UK: Weekly Tax Update - Monday 12 September 2011

Last Updated: 16 September 2011
Article by Richard Mannion

1. General news

1.1. Autumn Statement

The Chancellor has announced that his Autumn Statement will be on Tuesday 29 November 2011. This will follow the Office for Budget Responsibility's (OBR) latest economic forecasts, which will be released earlier that day. The Autumn statement has replaced the pre-Budget report, introduced by the previous Government.

1.2. Changes to HMRC Charities registrations

Following the changes introduced in Schedule 6 to Finance Act 2010 HMRC announced in June 2010 it had updated its guidance on tax exemption for charities. Schedule 6 introduced a statutory definition of a charity for tax purposes. Following the changes HMRC Charities division will no longer comment or provide provisional clearance on draft charity documents, such as rules, memoranda or articles of association. Charities that must register with a charity regulator must do this before applying to HMRC for recognition as a charity for tax purposes.

Charities that are not required to be registered with an authority, for example those with income of less than £5,000, or those charities who are established in a country with no charity regulator, may apply directly to HMRC for recognition as a charity for tax purposes.

All charities wishing to apply to HMRC for tax exemption or to use the Gift Aid scheme, other giving schemes, and to be able to make claims for repayment of tax must apply using form ChA1. This form can be found at and guidance on completing the form can be found at

The form must be signed by a representative of the charity making the application (the 'authorised official' who is the person authorised to correspond with HMRC on tax matters), not the agent. The form must also contain details of between two and four of the charity's responsible persons (who must satisfy the 'fit and proper person' requirements). The authorised official can also be a responsible person.

Further guidance can be found at and

2. Private Clients

2.1. HMRC statement on Full Time Work Abroad

At the June 2011 meeting of the joint forum on expatriate tax and NICs, HMRC explained its approach to the residence status of individuals whose period of full-time work abroad is interrupted by events in the Middle East and the following statement appears as an annex to the minutes.

"In March of this year HMRC issued a statement clarifying the position on UK duties for those who are not resident because they are working full time abroad. We have now been asked about the impact of such duties on those who are not resident because of full time work abroad and who have returned to the UK temporarily because of the political situation in the Middle East.

The following applies to those people who have returned to, or remained in, the UK following FCO advice and relates to those countries where HMRC has confirmed that exceptional circumstances apply. This is Tunisia, Libya, Egypt, Syria, Bahrain and Yemen.

2010/11 – because the issues in those countries arose towards the end of the tax year, HMRC will accept that individuals who are temporarily brought back to the UK, and who have the intention of returning to their employment abroad, will not have their residence status affected by the duties undertaken in the UK during the period of exceptional circumstances.

2011/12 – given the much longer period that exceptional circumstances may potentially apply for this year, duties in the UK may mean that those affected are no longer working full time abroad. During 2011/12 we would expect that the statement on full time work abroad made on 31 March 2011 would in general apply to UK duties and that HMRC will therefore:

  • Normally not consider any case where UK duties were undertaken in fewer than 10 days
  • Look at other cases in light of their facts and circumstances

HMRC said that if anyone felt that this approach would lead to unfairness or hardship for people who have had to return temporarily to the UK because of the political situation abroad, they should let them know so that they can consider the position further."

3. Business tax

3.1. MJP Media Services Ltd and evidence to support loan relationships

MJP Media Services Ltd has lost its appeal to the Upper Tribunal on whether their particular intragroup arrangements came within the loan relationship regime. The First Tier Tribunal had rejected MJP Media Services appeal against HMRC's disallowance of a £6.69m partial loan waiver made on 26 March 2004, principally as there was insufficient evidence to demonstrate the transactions giving rise to the debt waiver amounted to loan relationship waivers.

The appeal to the Upper Tribunal was on the basis that:

  • The FTT had wrongly resorted to the 'burden of proof' argument to determine the issue (in fact this was only used in respect of two out of four of the transactions considered).
  • The criticism of MJP's failure to produce bank statements was unjustified.
  • The Tribunal was wrong to attach little or no weight to the evidence of the Head of Aegis's group tax.
  • The Tribunal incorrectly dismissed the documentary accounting evidence.
  • The Tribunal was wrong to say it was not their task to explain certain matters.
  • The Tribunal was not entitled to reach a conclusion other than that cash had passed from MJP to Aegis.

The Upper Tribunal found against MJP on all the above counts. In relation to the requirement to produce bank statements MJP maintained that HMRC had originally accepted the transactions were loan relationships and their first request for MJP to produce bank statements was made on 17 November 2009, more than six years after the date of the fourth transaction (which was September 2001).

In considering these claims, the Upper Tribunal considered that so far as timing was concerned, HMRC had opened the enquiry on 18 October 2006, within six years of the first transaction (September 2001) let alone the fourth. MJP should therefore have appreciated the need to produce the basic documentation relating to these transactions, such as bank statements, not long after that. It is true that, when the appeal to the First Tier Tribunal was launched, HMRC initially admitted that the Agreement constituted a loan relationship. But that admission was made on 15 May 2009. There is no evidence that bank statements were lost or destroyed during the period between 15 May 2009 and 17 November 2009 when HMRC specifically requested that they be disclosed. Furthermore, HMRC had made a request for disclosure of all relevant documents on 9 February 2009.

3.2. Authorised Investment Trusts and the pooling of feeder funds into a master feeder fund Structure

An authorised investment fund which satisfies a 'genuine diversity of ownership condition' is able to rely on a list of transactions ('investment transactions') which won't be treated as trading transactions for tax purposes (see part 2B of SI2006/964). The genuine diversity of ownership (GDO) condition requires that 3 conditions (A to C) must be met so that units in the fund are made available and marketed sufficiently widely to specified categories of investor. Property Authorised Investment Funds can meet the GDO conditions if they have feeder funds and the conditions are met in relation to the feeder fund documents and the intended investors of the feeder funds.

Changes are to be made that:

  • widen the ability to meet the GDO conditions by taking account of investors in feeder funds, from PAIFs to any AIF that has investors which include a unit trust scheme, an offshore fund or another authorised investment fund; and
  • disapply the charge to tax where AIF's have interests in non-reporting offshore funds (NROF) where an offshore income gain arises on an investment in a NROF held in order to track a qualifying index and the following conditions are met:

a) accordance with either the authorised investment fund's prospectus or the instrument constituting the authorised investment fund, the aim of the authorised investment fund's investment policy is to replicate the performance of a qualifying index;

b) the main purpose of the investment in the non-reporting fund is to represent the composition of the qualifying index, and;

c) capital and income returns of the authorised investment fund replicate as closely as practicable the returns of the investments comprised in the qualifying index.

This is intended to aid compliance with the offshore funds rules for an AIF that tracks a recognised market index that may include investments in offshore funds.

An index is a qualifying index if satisfies the following three requirements:

a) it is based solely on the value of securities listed on a recognised stock exchange or admitted to trading on a regulated market;

b) either a competent authority for the United Kingdom or an authority responsible for regulating offshore funds recognises the index on the basis that;

i) its composition is sufficiently diverse,

ii) it represents an adequate benchmark for the market to which it refers, and

iii) it is published in such a way that it is widely available, and;

c) it is calculated and published by a body which is managed independently from the management of the authorised investment fund. c) The changes will have effect in relation to corporation tax for:

  • income arising in accounting periods commencing on or after 1 October 2011;
  • for chargeable gains in relation to disposals made on or after 1 October 2011.

In relation to Capital Gains Tax the changes will take effect for disposals made on or after 1 October 2011.

3.3. Written Ministerial Statement on the release of the Scott Undertaking

The Scott undertaking arose from an investigation in 1992 into the use of HMRC powers to carry out a VAT audit as a means for investigating non-tax matters. In the case examined (Matrix Churchill) it was used to determine whether the company was involved in the supply of components for weapons. In June 1996 HMRC reported to parliament that it would voluntarily accept that its powers would not be used for covert investigations into non-tax matters. This became known as the Scott Undertaking.

The Exchequer Secretary to the Treasury (Mr David Gauke) informed Parliament that the Scott Undertaking is withdrawn with effect from 5 September 2011. This is because the Police Act 1997 regulatory regime now in place provides a legal framework for the type of covert activity identified in the 1992 investigation, and this is compliant with human rights legislation. He commented that the process is sufficiently robust to ensure that such covert investigation activity is only used in the most serious cases when the tests of necessity and proportionality are met. Any action is authorised by a designated authorising officer and the activity then approved by the Office of Surveillance Commissioners.

3.4. Updates to HMRC manuals

HMRC has updated guidance in its manuals as follows:

Corporate Finance Manual

CFM33122 Guidance on the conditions at CTA09/S311 (amounts not fully recognised for accounting purposes).

CFM39200+ Guidance on the new derecognition anti-avoidance legislation for CTA09/Part 5 introduced by Finance Act 2011.

CFM56005 New page providing an overview of anti-avoidance rules for derivative contracts regime.

CFM56112+ Guidance following new derecognition anti-avoidance legislation for CTA09/Part 7 introduced by Finance Act 2011.

CFM77500+ Guidance on the new group mismatch schemes legislation at CTA10/S938A to S938N.

CFM90290 Minor change to guidance on meaning of corporate entity for debt cap purposes.

Employment Income Manual

A number of updates on childcare vouchers and related pages

3.5. Paper on Scottish Corporation Tax

A paper has been presented to the UK Government by the Scottish Government calling for discussions on full devolvement of corporation tax raising powers. The paper contains the following comment on the potential impact of changes in corporation tax rate:

The initial modelling work focuses on pre-announcing a reduction in corporation tax in Scotland equivalent to a fall from 23% to 20% (i.e. 3% points below the rate planned to be introduced by the UK Government in 2014-15) under a balanced budget scenario. This captures the impact on all tax revenues in Scotland. Under these assumptions, the long-term results from the initial modelling work indicates the following potential economic impact:

  • An increase in the level of Scottish GDP by 1.4% after 20 years;
  • Overall employment in Scotland will increase by 1.1% (equivalent to around 27,000 jobs) after 20 years;
  • An increase in overall investment in the Scottish economy by 1.9% after 20 years; and
  • A boost to Scottish exports to the rest of the UK by 1.4% and to the rest of the world by 1.3% after 20 years.

Further modelling highlights that the optimum way to do this is to pre-announce the reduction to occur a number of years prior to implementation.

3.6. Withdrawal of consultation on double tax treaties anti-avoidance

Exchequer Secretary to the Treasury (Mr David Gauke) issued an announcement on 9 September regarding the consultation and technical note on avoidance and double tax agreements (DTA) issued on 1 August 2011. He indicated the responses so far received have made it clear that the proposed legislation, as drafted, could cause significant uncertainty for compliant UK businesses and overseas investors about its intended scope and its practical effect. The Government has therefore decided not to proceed further with the consultation on the proposed legislation and will not include it in Finance Bill 2012.

He did however indicate the Government will continue to challenge specific arrangements that clearly seek to abuse provisions in a DTA.

4. VAT

4.1. VAT notes 3 2011

HMRC has published VAT notes 3 2011 giving information about recent VAT developments. Included in the notes are the following:

  • A reminder that from April 2012, virtually all VAT businesses will have to submit their VAT returns online and pay the VAT due to HM Revenue & Customs (HMRC) electronically. This affects businesses registered for VAT before 1 April 2010 with a VAT exclusive annual turnover of less than £100,000.
  • A note that following recent tribunal decisions HMRC has decided that all users of the VAT flat rate scheme can exclude interest from their flat rate turnover.
  • From April 2012 it will no longer be possible to submit paper intrastat returns and the monthly time limit for submitting intrastat declarations will be brought forward from the end of the month after the month in which there is EU trade to declare, to 21 days after the end of that month.
  • A note about the VAT treatment of the services of insolvency practitioners in connection with individual voluntary arrangements (see item 4.6 of Informal, 15 August 2011). 76

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Richard Mannion
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.