UK: Weekly Tax Update - Monday 30 January 2012

Last Updated: 6 February 2012
Article by Richard Mannion

1. General news

1.1. EC reference to ECJ concerning the UK's restriction of the limitation period in old actions for mistake of law to direct tax

The European Commission has decided to refer the United Kingdom to the EU's Court of Justice for abolishing the "remedy for repayment of taxes paid in mistake of law" without proper transitional rules. On 30 September 2010 the Commission formally requested the United Kingdom (IP/10/1251) to ensure compliance with the EU rules, but the latter refused to change its law. The September 2010 request took the following form:

The European Commission has formally requested the United Kingdom to change its Finance Act 2007 to ensure that the abolition of the "remedy for repayment of taxes paid in mistake of law" is subject to proper transitional rules. Under EU law, the reimbursement of taxes paid in violation of EU rules should be granted according to the national rules on internal tax reimbursements and should not be made impossible or excessively difficult. A retroactive limitation of the rights of taxpayer in this respect contravenes this principle. The request of the Commission takes the form of a 'reasoned opinion', the second step of an EU infringement procedure. In the absence of a satisfactory response within two months, the Commission may refer the United Kingdom to the EU's Court of Justice.

The UK's Finance Act 2007 [FA07 s107] retroactively abolishes one of the remedies used by taxpayers seeking reimbursement of taxes paid in breach of EU law, thereby preventing the exercise of rights conferred by EU law in certain cases. This measure seems to exceed the limits of national procedural autonomy stemming from Article 4(3) of the Treaty on the European Union.

Since the limitation period introduced does not provide for any proper transitional rules (except in certain circumstances), it is therefore almost impossible to exercise the rights conferred by EU law.

Finance Act 2007 s107 excluded s32(1)(c ) of the Limitations Act 1980 (extended period for bringing action in case of mistake) from any action brought before 8 September 2003 for relief from a mistake of law relating to tax under the care of HMRC.

Since the limitation period introduced does not provide for any transitional rules (except in certain circumstances), it is therefore almost impossible to exercise the rights conferred by EU law in the area of direct taxation. This is particularly true for cases that were initiated before 2007 concerning taxes paid more than six years ago. guiLanguage=en

1.2. The Government's power to retroactively modify the rate of feed in tariff

The Court of Appeal has upheld a 21 December 2011 decision at the High Court that the government had no power to retroactively reduce the tariff rate to be paid in respect of certain solar PV installations.

An October 2011 consultation proposed the tariff rate to be paid in respect of solar PV installations which become eligible for payment on or after 12 December 2011 should be reduced on 1 April 2012. The rate is fixed by reference to the year in which the installation becomes eligible, which at the time of this appeal (to the High Court) is 1 April 2011 – 31 March 2012, (known as "FIT Year 2"). But the proposal is to vary and reduce that rate at the end of the current year, not merely in relation to installations becoming eligible after the modifications come into effect but also in respect of those which became eligible in the three and a half months before the modifications are brought into effect. It should be stressed that it is proposed that those installations which became eligible on or after 12 December 2011 will receive the higher FIT Year 2 tariff until the modification comes into effect on 1 April 2012, but thereafter they will receive the new lower rate.

Lord Justice Moses (with whom Lord Justices Richards and Lloyd agreed) concluded the Government had no power to introduce a modification which reduced a rate fixed by reference to an installation becoming eligible prior to the modification. However he differed with the High Court (Mitting J) as to the reason.

I do not base my decision on the basis that changes by reference to a date earlier than 1 April 2012 are not calculated to further the statutory purpose. It is unnecessary to expand on my reasons for rejecting that approach. As I have already indicated, I can well understand why the Secretary of State would seek to prevent a surge in small solar PV systems prior to the introduction of a modification which reduces the Tariff rate. I am not sure it would be open to a court to say that that is not calculated to further the statutory purpose. But that is not the question. The question is whether the Secretary of State has power to do so. In my view, he plainly has no such power. Mitting J's second reason was expressed as follows:-

"The whole tenor of the Scheme is prospective. I cannot discern in it a clear Parliamentary intention to permit the Secretary of State to make a modification which has a significant adverse impact on those proposing to install small-scale assistance before the date on which the modification is made and comes into effect."

The quest, in my view, is to identify a clear Parliamentary intention to take away an existing entitlement to a fixed rate of return for capital investment incurred by a small-scale low-carbon generator. The question, I respectfully suggest, is not whether the proposed modification may have a significant adverse impact on those proposing to install small solar systems once the proposal was announced, but rather whether Parliament conferred a power to make a modification with such a retrospective effect. It did not. In these circumstances, it is not necessary to rule on the arguments concerning abuse of power raised in the Respondents' Notice. In the light of the terms of Mitting J's conclusion, I would grant permission. But I would refuse this appeal.

2. Private Clients

2.1. Self Assessment deadline - late filing penalty

HMRC has announced that, because of the strike action planned by HMRC staff on 31 January, no penalties will be charged for the late filing of 2010/11 tax returns provided they are submitted electronically before midnight on 2nd February.

The press briefings were related to the acceptance of reasonable excuse appeals, against late filing penalties, and a blanket late filing penalty amnesty to avoid the costs and time in looking at individual cases.

The note that then appeared on the HMRC website said that "The SA deadline remains midnight on 31 January. But HMRC will treat all returns that come in by midnight on 2 February as though they were submitted by 31 January. No customer will have to pay interest on payments due on 31 January that are paid on 1 or 2 February."

HMRC has confirmed that it will stand by this statement, which will mean that although a return submitted on 1 or 2 February is late, HMRC will treat it as filed on time so that, not only will no penalty arise, the return enquiry window is not extended. This goes beyond what was said in the press briefings.

This extension beyond the normal filing date of 31 January should be viewed with care because it only applies for the purposes of the late filing penalty and the return itself. There are some time critical claims and elections that might be included in a tax return, such as the carry-back gift aid relief, which have to be made by the normal filing date of the return which are not being extended.

It should be noted that, because of a decision made by the Special Commissioners in the case of Steedon v Carver heard in 1999, the deadline for avoiding a penalty for filing a self assessment return late has in practice always been 1 February. In other words it appears that for this year only this deadline has been extended by a further 24 hours.

2.2. Resident or non-resident

In the case of Dr Paul Broome v Revenue & Customs [2011] UKFTT 760 the First Tier Tribunal had to consider whether Dr Broome was resident in the United Kingdom at any time during the tax year ended 5 April 2001 and whether Dr Broome was chargeable to capital gains tax on the disposal of two properties during the tax year ended 5 April 2001.

Dr Broome disposed of two properties in UK in 2000/1 (in May 2000 and January 2001 respectively), but failed to declare the gains on his UK tax return. HMRC issued a jeopardy assessment and Dr Broome appealed on the grounds that he had ceased to be resident in UK prior to 5 April 2000.

Dr Broome was resident in the UK until leaving in 1977 to work in Saudi Arabia for a temporary period. He subsequently also worked in Iran and Switzerland. He visited the UK intermittently during 1978 and 1979 before returning to live and work in the UK in September 1980. He married in 1989 and all tax returns after 1992/93 showed his address as 125 Valley Road, Chorleywood, Rickmansworth, Herts being the home of Dr Broome, his wife and their children.

In February 1998, Dr Broome and Mrs Broome separated and on 12 July 1999 were divorced. Thereafter, Dr Broome continued to live at 125 Valley Road, Chorleywood.

Dr Broome said that following the divorce he decided to live in France. He agreed to purchase a property in Provence in October 1999, committing himself to the transaction by payment of a €325,000 deposit on 1 November 1999. It was at this stage that he considered he had left the UK permanently. Shortly after that he moved to Spain and then the United States and sometime later returned to France.

Dr Broome agreed a sale of 125 Valley Road, Chorleywood subject to contract and subject also to completing certain unfinished building works. In the event the sale did not proceed.

Dr Broome said that he went to France towards the end of March 2000 before the start of the 2000/1 tax year in order to prepare for legal completion of the French property. He also opened a French bank account on 24 March 2000, which he said required his physical presence in France. Eventually on 31 March 2000 completion of the French property was formally fixed for 12 April 2000.

Dr Broome's furniture and personal possessions at 125 Valley Road, Chorleywood were put into storage on 25 May 2001. On 1 June 2001 the property was let out to a tenant. Dr Broome said that 25 May 2001 was the last time he stayed at the property when he was supervising the storage of his furniture. He purchased a property at Sandy Lodge Road, Moorpark, Rickmansworth in August 2000 to enable him to spend time nearer to his children.

Dr Broome submitted a self assessment return for the tax year ended 5 April 2000 on 31 January 2001. In the reply to question nine of the return Dr Broome stated that he was not claiming non-resident status. His address was shown as being in France.

He submitted his return for the tax year ended 5 April 2001 on 16 January 2002. The return showed his business address as a UK PO Box in Rickmansworth, Herts. The reply to question nine of the return again stated that Dr Broome was not claiming non-resident status. An additional page by way of amendment to the 2000/01 return claiming non-resident status was not received by HMRC until 13 September 2005.

Dr Broome sold his French property on 24 June 2005. The French revenue authorities said that Dr Broome, when declaring the gain on the disposal of his French property, declared that he considered himself to be a non-resident for the purposes of French regulations in force and that his primary residence was in England. The French Revenue authorities stated that Dr Broome was unknown to them, and that he did not pay any income tax in France whilst resident there.

Dr Broome did not dispute that he returned to the UK on various short visits during the 2000/01 tax year. The records show that he left the UK on 29 March 2000 and returned on 27 April 2000 and that he left again on 29 April 2000. A schedule of his visits to the UK showed that in 2000/01 he spent a total of 19 whole days in the UK, compared to 103 whole days in the previous year from October 1999 until 5 April 2000. In the years that followed, Dr Broome spent 27 whole days in the fiscal year 2001/02, 41 whole days in each of 2002/03 and 2003/04 and 36 whole days in 2004/05. He therefore spent the greater part of his time out of the UK after April 2000. HMRC argued that none of the documents or other evidence produced by Dr Broome demonstrated that he was not resident in the United Kingdom after 5 April 2000.

  • Dr Broome appeared on the UK voting register as resident at 125 Valley Road up to and including 2001. His property at 125 Valley Road was available as accommodation until it was let out on 1 June 2001.
  • Dr Broome's French bank account was opened with Credit du Nord on 24 March 2000 and closed on 30 April 2006. It referred to the 'holders address on 17 March 2001 place of residence 125 Valley Road, Chorleywood United Kingdom..'
  • Although Dr Broome purchased the property in France on 12 April 2000, he was only able to provide copies of utility bills from May 2000 and a French television licence for the period 1 September 2000 to 31 August 2001.
  • Dr Broome provided evidence that he had been assessed to property tax in France (Taxe Fronciere) as the owner but the tax bill was addressed to Dr Broome at 125 Valley Road, Chorleywood, and the assessment did not include a declaration that the French property was Dr Broome's 'principal private residence allowance'.
  • The documentation for the sale of the French property said 'with regard to the Seller. He considers himself non-resident in the sense of French regulations currently in force, his primary residence being in England'
  • None of Dr Broome's post-2000 self assessment tax returns contained non-residency claims, and claims for 2001 onwards were not made until March 2007 even though HMRC first wrote to Dr Broome regarding this matter in October 2004.
  • There was no evidence which showed that Dr Broome became resident in Spain. Although Dr Broome also owned a property in Spain and spent a considerable amount of his time there between 2002 and 2005, he was not registered with the Spanish tax authorities
  • There was a lack of evidence to confirm any of the dates given by Dr Broome as the date he permanently left the UK.
  • Dr Broome purchased a property at Sandy Lodge Road, Moorpark in August 2000 in order to be nearer to his children and clearly envisaged spending time in the UK during 2000/01.

HMRC contended that on a balance of probabilities, Dr Broome was resident in the United Kingdom during the year 5 April 2000 to 5 April 2001 and that accordingly capital gains tax was due and payable on the two properties sold in that year.

Dr Broome argued that he was not resident for the whole of the tax year ended 5 April 2001, having left the UK permanently to reside abroad on or around 30 March 2000 and severing social and family ties:

  • From 30 March 2000 125 Valley Road was unoccupied and then let out from 1 June 2001 onwards, as declared in all subsequent tax returns.
  • Any entry on the electoral register would have been a continuation from the time his ex-wife made returns until the tenants themselves made one.
  • It is not necessary to own a foreign property in order to relinquish UK residency and it was unreasonable and unrealistic to expect him to produce utility bills from the time he first took occupation of the French property some five or more years after the event.
  • The capital gains tax declaration from the sale of the French property in June 2005 was completed by the conveyancer in France in his absence and without reference to him on the point of residence. By then he was non-resident in France as it was spending the majority of his time in Spain.
  • He had been working on a research project for several years, although no income had been generated from it and he was effectively unemployed. Had he been UK resident he would have registered for UK benefits.
  • He did not wish to become fully resident in France because French taxation law states that a resident of France must pay tax on worldwide income.
  • It is only necessary to register with the Spanish authorities if one spends more than 182 days in Spain and therefore he held off making a final 'country of residence decision' until the outcome of this appeal was known.

The Tribunal considered the various tests for deciding residence status as follows:

  • An individual is liable to capital gains tax only if he is resident in the UK in the year of assessment or any part of the year of assessment in which the chargeable gain accrues to him or if he is ordinarily resident in the UK during such year of assessment (TCGA 1992 s 2(1)).
  • Dr Broome was ordinarily resident in the UK. The onus of proof was therefore with him to show that he left the UK and that he was resident outside the UK for the whole of the tax year ended 5 April 2001.
  • Evidence of intention is required to support a claim for non-resident status. No particular period of absence or presence in the UK is prescribed by statute for the purpose of establishing actual residency and the regularity and frequency of return visits are facts to be taken into account, together with family and business ties, the nature of visits and connections with the UK in general. The availability of living accommodation in the UK is a factor but not a deciding factor to be borne in mind. Equally the fact that an individual has a home elsewhere is not conclusive evidence of residency as a person may have accommodation in more than one country [Levine v IRC (1928) 13 TC 486].
  • It would be difficult to show that UK residence has been lost unless a clear and definite change in the taxpayer's pattern of life had occurred in the process of leaving the UK. The principal point is that an individual must show that his move abroad reflected and evidenced a settled intention to become nonresident.
  • Connections to the country in which the individual claims to be resident must also be present.
  • To establish that the individual has moved abroad permanently and is no longer resident or ordinarily resident he must provide evidence of his intentions in that regard. IR20 provides an example that an individual may acquire accommodation abroad to live in permanently and if he continues to have property in the UK for his use, the reason for doing so must be consistent with his stated aim of living abroad indefinitely. IR20 says that any subsequent returns to the UK had to be no more than 'visits'.
  • IR20 referred to the rule that an individual would remain resident and ordinarily resident unless any visits during the period of absence amount to less than 183 days and an average of 91 days per tax year over a period of four years - s336 ICTA 1988. The rule was however irrelevant in this case as it only applied once it had been established that the taxpayer had relinquished his UK residency. The rule was there to determine whether an individual who had already divested himself of UK residency but who returned to the UK on visits nonetheless remained non resident.
  • If an individual leaves or arrives in the UK part way through the year, IR20 guidance stated that strictly he is taxed as a UK resident for the whole of a tax year if he is resident in the UK for any part of it, but if he arrived or left part way through a tax year, the year could by concession (extra statutory concession A11) be split. However, the Tribunal had no jurisdiction over whether or not HMRC should apply the concession insofar as it related to chargeable gains.

The Tribunal concluded that that Dr Broome was resident in the United Kingdom at some stage during the tax year ended 5 April 2001 and was assessable to CGT. The judges said that there was a significant amount of evidence to show that Dr Broome intended to leave the UK for an indefinite period. The issue was however whether he intended to, and did in fact, relinquish his UK residency before the start of the 2000/01 fiscal year. In that respect it is necessary for Dr Broome not only to have loosened his ties with the UK but also to have a settled intention in that regard [Levine v Commissions of Inland Revenue] and to have established a real and closer connection to his new country of residence [Goodwin v Curtis (1998) 70TC 478,510].

The decision makes reference to the following points:

  • Having left the UK, Dr Broome gave 125 Valley Road, Chorleywood as his postal address in post-2000 tax returns, in his French property tax declaration, for his French bank account and for other purposes. This was persuasive but not conclusive evidence that he had not severed ties with the UK.
  • He did not include a declaration in his tax returns that the French property was his principal private residence.
  • There was no evidence that Dr Broome became resident in France. Dr Broome's evidence that to do so would have resulted in him paying tax on his worldwide income, and that he had decided to sell the French property not long after buying it, was not helpful to his claim.
  • Significantly, none of Dr Broome's post-2000 self assessment tax returns contained any non-residency claims. In particular, in answer to the question 9 "Are you claiming that you were not resident or not ordinarily resident or not domiciled in the UK or dual resident in the UK and another country for all or part of the year?" Dr Broome answered "No".
  • Dr Broome did not submit a completed form P85 ('Income Tax Claim when leaving the UK') until 14 July 2003.
  • Dr Broome was unknown to the French Revenue authorities. He did not pay any income tax in France during his stay there.
  • There was no evidence that he became resident in Spain or registered with the Spanish tax authorities.
  • Physical presence in a particular place does not necessarily amount to residence [Goodwin v Curtis].

Taking into account the amount of time Dr Broome spent in France, the nature of his presence there (unconnected with any contract of employment and with no expectation of continuity), indicated that although living in France, he remained resident in the UK.

  • On a balance of probabilities there was no evidence that there was a settled purpose to the period of time Dr Broome spent in France and taking all the evidence into account it was no more than a period of transition during which for at least part of the tax year ended 4 April 2001 he remained resident in the UK.

This case once again underlines the need to demonstrate a clean break from UK in support of a claim to nonresident status under the existing rules. It also emphasises the need for the promised statutory residence test with clear time-based rules for deciding an individual's status.

2.3. Reasonable excuse for late payment of tax

Where tax is paid more than 30 days late, a 5% surcharge will be imposed unless the taxpayer can show that they had a reasonable excuse for the late payment.

HMRC has become notorious for its unsympathetic interpretation of the 'reasonable excuse' rule, notwithstanding that its approach has been criticised in a number of cases heard by the First Tier Tax Tribunal.

This is what HMRC say on their website:

"Examples of reasonable excuse

There are no hard and fast rules, but some examples where HMRC may agree you have a reasonable excuse are:

  • life-threatening illness, for example a heart attack that prevents you dealing with your tax affairs;
  • the death of a partner shortly before a payment or tax return deadline;<
  • unexpected or unforeseeable postal delays;
  • important documents lost, through theft, fire or flood, that can't be replaced in time;
  • late receipt of your online Activation Code, User ID or password even though you asked for them; before the tax return deadline.

Examples of unacceptable excuses

HMRC will not usually accept you have a reasonable excuse if:

  • you don't have enough money to pay the tax due;
  • you relied on another person to send your return and they didn't;
  • you didn't receive a reminder for your tax return or payment;
  • you didn't get your online Activation Code, User ID or password in time, but you didn't ask for them until after the tax return deadline."

Judges in the First Tier Tribunal have ruled that "an excuse is likely to be reasonable where the taxpayer acts in the same way as someone who seriously intends to honour their tax liabilities and obligations would act" and the following have been accepted as reasonable excuses:

  • a lack of funds where the circumstances that caused the lack of funds was unexpected, such as the impact of the recession on a business' cash flow;
  • reliance on an agent to submit a form which went missing in the post;
  • a misleading message from HMRC which suggested a form had been satisfactorily submitted electronically;
  • taxpayer posted his return four days before the deadline but the return arrived late;
  • unable to access the HMRC system to file a return and Helpline did not respond to calls for help.

However, a recent case heard by the First Tier Tribunal underlines just how hard-hearted HMRC's attitude is when considering claims to reasonable excuse. Evidence was given that Ms Cornes had taken a 50% pay cut for the previous two years as a result of the recession. Her husband was an alcoholic who had lost his livelihood three times in the previous three years. The couple had debts of approximately £85,000 which were being repaid under a Debt Management Plan. The couple separated in April 2011, but throughout this period, the Appellant made all efforts possible to manage the separation, her 2 children, working full time and controlling the debt.

Ms Cornes was unable to pay the tax liability which fell due on 31/1/11 and HMRC imposed a 5% surcharge. HMRC argued that there was no reasonable excuse for the failure to pay on time and its representative told the tribunal that hardship or distress was not a consideration that HMRC could take into account. They added that Ms Cornes should have had an agreed 'time to pay' arrangement in place before 28 February 2011, the trigger date for the surcharge.

Ms Cornes had in fact made a request for time to pay on 23 February 2011 and was told that HMRC would contact her for further discussion. In the event HMRC did not contact her until 29 March 2011. The Tribunal found that the Ms Cornes made all reasonable attempts to arrange a time to pay agreement prior to the trigger date and could not be held accountable for the delay in HMRC attempting to contact her.

Moreover the Tribunal found that the separation of Ms Cornes and her husband, taken together with her husband's alcoholism, constituted a reasonable excuse. "Separation and the no doubt numerous difficulties arising as a result, not least housing and childcare, is an unforeseeable difficulty and one outside of the sole control of the Appellant. Such events are also not easily resolved overnight. The Tribunal finds that the Appellant had acted as a prudent and diligent taxpayer in attempting to agree a time to pay arrangement prior to the surcharge trigger date".

So common-sense prevailed in the Tribunal, but how did HMRC allow this case to get that far?

This seems to be yet another demonstration that HMRC do not have an adequate filter in place to prevent cases that they have no hope of winning from proceeding to the Tribunal. It would be interesting to know how much public money was wasted on this case, but that will be nothing compared to the unnecessary anxiety caused to Ms Cornes.

2.4. Non-UK resident athletes competing at the Glasgow Commonwealth Games.

HM Treasury has announced that athletes resident outside of the UK who compete at the Glasgow 2014 Commonwealth Games will be exempt from income tax. The decision mirrors a similar exemption in place for London 2012.

  • This exemption will include any appearance fees, plus the proportion of worldwide endorsement income related to the Glasgow 2014 appearance that HMRC would normally tax. The sportsperson will remain liable to tax in the country in which they are resident.
  • The exemption is for competing non UK resident athletes only. Supporting personnel and team officials will be subject to UK income tax, should they have any UK taxable income.
  • UK resident athletes will pay income tax in the UK as normal.

3. PAYE and Employment matters

3.1. Disproportionate penalties

Compass Royston Travel Ltd (TC/2011/06312) made payments of PAYE late and HMRC charged penalties totaling £14,930. The company appealed on the grounds firstly that it had a reasonable excuse and secondly that the penalties were disproportionate.

The First Tier Tribunal held that there was no reasonable excuse, but the appeal was held-over pending a decision in the Enersys case regarding the question of proportionality.

3.2. Payments of share-based earnings made after an employment has ceased that have not been included in Form P45

HMRC has released a consultation and also questions and answers concerning the requirement to use the 0T tax code on a non-cumulative basis against share-based payments (those in the form of securities, interests in securities and securities options) made to an employee after cessation of employment, where these payments have not been included in the Form P45.

4. Business tax

4.1. Loan Relationships and transfers to Share Premium

In the case of Vocalspruce Ltd the First Tier Tribunal considered an arrangement that attempted to achieve a tax deduction for intragroup loan relationship debits, while excluding the corresponding credit from assessment. The arrangement relied on the provisions included in the former FA96 s84(2), which was repealed by FA04, generally with effect for accounting periods commencing on or after 1 January 2005. The provision excluded from credits and debits on loan relationships to be brought into account, those amounts required to be transferred to the company's share premium account. The Tribunal concluded that the correct interpretation of s84(2) was that this exclusion was for amounts required to be transferred directly to the share premium account, and did not include (as the company contended) amounts initially allocated to the profit & loss account and then to share premium account. The case concerned a disputed amount of taxable profits of £3.6m, and was the lead case behind which a number of other cases stood.

The arrangement in the case of Vocalspruce (a subsidiary of Brixton plc) was established as follows:

  • On 18 December 2003 Brixton plc subscribed for zero coupon loan notes in six subsidiary companies, where the loan notes had a principal amount (redemption amount) of £55.4m, payable on 17 December 2004. They were issued at a 7% discount so that the issue price was £51.5m.
  • On 5 January 2004 Brixton plc subscribed for shares in Vocalspruce, where the subscription price was £55.4m, representing shares with a nominal value of £1 each and £0.071 of share premium. The price amounting to the nominal value of the shares was satisfied by the transfer of the loan notes (then at a value of £51.7m), with the share premium to be satisfied (as a result of an amendment to the articles of association of Vocalspruce) by the capitalisation of all and any realised profits arising on the loan notes, whether accrued or received, 15 days of the end of each month from July to December 2004, and appropriation of that amount to the share premium account to settle the unpaid share premium amount.

FA96 s84 contained the following selected provisions:

"(1) The credits and debits to be brought into account in the case of any company in respect of its loan relationships shall be the sums which, in accordance with an authorised accounting method and when taken together, fairly represent, for the accounting period in question—

(a) all profits, gains and losses of the company, including those of a capital nature, which (disregarding interest and any charges or expenses) arise to the company from its loan relationships and related transactions; and

(b) all interest under the company's loan relationships and all charges and expenses incurred by the company under or for the purposes of its loan relationships and related transactions.

(2) The reference in subsection (1) above to the profits, gains and losses arising to a company—

(a) does not include a reference to any amounts required to be transferred to the company's share premium account; but

(b) does include a reference to any profits, gains or losses which, in accordance with generally accepted accounting practice, are carried to or sustained by any other reserve maintained by the company.

The Tribunal concluded that the fact that s84(2)(a) referred to 'amount' and not 'profits, gains or losses' was significant, and was meant to take account of the fact that if a share was issued for a price in excess of the nominal value, the amount of the excess in company law was a profit, but not a distributable profit. They decided this was not a narrow interpretation of this clause and in particular that its meaning was not so wide as to include (as the company contended) amounts included in the profit & loss account that had then to be transferred to the share premium account. The Tribunal also concluded that qualification provided by FA96 s84(2)(b) meant that amounts allocated first to any other reserve (such as the profit and loss account) would therefore be excluded from the exception in s84(2)(a).

The Tribunal also considered that if the company's interpretation of s84(2)(a) was correct there would have been no assistance to HMRC's view from what was FA96 Sch9 para 12(2) (now contained in CTA09 s340) which provides that where a loan relationship transaction is transferred from one group company to another, the loan relationship debits and credits to be taken into account with respect to the loan, should disregard the transaction or series of transactions relating to the transfer. They concluded that this only referred specifically to the loan relationship amounts and could not encompass the arrangements for the transfers to the share premium account.

4.2. Corporate Responsibility for transparency in tax

Royal Dutch Shell plc CFO, Simon Henry delivered a speech on 18 January to the OECD Forum on Tax Administration in Buenos Aires. Extracts from the speech include the following:

At a basic level, it's the responsibility of policymakers to determine what a fair share of tax is. And it's our responsibility as businesses to pay these taxes and to uphold the law.

But in the energy industry, determining what a "fair" tax rate might be is a difficult balancing act, and one that must take account of the level of investment and risk involved in developing an oil or gas field.

For example, a high tax rate might be appropriate in a Middle Eastern country holding substantial and easily accessible resources. But it's a different story in, say, the North Sea, where oil and gas fields are smaller, more technically challenging, and less profitable for companies to develop. A very high tax rate there might simply make these resources commercially unviable to produce.

The same is true of the debate about "tax havens". Here again, it's for sovereign nations to determine their own tax rates in accordance with the revenues they want to generate. And businesses like Shell are perfectly entitled to operate in low-tax jurisdictions for legitimate business purposes.......

You can also see why predictable tax regimes that incentivise investment are so important, not just to the energy industry, but to society as a whole. Just now, they matter more than ever: enormous deficits are prompting some governments to pursue a more short-term and volatile approach to tax.

But another critical element of these regimes is how the authorities apply the law, and whether they do so in an efficient, consistent and predictable manner. All of which explains Shell's commitment to closer cooperation with the authorities.

I'm talking about co-operation that follows the FTA's guidelines: we provide the authorities with timely and comprehensive information on potential tax issues -- in return for treatment that is impartial, proportionate, open, responsive and grounded in an understanding of our commercial environment. Thus we are able to settle tax issues upfront, giving us, the business, the certainty we need to begin arranging financing and other corporate and operational structures.

From our point of view, such relationships offer the best chance of efficient and predictable tax regimes for our investments. And they help us to comply with the law, and to manage our tax-related risks – which are just one set of the risks that we face in our day-to-day activities.

A word on what we don't expect from closer co-operation: we don't expect to get everything our own way or to enter into "sweetheart deals", in other words deals that allow us to avoid complying with the tax laws of the countries in which we operate.

For the tax authorities, closer co-operation offers the most efficient route to raising revenues. In particular, it reduces the need for lengthy and expensive audits, so that you are free to focus on your most important risks and the real miscreants engaged in tax evasion and fraud.

With respect to building cooperative relationships between business and tax authorities he recommended the following were critical steps:

First, there should be genuine commitment to the relationship from both sides. That has to come from the top: from us, as CFOs, and from you, as tax commissioners.

A second step must be the development of mutual trust, underpinned by rigorous controls and audit procedures.

The third, and most obvious, requirement is that the co-operation should be mutually beneficial and reduce costs for both sides: so businesses should be demonstrably transparent, while tax authorities should resolve tax issues more swiftly.

To read this article in full please click here.

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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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.

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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:

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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.

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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.

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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.