The Court of Appeal has upheld the high courts decision that the IR 35 legislation is legal and the PCG’s appeal has therefore failed. The PCG has been refused the right to appeal to the House of Lords.

The decision did not come as a great surprise as few believed that the PCG appeal would succeed. The 31 January deadline for providing final calculations and payments under the IR 35 rules is fast approaching, if you have not sought professional help on this area you should do so without delay.

IR 35 Inland Revenue Press Release

The Inland Revenue have issued a press release welcoming the Court of Appeals decision to uphold the judgement of the High Court.

It has re-iterated earlier statements that the IR 35 rules are the law of the land and must be obeyed.

IR 35 Professional Contractors Group Statement

The PCG’s Chairperson Jane Akshar commented on the loss of the appeal and the PCG’s current position after the appeal was rejected.

“The judicial review was one part of our overall strategy but was not the whole part …. The court has found that IR 35 is not illegal, but that is not to say it is right or fair ……

For the past few months, we have been preparing to launch a series of legal test cases, which will establish case law where there is currently a vacuum. We will drive through case law which is relevant to the way knowledge based business such as IT and engineering operate in the 21^st century, rather than the “upstairs downstairs” rules which belong in the 19^th century and are currently in use by the Inland Revenue.”

The PCG’s approach to being a number of test cases will bring a welcome degree of clarity to a difficult and subjective area, however it is entirely possible that the courts will favour the Inland Revenues interpretation of the distinction between employees and the self employed rather than that of the PCG.

Inland Revenue to take more stringent approach to collecting arrears

2002 is to see the introduction of performance criteria by which the Inland Revenues’ receivables management service will be judged, alongside new recovery rules. The changes are intended to provide consistency in approach in dealing with arrears of tax and to bring the Inland Revenues performance in the area, which to date has been rather lax, into line with that of Customs & Excise.

The Revenue will therefore follow up late payment with only one phone call and even if prompt payment of the arrears is promised will set in motion recovery procedures to be actioned if payment is not received as promised.

Tax payers are going to have to show that prompt payment is not possible and agreements to clear arrears by instalments are likely to be much more difficult to arrange.

If you are having or are going to have difficulties meeting your tax liability obligations please contact us immediately so we can inform the Inland Revenue and seek to negotiate a solution.

Filing Deadline 31 January 2002

Any tax returns forms issued at the normal time are due to be issued lodged with the Inland Revenue by 31 January 2002.

Any Returns found in office letterboxes when the Inland Revenue open on the 1^st February will be assumed to have arrived on the 31 January.

Although for all other purposes they will be treated as delivered late, the Inland Revenue will not seek to apply a late filing penalty for returns submitted on 1^st February. As above any return found in the mailbox on the 2^nd February when the office opens will be assumed to have arrived on the 1^st February and no late filing penalty will be applied.

Surcharge on tax paid late under Self Assessment

The Inland Revenues view that a surcharge of 5% of unpaid tax fell due if the tax was unpaid at any point on the 29^th day after the due date has been upheld.

The Inland Revenue had relaxed its practice whilst awaiting confirmation by not charging the surcharge if payment was received at any point on the 29^th day. This relaxation will not be available in 2002.

NIC treatment of Mileage Allowance

In July the Revenue issued some draft regulations for consultation on the NIC treatment of mileage allowances for 2002.

The main change made to the draft regulations is that for NIC purposes the 40p rate for cars will apply for all business mileage in 2002-03. The rates applicable for tax will remain at 40p and 25p.

The new rates apply from 6 April 2002.

Community Sports Clubs

A consultation paper proposing a series of tax reliefs for community sports clubs has been released.

This has been released shortly after the Charities Commission announced it was relaxing its rules to make it easier for sports clubs to apply for charitable status.

However the new reliefs would still be off interest to clubs who did not meet, or did not want to meet, the criteria to be granted charitable status.

Non UK domiciled employees travel expenses

The Inland Revenue will now accept that employees satisfy the 60 day rule where;

· They spend at least two thirds of their working days in the UK over a period of 60 days or more and

· They are present in the UK for the purposes of performing the duties of their employment both at the start and at the end of this period.

Construction Industry

A number of government departments, no less than ten, have collaborated to prepare a guidebook for those setting up in the Construction Industry.

The guidebook is a useful source of information and guidance, for those about to set up in the construction industry, and may be of some value for those already operating. If you would like a copy please give us a call.

Corporation Tax – New statement of practice for late claims

Where a late claims for corporation tax is made in respect of loss relief, group relief or capital allowances these will be considered, applying the criteria set out in a new statement of practice.

The Revenue will generally allow a late claim where the reasons for the delay were beyond the company’s control, for example;

· The company were unaware of the profits against which it could claim relief

· The amount of profit available was the subject of negotiations with the Inland Revenue and delay was not the fault of the company

· An officer of the company was ill or absent and this arose at a critical time to prevent the making of the claim and no other person was available to make the claim.

November Indexation

The value of the retail price index for November is 173.6.

Stabling and livery services – change of VAT treatment

Customs policy has been that where livery services were supplied along with the exempt supply of stabling the transaction was to be treated as a single standard rated supply.

However, customs policy has now changed following a VAT tribunal case, and they now accept that the livery services are ancillary to the stabling and therefore where these are supplied as a single service they should be treated as a single exempt supply.

If you are or have provided these services please contact us to discuss how the change will affect your business.

Stamp Duty – Residential Property

The government wishes to introduce a statutory definition of residential property to allow it to introduce reliefs for the transfer of property in disadvantaged areas. It has therefore published a consultative document, including a clause defining residential property. The deadline for comments is 22 February.

Stamp Duty (Disadvantaged Areas) Regulations 2001

Regulations have been tabled setting out the criteria for raising the Stamp Duty threshold from £60,000 to £150,000 in certain disadvantaged areas.

The schedule of disadvantaged areas runs to 41 pages, the areas are determined by reference to wards and includes many areas which might not on the surface be thought to be disadvantaged.

To check whether this increased threshold applies the Inland Revenue have set up a helpline – 0845 603 0135. You will need the postcode of the property you are enquiring about.

Small Self Administered Pension Schemes (SSAS)

A special tax charge is to be introduced for pension schemes, which will typically be SSAS’s, that lose their tax approved status and have either

· Fewer than 12 members or

· In the year before tax approval ceases, had as a member a person who was a controlling director of a sponsoring employer

A tax charge will be levied on the market value of the schemes assets immediately before the cessation of approval. No discount is to be applied where loans are to connected persons and a doubt about recoverability exists.

Liability for paying the tax will rest with the pension scheme administrator.

The charge is designed to prevent the artificial loss of tax approval being engineered to allow a SSAS to loan all or a large part of its funds back to the sponsoring employer or the paying out of a scheme assets to members as a lump sum rather than a pension.

Employee Benefit Trust (EBT)

The Accounting Standards Board has published Urgent Issues Task force (UITF) Abstract 32 dealing with Employee Benefit Trusts and other intermediate payment arrangements.

The abstract applies where an EBT is set up and funds are provided to it by an entity, the EBT using its accumulated assets to remunerate the entity’s employees.

The draft abstract was issued on 5 July and the final version, although much of the text has been revised, has changed little in substance.

If anything the abstract has not, as had been hoped, been relaxed but is actually tighter as it starts from a premise that any arrangement is subject to the rules of the abstract unless it can otherwise be determined.

The abstract clearly states that unless this assumption can be rebutted an expense is only incurred when a liability for the employee costs arise. Therefore in most circumstances the entity should recognise the assets and liabilities of the ETB as its own until those assets are transferred, unconditionally to specific beneficiaries. It is only at this point that the expense should be recognised in the entity’s accounts.

The Inland Revenue will continue to dispute any attempt to claim a tax deduction for the payment before it is recognised in the accounts, and it is likely that a case will be heard to test the deduction this year.

The abstract is applicable for accounting periods ending on or after 23 December 2001 although earlier adoption is encouraged.

Entries which apply the Financial Reporting Standard for small entities need not apply the abstract.

IHT NCB/British Coal Compensation

From 23/1/98, following a decision in the courts, it is possible for ex miners to claim compensation in certain circumstances

Where an individual died before that date the value of the claim for IHT purposes should be nil. If the miner died after that date and a claim was in process the value should be discounted based on the likelihood of success and the delay in receipt. It should also be noted that any capital element would not be subject to capital gains tax.

IHT Share Valuation Division (SUD)

The SUD’s role is primarily to determine whether Business Property Relief is due on unquoted shares and if not to value them for IHT purposes. The Capital Taxes office has indicated if you believe the best way to reach an agreement in this area is to arrange a meeting, that this can be accommodated.

Capital Taxes Office – Deeds of Valuation

The CTO has drawn attention to the fact that for a deed of variation to be effective it must be capable of being applied in the real world.

Deeds of variation are a vital tool in post death estate planning but must be used with care. If you require any assistance in this highly specialised area, or indeed any other aspect of estate planning then please give us a call.

New Statement of Practice on the former Double Tax Treaty with the USSR

On the dissolution of the USSR the Inland Revenue applied the former treaty with USSR to the new republics which were created.

In the ten years since this policy was announced a number of new treaties have been negotiated and some former republics have made it clear they do not feel themselves bound by the treaty.

The Inland Revenue have published a new statement of practice detailing the current double tax treaty position in respect of the former republics of the USSR.