Politics: The general election on 12 December 2019 delivered a Conservative government with an 80-seat majority, giving it the freedom to implement its entire manifesto. A central part of the Conservative election promise was to ‘get Brexit done’ and so the UK left the European Union at 11pm on 31 January, starting a transition period that ends at 11pm on 31 December 2020.
Loan charge: The independent loan charge review by Sir Amyas Morse was held back through the election campaign, and was finally published on 20 December 2019, alongside new guidance from HMRC. The effect on some taxpayers was quite dramatic, as those with loans taken out before 9 December 2010 were released from the loan charge altogether. The position for those with loans advanced between 10 December 2010 and 5 April 2016 was less clear, as their escape route depends on whether full disclosure had been made in the relevant tax returns and if they had ‘unprotected years’. Both of these groups would have to recalculate the tax due for 2018/19, and HMRC gave those affected taxpayers an additional eight months to submit their 2018/19 tax returns.
Off-payroll working: One of the first actions of the new government, on 7 January, was to launch a review of the implementation of the off-payroll rules, which were due to be rolled out for private sector contracts on 6 April 2020. This review had been promised by the then chancellor Sajid Javid, in an interview with the BBC’s Money Box programme on 30 November 2019. The professional tax bodies also called for a 12-month delay to those off-payroll rules.
Avoidance: In HMRC v J Hicks [2020] UKUT 0012 (TCC), the Upper Tribunal found an accountant (Bevis) didn’t take reasonable care when he failed to understand or critically appraise the tax avoidance scheme he reported on his client’s tax returns. As a result, the discovery assessments raised by HMRC were allowed to stand. The taxpayer used the Montpelier dividend strip scheme in 2008/09. The tribunal listed four actions or inactions of Bevis which were careless and brought about the insufficiency of tax. This case should act as a warning to those who advise or encourage clients to take part in avoidance schemes, although such behaviour today would be contrary to the requirements of the professional conduct rules.
Brexit: There was some confusion in HMRC guidance concerning the reporting required under VAT MOSS and the process for claiming for VAT refunds on overseas business expenses (13th Directive claims). In fact, the procedures for those VAT schemes remained unchanged throughout the Brexit transition period, but that certainly wasn’t the impression given in January 2020.
IR35: In Red, White and Green Ltd v HMRC [2020] UKFTT 109 (TC), ITV presenter and journalist Eamonn Holmes lost this IR35 challenge at the FTT. This was tenth IR35 case dealing with an individual from the TV or radio sector, and the fourth of those taxpayers to lose. The First-tier Tribunal (FTT) judge said the mutuality of obligation and the control issues together placed Holmes in the employment field rather than self-employment in his relationship with ITV. There were no strong self-employment indicators in the relationship between Holmes and ITV, although it was clear that he had a self-employed relationship with his other customers. The FTT concluded that IR35 did apply to all the contracts in question.
Anti-avoidance rules for mixed partnerships: N Walewski v HMRC [2020] UKFTT 58 (TC) was the first FTT case to examine the partnership profit allocation rules (ITTOIA 2005 ss 850C–850E), which were designed to prevent individuals allocating profits to a corporate partner in order to reduce the amount of tax which is payable overall by the partnership. The FTT noted that the taxpayer had at all times essentially been carrying out a single role for the LLPs and company in the structure. As a result, the profit allocated to the company could not be said to be created by reason of the taxpayer’s activities as its employee.
First SAO penalties challenged: Castlelaw (No. 628) Ltd & another v HMRC [2020] UKFTT 34 (TC) was possibly the first FTT case that challenged a penalty imposed for a failure under the senior accounting officer (SAO) regime (FA 2009 Sch 46). HMRC has a discretion on whether to impose a penalty in such cases, but it can’t vary the fixed amount of the penalty. The tribunal appeared sympathetic to the SAO who had inadvertently omitted two dormant companies from the group structure diagram submitted to HMRC. However, the FTT found that because of this missing information the £5,000 penalties imposed on the SAO and the company had to be upheld.
Off-payroll scope clarified: On 7 February, HMRC announced that only payments for services delivered from 6 April 2020 would be subject to the off-payroll working rules in the private sector. As originally proposed, the roll-out of these rules to private sector contracts was to apply to all payments made on and after 6 April 2020, irrespective of when the services were performed.
Politics: On 13 February, Sajid Javid resigned as chancellor of the exchequer after losing a power struggle with prime minister Johnson and his chief adviser Dominic Cummings over who should control the country’s economy. Javid was immediately replaced by Rishi Sunak.
Off-payroll soft-landing: On 27 February, the government published its report into the limited review of the off-payroll working rules. This review did not change the timetable of the roll-out, but it did recommend that more guidance should be made available. However, on 23 February, Sunak accidently let slip that there would be an effective soft landing for the off-payroll working rules in the first 12 months.
Statutory sick pay: Individuals were already being asked to self-isolate if they suspected they had the coronavirus. On 4 March, the government announced that statutory sick pay (SSP) would be payable to employees from the first day of absence from work due to sickness, and not from the fourth day of absence. However, this change did not take effect until 13 March 2020 when the regulations were published.
Budget (no. 1): On 11 March, Sunak presented his first Budget which was surprisingly tame, but perhaps he knew that several European countries had already imposed restrictions to stem the spread of the coronavirus, and the UK would have to follow soon. The Budget highlights were:
Off-payroll working delayed: A delay to the implementation of the off-payroll working rules in the private sector to 6 April 2021 was announced by Stephen Barclay, chief secretary to the Treasury in the House of Commons, on 17 March 2020.
Interest rates drop, twice: The Bank of England base interest rate was reduced on 11 March 2020 to 0.25%, and reduced again on 19 March 2020 to a record low of 0.1%. These rate reductions automatically reduce the interest payable on late paid corporation tax paid by quarterly instalments, and other interest due on late paid tax.
Coronavirus: We begin the start of the ‘new normal’. The government ordered pubs, bars and restaurants to close on 20 March and for people who were able, to work at home. Other business where people gathered such as theatres, gyms and non-essential shops were also ordered to close as soon as possible. At the same time, the chancellor announced the coronavirus job retention scheme (CJRS), and we all learnt a new word: furlough.
Businesses were given immediate cash help in the form of deferred VAT and income tax payments, although there was no automatic deferral of corporation tax. Interest free business loans and grants were also released.
On 26 March, Sunak gave the self-employed some hope with the promise of an income support scheme, but full details of the scheme did not emerge until mid-April, and the application portal opened in May.
Meanwhile directors of personal companies were left wondering what support they would get, as they couldn’t claim under the SEISS and the CJRS would not cover dividend payments. What’s more, the ‘on the payroll’ cut-off date for the CJRS left annually paid directors, who normally get paid at the end of March, with no support.
Homeworking: In the Budget, the weekly amount that employers can pay tax-free to employees as a home working allowance was raised from £4 to £6, with effect from 6 April 2020. However, on 27 March 2020, Jesse Norman, financial secretary to the Treasury, confirmed in Parliament that employees who work at home could claim a deduction of £6 per week from 6 April 2020, where the employer hadn’t paid the home working allowance. This came as a surprise to tax advisers, as until that point HMRC had been clear that flat rate claims were not permitted under ITEPA 2003 s 336. However, on 15 May, HMRC changed the guidance in its Employment Income Manual (at EIM32815) to say it would accept tax deductions by employees of £6 per week under s 336, without the employee having to justify that figure.
Coronavirus: Another rash of announcements in mid-April saw the ‘on the payroll’ date, for employees to be included in a CJRS claim, extended from 28 February to 19 March 2020. However, to qualify the employee’s pay had to have been reported under RTI by midnight on 19 March. The new guidance also clarified what level of pay would form the basis of the furloughed pay.
The conditions for the SEISS were also released on 14 April, giving taxpayers and their advisers just nine days to submit any late 2018/19 tax returns, which would allow the individual to qualify for the grant. It was already apparent that scammers and fraudsters were cashing-in on the uncertainty to gain access to bank accounts and make false SEISS claims.
SSP: It became apparent that employers couldn’t afford to pay their staff SSP when the business was partially or completely shut down. The government thus reversed its SSP refund policy and allowed ‘small’ employers to reclaim up to 14 days of SSP paid per employee in respect of coronavirus-related absences. The result is two parallel SSP schemes: coronavirus-related SSP payable from day one and reclaimable by certain employers; and other SSP which is payable from day four of absences which is not reclaimable.
Corporate tax switch: Meanwhile the scheduled switch from income tax to corporate tax for non-resident corporate landlords came into effect on 6 April 2020. Companies had to register with HMRC within three months and their tax agent had to set up a new authorisation to act for the non-resident company for corporation tax.
CGT reporting: From 6 April, all sellers of residential property in the UK had to report the gain using the new UK property account, and pay the CGT due, within 30 days of the completion date. Non-resident vendors had to report all UK property sales, whether they result in a gain or not, with 30 days of completion, since April 2015, but from April 2020 non-residents also had to use the UK property account to report disposals.
At the start of the pandemic, the late filing penalties for reporting property disposals completed between 6 April and 1 July 2020, were waived if the disposal was correctly reported by 31 July 2020. There had been a number problems with setting up UK property accounts for clients, especially those who are non-resident, trusts or estates, and the digitally excluded.
Two tables of car benefits: The calculation of car benefits became doubly complex, as two different tables of appropriate percentages apply for 2020/21 and 2021/22 depending on whether the car was first registered before or after 6 April 2020. The taxable benefit for electric cars was also changed such that all electric cars are taxed at 0% for 2020/21, 1% for 2021/22 and at 2% for 2022/23, regardless of the date on which the car was registered.
VAT reductions: In a last minute statutory instrument (SI 2020/459) issued on 30 April, the VAT rate for digital publications was reduced to zero with effect from 1 May 2020. This rate change was scheduled to take effect from 1 December 2020, but it was accelerated ‘to reduce the cost of access to online publications during these challenging times’, as the HMRC press release put it.
Access to personal protective equipment (PPE) had been a growing scandal as everyone from care workers to shop assistants needed some protection, as well as all health workers. In reaction to the soaring prices for PPE, the government introduced a temporary VAT zero-rating to apply from 1 May 2020 to 31 July 2020. (In July, this zero rate was extended to 31 October.)
Coronavirus: The portal to claim the first SEISS grant opened on 13 May, but tax agents discovered they were barred from claiming on behalf of their clients. HMRC guidance also confirmed that although the SEISS grant is taxable income of the business it is outside the scope of VAT (VAT Supply and Consideration Manual at SC06312).
In what proved to be the first of his Friday afternoon statements, on 29 May, Sunak announced the winding down of the furlough scheme, and an extension to the SEISS for a further three months from July 2020.
SSP: The portal for claiming a rebate of SSP opened on 26 May, and tax agents can claim on behalf of their clients. However, this rebate amounted to state aid, so the employer had to declare it was not in financial difficulty on 31 December 2019 and check that the refund did not make the business breach the state aid limits for its trade sector.
As so many people had their pay reduced to 80% of normal levels while furloughed, this could make the individual ineligible for family-related statutory pay (for maternity, paternity, adoption or bereavement), or reduce the amount of SMP payable. Regulations were amended to require the employer to use the normal pay level to calculate average weekly earnings (AWE) rather than the furloughed pay, backdated to take effect from 25 April 2020.
Flexible furloughing: Details of the flexible furlough scheme were released on 12 June, although for an employee to be included in a CJRS claim from 1 July, they had to have been previously furloughed by that employer for a 21-day stretch. This meant that employees who had not already been furloughed had to start a furlough period by 10 June.
From 30 June, the furlough claims need to be contained within a calendar month as the conditions for the furlough scheme changed for each month. Payroll professionals also had to deal with a new concept of ‘usual hours’, the calculation of which was confusing, with the HMRC’s instructions delivering unexpected answers in many situations.
Loan charge: The 2020 Finance Bill was amended at a late stage to incorporate changes to the loan charge, as recommended in the Morse report, to:
Budget (no. 2): Despite being described as a summer economic statement (and not a Budget), Sunak, on 8 July, revealed a trio of surprises:
In September, the reduced VAT rate for hospitality, tourist attractions and restaurant food was to be extended to 31 March 2021 (SI 2020/1413), and the job retention bonus was scrapped in November.
In addition, Sunak announced two other innovative schemes to encourage consumption and boost jobs:
SEISS grant: The portal to claim the first SEISS grant closed on 13 July. Traders who wished to claim the second SEISS grant had to confirm that their business was ‘adversely affected’ by the coronavirus on or after 14 July to the date of the claim. There was much confusion about this term, as it set no minimum level that profits had to reduce by to qualify. The portal for this second grant opened on 17 August.
IR35 again: In HMRC v Kickabout Productions Ltd [2020] UKUT 216 (TCC), sports commentator Paul Hawksbee lost his battle to prove his relationship with Talksport Radio (working through Kickabout Productions Ltd) lay outside of IR35. The UT disagreed with the FTT on the fundamental point of mutuality of obligations (MOO) between the parties, finding that there was MOO in the relationship. The UT appeared to ignore the ‘stand back and look at the picture’ approach established in Hall v Lorimer [1993] EWCA Civ 25 in favour of a ridged three step process:
The fact that strong MOO factors were found was enough to conclude that there was an employment relationship.
The Treasury clears its desks: Parliament closed for the summer on 22 July, and so, on 21 July, Treasury officials cleared their desks and published all the tax consultations and draft Finance Bill clauses they had been working on, including issues such as:
Most the draft provisions had been previously announced, but there were some new measures relating to the corporate interest restriction (CIR) and termination payments and post-employment notice pay.
HMRC’s ten-year plan: On the same day, the government also published its ten year plan to modernise the tax administration system. This includes some wide-ranging aims to digitise tax, modernise HMRC’s powers and explore the timing and frequency of tax payments across all taxes. A rewrite of the 50 year old TMA 1970 must surely be on the cards.
MTD for VAT: On 21 July, Jesse Norman, Financial Secretary of the Treasury, confirmed that MTD for VAT will be rolled out to cover the full population of VAT registered traders from 1 April 2022. This means there will be no trading threshold exemption for smaller traders.
Finance Act 2020: On 22 July, the Finance Bill received royal assent.
Employment allowance confusion: The maximum EA for 2020/21 was increased to £4,000, and this coincided with the introduction of the CJRS grants, which until 31 July covered the employer’s NIC on the furloughed wages.
Employers were confused as to whether or when they should claim the employment allowance for the tax year or not. To add to the confusion, HMRC’s computer was ignoring some EA claims made in the first quarter of 2020/21.
The key point was not to claim relief for the same employer’s NIC liability twice (under EA and also as part of a CJRS claim). By October, the ICAEW had boiled down advice for employers to three situations for 2020/21:
Regulation of tax advisers: The call for evidence on raising standards in the tax advice market closed. Views were sought on a range of problems across the tax market, from promoters of egregious avoidance, to advisers who simply provide bad value to their clients through poor service standards. Suggestions included a new regulator of tax advisers, and a requirement that advisers should all be members of a recognised professional body. The CIOT unsurprisingly preferred the latter approach, but noted that the transition to including all advisers in a professional body needs to be handled carefully.
CJRS fraud issues: As Parliament returned to business in early September, one of the first issues to be addressed by the Public Accounts Committee was the level of fraud or error the CJRS claims. HMRC’s Jim Harra estimated the value of CJRS fraud or error to be £1.75bn to £3.5bn, but these figures assumed that every error in a CJRS claim had made the entire claim completely incorrect. In reality, there will be a large number of very small errors spread across many CJRS claims, as the furlough pay calculations presented a steep learning curve for payroll staff and advisers. HMRC wrote to a number of selected employers, asking them to review their CJRS claims. But those letters didn’t specify what was wrong with the claim or which month’s claims should be reviewed, which was not helpful to hard-pressed advisers.
Budget (no. 3): On 24 September, Sunak presented his winter economy plan (again, not a Budget you understand) revealing five measures to help businesses survive into 2021:
JSS to be extended: Sunak had firmly stated that the furlough scheme would not be extended beyond 31 October, as the new job support scheme (JSS) would take its place. However, on 9 October, he announced that to help businesses survive lockdown periods, the JSS would be expanded to cover most of the payroll costs for employees who can’t work at all because their employer’s business premises has been closed. This led to two proposed schemes with different rules: ‘JSS open’ for businesses and ‘JSS closed’ for businesses which were required to close.
OECD update: The OECD published its BEPS ‘blueprints’ for the two-pillar consensus-based approach to taxation of the digital economy. The blueprints reflect the ‘convergent views’ of the 137 jurisdictions signed up to the Inclusive Framework on many of the key policy features and principles of both pillars, and identify remaining political and technical issues where differing views need to be bridged. In a webcast, OECD deputy director Grace Perez-Navarro said there was broad agreement on the need for the rules and on some elements of pillar one, but admitted that there was disagreement over its scope, how ‘amount A’ of pillar one should be calculated and whether pillar one should be optional. The Inclusive Framework consults on the blueprints until 14 December, and and public consultations are planned to be held in January 2021.
SEISS boosted: On 22 October, Sunak said the level of the third SEISS grant would be boosted to 40% of average monthly profits, capped at £3,750 for three months, but the application date was not announced.
At the same time, HMRC was busy emailing approximately 24,000 self-employed traders who claimed either the first or second SEISS grant, asking whether they are still trading. The traders selected for this prompt amounted to less than 1% of 2,657,000 traders who had claimed under the SEISS. But once again, the correspondence from HMRC did not specify exactly why it suspected the trader was not eligible for the SEISS; this puzzle was left to the adviser to solve.
Notification of overclaimed support: The coronavirus support payments are taxable, and any overclaimed amounts need to be reported to HMRC with 90 days of submitting the claim, or for claims submitted before 22 July 2020, by the 90th day after FA 2020 was passed. This gave taxpayers until 20 October 2020 to come clean about any overclaims of SEISS, CJRS or SSP refunds, before failure to notify penalties could apply. The legislation assumes the taxpayer’s failure to correct the claim was a deliberate and concealed error, allowing HMRC to charge a penalty of up to 100% of the grant claimed.
Home working allowance clarified: With some employees returning to their offices, HMRC was under pressure to clarify who was eligible to claim the home working allowance. It agreed that employees can claim the full £6 per week deduction, even if they split their working time between their home and the office. What’s more, the deduction can be claimed for the full year to 6 April 2021.
CJRS reinstated: On Friday 30 October, the Treasury released further details of the proposed JSS. The following day, just before 7pm, that scheme was put on the back burner. New national restrictions on businesses throughout England and Northern Ireland were announced to apply from 5 November to 2 December 2020. Scotland and Wales had already commenced national shutdowns. The CJRS was extended to help employers from 1 November, and the grant support was reinstated at the level available in August.
SEISS increased: We had to wait until 5 November to learn that the support for the self-employed was also to be reinstated at the original level of 80% of average profits for the third SEISS grant. The claims portal reopened on 30 November, but with a change in qualifying conditions, that shifts the emphasis from the loosely defined ‘adversely affected’ trade to one which has been ‘impacted by reduced demand’.
The reduced demand test is set out in the HMRC direction for SEISS.3, and requires the trader to suffer a significant reduction in trading profits for the relevant basis period before they can claim the third SEISS grant. There is still no information about the promised fourth SEISS grant.
More draft Finance Bill provisions: Also this month, the government published further draft legislation for Finance Bill 2021, together with accompanying explanatory notes, responses to consultations and other supporting documents. Headlines included:
OTS’s report on CGT: On 11 November, the Office of Tax Simplification published its first report as part of the CGT review undertaken at the chancellor’s request, in July, to ‘identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent’. The report received much press attention in view of its wide ranging recommendations, which included:
CJRS fraud prevention: HMRC has said it will publish employers’ names, company registration numbers and the value band in which the CJRS claim falls. This information will be available in February 2021 for claims paid out in respect of periods in December 2020 and January 2021, with limited exceptions for employers who are private individuals, or who are at risk of violence or intimidation.
HMRC becomes preferential creditor: HMRC regained its status as a preferential creditor for insolvencies that commence on or after 1 December 2020. This means that the department therefore receives payment, ahead of other creditors, for taxes collected by the business from customers, employees and sub-contractors, such as VAT, PAYE, NICs and CIS deductions. HMRC remains an unsecured creditor for corporation tax and any other taxes owed directly by a company.
Loan charge: On 3 December, HMRC publishes its report into its implementation of recommendations made by the Morse report into the loan charge. Key achievements are the exclusion of 11,000 taxpayers from the loan charge, and the introduction of early and targeted information directed at taxpayers where data suggests they are using loan schemes. HMRC has also published its review of the future policy on how interest is applied within the tax system, which was prompted by the Morse report.
That’s it, 2020 is nearly done – although, at the time of writing, the Brexit negotiations are in their final few days and the government is yet to present to Parliament its Taxation (Post-Transition Period) Bill 2019-21, which covers the customs duties and VAT treatment of goods moving between Great Britain and Northern Ireland.
Surely things won’t be as hectic in 2021? Don’t count on it, as next year will bring Brexit, DAC 6 reporting, and possibly the most dramatic Budget we have seen for some years.
Reported by Rebecca Cave (rebecca@taxwriter.co.uk).
.jpg?sfvrsn=335a554c_0 "300 x 250 (MPU)")