Reform of tax ‘Basis Period’ announced by HMRC

The Government has this week announced a consultation concerning a potential reform of the basis on which trading profits arising to the self-employed (including members of partnerships) are subject to income tax. Should the proposed changes go ahead they will impact the self-employed who carry on a trade for UK tax purposes and do not draw up annual accounts to 31 March or 5 April.

In very broad terms, to align the taxation of trading profits with other types of income arising to individuals, the Government has proposed that existing ‘basis period’ rules, whereby income tax on trading profits for a tax year is determined based on profits arising in the accounting period ending in the tax year, will be replaced by a simplified system which would require the self-employed to apportion trading profits to tax years.

Whilst the proposals should certainly remove much of the complexities associated with the taxation of trading profits for many self-employed individuals (particularly in the early years of trade), to align with the introduction of Making Tax Digital (MTD) for income tax, the Government has proposed that these changes will take effect from 2023/24 with a one year transitional period in 2022/23. This leaves very little time for businesses to prepare for the practical implications of the changes which, due to the transitional provisions which will apply in 2022/23, could include cash flow challenges arising from the possibility that a higher income tax liability will arise for that tax year than might otherwise have been the case.

Notwithstanding that the objective of the proposals is the simplification and modernisation of a somewhat outdated set of rules, implementation of the changes over such a short period of time could represent an added burden for the self-employed post-Covid and arguably another unwelcome level of disruption as the whole country looks towards a future after the global pandemic. The consultation closes on 31 August; we will provide further information when available.

Chiene + Tait announces private client team promotions

Accountancy firm Chiene + Tait (C+T) has announced promotions within its Edinburgh-based private client team. Partner Michelle Fallon has been named as the firm’s new Head of Private Client Tax, leading the 20-strong team, while her colleague Alan Dean has been promoted to the role of Director.

Michelle joined the firm in 2013 as Personal Tax Manager before being promoted to director level in 2017 and was then made a Partner in 2019.

Alan joined C+T in 2018 after working with accountants French Duncan and legal firm Turcan Connell.  He specialises in advising high-net worth individuals, trusts and businesses on a range of tax planning issues, including succession planning, business structure, residency and employer taxes.

C+T Managing Partner Carol Flockhart said: “Michelle’s move to become Head of Private Client Tax and Alan’s promotion to Director marks another important stride forward for our renowned private client team. They are both well-regarded and highly respected personal tax experts who have contributed towards the growth of the firm.”

Self-Assessment Taxpayers get additional help through HMRC Time To Pay

UK taxpayers can now apply online for additional support from HMRC to help spread the cost of their self-assessment tax bill from an annual payment to smaller monthly payments.

In his Winter Economy Plan, Chancellor Rishi Sunak announced that taxpayers could pay amounts due on 31 January 2021 (including any deferred payment on account from July 2020, their balancing payment owed for 2019/20 and the first payment on account for the current tax year) in monthly instalments online through HMRC’s online Time To Pay system.

Interest will still be charged on the tax owed from 1 February 2021.

Taxpayers who wish to set up an arrangement must:

·         Have no outstanding tax returns, other tax debts or existing HMRC payment plans;

·         Have tax due of between £32 and £30,000;

·         Put the payment plan in place no later than 60 days after the due date of 31 January 2021.

Anyone who has larger amounts due or needs more than 12 months to settle their tax affairs will need to contact HMRC separately.

HMRC has also asked taxpayers to be aware of scammers claiming to be from HMRC who offer to help set up Time To Pay.

Understanding the tax treatment of Bitcoin

Cryptocurrencies are currently something that everyone is talking about. In this blog, Richard Clarke in the Personal Tax team looks at the tax treatment of virtual currency Bitcoin.

What is Bitcoin?

For many, cryptocurrencies are simply a volatile bubble that will burst in the next few years but for others, it is the currency of the future.

The virtual currencies have a finite supply unlike traditional money and have no physical presence. The best-known cryptocurrency is Bitcoin. Its popularity has grown in recent years and is traded on ‘peer to peer exchanges.’ It has been described as a currency without a State to underwrite it and likened to banking without a bank.

Bitcoin can be used at participating businesses to buy goods or services online. In 2017, a property was put on the market in London and the owner indicated that he would be willing to accept Bitcoin rather than cash. This was thought to be a first for the UK. More recently, a Turkish football team purchased a player using Bitcoin.

Like normal currencies, Bitcoin can increase or decrease in value. Anyone who invests in or trades in Bitcoin should be aware that when a profit (or loss) arises this may have tax consequences.

Tax treatment of Bitcoin

VAT Treatment

Different VAT treatment applies to the production and exchange of Bitcoin in exchange for another currency. However, HMRC guidance makes it clear that neither activity will give rise to a VAT charge.

If a VAT registered person provides goods or services and is paid in Bitcoin, the value of Bitcoin at the point of transaction needs to be determined as this amount will be liable to VAT.
However, the following are exempt from VAT.

• The production of Bitcoin called ‘mining’ will generally be outside the scope of VAT.
• Activities such as the provision of verification services or the arrangement of transactions.
• When Bitcoin is exchanged for sterling or another currency.

Income Tax Treatment

When an individual actively engages in Bitcoin mining or trading, they fall within the scope of income tax. When a profit or loss arises on a Bitcoin transaction this must be reflected in their business accounts.

This profit or loss will be taxable under the normal income tax rules.

The income tax rates for UK taxpayers are 20%, 40% and 45% respectively. From April 2018, the income tax rates for Scottish taxpayers are 19%, 20%, 21%, 41% and 46%.

When deciding whether an individual is actively engaged in trading, HMRC apply a test and this is known as the ‘badges of trade.’ The weight given to each badge of trade will depend on the following factors:

• Profit-seeking motive – a transaction entered into with the intention of earning a profit is more likely to be a trade.
• The greater the frequency and number of similar transactions, the more likely there is of there being a trade.
• Length of ownership- the shorter the period of ownership, the stronger the evidence of a trade taking place.
• Method of acquisition – if Bitcoin was inherited rather than purchased it is unlikely that a trade was taking place.

Capital Gains Tax Treatment

An individual may hold Bitcoin as an investment but may not be actively trading. Any gain or loss realised on the exchange of Bitcoin for another currency would be chargeable or allowable for capital gains tax purposes.

• It is only the gains in excess of the annual exemption that are chargeable to capital gains tax.
• The annual exemption is currently £11,300 but other gains and losses for the year must be taken into account.
• Capital gains tax is payable at a rate of 10% up to the level of the basic rate band.
• The remaining gains are taxed at a rate of 20%.

It could be argued that a holding of Bitcoin that is intended to be used to buy goods or services overseas should be outside the scope of capital gains tax. This is because there is a capital gains tax exemption relating to the disposal of foreign currency acquired by individuals with the intention of it being used for personal means.

However, a Bitcoin ‘wallet’ is not a foreign currency bank account and so it seems unlikely that HMRC would allow this exemption to apply.

Corporation Tax Treatment

When a company is actively engaging in Bitcoin mining or trading, the profits and losses of the company should be reflected in the company accounts and will be taxable under normal corporation tax rules.

Profits or losses on exchange rate movements between currencies are taxable under the general rules on foreign currencies and loan relationships.

The rate of corporation tax from April 2018 is 19%.

If you have a query about the tax treatment of Bitcoin, please contact Richard at or call 0131 558 5800.

HMRC’s behind you (if you are planning to claim inheritance tax reliefs)!

Paul Houston in our Personal and Business Tax Department reviews the long-awaited HMRC commissioned research into whether Inheritance Tax is being abused.

Inheritance tax (IHT) is an important source of revenue for the Treasury, with total income for the 2016/2017 tax year reaching close to £5bn*. Faced with the prospect of this golden goose laying more jewelled eggs, HMRC commissioned research earlier this year into the current use of inheritance tax reliefs, primarily Business Property Relief (BPR) and Agricultural Property Relief (APR). Both of these are meant to help individuals pass on their businesses to the next generation without requiring a sale of assets to meet the associated inheritance tax liability.

Although the catchily-titled ‘The influence of Inheritance Tax reliefs and exemptions on estate planning and inheritances’ report was completed in May 2017, it wasn’t publicly released until the Autumn Budget on 22nd November. Originally commissioning the research led to speculation that HMRC suspected that the reliefs were potentially being abused, with the delay in publication perhaps signalling that HMRC had identified instances of misuse, and would announce them with a dramatic Christmas pantomime-style pulling back of the curtain on budget day.

However, in a true theatrical moment, HMRC (our Dame of this piece), after a number of dramatic scenes in the build up to the finale, found…. nothing. APR and BPR are generally being used for the purposes for which they are intended** and are not being misused. This means that the Treasury (the Sheriff in our panto) has not recommended to restrict the future use of the reliefs to generate more golden eggs. However, Buttons in our panto (played by the Office of Tax Simplification) recently announced that it intends to commence work on a review of inheritance tax in general, so this issue is still front and centre stage.

So, what does this mean? Anyone who plans to use BPR or APR should ‘look behind you’? In reality, individuals and family businesses will face increasing resistance when making claims for IHT relief and it’s more important than ever to seek professional advice at the earliest opportunity. HMRC’s findings provide reassurance that there is unlikely to be any immediate, radical changes to how IHT works but there are more reviews and consultations planned for the future and the conclusion to this fairy-tale may not have a happy ever after ending.

* An increase of around £3bn in five years largely due to the increase in property prices and the freezing of the IHT nil-rate band (currently £325,000)

**HMRC conducted 80 interviews with individuals, most of whom did not hold assets in excess of £325,000.


If you have a question about Inheritance Tax, please contact Paul Houston on 0131 558 5800 or email