1 Nov 2013 11:25am

Weekly tax update

Our look at the technical updates and notices in the tax world this week

Disruption to real time submissions

HMRC has warned that the government gateway will be closed between 9am and 5pm on Sunday, 3 November, for planned maintenance. As a result, real time PAYE submissions will be affected.

Employers using commercial software or HMRC's Basic PAYE Tools will be unable to send their real time PAYE submissions during this time.

HMRC is advising employers to send their submissions before 9am or as soon as they reasonably can after the gateway reopens. It adds that, in this instance, there are no penalties for sending submissions.

EDI (electronic data interchange) customers will not be affected.

Compensating adjustment rules

HMRC has published an amended technical note on the “compensating adjustment” rules which came into operation on 25 October.

The government announced in September that it would clamp down on arrangement involving the rules (part of the transfer pricing code) whereby tax advantages can be secured by people extracting profit from connected companies while paying tax at corporation tax rates.

Following a brief consultation period, Treasury exchequer secretary David Gauke announced that legislation giving effect to the changes to the code would come into immediate effect.

The technical note contains draft legislation which will be introduced in the next Finance Bill. This implements the proposals in the discussion document but with two changes which have been made in response to the consultation.

The first change provides that the excess interest (over an arm’s length amount) is to be characterised for income tax purposes as a dividend. This means that the excess will be taxed at dividend rates, rather than at rates applicable to interest, reflecting the fact that the excess amounts perform in substance an equity function in the company.

The second change relates to the treatment of interest accrued but not paid at the time that the legislation takes effect.

Commentators argued that it would be disproportionate for those amounts to be affected by the proposed changes. They also argued that not exempting accrued interest would give rise to market distortions and unfair differences in tax treatment based purely on a company’s ability to access a limited funding pool.

The draft legislation therefore makes clear that interest accrued but not yet paid out will not be affected. 

Outstanding Class 2 NICs

From April 2014, HMRC may collect outstanding Class 2 national insurance contributions by adjusting the tax codes of taxpayers who are in PAYE employment or paid a taxable UK-based private pension.

HMRC says it has been sending payment requests since April this year to taxpayers who owe Class 2 NICs. These stated that if they didn’t pay up, HMRC would either collect the debt through their PAYE code or pass it to a private debt collection agency for recovery.

The request also included an insert telling taxpayers what they needed to do, including letting HMRC know if they had stopped being self-employed, which could explain why their payment request is wrong.

Taxpayers who did not pay or contact the department are likely to get an annual coding notice (P2) between January and March 2014. This will show the Class 2 NICs debt to be collected from April 2014.

HMRC says that if taxpayers do not want the outstanding debt to be included in their tax code, then they will need to pay the full amount now.

Disclosure of VAT avoidance schemes

HMRC has issued an updated version of Notice 700/8, Disclosure of VAT Avoidance Schemes. It replaces the notice issued in February 2006.

The new notice describes what to do when those who are registered for VAT enter into arrangements or transactions that are intended to give them or any other person a VAT advantage when compared to adopting a different course of action.

The update relates to legislative changes made since the last version of the notice to the meaning of “tax advantage”, the “duty to notify” rules, and the range of “listed schemes” and “hallmarks”. It also corrects some minor errors and expands on the guidance to help identify the schemes that must be notified.

VAT and exporting goods from the UK

An updated version of Notice 703, VAT - Exports of Goods from the UK replaces the one issued in August 2006.

The notice explains the conditions for zero-rating VAT on goods when they are exported from the European Community.

Updating agents

HMRC has published the October/November issue of Agent Update, (No 38), which contains a round-up of consultations, tax developments and initiatives.

more tax news and analysis from this week

Late tax returns drop one fifth

HMRC’s tougher penalty system has driven down the number of late tax returns by 21% in the last year

IFS warns of Scottish tax hikes

The Institute for Fiscal Studies has warned that an independent Scotland could be forced to make substantial tax increases to compete with the rest of the UK

Is the patent box doomed?

The UK's new patent box regime has had a troubled start

HMRC warned over tax codes

Incorrect tax codes mean one in three taxpayers could be in danger of paying the wrong amount of tax, according to UHY Hacker Young

HMRC officials warn Swiss tax revenue less than expected

Less revenue than expected from a UK-Swiss tax deal could leave HMRC “£2.5bn light” this year, according to chair of the Public Accounts Committee Margaret Hodge

Julia Irvine