Weekly Tax Update - Monday 29 October 2012

1. GENERAL NEWS

   1.1. Updated HMRC DOTAS guidance

   HMRC has updated its DOTAS guidance to incorporate the new regulations on SDLT disclosure obligations effective from 1 November 2012, and the recent consolidating regulations for income tax, corporation tax, CGT and NIC.

   www.hmrc.gov.uk/avoidance/index.htm

   www.hmrc.gov.uk/aiu/guidance-oct-2012.pdf

   1.2. Certain FATCA deadlines deferred

   The IRS has announced changes to certain timelines under the Foreign Account Tax Compliance Act (FATCA) for withholding agents and foreign financial institutions (FFIs) to complete due diligence and other requirements and it has issued certain additional guidance concerning gross proceeds withholding and the status of certain instruments as grandfathered obligations.

   The proposed deadlines for new account opening procedures would have required them to be in place by 1 January 2013. This deadline has been extended to 1 January 2014.

   www.irs.gov/pub/irs-drop/A-12-42.pdf

2. PRIVATE CLIENTS

   2.1. High Income Child Benefit Charge

   HMRC has released more detailed guidance on the High Income Child Benefit Charge and has started writing to taxpayers about the new charge, which will no doubt start to focus minds on what action needs to be taken.

   The following practical tips may be useful in answering some of the questions likely to arise:

   Assume that you have a stay at home Mum who looks after children under 12 and her partner has a taxable income exceeding £60,000. Mum should still make claims child benefit because the entitlement to child benefit will give her a NIC credit - which may be important in deciding whether she qualifies for the full retirement pension in due course. Where one of the partners has taxable income in excess of £60,000 (assume Dad for this illustration), Mum should consider electing not to receive the child benefit. In other words Mum claims the benefit, but then elects not to receive the cash. This will save her partner the hassle of having to complete a tax return via self-assessment if not already doing so. Making an election needs thinking about: Mum will currently be receiving an amount of tax-free cash electing will save Dad a tax liability that he would otherwise suffer, but it will leave Mum out of pocket consequently there may need to be a family "summit meeting" to discuss a redistribution of the family finances. Stopping Child Benefit

   The means of electing not to receive Child Benefit have now been outlined. The election can either be made online or by telephone or writing to the Child Benefit Office.

   The election to stop Child Benefits has to be made by the recipient and the online request form includes a personal declaration. (http://www.hmrc.gov.uk/childbenefitcharge/stopchbpayments.htm)

   The information required is as follows:

   email address full postal address including postcode date of birth National Insurance number Child Benefit number, and the full name and date of birth of any children Child Benefit is received for. Restarting payments

   An individual can decide to start receiving Child Benefit payments again at any time by using an online form or calling the Child Benefit Helpline or writing to the Child Benefit Office.

   In order to restart receiving Child Benefit payments it is the person who is entitled to Child Benefit who can ask for the payments to be started again – although HMRC does say authorised agents will soon be able to request that payments are restarted for their clients.

   With an income over £60,000 the payments can only restart from the Monday after the Child Benefit Office gets the request.

   Restarting when income drops below £60,000

   The Commissioners for HMRC have published "directions" which amend the effect of the legislation by allowing an election to be revoked and child benefit to be restarted if the individual's, or partner's, income drops to below £60,000 for a full tax year, in which case the application to restart Child Benefit can be in respect of payments for up to two years after the end of that tax year.

   www.hmrc.gov.uk/childbenefitcharge/index.htm

3. PAYE AND EMPLOYMENT MATTERS

   3.1. Hok Ltd – penalties for late filing of form P35

   In 2011 the First-tier Tribunal allowed, in part, an appeal by Hok Limited against penalties imposed by HMRC for the Company's failure to submit an employer's end of year return by the due date. Although it was conceded by the Company that the return was late and it had no reasonable excuse for the lateness, the Tribunal concluded on grounds of fairness that the Company should be penalised for only the first of the five months which passed before the return was submitted.

   The Upper Tribunal has now considered HMRC's appeal against that decision and found in their favour. HMRC argued:

   the First-tier Tribunal has no jurisdiction to discharge penalties if they are properly due; its jurisdiction was limited to determining whether or not the return was late as a matter of fact and, if so, whether there was a reasonable excuse for the lateness; fairness is not a permissible consideration; even if the First-tier Tribunal did have further jurisdiction, there was no basis on which it could properly have exercised that jurisdiction in this case in order to discharge the penalties. The Upper Tribunal was aware that this appeal involved an important point of principle and said that there are many other cases pending before the First-tier Tribunal in which the same issue arises. With that background it was unfortunate that the company was not represented by counsel.

   The end of year return should have been submitted by the Company on or before 19 May 2010, but it was not in fact submitted until 15 October 2010 after HMRC has issued a penalty notice. Thus four whole months and one part month had elapsed between the due date and the submission of the return and five penalties of £100 each were imposed.

   The company acknowledged that HMRC was entitled to levy a penalty, but argued that if HMRC had notified it of its default earlier the return would have been submitted at a far earlier time, thus avoiding on going penalties.

   The First-tier Tribunal had ruled as follows:

   HMRC ran a 'structured programme to enable penalties to be issued regularly throughout the year, rather than waiting for the late return to be submitted and then issue a final penalty. These penalties, although aimed at encouraging compliance and having the effect of reminding are not designed to be reminders for the outstanding return. HMRC deliberately waited until four months have gone by and did not issue the first interim penalty notice until September of the year of default. By that time a penalty of £400, being four times £100 per month, is said to be due. The effect of HMRC desisting from sending out a penalty liability notice very soon after 19 May of the relevant year, and choosing deliberately to delay that penalty notice until four months had gone by, resulted in the taxpayer facing a minimum penalty of £500. HMRC took the stance that it was the responsibility of the...