UK: Weekly Tax Update – Monday 7 October 2013

Last Updated: 11 October 2013
Article by Smith & Williamson

1 General news

1.1 Definitions in tax legislation and their contribution to complexity

The Office of Tax Simplification is carrying out a project to identify and measure the factors responsible for tax complexity.

As part of this project, it has considered the definitions used in tax legislation and published its initial findings. The report identifies commons themes and considers some suggestions and guidelines for a 'good' definition. www.gov.uk/government/uploads/system/uploads/attachment_data/file/246081/ots_revie w_of_definitions_in_tax_legislation.pdf

1.2 ATED returns

The ATED return is an annual obligation, whether a relief applies or not. Where a property is within the charge and a relief applies, it is important a filing is made each year to claim the relief.

The valuation for properties within the charge (whether a relief applies or not) that were held on 1 April 2012 is the value on that date for all returns required for the return periods up to the year ended 31 March 2018, on the assumption that there is no new valuation date triggered before that date.

A valuation date may be triggered by an intragroup transfer, or a new acquisition (eg an increase in the lease period or other acquisition transaction where the chargeable consideration for the acquisition of the interest is £40k or more) - see FA13 s102 & s103.

1.3 DOTAS and draft guidance on employment income hallmark

A new employment income hallmark (Hallmark 8) will come into force in early November 2013.

The Hallmark (which applies for both income tax and NIC purposes) is targeted at those arrangements which seek to circumvent the disguised remuneration rules (ITEPA Part 7A) as follows:

(1) Arrangements are prescribed if -

(a) Conditions 1 and 2 are met and Condition 3 is not met; or

(b) Conditions 1, 2 and 3 are met and at least one of Conditions 4 and 5 is met.

(2) Condition 1 is met if the arrangements involve at least one of the following -

(a) a relevant third person taking a relevant step under section 554B;

(b) any person taking a relevant step under section 554C or 554D [payment of a sum, transfer of an asset, making an asset available etc]; or

(c) B taking a step under section 554Z18 [earmarking] or 554Z19 [provision of a security].

(3) Condition 2 is met if the main benefit, or one of the main benefits, of the arrangements is that an amount that would otherwise count as employment income under section 554Z2(1) is reduced or eliminated.

(4) Condition 3 is met if, by reason of at least one of sections 554E to 554X [exclusions] or regulations made under section 554Y, Chapter 2 of Part 7A does not apply.

(5) Condition 4 is met if the arrangements involve one or more contrived or abnormal steps without which the main benefit in paragraph (3) would not be obtained.

(6) Condition 5 is met if the arrangements involve -

(a) a relevant step being treated as taking place; and

(b) Chapter 2 of Part 7A applying as a consequence of sub-paragraph (a).

(7) In this regulation -

(a) references to sections or Parts are to those in ITEPA unless otherwise stated;

(b) "B" has the meaning given for Part 7A by sections 554A(1)(a) and 554Z17(7) read together [employer, but not where acting as a trustee];

(c) "contrived or abnormal" has the same meaning as in section 207 of the Finance Act 2013; and

(d) "relevant third person" has the same meaning as in section 554A(7).

Draft guidance with examples illustrating HMRC's view of the conditions has also been published.

www.hmrc.gov.uk/drafts/dotas-empincome-draft.pdf

2 Private client

2.1 Marriage Transferable Tax Allowance

The Government has announced that from April 2015 married couples and civil partners will be eligible for a new Transferable Tax Allowance (TTA):

  • The TTA for married couples will enable spouses and civil partners to transfer a fixed amount of their personal allowance to their spouse.
  • The option to transfer will be available to couples where neither partner is a higher rate taxpayer.
  • For a couple choosing to use the TTA, one individual will be able to transfer £1,000 of their personal allowance to their spouse or civil partner. It will mean that the higher earner will be able to earn £1,000 more before they start paying income tax.
  • The policy benefits married couples, including same sex married couples and civil partners where one is a basic rate taxpayer (earns below £42,285 in 2015 to 2016) and one has unused personal allowance.
  • The claim will be made online and entitlement will be from the 2015 to 2016 tax year. Couples will be entitled to the full benefit in their first year of marriage.
  • For those couples where one person does not use all of their personal allowance at the moment the benefit will be up to £200.
  • The measure will come in from 2015 to 2016, and couples will benefit from summer 2016.
  • Over four million couples will benefit from the Transferable Tax Allowance, including 15,000 couples in civil partnerships. It will be of most benefit to those households on lower incomes.

At this stage it is not clear precisely how this system will work, but the reference to couples benefitting from summer 2016 suggests that the entitlement will be calculated retrospectively once the transferring spouse's actual income for 2015/6 is known.

www.gov.uk/government/news/marriage-transferable-tax-allowance-announced-by- government

3 Business tax

3.1 Health and Wellbeing Tax Plan

HMRC's next tax disclosure campaign will target healthcare professionals (other than doctors or dentists), and is due to start on 7 October 2013 and run until 6 April 2014. www.gov.uk/government/publications/health-and-wellbeing-tax-plan-your-guide-to- making-a-disclosure/health-and-wellbeing-tax-plan-your-guide-to-making-a-disclosure

3.2 Trade related property and HMRC/VOA practice note on apportioning the price paid for a business as a going concern

HMRC has published an updated version of their practice note on apportioning the price paid for the transfer of a business as a going concern where that involves a trade related property. Their note comments:

Following a discussion process with the Chartered Institute of Taxation (CIOT), the HM Revenue & Customs (HMRC)/Valuation Office Agency (VOA) Practice Note 'Apportioning the Price Paid for a Business Transferred as a Going Concern', has been updated. Discussions with the CIOT were constructive and helpful although differences of view on some issues still remain.

Paragraph 2.5 of the practice note discusses, amongst other things, apportionment under the intangible asset regime. It comments that if a company has not applied acquisition accounting correctly (i.e. the accounts are not GAAP compliant) and that failure is not material, then CTA09 s856(4) permits an adjustment for tax purposes. However s856(4) applies only if no values have been allocated in accordance with GAAP. Thus if values have been allocated in accordance with GAAP (and these allocations would need to be materially correct), then s856(4) can't apply.

Paragraph 9.1 of the practice note lists a number of difficulties and flaws HMRC has with the investment method of valuation (a rental yield based approach). These include the need for judgment, the availability of comparable rental evidence and assumption of hypothetical situations.

An alternative view might be that similar criticisms can be made of the 'reasonably efficient operator' method (a trade profits based method of valuation), although this is the preferred method recommended by RICS (though with their caveat for its use for tax purposes), and the basis for HMRC/VOA trade related property valuations. The comment is also made that the rental yield approach represents the value to an investor and not to an owner occupier, with the implication that it does not accord with the actual transaction in some way. However if the aim is to value the real property element of a transaction, an alternative argument would be that similar values should be arrived at using either valuation method , and presumably a just and reasonable apportionment requires a fair allocation between real property and business assets such as goodwill.

There are some selective extracts from FRS15 for the interpretation of valuation for accounting purposes, and no mention of FRS102. However these comments are caveated by stating that it is how HMRC considers the standard should be applied in the context of part 8 CTA09.

www.hmrc.gov.uk/svd/goodwill-overview.htm

www.hmrc.gov.uk/svd/practice-note.pdf

4 VAT

4.1 VAT and exports

SI 2013/2241 amends the VAT Regulation SI 1995/2518 with effect for supplies made on or after 1 October 2013 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.

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

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

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