UK: Weekly Tax Update - July 6, 2015

Last Updated: 9 July 2015
Article by Tina Riches


1.1 Publication of Finance Bill

The Finance Bill to be introduced by the Summer Budget on 8 July will be published on 15 July.

1.2 Supreme Court – Anson and UK tax treatment of income from US LLCs

The Supreme Court has overturned the Court of Appeal decision in Anson, with the result that Mr Anson will be entitled to double tax relief on his share of a US LLC's (Limited Liability Company) profits for the UK tax years running from 6 April 1997 to 5 April 2004. In the US, LLC partners are effectively treated as receiving taxed partnership profits (ie transparent for tax purposes), whereas in the UK the LLC is viewed as being opaque so that LLC members are treated as receiving dividend income from the LLC. Up to now double tax relief for UK individuals in receipt of US LLC profits already taxed in the US has been denied as what was received was deemed by HMRC to be a different source of income from the profits of the LLC (ie as a separate distribution from the capital interest in the LLC).

The implications of this case for the UK tax treatment of distributions from US LLCs received by UK taxable individuals and companies may, however, depend on the provisions of the US LLC agreement.

HMRC guidance at DT19853A on the application of relief for US taxes suffered treats US LLCs as taxable entities that are fiscally opaque rather than fiscally transparent; in other words, more like a company than a partnership. Under that guidance, a UK resident member is treated as receiving distributions of profits, similar to a dividend from a company, rather than being entitled to the income as it arises as in the case of a partnership. This guidance may now need updating.

The Supreme Court decision took significant note of the First-tier Tribunal's (FTT) findings of fact in assessing whether the LLC profit allocation was corporate or partnership in nature, with the outcome in this case that it was viewed as partnership profit.

It disagreed with the Upper Tribunal's comment that the US LLC's profits could not belong to the members as they had no proprietary rights in the assets. They preferred the view of the FTT that conceptually, profits and assets are different and that the combination of the application of Delaware law and the LLC agreement meant that the profits belonged to the members.

It also criticised the Court of Appeal's focus on whether Mr Anson had proprietary rights in the LLC profits, instead of determining whether the UK tax was computed by reference to the same profits or income by which US tax was computed.

The Supreme Court distinguished the Anson case from the decision in Memec (Memec plc v Inland Revenue Comrs [1998] STC 574) by distilling the issue to one of whether or not the LLC profit was income of its members. The Memec case considered whether or not there were proprietary rights to income of a German silent partnership that enjoyed distributions from third party companies. That case concluded Memec plc's rights in the partnership were a separate source for the purpose of the UK/German treaty, rather than Memec plc having proprietary rights in the subsidiaries of Memec gmbh or their dividends.

There was some discussion of the interpretation of 'same' in the context of the same profits. A pragmatic approach was considered appropriate, so that "profits on which foreign tax is computed and in respect of which relief can be claimed are not confined to those arising under UK tax principles in individual UK chargeable periods".

It will be interesting to see what wider impact this case has in other areas where there are differences in the way in which tax computations are carried out in different countries, for example where there are different matching rules for securities under CGT.


2.1 Scottish land reform bill

The Land Reform (Scotland) Bill was introduced to the Scottish parliament on 22 June 2015. Amongst the measures included in the bill is the requirement that shooting estates and deer forests are entered onto the valuation roll from April 2017, with the implication that rates will be payable on these land categories from that date.

Landowners of sporting estates stopped paying business rates in 1994 after being given an exemption by a previous government in the 1990's.

In addition to measures providing greater transparency around the individuals controlling land, if the Bill is enacted as drafted, Scottish Ministers will have the power to consent to the transfer of land to a community body, or a nominated third party, where the transfer is likely to deliver significant benefit, remove or prevent significant harm and enable further sustainable development.

The Bill is currently at stage 1, consisting of a Scottish parliamentary debate on whether the general principles should be agreed to. Stage 2 would be a detailed consideration of any amendments. Stage 3 considers further amendments and consists of a debate on whether to pass the Bill.

The main measures in the Bill and a copy of the Bill as introduced can be found at the following links:

2.2 Self Assessment documents to support loan and mortgage applications

With the move to a more digital based system, tax documents requested by lenders to support mortgagee applications and so on may not exist and have needed to be produced solely for that purpose. Mortgage lenders are now starting to accept downloaded versions of some forms to save having to request them from HMRC.

HMRC has been working with the Council of Mortgage Lenders to improve its online SA documents, in particular Tax Calculation (SA302) and Tax Year Overview, so that lenders can consider accepting them as evidence of income. Adding the Tax Year Overview as evidence addresses the Financial Conduct Authority's concerns about the robustness of the Tax Calculation.

The new process is still bedding in. Some lenders are accepting copies of the online documents while others will ask for original paper copies. HMRC recommends first checking with the lender what they accept to avoid any unnecessary delay or confusion.

If the lender accepts copies of online documents, the agent or taxpayer will be able to print them from the online account without having to contact HMRC.

If you send tax returns using:

  • HMRC software: both documents can be printed from HMRC Online Services;
  • Commercial software: the Tax Year Overview can be printed from HMRC Online Services, but the software package will need to be used to print the Tax Calculation.


3.1 Income tax due on exercise of share options

The First-tier Tribunal (FTT) has concluded that Alistair Norman was liable to income tax on his exercise of Qlick Technologies Inc. options, the gain from which he had declared as a capital gain on his 2010/11 tax return and on which HMRC had raised a discovery assessment. Neither the taxpayer, nor his tax agent, was held to have been careless in the submission of the original tax return.

It was held that because the taxpayer and agent were not deemed to be experts and had taken the view the options were not employment-related as they were not a term of the employment contract. As the taxpayer had not appealed the penalty that had been assessed when the discovery assessment was made, the FTT asked HMRC to honour an undertaking to cancel that penalty.

No enquiry had been made into the return before the normal enquiry deadline (1 February 2013), but a discovery assessment was made on 26 March 2014. A penalty based on careless submission of the tax return was raised on 24 April 2014.

The difference between the cost of exercise and the market value of the shares at the date of exercise of an employee's option is charged to employment income tax. In the circumstances of this case, however, the FTT held that the submission of the tax return, on the assumption that the gain was chargeable to CGT, was not careless.

Where it is clear from the documentation that share options are granted by a current or prospective employer, whether or not they arise from, or are in contemplation of, the employment, the provisions of ITEPA 2003 part 7 that tax option gains to employment income tax will apply and national insurance charges could also be due: the legislation is very wide.

3.2 Tax-Free Childcare to start early 2017

The decision in Edenred (Edenred (UK Group) Limited and another v HM Treasury and Others [2015] UKSC 45) clears the way for the introduction of the new scheme in 2017. Its introduction had been scheduled for autumn this year.

A legal challenge had been brought in the Edenred case by voucher providers against the Government and its decision to deliver the Tax-Free Childcare through HMRC and the Department of National Savings and Investments (NS&I). The case has been won by the Treasury in the Supreme Court and the scheme can now go ahead.

The current system of Employer-Supported Childcare through qualifying childcare vouchers are tax free under limited circumstances (see ITEPA 2003 s270A). The existing scheme will continue to accept new entrants until the new scheme commences. After that, the two systems will run together. Parents may wish to check whether it would be advantageous to join the current scheme before it is closed to new entrants.

The exact details of the rollout have not yet been announced.


4.1 Validity of retrospective SDLT legislation

In the case of APVCO 19 Ltd and others the Court of Appeal has rejected the taxpayers' EC Human Rights claim that retrospective legislation introduced in FA13, backdating the effect of the new subsale legislation to 21 March 2012, was incompatible with those rights.

The human rights issues were heard before any case had been taken to the FTT on whether the SDLT scheme (a deferred completion scheme devised by Blackfriars Tax Solutions LLP using options and the subsale provisions) was effective. It appears the scheme used by the appellants in this case was only disclosed under DOTAS on 22 April 2013.

The taxpayers argued that the money due for SDLT as a result of the legislative changes was a 'possession' that engaged human rights claims when the taxpayer's right to that money was deprived. However, in the Court of Appeal Lord Justice Vos concluded (as did the High Court previously) that this was not a possession as there was an arguable claim by HMRC that there was an obligation to pay SDLT, so the taxpayers could not be said to have been deprived of their money. Lord Justice Floyd concluded the amount due for SDLT was not a possession as the taxpayers had not yet proved their scheme worked.

The Court of Appeal considered the circumstances covered by the scheme fell squarely within the March 2011 Government protocol on the circumstances when new tax legislation could be expected to apply from a date earlier than the date of announcement. As a result, the retrospective measures could not be said to be unforeseeable and arbitrary.

4.2 Updating of cultural tests for TV programmes

The new statutory instrument SI 2015/1449 updates the cultural tests for drama and documentary television programmes, as well as introducing a new cultural test for children's programmes eligible for TV tax credits. It comes into force on 23 July 2015.

To be eligible for TV tax credits, programmes must be certified as British programmes. Prior to these new rules, programmes are required to accumulate 16 out of 31 points in the existing test to gain certification. The changes to the existing test are:

  • A new definition for heads of department involved in the production of children's television programmes. Heads of department are eligible to receive points under the new test for children's television programmes.
  • An increase in the number of points available from 4 to 6 for programmes with a high percentage of dialogue in English or another language recognised for official purposes in an EEA state.
  • An increase from 3 to 6 in the number of points available when a high percentage of specified production activities involved in the making of the programme take place in the United Kingdom.
  • A new cultural test for children's television programmes, based on the existing cultural tests for other types of television programmes. Points are awarded under the same categories (setting; origin of characters; story; language and cultural aspects of the programme, where certain work on the making of the programme is carried out, and the residence or nationality of the personnel involved in the making of the programme) as for the other categories of television programme.

As a result of the changes, programmes will need to accumulate 18 out of 35 points under the new test to be certified.

The changes will not apply if an application for certification is made prior to the entry into force of the regulations.

However, if principal photography or shooting for a programme has commenced before the entry into force of the regulations, but no application for certification has been made, the television production company may elect to not have the amendments applied to that programme. Where the election is made the programme will be assessed against the applicable rules for that programme as if amendments had not been made.


5.1 Cessation of a partner's responsibility for VAT

The First-tier Tribunal has considered that, on the evidence presented, Gordon Lye's letter of notification to HMRC that his partnership had ceased was sufficient notice to HMRC that the partnership had ceased for VAT purposes. The case is an illustration of the importance of the need to provide HMRC with notices of changes in a partnership, the retirement of any partner and the cessation of the partnership.

VATA 1994 s.45 provides that until the date on which a change in the partnership is notified to the Commissioners, a person who has ceased to be a member of a partnership shall be regarded as continuing to be a partner for the purposes of VAT. This applies, notwithstanding Partnership Act 1890 s.36, which provides that where a person deals with a firm after a change in its constitution he is entitled to treat all apparent members of the old firm as still being members of the firm until he has been given notice of the change.

Due to a breakdown in relations with the other partner and the practicalities of dealing with the cessation of the partnership business, HMRC and Mr Lye took different views of when the partnership had ceased.

HMRC contended VAT assessments were due for periods until 18 August 2010, the date of an agreement reached between Mr Lye and his former partner as to the termination of the partnership. That agreement provided for terms for the cessation of the partnership to be treated as dissolved on 1 May 2008.

Mr Lye maintained he had written to HMRC on 3 May 2008 indicating the partnership had ceased and produced a copy of that letter. HMRC maintained they had not received it, but could not produce evidence that the letter had not been received.

Fortunately for Mr Lye, the Tribunal accepted Mr Lye's letter and that the partnership ceased to be registered from 5 May 2008. Had the notification been treated as made in 2010, the partnership VAT assessments for periods to August 2010 would have stood and Mr Lye and the other partner would have remained jointly and severally liable for those assessments.

5.2 VAT treatment of fees - redemption of face value vouchers

The Upper Tribunal (UT) reconsiders face value vouchers in Secrets v HMRC [2015] UKUT 0343 (TCC) The Upper Tribunal has held that commission charged on redeeming vouchers was a taxable supply and not a VAT exempt supply in connection with the dealing of a security for money.

In the Secrets case, patrons of the club were charged a 20% fee to purchase in-house vouchers using their credit card, which they could give to dancers for services. The dancers could redeem the vouchers for a further 20% discount.

The commission, charged on redeeming vouchers by the dancers was held to be a charge for services supplied by the club to enable the dancers to increase their business activity, rather than a commission for dealing in security for money. This is in contrast to an earlier High Court decision (Kingfisher plc v Commissioners of Customs and Excise [2000] STC 992), but it was clear in that case that the charge was more closely related to the supply of credit than the supply of taxable services. The amount of VAT at stake in the Secrets case was Ł549,258 in 2009 in respect of five companies.

In the Kingfisher case, Prudential issued vouchers on credit to individuals. Retailers who were part of the Prudential scheme could redeem the voucher for 90% of its face value. Kingfisher tried to argue the commission was a taxable supply of advertising as it increased their sales. Kingfisher accounted for output VAT on its sale based on the full voucher price, and presumably were seeking to limit the cost to them of the commission service by treating the commission as taxable.

The Kingfisher case was distinguished from the Elida Gibbs case (Elida Gibbs Ltd v C & E Commissioners CJEC Case C-317/94; [1996] STC 1387), where the retailer was only required to account for output VAT on its sale on the amount of cash it received. In Kingfisher, it was a third party who had issued the voucher to be used for any purchase, in contrast to Elida Gibbs where a manufacturer issued a voucher for use in purchasing the manufacturer's goods from a retailer for a discounted price.

The taxpayer, 'Secrets', argued that the commission charged for the redemption of the vouchers fell within the scope of VAT exemption as a dealing in security for money (VATA94 Sch9 Group 5 item 1. However both the First-tier Tribunal and UT concluded that the commission charged to the redeemer of the voucher was a taxable supply, as the use of the voucher enabled the redeemer to conduct their business of dancing and companionship services provided at tables in the clubs and increase their sales.

The commission club patrons were charged for the issue of the voucher was agreed by both HMRC and the taxpayer to be a supply of services connected with a retailer voucher and was therefore taxable, as the voucher could be redeemed for a taxable supply (of dancing and companionship services). This is in accordance with VATA94 Sch10A paras 2 and 4, which applies for face value vouchers issued on or after 9 April 2003.

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

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Tina Riches
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.