UK: Weekly Tax Update - Monday 21 May 2012

Last Updated: 28 May 2012
Article by Richard Mannion

1. Private Clients

1.1. ICAEW comments on child benefit proposals

Frank Haskew, Head of Tax at ICAEW has commented on the proposed changes to child benefit announced in the Budget recently. The Government has proposed means testing child benefit through the tax system, taking it away from taxpayers earning over £60,000 and tapering it between £50,000 and £60,000.

He said:

"We think that the proposed changes to child benefit are a policy disaster in the making and in danger of becoming a practical disaster when they come into effect in January 2013.

Our concern comes out of ICAEW's public interest role which is to help ensure the tax system works fairly and effectively. However, our tax system is based on individual taxation, not total family income, so we think this will be hard to deliver operationally.

In the proposed system, a benefit paid by DWP in one year to one individual, will potentially be clawed back by HMRC from another in the second year. It may rely on partners sharing information about their finances, which some couples keep secret. And it will be problematic when relationships break down.

In some cases, partners may elect not to receive the benefit and thereby avoid any claw-back. But there might potentially be problems for the partner who claims child benefit because child benefit can contribute to the state pension entitlement of the person claiming it.

We understand the policy purpose behind the Government's proposals, particularly given the tough situation with public finances. While we appreciate that the claw-back will not start until around double the national average wage (£26,000), we do not believe that HMRC's systems will be ready to deal with this, or deal with the fallout when problems start to emerge.

We think there are workable solutions, including extending means testing – and ICAEW want to continue to work with tax authorities and the Treasury to identify them."

HMRC has estimated that up to 500,000 taxpayers will need to be brought within the self assessment system in order to declare their liability to the high income child benefit charge.

2. PAYE and Employment matters

2.1. Notifying HMRC if no Employer Annual Return is required

An employer who did not maintain any forms P11 during the tax year to 5 April 2012 does not need to complete an Employer Annual Return, but they do need to tell HMRC that they won't be completing one to avoid unnecessary reminders or penalty notices.

Employers and agents can now notify HMRC online if they have no Employer Annual Return (forms P35 and P14) due for 2011-12. They can still contact HMRC in writing or by telephone if they wish but if they use this new facility they will receive an acknowledgement email immediately to reassure them that their declaration has been received.

3. Business tax

3.1. Depository receipts and beneficial ownership

Following the First Tier Tribunal (FTT) decision in HSBC Holdings and Bank of New York Mellon v HMRC (see Tax Update 2 April 2012), and the fact that the Tribunal was not satisfied that under New York State law the holder of an ADR has a beneficial interest in the underlying shares, HMRC has issued a Brief to clarify their understanding of the treatment of ADRs and other types of Depositary Receipt (DR) for the purposes of direct taxes.

HMRC's long-standing practice has been to regard a DR holder as having beneficial ownership of the underlying shares and the tax treatment of acquisitions and disposals, rights of ownership, and income derived from DRs have been consistent with this view.

As the FTT decision in the HSBC & BNY case (in particular the FTT's conclusion on the position in English law) is not binding in relation to other cases, for tax purposes HMRC will continue to treat ADRs as conferring beneficial ownership according to its established interpretation of the principles of English law.

The brief contains an advance copy of HMRC's internal guidance on this area, to be included at CG50240.

3.2. Advance assurance applications for EIS/SEIS

The application form for advance assurance that an arrangement meets the EIS and SEIS requirements following Budget 2011 changes is now available.

3.3. Amendments to Finance Bill 2012

On 17 May 2012 HMT published three documents with amendments to Finance Bill 2012:

  • Clause 46: plant and machinery: long funding leases. Clause 46 was introduced to counter disclosed avoidance schemes which sought to obtain unwarranted tax advantages. These schemes rely on claiming that certain payments for the benefit of a long funding lease are included in the disposal formula applying at the end of the lease, or other prescribed event. The tax advantage arises because the amount of the capital allowances that the lessee can claim in relation to a long funding lease exceeds the actual net relevant expenditure of the lessee under that long funding lease.

    Clause 46 brings within the disposal formula payments in connection with a long funding lease that are for the benefit of the lessee, or a person connected with the lessee. However, it makes exceptions for payments which have been brought into account otherwise for tax purposes as income or a capital allowances disposal receipt. It also makes two specific exceptions where it was inappropriate to include payments.

    The Amendment extends the number of specific exceptions to four. It excludes relevant payments under a superior lease which is part of a chain of leases including connected persons. It also excludes payment to a seller of sale proceeds of plant and machinery in a sale and leaseback.
  • Clause 40 schedule 8: venture capital trusts. Because VCT managers will now have to consider investments other than their own before deciding how much they may invest in a company, they require time to carry out adequate due diligence into prospective investment deals currently in the pipeline. The delayed commencement of this part of the Schedule will give them time to carry this out.

    Amendments 1, 2 and 3 amend Paragraph 18 to alter the date from which new section 280B has effect, so that it applies in respect of investments made by a VCT on or after the day on which Finance Act 2012 is passed.

    Amendment 4 amends Paragraph 20 so that it applies in respect of securities as well as shares issued on or after 6 April 2012, as VCTs may invest in both or either.
  • Clause 24: companies carrying on businesses of leasing plant or machinery. Clause 24 was introduced in response to disclosures showing that groups were exploiting a mismatch in definitions of group for the purposes of tonnage tax and the sales of lessors provisions.

    Discussions with representatives of the shipping industry indicated that the clause could have a significant impact on companies moving into tonnage tax that were already members of tonnage tax groups or groups moving into tonnage tax for the first time. The tonnage tax regime deals with new entrants through a tapered balancing charge when assets held at the time of entry are sold. The new clause would have created a potential double charge in the event that a sale gave rise to a balancing charge.

The amendments to the clause ensure that only arrangements that result in a company joining a tonnage tax group will be affected by the sale of lessor provisions leaving new entrants into the tonnage tax regime to be dealt with under the provisions of the tonnage tax regime including ensuring that where there is a disposal of assets giving rise to a balancing charge after a sale of lessors event this will not result in a double charge to tax.

3.4. Voluntary cash basis for smaller businesses

In Budget 2012 the Government announced that it is planning a radically simpler system for calculating tax for small business, based on the recommendations of the Office of Tax Simplification.

HMRC has now published a consultation paper seeking the views of the small businesses that would be affected.

3.5. Climate Change levy

HMRC has issued an updated general guide to Climate Change Levy. pageLibrary&propertyType=document&id=HMCE_CL_000290

3.6. Landfill Tax - material used on a landfill site and classification of waste

HMRC has issued Brief 15/12 for landfill site operators and their advisers. It provides further clarification on the Landfill Tax treatment of material used on a landfill site and also the evidence needed when considering whether to apply the lower rate of Landfill Tax to certain wastes.

3.7. HMRC's approach to small business

HMRC have published an Issue Briefing giving a brief outline of the administrative changes it is making to support small businesses get their tax right quickly and easily.

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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