Highlights from the broader tax news for the week ending 12 April 2023, including: pension lump sums; HMRC’s Digital Disclosure Service; digital services tax; partnerships holding UK residential property; till system disclosures; and disguised remuneration instalment arrangements.
Lump sum process for pension scheme administrators
Following the announcement that the lifetime allowance (LTA) charge will not apply from 6 April 2023, HMRC has issued advice of how to process certain lump sum payments.
The lump sum payments affected are the LTA excess lump sum, serious ill-health lump sum (SIHLS), defined benefits lump sum death benefit (DBLSDB), and uncrystallised funds lump sum death benefit (UFLSDB). Amounts that would previously have been subject to the LTA charge, will instead be taxed as pension income at the taxpayer’s marginal tax rates.
HMRC’s pension newsletter had set out a new process for DBLSDB and UFLSDB. However, after feedback from pension administrators, HMRC has confirmed that the existing process (pre 5 April 2023) will continue. Under this process, if the member’s legal personal representative identifies a chargeable amount after payment of a DBLSDB or UFLSDB, they must report this to HMRC. HMRC will then raise an assessment at the marginal rate of tax for the applicable portion of the payment.
Test HMRC’s Digital Disclosure Service (DDS)
HMRC has made changes to improve its Digital Disclosure Service (DDS) and would like to hear what users think about it. If you are about to start a notification or disclosure you can do this while taking part in HMRC’s ongoing research on this service to help make further improvements.
You will need to book a time slot for using DDS using the appointment booking tool so that a researcher can join you by video call when using the service. Further instructions will be sent to you by email once you have booked a slot. Time slots are available up until the end of May 2023.
Alternatively, if you have already used the new service from 30 March 2023 and have questions about it or feedback, or else have problems with signing up for a time slot, you can contact the lead HMRC researcher.
Public Accounts Committee report on the digital services tax
The report on the UK’s digital services tax was issued on 5 April 2023. The report makes the following five recommendations:
HMRC should report to the Committee the final revenues for 2020/21 once it has completed its assessments to identify all the revenues for the baseline year of 2020/21, and thereafter report annually on the difference between the tax owed in theory and the amounts actually paid for this and future years (the tax gap).
HM Treasury and HMRC should consider what lessons can be learned from the introduction of digital services tax in terms of implementing tax systems efficiently and assessing the proportionality of its impact on taxpayers.
HMRC should update Parliament, within three months of international agreement on implementation of pillar one, on progress with the implementation of the reforms.
HM Treasury and HMRC should:
write to the Committee setting out their objectives for the development of the multilateral administrative framework, including audit arrangements;
ensure they propose assurance arrangements that will provide the UK Parliament with sufficient accountability and transparency to provide assurance that the pillar one and pillar two reforms are operating effectively; and
set out robust forecasts of expected revenues when details of the new regime are agreed.
Ahead of the formal requirement to review the tax in 2025, HMRC should develop a contingency plan for what happens if the digital services tax needs to be extended, including a robust process for addressing non-cooperation with its compliance regime.
Client experiences of partnerships holding UK residential property
ICAEW’s Tax Faculty is seeking feedback on any client experiences regarding partnerships holding UK residential property and the de minimis rules in Sch A1, Inheritance Tax Act1984. While the de minimis rules exempt certain small holdings from valuation and reporting under the Act, partnerships are unable to benefit from these rules due to the connected persons provisions. Please send any anonymised feedback to Mei Lim Cooper.
Making a till system disclosure
The form to disclose use of a till system to supress sales (thereby reducing declared taxable receipts) remains available following the original 9 April 2023 disclosure deadline. Users are encouraged to voluntarily make a disclosure rather than waiting for HMRC to make contact.
Disguised remuneration instalment arrangements
HMRC has updated its instalment arrangements for settlements of disguised remuneration liabilities (including the loan charge).
Individuals who do not have disposable assets and who have income of less than £50,000 in the last complete tax year for which information is available can agree instalment arrangements without the need to provide income and expenditure information. HMRC had previously been using the 2017/18 tax year (rather than the most recent tax year for which information is available) to determine whether income is less than £50,000 for these purposes.
Arrangements will be agreed for a minimum of five years for individuals who have income less than £50,000 and for a minimum of seven years for those who earn less than £30,000. Those earning more than £50,000 or who need longer than the minimum term to pay will be required to provide income and expenditure information when making a time to pay arrangement.