September 2021 Tax Update

Deadlines

5 October 2021 – notify HMRC that, as an individual, you became chargeable to income tax / capital gains during 2020/21. Notification can be made online and failure to do so can result in HMRC levying penalties.

31 October 2021 – paper submission of self-assessment tax returns.

Cryptocurrency

There have been recent reports regarding the compensation package to a footballer includes cryptocurrency. There have been suggestions that structuring remuneration as such could mitigate the charge to income tax and national insurance contributions. This is not the case.

Whilst there is currently no tax legislation that specifically addresses the treatment of crypto assets, HMRC has published guidance setting out its view of the treatment which broadly depends on how the crypto assets were acquired:

• Via an exchange are taxable as a capital gain on disposal.
• In exchange for mining activities (that do not amount to a trade) or as a result of staking (where new tokens are awarded based on the number of tokens already held), are taxable as miscellaneous income, subject to reduction for any appropriate expense.
• As employment income are regarded as money’s worth and therefore within the definition of earnings subject to income tax and national insurance contributions.
• In an airdrop may not be taxable if received in a personal capacity and not as recompense for services or goods.

Income tax (and national insurance contributions) is due on someone’s ‘earnings’ which is defined as money or ‘money’s worth’. Money’s worth means something that is of direct monetary value to the employee, or capable of being converted into money or something of direct monetary value to the employee. Cryptocurrencies therefore clearly fall within that definition.

The receipts would need to be converted to Sterling at the time of payment in order to calculate the amount subject to PAYE.

HMRC fraud investigations

It has been reported that HMRC opened 278 civil investigations between 1 April 2020 and 31 January 2021. This is down from pre-pandemic levels (425 in 2019/20) owing largely to HMRC’s need to re-distribute employees to handle additional work as a result of Covid-19.

The investigations, known as Code of Practice 9 (COP9) are opened where HMRC suspects that a taxpayer has committed serious fraud. Where HMRC opens an investigation under COP9, a taxpayer is invited to make a disclosure under the Contractual Disclosure Facility (CDF) which protects the taxpayer from criminal prosecution if they cooperate fully and pay the tax due.

It is expected, that as things begin to return to normal, that the number of investigations will increase considerably, particularly as reports are already being made concerning furlough fraud.

Wills and Inheritance Tax

HMRC’s latest figures show an increase of £500m in inheritance tax receipts following the nil rate band freeze in March this year. This coupled with increasing property prices meaning more people have been pulled into the regime.

It has also been reported that taxpayers saved an estimated £30m in inheritance tax my making lifetime gifts and taking advantage of the annual £3,000 exemption (which has not risen since it was introduced).

With this is mind it is worth considering whether your will is in line with your current wishes. The delay of weddings over the past year (and the increase in divorces and separation) means that some couples may not have their affairs in order in regards passing on wealth in the event of their demise.

Co-habiting (unmarried) couples do not have any automatic right to assets of the estate of their partner – the rules of intestacy state that, where no will in in place, the estate first goes to your spouse, then your parents, then your children, then your siblings. If you want your partner to benefit from your estate, you will need to ensure a valid will in in place.

When you marry, any existing will is automatically revoked and new will needs to be made. The effect of divorce is not the same – if the will is not updated the ex-spouse is simply deemed to have died immediately before you such that they have no legal right to benefit from your estate.

Late Payment Penalties

HMRC has recently clarified the changes to the late payment penalty regime which comes into force with effect from April 2022.

Currently, where an individual pays their self-assessment bill late an automatic £100 penalty is levied. A further charge of 5% arises if the tax remains unpaid 30 days later, then at six and twelve months for the original due date for payment. From April next year no penalty will be charged if the tax is paid within 15 days of the due date. After this date, the penalty is charged at 2% of the tax outstanding on day 15 and another 2% at day 30. From day 30 the penalty is calculated on a daily basis at 4% per annum.

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