1. General
1.1 Removal of Extra-statutory Concessions (ESCs)
HMRC has given notice that nine ESCs will be withdrawn from 1 or 6 April 2017 and that ESC 3.20 on insolvent business VAT will be given statutory effect. Each of the 10 ESCs is thought to be beyond the scope of HMRC's administrative discretion and therefore should be outside the ESC regime.
The nine ESCs to be withdrawn relate to income, corporation tax, excise duty and VAT:
- VAT - Para 9.8 Notice 708 – Apportionment of works of approved alterations to a qualifying protected building;
- A94 – Profits and losses of theatre backers (Angels);
- 69 – Building Societies: conversion to company status;
- C1 – Credit for underlying tax: dividends from trade investments in overseas companies;
- 6.2 Excise: hydrocarbon oil duties: duty - paid deliveries for refinery boilers;
- BIM66301 Remuneration of sub-postmasters;
- 3.23 VAT: supplies by Financial Ombudsman Services Ltd to ombudsman authorities;
- 3.28 VAT: supplies by Financial Services Authority to self-regulating organisations; and
- 3.31 VAT: supplies by Financial Services Compensation Scheme Ltd to compensation scheme authorities.
The ESC that will be legislated is ESC 3.20 VAT: Bad Debt Relief and insolvent businesses: revocation of clawback, which ensures insolvency practitioners do not become liable for the clawback of input tax on bad debts where the supply took place before the insolvency of the business for which they act. HMRC invites responses to its mini consultation, including draft legislation that intends to ensure the purpose and effect of the existing ESC is maintained, by 16 December 2015.
HMRC's initial assessment of the potential impact of withdrawing the nine ESCs listed and invitation to taxpayers to provide responses to its proposals is at:
HMRC's consultation on how it plans to give effect to ESC 3.20 is at:
1.2 Amendment to the International Tax Compliance Regulations 2015
The International Tax Compliance Regulations 2015 have been amended. These regulations are intended to improve international tax compliance and give effect to the agreements and arrangements the UK government reaches with other jurisdictions on such matters.
The amendments come into effect on 20 November 2015 and are as follows:
- the definitions of 'financial institution' and 'investment entity' are aligned with those set out in the relevant US legislation relating to the Foreign Account Tax Compliance Act (FATCA);
- Venture Capital Trusts (VCT) and dormant accounts are removed from the list of accounts that are not reportable in relation to the Common Reporting Standard (CRS), and so become reportable. Financial institutions can elect to treat dormant accounts as non-reportable accounts. This change is to comply with the EU Directive on Administrative Co-operation; and
- Ghana is added as a participating jurisdiction in relation to the CRS. The legislative amendments are at:
www.legislation.gov.uk/uksi/2015/1839/pdfs/uksi_20151839_en.pdf
2. Private client
2.1 Electronic submission of IHT information – revised directions
Following comments made to HMRC on the earlier directions, we welcome the revised directions that HMRC has issued, which state that when an agent submits electronic IHT information on behalf of a client, the agent is confirming that the client, not the agent, has approved the information. The new directions are effective from 2 November 2015.
In contrast to the previous version, which required the agent to verify the accuracy of the information, the new directions now require the agent submitting the information to have obtained from the client confirmation that the information is correct and complete to the best of the client's knowledge and belief.
It is not yet clear if HMRC's IT systems will enable IHT information to be entered and saved for possible amendment and/or pending client approval before submission. This may dictate the extent to which electronic submission is used.
www.legislation.gov.uk/uksi/2015/1378/pdfs/uksi_20151378_en.pdf
2.2 Out of time claims and reasonable excuse – for taxpayer and HMRC
The Upper Tribunal (UT) has held that the First-tier Tribunal (FTT) erred in law in failing to consider whether Dr Vasiliki Raftopoulou had a reasonable excuse for her late claim to recover overpaid tax. The decision was referred back to the FTT for a full reconsideration. The case discusses when HMRC should consider whether there has been a reasonable excuse for a late claim, and in what circumstances a response by HMRC can be considered to be the closure of an enquiry. It also raised the possibility that reasonable excuse can apply to HMRC's own obligations, such as meeting enquiry time limits.
The UT considered that the obligation to make a claim was something that was required to be done in tax law. Failure to make the claim therefore came within the definition of failing to do something required to be done within a time limit, as referred to in TMA 1970 s.118(2). As a result the circumstances of the case did not prevent that section from requiring HMRC to consider whether they should have exercised their care and management powers to entertain a late claim in the event of a reasonable excuse.
Dr Vasiliki Raftopoulou submitted her 2006/07 self assessment return on 14 January 2008. On the figures stated in the return, she had a tax liability of about £18,000. However, she believed the amount of tax due was the result of a mistake. On 22 November 2008, she wrote to HMRC indicating her tax return was overstated as a result of a mistake and that her expenses should be higher. She then left the UK to study in the US and returned in 2011. She then appealed for overpayment relief on 13 October 2011, more than four years after the end of the tax year to which the claim related. The UT considered that HMRC's reply to this application, dated 9 November 2011, represented evidence there had been an enquiry and as such could be appealed.
In considering the issues the UT commented that:
'The application of [TMA 1970] s.118(2) must be considered by reference to the particular context of the provision in respect of which its deeming effect is sought to be applied......
We accept that, by concluding that the effect of s.118(2) is not confined to obviating the consequences of a financial penalty for failing to comply with an obligation, the ambit of s.118(2) might arguably extend to requirements imposed on HMRC themselves under the TMA. An obvious example is the requirement, to which we have referred, in s.9A(1) TMA, for a notice of enquiry to be given to the relevant taxpayer within the time allowed by s.9A(2).'
www.tribunals.gov.uk/financeandtax/Documents/decisions/Vasiliki-Raftopoulou-vs-HMRC.pdf
3. PAYE and employment
3.1 HMRC wins Rangers case
The Court of Session in Scotland has allowed HMRC's appeal in the case of Advocate General for Scotland v Murray Group Holdings and others [2015] CSIH 77. This is an influential decision on the use of employee remuneration trusts and could have wide ramifications for employer companies who operated similar schemes.
Put simply, the Rangers group of companies remunerated players and some executives through bonus arrangements under which sums were paid to a principal trust and then allocated for the individual concerned in sub-trusts, with the sub-trusts onward loaning amounts to the individuals in question.
In a nutshell, HMRC brought in a new and successful argument that the payments made to the principal trust were in effect redirection of the employee's earnings and thus immediately liable to PAYE and NIC. The Court agreed. A secondary ground of appeal, that the money in the sub-trust was unconditionally available to the individual and thus for all practical purposes paid, was not upheld but in the circumstances did not affect the outcome of the case.
The court thought that 'the fundamental principle was that if income is derived from an employee's services qua [as an] employee it is [earnings] and thus assessable to income tax, even if the employee requests or agrees that it is redirected to a third party [here, the trustees]'.
This will have wide ramifications for those with similar schemes. First, it seems clear that any initial tax bill will be with the employer, who has in effect simply made a payment of earnings. The relevant date of payment is the payment to the trustees.
Next, the court was clear that once the payment had been made, that was, in effect, the end of the matter for employment tax purposes. The trust was, in essence, a private trust and taxable as such. This means that HMRC may have been misguided in cases where they sought to operate PAYE and NIC on the making of loans to employees as being earnings. Similarly, it is difficult to see how the disguised remuneration rules that now police third party pay arrangements could apply to the trust arrangements after the initial payment.
There is also no application of the 'notional payments' regime where payments made by third parties on an employer's behalf can incur additional income tax for failure to operate PAYE.
Cases that have taken up the EBT Settlement Opportunity will be unaffected. Others will need to review their position urgently.
It is yet not known whether or not the case will be appealed.
www.scotcourts.gov.uk/search-judgments/judgment?id=8213f5a6-8980-69d2-b500-ff0000d74aa7
4. Business tax
4.1 Draft HMRC guidance on loan relationship implications of the adoption of FRS102
HMRC has issued draft guidance on the corporation tax treatment of interest-free loans and other non-market loans on the adoption of new UK GAAP (FRS102).
The guidance covers the impact for companies that have not adopted FRS26:
- interest-free loans from individual shareholders (CFM33175-CFM33176) - the guidance indicates the move to FRS102 in 2015 will create taxable credits to equity on discounting of interest-free or below- market rate term loans. The credit will be matched over time by future interest debits going through the profit & loss account and the credit may be subject to spreading over 10 years under SI 2004/3271;
- connected company loans (CFM35190 – CFM35192) – the tax treatment for 2015 is the same as the tax treatment for 2014 due to the continued application of the definition of amortised cost basis accounting for tax applicable for accounting periods beginning before 1 January 2016;
- interaction of adjustments arising from adoption of FRS102 with transfer pricing (CFM33178a - CFM33178b) - this guidance illustrates the position of the borrower in receipt of a shareholder loan, both where the borrower is and is not thinly capitalised. The examples assume the shareholder in this instance is not a connected company. The examples given show that transfer pricing provisions may in some cases override the tax liability created on the credit of the discount recognised as a capital contribution.
www.gov.uk/government/uploads/system/uploads/attachment_data/file/472679/Draft_NML_Guidance.pdf
4.2 Proposed new tax regime for insurance linked securities
At the March budget it was announced that the government would work with the industry and regulators to develop a new competitive corporate and tax structure for allowing Insurance Linked Securities (ILS) to be domiciled in the UK. Although there is no announcement of further development on this issue, David Gauke did mention it again at a recent speech to the Association of British Insurers.
More specifically he commented:
"Through Insurance Linked Securities (ILS), new ways have been found to share insurance risk with capital markets. ILS has helped to increase the capacity of the reinsurance sector, particularly for specialist or extreme types of risk, and investors have benefited from high performing assets which diversify portfolios. This is now a $60 billion market and growing fast. ILS looks here to stay. But crucially, the UK does not currently have the right framework to support the growth of ILS in the London market. So there is the risk that the expertise which ILS business requires could be drawn elsewhere. That is why the Chancellor announced in the March Budget that Treasury and the UK regulators, working closely with the London market, would design a regulatory and tax framework to support the domicile of ILS business in the UK."
www.gov.uk/government/speeches/financial-secretarys-speech-to-the-abi-biennial-conference
5. VAT
5.1 The Union Customs Code (UCC) from May 2016 and related customs issues HMRC has issued a number of papers in preparation for the adoption of the Union Customs code on 1 May 2016 and related administrative points:- paper 43 indicates that the statistical threshold for €1,000 will be £750 from 1 January 2016, a reduction of £50 on the figure applying for 2015;
- paper 44 outlines new procedures for authorisations, transfer of rights and obligations and related matters that are relevant for the coming adoption of UCC;
- paper 45 announces a new software release for HMRC's information control system (ICS) that is expected go live on 1 December 2015; and
- paper 46 sets out how HMRC will deal with the new requirements for simplified VAT accounting scheme (SIVS) enabling operators to reduce to 0% the financial guarantee for duty deferment for VAT purposes.
www.gov.uk/government/publications/customs-information-paper-45-2015-import-control-system/customs-information-paper-45-2015-import-control-system www.gov.uk/government/publications/customs-information-paper-46-2015-simplified-import-vat-accounting-scheme-authorisation/customs-information-paper-46-2015-simplified-import-vat-accounting-scheme-authorisation
6. And finally...,
6.1 Rangers and Jimmy Hill
For an Englishman, the long shadow of Jimmy Hill looms over the Rangers decision. The great TV football pundit was also famously instrumental in campaigning for the lifting of the salary cap that used to apply to professional footballers. The Rangers case is the logical end to the process: clubs pay them everything they can. That's what Rangers was trying to do. The part of the story that is left unexamined is that paying employees through trusts became inefficient from a corporation tax point of view in 2003, but Rangers pressed on. Why? It appears that it was less concerned about corporation tax deductions because making a profit in the first place was not necessarily the priority; clubs want trophies in the Boardroom and need the best players they can get. The paradoxical truth is that the more you pay footballers, the better they are.
Rangers were hungry for silver, not for gold.
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