Weekly Tax Briefing

One of the recommendations of the Report was that, 'The Government should review the definition of financial services for the purposes of VAT, to ensure that there is no discrimination between in-house provision by financial suppliers and outsourcing.'

The response states that, 'The Government agrees that the tax systems should, as far as possible, promote a competitive market in financial services. The Treasury and Customs & Excise will review to what extent the current VAT arrangements for outsourcing are distorting competition in the financial sector. This review will include consultation with financial companies and potential new entrants and will be completed by the time of the Pre-Budget Report [ie, Autumn 2000]. The Government will consider, in the light of the outcome of this review, whether there is a case for change in this area.'

This area is, of course, already under examination in the case of C & E Comrs v FDR Ltd, which Customs is now seeking to take to the House of Lords (see report of Customs' announcement under 'Press releases' below).

The Finance Act 2000, which has recently received Royal Assent, contains the legislation to introduce the Climate Change Levy (CCL) from 1 April 2001. Although CCL is intended to be tax neutral overall, it will be a cost to many businesses.

The levy will apply to all sales of electricity, coal, natural gas and liquid petroleum gas to the business and public sectors. It is forecast to raise around £1 billion in 2001/02 which will be returned to business through a 0.3% cut in employers' NIC and £150 million of additional support for energy-efficiency measures.

Ten of the largest energy-intensive trade associations are currently negotiating full agreements with the Government which should enable those sectors to qualify for a discount of up to 80% on the levy if certain energy-efficiency targets are met. However, progress in these negotiations is slow and no substantive agreement has yet been reached.

Energy suppliers (utilities) will have to account for the levy on supplies, collect the relevant monies and report the tax to Customs, the administering tax authority. The compliance, administration and systems costs will be substantial.

Penalties for non-compliance are based upon the VAT régime and are severe. Financial penalties include ordinary and penalty interest. There are also possible criminal charges for evasion, misdeclaration and neglect.

Energy-supplying businesses will be required to charge CCL to all of their non-domestic, non-charity customers. An additional line for the levy will need to be included on all invoices.

Businesses should ensure that their financial forecasting and cashflow projections for the coming year take account of the levy. Your indirect tax contact at KPMG can also advise on the systems alterations needed.

The Finance Act 2000 may only just have received the Royal Assent, but already a list of matters to be covered in the Finance Act 2001 is beginning to form. Among the items which we may expect next year are the following.

• The Aggregates Levy. This is to be included in FA 2001, to take effect from 1 April 2002. Subject to certain exceptions it will apply at a rate of £1.60 per tonne to sand, gravel and crushed rock extracted in the UK or its territorial waters, or imported into the UK (but not to exports).
• As part of the Climate Change Levy Package, 100% first-year capital allowances on energy-saving investments will be introduced to take effect from April 2001 'subject to any practical or legal considerations'.
• n A technical note on 'Reform of the taxation of intellectual property, goodwill and other intangible assets' was issued by the Inland Revenue for consultation on 23 June. Draft legislation is to be published in the Autumn and incorporated in FA 2001.
• A technical note 'Corporation tax: capital gains - deferral relief for substantial shareholdings' was issued at the same time with the same legislative timetable.

This Business Brief deals with a number of points as follows.

• Customs has sought leave to appeal to the House of Lords in the case of C & E Comrs v FDR Ltd, where the Court of Appeal decided that 'clearing house' services for credit card transactions provided by FDR to banks were exempt under EU legislation.
• Changes to simplify the Intrastat reporting requirements (covering UK trade with other EU Member States) will take effect from 1 January 2001.
• Three agreements have been made by Customs with motor industry trade bodies: The first, with the Society of Motor Manufacturers and Traders, deals with the classification of double cab pick-up trucks as either commercial vehicles or cars; the second, also with the SMMT, provides a simplified method for motor manufacturers of calculating VAT on private use by employees of stock-in-trade cars; and the third is a similar agreement with the Retail Motor Industry Federation on private use by employees of dealer demonstrator cars.
• A working party, made up of Customs personnel, trade representatives and tax advisers, is to consider the VAT treatment of 'face value vouchers'.
• Customs contact numbers are given for the Climate Change Levy, due to come into effect on 1 April 2001 (0161 827 0332) and the Aggregates Levy, due to come into effect on 1 April 2002 (0161 827 0906).
• Various new VAT publications have been issued, dealing with the zero rating of exports, educational and vocational training, and the personal export of second-hand vehicles.

Regulations have been made to exempt employer-provided childcare (as defined) from the Class 1A national insurance charge on benefits in kind which took effect from 6 April 2000. The regulations also provide for a new streamlined payment method for Class 1A contributions which are due on benefits subject to income tax.

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