What's new bulletin June 2022

TAXATION AND TRUSTS

HMRC's guidance and news for tax agents and advisers - June 2022

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HMRC produces regular Agent Updates, which whilst they are aimed mainly at accountants and tax advisers, can also provide helpful insights into issues clients may be talking about to their financial advisers. HMRC’s latest update includes information on Company Tax Returns, the increase in National Insurance thresholds, residency and the remittance basis charge, amendments to Corporate Interest restriction, Making Tax Digital for Income Tax Self Assessment and the Trust Registration Service.

Highlights include:

Company tax returns: non-UK resident companies receiving UK property income

Since 6 April 2020, non-resident company landlords are required to file an online corporation tax return and submit financial statements which should be tagged in accordance with the relevant taxonomy. HMRC has updated its existing guidance about the format of accounts and other information to be filed online. As well as non-UK resident company landlords, this guidance also applies to offshore property development companies dealing in or developing UK land.

Please see COM130010 and how to format for accounts forming part of an online Company Tax Return. There is separate guidance for a non-UK resident company trading in the UK though a permanent establishment at the same GOV.UK page.

Increase in National Insurance thresholds

On 23 March 2022, the Government announced an increase in National Insurance thresholds affecting the 2022/23 tax year.

HMRC is reminding agents that the threshold changes will take effect from 6 July 2022, meaning employees will pay National Insurance contributions on less of their income.

The primary threshold from 6 July 2022 to 5 April 2023 will be £242 per week and £1,048 per month, equivalent to £12,570 per year (increased from £9,880 per year).

For more information, please see rates and thresholds for employers 2022 to 2023.

The National Insurance lower profits limit for self-employed people is also increasing, in line with the changes for employees. The annual lower profits limit will be set to £11,908 for 2022/23. This is equivalent to 13 weeks of the threshold at £9,880 and 39 weeks at £12,570, mirroring the position for employees.

Self-employed people will also no longer be required to pay Class 2 National Insurance contributions on profits between the small profits threshold (£6,725) and lower profits limit (£11,908), but still be able to build National Insurance credits.

HMRC says that it will publish further information on the changes for self-employed people in due course.

HMRC has reminded employers by email to check that their payroll software is updated to use the new thresholds, if it is not done automatically.

It has also advised them that if they use Basic PAYE tools, this software will be updated to take account of National Insurance threshold increases from 4 July 2022 and to wait until after this date to run payroll for any payments made on or after 6 July 2022.

Residency and the remittance basis charge

In June 2022, HMRC will send letters to agents and taxpayers in the wealthy population. The letters will be sent to those who have been tax resident in the UK for seven years out of the preceding nine years and 12 out of the proceeding 14 years.

These taxpayers have been identified as needing to pay the remittance basis charge (RBC) of either £30,000 or £60,000 or alternatively move to the arising basis of taxation.

The letter will state the steps required, allowing taxpayers time to amend their 2020/21 return. This will also educate them in advance of filing their 2021/22 self-assessment tax return. The letter also advises amendments should be done within 60 days. If no amendment is made, HMRC may open an enquiry to check the correct position.

The guidance has been clarified making the Residence domicile and remittance basis manual (RDRM32220) clearer for taxpayers regarding the year count for remittance basis purposes.

The guidance reinforces that taxpayers must be tax resident in the year of arrival, departure and split year (or both) to count as a year of residence for remittance basis charge purposes. The update will ensure such years are accurately reflected in the year count and aid preparation of their tax return.

In addition, updates will be made to the notes that accompany the self-assessment tax return (SA109) to educate taxpayers prior to them filing their 2021/22 tax return.

For more information, please see:

• the remittance basis conditions;
• how to identify remittances;
• long term UK residents;
• deemed domicile rules;
• how to nominate foreign income and gains;
• guidance notes for residence, domicile and the remittance basis;
• get help from HMRC if you need extra support;
• section 809C of the Income Tax Act 2007.

The SA109 supplementary pages should be used when filing a SA100 tax return to record residence and domicile status and claim personal allowances as a non-UK resident.

Important points

There are two charges for individuals who meet either the seven out of nine or 12 out of 14-year count. These are:

• £30,000 for taxpayers who are tax resident in the UK for seven out of the previous nine years;
• £60,000 for taxpayers who are tax resident in the UK for 12 out of the previous 14 years.

For the charges to apply, the taxpayers must be tax resident in the UK by virtue of either:

• the statutory residence test(post 2013);
• IR20 and case law(pre 2013).

An individual can choose to be taxed on the arising basis or the remittance basis of taxation.

Making a notification into the Qualifying Asset Holding Company regime

Companies that meet the criteria and wish to join the regime must send an entry notification to HMRC in advance of the joining date. HMRC would now like to clarify the notification process.

Companies can make a notification to enter the Qualifying Asset Holding Company Regime.

It is important to note that this is simply a notification rather than an application. HMRC will not typically enquire into whether the various eligibility conditions have been met at this point. It is for the company entering the regime to self-assess whether the conditions have been met and continue to be met.

If the company is unsure whether conditions have been met, it might want to discuss the matter with the Qualifying Asset Holding Company team by emailing: qahc@hmrc.gov.uk.

Companies can find out more in the Investment Funds manual at IFM40000 plus.

Amendments to Corporate Interest restriction — working group

The Corporate Interest restriction legislation applies to corporate entities and aims to restrict a group’s deductions for interest expense and other financing costs for corporation tax purposes, to an amount that is commensurate with taxed UK activities, taking account of how much the group borrows from third parties.

HMRC says that it is aware of various technical issues with the legislation and would like to set up a working group to consider these issues further and how they might be addressed.

Anyone who would like to join the Corporate Interest restriction working group should contact Jackie Phillips by emailing: jackie.phillips@hmrc.gov.uk

Making Tax Digital for Income Tax Self Assessment — joining the pilot

From April 2024, all businesses with annual income from self-employment or property above £10,000 will have to follow Making Tax Digital rules.

HMRC is running a pilot, inviting agents to recommend clients who can help it test and learn. The pilot is still a test environment. Those taking part have the benefit of testing the Making Tax Digital Income Tax Self Assessment before April 2024, including their own internal processes for managing Making Tax Digital.

Agents and taxpayers are already taking part, and HMRC would like to encourage more agents to start signing up a small number of their clients. HMRC suggests that agents review their client list now and see who is likely to be eligible based on the following criteria.

From next month (July 2022), HMRC plans to bring taxpayers with the following income types into the pilot:

• self-employment (including multiple self-employments);
• UK property;
• Gift Aid;
• Pay As You Earn income, including employment income and occupational pensions (excluding those with a coded out liability);
• UK interest;
• UK dividends.

For more information on the eligibility criteria for joining the pilot, please see here.

Clients will need to have an accounting period that aligns to the tax year (6 April to 5 April) to join the 2022/23 pilot, and have Making Tax Digital compatible software before signing up (free and low-cost options are available, search ‘Making Tax Digital software’ on GOV.UK).

Those interested in joining the pilot can contact their software developer or email mailboxmakingtaxdigital@hmrc.gov.uk.

The Trust Registration Service

The deadline for registering most trusts on the Trust Registration Service is 1 September 2022.

The deadline for registrations of non-taxable trusts that were in existence on 6 October 2020 is 1 September 2022. These trusts must be registered even if they have since been closed.

Non-taxable trusts created after 6 October 2020 must register within 90 days of being created or otherwise upon becoming registerable, or by 1 September 2022 (whichever is later).

Taxable trusts created on or after 6 April 2021 must register within 90 days of the trust becoming liable for tax or by 1 September 2022 (whichever is later).

There are different registration deadlines for taxable trusts that were created before 6 April 2021, guidance for these types of trusts can be found on GOV.UK.

Please see register your clients trust and, for more information, the Trust Registration Service manual.

For more information, please see the Trust Registration Service.

The latest UK tax gap figures
(AF1, RO3)

According to the latest figures published by HMRC, the tax gap is estimated to be £32bn in 2020/21, down from £35bn in 2019/20.

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid.

According to HMRC’s report, the tax gap for the various taxes in 2020/21 was:

• 3.5% for income tax, National Insurance contributions (NICs) and capital gains tax (CGT) – the biggest share of the total tax gap at £12.7 billion when viewed by type of tax (39.5%);

• 7% for VAT - the second biggest share of the total tax gap at £9 billion (28.0%);

• 11.5% for corporation tax; and

• 8.3% for Excise Duty.

Failure to take reasonable care accounted for the largest proportion of the tax gap at 19% (£6.1 billion); whilst error accounted for 9% (£3.0 billion).

Avoidance accounted for the smallest proportion of the tax gap at 4% (£1.2 billion); criminal attacks were 16% (£5.2 billion); evasion was 15% (£4.8 billion); and the hidden economy accounted for 10% (£3.2 billion).

The term “hidden economy” refers to sources of taxable economic activity that are entirely hidden from HMRC. It includes businesses that are not registered for VAT, individuals who are employees in their legitimate occupation, but do not declare earnings from other sources of income (moonlighters) and individuals who do not declare any of their income to HMRC, whether earned or unearned (ghosts).

Non-payment (largely taxes written off as a result of insolvency) was 15% (£4.9 billion).

It will, however, probably be a number of years before it becomes clear how much of the tax deferred due to the pandemic will ultimately go unpaid, for example due to business failure. It’s also worth noting that legislative changes to give HMRC a higher priority in recovering debt that businesses owe when they become insolvent took effect in December 2020. The Government predicted these would cut the tax gap by £150-200 million a year in a typical year.

The report puts tax lost due to legal interpretation in 2020/21 (i.e. where the taxpayer’s and HMRC’s interpretation, and how it applies to the facts in a particular case, have resulted in a different tax outcome, and there is no avoidance) at £3.7 billion. This is down from £5.6 billion in 2019/20. This looks a substantial fall in the legal interpretation part of the tax gap, although it follows a year when it rose significantly, so it is hard to know at this stage if this is a trend or a blip.

The Treasury pushes its online tool to flag National Insurance cut
(AF1, RO3)

HM Treasury has launched an online tool to show how take home pay will be affected by the upcoming changes to the National Insurance threshold from July.

The tax cut represents a £6bn cut to National Insurance effective from 6 July and is worth an average £175 a year to taxpayers and will go some way towards offsetting the 1.5% increase introduced through the social care levy, which came into effect on 6 April.

The online checker will use salary information for employees who are paid through PAYE system, giving personalised estimates of how much they could save. All individuals have to do is enter their current salary before tax and it calculates the estimated saving depending on earnings.

The cut, which will see the point at which people start paying National Insurance rise to £12,570, is worth up to £330 and seven in ten workers will pay less National Insurance even after accounting for the health and social care levy, the Treasury said.

From July, employees who earn £36,600 or under will pay less National Insurance. For example, a taxpayer earning average salary of £31,285 will pay £185 less over the nine-month period.

Everyone who pays National Insurance will see a tax cut, and the tool will show that employee earning up to £51,000 will see this cut more than offset the impact of the health and social care levy. This means the majority of working people will see a boost to their take home pay.

The tool estimates how much National Insurance an employee paid from July 2021 to June 2022 at the old rate and compares it with how much they will pay from July 2022 and June 2023. However, it is not suitable for every situation and does not provide a calculation of an individual's National Insurance contributions liabilities.

Alongside this tool, the Government has also launched a new financial support and benefits checker tool. It enables people to answer ten simple questions to find out what support they might be eligible for by cross-checking against 25 individual benefits and support offers. This is intended to help people find out what support they may be eligible for that they may currently not be accessing.

This first version of the financial support and benefits checker tool includes a selection of benefits and other sources of financial support, such as childcare support, job seeker’s allowance, budgeting loans and housing benefit. However, it does not include information about pension credits which are underclaimed by an estimated 1.3m pensioners.

A wider range of options will be included in another version in the next few months.

INVESTMENT PLANNING

Latest property statistics

(AF4, FA7, LP2, RO2)

The UK monthly property statistics are now available. The latest transactions demonstrate that the:

• the provisional seasonally and non-seasonally adjusted estimate of UK residential transactions in May 2022 is lower than May 2021 but higher than April 2022;
• the provisional seasonally and non-seasonally adjusted estimate of UK non-residential transactions in May 2022 is higher than May 2021 and higher than April 2022;
• in recent months, UK residential transactions have stabilised but remain somewhat elevated compared to before the coronavirus pandemic.

It can be seen that following substantial decreases during the spring of 2020 due to the pandemic, UK residential transactions gradually increased in subsequent months, alongside large peaks in March, June, and September 2021 which were caused by temporarily increased nil rate bands of property taxes.

PENSIONS

Workplace pension participation and savings trends 2009 – 2021

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The DWP has published their most recent finding on workplace pension savings in the document Workplace Pension Participation and trends of eligible employees 2009 - 2021.

This annual official statistics publication is the ninth edition in the series. These official statistics provide breakdowns of two key measures for evaluating the progress of automatic enrolment implementation: by monitoring trends in workplace pension participation; and increasing the amount of savings, by monitoring trends in workplace pension saving.

The main findings were:

• 88% of eligible employees (20 million) were participating in a workplace pension in 2021;
• Since 2012 the gaps in participation between industries have narrowed with the largest participation increases in Agriculture and Fishing and Distribution, Hotel and Restaurants and among small private companies. 
• The annual total amount saved by eligible savers stood at £114.6bn in 2021 an increase of £8.7bn from 2020;
• Not surprisingly across the economy as a whole the highest earners show the highest participation rates.  In 2021 93% of those in the top three earnings bands (£40k +) were participating in a workplace pension.
• The largest participation increase has been among the younger workers with the rate for those in the 22 to 29 age group increasing from just 24% in 2012 to 85% in 2021.  Clearly highlighting the success of automatic enrolment getting younger people to start saving into pensions and
• Overall in 2021 contributions by employees accounted for 26% of savings, employer contributions accounted for 65% and income tax relief on employee contribution accounted for 9%.

DWP publishes call for evidence to help savers understand pension choices

(AF3, FA2, JO5, RO4, RO8)

The DWP has published a call for evidence “Helping savers understand their pension choices” which looks at what type of support is needed by pension scheme members to help them make informed decisions about how to use their savings. It will also seek to understand what support and decumulation products are currently on offer to members, and what may be offered to them in the future. The DWP particularly wants to hear how consumer organisations and occupational pension scheme members want to be supported in the lead up to taking their pension, when they access their pension and after they have started to use their savings. The consultation closes at 11.59pm on 25 July 2022.

Underlying this consultation is an anticipation that as more people move into retirement with a greater reliance on their DC pots, the landscape of trust-based pension schemes may need to change – in part to prevent non-advised and unengaged members making uninformed choices.

The DWP states that it wants to achieve “similar and hopefully even better outcomes” for occupational pension savers as the FCA has since it introduced measures for personal pensions such as earlier and more frequent “wake up” packs and Investment Pathways.

Minister for Pensions and Financial Inclusion Guy Opperman commented in the DWP’s Press Release that: “Deciding how to use your workplace pension savings is one of the most important financial decisions many people will make. Automatic enrolment has introduced over 10.6 million people to pension saving, and we want to ensure the record number of Brits now saving for retirement have the support and information they need to make informed choices about accessing their hard-earned savings.”

There are a number of barriers for scheme administrators to consider, mainly revolving around the distinction between guidance and regulated financial advice.

This story was picked up by The Times (thetimes.co.uk of 14 June 2022) under the headline: “Pension companies urged to help savers be more savvy.”

Pensions campaigns join forces to increase pensions engagement

(AF3, FA2, JO5, RO4, RO8)

The Association of British Insurers (ABI) has issued a Press Release setting out details of the Pensions Engagement Season, the industry coalition co-ordinated by the ABI and the PLSA, who have both joined forces with this year's Pensions Awareness Week to boost people's engagement with their pensions. Pensions Awareness Week will take place from 12–16 September, bringing together pension providers, Government and key stakeholders to provide vital information to consumers to help them understand and engage with their pensions.

Minister for Pensions and Financial Inclusion Guy Opperman commented: “It's great to see Pensions Engagement Season joining forces with Pensions Awareness Week to help savers get to grips with their pensions and bring retirement saving into everyday conversation. These efforts complement the crucial work already underway on pensions dashboards and simpler statements, and I'm looking forward to working collectively as we seek to bring about a step change in how the record number of Brits now saving for retirement engage with their pension.” ABI's Director of Policy, Long-term Savings and Protection Dr Yvonne Braun added: “Helping people make sense of their pensions is a vital first step to building confidence in saving for retirement. As an industry, we will be most effective in this endeavour when we are speaking with one voice.”

TPR lays CDC code before Parliament and publishes consultation response

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has issued a Press Release confirming that it has laid its new code of practice for the authorisation and supervision of collective defined contribution (CDC) pension schemes before Parliament, allowing the code to complete its legislative passage in time for trustees to apply from 1 August for authorisation to operate a CDC scheme. The code sets out how trustees can apply for authorisation and how TPR will assess schemes against the statutory authorisation criteria at the initial application stage and throughout ongoing supervision. TPR has also published its response to the consultation on the January 2022 draft CDC code of practice.

David Fairs, Executive Director of Regulatory Policy at TPR, commented: “Laying our CDC code in Parliament is a significant step as we prepare for a new type of scheme that paves the way for an alternative and innovative pension saving solution to traditional defined benefit and defined contribution arrangements. Our focus is on protecting savers, and while the code now clarifies a number of points raised during our consultation to explain how it reflects legislation, it continues to set the right bar for the authorisation and supervision of CDC schemes. We are confident the code clearly shows trustees how to meet the legislative requirements in their application and satisfy us they meet the authorisation criteria.”

Guy Opperman, Minister for Pensions and Financial Inclusion, said: “Collective defined contribution pension schemes have the potential to transform the UK pensions landscape and deliver better retirement outcomes for millions of pension savers. I therefore welcome the laying of TPR's code before Parliament. We have seen the positive effect of CDC schemes in other countries and this code brings us one step closer to making them a reality here at home.”

IFS: Latest increase in state pension age from 65 to 66 led to income poverty rates among 65-year-olds more than doubling

(AF3, FA2, JO5, RO4, RO8)

The institute for Fiscal Studies has published a report entitled: “How did increasing the state pension age from 65 to 66 affect household incomes?” The report has shown that between late 2018 and late 2020, the state pension age for men and women rose from 65 to 66, meaning that the approximately 700,000 65-year-olds in the UK had to wait another year before they could receive a state pension. The key impact of this was that 65-year-olds missed out on state pension income of £142 per week on average.  The research analyses how household incomes and income poverty rates have been affected by the increase in the state pension age from 65 to 66. This is particularly important as there is an ongoing independent review of the state pension age for the Department for Work and Pensions, led by Baroness Neville-Rolfe. Some of the key findings on the report include:

• The reduction in State Pension income meant that the absolute income poverty rate for 65-year-olds rose by 14 percentage points, or nearly 100,000 people, to reach 24% by late 2020. The higher state pension age also encouraged around 9% or 60,000 more 65-year-olds to stay in their job and retire later.
• The groups most adversely affected by the increase in state pension age were those less likely to be in work at age 65 anyway and who have less private income to rely on. That means that the less well educated, those in rented accommodation and single people were hardest hit. Most of the increase in income poverty for 65-year-olds due to the reform has been among people not in paid work.
• the income poverty rate of single people aged 65 rose by 22 percentage points, from 16% to 38%;
• the income poverty rate of 65-year-olds with at most GCSE-level education rose by 21 percentage points, from 14% to 35%;
• the income poverty rate of 65-year-old renters rose by 24 percentage points, from 22% to 46%.
• The rise in the state pension age from 65 to 66 led to larger increases in income poverty rates among those affected than the increases in poverty rates seen following earlier rises in the female state pension age. This is due to a growing gap in state support over time for those just above and just below the state pension age, together with the fact that people are more reliant on state support at older ages as fewer people are in paid work.
• With lower state benefits and higher tax revenues from employment, the increase in state pension age from 65 to 66 boosted the public finances by £4.9 billion per year, equivalent to around a quarter of 1% of national income, or 5% of annual government spending on state pensions. The benefit to the exchequer is the key counterpart to the reductions in household incomes caused by the reform.

TPR publishes guidance on pensions dashboards

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) and the Pensions Dashboards Programme (PDP) have both issued Press releases detailing TPR’s efforts to help trustees, prepare for pensions dashboards. The TPR has published new guidance, outlining trustees’ legal duties. The guidance, which will be regularly updated, includes a checklist to help schemes manage their progress. As part of a new campaign launched today, TPR has warned trustees that they must start preparing for their pensions dashboards deadline.

TPR Director of Regulatory Policy, Analysis and Advice David Fairs said: “Schemes should be taking action now — their connection deadline is coming... In line with our corporate strategy, we embrace innovation and we are committed to making dashboards work so that savers have a complete and accurate picture of their savings. We know this is a significant undertaking for industry and so we will be rolling out a comprehensive programme of support in the months ahead. Pensions dashboards are coming. Trustees will have legal duties they must be ready for. We will take a dim view of trustees who carelessly fail to prioritise their dashboard responsibilities.”

Minister for Pensions and Financial Inclusion Guy Opperman added: “Clear pensions information at the touch of a button will ensure savers are better informed and more engaged and will help people plan more effectively for retirement. It's vital providers are preparing for their introduction and I urge them to take action now if they have not done so already.”