New guide to the EU
Financial Services Action Plan
HM Treasury, the Financial Services Authority and the Bank of England have
jointly published a guide to the EU Financial Services Action Plan (FSAP). The
FSAP consists of a set of measures intended to achieve a single market in
financial services across the EU by 2005.
John Healey, Economic Secretary to the Treasury, commented: “With the Financial
Service Action Plan nearing completion, it is essential that all stakeholders
should be consulted on, and fully understand, the measures. Together with the
Financial Services Authority and the Bank of England, we have prepared this
guide so that all those involved are aware of the impact of new measures and the
competitive opportunities of further EU financial integration.”
The guide is intended for financial institutions, companies and consumer groups
in the UK that are not yet sufficiently familiar with the FSAP’s potential
impact.
Tax
investigations – meetings with taxpayers suspended
In a Court of Appeal case, the Court indicated that Hansard cases should follow
Police and Criminal Evidence Act 1984 procedures. Judgement was given in the
case on 30 July 2003.
The Court took the view that as the role of Special Compliance Office in
investigating serious tax fraud involves the investigation of a criminal
offence, Code C of the Police and Criminal Evidence Act 1984 should have been
applied, under which the interviewees should be cautioned and have the right to
silence. The Revenue are considering the implications of this case.
In the meantime they appear to have suspended all meetings with taxpayers but
are still issuing opening letters. This is clearly completely unsatisfactory,
and they have been asked to refrain from sending out opening letters where they
are unwilling to attend a meeting.
Inland Revenue – compliance
visits
The Revenue have agreed that in future, if they are to carry out a PAYE and
benefit-in-kind compliance visit to an employer, they will give the agent of
that employer advance warning. They will only do this if they have a mandate in
place.
We can provide a full PAYE review service if you wish to check that you are
completely complying with the regulations.
VAT fraud
In this year’s Budget, the Government introduced legislation to help tackle VAT
fraud in the computer, mobile phone, alcohol and road fuel trade sectors.
The new ‘joint and several liability’ legislation came into force on 10 April
2003, and the input tax legislation on 16 April 2003, in respect of supplies
made on or after those respective dates. Now that the consultation period is
over, the new legislation will be applied.
Verification of VAT numbers
As a result of the consultation exercise, Customs has set up a designated team
specifically for businesses in the computer, mobile phone, alcohol and road fuel
sectors. The team can confirm whether a business’s VAT registration details are
current, valid and match the information held by Customs.
The team does not offer a service of approving transactions nor, if they confirm
that the details provided are correct, can this be viewed as authorisation for
the trader to do business with the VAT registration. Any decision to trade is a
commercial decision for the individual business, and Customs cannot tell
businesses whether or not to undertake any specific transaction.
To check the validity of another trader’s VAT registration, telephone 01737 734
then 516, 612 or 761 during normal office hours.
Guidance
As a result of the responses to the consultation, amendments have been made to
the guidance and this has now been published. If you would like to discuss these
changes first, please give us a call.
A third measure introduced in this year’s Budget was the extension to Customs’
existing security powers. This came into force on 10 April 2003.
VAT over- and under-payments
If, despite taking all reasonable steps to keep yourself informed, you are not
aware of a change in interpretation of the law at the time it was made, and you
overcharge VAT as a result, Customs will normally agree to your applying the
change retrospectively.
If it is established that the overpayment occurred because of a failure of HM
Customs and Excise, interest on the amount involved will be paid.
Underpayments
resulting from a change of policy
If you do not implement a change at the correct time you could be liable for any
VAT underpaid as a result.
However, if despite your taking all reasonable steps to keep informed about
changes, a change is introduced of which you could not have been aware, Customs
will require you to pay any extra VAT only from the date when it was reasonable
for you to have known about it. This would normally be not later than the date
of receipt by you of the edition of ‘VAT Notes’ referring to a change. In these
special circumstances any tax underpaid would qualify to be remitted on grounds
of misunderstanding.
VAT: option to tax land and
property
With effect from 18 August 2003, all notifications of option to tax have to be
sent to the same centralised office in Glasgow.
Corporation Tax on chargeable
gains
The value of the Retail Price Index for July 2003 is 181.3. This will be used
when calculating chargeable gains for Corporation Tax purposes.
Corporation Tax reform
The Treasury and Inland Revenue have now published the second consultation
document on the reform of Corporation Tax. The main areas of professional reform
are set out below.
Developments in accounting
standards
The present document explicitly recognises the prospective changes in accounting
standards but reiterates the Government’s position that accounts should be the
starting point in determining the taxation position of companies: “The accounts
represent the totality of the company’s commercial activities, and using them at
least as a starting point for taxation would bring all income and expenditure,
subject to any specific exclusions, within the scope of charge or relief.”
However, the document also recognises the need to be practical, and mentions in
particular the possible deviation from the accounts treatment of gains on
revaluation of investment properties that will have to be recognised in the P&L
account under new accounting standards.
Schedular reform
There has been widespread support for the reform of the old schedular system,
and this is likely to happen. There are two options for reform, and these are:
• full pooling of all sources of income; and
• pooling all sources of trading income from property.
The tax
difference between trading and investment companies
There is more or less uniform support for getting rid of the existing
distinction. This time the Consultation is to concentrate on the difference in
the expenses regimes for investment and trading companies.
The consultation document is also concerned with two other issues, the first
being the possible extension of the Substantial Shareholding Exemption to
holdings in investment companies. The second issue is the possible extension of
rollover relief, which would be done in conjunction with changes to the taxation
of capital assets.
The taxation of capital assets
By aligning the taxation system more closely with the accounts treatment, the
current chargeable gains regime could be replaced. However, the Government
recognises that it would not be reasonable to pay tax on unrealised
revaluations, and the document states: “Any new regime would therefore impose
payment of tax on appreciation of real property only on disposal.” There is also
the recognition that there would need to be some form of rollover relief for the
replacement of business assets.
The existing targeted incentives to capital investment, such as 40% first-year
capital allowances, are likely to be retained.
Leasing
The consultation document does suggest that there should be changes to the
current regime and, as part of the wider debate on capital allowances, would
like to consider whether in some cases the lessee ought to be entitled to
capital allowances rather than the lessor. In actual fact this debate will also
have to take place in the context of the potential changes to accounting
standards.
Share
schemes – update on ‘Appointed Day’ and elections
In an announcement, the Revenue have confirmed that the ‘Appointed Day’ is now 1
September. It follows that the final date for elections on restricted securities
acquired during the period from 16 April 2003 up to and including 31 August 2003
will now be Monday 15 September 2003.
The Regulations for the ‘Appointed Day’ were made on 5 August. On 11 August the
NIC Regulations were also published so that both sets of Regulations will now
come into force on 1 September 2003.
Although the ‘Appointed Day’ is later than was originally indicated, 1 September
was chosen to ensure that the deadline for employers and employees wishing to
make elections with respect to awards of restricted securities does not fall
within the summer break period. The resulting 15 September election deadline is
intended to provide employers and employees with ample time to make the
necessary election arrangements following the summer break period.
Transfer pricing
The Government proposes to extend the scope of the transfer pricing legislation
to transactions between all related enterprises, even where both are in the UK.
However, it recognises that this could put an intolerable burden on small and
medium-sized enterprises, and it wants to discuss how to minimise the burden for
such businesses while at the same time “ensuring that wealthy individuals cannot
avoid tax by diverting personal income to offshore companies”.
Thin capitalisation
The Government believes that the proposed changes to the transfer-pricing regime
will mean that it “will be able to repeal the existing thin capitalisation
legislation”.
Thin
capitalisation and CFCs – group litigation orders
Two group litigation orders were made in the High Court on 30 July 2003. The
ensuing cases will seek to challenge the validity of UK law in the area of CFCs
and thin capitalisation. The argument is that these domestic provisions are
contrary to the EC treaty and/or the double taxation conventions, and in the
case of the CFC legislation this may also be contrary to the European Convention
on Human Rights.
CGT and
employee share options – Mansworth v Jelley
Following legal advice, the Revenue now accept that if a taxpayer has already
claimed a capital loss for a self-assessment tax year and that loss is increased
following Mansworth v Jelley, they can make an additional capital loss claim
within the time limit. If you think you may be affected by this reversal of
policy please contact us.
Informal calculations of
Inheritance Tax
A leaflet dealing with informal calculations of Inheritance Tax has been
published, explaining how to pay, payment dates, what to do if you do not
understand or agree with the calculation, and how interest is calculated.
If you would like a copy, or would like to discuss this or any other aspect of
Inheritance Tax administration or planning, please contact us.
New Australian Double Tax
Agreement
A new comprehensive Double Tax Agreement between the United Kingdom and
Australia was signed in Canberra on 21 August 2003.
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