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Pension reform
The Government has published two papers setting out its plans for pension
reform.
Simplicity, security and choice: working and saving for retirement
From 2006, we could see the pension age in the civil service and other
public service pension schemes rise from 60 to 65. Present public service
employees' pension rights already earned will be fully protected and
existing staff will still be able to retire at 60 years if they wish.
Individual schemes may also wish to introduce the new pension age.
employees. Priority would have to be given to protecting rights already
earned before the change.
Simplifying the taxation of pensions: Increasing choice and
flexibility for all
These proposals would eliminate the existing tax legislation for pensions
and annual limits on contributions and benefits, replacing them with a limit
of £1.4 million on the amount of pension saving that can benefit from tax
relief during a persons lifetime. An annual limit on contributions of
£200,000 has been proposed for introduction in 2004, subject to indexation
in following years.
There will also be more choice and flexibility on how and when to contribute
to a pension and on how and when to draw benefits from a pension. The new
rules will also allow people to continue working while recieving their
pension. As part of this reform, the Government intends to raise the minimum
age at which benefits can be drawn from 50 to 55 years of age by 2010.
The tax free lump sum at
retirement will be set at 25 per cent of the value of an individual’s
pension fund. The rules on annuities are also to be reformed to allow
greater flexibility and are to include limited period annuities, which would
allow the part use of a pension fund to provide an annuity for a
predetermined period, and value protected annuities, which would allow a
capital payment on the death of the annuitant before age 75 of the
difference between the amount paid for the annuity and the stream of
payments already made under the annuity.
The
NIC contribution increases in April 2003
Despite the removal of the cap on contribution levels applications can still
be made to defer contributions. The Revenue will shortly publish
regulations covering the calculation of the annual maximum.
NI and benefits when overseas
Updated leaflets
covering paying National Insurance whilst working abroad, or claiming new
benefits have been released. If you require advice on the tax implications
of working abroad please give us a call.
Thin capitalisation
Lankhorst-Hohorst case
The European Court of
Justice decision in respect of the case of Lankhorst-Hohorst was in favour
of the taxpayer. The case considered the extent to which the Dutch
authorities could take action against a subsidiary company financed with
debt rather than share capital.
The decision has potential implications for all other European Union
countries that have thin capitalisation rules. In an article in the Times
the Chairman of the Tax Faculty’s International Tax Sub-Committee, Peter
Cussons, estimated that the UK Treasury could be facing a loss of up to £1
billion.
Extension of Research
and Development Relief
The Inland Revenue has
published a Tax Bulletin explaining the new reliefs available to large
companies that spend money on, eligible, Research and Development. The
legislation was introduced two years ago for small and medium sized
companies.
Please contact us If you want any further information on this topic.
Corporate Partners and loan relationships
New rules were introduced in Finance Act 2002 governing the treatment when a
loan is made by, or to, a partnership where one or more of the partners is a
company. The Inland Revenues interpretation is that the partnership is
ignored and each company partner must bring the loan relationship debits and
credits into their own corporation tax computation.
If you require any further information on how the adjustment is to be
calculated then please contact us.
Corporation Tax on Chargeable Gains:
Error in Indexation Allowance published earlier in the
year
The error affects the indexation allowance for assets disposed of between 1
February and 31 July 2002.
The Revenue is identifying those companies that have been affected by the
incorrect figures and will be in touch. If companies are affected they may
prefer to approach the Revenue,if you require any assistance please contact
us.
Capital gains of companies
The value of the retail price index for
November 2002 is 178.2.
Taxation of Chargeable Gains –
substantial shareholdings and taper relief
The Inland Revenue have issued there interpretation of several important
terms in respect of the Substantial Shareholding Exemption (SSE) and
Business Asset Taper Relief.
Whether a company is to
be treated as a trading company is to be determined by activities. This now
mirrors the definition of a trading company for hold-over relief purposes.
Provided no more than 20% of a company’s activities are non trading then the
company will qualify as a trading company.
A holding company, from
17 April 2002, is a company which has a 51% subsidiary. Prior to that date
the definition was more complicated and to qualify as a holding company a
company’s business had to consist wholly or mainly or holding shares in its
51% subsidiaries.
Broadly the same definition applies for SSE except that the shareholding has
to be 75% rather than 51%. The SSE provisions also provide for sub-groups
where a company would be the holding company of an SSE group but for the
fact that it is itself the 51% subsidiary of another company.
A trading group and trading subgroup is defined in a similar way to a
trading company by considering all the activities of the group or sub-group.
Transactions with joint venture companies that are not part of the group are
also taken into consideration but not intra group activities.
Trading activities are defined as activities carried on for the purposes of
a trade being carried on by that company. It also covers activities for the
purposes of a trade it is preparing to carry on or with a view to acquiring
or starting to carry on a trade. Activities is not defined in the
legislation but the Revenue take it to mean what a company does.
Trade includes anything which is a trade, profession or vocation within the
meaning of the Income Tax Acts and which is conducted on a commercial basis
with a view to the realisation of profits. It includes the commercial
letting of holiday accommodation and farming.
The legislation allows companies to carry on some non trading activities
without prejudicing the SSE or business asset taper relief, provided these
other non trading activities are not substantial, the reliefs are available.
Substantial is taken to mean not more than 20%. The various means by which
the non trading activities are to be measured includes the relative levels
of income, the assets used, the expenses incurred as well as the time
devoted to the activities by the management and employees.
Surplus trading property will not necessarily be considered as an investment
activity even if it is let out. Part of the trading premises may be let out,
or surplus properties may be let prior to sale or premises may be sublet
where it is not practical or economic to assign or surrender a lease. A
final example is of the acquisition of let property which it is intended to
bring into use for trading purposes.
VAT Retail
schemes
The rules for the
following retail schemes have been updated the main change affecting the VAT
liability of delivery charges
Retail schemes: The Direct Calculation Schemes , the Apportionment Schemes
and the Point of Sale scheme.
If you operate any of
these schemes and want further information please give us a call.
VAT Flat
Rate Scheme
The Flat Rate Scheme allows eligible businesses to
calculate their net VAT liability as a flat rate percentage of their total
turnover. The Flat Rate Scheme can be used in conjunction with the Annual
Accounting Scheme.
A new leaflet
How will the Flat Rate
Scheme help me? Has been published. If you
would like a copy or wish to discuss the schemes implications and potential
benefits please give us a call.
VAT: Sale of new
freehold buildings
There is a change to the way that VAT is to be accounted for on the sale of
freehold land or buildings where the total consideration cannot be
determined at the time of the sale.
When the freehold in land or a building is sold, any VAT due must generally
be accounted for at the time of the grant of the freehold. Sometimes the
full value of the supply is not known at this time. In these cases, a
special rule allows VAT to be accounted for when the undetermined part of
the consideration is received. This is a facilitation measure for business,
which avoids the need to estimate the final value of the supply at the time
of the sale. However, the rule has been used in avoidance schemes that
enable partly exempt businesses to recover excessive amounts of input tax on
new buildings which are primarily to be used for VAT exempt purposes.
Most sellers can still use the special rule, but in order to do so will
have to opt to tax the building concerned, so that all payments arising from
the grant of the freehold are taxable.
The changes affect supplies arising from grants or assignments of freeholds
made on or after 28 November 2002.
VAT Bad
debt relief
Regulations,
which came into force on 1st January 2003, have changed the provisions
relating to VAT bad debt relief. The requirement for a person who has
claimed bad debt relief to tell his customer about the claim only applies
where the supply upon which the claim is based was made before 1st January
2003.
Changes are also made to the rules on the attribution of payments in certain
circumstances.
UK Branches of overseas
companies
Proposed new legislation
will have the effect of bringing the tax treatment of UK branches of
overseas companies into line with
UK
companies operating in the same environment.
Double taxation convention:
Lithuania
A Protocol to the
Double Taxation
Convention
between the United Kingdom and The Republic of Lithuania entered into
force on 28 November 2002.
The provisions of the new Double Taxation Convention between the United
Kingdom and Lithuania will apply as follows:
(i) in the United Kingdom, from 1 April 2002 for corporation tax and from 6
April 2002 for income tax and capital gains tax;
(ii) in Lithuania, from 1 January 2002.
New 64-8’s
There is a requirement
for new form 64-8,s to be issued to clients. The pre-1 April 1999 version of
form 64-8 covered authorisation for the Revenue to disclose only tax and
Class 4 NICs information. When National Insurance Contributions (NICs) and
Tax Credits (TC) work transferred to the Revenue, legal opinion suggested
that form 64-8 should include this new work. If it did not, the Revenue
could be breaching client confidentiality by disclosing information without
authorisation . The Revenue has therefore introduced a new 64-8 authority
that coveres all its work.
Hansard
and criminal prosecution
The Inland Revenue have confirmed that If a taxpayer makes a comprehensive
confession under the “Hansard” procedure they can now be assured that the
Revenue will not pursue a criminal prosecution.
The Revenue has reissued Code of Practice 9 Special Compliance Office
Investigations – Cases of suspected serious fraud. There are the five
questions a taxpayer will be asked to which he will have to give a complete
answer to avoid the risk of criminal prosecution
The five questions which are asked in conjunction with the Hansard extract:
QUESTION 1
Have any transactions
been omitted from or incorrectly recorded in the books of any business with
which you are or have been concerned whether as a director, partner or sole
proprietor?
QUESTION 2
Are the accounts sent to the Inland Revenue for any business with which you
are or have been concerned whether as a director, partner or sole
proprietor, correct and complete to the best of your knowledge and belief?
QUESTION 3
Are all the tax returns of any business with which you are or have been
concerned whether as a director, partner or sole proprietor correct and
complete to the best of your knowledge and belief?
QUESTION 4
Are all your personal tax returns correct and complete to the best of your
knowledge and belief?
QUESTION 5
Will you allow an examination of all business books, business and private
bank statements and any other business and private records in order that the
Revenue may be satisfied that your answers to the first four questions are
correct?
Legal Professional Privilege
The House of Lords has overturned the decision in the case of R v Special
Commissioners, ex parte Morgan Grenfell & Co Ltd in May 2002. The
information powers of the Revenue do not extend to documentation created for
the purpose of seeking and giving legal advice on tax matters. |
