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Is this how HMRC works?
HMRC published its Agent Update 93 on 16 February 2022 (tinyurl.com/AgentUpdate93). The update includes HMRC’s action plan to deal with payment protection insurance (PPI) taxed interest repayment claims made on form R40 on a standalone basis (the text is reproduced below). It surprises me no end that the department is prepared to repay the tax paid without reference to other sources of income. This seems very foolhardy.
While agents and taxpayers are dealing with long delays for simple matters such as R40 claims and self-agent registrations, HMRC is giving PPI taxed interest repayment claims priority. I am baffled to say the least.
Surely it would make more sense to change the process to electronic submission so all R40 claims are processed fairly without any favours to a particular source of income.
Jay Wallah.
‘Automation of PPI/R40 claims
‘HMRC has seen a significant increase in PPI taxed interest repayment requests from agents.
‘To reduce the number of cases in our queues and speed up the processing time of applications we are developing an IT solution to automate the processing of some PPI taxed interest repayment applications. To make sure you get any repayments due as soon as possible we need you to submit all applications using the following guidance:
- individual applications should be submitted for each tax year on the existing standard R40 form;
- do not include any other tax reclaim types within that R40 form;
- only include the agent details on the spaces provided on the R40 form;
- do not include covering letters;
- post the claims to the new dedicated PPI tax interest reclaims address: PPI tax interest claims, HMRC, BX9 1ZR.
‘The automated service is reliant on receipt of a standard application. We expect automation of these forms to begin in late spring. Any applications not received in the correct format will not go through automation and will take longer to process.’
Venture capital trusts
I read Tim Parr’s article ‘Tax ventures’ (Taxation, 7 April 2022, page 15) with interest. I have long held the view that in the right circumstances venture capital trusts (VCTs) are a useful alternative to pensions but think that some additional comments could be made.
When considering whether to reinvest dividends it is crucial that the investor establishes whether the manager operates a scrip dividend scheme (SCRIP) or a dividend reinvestment scheme (DRIS) and understands the implications.
In the case of the SCRIP scheme new shares are created and the investor will obtain 30% tax relief and receive an interest relief certificate. The tax relief can be reclaimed if the shares are sold before they have been held for five years. VCT shares are disposed of on the FIFO (first in first out) basis. On the other hand, shares acquired under a DRIS scheme are purchased in the secondary market and are not new shares but count towards the £200,000 limit. These shares do not attract any tax relief and, in theory at least, can be bought and sold without restriction. However, care will need to be taken that the disposal of the shares acquired in the secondary market does not accidentally create an income tax liability resulting from a reclaim of income tax relief should the shares be sold when previously the investor has purchased shares in the same VCT that attracted the income tax relief but which, at the date of disposal of the shares, had not been held for the five years due to the application of the FIFO rule and appropriate advice should be sought before disposal. Comprehensive keeping of records can be complex but is crucial.
HMRC’s Venture Trust Manual only discusses the disposal of shares within five years in the context of new shares not of shares purchased in the secondary market.
Tax relief can be restricted if shares in the same venture capital trust are bought and sold within six months.
Readers should also be aware that, if the investor dies within five years of making the VCT investment, the tax relief is not reclaimed.
Finally, out of curiosity I recently reviewed a portfolio containing FTSE 100 companies and VCTs for the 2020-21 tax year to check the effect on investment income of the Covid pandemic. I was surprised to discover that the VCT income remained about flat while the FTSE company dividend income declined by about 30%. FTSE dividends in the same portfolio have since recovered to pre Covid levels.
Paul Masters, solicitor.
