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Tax on European Savings
From 1 January 2004 12 EU countries will exchange information on
non-residents’ savings. This includes the United Kingdom as well as Jersey,
Guernsey and the Isle of Man.
Luxembourg, Austria, Belgium and Switzerland will levy a withholding tax of
15% in 2004-2006, 20% from 2007-2010 and 35% from 2010 onwards and share the
revenue with the country of residence (handing over 75% and keeping 25%).
Other offshore tax centres such as Liechtenstein, Monaco, Andorra and San
Marino will operate similar policies.
Those countries that levy the withholding tax will be able to retain their
banking secrecy.
Luxembourg, Austria and Belgium will only have to exchange information if
the EU unanimously decides that Switzerland and the US are abiding by OECD
rules on exchange of information.
Belgian Co-ordination Centres (BCC)
Belgium only agreed to the deal on condition that those who currently
benefit from the 10 year tax free status under the BCC regime can continue
to do so. So a BCC set up in 1996 will be tax-free until 2006.
Payroll
A new penalty of up to £3000 per annum is to be introduced for an employer's
failure to make an electronic End of Year return when they should have done
so. This penalty is in addition to the existing late filing penalty.
All employers will be required to file their End of Year Returns (both forms
P35 and P14) electronically from 2010, either directly or through an
intermediary, with earlier dates for larger employers. The electronic filing
deadlines are as follows:
- 250 or more employees, 2004/05 End of Year Return, deadline 19 May 2005
- 50 - 249 employees, 2005/06 End of Year Return, deadline 19 May 2006
- Fewer than 50 employees, 2009/10 End of Year Return, deadline 19 May 2010
Magnetic media (flexible disk, CD ROM or data cartridge) is not considered
as electronic and will not continue to be accepted as a method of submitting
End of Year returns indefinitely.
There are financial incentives available for employers with fewer than 50
employees to encourage early e filing.
If the criteria are satisfied the incentive payments available are as
follows:
- 2004/05 Return, £250
- 2005/06 Return, £250
- 2006/07 Return, £150
- 2007/08 Return, £100
- 2008/09 Return, £75
Joint interests in property
A new form giving notice of declaration of beneficial interests in joint
property and income is now available. The form should be completed where
property is jointly held but not in equal shares, and you wish any income
arising to be taxed in the proportion of ownership rather than equally. The
form is only effective from the date of submission and cannot be backdated.
Inland Revenue Policy
Provisional figures
The notes accompanying this year’s Tax Return have not been updated to
reflect the amended statement, which still applies to the 2002 returns,
issued in relation to 2001 Tax Returns.
‘Where a taxpayer indicates that they have used for any reason (including
complexity or pressure of work) one or more provisional/estimated figures,
the Revenue will not send back the Return. However, it is requested that all
Returns, which contain provisional figures include an explanation and a date
for the final figures in the additional notes space.’
Tax Avoidance
Inland Revenue Chairman Sir Nick Montague has pledged vigilance against
artificial tax avoidance schemes. Speaking at the annual lunch of the
Chartered Institute of Taxation (CIOT), he said:
“The link between taxes and the social goods that would be impossible
without them is the very foundation of tax morality and cannot be stated too
often. The public at large resents large-scale avoidance as dodging the
contribution to the UK's needs. So we will continue to provide Ministers
with the advice and support they need to block avoidance measures promptly."
"Our aims have a stark simplicity: the heart of our business is to ensure
that everyone understands and pays what they owe, and understands and
receives what they are entitled to."
He warned the Revenue would be ruthless in pursing who persist in avoiding
those obligations.
"We simply cannot afford to go soft on fraud and avoidance, nor will we be
doing so. We will scrutinise artificial schemes very carefully to see
whether they involve dishonesty and warrant prosecution. That means help and
support to get things right - and a tough response to those who still
won't."
The Revenue has chosen to use this occasion to emphasise their views on tax
avoidance and appear to be failing to distinguish between fraud and
avoidance. The distinction between avoidance and evasion is clear. The
former is legal, the latter is not.
Community Investment Tax Relief
The CITR scheme encourages investment in disadvantaged communities by giving
tax relief to investors who back businesses in less advantaged areas through
Community Development Finance Institutions (CDFIs).
The changes came into force on the 23 January.
Guidance notes on how the new Community Investment Tax Relief will be
administered, are available. Separate guidance aimed specifically at
potential investors in the scheme is expected to be available at the
beginning of March 2003.
Corporation Tax on
Chargeable Gains
The December 2002 value of the retail price index is 178.5. Companies use
this to calculate the indexation allowance on disposals of capital assets
Overseas
Subsidiaries: Marks and Spencer Case
The Special Commissioners have ruled that Marks and Spencer could not claim
relief in the UK for losses incurred by its overseas subsidiaries in the
period 1998 to 2001.
Marks and Spencer had claimed the losses under Article 43 of the European
Treaty, which states that member countries cannot restrict the freedom of
establishment “of nationals of a member State in the territory of another
member State.” If domestic law is contrary to this principle then European
Law prevails.
If Marks and Spencer had traded in Europe using branches of its UK
subsidiaries, rather than through local companies, then it would have
obtained relief for the losses incurred by those branches.
The two Special Commissioners considered the European legal precedents but
concluded that the UK law was not a restriction under Article 43.
This is unlikely to be the end of the issue. Many commentators believe the
Special Commissioners wrongly decided the case. UK companies should make
protective group relief claims, in appropriate circumstances, to safeguard
their positions.
Pirelli and the ACT
Hoescht Decision
The decision in the Pirelli case appears to have extended the ACT Hoescht
decision to any parent company established in the EU or European Economic
Area with a subsidiary in the UK.
Pirelli was a test case and if the decision before the Special Commissioners
is supported in the Higher Courts, and the European Court of Justice, the
cost to the Revenue could be significant.
The Pirelli case will have implications for non-EU parented UK companies who
wish to take action as a result of discrimination under their respective
double tax conventions. Such Hearings are likely to be heard within the next
two to three months.
This case is a further instance of the Courts extending the general
principle that UK tax law needs to be consistent with European general legal
principles even if there is still no single European tax regime.
Enterprise Investment Scheme
The Inland Revenue have issued an updated guide to the Enterprise Investment
Scheme. The rules are set out in a concise 82 pages, which includes lots of
helpful examples and practical guidance. The EIS is a very valuable, if
under used, tax effective incentive to invest in unquoted trading companies.
As the scheme carries both capital gains tax and Income tax reliefs, it
should be considered in any tax planning exercise. If you would like more
information, please give us a call.
Capital Gains Tax: Investment Clubs
The Inland Revenue have issued guidance on the tax treatment of investment
clubs. These are clubs where members pool their resources to invest in
stocks and shares. The tax treatment on a members share of investment income
or capital transactions mirrors that which would apply if the investments
were held individually.
If you are a member of a club and are unsure what the tax implications are,
give us a call
Asset Transfers and Pension
Schemes
On the transfer of an asset an independent valuation should be carried out
immediately prior to the transfer. However, in the case of an asset such as
property, legal transfer of title can take a little while. The transfer
valuation date may, in these circumstances, be at any date within 2 months
of the proposed transfer date.
Gains and Losses on the exercise of options Mansworth v Jelley Case
The outcome of this case has changed the way in which gains and losses are
determined where assets are acquired by the exercise of certain options.
These are options acquired under certain employee schemes or not at arm's
length. The Inland Revenue have published a paper to exlplain the changes.
Where shares or other assets are acquired via options granted otherwise than
by way of a bargain at arm’s length or by reason of employment, the
acquisition cost is treated as the market value of the item at the time the
option is exercised. Of course disposal proceeds for the person granting the
option etc will mirror this.
The Court of Appeal judgement was given on 12 December 2002. Where a
taxpayer has submitted a Tax Return, before that date, in which this
decision is relevant, the Revenue have stated that they will take no action
to implement the Mansworth v Jelley decision. Conversely, where any Return
is made on or after that date, the Return for any tax year should reflect
the decision in this case.
Many employees who exercised share options in the past will have actually
made CGT losses when they sold the shares they received. The person
transferring the shares to the employee could face an additional CGT bill.
This will affect Employee Benefit Trusts if they are UK resident and other
resident transferors.
If you require assistance in ascertaining whether you have been affected by
the change, then please give us a call.
Personal
Representatives Payment of Inheritance Tax
The Revenue have announced that it will shortly be possible for personal
representatives to draw on funds held in the deceased's bank and building
society accounts solely for the purpose of paying any IHT that is due before
the grant of representation can be issued. Where the deceased person has
sufficient funds to their credit, institutions will be able to transfer
funds to the Inland Revenue to pay inheritance tax. The date for the start
of the scheme has to be announced.
Vat Option to tax land and
buildings
H.M Customs and Excise notice on the option to tax has been updated to
include additional guidance on the scope of an option, input tax, transfers
of going concerns and anti-avoidance measures. The notice also includes
revised conditions for automatic permission to opt to tax. If you require
any further information on the implications of opting to tax land and
buildings, please give us a call.
Joint VAT Consultative
Committee
The JVCC held a meeting on Friday 1 November 2002 the minutes of which have
now been published.
Items raised included:
- Registration
The meeting received a presentation on the Registration Service,
highlighting current difficulties.
There are four offices using four separate stand-alone computer systems and
each office deals with a different group of Post Codes for registration. The
role of the Registration Service has expanded; they now also deal with the
New Export Scheme, Aggregates Levy and TURN (private importers). The poor
standard of registration service being provided is likely to continue until
further resources are invested.
- Default Interest overcharges
In certain circumstances the VAT mainframe does not calculate default
interest in accordance with the law or Customs policy of charging interest
only where it represents 'commercial restitution’. Generally the problem
arises when credits and debits relating to the same VAT accounting period is
input into the system using separate input documents. Those businesses most
affected by the overcharging problem should have received a refund.
The long-term solution rests with the Mainframe fix, but the mid-term
solution is a stand-alone application for the larger businesses, referred to
as 'DI application'. To prevent duplication of interest charges the VAT
mainframe interest calculator is suspended.
A reconciliation has to be carried out to adjust the interest calculated by
the amount of interest paid under the existing VAT mainframe system, less
any interest previously refunded during the earlier exercise. This is
unfortunately a very time consuming process. Customs have dealt with two
thirds of existing cases and expect to have been finished by 31 December
2002.
Registered Dealers in
Controlled Oil
New legislation has been introduced requiring distributors of marked rebated
fuels to be approved by Customs. The new scheme took effect on 1 January
2003.
Applications for approval should be made now, as all distributors must be
approved by 31 March 2003. Customs require that applications be made no
later than 14 February 2003.
VAT Welfare Services
H M Customs and Excise have announced changes to cancel the planned
concession in this area, and replace it with a more comprehensive relief,
which will allow the whole charge for welfare services (including home care)
supplied by domiciliary care and other state-regulated agencies to be exempt
from VAT.
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