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My PFS - Technical news - 02/10/18

Personal Finance Society news update from the 14th to 27th September 2018.

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Taxation and trusts

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TAXATION AND TRUSTS

 

The 2018 Budget

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3, RO4, RO5, RO7, RO8)

The Autumn Budget for 2018 will be presented on Monday 29 October.

The status of tax policy consultations – September 2018

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3, RO4, RO5, RO7, RO8)

The Government has now published its September 2018 online tax consultation tracker - an update on the latest position regarding ongoing legislation changes.

HMRC first reintroduced its online tax consultation tracker on 13 March 2018, following a commitment in a policy paper – ‘The new Budget timetable and the tax policy making process’ - to hold more early stage policy consultations and be more transparent about tax policy making, facilitating scrutiny of policy and legislation.

The table below summarises the main tax policy consultations included in HMRC’s latest tracker, many of which will be legislated for through the 2018/19 Finance Bill:

Document type, and title

Consultation summary

Announced

Published

End date

Expected legislative vehicle

Consultation: Simplifying the Gift Aid donor benefit rules

Here’s our bulletin on this.

Autumn Statement, 3 December 2014

18/02/16

12/05/16

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation:
Employment status

How to make employment status rules for employment rights and tax clearer for individuals and businesses.

Autumn Budget, 22 November 2017

07/02/18

01/06/18

 

Consultation: Making Tax Digital: interest harmonisation and sanctions for late payment

Here’s our bulletin on this.

20/03/2017

01/12/17

02/03/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation: Making Tax Digital: sanctions for late submission and late payment

Here’s our bulletin on this.

31/01/2017

20/03/17

11/06/17

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Call for evidence: Taxation of employee expenses

At Autumn Budget 2017, the Government published a response and two legislative changes.*

Autumn Statement, 23 November 2016

20/03/17

10/07/17

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Position paper:
Corporate tax and the digital economy

 

Position paper:
Corporate tax and the digital economy - Update

Here’s our bulletin on this.

Autumn Budget, 22 November 2017; update announced Spring Statement, 13 March 2018

22/11/17; update published 13/03/18

31/01/18

 

Consultation:
Taxing gains made by non-residents on UK immovable property

Here’s our bulletin on this.

Autumn Budget, 22 November 2017

22/11/17

16/02/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation:
Royalty withholding tax

Where royalties and other types of payment made to connected persons not resident in the UK have a liability to income tax.

Autumn Budget, 22 November 2017

01/12/17

23/02/18

Finance Bill 2018-19

Call for Evidence:
Rent-a-room relief

 

Here’s our bulletin on this.

Spring Budget, 8 March 2017

01/12/17

23/02/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation:
Plant and machinery lease accounting changes

Accountancy and tax interaction of leasing.

Autumn Budget, 22 November 2017

01/12/17

28/02/18

Finance Bill 2018-19. 

Draft legislation issued 6 July 2018

Consultation:
Corporation tax treatment of lease payments

Amendments to Corporate Interest Restriction rules.

Autumn Budget, 22 November 2017

01/12/17

28/02/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation:
Tackling the hidden economy

Proposals to introduce tax-registration checks into some licensing processes.

Autumn Budget, 22 November 2017

08/12/17

02/03/18

 

Consultation:
Review of the corporate intangible fixed assets regime

Here’s our bulletin on this.

 

Autumn Budget, 22 November 2017

19/02/18

11/05/18

 

Consultation:
Extension of offshore time limits

Here’s our bulletin on this.

 

Autumn Budget, 22 November 2017

19/02/18

14/05/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation:
EIS: knowledge intensive fund consultation

Here’s our bulletin on this. Also see the EIS and VCT sections of Techlink.

 

Autumn Budget, 22 November 2017

13/03/18

11/05/18

Finance Bill 2018-19. And Statutory Instrument No. 931, 8 August 2018

Consultation:
Allowing Entrepreneurs’ Relief on gains made before dilution

Here’s our bulletin on this.

 

Autumn Budget, 22 November 2017

13/03/18

15/05/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Call for evidence:
Cash and digital payments in the new economy

How to ensure the ability to pay by cash is available for those who need it, whilst cracking down on those who use cash to evade tax and launder money.

Spring Statement, 13 March 2018

13/03/18

05/06/18

 

Call for evidence: the role of online platforms in ensuring compliance by their users

Also, OTS suggestions for taxing the platform economy. Here’s our bulletin on this.
 

Autumn Budget, 22 November 2017

13/03/18

08/06/18

 

Consultation:
Taxation of self-funded work-related training

Here’s our bulletin on this.

 

Autumn Budget, 22 November 2017

13/03/18

08/06/18

 

Consultation:
Extension of the existing security deposit legislation to include CT and CIS deductions

Extending existing security deposit policy for taxpayers deemed at high risk of not paying and with a history of non-compliance.

Autumn Budget, 22 November 2017

13/03/18

08/06/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation: Insolvency and phoenixism risks

Here’s our bulletin on this.
 

 

Autumn Budget
17 including further announcement 6 March 2018

11/04/18

20/06/18

 

Consultation: Profit fragmentation

Here’s our bulletin on this.

Autumn Budget, 22 November 2017

10/04/18

08/06/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation: Capital Gains Tax: Payment window for residential property gains

Here’s our bulletin on this.

 

 

 

 

Autumn Budget, 22 November 2017

11/04/18

06/06/18

Finance Bill 2018-19.

Draft legislation issued 6 July 2018

Consultation: Tax and administrative treatment of short term business visitors from overseas branches

How to improve tax and admin treatment of short term business visitors from overseas branches of UK companies.

Spring Statement, 13 March 2018

14/05/18

06/08/18

 

Consultation: Off-payroll working in the private sector

Here’s our bulletin on this.

 

Autumn Budget, 22 November 2017

18/05/18

10/08/18

 

  • From April 2019, employers will no longer be required to check receipts when reimbursing employees for subsistence using benchmark scale rates. The existing concessionary accommodation and subsistence overseas scale rates will be placed on a statutory basis, to provide greater certainty for businesses.

 

The Economic Affairs Committee agreed on 4 September to re-establish the Finance Bill Sub-Committee for 2018. The Sub-Committee will gather evidence on the draft Finance Bill 2018-19 and produce a report in advance of the Budget. We will keep you up to date with any developments.

Sources:

  • HMRC & HMT guidance: Check the status of tax policy consultations – dated 3 September 2018.
  • HMT Policy paper: The new Budget timetable and the tax policy making process – dated 6 December 2017.

Long-term care - Auto enrolment style care fund

(AF1, AF2, RO3, JO3)

According to recent press reports, the Health Secretary, Matt Hancock, has proposed that later-life care costs could be saved for by using an auto-enrolment style system. The idea is that everyone would contribute to a national fund unless they specifically choose to ‘opt out.’

For those who choose to make payments the idea being that they will be able to use the funds to meet future care, or they may benefit from a cap which will mean they won’t be required to pay care costs above a certain level.

Conversely, those who choose to ‘opt out’ could be liable for the full costs of their care needs in later life.

Detail on the ‘opt out’ proposal is set to appear in a government green paper on care which is expected to be available soon.

Mr Hancock told the press that people should take more “personal responsibility” for their potential care needs.
Paying into a national fund would protect them from the “injustice” of massive care costs swallowing up life savings and forcing them to sell their homes, he said.
He added: “If you make it the norm, tell people what it is they have to do to look after themselves, it is often the case that very few people will opt out.”

On the face of it, and given that more and more individuals require care, this proposal seems as though it could be ideal for many. However, this is not the first care-funding proposal to find its way into the press. In August it was reported that the government was considering a Care ISA exempt from inheritance tax. Nonetheless, it will be interesting to see what, if anything, unfolds from this proposal.

Deathbed IHT planning with the settlement of a loan fails

(AF1, RO3)

A recent case reminds us of the pitfalls of so-called deathbed planning as well as the dangers of getting involved in contrived tax mitigation schemes.

In the recent case of Nader & Others v Revenue and Customs INHERITANCE TAX: Trusts [2018] UKFTT 294 (TC), Miss Dickins, who was on her deathbed suffering from a terminal brain tumour, belatedly turned her mind to inheritance tax (IHT).

The facts of the case are complicated to say the least. In summary, just days before Miss Dickins died on 10 December 2010, she entered into a complex IHT mitigation scheme. The scheme, in essence, involved her borrowing £1 million to buy a life income interest in an offshore trust for the same sum. The original loan was then repaid out of and replaced by an identical loan to her from the trust under which she had the income interest. The beneficiaries under Miss Dickinsʼ Will were then appointed as beneficiaries under the trust. The desired result would have been that the beneficiaries were entitled to £1m under the trust and the estate was reduced by the £1m liability.  

The key to the scheme working was that the purchase of the income interest was a commercial transaction. If the price paid by Miss Dickins for the income interest was the true market value, the transaction would have been a commercial one (in other words a "bargain at arm's length") and not a transfer of value for IHT purposes. If there was a transfer of value immediately before death then this would, of course, be taken into account in the IHT calculation on the estate (as claimed by HMRC).

The executor of her Will, (Mr Nader), argued that the value of her estate for IHT purposes had been reduced by the amount of the loan and that the provisions of section 10 IHTA 1984 applied to prevent a transfer of value occurring on the basis that there was no intention to confer a gratuitous benefit when Miss Dickins bought the income interest. However, the Court found that the executor could not demonstrate this. HMRC took the correct view that the mitigation scheme was entirely ineffective on the basis that the purchase of the income interest involved a transfer of value, within the meaning of section 3(1) of IHTA 1984.

The judgment runs to 51 pages and it is clear that the appellants did not understand what was involved in the planning arrangement. Furthermore, the transaction had been part of a pre-packaged sequence of events which was intended to achieve an inheritance tax saving.

In dismissing the executor’s appeal against that decision, the First-tier Tribunal found that the value of the income interest was not £1 million, but nil, which resulted in a costly mistake. Not to mention the fees of £100,000 paid to the scheme promoters.

It should be noted that legislative changes in 2013 on the inheritance tax treatment of liabilities has made this type of planning no longer permissible in any event.

It is obviously sensible to take steps to mitigate inheritance tax liabilities that may arise on death. However, this case illustrates the danger of so-called deathbed planning and reiterates that planning should not be left until it is too late. In practice there are a couple of deathbed planning strategies which work, namely transferring assets to a surviving spouse or making a gift to reduce the value of the estate to below £2 million to preserve the residence nil rate band. In any event clients should ensure they understand the implications of any planning they wish to undertake – there are many inheritance tax planning schemes which are available that you can discuss with your clients before it is too late!

Source:  Nader & Others v Revenue and Customs [2018] UK FTT 294 (TC)

Investigations rose by 300 in 2017/18

(AF1, RO3)

UHY Hacker Young has published the latest HMRC data on investigations into IHT returns.

In 2017/18, HMRC launched 5,400 investigations into IHT returns, against 5,100 in 2016/17. The 5% increase matches the rise in the number of estates liable to IHT to 24,500. Do the maths and HMRC is investigating almost 25% of estate returns.

The accountants reckon that the main area attracting HMRC’s attention is the value placed on residential property which is transferred directly to heirs. There is no sale price to work from in such circumstances, which raises the possibility (or temptation) of an underestimate of value. Through the District Valuer, HMRC may also have access to more detailed information than was available to the executors at the time the IHT paperwork was completed. The latest statistics from HMRC (for 2015/16) show that “UK residential buildings” accounted for 49% of gross estate value across all estates subject to IHT, with the proportion reducing as estate size increases.

UHY Hacker Young highlight two other areas which draw HMRC attention:

  • Claims for agricultural and business reliefs; and
  • Omissions – deliberate or otherwise.

The level of investigations is a reminder that HMRC sees IHT as an area where scrutiny is most rewarding. Penalties of up to 100% of the tax at stake add to HMRC’s incentive. It will be interesting to see if the forthcoming Office of Tax Simplification review of IHT simplification makes any comments on this aspect of tax administration.  

Source:  UHY Hacker Young – ‘5,400 estates investigated by HMRC for underpayment of IHT in the last year’ – published 17 September 2018. 

Inheritance tax : assets by range of estate – HMRC publication September 2018.

Making Tax Digital (MTD) progress subject to new scrutiny

The House of Lords Economic Affairs Finance Bill Sub Committee is inviting written contributions for its inquiry on the progress of MTD for VAT ahead of its 1 April 2019 start date. 

From 1 April 2019 all VAT-registered businesses with a taxable turnover above the £85,000 VAT threshold are required to keep their VAT-business records digitally and send their VAT returns using MTD-compatible software.

The Sub-Committee is appointed annually to consider the draft Finance Bill. The Sub-Committee’s focus is on issues of tax administration, clarification and simplification. In relation to MTD for VAT, the Sub-Committee is asking for feedback to address the following questions:

  • What key improvements have occurred, or new concerns have arisen, since the Sub-Committee’s report on MTD for Business was published in March 2017?
  • How prepared are HMRC, businesses (small and large) and software providers for the implementation of MTD for VAT in April 2019, and what are the challenges of concurrent preparations for Brexit?
  • What are the potential costs of MTD for VAT for businesses?
  • How could the penalty regime and the new VAT interest regime proposed in the draft Finance Bill be improved or simplified?
  • What are the implications of having different penalty regimes for different taxes?

The Sub-Committee would like to hear about the experiences of individual businesses preparing for implementation, as well as more holistic responses. Businesses involved in the pilot programmes are encouraged to contribute their experiences.

In a Technical Note published on 1 December 2017 HMRC estimated the average transitional cost for businesses to become MTD compliant would be only £109 - £131 million for the 1.2 million affected businesses - with these costs potentially being eligible for full tax relief. It also estimated additional ongoing costs of £52 million, ie. just £43 per annum on average, before tax relief.

These estimates seem low bearing in mind that businesses may need to buy new software and possibly hardware, or upgrade or develop bespoke systems, and many are likely to need further help from an accountant, or additional internal resources, at least initially.

It will be interesting to see what impact the results of this latest survey, in terms of readiness and costs, will have on both the April 2019 roll out of MTD for VAT and the later rollout of MTD for business. It was only just over a year ago that the Government announced MTD for business would be delayed until 2020. Could a further delay be on the cards?

MTD for business

MTD for business is a requirement to keep digital records and make regular quarterly reports of income and expenditure to HMRC, the intention being that transactions will be recorded, using accounting software, as near as possible to the time when those transactions occurred.
At the end of the accounting period taxpayers will need to send a final digital report to confirm their income and expenses for the year, and to claim allowances and reliefs.

The timetable for MTD currently remains as:

  • Consultation on MTD for corporation tax expected later in 2018;
  • Digital records required for VAT purposes from 1 April 2019;
  • Digital records and quarterly reporting required for other taxes, e.g. income tax and corporation tax, from April 2020 at the earliest.

Next steps
Written evidence should be submitted online using the written submission form available at: www.parliament.uk/finance-bill-2018-sub-committee-submission-form, or by post to:
Clerk to the Finance Bill Sub-Committee,

Committee Office,

House of Lords,

London SW1A 0PW

The deadline for submissions is 1 October 2018.

We will keep you informed of any further developments.

Source: Parliamentary business: Call for evidence on HMRC powers and Making Tax Digital – dated 12    September 2018;

The registration deadline for self assessment is fast approaching

(AF1, AF2, JO3, RO3)

Those who are preparing to submit a self assessment return for the first time (i.e for the 2017/18 tax year) need to register by 5 October in order to be able to complete their self assessment return by 31 January 2019. 

For those who are unsure whether or not they need to submit a return, HMRC provides guidance on its website via the Self Assessment page. 

Those who would like HMRC to collect the tax they owe from their wages and/or pension will need to submit their online return by 30 December.  

HMRC also provides online webchats, live webinars, YouTube videos and social media support for customers which can be accessed at any time, and on any device, to help customers complete and file their returns.  

Customers need to be aware that failing to file on time can result in penalties. 

The penalties for late tax returns include: an initial £100 fixed penalty which applies even if there is no tax to pay or if the tax due is paid on time; after three months, additional daily penalties of £10 per day, up to a maximum of £900; after six months, a further penalty of 5% of the tax due or £300, whichever is greater; after 12 months, another 5% or £300 charge, whichever is greater. 

Source: Gov.uk Website Self Assessment page

HMRC’S tool for checking employment status – How well is it working?

(AF2, JO3)

HMRC has published information about how its ‘Check Employment Status for Tax’ tool has performed against the results of recent IR 35 tax cases. What does this mean for the expected placing of the onus of IR35 decisions onto private sector businesses? 
 
The placing of the onus of IR35 decisions onto private sector businesses could have a wide-reaching effect for clients. If this becomes law, where a business decides that IR35 applies to a worker, the business, agency or other third party who is responsible for paying the worker’s intermediary will have to deduct tax and Class 1 National Insurance contributions and pay and report them to HMRC. 

A key element of this reform will be HMRC’s Check Employment Status for Tax (CEST) tool. Currently, HMRC advises public sector bodies to use its CEST tool to reach a conclusion on the IR35 status of the worker, and it says that it will stand by the tool’s results provided, of course, that those results are based on accurate information having been entered in the first place.


The CEST digital service has been tested against live and settled tax cases and HMRC has now published its comments in relation to a list of 24 of these cases. 

In the cases listed, HMRC says that the CEST outcome reflects its view of the employment status determined by the facts of the individual case. In two of the 24 cases, CEST returned a different decision from the First-tier Tribunal, which HMRC did not appeal.  

In these two specific cases, HMRC points out that the judgment in Castle Construction (Chesterfield) Ltd acknowledged that the case was finely balanced and that in the case of Novasoft Ltd commentators expressed surprise at the result. HMRC says it would expect to contest similar cases in future, and that the CEST results reflect that position. 

HMRC is clearly confident that the CEST tool will be fit for purpose and able to support the private sector in applying IR35 tests to determine the status of workers. 

However, HMRC’s published list doesn’t reveal any detail of the output from its testing of the tool, nor any of the inputs made to arrive at those decisions. It only shows the end determination. So, it’s not clear what detailed test data or evidence HMRC has to show CEST’s accuracy.  

According to figures provided in the May 2018 IR35 consultation, the CEST service has been used over 750,000 times in the public sector and it gave a clear answer as to whether a user is employed or self-employed in 85% of circumstances. The remainder (potentially more than 112,500 circumstances) would have had to rely on published guidance or HMRC’s specialist employment status helpline. That’s quite a large number of people for whom the tool didn’t supply an answer at all, even before considering how many of the 85% answers were accurate.  

HMRC’s CEST tool has also been somewhat maligned by professional bodies. 
 
In a letter to the Financial Secretary to the Treasury, the Institute of Chartered Accountants in England & Wales (ICAEW) stated that CEST:

‘is not suitable for use in the private sector. HMRC has stated that CEST does not cover all scenarios, including the mutuality of obligations master and servant test, and that the tool was designed based on public sector contracts. Further, there are also no rights of appeal for individual Workers who disagree with the CEST status decision.’ 

Nevertheless, this latest plug from HMRC about the success of its CEST tool seems to suggest it has every intention of pressing ahead with IR35 reform in the private sector.  

Source: HMRC FOI release: CEST tool tested against tax cases – dated 6 September 2018. 

INVESTMENT PLANNING

The August inflation numbers

(AF4, FA7, LP2, RO2)

The CPI for August showed an annual rate of 2.7%, up 0.2% from the previous month and the highest since February. Across August prices rose 0.7%, whereas they rose by 0.6% between July 2017 and August 2017. The extra 0.1% increase above the month change difference is due to some curious rounding from the Office for National Statistics (ONS): the year-on-year inflation figure, based on CPI figures to one decimal place (106.5 in August 2018 and 103.8 in August 2017), is 2.60%. The market consensus had been for a fall to a 2.4% annual rate, suggesting the market had been blind-sided by some of the price rises (see below). The CPI/RPI gap widened to 0.8%, with the RPI annual rate rising from 3.2% to 3.5%. Over the month, the RPI was up 0.9%.

The ONS’s favoured CPIH index was up 0.1% for the month at 2.4%. The ONS notes the following significant factors across the month:

Upward

Recreation and culture:  As happened last month, the largest upward effect on the CPIH measure came from this category. Prices rose by 0.6% between July and August 2018 compared with a smaller rise of 0.1% between the same two months in 2017. The main effects came from cultural services, where theatre admission prices rose by more than a year ago, and games, toys and hobbies, where prices for computer games rose this year but fell a year ago. The ONS once again rolled out its reminder that games are heavily dependent on the composition of bestseller charts, often resulting in large overall price changes from month to month.

Transport:  This category also produced an upward contribution, with passenger transport fares showing larger price rises between July and August 2018 than a year ago. The effect came from a combination of sea and air fares. Within transport, these effects were partially offset by a small downward contribution from motor fuels. Although petrol prices rose by 1.4p per litre between July and August 2018 this was lower than the rise of 1.8p per litre between July and August 2017. Similarly, diesel rose by 1.2p this year compared with 2.0p a year ago.

Clothing and footwear: This category produced a large upward effect, with average prices rising by 3.1% between July and August 2018 compared with a rise of 2.4% between the same two months a year ago. Prices of clothing and footwear usually rise between July and August as autumn ranges start to appear after the summer sales. The rise was larger this year than in 2017, which the ONS suggests may have been influenced by the proportion of items on sale, which fell by more between July and August this year than between the same two months a year ago. The upward effect came principally from women’s and children’s clothing.

Downward

Furniture, household equipment and maintenance: This category made the largest downward contribution, with prices rising by 1.2% between July and August 2018 compared with 1.8% in 2017. The effect was widespread across most subcategories.

 Communication: This category also had a modest downward effect, with prices rising by less than a year ago. The main downward contributions came from mobile phone charges and bundled telecommunication services.

In seven of the twelve broad CPI categories, annual inflation increased, while only two categories posted a decline. Transport remains the highest category with an annual inflation rate now of 6.1%, the next highest being alcoholic beverage and tobacco at 4.1%.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) rose 0.2% to 2.1%. Both goods inflation, at 2.8%, and services inflation, at 2.5%, were up 0.2%.

Producer Price Inflation was 2.9% on an annual basis, down 0.2% on the output (factory gate) measure. Input prices rises slowed to 8.7%, down 1.6% on July. The main driver here was again oil prices.

These figures help vindicate the Bank of England’s August base rate increase and add weight to the idea that the next move up may be in February. According to Reuters, the Bank had been anticipating the market consensus 2.4% inflation rate for August.   

Source: Office for National Statistics

The improvement in Government borrowing figures ends

(AF4, FA7, LP2, RO2)

The August borrowing figures reversed the good news trend of recent months, removing an element of the wriggle room that had been building for the Chancellor ahead of his Autumn Budget.

The run of good monthly data, which have been matching pre-financial crisis numbers, came to an end in August. The month produced results that reminded the Chancellor that fiscal performance can go up as well as down. In August borrowing amounted to £6.8bn, £2.4bn more than last year, £3.4bn above market expectations and the highest August number since 2016. The change was primarily due to higher central Government (CG) expenditure (up £3.9bn year on the year) set against a much smaller increase in receipts (£0.9bn), and a drop in local authority and public corporate borrowing (£0.6bn). Ironically, one of the reasons for the higher CG spending was the timing of EU transfer payments, which the Office for Budget Responsibility (OBR) expects to unwind in coming months.

Viewed on a fiscal year-to-date basis, the borrowing statistics over the first five months still look good. The total so far for 2018/19 amounts to £17.8bn, down £7.8bn from 2017/18. If – and as August’s wobble indicates, it is a major if – the rest of the year follows a similar pattern to 2017/18, the Chancellor could end 2018/19 with borrowing of around £28bn. That would be about £12bn below the latest (revised again) estimate for the 2017/18 outturn and £9.1bn less than the OBR projected at the time of the Spring Statement. There is still some wriggle room, in other words, but also some more reason to consider tax increases.

Combined receipts from self-assessed income tax in July and August were £10.4bn, £1bn higher than in 2017, and unsurprisingly a record for these two key months.

Source: ONS – Public sector finances, UK: August 2018 published 21/9/18. 

 

PENSIONS

Consultation on reducing family conflict: Reform of the legal requirements for divorce

(AF3, FA2, JO5, RO4, RO8)

A new consultation has been published by the Ministry of Justice looking at radically overhauling the legal requirements for divorce in England & Wales. The consultation is running until 10th December 2018.

There is currently a Bill before Parliament looking at the financial provision within divorce and together with the recent high profile case of Owens v Owens it has highlighted the outdated nature of the legal process on divorce.

The current law in England and Wales – which has remained unchanged for fifty years –sets requirements which can themselves introduce or aggravate conflict, and which encourage a focus on the past, rather than on making arrangements for the future.

The Government believes there is now broad consensus that the current divorce process does not serve the needs of a modern society. Difficulties with the current law have also been highlighted recently before the Supreme Court. In particular, the current divorce process is complicit in exposing children to the damaging impact of ongoing adult conflict during, and too often after, the process. While the wider family justice system is focused on helping people to resolve family issues in a non-confrontational way, the legal divorce process can make this more difficult because of the way it incentivises the attribution of what is perceived as blame. Parents in particular, who need to continue to work together in their children’s bests interests, may struggle to overcome feelings of hostility and bitterness caused by the use of “fault” to satisfy a legal process.

Under the current requirements, couples must either live apart for a substantial period of time before a divorce can be obtained, or else one spouse must make allegations about the other spouse’s conduct. This is sometimes perceived as showing that the other spouse is “at fault”. Three out of five people who seek divorce make allegations about the other spouse’s conduct. Both routes can cause further stress and upset for the divorcing couple, to the detriment of outcomes for them and any children. There have been wide calls to reform the law to address these concerns, often framed as removing the concept of “fault”. 

Marriage is a solemn commitment, and the process of divorce should reflect the seriousness of the decision to end a marriage. The Government believes that the law should not exacerbate conflict and stress at what is already a difficult time. The Government accepts the principle that it is not in the interests of children, families and society to require people to justify their decision to divorce to the court.

The proposals

The divorce process would retain irretrievable breakdown as the sole ground for divorce but remove the current requirement for the petitioner to give evidence of conduct or separation. Instead, one or potentially both parties will petition the court with a notice of the intention to divorce. The court will no longer need to check the particulars of the evidence but will continue to check other evidential aspects of the notice to the court (for example, to make certain that the court has the jurisdiction to act, that there is a valid marriage to dissolve, and to guard against fraudulent petitions).

The court will then be able to grant a provisional decree of divorce (the decree nisi) if these other requirements are satisfied and, following an application by either party after a statutory period of time has elapsed, may ask the court to make the divorce final by granting the decree absolute, as under the current law.

The two stage process (decree nisi and decree absolute) it is proposed remains but with a change to the minimum time frame between the issue of both decrees. There is currently a minimum time frame of 6 weeks and a day between the two decrees. There are arguments for the time frame to be extended but with potentially a shorter timeframe for specific circumstances.

Another proposal is to remove the right to contest the divorce. The case of Owens v Owens is exceptional, but it does illustrate the difficult position of one spouse who, it is reported, feels legally trapped in a marriage she regards as over.

The Government believes that as a general rule it serves no purpose – whether to the parties or to the state – to keep the opportunity to contest the divorce. Most divorce petitions in practice support a one-sided account that may not reflect the real reason for the breakdown of the marriage. Few respondents want to spend time and money on contesting the particulars in the petition, especially if they agree that the marriage is over. If one party has decided that the marriage is over then, arguably, the marriage is at an end. A marriage benefits the family and society only where each party is committed to the other. Any other marriage is a marriage in name only, the “empty legal shell” in the words of the Law Commission over fifty years ago.

The responses to the consultation will be published in March 2018 and it will be interesting to see if the Financial Provisions bill is also incorporated into the reform. 

Source: Ministry of Justice: Published September 2018

Automatic enrolment TPR commentary and analysis:  April 2017 – March 2018

(AF3, FA2, JO5, RO4, RO8)

In the sixth edition of the TPR report Automatic enrolment: commentary and analysis, the TPR explain:

  • The total amount saved into a pension by eligible staff in 2017 was £90.3 billion, up from £86 billion last year.
  • 98% of schemes used for automatic enrolment are defined contribution (DC) schemes compared to 97% last year.
  • Although the number of compliance notices issued to employers has risen from nearly 34,000 last year to nearly 61,000, the majority of employers comply when they are reminded of their duties.
  • TPR are monitoring employers to ensure they’re complying with the new increased contribution rates which started in April 2018. Initial analysis shows very high compliance.
  • The majority of employers spend less than two hours a month on their ongoing duties and find them easier than they expected.
  • The cost of business advisers for employers with between one and four staff has fallen from £42 to £18 since the previous survey. Around two thirds of employers do not use external advisers.

All staging dates have now passed so TPR are focussing on monitoring and enforcement.

Between January and March 2018, for example, TPR issued

  • nearly 20,000 Compliance Notices;
  • over 11,000 Fixed Penalty Notices; and
  • over 2,500 Escalating Penalty Notices for those who persistently failed to meet their duties.

The volume of enforcement action in this quarter represented over 20% of TPR’s total use of AE powers to date.

Source: Pensions Regulator: Automatic Enrolment: Commentary and Analysis : Published September 2018

Pensions: A view from the FCA

(AF3, FA2, JO5, RO4, RO8)

In a speech at Gleneagles on 15th September 2018 Andrew Bailey the Chief Executive of the FCA gave his views on the current and future pensions market.

Headlines included:

  • The FCA know that a large proportion of people are not saving enough – if at all – for their retirement.
  • The FCA are looking at competition in the retirement income market as they want to ensure that products are available that meet the needs of consumers.
  • The FCA are not convinced about charge capping in this market but it remains an option.

Andrew talked about the changing pension landscape since the introduction of the pension freedoms and what this means for regulation, especially for non-advised clients. He references the many consultations that are both on going and completed. Specifically, Andrew commented that we should see the final rules for the changes/issues that came out of the Retirement Outcomes Review by July next year followed by an implementation period.

Source: Speech by Andrew Bailey, Delivered 15th September 2018

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