UK: Tax Update: 21 May 2007

Last Updated: 22 May 2007
1. Section 831 ITTOIA 2005

For tax years from 2005/06 onwards individuals who are not domiciled in the UK (or are not ordinarily UK resident) can choose on a year by year basis whether they wish to be assessed on their relevant foreign income ("RFI") on the arising basis or the remittance basis. A specific claim must be made if the taxpayer wishes to choose the remittance basis, but HMRC have confirmed that the claim will be treated as made if the Non Residence pages and page F2 of the Foreign Pages have been completed. Where no remittances have been made in the year in question, the claim can be indicated by an entry in the Additional Information box.

That leads onto the question of what action should be taken where a non-domiciled individual has income arising outside of the UK, but has no income arising within the UK and consequently has not received a self assessment return. If they do not file a specific claim under Section 831 ITTOIA 2005 will they be regarded as assessable on the whole of the income arising?

HMRC has confirmed that in these circumstances, the individual will need to consider notifying chargeability under Section 7 TMA 1970. However, if the individual is able to make a claim under Section 831 and there have been no remittances of RFI then there will be no need to notify. If HMRC subsequently enquire into the individual’s affairs, there will only be an issue if the individual’s personal circumstances do not entitle them to claim the remittance basis or it transpires that there were remittances of RFI that had not been notified.

Section 831(1) says "A person may make a claim for a tax year for the person’s relevant foreign income to be charged for that year in accordance with Section 832". No deadline is stated for submitting a claim and consequently it appears that the claim can be made at any time up to the fi fth anniversary of 31 January following the tax year to which it relates (Section 43(1) TMA 1970).

2. Retrospective Liability for PAYE and NICs

Guidance for Employers where a retrospective liability to Income Tax (PAYE) and Class1 National Insurance Contributions (NICs) occurs has been published on HMRC’s website at www.hmrc.gov.uk/employers/retrospective.htm

3. Taxation in Europe: the European Commission launches a new online information tool on the taxes in the Member States

The European Commission launches a new information tool for citizens and business "Taxes in Europe": the on-line database which provides information on the main taxes in force in the Member States. In a user-friendly interface, it offers information on around 500 taxes, such as tax base, main exemptions, rate applicable, as are provided to the European Commission by the national authorities. In addition, it gives information on the revenue generated by each tax. Access is free for all users.

Customs duties and tariff are not described in the new database, instead are provided by the Commission via the TARIC database (see http://www.ec.europa.eu/taxation_customs/dds/ en/tarhome.htm.)

The database will be updated every year. Coverage will be extended in the near future to the four Member States (Cyprus, Ireland, Malta and Portugal) currently not represented.

Go to search engine: http://ec.europa.eu/ taxation_customs/taxation/gen_info/info_docs/ tax_inventory/index_en.htm

European Commission

4. Further Discussions on Approved Mileage Allowance Payments

HM Revenue & Customs (HMRC) review of Employee Car Ownership schemes (ECOS) and the interaction with company car tax and mileage payments is still ongoing. HMRC has published an open letter, containing proposals for changes to the current structure of Approved Mileage Allowance Payments. Comments are invited by 31 July 2007. For full details see www.hmrc.gov.uk/cars/amap-ecos.pdf

5. (HMRC) Further consultations on HMRC powers

HM Revenue & Customs (HMRC) has published two more consultation papers, as part of its work to modernise its powers, deterrents and the accompanying safeguards.

The first paper considers options for a new approach to compliance checks, while the second asks for views on the adequacy and effectiveness of current safeguards for taxpayers.

Currently, HMRC relies on provisions inherited from its predecessor Departments - the Inland Revenue and HM Customs and Excise - which evolved over a considerable period of time, and involve substantial differences between different areas and taxes.

The first consultation paper considers a possible compliance checking framework which would:

  • align rules across income tax, corporation tax, VAT, PAYE and NICs, where doing so would bring more clarity, consistency and efficiency, and reduce costs for both taxpayers and HMRC;
  • set out requirements and safeguards which distinguish between non-business and business taxpayers; and

  • better align the time limits for making tax assessments for different taxes.

The options were discussed with business and representatives of the professions at workshops during the summer and autumn last year, and refl ect responses to previous consultations. http://customs.hmrc.gov.uk/ channelsPortalWebApp/downloadFile?contentID =HMCE_PROD1_027496

The second paper concentrates on:

  • safeguards within non-tax legislation and non-UK tax legislation which ensure that HMRC itself complies with the legislation, and provides taxpayers with easy access to the underlying safeguards; and
  • safeguards related to the administration of the tax system (e.g. the Civil Service Code, handling of appeals and complaints, guidance and codes of practice).

It will consider whether the safeguards are effective, and whether HMRC is doing enough to make taxpayers aware of the safeguards, and to implement them. http://customs.hmrc.gov.uk/ channelsPortalWebApp/downloadFile?contentID =HMCE_PROD1_027495

The deadline for submitting comments for both consultations is 10 August 2007. www.HMRC.gov.uk

6. PAYE: 2006-07 PAYE Returns

The deadline for your 2006-07 PAYE Return was 19 May.

HMRC are aware that some agents experienced diffi culty sending their clients’ Returns in early May and are sorry for the inconvenience that caused. They can confi rm that they will not charge a late fi ling penalty if they get a Return by midnight on 28 May. And if you still cannot send your Return by then, they will consider discharging any late fi ling penalty if you can show that you could not send a Return on time for reasons outside of your control.

They will still pay the £150 tax-free payment to employers with fewer than 50 employees as long as their Return is sent online, even if they get it after 28 May. http://www.hmrc.gov.uk/paye/paye-returns.htm

7. HMRC New tax repayment form (R40) now available

HMRC has redesigned its R40 ‘Tax Repayment Form’ to make it easier for customers to understand and complete.

The new 4-page form has the same look and feel as the Short Self Assessment Tax Return, introduced last year, and follows a successful two-year trial involving around 1,000 people.

Anyone who hasn’t completed a R40 before, and thinks they need to, can request copies of the new form from the HMRC Forms Helpline on 0845 9000 404 or download it from the HMRC website at http://www.hmrc.gov.uk/forms/r40.pdf

8. Deduction For Fees And Subscriptions Paid To Professional Bodies Or Learned Societies: Section 201 ICTA 1988 (Formerly Section 192 ICTA 1970)

List 3, published by HMRC, has been amended to correct a discrepancy between the .html and the .pdf versions.

This list shows

  • Statutory fees or contributions within Section 201 ICTA 1988 (formerly Section 192 ICTA 1970)
  • bodies and learned societies, approved by the Board under section 201. http://www. hmrc.gov.uk/list3/list3.pdf
9. Definition of offshore fund: BN 29

HMRC has now published guidance on what may constitute an open-ended company in the context of the changes made to the offshore funds regime by clause 56 Finance Bill 2007.

http://customs.hmrc.gov.uk/ channelsPortalWebApp/channelsPortalWebApp. portal?_nfpb=true&_pageLabel=pageVAT_Inf oGuides&propertyType=document&id=HMCE _PROD1_027504

10. HM Revenue & Customs departmental report 2007

The HMRC Departmental Report was laid before Parliament. The report details HMRC’s performance for the year 2006/07, and this is the fi rst time HMRC have combined their Spring Departmental and Annual Reports into one document.

The report details HMRC’s business and operations and how the Department is currently performing against its Public Service Agreement (PSA) targets. These are the operational targets set by the Government by which Departmental progress is measured.

Key achievements include:

  • A rise in tax revenues for the second consecutive year, HMRC collected net receipts of £423bn from taxes, duties and other revenue. An increase of £25bn on the previous year. Increased earnings saw the monies collected through Income Taxes and National Insurance rise by £14bn, nominal spending growth led to a rise of £4.5bn in VAT receipts and an increase in receipts from onshore companies saw the Corporation Tax yield rise by £2.5bn.
  • Marked progress in detecting and disrupting organised VAT fraud, with 14 criminal prosecutions concluded in 2006-07, resulting in 45 convictions and jail sentences totalling 149 years. HMRC has further strengthened operational activity in this area and combined with the Government's new Reverse Charge arrangements we have made the UK a much tougher market for these fraudsters to operate in.
  • Further reductions in the administrative burden for business. By understanding and being more responsive to the needs of our customers we continue to reduce the burden on UK companies. At April 2007 HMRC have delivered a reduction in the administrative burden from Forms and Returns estimated at £130mn (net) and an estimated reduction of £43mn in the burden from Audits and Inspections, this represents excellent progress towards the targets set by the Government in the 2006 Budget.
  • Increases in the uptake of online services. A key to reducing the administrative burden is increasing the number of facilities and services available online. Pension schemes, Stamp Duty Land Tax and the New Construction Industry Scheme can all now be managed online and HMRC's self assessment online service saw another signifi cant rise in use (2.9mn returns online - representing almost one third of all returns). The system remained robust and operative throughout the peak fi ling period which, at its height, saw HMRC receiving almost two returns every second.

Copies of the current report are available from the HMRC website at: HMRC Spring 2007 Departmental Report (PDF 870K)

Government News Network

11. Biofuels

The use of biofuels to power cars, supply electricity etc is a growing business area. New technology means cooking oil can be used in cars and lorries with minimal conversion to the engine and works out about 20p /litre cheaper. There are many issues in relation to excise duty and VAT, and HMRC have a number of useful notices to read as a starting point.

12. Self assessment and tax equalised employees

HMRC have published a revised version of Help Sheet IR212 for the Employment Pages of the 2006/07 tax return. Help Sheet IR212 is intended to assist professional advisers and employers who prepare tax returns for tax equalised individuals by providing amended instructions for certain boxes on the Employment pages. The online version can be downloaded from www.hmrc.gov.uk/helpsheets/ir212.pdf.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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