The particular circumstances where this applies is where a sale of an investment property takes the form of the grant of a lease (subject to an occupational tenant) as opposed to the assignment of the headlease. This might happen for a number of reasons, for example where there is a headlease covering several properties or where landlord’s consent to assign is not available.

Following the ruling, HMRC has now confirmed that it will consider claims for overpaid VAT, provided that certain conditions are met (including the usual TOGC conditions). Since, for most businesses, VAT is a cashflow issue rather than an absolute cost, this might be of limited interest.

What is more interesting though, is that HMRC have also confirmed that additional SDLT which would have been paid on the VAT element of the price can be reclaimed within four years of the effective date of the transaction.

If you have purchased a property in the past four years, which would have been a TOGC, and you would like to discuss the possibility of getting some tax back from HMRC, please contact me at shimon.shaw@mablaw.com.

The change came into effect on 6 April 2013.

However, HMRC has confirmed that it will not require sleeping partners or “inactive” limited partners who have not paid Class 2 or 4 NICs in the past to pay those NICs now.

Whilst HMRC has noted that some sleeping partners and “inactive” limited partners will have paid Class 2 and 4 NICs in previous years, these partners will not receive a refund of Class 2 NICs or any overpayment relief of Class 4 NICs, as these contributions had been correctly paid at the time. Later this year, HMRC and the Department for Work and Pensions will provide further details of the arrangements for paying Class 2 and 4 NICs if sleeping partners and inactive limited partners wish to pay these NICs for years before 2013-14 in order to qualify for or improve contributory benefits.

All individual sleeping or active partners in ordinary partnerships and all individual partners, whether limited or general, in limited partnerships fall within the scope of Class 2 and 4 NICs, subject to the specific requirements of those Classes being satisfied. Although HMRC’s announcement does not mention “sleeping” limited liability partnership (LLP) members, it is probable (although as yet unconfirmed) that HMRC will take the same approach with them. This is because existing HMRC guidance states that the NICs position of LLP members is the same as that of partners in an ordinary partnership (see HMRC: Business Income Manual: BIM72150). Further HMRC guidance on the change is here.

A spokesperson for the ICAEW’s tax faculty team said that they were “surprised” by HMRC’s announcement, as there had been no previous discussion on the matter. Certainly, it is unclear why the change has been made now, but is could be part of the Government’s decision to review the taxation of partnerships and crack down on their use in tax avoidance schemes (click here for more details.)

The Budget Report stated that:

“The misuse of the partnership rules has been a feature of many avoidance schemes closed down in recent years, and the Government announced on 5 December 2012 [in its Autumn Statement] that HMRC would consider the taxation of partnerships.” (paragraph 1.209).

The Government confirmed that in order to prevent LLP structures being used to avoid tax, it would consult on measures to:

1. Remove the presumption of self-employment for LLP partners, “to tackle the disguising of employment relationships through LLPs”. This aims to clamp down on businesses where employees are made members of an LLP in order to avoid national insurance (which HMRC says is being exploited by many LLPs). The measure could force LLPs to pay national insurance for partners who are currently deemed to be self-employed but who are technically employees; and

2. Counter the “artificial allocation of profits to partners (in both LLPs and other partnerships) to achieve a tax advantage”. This is very wide statement and we will have to wait until the consultation paper is published for more details on what the Government proposes.

The consultation will begin in spring 2013.

The proposals are not a surprise, as a number of partnerships have promoted junior employees to the partnership in order to avoid paying employer’s national insurance. Firms that have fixed profit share partners could face a clamp down if these partners do not actually possess partner attributes (e.g. have an obligation to make a capital contribution, have signatory rights on the firm’s client and office accounts, or the right or a right to a fixed share of profits.) LLPs will need to review their LLP agreements to ensure they are compliant.  

The Government aims to introduce legislation in this area in the Finance Bill 2014, with the changes expected to come into force in 2015.

In a corresponding development, the Government has asked the Office of Tax Simplification to simplify the taxation of partnerships - click here for full details.

Legislation relating to partnership taxation is not located in one place, making it difficult to obtain an overview of partnership taxation. The OTS will conduct an initial review by autumn 2013 in order to “identify the main areas of complexity and recommend priority areas for more detailed review, leading to specific recommendations.” The OTS’s main focus will be on simplification and will do the following:

1. Identify all partnership-specific tax legislation (which is located in a number of Acts);

2. Review the administration of partnership taxation (including the filing of returns, payment of tax, penalties and information powers);

3. Review HMRC’s guidance on partnerships;

4. Look at all taxes to identify the areas that partnerships find most difficult, costly and burdensome; and

5. Consider the complexities of limited liability partnerships (which create compliance and avoidance issues for HMRC).

The OTS states that its review should have regard to, among other things:

1. The impact on partnerships, large and small, and partners across the UK (the same rules currently apply to the smallest and largest firms);

2. International comparisons;

3. Interaction with non-tax legislation;

4. Any relevant anti-avoidance measures being undertaken by HMRC;

5. The cost to the Exchequer (any recommendations need to be “broadly revenue neutral”); and

6. The Spending Review resource constraints on HMRC.

The OTS will publish a consultation paper in due course, that will allow interested parties to submit their opinions.

In a corresponding development, the Government will also be consulting on measures to prevent partnerships being used to avoid tax – click here for full details.

Despite published guidance in its VAT tax input manual: VIT13700 which said that “In order to avoid disputes over small amounts of tax, our policy is that VAT on a sole trader’s or a partnership’s accountancy fees should usually be claimed in full subject to the normal rules”, HMRC argued that the input tax was not reclaimable, arguing that the figures in question were not “small” amounts. The partnership appealed.

The Tribunal held that the published guidance was a concession designed to avoid disputes over “small” sums and was not intended to be a correct statement of the law. The annual invoice of around £20,000 plus VAT (£900 per year, per partner) was not “small”, so the concession did not apply.

This ruling is a warning to professional partnerships that they should not rely too much on what is said in HMRC’s tax manuals, as it could lead to an unexpected tax demand.

There are in fact a series of tests which fall into three stages:

1. Automatic Overseas
2. Automatic UK
3. Sufficient ties

If a person is not automatically UK resident or non-UK-resident, they will have to consider a range of connection factors such as available accommodation, family circumstances, UK employment and days of presence in the UK.

The rules are complex and in most cases you will need to seek professional advice. If you would like some more information on the test please see our Statutory Residence brochure. For any further queries please feel free to contact me.

Sub sale relief is technically a relief for “transfers of rights” and applies to a range of transactions including sub-sales and assignments.  This used to be quite simple.  If A agreed to sell to B but C ended up purchasing the property (either because B assigned their rights under the contract or there was a sub sale) then B is off the hook for the SDLT.  C pays the charge.

So, if you are a property trader and flip properties before you ever get hold of the keys, or a developer who only wants part of the land so sells the rest on this is really helpful.  However, this relief has also been the darling of SDLT avoidance schemes since effectively it has meant that sellers don’t need to be party to the avoidance schemes.

Successive Finance Acts have sought to prevent this, but each has been followed by new schemes, resulting in new layers of legislation.  What we are now left with is really complicated and won’t be accessible to most lay persons let alone property lawyers.

Whilst the basic concept is the same, this is likely to mean that transaction costs will increase for traders and developers, since they will require specialist advice to ensure that relief is actually available.

If you are a property purchaser or property lawyer and would like to speak with someone about these changes, please feel free to contact me.

The main concern will have been the new 15% rate of tax for purchases of £2m+ residential properties into companies.  It’s true that with the introduction of the tax, there was a let out for property developers, however, this was targeted at so called bona fide property developers.  Which meant various things, including that the company had been acting as a developer for 2 years.

This was a major problem, since it is very commonplace to use SPVs for new property acquisitions. There are perfectly legitimate reasons why this is done, for example to raise finance (debt or equity) or to limit any liability to a particular project.  The point is that at 15% the SDLT effective wipes out much of the profit on a deal and led to real concerns that projects would cease to be worthwhile.

So when HMRC announced that there would be additional reliefs for property developers to this SDLT charge, we all looked on anxiously.  The changes won’t be introduced until Finance Bill 2013 becomes law, but there is unlikely to be too much change.

• The legislation will no longer refer to bona fide property developers.  Rather the test is now based on the purpose of acquisition – i.e. was the property acquired for letting, resale or redevelopment.  This won’t be the case if it is intended that a “non-qualifying individual” occupy the property.  This might be the owner of the company or their relative, for example.
• There are other exemptions for people acquiring the property as a furnished let or for the use of employees and for certain partnerships.
• There is also a let out for farmhouses, provided that there is a genuine farming trade.
• There are a number of clawback events which means that care will need to be taken in the years after acquisition.

This is welcome news for property developers and for once indicates that HMRC were listening to the genuine concerns of industry. 

If you would like to discuss any of the issues in this blog, please feel free to be in touch.

Sorry, I meant to say, the details of how HM Government plans to prevent avoidance involving UK property.

You may recall that the Chancellor got himself into a bit of a tizzy about stamp duty land tax (SDLT) avoidance and that he was convinced by some ill informed newspapers that lots of people buy expensive homes through companies to avoid SDLT.  He’s wrong and I’ve ranted about that previously.  But since he didn’t pay attention to me, we are where we are.

Which means that from 1 April 2013 we’ll have a brand spanking new tax – the Annual Residential Property Tax or ARP complete with its own new tax returns.

The ARP applies if a residential property, worth £2m+, is owed through a company, collective investment scheme or a partnership (where the property is held at least in part for a corporate partner).  The annual charge will range from £15,000 per annum to £140,000 per annum depending on the value of the property.  There are numerous valuation events in the legislation although the default is every 5 years.

To be subject to the ARP you only need to own the house for one day in the 1 April to 31 March chargeable period although if you buy halfway through a period you don’t face a charge for the whole time.  Likewise if you sell.

The idea is that once a property is in a company, then that’s it as far as SDLT goes, until the company ceases to own it since purchasers can just buy the shares and avoid SDLT on the property.  The ARP is designed as a slow drip feed version of SDLT.  Since SDLT for £2m+ residential properties being bought into most companies is now at 15% the days of the so-called “corporate wrapper” are well and truly numbered.

There are a number of anti-avoidance provisions built into the legislation.  For example, don’t think about arguing that you’ve changed the use of the property without doing so as a matter of fact.

Thankfully, there are also a number of reliefs.  The most important of these is the relief for property developers who hold the property as part of their qualifying trades.  Woe betide the property developer who decides to move in for a bit during the course of ownership. 

There is also a relief for farmhouses which are used as part of a trade and occupied by a farmworker (e.g. the farm manager).  This is potentially useful since many farmhouses would exceed the £2m threshold.  The detailed provisions need to be reviewed, but there is quite a lot of scope for tax savings in this context.

The ARP charge is likely to be a welcome development for surveyors, but no-one else.   For example the relief for property developers is useful, but unless they qualify for the exemption from 15% SDLT on acquisition, they are unlikely to acquire new properties into companies.

The first point is that we don’t have any real detail.  So this blog is based on how I expect this is going to work in practice and the details which have been released at this point in time.

The second point is that this blog represents my personal view – not that of Matthew Arnold & Baldwin LLP – so any abusive mail or threats should be sent to shimon.shaw@mablaw.com and not my boss.

So…..

• many employees would be bonkers to give up all their rights in exchange for shares they might never be able to sell.  Especially if there is tax when the shares are given, and there are provisions such as losing the shares when you leave employment and even more especially if you think you won’t ever be able to sell the shares. 
• On the other hand, if you are really confident that the company is likely to be sold before you get fired or have kids or want to work flexibly, then this might be the right move for you.
• Employee-owners who take these shares need to be very aware of what they are getting into.  They need to understand the rights attaching to the shares and the circumstances where those rights could be lost or the shares forfeited.
• Some employers will find that (especially when not talking about huge numbers of employees) the immediate cost of doing this is prohibitive.  E.g. getting the shares valued could be several thousand pounds and if the cost of the employee’s tax also needs to be met…
• The Chancellor thinks that this will end unfair dismissal claims for companies signing up to this scheme.  However, most professionals I’ve talked to (who are as cynical as me) think that unfair dismissal will be replaced with other things like claims for discrimination.
• Some employers will find that this is a good idea – it won’t necessarily attract staff but if you are an employer in a market where people are desperate for jobs they might not have too many choices.
• If given the choice I think that most businesses will need to seriously consider sticking with “traditional” incentives – e.g. EMI share option schemes.
• If businesses are concerned about the risks of taking on employees there are (limited) steps which can be taken (most easily by larger employers) but the main thing is to have proper advice and understand where you stand vis a vis your employees.
• I do think that some owner managed businesses could benefit and this might simply prove a new way to pass wealth around in a family.  

However, is this going to be the panacea which removes all the barriers to starting a business?  I don’t think so, but watch this space.

In 2007 McLaren (they of the fast cars) got into trouble with the Federation Internationale de L’Automobile (the “FIA”).  Apparently they had possessed and in some way used proprietary information belonging to Ferrari, and had thereby breached the rules of the FIA’s International Sporting Code. McLaren was contractually bound to follow this code and was fined £32 million and in addition suffered a reduction in its gross income of some £34 million. 

It was the fine about which HMRC and McLaren disagreed.  McLaren argued that since the penalty was incurred under contract and was incurred for the purposes of its trade that it should be treated as deductible for corporation tax purposes.  Further, the activities which led to the penalty (i.e. the cheating) whilst not ordinary were “closely associated with mainstream of McLaren’s trade” and that it the incurred in the course of and wholly and exclusively for the purposes of the trade.

The arguments were long and technical and the two members of the tribunal making the decision disagreed.  The member of the casting vote found in favour of McLaren.

The question will be where we go from here.   Will this analysis be applied across the board to all fines incurred by sports people or organisations or indeed all penalties imposed in similar circumstances.

It seems unlikely (although other Formula One teams might consider having a go).  There are a number of reasons for this. 

• First, HMRC might appeal (there’s a lot of tax at stake and the judges in the case disagreed as to the proper analysis) although at the time of writing this blog they haven’t. 
• Further, there is a body of law covering this subject already and HMRC are likely to try and distinguish the case on it’s facts.
• There are also technical reasons too.  For example fines aren’t deductible if imposed on the person as opposed to the trade which may be the case for many sports related fines.

However, non-statutory fines occur in other contexts too, not just in the case of sports bodies and if you have recevied such a fine or penalty you need to carefully consider whether this case will apply to you.

1.  EMI

If you want a bit of background to the EMI scheme, please visit the EMI page of this site.  In general, EMI options allow certain employees to benefit from their company’s growth, free of tax or NICs.  There are restrictions on this, such as the need for the employee to spend 25 hours a week working for the company (or, if less, 75% of their working time).

It was announced in the Budget that the Govt. would consult on extending EMI to “academic” employees of spin off companies.  This consultation has now been published. Typically the issue is that the academic wouldn’t meet the employment qualifications for EMI treatment to be available and therefore would lose out on this benefit.  E.g. they may spend most of their time working for a research institution or  university rather than developing the idea/product.  The consultation raises several issues as to how an academic employee would be defined and as to what degree of relaxation of the current rules would be appropriate.

2.  Report on share schemes

Everyone’s favourite office, the Office for Tax Simplification, has published a report on share schemes.  It has been asked by the Treasury to look into the relevance of the current set of share schemes (EMI, SIP, SAYE and CSOP) which are on offer and whether any simplifications can be made.  There are some recommendations which have been made and which will be followed as well as some points for consultation.  It is unlikley that EMI will change much (although it may be merged with CSOP) but some of the more complex schemes hopefully will be simplified as a result, e.g. by allowing self certification.

Employee share schemes are a great (and relatively cheap) way of recruiting and rewarding staff.  If you would like more information, please be in touch.

Under EU VAT rules, Member States can only apply reduced VAT rates to a limited number of goods and services, which are clearly listed in Annex III of the VAT Directive. This list does not include the supply and installation of “energy saving materials”. Therefore, the Commission considers that the UK’s application of a reduced rate in this area contravenes EU legislation.

The request takes the form of a Reasoned Opinion (the second stage of an infringement procedure). If the legislation is not brought into compliance within two months, the Commission may refer the matter to the European Court of Justice.

HMRC allow a reduced rate of VAT on 

• controls for central heating and hot water systems
• draught insulation (eg around windows and doors)
• insulation on walls, floors, ceilings, lofts, etc
• solar panels
• wind turbines
• water turbines
• ground-source heat pumps
• air-source heat pumps
• micro combined heat and power units
• wood-fuelled boilers

The lower rate is only available if the energy saving materials are actually installed, and the work is done on your home.

We will need to see whether the UK simply agrees to this change or whether it contests it.  What is clear is that if you are either buying, selling or installing items which fall in the above list, you need to act quickly if you are to benefit from reduced rating.

Poor old Jimmy Carr.  He was named (and presumably shamed) in the article as avoiding rather a lot of tax on his purported £3.3m earnings.  So not poor in the traditional sense, rather unfortunate to be the one named.  Of course there have been some others mentioned today so they can share his misery.

What is one to make of this?  In general there are two types of legal tax planning – avoidance schemes and bespoke tax planning.  Illegal tax planning – tax evasion – involves things like payments “under the table” or in cash and non-declaration of income. 

Avoidance schemes tend to be mass marketed and generally follow a one size fits all approach.  They are disclosable to HMRC and should go on your tax return (under the Disclosure of Tax Avoidance Schemes – DOTAS – rules).  These are typically not for the faint of heart and tend to give rise to significant savings and carry a high cost.  The schemes which seem to cause the most HMRC headaches are those aimed at income tax avoidance, VAT and stamp duty (although stamp duty is less bothersome given that there is a lot less tax at stake).    The former are the big earners for HM Treasury and so plugging those gaps is more significant.

Bespoke planning is where you sit down with a tax adviser, look at your affairs in the round and come up with a plan which is tax efficient.  This is much less offensive, generally, to HMRC.  Indeed, a good tax adviser will look at a variety of non-tax issues such as succession planning, asset management, your business plans, etc and try and develop a holistic action plan which is often coupled with a review of your business and investment structures. 

As an aside, this is why, at MAB, the tax team is known as Wealth Management – since we go beyond simple tax planning and look at all our clients’ needs in terms of their wealth and assets – with the aim of keeping as much of it in their hands or those of the next generation. 

It’s been well publicised that the Government is working on a GAAR – a general anti-avoidance rule for tax and 12 June saw a consultation on this published.  The idea behind this is that reasonable tax planning is allowed but abusive practices will be stopped.  The hope (in Government as opposed to the Channel Islands and BVI) is that this is going to stop the schemes but permit reasonable bespoke planning and indeed it is likely that this will be the result.

Hope is not lost!  Even after the introduction of the GAAR, taxpayers will still be able to arrange their affairs in a tax efficient manner – but only reasonably efficient.

If you want to talk to someone about (legal) tax planning or wealth management for you or your business we are happy to help.

In our office, it has been marked by various members of the tax team (okay, just me) wandering around with a puzzled expression repeatedly exclaiming either “7%” or “15%”.

So it’s good news for those with £150,000 incomes and companies.  But it’s bad news for the property purchasers, developers and estate agents with an interest in the top end of the property market.

HMRC think that only 3,000 £2m plus homes are sold every year and so they would argue that the changes only affect the very elite.  Who can, of course, afford the extra 2%…at least that’s what HMRC would say.

In truth these changes are a mansion tax in disguise.  On that note, mansion tax has not been ruled out and is being considered for the future. 

Come in and chat….

If these changes will affect you, we’d be happy to discuss whether there are any opportunities for planning to reduce the impact.

Stamp Duty Land Tax – Rate in Respect of Residential Property where Consideration over £2m

This is an increase in the rate of tax for residential property over £2m from 5% to 7% from 22 March 2012.  This will impact on freehold purchases and the grants or assignments of leases, where the consideration (or premium for the grant of a lease) is over £2m..  It may also impact on exchanges of land, transfers to connected companies and partnerships where the property value is in excess of £2m.

The legislation will include transitional provisions which mean that if exchange took place before 22 March 2012, the old rates will continue to apply.

Stamp Duty Land Tax Rate: Enveloping of High Value Residential Properties

This is a measure to combat the perceived large scale avoidance of stamp duty through owning property though companies (typically offshore companies).  When the measure applies stamp duty land tax will be charged on the acquisition at 15%.

The charge will take effect when the purchaser is a “non-natural” person, which would include a company, a collective investment scheme and a partnership in which a non-natural person is a partner.

Of particular note is that there will be exclusions from charge for property developers and corporate trustees – in certain circumstances.  The problem here is that a new developer will not benefit from this exception, since you’ll have had to have been in business for 2 years before the purchase.  Perhaps it is time to consider alternative ownership vehicles such as limited liability partnerships.

This measure will apply from 21 March 2012, although there are transitional provisions for purchases where exchange occurred before that date.

Stamp Duty Land Tax Avoidance

This is a very targeted anti-avoidance measure designed to prevent the stamp duty land tax sub-sale rules from applying where the second step of the sub-sale is the grant or assignment of an option.

The provision took effect from 21 March 2012.

Other measures

There were some other measures announced in December to stamp duty land tax (SDLT) relief for acquisitions by NHS bodies to take into account changes under the Health and Social Care Bill and to extend the rules on disclosure of tax avoidance schemes.

Correct. It was HMRC’s Chris Martin (who was propelled into the spotlight when Harry Redknapp and Milan Mandaric were found not guilty of tax evasion) putting a good spin on a rather embarrasing defeat.

It would be rather pointless to recap the events of this rather well publicised trial.  But what might be more interesting is to think about what this means to other tax payers.

First if you are a sportsperson then it’s probably good news.  My understanding of the oft mentioned £8m campaign was that it related to the whole operating to look into fraud in sport (not just Redknapp’s trial).  I also understand that it has led precisely nowhere.  If anyone from the Met is reading this, feel free to set me straight.  So politically, and economically, it seems that this campaign might be over faster than you can say “transfer fee”.

If you are a tax evader, it probably makes no difference.  I’ve not yet read the full case report but if HMRC can’t prove tax evasion then they won’t get very far.  I don’t want to do their work for them, but HMRC’s powers to get information from offshore tax havens is always increasing and the UK has entered into a number of Tax Information Exchange agreements that greatly assist in tracking down fraudsters.  If you are one of those, then Chris Martin (not that Chris Martin – the one at the start of the blog), is probably right.  There are a number of disclosure facilities which may result in a reduction in any penalties and it is worth speaking to an expert before turning yourself in!

There is nothing wrong per se in having bank accounts in tax havens, provided that you make sure that any tax planning is done properly.

If you are expecting a bonus, I also wouldn’t take this as carte blanche to become friends with your boss and ask for some seed money for your investments.  The law hasn’t been changed by this judgement – a bonus is still taxable, and it will be a question of fact as to whether or not a payment is a bonus.  The assumption should generally be that it is taxable, and any derogation from this would require professional advice.

There are also a lot of rather more “vanilla” and rather more tax efficient ways of motivating employees such as share options, which should be considered before paying sums into bank accounts in Monaco in the name of your dog!

If you would like to discuss any of these points, please contact our wealth management or employment teams.

The Stamp Taxes Practitioners Group (of which I am a member) has received confirmation from HMRC that this is not on the agenda at the moment.  This is undoubtedly good news, since that change would change the landscape for property ownership very, very drastically.

Before you all go out and start buying your homes in companies – that is generally NOT a good idea unless you meet very specific criteria (generally to do with residence and domicile).  Whilst you may want to consider this for commercial property or buy to lets, the loss of capital gains tax relief on the disposal of your main residence is almost always going to make it not worthwhile.  And don’t get me started on the income tax problems…

We now hear that the Chancellor has ordered an investigation into how much the tax brings into the national coffers. HMRC has been told to report back by January.

This shows us the power of the people (well, a very select group of the people) to get the Government to take action.  Or does it?  The Chancellor has done nothing but buy himself some time here. 

Time to think has to be a good thing, and it is commendable that there hasn’t been another knee jerk reaction of “yes” or “no”.  What is glaringly obvious, to me, is that whilst economists may be in a position to opine as to how measures such as the 50% rate of tax affect the economy, this is only part of the picture.

The other part is politics; and it is the politicians who are responsible for making changes.  The damage which could be done in being seen to favour the rich at a time when unemployment is high and growth is flat lining means that the merits of the 50% rate are of secondary importance to “how it looks”. 

Just listen to the news and take note of how often you hear the phrase “send a message”.  Policy seems to be more about messages sent than the merit of the measure. 

I fully expect that when the Revenue report back on this next year, the results will not show a strong case for the 50% rate.  I’ve helped enough clients to shape their affairs to reduce the impact of the 50% rate to form my own view on the matter. 

Whatever the outcome of this review, my personal opinion of this is that it won’t matter.  It’s the politicians that shape the policy.  Call me cynical if you will, but the bottom line is that any changes made by politicians are going to be based more on politics than economics

This pseudo-tax known as the, Art Resale Levy, (or droit de suite in French) means that sellers will have to pay royalties on works by European artists who have died in the past 70 years, including Pablo Picasso, Henri Matisse and Francis Bacon. Cash is payable to the artist’s heirs each time a work is resold.

The tax already exists in mainland Europe and is due in Britain from January, applying to all works priced above (EURO)1,000 (£900) and on a sliding scale of 0.25 per cent to 4 per cent. 

There will be intellectual property implications of this, if the directive is brought into force in UK.

On the other hand, so the argument goes, why shouldn’t the family reap some of the benefits (in particular when success is mostly posthumous)?

For a more detailed review of the tax’s history and the UK’s derogation until 2012, I suggest an article in the FT, which can be found here (although please note that the FT is subscription only), and for the view of the art lobbyists (LAPADA), click here: LAPADA, and follow the links at the bottom of the page.

There will be scope for planning to avoid this levy if the UK is not be able to extend the derogation beyond 2012, and if you are interested in discussing this with a solicitor, please call 01923 20 20 20 and ask for the Wealth Management Department.

Last month, the French government proposed to introduce a new tax on non-residents who own a holiday home in France that they do not rent out as a long-term let. The government estimated that the total revenue from this tax would have been EURO 176 million a year, with the money used to fund proposed reform of the French wealth tax system.

However, after facing opposition from a group of senators representing French nationals living abroad, the government confirmed it was abandoning the proposal, as the new tax would have been incomprehensible to overseas French nationals.

The key points are as follows:

•  The charitable legacy must be left to a body that is a charity for UK tax purposes, that is, a charity or other organisation in the UK, European Union Member State, Iceland or Norway that would be a charity under the law of England and Wales OR settled in trust to be used for charitable purposes only OR left to a Community Amateur Sports Club.
• Beneficiaries of a will or intestacy may execute a deed of variation to make a charitable legacy.
• A beneficiary inheriting joint property by survivorship may divert all or part of that property to charity and the estate will benefit from the IHT incentive. 
• Where a discretionary trust is set up by will and there are charitable beneficiaries, a distribution within 2 years of death to charity will be treated by HMRC as though it was a legacy made under the will.  

Points for Consultation

The Consultation Paper of 10 June 2011 “A new incentive for charitable legacies – A lower rate of inheritance tax when leaving 10% of an estate to charity” seeks views on a number of detailed issues including:

• Whether, for administrative convenience, only charitable gifts of easily realised assets such as cash, land, buildings or quoted shares should count towards the 10% limit.
• How assets that are charged to inheritance tax on the deceased’s death in addition to his or her own ‘free estate’ should be treated. These assets would include those that the deceased had given away with a reservation of benefit, particular life interests in settled property and any jointly-owned property that has passed outside of the deceased’s will or intestacy.

Comments are invited by 31 August 2011.

Below is an example given by HMRC of an estate which is valued at £850,000 and where the available nil-rate band is £325,000. The minimum charitable legacy to pass the 10% test would be calculated as follows:

Planning points

If you would like to include a charitable legacy in your will or to discuss the impact of the changes, please contact a member of our Wealth Management team on 01923 20 20 20.

This law has not yet been passed, but it seems likely to take effect from 1 January 2012.  It will apply to non-French residents, including some French citizens who have emigrated, although those renting out their properties and professional expatriates seem to exempt.

This tax will be applied at a rate of 20% to the cadastral value of the home. This is typically lower than market value, but the current cadastral values date back to the 1970s and are due to be increased in the near future.

There is some question as to the compatibility of this new tax with EU law, but subject to a challenge on this basis, we understand that this is something of which all UK based owners of French property will need to take heed.

After this date there will be a significant reduction in the annual investment allowance for qualifying expenditure which potentially could result in lost 100% up-front tax relief.

Claiming on the balance not covered by AIA at rates applicable to the general, special or short-life asset pools spreads the claim for tax relief over much longer periods.

Here is an example I’ve seen from accountants Smith & Williamson:

Using an example of a 30 June 2012 year end, the table below shows the effect of delaying expenditure until after 1 April 2012 or 6 April 2012 on the maximum amount of AIA claimable for that year.

Businesses need to consider more than just the availability of allowances when incurring expenditure, however this change in allowances is significant enough to justify very careful consideration of when to incur qualifying expenditure.

For more information, please email me on shimon.shaw@mablaw.com.

The changes affect Employer Annual Returns and starter and leaver PAYE forms.  From April, employers with fewer than 50 employees must now send starter and leaver forms – P45s, P46s and similar pension information – online to HMRC.  

Further, all employers who send their Employer Annual Return to HMRC after the 19 May filing deadline will now receive a late-filing penalty.  Previously, an extra-statutory concession gave employers extra time before HMRC charged a penalty, but this has been withdrawn.

From this year, employers will be liable to a penalty if they file their annual return on paper. Last year, no penalty was charged for employers with five or fewer employees. But these transitional arrangements have now ended. HMRC will also be issuing PAYE penalties this spring for the first time in two key areas:

• Penalty notices will be sent out in April to employers with 50 or more employees who have not filed starter and leaver forms online to HMRC. The first penalties will apply for the three month period to 5 April 2011, with further penalties being issued on a quarterly basis.
• From May this year, HMRC will start sending out penalties for late payment of PAYE. Employers will be liable for a penalty if they haven’t made PAYE payments on time, and in full, from April 2010. The amount of the penalty will depend on the amounts paid late and the total number of late payments made. Penalties will be charged after the tax year-end.

Employers must file an Employer Annual Return (EAR) – a P14 for each employee and a P35 summary sheet – by 19 May. They must do this online (with some very limited exceptions, for example, people who employ their own carer and those with religious objections). If an employer has not previously sent their return online, they must act now by registering for HMRC’s online service. 

HMRC has published a list of common errors to avoid on its website.

There are a number of ways that employers can send employee starter and leaver details online. They can use commercial software, HMRC’s free Online Return and Forms – PAYE Service, HMRC’s Basic PAYE Tools (formerly Employer CD-ROM) or an agent can do it for them online. To avoid unnecessary administration work for employers and HMRC, employers should not send paper starter and leaver forms to HMRC where they have already filed online or intend to do so.

Or unless you are me.

So on to the news:

1.         DV3 v HMRC

This was the tax planning case I’ve referred to in previous posts.  The taxpayer appealed against HMRC’s assessment that stamp duty land tax (SDLT) planning (involving the sale to a purchaser followed by a subsale into a partnership) failed.

The decision was highly technical and involved an in-depth analysis of the SDLT subsale rules. 

The taxpayer won in the tribunal.  It seems likely that HMRC will, however, appeal.

2.         Shariah compliant SDLT scheme blocked

In the budget, HMRC have changed the rules for subsales and alternative property finance relief to block an increasingly popular method for avoiding SDLT.

3.         5% rate

The rate of SDLT for residential property purchases OVER £1m with an effective date on or after 6 April will increase to 5%.  Following on from the above 2 points, this is likely to lead to an increase in SDLT planning.

4.         Bulk purchases

As from Royal Assent of the Finance Act 2011 a new relief will be introduced for purchases for multiple residential properties.  The terms are not yet finalised, but in essence where you are purchasing several plots or properties you would take the total price and divide by the number of properties to find the mean.  The rate of tax will be based on the mean price.

Since opportunities for abuse abound, there will probably be some restrictions imposed.

5.         First time buyers

HMRC will review how this relief is working and report on it in the Autumn.

If any of these changes affect you or if you would like to contact someone about stamp duty, please drop me a line.

For example, as is fairly well known by now, there was a deathly silence on the subject of Winter Fuel Payments.  In fact the payments stayed the same, however the extra top ups which had previously been given were stopped.  So whilst there was no cut per se, anyone receiving these payments will have felt the difference.

So, on to the news.  Panorama tonight will reveal how research it has carried out into salaries and inflation mean that the average worker takes home £1,088 less than two years ago – a reduction of 5%.  For the full story, click here.

And then there’s the rise in national insurance by 1% again, which failed to feature heavily.  That’s going to affect a lot more people than knocking a penny off petrol, and in a far more significant way!

Tax planning can help in some cases, especially if you are a business owner or earn enough to put you into the 50% tax band.  If you would like to discuss your options, please contact our wealth management team on 01923 20 20 20.

So to add to your misery, here are some initial thoughts from me on the Fresh Business Thinking website.

Anyway, this post is about a different kind of dog…a…wait for it….hot dog.  Sorry, sorry, sorry.

Anyway, the point of this blog is that Manfred Bog, who specialised in selling sausages and chips from three mobile snack bars at weekly markets, won a ruling from the European Court of Justice that he did not have to charge the full rate of VAT.

The court’s reasoning was that his sausages required so little preparation that they did not constitute catering. It found the same rules should apply to popcorn and nachos sold in German cinemas.

VAT is a EU tax, so the effect of this will spread to the UK.  The implications here will be  that caterers, cinemas, and other hot sausage sellers in the UK will need to ensure that they charge the correct amount of VAT and may need to discuss the implications of the case with their local VAT office.

So, when you are staggering home from your football match, pub or other entertainment venue and you are hungry enough that the sausages on sale by the street vendor start to look edible, remember to ask whether they are charging VAT correctly.  Then run.

On a slightly more serious note, those of you that follow VAT rulings will recall the Subway decision (which went the other way – the court held that VAT was to be charged on the supply of subs).   In that case, there was some discussion on the impact of this on rents.  It is entirely conceivable that purveyors of certain foodstuffs from more fixed premises, might not reduce their charges and therefore pocket the difference.  If this affects profits significantly then there might be scope for landlords to argue that rents should increase in the future, especially if there is a turnover rent.

But here is some good news.

Stamp duty on property (SDLT) has to be one of the most hated taxes out there.  It is a tax on mobility and, like VAT, is imposed on cash which in most cases has already been taxed.  Not only that but it makes moving house a lot more expensive.  Hence the spread of stamp duty planning in recent years, even to transactions which in the past would never have been considered for this.

So a ray of sunshine in the doom and gloom is welcome.

An SDLT case was heard in the Tax Chamber of the First-tier Tribunal towards the end of last year.  Deputy Judge Charles Hellier heard arguments over a scheme used to avoid SDLT on the £65.1m purchase of a property in London’s Regent Street in October 2006.  The SDLT scheme in question involved a subsale of the property to a partnership resulting in no SDLT being payable.

This was the first occasion a court or tribunal has considered an SDLT scheme and its importance lies in the attitude of tribunal to the technical arguments SDLT schemes rely on.

And the winner was…..the taxpayer.

The judgement has not yet been published but watch this space as this article will be followed by an examination of the tribunal’s approach and a consideration of how this will impact on future schemes.

It is very likely that fashionistas go through the same when column inches get devoted to which shoes go with which handbags and doctors cry into their corn flakes when they read about medicine fads.  However, since I know nothing about fashion (as my wife will confirm) or health (as my Mum will confirm) it just flows over me. 

The story goes that if you purchase property in an overseas company, you can avoid stamp duty.  My comments:

1. For UK resident tax payers buying their homes, they lose out on the capital gains tax relief on the sale of their homes.  They will sell shares and pay tax on the gains.  28% CGT is a lot more bothersome than 4 or 5% stamp tax.

2. It saves stamp duty on the sale but that’s not going to help the company which is purchasing now.

3. This has the potential to make administration a nightmare and there are annual directors fees etc.

4. There can be income tax charges on the use of the property if a market rent is not paid.

5. Most UK based future purchasers won’t want to buy a company so you’ve restricted your ability to market the property in the future.  And if purchasers buy the property from the company - you’ve just wasted time and a shed load of money.

6. If you are borrowing to purchase the property, you’ll have a much harder time and the cost of finance will increase.

etc…..

So who should consider buying a property in a overseas company?

First point – don’t do this without speaking to your tax adviser (or me!).  Second this is mainly of use to wealthy overseas investors.  There is inheritance tax planning which can really benefit from a structure involving an overseas property.  But that’s not stamp tax planning.

What’s funny about the article is that tucked away at the end is a comment from a partner in KPMG with which I mostly agree ” for anyone [other than a overeas investor], it’s a ticking time-bomb”.   If they had spoken to him before writing the article, perhaps they wouldn’t have bothered.

The study (the Truth about Bonuses) by the University’s School of Economics involved subjects either being paid a bonus or fined depending on their performance in certain areas.  The results showed that the joint earnings of employers and workers were almost 19 per cent higher when fines were handed out than when bonuses were paid. However, while employers were better off when fines were introduced, workers earned less than in the scenario without fines.

Alternatives to bonuses

So what does work?  I suspect it depends on who you ask.

Employees (especially those in the, ahem, financial services sector) will probably say cash is king, and when it comes to it, a bonus will do nicely, thank you very much.  Now where is the Ferrari showroom?

Employers will often take a longer term approach to incentives and will often prefer employee share schemes and options.  These have the benefit of being tax efficient and of promoting long term commitment to the business since employees will benefit from future growth.

I’ve yet to come across anyone offering employee fines as an incentive and, if my boss is reading this, I am not sure that it would go down well in practice.

If you would like to discuss employee incentives for your business please contact me (for a discussion of tax), or Emma Cameron in our corporate team.

The charitable sector is anyway facing cuts and pressures due to the economic situation, and frauds committed against charities and donors only serve to make matters worse.

Skilled workers from overseas who do not take home big salaries will have to satisfy strict criteria.  Fewer than 21,000 a year will be let in because of a new cap on the number of people coming to the UK for employment.

Applicants will need a “certificate of sponsorship” from a UK employer and they will be given points according to the rarity of their skills, for example scientists will be ranked highly. Employers filling a vacancy that attracts a salary of £150,000 or more will not be subject to the limit on the number of certificates that may be allocated.

For more information on this change, the press release can be seen here.

Looking at the bigger picture, the Government is sending out mixed messages.  On one hand, this will be welcomed by business leaders who are concerned about a brain drain from the UK.  This is clearly intended to encourage skilled immigration and to support both the knowledge based economy as well as the City.  On the other hand, HM Treasury have raised tax to 50% on the highest earners with hints from the Chancellor that the beneficial tax regime in the UK for resident non-domiciliaries (who will be the ones most interested in the above announcement) may be restricted. In an increasingly mobile global society, there are simply too many other choices and, put simply, tax is a large part of the equation when choosing where to live.

The Government needs to have a clear policy to increase the skill set (and therefore the wealth) of the UK through targeted and consistent measures.  It is not enough to simply fiddle with immigration quotas.

I don’t act for any sports leagues.  That’s not to say I wouldn’t be interested, if someone from the FA, for example, reads this.

However, I know that stories about sports are always of interest (hence the fact that the slightly esoteric question of proper taxation of image rights is now familiar territory to a large part of the general public), so here we go.  Here we go.  Here we go.  Sorry.

HMRC have issued a notice clarifying their view of the VAT treatment of commercially operated sports leagues in response to enquiries from a number of organisations that run football leagues.

Background

Typically, a sports league provider will do most or all of the following:

• organise a league
• allocate fixtures to teams in the league 
• provide pitches for teams to play on (some league providers own pitches, others rent them from other parties) 
• provide referees
• determine results
• keep and publish scores and league tables
• award trophies to winning teams 

Payments for such supplies are collected in a variety of ways. For example, the sports league provider may charge a one off ‘admin fee’ to teams plus a ‘match fee’ for each game that is played.

Taxation

Some leagues have put it to HMRC that the essential nature of their supplies is one of pitch hire.  This relies on a series of VAT cases which rule that when you have provide one main service and there are added services ancillary to this, the VAT treatment is that of the main supply.  Following this, the leagues would not have to charge VAT.

Unsurprisingly, HMRC disagree with this and I suspect that most fans would too.  The supplies made by sports league providers consist of a bundle of elements, which are integral to each other.  HMRC consider that it cannot be said that there is one principal element to which all others are ancillary.

So what is that main supply?  In HMRC’s view, the overarching supply is of participation in a sports league, not a supply of land, and therefore subject to VAT at 20%.

Conclusion

It seems that by raising this as a question, the leagues have forced HMRC to go public with their views.  Rather an own goal, I’d say.  Sorry, again.

It’s common sense really – don’t act until you are in full possession of all the facts.  The following is a tale of woe that shows what can go wrong if you don’t.

As was reported in accountingWeb, a Sunderland based accountant is facing prison time after being found guilty of tipping off a client about a police investigation.  The accountant received a police order demanding him to hand over some accounts.  Rather than reading the order to determine what this was about, the accountant read the first couple of paragraphs and then immediately telephoned his client to let him know that he was being investigated.

The court held that this was in breach of the Proceeds of Crime Act with the possibility that he will now face a custodial sentence.

This takes me back to school and an early experience with exams.  As my teacher told me then – don’t do anything until you’ve read the full question!  Sometimes the early lessons we learn are the most important.

Tipping off is a serious issue and is one faced by many professionals, in particular those dealing with Money laundering compliance.  It is imperative to understand your obligations under these rules, and as cases like this make all too clear:  ignorance is no defence.

HMRC will target 50,000 SME’s a year looking at business records going back over the last 6 years.  There is a legal obligation to keep adequate records, and failure to do so can give rise to fines of up to £3,000.  This is a change of practice from HMRC who historically have rarely imposed these penalties.

Overtly raising taxes at the moment is political death.  So HM Treasury have to look elsewhere for money.  This seems to be a case of rummaging down the back of the sofa for those extra bits of revenue.  However, for most SMEs – £3,000 is not small change.  Businesses need to ensure that they keep all relevant documentation in addition to their accounts, such as till rolls, cheque stubs, paying-in-slips, cash receipts, etc.

If you want to speak to a solicitor or accountant about your obligations please contact us.

We also offer a business healthcheck  service, which includes a review of your business documentation and compliance.  If you are interested in this please contact our corporate team.

Dom Buckley IRS Ltd v HMRC (2011)

The taxpayer did not account for VAT on the sale of a Ford rally car to a customer in Spain.  HMRC issued an assessment charging VAT on the sale, on the basis that this was a supply to a person in their personal capacity.  The taxpayer appealed, on the basis that the customer was a taxable person (i.e. in business).  On a review of the facts, the tribunal agreed with the taxpayer.

This case highlights the need for care in identifying who your customer is.  This is relevant especially when you are making supplies overseas since the identity of the purchaser will affect the rate of tax you charge.  The easiest way of determining whether or not someone is taxable is whether they are registered for VAT within the EU.  If you want to be sure then it is possible to check VAT registration here.

It is possible to be a taxable person without being registered for VAT so it is important to know the rules if you are involved in making overseas supplies.  The VAT rules on supplies within the EU changed last year and it is important to keep on top of changes to these developments.

On a separate (but connected) point, it seems that VAT fraud is on the rise, and that suppliers who are not registered for VAT are charging VAT e.g. on building works.  Essentially, they are upping the price by 20% and pocketing this as profit.  This is fraud against you and the Revenue.  Customers in doubt are advised to ask for details of VAT registration and either call HMRC or use the above link to check that it is real.

The exemption had meant that businesses in England with an empty property with a rateable value below £18,000 did not have to pay business rates. The government intends to lower the threshold from £18,000 to £2,600. Also, the government does not intend to re-introduce a 50% relief, and small firms will not be able to claim Small Business Rate Relief on the property.

The FSB have written to local government minister, Bob Neill, to protest that the changes could potentially put some small firms out of business. If the cuts cannot be avoided, the FSB claims, it would be better to provide per cent relief or at least to allow a business to claim Small Business Rate Relief on their empty property.

The press release can be viewed here.

Office parties

Staff Christmas parties are less common than they used to be. But maybe the fact that you can reclaim the VAT charged on the cost of providing hospitality for staff will provide some cheer and a little incentive to treat the staff to a night out.

Be careful not to invite spouses and partners though, since entertaining non-staff members won’t benefit from the same treatment! A small charge to non-staff members attending the function may allow for the VAT element of the cost to be recovered.

Xmas gifts

The VAT rules on business gifts allow input tax to be reclaimed (and no output tax liability will be incurred) if the total cost of gifts given to the same person in any twelve-month period is less than £50, and they do not form part of a series of gifts.

A recent case considered samples of free albums and singles given away by EMI to a number of different employees within their organisation. The question was whether the ‘small gift’ allowance of £50 related to the employer as ‘one person’ or each member of staff. The good news is that each employee was deemed to be a ‘person’, so the £50 condition was easily met.

Conclusion

So the message to all employers out there – be kind to your staff and shower them with food (but not their families!) and gifts (but not more than £50 worth!) and you will all be able to have a happier new year!

Ok, maybe not, but they will be increasing tax on some of the equipment for leisure activities – sailing and caravaning.  If you own (or want to buy) a caravan or a sailboat, HMRC have put out two press releases today that could be relevant to you.

Sailaway Boats

A VAT concession on sailaway boats will stop from January 2012 because it conflicts with EU law, HM Revenue & Customs (HMRC) announced today.

From 1 January 2012 VAT registered businesses will no longer be able to zero rate the supply of a sailaway boat to a UK resident who intends to keep it outside the EC.

Businesses can continue to zero rate the supply of a boat to a UK resident provided they either undertake to export the boat themselves or make all the arrangements for the export.

Following a recent legal decision HMRC is reviewing its concessions. The majority are being retained but a minority, after a period of notice, will end. This is because they are outside the scope of HMRC’s administrative discretion and it has not been possible or appropriate for HMRC to legislate these extra statutory concessions (ESCs) as they are contrary to EU law.

Caravans

Three VAT concessions for caravan owners will cease to apply from 2012 because they conflict with EU law, HM Revenue & Customs (HMRC) announced today.

Following a recent legal decision HMRC is reviewing its concessions. The majority are being retained but a minority, after a period of notice, will end. This is because they are outside the scope of HMRC’s administrative discretion and it has not been possible or appropriate for HMRC to legislate these extra statutory concessions (ESCs) as they are contrary to EU law.

From 1 January 2012 caravan owners will no longer receive:

• the recharge of business rates as outside the scope of VAT
• zero rate water and sewerage charges where actual consumption cannot be identified; and
• first time connection to utilities as zero rated for VAT.

The lower rate of corporation tax has a threshold of £300,000.  If you have two associated companies the threshold for each is reduced to £150,000.  If you have three, then the threshold reduces to £100,000 for each.  The same will apply to the upper threshold (£1.5m).

The case below shows how this rule can apply in quite unexpected ways.

Executive Benefit Services (UK) Limited v HMRC [2010] UKFTT 550 (TC).

The taxpayer company and its associated company had completely distinct businesses.  However, a shareholder of one was found to control both companies since he had become a loan creditor of the associated company for purely commercial reasons.  Essentially by virtue of lending the other company money (combines with a minority shareholding) he became entitled to the “greater part” of the company’s assets “available for distribution to participators”.

The First-tier Tribunal held that the associated company test applied irrespective of any tax avoidance motive in structuring a company’s financing and shareholdings. 

Conclusion

This is a good reminder of some of the mischief which can be caused by the associated companies rules. 

The facts here are clear that there was no tax avoidance motive, in fact the shareholder in question was clearly trying to help out his son (who was the owner of the second company).  The loan was interest-free with no fixed repayment date and with no other entitlements, such as voting control or a share of a distribution of profits in the event of a winding-up.  Despite all this, the tribunal held that the companies were associated and reduced the rate of tax for both companies accordingly.

This case is going to be of particular interest in these times when (as happened here) lenders are holding back the flow of credit and children are turning to the bank of Mum and Dad.  When Mum and Dad are themselves in business, they need to look very carefully at the position of both companies.

For more information please contact James Odds or Shimon Shaw on 01923 20 20 20.

Farmers can use red diesel now to help out during this extreme weather snap

HM Revenue & Customs (HMRC) confirmed today that during extreme weather farmers can use red diesel in their tractors to help grit and clear snow from public roads.

Under normal rules any vehicle that is specifically constructed or adapted for dealing with frost, ice and snow – such as a snow plough – can work on public roads while using red diesel.

HMRC recognises the vital role played by farmers in helping to keep rural roads clear. So during this period of extreme weather HMRC will adopt a pragmatic approach to the rules. This means tractors on public roads clearing snow or gritting to provide access to schools, hospitals, a remote dwelling, or communities cut off by ice and snow are entitled to use red diesel.

More details can be obtained by calling the Excise and Customs Helpline on 0845 010 9000.

The personal tax details for 2011/12 have now been released.  Some of the key points:

• The personal tax allowance will rise by £1000 to £7,475.
• The higher allowance for those aged 65-74 and aged 75 or more will both go up by £450 to £9,940 and £10,090 – though only if your income is less than £24,000 (up from £22,900 last year).  Over this the higher allowance tapers back down to the standard.
• Higher rate tax will begin to be paid on annual incomes above £42,475 which is £1,400 less than the limit this year (£43,875). Therefore higher rate tax payers will not gain from the £1k rise in the personal tax allowance.
• The 50% rate remains at £150,000 and the income at which the personal allowance begins to be clawed back remains at £100,000.  Anyone with an income between £100,000 and of £114,950 – when personal allowance disappears altogether – will be paying an effective marginal rate of tax of 60% on some of their income.

Tax returns for last year will be due in January.  If you need assitance in preparing your return, please contact James Odds on 01923 20 20 20.

HMRC v Airtours Holiday Transport Ltd [2010] UKUT 404 (TCC)

A large holiday company (My Travel Group) suffered financial difficulties, and arranged for PwC to liaise on its behalf with its banks, bondholders and other creditors.  The company reclaimed input VAT in respect of these services.

HMRC issued assessments to recover the tax, on the basis that the supplies had actually been made to the company’s creditors, rather than to the company itself.   Their contention was that since the company had not recevied the supplies (even though they had paid for them) the company would not not be able to recover VAT.  Since the creditors had not paid for the supplies they also could not recover the VAT.

The First-Tier Tribunal allowed the company’s appeal but the Upper Tribunal reversed this decision and found in favour of HMRC.

Comment

This case seems to be a victory for the taxman but a loss for professional advisers and struggling businesses.  Since VAT will be paid but not recovered this will make professional fees that much more expensive.

In light of this decision, professional advisers should assess their letters of engagement and billing arrangements to determine who, in truth their client is.

If you would like to discuss this with anyone please contact me or Carolyn Jones (in our Banking and Finance team) on 01923 202020.

The question to ask yourself as you quaff your bananas, blackberries, strawberries and boysenberries is: “Am I having a drink or am I eating food?”. 

Innocent think that they are food, HMRC think that they are drinks.

The tribunal found that the smoothies had ‘the consistency of a moderately thin soup’ but were intended ‘to be drunk from the bottle’.   What it came down to (as is so often the case for VAT) was the intention of the customer – since they were intended and sold as drinks, the products were within the definition of ‘beverages’.

Once again the VAT man leads the cutting edge of food technology and science.

I’m posting it since it’s amusing and with no reflection of whether or not I think it is accurate.  For one thing, if I have a hard time imagining the pub suggesting that they drop the price of beer by 20%, I don’t have words to describe my feelings as to the impossibility of the Govt dropping income tax by any amount at any time before they start campaigning for the next election!

Shimon

……………………………………..

Suppose that once a week, ten men go out for beer and the bill for all ten comes to £100.
If they paid their bill the way we pay our taxes, it would go something like this..

The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
And the tenth man (the richest) would pay £59.

So, that’s what they decided to do.

The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem.   “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.”  Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes.   So the first four men were unaffected. They would still drink for free but what about the other six men? The paying customers?  How could they divide the £20 windfall so that everyone would get his fair share?  They realized that £20 divided by six is £3.33 but if they subtracted that from everybody’s share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fairer to reduce each man’s bill by a higher percentage.  They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.

And so, the fifth man, like the first four, now paid nothing (a100% saving).
The sixth man now paid £2 instead of £3 (a 33% saving).
The seventh man now paid £5 instead of £7 (a 28% saving).
The eighth man now paid £9 instead of £12 (a 25% saving).
The ninth man now paid £14 instead of £18 (a 22% saving).
And the tenth man now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free.

But, once outside the bar, the men began to compare their savings. “I only got £1 out of the £20 saving,” declared the sixth man. He pointed to the tenth man, “but he got £10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a £1 too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get £10 back, when I only got £2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”  The nine men surrounded the tenth and beat him up.

The next week the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between all of them to pay for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.  Tax them too much, attack them for being wealthy and they just might not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics.

If you miss the deadline it could be costly, as paper returns filed after this date could mean a £100 penalty.

An alternative to paper-filing is to file your return online, which benefits from a January deadline.

If you would like assistance in preparing and filing your tax returns, please contact James Odds on 01923 202020 or james.odds@mablaw.com.

Two sisters had each made a will in 1991.  They had made mutual promises to each other and as part of that had agreed that the will of the survivor would not be altered so as to change those gifts.  The surviving sister did, in fact, alter her will in 2003 and the persons who would have been the beneficiaries under the surviving sister’s original will went to court (after her death) to ask the court to give effect to the 1991 will.

Neither of the wills contained any record that they had been made pursuant to an agreement between the sisters but it was apparent from the provisions of the wills that the terms had been carefully discussed and agreed.  The court was asked to apply the doctrine of mutual wills.

The court ruled that for the doctrine of mutual wills to apply there had to be what amounted to a contract between the sisters that both wills would be irrevocable and remain unaltered.  A common intention, expectation or desire was not enough.  The mere execution of mirror or reciprocal wills did not imply any agreement either as to revocation or non-revocation.  The agreement had to be established by clear and satisfactory evidence on the balance of probabilities.

In the light of the evidence, there had been an agreement between the sisters at the time they had made their 1991 wills.  They had made mutual promises to each other and it was part of those promises that the will of the survivor would not be altered so as to change those gifts.

This case, once again, highlights the importance of proper and qualified legal advice when drafting wills.  None of this would have been necessary if the sisters advisers had ascertained their intentions as to revocation, advised as to the effect of making mutual wills and ensured that any agreement they wished to make was clearly and accurately recorded.

If you want to speak to someone about making a will please contact Suki Sandhu or Emma Alford on 01923 202020 or email info@mablaw.com.

If you have a concern about your entitlement under someone else’s will please contact Amanda Melton on 01923 202020 or amanda.melton@mablaw.com.