UK: Tax Focus - A Summary Of Current Tax Issues For Companies, November 2007

Last Updated: 20 November 2007
Article by Andrew Wilkes

Pre-Budget Report round-up

On 9 October, Alistair Darling announced his first Pre-Budget Report (PBR).

CGT reform
The Government announced a number of significant changes to capital gains tax (CGT) in the PBR. Most significantly, both taper relief and indexation relief have been abolished for individuals, trustees and personal representatives, effective for disposals made on or after 6 April 2008. The current CGT rules will continue to apply for disposals made up to 5 April 2008. There are no changes to the CGT regime for corporates.

Taper and indexation relief will be replaced by a flat rate of CGT at 18% for individuals, trustees and personal representatives on the gain arising. The abolition of taper relief means there will no longer be a distinction between the rates of tax payable on business assets and non-business assets, and the period of ownership of an asset will cease to be relevant.

Although the removal of taper and indexation relief will help to simplify the CGT regime, the changes will have a significant impact on entrepreneurs and owner-managed businesses.

The main trade bodies are putting pressure on the Chancellor to reconsider the impact of the proposed changes on entrepreneurs and business owners facing retirement. Thus further developments may follow in due course. Nevertheless, taxpayers currently in a position to benefit from a 10% rate, i.e. on business assets, should still consider crystallising the disposal of these assets before 5 April 2008. Additionally, they should consider delaying disposals until 6 April 2008 where the new 18% flat rate would be lower than the CGT rate they would otherwise have been subject to (i.e. on non-business assets and business assets that have been held for less than two years).

Other highlights
Although relatively quiet on the corporate front, some key proposals that may impact on companies included:

  • measures for simplifying the tax affairs of related companies with respect to chargeable gains and groups, Corporation Tax Self Assessment and filing and transfer pricing rules, all of which were put forward for consultation
  • a number of anti-avoidance measures dealing with leased plant and machinery, disguised interest and spreading relief for pension contributions
  • small changes dealing with fire safety capital allowances, hedging foreign exchange risks, National Insurance Contributions on holiday pay, income shifting and fuel benefit charges
  • changes to the remittance basis for non-domiciled individuals. This may impact upon businesses that second international employees to the UK where tax equalisation packages are in place.

On air

In April 2007, recognising the need to make information widely and easily available, HM Revenue & Customs (HMRC) became one of the first Government departments to launch a podcast service.

It has recently uploaded two new podcasts. You can now listen to HMRC’s director general Dave Hartnett respond to agents’ questions, and chairman Paul Gray’s assessment of the organisation’s online services. The podcasts can be downloaded from www.hmrc.gov.uk/podcasts

Round and round we go

In Topps Tiles, the court agreed with HMRC and held that the rounding of VAT should be up or down to the nearest penny, and on each supply.

However, JD Wetherspoon has recently been referred to the European Court of Justice, questioning whether rounding up is actually permitted, and whether it should take place on an individual item basis or by each basket of goods sold. Clearly, the greatest savings would arise where VAT is rounded down and calculated per item.

Retailers and similar businesses should consider submitting claims in accordance with the JD Wetherspoon decision.

Late night taxis

In the April edition of Tax Focus, we highlighted the change to HMRC’s interpretation of the exemption for the provision of late night taxis for employees. HMRC has recently published draft guidance to clarify its view.

  • 60 journeys per year per employee is the ceiling on the number of exempt trips allowed, even where the relevant conditions are satisfied.
  • If late night working, even as infrequently as one night a month, falls on a predetermined day each month, it will be considered regular and therefore not satisfy the conditions.
  • Where public transport is available after 9pm, the exemption is unlikely to apply unless the journey time exceeds the ‘daytime’ commute by at least 60 minutes due to evening timetables, frequency of service, etc. HMRC considers it reasonable to expect employees to be aware of this and to plan accordingly.
  • Adequate records must be kept to ensure the relevant conditions are satisfied in each case.

HMRC is consulting representative organisations regarding the draft guidance, which is subject to change. We will keep you informed of any developments.

Health screenings and medical check-ups

In July, HMRC introduced new regulations that provided an exemption for the benefit of free health screening and/or medical check-ups. HMRC explained that the regulations were necessary as it had received advice indicating that its past practice – to regard a medical as not conferring a benefit on an employee – was incorrect.

The new regulations replace the nonstatutory treatment previously set out in HMRC guidance. Unfortunately, they limit the scope of the exemption to cases where an employer provides the screening and/or medical check-up on the same basis to all employees. The ‘available-to-all’ condition is common for the tax exemption of benefits, but it was not the way this treatment had worked prior to the new regulations.

Based on a number of representations made, HMRC announced on 12 October that, despite the new regulations, it would continue to apply the old non-statutory treatment for the 2007/08 tax year because "some existing health screening schemes could be affected in a way that was not envisaged".

HMRC will be consulting over the next few months and we can expect a further-revised regime to take effect on 6 April 2008.

Interesting claims

Have you ever reclaimed VAT from HMRC and wondered why any interest supplement relating to the claim has been low? HMRC calculates interest payments on a simple basis at a self-determined rate. However, following recent direct tax and VAT cases, there is now an opportunity to recalculate interest claims either on a compound basis or at the company’s commercial borrowing rate.

Guidance on long-funding leases

HMRC has published a new Business Leasing Manual to provide guidance on long-funding leases of plant and machinery. This manual supports the guidance outlined in a technical note issued in August 2006, after new rules were announced in the Finance Act 2006.

Broadly speaking, the commercial substance of a long-funding lease is considered to be more akin to a loan than a lease as it performs a financing function and generally has a term of more than five years.

The Finance Act 2006 seeks to tax such leases in a similar way to loans – although not under the loan relationship rules – in order to align more closely the tax treatment with the economic reality of the transaction. The new rules generally apply to leases entered into on or after 1 April 2006.

The manual also includes guidance on lease accounting, the sale of lessor companies and similar transactions, and updated material from the existing Finance Leasing Manual.

Carbon offsetting

In Business Brief 52/07, HMRC confirmed its VAT policy in relation to the sale and/or trading of emissions allowances. But while trading of these allowances in the UK is now subject to VAT, the question remains as to the VAT treatment of the increasingly popular carbon offsetting schemes. Are these schemes ‘donations’ of money and therefore outside the scope of VAT, or are they sales of specified services to customers wishing to offset their carbon footprint?

We have sought an opinion from leading tax counsel for a client in this sector, and we are working with HMRC to clarify the situation.

If you buy or provide carbon offsetting services, you should consider the VAT implications associated with these supplies, and whether you need to restructure your business to take account of any associated VAT costs.

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.

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

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions