UK: Weekly Tax Update - 15 April, 2013

Last Updated: 19 April 2013
Article by Smith & Williamson

1 General news

1.1 New multilateral action to combat tax evasion

The Government has agreed with France, Germany, Italy and Spain to develop and pilot multilateral tax information exchange. Under the agreement, a wide range of financial information will be automatically exchanged between the five countries. This will help catch and deter tax evaders as well as provide a template for wider multilateral automatic tax information exchange.

This pilot will be based on the Model Intergovernmental Agreement to improve international tax compliance and to implement FATCA developed between these countries and the US (which also formed the basis of the subsequent UK-US bilateral automatic exchange agreement). This will help ensure that international tax evasion is tackled in a way that minimises costs for both businesses and governments.

A joint letter has been issued to the European Commission setting out the terms of the agreement – link below.

Exchequer Secretary to the Treasury, David Gauke said:

"This is an important further step in the fight against tax evasion and represents the next stage in promoting a new standard in the automatic exchange of tax information. This builds on the agreements we have reached with the Isle of Man, Guernsey and Jersey and the discussions currently underway with the Overseas Territories."

1.2 Subsale relief and whether an SDLT mitigation scheme worked

The First-tier Tribunal has agreed with HMRC and rejected the appellant's (Mr Allchin) submissions in relation to the effectiveness of a SDLT mitigation scheme involving the subsale, or transfer of rights, provisions in FA03 s45.

The scheme was carried out as follows:

  • Funds were received from Mr Allchin (£1.25m) and his mortgage providers (£1.2m)
  • A deposit of £0.23m was paid by a company (Alpine Investments Ltd – Alpine), although the funds for this deposit appeared to have come from Mr Allchin.
  • Alpine entered into the contract for the purchase of a London residential property for £2.45m, paying £1.86m consideration on 14 November 2007. The instruction to transfer the £1.86m was given at 12:22 that day.
  • The balance of funds due (£0.36m) were paid by Mr Allchin, with instructions for the transfer given at 12:32 on 14 November 2007.
  • In between these transfers it was alleged the contract between the vendor and Alpine was novated in favour of Mr Allchin in such a way that there was a transfer of rights and due to s45 FA03 the consideration paid by Alpine was to be ignored in calculating the SDLT due on the transaction.

The Tribunal considered that a novation was not a transfer of rights, but a cancellation of the original contract and its replacement by a new contract (with a new ultimate purchaser), and consequently FA03 s45 did not apply. In determining the amount of consideration for SDLT purposes, the Tribunal concluded that Mr Allchin had provided all the consideration and so SDLT was due on consideration of £2.45m. The Tribunal also did not find sufficient evidence to support the contention that the novation had happened in between the transfers of cash of £1.86m and £0.36m. In view of the Tribunal's view that s45 did not apply, there was no need to consider whether the SDLT anti-avoidance provision of s75A applied.

The appellant maintained that a discovery assessment was not possible as a reasonable inspector should have spotted that the declared consideration for SDLT purposes for a central London property such as the one at issue was too low, and that an enquiry should have been opened within the normal enquiry window. There was no separate disclosure made with the submission of the original SDLT return and this contention by the appellant held no sway with the Tribunal, particularly in view of this lack of disclosure and the guidance issued following Langham v Veltema.

1.3 Stamp Taxes Bulletin 1/2013

HMRC has issued its first Stamp Taxes Bulletin for 2013. It covers:

  • Changes to Stamp Taxes telephone/fax numbers
  • Disadvantaged Areas Relief (DAR)
  • New Annual Tax on Enveloped Dwellings (ATED)
  • 15 per cent SDLT
  • Paying Stamp Duty Land Tax (SDLT) into the correct bank account
  • Tenancies at will
  • Variable or uncertain rent- adjustments in line with RPI
  • When a land transaction return should not have been submitted
  • Recent updates to the Stamp Duty Land Tax Manual.

2 Private client

2.1 Limit on tax reliefs – Draft HMRC guidance

HMRC has issued some guidance on the new income tax relief limit, included in the Finance (No 2) Bill 2013, which is intended to have effect for the tax year 2013/14 and subsequent tax years. It should be noted that until the Bill receives Royal Assent the draft legislation may be subject to further amendment.

As a reminder, the limit applies to certain reliefs which were previously unlimited and which are available to reduce an individual's total income. The limit is the greater of £50,000 or 25% of the individual's adjusted total income for a tax year.

Points to highlight in the guidance:

  • qualifying loan interest paid by a personal representative on a loan to pay inheritance tax is not covered by the cap;
  • the limit does not apply to trade loss relief against total income or early trade losses relief to the extent that a trade loss is set against profits from the same trade of an earlier year; and
  • where the Remittance Basis Charge (RBC) applies, the actual or deemed nominated income figure is added to the individual's total income (at step 1 of the income tax calculation) when calculating the applicable limit.

2.2 Leaving the UK: HMRC issues new form P85

An updated version of form P85 has been issued by HMRC to reflect the changes in the residence rules from 6 April 2013.

The new form can be found at

3 PAYE and employment matters

3.1 New expenses and benefits on line forms

From April 2013, HMRC started to provide employers and agents with an additional method for reporting end-of-year expenses and benefits. Called 'Online end of year Expenses and Benefits forms' it's an HMRC produced web-based set of forms and will be most useful for small to medium sized employers when submitting their employees' expenses and benefits information online.

Initially there will be just two new online forms available - with an equivalent form for agents to use on behalf of their clients - but in time there will be more developed To report expenses and benefits employers can still choose to use their own payroll software if it provides this function, or use 'PAYE Online for employers' to submit forms via the Government Gateway - the new online forms will simply offer an additional choice should the software used not support expenses and benefits reporting. Employers who currently use HMRC's Basic PAYE Tools to run payroll will need to consider alternative methods for completing end of year forms - P11D, P9D and P11D(b) - as the tools will not provide this facility from 2012/13 onwards.

3.2 HMRC response to the removal of ESC A19

HMRC has published its response to the consultation on the removal of ESC A19. ESC A19 currently allows income tax and capital gains tax to be 'given up' (i.e. not collected) where:

a) HMRC has failed to act on information received from the taxpayer or a relevant third party in a timely manner, resulting in arrears; and,

b) HMRC notified the taxpayer of the arrears more than 12 months after the end of the tax year in which information was received; and,

c) The taxpayer could 'reasonably have believed' that their tax affairs were in order.

The consultation sought views on a proposed revised version of ESC A19 which:

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

The response document comments:

Overall, respondents welcomed the opportunity to comment on the details of the proposal, with most of the concerns regarding the proposed revised version of ESC A19 centring on a few key issues. Particularly expressed was concern at what was perceived as the shifting of responsibility for "getting things right" away from HMRC and onto the individual.

A very brief summary of the government response to representations includes: the commitment to retain a 'reasonable belief' test, and; to retain the concession's application to CGT (but to keep this under review) and; not to introduce time limits for applying ESC A19. The following comment is included in the summary of next steps:

HMRC recognises that it needs to develop its guidance in applying the current text of the Concession and the information available to those looking to benefit from the Concession, along with associated training for HMRC staff. This will include making it clear that the Concession can only apply where arrears are outstanding, advising customers to contact HMRC if they wish to pay but are considering an ESC A19 claim. It is anticipated that improving staff and customer guidance will bring both clarity and consistency to the application of ESC A19.

3.3 PA Holdings

HMRC has announced that PA Holdings Ltd has withdrawn its appeal to the Supreme Court. This means the decision of the Court of Appeal in this case is final. This case was summarised in Tax Update of 5 December 2011 at item 3.1 which is reproduced below:

HMRC has succeeded in overturning the First Tier Tribunal and Upper Tier Tribunal decisions in the case of the tax treatment of dividends received from a restricted share scheme.

The Upper Tier Tribunal decision (covered at item 2.1 of Tax Update of 26 July 2010) confirmed the decision of the First Tier Tribunal in relation to income tax that while the dividend income received was clearly linked to services rendered, the treatment of the receipt as a dividend took priority over treatment as an emolument for income tax.

To view the complete tax update, please click here.

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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