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My PFS - Technical news - 24/10/17

Publication date:

27 October 2017

Last updated:

27 October 2017


Technical Connection

Personal Finance Society news update from the 11th October to 24th October 2017.

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Taxation and trusts




Thousands of ISA customers are hit by declaration error


The annual ISA subscription limit applies across the different types of ISA and it is essential that this limit is not breached.

When opening an ISA, consumers are required to sign a declaration which states they have not subscribed more than the annual ISA allowance.

However, it has recently been reported that many customers have incorrectly signed the declaration for the Help to Buy ISA which has resulted in many providers having to write to customers who have breached this limit by failing to account for the full ISA range.

There are now 5 types of ISA available:

  • cash ISA
  • stocks and shares ISA
  • innovative finance ISA
  • Help to Buy ISA
  • Lifetime ISA

It is possible to put money into one of each kind of ISA each tax year provided the annual subscription limit is not breached - currently £20,000 for the 2017/18 tax year.

It is essential for those clients who wish to save in ISAs to keep a record of their individual savings accounts to ensure that they do not over subscribe – this responsibility lies with the client because it is possible to open one of each kind of ISA with different providers.

The tax treatment of termination payments

(AF1, RO3)

With effect from 6 April 2018 the rules on the tax treatment of termination payments are to be tightened, in particular the £30,000 exemption, which will apply to National Insurance contributions as well as to income tax.

In addition, the unlimited relief for foreign service will also be removed from 6 April 2018, although it will be retained for seafarers.

In light of this, the House of Commons Library has published a briefing paper ‘Taxation of termination payments’ which discusses the background to the legislative reform amending the tax treatment of termination payments included in Clause 5 of the Finance (No. 2) Bill 2017.

The paper covers the background to the Office of Tax Simplification review in 2013/14, the consultation on simplifying the tax treatment of termination payments and includes the legal background as an Appendix.

Late filing penalties reduced from £1,300 to £100

(AF1, AF2, JO3, RO3)

In Klein [2017] TC 06108, the First-tier Tribunal partly allowed a taxpayer’s appeal against various late filing penalties. The initial penalty was cancelled because the taxpayer had a reasonable excuse; the daily penalties were cancelled because HMRC had not notified the taxpayer of the date when the penalties were due to start; and the six month penalty was reduced because HMRCʼs lack of contact amounted to special circumstances.

In the case in question, Ms Klein (the appellant) submitted her 2011/12 tax return more than six months late. Accordingly, HMRC charged an initial £100 late filing penalty, daily penalties of £900 and a six month late filing penalty of £300.

In respect of the appeal against the daily penalties HMRC wrote to the appellant in November 2013 saying that her appeal could not be finalised because of the Donaldson case and that a decision would be made once the outcome of the appeal to the Upper Tribunal (UT) was known. The UT released its decision in December 2014 (Donaldson v R & C Commrs [2016] BTC 28), but HMRC did not contact the appellant until March 2017, at which time the appellantʼs appeal against the daily penalties was refused.

Regarding the initial penalty, the First-tier Tribunal (FTT) found that the appellant had two reasonable excuses for failing to submit her tax return by the 31 January 2013 filing date:

  • the appellant had been told by HMRC that her filing date had been ‘deferred’ until 27 February 2013 because she was waiting for an activation code; and
  • the appellant did not have access to the paperwork she required to complete her tax return because she had moved.

The FTT concluded that there was no reasonable excuse for the appellant not having remedied the situation as soon as reasonably practical after these reasonable excuses ended. Therefore, although the appellant had a reasonable excuse in relation to the initial penalty, she did not have one in relation to the daily and six month penalties.

However, regarding the daily penalties, HMRC had not produced an ‘SA reminder’ or ‘SA326D’ showing that the appellant had been notified of the date from which daily penalties would become payable so the FTT therefore cancelled the daily penalties.

With regard to the six month penalty HMRC said that it had taken into account that the appellant had thought that lack of correspondence from HMRC for over three years meant the appeal had been accepted. The FTTʼs view was that HMRC gave no reasons why that obviously uncommon and out of the ordinary happening was not a special circumstance. The FTT decided to reduce the penalty from £300 to £100 because of HMRCʼs lack of contact with the appellant.

HMRC Trust Registration Service – FAQS

(AF1, JO2, RO3)

The trust registration service (TRS) has been available for trustees since July but it is still not available for agents, although promised for October. 

In the meantime HMRC has issued some guidance in the form of frequently asked questions which can be found here.

The questions cover things like:


  • Who needs to register?
  • When is the UK tax liability triggered?
  • What are the reporting duties?
  • Details of the settlors, trustees and beneficiaries?
  • Details of the assets?
  • And so on…


In summary, the TRS is the government’s response to the Fourth EU Money Laundering Directive and must be completed/updated for all UK trusts that have had a tax event in the tax year and for overseas trusts that have had a UK tax consequence. It is the place to register new trusts. The Form 41G(Trusts) was discontinued from April 2017.

Government borrowing gives Mr Hammond a small relief

The September borrowing numbers came as a surprise and were the lowest for the month since 2007. After a difficult few days, the figures are a piece of good news for the Chancellor ahead of the Autumn Budget.

At the time of the March 2017 Budget, the Office for Budget Responsibility (OBR) forecast that borrowing (PSNB) for 2017/18 would be £6.6bn more than in 2016/17. The borrowing figures for September have just been released, giving us a halfway snapshot of the UK’s finances. As has been the case almost since April, the picture that emerges is better than the OBR (and many others) had predicted.

The borrowing figures for the month of September alone revealed a deficit of £5.9bn against a deficit of £6.6bn last year, and market expectations of a deficit of just £0.1bn less than the 2016/17 level. That £5.9bn figure is the lowest for the month of September since 2007 (when it was £3.3bn, just before the financial crisis hit the Exchequer).

For the first six months of 2017/18 PSNB amounted to £32.5bn, down £2.5bn on 2016/17. PAYE receipts were up 3.2%, VAT payments up 3.7% and NIC inflows up the halfway stage. SDLT yield was 17.5% higher, with the first 6 months providing over £7bn for the Exchequer.

If the borrowing pattern follows the 2016/17 experience, the September figures would suggest an outturn for 2017/18 about £3bn below the 2016/17 figure. However, the OBR does not expect the 2016/17 profile to be repeated because last January’s self-assessment receipts were distorted by an estimated £3.8bn boost from dividend forestalling measures. That will not be repeated in January 2018, despite the cut in the dividend allowance from 2018/19.

For now, the OBR is saying the halfway stage 7.2% drop in borrowing “…is likely to overstate the extent to which full-year borrowing will be revised down in our November forecast”. Looking further out, the OBR is set to worsen its projections for coming years because of a changed, more pessimistic view on productivity growth which it revealed last week. 

Until we see the impact of the OBR’s new productivity growth assumptions it would be dangerous to think that these good borrowing figures will ripple through into a less austere Autumn Budget. But at least Mr Hammond can take solace in the fact that the current numbers continue on an improving trend.


The September inflation numbers

(AF4, FA7, LP2, RO2)

The CPI for September showed an annual rate of 3.0% and prices rising 0.3% over the month, whereas prices were up by 0.2% between August 2016 and September 2016. The market consensus had been for a 3.0% annual rate, a figure last seen in April 2012. The CPI/RPI gap narrowed by 0.1% to 0.9%, with the RPI annual rate unchanged at 3.9%. Over the month, the RPI was up 0.1%.

The ONS’s favoured CPIH index also rose 0.1% to 2.8% for the year. The ONS puts the inflation increase down to three factors:

Transport:  Overall, this category supplied the largest upward contribution to the headline rate, with air fares mainly to blame. This was due to an arcane technical change, which highlights the intricacies of inflation indices. As is usual, in September,

air fares had a sharp post-holiday drop, with the fall being similar to last year’s. However, because air fares account for a smaller proportion of the basket of goods and services in 2017, the impact of the fall in price on the contribution of air fares to the headline inflation rate was smaller in 2017 than in 2016. In turn this resulted in air fares making an upward contribution to the change in the rate. A smaller boost came from fuel, with prices rising by more than they did a year ago.

Air fares may create more problems in the coming months as Monarch’s demise and Ryanair’s pilot shortages have pushed up flight costs to Europe.

Food and non-alcoholic beverages: Overall, food prices rose by 0.8% between August and September 2017, compared with a 0.4% fall last year. The ONS says that the increase came from a wide range of food products, although fruit and vegetables made a small downward contribution. Annual inflation in the category is now 3.0%: at the start of the year it was -0.5%.

Recreational and culture: There was a marked upward effect from a range of goods and services in this category, with prices rising by 0.8% between August and September 2017, compared with a 0.1% rise a year earlier. Much of the upward effect came from computer games, although this reflects the fact that price movements for computer games are heavily dependent on the composition of bestseller charts, which often results in large overall price changes from month to month. Smaller upward effects came from books and theatre admissions, which are similarly affected by chart composition and the productions that are showing at the time. Prices for package holidays (pre-Monarch) also had a small upward effect, with prices rising between August and September 2017, having fallen a year ago.

In nine of the twelve broad CPI categories annual inflation dropped, but this was not enough to counter the three other categories listed above, which together represent about 41% of the shopping basket.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was unchanged at 2.7%. Of the twelve index components, the lowest category for inflation was miscellaneous goods and services, with an annual increase of 1.4%, while the highest was alcoholic beverages and tobacco at 4.3%.  Goods inflation rose 0.1% to 3.2%, while services inflation was flat at 2.7%.

Producer price inflation (PPI) numbers were little changed. The input PPI figure was the same as August at 8.4%, still marking a 11.5% fall from its January 2017 peak. Output price (aka factory gate price) inflation fell 0.1% to 3.3%.

The fact that CPI inflation did not cross the 3% threshold means that the Chancellor will not receive a letter from Mark Carney explaining why the Bank of England’s inflation target had been missed. This might just be a question of pain deferred, as inflation between September and October 2016 was just 0.1%. Nevertheless, it has slightly complicated the Bank’s interest rate decision next month, when the latest Quarterly Inflation Report (QIR) is due for publication.

The odds still look in favour of a move up to 0.5%, if only because by the time of the February QIR the inflation outlook may be heading down as Brexit-induced sterling depreciation and running out of currency hedges sink further into history.

Venture Capital Trusts - Sales Exceeded £550m In 2016/17

(AF4, FA7, LP2, RO2)

As pre-Budget VCT sales flourish, HMRC has just issued its latest set of VCT statistics. These show that in 2016/17 sales of VCTs amounted to £570m, an increase of 28% over 2015/16. However, 2016/17 was not the best year for sales, as that crown goes to 2005/06 when the second and final year of 40% relief produced an inflow of £780m.

The statistics show that the rising inflow was accompanied by a further fall in the number of VCTs raising fresh funds. In 2016/17, only 38 VCTs sought new capital, whereas in 2011/12 the number was 76 (raising £325m).

The number of VCTs being managed has also dropped from a peak of 131 in 2007/08 to 75 in 2016/17. This reflects the trend for fund mergers, which lower administrative costs, and the limited supply of new funds. Top-up issues have come to dominate in recent years, as a quick look at the current list of VCT offers confirms.

The latest market statistics suggest that so far in 2017/18 about £275m has been raised by VCTs, with offers (from closed, through open to due shortly) totalling over £600m. This helps explain the background to the expected move against low risk VCTs (and EISs) in the forthcoming Budget.

As is normally the case, the offers from managers perceived to have a solid track record are being taken up rapidly – for example, one of the three Northern issues has already reached its £20m target.

With the Budget now less than five weeks away, the interest in VCTs is only likely to grow. Advisers should warn clients intent on waiting until the last pre-Budget minute to act now otherwise they may find their choice disappointingly limited.


DWP publish qualitative research with small and micro employers

(AF3, FA2, JO5, RO4, RO8)

The research detailed in this new report is the third study, commissioned in 2016 and focusing on small and micro employers. The Department for Work and Pensions (DWP) commissioned the first automatic enrolment research study in 2012 to explore the impact on large employers, and subsequently a second study in 2014 with medium-sized employers.

This report was commissioned to understand the impact of automatic enrolment on small and micro employers, and identify the main drivers of opt-out amongst their employees. This report presents findings from a survey of 70 small and micro employers who implemented automatic enrolment during 2016, as well as 65 employees.

Key Findings

Employers typically felt that automatic enrolment is a necessary and sensible policy, and that it was something they just had to ‘get on with’. Some, however, felt that the financial and time burden involved made automatic enrolment problematic for very small companies to implement.

Employers, like workers, felt the state’s role in providing for workers’ retirement must inevitably lessen, and most saw automatic enrolment as a sensible way to fill the gap in retirement income that this will leave.

When they actually had to start planning and implementing automatic enrolment, most employers found the cost and time burden involved to be lower than they had anticipated. As a result, we encountered very few small or micro employers who described issues with complying with their duties on time.

When seeking information regarding automatic enrolment and their own duties, employers usually relied heavily on The Pensions Regulator’s website, especially when first finding out about automatic enrolment. Once they had decided upon a provider, that provider’s website became the preferred information source for many.

Employers who already used an intermediary (for example an independent financial adviser, payroll, or accountant) tended to go to them for limited ‘free’ advice. Far fewer employers chose to employ an intermediary on an ad hoc basis to help them fulfil their automatic enrolment duties.

Most employers communicated automatic enrolment to their workers verbally and in informal contexts within the workplace, before distributing the statutory letters.

Employers were generally aware of the planned increases in the minimum contribution rate (phasing), and for those who were not, our explaining the policy to them did not cause much surprise or concern. Some expected to cover the additional costs associated with phasing from future wage increases. Some also expressed paternalistic concerns that their workers may opt out of after phasing.

Workers who remained in the workplace scheme after being automatically enrolled tended to accept that pensions are the responsibility of the individual, alongside that of their employer. Workers who opted out tended to be at the extremes of provision: either they felt they simply could not afford to save anything, or they had other pension provision that they already felt confident would provide the level of retirement income they needed.

Workers largely found out about automatic enrolment through the media and their employer: few sought out other written information. Where workers remained in a scheme after being automatically enrolled, their choice (if they made a choice at all) was usually quick and instinctive. In contrast, the decision to opt out tended to require more active thought, although those who opted out were typically much firmer and more confident in their choice than those who remained in.

Workers who remained members of the scheme following automatic enrolment appeared to be relatively relaxed about the first stage of phasing (the increase from one to three per cent worker contribution), having seen that the impact to date on their take-home pay had been low. A few were concerned about the rise to five per cent, particularly where this was exacerbated by other aspects of uncertainty in their lives, e.g. possible house purchases or potential salary increases. Workers who opted out tended not to be concerned about phasing, either because it made schemes even less affordable for them, or because they felt the increase would not deliver significantly better returns than the scheme had before phasing.

This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.