Technical
24 Jan 2014 11:55am

Weekly tax update

Technical updates and notices in the tax world over the last week

Modernising the taxation of corporate debt and derivative contracts

Changes will affect members of partnerships that hold loan relationships. Legislation will be introduced in Finance Bill 2014 to amend the rules in Chapter 9 of Part 5 of the Corporation Tax Act 2009 (‘CTA 09’) that apply to partnerships with company members. The changes will consolidate the loan relationships rules in Part 5 of CTA 09 that apply to such partnerships, and establish a general principle that all the rules that apply in relation to companies that are party to loan relationships also apply to corporate partners in firms that are party to loan relationships.

At Budget 2013 the government announced a review of the legislation governing the taxation of corporate debt and derivative contracts. On 6 June 2013 a consultation document Modernising the taxation of corporate debt and derivative contracts was published, and informal consultation has continued since then. The government’s response to the consultation was published on 10 December 2013. This measure is being introduced in Finance Bill 2014 in advance of the main changes arising from the review, which will be included in Finance Bill 2015.

This measure will have effect on and after the date of Royal Assent for Finance Bill 2014.


Artificial use of dual contracts by non-domiciles

UK resident non-domiciles paying tax on the remittance basis who use separate employment contracts for UK and overseas duties with the same or associated employers. In most cases separate contracts will have been artificially arranged in order to obtain a tax advantage. The measure will tax non-domiciles on the overseas employment income it identifies according to the ‘arising’ basis. In other words, the income caught by this measure will cease to be eligible for remittance basis tax treatment.

This measure is designed to target and prevent contrived arrangements by high earning UK resident non-domiciled individuals who create what are typically artificial divisions between the duties of a UK employment and an employment overseas in order to obtain a tax advantage.

This measure was announced at Autumn Statement 2013. Draft legislation was published for technical consultation in January 2014, with a view to inclusion in Finance Bill 2014.

This measure will have effect for general earnings from an overseas employment, income from overseas employment-related securities and overseas employment income provided through third parties arising on and after 6 April 2014.


Avoidance schemes using total return swaps

The government has updated the draft legislation it had published with immediate effect from 5 December 2013 on avoidance schemes using total return swaps.

Modernising the taxation of corporate debt and derivative contracts

The government has published draft legislation and supporting documents on modernising the taxation of corporate debt and derivatives contracts. The draft legislation will be open for technical consultation until 14 February 2014.


Artificial use of dual contracts by non-domiciles

On 16 January 2014 the government published draft legislation and supporting documents on the artificial use of dual contracts by non-domiciles. The draft legislation will be open for technical consultation until 13 February 2014.


Consultation of draft regulations on donation hand over time

HMRC is consulting on draft regulations to reduce Payroll Giving donation hand over time. In most cases, these new regulations would require Payroll Giving Agents to hand over donations to charities within a maximum of 35, instead of, 60 days. The Charitable Deductions (Approved Schemes) (Amendment) Regulations 2014

HMRC has published draft regulations in response to the government’s response to the earlier consultation on improving Payroll Giving included a commitment to reduce donation hand over time from 60 to 35 days:

The Charitable Deductions (Approved Schemes) (Amendment) Regulations 2014 Explanatory Memorandum (PDF 26K)

The Charitable Deductions (Approved Schemes) (Amendment) Regulations 2014 (PDF 20K)


Tax Information and Impact Note - Payroll Giving: reduction in donation hand over time

The note can be found here - comments on this should be sent by 18 February 2014


Draft guidance on changes to the 'bond fund' rules to be included in Finance Bill 2014

Draft guidance on changes to the 'bond fund' rules (sections 490 to 497 Corporation Tax Act 2009) has been published. This guidance supplements draft Finance Bill 2014 legislation published for technical consultation on 17 January 2014. Comment on the draft legislation is invited by 14 February 2014. Finance Bill 2014: January 2014 draft legislation (Opens new window)


Landfill and gaming machines – repayment of claims

HMRC has published two Revenue & Customs Briefs. The first, 02/14, is an update for landfill site operators and their advisers and sets out HMRC’s changed approach to claims for repayment of tax in the light of the Court of Appeal judgment in Commissioners for HMRC v Waste Recycling Group (WRG) Ltd.

The decision, which was published in 2008, found in favour of WRG. The judges decided that where material received on a landfill site is used on the site for the daily coverage of sites required under environmental regulation and construction of on-site haul roads, it is not taxable because it was not, at the relevant time, being disposed with the intention of discarding it.

HMRC initially interpreted the judgment as meaning that any materials put to use on a landfill site were not taxable, and invited claims for repayment of tax accordingly. Two briefs published in 2012 further clarified the circumstances in which HMRC would consider claims for tax repayment. In both, it was confirmed that material referred to by some as the “reverse or top fluff layer” constituted careful placement of soft waste which is (and always has been) liable to landfill tax. This is because the waste material is disposed of with the intention of discarding it and the disposal does not constitute a use of that material.

HMRC’s decision to treat “top fluff” as material liable to landfill tax has been challenged by some landfill site operators. A hearing at the First Tier Tax Tribunal is now pending. In preparation, HMRC has reviewed its approach to claims received relating to the WRG judgment and has now announced changes to how such claims will be handled in future.

As far as side and base fluff claims are concerned, HMRC says it will not make any further payments of claims but will not seek to reclaim any payments previously made. Where reverse or top fluff claims are involved, it will resist any claims for repayment of tax. “It cannot be inferred from payment of any ‘base and side fluff’ claims in the past that HMRC accept that material was being used, nor can any favourable inferences be drawn in the case of ‘reverse or top fluff’ from the fact that these payments were made,” it adds.

The second brief, 01/14, explains HMRC’s intention to recover amounts paid out in respect of overpaid VAT on gaming machine takings following the Court of Appeal decision in HMRC v The Rank Group plc.

The Court decided in favour of HMRC in relation to machines, including multi-player terminals, previously found to have not fallen within the legal definition of a gaming machine. The Court found that these machines did fall within the definition and so their takings at the time were taxable at the standard rate of VAT in the same way as other gaming machines and there was no breach of fiscal neutrality.

Rank has applied to the Supreme Court to hear an appeal but in between times HMRC says it will recover all amounts that were paid out to meet claims.


VAT phishing scam on agents warning

HMRC has issued a warning about a recent sophisticated email “phishing” attack which targeted tax agents. It was designed to extract the secure login details of taxpayer accounts to enable the submission of bogus VAT repayment claims.

The problems have now been resolved for those agents that were caught by the scam but other agents are being advised to remain vigilant.

According to HMRC, the fraud involved identity theft via malicious software (mainly disguised in “phishing” emails) sent to some tax agents. It was designed to extract the secure login details of customer accounts to enable the fraudsters to submit bogus VAT repayment claims.

“Sophisticated malicious software can evade even the latest security controls in some cases, targeting the login credentials for a variety of financial services,” the HMRC warning brief said. “These can be very challenging to detect. IT security can be a technically challenging area:

By ensuring computer updates are applied and your web browser/security software is up to date, you can mitigate the vast majority of threats, but sadly not all. Please continue to maintain your vigilance in this regards.”

HMRC advises agents to make sure, if they haven’t already done so, that their anti-virus, anti-spyware and firewall software is fully up to date. They should then carry out a full computer scan using their software to make sure their computer is clear of computer viruses.

They should review the list of people with access to the computer or network used to access HMRC’s systems, and make sure confidential data such as passwords and credentials are secure and not shared with others.

HMRC also strongly recommends that agents change all passwords used for government transactions or services at least once every three months.


Other headlines

Tax judicial review cases rocket

UK/Swiss tax deal flops 

Dodwell new CIoT VP

Morrison’s head of tax held over insider dealing case

Tax of partnerships an “afterthought” 

HMRC to review bitcoin tax status  

Low tax systems win foreign investment race 

Director hides in closet from HMRC 

Londoners pay the penalty of late filing

Julia Irvine

Helen Roxburgh

 

Topics