UK: Weekly Tax Update - 21 November 2016

Last Updated: 24 November 2016
Article by Smith & Williamson

1. GENERAL

1.1 Autumn Statement 23 November 2016 – Smith & Williamson commentary

Smith & Williamson will be sending out its usual communication to clients and contacts on the evening of the Autumn Statement on Wednesday, linking to commentary and analysis of the key changes that we will place on our website. This will be available from:

www.smith.williamson.co.uk/

1.2 Response to consultation to simplify the gift aid donor benefit rules

The Government will consult further to simplify the gift aid donor benefit rules and make gift aid easier to claim, thus increasing the number and value of claims by charities.

The original consultation found wide use of the current extra statutory concessions offering charities flexibility to provide benefits. The Government will therefore legislate for:

  • the split payment rule – in some circumstances this allows a charity to deduct the market value of a benefit from the gross donation and claim gift aid on the rest of the money donated;
  • the averaging method – this permits a charity to average the cost of a benefit over a number of donors;
  • the ten year rule for a lifetime benefit - for a lifetime benefit, a charity can value the total cost over a 10 year period; and
  • the concession on literature of inconsequential value – this relates to literature that describes or promotes the work or objectives of the charity, which is assigned no financial value.

Charities will be required to inform the donor how much of their gift, less any benefit received in accordance with these concessions, is eligible for gift aid.

The Government also recognises the need to update and improve its guidance and look at ways of communicating more effectively with the charitable sector.

The responses to the consultation indicate a lack of consensus around any reform proposal on the 'relevant value test', a set of thresholds that determine the value of benefits the charity may 'give' to the donor in recognition of the gift, but still claim gift aid. Consequently, the Government will not implement any changes at this stage. There was more consensus that a disregard for low value benefits would be helpful, though many views on the threshold level to be set. There were also EU rules to consider in any proposed reform. Further consultation is therefore proposed, focusing on two main areas of simplification:

  • reforming the relevant value test; and
  • disregarding low value benefits.

The deadline for responses is 3 February 2017.

www.gov.uk/government/consultations/simplifying-the-gift-aid-donor-benefits-rules-further-consultation

1.3 EC consultation on deterring promoters of aggressive tax planning

The consultation will gather views on the need for EU action to introduce more effective disincentives for intermediaries or tax payers engaged in operations that facilitate tax evasion and tax avoidance and the design of any rules in this area.

Following recent revelations highlighting the role intermediaries may play in helping clients, who would not otherwise know the local law or tax rules, to shift profits offshore to avoid or evade tax, the EC wishes to use this consultation to gather views on the following:

  • the need for EU action against intermediaries who facilitate tax evasion and tax avoidance;
  • the different options for action, should EU action be appropriate; and
  • the key design features of a possible disclosure regime.

The disclosure regime would oblige tax advisers to provide 'early information' on planning that could be viewed as aggressive or abusive.

The deadline for responses is 16 February 2017.

http://europa.eu/rapid/press-release_IP-16-3618_en.htm

https://ec.europa.eu/eusurvey/runner/intermediariestaxplanning

2. PRIVATE CLIENT

2.1 Client notification letters – guidance to taxpayers

HMRC has updated its guidance for client notification letters. The client notification landing page, which went live last month, now includes a brief guidance summary, 'Guide to sending the client notification letter', for financial institutions and advisers. This includes links to the detailed guidance in the International Exchange of Information Manual. In addition, HMRC has published new guidance for recipients of the notification. There is a link to this from the Worldwide Disclosure Facility page, which is referred to in the notification itself. The new guidance explains why clients have received the notification and what action to take.

The new guidance for notification recipients seems to imply that taxpayers may wish to make their own disclosure without taking specialist advice. We always recommend that anyone who is considering making a disclosure seeks specialist advice.

Anyone who wants to discuss making a disclosure is welcome to get in touch with their usual Smith & Williamson contact or one of our investigation specialists.

Guide to sending the client notification letter:

www.gov.uk/government/publications/client-notification-income-or-assets-abroad/notes-on-how-and-when-to-send-the-client-notification-letter

Guidance for recipients of the client notification:

www.gov.uk/guidance/income-or-assets-abroad-letter-about-your-uk-tax-affairs

3. PAYE AND EMPLOYMENT

3.1 OTS review – closer alignment of income tax and NIC

The OTS has issued further analysis of its review of the closer alignment of income tax and NIC for employees and employers. It reaffirms its call for the current outdated system to be reformed.

At present, there is a perceived anomaly that PAYE effectively operates across all employments, whereas each one is treated separately for NIC, with employees in multiple employments often paying less NIC.

There would be winners and losers if NIC was calculated on an annual, cumulative and aggregate (ACA) basis, rather than a per-employment, monthly basis, with those on lower total earnings benefiting at the expense of those earning more.

The OTS also suggests further work be undertaken to moving employer's NIC to a payroll levy similar to the apprenticeship levy. Consideration needs to be given to the impact on those businesses currently using low-paid or part-time workers. The suggestion is that any changes should be made over a five year period alongside Making Tax Digital.

There is no mention of reform of NIC for the self-employed.

www.gov.uk/government/publications/ots-publishes-further-report-on-the-closer-alignment-of-it-and-nics

www.gov.uk/government/news/ots-calls-for-simpler-and-fairer-national-insurance

3.2 Temporary employment agency scheme

The Guardian has reported that Frank Field, the chairman of the House of Commons Work and Pensions select committee, has asked HMRC 'to launch an urgent investigation into an aggressive tax avoidance scheme used by recruitment agencies that is depriving the taxpayer of "hundreds of millions" of pounds'. He also asked that Jon Thompson, chief executive and permanent secretary to HMRC, looks into recouping any revenues.

The Guardian reports that under the scheme, workers' contracts are being transferred from a single employment agency into a web of thousands of tiny companies to benefit from an accumulation of small tax breaks, and how each of these tiny companies is ostensibly run by overseas directors. The alleged tax breaks include:

  • obtaining the employers' NIC allowance; and
  • the fact that the company can invoice for VAT at 20%, but under the flat rate scheme pays a lower amount of VAT to HMRC to take account of the fact that no input tax is reclaimed.

www.theguardian.com/politics/2016/nov/16/labour-mp-frank-field-calls-for-urgent-investigation-tax-avoidance-scheme-hmrc

www.theguardian.com/uk-news/2016/nov/15/revealed-temp-agencies-avoidance-scheme-costs-taxpayers-hundreds-of-millions

4. BUSINESS TAX

4.1 Bank levy double tax relief

Regulations will be made to eliminate double tax where there are overlapping payments of both the bank levy and the single resolution fund levy. They will have effect from 1 January 2016.

Since 1 January 2015, all EU Member States have been bound by the Bank Recovery and Resolution Directive (BRRD). One of the key elements of the BRRD is the establishment of a new levy in Eurozone states to fund a Eurozone Single Resolution Fund. The UK is satisfying its obligations under the Directive by raising contributions through its existing levy on banks' balance sheet liabilities.

In some circumstances, the Single Resolution Fund levy overlaps with the UK bank levy and gives rise to double taxation. Following its introduction, this measure will give relief.

www.gov.uk/government/publications/bank-levy-double-taxation-relief-single-resolution-fund-levy/bank-levy-double-taxation-relief-single-resolution-fund-levy

5. VAT

5.1 Charity advertising and goods connected with collecting donations

HMRC has reissued VAT notice 701/58 covering the scope of zero rating for charities where the services are advertising, or for some goods supplied in connection with collecting monetary donations.

The notice covers:

  • advertising (VATA Sch8 group 15, items 8-8(c)); and
  • supplies of certain printed matter, collection boxes, stickers, emblems and labels under an extra statutory concession applying from 1 April 2000.

The Notice also refers to VAT notices 701/10 (zero rating of books and other forms of printed matter) and 700/24 (postage delivery charges and direct marketing), commenting that direct mail and direct marketing do not come within the concession.

Prior to July 2014, it was widely believed in the charity sector that arrangements for the print and distribution of mail-packs by specialist companies on behalf of charities, mainly for the purposes of fundraising, was a zero rated supply of goods. HMRC disagreed with this. A transitional period was agreed to move to standard rating for these supplies. Since 1 August 2015, a single contract for direct marketing supplies together with the provision of printed matter on behalf of a charity, has been a standard rated supply of direct marketing services.

www.gov.uk/government/publications/vat-notice-70158-charity-advertising-and-goods-connected-with-collecting-donations/vat-notice-70158-charity-advertising-and-goods-connected-with-collecting-donations

5.2 VAT place of supply of advertising and exhibition services

The Court of Appeal has agreed with the UT's decision that Finmeccanica Global Services Spa's establishment and operation of an enclosure at the Farnborough Air show was a supply of the services of a fair or exhibition, and not advertising. Finmeccanica failed in its claims for a refund under the place of supply rules applicable at the time.

Under the general rule in operation at the time from 2008 to 2010, the place of supply of services was the place where that business was established. Exceptionally, the place of supply of services of entertainment at events such as fairs and exhibitions was the place at which those events took place under the then Sixth Directive article 9(2)(c)). The place of supply of advertising to customers established in another member state, however, is that member state under what was the Sixth Directive article 9(2)(e).

Finmeccanica was seeking to recover input VAT on its costs of running the enclosure under the Eighth Directive and Refund Directive.

The FTT considered that, through the provision of the enclosure and related activities, Finmeccanica was the supplier of advertising services to its Italian group companies and that the place of supply was Italy under the general rule. If it was wrong on that it considered that article 9(2)(c) could not apply, as the services were advertising and within article 9(2)(e), deciding for Finmeccanica.

The UT considered that the FTT should have looked at case law on exhibitions and fairs and held that the place of supply was governed by article 9(2)(c) and was the UK and that article 9(2)(e) had no application.

The Court of Appeal took a different view and considered it was necessary to compare the application of both article 9(2)(c) and 9(2)(e) to determine in which category the supplies fell. It considered the essential purpose of the operation was the enclosure at the Air Show and fell more clearly within the exhibition category than advertising category.

As a consequence, the only way Finmeccanica could have recovered the UK input VAT would have been to register for UK VAT and recovered input VAT on its costs. It would then have had to raise invoices with UK VAT to its Italian subsidiaries and those subsidiaries would have needed to make the Eighth Directive/Refund Directive claims to recover input VAT.

www.bailii.org/ew/cases/EWCA/Civ/2016/1105.html

6. AND FINALLY

The take-over of the machines

They all want a little bit more from us, don't they? Still reeling from the reports that Toblerone manufacturers Mondelez are maintaining the price, but decreasing the weight and changing the shape of the iconic bar, And finally decided to settle ourselves by perusing accountancy websites.

And there, on Accounting Web, is an article reporting incidences of computer systems going rogue at HMRC and, in doing so, trying to sneak a little bit more tax from unsuspecting taxpayers. It appears that the computers have extended their terms of reference for the marriage allowance and are causing all sorts of bother. The article provides the following examples of cyber-grabbing:

  • extending the legislation and adding a further condition to be satisfied by the transferor;
  • adding tax to a recipient's calculation for the year, instead of showing the adjustment as a tax reducer; and
  • adding tax to a transferor's tax calculation in a situation when there should be no tax effect. Apparently, HMRC telephone operatives are as confused as the rest of us. Nobody mention 'Making Tax Digital', please.

We understand the ICAEW Tax Faculty is now on the case. Sadly, the Toblerone bar does not have such a champion in its corner, but if you move quickly, your local Ł shop will be happy to supply you with the weightier, pyramid-shaped version. Tip: you may need to reach to the boxes at the back of the shelf.

www.accountingweb.co.uk/tax/personal-tax/marriage-allowance-mayhem

www.accountingweb.co.uk/any-answers/marriage-allowance-again

www.bbc.co.uk/news/business-37909035

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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