1. General news
1.1 Response to proposals to increase/introduce court and tribunal fees
The Ministry of Justice has published its response to the consultation on court and tribunal fees. This includes new fees for the First-tier Tribunal (FTT) and the Upper Tribunal (UT). The response generally accepts the proposals in the consultation for the tax tribunals, although for appeals against fixed penalties of £100 or less, the fee will be £20 (not the proposed £50). A date for the introduction of these new fees has not yet been set.
The proposed new fees for the FTT and UT are as set out below:
www.gov.uk/government/consultations/enhanced-fees-response-and-consultation-on-further-fee-proposals
1.2 Direct recovery of debts by HMRC and the vulnerable
HMRC has published a paper giving non-exhaustive guidance on how it will apply its commitment to consider whether someone may be at a 'particular disadvantage' in dealing with their tax affairs, before making a decision whether to proceed with 'direct recovery of tax debts' as provided in Finance (No 2) Act 2015.
The particular indicators they will consider are:
- a disability or long-term health condition;
- a temporary illness, physical or mental health condition;
- personal issues, such as bereavement or caring issues; and
- lower levels of literacy, numeracy and/or education.
The note includes a case study example.
2. Private client
2.1 Foreign income and gains as loan collateral for a relevant debt – update
Following a meeting held with HMRC on 18 November 2015, the ICAEW has issued an update on the treatment of foreign income and gains (FIG) as collateral for a 'relevant debt' for remittance basis users. HMRC intends to issue further guidance by 31 January 2016 on what constitutes a new loan and how the grandfathering rules work. If it is not issued by that date, HMRC will accept the submission of provisional tax returns for 2014/15 in certain circumstances.
Broadly a relevant debt is a debt that relates wholly or partly to assets or services brought to, received, or used in the UK by a 'relevant person'. The HMRC view now is that there is a remittance where such collateral is secured on FIG. Prior to 4 August 2014 the HMRC view was that there was no remittance. Transitional rules required that there was re-financing or repayment of the debt prior to 6 April 2016 in order to avoid HMRC imposing a tax charge together with a written undertaking made by 31 December 2015 that this had occurred or would occur.
On 15 October 2015, however, HMRC announced that refinancing of debts secured on FIG was not required for arrangements put in place before 4 August 2014. Further guidance is now required to understand how the new interpretation will be applied in practice.
Extracts from the ICAEW note of the 18 November meeting include:
Issues around FIG as collateral may be relevant not just to new loans taken out and ongoing grandfathering but also to 2014/15 tax return preparation. The stakeholders raised this point and the proximity of the 31 January 2016 filing deadline. It is hoped that there will be an update from HMRC prior to 31 January 2016. Anything that comes through will be published on the Tax Faculty website and highlighted through the Tax Faculty Newswire. Where FIG as collateral is an issue for the 2014/15 tax return, use of the additional information box (white space disclosure) should be considered if:
- no further HMRC guidance is issued by the filing deadline and there are concerns about the tax treatment adopted and whether it is in line with HMRC's stated view;
- further HMRC guidance is issued but it does not cover the issue, so there are concerns about the tax treatment adopted and whether it is in line with HMRC's stated view; or
- further HMRC guidance is issued but a different technical view is taken and the tax return is prepared on that basis.
HMRC will accept provisional 2014/15 tax returns where there is uncertainty about what to enter on the return in relation to these matters, with this acceptance being subject to the return containing full and complete disclosure of potentially affected arrangements.
3. Business tax
3.1 LLPs and PSC registers:
The Government will issue regulations early in 2016 to implement the requirements to disclose persons with significant control (PSCs) for LLPs in the same timeframe as for companies. Companies will need to keep a register of people with significant control ('PSC register') from April 2016, in preparation for the need to file this information (using a 'confirmation statement') at Companies House from 30 June 2016.
In respect of a company, a person with significant control is a person who:
- directly or indirectly owns more than 25% of the shares in the company;
- directly or indirectly holds more than 25% of the voting rights in the company;
- directly or indirectly has the power to appoint or remove the majority of the board of directors of the company;
- otherwise has the right to exercise or actually exercises significant influence or control over the company; and
- has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which in turn satisfies any of the first four conditions over the company.
We anticipate that LLP's will be required to create a similar register and supply information in the same timescale.
3.2 Amendments to corporation tax for regulatory securities
SI 2015/2056 sets out the tax treatment of new types of financial instrument issued by insurance companies to meet regulatory requirements. It applies for accounting periods starting on or after 1 January 2016. It also updates existing regulations to reflect the current terms used in the taxation of corporate debt and derivative contracts rules introduced in Finance (No.2) Act 2015.
Insurers' Tier 1 and Tier 2 compliant Solvency II instruments issued in the form of debt will be taxed as debt instruments. This does not include securities that are shares. It also amends the existing Taxation of Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209) by extending the definition of the term 'regulatory capital security' to include certain Tier 1 and Tier 2 items within the Commission Delegated Regulation (EU) 2015/35.
Credits and debits on some conversions of the new types of regulatory capital are also excluded from the loan relationships rules in Part 5 of the CTA 2009. There are also updates to the Regulations making consequential amendments to reflect recent changes made to Part 5 CTA 2009 by the Finance (No.2) Act 2015.
A new regulation is inserted into the Regulatory Capital Securities Regulations 2013 to ensure that payments of a coupon in respect of regulatory securities will continue to be deductible in respect of amounts that are recognised in equity.
www.legislation.gov.uk/uksi/2015/2056/pdfs/uksi_20152056_en.pdf
3.3 HMRC examples on hybrid mismatch legislation
HMRC has published draft examples illustrating the effect of the draft anti-avoidance legislation published on 9 December 2015.
The twenty examples published are not exhaustive, but are designed to illustrate how the draft UK legislation is intended to apply to the range of hybrid mismatch arrangements considered by the OECD report on its BEPS Action 2. Further guidance on the application of the hybrids rules will be provided in 2016.
www.gov.uk/government/uploads/system/uploads/attachment_data/file/488096/hybrid-examples.pdf
3.4 Corporation tax self-assessment the four year time limit and availability of losses
In the case of Bloomsbury Verlag GmbH (BV) the First-tier Tribunal (FTT) has held that the fact that corporation tax returns showing losses were submitted outside the normal four year time limit did not prevent those losses being taken into account in calculating the profits of subsequent corporation tax returns validly made. The Higgs decision ([2015] UKUT 92 (TCC)) was discussed and although BV case related to Corporation Tax and not Income tax, it was noted that a similar outcome to the Higgs decision was reached.
BV was a German incorporated wholly owned subsidiary of Bloomsbury Publishing Plc (Plc). Plc acquired BV on 14 March 2003 and it became UK resident by virtue of its being centrally managed and controlled in the UK thereafter. It remained UK resident at least until its sale by Plc to a German subsidiary of the Bonnier media group on 28 March 2012. BV had not appreciated that it had come within the charge to UK corporation tax on 14 March 2003 until 31 March 2010 when its advisers submitted a letter to HMRC. This provided estimates of profits and losses since 2003 and requested the exercise of HMRC discretionary powers to agree a late claim to carry back of trade losses to the previous 12 months.
On 20 September 2010 HMRC sent BV notices to file corporation tax returns for the years ended 31 December 2004 to 2009. BV had made losses in the short accounting period to 31 December 2003 (£1.2m), and the years ended 31 December 2004 (£1.5m) and 2006 (£0.1m). A profit of around £0.5m was made for the year ended 31 December 2005.
HMRC contended that the returns for the 2003, 2004 and 2005 periods were out of time and therefore invalid given the four year time limit in FA 1998 Sch18 para 46. As a consequence the losses were not allowable and HMRC intended to raise a discovery assessment for the 2005 year end arising from BV's carelessness in failing to notify chargeability.
The Tribunal examined case law and noted that what is now CTA 2010 s.45 requires profits to be computed after taking account of unrelieved brought forward losses and that since 1990 there has been no requirement to make a claim to carry forward a loss.
In deciding the case the Tribunal held that the voluntary return for the accounting period ended 31 December 2003 was not a valid tax return as HMRC had not issued a notice for BV to deliver a return. However, that did not prevent a later valid return including losses incurred in 2003. As the returns showing losses were self-assessments under FA 1998 Sch19 para 7, the time limits in FA 1998 Sch18 para 46 did not apply. As a result of these decisions it was not necessary for the Tribunal to examine the discovery assessment, though they doubted whether HMRC had the power to raise a discovery assessment in the way they did.
Draft Finance Bill 2016 clauses limit the time in which a 'self-assessment' for income tax can be made to four years from the end of the year of assessment to which it relates, subject to a notice or determination (in the event of no return) being issued by HMRC. Following the FTT decision in BV it remains to be seen whether similar legislation will be introduced for corporation tax self-assessment.
Anyone subject to income tax who has a similar issue should note that while the current draft legislation for income tax proposes that the changes are effective for tax years from 2012/13, and for tax years prior to this, there is a deadline of 5 April 2017 to submit any outstanding self-assessments.
www.bailii.org/uk/cases/UKFTT/TC/2015/TC04778.html
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