UK: Weekly Tax Up-Date - Monday 16 April 2012

Last Updated: 18 April 2012

1. General news

1.1. HMRC remit for 2012/13

The Chancellor of the Exchequer has outlined HMRC's remit for 2012/13 as follows:

  • Improving tax collections;
  • Delivering cost reductions;
  • Improving services for individual and business customers. For individuals this includes clearing the older PAYE and NI cases during 2012 and ensuring PAYE is fully up to date by April 2013. For business customers this includes delivering the final elements of the 'one click' programme to make the UK the fastest place in the world to start a new business;
  • Real time information and managing the transition to the universal credit; and
  • Tax policy and policy partnership. This encompasses working with HMT and the OTS to identify further policy reforms that support the ambition to have the most competitive tax system in the G20, reduce complexity, improve fairness and reduce the scope for evasion or avoidance.

1.2. HMRC bereavement service for PAYE and self assessment taxpayers

HMRC has redesigned form R27 to include a new section in which a personal representative (or executor/administrator) finalising the estate of someone who has died can appoint someone to act on their behalf. They can also provide details of the surviving spouse or civil partner to enable HMRC to take action to review their tax affairs.

In addition from 11 April 2012 HMRC will:

  • Provide a single point of contact when finalising the estate of a PAYE and Self Assessment customer who has died.
  • Introduce the new form R27 and notes to help personal representative finalise the estate of a customer who has died at the earliest opportunity.
  • Improve the quality of the service provided when settling the estate of a customer who has died.

2. IHT & Trusts

2.1. Changes to the 2011-12 Trust and Estate Tax Return

HMRC has issued a summary of some changes to the 2011-12 Self Assessment Trust and Estate Tax Return and supporting guidance notes.

2.2. Reduced rate of Inheritance Tax payable by estates where 10% is left to charity

HMRC has published guidance on the reduced rate of Inheritance Tax payable by estates where a 10% donation is made to a registered charity with effect from 6th April 2012. The main guidance below also has a link to some worked examples of the calculations involved.

In addition there is a new calculator that will either work out the charity donation required to qualify for the reduced rate or will tell you whether a bequest already made is sufficient to qualify for the reduced rate.

Guidance for this calculator and a link to the calculator itself can be found in the link below.

The Inheritance Tax manual will be updated soon. In the meantime a draft of the new guidance for the manual can be found in the link below.

3. Business tax

3.1. REIT consultation

The Government has issued a further consultation on the REIT system, for comment by 27 June 2012. It has two strands:

  • Whether REITs have a role in supporting the social housing sector;
  • A reconsideration of the tax treatment of investment income received by a REIT when it invests in another REIT.

The document comments that institutional investors are already active in the social housing sector through the purchase of public bond issues aimed at financing social housing. Access to long term finance for the social housing sector has become more expensive and difficult to access as a result of the financial crisis. While there has been some government support for new social housing using public capital grants, the current state of the UK's finances means increasing support from the private sector is being sought, and consideration is being given to how the REIT system can be used.

Key questions asked include whether the enhanced economies of scale and longer guaranteed tenures of the social housing model are sufficient to generate attractive returns for REITs, despite the generally lower rents, and what reforms to the REIT regime would be needed to provide a viable business model.

Currently investment income of a REIT generated from an investment in another REIT is not regarded as part of the property rental business, and is therefore taxed in the REIT (unlike the income from the property rental business), and can be paid out as an ordinary dividend (and not a property income dividend or PID, as is the case for income from the property rental business). The Government considers that changing the REIT regime to include investment income from other REITs as part of the property rental business, would be a fundamental change of policy, moving away from limiting REIT activity to direct investment in bricks and mortar. Thus the consultation asks whether such a change in policy is appropriate and whether any associated risks and complexity introduced on such a change can be effectively managed.

3.2. Taxing remote gambling on a place of consumption basis

The Government has issued a consultation, for comment by 28 June, on changing the basis of taxation for gambling from a place of supply to a place of consumption basis.

Currently, remote gambling activities are subject to UK gambling duties on a place of supply basis. Operators based in the UK pay tax on all of their gross gambling profits, no matter whether their customers are in the UK or abroad. Operators based outside the UK pay no UK tax on their gross gambling profits derived from UK customers.

The Government envisages a place of consumption basis of taxation will:

  • level the playing field providing a fairer basis for competition between remote gambling supplied from the UK and overseas;
  • help enhance the competitiveness of the UK tax system; and Page 3 of 7 16/04/2012
  • improve the sustainability of the UK's tax base by ensuring that remote gambling, alongside other gambling products, makes a fair contribution to public finances.

The proposals on which comment is requested include:

  • Retention of the existing gambling duties but moving general betting duty, pool betting duty and remote gaming duty to a place of consumption basis of taxation. This will mean that remote gambling provided to customers in the UK will be subject to gambling duties irrespective of whether the operator is in the UK or elsewhere.
  • In order to establish the amount of profits generated from customers in the UK, operators will have to determine the location in which a customer makes a bet or uses facilities for gaming, which may be difficult. It is therefore proposed that operators would be required to take reasonable steps to determine the location of their customers. The type of indicator that an operator is expected to use to determine whether a customer is in the UK may include:
  • instantaneous tracking technologies (such as IP address tracking, geo-location software on smartphones, mobile phone network etc.);
  • verification of customer address or registered payment address as part of "Know Your Customer" arrangements; and
  • self-verification.
  • It is proposed that general betting duty will be charged on a bookmaker's UK net stake receipts. The UK net stake receipts will be calculated as the difference between the amount the bookmaker is due in stakes from UK customers and the amount it has paid out in winnings to customers who bet in the UK. Bookmakers will continue to be entitled to carry forward losses but only to the extent of their UK net stake receipts. For betting exchanges, it is envisaged that exchanges' commission earned from customers in the UK would be taxed. Thus, where exchanges charge commission from their winning customers, they would be liable to general betting duty if the winning customer placed a bet while in the UK.
  • It is proposed that the taxation of spread betting remains unchanged and continues to be subject to general betting duty if it is supplied from the UK.
  • Under a place of consumption approach to taxation, the basis for calculating dutiable net pool betting receipts would be the difference between pool bets received from UK customers and winnings paid out in respect of those pool bets. However, based on initial feedback from industry, this approach may lead to:
  • high levels of volatility in the promoter's duty liability depending on whether the winner of a large pool was in the UK or elsewhere; and
  • difficulties in participating in 'international commingling' arrangements, whereby pool betting operators join together to create larger prize funds.
  • Under a place of consumption basis of taxation, it is proposed that remote gaming duty will be charged on the provision of facilities for remote gaming to customers in the UK.
  • For games against the house (such as roulette, virtual slot machines, etc.) the basis of remote gaming duty will be the difference between the amount that the provider is due in stakes from customers in the UK and the amount that the provider pays out to customers as winnings in respect of those stakes. For person to person games, such as poker, the basis of remote gaming duty will be the amount that is paid by people in the UK as entitlement to use facilities.
  • Under a place of consumption basis of taxation, it is expected that a person who has primary liability forgeneral betting duty, pool betting duty or remote gaming duty will normally be the same person as the person who is required to hold the remote gambling operating licence. Where this is not the same person, the intention is to ensure that the holder of the remote operating licence is also responsible for ensuring the tax compliance of the operation by imposing joint and several liability on remote operating licence holders.
  • On transition to the new regime it may be necessary for overseas operators to identify the location of the customer before the regime commences in order to avoid a double charge to duty.
  • Finance Bill 2012 introduces a double taxation relief for remote gambling. Under a place of consumption basis of taxation, there will no longer be a need for the double taxation relief. It is therefore envisaged that the relief will be repealed when place of consumption changes come into effect.
  • To increase simplicity and administrative ease for businesses, the intention is to create an aligned registration process across general betting duty, pool betting duty and remote gaming duty. This will be modelled on the current registration process for remote gaming duty.
  • To ensure tax compliance where the operator is based offshore, HMRC will need to validate the level of earnings an operator generates from customers in the UK. One possible approach is that the operator could be required to provide that information directly to HMRC. Alternatively, where the operator is required to appoint a representative in the UK, HMRC may require the representative to provide access to records and systems. Where no representative is required, HMRC may seek the assistance of the jurisdiction in which the remote operator is based.

3.3. Property Authorised Investment Funds (PAIFs)

Following representations from industry bodies, a draft statutory instrument has been issued for comment by 11 May, to amend the tax regulations applying to PAIFs to allow investors to exchange their units in a dedicated PAIF feeder fund for units in the PAIF and vice versa, in specified circumstances, without incurring a charge to tax on capital gains at the time of the exchange.

3.4. Litigation and settlement strategy and alternative dispute resolution

HMRC has published finalised versions of guidance on the litigation and settlement strategy and the alternative dispute resolution for large and complex issues.

3.5. Possible changes to income tax rules on interest

HMRC has published a consultation paper covering the income tax rules on the taxation of interest and rules on the deduction of tax at source from such amounts.

4. VAT

4.1. Addressing borderline anomalies in VAT

The Government perceives that certain zero rating and exemption provisions have been exploited by taxpayers to obtain an unfair advantage. Draft legislation proposed in Finance Bill 2012 seeks to remove these 'unfair advantages' with effect from 1 October 2012. There is consultation on these measures, which closes on 4 May 2012.

The measures proposed marginally broaden the VAT base in areas where the Government perceives the differences in VAT treatment have led to uncertainty, error and complexity for taxpayers.

The measures include:

  • clarifying the treatment of catering to ensure that all hot takeaway food is taxed and to clarify the meaning of premises;
  • taxation of sports nutrition drinks to ensure that all sports drinks receive the same tax treatment;
  • removing exemption from self storage to ensure all supplies of storage receive the same tax treatment and to counter avoidance;
  • removing the anomaly whereby approved alterations to certain listed buildings are zero-rated whilst alterations to other buildings, and repairs and maintenance to all buildings are standard rated;
  • putting beyond doubt the fact that VAT applies to the rental of hairdressers' chairs;
  • ensuring that holiday caravans are taxed consistently at the standard rate of VAT.

5. Tax Publications

NTBN209 - Company Share Ownership Plan (CSOP)

This briefing note provides basic information on a company share ownership plan (CSOP), including how it works, who it is suitable for and the accounting and tax implications.

NTBN210 - Enterprise Management Incentive (EMI)

This briefing note provides basic information on an enterprise management incentive scheme (EMI), including how it works, who it is suitable for and the accounting and tax implications.

NTBN211 - Save As You Earn (SAYE)

This briefing note provides basic information on a Save As You Earn (SAYE) scheme, including how it works, who it is suitable for and the accounting and tax implications.

NTBN212 - Remitting funds to the UK for Business Investment

Overview of the proposed rules for the tax-free remittance to the UK of income and gains for investment in qualifying business investment.

NTBN213 - Employee share reporting

Outline of the reporting obligations for employee share related benefits.

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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