UK: Weekly Tax Update – Monday 30 September 2013

Last Updated: 3 October 2013
Article by Smith & Williamson


1.1 Allocation of self assessment tax payments

HMRC allocated a self assessment tax payment made by John Francis in accordance with the policy set out in their Debt Management and Banking manual (DMBM210105 & 210120), against older debts before new debts. However this practice was not communicated to the taxpayer and is not set out in legislation.

The taxpayer gave no instructions as to how to allocate the payment and appealed against a penalty for late payment of the element of outstanding tax due on his most recent tax liability. The allocation to earlier debts by HMRC related to debts prior to 2010/11 which would have given rise to no further penalty if they remained outstanding.

The First-tier Tribunal concluded the taxpayer had a reasonable excuse for assuming the payment would be allocated against the most recent liability.

1.2 Swiss bank accounts

Under the Swiss/UK Tax Co-operation Agreement, UK residents with Swiss bank accounts were given the choice between subjecting their Swiss assets to a one-off tax payment and authorising their bank to provide details of their Swiss assets to HMRC.

HMRC is now writing to those individuals who authorised their bank to notify their details – see extracts below:

It is important that you read this letter and the guidance referred to later in this letter.

You must reply no later than 1 November 2013. If you do not, we may start a detailed investigation into your tax affairs, supported by our statutory information powers. In some cases, this could be a criminal investigation.

UK Swiss Tax Cooperation Agreement

We are writing to you because we have received details of your beneficial interest in Swiss assets or investments. In most cases this will be because, under the terms of the above agreement, you have opted to agree to the release of this information rather than have a one-off charge applied to these amounts.

We need to be satisfied that you have no additional UK liabilities outstanding in relation to these assets or investments, or that you will now take action to quantify and pay any outstanding amount of UK tax that you owe, together with any associated interest and penalties which may be due.

What you need to do now

Please read this letter and the guidance on our website very carefully as they contain important information. Once you have read these you should complete one of the enclosed certificates and return it to us no later than 1 November 2013.

To read the guidance go to:

Deciding which certificate to complete

Certificate A

You should complete Certificate A if you have no outstanding UK tax liabilities..............

Certificate B

You should complete the relevant section of Certificate B if you have already registered for the Liechtenstein Disclosure Facility or if you intend to use this facility to disclosure all outstanding UK tax liabilities.....................

Certificate C

You should complete either Section C1 or Section C2 of Certificate C if you have outstanding UK tax liabilities to disclose to HMRC, but are not using the Liechtenstein Disclosure Facility to do this......................


2.1 Interest in possession trusts governed by foreign law – a reminder

The tax implications of income from trusts governed by foreign law depend on whether the trusts concerned are 'Baker' types or 'Garland' types. These classifications are based on the cases of Archer-Shee v Baker (11TC749) and Garland v Archer-Shee (15TC693).

Baker type trust

Beneficiaries of a Baker type trust are entitled to their appropriate share of each item of income as and when it arises to the trust. This is subject only to a deduction for trustees' expenses.

Unless the remittance basis applies, the beneficiaries are chargeable on their share of the trust income, less a rateable proportion of the trust expenses. If the trust income has borne UK tax, it is taxed income of the beneficiaries.

Each beneficiary's share (after a rateable proportion of trust expenses) is income that has been taxed at whatever rate of tax it has borne.

Beneficiaries of a Baker type trust should make their Self Assessment on the Trust etc. supplementary pages. They follow the instructions in the SA107 (Notes) under the heading Income from trusts and settlements.

Garland type trust

Beneficiaries of a Garland type trust are entitled only to their appropriate share of the net trust income remaining after the trustees have ascertained the balance available after meeting the expenses of administering the trust.

Beneficiaries chargeable on the arising basis are liable by reference to the actual income receivable from the trust in the basis year. This applies whether or not it was paid out by the trustees or remitted to the UK. The nature of the income that arose to the trustees is irrelevant.

Beneficiaries of a Garland type trust should enter the amount received on their Self Assessment tax return, on the Foreign supplementary pages. It is an untaxed source.

Some of the income chargeable may be from trust income that has borne UK tax. A claim for relief in respect of the tax must be a free standing claim. It must not affect a beneficiary's Self Assessment.

Trust income may have suffered foreign tax. Beneficiaries can claim credit relief for that foreign tax. This is in the same way and to the same extent as if the beneficiaries were entitled to their proportionate share of the underlying investments of the trust. A claim for credit must be a free-standing claim. It must not affect a beneficiary's Self Assessment.

HMRC publishes a list showing whether trusts governed by the law of those countries are 'Baker' or 'Garland'.

2.2 Charities: Gift Aid online deadline

A reminder that from 1 October charities must make Gift Aid repayment claims using the Charities Online service with the R68i claim form becoming obsolete.


3.1 RTI and reconciling 2013/14 PAYE charges

HMRC has issued a report summarising its findings of those RTI submissions that result in tax due that was different to that which the taxpayers were expecting. Included in the report is the following summary:

It is clear from the analysis that it would be helpful to increase knowledge of how the employer charge is created - both internally in HMRC and externally with our customers and their agents. Some customers did not understand how HMRC calculated the employer charge, and within HMRC, that lack of detailed knowledge by some contact centre advisors affected responses to customer contact and our handling of referred disputed charges. This meant that some employers were led to believe that their liability and payment had been calculated incorrectly, and so cases were referred incorrectly for review.

Work on developing that knowledge is now underway and we will publish enhanced guidance shortly.

Where issues occur we are working with employers, payroll service providers and, where appropriate, their payroll software providers to resolve issues quickly. But we also have to recognise these are often complex cases which require detailed work by both HMRC and the employer.

To put this in context, the number of charges being queried with our specialist team is only a small proportion (less than 1%) of 1.6 million RTI-reporting PAYE schemes. It is also worth reminding ourselves that it is highly unlikely that there will ever be a time when no PAYE charges are under query.

We have found that the majority of discrepancies have been due to misunderstanding, error or transitional issues as employers joined RTI, and there is no evidence of error in the way that HMRC's IT systems create the charge. We recommend that employers and payroll service providers check HMRC's guidance or liaise with their payroll software provider where they are unsure.

3.2 HMRC's Employer Bulletin

HMRC's Employer Bulletin for September 2013 is now available. The Bulletin includes (amongst other things) an update on self-certification of employee share schemes and on-line filing of share scheme forms.


4.1 Unauthorised unit trusts

A draft statutory instrument has been issued setting out the treatment of the trustees or unit holders of unauthorised unit trusts for the purposes of income tax, corporation tax and capital gains tax. This follows earlier consultation in 2011 and the publication of draft guidance in January this year.

An extract from that earlier guidance (as updated for the new draft regulation references) was:

The effect of the draft provisions is that the tax treatment of the trustees or unit holders will depend on whether a UUT is:

  • an exempt unauthorised unit trust (EUUT);
  • a non-exempt unauthorised unit trust (NEUUT); or
  • a mixed unauthorised unit trust (MUUT).

Transitional provisions will apply in each case.

The current provisions for UUTs and their investors will remain in force unless and until the proposed changes come into effect. The current legislation is set out in the ITTOIA05, ITA07 and CTA09 & CTA10. Guidance on the current provisions can be found in HMRC's Savings and Investment Manual at SAIM 6050 to SAIM 6230.

Chapters 1 and 2 of [Regulation] UUT2013 come into force on the day after the day on which the Regulations are made. Accordingly, on or after that day, the managers or trustees of a UUT may make an application in writing to the Commissioners for a UUT to be approved as an EUUT.

Apart from Chapters 1 and 2, the Regulations will come into force on 6 April 2014.

The effect of the commencement and transitional provisions [in Part 4 of the regulations] will be as follows –

  • For EUUTs preparing annual accounts to an account year ending on or before 31 October 2013, 2014/15 will be a transition tax year and the full effect of the new rules will apply from the 2015/16 year onwards;
  • For EUUTs preparing annual accounts to an account year ending after 31 October 2013, 2013/14 will be a transition tax year and the full effect of the new rules will apply from the 2014/15 year onwards; and
  • NEUUTs will be brought within the charge to corporation tax (CT) from the end of the 2013/14 tax year. This is except where grandfathering provisions apply in the case of NEUUTs with one or more exempt investors as at 24 May 2012. Grandfathering will remain in place for those NEUUTs to prevent exempt investors being adversely affected until appropriate reliefs can be introduced to allow such NEUUTs the opportunity to restructure prior to being brought within the charge to CT from a prescribed date.

Where, as set out in Regulation 30, the transitional year of an EUUT is 2013/14 or 2014/15, provisions apply to determine the income of the trust for that year and the date on which deemed payments or deemed deductions are treated as made by the trustees.

NEUUTs will come within charge to corporation tax on 6 April 2014, except those that are Mixed UUTs, and will therefore prepare their final income tax return for 2013/14.

Regulation 31 includes provisions that will apply for 2013/14 for a UUT that becomes a NEUUT on 6 April 2014 to determine the income of the trust for 2013/14 and the date on which deemed payments or deemed deductions are treated as made by the trustees.

Regulation 32 provides an exception to the tax treatment of trustees or unit holders of NEUUTs that are MUUTs – that is, NEUTTs with one or more exempt investor as at 24 May 2012. The tax treatment of trustees or unit holders of MUUTs will continue on the basis of current tax legislation and HMRC guidance as referred to above. This grandfathering has been introduced to allow such MUUTs that are currently part of a fund structure time to restructure. HMRC will work with industry so that such restructures can be undertaken without adverse consequences for investors.

4.2 Reform of the loan relationship and derivative contract legislation

HMRC has published minutes of the four working group meetings on reform of the loan relationship and derivative contract legislation that were held in July.

Unallowable purpose rule

The minutes of Working group 1 mention that the Finance Bill 2014 reform of the unallowable purpose rule is expected to survive the reforms scheduled for Finance Bill 2015. The minutes cover a range of issues in connection with the unallowable purpose rule, including the situations that HMRC is currently having difficulty with, group matters and loss refreshing.

Connected party debt and debt restructuring

Working group 2 focused more on connected party debt and debt restructuring proposals.

On the connected party debt proposals the minutes contain the following:

The general view from the group was that in practice this proposal would not achieve simplification. The need to rely on a separate rule to avoid asymmetries would necessarily require a departure from the "follow the accounts" principle, making the objective for a 'simple' regime harder to achieve in practice.

Furthermore, whilst the group generally agreed that the accounts give the best measure of profit it was felt unlikely that impending accounting changes would result in fair value accounting becoming a 'norm' for companies. (This was considered a 'norm' more typical for financial institutions).

The group suggested that a better approach to reforming the connected party rules would be to focus on streamlining certain definitions (e.g. amortised cost basis, release etc.)

Hedging, forex and derivatives

Working group 3 concentrated on the proposals for dealing with hedging, forex and derivatives.

The view of the group was that the proposed changes are based on the assumption that hedge accounting will be more widely available under FRS 101/FRS 102 and IFRS9. It was also noted that the proposals depended on the introduction of changes in IFRS9. However, it is likely to be a few more years before a final IFRS9 is endorsed by the EU. It was suggested that the Disregard Regulations were effective in maintaining an accruals basis for tax purposes and that, if it is accepted that not everyone can hedge account for derivatives it was questionable whether fully repealing the Regulations at this time was the right approach.

The general view expressed was that the complexity of the Disregard Regulations was justified when considered alongside the accounting changes being suggested, but there was some discussion around whether the rules could be considerably simplified to achieve the same effect.

Some aspects of the forex proposals were concerned to be positive, though increasing tension on the distinction between trading and non-trading profits was not seen as helpful.

Bond fund and corporate streaming rules

Working group 4 focused on the proposals for the 'bond fund' and authorised investment fund 'corporate streaming' rules.

There were no fully formed proposals with respect to amending/repealing the "bond fund" rules. The aim was to replace them with new simpler rules which achieve the same anti-avoidance objectives. One possible outcome of the review might be to retain the existing rules, although this would not be regarded as the best outcome.

With respect to the "corporate streaming" rules, it was noted that the rules were designed to counter the possibility that a corporate taxpayer could, by investing indirectly in assets such as loans through an AIF, pay tax on the investment returns at a lower rate than a company which invested directly in the same underlying assets. However, the rationale behind the "corporate streaming" rules has weakened as the main rate of corporation tax has become more closely aligned with the rate applicable to AIFs. It has therefore been proposed to repeal the "corporate streaming" rules.

In relation to both issues various ideas were explored and there was discussion of the extent to which undesirable avoidance could be caught by the GAAR.

We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2013

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.