UK: Weekly Tax Update – Monday 16 September 2013

Last Updated: 24 September 2013
Article by Smith & Williamson

1 GENERAL NEWS

1.1 OECD report on tax transparency and information exchange and the BEPS project

The OECD presented a report to the G20 on 5 and 6 September consisting of two parts. Part I covers progress on Transparency and Exchange of Information for Tax Purposes, and the initiative of ascribing ratings on these aspects to a large number of jurisdictions. Part II covers work on base erosion and profit shifting (BEPS) and tackling offshore tax evasion.

A multilateral instrument to amend bi-lateral treaties will be developed so that changes arising from the 15 BEPS action points can be implemented within the desired timescale of 18 to 24 months. The 15 action points cover three main principles:

  • Preventing double non-taxation due to the gaps that exist between countries' tax rules.
  • Aligning taxation with substance.
  • Improving transparency.

On automatic information exchange a model competent authority agreement could be available as early as the second half of 2013 with the detailed guidance following in the first half of 2014. A reporting schema and a first version of the related instructions could also be available in the second half of 2013, to be finalised in the first half of 2014.

www.oecd.org/tax/SG-report-G20-Leaders-StPetersburg.pdf

1.2 Government response to reports on the legal framework for charities

The government has issued its response to two reports on the legal framework for charities, one by the Public Administration Select Committee (PASC) and one by Lord Hodgson. The Government supported the PASC's conclusions and recommendations concerning the Charity Commissioners' role, aims and objectives and its stance on the abuse of charitable status to obtain tax benefits. Further background can be found at the following link.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/237077/Response-charities-legal-framework.pdf

2 PAYE AND EMPLOYMENT MATTERS

2.1 Employers missing real time information (RTI) reporting deadlines

Most employers should have started to report their PAYE information using RTI from their first payday after 6 April 2013. However the number of employers who have reportedly missed a deadline is around 167,000. During September 2013 HMRC will be writing to employers who have missed one or more of the deadlines for reporting under RTI. Any employer that has missed an RTI deadline should get in touch with one of the employment tax team to discuss how to deal with this.

www.hmrc.gov.uk/news/missed-deadlines.htm

www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/rti-letters-for-missing-deadline-901930

2.2 Contractor loan schemes

HMRC has issued the following note:

HM Revenue & Customs (HMRC) is challenging arrangements used by contractors and other professionals to avoid tax by entering into a contract of employment with an offshore employer, while providing their services in the UK. Under these arrangements, the users receive a substantial proportion of the fees for their services in payments which are said to be loans. But HMRC does not agree that these arrangements succeed in avoiding tax.

Individuals using these schemes may have received letters opening enquiries into their recent returns. Over the coming months, HMRC will be sending tax assessments to those who have used these schemes between 2008 and 2011. If you receive an assessment you can either:

  • accept the assessment and pay the tax due;
  • appeal against the assessments and begin the process to have your case heard by an independent tax tribunal if you can't reach an agreement with HMRC.

Further information about the rules on assessing and how to appeal is being issued with the assessments.

www.hmrc.gov.uk/news/contractor-loan-schemes.htm

2.3 Employment-Related Shares & Securities Bulletin

HMRC's September Employment-Related Shares & Securities Bulletin covers the following points:

  • Employee shareholder shares and status (no prior HMRC approval is required before making the award, and it is possible to propose a share valuation to HMRC's share valuation division;
  • Guidance on Finance Act 2013 changes to tax advantaged share schemes – transition issues covering:

    • CSOP exercise rules;
    • The fact that the limit on the amount of SIP dividends that can be reinvested is removed does not affect those Partnership Share Agreements that contain the wording "dividends being reinvested up to a limit of £1,500" or similar;
    • Following FA2013, amendments to a forfeiture provision in relation to scheme shares will no longer be considered to be an alteration to a key feature of SIP, SAYE or CSOP, and therefore do not need HMRC approval;
    • FA13 extends the period within which EMI options can be exercised with tax advantages following a disqualifying event from 40 to 90 days. This extension can be applied to any EMI options that have yet to be exercised, without changing the tax status of this option.
  • New guidance at ERSM80130 has been included to cover the Grays Timber Products Limited case.

www.hmrc.gov.uk/shareschemes/erss-bulletin10.pdf

2.4 Ending of the regional NIC holiday

The Government sponsored regional NIC holiday scheme ended on 5 Sept and HMRC has published news on end of year returns for the 2013/14 tax year.

www.hmrc.gov.uk/news/end-emp-nics.htm

3 BUSINESS TAX

3.1 Alternative dispute resolution for large and complex cases

On 9 September HMRC published a summary of the Alternative Dispute Resolution (ADR) pilot. The pilots started in June 2011 following the publication of the refreshed Litigation and Settlement Strategy which sets out the HMRC framework for resolving disputes. The aim was to test the use of ADR techniques for large or complex cases ranging across business customers and public bodies and individuals. The outcomes show that ADR can be useful in speeding up dispute outcomes in suitable cases. HMRC has now ended the pilots but ADR will continue to be available. The Dispute Resolution Unit (DRU) will continue to act as the central point of contact.

The summary indicates that of the 66 cases that were accepted into the pilot, 23 cases have been resolved involving an average time of 24 weeks. Five cases were not resolved taking on average 34 weeks to reach this conclusion. These 28 cases involved tax at stake of £57m. The cases remaining in the pilot (38) involve around £93m of tax at stake. The report indicates that the time involved for the ADR process compares to an average of 70 weeks for an appeal covering the time from making the appeal to having the appeal heard.

The report on the ADR pilot for SMEs and individuals was published in April this year.

www.hmrc.gov.uk/news/adr-large-complex-cases.htm

www.gov.uk/government/uploads/system/uploads/attachment_data/file/236489/3852_ADR_Evaluation_Report_accessible.pdf

3.2 Landfill tax

Following consultation with representatives from the waste management industry and other interested parties on how to apply the lower rate of landfill tax to certain waste, HMRC has issued draft guidance covering:

  • The definition of 'naturally occurring'.
  • Evidence required.
  • Missed loads.
  • Quarries.

www.hmrc.gov.uk/landfill-tax/lower-rating.pdf

3.3 Amendments to QROPS regulations

SI 2013/2259 makes amendments relating to Registered Pension Schemes, Recognised Overseas Pension Schemes and Qualifying Recognised Overseas Pension Schemes (QROPS). It comes into force on 14 October 2013, with transitional provisions covering the period 6 April 2012 to 13 October 2013. The amending regulations cover the following points:

  • The scheme manager of a pension scheme is required to continue to report to HMRC when it still has pension savings from UK pension schemes even when that scheme has ceased to be a QROPS.
  • A penalty regime is introduced for former QROPS that do not meet their reporting obligations.
  • Members of registered pension schemes making a transfer are required to tell the scheme administrator the date they left the UK if their principal residential address is not in the UK. The scheme administrator will be required to report that information to HMRC.
  • Scheme managers will be required to notify HMRC that a scheme continues to meet the conditions to be a QROPS every five years for periods ending on or after 1 April 2015.
  • The information that is required from scheme managers of QROPS and former QROPS is set out in more detail. The regulations also enable scheme managers of former QROPS to supply information electronically.
  • The benefits tax relief test for public service schemes and pension schemes of international organisations is relaxed. In addition the regulations also provide that HMRC will not have to issue two identical information notices to the scheme manager of a QROPS or former QROPS where this would otherwise be the case.

www.legislation.gov.uk/uksi/2013/2259/pdfs/uksi_20132259_en.pdf

www.hmrc.gov.uk/pensionschemes/draft-overseas-schemes-transfer-qrops.pdf

4 VAT

4.1 Rule changes for zero-rating supplies of goods for indirect export outside the EU

On 13 May 2013 HMRC issued a consultation on changes to the zero rating of exports from the UK to make UK legislation compliant with EU legislation. The consultation closed on 5 July and on 10 September a summary of responses was published. In addition a Tax Information and Impact Note and Brief 26/13 have been published to provide further information. The following notes have been extracted from the documents recently published.

The UK currently provides for zero-rating of goods intended to be exported outside the European Union (EU) provided certain conditions are met. Where goods are sold to a VAT registered customer who is established in a country other than the UK, the supply is not eligible for zero-rating under UK law. This is contrary to EU VAT law (Council Directive 2006/112/EC) which says that where goods are collected by an overseas customer for subsequent export, the supply is eligible for zero-rating provided the customer is not established in the Member State. Whether such a customer is VAT registered in the Member State makes no difference to the VAT treatment of the supply. Therefore, UK law cannot exclude VAT registered businesses from the scope of the export exemption if those businesses are not established here, so UK law requires amendment. The changes extend the scope of zero-rating to transactions not previously covered in the UK.

Secondary legislation [SI 2013/2241] will amend the VAT Regulations 1995 to:

  • extend zero-rating to goods supplied to businesses registered for VAT in the UK but established in another country, where those businesses export the goods outside the EU. This will assist export trade by removing a requirement for UK businesses and their customers to account for VAT; and
  • amend the VAT Regulations 1995 to correct an outdated reference to Excise law where businesses dispatch goods to other EU Member States.

The changes will be effective from 1 October 2013.

The response document included the following:

"...suppliers will be obliged to comply with additional proof of export requirements resulting in an increase to administrative burdens. There is also a concern that, if UK suppliers continue to charge VAT on affected transactions, HMRC will disallow the customer's subsequent recovery of that VAT.

HMRC acknowledges that suppliers will be required to meet proof of export requirements and this was reflected in the Tax Impact Assessment at section 4 of the consultation document. However, it is estimated that those businesses will incur minimal additional costs.

If VAT is charged on transactions which are eligible to be zero-rated, the customer is entitled to recover that VAT as input tax subject to the normal rules. This will be covered in HMRC guidance."

Brief 26/13 includes the following comment on VAT reclaims:

"If affected businesses choose to correct past transactions and wish to make a claim to HMRC (under section 80 of the VAT Act 1994) for repayment of VAT incorrectly accounted for, they may do so, subject to the conditions set out in Notice 700/45 How to correct VAT errors and make adjustments or claims.

All claims will be subject to the four-year time limit in section 80(4) of the VAT Act 1994 and to the set-off provisions in section 81 of the VAT Act and section 130 of the Finance Act 2008.

We may reject all or part of a claim if repayment would unjustly enrich the claimant.

More details on making claims and 'unjust enrichment' can be found in Notice 700/45 'How to correct VAT errors and make adjustments or claims'.

In all cases, zero-rating of past supplies will only be appropriate if the supplier holds valid evidence to show that the goods have been exported. Guidance on acceptable evidence of export is set out in section 6 of Public Notice 703 VAT: Export of goods from the United Kingdom. Additionally, for past transactions, the recipients of the supplies in question will need to make corresponding adjustments to the amount of input tax reclaimed."

www.gov.uk/government/uploads/system/uploads/attachment_data/file/237393/130827_-_Summary_of_Responses_document_-_Version_3.pdf

www.hmrc.gov.uk/briefs/vat/brief2613.htm

www.hmrc.gov.uk/tiin/zero-rating-of-exports.pdf

www.legislation.gov.uk/uksi/2013/2241/pdfs/uksi_20132241_en.pdf

4.2 Importing returned goods free of duty and tax

HMRC has replaced VAT notice 236 on importing returned goods free of duty and tax. The notice explains how goods can be re-imported to the European Union (EU) in the same state they were in on previous export from the EU, so that it is possible to obtain total or partial relief from customs duty or from VAT or CAP charges.

The conditions for relief are different for each type of duty or tax, and if relief is claimed from more than one, the conditions for relief from each type of duty or tax must be met.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000226#P11_205

4.3 Update to VAT notice 700/56 Insolvency

HMRC has issued an updated VAT notice 700/56 which gives:

  • clarification at Section 7 that VAT on realisation of taxable stocks and assets remaining at the date of insolvency should normally be accounted for on post- appointment VAT returns, including the final return VAT 193;
  • further clarification at Section 17 of the requirements of Law of Property Act (LPA) receivers in accounting for VAT.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000122#P19_1207

4.4 HMRC spotlight - VAT

HMRC's anti-avoidance team published the following spotlight in July:

VAT contrived non-profit-making bodies scheme to obtain exemption for sporting or educational/training supplies.

Some businesses seek to take advantage of exemptions for VAT that are available where certain sporting and educational/training supplies are provided by a non-profit-making body.

These businesses purport to provide sporting or educational supplies/training via non-profit-making bodies but in reality the profit on these supplies is extracted from the non-profit-making body - for example by means of non-VAT-bearing fees charged by an associate of the non-profit-making body. The courts have used the term 'covert distribution' for the extraction of profits/surpluses in this way.

HMRC accepts that the exemptions apply to businesses that are genuinely non-profit- making bodies but HMRC does challenge arrangements which involve "covert distribution" through litigation where necessary. HMRC has been very successful in such litigation with the courts up to and including the Court of Appeal consistently supporting HMRC's view that these schemes simply do not work.

HMRC strongly advises anyone who has used such a scheme to consider withdrawing from the scheme. By withdrawing and notifying HMRC, people will avoid the costs of litigation and minimise interest on underpaid tax and any penalties that might be applicable.

If you already have an appeal with the tax tribunal in relation to this scheme you will need to notify the tribunal if you wish to withdraw your appeal.

www.hmrc.gov.uk/avoidance/spotlights.htm

4.5 Foreign branch turnover ignored in calculating partial exemption VAT recovery

The CJEU has concluded a taxable business located in one member state (entity A) is unable to take into account the turnover of its branches located in other member states or third countries when determining the deductible portion of its (entity A's) input VAT. It also concluded a member state is unable to permit such a calculation rule. The case concerned a claim by Le Credit Lyonnais (case C-388/11) against a decision by the French authorities to refuse the inclusion of such turnover in a partial exemption calculation.

http://curia.europa.eu/juris/document/document.jsf?text=&docid=140943&pageIndex=0&doclang=EN&mode=req&dir=&occ=first∂=1&cid=468123

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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