UK: Weekly Tax Update – Monday, 15 December 2014

Last Updated: 19 December 2014
Article by Tina Riches

1 GENERAL NEWS

1.1 Finance Bill draft clauses

HMRC has published the draft clauses and explanatory notes for Finance Bill 2015, together with the 'Overview of legislation in draft' (OOLID) document, which includes the Tax Information and Impact Notes (TIINs). These are available for consultation until:

Complete set of clauses, explanatory notes and OOLID:

www.gov.uk/government/publications/finance-bill-2015-draft-legislation-overview-documents

Clauses, explanatory notes and TIINs by subject:

www.gov.uk/government/collections/finance-bill-2015

1.2 HMRC campaigns' results

To coincide with the start of the new Solicitor's campaign, mentioned in last week's update, HMRC has published some updated statistics on the campaigns it has carried out since 2007. Since then their campaigns have collected over £988 million in tax. A majority of this has come from taxpayers coming forward voluntarily and a smaller amount from a large number of follow-up activities.

HMRC has also confirmed that there are a number of criminal investigations underway with eight people have been convicted of cheating the public revenue, with a number of custodial sentences.

The highest amount of revenue was raised during the first campaign, the Offshore Disclosure Facility (ODF), which took place in 2007 and raised over £0.5bn. Subsequent campaigns have raised varying amounts down to the Direct Selling campaign which has raised less than £0.5m to date.

www.gov.uk/government/policies/reducing-tax-evasion-and-avoidance/supporting-pages/hmrc-campaigns

1.3 Land & buildings transaction tax and multiple dwellings relief

A statutory instrument has been issued clarifying the maximum amount of relief available for two reliefs. These are the multiple dwellings relief (MDR), effectively applying the land & buildings transaction tax (LBTT) at a per property rate rather than based on the total consideration, and acquisition relief (AR), specifying a reduced LBTT rate for land acquired when acquired with a business undertaking. Each of these reliefs is capped, so that the reduced LBTT after relief is not less than a set proportion of the full LBTT. The caps are set at 25% for MDR and 12.5% for AR.

The following notes give the corresponding relief rates for SDLT as well as LBTT for comparison.

The LBTT replaces stamp duty land tax (SDLT) in Scotland from 1 April 2015. Many of the reliefs in LBTT are similar to those for SDLT, however the rates applicable can be different and the LBTT Act (given Royal Asset on 31 July 2013) needed to have some rates and reliefs finalised.

Provided the conditions are met multiple dwellings relief for SDLT cannot result in an SDLT rate applicable to the dwellings at a lower rate than 1% (FA2003 SCh6B para 5(2)). SI 2014/350 specifies that the land & buildings transaction tax multiple dwellings relief cannot be less than 25% of the LBTT that would apply in the absence of the relief.

Provided the conditions are met, acquisition relief for SDLT provides that the rate of SDLT on land acquisitions on the transfer of an undertaking shall be no more than 0.5% (FA2003 Sch 7 para 8(1)(b). SI 2013/350 provides that in similar circumstances the amount of LBTT will be 12.5% of what it would have been in the absence of the relief.

www.legislation.gov.uk/ssi/2014/350/pdfs/ssi_20140350_en.pdf

1.4 EU agreement on anti-avoidance rule

The European Council has given its political backing to the anti-abuse clause of the Parent Subsidiary Directive (an EU directive designed to eliminate the tax obstacles in the area of profit distribution between groups of companies) and to the mandatory exchange of information between EU tax authorities. The new 'de minimis' anti-abuse clause will allow Member States to put in place stricter or more specific domestic provisions or double tax treaty anti-abuse provisions. Member states must comply with the directive by 31 December 2015.

The text of Directive 2011/96/EU is amended as follows:

In Article 1, paragraph 2 is replaced by the following paragraphs:

"2. Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage which defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances.

An arrangement may comprise more than one step or part.

3. For the purposes of paragraph 2, an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

4. This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse."

http://europa.eu/rapid/press-release_STATEMENT-14-2501_en.htm

1.5 Government response to OTS review of tax competitiveness

David Gauke, MP has responded to the final office of tax simplification (OTS) report on its review of tax competitiveness, commenting that the Government will either accept or consider further the majority of the OTS recommendations.

There is further detail on the Government's response in the appendix to the letter, a selected summary of which follows:

Corporation tax

  • To consider:

    • greater alignment between accounting and tax treatment;
    • replacing capital allowances with accounting depreciation (and the annual investment allowance figure to be set at a given figure for a longer time horizon) and considering;
    • whether corporate capital gains could be replaced with limited specific charges;
    • abolishing the trading/investment distinction.
  • Accept that:

    • the guidance on R&D should include more case studies with greater explanation on what costs qualify, in particular where software development costs are concerned;
    • there should also be greater streamlining of the processes and tagging definitions for iXBRL.

VAT

  • To consider:

    • reviewing the partial exemption de minimis limit; and
    • how partial exemption for SME's and the capital goods scheme generally could be simplified.
  • Accept that:

    • there should be better guidance on the implications of making a clearance application;
    • greater prominence should be given to the VAT return amendment form (VAT 652); and
    • there should also be better guidance around property transactions, including a better definition of 'dwelling'.

Payroll taxes

  • To consider:

    • integrating and harmonising income tax and national insurance as far as possible;
    • extending the easements for short term business visitors to all short term visitors.
  • Accept that:

    • there should be a post implementation review of real time information and whether full 'on or before' reporting is necessary in all cases.
    • there should be legislation to permit employers to give authority for third parties such as software providers to deal with HMRC on payroll issues;
    • the ongoing work to improve the construction industry scheme and update expenses and benefits legislation should be carried through.

Tax administration

  • Accept that:

    • a number of reforms are required; and
    • non-resident landlord returns should be capable of on-line submission.
  • Rejection of:

    • a review of whether the senior accounting officer rules were still required.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/384136/FST_ltr_to_OTS_re_Autumn_statement_measures.pdf

1.6 How to make a complaint

At the risk of sounding like a Monty Python sketch, we thought readers may be interested in the two sets of detailed guidance recently published by HMRC. These include:

2 PAYE AND EMPLOYMENT MATTERS

2.1 Appointed day for application of £500 medical exemption

SI 2014/3226 sets 1 January 2015 as the commencement day for the new exemption for medical treatment up to £500 provided to an employee but funded by an employer. The exemption, set out in FA2014, covers specific medical treatment recommended through occupational health services, for the purpose of assisting an employee return to work after an injury or a period of ill health.

www.legislation.gov.uk/uksi/2014/3226/pdfs/uksi_20143226_en.pdf

2.2 HMRC response on OTS proposals - items not included in Finance Bill

HMRC has published its response to the Office of Tax Simplification (OTS) proposal for new rules, such as deferring a possible 'dry' tax charge, to apply to some employee shares for PAYE purposes. There does not appear to have been much enthusiasm for the changes as proposed, epitomised perhaps by the observation that this wasn't really a simplification.

www.gov.uk/government/consultations/office-of-tax-simplification-review-of-unapproved-share-schemes-marketable-security

HMRC has also published its response to the new employee shareholding vehicle. This too was met with a tepid welcome so will not be taken further.

www.gov.uk/government/consultations/new-employee-shareholding-vehicle

3 BUSINESS TAX

3.1 HMRC guidance on diverted profits tax

HMRC has issued guidance and draft legislation for the diverted profits tax (a new tax), explaining their view of how it will work by reference to practical examples. It will, in due course, form the basis of guidance to be included in HMRC Manuals. HMRC is requesting feedback on the legislation and this draft guidance. HMRC is also holding an open meeting to discuss the new tax on 8 January 2015.

The diverted profit tax (charged at 25%) is aimed at countering the use of aggressive tax planning techniques used by multinational enterprises to divert profits from the UK through either the avoidance of a UK permanent establishment, or through arrangements which lack economic substance.

In assessing whether profits have been diverted the legislation considers whether the profits have been part of a tax avoidance arrangement (considering tax paid in other jurisdictions) and whether there are arrangements which lack economic substance.

The tax can apply to profits arising from 1 April 2015 and is not self-assessed, but charged by notice from HMRC. The tax can only be charged on those entities which are not SME's and companies will be under a requirement to notify HMRC within three months of the end of an accounting period if it is reasonable to expect that a diverted profits tax charge might arise. Failure to meet this notification requirement will be subject to a tax geared penalty.

www.gov.uk/government/uploads/system/uploads/attachment_data/file/385264/technical_note_measure_2148.pdf

3.2 Amendment of controlled foreign company (CFC) rules

SI 2014/3237 amends the CFC rules so that where accounting standards are referred to, the references are updated to FRS102 where the accounting definition of control is discussed for accounting periods commencing on or after 1 January 2015.

www.legislation.gov.uk/uksi/2014/3237/pdfs/uksi_20143237_en.pdf

4 VAT

4.1 Mini one stop shop (MOSS) for those below the UK VAT threshold

HMRC has issued a brief setting out how those businesses which are below the UK VAT threshold can get access to the MOSS services for their sales in other EU countries. In order to access the MOSS service, the business will need to register for VAT, but will retain the ability to exclude their UK business from VAT registration where the UK turnover limit is not breached.

From a practical point of view this will mean they will need to file a quarterly UK VAT return (which will generally be completed with zero in each VAT return entry box). However there is the possibility of reclaiming UK input VAT on costs incurred for the EU business (in which case boxes 4, 5 and 7 will need completion) – deductions can be made for directly attributable costs and a proportion of other costs which partly relate to the non-UK EU transactions.

www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance

4.2 MTIC case procedure

The First-tier Tribunal (FTT) has concluded that HMRC's statement of case alleging MTIC fraud by Citibank NA was so flawed in its statement and allegations that it should be amended, ideally within a month of the Tribunal's decision if the Tribunal was to take HMRC's amendment seriously. This apparent lack of clarity by HMRC on its allegations is concerning from a perspective wider than VAT, particularly in view of HMRC's current focus of recovering tax in situations where it considers tax has been incorrectly avoided.

On 27 August 2013 HMRC assessed the Citibank NA for just over £10,000,000 (later reduced to £9,893,821) on the basis that in HMRC's opinion the appellant had reclaimed VAT on sales of European Union Emissions Allowances ('carbon credits') to which it was not entitled because, HMRC alleged, Citibank knew or ought to have known that its transactions in these carbon credits were connected with fraud. The trades took place on 9 July 2009. An appeal was lodged with the FTT and HMRC submitted a statement of case. Citibank requested further information on that statement which was not forthcoming. This FTT hearing considered whether the information should be provided.

The FTT concluded that while the request for information was flawed, HMRC's statement of case was also seriously flawed. HMRC's statement of case did not make clear whether it was alleging a dishonest state of mind, dishonesty and a pleading of fraud. It also did not make clear whether HMRC relied on the pre July trading activity of Citibank and its operatives in support of its contention the 9 July activity was connected to fraud.

The Tribunal judge considered HMRC needed to amend their statement of case to clarify why they thought there should have been prior knowledge of fraud and if they could not do so then the appeal by Citibank against the assessment would be likely to succeed. HMRC were put on notice that if the amendment was not made by 28 December 2014, they would be less likely to succeed in having their amendment accepted than if they had submitted the amendment within that time.

www.financeandtaxtribunals.gov.uk/judgmentfiles/j8134/TC04156.pdf

5 TAX PUBLICATIONS

NTBN306 - Autumn Statement 2014 commentary

Analysis of the tax related announcement within the Autumn Statement.

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.

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