UK: Weekly Tax Update – Monday 21 October 2013

Last Updated: 24 October 2013
Article by Smith & Williamson

1 GENERAL NEWS

1.1 DOTAS regulations

Regulations have been published amending the DOTAS regime as noted below. The changes come into force on 4 November 2013, and the notes below highlight any transitional rules:

Amendment to confidentiality hallmark and new disguised remuneration hallmark

SI 2013/2595 applies where on or after 4 November 2013 the promoter either (i) makes a scheme available to someone, or (ii) first becomes aware of the existence of a transaction forming part of the notifiable arrangements and the arrangement has not already been notified.

Instead of the requirement to disclose being where the promoter would (but for the regulations) keep confidential from HMRC the element of the arrangements giving rise to the tax advantage, this condition is being changed to one where the promoter might reasonably expect a promoter would keep it confidential from HMRC. This includes where the promoter does not provide promotional material to the user or discourages them from keeping such material and any written professional advice on the arrangements. A similar expansion to the scope of the disclosure requirement for this hallmark is introduced where there is an intermediary involved subject to legal professional privilege.

The move away from the focus of the person to whom the immediate arrangement is relevant, to consider others who might use the scheme, is also introduced into the confidentiality hallmark where no promoter is involved (in-house schemes, or where there may in the future be a promoter).

The new disguised remuneration hallmark (hallmark 8) applies if:

  • Steps are taken by the specified person under ITEPA s554B (relevant third person), s554C or s554D (any person), or s554Z18-554Z19 (the current, former or prospective employer); and
  • The main, or one of the main, benefit(s) of the arrangements is that an amount that would count as relevant employment income under the disguised remuneration rules (s554Z2(1)) is reduced or eliminated;

And either:

  • The disguised remuneration rules do not apply by virtue of at least one of s554E to s554X or regulations under s554Y, or;
  • if one of s554E to s554X or regulations under s554Y do apply, then at least one of the following applies:

    • there are contrived or abnormal steps without which the arrangements would not achieve the main benefit; or
    • a relevant step is treated as having taken place and as a result chapter 2 of part 7A applies (treating the amount as employment income, or remittance basis income if remitted).

www.legislation.gov.uk/uksi/2013/2595/pdfs/uksi_20132595_en.pdf

DOTAS and time for providing information

SI 2013/2592 specifies the information that must be supplied by a user to a promoter within a 10 day period (from the later of the receipt of the SRN number or first entering into a transaction forming part of the notifiable arrangements), which includes:

  • the unique taxpayer number, or (if no UTR) the NI number, or confirmation that the individual has neither;

It also imposes the obligation on the promoter to include this information in its quarterly reports to HMRC (permitting a 60 day reporting requirement instead of a 30 day reporting requirement in respect of the UTR or NI number requirement where the user's 10 day reporting requirement to the promoter has not expired).

It also imposes a 10 day time limit for a promoter to provide further information to HMRC where HMRC request it in respect of a suspected other person who is a scheme user.

SI 2013/2600 makes similar changes for reporting in respect of NIC arrangements.

www.legislation.gov.uk/uksi/2013/2592/pdfs/uksi_20132592_en.pdf

www.legislation.gov.uk/uksi/2013/2600/pdfs/uksi_20132600_en.pdf

ATED DOTAS reporting

SI 2013/2571 introduces DOTAS reporting for ATED arrangements. ATED arrangements are disclosable if they are not excluded and any element of the arrangements causes:

  • the company, partnership or collective investment scheme to cease to meet the ownership condition; or
  • the taxable value of the chargeable interest to fall below £2m; or
  • the taxable value of the chargeable interest to come into a lower ATED band.

Excluded arrangements are:

  • Arrangements on terms that would be expected to be agreed between unconnected persons;
  • Where the transferor and transferee are members of the same group (as defined for CTA10 s152) and the transferee meets the ownership condition;
  • The transfer is a settlement (as defined for IHTA s43);
  • The transfer is a distribution out of the assets of the transferor and the transferee is one of the following:

    • an individual;
    • a corporation sole;
    • a trustee;
    • a person who meets the ownership condition.

Draft guidance on the ATED DOTAS rules was published on 17 October. The ATED DOTAS regulations apply to notifiable arrangements where the relevant date for notification is on or after 4 November 2013. The transitional rules regarding the time for notifying ATED arrangements (included in SI2013/2591) also cover notifable arrangements falling within the period beginning 31 January 2013 and ending on the day before the regulations come into effect (3 November 2013). If the arrangements are covered by this transitional rule then the date by which the information on the arrangement or proposal needs to be supplied is 17th January 2014 rather than the usual five day period.

www.legislation.gov.uk/uksi/2013/2571/pdfs/uksi_20132571_en.pdf

www.hmrc.gov.uk/drafts/dotas-ated-guidance.pdf

2 PRIVATE CLIENT

2.1 Interest on Payment Protection Insurance (PPI) compensation payments

Recent news reports have highlighted the fact that whilst PPI compensation is not taxed, any interest element included is taxable.

HMRC's guidance on this point is as follows:

"Generally no tax is due on the repayment element of compensation paid to those mis- sold PPI. However, the additional interest is taxable.

The interest may have tax deducted depending on the type of company making the payment of the interest.

If banks and building societies are paying the interest then there is no obligation on them to deduct tax because the interest is not interest on a deposit and there are specific exemptions for banks and building societies from the need to deduct tax from yearly interest.

All other companies (including non-bank members of banking groups) have an obligation to deduct tax from yearly interest when it is paid. "

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/NEWS/ppi-advice.htm

2.2 RDR1: Residence, Domicile and the Remittance Basis

HMRC has published its new guidance note RDR1, which replaces HMRC6 with effect from 6 April 2013 onwards.

www.hmrc.gov.uk/cnr/rdr1.pdf

3 PAYE AND EMPLOYMENT MATTERS

3.1 Offshore employment intermediaries

HMRC has published a response document to the consultation on compliance proposals with respect to the use of offshore employment intermediaries. An extract from the summary setting out the response follows:

1.10 In response to the concerns raised by stakeholders, the Government has significantly simplified its proposal, whilst more effectively stopping the avoidance. As suggested by stakeholders, the revised proposal will amend and strengthen existing legislation to make it clearer and more effective, rather than creating new legislation.

1.11 A large proportion of stakeholders were concerned about the uncertainty facing Intermediary 1 and the end user with regards to a potential movement of tax and NIC liability under the original proposal. In the Government's revised proposal, the liability will not move. As HMRC's powers do not extend offshore, Intermediary 1 will be made wholly and immediately responsible for accounting for the tax and NICs obligations of all workers who are ultimately engaged by an offshore business.

1.12 The Government has listened to stakeholders' concerns about the administrative burden the original proposal placed on businesses. Most businesses are now excluded from any record keeping or return requirements. However, some information from Intermediary 1 will still be needed to help HMRC with its compliance investigations. This will take the form of accounting for any offshore workers through Real Time Information (RTI) and submitting a simple quarterly electronic return for all workers not already accounted for through RTI. As a large proportion of the information required for these returns is already legally required by other Government Departments, it is believed this will mitigate the administrative burden significantly.

Revised proposal for the oil and gas sector

1.13 The Government is aware of the complex nature of the oil and gas sector, and as such posed several questions in its consultation directly to that sector to help the Government fully understand the effect of new legislation. Responses to the consultation from the oil and gas industry further underlined particular difficulties in applying the original proposal to their sector. Chains of contracts and sub-contracts in this sector can be particularly complex. Furthermore, due to Joint Operating Agreements (JOAs) on oilfields, licensees of oilfields can in some circumstances be classed as both the end user and Intermediary 1. Almost all stakeholders in this industry suggested a certification scheme similar to the one which is already in place for corporation tax.

1.14 As a result of consultation with oil and gas stakeholders, the Government has developed a separate proposal for the oil and gas sector. Where the offshore employer has an associated company, body or agency based in the UK, that associated company, body or agency will be responsible for accounting for the NICs and tax of its offshore associate. Where the offshore employer has no associated company in the UK, then the oil field licensees will be responsible for accounting for the tax and NICs.

1.15 The majority of consultation responses from the oil and gas sector, particularly those representing companies in the sector, requested a certification scheme to reduce administrative burden for the sector. This would be similar to the one currently operating in the sector in respect of the payment of Corporation Tax. In recognition that the licensees are generally removed from the operation of the oil field and the complex chains of employment in the sector, the Government has agreed to set up a certification scheme. The scheme will allow the compliant offshore employer to apply to HMRC for a certificate. Whilst this certificate is in place it will remove HMRC's ability to enforce any unpaid employment tax and NICs against the licensees.

Next steps

1.16 The Government intends to introduce the legislation for the revised proposal in forthcoming Bills. The certification process for the oil and gas sector will form part of the NICs Bill in mid-October. The NICs regulations will be published in draft in November. The taxation, record keeping and return requirements, as well as related penalties will form part of Finance Bill 2014. Draft legislation, explanatory notes and guidance will be published in Autumn 2013. Subject to approval by Parliament, all the legislation will come into force on 6 April 2014.

A tax information and impact note is also published on the measures specifically targeted at the oil & gas sector workers.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/249786/Summary_of_Responses_Offshore_Employment_Intermediaries.pdf

www.gov.uk/government/publications/offshore-employment-intermediaries-proposed-nics-changes-for-oil-and-gas-workers

3.2 Employment NIC allowance reducing the class 1 NIC liability by up to £2,000

HMRC has issued a tax information and impact note (TIIN) on the £2,000 NIC employment allowance announced at Budget 2013 that will be effective from 6 April 2014.

The TIIN comments:

In the March 2013 Budget, as part of its strategy to encourage business growth, the Government announced that it will introduce an employment allowance of £2,000 a year for all businesses, charities and CASCs to offset against their liability for Class 1 secondary NICs.

To keep the process as simple as possible for employers, the employment allowance will be delivered through standard payroll software and HMRC's Real Time Information (RTI) system. HMRC will add a facility to the RTI Employer Payment Summary (EPS) referring to the employment allowance in the form of a "yes/no" indicator and payroll software providers will do the same. HMRC will amend its basic PAYE tools to have an EPS facility to help those employers who do not have such a facility on their software.

To claim the allowance, the employer will have to signify his intention to claim by completing the yes/no indicator just once. The employer will then offset the allowance against each monthly Class 1 secondary NICs payment that is due to be made to HMRC until the allowance is fully claimed or the tax year ends. The following tax year, the allowance will be available as an offset against a Class 1 secondary NICs liability as it arises during the tax year.

For those employers who still submit their returns to HMRC on paper, there will be a paper process which will mirror the IT procedures.

The employment allowance will apply per employer, regardless of how many PAYE schemes that employer chooses to operate, so each employer can only claim for one allowance. It will be up to the employer which PAYE scheme to claim it against.

www.gov.uk/government/publications/national-insurance-2000-employment-allowance

3.3 Recovery of class 2 NI through the PAYE coding system

A draft statutory instrument has been published to deem that from 6 April 2014 any class 2 NI contributions collected through the PAYE coding system are deemed to be paid on 5 April of the tax year in which they are paid. HMRC's explanatory note states:

HMRC is extending the use of the PAYE tax code to recover debts of Class 2 NICs, providing another method of collecting such debts. Class 2 NICs count towards certain contributory benefits including basic State Pension, bereavement benefits; Employment and Support Allowance and Maternity Allowance. Class 2 contributions are paid on time if they are paid by the first Sunday in the year following the end of the tax year in which the contributions were due. Contributions paid after that time but within six years are generally classed as late paid and only count for benefit purposes from the date they are paid, or in certain cases from a future date; they do not count for past periods. Class 2 NICs debts recovered through PAYE will be classed as late paid. These amending regulations set out that such contributions will be treated as paid on the last day of the tax year in which they are recovered. From that date they will be treated in the same way as other late paid contributions.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/249889/crediting-and-treatment-of-contributions-draft-amended-regulations.pdf

www.gov.uk/government/uploads/system/uploads/attachment_data/file/249890/crediting-and-treatment-of-contributions-draft-amended-regulations-explanatory-memorandum.pdf

4 BUSINESS TAX

4.1 Code of practice on tax for banks

Following consultation on changes to the code of practice on tax for banks, HMRC has issued a consultation response, a technical note and a new definition of a small bank. The proposals (together with draft legislation) are as follow:

  • HMRC will publish an annual report on the operation of the code from 2015. The report will list all those who are participating entities (who have unconditionally adopted the code, or who are small banks who have agreed to adopt only section 1 of the code).
  • The report will also list those entities who have breached the code. In determining who to include in this section of the report, no account will be taken of any conduct occurring before 4 December 2013 or, if later, the date that the bank adopted the code. There will be an independent review panel that must be consulted where HMRC consider there to have been a breach of the code, and if HMRC disagree with the decision of the reviewer on whether the breach has occurred, they must publish the fact of that difference of opinion (and give the reasons for their difference of opinion to the entity concerned at least 30 days before publication of the report).
  • Where an entity has undertaken a transaction or arrangement for which a counteraction notice under the GAAR has been issued (where either all the advisory panel or at least two of them have concluded the action is unreasonable), HMRC and the independent reviewer will only need to consider whether it should be named (i.e it will be considered a breach of the code to have undertaken such a transaction or arrangement).
  • Section 3 clause 13 of the draft legislation seems to give HMRC discretion as to what information is provided to the independent reviewer to enable him or her to carry out their functions. The text is: "The Commissioners may disclose to an independent reviewer such information as they consider appropriate to enable the reviewer to carry out the reviewer's functions."

For the purpose of the code small banks and building societies are those groups or entities which, at the point of making their unconditional written notice to the HMRC Commissioners, either:

  • have not been assigned a Customer Relationship Manager; or
  • in the case of banks that are sub-groups or entities of non-banking groups, would not, on a stand-alone basis, be assigned a Customer Relationship Manager.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/249642/131010Code_Technical_Note_11_Oct.pdf

www.gov.uk/government/uploads/system/uploads/attachment_data/file/249643/131010_summary_of_responses_-_11_Oct.pdf

www.gov.uk/government/uploads/system/uploads/attachment_data/file/249644/Small_Banks.pdf

4.2 Tax information and impact note for partnerships

HMRC has published a tax information and impact note (TIIN) setting out the following preparatory changes on NIC:

  • Disguised employment: proposed changes to the NICs legislation will a) specifically disapply Section 4(4) Limited Liability Partnership Act (LLPA) 2000, which otherwise deems LLP members not to be employees for all purposes, b) categorise "salaried members" as employed earners and c) ensure that no Class 4 charges arises on members categorised as employed earners.
  • Profit deferral under AIFMD: a new power, to be based on tax legislation to be introduced under Finance Bill 2014, will also be included in this Bill that will allow regulations to be made to enable the statutory mechanism to be implemented. This will allow alternative investment fund partnerships to comply with the AIFMD rules in a way that would not result in individual partners paying tax on partnership profits that they cannot access in the base year.

A separate TIIN will be published alongside draft tax legislation in the autumn (4 December 2013 if this is the autumn statement and 10 December 2013 if this is in the publication of draft Finance Bill 2014) for this measure (the employment tax and income tax aspects). The currently published note focuses on two proposed changes to the NICs rules arising out of the measure.

  1. Disguised employment through the use of LLPs - proposed changes will prevent LLPs and their members from benefitting from the default partner status of all individual members by disapplying the presumption of self employment and ensuring that LLP members who meet defined conditions are treated as employees for income tax and national insurance purposes.
  2. Profit deferral under the AIFMD: the interaction of the AIFMD and current tax rules means that partners will be subject to tax and national insurance on certain profits they cannot access in the base year because these profits will be deferred to 3-5 years in accordance with the AIFMD rules. It is proposed that a statutory mechanism will be introduced to address this issue without allowing the continued use of corporate partners as this would give rise to tax advantages which the second strand of the partnerships measure will prevent. As part of this statutory mechanism, it is proposed to introduce a power that will allow changes to be made to the NICs rules to facilitate this mechanism.

The summary of impacts gives a further indication of HMRC's expectation as to where the main impact of the partnership measures as a whole will fall.

2013-14

2014-15

2015-16

2016-17

2017-18

0

+125

+365

+300

+285

The above figures estimate the total yield across the whole of the proposed package of reforms on partnership rules.

Some small businesses may be affected by this measure, but the majority of the tax yield is expected to derive from large professional partnerships. The existing evidence suggests that the majority of partnerships, irrespective of size, will not be affected.

www.gov.uk/government/publications/partnerships-disguised-employment

4.3 Draft regulation on 'additionally developed oil fields'

A draft statutory instrument has been published which specifies the conditions that a project carried out in an oil field must satisfy in order for that oil field to be an "additionally-developed oil field" ("ADOF") for the purposes of Chapter 7 of Part 8 of the Corporation Tax Act 2010 (c. 4) ("CTA 2010").

An oil field that is an ADOF qualifies for a "field allowance". The effect of a field allowance is to reduce the extent to which profits are subject to the supplementary charge. In addition, the draft order inserts a new section 356A into the CTA 2010. This new section prescribes the method by which the total field allowance for an ADOF is to be calculated.

This Order also makes a number of consequential amendments to Chapter 7 of Part 8 of, and Schedule 4 to, the CTA 2010; firstly, to specify the time at which a company having an interest in an ADOF is entitled to the field allowance, and secondly, to amend section 349A(1) of the CTA 2010 so that the language of that provision more accurately reflects the way in which approval for the carrying out of projects is granted.

The effect of this Order, read with section 337 of CTA 2010, is that companies will be able to hold a field allowance from the beginning of any accounting period in which an authorisation day falls where that authorisation day is on or after 7th September 2012. Companies will be able to activate a field allowance for any accounting period beginning on or after the first day of the first year of expected first production; where the year of expected first production is 2013, companies will be able to activate a field allowance for any accounting period beginning on or after 1st January 2013 and ending on or after 1st April 2013. Authority for this limited retrospective effect is given by section 349(3)(b) of the CTA 2010.

www.legislation.gov.uk/ukdsi/2013/9780111104590/pdfs/ukdsi_9780111104590_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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