Francis Clark Tax Consultancy - London Conference 2018

Francis Clark Tax Consultancy
London Conference
5 July 2018

Today’s Content
Time Topic Speaker
9.00 Registration -
9.30 Welcome & intro to FCTC Dave Williams
9.35 Requirement to Correct Chris Watts
10.10 R & D tax relief claims Katie Farley
10.45 Tax Investigation Insurance Ben Chaplin, Croner Taxwise
11.20 Coffee break -
11.40 Pension Contribution Paul Collings
12.20 VAT Simon Anslow
12.55 Round-up & closing remarks Dave Williams
13.00 Lunch & close -

Requirement to Correct
Chris Watts

www.fctc.co.uk
What is it?
• Comes into effect after 30 September 2018
• Legislates obligation to bring overseas tax affairs up to date
• Schedule 18 FA(No.2) 2017
• Tax affairs must be corrected by the deadline or will be
dealt with under RTC rules
• HMRC already using information gathered from Common
Reporting Standards (CRS) reports to investigate or send
‘prodding’ letters
• More countries likely to be brought into CRS in time, over
100 currently signed up, but not U.S.A.

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What is it?
• Continues HMRC’s driver to prevent and capture offshore
tax evasion following earlier disclosure opportunities.
• Does not prevent new disclosures being made through
usual routes, but are higher penalties counter productive to
this?
• Changes previously accepted meaning of “reasonable care”
and “careless behaviour” in relation to overseas issues.
• Potential to catch out perfectly innocent errors or unduly
penalise where proper advice was taken but was incorrect
• Covers non compliance of overseas related Income Tax,
Capital Gains Tax and Inheritance Tax

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Who should be concerned?
Any person who has tax liabilities linked to overseas assets
where there has been :-
• Failure to notify chargeability to tax. Sch.18 FA17(no.2)(1)(a)
• Failure to file Tax Returns or documents within
statutory filing periods. Sch.18 FA17(no.2)(1)(b)
• Inaccurately reporting offshore income and gains or
omissions from a Tax Return or document which result
in underpayment of tax. Sch.18 FA17(no.2)(1)(c)
All of the above would come under RTC if a person fails to
correct their tax position for tax years up to 2016-17 by 30
September 2018.

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What information could HMRC have?
HMRC have obtained the following types of overseas data
through FATCA, CRS, other exchanges of information etc :-
• Bank accounts
• Securities and investments
• Employment income
• Pensions
• Ownership of property
• Information on UK resident beneficiaries of offshore trusts
The reporting requirements also extend beyond the above categories, but these
are the most common that individuals will have.

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What can be done to avoid RTC penalties?
Before 30 September 2018 an individual should :-
• File any outstanding Tax Returns
• Ensure individuals have checked any uncertainties with the tax
position of their offshore assets
• Notify HMRC and correct known errors
• Use one of the disclosure options to bring affairs up to date
• Pay all tax liabilities
Clarification is being sought whether a notification/disclosure to HMRC before 30 September
is sufficient or whether the tax position has to be formally corrected, agreed with HMRC and
tax liabilities settled. CIOT are in discussions with HMRC and awaiting responses.
Legislation currently reads that the above may not be sufficient and everything has to be
sorted by 30 September.

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What should be reviewed?
Whilst most individuals will look simply at ‘normal’ offshore income/gains/remittances to
determine potential tax liabilities, they could be inadvertently create liabilities by doing the
following :-
• Using a credit card issued by a foreign bank for payments made in the UK.
• Using a UK credit card abroad and paying it off from funds from a foreign bank.
• Use a mortgage from a foreign bank to buy a UK asset and using funds from overseas
to repay the mortgage payments.
• Making a payment of goods or services provided in the UK from foreign income, even if
the supplier is overseas.
• Purchase an asset abroad and bring it to the UK permanently e.g expensive car.
• Using funds from foreign bank account to pay for an overseas holiday via a UK travel
agent.
• Selling an overseas property purchased using foreign income, and remitting the
proceeds of the sale to the UK.

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How far can HMRC go back under RTC?
• Normal time limits for raising assessments regarding
behaviour i.e.
• Reasonable care – 4 years *
• Careless – 6 years
• Deliberate or fraudulent – 20 years
BUT HMRC have granted themselves an additional 4
years to assess from 6/4/17 to allow a review of CRS
reports. HMRC could therefore assess back to 1997/98
even if assessments not raised until 2021/22 tax year!
*unless advice is ‘disqualified advice’

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Behaviour Min Penalty % Max Penalty % Min Penalty % Max Penalty %
Unprompted Disclosure Prompted Disclosure
Reasonable Care 0 0 0 0
Careless / failure to take
reasonable care
0 30 15 30
Deliberate 20 70 35 70
Deliberate and Concealed 30 100 50 100
The Penalty Rates – pre RTI
Penalties uplifted between 0 – 100% for liabilities relating to tax years 2011/12 onwards depending
on category a country falls into. 4 possible categories, dependent on transparency of tax laws,
disclosure etc.
Penalties charged by reference to s.97 and Sch 24 FA 2007

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Country Category example
Category 1 Category 2 Category 3
No additional penalty + 50% increase in penalty + 100% penalty
European Union Switzerland Monaco
USA Liechtenstein Panama
Isle of Man Jersey Andorra
Guernsey Bermuda / BVI United Arab Emirates
Cayman Islands Israel Majority of Caribbean Islands and
Australia Pakistan Overseas British Territories
Cat 2 countries are those not listed as Cat 1 or Cat
3 on HMRC‘s full list
Penalty escalators apply from 2011-12
FA 2015 introduced a new ‘Category 0’ penalty, whereby countries previously in
Cat 1 that had signed up to CRS would keep a 0% penalty increase, all other non-
CRS Cat 1 countries will have penalties increased by 25%.

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Penalties charged under FTC
Behaviour Min Penalty % Max Penalty %
Reasonable Care 0 0
Careless / failure to take reasonable care 100 200
Deliberate 100 200
Deliberate and Concealed 100 200
A Failure to Correct Penalty (FTC) is reduced based on cooperation, disclosure,
seriousness of the failure etc, but will not reduce penalty below 100% unless
“reasonable care” can be demonstrated.
No automatic penalty escalator for country where assets are based.
HMRC are effectively removing the difference between careless and deliberate.
Very serious cases would likely be considered for criminal investigation.

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Even More penalties?
In addition to the standard tax geared penalties, HMRC have
introduced additional penalties based on the following :-
Offshore Move Penalty
• An additional 50% increase in the FTC penalty rate can
be added where an individual has moved offshore assets
from a CRS registered country to a non-CRS country to
avoid disclosure.
• Relates to assets moved after 26 March 2015
• Could be caught out if country subsequently becomes
CRS compliant – i.e. USA have not signed up to CRS yet

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Even More penalties?
Further penalties can also be added where taxpayers
behaviour was deliberate or deliberate and concealed and
additional tax liability due in a single year exceeds £25,000.
• Asset based penalty of 10% of the overseas assets
connected with the non compliance
• Name published on HMRC list of Deliberate Defaulters
HMRC have stated that further details on how all the penalties
will be calculated and applied would be published by 30
September. As at current date these are still not known.

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FTC penalty examples
Penalty example for Category 1 (0) country for tax years 5 April 2010 onwards
where behaviour was ‘careless’ and prompted
Post 5 April 2010 years Pre RTI Post RTI
Tax liability £30,000 £30,000
Penalty rate (min) 15% 100%
Penalty amount £4,500 £30,000
Total due before interest £34,500 £60,000

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FTC penalty examples
Penalty example for Category 1(0) country for tax years 5 April 2010 onwards where
behaviour was ‘deliberate’ and prompted and assets moved to a non-CRS jurisdiction
and tax liability in one year was >£25,000.
Post 5 April 2010 years Pre RTI Post RTI
Tax liability £100,000 £100,000
Penalty rate 35% (min) 150% (est)
Penalty amount £35,000 £150,000
________ ________
£135,000 £250,000
+ 10% asset based penalty £0 £50,000 (based on £500k assets)
+ 50% move penalty if assets taken out of CRS
country
£0 £75,000
Minimum Total Settlement* £135,000 £375,000
*The above does not take into account statutory late payment interest that would be added to the tax liability.

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Taxpayer okay if advice received?
Possibly not. Normally professional advice received would mean if an error was
found, taxpayer would claim reasonable care for seeking assistance and claim a 0%
penalty.
Under RTC, advice could be ‘disqualified advice’ if the same tax advisor who gave the
advice was also the advisor who was involved in the non-compliance e.g. prepared
the incorrect documents or gave advice on how to structure tax affairs to avoid paying
tax.
They refer to such advisors as being someone who was ‘interested’
An ‘interested person’ is someone who either participated in relevant avoidance
arrangements or who received consideration for facilitating an entry into the relevant
avoidance arrangements. It is important to note that the interested person concept
only applies to advice relating to avoidance arrangements, defined as arrangements
where one of the main purposes is to obtain a tax advantage. This is not supposed to
trap “established practices” nor arrangements where HMRC have accepted such
practices.
Taxpayer would therefore not benefit from ‘reasonable care’ rate of penalty.

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Not Disqualified Advice – HMRC Example
“Ian was unsure as to his correct domicile status and sought advice from a large firm of accountants. The firm thoroughly
reviewed his circumstances and advised that in their view he was not domiciled in the UK for tax purposes.
The firm then advised Ian on how to structure his affairs to pay less tax on his foreign income. Ian did not make a correction
under the RTC because he believed, based on the advice he had received, that he had no correction to make.
Some years later HMRC challenged Ian’s domicile status and after a lengthy enquiry established that he was actually domiciled
in the UK.
Because of this Ian owed tax in relation to his offshore income for tax years 2013 to 2014, 2014 to 2015 and 2015 to 2016. Ian
should have made a correction under the RTC.
Ian claimed that he had a reasonable excuse because he had taken and followed appropriate advice and claimed that the
incorrect advice is not disqualified. The incorrect advice related to his domicile status.
The advice was given by someone with the appropriate expertise, took account of all of his relevant circumstances and did not
relate to avoidance arrangements. The advice was not therefore disqualified and Ian did have a reasonable excuse.
It is important that the inaccurate advice related to Ian’s domicile status but that the domicile status did not involve avoidance
arrangements facilitated by the advisor. Ian did not take any steps to alter his domicile status based on the advice.
In these circumstances his domicile status does not fall within the definition of avoidance arrangements. Although the
subsequent steps do fall within the definition of avoidance arrangements, the advice relating to the avoidance arrangements
was correct.”
So two wrongs make a right!? The initial advice was wrong, but if it had been correct then the arrangements to lower
his tax liability would have worked, so that makes it okay! Ian can request that there should be no penalty on the tax
due.

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Disqualified Advice – HMRC Example
“Peter wanted to structure his affairs to ensure he paid the minimum amount of tax required by the law. He approached a
specialist firm who, after reviewing his circumstances, advised him to set up an offshore trust to hold some of his assets and
investments.
The firm also advised Peter on how to complete his tax return. Peter accepted the advice and instructed the firm to put the
arrangements in place.
Peter did not make a correction under the RTC because he believed, based on the advice he had received, that he had no
correction to make.
Some years later HMRC challenged Peter’s return and after a lengthy enquiry established that more tax was due on the assets
and investments in the offshore trust. Because of this Peter owed tax in relation to his offshore income for tax years 2013 to 2014,
2014 to 2015 and 2015 to 2016. Peter should have made a correction under the RTC.
Although the advice was given by someone with the appropriate expertise and took account of all of his relevant circumstances,
because it was advice concerning avoidance arrangements and was given by someone who facilitated the arrangements it is
disqualified.
The firm is an interested person and Peter cannot rely on the advice he received to show he had a reasonable excuse for his
failure to correct.”
Peter would therefore be subject to a minimum 100% penalty on the tax due.
But is this correct? Setting up of an offshore trust by a non-dom individual is accepted practice according to the GAAR and tax
legislation exists for offshore trusts which supports that such planning is acceptable. It is expected that there could be challenges
to the definition of ‘Disqualified Advice’ if it is felt HMRC have wrongly indicated that they believe planning advice to be
disqualified.

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Not Disqualified Advice – HMRC Example (2)
“The position is similar to the previous example but on this occasion after the arrangements had been put in place, Peter
provided full details of the arrangements to another accountant and asked him to advise how he should complete his tax
return.
The accountant told him that he agreed with the advice given by the specialist firm and helped Peter complete his return
accordingly.
Again, some years later following a lengthy enquiry, HMRC established that more tax was due on the assets and
investments in the offshore trust.
Because of this Peter owed tax in relation to his offshore income for tax years 2013 to 2014, 2014 to 2015 and 2015 to
2016. Peter should have made a correction under the RTC.
Again the advice from the specialist firm was disqualified. However the advice from the accountant was from someone
who was not involved in the facilitation of the arrangements who had the appropriate expertise and took account of all of
his relevant circumstances.
Consequently the advice from the accountant was not disqualified and Peter could rely on it to show he had a reasonable
excuse for his failure to correct”
Peter can therefore benefit from potentially having no penalty at all on the same tax liabilities as in the previous
example.
The following example highlights what would have happened if Peter had gone elsewhere after receiving the
initial advice to implement it

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Disqualified Advice – HMRC Example (3)
“Larry is not domiciled in the UK and took advice from an accountant in 2006 about what tax he should pay on his foreign
income. He was correctly advised on how to structure his affairs and what income to declare if he did this.
Larry followed this advice and completed his return for tax year 2006 to 2007 and subsequent years accordingly but
never took any further advice.
Because of changes to the rules on tax payable by people who are not domiciled in the UK, all of Larry’s returns since tax
year 2008 to 2009 have been incorrect. Larry was unaware of the changes, and did not make a correction under the
RTC.
In 2019 HMRC opened an enquiry and established the correct position. Larry has not acted deliberately but cannot be
said to have taken reasonable care in relation to his returns submitted some years after the advice was taken.
His failure to take further advice means he has been careless and should have corrected his non-compliance for the tax
years 2011 to 2012 through to 2016 to 2017. Larry cannot claim to have a reasonable excuse as the advice that he relied
on failed to take account of all of his relevant circumstances”
This example makes some sense as under normal rules it would be difficult to say that Larry had taken
reasonable care as he did not ensure that he kept himself up to date with changes in the law. However, is a
minimum penalty of 100% a just punishment for the crime?

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Not Disqualified Advice – HMRC Example (3)
Ken approached a specialist trust company in 2011 and was advised that he could pay less tax if he set up a complex
offshore structure involving trusts and companies
The specialist trust company was paid a commercial fee for the work setting up the structure. Ken did not tell his
accountant about the structure because he was happy to rely on the advice from the trust company.
In 2017, Ken decided to get a financial health check to make sure he did not need to make a correction under the RTC.
He explained what had happened to his accountant and supplied all of the relevant information to him. The accountant
said that the matter was not free from doubt but agreed that no tax was payable and that Ken had no need to make a
correction.
Sometime later HMRC found out about the structure and opened an enquiry. The matter was complex but eventually
HMRC established that the structure did not successfully avoid tax and that further tax was due. Ken should have made a
correction and hadn’t. Ken had to pay the tax and interest that was due.
However, HMRC accepted that because Ken had obtained, and followed, independent advice about the avoidance
arrangements from someone with the appropriate expertise and the advice took account of all of his relevant individual
circumstances he had a reasonable excuse for not making the correction and no FTC penalty applied.
If Ken had relied solely on the original advice he would not have had a reasonable excuse as the advice would have
been disqualified as it was given by an interested person because the specialist trust company was involved in facilitating
the avoidance arrangements and was paid a fee for that work
So potentially two wrongs do make a right again!? As both advisors failed to realise the arrangements did not
work, Ken can claim reasonable care was taken, despite him not telling his accountant at the outset about the
trusts. Had Ken not taken later advice from his accountant, then the original advice would have been
disqualified advice and HMRC would charge a minimum 100% penalty.

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Disqualified Advice – the workaround?
If there are potentially zero penalties if two advisors have confirmed that advice
believed to be incorrect at the time, but subsequently turned out to be wrong,
then should any person given offshore advice ensure that work is reviewed by
another firm for implementation?
Lessens PI risk, both because work has been checked, but also as HMRC scope
to charge penalties is less if advice found to be incorrect, taxpayer won’t have
such a large penalty to seek redress for the incorrect advice.
No one likes to believe their advice is incorrect, but as an insurance against the
risk to the client and penalties there seems to be a lot of benefit to this if new
advice on overseas issues is being given. But is this really what HMRC want to
suggest in their examples?

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Strict Liability Personal Offence
• Applies to tax years after 2017/18 if no reasonable
excuse
• Tax liabilities in excess of £25,000 per tax year
• Creates criminal offence for non compliance relating
to tax liabilities related to overseas income and
assets in non-CRS countries e.g. USA
• Fine or 6 months in prison
• HMRC do not need to show intent to defraud or
deliberate behaviour

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Current rectification options
In theory, any form of notification by way of one of HMRC’s formal disclosure
routes, together with payment of the tax liabilities, interest and estimated penalty
before 30 September will satisfy the need to correct.
HMRC have advised a number of people that any disclosure with overseas
elements will be referred to Offshore Investigations, so use of Let Property
Campaign would carry no benefit.
Depending on the circumstances of the disclosure, the two main options will be
• Worldwide Disclosure Facility (WDF), for general overseas disclosures. WDF
does not give immunity to prosecution but HMRC unlikely to prosecute unless
materially incorrect disclosure, or behaviour is serious enough or assets are
believed to have been funded by proceeds of crime.
• COP9 – Contractual Disclosure Facility (CDF), where the tax liabilities may be
large or complex and brought about by the deliberate avoidance of tax. CDF
does give immunity to prosecution from HMRC and should be considered if
there may be concern about the possibility of prosecution.

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Time issues are now a problem for those yet to notify HMRC of the need to make
a disclosure.
• WDF gives 90 days to submit and pay all taxes, interest and penalties.
Therefore any new disclosures won’t get the benefit of the full 90 days to
comply with RTC deadline.
• CDF gives 60 days from the date of issue to submit the response, however in
such cases can sufficient information be given to HMRC in this time to satisfy
the need to correct the tax position before 30 September?
HMRC have been asked if the registration to make a disclosure before 30
September will satisfy the requirement to correct, pending the actual disclosure
being submitted within the appropriate number of days – answer still pending!
They have further been asked to clarify that a disclosure made before 30
September but not signed off by HMRC will also be accepted as complying

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No special penalty rates for voluntary disclosures, penalties charged as normal
based on prompter/unprompted behaviour rates under s.97 and Sch 24 FA07
HMRC are currently very slow in dealing with WDF submissions.
Response times vary, as do the type of follow up questions, from a detailed
technical examination down to signing off without further queries.
Experience suggests if the Tax to Asset ratio seems low, HMRC will ask a lot of
questions.
WDF forms provide little detail to make full disclosure of facts and HMRC have
had trouble matching covering letters with such information to digitally submitted
disclosures.

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Chris Watts
chris.watts@francisclark.co.uk
Karen Bowen
karen.bowen@francisclark.co.uk
Karen specialises in advising on residence issues
and tax planning for high net worth individuals and
non UK domiciliaries. She has extensive
experience in dealing with domicile reviews,
remittance planning, UK and offshore trusts, the
Statutory Residence Test and the interaction of
double tax treaties.
She is also able to advise on the UK tax
implications of enveloping or de-enveloping UK
properties within foreign companies and the Annual
Tax on Enveloped Dwellings (ATED).
Karen joined Francis Clark in 2012 having
previously worked in a ‘Big 4’ firm for almost 25
years. She is a member of the Institute of Tax
Technicians.
Chris joined the tax compliance team at Francis
Clark in January 1996 and moved over to Tax
Consultancy in 2010.
Chris specialises in tax investigations, working
alongside Dave Williams to assist with both
investigations at local compliance level and
producing reports for Civil Investigation of Fraud
and the Special Investigation branches of HMRC.
His background from tax compliance also enables
Chris to produce detailed tax planning reports
which covers all aspects of personal tax, capital
gains tax, family company structures and
inheritance tax.
Chris qualified as a Chartered Tax Advisor in 2008
and in July 2012 also qualified as a member of the
Society of Trust and Estate Practitioners.
FCTC Offshore and disclosure team

In 2000 the government introduced a scheme to encourage
scientific and technological innovation within the United Kingdom.
R&D in a Corporation Tax relief that may reduce your company’s
tax bill if your company is liable to CT of, in some circumstances,
you may receive a payable tax credit.
Essentially it is the governments way of rewarding businesses
that are developing new, or appreciably improving existing,
products, processes, systems and materials – and thereby
increasing the country’s capacity for wealth creation.
Research & Development Tax relief - Background

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Number of claims

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Where the money is going

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Who is claiming

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• An ‘export led recovery’ (George Osborne - 2010)
• The Dyson Report (2010)
• BIS Internationalisation of Innovative SMEs (2010)
• BIS Strategy for Growth (2011)
• 2020 Export Drive
The Importance of Innovation

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Innovation & Tech Business Lifecycle

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R&D project seeks to achieve an advance in overall knowledge or
capability in a field of science or technology through the resolution of
scientific or technological uncertainty – and not simply an advance in a
company’s own state of knowledge or capability.
R&D defined

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Other useful terms
• Certain qualifying indirect activities related to the project are also R&D. Activities other
than qualifying indirect activities which do not directly contribute to the resolution of the
projects scientific or technological uncertainty are not R&D.
• Appreciable improvement
• Overall Knowledge or capability
• System uncertainty

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HMRC Interpretation
• What is the scientific or technological advance?
• What were the scientific or technological uncertainties?
• How and when were the uncertainties overcome?
• Why was the knowledge not being sought not readily deducible by a
competent professional?

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So what is R&D?
• Means:
- Being innovative
- Pushing the boundaries
- Surpassing current industry standards
• Doesn’t have to mean:
- Hi-tech laboratory development work
- Phd level innovation
- Re-inventing the wheel

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The ‘SME’ scheme
Who can claim?
• <500 staff
• And either -
• a turnover <€100m or;
• a balance sheet total <€86m
Other factors affecting SME qualification
• Going concern
• Groups
• Grants/Subsidies*
*Where a company does not qualify under
the SME scheme, they may still be able to
make a claim under the large company
scheme, albeit for a lower rate of relief

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• Spend £1 = £1.30 additional deduction for CT
• Total relief available 230%
• For every £1 spent – 43 pence of tax saved!
• Repayable credit for loss making companies – 14.5% of ‘surrenderable loss’.
How the ‘SME’ scheme works

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What do I get - SME
• Profit Making
• The £130,000 additional deduction results in a
saving of £24,700 in tax (£130k @ 19%)
• Loss Making
• The additional deduction further increases the
loss for the period. This can be carried
forward subject to the usual rules, or the lower
of the unrelieved trading loss and the
Qualifying R&D x 230% can be surrendered for
a tax credit or repayment at 14.5% of the
amount surrendered.
Assuming £100,000 of qualifying R&D spend in both scenarios shown below (Included in the profit / loss per accounts)
Profit per accounts 1,000,000.00
Additional 130% deduction 130,000.00
Taxable profits 870,000.00
Tax saving 24,700.00
Loss per accounts 400,000.00
Additional 130% deduction 130,000.00
Loss for period 530,000.00
Cash refund 33,350.00

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• SME scheme is a notifiable state aid
• Can’t claim twice on same project
• RDEC claim
• Not notified state aid
Grants and subsidies

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RDEC
RDEC replaced the large company scheme in April 2016
Who can claim?
• Companies who do not meet the criteria for the SME scheme
• SMEs and large companies who’ve been subcontracted to do R&D work by a
large company.
• Some SME’s who have received a grant / subsidy

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How the RDEC works
• Treated as a taxable receipt of 12% (11% before 1 Jan 2018) of the qualifying
expenditure when calculating the profits of the trade
• The company also then receives a credit against it’s tax liability of the same
amount.

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What do I get - RDEC
Step 1
Step 6
Step 2
Step 3
Step 4
Step 5
Step 7
Offset RDEC against Corporation Tax Lability
Restrict RDEC at net value (RDEC less tax rate x RDEC)
Restrict RDEC by reference to R&D PAYE & NIC
Offset RDEC against other period CT liabilities
Offset RDEC against group companies CT liabilities
Offset RDEC against other tax liabilities (e.g. VAT)
RDEC balance due to company

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Qualifying costs
• Staffing costs
• Consumable stores
• Subcontracted R&D
• Contributions to independent research
• Expenditure on externally provided
workers
• Software and consumables or
transformable items
• Expenditure on clinical trial volunteers

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Subcontracting
Contractor
Unconnected subcontractors:
• Subcontractor can be anywhere in the world
• Can claim 65% of the qualifying payment made to subcontractor.
• RDEC- Subcontractor expenditure generally not allowable*
Connected subcontractor:
R&D tax relief on the lower of:
• the payment that it makes to the subcontractor, and
• the relevant expenditure of the subcontractor,
Subcontractor
• Company can claim under RDEC assuming large company

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Capitalised Costs
Intangibles
• Adjust to take full 230% deduction in the year
• Deferred tax implications
Tangibles
• Research & Development allowances
• 100% Capital allowances in year of expenditure
• Can include buildings!!!!

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Who have we helped?
• Brewery – innovative brewing
and packaging
• Computer language developer –
large subcontractor claim for
Eriksson
• Clotted cream manufacturers –
software system & waste
materials
• Yacht company – coating for high
speed boats
• Furnishing company – super
yacht interior innovation
• Business to business tech
company – system for holiday let
companies
• Software distributer – complete
ERM & SRM system
• Developer of sound system for
concerts

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Where R&D exists
Food & Drink
A walk through the supply chain
Raw materials
Product
Innovation
Manufacturing
process
Packaging
Post
production
innovation

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HMRC approach to R&D
Advance Assurance
• In November 2015, HMRC introduced Advance Assurance for companies that claim
R&D tax relief.
• Advance Assurance is used to give companies a guarantee that any R&D claims will
be accepted
• What does this mean?
• Applying for Advance Assurance is voluntary and you can do this at any time before
the first claim for R&D tax relief.
• Who can apply?

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Our approach to R&D
You decide level of involvement – We can help at all levels
• Review of activities/explanation of scheme and tax reliefs
• Assistance with existing accountants to ensure relief claimed
• Full assistance in preparation, submission and defence of claims
• Review of existing claims, assistance with enquiries

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How we can work together
Accountants
• Come to you
• Visit your clients
• Act through you
• Review your work
• Train you / your staff
Companies
• Visit your premises
• Time with technical staff
• Tech staff/we write narrative
• Provide us with cost breakdown
• Work with existing accountants to submit

www.fctc.co.uk
FAQ’s
• I have already submitted my return, can I amend it to include an R&D claim?
• Can I claim R&D relief and a grant?
• What is the difference between a subcontractor and an externally provided worker?
• How long will it take to receive an R&D tax credit repayment?
• What are the time limits to make a claim?

Protect Support Grow
Tax Investigation
Insurance – what’s new?
Ben Chaplin – Croner Taxwise

Agenda
• What have HMRC been up to?
• GDPR and operating a tax insurance scheme
• Implications of the Insurance Distribution Directive
• Latest developments

HMRC briefing 2016-17
tax gap
• Tax Gap estimated at £33Bn
• We use the data from the tax gap to help determine where
we need to do more to help the honest majority to get their
tax right and make it hard for the dishonest minority to
cheat the system.
• Where to focus their compliance efforts

Segmenting the gap
Customer Type Gap £Bn %
Small Business 13.7 41%
Large Business 7.0 21%
Mid-Sized Business 3.9 12%
Individuals 3.4 10%
Criminals 5.4 16%

Segmenting the gap
Tax £Bn Sector Gap %
VAT 11.7 8.9%
SA Income Tax/NI/CGT 7.9 16.4%
Corporation Tax 3.5 7.4%
PAYE 2.9 1.1%
Tobacco 2.5 18% (est)
Alcohol 1.3 7% (est)

Tackling non compliance
• Targeting areas most at risk
• Small Businesses and VAT – top of the list
• How – compliance visits and investigations
• £2bn non compliance investment since 2010
• 2010-2015 40 changes in tax law
• Since 2015 45 further legislative changes

Claims received
Business Record Check
0%
CIS
1%
Cross Tax Enquiry
3%
CT Aspect
8%
CT Full Enquiry
2%
Customs & Excise
0%
Inheritance Tax
0%
IR35
0%
IT Aspect
26%
IT Full Enquiry
8%
National Minimum Wage
1%
Other Intervention
(Simple Aspect)
7%
PAYE
5%
Stamp Duty Land Tax
0%
Tax Credit
0%
VAT
38%
% Claims rec'd by type 01/06/2017 - 31/05/2018

Claims received
0
100
200
300
400
500
600
700
800
Incidents Notified

GDPR & Tax Insurance
Myth - I can’t write to my clients promoting a tax
insurance service.
You are contacting your clients for a legitimate business
reason – to protect them.

Myth – my tax insurance provider can no longer assist
with my marketing and mailing
• Date Processor v Data Controller
• Sub Processor agreement
• Common practice for many businesses

What have Croner Taxwise done?
• Already DPA compliant
• ISO27001
• GDPR committee - training
• Identify personal data
• System development
We are GDPR compliant

What is the Insurance Distribution
Directive (IDD)?
• Directive to harmonise insurance regulation across the EU
• Driven at improving consumer protection
• Applies to all insurance intermediaries
• It will not be effected by Brexit
• Effective 1 October 2018 (postponed from 23 February 2018)
• The main issues are
• CPD
• DISCLOSURE
• COMMUNICATION OF PRODUCT INFORMATION

Does it effect me?
• Operate a tax investigation insurance scheme
• DPB licence (Designated Professional Body)
• Carrying out a regulated activity

Implications
• Fee disclosure
• Revised documentation - IPID (responsibility of tax insurance provider)
• Minor increase in PII requirements
• General tightening of the DPB Handbook
• DPB firms appear exempt from the 15 hours CPD
• Consider operating on an alternative basis?

Reading:
ICAEW HELPSHEET

Summary
• Important issue if you act as an insurance intermediary via
a DPB licence
• ICAEW have issued a DPB update
• Get advice from your insurance provider

Latest developments
• Online delivery
• Payment options
• Sophisticated marketing including digital
• Support for your practice
• Support for your clients

Online delivery
• Claims
• Declarations
• Who is on cover
• Financials
• Scheme dashboard

Payment options
• BACS
• Credit/Debit Card
• Direct Debit
• Online basket
• Microsites
• 10 Digit code

Marketing
• Not an annual event
• E-mail/Social media/Website
• Campaign
• Still use traditional postal mailer

For your practice…
• Enquiry support from FCTC
• Tax & VAT advice
• E-bulletins
• Newsletters
• HR, H&S and Legal advice
• CPD modules - webinars
• Seminars

For your clients…
• Support in the event of an HMRC investigation
• HR, H&S and Legal advice and webinars
• HR Assist platform

Summary
• HMRC are targeting your clients
• Investigations are on the increase
• Do you offer tax investigation insurance?
• If not, why not?
• You should view your provider as a partner to help you
protect, support and grow your practice and enhance
the service to your clients

www.cronertaxwise.com
ben.chaplin@cronertaxwise.com

Pension Contributions
Paul Collings

www.fctc.co.uk
Pension Contributions Advice
What can possibly go wrong?

www.fctc.co.uk
Introduction
• The rules are complicated – PI / reputational risk
• We are at risk for providing incomplete or unclear
advice leading to over or under-funded pensions, tax
charges, lower tax relief than expected etc
• Watch for interactions with other factors, including our
colleagues, or changes to circumstances
• Caveat advice, disclaimers where possible, deflect
risk? (e.g. to IFA)

www.fctc.co.uk
Email from client (March 2017)
“God this new pension contribution
system is confusing. Whoever came
up with it - needs shooting.”

www.fctc.co.uk
Maximum Contribution
• Annual allowance for the tax year
• Plus any “carry forward” from three previous tax years
(earliest first)
• Otherwise tax charge on the excess at marginal rate
• Capped at relevant earnings for the year
• £3,600 (gross) in any event

www.fctc.co.uk
Annual Allowance
Tax Year 2015/16(*) 2016/17 2017/18 2018/19
Annual Allowance 40,000 40,000 40,000 40,000
Tapering? No Yes Yes Yes

www.fctc.co.uk
Example 1
“The maximum you can contribute in the current tax year is
£30,000.”
Client writes a cheque for £30,000
We meant £30,000 – GROSS

www.fctc.co.uk
Example 2
We advise a client to make a pension contribution…
But they have historic fixed protection in place on our
advice.

www.fctc.co.uk
Lifetime Allowance
Tax Year Lifetime Allowance
2010/11 1,800,000
2011/12 1,800,000
2012/13 and 2013/14 1,250,000
2014/15 and 2015/16 1,000,000
2016/17 and 2017/18 1,030,000

www.fctc.co.uk
Example 3
Harry has made no pension contributions in each of the
last three years i.e. 2015/16 to 2017/18 inclusive. He wants
to maximum fund his pension in 2018/19.
We tell him £10,000 annual allowance plus carry forward of
£40,000 + £10,000 + £10,000; maximum £70,000 (£56,000
net)

www.fctc.co.uk
Example 3 - continued
We then find out that this is his first ever pension scheme
so he had no registered pension scheme in place
previously.
Therefore, no carry forward available!

www.fctc.co.uk
Example 4
Deli is a partner in a law firm that we act for. He wants to
maximise his pension contributions leading up to retirement in
a couple of years and asks us to advise.
We have draft partnership accounts and tax comp to
30/4/2018 showing a profit share of £170,000
Jimmy has private rental income of around £6,000 per year.
We have yet to prepare his 2017/18 tax return.
He has provided a summary of his personal pension
contributions for the previous three tax years

www.fctc.co.uk
Example 4 - issues
1. Income > £150,000. Tapered annual allowance for
2018/19 which is affected if any change to profit share
(capital allowances, addbacks, amended figures)
2. Also affected by final personal income details, e.g.
rental
3. Have we considered all adjustments to income for the
year (loan interest relief etc)?
4. Any other contributions already made in 2017/18?

www.fctc.co.uk
Example 4 – carry forward
• 2015/16….
1. Have we correctly dealt with pre and post 8/7/2015
contributions?
2. Pre 8/7/2015 contributions - based on the correct
pension input period?
• 2016/17 – restricted annual allowance?

www.fctc.co.uk
Example 4 – continued
Do we have details of all pension inputs?
• Personal pension contributions?
• Retirement annuity premiums?
• Employer contributions?
• Defined benefit contributions?
• Cash balance schemes

www.fctc.co.uk
Example 4 – still more?
• Does the reduced “money purchase allowance” apply
(now £4,000)?
• Is the client at risk of the lifetime allowance (and do we
need to instead think of fixed protection elections)?
• Already got fixed protection in place?
• Is our advice caveated and clearly states timings,
whether net or gross, risks?

www.fctc.co.uk
Example 4 – continued
• If threshold income is less than £110,000 then there is no
restriction to the annual allowance
• Threshold income is net of personal pension
contributions
• Contribute enough to be sure to get below £110,000 and
can then contribute more (increased annual allowance)

www.fctc.co.uk
Go large and get more!
Option 1 Option 2
Gross Income 160,000 160,000
Less: Pension Contribution (Gross) 35,000 55,000
Threshold Income 120,000 105,000
Annual Allowance 35,000 40,000

www.fctc.co.uk
Example 5
• Marcus has relevant income of £210k, and no other
income or reliefs.
• Annual allowance restricted to £10k
• He has carry forward relief of £60k.
• What is the maximum contribution he can make and not
have an annual allowance charge?

www.fctc.co.uk
• Marcus has relevant income of £210k, and no other
income or reliefs.
• Annual allowance restricted to £10k
• He has carry forward relief of £60k.
• Maximum contribution £70k?......Er no…..
• If he contributes £100k then annual allowance increases
to £40k… (threshold income £110k)
• Contribute more, to increase the annual allowance that
stops you contributing more?!

www.fctc.co.uk
Example 6
• Client is over 75 but we advise them to make a pension
contribution

www.fctc.co.uk
Example 7
• Jesse has income of £50k salary and £150k dividends.
He has £100k of carry forward available, and the annual
allowance for 2017/18 is £15k.
• Jesse is an additional rate tax payer and advise to make
a large pension contribution. Jesse wants to Go Large!
• We advise a £100k (gross) pension contribution to
restore personal allowance

www.fctc.co.uk
• Jesse has income of £50k salary and £150k dividends.
He has £100k of carry forward available, and the annual
allowance for 2017/18 is £15k. We advise a £100k
(gross) pension contribution to restore personal
allowance
• Jesse’s relevant earnings are only £50k - so overfunded
by £50k

www.fctc.co.uk
Example 8
Jordan has income of £120k and Jordan Limited (a client
you act for) pays a £30k employer pension contribution on
her behalf on 6 April 2018 to ensure she gets tax relief in
respect of her accounts in respect of the year to 30 April
2018.

www.fctc.co.uk
Jordan has income of £120k and Jordan Limited (a client
you act for) pays a £30k employer pension contribution on
her behalf on 6 April 2018 to ensure she gets tax relief in
2018.
On 31 January 2019 under your guidance a dividend of
£60,000 is voted to Jordan to clear an overdrawn DLA
included in the company accounts to avoid a s455 issue
created as Jordan has moved house in the year.

www.fctc.co.uk
Jordan has income of £120k and Lucy Limited (a client you
act for) pays a £30k employer pension contribution on her
behalf on 6 April 2018 to ensure she gets tax relief in
2018.
On 31 January 2019 under your guidance a dividend of
£60,000 is voted to Jordan to clear an overdrawn DLA
included in the company accounts to avoid a s455 created
as Jordan has moved house in the year.
She has no carry forward relief available.

www.fctc.co.uk
Adjusted income now £210,000k (it includes the company
pension contribution) so the annual allowance is reduced
to 10k, creating a tax charge of £20k x 45% = £9,000.

www.fctc.co.uk
Example 10
We have provided some careful advice and Gareth has
income of £109,800 for 2017/18, and his employer (a client
of yours) makes a £100,000 company pension contribution
on his behalf.
He has carry forward relief of £60,000.

www.fctc.co.uk
We have provided some careful advice and Gareth has
income of £109,800 for 2017/18, and his employer (a client
of yours) makes a £100,000 company pension contribution
on his behalf.
He has carry forward relief of £60,000.
We invoice the company in late March 2018 the sum of
£250 for private accountancy work on Gareth’s behalf, and
this is taxed on him as a benefit in kind.

www.fctc.co.uk
• Threshold income now £110,050 and adjusted income
£210,050.
• Annual allowance now £10,000 and not £40,000
• Tax charge on £30,000 for the sake of the benefit in kind.
• £30,000 x 45% = £13,500 (5400%)

www.fctc.co.uk
Threshold income
• £110,000
• Includes all taxable income
• Deductions per s24 ITA 2007
• DEDUCT gross member contributions (net pay, relief at
source)
• ADD employment income through salary sacrifice set up
after 8 July 2015
• DEDUCT any taxed lump sum death benefits received

www.fctc.co.uk
Threshold income
• £110,000 is a key point.
• It could be very valuable for a client to have income
below this level
• Where we have influence over a client’s income then this
needs to be included in the thought process
• Watch anti-avoidance (also adjusted income) s228ZB, FA
2004

www.fctc.co.uk
Example 11
Income £112k.
Company contribution £100k.
Personal pension contribution of £2k increases the annual
allowance by £30k.

www.fctc.co.uk
Adjusted income
• s228 and s228ZA, FA 2004 (anti-avoidance s228ZB)
• Annual allowance tapered if > £150,000
• Includes all taxable income
• Deductions per s24 ITA 2007
• ADD employer contributions
• ADD pension input amount, less employee contributions
for DB scheme
• DEDUCT any taxed lump sum death benefits received

www.fctc.co.uk
Other problem areas
• Problems equally relevant where you advise on employer or company
pension contributions
• Dividend allowance etc – still income! So may not be “tax free”!
• Profit sharing
• Change of accounting year ends (watch especially if cessation /
retirement in the year of change)
• Timing of cessation/ retirement
• Capital allowances
• Timing of allowable expenditure
• Not just to consider for years when contributions are made – impact on
carry forward and capacity to fund in the future
• Don’t give financial planning advice (eg “contribute to your Aviva pension
scheme”)

www.fctc.co.uk
Scheme Pays
• Tax charge if exceed annual allowance plus carry
forward relief
• Scheme pays option if tax charge exceeds £2,000:

www.fctc.co.uk
Example 12
• A client has income of £50,000 from rental Income
• They are 62 and are concerned about their IHT position.

www.fctc.co.uk
• They contribute £2,880 into their personal
pension.
• The pension is able to receive basic rate
tax at source.
• The client obtains higher rate tax relief at
source.

www.fctc.co.uk
• After 10 years
• The pension pot stands at £36,000.
• This has “cost” the client £21,600.
• IHT has been saved of £8,640
• £12,960 to get £36,000 into a pension!

www.fctc.co.uk
Use up Untapered Allowances!
Tax Year 2014/15 2015/16 2016/17 2017/18 2018/19
Annual
Allowance
Tapered? No No Yes Yes Yes

www.fctc.co.uk
Conclusions
• Pensions are very tax efficient
• Likely to become less so…
• But take care with advice…

VAT
“It is a matter of life and death,
a road either to safety or to
ruin. Hence it is the subject of
inquiry, which can on no
account be neglected”
- Sun Tzu, The Art of War

VAT
“I think I got it wrong again…”
- Dick Emery, Actor, comedian, philosopher

www.fctc.co.uk
VAT - Agenda
• What’s new? What’s changed? What’s up?
• Top 10 Tips, Tricks, Twists & Trips…in 20 mins!!
• Whisper it…Brexit

www.fctc.co.uk
VAT – What’s new…?
Disbursements
• Brabners case
• Re-charge of e-search fees
• No VAT on cost
• Re-charged to customer with no VAT
• HMRC view: component of taxable supply
• Tribunal agreed
• Assessment upheld £78k
• History relevant to legal firms, BUT…principles are generic

www.fctc.co.uk
Disbursements
So what is a disbursement?
• Agent is authorised & acting for client in paying 3rd party
• Client actually receives & uses the goods/services
• Client is responsible for paying the 3rd party
• Client aware that goods/services being provided by 3rd party
• Agent’s outlay must be separately itemised, and…
• Must recover only the exact amount paid to 3rd party
• Goods/services must be clearly additional to agent’s supplies

www.fctc.co.uk
Disbursements
So How does this affect me?
• Be clear as to whether cost is component or addition
• Where qualifies, either:
o Gross in/gross out; or
o Reclaim/recharge VAT
• Issues only when treatment changes: In → Out

www.fctc.co.uk
MTDfV
• VAT returns commencing 1st April 2009
• Taxpayers compulsorily VAT registered
• Each transaction must be entered onto digital software:
o No batching of invoices
o No manual cash book totals
o But DGT totals acceptable as single entry
• All programmes/spreadsheets must be digitally linked

www.fctc.co.uk
MTDfV
• Return submission:
o Accounting software; or
o Via bridging software
o …but software still being developed!
• Partial exemption / TOMS / CGS:
o Can be calculated separately; but
o Manual adjustments must be entered as a digital transaction

www.fctc.co.uk
MTDfV
• Groups?!
• Return figures must be accurate before submission
• Nothing to worry about
– HMRC Notice due for release this month…!

www.fctc.co.uk
VAT - Top 10 Tips, Tricks, Twists & Trips

www.fctc.co.uk
1. Business Mileage
• Pence Per Mile (PPM) Paid for business mileage
• HMRC accept proportion as ‘fuel’
• AA tables can be used…or
• Apply 1/3rd !*
• VAT recoverable @ 1/6th
• Fuel receipts should be retained…
• Can go back four years
*100% where company car
VAT – Top 10 Tips, Tricks, Twists & Trips

www.fctc.co.uk
1. Business Mileage - Example
• ABC Ltd:
o 40 sales staff
o Avge 15,000 business miles each pa.
o Mileage rate @ 45ppm
• VAT recovery:
VAT = 15,000 x 40 x £0.45 x 1/3rd x 1/6th
VAT = £15,000

www.fctc.co.uk
2. EU Trade
ABC Ltd…now selling into Europe
• Distance Selling
o Non-VAT registered EU customers
o UK VAT; BUT
 Register & charge EU VAT if > threshold in calendar year
 Threshold varies per EU country €35k or €100k

www.fctc.co.uk
2. EU Trade
ABC Ltd…now selling into Europe
• Distribution Depots
o Move Own goods to EU warehouses/stock hotels
o Distribute from EU locations
o EU VAT registration required!!

www.fctc.co.uk
3. Imports
ABC Ltd…importing from outside the EU
• Deferment Account
• Simplified Import VAT Accounting (SIVA)
• Inward Processing Relief (IPR)
• Customs Warehousing
• Binding Tariff Information (BTI)

www.fctc.co.uk
4. Bad Debt Relief…and Creditors
Bad Debt Relief (BDR)
• VAT recoverable:
o Debtors > 6m old
o Write-off to a VAT BDR a/c
• BUT:
o VAT must have been originally accounted for
o Debt must not have been paid, sold or factored
o Adjust for any subsequent receipts

www.fctc.co.uk
4. Bad Debt Relief…and Creditors
Creditors…the sting in the tail!
• VAT repayable:
o Creditors > 6m old
o Irrespective of whether supplier has claimed BDR
• BUT:
o VAT can be reclaimed if debt settled
• WARNING HMRC are getting really hot on this one!!

www.fctc.co.uk
5. Request For Payments (RFP)
• Time of supply – services:
o Basic – when performed; or
o Issue of invoice; or
o Receipt of payment
• BUT NO ‘Basic’ Tax Point where:
o Ongoing/continuous services
o Long-term project/periodic payments
Consider: ‘Request For Payments’ (RFP)

www.fctc.co.uk
5. Request For Payments (RFP)
• RFP
o Looks like an invoice…
o But omits key features (VAT # etc.)
Prompts payment
Initial significant VAT saving
Ongoing VAT cash-flow
BDR by default
X Increase administration
X Possible negative customer reception

www.fctc.co.uk
6. Partial Exemption
• VAT Recovery
 Taxable supplies √
Exempt supplies X
• Mixed supplies
o Attribute costs
o Apportion ‘mixed use’ costs
o De-minimis & NO restriction if Exempt Input VAT (pa):
< 7,500 and
< Total Input VAT

www.fctc.co.uk
6. Partial Exemption
• Beware ‘non-standard’ Exempt Activity e.g.:
o Finance/insurance income
o Property letting/sales
ABC Ltd…letting unused warehouse
• Exempt income
• VAT on refurb./operational costs?
• De-minimis?
• If not, restriction!
• …or Opt To Tax?

www.fctc.co.uk
7. Pre-registration Input VAT
• Goods
o Up to 4 years < registration
o On hand at date of registration
o Purchased by the registered entity
o HMRC backed down on ‘depreciation’ argument
• Services
o Up to 6 months < registration
o Cannot have been ‘consumed’ < registration
Can be issues with partially exempt businesses

www.fctc.co.uk
8. Certificates
• Charities
o Medical equipment
o Relevant goods
o Certain building adaptions
o Advertising services
• Buildings
o Relevant Residential Purpose
• Ships
o Qualifying vessels (supply/repair/maintenance)

www.fctc.co.uk
9. Transfer Of Going Concern (TOGC)
• VAT-free sale of business, IF:
o Business or part of a business
o Capable of operating as such
o Similar business
o No immediately consecutive transfers
o No significant break in trading
o Must be registered or liable to be

www.fctc.co.uk
9. Transfer Of Going Concern (TOGC)
Beware:
• A → B → C ≠ TOGC
• Land & Property
o Opted & new commercial properties
o Capital Goods Scheme
o Property letting
• VAT charged…OR NOT CHARGED
• Registration!

www.fctc.co.uk
10. Reverse Charges
Services received ex-UK – no VAT but:
• VAT Registered Businesses:
o Reverse charge applies
o May not be entitled to full recovery
• Non-VAT Registered Businesses:
o If value exceeds threshold (currently £85k pa)…
o VAT registration required
o …and may not be entitled to recovery

www.fctc.co.uk
+ VAT!! Cars vs. Commercials
When is a car not a car?
When it’s a commercial…
‘Car’ ≠ Payload ≥1 Tonne
Consider twin-cab pick up AND reclaim the VAT!!
ABC Ltd…Directors drive Porsches…
Bye-bye Porsche…
Hello Mitsubishi L200!!

www.fctc.co.uk
VAT – Brexit
What happens post-March 2019?!
• 1st January 2021
• VAT will still exist in the UK!
• Adoption of all current UK/EU law…
• …but with more flexibility
• Imports – VAT? Duty?

www.fctc.co.uk
VAT – Mantra
Remember, always
look beneath the
tip of the iceberg
Who?
What?
For Whom?
When?
Where?
And for how
much?!?

5 July 2018
Chair’s close
Dave Williams

Francis Clark Tax Consultancy - London Conference 2018

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