benefit – it is quick to register, and any backdated allowances will be paid as a lump sum.’

The Marriage Allowance is available throughout the UK: to qualify, the higher earning partner must pay tax at the basic rate (in Scotland that includes the starter, basic or intermediate rate).

Data reveals parents ‘failing to make use of Tax-Free Childcare’

According to data published by the government, its Tax-Free Childcare (TFC) scheme ‘has not had the uptake expected’, with only 22% of eligible families making use of it.

Official figures have suggested that the government had planned and budgeted for 415,000 families to be using the TFC scheme by October 2017. However, the data has revealed that, by December 2018, only 91,000 families had signed up to the scheme.

The TFC initiative replaced the Employer Supported Childcare (ESC) scheme, which closed to new entrants on 4 October 2018. TFC is available to both employed and self-employed individuals, and is paid per child rather than per parent, allowing single parents to benefit.

Under the initiative, tax relief of up to 20% is available for childcare costs, up to a total of £10,000. The scheme is therefore worth a maximum of £2,000 per child (£4,000 for a disabled child). Children aged under 12 are eligible for the scheme, as well as disabled children aged up to 17.

Previously, the full roll-out of the TFC scheme was delayed as a result of technical difficulties with the government’s Childcare Choices website. These glitches may have contributed to the low uptake of the scheme, the government stated.

Julia Waltham, Head of Policy and Campaigns at non-profit organisation Working Families, said: ‘The reason for the low take-up of TFC could be because parents have chosen to stick with ESC vouchers, and we know from our own research that working parents are increasingly reliant on informal childcare support from family, often grandparents.’

The Childcare Choices website can be accessed at www.childcarechoices.gov.uk.

Research suggests many individuals ‘unaware of IHT rules’ when gifting money

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Research carried out by the Institute for Fiscal Studies (IFS) and the National Centre for Social Research (NCSR) has suggested that only 45% of individuals seeking to gift money are aware of inheritance tax (IHT) rules and exemptions.

According to the IFS, the research aimed to ‘analyse individuals’ awareness of IHT rules and exemptions’. It also ‘explored the prevalence of gifting in the general population and how it varied between different groups’, and considered the ‘nature of gifting’.

The research found that just 25% of so-called ‘gifters’ have a ‘working knowledge’ of IHT rules in relation to gifting. However, many individuals have sought additional information on the rules.

12% stated that they wouldn’t have given a gift had IHT rules or exemptions not been in place. The research suggested that, of those who reported that they were influenced by IHT rules, only 38% said that passing on assets was a purpose of the gift.

Older people are ‘more likely’ to be gifters than young people, according to the data. 24% of individuals aged 70 and over have gifted in the past two years, compared to just 3% of those aged between 18 and 29.

Welsh taxpayers urged to check payslips following income tax code mix-up

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Following an income tax code mix-up, HMRC has urged Welsh taxpayers to check their payslips to ensure the correct amount of tax has been deducted by their employer.

HMRC recently revealed that some Welsh taxpayers were mistakenly given Scottish income tax codes by their employers. Consequently, Welsh taxpayers have been charged Scottish income tax rates. HMRC stated that it doesn’t know how many Welsh taxpayers are affected.

Commenting on the issue, Llyr Gruffydd, Chair of the National Assembly for Wales’ Finance Committee, said: ‘We raised concerns about the flagging process for identifying Welsh taxpayers during our inquiries into fiscal devolution and the Welsh government’s draft budget.

‘On each occasion we were told the matter was in hand, and the lessons from the devolution of income tax powers to Scotland, where there were similar issues, had been soundly learned and would be put into effect. We are seeking an immediate explanation of how this has happened and will be asking representatives from HMRC to appear before this Committee in the near future.’

From April 2019, the Welsh government has the right to vary the rates of income tax payable by Welsh taxpayers. The new tax codes for Welsh taxpayers begin with the letter ‘C’.

The tax on income is different for taxpayers who are resident in Scotland. The Scottish income tax rates and bands apply to employment income, self-employed trade profits and property income. Scottish tax codes begin with the letter ‘S’.

CIOT warns Digital Services Tax ‘not a cure for struggling high streets’

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The Chartered Institute of Taxation (CIOT) has warned that the government’s planned Digital Services Tax (DST) won’t serve as a cure for the UK’s ‘ailing high streets’.

From April 2020, the DST will apply a 2% tax to the revenues of certain digital businesses. A double threshold will exist, meaning that businesses will have to generate revenues from in-scope business models of at least £500 million globally to become taxable under the DST.

Government documentation states that the first £25 million of relevant UK revenues will not be taxable. Small firms will therefore not be within the scope of the tax.

The CIOT suggested that the DST will raise £440 million by 2023/24, and affect mainly large multinational businesses that operate search engines, social media platforms and online marketplaces. The Institute outlined that, as this will be the case, the DST will have a ‘wholly different focus’ to business rates.

‘The DST should not be seen as a panacea for the problems of ‘bricks and mortar’ high street shops,’ said John Cullinane, Tax Policy Director at the CIOT.

‘Questions around business rates and the drivers for the DST are very different issues. The DST is about the UK getting what it sees as the right share of international tax on profits, based on value added by users – and not a tax on online sales more generally.’

HMRC warns young people to ‘stay vigilant’ as number of tax scams rises

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HMRC has warned young people in the UK to ‘stay vigilant’ in order to avoid falling victim to tax refund scams.

According to HMRC, criminals often target young individuals or the elderly as these groups of people are ‘more likely to be less familiar with the UK tax system’.

HMRC has warned taxpayers to be especially vigilant about so-called ‘Springtime refund scams’. In the Spring of 2018, 250,000 reports of tax scams were received by HMRC.

Criminals often bombard taxpayers with tax refund scams during the months of April and May – the time when HMRC processes legitimate rebates.

Individuals have been warned to be wary of text messages, calls and voicemails purporting to be from HMRC. These are often designed to extract personal or financial information from the taxpayer.

Commenting on the issue, Angela MacDonald, Head of Customer Services at HMRC, said: ‘We are determined to protect honest people from these fraudsters who will stop at nothing to make their phishing scams appear legitimate.

‘HMRC is currently shutting down hundreds of phishing sites a month. If you receive one of these emails or texts, don’t respond and report it to HMRC so that more online criminals are stopped in their tracks.’