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Let's consult! HMRC's summer feedback pack

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29th Jul 2010
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In a consultative frenzy, HMRC this week issued eight separate documents setting out its proposals for new rules and reforms ranging from PAYE to pensions tax, furnished holiday lettings rules, controlled foreign company rules and travel & subsistence payments under the national minimum wage.

Many of the consultations pick up loose ends from Labour’s March Budget, or put forward new ideas such as PAYE reform and simplifying associated company rules around the small profits rate of corporation tax that were mooted in the coalition government’s June Budget.

This article sets out a brief overview of the topics under consideration, which will be examined in more detail in separate articles. Follow the links below to see the full consultation documents and further commentary on AccountingWEB.co.uk

In a consultative frenzy, HMRC this week issued eight separate documents setting out its proposals for new rules and reforms ranging from PAYE to pensions tax, controlled foreign company rules, travel & subsistence and furnished holiday lettings rules.

Many of the consultations pick up loose ends from Labour’s March Budget, or put forward new ideas such as PAYE reform and simplifying associated company rules around the small profits rate of corporation tax that were mooted in the coalition government’s June Budget.

This article sets out a brief overview of the topics under consideration, which will be examined in more detail in separate articles. Follow the links below to see the full consultation documents and further commentary on AccountingWEB.co.uk.

Improving the operation of PAYE
The consultation paper on improving the operation of Pay As You Earn (PAYE) seeks views on using real time information to simplify the system and reduce burdens on business. Work and career patterns have altered dramatically since the existing system was devised in 1944 and the government is keen to take advantage of technology advances that will enable it to collect information in real time rather than waiting for employers to submit annual returns. Both HMRC and employers would reap efficiency savings under the new regime, and taxpayers would suffer less aggravation when they switched jobs. A second phase of reform is also suggested, leading to a centralised deduction system where the employer would send gross payments via BACS to a central HMRC calculator where the deductions would be calculated and deducted automatically, with the net amount forwarded to the employee’s bank account. When George Osborne floated an outline of these ideas during the election campaign (including outsourcing the computations to the banks’ BACS system), AccountingWEB.co.uk members were scathing in their responses. The privatised option is less prominent in the discussion paper, but could still be in play. The deadline for responses is 23 September.
Discussion document: Improving the operation of Pay As You Earn (128kb PDF)

Furnished holiday lettings
Following a last minute reprieve just before the election, the new coalition government promised to consult over the summer about new proposals to bring the furnished holiday lettings (FHL) rules in line with European law, which requires consistent treatment across the community. Extending the existing exemptions for properties in the UK across Europe would not be financially responsible, so instead the government is planning to increase the minimum period for which a qualifying property is available to let from 140 to 210 days a year, and the minimum period for which it is actually let from 70 days to 105 days pa. Loss relief from furnished holiday lets will also be restricted to certain income from the same business. There will also be restrictions on capital allowances that can be claimed (following the Wilkinson case) as properties fall in or out of the qualifying criteria, with a proposal to treat expenditure on plant and machinery for use in a dwelling house in a separate notional pool to other plant or machinery used in the business. Any changes will take effect from 1 April 2011 for companies or from 6 April 2011 for individuals.The consultation deadline is 22 October 2010.
Discussion document: Furnished Holiday Lettings Consultation (PDF 1.9MB)

Pensions tax relief
Here’s another mess ripe for untangling. In his June Budget, the chancellor confirmed his intention to raise revenue by restricting pensions tax relief. But after a huge outcry about the complexity and potential impact of Labour’s original plans, the new coalition government decided to look again at the provisions of the Finance Act 2010 (April). Instead, the government is considering an alternative approach involving the reform of existing allowances, including a significantly reduced annual allowance in the region of  £30,000-£45,000, with appropriate adjustments to the rate of relief and the size of the lifetime allowance. If the alternative approach is adopted, then the restriction of pensions tax relief would take effect from 6 April 2011 and be legislated for in the Finance Bill 2011. The consultation deadline is 27 August.
Treasury website: Pensions tax reform

Associated company rules
In the Finance Act 2008, the previous government set in train revisions to the rules defining control of a company where a director or shareholder is separately in a partnership to prevent organisations from taking unfair advantage of the small profits rate of Corporation Tax. This consultation has progressed further than some of the previous papers, and includes draft legislation based on responses to a previous paper published in October 2009. The draft legislation aims to set down clearer definitions of the circumstances in which rights should be attributed between associated persons by stating that rights are only attributable where “substantial commercial interdependence” exists between the relevant companies – the same principle currently applied under Extra Statutory Concession C9. The proposed legislation will be included in the Finance Bill 2011 and take effect from 1 April 2011, at which point ESC C9 would be abolished.
Treasury website: Simplification review

Inheritance tax avoidance schemes
As announced in the June Budget, the government wants to bring inheritance tax trusts within the scope of the Disclosure of Tax Avoidance Schemes (DOTAS) regime. One of this week’s consultation papers sets out how transfers of property into trusts for inheritance purposes will be identified early through notifications similar to those that operate for other schemes under DOTAS. New IHT Description Regulations will set out trust arrangements that would have to be notified under the scheme. The DOTAS information regulations, will be amended so that promoters of trust-based IHT avoidance schemes would need to obtain a scheme reference number from HMRC and taxpayers would need to advise HMRC of their use of the scheme by submitting a new notification form within 12 months of entering the arrangement. The consultation period ends on on anclude the reference on their tax returnsThe draft regulations would therefore require users of a notifiable IHT scheme to disclose implementation by providing HMRC with the SRN outside an IHT account (return) in all cases, by means of a specified, stand alone form. The consultation deadline is 22 October 2010.
Consultation document: IHT disclosure consultation (110kb PDF) 

Taxation of foreign branches
The first of two consultations on Corporation Tax issues reforms to enhance the competitiveness of companies operating in the UK and abroad through more territorial tax arrangements. The first half of the exercise will consider the scope for an exemption regime covering profits generated by foreign branches of UK companies and includes suggestions to maintain loss relief, either linked to a profits exemption or as part of an elective regime, alongside new mechanisms to reclaim relief on previous losses when a brance moves into profit and transitional rules for losses carried forward from branch business. The consultation deadline is 15 October 2010
Treasury website: Taxation of foreign branches

Controlled Foreign Companies interim improvements
Part two of the Corporation Tax consulation covers interim reforms ahead of a more detailed reform of CFC rules planned for the spring of 2012. The Treasury is considering extending the current “grace period” for UK companies acquiring overseas subsidiaries so that foreign acquisitions and restructuring operations that do not erode the UK tax base will not need to be brought within the CFC rules. The Treasury and HMRC are planning a joint event on the taxation of foreign branches and CFC interim improvement on 7 September 2010 to present the discussion document on taxation of foreign branches and the note on the aims of the CFC Interim Improvements.
Treasury website: Controlled Foreign Companies (CFCs)

Modernisation of Investment Trust Company (ITC) rules
Prompted by the Association of Investment Companies, in 2009 the government removed tax barriers that made it difficult for ITCs to invest in bonds. In the next planned phase of reform, the government wants to modernise the rules to allow for wider investment strategies and reduce administrative burdens, without creating opportunities for unintended tax advantages. The existing criteria for ITCs will be replaced with a new legislative definition of a closed-ended investment fund and a new up-front approval process will take the place of the current annual application procedure. The consultation period ends on 19 October 2010
Consultation document: Investment Trust Companies (130kb PDF)

National Minimum Wage: travel and subsistence schemes
Not really a consultation, but more a statement of intent drawing on responses to the previous round of consultations in Feb-May about altering NMW regulations so that travel and subsistence expenses to temporary work places that are allowable for tax and NICs purposes, do not count towards NMW pay. The amended regulations to take effect from 1 January 2011 to give employers time to change their systems and processes.
Treasury website: National Minimum Wage workers: Travel and subsistence expenses schemes

Replies (8)

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Wild Billy Hickok
By Wild Billy
30th Jul 2010 18:45

How many here will contribute to these consultations?

Anyone taking the time to respond? Just wondering.

And I'm pretty sure that the description of the associated company rules document is (very) wrong.

Thanks (0)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
02nd Aug 2010 11:15

Let me know where errors are and I'll fix them

Two points, Billy:

1. Where we have posted detailed articles on the consultations (PAYE reforms and Pensions Tax Relief are up now, others will follow in the next week), we have invited AccountingWEB.co.uk members to  post comments on the site and we'll compile & forward them to HMRC by the various deadline dates.

2. Please let me know where I've gone wrong with the associated companies summary. I have reviewed what I've put and the document it's based on and not found any terrible mistatements (most of which are taken pretty directly from the text). Please note that there are two documents on the Treasury consultation page. I picked up most of the info published here from the second one, summarising the government's plans following the previous submissions. Apologies in advance for any mistakes, but I was having to move at some speed to try and digest all of the eight consultations, so some lapses may have occured.

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Wild Billy Hickok
By Wild Billy
02nd Aug 2010 12:30

Last part seems mixed up to me

 ...nevertheless, the government is still interested in hearing, among other things, whether the new test will establish whether companies form an economic whole that should be taxed collectively for CT. The deadline for responses is 22 January 2010.
 

The Next Steps chapter suggests they are taking technical comments on the re-proposed draft legislation and draft guidance. I'm not clear there is any reference to reopening the consultation to look at "whether the new test will establish whether companies form an economic whole that should be taxed collectively for CT".

And the last sentence is obviously wrong. That is the date for the previous consultation. Not sure there is a date for comments on the legislation.

 

 

Thanks (0)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
02nd Aug 2010 12:47

Thanks for policing this

For the sake of clarity, I've removed the end statement, which was drawn from the summary of the original consultation document. I was trying to put the whole exercise into context, which the Treasury said was aimed at getting "a more targeted test to establish those companies that form an economic whole and thus whose profits should be considered collectively in establishing the rate of corporation tax that applies to them".

Sorry to any readers for any confusion caused. We will aim to tidy it up with a more detailed and careful precis of the consultation document in the next week or so.

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By chatman
02nd Aug 2010 16:36

Wild Billy

Good to see HMRC contributing busily to the forum today. Makes for a much more balanced debate.

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By James Spencer
04th Aug 2010 23:34

Open sourcing replies

 Have you thought of doing one of the responses in a wiki format to see if that will get to some sort of consensus?  It could be an interesting way to see if responses could be produced more quickly.

Thanks (0)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
05th Aug 2010 13:34

Interesting suggestion...

A wiki would certainly save the editorial team some work.

While it pains me to admit to some control-freakery urges, I do worry about the potential for subterfuge and manipulation. If someone had a real bee in their bonnet about proposals, they could keep coming back and changing/reinstating the position they wanted to advance.

By letting all the comments come in as usual and then categorising & compiling them into an accurate summary of the views expressed, we will be able to forward HMRC a document that we feel reflects the community's true feelings.

I mentioned that it would make some extra work for us to compile such documents, but we think they might also make interesting reading for members and provide a useful record of how much attention has been paid to our views when the measures are ultimately introduced.

Finally, we'd need to look around to find a suitable wiki module to plug into the site. I'm sure there's one out there, but it's something our technical team hasn't tackled yet. I'll use this as an opportunity to enquire about this, since there might be other areas (eg technical content on financial reporting standards etc) where the wiki approach would be very suitable.

Thanks for putting forward such an interesting idea.

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By James Spencer
06th Aug 2010 23:34

Wikis and such

 Thank you very much for that considered reply.  I would certainly look into whether there is anything similar going on elsewhere.  I must admit that I'm not aware of much (there's something on the government's Great Repeal Bill which I found, but I'm not sure how that works).  Perhaps that's a question for Any Answers?

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