Tax developments: Summer 2018 by #Crowe

Crowe’s tax team reflect on the topical tax developments so far in 2018 and the areas that organisations should focus-on in the second half of 2018/early 2019. At the start of the year, we detailed some of the upcoming tax developments that we recommended organisations address during 2018. Half way through the year it has become apparent that several trends are developing. For some time there has been greater emphasis on the processes and controls in place to ensure good tax governance. This has continued during 2018 but is being enhanced by technology to create, for the first time in the UK, a ‘digital tax environment’. This year is seeing the start of the government's initiative to transform HM Revenue and Customs (HMRC) into a world leading, digital tax authority. HMRC has also been focusing on the ‘tax gap’ and introducing new measures to increase the amount of tax collected in the UK. Finally, Brexit must inevitably feature in an organisation’s planning for 2018 and 2019.
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Tax developments:
Summer 2018
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 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
Crowe's tax team reflect on the topical tax 
developments so far in 2018 and the areas 
that organisations should focus-on in the 
second half of 2018/early 2019.
At the start of the year, we detailed some of 
the upcoming tax developments that we 
recommended organisations address during 
2018. Half way through the year it has 
become apparent that several trends are 
developing. 
For some time there has been greater 
emphasis on the processes and controls in 
place to ensure good tax governance. 
This has continued during 2018 but is being 
enhanced by technology to create, for the first 
time in the UK, a 'digital tax environment'. 
This year is seeing the start of the 
government's initiative to transform HM 
Revenue and Customs (HMRC) into a world 
leading, digital tax authority. 
HMRC has also been focusing on the 'tax 
gap' and introducing new measures to 
increase the amount of tax collected in the 
UK. 
Finally, Brexit must inevitably feature in an 
organisation's planning for 2018 and 2019.
Tax developments
2
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
Contents
1. Making Tax Digital for VAT 
4
2. Brexit
6
3. Off payroll workers
8
4. Termination payments changes
9
5. Watch tax on company cars
10
6. Remuneration planning
12
7. Corporate offence of failure to prevent the 
facilitation of tax evasion 
13
8. Requirement to correct/failure to correct 
14
9. Selling remotely into the US 
15
10. Continued spotlight on tax evasion
16
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
VAT is at the forefront of HMRC's Making Tax 
Digital (MTD) plans. All businesses with a 
turnover above the VAT registration threshold 
will now be required to keep their VAT 
records digitally and submit their VAT data to 
HMRC through compatible software. This will 
present a significant change to processes for 
many businesses and is expected to mean 
much more than just sharing existing VAT 
records with HMRC digitally. 
As 2018 has progressed we have heard more 
from HMRC about the detail of their plans and 
they have confirmed the implementation date 
of 1 April 2019 will go ahead. This date is 
looming large but many organisations are 
either still unaware of the requirements or still 
developing their implementation plans. 
HMRC published further guidance at the start 
of July which included details of software 
providers that have developed products 
compliant with the MTD rules.  
At the moment, spreadsheets feature heavily 
in an organisation's VAT reporting. Under 
MTD, spreadsheets will be regarded as 
manual records and while they can still be 
used, there will need to be compatible 
software overlaid to create a VAT return and 
to provide this information to HMRC digitally. 
In practice, this means that businesses which 
create VAT returns via spreadsheets using 
sales and purchase data downloaded from 
their accounting system will have to make 
changes to their processes. 
1. Making Tax Digital for VAT
4
Recommended action
To understand the MTD requirements and review the actions needed for your VAT 
compliance processes to comply. MTD is expected to be the most fundamental change 
to the tax administration system for at least 20 years and organisations should be aware 
that the VAT changes are just the starting point. It is to be extended to other UK taxes. 
 2018 Crowe U.K. LLP 
5
Join us on our free MTD for VAT webinar at 
12:30 on Thursday 6 September as we discuss 
MTD and what you need to do to prepare. 
Email VAT@crowe.co.uk to register.
 2018 Crowe U.K. LLP 
Whilst a lot of detail of what is to come on the 
immigration front remains somewhat unclear 
we do know that free movement as we know 
it will end. The key issues for employers are 
understanding how this will impact their 
workforce today and in the future.
An immediate area of focus are EU nationals 
already in the UK workforce. Most 
organisations will now have complied lists of 
EU nationals they employee and a key people 
concern they will have now is their permanent 
residency status after the UK withdraws from 
the EU. Some guidance has been published 
around settled status. A key consideration for 
employers is how to support these workers 
with applications.
Going forward, there will be new processes 
and registration requirements.
Workforce planning is key. If an organisation 
is able to compare their current EU workforce 
against future demands taking into account 
whether those workers will be readily 
available or indeed even view the UK as 
attractive place to work and live then they can 
start to understand if they have a deficit. If a 
deficit is expected the question then turns to 
what can employers do now to influence the 
future supply of skills and types of workers? 
For example, what role can apprenticeships 
play? What role can expatriate tax breaks 
(that provide reduced tax liabilities for certain 
non-domiciled individuals) play to increase 
UK attractiveness as a host for key talent?
Tax developments: Summer 2018
International trade arrangements rightly 
continue to feature prominently in the Brexit 
discussions and much remains uncertain 
despite many months of debate. 
During 2018 the government provided details 
of their aims for the UK's future customs 
relationship with the EU and provisional 
agreement has been reached for a 
transitional period running from Brexit day 
(29 March 2019) to 31 December 2020. This 
will mean businesses will only have to adjust 
once to a new set of customs/ international 
trade relationships. 
The government has started to negotiate with 
the EU as to what our future international 
trade arrangements will be. Various proposals 
have been set-out but nothing is yet agreed.  
A so-called 'hard Brexit' now appears to be a 
realistic outcome. Coming out of the EU could 
mean that the UK will no longer benefit from 
the EU royalties and interest directive which 
removed withholding taxes on dividends, 
royalties and interest coming from EU 
territories. 
2. Brexit
6
Cross-border trade
Immigration and 
workplace planning
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
Many organisations are already considering 
and planning moves of functions or teams 
from the UK to EU locations. For others, there 
may not be moves of offices or teams but will 
instead be new patterns of people mobility as 
teams and key executives respond to where 
their roles require them to be.
The relocation of the European Medicine 
Agency to Amsterdam is just one high profile 
example. As this thinking develops 
organisations will need to consider the best 
way of structuring the movements. 
Relocations bring a whole host of tax issues 
for the organisation and its employees. For 
the organisation there is a need to consider 
the right corporate set up to facilitate business 
within the EU whilst remaining cost 
competitive and compliant. Where certain key 
personnel are required to relocate it will be 
necessary to consider payroll, social security 
and tax set up. There will be a need to 
consider whether roles should be local or 
expatriate in nature. A number of countries in 
Europe have expatriate tax concessions and 
tax breaks and leveraging these can be key 
ensure costs and budgets are proactively 
managed.
7
Recommended action
1. For now, assess the parts of your 
organisations' activities which may 
be impacted. It can be difficult to 
understand all the types of 
purchases and sales made and the 
physical and legal flows, but these 
will all need reviewing to pinpoint the 
areas that could be impacted. The 
likely creation of a customs border 
between the UK and elsewhere will 
result in a change to the 
import/export processes for goods 
and possibly an increase in customs 
duty and VAT costs. 
2. Review your organisations' cross 
border charges and profit 
repatriation models to understand 
and plan for any additional tax costs 
that your organisation may face as a 
result of applying the Tax Treaty 
withholding tax rates.
3. Carry out workforce planning to 
understand existing and forecast 
employee needs. 
4. For those considering corporate 
relocations, to understand the tax 
implications for both the organisation 
and its employees for all of the 
candidate locations being 
considered. 
Corporate location 
strategy
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
Engagement of off payroll workers has 
always been a hot topic with HMRC however 
this last year we have hardly seen a week 
where it hasn't been covered in the press.
In recent times a whole myriad of different 
models of working have developed, further 
complicating the already murky issue of 
whether an individual has the status of an 
employee or a worker, or is a self-employed 
independent contractor. The problem is that if 
the engager applies the incorrect treatment 
then they hold the risk not only from an 
employment law perspective but importantly 
any tax and NIC under paid plus interest and 
penalties. 
To further complicate matters the rules are 
likely to change, on which we should hear 
more in the coming months. HMRC and the 
Treasury launched a consultation into the 
question of off-payroll working in the private 
sector, which closes on 10 August. 
The consultation considers ways to ensure 
better compliance and less tax leakage in 
circumstances where individuals supply their 
services to a business through a personal 
services company (PSC) (see box IR35). The 
public sector ready has rules covering this 
which came in April 2017.
Broadly, the public sector changes passed 
the tax risk from the PSC itself to the ultimate 
engager. HMRC has stated that this has seen 
a significant number of public sector 
engagements to move to the pay-as-you-earn 
(PAYE) system, either as an employee proper 
or by the public sector engager operating 
PAYE on payments to the PSC.
In addition, earlier in 2018 we also saw a 
number of consultations into the employment 
status framework following the Taylor review, 
which made a number of recommendations 
for increased clarity and transparency in the 
tests for employment status. 
3. Off payroll workers
8
Recommended action:
Make sure you have policies and procedures covering off payroll workers and 
assessing the correct categorisation. Review your purchase ledger to identify those 
off payroll paid through intermediaries. Keep an eye out for future developments.
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
There was a change in the taxation of 
termination payment from April 2018, where 
the legislation has not seen any significant 
change for around 30 years, and it appears 
many employers still have not understood 
what to do.
What are the changes?
From 6 April 2018 the legislation will:
 effectively treat all payments in lieu of 
notice as earnings as subject to tax and 
class 1 NICs
 ensure that payments for injury to feelings 
fall outside the exemption for injury 
payments, except where the injury 
amounts to a psychiatric injury or any 
other recognised medical condition
 abolish foreign service relief (except in 
relation to seafarers) for UK resident 
employees.
 permit HM Treasury to vary the 30,000 
threshold by regulations
From 6 April 2019, the legislation will:
 subject all termination payments above the 
30,000 threshold to class 1A NICs 
(employer liability only).
The issue is that it sounds straight forward 
but it is not and many employers are now 
incorrectly calculating the tax and NIC. In 
order to correctly calculate this for 
terminations, on or after 6 April 2018, 
employers need to use the formula in the 
legislation. Failing to deduct tax and NIC can 
leave the employer liable for the payments 
plus interest and penalties.
4. Termination payment changes
9
Recommended action
Make sure you have reviewed the new 
rules and incorporated them into your 
termination payment procedure so you 
apply the correct tax and NIC treatment.
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
The benefit in kind rates on company cars 
continue to escalate, and you may have 
noticed the impact on your net pay from April 
this year.
Employers will have submitted their P11D's 
for the year to 5 April 2018 which gives 
HMRC a further opportunity to amend tax 
codes so watch out for any changes this 
month. This could include the impact of the 
changes to the optional remuneration rules 
from April 2017 which mean if you had the 
option of a cash allowance but took the car 
and picked a low emission vehicle you might 
still be taxed on the higher cash allowance 
figure you gave up! This is the first year 
affected so take care to make sure any 
adjustments are correct.
By way of illustration; in the year to 5 April 
2018, the car benefit rate for electric cars (or 
those emitting less than 51g CO2 per km) was 
9%, an increase from 5% as recently as the 
tax year to 5 April 2016. From 6 April 2018, 
this rate is increasing to 13% and then to 16% 
from 6 April 2019. Those who are enjoying 
the use of a Tesla purchased for 80,000 will 
see the benefit in kind charge increase by 
3,200 and 5,600 versus the current 
position, an increase in tax of 1,440 and 
2,520 a year.
On the plus side, the benefit in kind rates on 
such cars are due to be amended to be based 
on electric range, which could see the rate 
drop dramatically  so don't give up on your 
electric car yet.
5. Watch tax on company cars
10
Recommended action:
Make sure you understand the taxation of your company car and its impact on your 
tax position over the next few years. 
 2018 Crowe U.K. LLP 
11
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
As highlighted in our last article, the rates of 
tax on dividends have changed hugely over 
the last few years meaning the 'tax gap' 
between salary and dividends has narrowed. 
This is clearly intentional and is HMRC's way 
of reducing the benefit afforded to owner 
managers when deciding how to draw their 
income.
We have crunched the numbers many times 
and in most cases it is still cheaper to pay a 
dividend rather than a bonus. It is however 
important that your remuneration strategy is 
reviewed regularly and all options considered. 
A few key pointers are:
6. Remuneration planning
12
Recommended action
Businesses should review their remuneration strategy regularly alongside the management 
accounts to make sure any payments are as efficient as they can be for the owner manager 
whilst making sure they are sustainable for the business.
1
2
3
Timing  dividends are taxed in the 
year of receipt so make the most of the 
different tax bands and plan your cash 
flow. If you can defer payment into a 
later tax year then why not do so if it 
can postpone your tax liability.
Family shareholders  if they are 
involved in the business then why not 
bring them in as shareholders. They 
can then participate in dividends 
potentially at lower tax rates.
Loan interest  if the director has 
lent money to the business then 
consider whether a payment of 
interest might be appropriate. The tax 
rate on interest for the director is 
higher than a dividend (45% 
compared to 38.1%) but the company 
would get a deduction for corporation 
tax at 19% once it is paid so the 
overall result can be cheaper.
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
Although the legislation has been in place 
since last autumn, organisations may have 
overlooked its importance and the dire 
consequences of falling foul to the corporate 
criminal offence. The rules apply to all 
businesses, regardless of their size or 
industry sector. 
It is no secret that the government has put 
huge focus on reducing tax evasion. Instead 
of targeting tax evaders themselves, these 
measures criminalise corporates (which 
includes partnerships and LLPs) that don't do 
enough to prevent the facilitation of that 
evasion in the first place.  
Criminal liability can be attributed to a firm 
when its employees or associates are seen to 
be helping taxpayers evade tax. Examples of 
scenarios that might be caught include an HR 
manager classing a new employee as self-
employed knowing that it will save on 
National Insurance, and an employee raising 
a bill to an individual's company for personal 
tax return preparation, knowing the VAT will 
be reclaimed by the company.  
There are three key elements under the new 
offence:
Criminal tax evasion by an 
individual/legal entity anywhere in 
the world. 
Facilitation of the offence by an 
employee/person acting on behalf of 
the firm.
The firm is then automatically 
considered to have failed to prevent 
the facilitation of the tax offence, 
subject to the defence. 
7. Failure to prevent the 
facilitation of tax evasion
13
Recommended action
Ensure your organisation is fully complying with the rules in order to protect against criminal 
investigation, an unlimited fine and significant reputational damage. Organisations can plead a 
defence that it has put in place 'reasonable measures, procedures and safeguards' to prevent 
facilitation of tax evasion. Businesses should take steps immediately to ensure that their 
processes and controls are robust. This should include an initial risk assessment whereby the 
business calculates, documents and reviews its exposure to the new offence. 
1
2
3
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
HMRC is urging taxpayers to make 
disclosures of UK tax due on foreign income 
and assets in advance of the 30 September 
2018 deadline. This coincides with the end 
date by which time all countries signed up to 
the common reporting standard will have 
exchanged financial data.
If taxpayers fail to make adequate disclosures 
in time, HMRC will assess draconian 'Failure 
to Correct' penalties. The standard penalty 
will be 200% of the underpaid tax, which can 
be reduced to 100% for making a good quality 
disclosure following HMRC discovering the 
inaccuracies. There are other penalties based 
on the value of the asset if, for example, 
HMRC discovers the taxpayer has moved 
them to different jurisdictions in the hope of 
avoiding detection under the CRS.  
8. Requirement/failure to correct
14
Recommended action
All taxpayers should review their tax affairs 
in order to ensure all UK tax liabilities have 
been settled. The rules apply to anyone 
with an undeclared UK income tax, capital 
gains tax and/or inheritance tax liability 
which is connected to an offshore matter.  
As a result, individuals, partnerships, 
Trustees and non-resident landlord 
companies all need to satisfy themselves 
the correct UK tax has been paid.  
Taxpayers who discover inaccuracies need 
to tell HMRC before 30 September 2018 
they intend to make a full disclosure, 
otherwise they will suffer huge penalties. 
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
The recent Wayfair Supreme Court decision 
is leading to a significant change in US Sales 
Tax rules and could result in non-US 
companies that sell goods or services into the 
US having to register and pay local sales 
taxes in each US State where they have 
customers. The decision creates an obligation 
for businesses to consider if they have an 
'economic nexus' with each State, rather than 
a 'physical presence'. Where there is such a 
link, then US sales tax could become payable 
together with an obligation to register and 
render returns. There is also the potential that 
there will be US state income taxes payable 
as well. 
9. Selling remotely into the US
15
Recommended action
It is worth noting that there remains 
significant uncertainty about the scope of 
the Sales Tax rule changes, the different 
criteria for what constitutes an 'economic 
activity' and whether there may be 
retrospective effect. Businesses should 
also be aware that each State sets its own 
rules, which is likely to lead to 
inconsistencies and a need to monitor 
developments. For now, we recommend 
reviewing in what States you have made 
sales and monitoring developments in the 
laws/guidance for those States as to what 
constitutes an 'economic nexus'.
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
We predicted that 2018 would see a 
continued focus on collecting tax through 
preventing abusive tax avoidance including 
through use of the General Anti-Abuse Rule 
(GAAR) for tax schemes.
The GAAR was enacted in 2013 and was 
designed to "deter (and, where deterrence 
fails, counteract) contrived and artificial 
schemes". It works by allowing HMRC to 
counteract a tax advantage arising from 
'abusive' arrangements. This is a wide-
ranging power and, to balance it, taxpayer 
safeguards were also introduced. One of 
these safeguards is the independent GAAR 
Advisory Panel, whose role is to consider, 
review and approve HMRC's guidance on the 
GAAR, and deliver opinions on individual 
cases referred to it by HMRC. 
The GAAR Advisory Panel has now issued 
seven rulings. In July 2018 HMRC issued 
guidance about dealing with an HMRC notice 
of binding and a bound arrangements opinion 
notice under the GAAR, including when they 
will apply penalties - of 60% of the tax 
avoided. We expect to see the GAAR to 
continue to be invoked to close down 
schemes or tax arrangements where the 
transactions do not constitute a reasonable 
course of action.
For those organisations that have not entered 
into any tax planning the GAAR 
developments could still have an impact as 
they are a further measure aimed at the 
governance of tax and links between 
commercial activities and the tax payable. We 
are continuing to see a trend of organisations 
focusing time and budgets on tax risk 
management, by ensuring they have good tax 
processes and controls.
Provisions in the recent Finance Bill 
introducing a points based system for late 
filing of certain tax returns, and penalties for 
late payment of taxes also indicate that 
HMRC will continue to focus their attention on 
those organisations who are not tax compliant 
as well as those they believe are abusing the 
tax system by using tax schemes.    
10. Continued spotlight 
on tax evasion
16
 2018 Crowe U.K. LLP 
17
Recommended action
With public trust in the fairness of the tax 
system at a low point, and tax revenues 
needed, expect dogged HMRC scrutiny of 
any tax schemes or aggressive tax 
positions. As well as the financial cost of a 
protracted HMRC enquiry, consider the 
cost to reputation if the details were to 
become public. 
We continue to recommend organisations 
make sure that they: 
 are on top of their tax payment and 
filing obligations

focus on claiming all the significant tax 
reliefs that you are entitled to
 close down any aggressive tax 
planning. 
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
Notes
18
 2018 Crowe U.K. LLP 
Tax developments: Summer 2018
19
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Crowe U.K. LLP and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. 
Crowe Global does not render any professional services and does not have an ownership or partnership interest in Crowe U.K. LLP. Crowe U.K. 
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 2018 Crowe U.K. LLP
Jane Mackay
Partner and Head of Tax
+44 (0)118 959 7222
jane.mackay@crowe.co.uk 
Robert Marchant
Partner, VAT
+44 (0)20 7842 7383
robert.marchant@crowe.co.uk 
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