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Home » Business News, News in Brief

Baker Tilly’s Weekly Tax Brief – 10 December 2014 – DRAFT FINANCE BILL SPECIAL…

Submitted by on December 12, 2014 – 7:10 am |

Baker TillyIn this edition of Baker Tilly’s weekly round-up of the most important tax news, we cover the latest developments.

1. Is the ‘Google tax’ more about policy or politics?

George Bull

The draft Finance Bill provides further details on the proposed Diverted Profits Tax which will require multinationals to pay tax before any appeal and which hands HMRC the role of both judge and jury. But with a surprisingly low expected tax take, is this new tax more about policy or politics?

2. What happens to an ISA after death?

Karen Clark

One of the more welcome announcements in last week’s Autumn Statement was that those holding ISAs can pass them on to a surviving spouse or civil partner on death without the need for the ISA to be “cashed in”. This is a positive move, but sadly this doesn’t seem to extend to other family members.

3. Who’s special now?

Lesley Fidler

The removal of the ‘lower paid employment’ category of earners who are subject to less stringent rules on the taxation of any benefits in kind means that much of the new draft legislation is devoted to preserving the tax status quo of certain specified groups such as ministers of religion who would otherwise be facing an increased tax bill. But is it wise to single out certain groups for special treatment?

4. Last minute changes to VAT MOSS for e-service providers

David Wilson

The proposed change to the way VAT is applied to e-services was causing real anxiety for some small businesses with overseas customers. Thankfully, the Government has listened and agreed to make changes to the registration and use of the VAT mini-one-stop-shop known as MOSS. But was Twitter really the right medium through which to announce this important policy change?


1. Is the ‘Google tax’ more about policy or politics?

The Treasury today published the draft Finance Bill 2015 which spells out further details for a new Diverted Profits Tax, which will prevent multinational companies from shifting UK profits overseas.

As part of the Autumn Statement earlier this month, the Chancellor announced that a 25% tax would be levied on the UK profits diverted abroad by multinational businesses. Now the details have been announced, including powers being given to HMRC to determine the amount of profits which have been diverted. Companies will be required to pay the tax assessed by HMRC upfront before the liability is finally determined by a court or tribunal.

Clearly the Chancellor feels under pressure to tackle the thorny issue of multinationals paying their fair share of tax, but one wonders why he’s felt the need to rush in these measures while the OECD continues to work towards a cohesive, global plan to tackle this very issue?

Requiring multinationals to pay tax before any appeal, and allowing HMRC to be ‘judge and jury’ in this issue, may be seen to be getting the ball rolling, but the subsequent appeal process is likely consume considerable amounts of specialist time within an inadequately resourced HMRC, and use up large amounts of valuable tribunal and court time.

What is really surprising is the extremely low amount of tax HMRC predicts will be generated as a result of this move. The reality is they simply can’t know how much it will be, and there have been a number of occasions where HMRC has predicted tax yields which have ended up much lower than expected. Perhaps HMRC has deliberately downplayed these figures so that the move is seen less as a ‘money spinner’, and more about leading the reform of the taxation of international corporates?

Such controversial powers should be the subject of detailed scrutiny before the legislation becomes law, although it’s possible that because of the election timetable there will be a limited debate on the Finance Bill, and so this draconian power could be rushed through parliament without any proper consideration, or might never actually reach the statute books.

2.  What happens to an ISA after death?

The Autumn Statement last week brought some welcome news to all those holding ISAs: these can be passed to the surviving spouse or civil partner on death without the need for the ISA to be “cashed in” by the surviving spouse.

For deaths before 3 December 2014, ISAs passed by the deceased spouse to the surviving spouse did not suffer inheritance tax due to the spouse exemption but lost the income tax and capital gains tax advantages of an ISA once in the hands of the survivor, unless the surviving spouse could reinvest back into their own ISAs, subject to the annual investment limits.

It would appear that for deaths post 3 December 2014, the surviving spouse will be given an “additional” ISA investment allowance equal to the value held in the deceased’s ISAs on the date of death. This would be in addition to the surviving spouse’s own annual ISA allowance. No further details were given in the draft Finance Bill this week although secondary legislation will be published shortly to deal with the mechanics of how this additional allowance will work.

This is certainly a step in the right direction although it is perhaps disappointing that it only applies on the death of the first spouse and where the ISA is left to the surviving spouse. ISAs passing to, say, children will still be subject to IHT and will lose their ISA status.

3. Who’s special now?

Four of the Office of Tax Simplification’s recommendations for the simplification of employer’s tax and NICs obligations were taken up by the Government, put out for consultation and now appear in the Finance Bill 2015 proposals.

One of the problems with simplification of tax rules is that simple rules create cliff-edges.  Step over the boundary and the treatment suddenly swings from A to B with no regard for how small the step that triggered the change might be.

Of the four changes, the payrolling of benefits in kind is still some way over the horizon as the Bill simply provides for regulations to be made to deal with this.  Trivial benefits are likely to be a £50 statutory exemption from April 2015 and dispensations are set to disappear (albeit partially replaced by approval notices) from April 2016.

The cliff-edge problems arise when attempts are made to remove the ‘lower paid employment’ category of earners who are subject to less stringent rules on the taxation of any benefits in kind that they receive in connection with their employment.  These are the P9D employees who, with the introduction of the national minimum wage, have decreased in number as the threshold remains at £8,500 of annual earnings.  Included in that category are many ministers of religion – particularly in the Christian churches where cash pay is low, but accommodation is provided.  Abolish the P9D category and they are faced with an increased tax bill.  As a result, there are far more Finance Bill clauses devoted to preserving the tax status quo for this category than are required to enact the three other proposals.

So, what determines the groups that get specific treatment?  As jobs become more specialised and the range of roles becomes more diverse, why do we have legislation that deals with specific employees?  It might be suggested that they are the groups that are best-represented, or perhaps it is an expression of what the Government thinks society at large, or the electorate in particular, holds dear.  The Finance Bill clauses have special employment treatment for: lower-paid ministers of religion, members of local authorities (i.e. councillors), those leaving the armed forces and live-in home care workers.   No doubt the consultation on these clauses will enable the other groups that will be affected by the cliff edge nature of the simplifications to make their case for special treatment.  Whose cases will be heard and acted upon?

4.  Last minute changes to VAT MOSS regime for e-service providers

It’s late in the day but, changes to the registration and use of the VAT mini-one-stop-shop (MOSS) scheme will be welcome news to the thousands of micro-businesses supplying e-services to European customers. According to a recent HMRC press release, e-businesses trading below the VAT registration threshold who can distinguish between UK and EU sales may voluntary register for MOSS in the UK for the cross border part of its business, and continue to treat domestic (UK) sales VAT free.

From 1 January 2015, suppliers of e-services, such as mobile apps, ebooks, music and video, will have to charge VAT in the country where their customers receive or download their services. This will require either registering in the European member state where their customers are based, or registering to use the MOSS scheme in the UK.

Small businesses recently met with HMRC and the Treasury to highlight the MOSS implications to their businesses. Among the concerns was that registering for MOSS required a UK VAT registration, which consequently required them to charge VAT to UK customers where they didn’t previously need to do so. We could go on at length about the defects of the VAT registration threshold but, suffice to say as far as some small e-businesses were concerned, to stay competitive in such a marketplace, they would have had to either grow the business by some 20% – just to stand still; or subsume the VAT element within profit margins.

Small business supplying e-services have therefore been placed in the somewhat ridiculous position where, rather than have to take on the cost and administrative burden of VAT, they’ve had to consider whether they should cease trade with EU customers, which would reduce profit margins; or sell via third-party platforms (such as app stores) and be charged a commission for doing so, which would reduce profit margins.

In a welcome development however, HMRC tweeting to its blog post EU VAT changes: Twitter Q & A stated that: “If you can separate the part of your business which makes cross-border digital services… You may voluntarily register that part of business for VAT in UK. This will enable you to then register for MOSS in UK…HMRC is currently preparing detailed guidance for businesses on this issue”.

While we applaud HMRC for taking such measures, we must ask, why did it take so long, and was Twitter really the best means of initially communicating such a substantial shift in policy?

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