The day was marked by 23 announcements, but few were of great interest

Tax Administration and Maintenance Day (TAMD) is an opportunity for the Treasury to publish a range of documents (consultation, responses, calls for evidence, etc.) that would otherwise add to the paper mountain created on Budget Day. This year’s TAMD contained a few interesting nuggets amongst plenty of meh material. First, the more interesting stuff:

National Insurance (NIC) credits We commented in a recent Bulletin on the messy combination of the High Income Child Benefit Charge, claims for Child Benefit and NIC credits. Now the Government says it will act on this issue so that affected parents who failed to claim NIC credits will receive them retrospectively. Further details will emerge ‘in due course’.

Stamp Taxes on Shares The Government has published a consultation on proposals to modernise and rationalise the framework for Stamp Taxes on Shares. The consultation raises the possibility of replacing the current dual framework of Stamp Duty and Stamp Duty Reserve Tax with one securities tax.

Off-payroll working The Government has published a consultation on a possible legislative change to address the over-collection of tax that can arise when the off-payroll working rules (also known as IR35) are not properly complied with. In such circumstances, the deemed employer is liable for the full PAYE liability due on the worker’s income, but the worker and their personal service company may have already paid tax and NICs on the same income. This consultation suggests a potential change to allow HMRC to set off the worker’s tax and NICs already paid against the employer’s PAYE liability.

Umbrella companies Some things do not arrive on time…so a summary of responses will be published shortly to a call for evidence on the umbrella company market launched in 2021. At the same time, a fresh consultation will be issued reviewing policy options for the umbrella company market.

Information and data A call for evidence on information and data powers has been published as part of the Tax Administration Framework Review (TAFR). The focus is on standardising data provision from third parties, creating more flexible legislation (!), pre-population of tax returns and trying to bring more consistency between different tax regimes.

HMRC sandbox The Government has published a discussion document on a potential new legislative approach that HMRC could use for piloting tax changes (a ‘sandbox’, borrowing FCA jargon).

Employee Ownership Trusts (EOTs) Later in 2023 there will be a consultation on the ‘use and effectiveness’ of the EOT tax regime. HMRC wants to be sure that the reliefs available are not being used for tax planning purposes that it had not envisaged.

Now the less interesting material:

Repayment agents In January, the Government announced that income tax repayment agents would be required to register with HMRC. The deadline for registration has now been set as 2 August 2023, along with details of how to register with HMRC and the exemptions available (including for those who do not charge any fee for submitting repayment claims). 

Help to Save The Help to Save scheme was extended to April 2025 in the March Budget. The Treasury has now issued a consultation on the scheme’s design aiming for simplification and greater take up by those with low income.

Reserved Investor Fund A consultation has been published by HMRC and the Treasury on (yet another) new type of investment fund: the Reserved Investor Fund (RIF). RIFs would be directed at professional and institutional investors, with the broader retail investment market excluded.

Taxation of Decentralised Finance lending and staking The demise of FTX has not stopped the Government publishing a response to the call for evidence on the taxation of crypto-asset transactions in Decentralised Finance (DeFi) lending and staking. Simultaneously, a consultation has been published potential amendment to the tax rules so that they ‘better reflect the substance of these arrangements’.

Construction Industry Scheme (CIS) A new consultation proposes reforms to the CIS, including strengthening the tests for Gross Payment Status (GPS) and some administrative simplifications, such as excluding from the CIS most payments made by commercial landlords to tenants.

Diverted profits tax, transfer pricing and permanent establishment reform Next month a consultation will be published on simplifying and updating legislation for:

• diverted profits tax (increased rate on diverted UK profits);
• transfer pricing (related party transactions); and
• permanent establishments (right to tax non-resident entities with a UK business presence). 

Charities compliance A consultation on tax compliance for charities has been published indicating that HMRC thinks ‘some rules are not working as intended.’ The consultation covers areas such as:

• preventing donors from obtaining a financial benefit from their donation;
• preventing abuse of the charitable investment rules;
• closing a gap in non-charitable expenditure rules; and
• sanctioning charities that do not meet their Filing and Payment Obligations.

Data gaps Following publication of a summary of responses to HMRC’s consultation on improving the data it collects. the Government will start – after the necessary legislation passes – collecting new data on self-employed start/end dates, employee hours worked, and dividends paid in owner-managed businesses. It will be interesting to see what it does with the data.

Tackling promoters of tax avoidance. The Government has published a consultation on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. It is also consulting on speeding up disqualification of directors of companies involved in promoting tax avoidance.

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HMRC have released new data on the High Income Child Benefit Charge

The High Income Child Benefit Charge (HICBC), introduced in January 2013, remains a prime example of how not to design and operate a tax. As a reminder, the aim of HICBC is to make any Child Benefit recipient repay some or all of their Child Benefit back (as tax) if they or their partner has an individual adjusted net income exceeding £50,000 per year. The repayment is at the rate of 1% of total benefit paid for each £100 of income above the threshold, up to £60,000, at which point the tax charge matches the total benefit. Among the HICBC’s many flaws are:

• The £50,000 threshold has been unchanged since its introduction. At the time the higher rate tax threshold was £42,475, so arguably there was initially an element of ‘high income’ to the HICBC. Now, a basic rate taxpayer is just within its ambit. Had indexation applied, the HICBC threshold would now be around £65,000.
• The effective rate of the HICBC tax rises as child benefit rates increase. For example, for a family with two children the effective tax rate was 18.85% in 2022/23 and is now 20.75% in 2023/24.
• A couple with joint income of £100,000 split equally would suffer no HICBC, while one in which there was a sole earner with income of £60,000 would pay the maximum HICBC.
• There is no consistency with other elements of child tax and benefit policy. For example, the free childcare provisions, which were given a boost in March’s Budget, have a cliff edge income threshold of £100,000 per individual. Stranger still, there are situations where Universal Credit is payable even when all Child Benefit entitlement has been removed by the HICBC.

The latest statistics from HMRC on Child Benefit highlight the distortions that HICBC has created:

• 7.70 million families claiming Child Benefit, but only 7.01 million families are in receipt of Child Benefit payments. The missing 690,000 are families where benefit is claimed to secure entitlement NIC credits, but no Child Benefit is paid because HICBC would nullify it. Lack of awareness of the need to claim Child Benefit, thereby triggering automatic NIC credits, is another system flaw.
• In 2020/21, the latest year for which figures are available, 355,000 people paid £405m in HICBC, figures which HMRC estimate need a 4% uplift ‘in response to late tax returns or compliance activity’. If we adjust for this, the pattern of HICBC payers and their payments looks like this:

• The HMRC data used in the above graph is only part of the story. In practice it probably mostly shows only those whose income sits between £50,000 and £60,000, where there is no logical option other than to take the Child Benefit payment and then hand some of it back as HICBC. The HMRC data is silent on the number for whom NIC credits are irrelevant, such as some two earner couples, and who thus choose to make no Child Benefit claim.

Comment

The HICBC can increase the effective rate of tax relief pension contributions as these reduce adjusted net income.

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Numerous Universal Credit claimants will be able to access quicker support with their mortgage

According to a recent press release issued by HMRC, an additional 200,000 Universal Credit claimants will be able to access quicker support with their mortgage from 3 April 2023.

These reforms were announced in the Autumn Statement and mean that claimants will be eligible for support for mortgage interest after three months of being on Universal Credit and they do not need to be unemployed to receive the support. Support for Mortgage Interest loans will be automatically offered to claimants who qualify so they do not need to do anything to receive this offer.

They will also be able to re-claim the support if they leave Universal Credit but return within six months.

Previously, claimants would need to have been unemployed for nine months before they could access a Support for Mortgage Interest loan, which helps them cover interest payments for a mortgage, or a home repairs and improvements loan, whilst they seek work.

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The decision on increasing in State Pension Age to 68 by 2039 has been kicked down the road

We commented in a recent Bulletin on an Institute of Fiscal Studies article on the question of when the State Pension Age (SPA) should be raised to 68. As a reminder:

• The Pensions Act 2007 set the timing of the move from an SPA of 67 to 68 between April 2044 and April 2046, but
• In 2017 the final Cridland Report recommended the change should be brought forward to April 2037-April 2039, and
• The Government’s response, from the then Secretary of State for Work & Pensions, David Gauke, was to accept the advice, but defer a final decision until a further review, due by 7 May 2023. This was seen as at least partly motivated by the fact that an fixed-term parliament election was due in 2020 and the Government did not want pull the trigger before the polls closed.

The question has now been (un)answered, with history largely repeating itself. On 30 March 2023,t he fifth Secretary of State since Mr Gauke, Mel Stride, published the State Pension Age Review 2023, but decided that the eventual SPA 68 decision should be taken after a further review to be carried out ‘within two years of the next Parliament’. In other words, after next month’s local elections, after next year’s likely general election and by January 2027 at the latest. At the limit, such timing would just meet the requirement to give at least ten years’ notice of a change to SPA, if 2037-2039 goes ahead.

The accompanying press release says the delay is required because ‘This gives the Government appropriate time to take into account evidence which is not yet available on the long-term impact of recent challenges, including the Covid pandemic and global inflationary pressures. These events bring a level of uncertainty in relation to the current data on life expectancy, labour markets and the public finances.’

Mr Stride also confirmed, as expected, that the move to an SPA of 67 will start in April 2026.

Comment

As we have shown in earlier Bulletins and as others have noted, the demographics have worsened considerably since the Cridland report,  which used ONS life expectancy figures from 2014. It is hard to envisage that fresh post-pandemic mortality data is going to show a rapid reversal of the 2014-2020 trend.  

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The pensions taxation changes announced in the Budget along with previously announced flexibilities and scheme amendments go a long way to resolving the problems.

Jeremy Hunt announced dramatic changes to pensions taxation in his 15 March 2023 Budget. His apparent motive was to help the senior NHS workforce – preventing them from retiring early or working less due to the disincentives created by annual and lifetime allowance (LTA) charges. The Chancellor, however, decided to extend the tax benefits to everyone and, by abolishing the LTA entirely, went much further than anyone expected or was necessary than required to solve the problem.

The Labour party have instantly hit back with a commitment to reverse the LTA changes but, crucially, they have singled out NHS workers as an exception. We will have to see exactly what they mean in terms of that and now focus on the immediate changes.

Higher earning NHS consultants and GPs have been hit with the double whammy of both regular annual allowance charges and the prospect of LTA charges when they come to take their benefits.

Clearly, the abolition of the LTA resolves one of these issues entirely. They can now build up as much pension as possible without fear of an LTA charge. The change removes a significant disincentive to continue working.

However, the annual allowance was always the bigger issue. The increase from £40,000 to £60,000 will definitely help with the problem and ensures many consultants and GPs will not have to face regular annual allowance charges. There are still likely to be spikes in pensions inputs about the annual limit caused by the NHS pay scales and whenever they take on additional pensionable responsibilities. The higher annual allowance coupled with, as time goes by, potentially more carry forward available, should, however, mean that annual allowance excesses are far less frequent. To breach the £60,000 annual allowance in a defined benefit scheme would mean an above inflation pension increase of over £3,750 in a year, which is a considerable sum to accumulate with the full tax advantages.

For very high earners there is still the issue of tapering. However, the increase in the Adjusted Income limit will move more NHS workers out of scope. Everyone will have a higher annual allowance with the increase in the minimum tapered annual allowance to £10,000 if adjusted income reaches £360,000 or more. Many NHS workers in this bracket are likely to have an element of private earnings and in many cases can control their level of taxable income by using limited companies to perform their private duties.

In addition to the changes announced in the Budget we have also recently seen new retirement flexibilities confirmed and technical changes to resolve some pension input issues caused by inflation. These are covered in detail in our recent Bulletin.

The ability to take pension benefits from the 1995 section of the scheme at age 60 and continue to accrue benefits in the 2015 scheme without fear of an LTA charge really should provide a great incentive for doctors to avoid retiring at 60. Whether the tax benefits in themselves are enough to keep the workforce motivated and working when, in many cases, they will already have a comfortable pension built up is another question.

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The Resolution Foundation has joined the Institute for Fiscal Studies in calling for a cap on the pension commencement lump sum.

Earlier this month, the Institute for Fiscal Studies (IFS) published a report on the taxation of pensions which proposed for a reduction in the maximum pension commencement lump sum (please see our earlier Bulletin). Now the Resolution Foundation has joined in the cash-cutting call in a new paper, ‘Post pandemic participation’. As the title suggests, the focus is on workforce participation in the wake of the pandemic. The employment rate for 16-64-year-olds is down from 76.6 % in December-February 2020 to 75.6% in the final three months of 2022.

The report has three key proposals related to pensions, all aimed at encouraging continued labour force participation among older workers:

1. Minimum pension age. The paper notes that the Government’s emphasis on State Pension Age (SPA) ‘has led to the incoherence of the past decade, with politicians raising the SPA (delaying retirements for those on lower incomes with lower longevity) while proactively making it easier to access tax-relieved private pension wealth (disproportionately held by richer households with longer longevity) earlier.’ To address this, the paper says that ‘Policy makers should consider further raising [the minimum pension] age, or at least slowing the rate at which money can be withdrawn before SPA.’
2. Pensions commencement lump sum. In the paper’s view, the pension commencement lump sum ‘encourages early retirements far before the SPA for wealthy individuals, at considerable expense to the taxpayer.’ A cap is proposed, but no numbers are given.
3. Defined benefit schemes and employment re-entry. Some defined benefit (DB) pension schemes (e.g. the civil service pension scheme for those who were members before April 2015), have ‘abatement’ rules which can result in the pension of a retiree being reduced if they are re-employed. The paper regards this as an active discouragement to returning to employment which should be addressed.

Comment

Our immediate thoughts are much the same as those we had on the IFS paper – these might be logical policies, but it will be a brave politician that proposes them anywhere near a general election.

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Following recent announcements from Michael Gove in the Press and in an interview on Sky, saying that he wants to abolish the leasehold system, he has now provided a formal update to Parliament

Back on 7 January 2021, Robert Jenrick, the then Housing Secretary, announced that leasehold reform would be tackled through two pieces of legislation Please see our earlier Bulletin.

The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022. This Act fulfilled the commitment to “set future ground rents to zero.” The provisions apply only to new lease agreements. New leases of retirement properties are in scope, but not before 1 April 2023.  

According to the latest Parliamentary update, on 20 February 2023, Michael Gove, Secretary of State at the Department for Levelling Up, Housing and Communities said:

“We hope, in the forthcoming King’s Speech, to introduce legislation to fundamentally reform the system. Leaseholders, not just in this case but in so many other cases, are held to ransom by freeholders. We need to end this feudal form of tenure and ensure individuals have the right to enjoy their own property fully.”

According to the update, future legislation will also:

• Reform the process of enfranchisement valuation used to calculate the cost of extending a lease or buying the freehold.
• Abolish marriage value.
• Cap the treatment of ground rents at 0.1% of the freehold value and prescribe rates for the calculations at market value. An online calculator will simplify and standardise the process of enfranchisement.
• Keep existing discounts for improvements made by leaseholders and security of tenure.
• Retain the separate valuation methodology for low-value properties known as “section 9(1)”.
• Give leaseholders of flats and houses the same right to extend their lease agreements “as often as they wish, at zero ground rent, for a term of 990 years”.
• Allow for redevelopment breaks during the last 12 months of the original lease, or the last five years of each period of 90 years of the extension to continue, “subject to existing safeguards and compensation”.
• Enable leaseholders, where they already have a long lease, to buy out the ground rent without having to extend the lease term.”

(‘Marriage value’ assumes that the value of one party holding both the leasehold and freehold interest is greater than when those interests are held by separate parties. This announcement means that marriage value will be removed from the premium calculation.)

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A new law is intended to give all workers the legal right to request a predictable working pattern.

The Government has supported Blackpool South MP Scott Benton’s Workers (Predictable Terms and Conditions) Bill, which will apply to all workers and employees including agency workers.

If a worker’s existing working pattern lacks certainty in terms of the hours they work, the times they work or if it is a fixed term contract for less than 12 months, they will be able to make a formal application to change their working pattern to make it more predictable.

This Bill gives people a right to ask their employers to consider requests.

Subject to parliamentary approval, all workers and employees will have this new right once it comes into force, however, they must first have worked for their employer a set period before they make their application. This period will be set out in regulations and is expected to be 26 weeks. Given the proposals aim to support those with unpredictable contracts, workers will not have had to have worked continuously during that period.

Employers do have the option to refuse a request for a more predictable working pattern on specific grounds, such as the burden of additional costs to make changes, or there being insufficient work at times when the employee proposes to work. Workers will be able to make up to two requests a year.

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Under plans set out by the Government on 1 February, it will seek to regulate a broad suite of cryptoasset activities, consistent with its approach to traditional finance.

There is no universal definition of a cryptoasset or related terms such as a digital asset or virtual asset, but there is increasing consensus on the basic elements of the definition in UK and overseas legislation, and in global standards. The Financial Services and Markets Bill 2022 (FS&M Bill) includes the following definition of cryptoasset for the UK’s financial services regulatory framework, to be introduced into FSMA:

“Cryptoasset” means any cryptographically secured digital representation of value or contractual rights that— (a) can be transferred, stored or traded electronically, and (b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology).”

The new rules, which are now subject to consultation, will place responsibility on cryptoasset trading venues for defining the detailed content requirements for admission and disclosure documents.

The proposals will strengthen the rules around financial intermediaries and custodians – which have responsibility for facilitating transactions and safely storing customer assets.

As part of this approach, the consultation will seek views on improving market integrity and consumer protection by setting out a proposed cryptoasset market abuse regime.

Proposals are centred around a number of important cryptoasset activities – including exchange activities, custody activities and lending activities, which the Government is intending to bring into the regulatory perimeter for financial services.

For each activity, the consultation sets out key design features of the regime covering themes such as prudential requirements, data reporting, consumer protection, location policy and operational resilience.

The consultation paper also proposes regimes for a range of cross-cutting issues which apply across cryptoasset activities and business models, including market abuse and cryptoasset issuance and disclosures.

In addition, to address industry concerns about the small number of Financial Conduct Authority (FCA) authorised cryptoasset firms who can issue their own promotions, HM Treasury is also introducing a time limited exemption. Cryptoasset businesses that are registered with the FCA for anti-money laundering purposes will be allowed to issue their own promotions, while the broader cryptoasset regulatory regime is being introduced.

The consultation will close on 30 April 2023, after which, the Government will consider feedback and work to set out its consultation response. Once legislation is laid, the FCA will consult on its detailed rules for the sector.

Note that the Government is also currently legislating in the FS&M Bill to introduce a regime that will allow for the regulation of fiat-backed stablecoins which are used for payments, similar to that for other payment methods given that these stablecoins have the potential to become widely used as a form of payment.

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The latest Guidance documents clarify when HMRC will issue the trustees with a penalty charge for not registering a trust or not keeping the entry up to date, how to ask for a review or appeal the charge and how to pay it.

Our earlier Bulletin explained the penalty system for not registering a trust or not keeping it up to date. This followed HMRC’s announcement of the level of fine being set at £5,000 but also stating that they will not penalise trustees for first-time offences.

The new Guidance notes now have more detail of the penalty regime. There are three Guidance notes dealing with:

• HMRC (when a penalty will be issued);
• HMRC (reviews and appeals);
• HMRC (how to pay).

The guidance confirms that if you’re a trustee of a trust within the scope of the trust registration service (TRS), and you either fail to register your trust or fail to keep the information held on the TRS up to date, HMRC can charge you a fixed penalty of £5,000. They will not charge any interest on penalties.

However, given that registering a trust is a new requirement, HMRC recognise that trustees may not be familiar with the process. They will, therefore, not charge a penalty if they find out that you’ve failed to register or to maintain a trust, as long as:

• this was not deliberate behaviour;
• you take action to correct this within the time limit HMRC has set.

HMRC will only charge the trustees a penalty if the failure to register or update was deliberate.

HMRC will decide on whether to charge penalties on a case-by-case basis.

Upon receipt of a penalty letter from HMRC, the trustees can simply pay the penalty charge or if they do not agree with a penalty charge, they can:

• ask HMRC to review their decision; or
• make an appeal to a tribunal against a decision.

A review request must be sent directly to HMRC and must reach it within 30 days of the date the penalty letter is issued. HMRC’s reply will normally be sent within 45 days of receipt of the taxpayer’s request. HMRC will not try to collect the penalty while it is reviewing the decision.

Taxpayers who do not want to ask for a review, or whose request for a review is rejected, can appeal to a tribunal within 30 days of the date of the penalty decision letter or the letter announcing that a review has been rejected. In the latter case, however, HMRC reserves the right to collect payment of the penalty while the appeal is in.

Comment

So far, we are not aware of any penalties having been issued for failure to register or failure to keep the Register up to date. Nevertheless, given the detail of the Guidance notes, this is clearly something that has been on HMRC’s mind and indicates they are preparing to use their powers. Trustees who have not yet registered their registrable trust on the TRS should be reminded of their obligation to do so. New registrable trusts have 90 days from the trust’s creation to register. The original deadline for existing trusts was 1 September 2022. Ideally, trustees should not wait for a nudge letter from HMRC before registering. Prompt registration will avoid having to explain the reasons for any failures and of course the risk of penalties.

Services available from Technical Connection

TRS Mezzanine service

If you require further guidance registering trusts, there are the following resources available:

On Techlink, we have created a series of documents and videos to help you guide your clients through the registration service, and these are accessible here. 

In addition to the online guides, we provide a comprehensive TRS Mezzanine service which can you book here.

This is an opportunity for either you or one of your support team to receive step by step guidance on how to create a Government Gateway Organisation ID and step by step guidance on how to complete HMRC’s Trust Registration Form. Through screen sharing over Zoom one of our consultants will talk you through the completion process.

Additionally, you can choose to have the Mezzanine with one of your lead trustee clients attending.  You should include their name and email address on the booking form. This Mezzanine incurs a fee of £60 (£50 plus VAT).

Please note that these Mezzanines are specifically designed to help guide you or your client through the administration of the TRS, as such the attending consultant will not be available to answer technical questions regarding the trust. 

If you have a technical question about a trust, our ASK service is available as an add on subscription to Techlink.

Book your appointment here.

TRS Agency Service

As part of our support framework surrounding the trust registration requirements, we are now providing a TRS Agency service. Acting on behalf of your client we can register the trust ourselves. The use of our Agency Services incurs a fee of £200 for up to 60 minutes on receipt of Technical Connection’s invoice.

To book the TRS Agency Service or for further details and any other queries, please contact via email at ben.ward@technicalconnection.co.uk

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