UK: Tax Update – 18th April 2011

Last Updated: 21 April 2011
Article by Richard Mannion

1. Private Clients

1.1 Class 1A NICs refunds where offshore property owned by a company

HMRC has issued the following press release:


The Finance Act (FA) 2008 introduced new provisions to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA): sections 100A and 100B. These provisions effectively provide an exemption from the living accommodation tax charge where living accommodation outside the UK is provided by a company for a director or other officer of the company (D) or a member of D's family or household where all of the following apply:

  • the company is wholly owned by D or D and other individuals (and no interest in the company is partnership property),
  • the company's main or only asset is a relevant interest in the property
  • its only activities are ones that are incidental to its ownership of that interest

The new legislation was treated as having always had effect. In other words, the new legislation meant that since the coming into force of these provisions in the Finance Act 2008 a charge to Income Tax on the benefit provided through a qualifying overseas holiday home has never existed. As a consequence any liability to Class 1A National Insurance contributions, which was due on an amount equivalent to the general earnings charge in ITEPA, was also removed from 21 July 2008. At that time HMRC advised that refunds of tax could be claimed on the basis that the living accommodation tax charge was never intended to apply in these circumstances and the new legislation is treated as always having had effect.

However the same wasn't the case for Class 1A National Insurance contributions (employer only). In the case of overseas holiday homes, it remained the case that for the years prior to the enactment of Finance Act 2008, Class 1A National Insurance contributions remained due on the benefit in kind chargeable to Income Tax. HMRC published Regulations on 17 March 2011 that align the National Insurance contributions position with that for Income Tax - The Social Security (Contributions) (Amendment No. 3) Regulations 2011 (SI 2011/797). This means that it is now possible to claim a refund of Class 1A National Insurance contributions in the same way as it was possible for Income Tax. A refund of Class 1A National Insurance contributions can be claimed where contributions have been paid and an officer of HMRC is satisfied that the contribution was paid on the same amount treated as earnings that are now exempt under the relevant legislation in ITEPA.


Any individual who can show that they have paid Class 1A National Insurance contributions for any year before 2008-09 on the benefit of living accommodation which qualifies for exemption in accordance with sections 100A and 100B of ITEPA should write giving the information listed below to:

HM Revenue & Customs

Customer Operations PAYE Employer Office


Chillingham House

Benton Park View


Newcastle upon Tyne

NE98 1ZZ

Information to be provided:

  1. name, address, National Insurance number and/or Unique Taxpayer's Reference
  2. if agent acting – agent's name and address
  3. details of the living accommodation outside the UK - address, type of property, uses made of the property
  4. details of the company through which living accommodation outside the UK is provided including name, address, nature of company/entity, place of incorporation, ownership and activities
  5. an explanation of why they consider that the exemption applies
  6. the years for which Class 1A National Insurance contributions have been paid on the benefit of this accommodation
  7. evidence that the benefit of the accommodation in question has been taxed – acceptable evidence would include for each year copies of one or more of the following documents which clearly show the benefit as taken into account as taxable income:
  • assessments/self-assessments
  • P11Ds and P11D(b)
  • correspondence with HMRC or the former Inland Revenue

Note that the above list is not intended to be exhaustive. HMRC will consider any other documentary evidence in the individual's possession that the individual believes can show that the benefit has been taxed as earnings and Class1A National Insurance contributions has been paid on the same amount treated as earnings.

Time limit for making a refund claim

Any application for a refund in these cases must be made in writing on or before 6 April 2015.

HMRC will take action to identify those customers who have previously claimed refunds of tax and Class 1A National Insurance contributions and arrange to refund the Class 1A National Insurance contributions already paid. However, if you wish to submit details of your original claim again please quote any reference number that you were given previously and send it to the above address.

1.2 Collecting debts through PAYE

HMRC has issued a discussion paper, draft legislation and Tax Information and Impact Note covering a proposal to increase the coding out limit for PAYE income/ self assessment underpayments from £2,000 to £3,000.

It also includes the proposal that HMRC will be able to use the coding out procedures to collect almost all types of tax debt. Finance Act 2009 widened the scope that HMRC has for coding debts out. Section 110 and Schedule 58 to Finance Act 2009 inserted provisions into section 684 ITEPA to enable HMRC to collect "relevant debts" through the PAYE system. "Relevant debts" are explained at section 684(7AA) as

  1. a sum payable by the payee to the Commissioners under or by virtue of an enactment, other than an excluded debt, and
  2. a sum payable by the payee to the Commissioners under a contract settlement."

An "excluded debt" is defined at section 684(7AB) ITEPA and includes tax credit debts. So if HMRC propose collecting a tax credit debt through the PAYE code, the claimant has to be given the opportunity to object to that action.

2. IHT & Trusts

2.1 HMRC Trusts & Estates NewsLetter - April 2011

The latest Trusts and Estates newsletter has been published. It covers IHT time limits; DOTAS; employee benefit trusts; capital gains valuations; IHT charges on pensions; excepted estates; adjustments between settlors and trustees; the 2010-11 Trust & Estate Tax Return; excepted transfers and settlements; the Test- Achats case and discounted gift schemes; the IHT incentive to encourage charitable legacies; correcting defective oaths and filing affidavits; the settling service; and non-contentious probate fees.

Business tax

3.1 TC01041: Ian Mitchell – self employment or employment

Employment income -- whether surgeon assisting consultant cardiac surgeon during operations was an employee or self-employed -- appeal allowed

Mr Mitchell is a consultant cardiac surgeon who appealed against a decision and determinations for the purposes of, respectively, national insurance contributions (NICs) and PAYE that Dr Bhimagunta - who assists Mr Mitchell in operations on Mr Mitchell's private patients - is Mr Mitchell's employee (or employed earner for NIC purposes).

The First Tier Tribunal examined the various tests or indicia control: mutuality of obligation, substitution, whether in business on own account, the influence of surrounding terms, intention of the parties and then looked at the whole picture.

Overall, the First Tier Tribunal considered that none of the tests set forth in the authorities provided a compelling answer in this appeal. On balance, it reached the conclusion that the very limited nature of the engagements, their ad hoc and sporadic occurrence, the fixed-price paid per operation, when taken together with the very skilled professional services which Dr Bhimagunta was required to supply indicated a contract for services rather than a contract of employment. In a borderline case such as this, it believed that it could take into account the fact that both parties specifically intended that Dr Bhimagunta would be self-employed. Usually, the intention of the parties will not be determinative, but in cases of doubt such as this it believed that the intention of Mr Mitchell and Dr Bhimagunta can properly be taken into account.

Accordingly, it considered that Dr Bhimagunta was self-employed as regards private operations in which he assisted Mr Mitchell during the relevant periods. It therefore allowed the appeal.

3.2 HMRC Tax Compliance Risk Management Manual

HMRC has substantially revised the Tax Compliance Risk Management manual.

TCRM1000 ( ) Executive summary

TCRM2000 ( ) Managing our relationship with large business customers

TCRM3000 ( ) The Business Risk Review (BRR)

TCRM4000 ( ) Risk Assessment

TCRM5000 ( ) Risk Working

TCRM6000 ( ) Templates

4. VAT

4.1 VAT paper return and payment deadlines

Anyone still filing paper VAT returns, then thanks to Kate and Will's nuptials on 29 April, for which we should all be grateful for an extra bank holiday, for VAT periods ending 31 March paper VAT Returns must be received by HMRC no later than the last working day of the month on Thursday 28 April. Also, cheque payments must clear HMRC's account by the same date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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