UK: Weekly Tax Update - Monday 15 July 2013

Last Updated: 23 July 2013
Article by Smith & Williamson

1 GENERAL NEWS

1.1 HMRC launches four new taskforces

HMRC have launched four new taskforces to tackle tax evasion. Taskforces are specialist teams that undertake intensive bursts of activity in specific high-risk trade sectors and locations in the UK. The teams visit traders to examine their records and carry out other investigations.

The taskforces launched on 10 July are into the following areas:

  • the holiday industry in Blackpool, the Lake District, North Wales, Devon and Cornwall;
  • restaurants in Yorkshire and Humber;
  • road hauliers in the Midlands;
  • the fishing industry in Scotland.

Since 2011/12, HMRC's taskforces have collected more than £80 million, and expects to collect £90 million per year from taskforces launched over the next three years.

1.2 Penalties for inaccurate information provided to HMRC

Schedule 24 to FA07 provides for financial penalties when inaccurate information is provided to HMRC. When such information relates to sources or assets in an overseas jurisdiction the scale of penalty is determined by reference to the category of the territory to which the inaccuracy is connected. The Penalties, Offshore Income etc. (Designation of Territories) Order 2011 designates certain territories as category 1 territories or as category 3 territories for the purposes of Schedule 24 to FA07. Any territory not listed in category 1 or category 3 falls by default into category 2.

SI 2013/1618 reclassifies certain territories from category 2 to category 1 (Liechtenstein and Switzerland) and from category 3 to category 2 (Antigua and Barbuda, Armenia, Bahrain, Barbados, Belize, Dominica, Grenada, Mauritius, San Marino, Saint Kitts and Nevis, Saint Lucia and Saint Vincent and the Grenadines). The order comes into force on 24 July 2013.

www.legislation.gov.uk/uksi/2013/1618/pdfs/uksi_20131618_en.pdf

HMRC guidance on the implications of dishonest conduct by tax agents

HMRC has updated its guidance on the implications of dishonest conduct by tax agents.

www.hmrc.gov.uk/agents/strategy/dishonestconduct.htm

1.3 Revised timeline for the implementation of FATCA

IRS Notice 2013-43 revises the timelines included in the regulations for withholding agents and foreign financial institutions to begin their due diligence, withholding, and reporting requirements under FATCA.

Specifically, this Notice provides a six-month extension for when withholding will begin (ie payments after 30 June 2014) and for implementing new account opening procedures as well as related requirements to comply with FATCA.

The timeline for foreign financial institutions to register as (among other things) participating foreign financial institutions is also extended under the Notice, with the registration portal expected to open on 19 August 2013.

Finally, the Notice provides that financial institutions operating in jurisdictions that have signed an intergovernmental agreement (IGA) covering their financial institutions' compliance with FATCA will be treated as having an effective IGA.

www.irs.gov/pub/irs-drop/n-13-43.pdf

2 PRIVATE CLIENT

2.1 HMRC consults on improving debt collection through PAYE tax codes

The Government has previously consulted twice on the principle of HMRC using the PAYE system to collect more debts due to HMRC ("coding out") as well as increasing the threshold for such collection to £3,000. As part of its efforts to improve the collection of debt HM Revenue & Customs (HMRC) is seeking views on proposed changes to the coding out of debts and underpayments. The Government intends to increase the coding out limit but would welcome views on the detail and implementation of the proposed changes. The consultation will run from 11 July to 5 September 2013.

At present, HMRC can include up to £2,000 a year through the PAYE system, allowing debtors with a source of income within PAYE to spread their payments and reduce HMRC's collection costs. Coding out can also be used where there has been an underpayment of PAYE or a self-assessment balancing payment (an amount owing under a taxpayer's tax return) if it is below the £3,000 limit.

Proposed changes to the annual limit

HMRC's aim is to:

  • make more use of coding out;
  • collect more from higher earners while protecting lower earners; and
  • extend the focus of coding out from just small debts to larger ones.

HMRC is therefore proposing to replace the current single scale by a graduated scale of limits. This would:

  • protect those on lower incomes, with no change to the maximum that could be coded out for those earning less than £30,000; and
  • introduce a graduated, income related scale for earnings of £30,000 or more so that a maximum of £17,000 could be coded out for a person with earnings of over £90,000.

To avoid any change for low earners, the limit would remain at £3,000 for anyone with a primary source of PAYE income of less than £30,000 a year.

For more information, the consultation document can be found at the following link:

www.gov.uk/government/uploads/system/uploads/attachment_data/file/211628/130710_final_coding_out.pdf

2.2 Tainted charity donations

HMRC has issued draft guidance on the 'tainted charity donations' rules, introduced by FA 2011, which replaced most of the 'substantial donors to charity' rules from April 2013.

Schedule 3 to the Finance Act 2011 introduced new anti-avoidance rules (the Tainted Charity Donations rules) to prevent the abuse of the tax reliefs available to donors to charities and Community Amateur Sports Clubs (CASCs).

The draft guidance applies where taxpayer donors enter into arrangements to obtain financial advantage from a charity or a community amateur sports club [CASC]. Only such donors, charities and CASCs need to consider whether the new rule applies to their donations. The tainted charity donations rules do not apply to:

  • a simple donation to charity where no additional arrangements are entered into;
  • a donation under Gift Aid that is within the Gift Aid benefit limits;
  • a donation, any benefit of which has been taken into account in calculating the relief due for donations to charity of shares, securities and real property, or trading stock.

The tainted charity donations rules ensure that the usual tax reliefs are not available where donors enter into arrangements to obtain a financial advantage from a charity or CASC for themselves, or someone else involved in the arrangement, in return for their donation. Some, but not all, of the previous rules in respect of substantial donors to charity transactions (at s549-557 Income Tax Act 2007 (ITA) and s502-510 Corporation Tax Act 2010 (CTA)) up to, and including, 31 March 2013 are disapplied. After that date the legislation on substantial donors to charity has been largely repealed.

The tainted charity donations rules are based on a purpose test which considers the effects of and circumstances in which the donor, or someone connected to the donor, entered into arrangements to make the donation, and to whether those arrangements are deemed to obtain a financial advantage.

How the rules work

Three conditions, A, B and C must be met for a donation to be a tainted charity donation. Where all three conditions are satisfied, the donor loses any tax relief that they would have been entitled to claim, had the donation not been tainted.

An additional charge to tax may also arise where the donation would have been eligible for relief under the Gift Aid scheme (for individual donors only).

The conditions are:

Condition A – the donation to the charity and arrangements entered into by the donor are connected

Condition B – the main purpose of entering into the arrangements is for the donor, or someone connected to the donor, to receive a financial advantage directly or indirectly from the charity

Condition C – the donation is not made by a qualifying charity-owned company or relevant housing provider linked with the charity to which the donation is made

All three conditions must be met for the new rules to apply.

These rules only apply to donations that are defined as `relievable charity donations`. Donations that are not defined as relievable charity donations are not affected by these rules.

The guidance provides expanded detail of these conditions, as well as defining 'relievable charity donations' and shows a number of examples.

When a donation is tainted

Where a donation is tainted, the donor is not entitled to claim tax relief that would otherwise have been due in respect of it, or in respect of any other donation that is associated with it.

Gift aid and tainted donations

If the donation would have been a qualifying donation under the Gift Aid scheme if it were not a tainted donation, the charity will continue to be entitled to make a repayment claim to HMRC in respect of income tax. However an income tax charge will arise in connection with this repayment. The amount of the income tax charge is equal to the amount of the repayment of tax that the charity would be entitled to claim in respect of the gift aid donation (whether or not the charity makes the repayment claim).

The draft guidance can be found at: www.hmrc.gov.uk/charities/guidance-notes/tainted-donations.pdf

2.3 CGT, trust distributions and matching to gains of an offshore trust

The First tier Tribunal has concluded that distributions to beneficiaries from new resident trust can be matched to gains in original offshore trust. HMRC had accepted that flip-flop mark II scheme was effective so that gains did not arise in the new trust. However it concluded that as a result of TCGA s97(5) the distributions to beneficiaries from the new trust were nevertheless "from... indirectly" the original trust. This was because the new trust was essentially, and viewed realistically, a continuation of the original trust.

www.bailii.org/uk/cases/UKFTT/TC/2013/TC02766.html

2.4 Whether a discovery assessment validly made

In 2000-01 Mr Smith participated in a marketed tax avoidance scheme designed to create a tax deductible capital loss of £532,695. Mr Smith accepts that, as a result of the Court of Appeal decision in Drummond v HMRC [2009] STC 2206, the scheme, which involved the acquisition and disposal of second-hand insurance bonds, did not achieve its purpose.

Mr Smith's self-assessment tax return for the tax year 2000-01 ("the Return") was submitted on 22 January 2002. It is accepted that some details on the Return were incorrect – for example, the date of disposal of the bonds – but that is not material to the appeal. The Return gave two "white space" disclosures as follows.

"During the period Mr Smith acquired a non-qualifying second hand insurance bond for £532,695. This bond was subsequently redeemed in full, on 6 March 2001 for an amount of £483,228.93.

For tax purposes the surrender proceeds fall to be taxed under both s.54 1TA 1988 (income) and s.22 TCGA 1992 (capital gains).

For income purposes a charge arises equal to the excess of surrender proceeds over premiums paid into the policy. In the case of Mr Smith the income arising is:

£

Proceeds received on surrender 483,228.93

Premiums paid into the policy (510,000.00)

Income Charge NIL

Please refer to the additional disclosure on schedule CG7 for details of the capital gains position."

"In calculating the capital gain arising on the final surrender the proceeds are again the amount received on surrender. However, s.37 TCGA 1992 provides that sale proceeds which have been taken into account for income purposes should not be taken into account for capital gains purposes. As the proceeds of £483,228.93 have been taken into account above in calculating the chargeable event gain, the proceeds for capital gains tax purposes are.-

£

Proceeds received on surrender 483,228.93

Less amounts excluded under s.37 TCGA 1992 (483,228.93)

Proceeds for capital gains purposes NIL

The expenditure incurred for capital gains purposes is the amount paid by Mr Smith for the bond i.e. £532,695.

The capital gains tax computation on surrender of the bond is:

£

Sale proceeds (as above) 0

Allowable expenditure (as above) (532,695)

Capital gain/(loss) (532,695)"

Despite there being various news within HMRC about the procedures for preparing to challenge this particular scheme, no enquiry was raised by 31 January 2003. The HMRC inspector dealing with Mr Smith's affairs was on sick leave from 21 November 2002 to 3 March 2003. HMRC raised a discovery assessment on 29 November 2006.

The Tribunal concluded there was a discovery within the meaning of TMA s29(1), taking the guidance in the Bluemnthal case
(www.bailii.org/uk/cases/UKFTT/TC/2012/TC02174.html ) :

"[162] We suggest, unless and until a higher court takes a different view, this point is no longer open as regards this tribunal. In our view, HMRC can raise a discovery assessment under s 29(1) TMA, subject to the conditions referred to below, if it newly discovers— which includes a change of mind—any of the circumstances set out in sub-s (1)(a)–(b) apply ie in summary, that insufficient tax has been assessed or excessive relief has been given."

In considering what information was available to HMRC before the enquiry window closed, the Tribunal concluded that information outside Mr Smith's file (such as HMRC's memos and views on the SHIPS case and variants of it) were irrelevant.

In relation to whether a hypothetical inspector could have been reasonably expected to be aware of the unassessed gains, on the basis of the information made available to him before the enquiry window closed, following Blumethal the Tribunal concluded:

In our opinion the relevant law relating to the scheme adopted by Mr Smith was of a degree of complexity such as to make it unreasonable for the officer to be aware of an insufficiency on the basis of the information contained in Mr Smith's tax return. We do consider that the information was sufficient to warrant the hypothetical officer opening a s 9A enquiry – but that is not the relevant test.

The Tribunal therefore concluded the discovery was validly made.

www.bailii.org/uk/cases/UKFTT/TC/2013/TC02768.html

2.5 Consultation on withdrawing relief for interest on loans to purchase life annuities

The Government is inviting views on the withdrawal of relief for interest on loans to purchase life annuities taken out by people aged 65 or over before 1999, the withdrawal to take place from a fixed date in the future. These loans are often referred to as 'home income plans'. Comment is requested by 30 September 2013.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/211006/130627_v2_CONSULTATION_M5145.pdf

To read this Update in full, 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.

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

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

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.