Inland Revenue
Working together
Shortfalls in National Insurance Contributions
VAT
PAYE
Mariners
National Minimum Wage
Corporation Tax
Capital Gains Tax
Inheritance Tax
Stamp Duty
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European Court of Justice Bosal Holdings – a landmark decision On 18th September 2003 the European Court of Justice (ECJ) delivered its judgement and upheld the opinion given twelve months previously by the Advocate General in favour of the taxpayer. The decision means that a parent company investing in a foreign EU subsidiary cannot be treated less favourably than one which invests in a domestic subsidiary. The foreign subsidiary being outside the domestic tax net is not relevant grounds for discrimination. It is estimated that the potential impact of this and other such recent decisions could cost the Dutch government about 2 billion euros each year if the law is not changed. The Dutch Government has now indicated that it will change its domestic rules to remove the tax benefits from companies investing in Dutch subsidiaries rather than extending the benefits to foreign investments. This is in line with the UK Government’s proposals contained in the CT reform paper to extend transfer-pricing rules to UK domestic transactions and include the thin capitalisation rules within the extended transfer pricing provisions. Oce UK – Inland Revenue wins case The Inland Revenue has won its recent case against OCE UK at the ECJ. If the case had not been won it is thought the cost to the Exchequer, taking into account all other similar cases, would have been in excess of £100 million. The case regarded the provision within the UK Netherlands Double Tax Agreement under which the tax credit withheld on dividends could be partially repaid subject to a 5% deduction. Oce, the taxpayer, had argued that this 5% deduction was effectively a withholding and was therefore illegal however the ECJ ruled that the levy of this “tax” was allowed by one of the limited exceptions in the parent-subsidiary Directive. This case does however rely on narrow technical interpretation of the interaction of double tax treaties and the parent-subsidiary Directive and does not reflect a reversal in the many previous ECJ decisions on anti discrimination under the EC Treaty, which include the Bosal case detailed above. Inland Revenue Joint Meeting of professional bodies and the Inland Revenue In a recent unprecedented meeting representatives of seven professional bodies met together with the Inland Revenue in order to discuss the application of the complex settlements legislation with regard to small businesses, primarily companies owned by husband and wife. This followed on from the Inland Revenue publishing their views and examples earlier this year together with reports of substantial tax assessments raised on small businesses and their owners which has led to concern among such businesses and their tax advisers. The aim of the meeting was to highlight areas of technical concern, emphasise procedural difficulties caused by the new guidance published and to discuss the profession’s concerns. The Inland Revenue confirmed that they had no plans to increase the number of enquiries relating to the settlements legislation and assured the group that no new instructions had been given to inspectors of taxes. They said that they had not intended to worry hundreds of thousands of small businesses but did not agree a cut-off date for back taxes and interest charges. Consideration will be given to provision of clearer guidance to highlight what they consider to be abuses of the legislation. If you are concerned that this may effect you and your business please contact us for more details. Working together The Inland Revenue have again acknowledged that they have in the past launched enquiries into taxpayer’s return which would have been unnecessary if they had checked the information they already had on the paper tax return. They have said that improved procedure has been introduced to ensure returns and attachments are not mislaid but they still accept that occasionally they may have to request copies and ask for tax payer’s and agent’s co-operation when such occasions arise. From September the Inland Revenue propose to use their statutory powers to levy penalties of up to £60 per day for persistent failure to submit a Self Assessment Tax Return. Shortfalls in National Insurance Contributions Details of a pilot scheme to prepare for an exercise to write to people who have gaps in their National Insurance contributions records were published on 21st July 2003 by the Inland Revenue. This will cover gaps in contributions for the 1996/1997 tax year through to the 2001/2002 tax year as no deficiency notices were sent out during this period. Another pilot is currently being run to test the systems to be used to contact people who would have received deficiency notices since 1996/1997. This will involve contacting around 10 million people and could take as long as a year to complete. From 27 October the Inland Revenue will be sending out letters to people giving them the chance to tell them if the records of their National Insurance contributions are wrong and whether or not they wish to make voluntary contributions to make up any gaps. Amounts due will be frozen at the original rate and people owing money will have up to 5th April 2008 to pay. If a letter is not sent out until after 5th April 2004 this payment deadline will be extended to 5th April 2009. If you feel that you may have a shortfall in your contributions over this period please contact us for more details. VAT VAT and the Place of Supply of Services A change is likely to arise for suppliers of services to taxable persons (business to business supplies) and their customers. It has been proposed that business to business transactions should be changed from the origin principle to the destination principle with respect to the place of taxation of the services provided. This means that the place of supply should be based on where the customer is established rather than where the supplier is established. This proposal is expected to be adopted in the very near future. The issue of supplies to non-taxable persons (business to customer) is to be addressed in a later exercise. Hotels and holiday accommodation To improve readability Revised Notice 709/3 has been rewritten and restructured and now gives additional guidance on conferences, clarification on the application of the reduced value rule, an improved definition of “holiday accommodation”, additional guidance on the treatment of timeshare and improved guidance regarding caravan accommodation. PAYE E-filing for end of year returns From 2004/2005 onwards, electronic filing will be mandatory for end of year return forms P35 and P14 for large employers (250 or more employees). Medium sized employers (50-249 employees) will be required to do the same from 2005/2006 onwards with all other employers required to do so from 2010/2011. If small employers (less than 50 employees) decide to start electronically filing earlier than 2010/2011 they will receive a small financial incentive up to a maximum of £825 spread over a six year period. All employers will be written to by the Inland Revenue about the new requirement later this year. Mariners New rules come into force from 13th October 2003 ensuring that employers of mariners whose duties are performed wholly or mainly in category A,B,C or D waters will be responsible for payment of secondary Class 1 National Insurance Contributions for the employee. Companies uncertain about whether or not the mariner is wholly or mainly engaged inside A,B,C or D waters can apply for clearance from the Inland Revenue. National Minimum Wage From 1st October 2003 the rates for the National Minimum Wage will increase to £4.50 per hour for those aged 22 and over and £3.80 per hour for those aged 18 to 21. Corporation Tax Corporation Tax on chargeable gains The value of the retail price index for August 2003 is 181.6. This will be used when calculating chargeable gains during August 2003 for Corporation Tax purposes. Capital Gains Tax Negligible Value Claims The Inland Revenue have added some companies to the list of those whose shares are accepted as being of negligible value for the purposes of Capital Gains Tax. Please contact us for more details of these companies. Inheritance Tax Lifetime gifts and foreign aspects Updated versions of the Inland Revenue’s booklets regarding lifetime gifts and foreign aspects have now been published. If you would like copies of these or would like to discuss these or any other Inheritance Tax topics please contact us. Stamp Duty Stamp Duty Land Tax Changes From 1st December 2003 Stamp Duty Land Tax (SDLT) will replace the existing stamp duty regime on UK land and buildings. The main features of SDLT are as follows: - SDLT will broadly cover transactions involving any estate, interest, right or power in or over land in the UK but with some exclusions. The charge will include completions of transfers of freehold property and leases and grants of leases. - There will be no immediate change for the vast majority of individuals buying or renting residential property. - New processes will be introduced for reporting the details of land transactions and for paying any tax due. - The existing regime will continue to apply to stocks, marketable securities and bearer instruments, transfers of land by partners into or out of a partnership and acquisition of an interest in a partnership. - SDLT will introduce the concept of a “liable person” for the purposes of the tax usually being the person who is acquiring the benefit of the property. - Instead of submitting documents, legal practitioners will submit a new return from together with payment of the tax. The Inland Revenue will then issue a SDLT certificated instead of the current stamped impressions made onto documents. - Under the new regime there will be a zero rate band threshold of £60,000 for residential property and £150,000 in other cases. - As with other taxes SDLT will be administered under a “process now, check later” system. After the filing date of the return there will be an enquiry window of nine months. - The rate of charge for all transactions, other than the grant of leases, is dependent on the amount paid. It is proposed that the rate of charge for the rental element on new leases will be determined by the next present value of the rental payments due to be made under the lease. - Reliefs, such as transfers between group companies and transfers arising from company reconstructions that exist under the current regime have been carried forward. New reliefs will be added with the new regime which will include things such as reliefs for acquisitions of dwellings by house building Companies in part-exchange for the sale of a new home and relief for acquisitions of dwellings by relocation companies. For more details on the changes arising from the Stamp Duty Land Tax please contact us. |