26 Feb

Weaponising VAT: Tax trends for 2018

Brexit, VAT fraud, austerity straitjackets and global tax wars; Richard Asquith, VP Indirect Tax, at tax software provider Avalara discusses the major tax trends for 2018.

Leaving the EU: The Brexit process.

The future trading model for post-UK Brexit looks unresolved with businesses needing clarity; a hard Brexit with a transition in to WTO rules may provide remedy however, with a significant adjustment and learning curve for business will be necessary. The imposition of import and export VAT on EU trade may have a cash flow impact on companies selling or buying from Europe, which means the government will need to be creative in this area, perhaps introducing an import VAT deferment scheme.

VAT in the face of austerity

In the face of continuing austerity, global governments look at reduced VAT rises – however, the UK, post-Brexit and free from EU rules on VAT rates, will now be in position to loosen reduced rates as alluded to in the 2016 referendum.

Arab Gulf launches VAT with a splutter

The initial excitement around the six Gulf States’ 2018 VAT launch has lessened, with four of the countries likely to delay their roll-outs until 2019. In Saudi Arabia and UAE panic is ensuing as they are unprepared for the basics – such as preparing a compliant VAT invoice.

Digitisation and digital services

A major debate for 2018 will be the taxing of digital services to consumers. The OECD and EU are under pressure to accelerate their own proposals on taxing electronic services provided by large marketplaces. Conflict between the two could arise, and the EU may well have to back down under US protection of its internet giants.

The drift towards live transactions reporting to the tax authorities also continues, but is likely to be tempered by overly ambitious launch dates. In the UK, HMRC has recently estimated that Brexit will create up to 40% more work for it over the next two years – its own plans for live VAT and tax reporting may be delayed further, after already postponing the 2019 launch for the ‘Making Tax Digital’ programme.

VAT fraud: The EU fights back

2018 sees the European Commission’s radical plans to create a single VAT area on B2B transactions come to fruition. Tackling the stubborn €50bn VAT fraud problem will not be without challenges – political pressures from member states will push for the EC reforms to be watered down. Consequently, the 2022 implementation target of a destination-based VAT system will inevitably slip given the aggressive timetable.

2017 promised huge gains on automation; progress has been made but not quickly enough, pushing the likes of the EU to escalate measures on a trans-national level, which will be the theme of VAT and all taxes for 2018. Despite the uncertainties that lay ahead, many companies are already bringing forward investment in ERPs and tax reporting software, so that they can react in real-time to whatever comes over the barricades next, but what is clear, is that automation of tax departments is probably one of the best defences.

01 Feb

Government is listening on MTD concerns but more to do, says ICAEW

Commenting on the Government’s response to the Making Tax Digital consultations, Frank Haskew, ICAEW Head of Tax, commented:

The Government is listening to the concerns of smaller businesses in the implementation of Making Tax Digital. In addition to making some helpful announcements, for example that spreadsheets will be allowed as part of digital record-keeping, the Government is allowing more time for further  consultation on the two major areas, namely what should be the exemption limit for smaller businesses and the implementation timescale involved – these are positive steps which we welcome.
An on-going dialogue with HMRC by all stakeholders should help to address the anxieties of SMEs in implementing MTD. We are concerned, however, that the Government has given stakeholders only 4 weeks to respond to the draft legislation as opposed to the usual 12 weeks. We trust that the Government will continue to consider comments on these provisions and refine them as part of the Finance Bill and make changes as necessary. With so much additional legislation having been tabled in recent weeks, we expect this to be one of the longest ever Finance Bills and it needs time for thorough consultation
01 Feb

A Brief Analysis: The Double Taxation Convention between the UK and the United Arab Emirates

Except for few targeted interventions, the provisions of the Convention largely reflect the standard wording of the current OECD Model Convention and UAE established individuals and businesses do not seem disadvantaged as a consequence of their domestic (tax-exempt) status.

Notably, treaty negotiator made effective efforts to adapt Article 4 – on personal scope – and they deviated from the standard “liable to tax clause” provided by the Model (often source of quarrels when applied in relation to a Country that de facto does not impose any form of direct taxation ). The Convention adopts in fact a more practical approach which refers to criteria such as “place of incorporation” “legal recognition” (for corporate entities), “domicile” and “habitual abode” (for individuals), that leave less room to interpretative disputes.

On the other hand, considering the language adopted in multiple provisions of the Convention (and in particular, the inclusion of additional anti abuse measures embedded in the provisions dealing with dividends, interest and royalties withholding tax) tax payers would likewise need to put enhanced efforts in supporting the genuine and bona fide character of their investment structures vis-à-vis the competent Tax Authorities.

But while such clauses may certainly represent a strong limitation to the set-up of “exotic” investment platforms, structured around traditionally tax-free (and off-shore) jurisdictions, we do not expect similar (applicative) outcomes in the UAE, a country that has nowadays a well-established and internationally recognised reputation of key financial hub – a place where transactions and businesses are effectively, and not merely formally, carried out. Abuses will certainly be targeted but will likewise not represent a material portion of the (new) transaction volumes that we expect to be generated following the entry into force of this new Convention.

Overall, the framework of rules designed by Convention seems therefore able to provide a valid support to UK – UAE cross-border investments and the enhancement of existing business relationship between the two Countries.

Written by Withers LLP, a worldwide legal firm.

You can download the paper here.

25 Jan

ICAEW members still concerned about HMRC service standards

There has been little change to the quality of HMRC service standards over the past year, according to the latest research by ICAEW.

Half of members think that HMRC service standards have not improved over the past 12 months, while nearly a third believe that they have deteriorated. Similarly, over half do not think complex queries are being resolved satisfactorily over the telephone and only one in five have confidence that HMRC will ‘get right first time’.

Around 4 in 10 members think that the cost of using HMRC has increased over the past year, with only a small percentage thinking they had reduced.

Frank Haskew, ICAEW’s Head of Tax Faculty said:

The results of the survey are disappointing, especially when HMRC’s own statistics over the past year show a different picture of a steadily improving performance for the general public. Getting through to the right person quickly to resolve queries and ‘getting it right first time’ remain problem areas with our members. We know that HMRC is working to address these issues and that they have been meeting their own targets for improvements, but we think that, for example, HMRC’s target for clearing 80% of post within 15 working days should be more ambitious

With current proposals for ‘Making Tax Digital’ (MTD) looming next year, just 3 in 10 members view this as a positive development and only 15% think that HMRC is supporting the role of tax agents in this move.

Frank Haskew added:

HMRC has made improvements this year but there is more work to be done, especially as the UK moves to a digital tax system. Digital ser
14 Jan

Treasury Committee has valid concerns on MTD, says ACCA

The House of Commons Treasury Select Committee has today published a report on Making Tax Digital (MTD), identifying a number of “serious shortcomings” with current plans.

Chas Roy-Chowdhury, head of tax at ACCA says:

HMRC are right to focus on digitisation, but more evidence is required

The depth and breadth of the Committee’s concerns are quite clear from this report, and indeed from the timing of its publication. ACCA shares some of these concerns, and has raised them with the Committee.
Despite the clear support for the aims of HMRC’s digitisation programme, the need to proceed based on sound evidence and clear methodology is a constant theme in the Committee’s comments and the evidence they draw upon

Quarterly reporting will place undue extra burden on SMEs, who are already struggling

If the impact of changes to reporting obligations is that profits and productivity fall, then the tax system will not be meeting its objective
The Committee refers to evidence from ACCA members, amongst others, which suggests that introducing quarterly reporting in the currently envisaged format runs the risk of costing society more than it gains.
HMRC’s job is to collect taxes effectively and efficiently, and our members would welcome any changes to the tax system which improve those measures—but all the evidence at present indicates that mandatory reporting on too widespread a basis will have the opposite effect

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Timing is crucial

Big businesses can often require a full two year lead time for changes to core record systems.
Among the broader context of post-Brexit uncertainty, there is a risk that two substantial revisions to VAT reporting in short succession will become a major headache.
“We share the Committee’s concerns that the VAT timetable may need to be revisited from the initial 2019 rollout date

Cooperative compliance and Public Accounts Committee enquiry

In addition, the Treasury Committee concerns about possible risks to the existing culture of cooperative compliance in the UK find an echo in the PAC’s current enquiry into the reorganisation of HMRC’s physical presence across the country (to which ACCA will be responding next week).
We share the Committees’ concerns that an eagerness to grasp the benefits of new ways of working before businesses are ready to embrace them could be counterproductive
13 Jan

Government must minimise burdens to business when implementing MTD, says ICAEW

Commenting on the Treasury Select Committee’s report and recommendations on ‘Making Tax Digital’ (MTD),  Frank Haskew, Head of  ICAEW Tax Faculty, said: 

The Treasury Select Committee has called the current MTD proposals ‘over-ambitious’. By keeping to the original schedule of introducing these changes in April 2018, the government are not giving themselves enough time to address the issues raised by the committee. The clock is already ticking and we agree with the committee’s recommendation that the implementation of MTD should be delayed. If it is not implemented properly, confidence in the tax system and in HMRC will be damaged, risking a knock-on impact on UK tax compliance
The report rightly highlights the costs to businesses of implementing these changes. Mandating businesses to go digital, including the smallest businesses, will burden them with both transitional and ongoing costs which they can ill-afford at this time. Government should make MTD voluntary, at least for smaller businesses, and instead incentivise them to go digital rather than forcing them. If digital record keeping works for a business, they will adopt it voluntarily. It is important that Government recognises and minimises burdens to business
14 Feb

ICAEW: EC needs to bring clarity to tax avoidance proposals

Responding to the draft package of Anti-Tax Avoidance measures from the European Commission, Ian Young, ICAEW Technical Manager, International Tax, said:

We need a global tax regime that is regarded as fair and fits the 21st century business environment. The G8, G20 and OECD have all worked hard towards achieving this, and it is good to see the European Commission draft anti-tax avoidance Directive which aims to provide a consistent implementation across all the EU member states.

However, the latest proposals from the Commission do not yet provide a clear, deliverable pathway for EU members. Some of the detailed provisions seem likely to produce uncertainty.

For example there is confusion between the Controlled Foreign Corporations (CFC ) rule – that would only take action against “wholly artificial arrangements” where there is “the essential purpose of obtaining a tax advantage

The equivalent test in the proposed General Anti Avoidance Rule (GAAR) – which is somewhat different and is likely to create some confusion. In the UK, the point of the GAAR is to catch actions not caught by specific anti avoidance measures.  We also have concerns about some of the other provisions in the anti-tax avoidance Directive.

The Commission also announced a number of additional measures, some of which should facilitate a more coordinated response to anti-tax avoidance, including a more standard approach to identifying non-cooperative countries.

Ian Young concluded:

We hope the next phase of the EU legislative process will enable wide consultation amongst member states, practitioners and professional bodies to ensure the final version of any legal text will have been scrutinised by the people it is going to affect

14 Feb

Business leaders discuss the impact of VAT on businesses in the United Arab Emirates

The long anticipated announcement came from the UAE Ministry of Finance about its plans to establish a corporate tax and VAT regime as part of its efforts to ‘ensure the sustainability of the federal government’s financial resources.’ (Ministry of Finance, 2014 annual report). The draft legislation has not yet been published and is yet to go through legislative process, and no implementation date has been set. Nevertheless, the Ministry of Finance’s intentions have been clearly set out in its 2014 annual report, indicating that the days of tax-free living in the UAE are coming to an end.

Against this backdrop, the ACCA and AAFAQ Islamic Finance recently hosted a panel to discuss about the impact of Value-Added Tax (VAT) on businesses in the UAE.

Chaired by Chowdhury, the panel discussion featured views from Hisham Farouk, CEO for Grant Thortnon UAE; Farooq Ladha, International Tax Partner at Crowe Horwath UAE; Mujtaba Naseem, CFO & Deputy CEO for AAFAQ Islamic Finance; Shady Shaher Elborno, Head of Macro Strategy Research at Emirates NBD; and Tobias Lintvelt,  Partner Transaction Tax/International Tax Services for EY UAE.

Key insights from the panel were that whilst there may be some concerns that the introduction of VAT in the UAE may intensify the cost of doing business in the country the anticipated low rate of 5% should mitigate this. What will help businesses to prepare is early sight of the detail of the legislation so that organisations have time to build management and financial reporting systems to support the detail of the requirements. The panel felt that the simpler the system; the fewer exemptions and the greater the consistency there is across the GCC the easier it will be for all.

A key area that will be critical to the implementation of the VAT system will be the judicial system to support this specifically a clear appeals and enforcement system. This is likely to take some time to develop and implement.

It was also heard that the anticipated low rate of taxation is unlikely to deter foreign direct investment given the country’s overall inverstment attractiveness: its excellent infrastructure, geographical location and political and economic stability. Also foreign investors are typically familiar with these types of taxes.

The imminent arrival of corporation tax is understandably causing concern for SMEs in the UAE who have been used to operating tax-free. The panel highlighted the potential for tax reliefs and the likelihood of revenue threshold exemptions to be brought to support SMEs. In any event, SME’s prepardenss to adopt to a new tax reality is paramount.

There is a key role that professional bodies and advisory firms can play in building the knowledge, skills and awareness of those who will be impacted when the detail of the legislation is finalised and made available.

Lindsay Degouve de Nuncques, head of ACCA Middle East commented:

We believe that ACCA members possess the right competences to get GCC businesses in a state of readiness for any introduction of tax. ACCA members support compliance with tax laws as well as accounting and reporting on taxation according to IFRSs. The most vulnerable business community is the GCC SMEs. However given ACCA’s training model, we can work with SMEs to very quickly develop and recruit professionals to help mitigate the risk of tardiness

At the event, AAFAQ Islamic Finance was publicly recognised by the ACCA as providing outstanding training and development opportunities for their finance and accounting employees.

The ACCA Professional Development Employer certificate was presented to Mujtaba Naseem, CFO & Deputy CEO at AAFAQ Islamic Finance by the head of ACCA Middle East. The certificate is awarded to leading organisations that offer outstanding development opportunities for young accountants and demonstrate superior professional values, ethics and governance at the workplace.

07 Dec

Sage launches simple tax return package for small accounting practices

Sage Global AccountantSage, supplier of integrated accounting, payroll and payment systems, announced the launch of Corporation Tax Online, providing accounting professionals and practices with a simple and efficient tax return package. Corporation Tax Online is an integrated and cost effective tool for accountants to prepare CT600 Tax Returns and to manage the submission process to the tax authorities.

Corporation Tax Online enables accountants to create and file tax returns online via Sage Impact for the first time. Being part of the wider Sage Impact ecosystem provides accountants full integration and end to end workflow from bookkeeping to final accounts through to corporation tax.

Designed for small practices who want professional yet cost effective software to help them grow, the simple and intuitive online solution provides greater control over submissions, whilst also benefiting from collaboration and cost savings via the cloud. Accountants can easily keep on top of tax returns even if they are travelling or working remotely. Moreover, by using Corporation Tax Online, accountants can rest assured that they are fully compliant.

Nick Longden, Vice President – Accountants, UKI at Sage said:

We designed Sage Corporation Tax Online for small accounting practices who want simple software that they can access on the go, whilst maintaining control, accuracy and ensuring compliance. We’re constantly working to equip accountants with tools that improve their practice and ultimately enable them to grow confidently as a business

Corporation Tax Online is the latest offering from Sage empowering accountants to work in the cloud, following the launch of two solutions from Sage last month.

27 Sep

Don’t be surprised to cough up more tax on company cars

Blick Rothenberg LLP Global AccountantThe manipulation of diesel emissions tests by Volkswagen could potentially impact UK cars and have a knock-on effect on the taxation of company car benefits, say London Chartered Accountants Blick Rothenberg LLP.

The comment follows the admission by VW of manipulating diesel emissions tests in the US and Europe.

Caroline Le Jeune, Partner at Blick Rothenberg, said:

Company car benefits are calculated based on the list price and the approved CO2 emissions of the car, plus a 3% supplement for diesel cars. For any VW cars, this may well increase pending any revised CO2 emissions figures as a result of the upcoming investigations by US and German authorities.

She added:

For UK based employees with company cars, the taxable value of the benefit as shown on the employee’s P11d is likely to have been incorrect. Whilst there is no expectation of HMRC taking retrospective action in these highly peculiar circumstances, no official comment has been made.

Going forward, company car benefits are likely to need to be recomputed using the updated CO2 emissions figures, which will lead to higher taxable benefits for employees

Le Jeune said:

It is not only employee P11d benefits that could be impacted, as tax deductions for businesses and companies for the costs of cars through capital allowances are also dependant on CO2 emissions levels. How a change in the CO2 emissions of cars will be treated by HMRC in this regard is unclear, as the calculations involved are complicated with each years’ deductions worked out on a reducing balance basis