Agenda • Criminal Finance Act 2017 • HMRC announcements • Creative industry tax reliefs • Penalties for late non resident CGT returns • Recent tax cases • SEIS before EIS • PPR – no minimum period of residence?
Criminal Finances Act
Criminal Finances Act 2017 • Deals with AML, Terrorism Funding and a new corporate offences of failure to prevent facilitation of tax evasion • Hits all corporates and partnerships • Two offences – UK evasion and matters which are evasion in other countries • Hits where facilitation is undertaken by staff, sub contractors, consultants…………… (associated persons)
Criminal Finances Act 2017 • Strict offence – no need for mens rea or financial gain • Applies from 30 September – gentle touch initially? • For a corporation to be liable, there are three stages: • Criminal tax evasion by a taxpayer (either an individual or legal entity) under the existing criminal laws (UK or abroad) • Criminal facilitation of this offence by an 'associated person' (broadly an employee, agent or other person performing services for or on behalf) of the relevant body. • The relevant body failed to prevent the associated person from committing the criminal facilitation.
Criminal Finances Act 2017 • A business will be guilty of an offence if an associated person commits a UK tax evasion facilitation offence. A tax evasion facilitation offence consists of any of the following: • Stage 1 - criminal tax evasion by a taxpayer under existing law; • Stage 2 - criminal facilitation of this offence by an “associated person” of the corporation i.e. anyone who performs services for or on behalf of the business; and • Stage 3 - the corporation failed to prevent its representative from committing the criminal act at Stage 2. • There does not need to be a conviction for either Stage 1 or Stage 2 for the third stage to apply.
Case Study 2 • Matilda, Australian domiciled, has been living in the UK and working in the hospitality business for years. • She asks Kate, an Associate at the local law firm she uses (where she is a big client) to do the licencing and land transactions on her business activities and to get agents in Bermuda and Bahamas to set up several companies so she could put ‘surplus’ funds there. • Due to Kate’s involvement in Matilda’s business affairs, there is no doubt that she could not have known that there were no surplus funds.
Case Study 2 • When Kate asked Matilda where the surplus funds are coming from, Matilda says she will take her substantial business elsewhere unless Kate sets the companies up and not to ask questions. • Kate proceeds as the partner for whom she works is very keen on growth of their portfolio but not very approachable. • Some time later, after an HMRC investigation, Matilda admits to substantial UK tax evasion from undisclosed takings amongst many other offences.
Case Study 2 • Stage 1 has been satisfied. • Stage 2 is satisfied as Kate knew that the payments were illegal and she had facilitated this by assisting with setting up the infrastructure. • For the Solicitors’ Partnership, Stage 3 would depend on whether the Legal Firm could demonstrate that it had reasonable procedures to prevent Kate from undertaking Stage 2. • This may be difficult given what is implied regarding the culture in the firm.
Penalties • Potentially unlimited • Will be based on each offence which was not prevented • So for Case Study 2, we would be talking about all the tax and penalties levied on Matilda • What about a systemic problem like a repeated payroll problem? • Also – reputational damage – HMRC name and shame, and if applying for Gov’t business etc would you be a “fit and proper person”?
Defences The relevant body has a defence if: • It has put in place ‘reasonable prevention procedures’ to prevent its associated persons from committing tax evasion facilitation offences, or • It is unreasonable to expect the relevant body to have the procedures in place.
Overview of 6 principles
HMRC Announcements and other developments
Creative Industry Tax Reliefs • HMRC Guidance on 7 company tax reliefs: • certain films • high-end television programmes • children’s television programmes • animation programmes • video games • theatrical productions and • orchestral concerts 14
Film, Animation, High-end Television and Children’s Television Tax Relief • Companies are entitled to either: • an additional tax deduction (the enhancement) of 100% of enhanceable expenditure (the lesser of UK qualifying expenditure or 80% of total qualifying expenditure) • if a loss is surrendered - 25% of the loss up to the amount of enhanceable expenditure • The maximum amount that can be claimed is the lower of the enhanceable expenditure for that accounting period or the amount of the loss. 15
Video GamesTax Relief (from 1 April 2014) • Qualifying companies can claim an additional deduction in respect of qualifying expenditure on the game: • additional deduction is calculated on EEA expenditure (subject to the subcontracting cap) or 80% of the total expenditure, if less • enhancing the expenditure by 100% • If the company makes a loss, it may surrender this for a 25% payable video games tax credit : • the surrenderable loss is the loss in the period or if less the available qualifying expenditure in the same period 16
Theatre and Orchestra Tax Relief • Relief is by way of an additional deduction when calculating the taxable profits or losses of the separate theatrical trade. This will either reduce the taxable profits or create or enhance a loss, a proportion of which can be surrendered for a tax credit. • The additional deduction is the lower of: • 80% of the total expenditure on producing the game or the theatre production • the EEA expenditure • Payable credit, 25% for touring productions, and 20% for others 17
Reporting disposals of UK property by non- residents to HMRC • You must tell HMRC within 30 days of conveyance • You must report the disposal online using the non-resident CGT return, even if: • you’ve no tax to pay • you’ve made a loss • you’re registered for Self Assessment • you’re registered with HMRC for Corporation Tax • you send HMRC Annual Tax on Enveloped Dwellings (ATED) or ATED-related Capital Gains Tax returns
Late Filing Penalties out of proportion? • Initial £100 penalty, regardless of whether or not there is a liability • After 3 months, a daily £10 penalty to a maximum of £900, regardless of liability • After 6 months £300 or 5% of the tax due, whichever is the larger amount (i.e., a minimum £300) • 12 months £300 or 5% of the tax due, whichever is the larger amount (i.e., a minimum £300) • So that’s a minimum £1,600 per person for a 12 month delay
Late Filing Penalties out of proportion? • Freedom of Information request: • 1. 20,264 NRCGT returns have been filed 2. 1,583 show tax due of £7,688,004 3. 7,356 were late (36%) 4. Late filing penalty issued for 4,022 resulting in penalties of £3,338,910. • Thus approximately 30% of the revenue from NRCGT is penalties!
CG34 Post Transaction Valuation Check • HMRC updated claim form • HMRC will need at least 2 months to reply • Allow time so that can use in SA return • Form sets out information to be provided • Shares • Goodwill • Land • Other assets
Self- Assessment Filing “Exclusions” • 60 situations where HMRC computer did not calculate tax correctly for 2016/17! • Interaction between new dividend allowance, savings allowance and personal allowance • Cannot file online but submit paper return with covering letter! • HMRC are have introduced a “fix” for some of exclusions 23 October 2017 • Check with your software provider
Guidance on New CGT Investors Relief • New CGT relief for long term investors in unquoted trading companies • Not employees, directors, nor associates • 10% CGT on first £10m of lifetime gains • Must be new issue of shares for new consideration • Issued on after 16 March 2016 • Held for at least 3 years • Anti-avoidance to ensure genuine commercial investment
Self-employed NICs – current system
Self-employed NICs - proposal
Recent tax cases
SEIS before EIS, and use the correct form! • GDR Food Technology Ltd v HMRC [2016] UKFTT • X-Wind Power Ltd v HMRC [2017] UKUTT • Innovate Commissioning Serv Ltd v HMRC [2017] FTT • Must claim SEIS before EIS • EIS1 completed for initial investors Sept 2012 • Further investment April 2014 • No SEIS as EIS investment made first • In both cases should have submitted SEIS1! • Seed EIS relief denied 27
Tax breaks for SEIS investor • 50% income tax credit* • Max £100,000 @ 50% each tax year • Plus 50% of gains tax free • Disposal exempt from CGT* • * Provided not connected • Capital loss relief v income if company goes bust 28
Seed EIS – Qualifying Company • Newly incorporated company: < 2 years prior to issue of shares • < £200,000 gross assets prior to share issue • < 25 employees when shares issued • Unquoted companies only • Must not be in partnership • Carrying out qualifying business activity (as EIS) • Max £150,000 share issue qualifies for relief 29
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