UK: Tax Update - 17 September 2012

Last Updated: 19 September 2012
Article by Smith & Williamson

1. General news

1.1. Autumn Statement

The Chancellor will make his Autumn Statement on Wednesday 5 December 2012 at 12.30pm.

1.2. Financing capital infrastructure - speech by the Chief Secretary to the Treasury

On 10 September the Chief Secretary to the Treasury the Right Honourable Danny Alexander MP, delivered a speech on financing capital infrastructure at the London Stock Exchange Centre forum. While there was acknowledgement of the receipt of many representations on this area and comment on progress on various infrastructure projects, there was no indication that capital allowances were being considered for extension to infrastructure projects that do not otherwise qualify.

1.3. DOTAS

HMRC has updated its list of withdrawn DOTAS scheme reference numbers (SRNs) where there is no longer a duty to notify HMRC. The relevant extract is as follows:

Notices under S312(6) and S312A(4) FA 2004 - promoters and clients

Clients and parties who have received these SRN no longer have a duty to notify the SRN to HMRC on their tax returns or on form AAG4 from the date shown below.

From 4 November 2008: 38761513, 72309880, 97965110.

From 13 January 2009: 04770813.

From 18 November 2011: 83962302, 63617726, 37528580, 81010479, 03985775.

From 28 August 2012: 59985782.

Notices under S312A(4) FA 2004 - clients only

From the date shown below clients who have received these SRN no longer have a duty under S312A FA 2004 to notify the SRN to other parties to the arrangements. They still have a duty under S313 FA 2004 to notify the SRN to HMRC on their tax returns or on form AAG4 if they are themselves party to the arrangements.

From 9 December 2009: 41527653.

2. Private Clients

2.1. Gift Aid Small Donations

Draft regulations under the Small Charitable Donations Bill, and a technical note have been published for consultation. The draft regulations set out the general administrative framework for the Gift Aid Small Donations Scheme, which is due to be introduced from 6 April 2013. Most of the draft regulations will apply the administrative provisions of the Taxes Acts that are used to administer Gift Aid claims.

Currently in order to qualify as a donation under Gift Aid, donors must give the charity or CASC a Gift Aid declaration, including their name and address. The new Scheme removes the requirement for charities to obtain a Gift Aid declaration from individual donors in order to claim a payment from HMRC. It applies to donations of £20 or less, up to an annual total of £5,000 of donations per charity. Removing the need for a Gift Aid declaration breaks the link between the donor's tax record and the payment to the charity and means that payments under the Scheme will be classified as public spending. This means the Scheme cannot be legislated through the annual Finance Bill process and use the tax code already in place, but must be legislated for separately. However the intention is that the new Scheme should be administered under a similar legislative framework to Gift Aid.

2.2. HMRC High Net Worth unit brings in an extra £500m in tax

HMRC has issued a press release commenting that in 2011/12, the tax yield from the HNWU intervention work hit £200 million, up from £162 million in 2010/11 and £83 million in 2009-10.

3. Business tax

3.1. Loss relief involving cross border issues

The group and consortium relief rules are now set out in CTA10 part 5. In relation to consortium relief the rules were changed following Finance (No 3) Act 2010 so that with effect for accounting periods beginning on or after 12 July 2010 if the link company in a consortium group relief claim is not UK related (a UK resident company or a UK trading PE of a non-UK resident company), it can be established in the EEA, provided it is a member of the same group of either the claimant company or surrendering company and that group relationship is not derived through a company not established in the EEA (see CTA10 s133 and s143A). This followed an announcement made in the March 2010 Budget to permit such relief, that also announced an intention to "ensure that access to Consortium Relief is given only in proper proportion to the member company's involvement in the consortium". These further changes did not resolve what some regarded as restrictions that continued to contravene the EU Treaty and introduced further rules that also do not appear to be fully EU compliant.

The FA(No 3) Act 2010 changes followed shortly after a First-tier Tribunal decision in the case of Philips Electronics UK Ltd ([2009] UKFTT 226) where that company succeeded in claiming for consortium relief for its share of the losses of a UK permanent establishment of a joint venture between a Dutch subsidiary of the Philips group and the LG Electronics Group between 2001 and 2004.

An appeal in November 2009 by HMRC against that decision, for a hearing in June 2010 at the Upper Tribunal, was cancelled as questions arising in the case were referred directly to the CJEU under case reference C-18/11. The questions referred to the CJEU considered the UK legislation applicable between 2001 and 2004, in particular the difference between the operation of ICTA s403D(1) and s403E(2). These provisions were introduced in Finance Act 2000 Sch27 and have now been re-written (largely unchanged) as CTA10 s107(6) and CTA10 s106(5).

There is a difference between the restriction on losses surrendered by a UK resident (CTA10 s106) and those surrendered by a non-UK resident (CTA10 s107). S106(5) indicates that where a person other than the surrendering company is able to use the loss in the overseas territory, then the UK relief will be restricted. S107(6) has a similar restriction but this applies if any person (including the surrendering company) is to use the loss overseas (not restricted to any territory).

The clear distinction here is that, as permitted by CTA10 s106(5), if a UK resident company incurring the overseas loss has no other related entities in the overseas territory who could use the overseas loss, then there is no restriction on the use of that loss elsewhere in the group. This enables the UK resident company to offset those overseas losses against its own profits (perhaps generated in the UK) or against profits of other group companies (wherever those profits were generated), provided the foreign losses could not be used by a related entity in the foreign territory.

For a non-UK resident company incurring a loss in a UK permanent establishment, however, a further restriction is placed on the use of those losses if the company which incurred the loss could use the UK branch losses itself (perhaps to offset against profits arising in its territory of residence). This is because CTA10 s107(6) (formerly ICTA s403D(1)) requires that the loss cannot be used by any company, including the company itself.

Concerning the use of overseas branch losses from an EU perspective, this creates an advantage for a UK company establishing branches in other EU countries, over EU companies establishing branches in the UK.

The decision of the CJEU in the Philips case (c-18/11, released on 6 September 2012) was fully in favour of the taxpayer, and directs the national court to disapply the national legislation which is contrary to the principle of freedom of establishment.

The First-tier Tribunal decision in this Philips case ([2009] UKFTT 226 (TC)) was released on 18 August 2009. Finance (No 3) Act 2010 did not change the legislation with respect to what is now CTA10 s106(5) and s107(6). In addition, whilst it did permit link companies in consortium relief claims to be located in other EU member states (amending CTA10 s133 and introducing new s134A), this change was not made retrospective (it only applies for accounting periods beginning on or after 12 July 2010). Furthermore the additional restriction in the Finance (No 3) Act 2010 placed on the link company, that it must be a member of the same group as either claimant or surrendering company where that group relationship is not established through a non-EEA established company, was not a part of the Philips case and also appears to be contrary to the principle of freedom of establishment. This is despite the fact that since 2000 it has been possible to establish a 75% group relationship for UK group relief purposes through a holding company without restriction on where that holding company is located. The restriction before 2000 was in any case held to be ineffective in the case of a US holding company and the application of the UK/US double tax treaty in the case of FCE Bank plc (see item 3.6 Informal 24 October 2010 and [2010] UKFTT 136 (TC)).

The issues have come up again in the case of claims for consortium relief by UK companies in the Hutchison Whampoa Group which has referred further questions to the CJEU, this time concerning what was ICTA s410 (now CTA10 s154-156).

There has been a further CJEU case considering the use of cross border losses, although this has not reached the decision stage yet. The Advocate General's opinion in the A Oy case (C-123/11) comments in relation to the M&S case and the balanced allocation of taxing rights, and calls into question the reasoning used in the M&S loss case (that there is a need to exhaust all possibility of using a loss in the foreign state before being able to use the loss against profits in other member states).

The following extract from that opinion indicates the issues raised:

Applicability of the Marks & Spencer exception

49. However, the Court's case-law has continued to develop since Marks & Spencer. As I showed in my opinion in Philips Electronics, according to the later development of the case-law, the crucial factor for the justification is that the national legislation pursues the objective of preserving the allocation of the power to tax. (23) The objective of preventing the double use of losses is not an autonomous justification. (24)

50. The exception developed by the Court in Marks & Spencer is no longer appropriate for justifying the preservation of the allocation of the power to tax, that justification having in the meantime been recognised as independent. (25) With regard to preserving the allocation of taxation powers among the Member States it is immaterial whether there is a possibility of using losses in the Member State which has the power to tax a particular business activity. It is only relevant to which activity and, therefore, to which taxing power a loss belongs.

51. If the justification of preservation of the allocation of taxation powers among the Member States is taken as a criterion, this gives an entirely different perspective for assessing the need for a national measure. With regard to that justification, it is not a less restrictive measure if the Member State which does not have the right to tax has to take account of losses incurred under the taxing power of another Member State in a case where that possibility no longer exists there. In fact, in such a case, the objective of preserving the allocation of taxation powers is not achieved at all.

52. The further development of the significance of the justifications which were referred to in Marks & Spencer in parallel at first has therefore also altered the scope of the exception formulated in that judgment. That exception may now be referred to for examining the need for a national measure only if the prevention of the double use of losses is recognised as an independent justification. If, on the other hand, the justification is based on the allocation of taxation powers among the Member States alone, the development of the case-law means that the Marks and Spencer exception can no longer be applied.

53. That is the approach taken by the Court in its most recent judgment on the cross-border transfer of losses. Whereas in the X Holding judgment the Court based the justification solely on the objective of preserving the allocation of taxation powers, it was consistent in making no mention of the Marks & Spencer exception, although it considered at length the need for a national measure. (26) 54. Consequently the restriction of the freedom of establishment by refusing the transfer of foreign accumulated losses is necessary in view of the objective of preserving the allocation of taxation powers, and the question of whether it is still possible for the Swedish subsidiary to have its accumulated losses taken into account in its State of residence is irrelevant.

What implications does this have in relation to cross border loss relief?

We will need to await the CJEU decision in the A Oy case for further developments on the requirement to consider the 'no possibilities test' where there are overseas losses incurred by overseas subsidiaries. However for those companies affected by the Philips decision (where the UK legislation has been deemed to unfairly restrict the use of branch losses by foreign companies), and where other restrictions introduced by Finance (No3) Act 2010 restrict the ability to obtain effective relief, should be reconsidering their position and the potential for making protective claims.

3.2. Draft HMRC guidance for anti-avoidance rules on leasing

HMRC is currently updating the Business Leasing Manual to reflect changes to the leasing legislation. As part of this, it is introducing a new chapter to bring together the guidance on the anti-avoidance legislation that has been introduced from 2004 onwards; it alao seeks to make application of the current legislation clearer. It has therefore issued draft guidance on the changes, for comment by 31 December 2012.

3.3. New tax relief for North Sea brown field sites

The Chancellor of the Exchequer announced on 7 September a new tax measure aimed at supporting billions of pounds of new investment in older oil and gas fields in the North Sea. A tax allowance for certain mature fields, known as brown fields, will shield a portion of income from the Supplementary Charge, which the Givernment hopes will encourage companies to invest in getting the most out of existing fields and infrastructure in the UK Continental Shelf.

The Brown Field Allowance will shield up to £250m of income in qualifying brown field projects, or £500m for projects in fields paying Petroleum Revenue Tax, from the 32% Supplementary Charge rate (providing tax relief of up to £80m or £160m respectively). The level of relief available to an individual project will depend on its size and unit costs.

A qualifying project will be an incremental project increasing expected production from an offshore oil or gas field as described in a revised consent for development which is authorised by the Department of Energy and Climate Change (DECC) on or after 7 September 2012, and has verified expected capital costs per tonne of incremental reserves in excess of £60. The maximum level of allowance will be £50/tonne and will be available to projects with verified expected capital costs of £80/tonne or above.

4. VAT

4.1. Consultation on extending VAT exemption for Higher Education to services provided by 'for profit' enterprises

The EU VAT directive (article 132(1)(i)) provides for the following VAT exemption in relation to education:

"...the provision of children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects..."

This has been implemented into UK VAT legislation for the following entities (in note 1 to Group 6 of schedule 9 VATA):

b) a United Kingdom university, and any college, institution, school or hall of such a university;

c) an institution- i) falling within section 91(3)(a), (b) or (c) or section 91(5)(b) or (c) of the Further and Higher Education Act 1992; or

ii) which is a designated institution as defined in section 44(2) of the Further and Higher Education (Scotland) Act 1992; or

iii)managed by a board of management as defined in section 36(1) of the Further and Higher Education (Scotland) Act 1992; or

iv) to which grants are paid by the Department of Education for Northern Ireland under Article 66(2) of the Education and Libraries (Northern Ireland) Order 1986;

d) a public body of a description in Note (5) to Group 7 below;

e) a body which- i) is precluded from distributing and does not distribute any profit it makes; and

ii) applies any profits made from supplies of a description within this Group to the continuance or improvement of such supplies;

Note (5), Group 7 to Schedule 9 of the VAT Act 1994 says:

In item 9 "public body" means-

a) Government department within the meaning of section 41(6);

b) a local authority;

c) a body which acts under any enactment or instrument for public purposes and not for its own profit and which performs functions similar to those of a Government department or local authority.

Currently, the majority of for-profit providers of higher education (HE) do not qualify as eligible bodies and cannot exempt their HE courses in the way that universities and not-for-profit HE providers that are eligible bodies can. The consultation therefore seeks views on extending the exemption to this category to satisfy the UK Government's aim to facilitate a more diverse and competitive HE sector that offers greater student choice and is responsive to student demand.

Consultation responses are requested by 5 December 2012. Subject to review of responses, HMRC may carry out another consultation later in the year on the legislative wording for a specific proposal for reform depending on the outcome of this consultation. It therefore seems unlikely any possible changes would be included in Finance Bill 2013.

5. Tax Publications

NTBN230 - Patent Box

This briefing note discusses the Patent Box regime effective from 1 April 2013 as introduced by Finance Act 2012.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

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.

Use of

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:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

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.

Log Files

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.

Surveys & Contests

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.