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We have chronicled the debacle of the trust registration service (TRS) for nearly a year (summarised in our newsletter on 7 December 2017), and now HMRC are seeking to impose penalties on trustees who fail to meet the TRS filing deadlines.

In brief those deadlines are:

• For registering a trust for SA the first time: 5 October after tax year end, – extended to 5 January 2018 for 2016/17 SA returns.
• Registering existing trusts with the TRS: 31 January 2018 – but no penalties to be charged if registration was completed by 5 March 2018.

The penalties for late filing will be:

• Up to three months late: £100
• Three to six months late: £200
• More than six months late: greater of £300 and 5% of all relevant taxes paid by the trust in the relevant tax year.

“Relevant taxes” may include: income tax, CGT, IHT, SDLT, LBTT, LTT and SDRT.

However, this is only the administrative penalties. As the TRS was introduced under money laundering legislation, HMRC also have the power to apply penalties for money laundering offences under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (SI 2017/692). HMRC is to consult on how those money laundering penalties may be applied.

Late filing penalties will not be applied automatically for TRS registrations made in 2017/18, but this concession may not apply for trust registrations made in 2018/19. HMRC say they will apply penalties where they believe the trustees did not take reasonable steps to comply with the regulations.

In view of the chaos and confusion which surrounded the TRS in 2017/18, and the adverse weather in the week to 5 March 2018, there should be ample reasonable excuses available for late filing.

Written by the Tax Advice Network

This is a scandal of our times; for years thousands of employees and contractors were persuaded to take loans from their employer or engager, on the understanding that the arrangement was totally legal, and they would never have to repay the loan. These individuals now face huge tax charges and penalties, as we outlined in our newsletter on 16 November 2017.

HMRC is offering a settlement opportunity for both individuals and employers, which covers all sorts of loan schemes, including EBTs. There are no special terms for this settlement, interest will be payable on late paid tax and NIC, and regular penalties may also be due.

The settlement is merely a means to regularise historic tax issues and avoid increased penalties and charges imposed by:

• Requirement to correct (RTC) – where an overseas body was involved.
• Accelerated payment notice (APN) – where the scheme had a DOTAS number.
• Follower Notice (FN) – where a similar scheme has been defeated in the courts.
• Serial tax avoidance regime (STAR) – where the taxpayer used one or more tax avoidance schemes, which failed, or they exited from, after 5 April 2017.
• Loan charge – for any loans outstanding on 5 April 2019.

To take up the settlement offer the taxpayer must register an interest with HMRC to do so by 31 May 2018, and provide sufficient information to HMRC by 30 September 2018. The settlement must be completed before 5 April 2019, or the loan charge will apply.

If the taxpayer does not pay the tax due either under an agreed settlement, or when required by APN, or FN, the penalties can be as follows:

• RTC: 100% to 200% of tax due and publicly named.
• FN: up to 50% of tax advantage.
• APN: up to 50% of tax advantage.
• STAR: 20% to 60% penalties if new schemes are used within 5 year monitoring period.
• Loan charge – all outstanding loans treated as employment income in 2018/19, but this does not amount to settlement of the tax due, so taxes on the actual loan may still be due.

If you have any queries please contact our office.

Written by the Tax Advice Network

HMRC have recently issued guidance to help businesses avoid getting caught up in missing trader fraud.

Missing trader fraud involves a `missing’ or `defaulting’ trader who deliberately fails to pay its VAT liability for taxable supplies in the UK. The supplies may pass through a number of intermediary traders before being sold to an end user in the UK or exported or despatched to an overseas customer, creating a supply chain known as a `tax loss chain’. A non-tax loss chain may be used alongside the tax-loss chain to disguise the VAT losses.

Where a business knew or should have known that a transaction was connected with e VAT fraud, HMRC may refuse a VAT claim in respect of that transaction. In determining whether the business should have been aware of the VAT fraud, HMRC will consider whether it took reasonable steps to verify the integrity of the supply chain.

To ensure that you are protected, we recommend that you undertake checks to verify the legitimacy of your customers and the viability of the goods as described by the supplier. Questions we would ask include:

• What is the customer’s/supplier’s history in the trade?
• Have you been contacted in a short space of time by a prospective buyer and seller offering to buy/sell the goods of the same specification and quantity?
• Has the supplier referred you to a customer who is willing to buy the goods
• Does the supplier offer you deals at no commercial risk to them?
• Are you being offered deals that have a consistent or pre-determined profit regardless of date, quantities or specifications involved?
• Are you being asked to make payments to a third party or to an offshore bank account?
• Are the goods adequately insure?
• Are high value deals being offered without formal contractual arrangements?
• Are high value deals being offered by a newly established supplier with minimal trading history?
• Have you previously been notified by HMRC that previous deals with the supplier were connected with VAT fraud?

As regards checking the viability of the goods as described by the seller, you should check that you are sure that the goods exist in the quantity and specification offered and that they are in good condition. You should also be wary of large quantities of goods with non-UK specifications offered for supply in the UK and check what remedies are available if the goods are not as described.

Written by the Tax Advise Network

Class 2 National Insurance contributions were originally due to be abolished from 6 April 2018, with Class 4 reformed from the same date to provide the mechanism by which the self-employed build up their entitlement to the state pension and certain contributory benefits. However, the delay to the reform means that it will now take effect from 6 April 2019.

The one-year delay does however create a window of opportunity for those who have small earnings from self-employment and no one means of building up their contributions record. Where earnings from self-employment are below the small profits threshold, set at £6,205 for 2018/19, the self-employed earner is entitled but not obliged to pay Class 2 contributions. This means that self-employed earners falling into this category can pay Class 2 voluntarily if they so wish for an extra year.

Where it is beneficial to pay a voluntary contribution, for example where a person will not have the full 35 years needed for a full single-tier state pension, paying a Class 2 contribution voluntarily where this is an option is much cheaper than paying voluntary Class 3 contributions. For 2018/19, Class 2 contributions are set at £2.95 per week, whereas Class 3 contributions are set at £14.65 per week. Paying Class 2 rather than Class 3 will save £608.40 for 2018/19.

To take advantage of this opportunity, you will need some earnings from self-employment in 2018/19.

Written by the Tax Advice Network

In any case where IHT is payable the personal representatives or executors need to do battle with form IHT400, in order to apply for probate. This is not an easy task, even for tax professionals.

The IHT400 is a basic 16 pages, plus up to 19 further schedules, depending on the nature of the assets held by the deceased. The form also requires a calculation of the IHT due, and a declaration to be made by the executors or estate administrator.

HMRC can of course ask questions about the information presented on the IHT400, and it has recently set out the timetable in which it will do this, in the Trusts and Estates Newsletter, April 2018 edition. From now on executors will be told within two weeks if HMRC is going to examine the IHT400 more closely, and it will provide a deadline of up to 12 weeks in which it may open the enquiry (aka ‘compliance check’).

If the executors have not received an IHT related enquiry from HMRC within 14 weeks of submitting the IHT400, they can assume that all is well and the estate can be distributed. Where there is an enquiry into the IHT400, HMRC can take up to 8 weeks to establish its areas of concern. Resolving those issues, which will typically centre around valuations, may take much longer.

The new procedure means that HMRC will no longer issue clearance letters to the executors when it has completed its checks. The passing of time with no further questions is supposed to indicate that the matter is closed. Some executors will want to apply for a clearance on form IHT30, to give them the confidence to pay out the final amounts to beneficiaries of the estate.

Written by the Tax Advice Network

The task of completing and filing P11D forms has traditionally involved lots of paper: receipts from employees and lists of benefits provided. It should now be possible to perform the whole task electronically, particularly if the employer’s expenses system is integrated with its payroll software.

One sticking point for paper communication has been the need to provide employees with details of the expenses and benefits data submitted to HMRC, and details of any benefits which have been payrolled. This doesn’t have to be a physical copy of the P11D. The employer is obliged to provide an end of year statement to each relevant employee, but this information can be provided as a summary on the employee’s payslip (which can be electronic). It doesn’t have to be printed as a separate letter as indicated in the April edition of HMRC’s Employer Bulletin.

The P11D filing process can be completed online using any of these routes:

• Commercial software- possibly part of the payroll package
• HMRC’s PAYE online service
• HMRC’s P11D online form

The software should pick up common errors, but the HMRC online services don’t calculate the class 1 A NIC due, which needs to be done manually or by other software.

If we regularly apply for a payroll settlement agreement (PSA) for you, the good news is that the PSA for 2017/18 may be the last one you will have to do. From 6 April 2018 any PSA already agreed with HMRC will remain in place until it is cancelled or varied by the employer or by HMRC.

Finally, look out for electronic notices (GNS messages in PAYE online) of late filing penalties for RTI returns, which will be issued in the week commencing 7 May. We explained the three-day grace period for filing the FPS, which applied for the whole of 2017/18, in our newsletter on 31 August 2017. We can appeal against the penalty on your behalf.

Written by the Tax Advice Network