Six top evergreen tax tips
The Tax Faculty and its committee members look at tips of the past and present that remain relevant or are evolving as we move into the future.
Career lasting pieces of advice
Carl Bayley, member of the Tax Faculty Board and the Tax Faculty’s Technical and Oversight Committee, recounts: “There are a few things we used to say in the early days of my career.
- Never let the tax tail wag the commercial dog.
- Always check the legislation first.
- If it seems too good to be true, it probably isn’t.
- To err is human, but to really cock it up requires a computer.”
Lindsey Wicks, Technical Editor at the Tax Faculty, recalls a former colleague telling a story of how that first phrase provided a lifeline in a client meeting.
The meeting had lasted several hours, had run over lunchtime, and at the crucial point when she (the tax adviser) was asked what she thought the client should do, she realised, to her horror, that she had been daydreaming for the past 10 minutes and had lost track of the conversation.
She delivered that sage advice: “Never let the tax tail wag the commercial dog”, which was met by nods from everyone around the table. While it proved to be her get-out-of-jail-free card, it is generally true – tax should not drive commercial decision-making.
Correcting mistakes – use the correct method
Caroline Miskin, Technical Manager at the Tax Faculty, says: “Mistakes happen and advisers come across errors in and omissions from income tax self assessment (SA) returns that need to be corrected.”
The time limit for amending an SA return is 12 months from the date the return is due to be filed (not the date the return was actually filed). If an error is identified within that time frame, unless the return is already under enquiry, the taxpayer has an automatic right to amend the return. This can often be done by filing an amendment online. Most commercial software packages have this functionality. Alternatively, a request to amend the return can be submitted in writing to HMRC. There is no specific format, it just needs to be clear what changes are required.
Things get trickier if the mistake is discovered after the amendment window. If the error has resulted in an overstatement of tax, a formal claim to overpayment relief is required. The claim must be in the form specified in HMRC’s Self Assessment Claims Manual at SACM12150 and the deadline for claims is four years from the end of the tax year. If the error resulted in an underpayment of tax, then a voluntary disclosure is required.
In the past, HMRC may often have made corrections on an informal basis, but members’ experiences suggest that is no longer the case. Miskin advises: “To avoid confusion, be clear whether you are requesting an amendment, making a formal claim to overpayment relief or making a disclosure.”
Best on festive parties
The festive season usually sees guidance being rolled out on the tax rules for the annual party. TAXline has made no exception to this, with reminders about:
the £150 being an exemption and not an allowance, so breaching the limit causes the full amount to be taxable;
the limit is doubled if the employee is allowed to bring a guest;
the limit is applied to the aggregate of all functions in the year. If the limit is breached in aggregate, the importance of deciding which function (or functions) is exempt – particularly if guests attend, as their costs would become taxable too if not covered.
In the current climate, we are less likely to be reading about this exemption, and more likely to be considering the taxation of staff gifts. Lindsey recalls a client on the Isle of Wight that used to hand out turkeys to staff at its annual Christmas party. The client received a challenge from the (then) Inland Revenue about the inclusion of the cost of the turkeys within the overall cost of the party. The client was desperate to retain the incentive, as the staff really valued it.
When those living on the mainland carried on partying after getting off the ferry, they had been known to check their turkeys into nightclub cloakrooms in Southampton!
If there isn’t the possibility of the gift being included as part of the cost of the party, employers may be looking to rely on the trivial benefits rule to provide a gift this year.
The February 2020 issue of TAXline featured a practical point from Tax Faculty Technical Manager Peter Bickley concerning HMRC’s novel interpretation of the trivial benefits rules. HMRC’s Employer Bulletin for December 2019 included an article that said that the condition that a benefit will not be counted as trivial if “provided pursuant to ... any other contractual obligation” includes where the employee has a ‘legitimate expectation’ that the benefit would be provided. If an employee receives a turkey even though the party has been cancelled, would HMRC try to argue that the employee has a legitimate expectation of receiving the turkey?
Virtual staff parties may also be a thing this year. The Tax Faculty has provided some thoughts on the tax issues that employers need to consider.
A matter of timing
Keith Gordon, Barrister at Temple Tax Chambers, and member of the Tax Faculty’s Technical and Oversight Committee, says: “When members receive a copy of an HMRC letter announcing an enquiry into a client’s return, they should check carefully if/when the client actually receives the notice.
“In one case, I was able to end an investigation after two years when it transpired that the accountant had received the notice within the 12-month period but the client’s copy arrived two days later and that was too late. HMRC could not justify a discovery assessment. In another case, the client’s letter had been misaddressed and did not arrive. The ongoing enquiry had to be terminated.”
This resonates with practical point 47 of the March 2000 issue of TAXline: “In the wake of the decision in Wing Hung Lai v Bale SpC 238, a further decision has been given by the Special Commissioners relating to the validity of section 9A notices issued towards the end of the enquiry deadline window.
Personal information – how things change
A practical point back in 2006 covered requests for personal information, following the Special Commissioner’s decision in Taylor v Bratherton (SpC 448). The taxpayer had appealed against an information notice requiring documents relating to personal expenditure on the grounds that the notice breached his rights under Art 8 of the ECHR rights guaranteed by the Human Rights Act.
The Special Commissioner set the information notice aside for the time being, saying: “It appeared to me, even disregarding the provision of Art 8, that the inspector’s request was intrusive and that the taxpayer should not be required to divulge details of personal expenditure if that could be avoided.”
HMRC powers to obtain information and documents since increased from 1 April 2009 (Sch 36, FA 2009). However, there is still the protection of either the First-tier Tribunal (FTT) giving prior approval to the notice or the taxpayer having the right of appeal against an information notice if they consider the information not reasonably required. Clients should understand that denying access to personal documents because they contain evidence of diverted profits is not a sensible path to follow in terms of penalty reduction for cooperation.
If HMRC wishes to issue a third-party notice, it must obtain the agreement of the taxpayer, or it must apply to the FTT. If draft legislation for the Finance Bill 2020-21 is enacted, this will change from Royal Assent in respect of a financial institution notice (FIN). The FIN will not require approval from the FTT or taxpayer before it can be issued to a financial institution to obtain third-party information or documents.
HMRC’s justification for the change is that it follows a recommendation from the OECD Global Forum that the UK ensures its procedure for accessing third-party information is in line with international standards.
Clarity on tax legislation can take time and effort
The Tax Faculty and its committees work hard to get early clarity on HMRC’s views of issues – often delivered exclusively to Tax Faculty members through our TAXguide series available on ICAEW’s website.
Of course, TAXline also provides updates on the latest thinking via practical points. When you see similar themes recurring more than 20 years apart, it shows just how difficult it can be to interpret the legislation.
Practical point 33 in the February 2000 issue of TAXline, contributed by Ken Monk of Grant Thornton, shared correspondence between the Association of British Insurers and the Capital Taxes Office concerning when an inheritance tax charge may arise on income drawdown from a pension policy because of a failure to exercise a right to take retirement benefits before death (ie, not purchasing an annuity) (see s3(3), IHTA 1984).
As reported in practical point 235 in the October 2020 issue of TAXline, the operation of s3(3) IHTA 1984 in relation to an omission to take income benefits from a pension was recently the subject of a Supreme Court judgement in HMRC v Parry [2020] UKSC 35.