UK: Weekly Tax Update - Monday 16 January 2012

Last Updated: 19 January 2012
Article by Richard Mannion

1. General news

1.1. Finance Bill 2012

Finance Bill 2012 to be published on Thursday 29 March 2012.

1.2. Repayment claims for non self assessment taxpayers

The transitional exclusion to the reduction in the general time limit for claims for taxpayers outside the self assessment comes to an end shortly.

1.3. Cheating the revenue

David Perrin, Deputy Managing Director at Vantis Tax Ltd, has been found guilty of dishonestly submitting and dishonestly facilitating and inducing others to submit claims for tax relief which falsely stated values of shares which were gifted to charities.

HMRC's press release says that Perrin used a network of finance professionals to advise more than 600 wealthy clients to buy shares, worth a few pence each, in four new companies he had set up. He then listed the companies on the Channel Islands Stock Exchange and paid people money from an offshore account to buy and sell the shares simply to inflate their price.

The share owners then donated 329 million shares to various unsuspecting registered charities and tried to claim £70m tax relief on a total of £213m of income and company profits. This was based on the shares being worth up to £1 each, rather than the pennies they were originally bought for. &SubjectId=36

1.4. Contractual Disclosure Facility (CDF)

As part of the Government's commitment to tackle fraud, HMRC has announced that the new Contractual Disclosure Facility (CDF) will be launched on 31 January 2012, following consultation with interested parties in the autumn.

Under the new facility, HMRC will contact a taxpayer, in writing, to inform them that they are suspected of serious tax fraud, and offer them the opportunity to enter into a contract to disclose that fraud within 60 days. In return, HMRC will agree not to criminally investigate, removing the risk of prosecution by HMRC. The investigation will then be carried out using civil powers, with a view to a civil settlement for tax, interest and a financial penalty.

Those who choose not to make this commitment will face a full investigation by HMRC – in some cases a criminal investigation with a view to prosecution. And anyone who signs the contract, but does not go on to admit and disclose fraud, will also face the possibility of a criminal investigation.

Taxpayers who are not under investigation, but who want to admit to tax fraud, may fill out a form to voluntarily request that HMRC consider their suitability for a CDF contractual arrangement. HMRC still retains the discretion to decide which cases are dealt with civilly, and which are investigated with a view to criminal prosecution.

Further information on the changes is available on the HMRC website at

2. Private Clients

2.1. Use of Form A1 by artists performing in EU countries

The EU social security regulations provide for a system of forms so that employers and employees can demonstrate that they are entitled to operate the legislation of one Member State and be exempt from contributions under the legislation of another. Since 1 May 2010 Form A1 has replaced the E101 Form.

In September 2011 the NIC Office agreed with the International Artist Managers' Association (IAMA) that where an artist has a history of frequent EU performances that the A1 could be used for up to 2 years.

In a letter to IAMA of 3 December 2011, HMRC explain that when the holder of an A1 is performing (or working) at several venues (or addresses) throughout the EU, the A1 may;

  • not show the venues, promoter's details, or addresses, or;
  • may only quote the countries where the individuals will be working, or;
  • may state ''various''.

This is acceptable practice, and the certificate A1 is valid in all cases.

The A1 belongs to the holder; the original certificate should be kept by the holder. If a venue/promoter/employer require a copy of the A1 they should copy the original and return the original to the holder.

3. PAYE and Employment matters

3.1. PA Holdings and priority of taxation where an amount classified as dividends and earnings

We have been informed by the instructing solicitors (Speechly Bircham) that application was made on 4 January for leave to appeal the Court of Appeal decision in PA Holdings to the Supreme Court (see Tax Update 5 December 2011).

4. Business tax

4.1. Tax avoidance involving post-cessation trade relief

The government has issued draft legislation operative with effect from 12 January 2012 in relation to tax avoidance schemes designed to exploit post-cessation trade relief for offset against other income or capital gains. The legislation aims to prevent post-cessation trade relief being given where a qualifying payment or qualifying event arises from arrangements entered into for which the main purpose, or one of the main purposes, is to obtain a tax reduction.

4.2. CFC and Patent Box

Slides from presentations given by HM Treasury and HMRC providing updates on the Controlled Foreign Company (CFC) and Patent box legislative developments can be found at:

CFC slides:

Patent box:

4.3. Alternative Dispute Resolution trial for Small and Medium Enterprises

HMRC has issued the following press release.

"HMRC is extending the Alternative Dispute Resolution (ADR) trial which provides Small and Medium Enterprise (SME) customers with an alternative way of resolving tax disputes in compliance checks.

ADR involves an independent person from HMRC (called a 'facilitator'), who has not been involved in the dispute before, and who will work with both the customer and the HMRC case owner to try to broker an agreement between them. ADR has proven to be an effective way of resolving tax disputes in a quick and efficient way, not just for tax but in the commercial world as well.

In this stage of the trial, ADR will be available to SME customers, where a tax issue is in dispute, but before an appealable tax decision or assessment has been made by HMRC. Initially this stage of the trial will be limited to customers based in North Wales and North West England.

ADR covers both VAT and direct taxes disputes, and entering into the ADR process will not affect the customer's existing review and appeal rights."

4.4. Access to group consortium relief through a foreign link company

The First Tier Tribunal has referred questions to the CJEU on whether consortium relief in respect of a consortium company indirectly partly owned by a Luxembourg link company could be denied on the basis that it was not based in the UK as required by the legislation in ICTA s402 operative at the time (the legislation in CTA10 s133 was amended to include link companies in the EEA for accounting periods beginning on or after 12 July 2010).

Other questions were considered including:

  • To what extent does Article 26 of the UK/Luxembourg double taxation convention (the nondiscrimination article) impact upon the Applicants' claims for group relief? ("the DTC question")?

The Tribunal determined that the double tax treaty did give access to loss relief, concluding as follows:

(1) By reason of its inability to surrender its losses to the Applicants, the Surrendering Company was subjected to "any taxation or other requirement connected therewith" within the meaning of Article 26(4) of the DTC.

(2) That inability to surrender losses arose solely on the ground that the Surrendering Company was indirectly owned by a company (Investments) which was resident in Luxembourg, and not resident in the UK.

(3) Section 788 ICTA has the effect of enabling the Applicants to obtain relief for losses surrendered by the Surrendering Company (subject to [ICTA] s 410).

  • What is the impact, if any, of section 410 ICTA [on] the claims made for group relief in the periods up to 22 June 2005? ("the section 410 question").

Here the Tribunal concluded on the facts of this case that arrangements were in place for the transfer of the company that would prohibit relief for the period 7 November 2003 to 22 June 2005 inclusive.

5. VAT

5.1. Advocate General's opinion in the Littlewoods compound interest case

The Advocate General has delivered his opinion in the case of Littlewoods Retail and others (Case C-591/10), as follows:

1) Under European Union law a taxable person who has overpaid VAT which was collected by the Member State contrary to the requirements of EU VAT legislation has a right to reimbursement of the VAT collected in breach of EU law and a right to payment of interest on the principal sum to be reimbursed. The question whether the interest on the principal sum to be reimbursed is to be paid on the basis of a system of 'simple interest' or a system of 'compound interest' concerns the detailed rules governing the interest claim stemming from European Union law, which are to be determined by the Member States in accordance with the principles of effectiveness and equivalence.

2) If the referring court should conclude that the detailed rules governing payment of interest on VAT collected in breach of EU law at issue in the main proceedings are less favourable than the detailed rules governing similar domestic interest claims and that there is therefore a breach of the principle of equivalence, it is obliged to interpret and apply the national rules in such a way that interest is paid on the VAT collected in breach of EU law in accordance with the more favourable rules which apply to similar domestic claims.

As the earlier UK Court decisions have favoured simple interest, and if the ECJ judgement follows the recommendation of the Advocate General, this will mean it will not be possible to claim compound interest on overpaid VAT. r=&occ=first&cid=1112755

6. Tax Publications

NTBN200 - PAYE Settlement Agreements

A PSA could help reduce time taken for administration and generate goodwill among staff.

NTBN201 - Giving a share is good

Brief outline of the effects of the tax reliefs available on giving certain shares, unit trust units or an interest in land to a charity.

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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Richard Mannion
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