ICO issues notices of intention to fine BA and Marriott

Following an extensive investigation, the Information Commissioner’s Office (ICO) has announced that it has issued a notice of its intention to fine British Airways (BA) £183.39 million for infringements of the General Data Protection Regulation (GDPR). If imposed, the fine will be a record amount in the UK for breach of data protection laws. The infringements relate to an incident in summer 2018 when cyber attackers gained access to the personal data of around 500,000 BA customers, due to poor security measures. User traffic to the BA website was diverted to a fraudulent site, where customer details were harvested by the cyber attackers. A variety of information was compromised by the poor security arrangements, including log in, payment card and travel booking details, as well as name and address information. BA will have the opportunity to make representations to the ICO before it makes its final decision. The ICO noted in its announcement that BA has cooperated with its investigation and has made improvements to its security arrangements following the breach.

The ICO has also announced that it has issued a notice of intention to fine Marriott International, Inc. (Marriott) £99,200,396 for infringements of the GDPR in connection with a cyber incident affecting approximately 339 million guest records held globally in Starwood hotels' guest reservation database. The vulnerability apparently began when the systems of the Starwood hotels group were compromised in 2014. Marriott acquired Starwood in 2016, but the exposure of customer information was only discovered in 2018 and Marriott then notified the ICO. The ICO found that Marriott had failed to undertake sufficient due diligence when it bought Starwood and should also have done more to secure its systems. Marriott has again cooperated with the ICO's investigation and has made improvements to its security arrangements following the breach. Marriott will now have the opportunity to make representations to the ICO as to the proposed findings and sanction.

The ICO is dealing with both cases as the lead supervisory authority on behalf of other EU member state data protection authorities. Under the GDPR, the data protection authorities in other EU member states whose nationals have been affected by the two breaches will also have the chance to comment on the ICO's findings.

Reminder to sign up for Making Tax Digital before August

VAT registered businesses with a turnover above the VAT threshold, need to be ready to keep digital records for VAT purposes using Making Tax Digital (MTD). This means that businesses must keep their records digitally (for VAT purposes only) and provide their VAT return information to HMRC through MTD functional compatible software.

Many of the 1.2 million businesses affected by the MTD rules, will be required to submit their first quarterly VAT return to HMRC using software by the 7 August. If you are affected, you need to ensure you have signed up for MTD for VAT in order to submit VAT returns digitally. If paying by direct debit, you must register by Friday 27 July. There are currently around 10,000 businesses registering for MTD every day with more than 600,000 businesses having already signed up.

HMRC has said that during the first year of the changes, they will adopt a light touch approach to digital record keeping and filing penalties where businesses are doing their best to comply with the law. HMRC is clear that this does not mean a blanket 'no penalties promise' and businesses need to be aware to do all they possibly can to meet the MTD requirements.

Any businesses that are currently exempt from online filing of VAT will remain so under MTD. There are also provisions for those who cannot adapt to the new service due to age, disability, location or religion to apply for an exemption.

There is also a deferral group for certain entities that have until the first VAT Return period starting on or after 1 October 2019 to start using MTD for VAT. This includes businesses that are part of a VAT group or VAT division, use the annual accounting scheme or that make payments on account. If your business has a turnover under the VAT registration threshold, you are not currently mandated to use the MTD for VAT service but can opt to do so if you wish.

Help is at hand

If you have still not registered, or have had problems with the registration process, we can help. Please call so we can resolve any difficulties and get you organised before the June quarter filing deadline.

Tax simplification for self-employed

The Office of Tax Simplification (OTS) was established in July 2010 to provide advice to the Chancellor on simplifying the UK tax system. The OTS has recently published a new document setting out the scope of a project looking at simplifying tax reporting and payment arrangements for the self-employed and for landlords of private residential property.

The OTS will initially:

  • Aim to secure the maximum level of direct input from a wide range of taxpayers, agents, businesses, platforms and others such as software providers.
  • Explore the potential segments or populations of self-employed people where their circumstances or business models may point to different approaches or options.
  • Give consideration to the merits or otherwise of having different approaches for different groups or creating one overall system with sub-options, and wider trade-offs as well as taking account of the significant number of self-employed people using the cash basis rather than accrual accounts.
  • Consider the issues arising with different potential approaches or opportunities for information about self-employed people’s income and expenses to be reported to tax agents and to HMRC.
  • Consider the scope, including opportunities and risks, for self-employed people’s tax affairs to be managed in real time or closer to real time, taking expenses into account.
  • Consider the issues involved where the self-employed person has other income, whether from employment or other sources, and links with personal or business tax accounts.
  • Look at the extent to which such approaches would be best pursued on an optional, incentivised or potentially on a mandatory basis.
  • Examine the wider practical, behavioural or competitive factors which would need to be considered, both in relation to self-employed people and others including HMRC.

The OTS will be examining these issues over the Summer with a view to publishing an initial paper in the Autumn. It is possible this could then be followed by a more extensive review.

Be wary of 60% Income Tax charge

For high earning taxpayers the personal allowance is gradually reduced by £1 for every £2 of adjusted net income over £100,000 irrespective of age. This means that any taxable receipt that takes income over £100,000 will result in a reduction in personal tax allowances.

Your adjusted net income is your total taxable income before any personal allowances, less certain tax reliefs such as trading losses and certain charitable donations and pension contributions.

This means that for the current tax year if your adjusted net income is likely to fall between £100,000 and £125,000, you would pay an effective marginal rate of tax of 60% as your £12,500 tax-free personal allowance is gradually withdrawn. If your income sits within this band, you should consider what tax planning opportunities are available in order to avoid this personal allowance trap by trying to reduce your income below to £100,000. This can include giving gifts to charity, increasing pension contributions and participating in certain investment schemes.

Carry-back opportunity

A higher rate or additional rate taxpayer who wanted to reduce their tax bill could make a gift to charity in the current tax year and then elect to carry back the contribution to 2018-19. A request to carry back the donation must be made before or at the same time as the 2018-19 Self-Assessment return is completed (by 31 January 2020).

 

Corporate Capital Loss Restriction

Under current rules up to 100% of chargeable gains can be set against carried-forward capital losses. For accounting periods ending on or after 1 April 2020, large companies and unincorporated associations who accrue chargeable capital gains will only be able to offset up to 50% of those gains using carried-forward allowable (capital) losses. The measure is subject to anti-avoidance rules that took effect from 29 October 2018.

There will be an allowance that means the first £5 million of profits can be offset with carried-forward losses before the 50% restriction is applied. This allowance is in tandem with the Corporate Income Loss Restriction (CILR). This will ensure that over 99% of companies are unaffected by the restriction. The new measure is expected to impact about 200 corporates each year who will pay additional tax as a result of this measure.

These rules are in line with the CILR for carried forward income losses that was introduced in 2017 and the new capital losses rules effectively mirror the income losses rules. Transitional rules will apply to companies with accounting periods that straddle the 1 April 2020 implementation date.

Will you have to repay Child Benefit for 2018-19?

The High Income Child Benefit charge applies to taxpayers whose income exceeds £50,000 in a tax year and who are in receipt of Child Benefit. The charge claws back the financial benefit of receiving Child Benefit either by reducing or removing the benefit entirely.

If you or your partner have exceeded the £50,000 threshold for the first time during the last tax year (2018-19) then you must take action. Where both partners have an income that exceeds £50,000, the charge applies to the partner with the highest income.

Taxpayers who continue to receive Child Benefit (and earn over the relevant limits) must pay any tax owed for 2018-19 on or before 31 January 2020. If the partner who needs to pay the tax charge is not currently registered to submit tax returns they must do so by 5 October 2019.

The Child Benefit charge is charged at the rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. For taxpayers with income above £60,000, the amount of the charge will equal the amount of Child Benefit received.

If the High Income Child Benefit charge applies to you or your partner it is usually still worthwhile to claim Child Benefit for your child, as it can help to protect your State Pension and will make sure your child receives a National Insurance number. However, you still have the choice of whether to keep receiving Child Benefit and pay the tax charge or you can elect to stop receiving Child Benefit and not pay the charge.

Rules for off-payroll working from April 2020

The rules for individuals providing services to the public sector via an intermediary such as a Personal Service Company (PSC) changed from April 2017. The new rules shifted the responsibility for deciding whether the intermediaries’ legislation applies, known as IR35, from the intermediary itself to the public sector receiving the service.

In the Autumn Budget 2017 the government announced plans looking to extend these rules to off-payroll working in the private sector. A consultation on the proposed changes was published in May 2018 and the government announced at Autumn Budget 2018 that it would extend the public sector reform to all engagements with medium and large-sized organisations. The new rules will come into effect from April 2020 and are expected to raise over £1.1bn for the public purse in 2020-21.

A 5% allowance is currently available to those who apply the off-payroll working rules to reflect the costs of administering them. This allowance will be removed for those engagements with medium and large-sized organisations. The allowance will continue to be available to small firms who will be exempt from the new rules.

Draft legislation for Finance Bill 2019-20

The Government has published the draft legislation for Finance Bill 2019-20, along with accompanying explanatory notes, tax information and impact notes, responses to consultations and other supporting documents. The Bill will contain the legislation for some of the tax measures that were announced by the Government at Autumn Budget 2018 many of which have since been the subject of further consultation.

The publication of the Finance Bill is in line with the approach to tax policy making set out in the Government’s documents 'Tax Policy Making: a new approach', published in 2010, and 'The new Budget timetable and the tax policy making process', published in 2017 whereby the Government committed to publishing most tax legislation in draft for technical consultation before the legislation is laid before Parliament.

This Finance Bill will see the introduction of a number of measures from April 2020 including:

  • The extension of off-payroll working rules to the private sector from April 2020. These rules will be similar to those already in effect for the public sector and small firms will be exempt.
  • The Digital Services Tax which will see major social media, search engine and online retailers subject to a 2% tax on revenues generated from UK users of their services
  • The Corporate Capital Loss Restriction will mean that companies who accrue chargeable capital gains will only be able to offset up to 50% of those gains using carried-forward capital losses, subject to certain reliefs.  

The consultations on the draft legislation will close on 5 September 2019, with measures included in the next Finance Bill. The Finance Bill will become known as Finance Act 2020 after Royal Assent is received.

Reminder to renew your tax credit claim

Families and individuals that receive tax credits should ensure that they renew their tax credit claims by 31 July 2019. Claimants who do not renew on-time may have their payments stopped.

HMRC has sent tax credits renewal packs to tax credit claimants and is encouraging recipients to renew their tax credits claim online. All renewal packs should have been received by the end of June. A renewal is required if the pack has a red line across the first page and it says, 'reply now'.

Claimants need to notify HMRC where there have been changes to the family size, child care costs, number of hours worked and salary. Details of previous year's income also need to be completed on the form to allow HMRC to check if the correct tax credits have been paid. Claimants must also inform HMRC of any changes in circumstances not already reported during the year such as new working hours, different childcare costs or changes in pay.

The Child Tax Credit has been designed to help lower income families with children. Credits are available to families with low to moderate income. Child Tax Credit is paid directly to the main carer in the family either weekly or monthly and is usually paid directly to a designated bank or building society account. The Working Tax Credit assists taxpayers on low incomes by providing top-up payments. Universal Credit will eventually replace tax credits, and some other social security benefits.

Disposal of goodwill – capital or income

The First-Tier Tribunal (FTT), in the case of Villar v Revenue and Customs examined whether the disposal of goodwill was capital or income in nature. The taxpayer in this case was a renowned orthopaedic surgeon specialising in hip arthroscopic procedures. The taxpayer sold his business in return for a payment of £1m, this payment was treated as capital in nature and a claim was made for Entrepreneur’s Relief. HMRC opened an enquiry into the relevant tax return and eventually issued a formal closure notice and assessed the £1m payment as income. This resulted in the appeal before the FTT.

The taxpayer’s position is that he received the £1m payment as consideration for the sale of a business as a going concern and therefore it should  properly be assessed to Capital Gains Tax (CGT) whilst HMRC argued that the payment was in fact income in nature, being effectively an advance for services provided and so subject to Income Tax. HMRC also put forward a second argument to the FTT, that if the payment were in fact capital in nature, it remained clear that it should be treated as income based on the provisions of Part 13, Chapter 4, Income Tax Act 2007. Both parties agreed that the sale of a business is a capital transaction, the case revolved around this issue of whether or not the taxpayer’s arrangements amounted to the sale of a business.

The FTT, after examining all the facts, concluded that the £1m consideration received was a capital payment and rejected HMRC’s second argument that the relevant provisions of ITA 2007 applied finding that there was no evidence that the taxpayer had entered into the relevant arrangements in order to avoid or reduce the amount of Income Tax payable. The appeal was allowed in full. The case makes for interesting reading and provides some helpful guidance for those in similar situations although it must be remembered that no precedent is set by the FTT’s decision.