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My PFS Technical news - 29/05/18


Publication date:

29 May 2018

Last updated:

14 June 2018


Technical Connection

News update on taxation & trusts, pensions and investment planning, for the period 10 - 23 May 2018.

Taxation and Trusts

Investment planning




The Intergenerational Commission final report

(AF1, RO3)

The final Intergenerational Commission report from the economic think tank the Resolution Foundation runs to 229 pages.  Here are their “ten key policy recommendations”:

  1. Increase public funding for social care by £2.3bn from reformed taxation of property (see 6). There should also be an increase in property-based contributions towards care costs, with a ceiling that the maximum individual contribution is a quarter of personal wealth.
  1. Introduce a £2.3billion ‘NHS levy’ via National Insurance on the earnings of those above State Pension age and on occupational pension income. The latter would be set at a 6% rate, with an uplifted pensioner primary threshold matching the personal allowance.
  1. Boost employment security via the right to a regular contract for those doing regular hours on a zero-hours contract; extended statutory rights for the self-employed; and minimum notice periods for shifts. 
  1. Introduce a £1bn ‘Better Jobs Deal’ that offers practical support and funding for younger workers most affected by the financial crisis to take up opportunities to move jobs or train to progress; and £1.5bn to tackle persistent underfunding of technical education routes. The expenditure would be funded by cancelling half of the 2% corporation tax cut due in 2020.
  1. Make indeterminate tenancies the sole form of private rental contract, with ‘light-touch’ rent stabilisation limiting rent increases to inflation for three-year periods and disputes settled by a new housing tribunal.
  1. Replace council tax with a progressive property tax (at up to 1.7% of value above £600,000) with surcharges on second and empty properties; halve stamp duty rates to encourage moving; and offer a time-limited capital gains tax cut to encourage owners of additional properties to sell to first-time buyers.
  1. Piloting community land auctions so local authorities can bring more land forward for house building, underpinned by stronger compulsory purchase powers; and introduce a £1.7bn building precept allowing local authorities to raise funds for house building in their area.
  1. Require firms contracting for self-employed labour to make pension contributions; lower the earnings threshold for auto-enrolment to £6,000 a year; and provide greater incentives to save among low- and middle-earners by flattening the rate of pensions tax relief, capping the pension lump sum at £40,000 and exempting employee pension contributions from National Insurance.
  1. Develop a legislative framework for new ‘collective defined contribution’ pensions that better share risk; and reform pension freedoms to include the default option of a government-backed guaranteed income product purchased at the age of 80.
  1. Abolish inheritance tax and replace it with a lifetime receipts tax that is levied on recipients with fewer exemptions, a lower tax-free allowance and lower tax rates. Use the extra revenues to introduce a £10,000 ‘citizen’s inheritance’ – a restricted-use asset endowment to all young adults to support skills, entrepreneurship, housing and pension saving.

The chances of any political party including this shopping list within their next manifesto are nil. At the last election turn out was 77% for the age range 60-69 and 84% for those aged 70 and over against 69% for the overall population. Nevertheless, there may be (post-election) cherry-picking of some of the proposals as a way to raise additional revenue.

Source:  A New Generational Contract: the final report of the Intergenerational Commission published on 8 May 2018.

The FCA’s vision for the mortgage market

(ER1, LP2, RO7)

The Financial Conduct Authority (FCA) has published its Mortgages Market Study Interim Report MS16/2.2 explaining findings from its December 2016 market study into first-charge residential mortgages, and setting out the way it would like to see the market develop.

The FCA is asking for comments on this report by 31/07/2018.


The FCA’s findings

 Overall, the FCA seems reassured by much of what it has found, including:

  • High levels of consumer engagement, with more than three-quarters of consumers switching to a new mortgage deal within six months of moving onto a reversion rate;
  • A range of products on offer and apparent competition on headline rates between lenders, (although it points out that the interest rate is not the only factor in the price paid by the consumer);
  • Consumers who use an intermediary valuing their experience and expertise.

It also found little evidence that current commercial arrangements between firms are associated with material harm for consumers:

  • current levels of commission paid by lenders to intermediaries do not appear to be linked with customers paying more for a mortgage;
  • customers taking out mortgages through an intermediary that has commercial agreements with an estate agent or developer do not, on average, pay more for a mortgage than customers of intermediaries without such links.

And it cites thematic reviews on advice and distribution and responsible lending, conducted after the Mortgage Market Review was implemented, as indicating that consumers are largely provided with suitable products that they can afford.

However, although the FCA thinks that the market is working well in many respects, it falls short of its “vision”:

  • Because navigating the market is currently difficult many customers miss out on making significant savings on the cost of their mortgage;
  • Tools to support customers are currently of limited effectiveness;
  • There’s too little support available for customers to help choose an intermediary on an informed basis;
  • Some customers remain on a reversion rate for six months or more and whilst it appears they would benefit from switching, it seems they cannot or do not.

Difficulties navigating the market

Due to the variety of different products there is no easy way for a consumer to be confident at an early stage of the products for which they qualify. The FCA believes this is a significant constraint to shopping around effectively.

Limited information upfront on eligibility from lenders also affects intermediaries, who have to rely on market knowledge and experience to judge the products for which a customer may qualify, restricting their ability to look across the entire market. The FCA thinks this may play a part in intermediaries favouring fewer, more familiar lenders which could in turn lead to customers missing out on the cheapest suitable mortgage.

The FCA estimates that around 30% of consumers (in 2015/2016) could have found a cheaper alternative mortgage for which they were eligible with the same key features (eg duration of introductory fixed rate). It believes that, on average, these consumers paid around £550 per year more over the introductory period of their mortgage than they needed to.

Importantly, the FCA points out that the remaining 70% of consumers are not necessarily all buying the cheapest suitable mortgage available. It believes that for some of these consumers there may still be comparable mortgages for which one element of the cost (eg fee) is higher but, given their circumstances, is offset by a lower interest rate.

Limited effectiveness of tools to help consumers choose a mortgage

The FCA estimates that intermediation currently reduces the average initial cost of borrowing by about £600 per year over the introductory period and that this saving appears to be driven by intermediaries recommending a greater proportion of two-year fixed-rate mortgages, and slightly longer mortgage terms, rather than finding a cheaper product of a given type.

It also estimates that, on average, receiving advice has little impact on the cost of the mortgage a customer chooses. The provision of advice involves a financial cost that firms must recoup and adds to the time involved in choosing a mortgage. So those consumers able to find a suitable mortgage without advice on average get advice they may not need, incurring time and financial costs.

The FCA believes that new business models in intermediation and/or tools could provide consumers with opportunities to better compare products, get support, including advice, and apply for a mortgage. It thinks that if consumers have the opportunity to decide how much support they need and in what form, this could drive more effective decision-making and greater convenience, but these aspects of its advice rules and guidance may act as a barrier to this.

Lack of tools to support consumers in choosing an intermediary

The FCA’s view is that whilst intermediaries have a strong commercial incentive to find a mortgage for a customer, the incentive to find the cheapest mortgage of any given type can be weaker. It has found that on average a consumer’s choice of intermediary makes a difference to the eventual cost of their mortgage, and that there are links between more expensive mortgages and intermediaries that typically place business with fewer lenders. And that there are few tools to help consumers choose an intermediary.

Barriers to switching

The FCA estimates that a small number (around 30,000) of consumers holding mortgages with firms authorised to lend would benefit from switching but, despite being up to date with payments, cannot. Around 10,000 of these customers hold mortgages with 'active lenders'; the remaining 20,000 are with firms that, although authorised to lend, are no longer active. It believes that this may be down to major changes to lending practices during or immediately after the banking crisis, and the subsequent regulatory response aimed at preventing a return to past poor practices, having left these customers unable to find a cheaper mortgage.

Unfortunately, the FCA doesn’t hold sufficiently detailed data on the mortgage books of firms that are not authorised to lend to be able to gauge how many of their customers are on a reversion rate that they are unable to switch away from. However, it estimates that around 120,000 of these customers may benefit from switching. This is in addition to the 20,000 customers unable to switch (mentioned above) that hold mortgages with firms that, although still authorised to lend, are no longer active.

The FCA also believes that around 800,000 further customers remain on a reversion rate for over six months, despite appearing able to, and likely to benefit from, switching – its assumption being that this might be because there are barriers to some customers switching.

The FCA’s vision

The FCA’s vision is for a market in which:

  • borrowers who can afford a mortgage can choose suitable and good value products and services;
  • firms have a culture of treating all consumers fairly; and
  • competition and proportionate regulation empower consumers to make effective choices before taking out, and throughout the life of, a mortgage. 

To achieve its vision the FCA would like:

  • it to be easier for consumers to find the right mortgage;
  • there to be a wider range of tools providing consumers with a choice about the support, including advice, that they receive;
  • consumers choosing an intermediary to be able to do so on an informed basis; and
  • consumers to be able to switch more freely to new deals without undue barriers.

The FCA’s report sets out how it believes this could be achieved for further discussion with stakeholders, ahead of formal consultation on any rule or guidance changes required. It suggests that potential remedies could include, for example:

  • The development of effective online tools, including tools that allow consumers to compare intermediaries on the basis of: fees; areas of expertise / relevant markets and products covered; whether a panel is used and, if so, the lenders on it; distribution / concentration of business to particular lenders; number of complaints;
  • The availability of sufficient eligibility and other qualification criteria;
  • Changes to FCA advice rules and guidance, eg removing the requirement in FCA rules for almost all interactive sales to be advised - MCOB 4.8A.2R(1), or modifying guidance to encourage development of new tools to help consumers find the right mortgage product, eg by adopting a narrower view of what constitutes steering consumers towards particular mortgage products - PERG 4.6;
  • Inviting views on whether and how to enable customers on an active lender’s reversion rate to switch to a better deal in certain circumstances, specifically if they: took out a mortgage or last switched prior to the tightening in lending criteria during and immediately post-crisis; are up to date with payments (and therefore demonstrating they are able to afford the mortgage at the current interest rate); are not looking to borrow more; and have applied for an internal switch (following the lender’s usual process); and
  • Asking lenders to contact affected customers, a year or so after moving onto a reversion rate, giving them a simple and straightforward means of moving to a cheaper mortgage.

The FCA intends to publish its final findings, a summary of feedback received and next steps around the end of the year.

Source: Mortgages Market Study Interim Report – dated May 2018.

IR35 reform

(AF1, RO3)

We have previously covered the recent tax case, MDCM Ltd and the Commissioners for HMRC, in which a contractor won his appeal against HMRC’s decision that he was caught by IR35. We also quoted problems that had been reported with HMRC’s Check Employment Status for Tax tool (CEST).

IR 35 is aimed at identifying individuals who, in the view of HMRC, are avoiding paying tax and National Insurance by supplying their services to clients via a structure, such as their own personal service company, when the individual is acting like and is being treated like an employee of the end client.

HMRC are thought to be keen to extend off-payroll working rules, where public authorities / public sector bodies (PSBs) are responsible for deciding if IR35 applies to a person providing services through their own intermediary (such as a personal services company) to workers in the private sector.

If the public authority decides that IR35 applies to a worker, the public authority, agency or other third party who is responsible for paying the worker’s intermediary must deduct tax and Class 1 National Insurance contributions and pay and report them to HMRC.

Currently, HMRC advises public sector bodies to use its CEST tool to reach a conclusion on the IR35 status of the worker, and 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. So, the CEST tool could be said to be key to the off-payroll working rules operating as they should. However, HMRC’s tool has been somewhat maligned.

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.’

And HMRC was challenged about CEST’s reliability at a Public Accounts Committee (PAC) hearing on 30 April, the Chair quoting BBC Director-General Lord Hall’s comments at an earlier PAC hearing:

“The third change came quite recently, when HMRC said that the test”—this is the test to check employment status for tax—“was not fit for purpose, so we need to work out yet another CEST, as it is called. This has caused a good deal of confusion for individuals and a great deal of anger among our frontline presenters…In some cases, it has also caused some hardship.”

And adding:

“We have also had considerable evidence from others about the CEST test.

HMRC’s view of its tool is that:

“It is ultimately a guide, and there is further, more detailed guidance that people can turn to if it doesn’t help them, but we believe that in 85% of cases it gives a response that the engager can use and that we stand by. In the further 15% of cases, they do have to either look at further guidance or get assistance from us to arrive at their decision. While we continue to work on it and improve it, we think that it is a perfectly good tool and it supports IR35 compliance.”

However, HMRC also confirmed that there is no difference to tax law when CEST is applied, and HMRC can go back and look at people’s tax records, reopen them, and do a tax investigation on anyone over seven years.

The PAC Chair highlighted this as a point of concern, saying:

Because one of the things that people have been saying to us is that there is real worry that they will have gone through the CEST process and calculated the tax that they owe, but you could then go back and investigate and say that CEST did not apply to them. Are you saying that that is not the case for people—well, for the 85% who get that first resolution—who have gone through your calculator? Are you saying that that is accurate, to a degree?

HMRC responded that if people

 “use our tool correctly and put the correct data into it, we will abide by the result that the tool gives.” 

Adding that it assesses whether a public authority has put the correct data into the tool through its employer compliance checks, and saying: 

“For example, last year, public sector engagers were required to make their own determinations of whether the companies they were contracting with were caught by IR35. They use the CEST tool to do that. We can come along later and audit their compliance with their employer obligations, including the obligation to administer IR35 and deduct tax, and we will check whether they have used the tool correctly and made the correct assessments.

For example, in some organisations, the contract says certain things but in practice other things happen and the contract does not reflect the real nature of the relationship between the engager and the worker. In those circumstances, we expect them to use the reality. That is the kind of thing that we would check.

But as Jon [Permanent Secretary, HMRC] says, IR35 has existed since 2000 and people have been obliged since then to apply it correctly, so there is no guarantee that we would not go back into earlier years if people had not been applying it correctly.

HMRC’s reiteration that it will stand by the tool’s results could of course backfire. If it supported all CEST determinations it could be forced through long and expensive processes to check the answers were correct and stood up against case law.

However, public authorities aren’t obliged to use the tool, and if they do use the tool, they aren’t obliged to follow its results. According to the contractor site, ContractorCalculator, many public authorities are ignoring CEST:

“ContractorCalculator is in possession of a great deal of evidence demonstrating occasions where contractors have received CEST assessments deeming them to be outside of IR35, yet the PSB has refused to allow them to operate outside IR35. This even includes contractors who have actually substituted during their contracts”

“Some of these decisions were project-wide and on major infrastructure projects. We have seen documentation stating that contractors would be considered caught by IR35 by default, and that employer’s NI will be deducted from their agreed rates. This is unlawful. Employer’s NI is supposed to be paid on top of the agreed rates and by the “deemed employer”.”

It seems from this that some public authorities may be deducting incorrect amounts of tax and National Insurance from contractors, and may also be deducting employers’ secondary Class 1 National Insurance from the contractors’ invoices which is incorrect (under Social Security Contributions (Intermediaries) Regulations (SI 2000/727)).

The reason for this approach by public authorities may be a widespread mistrust of the tool’s results, and, possibly, a fear of subsequent HMRC audits resulting in costly investigations. Or they may simply be deciding not to use the CEST tool because it would take up too much time and effort to assess every worker individually, it just being easier to apply a blanket IR35, or even employment status, to all workers.

It remains to be seen if HMRC will try to extend the off-payroll working rules to workers in the private sector. However, reported problems with CEST currently appear to be working in HMRC’s favour, potentially resulting in higher tax and National Insurance revenues for the Government than would otherwise have been the case.

Currently, there’s no route for a contractor to appeal a ruling on an IR35 decision made by its public sector body client, so the only route open might be to mount a legal challenge against their agency for misrepresentation, or alternatively challenge their treatment at an employment tribunal.

However, the fact that topics as complex as IR35 and HMRC’s CEST tool have been subject to at least some scrutiny in Public Accounts Committee hearings, albeit fairly briefly, may provide some crumbs of comfort to contractors hoping that HMRC might be persuaded to rethink any further reforms to IR35.

In relation to BBC presenters caught by IR35, the BBC confirmed in its PAC hearing that it is helping around 15 individuals facing HMRC bills with temporary cash flow loans and advances. The corporation has also set up an internal, independent process, under the supervision of the Centre for Effective Dispute Resolution, for others seeking help with HMRC demands.


  • HMRC guidance ‘Off-payroll working through an intermediary (IR35)’ - dated 20 September 2017;
  • Institute of Chartered Accountants in England & Wales (ICAEW) letter to the Financial Secretary to the Treasury – dated 5 April 2018;
  • House of Commons Public Accounts Committee (PAC) hearings – dated 25 April 2018 and 30 April 2018;
  • ContractorCalculator article ‘HMRC’s CEST figures, obtained by FOI, indicate widespread wrongful tax treatment’ - dated 25 April 2018.

National minimum wage back payments hit record number

(AF1, RO3)

According to latest figures HMRC has more than doubled the number of workers who are receiving money they are owed under the National Minimum Wage.

In 2017/2018, HMRC investigators identified that £15.6 million in pay was owed to more than 200,000 of the UK’s lowest paid workers. This has increased from £10.9 million for more than 98,000 workers in the previous year.

From 1 April 2018, the government’s National Living Wage rate increased by 33p to £7.83 per hour for those aged 25 and over.

The National Minimum Wage increased:

  • by 33p to £7.38 per hour for those aged 21 to 24
  • by 30p to £5.90 per hour for those aged 18 to 20
  • by 15p to £4.20 per hour for those aged 16 to 17
  • by 20p to £3.70 per hour for apprentices.

HMRC's latest figures are published as the government has launched its online annual advertising campaign designed to encourage workers to act if they are not receiving the National Living Wage or the National Minimum Wage. The online campaign, which runs over the summer, urges underpaid workers to proactively complain by completing an HMRC online form.

GAAR update - enablers of abusive arrangements

(AF1, RO3)

The General Anti-Abuse Rule (GAAR) applies to tax avoidance arrangements entered into on or after 17 July 2013. (For National Insurance contributions, the GAAR applies to arrangements entered into on or after 13 March 2014).

HMRC has recently published a number of guides in relation to the GAAR:

  • guidance on tax avoidance in relation to enablers of abusive and defeated tax arrangements.

    This guidance explains what is classed as an abusive and defeated tax arrangement, and how new legislation will apply to enablers of such schemes.
  • guidance on who is classed as a tax avoidance enabler. A person who has enabled abusive tax arrangements is defined as a person who:

When considering whether a particular activity or action amounts to enabling, each of the five descriptions of enabler activities should be considered in turn.

The nature of the activity could mean that the person is a designer of arrangements but is also a manager of the arrangements and has marketed the arrangements.

A person just needs to meet one of the five descriptions of enabler in relation to any of the actions or activities they have undertaken to be in scope for a penalty under the enablers’ legislation.

  • guidance on GAAR Advisory Panel opinions on tax avoidance in relation to tax avoidance enablers.

The GAAR Advisory Panel provides independent opinions on all cases before any counteraction can be made by HMRC under the GAAR.

When a Court or Tribunal is hearing proceedings in relation to a penalty under the enablers’ legislation and is considering whether the tax arrangements in question are abusive, they must take account of the relevant Panel opinion. The relevant Panel opinion is the opinion of the GAAR Advisory Panel that the designated officer was required to consider before deciding whether or not to assess the penalty.

This guidance explains how GAAR Advisory Panel opinions are used by HMRC to decide whether tax arrangements are abusive.


  • HMRC guidance: How legislation affects enablers of abusive and defeated tax arrangements - dated 30 April 2018;
  • HMRC guidance: Identify who is classed as an enabler of tax avoidance – dated 30 April 2018;
  • HMRC guidance: How HMRC uses the GAAR Advisory Panel's opinions on tax avoidance – dated 30 April 2018.

Corporation tax losses

(AF2, JO3)

HMRC has now updated its guidance on recent changes to loss relief for corporation tax purposes.

A company or organisation can claim relief for a loss from trading, the sale or disposal of a capital asset, or on property income, provided that the company or the organisation would normally be liable to pay corporation tax.

Relief is obtained by offsetting the loss against other gains or profits in the same accounting period, or a claim can be made to carry the loss back. Any remaining loss will be carried forward to future accounting periods.

Carrying a trading loss forward
Trading losses that haven’t been used in any other way can be offset against profits in future accounting periods, so long as the trade continues.

Relief for carried forward losses changed from 1 April 2017.

For losses made in accounting periods ending before 1 April 2017, trading losses are carried forward and set against profits of the same trade of the next or future accounting periods.

For accounting periods from 1 April 2017, the way trading losses are set off depends on when they arise:

Losses that arise up to 31 March 2017

Losses that arise from 1 April 2017

The loss is carried forward and set against profits of the same trade of the next accounting period.

In most cases the carried forward loss can be set against total profits or, in certain circumstances, against total profits of a group company, provided the company continues to trade.

No claim is needed and the set off is done automatically.   However, if the company doesn’t want the loss set off against profits of the next accounting period, it can make a claim for it to be carried forward and set against trading profits of the following period instead. This claim must be made within two years of the end of the accounting period for which no relief is to be given and should normally be made on the company tax return.

The company needs to make a claim within two years of the end of the accounting period in which the losses are to be set off. The claim should normally be made on the company tax return.


The amount of carried forward trading losses that can be relieved against trading profits of accounting periods from 1 April 2017 is restricted to, broadly, the amount of an allowance up to £5 million, plus 50% of the remaining trading profits after deduction of the allowance.

The overall amount of carried forward losses that can be relieved against total profits of accounting periods from 1 April 2017 is restricted to, broadly, the amount of an allowance up to £5 million, plus 50% of remaining total profits after deduction of the allowance. (This overall limit also applies to trading losses arising before 1 April 2017.)

For accounting periods that begin before, and end after, 1 April 2017, the profits and losses of the periods are apportioned on a just and reasonable basis. Profits and losses arising:

  • before 31 March 2017 are treated as arising in a separate accounting period ending on that date;
  • from 1 April 2017 are treated as arising in a separate accounting period beginning on that date.

More information about changes to relief for carried forward losses from 1 April 2017 can be found in the HMRC guide ‘Reform to Corporation Tax loss relief: draft guidance’.

Carrying a trading loss back
Instead of carrying a loss forward, it’s possible to claim for the loss to be offset against profits for the earlier 12 month period (not accounting period).

The company or organisation must have been carrying on the same trade at some point in the accounting period or periods that fall in the earlier 12 month period.
It can make a claim to carry back a trading loss when it submits its company tax return for the period when it made the loss. It can also make a claim in a letter to HMRC. Any claim should be made within two years of the end of the accounting period when it made the loss.


Due to a £40,000 employer pension contribution on 31 December 2017, Teign Ltd made a loss of £40,000 in the accounting period 1 January 2017 to 31 December 2017. The company made a profit of £30,000 in the earlier 12 months.

Teign Ltd can carry back £30,000 of its loss to be set off against the profit of its previous accounting year, reducing it from £30,000 to £Nil. It must make a claim for this by 31 December 2019.

The balance of the loss of £10,000 can’t be carried back, so it is available to be carried forward to the year ended 31 December 2018.


So Teign Ltd’s £40,000 pension contribution of 31 December 2017 is effectively being relieved as £30,000 against year ended 31 December 2016 profits, and £10,000 against year ended 31 December 2018 profits. A carry-back loss claim results in corporation tax already paid (potentially at a higher rate) being refunded, or set off against tax otherwise due.

Note that as the £10,000 carried forward loss arose in an accounting period that began before, and ended after, 1 April 2017, it has to be apportioned as follows:


  • Pre 1 April 2017 loss:             £10,000 x 3/12 = £2,500
  • Post 31 March 2017 loss:       £10,000 x 9/12 = £,7500


The £2,500 loss is carried forward and set against profits of the same trade of the accounting period ended 31 December 2018.

The £7,500 loss is carried forward and set against total profits (ie. wider than trading profits and including chargeable gains) of the accounting period ended 31 December 2018.

The company needs to make a claim within two years of the end of the accounting period in which the losses are to be set off, ie. by 31 December 2020.

Groups and trading losses

If a company or organisation has a qualifying group relationship with another company, then it’s possible to choose to offset certain losses, including trading losses, against profits of other members of the group, instead of carrying them forwards or back. More information can be found in HMRC’s company taxation manual.

Terminal trading losses
Terminal loss relief allows a company to carry back any trading losses that occur in the final 12 months of a trade and set them off against profits made in any or all of the three years up to the period when it made the loss. More information can be found in HMRC’s guidance ‘Corporation Tax: terminal, capital and property income losses’.

Other types of loss
Property income losses
A company or organisation’s property income losses:

  • must be offset against other profits in the same accounting period;
  • can’t be carried back to be offset against profits from earlier accounting periods;
  • can be carried forward and offset against total profits in the next accounting period, or, in certain circumstances, for losses arising from 1 April 2017, against total profits of a group company, as long as the property business is still being carried on in that accounting period.


If the company or organisation is a member of a group then losses on property income can be offset against profits of other members of the group if they arise in the same accounting period.

The total overall amount that can be relieved using most types of carried forward losses, including UK property income losses incurred either before or after 1 April 2017, is restricted to, broadly, the amount of an allowance up to £5 million, plus 50% of remaining profits after deduction of the allowance.

Capital losses
Losses made when a company or organisation sells or disposes of a capital asset, are treated differently from trading losses and can’t be offset against trading income.
Any capital losses which accrue to a company in an accounting period are to be set against chargeable gains arising in the same accounting period. To the extent they are not utilised in this way, capital losses of an accounting period are carried forward to be set against chargeable gains of future accounting periods. Allowable capital losses are set off automatically.

For information about restrictions on a company’s capital losses please see HMRC’s capital gains tax manual.

Loan relationships
Profits and losses (deficits) on a company’s interest-based investments are generally chargeable to, or relievable from, corporation tax under the loan relationships regime as the profits and losses arise. The basic rule is that non-trading deficits (eg where the company holds a loan relationship for investment or other non-trade purposes) can be:

  • surrendered as group relief; or
  • set off against any profits of the deficit period; or
  • set off against non-trading credits (loan relationship profits) arising in the previous 12 months before the deficit period. 

Any balance, for losses arising before 1 April 2017, is carried forward and set against non-trading profits (eg against chargeable gains, property income, miscellaneous income, as well as profits of loan relationships and derivative contracts) in succeeding accounting periods. For losses arising from 1 April 2017, any balance can be carried forward against total profits, or, in certain circumstances, against total profits of a group company.

Any carry forward for set off against profits arising on or after 1 April 2017 is restricted where profits exceed £5 million, as set out above.

Accelerated payment notices - an update

(AF1, RO3)

It has recently been reported in the press that HMRC withdrew 6,000 accelerated payment notices (APNs) in 2017, twice that withdrawn in 2016.

APNs were introduced in 2014 and allow HMRC to collect a payment of tax in advance from people it deems to be using tax avoidance schemes, before the outcome of any dispute has been settled. There’s no right of appeal and payment is required within 90 days of the receipt of the APN. Late payment can result in a penalty of 5% of the tax stated in the APN.

HMRC is said to have issued over 80,000 APNs since 2014, and maintains that even where an APN is withdrawn it doesn’t mean there is no tax to pay.

However, it’s important that users of tax avoidance schemes familiarise themselves with HMRC’s processes, or take expert professional advice, so that they are in a position to check the validity of a demand under an APN before making any payment.

Information available on the HMRC website

HMRC gives a tax avoidance scheme a scheme reference number (SRN) when a promoter notifies HMRC of the scheme under the rules for disclosing a tax avoidance scheme (DOTAS). And it regularly publishes an updated list of these scheme reference numbers.

Taxpayers have to use the SRN to identify their use of an avoidance scheme when completing their self-assessment return, and may subsequently receive an APN requiring them to make an upfront payment of tax. Guidance can be found at the follower notice and accelerated payment guide.

HMRC publishes regular warning updates on current avoidance issues – Spotlights – highlighting ‘tax avoidance schemes currently in the spotlight’.

HMRC has also published an updated factsheet covering follower notices and APNs.

HMRC will often investigate cases representative of a particular scheme. Followers are people who have either used the same scheme that was used in a representative case, or a different scheme but where a principle in that scheme is sufficiently similar to the scheme used in a representative case.

Where HMRC defeats a representative case it is allowed, subject to certain conditions, to issue follower notices to the followers, telling the taxpayer that they will be liable to a penalty if they do not settle their dispute with HMRC. The amount of the penalty for not taking corrective action on time is equal to 50% of the tax or National Insurance in dispute (this is called the ‘denied advantage’ in the follower notice).

Conditions where HMRC can send a follower notice to a taxpayer are:

  • Condition A – there’s a current compliance check (referred to in the legislation as a “tax enquiry”) into the taxpayer’s return or claim, or there’s an open appeal;
  • Condition B - their return, claim or appeal is made on the basis that there’s a particular tax advantage resulting from their chosen arrangements;
  • Condition C - HMRC believes that the final judicial ruling is relevant to their chosen arrangements (because they’ve used the same or a similar scheme);
  • Condition D - HMRC has not previously sent the taxpayer a follower notice for the same scheme, the same tax advantage, the same tax period, and the same final judicial ruling – unless it had previously sent one and then withdrawn it.

If a Court or Tribunal made the final ruling before the legislation was introduced on 17 July 2014, HMRC can send a follower notice at any time up to and including 16 July 2016, or 12 months after the return or claim is received, or the appeal is made, whichever is later.

If a Court or Tribunal made the final ruling after the legislation was introduced, HMRC can send a follower notice up to 12 months after the later of the date on which:

  • the Court or Tribunal made the final ruling;
  • HMRC received the return or claim, or the appeal was made.


  • Financial Times: HMRC withdraws 6,000 upfront tax notices issued in error – dated 26 April 2018;
  • HMRC Transparency data: Tax avoidance schemes accelerated payments - dated 30 April 2018;
  • HMRC factsheet: Tax avoidance schemes – follower notices and accelerated payments – dated 9 May 2018.


Interested rates on hold

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

In early April, the market was pricing in the chances of an interest rate rise in May at around 90%. Inflation was running at 2.5% and economic growth, while nothing sparkling, looked to be continuing along its new, lower trajectory.

Wind forward to 10 May and the 90% were expecting the Bank of England to leave rates unchanged at 0.5%, as the Old Lady did indeed decide to do. What happened?

The news flow in April turned sour. GDP figures were a big downside surprise – the 0.1% in Q1 2018 estimated by National Statistics was not on anybody’s radar. Inflation for March dropped faster than commentators (and the Bank) predicted. Purchasing Managers Indices suggested that there was no significant bounce back from the dire Q1 performance in April. Finally, the Governor of the Bank of England, Mark Carney, resurrected his “unreliable boyfriend” credentials by saying there were other months than May when rates could be increased.

In his opening remarks at the Inflation Report press conference, Mr Carney made clear that the Bank thought the Q1 slowdown was primarily due to the (meteorological) weather, not the economic climate. This is at odds with some analyst opinion that noted while the “Beast from the East” cut construction output, it had the opposite effect on energy generation. 

The Bank still takes the view that over the next three years growth will average about 1.75% a year, although for 2018 it has cut its forecast from 1.8% to 1.4%. However, it also says that “such modest growth by historical standards is still likely to be sufficient to exceed the expected 1.5% average annual growth in the economy’s supply capacity”. That implies an inflation risk to be countered by “an ongoing, modest tightening of monetary policy”. Once more we heard the forecast that “any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent”.

The focus will now fall on a rate rise in August, when the next Quarterly Inflation Report is issued. 


Transfers - post-a-day

(AF3, FA2, JO5, RO4, RO8)

Last week we issued a Bulletin covering a Freedom of Information (FoI) release from TPR on DB transfers in the year to 31 March 2018. This FoI request represented a request for an update on data issued a year earlier, also under FoI. As we mentioned at the time, the TPR data was solely of transfers from DB schemes, so included DB to DB transfers (although these are rare given that just 14% of DB schemes were open in March 2017, according to TPR).

At the weekend the Financial Times issued fresh FoI data on transfers, looking specifically at DB to DC transfers. The information was provided by the FCA, although it does not yet appear in the FCA’s FoI disclosure log. The latest figures are more insightful than TPR’s which related “to transfers in the 12 month period covered by the reporting schemes’ most recent annual report and accounts relative to the effective date of the schemes’ submission of information to TPR” and so had a built in lag. According to the FCA:

In 2017, £20.8bn was transferred from DB to DC schemes. The corresponding figure for 2016 was £7.9bn, meaning the 2017 increase was 163%.

The number of DB to DC transfers also rose, but at a slower rate. There were 92,000 in 2017, against 61,000 in 2016 – a 51% increase.

By simple mathematics, the average DB to DC transfer in 2017 was £226,000 against £129,500 in 2016, a 75% increase.

The sharp rise in average transfer values is puzzling. While transfer values did rise between 2016 and 2017, according to Xafinity, the increase was of the order of 15%. It is not a British Steel effect either, as this is reported to have involved 2,600 transfers worth £1.1bn (an average of £423,000), hardly enough to make a significant change in the overall average.

Pension sharing on divorce: divorce (financial provision) bill

(AF3, FA2, JO5, RO4, RO8)

The Divorce (Financial Provision) Bill is at its second reading stage in the House of Lords. It is a private member’s bill introduced by Baroness Deech.

The Bill proposes to replace section 25(2) of the Matrimonial Causes Act 1973, which deals with orders for financial provision after divorce. Section 25(2) lists the elements a court must consider when making orders for the division of finances when a couple divorces, including the financial resources and obligations each party has or is likely to have in the future, the standard of living enjoyed by the family, and the contribution of each of the parties to the welfare of the family.

The law in this area has been developed by the statute’s application in the courts. Baroness Deech has argued that judicial discretion in the application of the law has resulted in a lack of clarity and consistency, and therefore that reform is necessary.

In summary, the Bill proposes:

Clause 1 states that section 25(2) of the Matrimonial Clauses Act 1973 would cease to have effect.

Clause 2 would restrict financial orders to property acquired during the marriage, except in cases of pre-nuptial and post-nuptial agreements.

Clause 3 would make written pre-nuptial and post-nuptial agreements binding, subject to a number of exceptions.

Clause 4 proposes that the net value of matrimonial property is to be shared fairly between the parties, and clause 4(2) states that a fair sharing of assets would usually be an equal splitting of assets, except in specific circumstances.

Clause 5 lists factors that would be taken into account when awarding periodical payments and lump sums, and limits the former to five years except in certain circumstances.

Clause 6 states that when determining an application to which sections 4 or 5 applies, the conduct of either party would not be taken into account, except if the conduct has adversely affected the financial resources of a party or it would be unfair not to take it into account.

The Bill follows the Law Commissions report in 2014 on matrimonial property and the need for legislation to bring divorce law in to the 21st century.  The Government has acknowledged the need for reform and in January 2017, the Government said that it was considering provisions on nuptial agreements in line with the Law Commission’s proposals, and that the Government would be announcing its response to the Law Commission’s report and was developing plans for wider private family law reform. In a debate in the House of Commons in November 2017 Dr Philip Lee, Under Secretary of State for Justice, stated that the Government would consider the Law Commission’s proposals and would “make their position known in due course”.

This Bill, if enacted in it current state will certainly shake up the way assets are shared on divorce. The Bill suggests the Scottish divorce process is fairer model. If adopted, this will have an impact on how pensions are valued on divorce and maybe it will be contributions or accrual for the period of the marriage only that is shared.

TPR publish corporate plan

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has published its corporate plan setting out how it is taking a clearer, quicker and tougher approach to driving up standards in the pensions sector. The corporate plan for 2018 – 2021 outlines how TPR will focus on key areas of activity, including:

  • driving up standards of trusteeship and stewardship across all pension schemes
  • authorising master trust schemes
  • ensuring employers meet their automatic enrolment duties
  • ensuring defined benefit (DB) schemes are effectively regulated
  • working with government to implement the proposals set out in the White Paper on the future of DB schemes

TPR Chairman Mark Boyle said: "The pensions landscape has been changing significantly. We are meeting this challenge by embedding a new regulatory culture and reinforcing our regulatory teams on the frontline.

"In the coming year, you can expect to see us being more vocal about our expectations of those we regulate and intervening quickly and decisively through our wide-ranging regulatory activity and enforcement powers so that workplace pension schemes are run properly, and people can save safely for retirement."

The plan also delivers a significant increase in resources to protect pension savers. TPR plans to spend £4.3 million more in 2018/19 than in 2017/18 (an increase of 5.2%). This will help TPR to crack down on sponsoring employers who are not taking their duties towards their pension schemes seriously, as well as launch a new anti-scams campaign to help prevent savers from being ripped-off. At the same time, TPR will be working with trustees to improve scheme governance and with the majority of companies who are working hard to do the right thing.

Over a third of headcount (34%) this year will be allocated to TPR’s Frontline Regulation team which together with automatic enrolment (16%) and policy and advisory work (20%), means a significant majority of resources will be directly focused on delivering better regulatory outcomes. During the year, TPR plans to increase its headcount by 12% as a result of its increased workload and remit.

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.