When is Brexit day now?

Who knows?

I will try to be brief.

In UK law Brexit day is 29 March 2019. It should be easy enough to change that date, but there would have to be the political will. I am not sure that there is definitely a majority for that. If changing the date can be agreed, then we move on to the next steps. This would need to be voted on next week, and preferably on Monday. If the date cannot be changed, then either the UK leaves on 29 March 2019 or, if sufficient support can be found in Parliament, the Article 50 Notice is revoked.

Next week the UK Parliament may vote for the third time on the deal that is on the table. It has been rejected twice already. The Speaker of the House of Commons has ruled it cannot come back again in this Parliament unless amended. It hasn’t been amended. But there is an offer of a longer period to get ready until 22 May 2019. That may be enough.

If the deal on the table comes before Parliament, and is agreed (I would suggest that is still doubtful as at least eighty MPs would need to change their minds) then there is an extended period until 22 May to prepare for the next stage – the implementation period to 31 December 2020. Strictly that would mean no real change for businesses until 31 December 2020. What then happens after 31 December 2020 relies on whether a trade deal can be agreed between the EU and the UK and, I suggest, whether a solution to the Irish border issue can be found. I don’t know if Brexit could be revoked in that period to 22 May 2019. It definitely cannot be revoked after 22 May 2019.

If, however, the deal is not accepted by the UK Parliament, then the time limit is extended to 12 April 2019 (two whole weeks). I am told that the time limit to revoke the Article 50 Notice is also extended to the same date. The idea is to allow more time for other solutions to be found. Your guess is as good as mine as to whether UK politicians will manage this in an extra two weeks. Their track record suggests not. This means that unless the Article 50 Notice is revoked on or by 12 April 2019, a no deal Brexit on 12/13 April 2019 with no transitional period. I do not believe that the UK would be ready, and would certainly not have passed all necessary legislation, let alone got minor things like new Customs facilities in place. I think it will also leave issues at the Irish Border, even if the UK operates an honesty box as it is suggesting, there is nothing to say that the EU27 will reciprocate.

Could things be held up even further? I sense no appetite for that amongst the EU27, but it is possible. For example, if the EU came up with a deal that looked good, but some flesh needs to be put on the bone to gain agreement not only in the UK, but in the EU27, then I suspect a pragmatic approach would be taken. I’m not sure the resignation of the UK Prime Minister would be enough for a further delay. If a general election was called might be enough, but that would almost certainly mean the UK taking part in the European Elections as well. I think a deal being put the UK electorate (another referendum) might also gain an agreement for a further delay, although it is clear that amongst the two main political parties there is no taste for a further referendum. That would almost certainly also require the UK to vote in European elections.

I am not going to try to draw a flowchart.

In the meantime, as I write, the UK Parliament petition for the UK to Revoke Article 50 and remain in the EU stands at nearly 3,250.000 signatures – and the backing continues to grow. The volume of signatures is larger than the populations of member states Lithuania, Slovenia, Latvia, Estonia, Cyprus, Luxembourg and Malta. Within the UK it is more than the population of Northern Ireland and the population of Wales. This is not directly influential upon the UK Government, and the UK’s Prime Minister has already dismissed it saying she won’t change her mind. Actually, it is not her choice whether I comes before Parliament to be debated. It is the choice of a special parliamentary committee. If that committee decides it should be brought before the House, then it can and will be. The question then is whether it will be allowed time to be debated before 29 March 2019 or 12 April 2019. That would largely be in the hands of the Leader of the House of Commons, and she has already made her opposition to it clear.

So what if the Article 50 Notice is revoked, is that it? Do we just go back to what many in the UK felt (rightly or wrongly) was an unacceptable relationship with the EU. Well possibly. But some changes could be made with the agreement of the EU through implementation of the Tusk plan put to the previous UK Prime Minister, Mr Cameron, as well as adopting changes to the UK’s migration law provided for in EU law. Putting the two together now looks rather inviting compared to what is on the table!

Steve Botham

Did you get a fine for sending your VAT return in late?

There is a form for claiming that you had a reasonable excuse.

As a rule excuses such as “the dog ate my homework” do not tend to work. HMRC do sometimes behave strangely and in one notorious case decided that death was not a reasonable excuse – unsurprisingly the taxpayer won at Tribunal.

With Making Tax Digital it will be interesting to see how things pan out. Allegedly there will be a lightish touch – we’ll wait to see on that. HMRC says that just because you cannot make the software work, they expect you to pay the tax on time. At this stage you might ask how you’re supposed to know the answer if the return does not get filed by the computer and the computer does not tell you the answer. Well you have to guess. It is know as estimation.

I would not expect HMRC to attack small underestimates, but if your normal liability is say £5,000 and you pay, say, £500 and it turns out you should have paid £5,000 expect trouble. If you are on cash accounting, there is a fairly simple way of getting a correct answer. Add up your debtors banking for the quarter and, after filtering out anything that is zero-rated or exempt, divide the total by six (unless you’re into the 5% rate). You can then either add up the bills you have paid where you know that you have been charged VAT, or else look at the previous four returns and work out the input tax as a ratio of output tax from that information (that sounds much harder than it actually is).

Strictly you need HMRC’s permission to “estimate”. Call the National Advice Service and ask for permission explaining your difficulty. They should agree. If they do not, make a note, and in any event ask for the call reference number. If HMRC refuse unreasonably, then you can use this as your reasonable excuse on the form! But do not leave your guess until the last minute!

If you are subject to a fine for late payment, think through what had been happening not only at the time, but also in previous tax periods where you have been late, and submit your “reasonable excuse” on the HMRC form.

If you would like some assistance, it is something we have a lot of experience in.

 

Covertax’s partnership with VAT Forum

Covertax has been a partner in VAT forum for much of the last twenty years. It is through VAT Forum, and also our involvement with the International VAT Association, that we gain not only a knowledge of VAT in other countries, but more importantly an understanding as to how the law works. And we make great contacts with other consultants which we then use for our international client.

The next VAT Forum conference is in the sun. The programme looks pretty interesting, but so does the location!

No Deal Brexit – time limit for EU VAT Refund claims

In the event of No Deal (leaving on 29 March 2019), the time limit for submission of EU VAT refund claims through the portal is 1700 on Friday 29 March 2019. If your claim is late, it may not be met.

After 29 March, claims will revert to the old paper system, known as “13th Directive VAT Refund Claims”. This does rely upon the UK and the EU27 agreeing on reciprocity. I have no indication that this will not be the case. That does mean being able to submit original documents. So those of you who have got into scanning and then shredding your purchase invoices, please retain original invoices for your 13th Directive VAT Refund claims. I am no idea how strict the process will be after Brexit, but it is the norm for “copy” documents to be rejected – that could be a very expensive clear desk policy! It also means sending your claims off to an office for each country. And returns to the days when you need to be sure that your claim reaches the office – lost documents in transit is not excuse. I recall on particularly large claims, I had to take the documents myself and deliver them by hand as we could not get cost effective insured couriers where there was a high value. Instead we relied on our PI policy and an upgraded travel insurance – again costly but amazingly more cost effective than getting an insured courier.

And they said Brexit would get rid of red tape! Clearly not for VAT.

Naturally, we can assist with claims.

No Deal Brexit – Incoterms and Contractual Terms

Urgent. Please check your contractual terms and the incoterms you use. First of all, make sure the incoterms actually reflect your contract. That may seem obvious, but often it is not the case.

Secondly make sure you still want the same Incoterms (or contractual terms) after Brexit. A real example is a company which had DDP (Delivered Duty Paid) terms on an intra EU movement. Apart from the fact that this probably made the supply in the other member state all along (it had been treated as an intra-community movement of goods), it means that following Brexit the UK company will have to have an EU VAT ID (in the particular case, German), pay import VAT and Duty, and then account for the tax in Germany (as a non-established entrepreneur tax on sales may be reverse charged, but this would need to be checked out). This came as a surprise – I bet it did!

We can help with EU VAT registrations and compliance.

Plastic packaging consultation

Following the announcements in Budget 2018, the Treasury has published its plastic packaging consultation. The consultation period closes on 12 May 2019.

It is proposed, subject to consultation, that for produced or imported plastic packaging that doesn’t include at least 30% recycled content, a new tax will be levied on the full weight of the packaging product, at a flat rate set per tonne of packaging material.

This may be straightforward for a single manufacture of a product, and the consultation seeks views on the position where there are multiple manufactures in the production process. For imported goods, the tax would be charged at the point that goods are released into free circulation in the UK. The preferred position is a single threshold at 30% recycled content, though the consultation also looks at an alternative proposal for multiple thresholds with high/medium/low rates.

Brexit – what was it about and are we really addressing the issues with the proposed deals?

With the UK still busy negotiating with itself over Brexit, whilst still pretending to negotiate with the EU, which knows the UK hasn’t finished negotiating with itself, I thought I would go back to basics and ask for some help.
It was said the decision to leave was for a number of reasons and I thought it might be worth revisiting some of these.

Migration

The issue related to citizens from other member states coming to the EU (not UK citizens going to other EU member states).
The complaint was that they came to the UK and took “our” jobs whilst at the same time claiming benefits and using our public services.
Much of this could have been resolved by the UK adopting all of the provisions related to free movement, and in theory still could be. We have since come to understand that the UK needs migrant workers, although it seems only those earning more than £30,000 (which rules out useful people like teachers and nurses, as well as fruit and vegetable pickers).
Does Brexit resolve the issue of migration for the UK? Or doe sit mean that UK residents will be asked to perform lower paid tasks and migrant workers better paid tasks? Do we seek an unskilled domestic workforce and to rely on a skilled migrant workforce?

Taking control of our borders

The issue seemed to be linked to migration rather than trade, although I never really got to the bottom of the viable argument. In any event, we now know that migrants from Iran and other countries can land on our shores in rubber dinghies – at least those that do not drown in the trying.
Of course, the UK sits outside of the Shengen area, and does therefore control its borders for human beings (excepting those in rubber dinghies). But technically, the UK must let in citizens from other EU member states with some exceptions (it was viable to refuse entry to bad people, if we knew that they were bad). I do not believe that a trade-based isolationist argument was ever put forward in this respect but will move on to “free trade” later.
Now this desire has created a huge problem in respect of Ireland, which I, amongst a few others, pointed out prior to the referendum, and UK ministers seemed only to catch up with at the end of 2017.
And UK ministers found out quite late on the Dover was a very busy port upon which many aspects of the UK economy and way of life is dependent upon. The suggestion with Dover is that it effectively becomes and open port, with no checks, which rather defeats the object of taking control of our borders.
Does Brexit, therefore, help the UK to take control of its borders and in what way is that good for the UK? Is risking a return to the troubles in Ireland (and most probably the mainland) worth it? Is a smugglers’ charter worth it – will there be another Dutch Elm Disease as a result, for example?

Freedom to make our own trade deals

Maybe I show as much selective memory as the UK ‘s Brexit leaders, but I really do not recall arguments as to the UK’s ability to make trade deals on its own being a key part of the arguments put to the UK public. I do not recall it on the side of a big red bus, nor on posters, nor on TV adverts. But it has since become the “will of the people” according to the UK Brexit leaders. UK politicians, and Mrs May in particular, frequently claim to know the will of the British people, and even why 17.4 million people voted the way that they did, are rarely challenged and so I guess they must be right.
However, I do not understand how the UK negotiating on its own could get better trade deals, or trade deals any quicker, than negotiating within the EU bloc. I don’t understand how being a member of the EU has stopped the UK, or harmed the UK, in its trade with countries outside the EU. And I don’t understand how the UK can replicate the trade agreements it already benefits from as part of the EU bloc without an hiatus period – and it would seem that the UK government now admits that it cannot do so.
So, help me, but just how will the UK being able to negotiate its own trade deals help us? An example would be good.

Sovereignty

I guess that one issue with the taking control of our decision making process, or sovereignty, is what is actually meant by this. According to the UK Parliament’s website sovereignty in the UK rests with parliament. To quote: –
“Parliamentary sovereignty is a principle of the UK constitution. It makes Parliament the supreme legal authority in the UK, which can create or end any law. Generally, the courts cannot overrule its legislation and no Parliament can pass laws that future Parliaments cannot change. Parliamentary sovereignty is the most important part of the UK constitution.”
But this is not how the UK Government has interpreted sovereignty during the Brexit process as time and again it has sought to exclude Parliament from decision making, even being brought to book by the courts.
Now given the whole mess within the UK Parliament and UK Government, and the involvement of the UK courts, in the UK decisions making process as regards Brexit, you would be forgiven for thinking that Parliament has got this wrong on their website. But it has not.
So one big question is why the UK Government says the law cannot be changed in respect of the UK defaulting to “no deal” on 29 March 2019? The truth of the matter is that this could only happen if there is insufficient Parliamentary time permitted to debate and pass a new law overturning the original one. Put more simply, the leaving date can be changed or removed completely. For this not to happen would solely be by the Government frustrating the will of parliament, and indeed, failing in the aim to return more sovereignty to Parliament.
The argument made, and still made, is that the EU unelected civil servants impose laws on the UK. We keep getting the argument about straight bananas, which bears no truth and appears to have been started by a journalist from the Daily Telegraph newspaper many years ago, the same journalist fabricating stories as wide ranging as standard sized condoms and the banning of prawn cocktail crisps (I wish that one were true!).
I understand the decision making process in the EU – as I am sure all users of this forum do as well. Given in particular the weight of the UK’s “vote” on European matters, the democratic decisions taken by the member states, as managed by the EU’s civil servants, have bar a few met with the agreement or even the leadership of the UK.
I then look at the deals being considered by UK Parliamentarians, and it seems to me that they give away far more sovereignty than we would in any way regain.
So, please help me, in what way will “returning” sovereignty to a shambles of a Parliament improve things for the vast majority of UK citizens? And just which nugget of valuable sovereignty will the UK get back? I still don’t know thirty one months later.

The European Court of Justice (“CJEU”)

The argument is that these unelected judges somewhere in Europe are faceless bureaucrats doing the bidding of the faceless bureaucrats in Brussels. The debate both prior to the referendum and since has also confused the CJEU with the European Court of Human Rights, which has nothing to do with the EU, and I feel sure that many of those Brexit leaders continuing to confuse the argument know better.
On “faceless”, of course, a few clicks on a mouse and you can find out about the judges and even see a picture of them. You can also find out how they get their jobs.
On the role of the judiciary, even within the UK’s own unwritten constitution, they have a very important position – and unfortunately over the last few years that has been forgotten by both our press and our politicians. So it is with the CJEU. As a VAT consultant I know too well the role of the CJEU and applaud it. UK taxpayers have benefitted from decisions of that body – to be clear taxpayers have been protected from the excesses of our Government. The UK Government has also benefitted from decisions of that Court, not least (in my field) in terms of attacking tax avoidance.
I am also aware that when it comes to matters of international trade there has to be an arbiter. There is for example an EFTA court and there is a WTO court. So I wonder whether the argument is that the UK does not want any court other than its own ruling on anything to do with the UK. It is not clear and neither is any argument as to what should happen instead clear especially if the UK chooses to rejoin EFTA or follow “WTO rules”.
I am left to ask, then, about how the UK ridding itself of the CJEU will improve the lives and businesses of the people of the UK? It has certainly become no clearer to me over the past two and a half years.

Getting rid of red tape

Simply addressed, it was a concept rather than specifics, but the specifics of leaving the EU specifically increases red tape specifically for UK businesses and specifically for UK citizens. Brexit does not do what they said on the tin!
A proportion of the UK Population is Xenophobic
Or else believes what they are told by xenophobes. The UK is not alone even in the EU with this development as evidenced by the progression of nationalist politics in many countries.
One big lesson is that we in the UK need to do more to educate our children properly and, in particular, should teach twentieth century history far better. I think it is too late for those over eighteen.
I’m afraid that “two world wars and one world cup” is no basis upon which to make such a major national decision, but there is no doubt that a proportion of the electorate in the UK was encouraged to vote is such a nationalistic way.
Whilst that does not provide a solution to the position the UK is in with Brexit, it does explain why the Prime Minister has so much difficulty in coming to a deal which satisfies such irrational needs from amongst her own supporter and further afield. Is there a quick fix? I don’t think so as, within the UK, one thing the referendum did was to let this particular genie out of the bottle and I think it will take many years to put it back in.

Summary

Hindsight is a wonderful thing. They say, however, that you need to look back to see how far you have come. With Brexit, I think we need to look forward to see how far we have come, because in the UK we seem to have gone backwards.
Nevertheless, this is a good time, and probably the last available time, to look at why we said we are leaving the EU and to look at whether we have achieved what we wanted, and whether there was a real issue there in the first place. It could be that the decision to leave was no more than throwing the baby out with the bathwater – for example, adopting the laws we could have in respect of EU migration would probably satisfy all but the most bigoted supporter of Brexit on migration.
It could even be that a “staying in” deal needs to be put on the table. Take what seemed at the time the meagre offerings of Mr Tusk to Mr Cameron in February 2016 and add what we have now learned to put some more substantial meat on the bones. We forget the Tusk offer so easily, but it incorporated restrictions on migration including excluding migrants from UK benefits for up to four years, an emergency brake on EU migration to the UK (well we’ve effectively had that already and lost, for example, an awful lot of nurses), legal safeguards for the pound sterling and our businesses and citizens, no more leakage of sovereignty to the EU, allowing national Parliaments by simple majority to block legislative proposals from the Commission, and getting rid of red tape.
To be frank, where we have got to with negotiations for exiting the EU, makes Tusk’s offer sound brilliant. But now, given that both the UK and the EU27 have learned more about ourselves, surely it provides a basis for real reform within the EU and, indeed, a basis for the UK to stay in. Sadly, this option has not been put on the table by the UK Government and perhaps it is time for the EU27 to dust it off as a way forward.
But looking at the arguments put forward originally, it does seem to me that the “deal” and proposed deals all involve at least a loss of say in the decisions that control the UK. I find that totally perverse given where we started with this argument.

Steve Botham

Covertax and vulnerable people

In addition to our vulnerable customers’ policy Covertax also has a Disability and Employment policy.

This policy has some useful definitions as well as a link to the Equality Act 2010. HMRC is not exempt from this Act of parliament, but from our work with vulnerable people, we know that any training given by HMRC on it can only be rudimentary, and certainly many inspectors and officers seem to be unaware of it – I cannot say that they deliberately ignore it as it does appear to be ignorance. Nevertheless, it seems that HMRC may on occasions cross the line in terms of the Equality Act 2010.

One instance where in our view HMRC consistently fails to undertake their responsibilities to adapt to the needs of vulnerable customers is in respect of Information Notices. It now appears to be normal practice to issue Information Notices at the first instance as opposed to following initial enquiries where a taxpayer has failed to co-operate. Penalties tend to be issued without trying to understand the facts. In one case the Information Notice pack was issued to a dyslexic person. The pack, as you may know, is dense and difficult for any taxpayer to cope with, let alone for a person who is dyslexic. Perhaps worse was that an Information Notice was given to a person who had encountered a life altering event in his brain. Following the issue of the pack, and penalties, HMRC established that the vulnerable person had issues, but did not even bother to check out the impact of those issues. Indeed, HMRC claimed that he should be “better”, something that five minutes on Google would have established is impossible. As it was, the practical impact for the purposes of an Information Notice was not dissimilar to the customer with dyslexia – the dense pack was just too much to cope with. HMRC did respond to an initial complaint made by the vulnerable customer and laid the blame at the customer’s feet on the basis that if he had read the pack sent to him, he would have known that he could have sought support. Yes, really.

Our response to that attitude is twofold. The first is that HMRC should carry out initial enquiries to determine the facts, including whether the customer is vulnerable. Secondly, HMRC should then ensure with ALL customers that what they ask for is proportionate and, in the words of the Notice, reasonable. The Equality Act 2010 does not mean that vulnerable customers should be treated differently. What it does say is that, in this case HMRC, should adapt to meet the needs of the vulnerable person. Our view in the case of Information Notices is that changes to procedure are necessary for ALL taxpayers and not just vulnerable customers – there is absolutely no need to amend any law to achieve this result.

We act for vulnerable customers, our policy is published, and all staff at Covertax have had enhanced DBS checks. On that point, we have not met a single inspector or officer who deals with vulnerable customers and who has been DBS checked.

More and More Compliance

Like many professional practices we have spent much of the last few months dealing with various new compliance challenges. Our view is that we are compliant in the various regimes but thought it best to share with you what we have done and what we are still to do.
Part of the work under GDPR (not the sole challenge) is to ensure that suppliers and, where necessary, third parties are GDPR compliant. If they are not we have tough decisions to make. Sadly, only one body has failed to confirm that it is not GDPR compliant – read down to find out who it is.

Reasonable care – HMRC won’t answer the phone

A report indicates that HMRC failed to answer 4,000,000 calls from taxpayers. Their record for call handling has been very poor for years and continues to be so. It is also worrying that HMRC still seems prone to provide incomplete or incorrect answers to some callers. Ironically, HMRC would not put up with such poor compliance from taxpayers, which we think is a bad show – the benchmark should be the same for both HMRC and taxpayers. Indeed, given HMRC’s role in reasonable care, arguably it should be significantly higher.
Please remember that one of the ways to show that you have taken reasonable care is to take advice from HMRC on the call line – yes, the same one that they don’t answer for 4,000,000 callers and the one where the courts have decided that HMRC has no liability if they get the answer wrong.
If you do call HMRC and are lucky enough to get through, please ask for the CCELL reference for the call – this makes the call record easier to track down if HMRC disputes any advice was given at a later date (or indeed, what the advice was). Ask HMRC for a copy of their file note – some will give it whilst others refuse. In any event: –

  1. Write down what you are going to ask them beforehand, along with any supplementary questions; and
  2. Write down their replies; and
  3. Write down any names that you are given by HMRC (it is usually first names only, which they would not accept from a taxpayer); and
  4. Stay on the line until you are satisfied you have all the information you need and have read the technical notes back to HMRC for their agreement; and
  5. Keep your record, dated and timed, somewhere safe – and somewhere you can find it in four years’ time!

Remember, taking advice from an adviser that you believe knows what he or she is doing also counts as “reasonable care”. As for Artificial Intelligence, there are no guidelines on using that for tax queries so for the time being I suggest it is avoided. Please remember that the pensions and CEST routines on HMRC’s website have been found to be at best unreliable.

EU VAT Modernisation – the vassal state option

An EU project has been ongoing to modernise VAT. Remarkably the UK has remained involved despite Brexit. Indeed, HMRC is claimed to be a driver to help stamp out fraud costing an estimated £56bn a year across the EU.
And even more remarkably, HMRC tells us that the modernised VAT system will be implemented across EU member states, and the UK whether it is in or out of the EU, from 1 January 2021. Yes, be clear, the UK’s intention is to take its lead on VAT from the EU irrespective of what our politicians are telling us. That would also indicate that the European Court of Justice would remain the highest court for VAT following Brexit. I bet you didn’t read that in the Daily Mail!
My personal view is that this is just common sense. The EU will, hopefully, remain our largest trading partner and having a parallel VAT system is far more sensible than divergent VAT systems. It is just a pity the UK won’t be able to directly influence the development of VAT once we leave the EU – this seems to commit us to VAT rules agreed by the EU27 (the dreaded “vassal state” option).

GDPR – New engagement letters

Yes, I’m sick of it and it has cost us a fortune in time as well as cash costs, just like you.
We are GDPR compliant. We have amended our client management system to include a record to prove that we are compliant.
However, because the standard draft professional engagement letters were updated and published by the accounting and tax bodies just a few weeks ago, we will be reissuing all of our engagement letters. I know that this will be as much of an annoyance for you as it is for us, but our hands are tied.
We will also amend our rates effective from 1 July 2018. This will involve dropping some fee bands which are rarely used, and also involve our first increase in some hourly rates since 2006. No, that is not a typo. Our costs have increased by over 25% since then and we can hold our rates no longer. I’m afraid the latest set of compliance costs was the straw that broke the camel’s back.

MTD for VAT

We are compliant and will be ready to go on 1 April 2019.
We are Xero partners and will use the package for all of our VAT clients, both UK and overseas. We chose this route for a number of reasons, but the key one was that we know MTD will follow for personal tax and corporate tax, so we will also be ready for those changes (no double dip of compliance costs in this respect for us!).

Trust and Service Company Providers (“TCSP”)

Through the Chartered Institute of Taxation, we have been registered for the TCSP legislation. We have also amended our accounting software, so we can maintain and provide when we receive an enquiry, a list of our clients for whom we provide these services.
However, given the loose wording of the measure, we have made enquiries of the CIOT as to whether TCSP clients include: –

  • clients where we act as UK VAT Agent. We think this is likely to be the case
  • clients where we act as tax representative. We think that this is likely to be the case
  • clients where we are a 64-8 agent with HMRC – we do not believe that this will be the case as the principle address for the client will be the client’s address
  • clients where we are the representative within the Tribunal. We think not as, despite Tribunal correspondence being addressed to us.

We have also enquired whether someone undertaking such roles, but who is not UK based can be registered under TCSP in the UK. At present it seems not almost certainly because they cannot pass the “fit and proper” test within the legislation based on what has been published so far. If we are correct in this, it would seem to prevent, for example, agents in other countries, including other EU member states, from taking any of these roles.
We suggest you check with your service provider what they are doing in this respect.

DBS checks on owners and senior staff

As a body supervised for money laundering purposes (in our case by the Chartered Institute of Taxation), we are now required to carry out standard DBS checks on all owners and senior staff.
For once we have no quibbles as we have already carried out enhanced DBS checks on ALL staff in accordance with our vulnerable customers policy.

Anti-Money Laundering (“AML”) Record Keeping

We have adopted a new software package to carry out our AML identification checks. We have checked that it is GDPR compliant. The new package includes a record keeping element, but we have also amended our new practice management software to provide a record. The intention for the future is to maintain the records solely within the client management software (which we have checked is GDPR compliant).

Personal and Corporation Tax Software

We have adopted new personal tax software which can be used via the cloud. We have confirmed that it is GDPR compliant.
We understand that along with our new accounting software, we will be MTD compliant for personal and corporation tax.

Windows 10 via Office 365

We now operate on this windows package across all machines used within the company. We are assured that it is GDPR compliant and is secure.
However, we are looking to implement further security measures in the coming months. Because we cannot share passwords under GDPR (a nonsense in my view), I can assure you that your data will be secure when we use this software and strictly any files created should be saved on our practice management software (we are slowly migrating from Dropbox which is in itself GDPR compliant). However, forgotten passwords looks like it may be an issue given that they are now required to be changed regularly!

HMRC – GDPR

We have tried on several occasions, both directly and through our professional body, to establish whether HMRC is GDPR compliant. We have not received a reply.
Given that they have difficulty in updating addresses across their various records, we have had to take the view that HMRC is neither exempt from GDPR nor compliant.
This does create issues for professional advisers in particular in responding, say, to HMRC information notices. You must respond within a fixed time frame or the taxpayer gets a penalty. We recommend that advisers seek agreement from their clients to respond to HMRC whether HMRC is GDPR compliant. It is possible that advisers are covered in any event (there is a test they can follow on the ICO website which will help determine this).
However, we do not recommend that this is left to chance as I’m afraid that this is one of those damned if you do and damned if you don’t situations.

A second professional body seeking to extend its remit

We are supervised by the Chartered Institute of Taxation. However, a second professional body has sought to extend its remit to our activities, which demands the right to see client records. At present we are trying to resist this approach as we believe that it could represent unauthorised access to personal data, contrary to GDPR.
However, the approach is forceful, and we are seeking the advice of the ICO before making a decision. Just to be clear, we refuse to be bullied by a professional body, much as we refuse to be bullied by HMRC. If it is right to provide the information to that body, then we will do so. But not until we are satisfied that the privacy of our clients has been protected.
In the meantime, we have been advised to include the possibility of that second body having access to client records in our new engagement letters.
Naturally, if we are to provide such access our own compliance costs will increase.

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Steve Botham

 

 

 

 

 

 

Cyber Blitz on UK Government?

We have been warned today of a potential cyber blitz being launched against the UK following the action it took in Syria.  The sources include the UK Foreign Secretary (Mr Johnson), as well as some more reliable sources such as the better quality newspapers.

If you think the thought of a cyber blitz is science fantasy, on 11 April 2018 the UK announced that it had carried out a cyber blitz against Islamic State.  In May 2017 a large number of National Health Service bodies were subject to a successful cyber attack.  The attack was helped by so much hardware running obsolete unsupported Windows software.  I would suggest that all UK Government bodies be treated as being at similar risk.

Accordingly, please take care when dealing with UK Government bodies, including HM Revenue & Customs, until the “all clear” is given.  Please also treat any communications from UK Government bodies with great care.

I have seen no communication from HMRC to the effect that it is GDPR compliant, but last week asked one of the UK professional bodies to make enquiries as to HMRC’s status.  For the time being, I’d recommend HMRC be treated as non-compliant.

Please take care when using any HMRC online products, such as those for submitting VAT and tax returns.  You may think it sensible to contact your own IT specialists before doing so.

For the time being, we are treating HMRC as “high risk” and will be checking all communications with them.  We will also be asking HMRC, as well as the Tribunal Service, to minimise the electronic traffic until the level of risk of those organisations has been assessed and we are told that suitable safeguards have been put in place.

Moving more into opinion, if I were to be the person setting up a cyber blitz I would attack a country’s financial system, hence leaving HMRC well up the list, but putting the banks at risk.  For example, if the bank clearing system were to fail it would cause massive damage very quickly (though I’m not sure it is time to take cash out of the bank and store it under the bed!).

So, please be careful out there.

Steve Botham

Brexit: Suspensive regimes are going to be more important

I am going to start this article with a whacking great assumption.  And it is not that these regimes are going to become more important following Brexit, because that is an inevitable fact for managing Duty and VAT in the post-Brexit hinterland.

Whacking Great Assumption

No, the assumption is that the UK will not see any significant change to its suspensive regimes.

Why would I hope this, when my norm with Brexit is to plan for the worst and hope for the best.  I believe if the UK Government really wants frictionless trade and to remain as close as possible to the EU27 in respect of Customs (which it says it does), then to not to scrap or change the suspensive regimes so that they are divergent from the EU27 suspensive regimes, seems to be the only sensible way forward.

Yes, there are some big issues with these assumptions, but given that UK politicians have made it clear they don’t really understand Customs we have a reasonable chance that the regimes will see minimal or no change.  After all, there is really no UK political capital to be had by making cross border trade even more difficult after Brexit for UK businesses or their suppliers from the EU27 (and vice versa).  Quite the opposite since, for example, the UK motor industry is very important to the UK, and we know that goods move back and forth across the channel; suspensive regimes are going to be needed.  The same goes for aerospace and other technology-based industries.

Using existing suspensive regimes for trade between the EU27 and the UK provides at least some oil for the proposed frictionless solution (whatever that is).  To put that another way, retaining the suspensive regimes is something the UK and the EU27 would not have to work on in the limited time left.

Why are they important?

Having sought to justify my huge assumption (I find myself cringing already) perhaps I should explain why the suspensive regimes will become more important.  Unless either the UK or the EU27 puts up massive trade barriers, which in my view is in the interest of neither party, then trade will, still go on between the UK and the EU27.  Without the suspensive regimes costs will be increased and goods could be delayed in their movement putting, for example, just in time processes at risk.

New UK subsidiaries

We know that some EU businesses have decided to set up UK subsidiaries to manage their activities in the UK, and that is certainly a solution, not least because of the UK’s relaxed regime for setting up incorporated companies and the UK’s already favourable corporation tax regime.  It may also become easier as regards employment as it is clear that the UK Government is scrapping EU employment rights and as yet has not started to put any replacement system in place.  It is, however, clear that one aim of the UK Government is that it will become easier to both employ and fire people in the UK.

Suspensive Regimes and AEO

However, another solution is the use of suspensive regimes.

Can I first say that I believe that Authorised Economic Operator (“AEO”) status will remain important and most probably become far more important.  Basically, AEO means showing that you are compliant in return for an easier regime at borders.  It is a bit like having a golden passport for your business.  I’ll come back to the subject in more detail in a future article.

“Suspensive regimes” are ways of managing Duty and VAT on movement of goods between Customs regimes (so between the UK and the EU27).  Here I’m restricting myself to look at three regimes – Inward Processing, Outward Processing Relief and Customs Warehousing.

Inward Processing

You can currently use Inward Processing (IP) to obtain Duty and VAT relief on goods brought from outside the EU into the UK.  Clearly following Brexit, it makes sense to retain IP but to extend it to goods coming to the UK from the EU27 for processing and repair (there I go again with another assumption).

At present IP can be used by EU businesses bringing goods into the UK.  It is most likely that following Brexit, IP will only be available for businesses based in the UK.

In brief, the goods come into the UK, undergo their process and then leave the UK.  This operation is performed VAT and Duty free in principle – you can get involved in a regime where you can claw back the duty paid, but I always feel that getting tax back off the taxman is harder than keeping control of it in the first place.

If you’re Importing goods for process regularly then you need authorisation to use the procedure.

Outward Processing Relief

Outward Processing Relief (OPR) is the opposite of IP.

Thus, right now it looks at goods leaving the UK to a country outside the EU for processing (say the USA) and then returning after processing.  The idea is for the goods to leave and come back into the UK without an additional charge as to Duty and VAT.

One difference to IP is that authorisation is always required.

Customs Warehousing

Then there is Customs Warehousing.

You can store imported goods with duty and VAT suspended.  At the minimum it provides a cash flow cost.  In some circumstances it can create savings, certainly if the goods imported suffer damage, for example, and must be scrapped – scrapping in warehouse is possible and then saves the Duty which would have been paid on the goods.

You can have your own warehouse, or else use a public warehouse.  It is even possible to have a virtual warehouse which effectively sits upon a modified stock control system.

One of the key issues when considering warehouses is dwell time – the longer the potential dwell time, the greater the case for the use of a warehouse.

Another whacking great assumption

Well if these regimes are not already on your radar, then the next step is to get advice to set them up.

I have a second great assumption, and that is that right now we won’t need them on 29 March 2019, but instead after 31 December 2020.  I cannot say that for sure, such is the nature of the Brexit process.  If things go badly, we will need to use them from 29 March 2019.  If they go unbelievably well, we may not even have to use them after 31 December 2020 – right now I think the chances of that are as close as you can get to nil, without being nil, but you never know.

Don’t forget the suspensive regimes are available in the EU27

And of course, we are not just taking about using these regimes in the UK.  Right now, they are EU regimes and so I anticipate that they will continue to be used in the EU27.

Hence UK companies which decide to set up a company, say, in France following Brexit, may wish to use the procedures and in any event UK businesses sending goods for processing to the EU27 should ask their processors (or repairers) to confirm that they will be setting up IP, for example.

Summary

As usual, there is a lot more to these regimes – record keeping is king if you wish to avoid big bills, for example.  But if we cannot help you with adopting the regimes ourselves, we have partners throughout the EU27 who are happy to help.

However, ignoring the possibility of adopting such regimes could cost you money and may even hold up your business.  So, if you haven’t already investigated suspensive regimes, please do so with some urgency.  They don’t get put in place overnight and the closer to Brexit we get, the longer the lead time I expect between HMRC receiving applications and their authorisation.

Steve Botham

Brexit so far – I’m on Lucky 7

I will try to summarise the position on Brexit as I see it right now.  I’ll start by saying that some of it appears to be a game of chance leaving the future down to a turn of the roulette wheel as much as planning.

Good news

The latest agreement indicates that we have something settled between the UK and the EU27 taking us through to 31 December 2020.

That can only be described as “good news”.

In or out of the Single Market?

The next part is a little hard to grasp.

The UK is leaving the EU on 29 March 2019.  Strictly it is also leaving the Single Market and the Customs Union (as well as several other bodies) on 29 March 2019.

However, during the “transitional period”, as it is now being called, the UK will be treated as if it is in the Single Market and the Customs Union.  I have no idea whether the UK will remain in the Single Market and the Customs Union, but it has agreed to be covered by the rules of these organisations. That is an important point legally, as tax and Customs legislation as it stands relies on the UK being a member of those institutions and not just treated as a member of those institutions.  Quite a body of law will need to be amended and, of course, that will apply to all 28 current member states.

The UK will continue to obey the laws of the EU, including on the Single Market and the Customs Union, but will have no say in making or changing laws.

The UK will continue to pay contributions to the EU during the transitional period.

There is legislation to deal with transactions which covers the end of the transitional period. At present they seem simple and workable.  Let’s hope they stay like that.

No change then?

So far so good for businesses trading between the UK and the EU27.  It should mean “no change” until 31 December 2020.  So, some certainty.

Or at least that is what I thought initially.

Ireland

We have the issue of the land border in Ireland (and, indeed, Gibraltar it now seems).

The position on Ireland has not changed since 8 December 2017, despite the statements coming from various UK ministers.  The UK and the EU27, principally Ireland, are to try to work out a practical solution.  This means thinking up something new, which relies on technology, and which can be put in place working efficiently by 31 December 2021. And which is agreed upon by all the parties. With the greatest of respect to the Irish from both sides of the border, that would be a tall order in any event and will be all the more difficult to achieve in Ireland.

The UK Government has made some suggestions, but little work seems to have been made otherwise, even to work up the suggestions.

The fall-back position is that Northern Ireland will remain in both the Single Market and the Customs Union.  Whilst that is in black and white in the agreement, there is little doubt it would be unacceptable for Unionist politicians in Northern Ireland, as well as many in the UK Government and official opposition.

Unhappy hard Brexit supporters

Perhaps a more difficult issue with the transitional period is that it could be ended by the EU27 at any stage if the UK does not comply with the rules.

The fact that has been made clear in the agreement is hardly a surprise – even after the Belfast agreement on 8 December 2017, the UK’s head negotiator Mr Davis said the UK would walk away from that agreement if it suited the UK.

And we know that even staying within a mechanism linked to the Single Market and the Customs Union where the UK has no say during the transitional period is an anathema to hard Brexit supporters.

In the meantime, there is strong opposition to the agreement from hard Brexit supporters in respect of, but not restricted to, fishing rights.

Some hard Brexit supporters have expressed their opinion that the agreement sells them down the river – quite how that will manifest itself over the coming weeks is hard to tell.

Given the UK’s track record since the referendum, there is therefore a risk that the UK could create an early end to the transitional agreement.  There lies the uncertainty for businesses trading between the UK and the EU27 during the transitional period.

Clarity on tax rules in the UK and in the EU27?

In the meantime, I look forward to HMRC (the UK tax department) providing clarity on which legislation and which administrative arrangements will remain in place after 29 March 2019.  This is important.

Equally important is what the environment will be for UK businesses trading in other member states.  Will it remain the same?  It should, but we don’t know for sure.

What do we think of it so far?

So, how I see it is that some good progress has been made, but there is a long way to go before we know what is happening from 29 March 2019 until 31 December 2020.

In the meantime, what will happen from 1 January 2021 remains shrouded in mystery.

We know the UK aspiration is for the UK to have a parallel administrative, taxation and regulatory environment to that of the EU27, in the hope that whilst being outside of the Single Market, the Customs Union and the EEA, as well as various EU bodies, trade between the EU27 and the UK will continue as it does now.  If that can be achieved, it will be an incredible achievement by all concerned.

But we already know that both in the UK and the EU27 that is probably a step too far for most.  For example, issues related to the European Space Agency contracts have had the UK crying “foul”, whereas it seems clear that the UK chose to leave the EU and as such it should have expected that it would lose access to that market.

So, fingers crossed – our “plan for the worst and hope for the best” strategy remains intact.  In the meantime, my money is on lucky 7.

Steve Botham