The Low Incomes Tax Reform Group (LITRG) welcomes a government review of the effects of changes to the offshore time limit rules, to be completed by March 2019. The review also requires a comparison with other time limits, including the loan charge, but will not necessarily lead to any changes to the law relating to the loan charge and its application from 5 April 2019. This has led a concerned LITRG to continue to urge low-paid workers potentially affected by the charge to contact HMRC, saying it is important that they do not decline to come forward because of exaggerated expectations of what may come out of the review.1
Victoria Todd, Head of the LITRG team, said:
“Time is running out for workers to settle with HMRC before the loan charge applies on 5 April 2019. LITRG is concerned that low-paid workers who received payments in the form of loans, while working for 'umbrella' companies, are being put off contacting HMRC to start the settlement process.
“This latest amendment to the Finance Bill, whilst generating a great deal of comment, will not necessarily lead to any changes to the law relating to the loan charge and its application from 5 April 2019. Indeed any changes to the loan charge, whether through Parliament or via legal challenge, will not stop HMRC seeking to settle any avoidance disputes using other powers available to them in the vast majority of the cases we are most concerned with.
“We recognise that people may be confused about what steps to take and we would encourage all workers potentially affected to read our series of articles about the loan charge and, if they are considering settling, to contact HMRC without delay. There are a number of options open to HMRC in agreeing a settlement and repayment of any money due. A settlement is only binding once signed by the person and they are free to walk away from discussions at any point before then.”
The current Finance Bill contains a provision extending the time limit for raising a tax assessment on offshore investments. The proposals target those taxpayers who have made innocent mistakes by extending the existing time limits2 to 12 years if an offshore matter is involved, with no minimum threshold and even in cases where taxpayers have taken reasonable care with their tax obligations. LITRG has raised serious concerns to the Government over its plan to extend the time limits.
Victoria Todd continued:
“We welcome the fact that the review will be looking further at the extension of time limits in offshore matters in light of the serious concerns we have raised about this. People think often that offshore matters affect only the wealthy, but among those affected by this change will be low-income pensioners and migrants. The extended time limit applies to those who have made innocent mistakes and not just those who have failed to take reasonable care or taken deliberate action, a change which we think is unfair and unnecessary.
“Post-legislative review of whether measures are achieving their objectives at an acceptable cost should be a routine part of the tax system and we would continue to urge the Government to consider making such reviews part of the normal process when new changes are introduced.”3
Notes for editors
1. The amendment says that the Chancellor of the Exchequer must review the effects of the changes made by sections 79 and 80 to TMA 1970 (offshore time limits), and lay a report on that review before the House of Commons not later than 30 March 2019. The review under this section must include a comparison of the time limit on proceedings for the recovery of lost tax that involves an offshore matter with other time limits on proceedings for the recovery of lost tax, including, but not limited to, those provided for by Schedules 11 and 12 to the Finance (No. 2) Act 2017 (the loan charge). This is being widely interpreted as meaning that there might be some statutory relaxation of the loan charge - but there is no guarantee whatever that this will be the case, and in any event, very little time for any such thing to occur. The review under this section must also consider the extent to which provisions equivalent to section 36A(7)(b) of TMA 1970 (relating to reasonable expectations) apply to the application of other time limits.
If large numbers of people who might have genuine complaints of hardship fail to come forward as a result of ‘false hope’, then HMRC will have less reason to be aware of the extent of hardship, and the risk is that their report on the operation of these changes will then give a more favourable impression than would have been the case if the full extent of hardship had been identified. If this happens it will make the prospect of any change even less, rather than more, likely.
2. At present, HMRC have four years from the end of the tax year to raise a discovery assessment for that year where reasonable care has been taken by the taxpayer. If the taxpayer has not taken reasonable care, the time limit is extended to six years. Taxpayers who have deliberately avoided tax face a time limit of 20 years – this remains unchanged under the provisions.
3. The Better Budgets report co-authored by CIOT, IFS and IfG argued for the Government to follow much more comprehensively its own published (but rarely fully followed) procedures for consulting and reviewing legislative changes from an intitial ‘blue skies’ consultation to post-implementation review. This would result in better legislation avoiding problems such as those identified with these recent changes.
4. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk
Out of hours contact: George Crozier, 07740 477 374)