Weekly Tax Update - 24 October 2016

1. GENERAL

   1.1 Measuring the tax gap

   HMRC has published its 'tax gap' estimate for 2014/15 at £36bn or 6.5% of theoretical tax liabilities. £2.2bn or just 6.1% of the gap is avoidance. The hidden economy, evasion and criminal attacks together account for £16.2bn or 40.8% of the gap.

   The overall level of the gap has remained at roughly the same level for the last ten years in monetary terms. In contrast to the profile given in the media to the level of corporation tax paid by multinationals and big businesses, corporation tax accounts for only 10% of the tax gap, compared to 35% for VAT and 43% for income tax, NIC and CGT. As far as tax payer type is concerned, over half was down to SME's, which may account for the some of Government's concentrating on them for Making Tax Digital (MTD).

   The comparison of MTD to Real Time Information (RTI) for employers, may not be appropriate as the underlying issues are quite different - RTI was in part about accelerating the payment of PAYE and NIC, which the tax gap figures indicate may have been successful, whereas HMRC indicate that much of the tax gap for SMEs seems to mostly relate to errors in returns as opposed to late payment.

   www.gov.uk/government/uploads/system/uploads/attachment_data/file/561312/HMRC-measuring-tax-gaps-2016.pdf

   1.2 Responses to the consultation on Help to Save1

   A response to the July 2016 consultation on the framework for implementation and policy design of the Help to Save scheme has been published. The Government has decided to operate the bonus in a similar way to the help to buy ISA, so that the bonus will be calculated on the highest balance in the two year bonus period. We do not anticipate there will be any material tax implications for the account holder.

   The message from the respondents was a request for simplicity for accountholders, provider(s) and the government administrator. Having considered the responses, the government has decided the following:

   NS&I will be the single provider for all Help to Save accounts; the accounts will automatically roll-over after two years for a second two year term; the bonus will be decided on the basis of the highest balance achieved by the saver in each two year term; after four years, the accounts will be rolled over into successor accounts. Help to Save scheme savers are unlikely to need an ISA wrapper to receive interest tax free from their successor help to save account; eligibility for the scheme will not be restricted by existing savings and monthly payments cannot be made in excess of the £50 limit, for example, to catch up after a missed payment. The new accounts will be available by April 2018.

   www.gov.uk/government/uploads/system/uploads/attachment_data/file/559099/Help-to-Save-october_final.pdf

   1.3 Updated HMRC DOTAS guidance

   HMRC has published its updated guidance on the disclosure of tax avoidance scheme provisions (DOTAS).

   The guidance now incorporates updates for sections on the following hallmarks which were updated or introduced as new from 23 February 2016 and where the tax concerned is income tax, capital gains tax or NIC:

   the amended standardised tax product hallmark (hallmark 5), which has dropped grandfathering and includes other changes; the amended loss schemes hallmark (hallmark 6); the new financial products hallmark (new hallmark 9). The flow charts on pages 26 and 27 of HMRC's guidance do not yet incorporate hallmark 9, so may need to be updated.

   www.gov.uk/government/uploads/system/uploads/attachment_data/file/560047/dotas-guidance.pdf

   1.4 Global platform for collaboration on tax

   The International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG) have launched a 'platform for collaboration on tax'.

   This is a joint initiative aimed at intensifying cooperation...