Stamp duty land tax
Guidance
There is a dedicated part of the Revenue website where there is comprehensive
information about SDLT.
The Revenue have issued leaflet SDLT6 which provides guidance on how
to complete the forms SDLT1 to SLDT4. There are also four flyers which
are basic introductions to the subject:
· flyer 1 covers the basic system of the Land Transaction Return, payment
of the tax and the issue of a certificate;
· flyer 2 explains how to get hold of the returns, where to send them
and how to pay;
· flyer 3 deals with transitional arrangements, and in particular what
happens in relation to transactions entered into before 1 December and
completed after that date;
· flyer 4 reproduces some Frequently Asked Questions.
A concession
The Revenue acknowledge
that the first few months will be a learning experience for everyone,
in view of which they have put in place special
arrangements extending from 30 to 40 days the time limit for submitting
the Land Transaction Return without risking a penalty (£100 initially),
and they will not reject returns which have only minor errors or inaccuracies.
The Revenue will give four weeks’ advance notice before they withdraw
this concession.
Unique Property Reference Number
The Revenue have
issued advice about recording the UPRN ‘Unique
Property Reference Number’ at Box 31 on the standard return form
SDLT1. If you don’t know the number you should not obtain it from
the local authority but should contact one or other of the following.
There may be a charge so you should check in advance. The three potential
sources are:
· NLIS Searchflow:
tel 0870 755 9940 (www.searchflow.co.uk)
· TM Property Service: tel 0800 068 1272 (www.tmproperty.co.uk)
· Transaction Online: tel 0800 0854 951 (www.transaction-online.co.uk)
The first Statutory
Instrument eliminates the stamp duty ‘slab’ system
in respect of rents so that if the net present value (NPV) exceeds £60,000
in the case of residential land or £150,000 in respect of non-residential
or mixed land it is only the excess that is chargeable at 1% not the
total value.
The second Statutory
Instrument introduces a revised version of new Schedule 17A, which
deals with a number of issues including leases which
continue after a fixed term or which are for an indefinite term. It also
provides some ‘overlap relief’ where there is a surrender
and grant of a replacement lease under similar terms to the first lease.
In this way SDLT will not be recharged on rent already taxed under the
original lease.
Self certification
Form SDLT60 needs to be completed and submitted where no SDLT is due
in respect of a transaction, for instance if the transaction involves
the gift of a major interest in land for no consideration.
National Insurance
Changes
A number of anomalies have been tidied up by regulations that will:
· allow the
Post Office salary received by sub-postmasters from April 2003, which
is subject to Class 1 NICs, not to be included in the
computation of any Class 4 NICs liability due on the retail business
operated from the same premises as the sub-post office;
· align the tax and NICs treatment of the work bus exemption: and
· extend the time limit for applications for refunds of Class 2 NICs on
the grounds of small earnings from 31 December immediately following
the end of the tax year to the 31 January.
Voluntary NI payments
The Revenue have published a leaflet dealing with some of the practical
questions about voluntary NI payments which are likely to be asked by
many of the 10 million taxpayers whose National Insurance records shows
that they have not paid, or been credited with, enough National Insurance
contributions in a tax year for it to be classed as a qualifying year
for benefit or basic state pension purposes.
Japan and Korea
Information about the National Insurance position of people from Korea
or Japan working in the UK, or those going to Korea and Japan to work,
is contained in two updated leaflets, both accessible on the Inland Revenue
website:
· CA90 Convention
on Social Security between the United Kingdom and the Republic of Korea;
and
· CA91 Agreement between the United Kingdom and Japan on Social Security.
New tax credits
New rules for losses
The latest in the series of Statutory Instruments amending the Tax Credits
legislation has been published as SI 2815, The Tax Credits (Miscellaneous
Amendments No2) Regulations 2003.
The main changes relate to trading loss relief. Following these changes,
a trading loss which has not been set against the other income of the
claimant and his or her partner in the same tax year is to be carried
forward and set off against trading income (if any) of the same trade,
profession or vocation in subsequent years (taking earlier years first).
Other changes include:
· following
ESC A9 as a basis for deductible contributions for the purposes of
calculating income for doctors and dentists;
· disregarding the capital element of certain types of purchased life
annuities from investment income;
· allowing losses on property income and foreign income;
· amending the rules for foster care receipts, adoption allowance and
community care payments by local authorities.
National Audit Office qualifies Inland Revenue 2002-03 accounts
The National Audit Office annual audit report qualified the Revenue
2002-03 accounts in respect of error rates on tax credits.
The Revenue examined
a sample of tax credit applications made during part of 2000-01 and
came to the conclusion that error rates were 10%
- 14% by value. The estimated level of overpayment for a full year was
estimated to have been between £510 and £710 million. It
took the Revenue until August 2003 to report this information to the
NAO and they have not undertaken similar exercises in respect of the
following two years.
The Revenue found that 13% of all applicants understated their income,
and 3% of all applicants under-declared their capital, while a further
3% did not declare that they had a partner.
Total tax credit
payments over the three years were £17.8 billion,
so if the overpayments over that period were between 10% and 14% the
total overpayments would have come to some £2 billion.
The NAO noted that improved controls in the new tax credit system should
help to reduce overpayments.
The NAO report also
reflects the well-known problems which started when the new tax credits
were introduced. It notes that there were serious
computer system performance problems from April onwards which affected
the system’s:
·
stability – staff could not complete the processing of claims
and had to start again;
·
speed – staff had to wait too long to access information and
records;
·
availability – significant time in the working day was lost when
the system was closed down to clear internal queues.
The Revenue have
published on their website their own report into the problems with
the old tax credits and what steps they are taking to ensure
that the old problems don’t recur under the new system.
COP 26: What happens if the Revenue have paid too much tax credit?
The Revenue have issued the latest in their Code of Practice series
of booklets. COP26 explains what will happen if the Revenue have paid
out too much tax credit and how they will expect it to be repaid. The
booklet also explains what the Revenue will do if the overpayment is
the result of a mistake on their part, or where paying it back could
cause hardship to the individual concerned or to his or her family.
Payroll
On-line filing of payroll data
A further chapter in the campaign to persuade employers to switch to
on-line filing ahead of the deadlines:
· if you have
250 or more employees, you are a 'large' employer and you must pay
electronically from May 2004 and start sending end-of-year
returns (P14 and P35 data) on-line by 19 May 2005;
· if you have 50 - 249 employees, you are a 'medium' sized employer, and
you must file your 2005/06 returns on-line by 19 May 2006;
·
if you have fewer than 50 employees, you are a 'small' employer and do
not have to start on-line filing until later, but you can get up to £825
tax-free from the Inland Revenue for taking up on-line filing early.
'Online filing' means
sending information direct to the Revenue’s
computer, cutting out paper. It does not include magnetic media (magnetic
tapes, open reel tape, CD-ROMs and cartridges).
New tax credits: TC700 and TC701 notices
A problem has been identified which is affecting accountants who act
as payroll agents for a large number of different employers. Forms TC700
(start notice) and TC701 (amendment notice) relating to payments of Working
Tax Credit through the payroll are currently being issued which, although
correctly addressed to the payroll agent, do not always show the name
of the employer for whom the employee worked.
This has been raised
with the Revenue’s systems specialists who
are working to rectify the problem. It should be resolved shortly.
Inheritance tax
Paying inheritance tax direct
It is possible to
pay some or all of the IHT due on a deceased’s
estate at the time the IHT 200 form is submitted, by transferring funds
from the deceased’s bank or building society account. The account
must be in the deceased’s sole name and the bank or building society
must be a party to the IHT Direct Payment Scheme.
A separate form D20
is needed for each bank or building society from which money is to
be transferred. This form is obtainable as part of
the IHT 210 Guide, downloadable from the Inland Revenue’s website.
Form IHT100
The new version of form IHT100 must be used from November onwards to
account for all events that give rise to an inheritance tax charge, apart
from the one that is deemed to occur immediately before death. Following
the publication of the new form IHT100 last April, the Revenue said that
they would accept returns on the old forms IHT100 and IHT101 for six
months. That six-month period came to an end on 31 October, and now only
the new form IHT100 should be used to tell them about non-death events
that give rise to an inheritance tax charge.
Foreign aspects of IHT
The Revenue have issued a new leaflet IHT18 for anyone who is:
· domiciled
in the UK and owns foreign assets, or
· not domiciled in the UK, but owns UK assets.
Corporation tax
Chargeable gains: October 2003
The value of the retail price index for October 2003, as published by
the Office for National Statistics, is 182.6 (January 1987 = 100). This
will be used to calculate the indexation allowance for companies with
chargeable gains made during that month.
Inland Revenue interest rates
The following new rates take effect from 6 December (except where otherwise
stated for corporation tax), whether or not interest has already started
to run before that date.
Income tax, National Insurance contributions, capital gains tax, stamp
duty, stamp duty reserve tax, etc
The rate of interest rises from 5.5% to 6.5% for unpaid tax and duty.
The rate of interest on overpaid tax (repayment supplement) is changed
from 1.75% to 2.5%.
Inheritance tax
For late payments or repayments of inheritance tax (including capital
transfer tax and estate duty) the rate of interest is changed from 2%
to 3%.
Corporation tax
The rate of interest charged on unpaid corporation tax for accounting
periods ending on or after 1 October 1993 rises changed from 4.25% to
5%. On overpaid corporation tax the rate has changed from 1.25% to 2%.
For quarterly instalment payments of CT, and corporation tax paid early,
the rates are increased from 17 November 2003. The rate of interest charged
on underpaid instalment payments goes up from 4.5% to 4.75%; on overpaid
instalment payments, and on tax paid early but not due by instalments,
the rate increases from 3.25% to 3.5%.
Double Taxation Agreements
New Zealand
The UK and New Zealand have entered into a protocol to the 1984 agreement.
The capital gains tax changes and the new exchange of information article
will take effect from the date on which notes were exchange between the
two governments on 4 November 2003. The income tax and corporation tax
changes will come into effect in the UK from 1 April and 6 April respectively
following the entry into force of the protocol. The equivalent date in
New Zealand will be 1 April following the entry into force of the protocol
for both the income tax and corporation tax changes.
Mauritius
The new protocol to the 1981 Agreement has now been ratified. The provisions
take effect in the United Kingdom for any financial year beginning on
or after 1 April 2003 in respect of corporation tax, and for any year
of assessment beginning on or after 6 April 2003 in respect of income
tax and capital gains tax, while in Mauritius they take effect from 1
July 2003.
Double tax and ACT: High Court ruling
The Inland Revenue was successful in its case before the High Court
involving claims by subsidiaries of parent companies resident in non-EU
countries for compensation along the lines of the European Court of Justice
(ECJ) decision in the Hoechst case.
In the Hoechst case the ECJ held that it was unlawful for UK law to
allow dividends to be paid gross to a UK parent company under a group
income election when there was no such right when the parent company
was resident in another EU member state.
In the latest case the High Court accepted that the ACT provisions breached
the non-discrimination article in the US, Japanese and other non-EU double
tax treaties. However, the Court decided that this aspect of the Treaty
had not been incorporated into UK domestic legislation and so the claims
failed. It is likely that the companies involved in the action will appeal
the High Court judgement.
The High Court also accepted that the EC treaty's free movement of capital
and payments provisions were breached (these apply since 31 December
1993 to transactions with non-EU, countries). The Court held, however,
that the savings provisions permitted in the EC Treaty covered payments
as well as movements of capital. This interpretation is one of the matters
likely to be contested on appeal.
In reaching its decision,
the High Court chose to compare this case with a UK subsidiary of a
UK parent company, as opposed to the Inland
Revenue’s position of comparing with a UK subsidiary of a non-EU
country parent. This overturns an Inland Revenue position, which has
stood for more than 20 years.
Shares or units of UCITS can be part of an ISA or PEP
The Government has
issued two Statutory Instruments which come into force on 17 November,
under which shares or units of UCITS (Undertakings
for Collective Investment in transferable securities) can be a ‘qualifying
investment’ of an ISA or PEP.
If, under any of the UCITS schemes, the investor could expect 95% or
more of the capital invested to be returned within 5 years, then such
investments can only form part of the cash element of an ISA.
Assignment on divorce of life insurance policies, capital redemption
policies and purchased life annuities
An advance copy of
an article which will appear in the next Tax Bulletin has been published
on the Revenue’s website.
This article explains about a change of view that may affect the income
tax implications when there is a transfer on divorce of all or part of
the rights under a life insurance policy, life annuity contract or capital
redemption policy.
Until recently, the Inland Revenue took the view that the transfer by
one spouse to the other of all or some of the rights under a policy as
part of a divorce settlement was invariably for money or money's worth.
For example, it is not uncommon for a jointly-owned mortgage endowment
policy to change hands on divorce. (The Self-Assessment (SA) Tax Return
Guide for 2002-03 income also says that such assignments are to be treated
as being for money or money's worth for tax purposes.)
Following judicial observations by Coleridge J in G v G [2002] EWHC
1339 about capital gains tax gift holdover relief, the Revenue have now
received further legal advice and have revised their view. As a consequence
of this revised approach, anybody affected may be entitled to amend their
self-assessment return provided they are within the normal time limits
for doing so.
Pension schemes: Revenue Updates
The Revenue will in future issue their updates on pension schemes only
through their website. New and recent pension scheme updates can be accessed
at www.inlandrevenue.gov.uk/pensionschemes/updates.htm
General insurance reserves
A Statutory Instrument has been issued which comes into force on 5 December.
Its principal effect is to clarify how liabilities in respect of which
technical provisions may be made for tax purposes are to be treated.
Income tax and corporation tax – the tax take
The Government has published the latest figures, including estimates
for 2002-03.
Since 1997-98, income tax collected annually has risen from £77
billion to £109 billion in 2002-03, an increase of more than 40
%. In that time, corporation tax receipts have gone down slightly from £30
billion to £29 billion, having increased to £34 billion in
the 1999/2000 boom.
Over the same period
there has been an increase of over 100% from stamp duty, from £3.5 billion to £7.5
billion, and this is likely to continue with the introduction of stamp
duty land tax.
VAT invoices
There will be changes to the requirements for VAT invoices from 1 January
2004 to bring the UK into line with the EC Invoicing Directive (2001/115/EC).
The main changes are:
· an additional
requirement to show the unit price on a VAT invoice;
·
changes to the sterling requirements – fewer items will have to
be shown in sterling;
·
an increase in the upper limit for simplified retailer's invoices from £100
to £250 including VAT;
· removal of the need to obtain Customs' approval to self-bill, provided
the conditions for self-billing outlined in VAT regulations and VAT Notices
are met; and
· changes to the arrangements for electronic invoicing.
There will no longer be a mandatory requirement for VAT invoices to
show the type of supply or the amount of VAT charged at each separate
rate, but businesses may continue to show these data elements on their
invoices if they want to.
Customs will apply a light touch to the new requirements and invoices
in the old format will continue to be acceptable for a further 12 months
until 31 December 2004.
VAT on services for business/private use
There is a change in Customs' policy on the VAT treatment of certain
services supplied to a business for business and non-business purposes
and the period over which non-business/private use should be considered.
Businesses generally apportion the VAT that they have paid on services,
with the proportion attributable to business use being treated as input
tax. While businesses should, for most services, continue to apportion
in this way, Customs now accept that businesses may, in certain limited
circumstances, choose to treat all of the VAT on some services as input
tax and then account for output tax on the non-business use of the goods
to which these services relate. This option for VAT paid on services
may only be used for:
· certain
construction services (see below) where a person became entitled to
an input tax credit or repayment before 9 April 2003; and
· other services which are incorporated into goods used in the business
and which significantly increase the value of the goods to the business.
Following the European Court of Justice (ECJ) case of Lennartz v Finanzamt
Munchen III and the recent ECJ case, Wolfgang Seeling, anti-avoidance
provisions were announced in Budget 2003, amending Schedule 4, paragraph
5 of the VAT Act. They provided that, with effect from 9 April 2003,
land, buildings and civil engineering works were removed from the Lennartz
mechanism. This was done because Customs had become aware that schemes
were being put in place to exploit Lennartz for tax avoidance purposes.
As a result, no output tax charge arises on the private or non-business
use of such land, and there is no entitlement to recover VAT incurred
on either goods or services insofar as the inputs are used for such private
or non-business use (i.e. the VAT incurred must be apportioned).
Dr Beynon case goes to House of Lords
Customs have been given leave to appeal to the House of Lords against
the decision of the Court of Appeal in the case of Dr Beynon and Partners.
This concerned the VAT liability of drugs and appliances that are personally
administered to a patient by a GP, or by a health professional working
under the clinical supervision of a GP.
Pending the outcome
of Customs’ appeal, such medical practitioners
should continue to apply the VAT treatment set out in Business Brief
02/03 when they personally administer drugs or appliances to patients.
This means that GPs may continue to treat the personally-administered
drugs and appliances as an integral part of their VAT exempt supplies
of medical services. Customs do not require GPs to make any adjustment
to the VAT treatment of past or present supplies of drugs as a result
of the Court of Appeal judgment.
VAT: the measurement of caravans
Under the previously published policy, caravans were eligible to be
zero-rated if they exceeded either a length of 7 metres (22.9 feet) or
a width of 2.3 metres (7.5 feet). While the metric measurements were,
and remain, the correct test to apply, the imperial measurements were
included for completeness. Unfortunately, these two imperial measurements
do not tally exactly with their metric equivalents and therefore, to
remove any further confusion, only the metric measurement will be determinative
when considering the eligibility of a caravan for zero-rating.
This new basis for measurement applies with immediate effect. All future
supplies of caravans that do not exceed the metric measurements must
be treated as standard-rated. Exceptionally, in cases where owners or
retailers have already placed orders for caravans that apparently qualified
for zero-rating because of the slightly larger imperial measurements,
these orders may be zero-rated.
VAT: treatment of cage accessories for use in specialised laboratory
caging
The zero rate applies to supplies of certain types of goods to eligible
bodies, such as not-for-profit research institutions. These goods include
medical, scientific and laboratory equipment for use in medical or veterinary
research, and any parts or accessories for use in or with such laboratory
equipment.
Following a recent
VAT Tribunal decision (18247), Customs accept that cage and tray liners,
and research grade litter, bedding and nesting
materials, are accessories when designed for use in or with specialised
laboratory caging. As a result, supplies of these products will qualify
for zero-rating when supplied to eligible bodies (see Notice 701/6 ‘Charity
funded equipment for medical, veterinary, etc, uses’ for a full
list of eligible bodies).
Traders who have
previously accounted for VAT on supplies to eligible bodies of these
products for use in specialised laboratory caging, can
make a claim to their local Business Advice Centre for repayment, as
set out in detail in Section 4 of Notice 700/45 ‘How to correct
errors and make adjustments or claims’. All claims are limited
to a three-year period, and will be subject to unjust enrichment considerations
as explained in detail in Notice 700/45.
The Tribunal also made some informal comments on the liability of certain
other products, namely anaesthetic equipment, surgical instruments, autopsy
equipment, surgical scissors, and operating lamps for surgery. These
comments did not amount to a decision. In order to determine whether
these goods will qualify for zero-rating when supplied to eligible bodies,
a business must ask itself whether the criteria in Notice 701/6 have
been met.
Other products, such as environmental enrichment products, were not
considered by the Tribunal. Customs maintain that supplies of these products
will not qualify for zero-rating when supplied to eligible bodies.
CCL: exemption for electricity generated by coal mine methane
This was announced
in the 2002 Budget, subject to approval from the European Commission
that this did not breach the European State Aid rules.
This approval has now been given, which means that qualifying electricity
generated from coalmine methane can be supplied free of climate change
levy (CCL) from 1 November 2003. For the purposes of CCL, coalmine methane
will be subject to the same treatment as electricity generated from a
renewable source. Further information on qualifying renewable source
electricity treatment can be found in Notice CCL1/4 ‘Electricity
from renewable sources’.
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