Tax News                             

   

 

HMRC prepares for new disclosure opportunity

Working Together:  Dealing with R40 Cases

UK Web Icons launch £50m start-up fund

Budget 2008: Darling confirms new CGT reforms

VAT: Adjustments when builders let before selling

Anti-avoidance:  Simplification Review

New Compliance Checks: Guidance will be subject to consultation

CGT Major changes announced for 2008 Budget

Accountants and Lawyers to join forces in Scotland

Tower Mcashback LLP1, Tower Mcashback LLP2 v The Commissioners For Her Majesty's Revenue & Customs Sp C 619

Guidance on the New Management Expenses Anti-Avoidance Provision

Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v IR Commrs & Anor [2007] UKHL 34

IFRIC DRAFT INTERPRETATION D22 Hedges of a Net Investment in a Foreign Operation

Statement of Practice 1/01 as revised on 20 July 2007 Treatment of Investment Managers and their Overseas Clients

Société thermale d'Eugénie-les-Bains v Ministère de l'Économie, des Finances et de l'Industrie (Case C-277/05)

Mobile Export 365 Ltd & Anor v R & C Commrs [2007] EWHC 1737 (Ch)

Hutchison 3G UK Ltd & Ors v C & E Commrs v C & E Commrs (Case C-369/04)

Oriel Support Limited v The Commissioners For HMRC Sp C 615

Taxation of the foreign profits of companies: a discussion document

Underwood v The Commissioners For HMRC Sp C 614

Haderer v Finanzamt Wilmersdorf (Case C-445/05)

Boake Allen Ltd & Ors (including NEC Semi-conductors Ltd) v R & C Commrs [2007] UKHL 25

Barclays Bank plc v R & C Commrs [2007] EWCA Civ 442

CMS Peripherals Ltd v C & E Commrs [2007] EWHC 1128 (Ch)

R & C Commrs v Decadt

Allnutt & Anor v Wilding & Ors [2007] EWCA Civ 412

R (on the application of Software Solutions Partners Ltd) v R & C Commrs [2007] EWHC 971 (Admin)

Discussion Paper - Preliminary Views on Insurance Contracts

Practice Note 24 The Audit Of Friendly Societies In The United Kingdom (Revised)

Practice Note 19 The Audit Of Banks And Building Societies In The United Kingdom (Revised)

Stamp Duty Reserve Tax: exchange traded funds

R (on the application of Cook) v General Commissioners of Income Tax & Anor

R (on the application of Cooke) v R & C Commrs [2007] EWHC 81 (Admin)

HMRC Technical Note: Possible New Repo Legislation for Companies

Bennett v HMRC Sp C 576

AB (a firm) v R & C Commrs Sp C 572

It’s taxing being cheeky

SME sales up despite recession

Lord Mandelson backs The Pitch 2009

Drug dealer turned entrepreneur helps MP’s manage their expenses

Uncertainty about tax system fuels company emigration

Penalties and the standard of proof

IR35 hits the high court

Advising on Fee Protection could land you in trouble with the FSA

New CGT Rules could break EU Law

Standards for Investment Reporting 5000 -

Maco Door & Window Hardware (UK) Ltd v R & C Commrs [2007] EWCA Civ 545

Midlands Co-operative Society Ltd v R & C Commrs [2007] EWHC 1432 (Ch)

The Royal Bank of Scotland Group plc

HIBT Ltd - Exemption applied to supply of education

Momin & Ors v R & C Commrs [2007] EWHC 1400 (Ch)

Weald Leasing Ltd

General Motors Acceptance Corp (UK) plc

R & C Commrs v Church of Scientology Religious Education College Inc [2007] EWHC 1329 (Ch)

Michael Peter Forbes v The Commissioners For Her Majesty's Revenue & Customs Sp C 613

Limitgood Ltd And Prizedome Limited v The Commissioners For Her Majesty's Revenue & Customs Sp C 612

Morris & Anor v R & C Commrs [2007] EWHC 1181 (Ch)

DCC Holdings (UK) Limited v The Commissioners For HMRC Sp C 611

Telent plc - Tripartite transaction considered
Discounted Gift Schemes (DGSs)

David Peter Herman, Barbara Herman v The Commissioners For HMRC Sp C 609

Bank of Ireland Britain Holdings Ltd v R & C Commrs [2007 EWHC 941 (Ch)

R (on the application of R & C Commrs) v General Commissioners of Income Tax for Berkshire [2007] EWHC 871 (Admin)

Changes to Clearance Processes for Financial Transactions

Hudson Contract Services Ltd v R & C Commrs [2007] EWHC 73 (Ch)

RIA: VAT: Liability treatment of medical services

Tumble Tots UK Ltd v R & C Commrs [2007] EWHC 103 (Ch)

Financial Reporting Standard For Smaller Entities (Effective January 2007)

Reporting Statement: Retirement Benefits - Disclosures

2007/109 The Civil Partnership (Employee Share Ownership Plans) Order 2007

Nason v HMRC Sp C 573

HMRC Briefs 01/07 - Residence: Gaines-Cooper

Changes to the Seasonal Agricultural Workers Scheme (SAWS)

HMRC prepares for new disclosure opportunity

UK taxpayers with undisclosed income from offshore accounts will be invited to reveal their earnings and suffer a limited penalty under HMRC’s New Disclosure Opportunity, which is expected to run from Autumn 2009 until March 2010.

HMRC has begun briefing professional bodies on the new scheme, including the Chartered Institute of Taxation (CIOT), which has welcomed the proposals.

Gary Ashford, chairman of the CIOT’s management of taxes sub committee said: “Those people who have not declared offshore income have evaded tax and we do not condone tax evasion in any way. However, it makes every sense to help such people regularise their tax affairs, particularly as many will have fallen foul of the law through mistake or misunderstanding”.

Ashford revealed that HMRC will impose a fine equal to 10% of the total unpaid tax owed in line with the previous Offshore Disclosure Facility (ODF) and tax advisers will be able to file online on behalf of clients.

 

Working Together:  Dealing with R40 Cases

HMRC’s June issue of Working Together (Issue 35) Includes a useful summary of key points in relation to R40 Claims cases.

The treatment of taxpayers who claim refunds but are not within the PAYE or SA systems has been a slightly confused picture, and in response to issues raised through local Working Together HMRC has refined guidance to staff and produced a summary of how cases should be dealt with. HMRC would also be very interested to hear how claims cases are working and whether there are any particular operational issues that might be improved. Working Together Issue 35 published this month lists the following operational reminders.

Where you need to lodge a 64-8 for a claims case you should not use CAAT at Longbenton, which continues to service SA and PAYE customers. The form should be sent to HMRC National Claims Office, Saxon House, 1 Causeway Lane, Leicester, LE1 4AA.

If a claims case has a one off payment to make, then the claims office reference number and client National Insurance number should be written on the reverse of the cheque.

When quoting claims references, the full reference number should be used, as Leicester now handles claims nationally, and the truncated reference sometimes used can be a duplicate. The full reference is unique, and will have the format NNN AA NNNNN, where A is an alphabetic and N a numeric character. It is possible that the final five digits may be only four in some cases.

And finally, agents are asked to check the status of the CGT tick box at 1.5 on the R40 when they use software to prepare the form. Some software causes this to default to ticked, indicating that there is a capital gain to report. If this is incorrect it can result in lengthy delays while a CGT form is issued and the matter is then resolved to release the repayment. If the default status cannot be changed, the R40 should be accompanied by a letter asking HMRC to ignore the tick.

Green taxes up but tax breaks remain minimal

Taxpayers shelled out an additional £1.3bn in green taxes over the last year, but the government increased green tax breaks by just £130m according to research by UHY Hacker Young.

The accounting group argues that with the value of all green tax breaks being just 3.4% of all green taxes, government policy is still geared towards punished polluters rather than rewarding environmentally responsible taxpayers.

The figures revealed that in 2008-09 the government took a total of £31.9bn in green taxes, but handed back just £1,075m to environmentally friendly taxpayers. In 2007-08 the value of green taxes amounted to £30.7bn while green tax breaks were worth £945m.

 

It’s taxing being cheeky

It seems no one is immune to the pressures of the taxman, as pop duo the Cheeky Girls discovered recently when they were served with a bankruptcy order.

Twins Monica and Gabriela Irimia, who shot to fame on ITV’s Popstars: The Rivals, are being chased for £60,000 in unpaid tax according to recent published reports.

Louise Brittain of Baker Tilly is expected to be named as the bankruptcy trustee who will investigate the pair’s song rights.

This isn’t the first time the Romanian born stars have got on the wrong side of the taxman; back in 2006 they faced a bankruptcy order over unpaid VAT, but claimed they were left out of pocket to the tune of £2m when their record company Telstar went bust.

The sisters are rumoured to be in talks with BBC executives over a potential appearance on the new series of Strictly Come Dancing, which could add substantially to their income.

 

SME sales up despite recession

One in 10 small businesses are enjoying a positive impact on sales in spite of the economic downturn.

Hotels and restaurants traditionally see a slump in business during recessions, but a recent study by uSwitchforbusiness.com has revealed that these sectors are seeing the most benefits in the current climate.

Researchers put the impact down to Brits holidaying at home combined with an influx of tourists as a result of the Euro's strength against the pounds. In addtion, the trend towards people eating at cheaper restaurants and the widespread availability of discount vouchers was also cited as a reason.

Another surprising figure was found among small manufacturers; 22% of which said they were doing well.

Despite such pockets of good news however, the majority of respondents reported to finding conditions tough. More than a third had seen a drop in demand, while the same proportion admitted to experiencing cashflow problems.

 

Lord Mandelson backs The Pitch 2009

The Pitch 2009, BusinessZone.co.uk's search for Britain's most innovative small companies, has been endorsed by business secretary Peter Mandelson.

With heats in five UK cities, the competition will crown an overall winner at a special event during Enterprise Week in central London. The lucky entrepreneur will claim a £50,000 package of business support including practical help on PR, marketing and doing business online.

Commenting on the contest, Mandelson said: "Entrepreneurs have a vital role to play in the economy. They are innovative, and have the conviction and enthusiasm to make their businesses succeed.

"As such, they are uniquely placed to respond to the new opportunities which will arise during the current economic climate and as we look ahead towards recovery.

"The Pitch 2009 offers an excellent opportunity for innovative businesses to access the advice and support available from fellow business leaders and other support organisations."

 

UK Web Icons launch £50m start-up fund

 Two of the UK's most successful internet entrepreneurs are to launch a new European investment fund aimed at bridging the equity gap suffered by new technology businesses.

Brent Hoberman, co-founder of Lastminute.com and Michael Birch, the man behind social network Bebo, are to set up European Founders Capital (EFC) in an effort to increase the availability of early-stage funding in Europe.

The Sunday Times reports that the venture is also backed by Rogan Angelini-Hurll, who turned down the chance to co-found Lastminute.com which Hoberman and Martha Lane Fox sold to Travelocity in 2005 for £577m and Peter Dubens, who set up broadband business Pipex before later selling it for £210m.

EFC will kick off with £20m of seed funding but it is believed the fund will quickly rise to £50m.

"We aren't taking institutional money," Birch told the Sunday Times. "All the money comes from founders – people who have done it before."

According to the British Venture Capital Association, member firms managed to raise only £230m in 2008, a drop of £1bn on 2006.

Hoberman and Birch claim EFC will help overcome the funding gap which exists between business angels, who typically invest between £50,000 and £100,000, and venture capitalists who back firms that have matured beyond their initial concept with in excess of £1m.

 

Drug dealer turned entrepreneur helps MP’s manage their expenses

Software entrepreneur Duane Jackson, who was once arrested for drug dealing in the US, has launched a new product targeted at politicians who have problems managing their expenses.

Following recent revelations about controversial expense claims by the likes of home secretary Jacqui Smith, the boss of accounting software company KashFlow said he has the perfect answer.

The entrepreneur, whose chairman is former Conservative trade minister Lord Young, claimed the product known as 'The Ministry of Accounting' will "empower" MPs rather than "weighing them down with cumbersome paperwork".

"Because it is online, MPs can access their accounts anywhere, he added, "whether it is a laptop at an airport, constituency office, London home or on the road, and with shared access possible, they are completely transparent.

In addition, Jackson said the colour scheme is green and grey so it is reminiscent of the House of Commons.

According to a KashFlow spokesperson, 'The Ministry of Accounting' has been successfully trialled with 25 MPs. He also claimed that during a recent Prince's Trust event, chancellor Alistair Darling joked with Jackson that he could do with some 'kashflow' at The Treasury.

Earlier this month, it was revealed that Jacqui Smith included in an expense claim the cost of two pay-per-view pornographic movies watched by her husband. Other politicians have already courted controversy over claiming second home expenses for houses which they don't use.

 

Budget 2008: Darling confirms new CGT reforms

As outlined in draft legislation recently released by HMRC, a flat 18% CGT rate will be introduced from 6 April, with a 10% entrepreneurs' relief applying for the first £1m of asset sales. Ahead of Wednesday's speech, few analysts predicted that Darling would delay implementation of the plans but with its implementation now confirmed, experts were still critical of its potential impact.

From 6 April 2008 substantial changes to Capital Gains Tax (CGT) will apply to individuals, trustees and personal representatives, but not for companies.

The Finance Act 2008 will introduce the following changes:

A main rate of CGT of 18% will apply to all gains other than those covered by the new entrepreneurs tax relief or the CGT annual exemption.

A lower rate of 10%* for gains on certain business assets which are covered by the new Entrepreneur relief (see below).

Capital gains will not longer be taxed by reference to income tax rates and bands.

The following will be abolished: taper relief, indexation allowance (currently frozen at April 1998), and 'halving relief', however, in some cases, indexation will not be lost after 6 April 2008.

Rebasing of cost to 31 March 1982 value will be compulsory for assets held at that date.

Simplification of the rules for matching certain assets (mostly shares) disposed of with assets acquired.

The new Entrepreneur’s relief will be available in respect of gains made on the disposal of certain business assets. * not exactly, slightly higher rates apply if the CGT annual exemption is unused.

Entrepreneur's Relief Although not dissimilar to CGT retirement relief which was phased out in 2002/03, Draft Entrepreneurs' relief will not be based on any age or illness conditions and the qualifying holding period will only be one year.

The first £1 million of lifetime gains on qualifying business assets will be charged to CGT at an effective rate of 10-ish per cent. Gains in excess of £1 million will be charged at the normal 18 per cent rate.

An individual will be able to make claims for relief on more than one occasion, up to a lifetime total of £1 million of gains qualifying for this type of relief.

 

VAT: Adjustments when builders let before selling

HMRC has published an Information Sheet 07/08 which provides guidance, including worked examples, on the VAT implications when house builders decide to temporarily let their dwellings before selling them. It says that it has issued this is in response to recent enquiries from the house building sector and takes account of the High Court decision in the joined cases of Curtis Henderson and Briararch [1992] STC 732 which arose in the early 1990s. if you temporarily let a dwelling before selling it, you may affect the VAT you can recover on your costs as partial exemption rules come into play many house builders who temporarily let a dwelling will not be affected but you need to check this to avoid making VAT mistakes there is an easy way to check if you are affected by applying what we describe here as a ‘simple check for de minimis’

Like any business, a house builder checks for de minimis by applying his partial exemption method. Large builders may already be partly exempt and familiar with operating a partial exemption method, but smaller ones may not. Exceptionally, HMRC will allow a builder that does not currently operate a partial exemption method, to adopt instead a ‘simple check for de minimis’. This simple check is based on the expected time period he will let his building as a proportion of the economic life of that building, which for VAT purposes is ten years. His exempt input tax is determined by applying the proportion to his total input tax. Provided his exempt input tax does not exceed £625 per month on average (up to £7,500 per year), and is not more than half of his total input tax, then his exempt input tax is de minimis and he can recover it in full. Do remember that the ‘de minimis’ test applies to the total input tax incurred including for example any input tax on general overheads such as bookkeeping costs.

 

Uncertainty about tax system fuels company emigration

Baker Tilly says that 'The timing of recent announcements suggests that the ultimate outcome of the Treasury's review of the taxation of foreign profits is not the decisive factor. If it was, companies might well defer a decision until the widely-expected autumn announcement from the Treasury. The fact that a small but growing number of companies seem prepared to jump ahead of the announcement suggests a belief that any Treasury announcement now will simply not meet their needs.'

The apparent exodus is despite the fact that the government announced major changes to its proposals for the reform of the taxation of foreign profits of UK multinationals back in July. These included deferring the introduction of a tax exemption for foreign dividends and the proposed extension of the CFC rules.

Baker Tilly blame this on "the continuing uncertainty surrounding the UK tax system may have reached the point where companies are no longer prepared to wait to find out, when other more favourable and already established foreign tax regimes beckon. After so many uncoordinated tax changes in the UK, many dogged by U-turns, poor execution and unintended consequences, this is hardly surprising. The Treasury has painted itself into a corner. Whatever it says and does next, it must display a clear grasp of the commercial issues and a real understanding of the needs of large corporates that have to make business decisions on a timescale far longer than the lifespan of an elected parliament, or risk becoming irrelevant to those decisions. There may well be legitimate concerns about the impact on corporate tax revenues of any significant change. However, one thing is certain: the supply of golden eggs will dry up if continuing prevarication results in many more geese being killed.

 

Penalties and the standard of proof

Taxpayers (and their agents) are often perplexed by the difference between criminal and civil procedures, so too it seems, are some General Commissioners.

In the case of HMRC v Khawaja (2008) EWHC 1687 the taxpayer claimed that HMRC should apply the criminal standard of 'proof beyond reasonable doubt' when issuing penalties on the basis of an estimated understatement of income. This is in contrast to the civil standard where proof is decided 'on the balance of probabilities' and despite the fact that tax penalties in the case were being settled under the civil code, as happens in the majority of cases.*

HMRC had issued assessments to cover an understatement of Mr Khawaja's income from his restaurant business, and it later served a notice claiming penalties under s 95(1), TMA 1970 for negligently submitting incorrect tax returns.

The taxpayer appealed to the General Commissioners who applied the criminal standard and decided it had not been proved beyond reasonable doubt that the taxpayer had been negligent in his returns of earned income. HMRC appealed on the basis that it should have been the civil one, and the High Court decided in HMRC's favour. The case was therefore sent back to the General Commissioners for rehearing using the appropriate standard of proof.

 

Anti-avoidance:  Simplification Review

HMRC published an update report on the Anti-Avoidance Simplification Review on 17 July . The objective of the review is to consider how anti-avoidance legislation can best meet the twin aims of simplicity and revenue protection. The update follows on from the earlier progress report published at Budget 2008, and focuses on three areas of the review: Transactions in Securities, Certain rules relating to shares acquired by employees  and Greater alignment of the various unallowable purposes’ tests.

 

New Compliance Checks: Guidance will be subject to consultation

HMRC has just announced that it is setting up an implementation team which will be responsible for producing Technical and Operational Guidance together with a comprehensive learning package. In a radical move for the department, it says that all these three elements will be the subject of external consultation.

Technical Guidance will be put to external consultation by the end of September. Operational Guidance will be produced in sections and once a section is completed, consultation will be sought.

The implementation team say that they wish to work collaboratively with businesses and their representatives and welcome early contact and views ahead of the process outlined above.

 

Advising on Fee Protection could land you in trouble with the FSA

The ICAEW has identified an issue for some firms with regard to fee protection insurance. It says that if your firm invites clients to pay a fixed amount in advance to cover a possible HMRC investigation, this may amount to fee protection insurance and you may be undertaking a regulated activity. The same applies if you simply advise a client to go with a particular insurer.
In a letter to its members, the ICAEW says that this will depend on how you supply the service as there are different ways of offering the service with different consequences in terms of regulation.

Simply charging a fee when an investigation occurs is not a regulated activity.

Charging a fee now, with the intention of dealing with an investigation (should one arise) in the future, means you are probably acting as an insurer and therefore need FSA authorisation.

An insurance contract has the following features:
One party, A (ie, the client), will make one or more payments to another party, B (ie, the firm) so that B will pay A money or provide a service to it in response to a defined event (a tax investigation) happening to A the occurrence of which is uncertain (either as to timing or even if it will occur) the event is adverse to the interest of A (as tax investigations are likely to be).

The ICAEW says: "Advising clients to take out a particular insurance policy is a regulated activity and you need a designated professional body licence or FSA authorisation."
"You could offer a service where the firm, not the client, is insured and if you do this carefully, it is not a regulated activity."

 

IR35 hits the high court

Dragonfly Consultancy Ltd specialises in IT testing services, and the Professional Contractors Group (PCG) is funding the appeal by Dragonfly's co-owner, Jon Bessell, against a ruling at the Special Commissioners that he was caught by IR35 and owed £99,000 in extra tax.

The PCG say that if this appeal is rejected, the ruling could undermine much of the successful defence against IR35 established by PCG in numerous cases since IR35 came into force, however, a ruling is not expected until mid-summer.

The PCG give the facts of this case as follows:

Jon Bessell is an IT systems tester. He is sole director and 50% shareholder of Dragonfly Consultancy Ltd. The IR35 case pertains to three contracts on three separate projects, from January 2000 to January 2003,in which the client was the AA and the agency was DPP International Ltd. The amount of tax at stake is £99,000.

Under existing case law, one would expect Mr Bessell to be found outside IR35: he was subject to a low level of direction and control; he had a right to substitute, albeit fettered (but not unusually so); and there was no ongoing obligation between him and the client. He was clearly in business on his own account

The Commissioner concluded that:

the limited right of substitution did not point away from employment;

the degree of control pointed towards employment;

the intentions of the parties was irrelevant.

He found that the following factors pointed “weakly” away from employment:

Dragonfly’s provision of Mr Bessell’s equipment

Dragonfly’s provision of training for Mr Bessell

Mr Bessell’s work for another client

The lack of any sick pay or holiday pay for Mr Bessell.

The Commissioner stated: “Overall I find nothing which points strongly to the conclusion that Mr Bessell would have been in business on his own account.”

 

CGT – Major Changes announced

Chancellor Darling has announced major changes to his Pre-Budget proposals for Capital Gains Reform by introducing:

A new entrepreneur’s relief,

A new lower tax rate (10%) on entrepreneur's gains, and

A new £1 million lifetime allowance for gains made by entrepreneurs.

In a ministerial statement in the House of Commons today he introduced a £1 million lifetime allowance in respect of any chargeable gains, which forms the basis of a new CGT entrepreneurs relief. Gains which exceed the annual CGT exemption and do not exceed £1 million will be taxed at 10%. Any gains in excess will be taxed at the mainstream CGT rate of 18%.

The relief will apply to entrepreneurs who dispose of all or part of a trading business, trading partnership, or shares in a trading company providing that they are a director or employee and hold a stake of at least 5% in the business. It will also apply to disposals of business assets after the cessation of a business.

The chancellor said that the measure will also benefit venture capitalists, business angels and all those who take a stake of 5% of more.

No changes will be made the to the CGT annual exemption. No changes have been made to EIS, VCT and rollover reliefs. Employee tax advantaged share schemes remain intact such as EMI, etc and employees will pay tax at 18% if their shareholding is less than 5%.

He added that anti-avoidance measures are in the pipeline to ensure that income cannot be disguised as capital.

 

Accountants and Lawyers to join forces in Scotland

The Office of Fair Trading (OFT) first called for lawyers and accountants to be allowed to work in partnership six years ago, but despite assurances the Law Society would be given sole responsibility for all parties, its practice rules continue to forbid its members from working in multi-disciplinary parterships (MDPs). However, a new ruling form the OFT has prompted the Institute of Chartered Accountants of Scotland (ICAS) to launch a Scotland-specific campaign backing the proposed “one-stop shop” this week.

Pending a super-complaint last year from consumer group which? about restrictions and access in the Scottish legal profession, the OFT has again weighed in on the side of the MDP.

“We have long been in favour of the removal of restrictions on the formation of MDPs, which would allow non-lawyers to become partners in legal firms,” the OFT said. It pointed out that examples of Scottish MDPs already existed, to the extent that firms of solicitors often employed accountants but did not permit them to become partners.  

“We believe that many consumers would welcome a ‘one-stop shop’ in relation to house purchase, for example, where they could receive all of the various professional services required under one roof,” argued the OFT report. “In addition to convenience, this should benefit consumers financially as a result of the cost savings made by the partnership in reduced overheads.”

 

New CGT Rules could break EU Law

European regulations which rule that changes to tax legislation must provide taxpayers with a reasonable period of time to assert their right to claim reliefs means the government's capital gains tax (CGT) reforms could be breaking the law, accountants have claimed.

Responding to the chancellor's readjusted CGT changes announced last Thursday, the Institute of Chartered Accountants of Scotland (ICAS) said the reforms go against previous legal decisions which indicate that a transitional period of 90 days, more than the time period proposed by Darling, is insufficient.

ICAS' Derek Allen said: "Taxpayers now have less than 10 weeks to rearrange their assets and, if necessary, try to arrange a disposal to protect some of the indexation relief which may have accrued because of inflation between 1982 and 1998.

"It is wrong to tax inflationary gains and it would be contrary to European Law to deny taxpayers sufficient transitional time to rearrange their affairs before the new legislation is enacted.

"At the very least, the chancellor should defer the implementation of this legislation for up to two years. If this is not possible, he should still allow taxpayers who owned assets at 6 October 2007 a period of up to two years to sell those assets and gain the benefit of indexation allowance."

 

Tower Mcashback LLP1, Tower Mcashback LLP2 v The Commissioners For Her Majesty's Revenue & Customs Sp C 619
Capital expenditure on software - whether HMRC can raise additional contentions in an appeal beyond those indicated in the Closure Notice - whether expenditure was incurred pursuant to an unconditional contract - whether the expenditure paid 10 months after the date of the contract was still paid under a contract that required payment within a four month period, or whether the eventual payment was under a varied contract - whether one of the Appellants had commenced trading before the end of the tax year 2003/2004 - whether the value of the software was broadly in line with the capital expenditure ostensibly given by the LLPs in which the Appellants were members - how to analyse the transaction for capital allowance purposes if the value of the acquired asset was materially lower than the price paid initially for the asset with the support of non-recourse loans - Appeal by LLP1 dismissed and appeal by LLP2 dismissed in part

 

Guidance on the New Management Expenses Anti-Avoidance Provision
For the purposes of Corporation Tax a deduction is allowed under S75 ICTA 88 where a company has incurred expenses of management in respect of managing its investment business. The legislation was introduced in 1915 and remained largely unchanged until 2004 when changes were made to reflect a more modern business climate. Those changes included, amongst other things, an unallowable purpose rule.

Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v IR Commrs & Anor [2007] UKHL 34
Income tax – corporation tax – advance corporation tax – taxpayer UK resident subsidiary of non-resident parent – taxpayer paid advance corporation tax on profits distributed to parent – UK tax law refusing group income election contrary to freedom of establishment under Community law – action for restitution or compensation – payment of interest – High Court held that interest should be calculated on compound basis for period from premature payment of ACT until set-off against mainstream corporation tax – Court of Appeal upheld that decision – Revenue appealed to House of Lords – whether calculation of award required by Community law effected on basis of compound or simple interest.

IFRIC DRAFT INTERPRETATION D22 Hedges of a Net Investment in a Foreign Operation
1 Many reporting entities have investments in foreign operations (as defined in IAS 21 paragraph 8). Such foreign operations may be subsidiaries, associates, joint ventures or branches. IAS 21 requires an entity to determine the functional currency of each of its foreign operations as the currency of the primary economic environment of that operation. When translating the financial statements of a foreign operation into a presentation currency, the entity is required to recognise foreign exchange differences in equity until it disposes of the foreign operation. 2 In individual or consolidated financial statements, an entity may apply hedge accounting to the foreign currency risk arising from its net investment in a foreign operation. Hedge accounting of the foreign currency risk arising from a net investment in a foreign operation will apply only when the net assets of the foreign operation are included in the financial statements.* The item being hedged with respect to the foreign currency risk arising from the net investment in a foreign operation may be an amount of net assets equal to or less than the carrying amount of the net assets of the foreign operation.

Statement of Practice 1/01 as revised on 20 July 2007 Treatment of Investment Managers and their Overseas Clients
There are two policy objectives underlying the tax treatment of UK resident investment managers and their overseas clients. These objectives are that overseas investors should not be charged to UK tax in relation to investment transactions conducted on their behalf and that any fees earned by a UK resident investment manager for services performed for the non-resident should be fully chargeable to UK tax.

Société thermale d'Eugénie-les-Bains v Ministère de l'Économie, des Finances et de l'Industrie (Case C-277/05)
Value added tax – supply of services – hotel – reservation of rooms – payment of deposit – deposit retained by provider in event of cancellation – application of VAT in those circumstances - w hether deposit consideration for supply of reservation service subject to VAT or fixed compensation for cancellation - Council Directive 77/388, art. 2(1), 6(1).

Mobile Export 365 Ltd & Anor v R & C Commrs [2007] EWHC 1737 (Ch)
Value added tax - input tax - repayment - procedure - Customs refusing claim for repayment and tax credit - taxpayers alleging Customs failing properly to serve documents and witness statements - tribunal refusing summary judgment in taxpayers' favour - appeal dismissed - Value Added Tax Tribunals Rules 1986 (SI 1986/590), r. 19(4), (5).

 

Hutchison 3G UK Ltd & Ors v C & E Commrs v C & E Commrs (Case C-369/04)
Value added tax - taxable transactions - economic activity - allocation of licences making it possible to use defined part of radio-frequency spectrum reserved for telecommunications services - whether such allocation economic activity - Council Directive 77/388, art. 4(2).

 

Oriel Support Limited v The Commissioners For HMRC Sp C 615
COSTS - whether the Revenue acted wholly unreasonably in not particularising its submissions on the Appellant's failure to comply with compliance testing relation to a sub-contractors' certificate – yes

 

Taxation of the foreign profits of companies: a discussion document
Budget 2007 announced a major set of reforms to modernise the domestic corporation tax base, marking a further milestone in the Government's objective to maintain a competitive tax system for business. Alongside domestic reform, the Government also committed to consult on reforming the taxation of foreign profits.

Underwood v The Commissioners For HMRC Sp C 614
CAPITAL GAINS TAX - time of disposal - sale of land - Appellant contracted to sell land and on same day purchaser gave Appellant option to re-purchase - before sale to original purchaser completed Appellant exercised option to re-purchase - Appellant then contracted to sell to a company connected with Appellant - only transfer executed by Appellant was transfer to connected company - whether a disposal of land to, and acquisition by, original purchaser - no - if so, whether date of disposal and acquisition of land for purposes of capital gains tax was date of contract to sell to original purchaser as argued by Appellant - no -appeal dismissed - TCGA 1992 s 28

Haderer v Finanzamt Wilmersdorf (Case C-445/05)
Value added tax - supply of goods or services - exemptions - tuition given privately by teachers and covering school or university education - education provided in context of courses organised by adult education centres - no direct contractual link with pupils - whether activities exempt from VAT - Council Directive 77/288, art. 13A(1)(j).

 

Standards for Investment Reporting 5000 - Investment Reporting Standards Applicable To Public Reporting Engagements On Financial Information Reconciliations: Exposure Draft
Standard for Investment Reporting (SIR) 1000 "Investment Reporting Standards applicable to all engagements in connection with an Investment Circular" establishes the Investment Reporting Standards applicable to all engagements involving investment circulars. The purpose of SIR 5000 is to establish specific additional Investment Reporting Standards and provide guidance for a reporting accountant engaged to report publicly on reconciliations of the financial information of targets1 to the accounting policies of an issuer (financial information reconciliations) to be included in a Class 1 circular under the Listing Rules.

Maco Door & Window Hardware (UK) Ltd v R & C Commrs [2007] EWCA Civ 545
Corporation tax - capital allowances - industrial buildings allowance - storage - part of a trade - taxpayer imported and sold hardware for PVC windows and doors manufactured by Austrian parent company - building used to warehouse goods for sale to UK distributors - special commissioner holding that part of taxpayer's trade consisted in storage - High Court allowing Revenue's appeal requiring storage to be in itself in the nature of a trade - Court of Appeal allowing taxpayer's appeal and restoring special commissioner's decision (by a majority) - Capital Allowances Act 1990, s. 18(1)(f)(i), (2).

Midlands Co-operative Society Ltd v R & C Commrs [2007] EWHC 1432 (Ch)
Value added tax - output tax - overpayment of tax - claim for refund - industrial and provident societies - transfer of engagements by statute - transferee society claimed refund of VAT - whether right to claim refund of overpaid tax transferred - Industrial and Provident Societies Act 1965, s. 51(1) - Value Added Tax Act 1994, s. 80.

The Royal Bank of Scotland Group plc - Special method considered
The tribunal considered whether the commissioners had correctly rejected the revised partial exemption special method proposed by the taxpayer.

HIBT Ltd - Exemption applied to supply of education
The tribunal considered whether the company's supplies were exempt as education.

 

Momin & Ors v R & C Commrs [2007] EWHC 1400 (Ch)
Income tax - assessment - appeal - Revenue raising assessments in respect of income suppressed by taxpayers - general commissioners upheld decision in principle but reduced amount of assessments - taxpayers appealed by way of case stated - whether assessments valid on facts found - whether quantum of assessments reasonable - appeal dismissed - Taxes and Management Act 1970, s 29(1).

Weald Leasing Ltd
The tribunal considered whether HMRC could refuse a claim for repayment of VAT paid since 1973 concerning sales of cars by HP where the customer had failed to pay all amounts due under the HP agreement.

General Motors Acceptance Corp (UK) plc - Second VAT directive had no direct effect
The issue was whether the commissioners were entitled to refuse a claim by the appellant for repayment of VAT paid since 1973 which, it was agreed, was not payable.

R & C Commrs v Church of Scientology Religious Education College Inc [2007] EWHC 1329 (Ch)
Value added tax - practice - VAT and Duties Tribunal - appeal - time limit - Customs applying for extension of time to appeal - whether extension of time appropriate in all circumstances - application dismissed - Civil Procedure Rules 1998 (SI 1998/3132), r. 3.9, 52PD, para. 23.8(2)(b).

 

Michael Peter Forbes v The Commissioners For Her Majesty's Revenue & Customs Sp C 613
PROCEEDS OF CRIME - Review of Tribunal's decision - Appellant failed to attend hearing - Decision given in his absence - Appellant applied for review of decision - Whether Appellant had good and sufficient reason for failing to appear - No - Application dismissed - Special Commissioner (Jurisdiction and Procedure) Regulations, reg 19(1)(b)
PROCEEDS OF CRIME - Order for costs - Appellant requested application hearing and failed to attend - Whether behaviour wholly unreasonable in connection with application hearing - Before Commissioners (Jurisdiction and Procedure) Regs, RD1 - Costs awarded against Appellant

 

Limitgood Ltd And Prizedome Limited v The Commissioners For Her Majesty's Revenue & Customs Sp C 612
CAPITAL GAINS - corporation tax - groups - pre-entry losses - restriction on set-off against group gains - relevant group - whether gains pre-entry gains - whether assets held immediately before joining relevant group - TCGA 1992 Sch 7A - appeals allowed (by Chairman's casting vote)

Morris & Anor v R & C Commrs [2007] EWHC 1181 (Ch)
Capital gains tax - self assessment - penalties - closure notices - burden of proof - disposal of shares giving rise to capital gain - taxpayers claiming residence outside UK - enquiry - Revenue power to raise assessments - whether statutory time limit for assessments applied to closure notices served by Revenue to amend taxpayers' returns containing self-assessment of CGT liability - whether European Convention altered the burden of proof for appeals against other assessments and notices listed for hearing at same time as penalty appeals - Taxes Management Act 1970, s. 34 - Taxes Management Act 1970, s. 28A(2).

 

DCC Holdings (UK) Limited v The Commissioners For HMRC Sp C 611
Gilt repo - purchase and resale of gilts - interest paid to interim holder not required to be paid to original holder but recognised in repurchase price - application of paragraph 15 Schedule 9 FA 96 - related transaction - effect of section 737A to 737C and 730A TA 88 - effect of section 97 FA 96 - approach to section84 FA 96 - section 86 FA 96 determining which authorised accounting method to use.

 

Boake Allen Ltd & Ors (including NEC Semi-conductors Ltd) v R & C Commrs [2007] UKHL 25
Corporation tax - taxation of dividends - parent and subsidiary companies - advance corporation tax (ACT) required to be paid by subsidiaries of non-UK holding company - requirement subsequently held to be contrary to freedom of establishment under Community law - taxpayer subsidiaries of parent established outside EU claimed compensation or restitution in respect of past payments of ACT - whether denial of right of election infringed non-discrimination article in double tax agreements - Income and Corporation Taxes Act 1988, s. 247 - United Kingdom/Japan Double Tax Agreement, art. 25(3) - United Kingdom/United States Double Tax Agreement, art. 24(5).

 

Barclays Bank plc v R & C Commrs [2007] EWCA Civ 442
Income tax - employment - benefits under non-approved retirement benefits scheme - relevant benefits given in connection with past service - bank made payments to pensioners to compensate for withdrawal of concessionary benefit - Revenue considered payments taxable as benefits under non-approved scheme - Revenue made determination on pension fund trustees - whether payments given 'in connection with past service' - Income and Corporation Taxes Act 1988, s. 569A, 612(1).

CMS Peripherals Ltd v C & E Commrs [2007] EWHC 1128 (Ch)
Value added tax - return - default - surcharge - reasonable excuse - payments on account - taxpayer sent payment with return - taxpayer in default by failing to pay to Customs amount shown on return as payable - taxpayer entering incorrect figure on return for net VAT due to Customs - taxpayer entering calculations on return in manuscript to explain payment made - Customs imposing surcharge because taxpayer in default - VAT tribunal deciding taxpayer had no reasonable excuse for default - High Court held tribunal's decision wrong in law - reasonable for someone who had made mistake that would lead to large overpayment to correct it by manual amendment to return - appeal allowed - Value Added Tax Act 1994, s. 59A(1), 59(1), 59(7)(b).

 

R & C Commrs v Decadt
Income tax - employment - deduction - expenses wholly, exclusively and necessarily incurred in performance of duties of employment - taxpayer surgeon - contract of employment required specific training certificate - taxpayer sought to deduct examination fees and related expenses - whether expenses deductible from earnings - Income Tax (Earnings and Pensions) Act 2003, s. 336.

 

Allnutt & Anor v Wilding & Ors [2007] EWCA Civ 412
Inheritance tax - settlement - trustees - potentially exempt transfer - settlor creating settlement to avoid inheritance tax - tax saving purpose not achieved as sum transferred to settlement was chargeable transfer - executors applied to rectify settlement by redrafting - High Court found no error in drafting requiring correction - Court of Appeal upheld that decision - appeal dismissed.

R (on the application of Software Solutions Partners Ltd) v R & C Commrs [2007] EWHC 971 (Admin)
Value added tax - supply of goods and services - exemption - Customs publishing ruling that services might be VAT exempt where taxpayer authorised to accept risk on insurer's behalf - Customs taking view that taxpayer's services not exempt - Customs notifying taxpayer of decision before issuing assessment - taxpayer subsequently assessed to VAT in default of proper returns - taxpayer seeking judicial review - whether taxpayer's activities covered by Customs' ruling - whether taxpayer could wait for assessment before seeking judicial review.

 

Discussion Paper - Preliminary Views on Insurance Contracts
This discussion paper presents the preliminary views of the International Accounting Standards Board on the main components of an accounting model for insurance contracts. The Board formed those views in phase II of its project on insurance contracts.

Telent plc - Tripartite transaction considered
The tribunal considered whether legal services concerning c
orporate restructuring were supplied to the appellant company as well as to the solicitors' clients.

 

Discounted Gift Schemes (DGSs)
Following recent press interest, this is an opportune moment to set out HMRC's approach to Discounted Gift Schemes (DGS) and their interaction with the Inheritance Tax (IHT) legislation. This note is particularly about valuation of lifetime transfers and the underlying valuation methodology.

 

David Peter Herman, Barbara Herman v The Commissioners For HMRC Sp C 609
CAPITAL GAINS TAX - Non-resident settlement - Capital payment - Indirect receipt - Implementation of Mark II flip-flop scheme - Non-resident trust with stockpiled gains transfers trust fund to resident trust created by settlor of former trust - Trustees of resident trust appoint entire trust fund to settlor and wife - Whether capital payments received indirectly by settler and wife - Yes - TCGA 1992 ss 87(4)and 97(5)

 

Bank of Ireland Britain Holdings Ltd v R & C Commrs [2007 EWHC 941 (Ch)
Corporation tax - loans - manufactured dividends - tripartite 'repo' transaction with two non-resident parties - whether resident party deemed in receipt of interest on deemed loan - whether deemed annual payment representing deemed manufactured overseas dividends deductible - special commissioners finding in favour of taxpayer - Revenue's appeal to High Court dismissed - Income and Corporation Taxes Act 1988, s. 730A, 737A.

 

R (on the application of R & C Commrs) v General Commissioners of Income Tax for Berkshire [2007] EWHC 871 (Admin)
Income tax - investigation - agreement - Revenue commencing investigation into taxpayers' affairs - Revenue and taxpayers reaching agreement - taxpayers agreeing to pay specified amount in respect of tax, interest and penalties in return for Revenue agreeing not to take proceedings against them - issues as to proper construction of agreement - whether Revenue precluded from raising enquiries and serving notices in respect of specific tax year - Taxes Management Act 1970, s. 9A, 19A.

Changes to Clearance Processes for Financial Transactions
The 2007 Budget Report contained an announcement concerning thin capitalisation. Paragraph 5.92 of the Economic and Fiscal Strategy Report stated that the Government has agreed that HMRC can expedite its procedures for agreeing relief from UK tax on loan interest paid to non-residents, and extend the circumstances in which UK residents can enter into thin capitalisation agreements. A detailed announcement will be made later this spring.

 

Practice Note 24 The Audit Of Friendly Societies In The United Kingdom (Revised)
This Practice Note contains guidance on the application of auditing standards issued by the Auditing Practices Board (the APB) to the audit of friendly societies in the United Kingdom. It also contains guidance on auditors' reports in connection with regulatory returns and the auditors' duty to report to the Financial Services Authority (FSA). This guidance applies to friendly societies carrying on insurance business.

Practice Note 19 The Audit Of Banks And Building Societies In The United Kingdom (Revised)
This Practice Note contains guidance on the application of auditing standards issued by the Auditing Practices Board ('the APB') to the audit of banks and building societies in the United Kingdom (UK). The term 'deposit taker' in this Practice Note should be taken to refer to both banks and building societies. A deposit taker is also referred to as an 'authorised firm' in the context of regulation under the Financial Services and Markets Act 2000.

Stamp Duty Reserve Tax: exchange traded funds
The regulations that exempt from stamp duty reserve tax (SDRT) certain Depositary Interests relating to companies incorporated outside the UK will be amended so that ETFs may also qualify.

R (on the application of Cook) v General Commissioners of Income Tax & Anor
Income tax - assessment - appeal - taxpayer failed to pay PAYE and NIC on employees' behalf - Revenue made determinations of amounts due - taxpayer failed to appeal against determination within time limit - application to lodge late appeal - tax inspector found no reasonable excuse for delay - general commissioners refusing taxpayer's appeal - taxpayer had no reasonable excuse for appealing out of time - taxpayer applied for judicial review - High Court held commissioners erred in failing to consider merits of case - application granted - Taxes Management Act 1970, s. 49(1) - Social Security Contributions (Transfer of Functions, etc.) Act 1999, s. 8 - Income Tax (Pay As You Earn) Regulations 1993, reg. 49.

R (on the application of Cooke) v R & C Commrs [2007] EWHC 81 (Admin)
Income tax - liability - inquiry - production of documents - Board of Revenue and Customs requiring solicitor to produce documents relating to taxpayer's affairs - whether Revenue required to provide reasons - High Court holding that Board's exercise of powers not subject to same conditions as tax inspector - application dismissed - Taxes Management Act 1970, s. 20(3), 20B.

Hudson Contract Services Ltd v R & C Commrs [2007] EWHC 73 (Ch)
Income tax - construction industry scheme - certificate - contractor of hired in labour - Revenue refusing to renew construction industry certificate - special commissioner deciding that taxpayer's business consisted of or included furnishing or arranging for furnishing of labour in carrying out construction operations -Revenue's cross-appeal against that decision dismissed - Income and Corporation Taxes Act 1988, s. 562(2), 565(4), (8).

RIA: VAT: Liability treatment of medical services
This is a Regulatory Impact Assessment (RIA) on amendments to the VAT exemption for the supply of medical services provided by registered health professionals, following the decision of the European Court of Justice (ECJ) in the case of Dr Peter D'Ambrumenil (C-307/01).

Tumble Tots UK Ltd v R & C Commrs [2007] EWHC 103 (Ch)
Value added tax - supply - single or multiple supplies - fees - nature of supply by franchisor of children's activity play groups in return for payment by parent - Whether several supplies of goods or single supply of membership - payment of fee precondition of admittance by franchisee - Whether supply related to admission.

 

Financial Reporting Standard For Smaller Entities (Effective January 2007)
The Financial Reporting Standard for Smaller Entities (effective January 2007) - the FRSSE - prescribes the basis, for those entities within its scope that have chosen to adopt it, for preparing and presenting their financial statements. The definitions and accounting treatments are consistent with the requirements of companies legislation and, for the generality of small entities, are the same as those required by other accounting standards or a simplified version of those requirements. The disclosure requirements exclude a number of those stipulated in other accounting standards.

Reporting Statement: Retirement Benefits - Disclosures
This document sets out a Reporting Statement 'Retirement Benefits - Disclosures'. The Reporting Statement builds on Financial Reporting Standard (FRS) 17 'Retirement Benefits' (as amended in December 2006) and sets out additional disclosures that complement the disclosure requirements of FRS 17. It is a best practice guide and is not mandatory.

2007/109 The Civil Partnership (Employee Share Ownership Plans) Order 2007
This Order amends the Employee Share Ownership Plans (Partnership Shares - Notice of Effects on Benefits Statutory Sick Pay and Statutory Maternity Pay) Regulations 2000 (S.I. 2000/2090: "the 2000 Regulations").

 

HMRC Technical Note: Possible New Repo Legislation for Companies
The Government announced in the Pre Budget Report that it would consult on introducing new legislation setting out a comprehensive corporation tax regime for sale and repurchase arrangements. These transactions are commonly referred to by market practitioners as "repos" and this term is used from now on. This document sets out the Government's detailed proposals for a new regime for companies. The direct tax legislation for non-corporate parties to repos is being rewritten in the Income Tax Bill 2007 and is not the subject of this Note.

Bennett v HMRC Sp C 576
INCOME TAX - Schedule E - whether expenses incurred by employee scaffolder in respect of temporary accommodation, subsistence, travelling from temporary accommodation to construction sites, and mobile phone costs allowable - no - appeal dismissed.
INCOME TAX - Schedule D - whether expenses incurred in respect of temporary accommodation, subsistence and travelling from temporary accommodation to construction sites deductible expenses in computing profits of self-employed scaffolder - no, except in relation to travelling expenses - appeal dismissed except in relation to travelling expenses
INCOME TAX - employer acting on instruction of Inland Revenue failed to deduct tax activity due under PAYE - whether employee liable for tax due - no - appeal allowed by consent.

 

AB (a firm) v R & C Commrs Sp C 572
Income tax - profession - partnership - time limit - taxpayer firm of solicitors acting for partner in connection with personal litigation - taxpayer paid costs of other party in case in which partner unsuccessful - taxpayer paid disbursements in other litigation - Revenue disallowing deduction of payments in computing taxable profits - returns amended outside ordinary time limit - taxpayer appealed to special commissioners - whether payments wholly and exclusively laid out for purposes of profession of taxpayer firm - whether negligent conduct on part of representative partner - appeal dismissed - Income and Corporation Taxes Act 1988, s. 74(1)(a) - Taxes Management Act 1970, s. 30B(5).

Nason v HMRC Sp C 573
INCOME TAX - Relief available for AVCs paid by an employee - Contributions covering the intended contributions for more than 2 ½ years paid late because of administrative errors on the part of the employer and the pension provider - whether the contributions in excess of 15% of the taxpayer's salary in the year of payment were deductible - Appeal dismissed

 

HMRC Briefs 01/07 - Residence: Gaines-Cooper
The recently published decision of the Special Commissioners in Robert Gaines-Cooper v HMRC (SpC 568) has attracted some attention from tax practitioners and their clients. In particular, some commentators have suggested that the decision in Gaines-Cooper means that HMRC has changed the basis on which it calculates the '91-day test'. This is incorrect.

Changes to the Seasonal Agricultural Workers Scheme (SAWS)
On the 1 January 2007 Bulgaria and Romania joined the European Union.