UK: Weekly Tax Update - May 18th 2015

Last Updated: 20 May 2015
Article by Smith & Williamson

1.General news

1.1 Summer Budget 8 July 2015

The Chancellor of the Exchequer George Osborne has announced that there will be a Summer Budget on Wednesday 8 July 2015.

It is understood that the Budget will include updated economic and public finance forecasts and set out the scale of planned cuts for the public sector and welfare and announcements around tackling tax avoidance.

2.Private client

2.1 Pension contributions and the lifetime allowance

It has been reported in the Financial Times that the new pensions minister, Ros Altmann, has put forward proposals around the lifetime allowance, which is currently skewed in favour of defined benefits schemes. The proposals apparently aim to redress the balance between defined benefits schemes and defined contributions schemes, which will be welcome news to many.

2.2 Charge to CGT on sales of UK residential properties by non-UK residents

HMRC has released an online NRCGT (Non-resident capital gains tax) return form.

Here are some points to note following a review of the HMRC notification form and the legislation.

  • The sale must be notified by ALL non-UK residents to HMRC within 30 days of completion.
  • Where there is no existing HMRC relationship, the gain must also be calculated, reliefs claimed and the tax paid within the same time scale.
  • The legislation (TMA 1970 s.12ZG) says the requirement to self-assess under NRCGT is not required where in the individual is already within self assessment or ATED or otherwise. The online return form however requires a note of the amount of NRCGT due in all cases.
  • Existing HMRC relationships can thus include the filing of an ATED return for the preceding chargeable period as well as self-assessment tax returns. The new ATED relief declaration return is defined (FA 2013 s.159A) as being an annual ATED return so should be acceptable as such for these purposes.

Frustratingly, the online form cannot be saved so has to be completed in full in one go. It is therefore advisable to work through the whole form to check what is required before entering any details.

3.Trust, estates and IHT

3.1 CFE opinion statement – ECJ decisions on IHT

The Confédération Fiscale Européenne (CFE) has recently published an opinion statement concerning two decisions of the European Court of Justice (ECJ) in September 2014 on inheritance tax (IHT). These cases looked at compatibility of inheritance taxation in Germany and Spain with the fundamental freedoms of the EU.

The cases Commission v Spain (C-127/12) and Commission v Germany (C-211/13) have common features and, in both cases, the ECJ (second and third chamber) held that the two national measures at issue were contrary to the free movement of capital ensured under TFEU, art 63 and under art 40 of the EEA Agreement.

The statement highlighted that there is a limited network of double taxation treaties in this area, this might lead to double or multiple taxation in cross-border cases, as well as discriminatory treatments of cross-border situations. The key points were that:

  • The CFE expects the member states to adjust their domestic laws to reflect the ECJ's two decisions ensuring the rules on free movement of capital are not breached by inheritance and gift taxes; and
  • The CFE urges the European Commission to propose Union measures and member states to at least adopt unilateral measures to eliminate double taxation in the field of inheritances and gifts.

The facts in each case were slightly different, but basically in each country the tax liability for donations and successions was more advantageous where the donor, the beneficiary and/or the property was resident/located in the country.

Given the move towards devolution and different tax rates across the UK, this is an area where particular care will be required.

4.PAYE and employment

4.1 CWG2 further guide to PAYE

HMRC has published its 2015/16 version of CWG2: Further guide to PAYE and National Insurance contributions. It highlights the rules for day to day operation of RTI PAYE and that there are some special rules, for example, for employee share and option schemes, for payments around Bank Holidays and for harvest workers and shoots.

5.Business tax

5.1 Syndicate capacity at Lloyd's - an asset or a part of a business?

The First-tier Tribunal (FTT) has concluded that the disposal of Lloyd's syndicate capacity by John Carver was the disposal of something used in the underwriting trade, not the disposal of 'a viable section of a composite trade which would still be recognisable as a trade if separated from the composite whole.' Entrepreneurs' relief was therefore not available in respect of the gain arising on disposal.


6.1 VAT and Crowdfunding

The European Commission has produced a paper aimed at achieving a common and consistent VAT treatment of crowd funding across the EU, concluding that where goods or services are received by investors, this may result in transactions subject to VAT.

The paper expresses general agreement from its contributors, that crowd investing (where shares or securities are received for money contributed) and crowd lending, in both cases for a financial return, were either outside the scope of VAT or VAT exempt activities. The paper also considers crowdfunding where the return is non-financial and which is either donation-based (where any reward received by the donor is minimal), or reward-based (where a return in the form of goods or services of some sort is expected). In the latter case, the paper expresses the view that VAT transactions are created. Depending on the form of services provided by the crowdfunding platform, the intermediation services of the platform itself may be considered to be electronic services within the scope of VAT and not necessarily VAT exempt.

6.2 VAT on clothing provided to staff

The First-tier Tribunal (FTT) has concluded that the provision by French Connection Limited (FCL) of clothing free to staff, where FCL had recovered input VAT on the cost of the clothes, was a taxable supply of goods. The relevant point from a VAT perspective as to whether a supply for VAT purposes is made, is whether exclusive ownership of the items passes.

HMRC's VAT notice 700 paragraph 4.4 includes the comment "You do not make a supply if you provide goods (such as overalls or tools) to employees solely for the purpose of their employment and make no charge." However the FTT considered that the interpretation of this sentence needs to be considered in context, and in fact it refers to the provision of the items without a hire charge.

FCL had attempted to assert that the provision of their own clothing stock free of charge to staff was the supply of a uniform and that this assisted in the sale of their own products. There was a condition that the staff member would be subject to a charge of 30% of the clothing allowance if they left employment within three months of the start of the new season. FCL contended these arrangements meant the value of the supply (if indeed it was a supply) could not be determined.

The FTT concluded there was nothing distinguishable about the clothing to identify it as a uniform other than a detachable badge the individual wore when in store. They considered the value of the supply was the cost of the clothes to FCL and the time of supply was when the clothes were made available. On this basis there was no reduction for the potential 30% charge should the staff member leave. They agreed, as had HMRC, that the supplies were for business purposes and that if the value of the supplies to any individual in the same year were less than £50, no VAT was due in accordance with business gift provision at VATA 1994 Sch4 para 5(2).

The FTT agreed, as had HMRC, that the supplies were for business purposes and that if the value of the supplies to any individual in the same year were less than £50, no VAT was due in accordance with business gift provision at VATA 1994 Sch4 para 5(2).

6.3 Submission of evidence in connection with MTIC

The Upper Tribunal (UT) has agreed with the earlier conclusion, but for a different reason, of the First-tier Tribunal (FTT) that HMRC should be prevented from serving evidence at a late stage in proceedings, once a hearing on missing trader intercommunity (MTIC) fraud involving Infinity Distribution Limited (in administration) had commenced. The UT considered the evidence sought to be served was only relevant if fraud was alleged or if Infinity ought to have known there was a fraud. HMRC had put forward neither argument. Should allegations of fraud be relevant the UT considered HMRC should put forward that allegation.

The case before the FTT concerned the withholding by HMRC of input VAT from Infinity's repayment claims of in excess of £11m. The subject of the dispute was that HMRC were suggesting the invoices supporting the reclaim were not valid. The invoices were in respect of trades in Samsung Serene and Nokia P990 handsets which were top-end phones at the time, newly released. It was argued that the numbers of handsets identified on the invoices could not have been traded in the quantities claimed by Infinity. In its bluntest terms, the manufacturers claim there weren't that many on the market at that time.

The evidence HMRC tried to introduce late in proceedings clearly related to an allegation of dishonesty/fraud, which had not been part of HMRC's pleaded case against Infinity. The FTT had considered the new evidence would be highly prejudicial to the case.

Technically, as the matter is still live in the FTT, HMRC can make an application to amend their pleading. In doing so, HMRC would have to pay a substantial costs order relating to the money spent to date on the case. Infinity does have a right to object to the amendment to a pleaded case at this late stage, and there will undoubtedly be a hearing to consider such an application.

The UT commented that should HMRC want to make an allegation of fraud, it needs to set out in detail its pleaded case in respect of that allegation. However HMRC's current practice in these MTIC cases is that where it does not know how the fraud was committed, it will not allege fraud. In declining to do so, it argues that it does not then have to set out a detailed basis of pleading of matters that it cannot evidence. HMRC will argue that the totality of evidence, when viewed as a whole, leads to the conclusion that a fraud must have been committed, and invite the Tribunal so to do. The request for clarity from HMRC in its allegations before the court is therefore a welcome development.

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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