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 [email protected] 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. www.smith.williamson.co.uk Smith & Williamson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Member of Nexia International. Registered in England at 25 Moorgate, London EC2R 6AY No OC369871. We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2015 16/03/2015 | Page 7 of 7 Our offices: London, Belfast, Birmingham, Bristol, Cheltenham, Dublin, Glasgow, Guildford, Jersey, Manchester, Salisbury and Southampton.
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