HM Revenue & Customs (HMRC) has announced plans for the Bank, Building Society Interest (BBSI) returns to be incorporated within its Making Tax Digital (MTD) initiative.
Whilst these plans have been on hold, we understand HMRC is preparing to start the transition. You should assess and understand how these new measures could impact your business, and closely monitor any updates on the progression of the transition to MTD.
Recapping the key returns
HMRC requires financial institutions operating in the UK to disclose information about interest earned by or credited to UK residents. Currently, there are two types of return:
the BBSI return is required from banks and building societies operating in the normal course of their business
the Other Interest (OI) return required from financial institutions that are not operating as a bank or building society in the normal course of their business.
Some banks and building societies will need to complete both returns - one for their normal banking business and one for the other types of business they engage in. If the bank or financial institution is also an ISA Manager offering ISAs to UK residents, they will be required to file the annual ISA return and conduct ongoing due diligence and monitoring of the ISA accounts.
Keeping up with new challenges
HMRC is increasingly concerned with the accuracy and completeness of tax returns, which is a key driver behind the MTD initiative. The department recently issued letters in relation to the completeness and accuracy of submitted FATCA and CRS returns, demonstrating this point.
Furthermore, HMRC has also requested confirmation from financial institutions that they have acted in accordance with IRS Notice 2017-46 regarding missing US TINs. We anticipate this will continue, with additional focus on institutions to confirm that reportable data has been adequately reviewed and appropriate controls are in place.
The rules around Individual Savings Accounts (ISAs) have also become more complex in recent years, with the introduction of new ISA types (e.g. Lifetime ISAs) and the increased flexibility in the management of ISAs (via flexible ISAs and Additional Permitted Subscriptions, for example). ISA Managers are therefore required to ensure that the opening and ongoing maintenance of their ISAs is in line with updated guidance.
Following the Business Risk Review+, HMRC has introduced a new grading system for large businesses, which took effect from 1 October 2019. Broadly speaking, a two-category system (i.e. low-risk and non-low risk) has now been replaced with a four-category system (i.e. low, moderate, moderate-high and high risk). In light of these changes, there is increased importance placed on financial institutions to have robust controls supported by a governance framework.
Who needs to disclose?
If you receive a notice from HMRC regarding the BBSI or OI returns, then you will have to make a disclosure. This is irrespective of whether you have any income to report – a nil return is still required.
If you are an ISA Manager, you will also be expected to file the annual ISA return.
What to do now?
You should assess and understand how these new measures could impact your business and closely monitor any updates on the progression of the MTD transition. To ensure you are compliant with the changes and ready for the upcoming changes, you should undertake a health check to assess how well your internal control functions are performing. Check the completeness of your returns and whether your due diligence is being carried out in line with best practice according to industry standards and HMRC guidance.
For more information and to discuss any of the issues above, please contact us.
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