WITHDRAWAL OF EXTRA STATUTORY CONCESSIONS
Response by the Association of Taxation Technicians
1
Introduction
1.1
The Association of Taxation Technicians (ATT) is pleased to have the opportunity to respond to
the consultation document Withdrawal of extra statutory concessions (‘the Consultation’)
published by HMRC on 2 October 2014.
1.2
We are being asked to consider three particular and unrelated extra statutory concessions
(ESCs) which HMRC intend to withdraw and provide HMRC with our comments about the
potential impact of a withdrawal without further legislation being enacted to preserve the
effect of the three specified ESCs.
The ESCs under consideration are:
1.2.1
EIM 03002 – Professional remuneration
1.2.2
Sports testimonials
1.2.3
D45 – Capital Gains Tax: roll-over into depreciating assets
1.3
At section 2 below, we consider each of the above ESCs in turn and provide commentary on
our view of the implications of withdrawing these concessions.
2
Our detailed comments
2.1
EIM 03002 – Professional remuneration
2.1.1
This longstanding concession allows an individual, under certain circumstances, to treat income
received from an office or employment as trading income chargeable to either income tax or
corporation tax, depending on the individual’s business structure. The company or organisation
paying the employment income is usually relieved of the obligation to operate PAYE in respect
of that income.
However, HMRC may not be aware that there are other taxpayers who, for administrative
ease, often include employment income with their self-employment income for the purposes
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Withdrawal of extra statutory concessions: ATT comments
08 January 2015
of producing accounts to complete their annual self-assessment tax return. PAYE is quite often
paid on the employment income and then shown as ‘other tax taken off trading income’ to
ensure that tax is not paid twice on the same income.
2.1.2
This type of arrangement is often used in the case of freelance workers who are engaged by
many different organisations, often on a one-off short term basis, as it is the easiest way to
deal with their business records. For instances, a creative artist may work on many different
contracts and be in business on his or her own account. However, there are certain firms that
he/she works for who will insist on deducting PAYE regardless of whether the creative artist is
truly an employee or not, simply because the engaging firm are well aware that if it turns out
the creative artist should have been an employee then they would be held liable for the unpaid
deductions. Therefore, they avoid any risk by always deducting PAYE from any people who do
work for them.
This type of confusion does exist and we hope that the Office of Tax Supplication’s (OTS)
review of Employment Status will help to make it easier for employer / engagers to be certain
what treatment needs to be used for various workers. Until it is easier to understand, the
situation will still continue where freelance self-employment workers have to accept that some
jobs they take on will have tax deducted under PAYE. We are aware that the particular
concessionary treatment, outlined at EIM 03002, may not strictly be required when the legal
position supports the fact that an individual is self-employed regardless of whether the
engager has deducted tax under PAYE. However, we believe this guidance does offer some
justification or even just peace of mind to taxpayers in this situation that they may make the
administration of their accounts and tax returns simple by putting all receipts of income or
earnings into their accounts and only completing the self-employment pages with any tax
deducted at source shown as a reduction to their tax liability. Without this guidance, the
individual may feel they have to ensure they keep details of the jobs where PAYE has been
operated outside of their normal accounts and complete (in some cases) multiple employment
pages as well as self-employment pages.
We note that the current guidance accompanying the self-assessment tax return actually
advises people not to include PAYE tax in the box for ‘other tax taken off trading income’ but to
contact HMRC if PAYE has been deducted. We don’t feel that this is a practical solution and
there are many cases as outlined above where PAYE is being collected incorrectly on contracts
that should not be considered employment, simply due to confusions and misunderstanding by
employers/engagers. We believe HMRC should be allowing a deduction for incorrect PAYE on
one-off short term engagements in the box for ‘other tax taken of trading income’ and indeed
it is being used for this purposes in practice as it is the most appropriate and practical solution.
We would actually urge HMRC to delay withdrawing this concessionary treatment until OTS has
completed its review of Employment Status. If the outcome of that review can make matters
clearer for employers/engagers then it may go some way to eliminating the cases as outlined
above. In addition, HMRC ought to also consider what extra guidance may need to replace EIM
03002 to deal with the examples as highlighted.
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Withdrawal of extra statutory concessions: ATT comments
2.1.3
08 January 2015
HMRC believe that this concessionary treatment was only being used by DEFRA in their
appointment of Local Veterinary Inspectors (LVIs). As DEFRA have changed how they engage
LVIs, HMRC argue that there is no longer a need for the guidance at EIM 03002. However, the
actual guidance at EIM 03002 states six conditions that all need to be met before the
employment income can be treated as receipts within trading income. None of these six
conditions make any reference to appointment by DEFRA (or any other government
department). In fact, the reference to the particular concessionary treatment related to DEFRA
is made at ESM 4200 which outlines that fees paid to LVIs are usually paid to the practice to
which the vet is attached. If PAYE deductions were made from the fees DEFRA pay to these LVIs
then it would create numerous difficulties. The ESM 4200 states that
‘LVIs would be able to apply for NT codes under EIM 03002. To save offices having to consider
individual claims to NT coding, DEFRA have been advised to pay all LVI fees gross, without
deduction of PAYE tax’
Therefore, the actual section of the HMRC manuals that is now no longer relevant due to the
changes DEFRA have made is in fact this section - ESM 4200. The guidance at EIM 03002 always
stood separate to the DEFRA concession and this should remain the case.
2.1.4
As we have shown at 2.1.2 above, the guidance can EIM 03002 apply to a wider group of
people than perhaps HMRC are aware. This may be because individuals are using the essence
of the guidance to simplify administration but are not actually using it to apply for NT codes as
already explained, so HMRC are not actually seeing the number of instances where the
guidance is useful. In the cases outlined at 2.1.2 above there is no avoidance of tax or trying to
disguise any income. Indeed in many cases employee’s national insurance contributions have
probably been paid in error and have not been reclaimed.
2.1.5
There would also be particular issues for partnerships where one partner has accepted a
position to bring in income on behalf of the partnership but, for whatever reason, the position
is being treated as an employment contract. Under EIM 03002, that partner is currently
allowed to show the employment income as income of the partnership and it is shared out
according to the partnership sharing ratio. If EIM 03002 is removed, that partner would need to
show the income on his or her own self-assessment tax return as employment income and
then this will complicate the arrangements for sharing the remaining income. Partnership
agreements may need to be rewritten. EIM 03002 was designed to avoid this kind of
administrative headache. This relaxation was commonly used by partners in general practice
medical partnerships where a partner accepted a part-time hospital appointment but
accounted to the partnership for the full amount of the remuneration arising. We do not have
the evidence base to know the extent to which such appointments are now made by the NHS
but we think it is important to establish that information before withdrawing the current
concession.
2.1.6
The taxation of Postmasters is dealt with under EIM 68205 and outlines that if a retail business
is carried on from the same premises as the post office the remuneration received for being
the sub-postmaster may be included within the trading receipts and an NT code issued for the
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Withdrawal of extra statutory concessions: ATT comments
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employment. We would like to be assured that this treatment and section of the guidance will
not be affected should section EIM 03002 be withdrawn.
2.1.7
Similarly, we would expect that the treatment afforded to entertainers and performers at ESM
4121 would be unaffected by any change to or removal of the guidance at EIM 03002.
2.1.8
Indeed a review of the Employment Status Manual and the various occupations listed there
show that a number of grey areas exist where the treatment outlined in EIM 03002 is
effectively being used. The number of instances would appear to counter HMRC’s view that the
concessionary treatment was only being used by DEFRA.
In addition, under ESM 4112 for ‘Behind camera work’ the guidance states
‘There are special arrangements to enable payments for certain engagements to be made
gross…..These apply to very short engagements in specified circumstances and also to the
engagements of particular individuals who are able to show that their engagements are as
individuals in business on their own account’
This would appear to mirror the cases outlined in 2.1.2 above covering freelance workers who
are being taxed by engagers regardless of whether they truly are employed.
There are obviously specific sections of the Employment Income Manual and the Employment
Status Manual that cover particular occupations like Postmaster, Entertainers and Camera
workers. However, there will always be other occupations that fall into none of these
categories but where the issue in point is just as valid. EIM 03002 was, we believe, intended to
cover those occupations and it ought to be correct to keep such a concessionary treatment or
indeed legislate and /or provide guidance to allow for the same kind of relief to be awarded
where required.
2.2
Sports testimonials
2.2.1
The current position under EIM 64120, is that payments from benefits or testimonials are
taxable as employment income if they are received either as a contractual right or an implicit
or customary expectation.
If a testimonial is organised by an independent committee and there is no pre-existing
entitlement or expectation to the benefit match, then usually the proceeds are not taxable.
HMRC want to withdraw this treatment so that all payments from testimonials would be
treated as taxable earnings. HMRC believes that EIM 64120 does not reflect the current
position and nature of testimonial payments and that they ought to be brought in line with
other voluntary payments made by the public to employees.
HMRC are also concerned that people have been misapplying the current guidance such that
the mere existence of a committee has led to many payments to be treated as non-taxable
when this is the incorrect treatment.
2.2.2
Firstly, in answer to the perceived abuse of the concessionary treatment, the guidance does
quite clearly state that it should not be assumed that the proceeds of a benefit escape liability
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Withdrawal of extra statutory concessions: ATT comments
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simply due to the existence of such an independent testimonial committee in the arrangement
and that the full facts and principles of each case need to be established. Therefore, there
should not have been a widespread belief that the use of a committee makes an ‘iron-clad’
case for the proceeds not being taxable. In addition, HMRC state in the consultation that
‘It appears that the guidance may have been improperly applied in practice’.
What evidence of this does HMRC have? If there is reason to believe the guidance has been
improperly applied has HMRC challenged these cases?
2.2.3
Whilst we accept that there may be scope for abuse (although we would prefer to have been
presented with some actual evidence of such abuse) we do think it would be unfair to
withdraw this concession completely. The circumstances of sports people are very different
from the most other employees. They don’t have a ‘day job’ and in many case have a relatively
short period over which their earning potential is at its best. Careers can also be interrupted or
cut short by injury or health issues. There are some sports people who do earn a significant
amount of money but the vast majority earn at much more modest levels.
2.2.4
Testimonials are an accepted part of our sporting history and, whilst at the very highest level of
any sport the way testimonials are paid probably differs quite a lot from the 1920s – 1950s
(when many of the leading cases in this area where decided), we believe that at the lower
echelons of many sports, such as UK football and county cricket, not much will have changed.
2.2.5
Therefore, we would prefer to see more precise wording of the guidance at EIM 64120 (or
some legislative basis) rather than a complete withdrawal, in order to retain relief for genuine
voluntary testimonial payments that the public wish to make as a personal appreciation of the
particular sportsman or woman.
2.3
D45 – Capital Gains Tax: roll-over into depreciating assets
2.3.1
ESC D45 provides that where a depreciating asset into which a chargeable gain has previously
been rolled-over ceases to be used in the trade as a consequence of the trader’s death, the
rolled-over gain will not come back into charge.
2.3.2
However, this is less of a concessionary treatment more a clarification of the existing law that
death is not an occasion of charge, as outlined under S62(1)b) TCGA 1992. We wonder why this
position was not just clarified in guidance from the beginning and certainly accept the removal
of ESC D45 on this basis.
2.3.3
We would hope to see an accompanying amendment to all necessary guidance on this topic.
For example, in section CG 60360 of the HMRC Manuals where, at the second bullet point, it
says
‘ESC/D45 states the cessation of use of an
asset caused by the death of the claimant is not treated as an occasion of charge’
the reference to ESC/D45 should be replaced with a reference to S62(1)(b) TGCA 1992 instead.
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Withdrawal of extra statutory concessions: ATT comments
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3
Summary
3.1
We have provided our views on the proposals to withdraw three particular extra statutory
concessions.
To summarise, we would ask HMRC to consider further the impact of removing the
concessionary treatment afforded by EIM 03002 and recognise that it is used by more than just
DEFRA. We feel that the OTS review of Employment Status should be completed first as this
may assist in resolving the number of cases where income is being taxed as employment
income when it is in fact being received in the course of an individual trading in business on
their own account or in partnership.
As regards Sports Testimonials, we would prefer there to be a tightening up on the wording of
the concession rather than a complete withdrawal as we do feel, as outlined, that there are still
instances where it is appropriate to treat the payments received as genuine gifts from the
general public.
Finally, we agree that ESC D45 can be withdrawn but would advise that where it has been
referenced in guidance in the past this is replaced with a reference to the appropriate part of
the legislation that explains there is no tax charge in the circumstances previously dealt with by
ESC D45. The ESC must have been brought into existence in the first place because of the need
for clarification so it is still important to provide that clarity.
3.2
Contact details:
Should you wish to discuss any aspect of these comments, please contact our relevant
Technical Officer, Alison Ward, on 07762 947 910 or at award@att.org.uk.
Yours sincerely
Paul Hill
Chairman, ATT Technical Steering Group
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Note
4.1
The Association is a charity and the leading professional body for those providing UK tax
compliance services. Our primary charitable objective is to promote education and the study of
tax administration and practice. One of our key aims is to provide an appropriate qualification for
individuals who undertake tax compliance work. Drawing on our members' practical experience
and knowledge, we contribute to consultations on the development of the UK tax system and seek
to ensure that, for the general public, it is workable and as fair as possible.
Our members are qualified by examination and practical experience. They commit to the highest
standards of professional conduct and ensure that their tax knowledge is constantly kept up to
date. Members may be found in private practice, commerce and industry, government and
academia.
The Association has over 7,500 members and Fellows together with over 5,000 students.
Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician
(Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.
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