UK: Tax Focus: A Summary Of Current Tax Issues For Companies - October 2012

Last Updated: 7 November 2012
Article by Robert King, Richard Mannion, Colin Aylott and Antje Forbrich


By Robert King

When the Coalition Government took office, it announced a fundamental reform of corporation tax. A core underlying principle was 'competitiveness' – the recognition that, in a global market, businesses are mobile and tax has a major influence on where they locate. Half way through its term of office it is worth seeing how the Government has done so far.

The good

On the plus side, corporation tax rates have come down, they will reduce further and the reduction is further and faster than originally planned. However, headline rates are just one element in the total tax competiveness picture. For instance, the UK's controlled foreign companies (CFC) rules were identified as a key deterrent to businesses locating here. Fiendishly complex, they were perceived as no longer fit for purpose. It was the CFC rules that influenced a number of companies to move their tax base out of the UK. After two years of consultation and hard work, the rules have been comprehensively reformed. While the rules are still complex, they do nevertheless deliver a regime that UK-based multinational corporations can operate within but that also protects the UK tax base from artificial diversion of profits abroad. It is worth noting that some businesses that left, for example WPP, have announced that they will be returning, citing CFC reform as the key factor. This is all good.

The bad and the ugly?

On the debit side though, personal tax rates remain high, deterring many entrepreneurs and senior executives from locating here. The tax environment is also highly uncertain, with ever more complex legislation, the impending General Anti Abuse Rule and inconsistent decisions in the courts. The one thing businesses hate more than anything is uncertainty. So it is a mixed picture. Some good progress has been made but, in other areas, we seem to have gone backwards. A cautious 6/10 perhaps?


By Richard Mannion

It is likely that HMRC will re-double its efforts to check that the rules are being followed.

The Public Accounts Committee (PAC) has criticised the BBC for having about 25,000 off-payroll contracts, e.g. using staff operating through personal service companies with the consequence of no PAYE tax deduction at source obligations for the BBC.

This is not really new news because there were newspaper headlines some years ago about the then chairman, John Birt, being paid via his personal service company.

The first point to note here is that no details have been given about the nature of the duties of the 25,000 people in question. It is likely that the majority are genuinely self-employed artists or contractors, in which case there would be no reason to deduct tax at source. However, the BBC is to review these contracts and the PAC will be looking for assurance that the staff involved are paying the correct amount of tax on income received from the public purse.

There has, however, been a wider issue recently about people in senior positions in Government and public bodies who are receiving their remuneration via personal service companies.

Personal service companies are a commonly used vehicle in many businesses. In some cases, the 'employer' insists on their use in order to circumvent the employment protection legislation. Where personal service companies are used the employer does not pay for holidays, sick leave, maternity pay and there will be no question of redundancy payments.

The Government first became concerned about the use of personal service companies in the 1990s because of concerns that individuals operating through such structures were subsequently taking dividends from the personal service company rather than being paid wages that would be liable to national insurance contributions. In 2000 it introduced a very complex special tax charge known as IR35 which effectively required a personal service company to operate a pseudo-PAYE regime if certain conditions were met.

Consequently there will only be a loss of tax to the country if:

  • payments are made to a personal service company that otherwise would have been taxed under PAYE, and
  • the personal service company fails to operate IR35 properly.

No details have been provided to demonstrate that IR35 is not being properly applied although there are indications that HMRC does not currently check many cases a year, presumably because it doesn't have sufficient resources to do so. The PAC noted that HMRC enquiries into the use of personal service companies have reduced from around 1,000 in 2003/04 to 23 in 2010/11.

To summarise, we have a highly complicated tax charge that few people really understand and this charge is in turn a by-product of the UK's over-complex tax system. The most likely outcome of the PAC's concern will be a redoubling of effort by HMRC to police the IR35 system so personal service companies do need to beware.


By Colin Aylott

Community infrastructure levy (CIL) is a new levy that local authorities are empowered to charge on new developments in their area. Existing section 106 (s106) charges will remain, however they will be restricted to site-specific mitigation and affordable housing. There should be no overlap in the use of CIL and s106, meaning no developer will pay twice.

Money raised can be used to support development by funding infrastructure projects. Although few authorities are currently charging, it is expected that many will follow in the short term.

Rates of CIL will be set by each local authority and based on a funding gap, calculated with reference to their own infrastructure plans. The rate bandings for CIL may be zoned and will typically be different for residential, retail and other. The proposed rates will be published in advance and have to be approved locally. CIL may be a significant cost, for example Wandsworth recently proposed a CIL rate for residential of £575/m2.

The key elements of CIL are as follows.

  • CIL is calculated with reference to the increase in gross internal areas of the proposed development from what is currently on the site. This 'net area chargeable' is then multiplied by the relevant rate (£/m2).
  • Generally the liability applies to the owner of the land, or leaseholder, if leasehold interest is greater than seven years, though it can be transferred.
  • The liability arises upon grant of planning permission, and collected upon commencement of the development.
  • There are defined rules for notification of relevant events, and a comprehensive system of penalties for non-compliance.
  • There are various limits to the charge, the most relevant being that any new build, including extensions, is only liable for the levy if it has at least 100m2 of gross internal floor space, or involves the creation of one dwelling, even where that is below 100m2.

Key issues to consider include the following.

  • Try to secure planning permission before CIL is adopted locally.
  • Because CIL is broadly levied on an increase in internal floor space, CIL should be more expensive for greenfield sites than brownfield developments. Measuring existing internal space will now be very important in planning applications.
  • CIL is triggered on grant of planning consent, but subsequent minor amendments requiring consent can trigger another CIL payment. This has been pointed out, but not amended to as it stands, it is best to get the scheme right first time unless you wish to risk paying twice or more.
  • There are a number of notifications and compliance obligations. Project funding, cash flow profitability forecasts, accounts and pricing decisions will need to take account of CIL.
  • Consider CIL mitigation strategies and the interaction with the other mainstream taxes.


There is discretionary relief from CIL in exceptional circumstances, but the indications are that this relief will be used sparingly. There are also specific exemptions from CIL for charitable concerns and affordable housing.

Implications and conclusions

CIL is now with us and here to stay. If your local authority has brought it in then you will need to consider the cost of this for your development and the compliance obligations. Where it hasn't been brought in, it is likely to be soon, but there may be a window of opportunity in the short term.


By Antje Forbrich

The recent CJEU judgment in Field Fisher Waterhouse did not provide a decision but referred the case back to the UK courts. It did, however, offer analysis and guidance on what may constitute a single or a separate supply for VAT purposes.

The background

The taxpayer paid rent on a property and also paid a service charge for building related services. The taxpayer argued that the service charge should not be exempt like the rent. The services should not be regarded as ancillary, but treated as a separate taxable supply resulting in the opportunity to recover the input tax arguably included in the service charge.

The questions

The UK court inquired whether, in order to decide whether there was a single exempt supply or two separate supplies, it was relevant that the landlord was entitled to terminate the lease agreement in case the tenant failed to pay the service charge. Further, the referring court asked how important it was that the services could in theory be provided by a third party.

The judgment

The CJEU reaffirmed the familiar principle that to determine the extent of a supply all circumstances must be taken into consideration. The fact that the landlord may cancel the lease if the service charge is not paid would support a single supply but is not decisive. Nor is it decisive that the services could be provided by a third party. The overall analysis would suggest that the CJEU did not necessarily agree with the taxpayer, however the case has been referred back to the UK courts to determine how closely linked the service elements are.

What now?

The Field Fisher Waterhouse case has been referred back to the UK First-Tier Tribunal. However, we understand that the taxpayer has asked for this case to be stood over behind the Upper Tribunal case of Middle Temple that HMRC is appealing.

Middle Temple not only provided a lease of office accommodation that it had opted to tax, but also recharged an invoice from Thames Water for unmetered water to the tenants. For historic pipe work related reasons, the tenants did not receive the supply directly from Thames Water and Middle Temple successfully argued that the water supply constituted a separate zero-rated supply.

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.

Richard Mannion
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.