Weekly tax update

Tax update
A round-up of recent tax issues
If you have any questions or feedback, please get in touch with your usual Smith &
Williamson contact or me at the email address given below.
Tina Riches
National Tax Partner
020 7131 4252
tina.riches@smith.williamson.co.uk
Monday 16 March 2015
1
General news ............................................................................................................................ 2
1.1
Written Ministerial Statements - Finance Bill 2015 ........................................................... 2
1.2
US FATCA reporting ................................................................................................................... 2
2
Private client ............................................................................................................................. 2
2.1
Application for adjournment of the Ingenious Games LLP hearing .............................. 2
2.2
Change in method of assessing market value of listed shares and securities ........... 3
2.3
ISA subscription limits 2015/16 ............................................................................................. 4
2.4
Successful human rights claim in tax case ......................................................................... 4
3
PAYE and employment .......................................................................................................... 4
3.1
Annuity sales.............................................................................................................................. 4
4
Business tax .............................................................................................................................. 4
4.1
Groups for corporation tax on capital gains and other corporate income .................. 4
4.2
Exempt unauthorised unit trusts .......................................................................................... 5
5
VAT ............................................................................................................................................... 6
5.1
Whether expenditure on a fountain was business expenditure .................................... 6
5.2
VAT and alleged complicity with MTIC fraud...................................................................... 6
Page 1 of 7
5.3
Removal of manual customs declarations ......................................................................... 6
5.4
Whether the reduced rate of VAT can apply to part of a supply ................................... 6
6
Tax publications ....................................................................................................................... 7
1
General news
1.1
Written Ministerial Statements - Finance Bill 2015
David Gauke has confirmed in a written ministerial statement that the Finance Bill will be
published on Tuesday 24 March.
Copies of the explanatory notes on the Bill will be available on GOV.UK.
www.parliament.uk/business/publications/written-questions-answers-statements/writtenstatement/Commons/2015-03-10/HCWS361/
1.2
US FATCA reporting
We have been informed by HMRC that amendments to the UK FATCA regulations will
soon be made to avoid taxpayers having to submit nil returns for FATCA. As a reminder to
reporting UK financial institutions with information to report to HMRC, the report for
calendar year 2014 must be filed with HMRC by 31 May 2015. This is what HMRC said:
‘Please note that, following an update to the US IRS FAQ pages at the end of February,
there is no longer a requirement for IGA countries to send reports of nil returns to the US
(see FAQ C19). In view of this, and consistent with the position for CRS, HMRC will be
amending our FATCA regulations to remove the requirement for nil returns. We will issue
further advice regarding entities that have already registered with HMRC (whether or not
they have reported yet) as soon as we can, but we can say now that if an entity has
registered and it would be appropriate under the existing regulations to send a nil return
then it can choose to still send it or alternatively wait until the amendments take effect
and then choose not to submit a return (the amendment is expected to take effect by the
end of April at the latest).
We have also now concluded that the treatment of relevant holding companies and
treasury companies as reporting financial institutions is incorrect. Under the relevant US
Treasury Regulations these entities are treated as Passive Foreign Financial Entities where
they are resident in a jurisdiction with which the US has an Intergovernmental Agreement
in place. As the UK is such a jurisdiction these entities are not financial institutions for the
purposes of the IGA and therefore will be removed from the definition of reporting financial
institution in the amended regulations. Again, we will issue further advice as soon as we
can but for now if any entity has registered and is unsure of their position then they may
remain registered and report to HMRC if they have any concerns.’
2
Private client
2.1
Application for adjournment of the Ingenious Games LLP hearing
The Upper Tribunal (UT) has upheld the 20 February 2015 decision of the First-tier
Tribunal (FTT) not to adjourn the Ingenious Games LLP case for a period of one
month.
16/03/2015 | Page 2 of 7
The adjournment had been requested as a result of a 359 page document prepared by
HMRC at the adjournment of the hearing in December 2014, which appeared to the
Ingenious team to imply their witnesses were dishonest, without making that particular
allegation.
The UT concluded the FTT were entitled to deny the adjournment, but criticised the HMRC
team for not being sufficiently clear in their summary documents. To progress matters
the UT directed that:
•
HMRC should first be required to clarify their position by producing a document within
one or two weeks, explaining the general nature of their allegations, their relevance
to the case and the witnesses to whom they wish to put them.
•
The Ingenious team should then have a period of up to four weeks to consider
whether they wish to adduce any further witness or documentary evidence in
response to the allegations. This opportunity is not to be used to broaden the ambit
of the case nor to make extensive disclosure of documents, which should already
have been served.
www.tribunals.gov.uk/financeandtax/Documents/decisions/Ingenious-Games-LLP-Ors-vHMRC.pdf
2.2
Change in method of assessing market value of listed shares and
securities
Following announcements made in December 2013 and a draft statutory instrument
published in July 2013, SI 2015/616 changes the method of determining the market
value of listed shares, securities and Government strips for capital gains tax. It is also
relevant for income tax purposes concerning profits from deeply discounted securities.
From 6 April 2015 the method of assessing market value will change for these assets
from the quarter up method to:
•
UK listed shares, securities or strips - the lower of the two prices shown for closing
price on the relevant day plus one half the difference. If the stock exchange is closed
for the relevant day, the value to be used will be that value on the latest previous day
on which it was open;
•
for non UK listed securities and strips, similar rules apply. However if more than one
exchange lists the securities or strips, the main exchange figures are used. If there is
no main exchange, the exchange in the jurisdiction in which the issuing company is
resident, or the exchange in the territory of the issuing government, is used.
The ability to make regulations concerning the determination of market value of shares
and securities listed in the UK and overseas was included in FA 2007, but is only now
being put into effect. This change will be relevant for employment tax for determining
values for employment related securities (ITEPA 2003 s.421 applies the capital gains tax
market value rules). Those operating share schemes involving listed securities and
responsible for employment taxes will need to ensure their systems operate the new
valuation rules from 6 April 2015.
www.legislation.gov.uk/uksi/2015/616/pdfs/uksi_20150616_en.pdf
16/03/2015 | Page 3 of 7
2.3
ISA subscription limits 2015/16
The annual subscription limits to a junior ISA account have been increased to £4,080.
Subscription limits to all other ISA accounts have also been increased to £15,240. The
changes come into force on 6 April 2015.
www.legislation.gov.uk/uksi/2015/608/pdfs/uksi_20150608_en.pdf
2.4
Successful human rights claim in tax case
In a case involving a taxpayer being taxed twice on the same income, the First-tier
Tribunal (FTT) has dismissed HMRC’s strike out application on the basis that there was
a reasonable argument that it was disproportionate for HMRC to pursue tax already
paid. Although the taxpayer, Ignatius Fessel, was out of time for overpayment relief
his application under the European Convention on Human Rights (ECHR) and Human
Rights Act was accepted.
It is unusual for taxpayers to successfully argue such claims under the ECHR, so this may
be a useful decision, especially in cases where HMRC tries to tax the same item twice.
The substantive appeal has yet to be resolved.
www.financeandtaxtribunals.gov.uk/judgmentfiles/j8265/TC04287.pdf
3
PAYE and employment
3.1
Annuity sales
The government has announced that this week’s Budget will include revised
provisions around the sale of annuities that are due to come into force from April
2016. It is expected that, instead of the current marginal rates of 55% or up to 70%
in some cases, from next year pensioners selling the income stream from their
annuity would be taxed at their marginal rate.
This would potentially provide those locked into annuities with similar freedoms to other
individuals.
www.gov.uk/government/news/pension-freedoms-to-be-extended-to-people-withannuities
4
Business tax
4.1
Groups for corporation tax on capital gains and other corporate income
The First-tier Tribunal (FTT) has concluded that detailed planning resulting in the
elimination of a charge to corporation tax of between £25m and £28m on gains on
property disposals was in accordance with prescriptive legislation on a purposive
interpretation. As a result, Ramsay principles could not be used to ignore preordained, intermediary steps.
The scheme, which had been disclosed under DOTAS, concerned the transfer of
properties from the Consolidated Property Group (CPG) to British Land (BL) in December
2006 for total consideration of £126.2m. CPG was apparently only willing to sell if it did
16/03/2015 | Page 4 of 7
not have to pay tax on the resulting property gains. The planning achieved this by the
following means:
•
The CPG had two property owning companies: Co A and Co B. These presumably had
originally purchased the properties so that when they left the CPG group there was no
TCGA 1992 s.179 charge. They became subsidiaries of BL by issuing sufficient B shares
to a BL subsidiary to make them 75% subsidiaries and effective 51% subsidiaries. The
BL sub owned at least 75% of the ordinary share capital of Co A and Co B, and those
shares gave it beneficial entitlement to at least 51% of the profits and assets
available for distribution on a winding up.
•
There were options in place exercisable for £1,000 so that post the transfer of the
properties from Cos A and B to the BL subsidiary (i) CPG could reacquire the
companies, or (ii) the BL sub could sell the CPG companies back to CPG.
Ordinarily for corporation tax purposes the existence of options that were highly likely to
result in the degrouping of subsidiaries, would mean that the subsidiaries would not be
regarded as grouped with their temporary owner (CTA 2010 s.171-s.174). The
determination of a group for CGT purposes, however, specifically ignores these provisions
(TCGA 1992 s.170(8)).
Therefore the fact that there were options in place which are certainly going to be
exercised so that Cos A and B would only be subsidiaries of BL for a very short time, did
not affect the view of what a CGT group was for the purpose of a ‘no gain no loss’
transfer under TCGA 1992 s.171. When Cos A and B returned to the CPG group there was
no TCGA 1992 s.179 charge arising as a result of the property being transferred at its
original base cost as s.179 only applies where it is the company receiving the asset which
leaves the group. The BL sub that received the property as a result of the transaction did
not leave the BL Group.
From a commercial perspective if the intention is otherwise to hold the properties
indefinitely, any CGT charge becomes an actual cost for the vendor.
A further point relevant in this case is that these transactions happened immediately
before BL became a real estate investment trust (REIT). As a REIT, BL would not be
charged corporate CGT on its gains. For companies converting to REIT status although
there is no longer a 2% entry charge on the market value of the company or group’s
properties used for its qualifying property rental activities, there was at the time BL
became a REIT. As a result of the planning, the tax bill was reduced to approximately
£2.5m, 2% of the sale consideration of the transferred properties, instead of £25m to
£28m that could have been chargeable on a gain recognised by CPG.
www.financeandtaxtribunals.gov.uk/judgmentfiles/j8278/TC04302.pdf
4.2
Exempt unauthorised unit trusts
The Unauthorised Unit Trust (UUT) regulations (SI 2013/2819) introduced substantial
changes to the tax treatment of UUTs and their investors, simplifying the rules and
removing opportunities for avoidance. The regulations came into force on 6 April 2014.
These regulations have been subject to subsequent refinement and some further
refinements are now made through SI 2015/463 on how to determine basis periods for
exempt unauthorised unit trusts. The amendments introduced by SI 2015/463 come into
force from 6 April 2015.
16/03/2015 | Page 5 of 7
www.legislation.gov.uk/uksi/2015/463/pdfs/uksi_20150463_en.pdf
5
VAT
5.1
Whether expenditure on a fountain was business expenditure
The First-tier Tribunal (FTT) has concluded that input VAT on the costs of constructing a
fountain at some distance from Folkestone Harbour, were evidently part of the
redevelopment project for the harbour and therefore a business expense. HMRC had
sought to deny deduction for input VAT of £89,193 on the fountain construction costs on
the basis the fountain benefited the general public and had no impact on the
redevelopment. The distance separating the fountain from the development project was
not conclusive for the Tribunal who found it was clearly part of the redevelopment
project.
www.financeandtaxtribunals.gov.uk/judgmentfiles/j8282/TC04306.pdf
5.2
VAT and alleged complicity with MTIC fraud
HMRC has failed to convince the First-tier Tribunal (FTT) that Privin Corporation Ltd knew
or should have known that the only reasonable explanation for the circumstances in
which certain mobile phone transactions took place was that they were connected to
fraudulent evasion of VAT.
From the start of business in May 2005 to December 2007, the range of trading as
demonstrated by turnover figures declared on VAT returns rose from £0.3m in 2005 to
£7.9m in 2006 to £0.2m in 2007. The turnover for May 2006 alone was £6.5m. HMRC had
denied repayment of £1.1m of input VAT with respect to the May 2006 monthly return.
HMRC had to demonstrate proof of the taxpayer’s suspected knowledge of fraud, but was
unable to convince the Tribunal on this. The case illustrates the risk faced by innocent
traders caught up in MTIC fraud and the difficulty HMRC faces in catching those
responsible.
www.financeandtaxtribunals.gov.uk/judgmentfiles/j8280/TC04304.pdf
5.3
Removal of manual customs declarations
Currently, import and export declarations can be lodged using either a manual (paper)
declaration or electronically. The Union Customs Code (UCC) Council Regulation (EU)
952/13, which enters into force on 1 May 2016 requires all communication (including the
submission of customs declarations) between customs authorities and economic
operators, to be made electronically, except for specific exemptions. HMRC has therefore
issued a consultation on the impacts of moving to full electronic reporting. The
consultation lasts until 5 June 2015.
www.gov.uk/government/uploads/system/uploads/attachment_data/file/410981/Removal
_of_manual_customs_declarations_v1.0.pdf
5.4
Whether the reduced rate of VAT can apply to part of a supply
The Upper Tribunal (UT) has concluded that the reduced rate of VAT on supplies of
domestic fuel or power permitted by VATA 1994 s.29A and Sch7A group 1 could apply
to part of a supply only if the whole supply was at the reduced rate. As a
16/03/2015 | Page 6 of 7
consequence the First-tier Tribunal’s (FTT) decision, that Colaingrove were entitled to
the reduced rate of VAT on supply of electricity to Caravans, was incorrect.
Colaingrove Ltd provide serviced chalets and static caravans at holiday parks, trading
under the names ‘British Holidays’, ‘Haven’ and ‘Butlins’ It had an agreement with the
Sun newspaper for advertising its holidays. The newspaper would collect the price for the
holiday and hand it to Colaingrove once the holiday had taken place. The advertising
made clear there would be separate charges for electricity, which were charged at a
fixed rate to the individuals using the holiday facility. HMRC had always maintained the
supply of the electricity to the caravan was part and parcel of the single standard rated
supply of fully-serviced holiday accommodation.
Following the FTT’s decision, in summary the question for the UT was whether there is
something in UK domestic law calling for different rates of VAT to a bundled single supply
where at least one individual element of the supply is ‘concrete and specific’. This turned
on the true construction of VATA 1994 s.29A and Sch 7A.
Colaingrove lost. The UT concluded that there was no UK requirement for charging a
concrete and specific element of a single supply with a reduced rate. This followed an
earlier UT decision in the case of Morrisons Supermarkets ([2012] UKFTT 366 (TC)). Prior to
the UT hearing an attempt was made by Colaingrove to take the case straight to the
Court of Appeal, but not followed through. Following the UT decision it may well be that
this case proceeds further in the appeal process.
www.tribunals.gov.uk/financeandtax/Documents/decisions/HMRC-v-Colaingrove-Ltd.pdf
6
Tax publications
NTBN310 - Changes to the remittance basis charge
Outline of the proposed increases to the remittance basis charge for UK resident non-UK
domiciliaries, to apply from 6 April 2015, and the consultation on the possible
introduction of a minimum claim period.
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16/03/2015 | Page 7 of 7
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