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One minute with... Isobel d'Inverno

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If you could make one change to tax law or practice, what would it be?

It would be great if there was less ‘secret knowledge’ about HMRC’s views on some of the more complex areas of tax. At the present, there are a lot of HMRC interpretations which haven’t made it into the HMRC manuals, so only those who frequently practice in that particular area are aware of the accepted view. Greater transparency about HMRC’s views would be helpful, and save time for all concerned.  The same applies to Revenue Scotland and the new Welsh Tax Authority, of course; perhaps there is an opportunity for both those organisations to make sure their guidance deals with all relevant points.

Can you suggest a point to watch on LBTT?

About a year ago, Revenue Scotland issued an opinion to a taxpayer which indicated that LBTT group relief is not available for companies which have granted share pledges to banks because this amounted to a disqualifying arrangement. This has caused a number of transactions to stall, and also raises questions about transactions which have already completed LBTT was introduced. The Law Society and others have been working hard to achieve legislative change, and last week Derek Mackay, the Cabinet Secretary for Finance and the Constitution in the Scottish government announced that he will consult on a statutory instrument to solve the problem for transactions going forward. No announcement has yet been made about giving retrospective effect to this change.

Are there any new rules that are causing particular concern?

From 1 April 2018, tenants of commercial property in Scotland will have to submit additional LBTT lease returns. The LBTT system aims to ensure that LBTT is paid on the rent actually paid under the lease, so the initial returns are based on estimates of the rent, but further review returns have to be submitted every three years, including a revised LBTT calculation. Any additional LBTT has to be paid at that stage, or a repayment claimed from Revenue Scotland.

LBTT was introduced on 1 April 2015, so the three yearly returns for the first LBTT leases will be due soon. As with any change to tax practice there are likely to be tenants caught unawares, though Revenue Scotland has been making good use of roadshows and social media to make sure that all tenants are aware of the requirement to submit three yearly returns.

There is also some concern about an emerging very restrictive Revenue Scotland view about when land is non-residential for LBTT purposes. A purchase of mixed residential and non-residential property is all subject to LBTT at the lower non-residential rates, which can lead to a considerable tax saving, but there seem to be suggestions that to count as non-residential, something very commercial has to be going on. This doesn’t seem to be supported at all by the legislation, and a lot of tax can be involved.

A simple solution to these issues, which are also becoming a problem in relation to SDLT, would be to apportion the consideration between residential and non-residential land. LBTT already does this for the 3% surcharge, which is charged on the residential element of mixed purchases. It would not be difficult to extend this treatment to residential and non-residential land in general, with each part being taxed at the relevant rate.

Is NIC fair in the modern world?

The trouble with NIC is that it discriminates against businesses with a large workforce, as compared with the growing number of online or digital businesses, and those which are increasingly automated. Merging NICs with income tax seems to have been consigned to the ‘too difficult’ pile, but a number of other approaches are being talked about now and deserve consideration. These include, for example a robot tax, or a more general welfare tax payable by all companies, not based on payroll/number of employees, and these all need to be considered against the background of current initiatives to impose fair taxation on digital businesses. It is a particular issue for the Scottish government, of course, because Scotland has control over the income tax rates, but not over NICs.

Finally, you might not know this about me but…

I lived in Russia for two years as a child, and went to Russian school. Doing maths in Russian, with all its grammatical complexities, was much harder than tax!

Issue: 1391
Categories: One minute with