Over 150 local clients and business people packed into the Claremont Hotel on 30 November to attend the KPMG Tax team’s latest update.  A diverse range of subjects was covered, including in particular the recent UK Budget which was analysed in detail by local tax partners Greg Jones and David Parsons.
 
Mr Jones began proceedings by demonstrating that, notwithstanding a proposed 3% increase in UK income tax personal allowances, high income earners living in the Isle of Man still pay considerably less tax than they would in the UK.  A disappointing Budget development, however, was HMRC’s proposal to extend UK capital gains tax to gains on disposals of commercial property (eg offices, shops, and industrial buildings) from April 2019. (Residential property is already within the charge to UK tax due to changes in recent years).  HMRC is consulting on the detail until February 2018.  The new tax will extend to gains on disposal of shares in “property-rich” companies, ie those whose value is attributable at least 75% to UK real estate, by those who have held at least a 25% interest in the past five years.
 
Mr Jones also mentioned the relief on Stamp Duty Land Tax for first-time buyers of a UK main residence, which could save up to ?5k, provided the cost does not exceed ?500k, and the new reporting obligations imposed on employees who have borrowed from Employee Benefit Trusts where such loans were still outstanding as at 16 March 2016.
 
David Parsons then discussed a number of developments relating to tax in the digital economy, noting progress in relation to the OECD’s Base Erosion and Profit Sharing initiative, and HM Treasury’s Position Paper published on Budget Day.  David commented that the UK, along with a number of other jurisdictions, was now considering unilateral measures in an attempt to tackle the perception that social media companies, search engines and online market places were still not paying their fair share of tax on profits generated in relation to their UK user base.  David also reminded the audience that it was expected that HMRC would shortly confirm their intention to bring non-UK companies in receipt of UK rental profits within the scope of UK corporation tax, rather than income tax.
 
Derek Scott, head of tax investigations at KPMG, was next to speak.  He said: “HMRC’s drive to stamp out non-compliance involving offshore issues has just significantly intensified.  Requirement to Correct is now in legislation and creates an obligation for any taxpayer who has undeclared UK liabilities that involve offshore issues (relating to Income Tax, Capital Gains Tax and Inheritance Tax) to correct their position on or before 30 September 2018.  
 
“This is the final chance for those with offshore interests to check their affairs and get them in order, otherwise they could face unprecedented minimum penalties of 100 per cent and up to 200 per cent of tax liabilities. In addition, for more serious cases there are asset based penalties and public ‘naming and shaming’. After the September 2018 deadline, HMRC will have access to financial data from more than 100 jurisdictions that it will be able to review, assess and use to launch its own investigations.
 
“The legislation represents a step change in HMRC’s approach as the penalties that bite for those who fail to correct will not differentiate between those who deliberately failed to pay the correct tax, those who might have been careless with their tax affairs and even those who may have taken reasonable care. The penalties apply for failing to take corrective action by 30 September 2018. There is a defence against the penalty where there is a reasonable excuse why a correction was not made. Reasonable excuse is narrowly drawn and disqualifies tax advice in certain situations so even those who have previously taken advice should reconsider their position now with new guidance.”
 
Justine Howard briefly considered the UK tax rules in relation to non-doms and offshore structures that apply retrospectively from 6 April 2017 and which finally became law on 17 November 2017 when the Finance (No2) Bill 2017 received Royal Assent.  Justine emphasised that in order for the new trust tax protections to apply to non-dom settlors of offshore trusts, who become deemed domiciled on 6 April 2017, it is important that such trusts are not tainted and then gave various examples of what does and does not constitute tainting for these purposes.
 
She then examined a number of proposals that did not make the Finance (No2) Act 2017 that specifically relate to the taxation of income and gains in offshore trusts where capital payments are being made to the beneficiaries of those trusts and which are expected to be enacted with effect from 6 April 2018.  Justine suggested a number of action points to be considered by the trustees of offshore trusts before these new rules come into force.
 
Clare Kelly provided some timely reminders on the Common Reporting Standard (“CRS”) given the imminent ending of the next reporting period. This included a quick discussion on some common misunderstandings that she had come across in practice such as entity classification definitions, the incorrect use of the entity threshold exemption and financial institutions not undertaking further due diligence work where they identify an entity account holder who is a ‘managed’ investment entity financial institution located in a non-participating jurisdiction. Clare also recommended reviewing any assumptions made in relation to the prior period to ensure that they were consistent with current OECD/ IOM guidance, especially given that the Tax Office would be commencing a CRS compliance visit programme in 2018.
 
Finally, Sandra Skuszka briefly covered the requirements for VAT registration of aircraft owning entities and advised that aircraft chartering businesses should prepare for a visit by IOM Customs and Excise. She also discussed the EU Commission’s proposals for harmonising and simplifying certain VAT rules and in particular the principle of applying VAT to goods and services in the EU Member State of destination.  
 
Photo - Group KPMG Tax team. Left to right: Davis Parsons, Justine Howard, Sandra Skuszka, Greg Jones, Clare Kelly, Derek Scott.