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Money Purchase Pension Savings: HMRC Updates Guidance for New Flexible Pension Arrangements Print E-mail
Tax News - Personal Taxes
Written by Lee Sharpe   
Monday, 24 November 2014 00:00

HMRC has updated its Tax Information and Impact Note on the new flexible arrangements for accessing funds from money purchase schemes from age 55. HMRC summarises the changes as follows, in that, starting from April 2015, it will

  • allow all of the funds in a money purchase arrangement to be taken as an authorised taxed lump sum, removing the higher unauthorised payment tax charges
  • increase the flexibility of the income drawdown rules by removing the maximum ‘cap’ on withdrawal and minimum income requirements for all new drawdown funds from 6 April 2015
  • enable those with ‘capped’ drawdown to convert to a new drawdown fund once arranged with their scheme should they wish
  • enable pension schemes to make payments directly from pension savings with 25 per cent taken tax-free (instead of a tax-free lump sum)
  • introduce a limited right for scheme trustees and managers to override their scheme’s rules to pay flexible pensions from money purchase pension savings
  • remove some restrictions on lifetime annuity payments
  • ensure that individuals do not exploit the new system to gain unintended tax advantages by introducing a reduced annual allowance for money purchase savings where the individual has flexibly accessed their savings
  • increase the maximum value and scope of trivial commutation lump sum death benefits
  • provide new information requirements to ensure that individuals who have flexibly accessed their pension savings are aware of the tax consequences of doing so
  • reduce certain tax charges that apply to death benefits
  • enable persons other than dependants to inherit unused drawdown funds and provide that where the death occurred before age 75, lump sum death benefits and drawdown pension from these funds can be paid tax free, subject to the member having sufficient available lifetime allowance
  • make changes to the rules for UK individuals who receive UK tax relief for contributions to non-UK pension schemes, so that the flexibilities and restrictions to relief apply equally to them
Government Promises to Strengthen Safeguards for Direct Debt Recovery Print E-mail
Tax News - Personal Taxes
Written by HM Revenue & Customs   
Friday, 21 November 2014 00:00

HMRC has announced that it will introduce further protection for taxpayers and safeguards for its new powers to take money directly from people's bank accounts.

Plans to recover tax and tax credit debts directly from the bank accounts of people and businesses who refuse to pay what they owe will include strong safeguards to protect vulnerable taxpayers, the government announced today.

Direct Recovery of Debts (DRD) will give HM Revenue and Customs (HMRC) the ability to recover cash directly from the bank accounts, building society accounts and ISA accounts of a small number of debtors who owe £1,000 or more. It is expected to bring in around £100 million a year.

A consultation on the plans published in May included a significant number of guarantees to provide certainty to taxpayers, such as only applying the powers to established debts and only targeting debtors who have repeatedly ignored attempts to make contact.

Following constructive comments from key stakeholders, such as professional and representative bodies, the government has today further strengthened the safeguards which will apply to the limited use of DRD. These include:

  • Guaranteed visits to debtors from an HMRC officer to meet them face-to-face. This will ensure that everyone subject to DRD will have had a chance to challenge and settle their affairs – whether by paying in full or setting up a payment plan – and that DRD will only apply to those who have chosen not to do so. The visit will also allow HMRC to identify vulnerable members of society to provide them with appropriate support.
  • Establishing a new, specialist unit to deal with cases involving vulnerable members of society, as well as providing a dedicated DRD team and helpline.
  • Ensuring that judicial oversight of the process is enshrined in legislation, by allowing for appeal to the County Court.
  • Putting a hold on debtors’ accounts and giving them 30 days – more than twice as long as previously planned – to contact HMRC and arrange payment of the debt or object to the use of DRD, before any money is taken.
  • Further new safeguards relating to transparency, governance and a phased implementation of the DRD powers.

These are all in addition to existing guarantees, such as only taking action against those with over £1,000 of tax or tax credits debt, to always leave a minimum of £5,000 across debtors’ accounts, and to only  put a hold on the funds in the affected account up to the value of the debt.

Financial Secretary to the Treasury David Gauke said:

“This is about levelling the playing field. The vast majority of people pay the tax that is due, on time, but there is still a very small minority who try to gain an unfair advantage by persistently refusing to pay what they owe, despite being able to. These are the people who will be targeted by the powers for the direct recovery of debts owed to the Exchequer.

We already set out robust safeguards to protect vulnerable debtors in our original Direct Recovery of Debts proposals, but feedback from the consultation process told us we could do more to make sure this only catches those who are playing the system.

We’re strengthening the guarantees we can offer taxpayers that the powers will only be used when debtors have consistently refused to talk to HMRC and settle their debts, and their use will be subject to the toughest scrutiny and oversight possible. 

We’re far from the first country to take this step – many other tax authorities already use similar powers routinely and responsibly as a crucial lever for ensuring their government is paid what is owed.”

HMRC will continue to work proactively with key stakeholders, such as professional groups and those representing vulnerable customers, on the detail of the DRD process. The government is grateful for the helpful input from everyone who responded to the consultation, which has allowed it to strengthen the safeguards.

HMRC estimates DRD will apply to around 17,000 cases a year, with the average debt of those affected £5,800. Around half of these cases will involve debtors with more than £20,000 in their bank and building society accounts.

Background Notes

  1. The government’s response to the Direct Recovery of Debts (DRD) consultation can be read at Direct Recovery of Debts - Summary of Responses
  2. The DRD plans were first announced at Budget 2014 and then published for consultation in May 2014 at Direct Recovery of Debts
  3. Draft legislation for DRD will be published for consultation in due course. This will give a further opportunity for the government to take suggestions on how best to structure this process and how to ensure debtors’ rights – and HMRC’s responsibilities – are properly reflected in legislation. In order to allow for an extended period of scrutiny, the government intends to legislate in a Finance Bill in 2015, during the next Parliament.
  4. Stakeholders including charity and voluntary organisations, professional bodies, accountancy firms and representative bodies have all had input into the current proposals, and will continue to feed into the development of the DRD system.
  5. Measures for recovering tax and benefit debts from debtors’ bank accounts are used extensively by tax authorities in other countries, including Australia, the USA, Netherlands, Sweden and France.
  6. Key statistics on what HMRC collects and its use of visits to collect debts:
    • HMRC collected more than £500 billion in 2013-14 – a record amount.
    • Last year just over £50 billion was not paid on time and became debt.
    • To collect this debt HMRC made around 16 million contacts with debtors last year by letter, phone, SMS or other means.
    • This included making more than 900,000 visits to pursue around 400,000 cases of debt. HMRC began the process of seizing goods to sell at public auction in fewer than 10,000 cases, but only did so in around 700 instances. As a consequence of this activity HMRC collected around £1 billion of debt on the doorstep.
  7. Further information on HMRC’s other enforcement powers:
    • If debtors don’t pay when prompted to by letter, telephone or other means, HMRC has the ability to use stronger interventions. These include Taking Control of Goods (the power to seize goods for sale at public auction); taking debtors to court; placing charging orders on houses so HMRC has a right to any proceeds from any sale; and filing for bankruptcy or insolvency.
    • These interventions are time-consuming, costly for the Government and the debtor, and bring the debt to public attention. For example, goods sold at public auction almost never realise their full value; and taking debtors to court can take two years or more to reach a decision and result in significant costs, running into thousands of pounds, for the debtor.
New "Strict Liability" Offshore Tax Proposals Will Catch Innocent Migrants, Warns LITRG Print E-mail
Tax News - Personal Taxes
Written by Low Incomes Tax Reform Group   
Monday, 10 November 2014 23:48
The Low Incomes Tax Reform Group is concerned that government proposals designed to target tax evaders are likely to catch low-income migrants to the UK who have made a genuine mistake about the UK tax status of a source of income in their home country. 
In a consultation on offshore tax evasion, the Government have announced their intention to make it a criminal offence of ‘strict liability’ (i.e. without the need to prove criminal intent) to have taxable offshore income and gains that have not been declared in the UK.
Chairman of the Low Incomes Tax Reform Group (LITRG), Anthony Thomas, said:
“This proposal is poorly designed and we do not agree with the principle of it. Migrants who come to the UK to work will often have a small amount of income arising in their home countries too. They may now face a criminal conviction for having that income because the prosecution does not have to prove that they intended to avoid UK tax. 
When it comes to tax obligations, migrants face particular challenges. Many may simply be unaware of their duties in this country; criminal prosecution for ignorance is alarming and unjustified. Legislation must be designed to reflect the difference between active evasion and non-declaration through the lack of requisite knowledge.
LITRG believe that there should have to be at least £5,000 unpaid tax for there to be any question of criminal liability. Additionally there should be a ‘reasonable belief’ defence written into statute. Virtually all criminal offences require an intention to commit them; it is generally neither fair, nor useful, to subject people to criminal punishment for oversights or misunderstandings. 
We are disappointed that this consultation process has been undermined by Government having decided the principles of the legislation in advance. The most effective kind of consultation is one where the principles under consideration have been arrived at through consultation with stakeholders from the beginning, not after key decisions on policy have already been taken.” 
The submission of the Low Incomes Tax Reform group can be read in full, here. Previous TaxationWeb articles on the new Strict Liability offence can be found at Strict Liability: Innocence is No Excuse
HMRC’s consultation, can be read in full at Tackling Offshore Tax Evasion: a New Criminal Offence
Read This if You Have Missed the Tax Credits Renewal Deadline Print E-mail
Tax News - Personal Taxes
Written by Lee Sharpe   
Wednesday, 20 August 2014 00:00

The Tax Credits 31 July is an important deadline, partly because it renews the claim for the current year, partly because it also confirms the claim for the previous year and partly because, if you miss the deadline, usually the payments will stop and HMRC will write to you to ask for its money back from the beginning of the tax year.

We think HMRC ‘done good’ this year by extending the filing deadline by a few days because of the industrial action around 31 July.

HMRC has advised us that:

“This year has seen a record lowest number of outstanding renewals. 455,000 failed to renew this year, down from 650,000 in 2013. Not everyone will renew their tax credits as those whose circumstances have changed may no longer be eligible but since tax credits will stop if they are not renewed, we’re urging people to ring us on 0345 300 3900.”

Since HMRC ‘done good’, we shall overlook that HMRC should be asking everyone to go through the renewals process if only to validate the previous year’s claim.

It is important to note that all is not lost if you have missed the deadline: there is a procedure for getting the current year claim back on track, without necessarily losing any payments. HMRC will soon be issuing statements to claimants, warning that payments have been suspended. Provided claimants contact HMRC to renew within 60 days of the date of the statement, the claim will be re-instated in full.

In line with HMRC’s recommendation that people take action now, there is no need to wait for the statement to arrive before contacting HMRC but the statement does ‘start the clock’ for the 60-day limit. Our esteemed colleagues at the Low Incomes Tax Reform Group have helpfully put together some detailed guidance on what to do if you have missed the deadline  and we are, as ever, delighted that they can assist.

HMRC Clocks Up Another Tribunal Win Print E-mail
Tax News - Personal Taxes
Written by HM Revenue & Customs   
Thursday, 31 July 2014 00:00

HM Revenue and Customs (HMRC) has secured its eighth tribunal win in a row against tax avoidance schemes run by NT Advisors.

Between them, HMRC’s court successes against NT Advisors have now protected over £750 million in tax, defeating five of the promoter’s schemes. Among them is the Working Wheels scheme, where participants claimed to be second-hand car dealers.

In this latest case, the Upper Tribunal dismissed NT Advisors’ latest appeal that a scheme which used complex financial arrangements involving alleged overseas securities worked. The ruling upholds an earlier First-tier Tribunal judgment in HMRC’s favour.

In total there were 305 users of the scheme and this ruling alone is expected to protect £156 million in tax that would otherwise have been lost. HMRC will now pursue the other users of the scheme to make sure all the taxes that are due are paid.

The Financial Secretary to the Treasury, David Gauke, said:

“While the vast majority of people pay the taxes they owe, this victory shows HMRC’s determination and effectiveness in clamping down on those who seek to avoid their responsibilities.

Users of NT Advisors schemes, or those considering using their schemes, should know by now that HMRC is very successful at defeating them, and give serious thought to ending their involvement.”

HMRC has a dedicated helpline – 03000 530435 – for those who have engaged in tax avoidance schemes but now want to settle their affairs. Further information can also be found at Tempted by Tax Avoidance?

HMRC is writing to users of many of NT Advisors’ schemes to make sure they know how successful the department is at beating their schemes in court. In the last two months the department has written to more than 1,000 users, and users of the Bluebox scheme will be contacted shortly.

Further Information

  1. The Upper Tribunal ruling in Andrew Chappell versus The Commissioners for HM Revenue and Customs can be found at Andrew Chappell v HMRC [2014] 
  2. This complex scheme devised by NT Advisors used a series of circular and self-cancelling transactions involving alleged overseas securities. These purported to create substantial tax losses where, in reality, no economic loss had been suffered.
  3. HMRC will be writing soon to investors in the scheme this decision applies to so they know what action will be taken and what this means for them. HMRC wants to make it easy for those users to settle and will take strong decisive action for those who do not.
  4. Details of HMRC’s three most recent tribunal wins over NT Advisors’ schemes:

Bluebox (May 2014) – protected £21 million in tax 

Working Wheels (February 2014) – protected £290 million

Barnes - Court of Appeal (January 2014) – protected £100 million 

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