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Revenuebenefits.org.uk is a relatively new (it was launched in July 2011) website, put together by the Low Incomes Tax Reform Group and rightsnet, and is designed to provide advisers with access to the latest information on the range of HMRC 'products', including tax credits, child benefit and guardian’s allowance and the national minimum wage.

The latest news for those working in this area is that the site now contains a complete set of up-to-date (consolidated) tax credits legislation.

Since 2002, when tax credits were introduced, there have been a large number of amendments to the legislation in this area. For advisers who need to understand the legislation as it applies today, the task of applying numerous pieces of amending legislation to the original versions is very time consuming and makes reliable interpretations extremely difficult. That is why the consolidated legislation (primary and secondary) – helpfully provided by Tolley Tax Intelligence and LexisNexis – is so useful. It will be updated quarterly or as new regulations are made.

George Crozier
CIOT External Relations Manager
Wednesday 8 February 2012
(with thanks to James Stevens of LITRG, whose blog post this largely paraphrases)

The publication yesterday of the Government’s response to the House of Commons Environmental Audit Committee’s report on ‘Budget 2011 and environmental taxes’ has brought us no nearer to a clear definition across government of what an environmental tax is.

However it is good to see the committee chair and media continuing to press this issue, which was first brought to their attention by the CIOT in our submission to the committee back in May:

The Treasury listed six taxes which it regards as environmental taxes—Climate Change Levy, Aggregates Levy, Landfill Tax, EU Emissions Trading System, Carbon Reduction Commitment and the Carbon Floor Price. As the Chartered Institute of Taxation explained, however, the ONS's 2010 Environmental Accounts also included Fuel Duty, VAT on Fuel Duty, Renewable Energy Obligation, Vehicle Excise Duty and Air Passenger Duty in its definition (and confusingly Air Passenger Duty appeared under an 'environmental tax' heading in the 'budget policy decisions' table in this year's Budget Report).
Paragraph 9, ‘Budget 2011 and Environmental Taxes’, Environmental Audit Committee, 29 June 2011

In a report in yesterday’s Guardian (‘MPs condemn Treasury's green tax strategy - The government has made it difficult to judge whether promises are being met by refusing to define environmental tax’), Joan Walley, chair of the committee, is quoted saying: "[This] is an unacceptable delay... which does not address our pivotal recommendation for clarity about what constitutes an 'environmental tax' and the need for an environmental taxation strategy."

The committee’s call for an environmental tax strategy is in line with the CIOT’s call for an Environmental Tax Framework (modelled on the existing Business Tax Framework) to enable business and others to plan ahead with confidence.

The CIOT, as an organisation, does not take sides in the argument over whether environmental taxes should be higher or lower overall, but we do, through our Environmental Taxes Working Group, contribute to the debate about how government objectives in this area can be most effectively achieved. In particular, we point out how taxes which merely shift pollution elsewhere, or which leave loopholes which can be exploited, or which fail to lead to greener behaviour because of a lack of alternatives, will fail to do their job.

With this in mind, we were pleased to be one of the three bodies most cited in the main body of the June EAC report (along with the Green Fiscal Commission and Campaign for Better Transport) and the most cited in the footnotes, which included five references to our 2009 Green Tax Report, commissioned by Nick Goulding during his time as CIOT President.

George Crozier
CIOT External Relations Manager
Tuesday 7 February 2012

I am very pleased to say that the results of the November 2011 CTA and ATT examination sessions have been announced.

CIOT President, Anthony Thomas, commenting on the CTA results said:

"I would like to offer my congratulations to all 961 of the candidates who have made progress towards becoming a Chartered Tax Adviser as a result of passing one or more papers at the November 2011 examination. 327 candidates have now successfully completed all of the CTA examination and we very much look forward to them becoming members of the Institute in the very near future.

"Our examinations allow candidates a choice of which Advisory Papers to take and it is very important that they do choose the papers which are most relevant to them."

Full details of prizes and results can be viewed here

909 candidates took the examinations of the CIOT’s sister body, the Association of Taxation Technicians, on 1 and 2 November 2011. The Association is pleased to report that 69 candidates attempted the required four papers for membership and of those 51 (74%) passed all four papers.

The Association President, Stuart McKinnon, commenting upon the results said:

“It gives me great pleasure to congratulate all the successful candidates from the November sitting of our exams. In total 1,592 papers were sat and 1,076 passes achieved in one or more of our seven papers with 66 distinctions awarded for exceptional performance.

“Our modular system allows candidates to study at their own pace. Whether they are working towards full membership by sitting the three compulsory and one optional paper or whether they simply wish to obtain one or more Certificates of Competency in their specialist areas the flexibility has proved very popular.

“As a result of the examinations 228 candidates have now completed the examination requirements for membership and I look forward to meeting as many as possible at our popular admission ceremonies held at the House of Lords.”

Full details of prizes and results can be viewed here

Jude Maidment
Education and Examinations Manager
Wednesday 18 January 2012

Good to see another CIOT idea may come to fruition.

Today’s Times reports that the Government’s ‘nudge unit’ (officially the Behavioural Insight Team) are recommending that self-assessment taxpayers who pay their tax bill early are entered into a prize draw with a chance of winning £100,000.

The idea is this would save money by spreading the pressure on HMRC’s servers which currently experience a huge surge in the final few days ahead of the online filing deadline of Jan 31st.

A government source is quoted in The Times as saying: “Though nothing similar has been tried on a national basis before, 15 London local authorities have recently introduced a prize draw to encourage people to pay council tax by direct debit. With a £25,000 prize, they realised savings of £345,000 a year.”

A good idea? We think so. In fact a couple of years ago, during meetings on the Carter Review, colleagues of mine at the CIOT suggested just this to HMRC. At the time the Revenue were wary and told us they didn’t think government could do this sort of thing (though we did point out that the DVLA in Swansea were trying something similar), so the idea has been gathering dust.

Hopefully with a bit of a nudge from the nudge unit this imaginative proposal will now finally see the light of day, and save HMRC resources that can be put to better use.

George Crozier
CIOT External Relations Manager
Tuesday 10 January 2012

MPs on the Public Accounts Committee have savaged HMRC in a report published today on the handling of tax disputes.

Margaret Hodge, who chairs the committee, said the report was “a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations. We uncovered both specific and systemic failures which must be addressed.”

However HMRC have hit back aggressively at the report, saying it is based on “partial information, inaccurate opinion and some misunderstanding of facts.”

One of the report's criticisms which is highlighted in a number of the papers is a claim that there is more than £25 billion outstanding in unresolved tax bills. HMRC claim this is "a ballpark estimate of maximum potential tax liabilities, before a full investigation of the specific facts has taken place, and before applying any reliefs or allowances. It is not actual tax either owed or unpaid."

The report is the front page lead in both the Telegraph and the Mail today and features in most of the other daily newspapers.

Leaving aside the criticisms, the report’s main recommendations* for future action are:

1. HMRC must set out in greater detail its policy reasons for not disclosing information about specific corporate taxpayers. It must explain the circumstances in which it would consider disclosure and how it will fulfil its statutory obligations to account for its actions to Parliament.
2. HMRC must ensure that its revised procedures to separate out the roles of those involved in settling tax disputes are applied to all cases without exception. It should report back to the PAC before Christmas.
3. An independent assessor, or assessors, to carry out independent review of settlement proposals (all settlements over £100m and a random sample of those over £10m) should be set up a.s.a.p. in shadow form, and formalised in legislation as quickly as possible. Assessors should report annually to Parliament on their work.
4. HMRC must exercise better judgement over how it manages its relationships with large companies – especially in relation to accepting hospitality – to ensure it avoids the perception of conflicts of interest.
5. HMRC must carry out its promise to look into the treatment of different groups of taxpayers – such as large companies, small businesses and tax credit recipients – in terms of its fairness and reasonableness. It should report back to the PAC on any actions taken to address the wider policy or process issues identified as a result of its examination.

George Crozier
CIOT External Relations Manager
Tuesday 20 December 2011

* distilled by me from the Conclusions and Recommendations section of the report

Yesterday’s autumn statement will be remembered for the Chancellor’s admission that the Government’s promise to eliminate the annual budget deficit by the next election will fail, and for the further pain that lies in store as a result.

A squeeze on tax credits aside there was little to set the pulse racing on the tax front: a deferred fuel duty rise, a small increase in the bank levy rate (necessary to raise the same amount), new tax incentives to encourage investment in start-ups and an increase in climate change levy relief were probably the most significant new announcements.

On the Low Incomes Tax Reform Group website Robin Williamson has a good analysis of the changes to tax credits. He points out that the effect of freezing all elements of working tax credit apart from the disability elements will be to reduce work incentives at a time of low growth.

The CIOT’s Tax Policy Director, John Whiting, joined the BBC website for the statement, and his analysis of the announcements has been published here. Among the few ‘rays of wintry sunshine’ that he identifies are the Chancellor’s reiteration of the planned further increase in the income tax personal allowance next year, and further cuts in the main rate of corporation tax.

Lists of announcements from the statement can be found on pretty much every news site, but two posts from Andrew Goodall on the Tax Journal website are probably the most useful for picking out the tax-specific measures, on personal tax and business tax respectively (the latter is rather longer). The Accountancy Age team have a pretty comprehensive set of articles of the tax-related announcements

Next Tuesday (Dec 6) will, of course, be much busier on the tax front, as the Finance Bill 2012 draft clauses are published and HMRC and the Treasury respond to a range of recent consultations. Tax Journal have a very helpful A-Z guide to what is expected, covering everything from CFCs to a statutory residence test. HMRC’s response to the recent Tax Agents Strategy consultation is also expected. There will be far less media coverage outside the specialist tax and accounting press but the sheer quantity of material (last year there were 532 pages of draft clauses and explanatory notes and even the overview was 147 pages!) means that, once digested, the announcements made on Draft Finance Bill day are likely to be of considerably greater significance to most tax professionals than those made in the Autumn Statement.

The CIOT’s technical team and committees will be on the case analysing these draft clauses and consultation responses as soon as they are published (though the full task will take weeks, if not months) and issuing analysis to the media, to members and via this website as appropriate. Watch this space!

George Crozier
CIOT External Relations Manager
Wednesday 30 November 2011

A new report from the TaxPayers’ Alliance (TPA), published on Friday, is the latest to raise questions about the need for a continuing separate existence of income tax and national insurance (NI).

The low tax, small state campaign group argues the Government should abolish NI – both for employers and employees – saying it makes the tax system opaque, complicated and costly.

The Government has been taking evidence over the summer as part of its consideration of the integration of the operation of the income tax and NI systems, which the Chancellor announced at Budget 2011. This followed a recommendation to this effect by the Office of Tax Simplification in their Small Business Tax Review, published in March.

Since then, the Mirrlees Report, published under the auspices of the Institute for Fiscal Studies in September, has also made the case that income tax and NI should be properly integrated. Mirrlees noted that NI no longer serves any purpose as a separate social insurance contribution linked to benefit receipt.

At this stage the Government are only looking at how the operation of the two taxes can be integrated, which would cut down on admin costs for businesses and, potentially, tax collectors too.

At present, as all the reports point out, while income tax and NI are both taxes on income they are run via two separate systems and have rules that differ in many respects. Leaving aside rate and starting point differences, the biggest is perhaps PAYE’s annual, cumulative basis whereas NICs is still weekly/monthly, non-cumulative. And as the CIOT has pointed out many times, there are too many differences between the definitions of ‘income’ for the two levies.

The CIOT backs integration. In our response to the Government’s consultation we argued in September that “the inefficiencies and administrative burdens caused by the separate operation of the income tax and NICs systems need to be addressed and that the integration of the two systems should be a primary aim”.

We argue in our response that it is no longer necessary to maintain the separate ‘machinery’ (ie legislation, definitions, etc) to assess and collect NICs and definitions of earnings, deductions, etc can be aligned with the income tax definitions. NICs levels could also be amended through the Finance Bill rather than through separate social security legislation. However, we stop short of calling for the two levies to be merged (as the TPA are seeking). We believe the introduction of a single set of rules for the two levies – including making NI assessable annually – would dramatically reduce the admin burdens of having two levies, while enabling the Government to preserve the contributory principle and the ability to pay voluntary NI contributions as they appear to wish. This would also enable existing different treatments, such as of pension contributions, to continue to exist if the Government wishes, and avoid the need for complex renegotiation of the UK’s obligations under the EU social security treaty and bilateral reciprocal agreements.

There appears to be a momentum – as well as a logic – behind the integration of income tax and NI. The process offers scope for real simplification that can benefit employers, taxpayers and HMRC alike.

George Crozier
CIOT External Relations Manager
Monday 24 October 2011

HM Revenue & Customs are about to start sending out 1.2 million letters telling people they have underpaid tax in the 2010-11 tax year, and millions more telling people they are due a refund dating back as far as 2003/04. The CIOT's team of experts have put together this helpful Q&A explaining what it's all about and what you should do if you get a letter.

PAYE Reconciliation - questions and answers

Part One: The Reconciliation Process

What's going on?

There are two separate processes at work here
• the end of year PAYE reconciliation for last year (2010-11); and
• the clearing of a backlog of PAYE reconciliations for the years 2003-4 to 2007-8.

PAYE (Pay-As-You-Earn) is the way most people in work pay income tax and national insurance, by having it deducted from their wages (or other income such as a pension) through the year. This usually works fine if you have one stable source of income through the year, but if you have multiple income sources, change jobs, move in and out of work through the year or receive benefits in kind (eg a company car) it can get complicated and you can end up paying too much or too little tax.

The reconciliation process is when HMRC look at all the information they have on your income and tax over the past year and, if necessary, send you a demand or a refund.

The overpayment (tax refund) letters for 2010-11 have now gone out. The underpayment (tax demand) letters for 2010-11 are about to start going out. Additionally HMRC have just announced that a large number of ‘historic’ overpayment (tax refund) letters for earlier years will be going out between now and the end of 2012.

How many people are affected?

According to HMRC, 3.5 million for 2010-11, consisting of:
• 1.2 million people who will get tax underpayment letters for the 2010-11 tax year, telling them they owe an average of £600 each. This includes 146,000 pensioners who will be contacted from 24 October 2011 for tax on their state pension.
• 2.3 million people who have already had letters over the summer telling them they have a refund for 2010-11. The average refund is about £300.

In addition, approximately six million letters will be going out between now and the end of next year telling people they overpaid tax in the years 2003-4 to 2007-8. The number of people involved is likely to be smaller as some people will get rebates for more than one year. These have been generated automatically by bringing together all PAYE data in one place for the first time when HMRC’s new NPS computer system was introduced last year. The average refund is about £400 per person.

Why are some pensioners being taxed on their state pension?

The state pension is taxable, but unfortunately this was omitted from some pensioners’ codes in previous years. Most pensioners in receipt of the state pension with total income in excess of their personal allowance should pay some tax.

HMRC have stressed that they will not pursue underpaid tax on the state pension cases from before 6 April 2010. In addition, they say that they have put these customers on the right footing for 2011-12, by including the state pension in their tax code.

Where a pensioner has underpaid tax for 2010-11, HMRC will automatically code out that underpayment over a period of three years from April 2012 without the pensioner needing to contact HMRC and will also write to the individuals to apologise, explain why the underpayment happened and how it will be collected.

Is this everything?

Not quite. There are a further 6.7 million cases from the 2008-9 and 2009-10 tax years that cannot be reconciled through the NPS as HMRC lack some of the relevant information. HMRC are going through these manually. Stephen Banyard, HMRC’s acting Director General of Personal Tax, told the House of Commons Public Accounts Committee on 17 October 2011 that HMRC is 39% of the way through these cases and is on target to complete them by the end of March 2012. Most of these cases are expected to show that the correct amount of tax was raised but some will result in a refund or a request for tax owed. Most 2007/8 cases should by now be cleared.

Before the introduction of the NPS computer system HMRC had to manually reconcile around 16-17 million cases a year. Under the new system they expect to have to reconcile 3-4 million cases a year, with the rest of the work done automatically by the computer.

Why have so many people paid the wrong amount of tax? Whose fault is it?

In most cases there is no ‘fault’. So long as PAYE exists, there will always be a need for a reconciliation process, as there will always be some people with unpredictable incomes or whose circumstances change through the year.

However in some cases errors may be due to taxpayers or their employers not informing HMRC they have a second job when they should have done and so getting a tax allowance two or more times, and/or paying basic rate tax on two jobs when they should have been paying higher rate tax on at least part of one of their incomes. And in some cases it may be HMRC’s fault, if they had this information but failed to process it or match it up (though this should be less of a problem with the new integrated computer system than it was under the old system).

Essentially, the PAYE system relies on several factors including:
• the correct personal allowance (the amount you can earn free of tax, which was £6,475 for most people of working age last year) being applied once, and only once; and
• if a taxpayer crosses the threshold for the 40p income tax rate, once all their taxable income has been added together, the correct amount of tax being taken.

Although 3.5 million is a lot of people, the number of people getting under or overpayment letters from HMRC for 2010-11 will be fewer than the previous year's 5.7 million (though that was for two years processed together).

So this isn't another 'HMRC blunder’?

No. PAYE sorts most things for most people, but end of year reconciliations (and self-assessment) are needed to finalise the tax situation of many people. People need to take an interest in their tax situation, especially if they are moving in and out of work or have multiple or erratic sources of income.

That said, HMRC’s systems are a long way from perfect and there will undoubtedly be people in the reconciliation process who will feel legitimately aggrieved that, if HMRC had processed information promptly and accurately, they would have paid the right amount of tax in the first place.

What about the backlog?

HMRC deserve criticism for letting such a huge backlog build up. Significant amounts of money have had to be written off, at a substantial cost to the Exchequer. (No further automatic tax underpayment letters are going out for 2003-4 to 2006-7 – in most cases the period for claiming this has expired and HMRC is writing these sums off.) Some taxpayers will have waited eight years for amounts owed to them.

However the six million rebates starting to go out are a sign of progress, showing that HMRC are getting to grips with these historic cases. Nevertheless there is a lot of work still to be done if HMRC are to achieve their target of competing the processing of the backlog by the end of 2012.

Will there always be so many people paying the wrong amount of tax?

No, it should happen less in the years ahead.

Firstly the build up of a huge backlog should not be repeated. HMRC have a new computer system. Although it had a few teething problems (ie many people received incorrect tax codes in its first year), it now does most of the reconciliation work automatically and means backlogs should be unlikely in the future.

In addition, as part of the move towards Universal Credit HMRC are developing a new system of ‘Real Time Information’ (RTI). From 2013 employers will be required to submit PAYE information to HMRC on a weekly or monthly basis, instead of the current annual returns. Once this system is working well it is expected that the information will feed into employees’ accounts with HMRC, enabling them to update coding notices in a more timely way, helping taxpayers pay nearer the right amount of tax in-year.

Additionally HMRC are getting better at matching up records on their system – things like spotting that records for Robert Smith, Bob Smith and R Smith are all for the same person, but employers too need to ensure they use correct data for employees including the full name of employees, the correct National Insurance number and addresses etc. However, there will still inevitably be a need for a reconciliation process at the end of the year for some people.

Anything else HMRC should be doing?

There is a lot more HMRC, employers and employees themselves can do to increase the number of people paying the right amount of tax in year. As well as improving their matching up of taxpayer records (see above), HMRC should work more with employers to educate them about the importance of having accurate and up to date employee records, explaining what they need to check and why. The general public also needs to be educated so that they can take more responsibility for their own tax affairs and don’t just assume that their employer and HMRC will ‘get it right’. They should be able to check their PAYE codes and contact HMRC if they don’t think they are right or don’t understand them.

Part Two: Advice for PAYE taxpayers

Will I get a letter?

HMRC say more than 80 per cent of people who pay tax through PAYE have paid the right amount of tax on that income through the year and will not get a letter.

Those likely to get a letter include people who:
• have more than one source of income, including the retired with multiple pensions;
• have unpredictable income, reliefs or taxable benefits;
• receive benefits in kind from their employer – such as a company car – where the value of the benefit might not be known until the end of the tax year; or
• have overlapping employments – eg because they start a new job before they finish the old one.

People who change jobs during the tax year but who have a P45 from the old job, which they pass to their new employer before the last payment of the tax year should not normally be affected – it depends whether the new employer gets the right information about previous earnings and uses it in a timely fashion. Similarly people with only one source of income through the year, even if they get a pay rise mid-year, are unlikely to be affected.

What should I do if I get a letter?

Read it carefully, check the figures and ensure all your income has been included! The letter (technically a form P800) represents an informal calculation only, not a demand for tax. That may not be immediately obvious. If the calculations are not understood they should be queried and HMRC asked for a detailed explanation of how they were reached. Make sure you check which year the calculation is for.

What about if it is a rebate – presumably I don’t need to do anything?

Again you should check the figures to ensure they are both complete and accurate. If so, and if it is a rebate, and you are satisfied it is correct, you do not need to do anything. You should get the rebate, with interest (if applicable), automatically without having to call HMRC. If you think the repayment should be more, eg because you have had tax deducted from other income such as taxed interest, which HMRC do not know about, that can be covered by your personal allowance, you will still need to make a repayment claim. You can ask HMRC for a form R40 to make a claim – call the number on the letter sent to you.

If you think HMRC have made an error in your favour you should still tell them. Their penalty system works both ways – if they think you were careless in not spotting the over-repayment, they can charge you.

If I owe money, do I have to pay it straightaway?

If you owe money, don’t panic. If the amount is under £3,000, the standard procedure is for HMRC to ‘code it out’ over the next financial year (ie 2012-13 for the letters about to go out). This means paying extra tax in each month of the year. If you feel this will cause hardship you can ask to have it taken over a longer period of up to three years. Taxpayers can resist any attempts to force them to pay in a lump sum within 30 days or less (such tactics have unfortunately been observed over the past year), unless of course they wish to pay immediately. But they should equally bear in mind that spreading repayments might involve clocking up additional interest charges.

What if it was my employer’s fault?

If you have underpaid tax and you think it was your employer’s or pension provider’s fault for not operating the code given them by HMRC correctly or through making some other mistake, then in strict law HMRC must first call upon your employer or pension provider to make good the shortfall. (See the underpayments section of http://tinyurl.com/paye2011 for further explanation.)

What if I, or my employer, told HMRC and they did not act on the information?

‘Extra-statutory Concession A19’ states that in certain circumstances where there are delays by HMRC in using information, HMRC may write off tax arrears owing to it. However the speedy issue of the 2010-11 tax underpayment letters means it is unlikely to apply to most recipients.

It will only apply in relation to this year’s 2010-11 reconciliation letters if the Revenue both ‘failed more than once to make proper use of the facts they had been given about one source of income’ and ‘allowed the arrears to build up over two whole tax years in succession by failing to make proper and timely use of information they had been given’.

This might in some circumstances apply to people with arrears going back over two or more years (eg 2008/09 and 2009/10) where the same failure to use information appears also in 2010/11. Where there are still underpayments due for 2008/09 and 2009/10, HMRC should have automatically written them off if they arose because the state pension was not properly reflected in the code. The same principle should apply to any other taxable state benefit (eg taxable incapacity benefit or ESA) but they will not be written off automatically – the taxpayer has to apply for ESC A19 treatment in those cases.

What about if I am on benefits?

Taxpayers who are on means-tested state benefits and who are notified that they owe tax should contact the DWP, as some benefits are calculated on net, after-tax, income. So the additional tax liability could mean you are entitled to more benefits. (There is more information at http://tinyurl.com/TaxBen).

Where can I get further advice from?

The Low Incomes Tax Reform Group website has lots of useful advice. There is guidance for people who receive overpayment (tax refund) letters at http://tinyurl.com/overpayments2011 and for people who receive underpayment (tax demand) letters at http://tinyurl.com/underpayments2011. The information on the latter is currently being updated and should be amended for the 2010-11 tax year in the next week.

If, after reading this, you think you need to get professional advice you can find a chartered tax adviser local to you at http://tinyurl.com/findcta. If you are not able to afford professional advice then, in limited circumstances, help may be available from the charities Tax Help for Older People (http://www.taxvol.org.uk - for pensioners) and Tax Aid (http://taxaid.org.uk).

George Crozier
CIOT External Relations Manager
Friday 21 October 2011

So, the Supreme Court has rejected Mr Gaines-Cooper’s appeal. But what does this mean for questions of residence more widely?

In a nutshell I believe it makes the case for a statutory test for whether someone is UK resident even more compelling.

Having had a first read through the 53 pages of the judgment, here are a few observations:

1) It's pretty difficult for some people to determine whether you are resident and ordinarily resident, and so have to pay UK tax, based upon the existing law and guidance. HMRC only won 4-1 at the Supreme Court so even the Supreme Court was not crystal clear on this.

2) Everyone seems to agree that when HMRC give guidance, you can rely upon it provided your facts and circumstances fit the examples given in the guidance. However, if you are not covered by the examples, you cannot rely upon it.

3) Despite HMRC's insistence that you must self assess your residence and ordinary residence status, you should go to them when your circumstances do not fit into IR20 or HMRC6 (the Revenue’s guidance booklets).

As things stand, even after getting advice from a lawyer and a tax adviser, there will be many occasions when it is not possible to get a clear determination and the taxpayer will need to go to HMRC.

It is therefore in HMRC's interests to have a statutory residence test to avoid them having to look at all the cases that fall outside the clear guidelines of the law or the guidance.

The need for a simple and certain test of residence could not be made clearer than the time and expense that Messrs Gaines-Cooper, Davies and James have incurred in trying to establish their residence (or non-residence) status. They have had to do this because the current state of play was unclear and it was certainly not clear enough to the advisers of the appellants, who thought they had a good case. As Lord Hope said at para 63 of the judgment, there is an obvious attraction in keeping the test (of residence) as simple as possible. The fact that IR20 did not give all the answers means that it was therefore not always relevant to all taxpayers and in the present cases, it was not relevant to them.

Thus we conclude:

1) The law is complex, needs more guidance and of course simplification.

2) The guidance does not cover all cases and so more guidance and examples are needed.

3) If you do fall within the terms of the guidance, then you can rely on it, even if the law would give a different result ie the guidance over-rides the law, BUT

4) You can only rely on the guidance if it is within the power of HMRC to disapply the law and forego its statutory obligation to collect tax.

Satisfactory? Not to me.

The CIOT’s comments in support of the introduction of a statutory residence test can be read here.

Peter Ashby CTA
Thursday 20 October 2011

A brief report on tax debate and announcements at the 2011 Conservative Conference

Chancellor George Osborne rejected calls for temporary tax cuts to boost the economy, warning that they would put Britain's credit rating and low interest rates at risk. In his keynote speech he equated calls, including from within his own party, for tax cuts with demands from those on the left for more stimulus spending, saying: “Right now, temporary tax cuts or more spending are two sides of exactly the same coin - a coin that has to be borrowed.” However the Chancellor did put already announced tax cuts, and tax simplification, centre stage in his efforts to show the Government was going for growth. He also announced money for a council tax freeze for another year.

Osborne dismissed the proposal for differential tax rates for good and bad companies floated at Labour’s conference the previous week. Irresponsible business practices should be dealt with through an effective regulatory system, but the idea of two tax rates for ‘producers’ and ‘predators’ was “frankly ridiculous” and “unworkable”.

David Cameron emphasised that fairness was at the heart of the Government’s deficit reduction strategy. “Those with the most money are bearing the biggest burden”, he said, citing the permanent bank levy and increase in the charge on non-doms. Meanwhile, the Government had “given real help to the poorest and most vulnerable”, taking over a million of the lowest-paid out of tax altogether and boosting the state pension by linking it to earnings. “This is a one-nation deficit reduction plan - from a one-nation party,” he proclaimed.

Osborne promised that the Government would get tough on tax evasion: “I’ll tell you what this Conservative Chancellor says to rich people who evade their taxes: We will find you. And we will find your money. The days of getting away with it are over. Just as tough on tax evasion as benefit fraud.” He cited the bank levy, higher non-dom levy and Swiss tax treaty as measures the Government were taking to help ‘end the something for nothing society’.

The Northern Ireland Secretary said that the devolution of corporation tax to the Northern Ireland Assembly was in the balance. Owen Paterson told the conference that he was setting up a joint-ministerial group to examine a number of issues.

Work and Pensions Secretary Iain Duncan Smith said that tax breaks for married couples must be implemented before the next election. In his speech later in the week the Prime Minister repeated his promise that “we will recognise marriage in the tax system”, though he did not explicitly state this would be possible in this Parliament.

There was strong pressure within the party for additional tax cuts, especially the abolition of the 50p rate. According to a poll of Conservative members, 42 per cent want more spending cuts so taxes can be reduced to boost growth and another 10 per cent want bigger cuts to avoid tax rises. Meanwhile, tax cuts were among the highest priority for a number of prominent Tories interviewed by the FT. Former party treasurer Michael Spencer called on the Government to drop the 50p rate of tax and offer employers an NI tax holiday if they hire young people under the age of 23. New MPs Jo Johnson (Boris’s brother) and Sajid Javid also called for the 50p rate to go, as did disgraced former MP Jeffrey Archer. Senior MPs David Davis and John Redwood both made less specific calls for tax cuts to foster growth, while the actress Joan Collins (a Tory supporter) wanted tax cuts ‘across the board’ with VAT the top priority.

There were signs that, in the current economic climate, the environment is a diminishing priority for Conservatives. At a fringe meeting, party members greeted the assertion that 'climate change is not a pressing concern' with spontaneous applause. George Osborne said environmental regulations were “piling costs on the energy bills of households and companies” and promised that Britain would “cut our carbon emissions no slower but also no faster than our fellow countries in Europe.” At a fringe meeting, Greg Barker, energy minister, rejected calls for a carbon tax on domestic gas use.

Conservative Way Forward, a Thatcherite ginger group, launched a tax transparency campaign at the conference, calling for the introduction of “a simple, transparent taxation system that means everyone can easily see exactly how much tax they pay” in the belief this will increase pressure for taxes to be lowered.

A small number of influential voices at the conference called for a switch to property and land taxes. Tim Montgomerie, editor of ConservativeHome, said the party should introduce a mansion tax to fund tax cuts for job creators and the lowest paid. New MP Nick Boles called for the introduction of a Land Value Tax.

In a TV interview, David Cameron said Britain should consider a fat tax.

In a question and answer session, Treasury minister David Gauke MP said the DWP and HMRC were working closely together to tackle fraud, overpayment and error in the tax system. He also highlighted tax cuts for small firms and the work being done by the OTS to make the tax system work better for small businesses.

Making a guest appearance at a fringe meeting, Lib Dem Chief Secretary to the Treasury, Danny Alexander, said the Government’s efforts to make the tax system simpler – such as setting up the OTS – and more predictable – e.g. the corporate taxes road map – were designed to make the business climate more competitive

The CIOT questioned Iain Duncan Smith, Secretary of State for Work and Pensions, about the tight timetable for the introduction of Universal Credit and PAYE Real Time Information, and David Gauke, Exchequer Secretary to the Treasury, about HMRC’s heavy-handed programme of business record checks. (See ‘Ministers pressed on Business Record Checks and RTI’)

George Crozier
CIOT External Relations Manager
Thursday 13 October 2011

NB. George has produced short reports from all three of the main UK party conferences