Taxation and trusts; FCA consults on further climate-related disclosure rules and more.

Contents:

• Tax return confusion for recipients of self-employment grants
• FCA consults on further climate-related disclosure rules
• HMRC loses HICBC case

 

Tax return confusion for recipients of self-employment grants (AF1, RO3)

The Low Incomes Tax Reform Group (LITRG) has published new guidance to explain which SEISS grants should be included on the 2020/21 tax returns and which tax return boxes are the correct ones to fill out.

Many self-employed people and partnerships are currently completing their 2020/21 self-assessment tax returns. The LITRG is reminding people who have claimed Self-Employment Income Support Scheme (SEISS) grants that this income is taxable and that they must make sure they complete their tax returns accurately by including the grants in the correct place.

The new LITRG guidance is here: Self-Employment Income Support Scheme: where do I include the grants on my tax return?

For most SEISS claimants, the first three SEISS grants must be included as taxable income in the 2020/21 tax year regardless of the accounting period for the self-employed business or partnership. The fourth and fifth grants should be included on their 2021/22 tax return.

The only exception is for partners whose SEISS grants have been paid into their business partnership and then distributed as per the Partnership Agreement. If a partner’s SEISS grants are distributed amongst the partners as per the Partnership Agreement then the way the SEISS grants are included on the tax returns will be different to other claimants. Please see: https://www.litrg.org.uk/tax-guides/coronavirus-guidance/self-employment-income-support-scheme/SEISS-grants-tax-return#I-am-a-partner-in-a-partnership-which-tax-year-do-I-include-my-SEISS-grants-in.

People with more than one self-employment trade will need to apportion the grants between the different trades in a reasonable way.

The LITRG is an initiative of the Chartered Institute of Taxation (CIOT), which is intended to give a voice to the unrepresented.

 

FCA consults on further climate-related disclosure rules

(AF2, JO3)

The FCA has published new proposals on climate-related disclosure rules for listed companies and certain regulated firms.

The proposals follow the introduction of climate-related disclosure rules for the most prominent listed commercial companies in December 2020 which are aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

In the consultations the FCA is proposing: 

1. to extend the application of its TCFD-aligned Listing Rule, currently required for premium-listed commercial companies, to issuers of standard listed equity shares, but excluding standard listed investment entities and shell companies; 
2. to introduce TCFD-aligned disclosure requirementsfor asset managers, life insurers, and FCA-regulated pension providers, with a focus on the information needs of clients and consumers.

Under 1, the FCA’s proposals would require issuers of standard listed equity shares (excluding standard listed investment entities and shell companies) to include a statement in their annual financial report setting out:

• whether they have made disclosures consistent with the TCFD’s recommendations and recommended disclosures in their annual financial report;
• where they have not made disclosures consistent with some or all of the TCFD’s recommendations and/or recommended disclosures, an explanation of why, and a description of any steps they are taking or plan to take to be able to make consistent disclosures in the future and the timeframe within which they expect to be able to make those disclosures;
• where they have included some, or all, of their disclosures against the TCFD’s recommendations and/or recommended disclosures in a document other than their annual financial report, an explanation of why; and
• where in their annual financial report (or other relevant document) the various disclosures can be found.

Under 2, The key elements of the FCA’s proposals are:

1. Entity-level disclosures. Firms would be required to publish, annually, an entity level TCFD report (TCFD entity report) on how they take climate-related risks and opportunities into account in managing or administering investments on behalf of clients and consumers. These disclosures must be made in a prominent place on the main website for the firm’s business and would cover the entity-level approach to all assets managed by the UK firm.
2. Product or portfolio-level disclosures. Firms would be required to produce, annually, a baseline set of consistent, comparable disclosures in respect of their products and portfolios, including a core set of metrics. Depending on the type of firm and/or product or portfolio, these disclosures would either:

• be published in a TCFD product report in a prominent place on the main website for the firm’s business, while also being included, or cross-referenced and hyperlinked, in an appropriate client communication, or

• be made upon request to certain eligible institutional clients.

The FCA’s proposed scope, under 2., will cover 98% of assets under management in both the UK asset management market and held by UK asset owners, representing £12.1 trillion in assets managed in the UK. These proposals would not apply to firms with less than £5 billion in assets relating to relevant activities.

The FCA believes the new rules will help markets, investors and ultimately consumers better understand the impact of climate change and make more informed decisions and help encourage investment in more sustainable projects and activities, consistent with the Chancellor’s expectations in the FCA’s recent remit letter that the FCA should ‘have regard’ to the Government’s commitment to achieve a net-zero economy by 2050. 

Alongside these proposals, the FCA is also seeking views on other topical environmental, social and governance (ESG) issues in capital markets, including on green and sustainable debt markets and the increasingly prominent role of ESG data and rating providers. 

The FCA is inviting feedback to both consultations by 10 September 2021 and intends to confirm its final policy on climate-related disclosures before the end of 2021. The FCA will separately consider stakeholder views on the ESG-related discussion topics in capital markets, with a view to publishing a Feedback Statement in the first half of 2022.

 

 
HMRC loses HICBC case

(AF1, RO3)

An Upper Tier Tribunal has rejected an HMRC appeal on the use of a discovery assessment to collect the High Income Child Benefit Charge.

The Upper Tier Tribunal (UTT) has now issued a Judgement on HMRC’s appeal in the High Income Child Benefit Charge (HICBC) case (HMRC v Wilkes).

The appeal revolved around whether HMRC could use a discovery assessment under s29(1) TMA 1970 to assess underpaid income tax arising from the HICBC. The discovery assessment technique is one that has been commonly used by HMRC where the taxpayer has not notified HMRC of their HICBC liability and HMRC has not issued the taxpayer with a notice requiring a self-assessment return.

s29(1), as it was in force when HMRC issued the discovery assessments to Mr Wilkes, said:

“(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—

• that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or

• that an assessment to tax is or has become insufficient, or

• that any relief which has been given is or has become excessive,

the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.”

HMRC and the pro bono legal team acting for Mr Wilkes both focused on the wording in 1(a), “…any income [our italics] which ought to have been assessed to income tax…”. HMRC’s arguments were:

• As no return was submitted by Mr Wilkes, his income had not been assessed to a further charge of income tax (the HICBC) and, accordingly, HMRC made a discovery that there was income that ought to have been assessed and had not been assessed, or
• A proper purposive construction of s 29(1)(a) TMA, was that the word “income” is to be read as including any amount liable to income tax, or
• If neither applied, there was an obvious drafting error which the First-tier Tribunal had failed to correct.

The UTT rejected all three of HMRC’s assertions, deciding that when the legislation said ‘income’ it meant just that, and the legislative wording was thus drafted to delineate HMRC’s powers. To raise the tax due, HMRC could have served a notice to file a return, but it chose not to do so.

This decision will potentially affect some thousands of HICBC payers who have been subject to discovery assessments. It also throws into doubt discovery assessments for some other income tax charges not directly related to income, such as the annual allowance charge. There is no indication yet whether HMRC will appeal, but it seems likely.

 

 

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