Top slicing relief: HMRC still ‘getting it wrong’by
Tax lecturer and software developer Tim Good is not satisfied with HMRC’s response to a court defeat on how it calculates top slicing relief. This Q&A sets out his stance on the issue.
HMRC’s Agent Update 83 announced that the tax department had resolved outstanding issues around how it calculated top slicing relief on life insurance policy gains and that an automatic calculation would be applied from 6 April 2021.
Almost immediately, however, tax lecturer and Absolute Software director Tim Good shot back that HMRC had not resolved all of the longstanding issues and was still getting TSR calculations wrong in a number of cases, according to the Topslicer tool he developed to apply the legislation correctly.
AccountingWEB asked him to clarify the situation in the following exchange.
Q: You’ve been campaigning on how HMRC has dealt with top slicing relief (TSR) calculations for years, but are still not satisfied that the approach set out in Agent Update 83 is correct. What’s wrong with it?
A: I would take much of what Agent Update 83 says with a large pinch of salt. For example the beneficial ordering rule introduced in Finance Act 2000 is in my view being wrongly interpreted in the HMRC calculator, which results in too little TSR in a number of 2020-21 cases.
FA 2020 inserted a new s535(8) ITTOIA 2005 for chargeable event gains occurring on or after 11 March 2020. The sub-section directs that in the TSR calculations allowances and reliefs are allocated to other income before being allocated to the chargeable event gain or slice. In many cases this will reduce the amount of TSR.
Q: How are these discrepancies arising?
HMRC is applying the new clause introduced by FA 2020 by allocating reliefs and allowances in a prescribed order of: non-savings income; then savings income; then dividends; then chargeable event gains. I maintain that the sub-section merely requires us to allocate reliefs and allowances first to: non-savings income, savings income and dividends (however you like); and then to chargeable event gains. This can make a difference of thousands of pounds to the TSR figure.
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