UK: Weekly Tax Update - 15 February 2016

Last Updated: 24 February 2016
Article by Smith & Williamson

1. General news

1.1 HMRC collects £2bn in accelerated payments to date

HMRC has confirmed that over £2 billion has been collected from investors in schemes labelled as tax avoidance, following the introduction in 2014 of the accelerated payment notice (APN) regime, under which HMRC can demand the tax at stake up-front from taxpayers while their tax affairs are disputed.

HMRC says that it is now issuing over 3,000 APNs a month, and has issued over 41,000 notices since the start of the APN regime. In addition, HMRC has indicated that it expects to have completed issuing APNs by the end of 2016, which will give rise to over £5 billion in payments by March 2020. Taxpayers retain full appeal rights against the substantive tax liability.

If the case is taken to litigation and the taxpayer ultimately wins, HMRC will repay the tax with interest.

1.2 CRS client notification draft regulations and guidance

Finance (No.2) Act 2015 s.50 includes a provision to impose client notification obligations on 'specified relevant persons'. The intention of this is to require tax advisers and other providers of financial services and financial institutions to write to their clients, using text provided by HMRC, to inform the clients about the impending introduction of the Common Reporting System (CRS) under which around 90 countries intend to exchange information about taxpayers.

The communication will also need to recommend to clients with undeclared foreign income or gains taxable in the UK to disclose this to HMRC without delay under the 'final offshore disclosure facility' due to be introduced shortly. The primary legislation on CRS includes a power to issue regulations setting out the detail.

The draft regulations and draft guidance were recently issued by HMRC for comment. These are a significant improvement on the original proposals aired last year, but will still impose a huge burden on every entity caught by this measure. Rather than HMRC sending a single letter to every taxpayer, the draft regulations will require tax agents, accountants, financial institutions, including banks and investment managers to write to many of their clients. Identifying the clients to write to will be an expensive task for many firms in terms of non-chargeable time as well as postage costs, though nowhere near as expensive as it would have been had it not been for informal consultations.

It is currently unclear whether the final regulations will require each entity in multiple-entity firms with an overlap of clients to write to clients, who would therefore receive multiple letters from each service provider, devaluing the impact of the communications.

Consultation is still ongoing and it is hoped, that, even if not withdrawn, the draft regulations will be further improved so as to minimise the huge burden on firms. The penalty for non-compliance is currently set at £300, although there is a risk that this could change.

HMRC was open to comments on the draft regulations until Friday 12 February, although we understand the consultation deadline is to be extended to 22 April 2016.

1.3 Spotlight 29 misleading claims by tax avoidance scheme promoters

HMRC has issued spotlight 29 highlighting schemes that are marketed in a way that indicates they incorporate legitimate tax planning, but the claims made for them may not in fact be valid.

HMRC clearly has specific kinds of employment income tax scheme in mind, as it states:"... they all try to reduce the amount of tax and National Insurance contributions due on your income through contrived or artificial transactions that serve little or no commercial purpose other than to produce a tax advantage."

1.4 Digital delivery unpackaged

HMRC has published a practical guide to establishing digital delivery capability. This is a report giving guidance on how an organisation might go about setting up large-scale Digital Delivery Centres (DDCs).

The report draws on HMRC's experience since 2013 in setting up its own DDCs and provides acknowledgement to a number of other providers with whom HMRC has worked on this project. It indicates there are four stages in the process of delivery. Further details are at:

1.5 Institute for Fiscal Studies (IFS) green budget 2016

The IFS green budget for 2016 provides analysis of the UK economy in the context of the global economy, tax policy and public finances, and considers the various options available to the Chancellor. It also includes contribution from the ICAEW in the form of an analysis of the Government balance sheet, and an exploration of the policy options for infrastructure spending.

While much relates to economic rather than strict tax issues, it helps tax practitioners put into the context the position of the Government in relation to tax.

Highlights from the document include:

  • 2015 appears to have been an underwhelming year for the UK economy, with the latest out-turn for GDP growth of just 2.2% disappointing in the context of the scale of the support offered by very low inflation.
  • The IFS considers there is currently a significant amount of spare capacity in the economy. Their forecast shows potential output growth averaging 2.1% a year over the period from 2016 to 2020, underpinned by further strong growth in the labour supply and robust levels of business investment. Risks around their forecast are heavily skewed to the downside from areas such as the outcome of the EU referendum, developments in household balance sheets, US interest rate policy and oil price movements.
  • UK's public sector net debt is high by recent standards and relative to most advanced economies, although not particularly high in a longer-term historical context or relative to most of the largest economies.
  • Unless a large surplus is planned, small forecasting changes could require sudden in-year tax rises or spending cuts to ensure the mandate is met. Even if the starting point in 2019–20 is an expectation of a £10 billion surplus, previous experience suggests there would be a more than one-in-four chance that in-year tax rises or spending cuts would be needed to ensure an out-turn of any surplus at all.
  • The Whole of Government Accounts (WGA) provide a more comprehensive picture of the public sector's financial performance over five years than that available from traditional National Accounts reporting by capturing a wider range of financial transactions. The reduction in the deficit on a National Accounts basis of 35% from £153 billion to £100 billion between 2009–10 and 2013–14 contrasts with a reduction of only 20% in the size of the annual accounting deficit to £149 billion over that same period. There has been a significant deterioration in the government's financial position, with net liabilities in the WGA more than doubling in five years, from £0.8 trillion at 31 March 2009 to £1.85 trillion at 31 March 2014.
  • On tax anti-avoidance, the report notes that in November 2015, the Office of Budget Responsibility (OBR) assessed a subset of anti-avoidance policies and found that, while some exceeded their original expected yield, on average, the original costings had overestimated the true revenue yield. There is a clear risk that the measures implemented over this parliament fail to raise the anticipated revenues. It is also noted that more anti-avoidance is expected in the coming Budget and beyond, to include the OECD BEPS initiatives.
  • The IFS highlighted the impact of fiscal drag, with a 40% increase in the number of taxpayers subject to the 45% rate band in the current year compared to when it started. Unless the threshold is altered, the IFS also expects the number of people paying the Higher Income Child Benefit Charge by 2021 to increase by 50% compared to now.
  • The IFS also came out in support of the current pension tax relief system, saying that those who want to save for retirement should be encouraged to do so. It also indicated that some of the proposed changes would only work for defined benefit schemes.

2. PAYE and employment

2.1 Are flexible benefits a redirection of earnings?

There has been some discussion as to the boundaries around the concept of 'redirection of earnings', as used in HMRC's argument in the Rangers case (The Advocate General for Scotland v Murray Group Holdings Ltd [2015] CSIH 77), even though that case is due to be appealed. It is unclear whether HMRC would attempt to try to use the argument in connection with flexible benefit arrangements, where an employee can choose to waive more pay in favour of other benefits.

This month's Tax Adviser magazine confirms that the CIOT has raised this with HMRC. The CIOT has been reassured that: 'any new view applicable in such circumstances would be a significant change of HMRC policy and that, if such policy change arose, it would be properly announced with prospective effect.'

2.2 HMRC guide to payrolling benefits in kind

HMRC has issued draft guidance on the practical aspects of payrolling of benefits for the 2016/17 tax year. It is necessary to register for payrolling of benefits if the employer wishes to do this. This must be done before 6 April 2016 if it is to take effect for 2016/17.

In addition to dealing with HMRC to implement payrolling of benefits, employers tell employees about the change. As of the first week of February 2016, we understand around 1,300 employers have registered, leading to a potential reduction in the number of P11D's required at the year-end of around 220,000 from the 4.1m total otherwise due to be submitted.

2.3 Beneficial loan arrangements

The official rate of interest on beneficial loans will remain at 3% from 6 April 2016.

2.4 HMRC guidance on exemption for non-contractual trivial benefits in kind

HMRC has produced guidance for incorporation in its employment income manual concerning the exemption for non-contractual trivial benefits in kind that will apply from 6 April 2016.

From 6 April 2016, trivial benefits in kind are exempt from tax as employment income if all the following conditions are satisfied:

  • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person) (see EIM21865);
  • the benefit is not cash or a cash voucher (see EIM21866);
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements) (see EIM21867);
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties, or in anticipation of such services (see EIM21868).

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household,) the exemption is capped at a total cost of £300 in the tax year (see EIM21869).

3.Business tax

3.1 Challenge to 45% CT rate on restitution interest

The High Court has declined permission to amend a High Court claim concerning recovery of Sch D case V corporation tax paid on dividends received by Six Continents Overseas Holdings Ltd from its Dutch subsidiaries. The proposed amendment was to challenge the lawfulness under EU and Human Rights law of new legislation in F(No2)A 2015 imposing a 45% corporation tax rate on restitution interest.

Six Continents was not part of the original group litigation and had made a recent application for consideration of its case concerning recovery of Sch D case V corporation tax. The High Court directed HMRC to make the interim payment within 14 days of that application. The interim payment of £16,014,718.29 was duly made on 19 October 2015, four days before the announcement and introduction of the restitution interest provisions. Because the payment was made a week before 26 October 2015, the withholding tax obligation in the new provisions did not apply at that stage, so the payment was received gross. The payment represents approximately 84% of the total amount for which Six Continents expects to obtain judgment if its claim, to be heard in May 2016, succeeds in full. It is possible, however, that when interest is finally determined, the new tax will apply to some or all of the total restitution interest received. This could include part of the amount already paid.

The High Court agreed with HMRC that the claim to challenge the new legislation before the High Court was premature and that the First-tier Tribunal (FTT) had jurisdiction to hear a challenge to the new legislation. It was recognised the FTT would not have jurisdiction to deal with the proposed claim for compensation, which would need to be dealt with at the High Court.

It was noted that there are already four separate challenges at the FTT to the restitution interest tax provisions.

To continue reading this article, please click here

Smith & Williamson LLP: Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International. The word partner is used to refer to a member of Smith & Williamson LLP The Financial Conduct Authority does not regulate all of the services or products discussed in this publication.

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.

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.