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Tax developments:
Summer 2018
Helping you plan for change
2018 Crowe U.K. LLP
Tax developments: Summer 2018
Crowe's tax team reflect on the topical tax
developments so far in 2018 and the areas
that organisations should focus-on in the
second half of 2018/early 2019.
At the start of the year, we detailed some of
the upcoming tax developments that we
recommended organisations address during
2018. Half way through the year it has
become apparent that several trends are
developing.
For some time there has been greater
emphasis on the processes and controls in
place to ensure good tax governance.
This has continued during 2018 but is being
enhanced by technology to create, for the first
time in the UK, a 'digital tax environment'.
This year is seeing the start of the
government's initiative to transform HM
Revenue and Customs (HMRC) into a world
leading, digital tax authority.
HMRC has also been focusing on the 'tax
gap' and introducing new measures to
increase the amount of tax collected in the
UK.
Finally, Brexit must inevitably feature in an
organisation's planning for 2018 and 2019.
Tax developments
2
2018 Crowe U.K. LLP
Tax developments: Summer 2018
Contents
1. Making Tax Digital for VAT
4
2. Brexit
6
3. Off payroll workers
8
4. Termination payments changes
9
5. Watch tax on company cars
10
6. Remuneration planning
12
7. Corporate offence of failure to prevent the
facilitation of tax evasion
13
8. Requirement to correct/failure to correct
14
9. Selling remotely into the US
15
10. Continued spotlight on tax evasion
16
2018 Crowe U.K. LLP
Tax developments: Summer 2018
VAT is at the forefront of HMRC's Making Tax
Digital (MTD) plans. All businesses with a
turnover above the VAT registration threshold
will now be required to keep their VAT
records digitally and submit their VAT data to
HMRC through compatible software. This will
present a significant change to processes for
many businesses and is expected to mean
much more than just sharing existing VAT
records with HMRC digitally.
As 2018 has progressed we have heard more
from HMRC about the detail of their plans and
they have confirmed the implementation date
of 1 April 2019 will go ahead. This date is
looming large but many organisations are
either still unaware of the requirements or still
developing their implementation plans.
HMRC published further guidance at the start
of July which included details of software
providers that have developed products
compliant with the MTD rules.
At the moment, spreadsheets feature heavily
in an organisation's VAT reporting. Under
MTD, spreadsheets will be regarded as
manual records and while they can still be
used, there will need to be compatible
software overlaid to create a VAT return and
to provide this information to HMRC digitally.
In practice, this means that businesses which
create VAT returns via spreadsheets using
sales and purchase data downloaded from
their accounting system will have to make
changes to their processes.
1. Making Tax Digital for VAT
4
Recommended action
To understand the MTD requirements and review the actions needed for your VAT
compliance processes to comply. MTD is expected to be the most fundamental change
to the tax administration system for at least 20 years and organisations should be aware
that the VAT changes are just the starting point. It is to be extended to other UK taxes.
2018 Crowe U.K. LLP
5
Join us on our free MTD for VAT webinar at
12:30 on Thursday 6 September as we discuss
MTD and what you need to do to prepare.
Email VAT@crowe.co.uk to register.
2018 Crowe U.K. LLP
Whilst a lot of detail of what is to come on the
immigration front remains somewhat unclear
we do know that free movement as we know
it will end. The key issues for employers are
understanding how this will impact their
workforce today and in the future.
An immediate area of focus are EU nationals
already in the UK workforce. Most
organisations will now have complied lists of
EU nationals they employee and a key people
concern they will have now is their permanent
residency status after the UK withdraws from
the EU. Some guidance has been published
around settled status. A key consideration for
employers is how to support these workers
with applications.
Going forward, there will be new processes
and registration requirements.
Workforce planning is key. If an organisation
is able to compare their current EU workforce
against future demands taking into account
whether those workers will be readily
available or indeed even view the UK as
attractive place to work and live then they can
start to understand if they have a deficit. If a
deficit is expected the question then turns to
what can employers do now to influence the
future supply of skills and types of workers?
For example, what role can apprenticeships
play? What role can expatriate tax breaks
(that provide reduced tax liabilities for certain
non-domiciled individuals) play to increase
UK attractiveness as a host for key talent?
Tax developments: Summer 2018
International trade arrangements rightly
continue to feature prominently in the Brexit
discussions and much remains uncertain
despite many months of debate.
During 2018 the government provided details
of their aims for the UK's future customs
relationship with the EU and provisional
agreement has been reached for a
transitional period running from Brexit day
(29 March 2019) to 31 December 2020. This
will mean businesses will only have to adjust
once to a new set of customs/ international
trade relationships.
The government has started to negotiate with
the EU as to what our future international
trade arrangements will be. Various proposals
have been set-out but nothing is yet agreed.
A so-called 'hard Brexit' now appears to be a
realistic outcome. Coming out of the EU could
mean that the UK will no longer benefit from
the EU royalties and interest directive which
removed withholding taxes on dividends,
royalties and interest coming from EU
territories.
2. Brexit
6
Cross-border trade
Immigration and
workplace planning
2018 Crowe U.K. LLP
Tax developments: Summer 2018
Many organisations are already considering
and planning moves of functions or teams
from the UK to EU locations. For others, there
may not be moves of offices or teams but will
instead be new patterns of people mobility as
teams and key executives respond to where
their roles require them to be.
The relocation of the European Medicine
Agency to Amsterdam is just one high profile
example. As this thinking develops
organisations will need to consider the best
way of structuring the movements.
Relocations bring a whole host of tax issues
for the organisation and its employees. For
the organisation there is a need to consider
the right corporate set up to facilitate business
within the EU whilst remaining cost
competitive and compliant. Where certain key
personnel are required to relocate it will be
necessary to consider payroll, social security
and tax set up. There will be a need to
consider whether roles should be local or
expatriate in nature. A number of countries in
Europe have expatriate tax concessions and
tax breaks and leveraging these can be key
ensure costs and budgets are proactively
managed.
7
Recommended action
1. For now, assess the parts of your
organisations' activities which may
be impacted. It can be difficult to
understand all the types of
purchases and sales made and the
physical and legal flows, but these
will all need reviewing to pinpoint the
areas that could be impacted. The
likely creation of a customs border
between the UK and elsewhere will
result in a change to the
import/export processes for goods
and possibly an increase in customs
duty and VAT costs.
2. Review your organisations' cross
border charges and profit
repatriation models to understand
and plan for any additional tax costs
that your organisation may face as a
result of applying the Tax Treaty
withholding tax rates.
3. Carry out workforce planning to
understand existing and forecast
employee needs.
4. For those considering corporate
relocations, to understand the tax
implications for both the organisation
and its employees for all of the
candidate locations being
considered.
Corporate location
strategy
2018 Crowe U.K. LLP
Tax developments: Summer 2018
Engagement of off payroll workers has
always been a hot topic with HMRC however
this last year we have hardly seen a week
where it hasn't been covered in the press.
In recent times a whole myriad of different
models of working have developed, further
complicating the already murky issue of
whether an individual has the status of an
employee or a worker, or is a self-employed
independent contractor. The problem is that if
the engager applies the incorrect treatment
then they hold the risk not only from an
employment law perspective but importantly
any tax and NIC under paid plus interest and
penalties.
To further complicate matters the rules are
likely to change, on which we should hear
more in the coming months. HMRC and the
Treasury launched a consultation into the
question of off-payroll working in the private
sector, which closes on 10 August.
The consultation considers ways to ensure
better compliance and less tax leakage in
circumstances where individuals supply their
services to a business through a personal
services company (PSC) (see box IR35). The
public sector ready has rules covering this
which came in April 2017.
Broadly, the public sector changes passed
the tax risk from the PSC itself to the ultimate
engager. HMRC has stated that this has seen
a significant number of public sector
engagements to move to the pay-as-you-earn
(PAYE) system, either as an employee proper
or by the public sector engager operating
PAYE on payments to the PSC.
In addition, earlier in 2018 we also saw a
number of consultations into the employment
status framework following the Taylor review,
which made a number of recommendations
for increased clarity and transparency in the
tests for employment status.
3. Off payroll workers
8
Recommended action:
Make sure you have policies and procedures covering off payroll workers and
assessing the correct categorisation. Review your purchase ledger to identify those
off payroll paid through intermediaries. Keep an eye out for future developments.
2018 Crowe U.K. LLP
Tax developments: Summer 2018
There was a change in the taxation of
termination payment from April 2018, where
the legislation has not seen any significant
change for around 30 years, and it appears
many employers still have not understood
what to do.
What are the changes?
From 6 April 2018 the legislation will:
effectively treat all payments in lieu of
notice as earnings as subject to tax and
class 1 NICs
ensure that payments for injury to feelings
fall outside the exemption for injury
payments, except where the injury
amounts to a psychiatric injury or any
other recognised medical condition
abolish foreign service relief (except in
relation to seafarers) for UK resident
employees.
permit HM Treasury to vary the 30,000
threshold by regulations
From 6 April 2019, the legislation will:
subject all termination payments above the
30,000 threshold to class 1A NICs
(employer liability only).
The issue is that it sounds straight forward
but it is not and many employers are now
incorrectly calculating the tax and NIC. In
order to correctly calculate this for
terminations, on or after 6 April 2018,
employers need to use the formula in the
legislation. Failing to deduct tax and NIC can
leave the employer liable for the payments
plus interest and penalties.
4. Termination payment changes
9
Recommended action
Make sure you have reviewed the new
rules and incorporated them into your
termination payment procedure so you
apply the correct tax and NIC treatment.
2018 Crowe U.K. LLP
Tax developments: Summer 2018
The benefit in kind rates on company cars
continue to escalate, and you may have
noticed the impact on your net pay from April
this year.
Employers will have submitted their P11D's
for the year to 5 April 2018 which gives
HMRC a further opportunity to amend tax
codes so watch out for any changes this
month. This could include the impact of the
changes to the optional remuneration rules
from April 2017 which mean if you had the
option of a cash allowance but took the car
and picked a low emission vehicle you might
still be taxed on the higher cash allowance
figure you gave up! This is the first year
affected so take care to make sure any
adjustments are correct.
By way of illustration; in the year to 5 April
2018, the car benefit rate for electric cars (or
those emitting less than 51g CO2 per km) was
9%, an increase from 5% as recently as the
tax year to 5 April 2016. From 6 April 2018,
this rate is increasing to 13% and then to 16%
from 6 April 2019. Those who are enjoying
the use of a Tesla purchased for 80,000 will
see the benefit in kind charge increase by
3,200 and 5,600 versus the current
position, an increase in tax of 1,440 and
2,520 a year.
On the plus side, the benefit in kind rates on
such cars are due to be amended to be based
on electric range, which could see the rate
drop dramatically so don't give up on your
electric car yet.
5. Watch tax on company cars
10
Recommended action:
Make sure you understand the taxation of your company car and its impact on your
tax position over the next few years.
2018 Crowe U.K. LLP
11
2018 Crowe U.K. LLP
Tax developments: Summer 2018
As highlighted in our last article, the rates of
tax on dividends have changed hugely over
the last few years meaning the 'tax gap'
between salary and dividends has narrowed.
This is clearly intentional and is HMRC's way
of reducing the benefit afforded to owner
managers when deciding how to draw their
income.
We have crunched the numbers many times
and in most cases it is still cheaper to pay a
dividend rather than a bonus. It is however
important that your remuneration strategy is
reviewed regularly and all options considered.
A few key pointers are:
6. Remuneration planning
12
Recommended action
Businesses should review their remuneration strategy regularly alongside the management
accounts to make sure any payments are as efficient as they can be for the owner manager
whilst making sure they are sustainable for the business.
1
2
3
Timing dividends are taxed in the
year of receipt so make the most of the
different tax bands and plan your cash
flow. If you can defer payment into a
later tax year then why not do so if it
can postpone your tax liability.
Family shareholders if they are
involved in the business then why not
bring them in as shareholders. They
can then participate in dividends
potentially at lower tax rates.
Loan interest if the director has
lent money to the business then
consider whether a payment of
interest might be appropriate. The tax
rate on interest for the director is
higher than a dividend (45%
compared to 38.1%) but the company
would get a deduction for corporation
tax at 19% once it is paid so the
overall result can be cheaper.
2018 Crowe U.K. LLP
Tax developments: Summer 2018
Although the legislation has been in place
since last autumn, organisations may have
overlooked its importance and the dire
consequences of falling foul to the corporate
criminal offence. The rules apply to all
businesses, regardless of their size or
industry sector.
It is no secret that the government has put
huge focus on reducing tax evasion. Instead
of targeting tax evaders themselves, these
measures criminalise corporates (which
includes partnerships and LLPs) that don't do
enough to prevent the facilitation of that
evasion in the first place.
Criminal liability can be attributed to a firm
when its employees or associates are seen to
be helping taxpayers evade tax. Examples of
scenarios that might be caught include an HR
manager classing a new employee as self-
employed knowing that it will save on
National Insurance, and an employee raising
a bill to an individual's company for personal
tax return preparation, knowing the VAT will
be reclaimed by the company.
There are three key elements under the new
offence:
Criminal tax evasion by an
individual/legal entity anywhere in
the world.
Facilitation of the offence by an
employee/person acting on behalf of
the firm.
The firm is then automatically
considered to have failed to prevent
the facilitation of the tax offence,
subject to the defence.
7. Failure to prevent the
facilitation of tax evasion
13
Recommended action
Ensure your organisation is fully complying with the rules in order to protect against criminal
investigation, an unlimited fine and significant reputational damage. Organisations can plead a
defence that it has put in place 'reasonable measures, procedures and safeguards' to prevent
facilitation of tax evasion. Businesses should take steps immediately to ensure that their
processes and controls are robust. This should include an initial risk assessment whereby the
business calculates, documents and reviews its exposure to the new offence.
1
2
3
2018 Crowe U.K. LLP
Tax developments: Summer 2018
HMRC is urging taxpayers to make
disclosures of UK tax due on foreign income
and assets in advance of the 30 September
2018 deadline. This coincides with the end
date by which time all countries signed up to
the common reporting standard will have
exchanged financial data.
If taxpayers fail to make adequate disclosures
in time, HMRC will assess draconian 'Failure
to Correct' penalties. The standard penalty
will be 200% of the underpaid tax, which can
be reduced to 100% for making a good quality
disclosure following HMRC discovering the
inaccuracies. There are other penalties based
on the value of the asset if, for example,
HMRC discovers the taxpayer has moved
them to different jurisdictions in the hope of
avoiding detection under the CRS.
8. Requirement/failure to correct
14
Recommended action
All taxpayers should review their tax affairs
in order to ensure all UK tax liabilities have
been settled. The rules apply to anyone
with an undeclared UK income tax, capital
gains tax and/or inheritance tax liability
which is connected to an offshore matter.
As a result, individuals, partnerships,
Trustees and non-resident landlord
companies all need to satisfy themselves
the correct UK tax has been paid.
Taxpayers who discover inaccuracies need
to tell HMRC before 30 September 2018
they intend to make a full disclosure,
otherwise they will suffer huge penalties.
2018 Crowe U.K. LLP
Tax developments: Summer 2018
The recent Wayfair Supreme Court decision
is leading to a significant change in US Sales
Tax rules and could result in non-US
companies that sell goods or services into the
US having to register and pay local sales
taxes in each US State where they have
customers. The decision creates an obligation
for businesses to consider if they have an
'economic nexus' with each State, rather than
a 'physical presence'. Where there is such a
link, then US sales tax could become payable
together with an obligation to register and
render returns. There is also the potential that
there will be US state income taxes payable
as well.
9. Selling remotely into the US
15
Recommended action
It is worth noting that there remains
significant uncertainty about the scope of
the Sales Tax rule changes, the different
criteria for what constitutes an 'economic
activity' and whether there may be
retrospective effect. Businesses should
also be aware that each State sets its own
rules, which is likely to lead to
inconsistencies and a need to monitor
developments. For now, we recommend
reviewing in what States you have made
sales and monitoring developments in the
laws/guidance for those States as to what
constitutes an 'economic nexus'.
2018 Crowe U.K. LLP
Tax developments: Summer 2018
We predicted that 2018 would see a
continued focus on collecting tax through
preventing abusive tax avoidance including
through use of the General Anti-Abuse Rule
(GAAR) for tax schemes.
The GAAR was enacted in 2013 and was
designed to "deter (and, where deterrence
fails, counteract) contrived and artificial
schemes". It works by allowing HMRC to
counteract a tax advantage arising from
'abusive' arrangements. This is a wide-
ranging power and, to balance it, taxpayer
safeguards were also introduced. One of
these safeguards is the independent GAAR
Advisory Panel, whose role is to consider,
review and approve HMRC's guidance on the
GAAR, and deliver opinions on individual
cases referred to it by HMRC.
The GAAR Advisory Panel has now issued
seven rulings. In July 2018 HMRC issued
guidance about dealing with an HMRC notice
of binding and a bound arrangements opinion
notice under the GAAR, including when they
will apply penalties - of 60% of the tax
avoided. We expect to see the GAAR to
continue to be invoked to close down
schemes or tax arrangements where the
transactions do not constitute a reasonable
course of action.
For those organisations that have not entered
into any tax planning the GAAR
developments could still have an impact as
they are a further measure aimed at the
governance of tax and links between
commercial activities and the tax payable. We
are continuing to see a trend of organisations
focusing time and budgets on tax risk
management, by ensuring they have good tax
processes and controls.
Provisions in the recent Finance Bill
introducing a points based system for late
filing of certain tax returns, and penalties for
late payment of taxes also indicate that
HMRC will continue to focus their attention on
those organisations who are not tax compliant
as well as those they believe are abusing the
tax system by using tax schemes.
10. Continued spotlight
on tax evasion
16
2018 Crowe U.K. LLP
17
Recommended action
With public trust in the fairness of the tax
system at a low point, and tax revenues
needed, expect dogged HMRC scrutiny of
any tax schemes or aggressive tax
positions. As well as the financial cost of a
protracted HMRC enquiry, consider the
cost to reputation if the details were to
become public.
We continue to recommend organisations
make sure that they:
are on top of their tax payment and
filing obligations

focus on claiming all the significant tax
reliefs that you are entitled to
close down any aggressive tax
planning.
2018 Crowe U.K. LLP
Tax developments: Summer 2018
Notes
18
2018 Crowe U.K. LLP
Tax developments: Summer 2018
19
Crowe U.K. LLP is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity.
Crowe U.K. LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global.
Crowe Global does not render any professional services and does not have an ownership or partnership interest in Crowe U.K. LLP. Crowe U.K.
LLP is authorised and regulated by the Financial Conduct Authority.
2018 Crowe U.K. LLP
Jane Mackay
Partner and Head of Tax
+44 (0)118 959 7222
jane.mackay@crowe.co.uk
Robert Marchant
Partner, VAT
+44 (0)20 7842 7383
robert.marchant@crowe.co.uk
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