Current Tax Update
Settlements legislation: the Arctic Systems case
The House of Lords will hear HMRC’s appeal against the decision of the Court of Appeal in the case of Jones v Garnett (Arctic Systems Ltd) in June 2007. This is the case concerning the Revenue’s application of the ‘settlements legislation’ to a husband-and-wife company, with the aim of treating the wife’s dividends as taxable on the husband.
Details of the case and the Court of Appeal judgement were included in our Tax Update for January 2006, and HMRC’s guidance in the light of that judgement was set out in February’s Tax Update. If you would like further information, please contact us.
Inheritance tax in Scotland
HMRC have issued new instructions regarding the payment of inheritance tax (IHT) in Scotland, where applications for a Grant of Confirmation in respect of a ‘taxpaying’ estate must have an IHT reference number allocated before payment is made.
The Capital Taxes Office (CTO) in Edinburgh should be contacted by telephone on any of the following numbers:
0131-777 4236
0131-777 4179
0131-777 4245
The CTO will allocate a reference number, and issue a payslip (showing the reference) and a reply envelope. A payslip and pre-addressed envelope will also accompany every IHT calculation issued after Confirmation has been granted.
Applicants for a grant of representation in England and Wales, or in Northern Ireland, do not need to obtain a Capital Taxes reference first unless they wish to use the Direct Payment Scheme, whereby some or all of the IHT is paid direct to HMRC from the deceased’s bank or building society accounts.
Stamp Duty Land Tax
HMRC’s Stamp Taxes Office is piloting a process of telephoning where they find instances of incomplete or contradictory information on Stamp Duty Land Tax returns, rather than issuing letters SDLT8 asking for clarification.
The stated aims are for land transaction certificates to be issued sooner and future returns more likely to be accepted first time.
Non-Resident Landlord Scheme
HMRC have moved their processing work in respect of the Non-Resident Landlord Scheme from Nottingham to Bootle. Application forms for non-resident landlords (other than HM Forces personnel and other Crown servants), companies and trusts who are applying for approval to have rents paid without deduction of tax, should in future be sent to:
HM Revenue & Customs
Residency
St John’s House
Merton Road
Bootle
L69 9BB
There is no change to telephone contact numbers, which remain 0845 070 0040 from within the UK (fax 0151-472 6067) and 44 151 472 6208 from outside the UK (fax 44 151 472 6067).
Any applications recently submitted to the Nottingham office will be forwarded to Bootle.
PAYE Online: agent authorisation
Forms FBI 2 for employers to authorise their agents to use PAYE Online services should in future be sent to:
HM Revenue & Customs
CAA Team
Longbenton
Newcastle-upon-Tyne
NE98 1ZZ.
PAYE Online: notices and reminders
HMRC have issued a reminder to users of the PAYE Online service that even if they only registered to file their Employer’s Annual Return online they will automatically get their PAYE notices and reminders online too, unless they have opted to receive notices by alternative means.
Employers and payroll administrators should therefore access and action their online notices regularly, as otherwise they run the risk of making incorrect deductions from employees.
Employers or agents who would prefer to continue receiving PAYE forms and notices by Electronic Data Interchange (EDI), magnetic media or paper, can opt out of receiving PAYE notices and reminders over the Internet.
Statutory sick pay and agency workers
HMRC will be appealing against July’s ruling by the High Court in the Thorn Baker case, and so will not be changing their published guidance on the subject of statutory sick pay for agency workers pending the Court of Appeal decision. In the meantime, however, the High Court ruling remains operative, namely that statutory sick pay (SSP) is not payable to agency workers whose contract with the agency is for a specified period of three months or less.
However, agency workers can become entitled to SSP if, in a single contract:
- they work longer than the original period specified and the total period actually worked exceeds three months; or
- the contract is extended for more than three months.
Agency workers whose contracts are for three months or less can also become entitled to SSP if two or more such contracts with the same agency are separated by eight weeks (56 days) or less, and any of the following applies:
- the total length of the contracts is more than 13 weeks;
- the total period actually worked becomes more than 13 weeks; or
- the contracts are extended so that together they can run for more than 13 weeks.
The High Court ruling applies to agency workers only. Other short-term contract workers are unaffected, and remain entitled to SSP.
Child Tax Credits v childcare vouchers
HMRC have put together a calculator to help employees decide whether they would be better off receiving tax credits or, instead, taking childcare vouchers from their employer to help with childcare costs.
This “Childcare Indicator”, which is not intended to be used to calculate the tax credit award, is being piloted by HMRC until the end of February 2007 and can be found on the HMRC website at http://ccincalculator.inlandrevenue.gov.uk.
Please contact us if you would like further information or advice.
Excise duty: cross-border shopping
HMRC report that the rules on cross-border shopping for alcohol and tobacco will remain unchanged following the recent judgment by the European Court of Justice (ECJ)in a case brought by the Dutch authorities, known as Joustra.
The ruling confirmed that for alcohol or tobacco bought from another EU country to qualify for the ‘private use’ exemption from excise duty in the UK, it must be for the purchaser’s own use and must be brought back to the UK by the purchaser personally. If the goods are not for the purchaser’s own use, or are transported by someone else on behalf of the purchaser, the goods and any vehicle used to transport them are liable to be seized by HMRC and may not be returned.
The Joustra case concerned a ‘wine circle’ of some 70 private individuals in the Netherlands on behalf of whom one of their number, Mr Joustra, would order wine in France over the Internet for his own use and that of the other members. On his instructions, that wine was collected from France by a Dutch transport company and delivers it to Mr Joustra’s home, where it was stored for a few days before being delivered to the other members of the circle. Mr Joustra paid for the wine and the transport, and each member of the group reimbursed him for the cost of wine delivered and a proportionate share of the transport costs. The quantity of wine delivered to each member did not exceed the maximum quantities laid down by the Directive on excise duty as a guideline for determining whether the products are intended for commercial purposes, and there was no suggestion that Mr Joustra engaged in this activity on a commercial basis or with a view to making a profit.
Nevertheless, the ECJ held that the private use exemption does not extend to products acquired by a private individual for the use of other private individuals. Furthermore, to qualify for exemption the products in question must be transported personally by the private individual who purchased them. If this were not so, the risk of fraud would increase since the transport of products covered by the exemption requires no documentation.
It was anticipated that a judgement in Mr Joustra’s favour would have led to a massive increase in Internet shopping for alcohol and tobacco from EU member states where the prices and rates of duty are lower than in the UK.
VAT: revised registration form
A revised VAT registration form (VAT 1) came into effect on 1 December 2006. The new form runs to just four pages, and there is a ten-page guidance note to help with some of the questions.
HMRC will continue to accept applications using the old form until 31 March 2007.
VAT: reverse charge accounting
HMRC had hoped to be able to introduce ‘reverse charge accounting’ on 1 December 2006 for businesses trading in mobile telephones, computer chips and certain other goods. However, because EU discussions about the necessary derogation are still continuing, the implementation date has had to be deferred. The Government still intend to introduce reverse charge accounting for these goods as soon as the derogation has been agreed, in order to counter attempted MTIC fraud, but in order to give businesses time to prepare HMRC will aim to give about eight weeks’ notice of the eventual start date in due course.
For more information on this topic, see our Tax Update for August 2006 or contact us.
Double taxation agreement with Macedonia
A comprehensive Double Taxation Agreement between the United Kingdom and Macedonia was signed in Skopje on 8 November 2006. The new Agreement will replace an existing Double Taxation Convention that was concluded with the Federal Republic of Yugoslavia on 6 November 1981. (Both the United Kingdom and Macedonia currently honour the existing Convention.)
The Agreement will enter into force once both countries have completed their legislative procedures. In the United Kingdom, the provisions of the Agreement will take effect from 1 April (for corporation tax purposes) and from 6 April (for income tax and capital gains tax purposes) in the calendar year following the date of entry into force. In Macedonia, the provisions will take effect from 1 January in the calendar year following the date of entry into force.