UK: Weekly Tax Update - Monday 24 March 2015

Last Updated: 2 April 2015
Article by Tina Riches


1.1 Budget 2015

Smith & Williamson's 2015 Budget commentary and a 2015/16 tax rate card are available to download from our website:

The areas covered in our Budget brochure include;

1 Personal and trust taxes

1.1 Personal allowances and thresholds

1.2 A new personal savings allowance

1.3 Alternative to the annual tax return

1.4 Remittance basis charge – changes

1.5 Extending averaging periods for farmers

1.6 National insurance contributions

1.7 Simplified expenses for partnerships

1.8 Miscellaneous loss relief

1.9 Payments from sporting testimonials

1.10 Armed forces early departure scheme

1.11 Gift aid small donations scheme

1.12 Private equity management fee planning

2 Pensions, investments and capital taxes

2.1 Capital gains tax: annual exempt amount

2.2 Entrepreneurs' Relief and deferred gains

2.3 CGT: wasting assets

2.4 Venture capital scheme changes

2.5 Making ISAs more flexible

2.6 Help to Buy ISA

2.7 Extending ISA eligibility

2.8 Annuities

2.9 Lifetime allowance for pension contributions

2.10 Changes to the taxation of inherited annuities

2.11 Deeds of variation

2.12 IHT exemptions extended

2.13 IHT and trusts

3 Property taxes

3.1 Capital gains tax for non-UK residents disposing of UK residential property

3.2 CGT: private residence relief changes

3.3 Annual tax on enveloped dwellings related capital gains

3.4 Stamp duty land tax measures

4 Employment taxes

4.1 Abolition of employer NIC for apprentices under 25

4.2 Company car taxation

4.3 Van and company car taxation

4.4 Simplification of employee benefits and expenses

4.5 Employment intermediaries: travel and subsistence (umbrella companies)

5 Business taxes

5.1 Corporation tax rate

5.2 Diverted profits tax

5.3 Restricting relief for goodwill arising on incorporation

5.4 Creative sector tax reliefs

5.5 Tax deductible flood defence expenditure

5.6 R&D tax credits

5.7 Consortium claims for group relief and the link company rule

5.8 Withholding tax exemption for private placements

5.9 Bank levy rate increase

5.10 Tax treatment of banks' compensation payments

5.11 Bank loss relief restriction

5.12 Changes to the late-paid interest rules

5.13 Special purpose share schemes

5.14 Review of loan relationships and derivative contracts

5.15 Office of Tax Simplification review of partnerships

5.16 Capital allowance sale and leaseback anti-avoidance

5.17 Restricting the use of brought forward corporate losses

6 VAT and other indirect taxes

6.1 VAT registration limits

6.2 VAT relating to foreign branches

6.3 VAT refunds for palliative care charities

6.4 VAT refunds for charities providing emergency services

7 Tax avoidance, planning and fairness

7.1 HMRC announces changes to its disclosure facilities

7.2 HMRC use of offshore information on UK tax residents

7.3 Enhanced penalties will apply to offshore tax evasion

7.4 Marketed tax avoidance: serial avoiders and promoters

7.5 GAAR penalties and further APNs

7.6 Disclosure of tax avoidance scheme regime

7.7 Further measures to tackle tax evasion and avoidance


2.1 Late claim for repayment of overpaid self-assessment income tax

The Upper Tribunal (UT) has concluded that the filing of a 2006/07 self-assessment tax return in November 2011 did not permit HMRC to refuse repayment of overpaid income tax, despite the fact that the return was submitted outside the four year time limit.

Mr Higgs made payments on account in respect of the tax year 2006/2007 of £46,317, based on his previous year's tax liability. However, the actual tax liability for the year 2006/2007 shown by his tax return, filed on 2 November 2011, was £18,830, leaving an overpayment of £27,487. Such an overpayment was repayable automatically by virtue of Taxes Management Act (TMA) 1970 s.59B(1) once the 2006/2007 tax return has been processed, unless there was a decision to enquire into the return, in which case the repayment would have been frozen (TMA 1970 s.59B(4A)). There was no enquiry into the return. However HMRC refused repayment on the grounds the return was outside the four year time limit.

An earlier High Court decision, Morris & anr v HMRC [2007] EWHC 1181 (Ch), had concluded that the ordinary four year time limit for assessment provided by TMA 1970 s.34(1) had no application to self-assessment. In the case of Mr Higgs, the UT concluded that the four year time limit did not permit HMRC to refuse to repay the overpayment. In case this conclusion was incorrect, the UT considered whether HMRC should have exercised its discretion to ignore the time limit as part of its powers under the care and management of taxes. In these circumstances it concluded "the matter should be remitted to HMRC for them to give full and proper consideration to whether it would be appropriate to exercise their discretion to extend the time limit so as to permit the Claimant's self-assessment and repayment claim to be processed."


3.1 NIC liability of LLP partners

Amendments have been made to clarify that for class 2 NIC purposes, from 6 April 2015, inactive members of LLPs will be treated in the same way as sleeping partners and inactive limited partners.

With effect from 6 April 2015, SI 2015/607 modifies the regulations governing social security contributions of LLPs to make clear that 'employment' includes membership of a limited liability partnership that carries on a trade, profession or business with a view to profit. A member of a limited liability partnership is to be treated as a self-employed earner for the purposes of the Social Security and Benefits Act 1992 unless the salaried member rules apply to them.

3.2 Amendments to worldwide debt cap provisions

The debt cap rules have been amended to take account of changes to accounting standards to ensure the debt cap calculations work as intended. The changes take effect for accounting periods beginning on or after 2 April 2015, and also previous accounting periods which include a change in accounting resulting from adopting changes to IFRS10 as issued on 31 October 2012 and the issue of FRS102 on 13 March 2013.

IFRS 10 sets out principles for presenting and preparing consolidated financial statements when an entity controls one or more entities. IFRS 10 was amended in 2012. FRS 102, issued in 2013, is applied by large and medium companies that do not apply IFRS. There is a particular issue with the way the debt cap works for investment entities which hold investments for investors and where the performance of its investments is measured on a fair value basis.

In certain cases, if the investment entity has a subsidiary or subsidiaries, from an accounting perspective, it prepares consolidated accounts, but does not consolidate subsidiaries held as investments managed on a fair value basis. Instead, it discloses them as investments held at fair value. In other circumstances, such entities are required not to prepare consolidated accounts at all but only single entity accounts in which, again, it discloses all of its subsidiaries as investments held at fair value.

In both these cases, the effect is that if a subsidiary of an investment entity has an external debt liability, then that liability will not be disclosed in the parent's consolidated financial statements. The cost of funding any liability will, however, continue to form part of the amount of the UK subsidiary's net finance expenses.

FRS 102 does not use the term 'investment entity', but the same effects can arise from the application of paragraph 9.9 of that standard, in similar circumstances.

As a result, new provisions and amendments are now inserted into TIOPA 2010 part 7 (tax treatment of financing costs and income) so that UK group companies may include a financing expense in the calculation of the tested expense amount or tested income amount that is not included in the available amount of the worldwide group.

In addition, expenses that arise to members of the worldwide group that are not UK group companies may no longer be included in the calculation of the available amount. There are also amendments to change a reference to consolidated accounts to accounts of the ultimate group parent where, because of a change in accounting standards, the entity no longer prepares consolidated accounts.

3.3 Assessment of company size for corporate R&D tax relief

The First-tier Tribunal (FTT) has concluded that Siemens Technology Accelerator Gmbh (STA), a company of the Siemens Group concerned with realising value from non-core technology, met the definition of a 'venture capital company' for the purpose of the EU regulations defining whether a company claiming R&D tax relief is a small or medium sized enterprise.

A company is small or medium sized for UK R&D tax relief purposes, and therefore able to access the higher SME rates for R&D tax relief, if it meets certain size criteria. These are:

  • fewer than 500 employees; and
  • either:

    • turnover not exceeding €100,000; or
    • balance sheet value not exceeding €86,000.

In assessing those limits one first considers the accounts of the autonomous enterprise. To this one adds 100% of the values of 'linked' enterprises and the proportionate share of partner enterprises.

Partner enterprises are those that are not linked enterprises, but hold at least 25% of the shares or voting rights of the investee. However certain entities are excluded from being partner enterprises and these include 'venture capital companies' provided their total investment (along with other excluded enterprises) is less than €1.25m.

The case concerned STA's investment in Pyreos Ltd and that company's claim for SME R&D relief in respect of expenditure of £108,977 for 2010 and £238,697 for 2012. STA originally held 85% of the shares in Pyreo. In 2010, however its holding had fallen from 49.98% to 49.65% and in 2012 from 44.46% to 36.59%.

Although STA held some rights to the intellectual property that had been transferred to Pyreos, those rights could only be exercise if Pyreos ceased to use or develop the technology. £16.1m funding had been provided by Pyreos's venture capital investors, £4.5m of which came from STA.

HMRC contended that SME R&D relief should not be available where the SME had the support of a larger entity and that economic factors were paramount in assessing this. While recognising that their guidance at CIRD92100 was not law, it focusses on consideration of the investor's strategic aims. That guidance includes the following comment:

"We have seen examples of large groups that, through a group member, make strategic investments in new activities that have an obvious link with the overall business of the group. In these circumstances we would be unlikely to consider that the company was acting as a venture capital company if its aims were closely linked with the strategic aims of the group business. In these circumstances we would be more inclined to view this activity as the carrying out of an overall group purpose to expand the business by strategic investments rather than to invest for high growth and a lucrative realisation. But each case will need to be judged on its own facts."

HMRC accepted STA was not a linked enterprise with Pyreos. It contended, however, that STA was not an excluded partner enterprise due to its significant involvement with Pyreos, its rights in respect of the intellectual property transferred and the fact that an information memorandum had referred to Siemens as a 'strategic partner'.

The FTT noted there was no definition of how a VCC could disturb the autonomous status of an enterprise. On the facts as presented the FTT concluded that STA did meet the requirements of an excluded partner enterprise and therefore Pyreos's SME claims should be allowed.

3.4 Business rates review

The Government has released a discussion paper and terms of reference for a review of business rates to consider whether they are 'sustainable, fairly targeted and sufficiently flexible to respond to both changing patterns of property usage and conditions in the wider economy.' The aim is to modernise the business rates system for the 21st century.

Responses are requested by 12 June 2015 and the review will report its findings by Budget 2016.


4.1 VAT treatment of agency supplied care workers

The CJEU has concluded that German state-examined care workers providing their services directly to persons in need of care were not services within the provision for VAT exemption in the VAT Directive article 132(g). Neither were supplies of care workers by a temporary-work agency to establishments recognised as being devoted to social wellbeing. This decision applies the expected strict interpretation of the scope of VAT exemption. Agencies supplying services of nursing staff in the UK that currently apply VAT exemption may like to consider the implications of this decision on the VAT treatment of their services.

The VAT Directive article 132(g) exempts 'the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing.' The CJEU cited previous case law commenting that these services had to be closely linked to services supplied by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned. The cases referred to were Kingscrest Associates and Montecello, C 498/03, and Zimmermann, C-174/11.

The Court concluded that neither supplies made directly by individuals to people in need of care, nor by agencies providing such staff to bodies recognised by Germany as being devoted to social wellbeing, could be regarded as within the scope of the exemption. In the case of the agency, the supply was of staff, not 'the supply of services of general interest carried out in the social sector'. The case (Case C-594/13) concerned an agency 'go fair' Zeitarbeit OHG making supplies of temporary care workers to establishments recognised in Germany for social wellbeing.

This would seem to confirm the decision of the First-tier Tribunal (FTT) in Rapid Sequence to deny VAT exemption for the supply of overseas anaesthetists to hospitals in the NHS as locums, on the basis that UK law at VATA 1994 Sch9 group 7 item 5 went beyond the scope permitted by the VAT Directive.

VAT Notice 701/57 details a concession by which nursing agencies and other businesses supplying the services of certain health professionals may exempt the supply of staff, supplied as a principal to a third party. On the basis of the decision the concession appears to be outside the scope of VAT exemption permitted by the VAT Directive.∂=1&cid=320814

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 2015

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Tina Riches
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