UK: Weekly Tax Update - Monday 9 July 2012

Last Updated: 13 July 2012
Article by Richard Mannion

1. General news

1.1. The appointment of a Tax Assurance Commissioner and a Lead Non-Executive Director

Edward Troup, currently HM Treasury's Director General for Tax and Welfare, has been appointed Tax Assurance Commissioner and second Permanent Secretary at HMRC. He will be responsible for shaping tax policy and strategy, tax professionalism, and will oversee and provide assurance of large tax settlements.

Reporting directly to Chief Executive Lin Homer, Mr Troup will succeed Dave Hartnett, who is retiring on 31 July, and will sit on HMRC's Executive Committee. Mr Troup will take up his post in August. Ian Barlow, currently Chair of WSP Group plc, has also been appointed as the Lead Non-Executive Director, in succession to Mike Clasper, whose contract is coming to an end.

2. Private Clients

2.1. A & Mrs G Pope v HMRC [2012] UKUT 206 (TCC)

Whether extra payment on life assurance payout was interest

The Upper Tribunal has published its decision in the case of A & Mrs G Pope v HMRC [2012] UKUT 206 (TCC).

The First Tier Tribunal ("FTT") had previously held that a payment of £36,425.97 which was made by Equitable Life in addition to the £100,000 paid as the principal amount insured (i) was not exempt from tax under s329 ICTA 1988 (interest on damages); (ii) was a payment of "interest" for tax purposes, and thus chargeable to income tax under s18 ICTA (Schedule D Case III); (iii) that the persons liable for the tax under s 59(1) ICTA were Mr & Mrs Pope.

The Appellants had contended before the FTT that (i) the payment of the "Extra Payment" was, if interest, exempt under s329 ICTA; (ii) in the alternative that it was not interest at all but a payment of a capital sum and therefore not taxable; and (iii) that if there was a liability to tax it was that of their son (Jason Pope) and/or his estate.

By way of background, Jason Pope was a geologist in Angola who it is it is believed was abducted in November 1998 by Unita rebels; he has been missing and nothing has been heard of him since then. Prior to this he had taken out a life assurance policy with Equitable Life.

Having received confirmation from the Foreign and Commonwealth Office as to the likelihood of Jason's death, Equitable Life agreed to make a payment in 2002 in respect of the death benefit by way of a Deed of Discharge, together with 'interest' from the date of the FCO's letter. There then followed further correspondence with Equitable Life deciding to make a payment of 'interest' on late payment calculated from November 1998.

The Appellants appealed the decision of the FTT on the bases that:

1) the FTT erred in law in holding that the Extra Payment was, if interest, not exempt from tax under 329 ICTA – which was rejected by the UT;

2) the FTT erred in law in holding that the Extra Payment was interest – which was also rejected;

3) the FTT erred in law in holding that the persons liable for the tax, if any, were Mr and Mrs Pope - were the UT found the Appellants were correct.

The contention of HMRC was that under the Deed of Discharge the persons entitled to the Extra Payment were the next of kin, ie Mr & Mrs Pope. The UT disagreed with this because at the time the payment was made in 2002 Jason Pope's estate was unadministered (and not even in the course of administration – letters of administration not granted until 2005), and so no person entitled under his assumed intestacy would have had sufficient entitlement to the death benefit.

The UT decided that the FTT erred in law as the statements in the Deed of Discharge that payment was to be made to Mr and Mrs Pope as next of kin covered their rights and obligations as against Equitable, but that did not make them "entitled" in the relevant sense. Thus, when they came to pass on the payment of the Death Benefit and the Extra Payment to Jason Pope's account, they were not exercising rights as beneficial owners of the money. In the hopes that Jason Pope might still be alive, they were exercising such rights as the choses in action (if any) under the unadministered estate of Jason Pope gave them and placing the money in an account that bore his name. It therefore allowed the appeal as regards issue 3. e_v_HMRC.pdf

2.2. HMRC's Tax Return Initiative

Someone who was asked to file a 2009/10 self-assessment return should have done so by 31/1/11. They will already have racked up substantial late filing penalties plus surcharges on any unpaid tax. Furthermore HMRC has the right to impose a higher penalty of up to 100% tax due in the more serious cases. HMRC has launched a campaign that will allow taxpayers in this position to bring their affairs up to date and avoid having to pay this higher penalty.

The Tax Return Initiative is for people who are required to pay tax at the highest rates and are required to complete a Self Assessment tax return for tax years 2009/10 or earlier and have not yet done so. The campaign will start on 3 July and run until 2 October 2012.

Any person who has been sent returns or been told to complete tax returns for years 2009/10 or earlier and has not yet done so is encouraged to take part in this opportunity and can do so by submitting the returns and paying what they owe by 2 October. By coming forward in this campaign, they will get better terms and any penalty they pay will be lower than if HMRC comes to them first.

This campaign will be part of the wider activity in HMRC aimed at tackling failures to submit completed returns and will provide a time limited opportunity to encourage those who want to get their tax affairs up to date to come forward.

2.3. Consultation on the revision of extra-statutory concession A19

HMRC has published a consultation on how it might improve the clarity of extra statutory concession (ESC) A19.

ESC A19 sets out how HMRC may exercise its discretion not to collect income and capital gains tax which is lawfully payable, due to HMRC's delay in acting on relevant information in prescribed circumstances. This includes where the taxpayer identifies that HMRC did not properly deal with information received and the HMRC delay is the cause of an underpayment. HMRC is keen to ensure that this concession continues to apply in appropriate cases and that taxpayers understand it.

Following extended discussion with representative bodies HMRC has concluded that a consultation on ESC A19 now will be an opportunity to:

  • improve the clarity of ESC A19 so that it is more user-friendly and easily understood by taxpayers;
  • help HMRC bring greater objectivity to ESC A19; and
  • help HMRC align ESC A19 with the HMRC Charter and ensure that it continues to be available in appropriate cases.

The consultation aims are to present and seek views on a revised version of ESC A19 which: �� introduces the concept of 'taxpayer responsibilities' in respect of ESC A19 claims against the recovery of underpaid income tax in line with the HMRC Charter; and

  • removes reference to capital gains tax, on the basis that the requirement for individuals to self-assess for capital gains makes ESC A19 redundant.

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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