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Cryptoassets for individuals by gov.uk

In the interest of providing relevant and correct data about such an important issue, the following article was taken directly and without editing from the gov.uk website, and the original article can be found at this link: https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-for-individuals

Cryptoassets are a relatively new type of asset that have become more prevalent in recent years. New technology has led to cryptoassets being created in a wide range of forms and for various different uses.

This paper sets out HMRC’s view – based on the law as it stands at the date of publication – about how individuals who have cryptoassets are taxed. It does not explicitly consider the tax treatment of cryptoassets held for the purposes of a business carried on by an individual.

HMRC will publish further information about the tax treatment of cryptoasset transactions involving businesses and companies.

The cryptoassets sector is fast-moving and developing all the time. The terminology, types of coins, tokens and transactions can vary. The tax treatment of cryptoassets continues to develop due to the evolving nature of the underlying technology and the areas in which cryptoassets are used. As such, HMRC will look at the facts of each case and apply the relevant tax provisions according to what has actually taken place (rather than by reference to terminology). Our views may evolve further as the sector develops.

Where HMRC considers that there is, or may have been, avoidance of tax, the analysis presented will not necessarily apply.

What cryptoassets are

Cryptoassets (or ‘cryptocurrency’ as they are also known) are cryptographically secured digital representations of value or contractual rights that can be:

  • transferred
  • stored
  • traded electronically

While all cryptoassets use some form of Distributed Ledger Technology (DLT) not all applications of DLT involve cryptoassets.

HMRC does not consider cryptoassets to be currency or money. This reflects the position previously set out by the Cryptoasset Taskforce report (CATF). The CATF have identified three types of cryptoassets:

  • exchange tokens
  • utility tokens
  • security tokens

However the tax treatment of all types of tokens is dependent on the nature and use of the token and not the definition of the token.

This paper considers the taxation of exchange tokens (like bitcoins) and does not specifically consider utility or security tokens. For utility and security tokens this guidance provides our starting principles but a different tax treatment may need to be adopted.

Exchange tokens

Exchange tokens are intended to be used as a method of payment and encompasses ‘cryptocurrencies’ like bitcoin. They utilise DLT and typically there is no person, group or asset underpinning these, instead the value exists based on its use as a means of exchange or investment. Unlike utility or security tokens, they do not provide any rights or access to goods or services.

Utility tokens

Utility tokens provide the holder with access to particular goods or services on a platform usually using DLT. A business or group of businesses will normally issue the tokens and commit to accepting the tokens as payment for the particular goods or services in question.

Security tokens

Security tokens may provide the holder with particular interests in a business, for example in the nature of debt due by the business or a share of profits in the business.

Which taxes apply

In the vast majority of cases, individuals hold cryptoassets as a personal investment, usually for capital appreciation in its value or to make particular purchases. They will be liable to pay Capital Gains Tax when they dispose of their cryptoassets.

Individuals will be liable to pay Income Tax and National Insurance contributions on cryptoassets which they receive from:

  • their employer as a form of non-cash payment
  • mining, transaction confirmation or airdrops

As set out in more detail below, there may be cases where the individual is running a business which is carrying on a financial trade in cryptoassets and will therefore have taxable trading profits. This is likely to be unusual, but in such cases Income Tax would take priority over the Capital Gains Tax rules. HMRC will publish separate information for businesses in due course.

HMRC does not consider the buying and selling of cryptoassets to be the same as gambling.

Income Tax

Financial trading in cryptoassets

HMRC taxes cryptoassets based on what the person holding it does. If the holder is conducting a trade then Income Tax will be applied to their trading profits.

Only in exceptional circumstances would HMRC expect individuals to buy and sell cryptoassets with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself. If it is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses) as it would be considered as a business.

As with any activity, the question whether cryptoasset activities amount to trading depends on a number of factors and the individual circumstances. Whether an individual is engaged in a financial trade through the activity of buying and selling cryptoassets will ultimately be a question of fact. It’s often the case that individuals and companies entering into transactions consisting of buying and selling cryptoassets will describe them as ‘trades’. However, the use of the term ‘trade’ in this context is not sufficient to be regarded as a financial trade for tax purposes.

A trade in cryptoassets would be similar in nature to a trade in shares, securities and other financial products. Therefore the approach to be taken in determining whether a trade is being conducted or not would also be similar, and guidance can be drawn from the existing case law on trading in shares and securities.

More information on the existing approach and case law for share transactions and financial traders can be found in the HMRC business income manual (BIM56800).

Mining

Cryptoassets can be awarded to ‘miners’ for verifying additions to the blockchain digital ledger. Mining will typically involve using computers to solve difficult maths problems in order to generate new cryptoassets.

Whether such activity amounts to a taxable trade (with the cryptoassets as trade receipts) depends on a range of factors such as:

  • degree of activity
  • organisation
  • risk
  • commerciality

If the mining activity does not amount to a trade, the pound sterling value (at the time of receipt) of any cryptoassets awarded for successful mining will be taxable as income (miscellaneous income) with any appropriate expenses reducing the amount chargeable.

The other taxable income: HS325 Self Assessment helpsheet has more information about miscellaneous income.

If the individual keeps the awarded assets, they may have to pay Capital Gains Tax when they later dispose of them.

Fees from mining

Fees or rewards received in return for mining (for transaction confirmation) are also chargeable to Income Tax, either as trading or miscellaneous income depending on the:

  • degree of activity
  • organisation
  • risk
  • commerciality

If the individual receives cryptoassets as payment for the services provided then any increase in value from the time of acquisition will either give rise to a chargeable gain on disposal for Capital Gains Tax purposes or, in the case of a trade, get taken into account in computing any trading profits

Airdrops

An airdrop is where someone receives an allocation of tokens or other cryptoassets, for example as part of a marketing or advertising campaign in which people are selected to receive them. Other examples of airdrops may involve tokens being provided automatically due to other tokens being held or where an individual has registered to become eligible to take part in the airdrop.

The airdropped tokens, typically, has its own infrastructure (which may include a smart contract, blockchain or other form of DLT) that operates independently of the infrastructure for an existing cryptoasset.

Income Tax will not always apply to airdropped cryptoassets received in a personal capacity. Income tax may not apply if they’re received:

  • without doing anything in return (for example, not related to any service or other conditions)
  • not as part of a trade or business involving cryptoassets or mining

Airdrops that are provided in return for, or in expectation of, a service are subject to Income Tax either as:

  • miscellaneous income
  • receipts of an existing trade

The disposal of a cryptoasset received through an airdrop may result in a chargeable gain for Capital Gains Tax, even if it’s not chargeable to Income Tax when it’s received. Where changes in value get brought into account as part of a computation of trade profits Income Tax will take priority over Capital Gains Tax.

Income Tax losses

An individual who is trading may be able to reduce their Income Tax liability by offsetting any losses from their trade against future profits or other income. HMRC’s Losses: HS227 Self Assessment helpsheet has more information (including restrictions that apply).

If profits from activities are taxable as miscellaneous income, losses may be able to be carried forward to later years. More information on this can be found in helpsheet HS325: other taxable income.

Capital Gains Tax

HMRC would expect that buying and selling of cryptoassets by an individual will normally amount to investment activity (rather than a trade of dealing in cryptoassets). In such cases, if an individual invests in cryptoassets they will typically have to pay Capital Gains Tax on any gains they realise.

Cryptoassets are digital and therefore intangible, but count as a ‘chargeable asset’ for Capital Gains Tax if they’re both:

  • capable of being owned
  • have a value that can be realised

What constitutes a ‘disposal’

Individuals need to calculate their gain or loss when they dispose of their cryptoassets to find out whether they need to pay Capital Gains Tax. A ‘disposal’ is a broad concept and includes:

  • selling cryptoassets for money
  • exchanging cryptoassets for a different type of cryptoasset
  • using cryptoassets to pay for goods or services
  • giving away cryptoassets to another person

If cryptoassets are given away to another person who is not a spouse or civil partner, the individual must work out the pound sterling value of what has been given away. For Capital Gains Tax purposes the individual is treated as having received that amount of pound sterling even if they did not actually receive anything.

If Income Tax has been charged on the value of the tokens received, section 37 Taxation of Capital Gains Act 1992 will apply. Any consideration will be reduced by the amount already subject to Income Tax.

  • if they make a ‘tainted donation
  • where the individual disposes of the cryptoassets to the charity for more than the acquisition cost so that they realise a gain

Allowable costs

Certain costs can be allowed as a deduction when calculating if there’s a gain or loss, which include:

  • the consideration (in pound sterling) originally paid for the asset
  • transaction fees paid before the transaction is added to a blockchain
  • advertising for a purchaser or a vendor
  • professional costs to draw up a contract for the acquisition or disposal of the cryptoassets
  • costs of making a valuation or apportionment to be able to calculate gains or losses

The following do not constitute allowable costs for Capital Gains Tax purposes:

  • any costs deducted against profits for Income Tax
  • costs for mining activities (for example equipment and electricity)

Costs for mining activities do not count toward allowable costs because they’re not wholly and exclusively to acquire the cryptoassets, and so cannot satisfy the requirements of section 38(1)(a) Taxation of Capital Gains Act 1992 (but it is possible to deduct some of these costs against profits for Income Tax or on a disposal of the mining equipment itself).

If the mining amounts to a trade for tax purposes the cryptoassets will initially form part of trading stock. If these cryptoassets are transferred out of trading stock, the business will be treated as if they bought them at the value used in trading accounts. Businesses should use this value as an allowable cost in calculations when they dispose of the cryptoassets. More information can be found in the HMRC capital gains manual (CG69220).

Pooling

Pooling under section 104 Taxation of Capital Gains Act 1992 allows for simpler Capital Gains Tax calculations. Pooling applies to shares and securities of companies and also “any other assets where they are of a nature to be dealt in without identifying the particular assets disposed of or acquired”. HMRC believes cryptoassets fall within this description, meaning they must be pooled.

Instead of tracking the gain or loss for each transaction individually, each type of cryptoasset is kept in a ‘pool’. The consideration (in pound sterling) originally paid for the tokens goes into the pool to create the ‘pooled allowable cost’.

For example, if a person owns bitcoin, ether and litecoin they would have three pools and each one would have it’s own ‘pooled allowable cost’ associated with it. This pooled allowable cost changes as more tokens of that particular type are acquired and disposed of.

If some of the tokens from pool are sold, this is considered a ‘part-disposal’. A corresponding proportion of the pooled allowable costs would be deducted when calculating the gain or loss.

Individuals must still keep a record of the amount spent on each type of cryptoasset, as well as the pooled allowable cost of each pool.

Example

Victoria bought 100 token A for £1,000. A year later Victoria bought a further 50 token A for £125,000. Victoria is treated as having a single pool of 150 of token A and total allowable costs of £126,000.

A few years later Victoria sells 50 of her token A for £300,000. Victoria will be allowed to deduct a proportion of the pooled allowable costs when working out her gain:

Amount
Consideration £300,000
Less allowable costs £126,000 x (50 / 150) £42,000
Gain £258,000

Victoria will have a gain of £258,000 and she will need to pay Capital Gains Tax on this. After the sale, Victoria will be treated as having a single pool of 100 token A and total allowable costs of £84,000.

If Victoria then sold all 100 of her remaining token A then she can deduct all £84,000 of allowable costs when working out her gain.

Acquiring within 30 days of selling

Special pooling rules apply if an individual acquires tokens of a cryptoasset:

  • on the same day that they dispose tokens of the same cryptoasset (even if the disposal took place before the acquisition)
  • within 30 days after they disposed of tokens of the same cryptoasset

If the special rules apply, the new cryptoassets and the costs of acquiring them stay separate from the main pool. The gain or loss should be calculated using the costs of the new tokens of the cryptoasset that are kept separate.

If the number of tokens disposed of exceeds the number of new tokens acquired, then the calculation of any gain or loss may also include an appropriate proportion of the pooled allowable cost.

Example

Melanie holds 14,000 token B in a pool. She spent a total of £200,000 acquiring them, which is her pooled allowable cost.

On 30 August 2018 Melanie sells 4,000 tokens B for £160,000.

Then on 11 September 2018 Melanie buys 500 token B for £17,500.

The 500 new tokens were bought within 30 days of the disposal, so they do not go into the pool. Instead, Melanie is treated as having sold:

  • the 500 tokens she has just bought
  • 3,500 of the tokens already in the pool

Melanie will need to work out her gain on the 500 token B as follows:

Amount
Consideration £160,000 x (500 / 4,000) £20,000
Less allowable costs £17,500
Gain £2,500

Melanie will also need to work out her gain on the 3,500 token B sold from the pool as follows:

Amount
Consideration £160,000 x (3,500 / 4,000) £140,000
Less allowable costs £200,000 x (3,500 / 14,000) £50,000
Gain £90,000

Melanie still holds a pool of 10,500 token B. The pool has allowable costs of £150,000 remaining.

Blockchain forks

Some cryptoassets are not controlled by a central body or person, but operate by consensus amongst that cryptoasset’s community. When a significant minority of the community want to do something different they may create a ‘fork’ in the blockchain.

There are two types of forks, a soft fork and a hard fork. A soft fork updates the protocol and is intended to be adopted by all. No new tokens, or blockchain, are expected to be created. A hard fork is different and can result in new tokens coming into existence. Before the fork occurs there is a single blockchain. Usually, at the point of the hard fork a second branch (and therefore a new cryptoasset) is created.

The blockchain for the original and the new cryptoassets have a shared history up to the fork. If an individual held tokens of the cryptoasset on the original blockchain they will, usually, hold an equal numbers of tokens on both blockchains after the fork.

The value of the new cryptoassets is derived from the original cryptoassets already held by the individual. This means that section 43 Taxation of Capital Gains Act 1992 will apply.

After the fork the new cryptoassets need to go into their own pool. Any allowable costs for pooling of the original cryptoassets are split between the pool for the:

  • original cryptoassets
  • new cryptoassets

If an individual holds cryptoassets through an exchange, the exchange will make a choice whether to recognise the new cryptoassets created by the fork.

New cryptoassets can only be disposed of if the exchange recognises the new cryptoassets. If the exchange does not recognise the new cryptoasset it does not change the position for the blockchain, which will show an individual as owning units of the new cryptoasset. HMRC will consider cases of difficulty as they arise.

Costs must be split on a just and reasonable basis under section 52(4) Taxation of Capital Gains Act 1992. HMRC does not prescribe any particular apportionment method. HMRC has the power to enquire into an apportionment method that it believes is not just and reasonable.

Airdrops

An airdrop is when an individual receives an allocation of tokens or other cryptoassets. For example, tokens are given as part of a marketing or advertising campaign.

The airdropped cryptoasset, typically, has its own infrastructure (which may include a smart contract, blockchain or other form of DLT) that operates independently of the infrastructure for an existing cryptoasset.

The tokens of the airdropped cryptoasset will need to go into their own pool unless the recipient already holds tokens of that cryptoasset, in which case the airdropped tokens will go into the existing pool. The value of the airdropped cryptoasset does not derive from an existing cryptoasset held by the individual, so section 43 Taxation of Capital Gains Act 1992 does not apply.

Capital Gains Tax losses

If an individual disposes of cryptoassets for less than their allowable costs, they will have a loss. Certain ‘allowable losses’ can be used to reduce the overall gain, but the losses must be reported to HMRC first.

There are special rules for losses when disposing of cryptoassets to a ‘connected person’.

Claiming for an asset that’s lost its value

As with other types of assets, individuals can crystallise losses for cryptoassets that they still own if they become worthless or of ‘negligible value’.

A negligible value claim treats the cryptoassets as being disposed of and re-acquired at an amount stated in the claim. As cryptoassets are pooled, the negligible value claim needs to be made in respect of the whole pool, not the individual tokens.

The claim will need to state the:

  • asset which is the subject of the claim
  • amount the asset should be treated as disposed of (which may be £0)
  • date that the asset should be treated as disposed of

The disposal produces a loss that needs to be reported to HMRC. Negligible value claims can be made to HMRC at the same time as reporting the loss.

More information about negligible value claims can be found in the HMRC capital gains manual (CG13120P).

Losing public and private keys

If an individual misplaces their private key (for example throwing away the piece of paper it is printed on), they will not be able to access the cryptoasset. The private key still exists as part of the cryptography, albeit it is not known to the owner any more. Similarly the cryptoassets will still exist in the distributed ledger. This means that misplacing the key does not count as a disposal for Capital Gains Tax purposes. More information can be found in the HMRC capital gains manual (CG13155).

If it can be shown there is no prospect of recovering the private key or accessing the cryptoassets held in the corresponding wallet, a negligible value claim could be made. If HMRC accepts the negligible value claim, the individual will be treated as having disposed of and re-acquiring the cryptoassets they cannot access so that they can crystallise a loss.

Being defrauded

If an individual invests in cryptoassets, there’s a risk of becoming a victim of theft or fraud. HMRC does not consider theft to be a disposal, as the individual still owns the assets and has a right to recover them. This means victims of theft cannot claim a loss for Capital Gains Tax.

Those who do not receive cryptoassets they pay for may not be able to claim a capital loss.

Those who pay for and receive cryptoassets, may be able to make a negligible value claim to HMRC if they turn out to be worthless.

More information can be found in the HMRC capital gains manual (CG13155).

Cryptoassets received as earnings

Cryptoassets received as employment income count as ‘moneys worth’ and are subject to Income Tax and National Insurance contributions on the value of the asset.

Cryptoassets provided in the form of Readily Convertible Assets (RCAs)

Cryptoassets are RCAs if trading arrangements exist, or are likely to come into existence, in accordance with section 702 of the Income Tax (Earnings and Pensions) Act 2003.

Exchange tokens like bitcoin can be exchanged on one or more token exchanges in order to obtain an amount of money. On that basis, it is our view that ‘trading arrangements’ exist, or are likely to come into existence at the point cryptoassets are received as employment income.

If an employer has a UK tax presence they must deduct and account to HMRC for the Income Tax and Class 1 National Insurance contributions due through the operation of PAYE, based on the best estimate that can reasonably be made of the cryptoasset’s value.

More information on readily convertible assets can be found in the HMRC employment income manual – (EIM11900).

If an employer cannot deduct the full amount of Income Tax due from employment income they must still account to HMRC for the balance. This is called the ‘due amount’. The employee must reimburse their employer for the ‘due amount’ within 90 days after the end of the tax year. If they do not, then a further Income Tax charge and National Insurance contributions liability will arise on an amount equal to the ‘due amount’ under section 222 ITEPA 2003.

More information about PAYE: special types of payment can be found in the HMRC employment income manual – (EIM11954).

Cryptoassets which are not RCAs

Cryptoassets received as earnings from employment, which do not meet the definition of RCAs in section 702 ITEPA 2003, are still subject to Income Tax and National Insurance contributions.

Employers do not have to operate PAYE on payments of earnings that are not RCAs. The individual must declare and pay HMRC the Income Tax due on any amount of employment income received in the form of cryptoassets (using the employment pages of a Self Assessment return). More information on filing a Self Assessment tax return is available.

The employer should treat the payment of cryptoassets, which are not RCAs, as payments in kind for National Insurance contributions purposes, and pay any Class 1A National Insurance contributions to HMRC.

Cryptoassets provided by a third party in connection with employment

Where cryptoassets are provided by a third party, in connection with employment, an Income Tax charge may arise under Part 7A ITEPA 2003. A Class 1 National Insurance contributions liability may also arise under Regulation 22B and paragraph 2A of Schedule 3 to the Social Security (contributions) Regulations 2001.

Employers must account to HMRC for the Income Tax and National Insurance contributions due through the operation of PAYE, based on the best estimate that can reasonably be made of the cryptoassets’ value.

More information on Part 7A ITEPA 2003 can be found in the HMRC employment income manual – (EIM45000).

Subsequent disposal of tokens

Any disposal of the cryptoasset received through employment may result in a chargeable gain for Capital Gains Tax.

Record keeping

Cryptoasset exchanges may only keep records of transactions for a short period, or the exchange may no longer be in existence when an individual completes a tax return.

The onus is therefore on the individual to keep separate records for each cryptoasset transaction, and these must include:

  • the type of cryptoasset
  • date of the transaction
  • if they were bought or sold
  • number of units
  • value of the transaction in pound sterling
  • cumulative total of the investment units held
  • bank statements and wallet addresses, if needed for an enquiry or review

Self Assessment tax returns

Many cryptoassets (such as bitcoin) are traded on exchanges which do not use pound sterling, so the value of any gain or loss must be converted into pound sterling on the Self Assessment tax return.

If the transaction does not have a pound sterling value (for example if bitcoin is exchanged for ripple) an appropriate exchange rate must be established in order to convert the transaction to pound sterling.

Reasonable care should be taken to arrive at an appropriate valuation for the transaction using a consistent methodology. They should also keep records of the valuation methodology.

The amount of tax due depends on the individual’s personal circumstances including their residence and domicile status.

Other considerations

Pensions

HMRC does not consider cryptoassets to be currency or money so they cannot be used to make a tax relievable contribution to a registered pension scheme.

More information on contributions can be found in the HMRC pensions tax manual PTM044100.

Inheritance Tax

Cryptoassets will be property for the purposes of Inheritance Tax.

Self Assessment (SA) and Company Directors

HMRC has received inquiries about the law on the obligation to notify chargeability to tax. Guidance on Self Assessment tax returns has been updated on GOV.UK to clarify that company directors with income taxed at source and with no further tax to pay do not need to complete a tax return. Anyone chargeable to Income Tax or Capital Gains Tax must tell HMRC they are chargeable to tax if they have:
• not received a notice to file a return or
• received a notice to file a return and HMRC have agreed to withdraw the notice.
Information on how to do this is available on the Check if you need to send a Self Assessment tax return webpage on GOV.UK.
There are some exclusions. These include:
• individuals in receipt of a Simple Assessment (unless they are chargeable on anything that is not included in the assessment)
• individuals whose income has been taxed at source
• individuals not liable to the high-income child benefit charge.
Many company directors are taxed under PAYE and so will not need to give notice of liability to tax, provided they have no other untaxed income. HMRC can choose to issue a notice to file an SA return (under section 8 Taxes Management Act 1970) to any individual. Anyone receiving a notice to file a tax return must do so by the required deadline, or they may be liable to a late filing and/ or a late payment penalty.
If an individual has received a notice to file and has no other taxable income to report, they can ask for the notice to file to be withdrawn. However, HMRC may decide that they still require a return and if so, the return must be submitted otherwise, penalties may be incurred.

HMRC update partnership pack: preparing for a ‘no deal’ EU exit

BREXIT – British withdrawal from the European Union. Following a referendum held on 23 June 2016, in which a majority of votes cast were in favour of leaving the EU, the UK government intends to invoke Article 50 of the Treaty on European Union by the end of March 2017. This, within the treaty terms, would put the UK on a course to leave the EU by March 2019.

HMRC have updated their partnership pack on G‌O‌V.U‌K to help businesses plan for the possibility of a ‘no deal’ EU Exit.

The third edition of the pack is available to view here: https://www.gov.uk/government/publications/partnership-pack-preparing-for-a-no-deal-eu-exit.

This pack includes information from, and directs people to, 5 online guides, which provide the information on the steps UK businesses trading with EU need to take now in order to plan for a no deal scenario:

  • Guide 1 – Get a UK EORI number to trade within the EU
  • Guide 2 – Exporting and importing goods if the UK leaves the EU with no deal
  • Guide 3 –  Declaring your goods at customs if the UK leaves the EU with no deal
  • Guide 4 – Customs procedures if the UK leaves the EU with no deal
  • Guide 5 – Moving goods to and from the EU through roll on roll off locations including Eurotunnel.

Included within the partnership pack there is a section providing an update on how VAT for businesses would be affected.  Some of the key points provided in the pack are:

  • The UK will continue to have a VAT system after it leaves the EU. The revenue that VAT provides is vital for funding public services and the VAT rules relating to UK domestic transactions will continue to apply to businesses as they do now.
  • If the UK leaves the EU on 29 March 2019 without a deal, the government’s aim will be to keep VAT procedures as close as possible to what they are now. However, there will be some specific changes to the VAT rules and procedures that apply to transactions between the UK and EU countries.
  • In the VAT for businesses technical notice, the government has announced that in a ‘no deal’ scenario it will introduce postponed accounting for import VAT on goods brought into the UK. This means that UK VAT registered businesses importing goods to the UK will be able to account for import VAT on their VAT return, rather than paying import VAT on or soon after the time that the goods arrive at the UK border. This will apply both to imports from the EU and non-EU countries.
  • If the UK leaves the EU without an agreement, VAT will be payable on goods entering the UK as parcels sent by overseas businesses. The government set out in the Customs Bill White Paper (published October 2017) that Low Value Consignment Relief (LVCR) will not be extended to goods entering the UK from the EU. This note confirms that if the UK leaves the EU without an agreement then LVCR will no longer apply to any parcels arriving in the UK. This aligns the UK with the global direction of travel on LVCR. This means that all goods entering the UK as parcels sent by overseas businesses will be liable for VAT (unless they are already relieved from VAT under domestic rules, for example zero-rated children’s clothing). For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling the goods into the UK.
  • If the UK leaves the EU without an agreement, the UK will stop being part of EU-wide VAT IT systems such as the VAT Mini One Stop Shop. Details for specific EU-wide VAT IT systems is set out in the VAT for business technical notice.

For further details please click here.

This Article was taken from the iab.org website, for the original article please follow this link : www.iab.org.uk

HMRC Complaints Process given passing grade

Following on from last years annual report that found HMRC’s customer services somewhat lacking. The report highlighted that over the course of the year, HMRC failed to answer approximately four million telephone calls. When the calls were answered, 14% of the calls took over 10 minutes to be answered and then a further 4 minutes before they were connected to a member of the team.

Because of this seemingly low standard of quality, it caused many to wonder if HMRC was ‘fit for purpose’. This has caused HMRC to more closely pay attention to its customer service, and they have commissioned Ipsos MORI to perform a report on their services to find areas that function well and those that don’t.

This report appears to highlight that HMRC is progressing in terms of customer satisfaction, with a generally accepted percentage of customers receiving the information and services that they required. One highlight of this report was the two main ‘motivations’ for complaints.

The motivations were separated into ‘active choice’ and ‘means to an end’, and these refer to why the customer would seek to make a complaint. An ‘active choice’ complaint is regarded as when “When customers made an active choice to complain they were usually dissatisfied with the HMRC service received and wanted to make a complaint to let this be known,” as per the report.

Whereas, a ‘means to an end’ complaint is described as “Where the complaint was made as a means to an end, customers were trying to resolve their issue and had exhausted all other options available to them. Making a complaint was felt to be a logical next step in the customer journey as they sought to understand how or why the initial issue had occurred or they were looking for a practical outcome, such as a change in tax code or reimbursement.”

This change and awareness of these different types of complaints can allow HMRC to more accurately handle the needs of the customer and should further improve the quality of service.

The cost of Christmas generosity


To be generous or not? That is the question employers often ask themselves around the festive season. The CIPP policy team has run a number of polls to see how employers utilise the opportunity Christmas presents – and consider the impact the tax system has on that generosity.

Festive polls

In asking if the cost of income tax and NICs are considered when deciding what is included in Christmas reward schemes, it was revealed that only 15% of respondents considered these costs in their decision making, with a further 5% recognising, only after the event, that they should have been. For the majority (42%) tax planning did not play a part in Christmas celebration planning.
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Moving away from the tax burden for a moment we went on to ask the reason for such festive generosity and 75% do so, simply to say, ‘thank you’. For a small number (12%) tradition remains a strong motivation for doing so.

Barely a year goes by where we don’t receive a salutary message from a legal specialist warning about the risk to the employer caused by ‘excess’ at the Christmas party but nevertheless these warnings are not enough to prevent nearly half of employers providing and covering the full cost of the staff Christmas party.

Returning to the administration burden of the tax system, we asked: “How will your employer process the value of your seasonal gift?” Tax savvy employers lead the way with 29% of respondents ensuring that their generosity fell within the trivial benefit rules.

A commercial mortgage could be the stepping stone to expansion

Trivial benefits

Prior to April 2016, there was no statutory limit below which benefits would not be taxable – a subject that has been the cause of many a debate between the employer, their adviser and HMRC for some time. The news that HMRC had accepted the recommendation from the Office of Tax Simplification (OTS), in a bid to increase administrative simplicity, was indeed welcome.

For a gift, or token, to be considered a trivial benefit, however, it must meet certain criteria:

  • It must cost £50 or less to provide
  • It must not be cash or a voucher that can be exchanged for cash
  • It must not be a reward for the work or performance of an employee
  • It must not be given as a result of contractual entitlement.

Gifts (which aren’t only given at Christmas), are limited only by the imagination of the HR team but increasingly are becoming more imaginative than a mere turkey or bottle of wine. The final cost to a large employer may be significant, but as long as the criteria are met for each employee the principle will apply regardless of the final cost to the employer. And let’s not forget that accurate records to evidence that the criteria has been met must be maintained.
Annual parties and events

As we discovered from the poll results, employers continue to arrange and cover the cost of the Christmas party and yet, as we know from the calls that we receive to the CIPP advisory service, this remains an area that continues to catch out the unwary.

As with any other subject, there is criteria that must be met to ensure that this event doesn’t result in an unexpected tax cost.

As with the Trivial Benefit exemption, the criteria is not just for Christmas, it applies to any social function that fulfils the following requirements:

  • It must cost no more £150 per head
  • It must be held on an annual basis, and
  • It must be available to all employees – however, this doesn’t mean that all employees have to attend.

For an employer with multiple locations, an annual event that is open to all staff based at each location would still count within the exemption. Furthermore, an employer could also provide separate parties for different departments. So long as all employees could attend one of the events, this would fulfil the relevant requirement.

If more than one annual function is held and the total cost per head exceeds £150, only the functions that total £150 or less will be included within the exemption.

Let’s look at an example that expands on this.

Two events are held annually, one at Christmas and one in the summer, and all employees are invited to attend both events. The Christmas party costs £90 per head and the summer fayre costs £75 per head.

Together this totals £165 and so both events cannot benefit from the exemption, only one.

One annual event could take advantage of the exemption leaving the cost of the other to be reported using the P11D process or through payrolling (where voluntary payrolling has been adopted).

Record keeping remains vital to ensure that accurate numbers of attendees to the annual event are maintained (to monitor the cost per head) and in the event that a cost is reportable for the employees that attended.

And finally….

Much has been written about PAYE Settlement Agreements (PSAs) over this last year, not least because of the simplification measures made as a result of the work of the OTS, together with the impact of devolution on the tax system (specifically as it relates to calculating the cost of PAYE tax met by the employer within a PSA), so I won’t repeat that detail again.

However, we know from our quick poll results that it remains a popular method utilised by the generous employer to meet the tax burden of the employee, that may arise as a result of their festive generosity.

And this brings us neatly on to the results of our final festive poll question, which asked employees: “What personality type is your employer at Christmas?” We gave a number of answer options that ranged from a ‘bah humbug’ to a generous ‘ho, ho, ho’, and it would appear that as 2018 begins to draw to a close, many employees ‘perceive’ their employers to be both.

With a slight majority, 33% cited their employer as being akin to Scrooge, which provides a reminder to the employer that we may not be seen by others as we see ourselves.

However, this was followed closely by 31% referring to their employer as Father Christmas. The Grinch was next in the pecking order at 18% followed by The Snowman employer coming in at 8%.

Merry Christmas to one and all, and may 2019 be less taxing than its predecessor.

Article taken from AccountingWeb, written by Samantha Mann, Senior Policy & Research Officer, CIPP

Original Article can be found at https://www.accountingweb.co.uk/business/finance-strategy/the-cost-of-christmas-generosity

Budget Tax Trap – Selling Homes


Beginning in 2020 changes to the capital gains tax rules have lowered the sell window for those trying to sell their homes, before they are considered liable.

This years budget has detailed a change to the capital gains tax rules regarding property. One such change is ‘accidental landlords’ that are selling a property that was previously their private residence (their home) will only recieve half of the current relief. This could impact those that struggle to sell or possibly those forced to move at short notice due to work or family.

Currently, when induviduals move out of their home but don’t sell immediately, whether due to sentimentality or expectation to return, they have a 18 month window in which they can sell said property exempt from capital gains tax. This is due to the understanding that selling a home can be difficult both in practice and emotionally. As of April 2020 this window will be reduced to 9 months before they may be considered liable for this to come under capital gains tax.

Lords Request MTD Delay

A lords committee have called for a minimum 1 year delay to the Making Tax Digital (MTD) initiative, claiming that HMRC have neglected their responsibility to small businesses, and that the costs will exceed those outlined in the impact assessment.

MTD is currently scheduled for a mandatory roll out in April 2019, but the House of Lords Economic Affairs Committee have deemed that as far too short a notice given the lack of support provided. The committee instead suggested it should be introduced as a “staged transition” for April 2022.

The main reasons provided by the Lords, included low awareness from affected businesses and difficulty in the software market. They also brought into question the justification behind the programme and the assumptions made by it.

For the full report published by the committee follow this link: House of Lords Report.

HMRC Recalculations: Recovery Effort

Rebecca Cave has explained how HMRC will begin to repair the 2016/17 income tax calculations for around 30,000 taxpayers. On the 13th of November, software developers received an email from HMRC’s Software Developers support team giving more detail.

This Email Contained the Following information:

– The “recovery exercise” will begin on 19 November 2018.
A total of 22 different exclusions that affected the calculations have been identified.
– Affected taxpayers should receive a new SA302 by the end of November.
– Copies will not be sent to agents.
– Penalties will not be applied and interest on underpayments will not be charged provided the additional tax is paid within 28 days of the date of the notice (in many cases the taxpayer will have been overcharged and so entitled to a repayment).
– Appeals against the amended SA302 (if appropriate) must be made within 30 days of the date of the notice.

The exclusion cases to be repaired in this recovery exercise have been listed as:

1) Non-UK resident – exclusions 57, 67 and 73:

57 – Relating to the 7.5% notional tax paid on UK Dividend income.
67 – Relating to the tax due on trust income.
73 – Relating to the loss claimed.

2) Beneficial ordering – exclusions 68, 69, 70, 72, 76, 78, 79, 82, 83 and 85:

Relating to how the personal allowance and/or reliefs are allocated to ensure the allocation is most beneficial to the customer.

3) Dividend tax credit, trust and Lloyds – exclusions 62 and 75:

Relating to the tax calculation to give the relief due on apportioned income.

4) Marriage allowance transfer (MAT) – exclusions 66 and 66A.

5) Capital gains not calculating – exclusions 64 and 77.

6) Chargeable event gains – exclusions 74 and 81:

Relating to the top-slicing relief that is due.

7) Pension lump sum – exclusion 87:

Relating to the tax due on your state pension lump sum.

The exclusions that will generate the greatest number of recovery cases are those listed above under beneficial ordering.

Chargeable events

Watch out for chargeable event gains. Exclusion 81 was agreed following my representations to HMRC (and my article last year in Taxation Magazine). But only very recently have HMRC (again at my behest) agreed to remove exclusion 80 and confirm that the HMRC calculation was after all correct.

You may need to check whether your tax return software incorrectly calculated tax because of exclusion 80 and as a result, the client overpaid for 2016/17.

How to Manage Your Money

Recently came across this very interesting video on youtube by Tom Ferry, which breaks down a very interesting and accurate in our opinion of how to manage your money.

HMRC prepares for possible No-Deal Brexit

 

HMRC recently published an updated version of their Partnership Pack on GOV.UK. This pack is designed to help businesses for the possibility of a ‘no-deal’ EU exit. This builds on the previous version of the pack, published in October, and includes additional information about trade at the border from departments across government.

The pack is for organisations, intermediaries and infrastructure providers to use for their own contingency planning and to share with those they represent, their clients and members. It is designed so that you can take information from it and tailor it to suit your own channels and your audiences’ needs.

The pack focuses on how VAT, Customs and Excise could be affected and includes information split by topic and audience,and also includes flowcharts.

Future editions of this pack will include additional information around policies that will impact trade at the border and we will update you when these are published.