Weekly Tax Update - 25 July 2016

1. General

   1.1 HMRC research findings - lessons for making tax digital

   HMRC has published the report of research it recently commissioned into the online system for the transferable tax allowance for married couples and civil partners. Its findings, particularly those on 'customers' decision making processes' should be compulsory reading for anyone designing future digital systems and how to communicate those to taxpayers.

   There was a low take up rate for the new allowance. Generally individuals seemed to carry out a mental cost-benefit analysis to decide whether to apply for the allowance. The report indicates that there has been much uncertainty and understandable concerns about the ramifications of making an incorrect claim or circumstances changing, together with some misconceptions and misunderstandings of the policy due to its unfamiliarity.

   The message appears to be that those designing policy and new systems should not assume taxpayers have any level of knowledge of the tax system or confidence and ability in using online digital processes.

   The report mentions that one of the aims of such customer insight projects is to help HMRC 'design, deliver and operate services for individual customers which ... maximise tax yield.' One can but conjecture if that was already achieved here.

   https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/537012/Transferable_tax _allowance_for_married_couples_and_civil_partners_-_publication_report.pdf

2. Private client

   2.1 Penalties for incorrect self-assessment concerning capital losses

   The First-tier Tribunal (FTT) has allowed an appeal against penalties imposed on a taxpayer using a tax avoidance scheme. HMRC was not able to demonstrate that the taxpayer acted fraudulently or negligently in submitting an incorrect return. The penalties amounted to £45k.

   Mr Bayliss submitted a claim to capital losses of £539k for 2006/07. He applied to offset that loss in 2006/07 and 2007/08, but later accepted that these losses were not available. The losses arose from a scheme marketed by Montpelier involving the purchase of a contract for difference and a loan. Mr Bayliss described the loss as arising on shares, though provided further detail on his tax return, where it appeared clear to the FTT that the scheme involved a contract for difference and loan.

   HMRC sought penalties under TMA 1970 s.95(1)(a) in relation to the tax understated on the basis that the return was fraudulently or negligently delivered.

   The FTT held that HMRC's arguments that...