HMRC One To Many Letters

Over the last couple of years HM Revenue & Customs (HMRC) have issued a number ‘One to Many’ communications, commonly known as ‘nudge letters’.  Nudge letters are used to encourage taxpayers to review their tax affairs. The nudge letters issued to date have covered a wide range of topics including:

  • Overseas income and gains
  • CJRS,
  • Research & Development,
  • Annual Tax on Enveloped Dwellings (ATED),
  • CGT on property disposals,
  • CGT on deferred consideration on business disposals,
  • Disposal of Unlisted Shares and
  • Partnership Discrepancies.

HMRC receives data from a vast number of sources and believe that the use of nudge letters provides it with a cost-effective approach to communicate with a large number of taxpayers. Nudge letters are a standard communication on a specific topic from HMRC to a large group of taxpayers. The letters to date relate either to where HMRC have identified a potential loss of tax or, more broadly, are an educational exercise. The communication can be delivered by letter or even digital means including Personal Tax Accounts, emails or SMS texting.  It is worth noting that agents do not always receive a copy of these communications from HMRC. The communications are aimed at encouraging taxpayers to review their own tax affairs and voluntarily correct any errors or omissions.

It is important to note that a nudge letter is not a statutory enquiry into a taxpayer’s affairs. However, these letters should not be ignored and appropriate action must be taken. This does not mean signing and sending the requested certificate to HMRC, there is no statutory requirement to do so.  If HMRC subsequently open an enquiry and find an error, failure to take action following receipt of a nudge letter could lead to higher penalties being charged.  Our experience has shown that there can be inaccuracies with some of the information held by HMRC, or it has been interpreted incorrectly.

Penalties

If you have found a mistake in your filings to HMRC, disclosing the error or omission before HMRC send a nudge letter or open an enquiry will reduce the penalty charges.   Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes.  Prompted penalty rates are higher than those that apply to unprompted penalties.  The maximum prompted penalty for an offshore omission is 200%.

A professional tax adviser can guide a taxpayer through the disclosure process and advise where applicable the penalty mitigation available.  We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

Should you require any professional advice please contact our head of tax disputes and resolutions, Danielle Ford.

Autumn Budget 2021: tax disputes and resolutions

1.43 Clamping down on promoters of tax avoidance

HMRC have been piling pressure on both the users and promoters of avoidance schemes recently. They have set up specialist teams to tackle these, challenging them through the Courts, offering settlement opportunities to participants as an ‘out’ in exchange for paying the lost tax plus interest and introducing penalties for those who have promoted avoidance schemes.

The measures introduced here are:

  • A power to seek a freezing order over assets of a promoter who has been charged with a relevant anti-avoidance penalty to stop them dissipating their assets to stop them paying the penalty
  • An additional penalty which HMRC can apply to an entity which facilitates the promotion of tax avoidance by offshore promoters
  • A new power to enable HMRC to present winding-up petitions to the court for companies or partnerships operating against the public interest
  • New legislation allowing HMRC to name promoters and detail their methods and schemes, at the earliest possible opportunity to warn the public of the risks and to help those already involved to leave avoidance arrangements

These measures strengthen HMRC’s position in tackling avoidance and show the direction of travel towards their aim of stamping it out completely.

1.44 Discovery Assessments

HMRC’s ‘discovery’ powers allow HMRC to make an assessment to recover tax when an insufficiency is discovered in prior tax years, subject to certain time limits. This is a powerful weapon in HMRC’s arsenal, and is commonly used in compliance cases

Recently, HMRC has faced challenges through the tax tribunal that the discovery powers cannot apply to each of the Higher Income Child Benefit Charge (HICBC), Gift Aid (where the donor has paid insufficient tax to cover the tax being reclaimed) and certain pension charges.

In order to address this, the new measure introduced clarifies the original legislation at section 29 of the Taxes Management Act 1970 and confirms that it does apply to HICBC, Gift Aid and pension charges, whilst also confirming that individuals chargeable to these income tax charges need to notify HMRC.

1.47 Power to make temporary modifications of taxation of employment income

This measure is stated to enable the government to support taxpayers in the event of “a disaster or emergency of national significance as determined by HM Treasury”. It is explained covid-19 highlighted the limited scope and difficulties in making changes to the current benefits in kind and expenses tax system to be able to respond quickly to the pandemic. The examples which were given were:

  • Exempting specific benefits in kind from income tax where appropriate
  • Changing the qualifying conditions for exemptions on benefits in kind
  • Exempting specified reimbursements from the charge to income tax
  • Providing relief for specified expenses

Whilst the policy paper is not specific in the scenarios which may necessitate such a modification, we expect this would be in situations such as medical benefits or reimbursements for home office equipment during COVID-19.

Autumn Budget 2021: highlights

The key tax announcements include:

  • Creative tax reliefs for theatres, orchestras, museums and galleries doubled until April 2023, with rates reducing to current levels by 2024
  • R&D Tax Relief:
    • Scope to be expanded to include cloud computing and data costs
    • Restricted to UK activity from April 2023
  • Tonnage tax for shipping: amendments to favour shipping carrying a UK flag
  • Air passenger duty:
    • A reduced rate for internal UK flights from April 2023
    • A new additional rate for long-haul flights
  • Annual Investment Allowance of £1m extended to April 2023
  • Business rates:
    • 50% discount for the retail, hospitality and leisure sectors for 12 months
    • Revaluations every three years
    • 12 months exemption for business property improvements
    • Investment relief for green investment
    • Multiplier frozen for 2022/23
  • Alcohol duty to be simplified and reformed:
    • To be based on alcohol strength
    • Reliefs for small producers
    • Relief for draught beers and ciders
    • Planned increase for spirits cancelled
  • National Living Wage to increase to £9.50 per hour from April 2022
  • Fuel duty: planned rate rise cancelled
  • Universal Credit: taper rate to be reduced from 63% to 55% by 1 December 2021
  • Capital Gains Tax on residential property: reporting deadline increased from 30 to 60 days
  • A pledge to reduce taxes by the end of this Parliament

Our detailed summary will follow tomorrow morning. Please do not hesitate to get in touch with a member of our Tax team, your usual haysmacintyre contact or Katharine Arthur if you have any queries.

Riocard Hoye

Riocard previously spent over 5 years at HMRC, including 3 years in the Fraud Investigation Service (FIS), HMRC’s top compliance team. He has a detailed knowledge of HMRC powers and processes, which he has built on since moving to private practice. His range of experience ensures he is well placed to achieve the best result for his clients and to deliver a personal service.

Prior to joining haysmacintyre in 2021, Riocard was a senior manager at a top 20 firm.

In his spare time, Riocard enjoys watching sport, quizzes and spending time with friends and family.

Tax dispute settlement opportunities

The settlement opportunity will be available for those who took part in the Eclipse film partnerships, excluding individuals who are under criminal investigation by HMRC, in a move that may bring in over £2 billion to the exchequer. The Eclipse film partnerships were a tax structure developed and marketed by Ingenious involving the ‘sale and leaseback’ of rights to films. Rights to films were purchased by the partnerships, funded by loans, and the rights were then leased to production companies. Payments from production companies to fund the loans and interest were allocated to individual partnership members.

These payments were never received by the individual partners leading to dry income/dry tax (where tax is paid on income or gains the individual has not actually received known in colloquial terms on what has become known as ‘dry income’). The partnership made losses in respect of the interest payments of the loans and the individual partners claimed relief against other income on their tax returns.

HMRC contended the relief was not due as the partners had not actually incurred losses and after years of litigation, the Courts found that this relief is not due. Furthermore the Court’s reasoning allowed HMRC to argue that the dry income was assessable on the individual members. Crucially, HMRC have now stated they will not be pursuing ‘dry income’. “HMRC will not pursue individuals for tax on income treated as paying back borrowings, including for periods after individuals had exited the LLPs.” This will come as a great relief to Eclipse members.

HMRC will be writing to those affected with details of how to apply for settlement. We expect this to happen around the start of October 2021 and individuals will have six months from the date of the letter in which to accept the offer. The settlement will consist of paying the tax due and late payment interest, and in return, HMRC will confirm their acceptance to a full and final settlement and waive any rights to further action.

For those who are unable to settle in full, HMRC will agree a Time to Pay arrangement based on the individual’s circumstances.

This is only one of many settlement opportunities currently being offered by HMRC across a range of tax structures which HMRC perceived to be tax avoidance schemes.

Other settlement opportunities

HMRC have enjoyed considerable success in the Courts on a range of tax structures, which in turn has led to a number of settlement opportunities being available. A word of caution, one must not assume that the terms of a settlement opportunity are consistent with a court decision. This is perhaps the main reason why you should take advice before considering a settlement opportunity.

Settlement opportunities offer individuals an ‘out’ – a chance to enter into a mutual settlement with HMRC in order to provide finality. Normally this is in exchange for payment of tax due plus late payment interest. However, in some cases HMRC may seek criminal prosecutions of promoters – those who set up and marketed particular avoidance schemes. In these cases, we can expect HMRC to be more aggressive in the settlement terms offered. This may come in the form of penalties, in addition to tax and interest.

Recent settlement opportunities offered by HMRC include:

  • A number of different sale and leaseback film schemes
  • Disguised remuneration (for those paid by way of loan)
  • Business Premises Renovation Allowance

If you are or have been a member of what HMRC perceive to be an avoidance scheme and have received an offer of settlement, or would like to discuss the options available to you, please contact Danielle Ford, Head of Tax Disputes and Resolutions.

Tax Disputes & Resolutions

Being subject to a tax investigation by HMRC can be an unsettling experience, and a drain on you personally, and your resources. In these circumstances, it’s always best to have experts advising you, who understand HMRC’s agenda and processes. Applying tax legalisation to each client’s specific circumstances with confidence, haysmacintyre can undertake all financial and technical analysis, negotiate with HMRC and seek a settlement on your behalf, should one be required.

HMRC settlement opportunity for Eclipse LLPs

For Eclipse members, this long awaited update is a welcome confirmation that HMRC are now in a position to agree a full and final settlement.

In terms of full and final settlement, HMRC have confirmed that they “will not pursue individuals for tax on income treated as paying back borrowings, including for periods after individuals had exited the LLPs” – known in colloquial terms on what has become known as ‘dry income’.

The settlement opportunity is for current and former Eclipse members (except those subject to a criminal investigation).  It cannot be stressed enough, that this is for all individual Eclipse members, including:

  • The members who have not previously engaged with HMRC
  • The members who were or are part of an action group
  • The members who have historically made a payment on account to HMRC towards their anticipated Eclipse liabilities.

If cashflow is an issue, HMRC will agree a Time to Pay arrangement based on the member’s individual circumstances.

This is the time for all members to agree final settlement with HMRC and bring closure to all Eclipse related tax matters.  We recommend seeking professional advice before agreeing to a settlement with HMRC.

We are here to help.  With an in-depth knowledge of Eclipse LLPs, we can guide you through the process in its entirety, including:

  • Liaise with HMRC on your behalf
  • Review the HMRC settlement opportunity and advise
  • Discuss the funding of the settlement liability with you
  • Agree a payment plan with HMRC
  • Finalise your agreement with HMRC.

Please do not hesitate to contact Danielle Ford Head of Tax Disputes and Resolutions

Louise Veragoo

Louise provides tax advisory and compliance services to our NFP clients, including creative sector tax reliefs, Gift Aid, group tax planning, international matters and the application of corporation tax charitable reliefs.

Prior to joining haysmacintyre in 2016, Louise worked as a senior tax manager at a top 5 accountancy firm, specialising in the NFP sector.

Beyond haysmacintyre, Louise is a trustee for a local charity which gives her insight into the daily issues faced by charities.

In her spare time, Louise enjoys the great outdoors, particularly gardening, walking and cycling and enjoys cooking up a storm in the kitchen.