Property tax evasion taskforce

Posted on December 14th, 2011

Earlier this month, HMRC announced the launch of a task force wit the brief of tackling “tax evasion on property transactions in Greater London”. The taskforce is to target cases where there is a deliberate failure to comply with the Option to Tax regime.

The Option to Tax regime basically allows the supply of land or buildings, normally exempt from VAT, to be subject to the VAT regime. This can have many advantages including the ability to recover any VAT incurred in making that supply. However, in common with many taxation regimes the rules, options and exceptions mean that it is important to review options in depth before making an decision. These complexities include how new buildings constructed on previously opted land are treated as well as the challenges of defining the curtilage of a building on opted land.

As with any taxation regime, there is a difference between the scope of tax evasion and effective tax planning. In announcing the new taskforce HMRC stress that the task force is only designed to catch those who have deliberately broken the rules. They say that honest businesses “have absolutely nothing to worry about.”

It does have to be said though that in effective tax planning the devil is in the detail and it can be this very detail which is initially missed in review. Any business therefore which finds itself under investigation by this or any other HMRC task force is well advised to consult with their accountant or tax solicitor at an early stage.

This property tax evasion team is the latest in a series of task forces being launched to cut down on tax evasion. Although it is initially concentrating on the London area there is a full intention to broaden the scope to take in other areas of the country at a later stage.

As tax mitigation specialists Newshams are able to give advice on how Option to tax can impact on a tax planning strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the potential tax implications of property transactions or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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14 December 2011

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EU Threatens Swiss deal

Posted on December 7th, 2011

At the end of August we reported on the historic Swiss-UK tax deal which was designed to put an end to tax evasion via Swiss investments whilst maintaining the cherished secrecy of such accounts. This deal was structured to include a one-off payment from Swiss banks to the UK followed by a regular collection of taxes by the Swiss authorities with those taxes being repatriated to the UK without revealing identities.

In September Germany signed a similar agreement with the Swiss authorities. However, the EU authorities have threatened the validity of these agreements, saying that they contravene European Law. Essentially the EU position is threefold in that:
a) The agreement is not as tough on tax evasion as the EU expects
b) The agreement is not compatible with EU rules on secrecy
c) The agreement is not in line with the existing EU-Swiss agreement and countermands the EU savings directive

The UK and German negotiators face a stark choice. On the one hand continuing with the treaties as they stand will result in the EU issuing a writ against the countries. On the other, should the Swiss not agree to a further relaxation on matters such as secrecy, the treaties could become void, resulting in the loss of £billions in uncollected taxes.

Earlier this week the EU tax commissioner announced that “The European Union is working with Germany and the U.K. to resolve their tax deals with Switzerland”. The Commissioner, Algirdas Semeta, went on to add “I see a strong willingness of both member states to solve the problem.”

Newshams will continue to take a keen interest in the progress of these negotiations and will advise their clients accordingly. Pending a resolution there may be some constraints on the advice given as to the advisability of investing in or withdrawing investments from Switzerland in view of this fresh level of uncertainty.

As tax mitigation specialists Newshams are able to give advice on how overseas investments may affect a tax planning strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the potential tax implications of investing overseas or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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07 December 2011

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The Autumn Statement

Posted on November 30th, 2011

The Chancellor ‘s Autumn Statement was, as expected, a fairly gloomy affair. Whilst observers were pleased to see the Office for Budget Responsibility still predicting growth (even if just 0.7%) next year; the depth to which we are dependant on Europe and the rest of the world was brought home in no uncertain terms.

From a tax and business planning point of view the statement has brought up a few noteworthy items. Some of these we will explore in more depth in the forthcoming weeks but in summary they are:
• Action to stop large firms from using complex asset-backed pension funding arrangements which meant firms being able to claim double tax relief
• The announcement of two further Enterprise Zones in Humber and Lancashire
• Capital allowances of 100% to encourage businesses into the Enterprise Zones in Liverpool. Sheffield, the Tees Valley, Humber and the Black Country as well as the North Eastern enterprise zone
• The introduction of an “above the line” research and development tax credit in 2013 for larger businesses
• Confirmation that the Corporate tax rate will fall to 25% from April
• New rules on taxation of foreign profits to encourage multinationals to come to the UK
• The end of low value consignment relief for companies in the Channel Islands
• Extending the Enterprise Investment scheme to help new start up businesses – so from April 2012 anyone investing up to £100,000 in a qualifying new business will receive tax relief of 50% regardless of their actual tax rate
• For those investing in a qualifying start up business in 2012 for one year only capital gains tax will be waived on that investment

From a general business perspective these more substantial measures are being implemented alongside more general measures such as:
• Changing TUPE, redundancy and health & safety regulations
• Encouraging businesses to take on young employees or apprentices
• Help with grants and loans for business
• Mobilising savings in pension schemes to help to pay for infrastructure projects
• Subsidising train fare increases
• Cancelling the fuel duty increase planned for January and cutting next August’s increase to 3p.
• Extending business rate relief

As tax mitigation specialists Newshams are able to give advice on how these new measures may affect a tax planning strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the potential tax implications of the Chancellor’s speech or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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30 November 2011

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HMRC targets those with homes overseas

Posted on November 23rd, 2011

The days when overseas property and investments were largely invisible to the UK tax authorities are well behind us. International treaties together with the availability of computerised records mean that HMRC are able to access vast amounts of information about our affairs across the globe.

One of HMRC’s latest targets relates to overseas homes. Initially the focus will be on those with overseas property and assets of between £2.5 million and £20 million. Those investigated will be asked to provide evidence of how overseas properties were financed. In addition, HMRC will be looking for proof that income from letting the property has been declared or that no income has been received.

As with any overseas investment, the tax implications in respect of income, allowances and capital growth vary depending on the countries involved. A simple wording change in a document or transfer of funds at the wrong time could lead to an unexpected tax bill. It is therefore vital that appropriate tax advice is taken at the outset to ensure that the tax implications are fully explored.

Just looking at one issue, those letting two overseas properties will normally be able to offset losses from one property against profits from the other. However, those with one property in the UK and one abroad cannot offset losses from one against the other. Structuring the property ownership appropriately is therefore extremely important when looking to mitigate tax.

Even without the complications of a second property abroad the need to receive appropriate advice in respect of overseas investments has been highlighted this week. HMRC have announced the formation of an Offshore Co-ordination Unit (OCU). With the brief of finding new ways to identify and tackle overseas tax evasion, the unit will bring together “a team of highly-skilled offshore analysts, technical tax experts and experienced investigators.” Initially concentrating on the recently signed UK-Swiss tax agreement, this team represents the first instalment in the appointment of 100 new offshore investigators.

As tax mitigation specialists Newshams are able to give advice on how international investments should be treated as part of an overall tax strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the potential tax implications of international investments or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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23 November 2011

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Funding for films

Posted on November 17th, 2011

The Prime Minister, David Cameron, has announced the extension of the film tax relief scheme until December 2015. The scheme, which in the past has helped to find projects such as the Harry Potter films and the currently in production James Bond film, provides tax reliefs of up to 25% of production costs.

To be eligible for the tax relief the production has to be certified as a British production. Reliefs are only available in production costs incurred within the UK and up to a maximum of 80% of the total cost. Companies operating at a loss are able to surrender the relief for a payable tax credit or use it to reduce company tax liabilities. Further details on the scheme are available via the HMRC website whilst the Treasury press release is available here

Industry experts say that the tax relief scheme can make films produced in the UK up to 40% cheaper than those produced in the US. Although the scheme will cost the UK an estimated £95 million per year this is more than balanced by the creation of £1.4 billion per year in GDP. In the tax year 2009/10 the scheme helped 208 films.

The decision to extend the scheme is partly down to its current success. With the help of the tax relief scheme London has become the third busiest city in the world for film production, behind New York and Los Angeles. Six major films are currently in production in the Capital with an average of 35 film crews on the streets each day; all generating jobs and revenue.

The continuing success of the British film industry is good news for those investing in films, either for direct investment or tax efficiency reasons. As tax mitigation specialists Newshams are able to give advice on how investing in films may help as part of an overall tax strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the potential tax advantages of investing in films or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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17 November 2011

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VAT and Compound Interest

Posted on November 8th, 2011

Those dealing with straightforward VAT input and output calculations may not be aware of the complexities of VAT when it comes to international transactions or the extent to which the European Court of Justice (ECJ) has an influence on more complex VAT questions.

In fact there are numerous occasions on which the UK tax tribunals need to refer tax and VAT matters to the ECJ to obtain a ruling on whether tax treatments comply with EU law. One such instance currently under decision is the calculation of interest payments in respect of overpayment of VAT. In UK law, any interest payment in respect of tax overpayments is deemed to be calculated on a simple interest basis. The ECJ have now been asked to rule on whether under EU law interest in respect of overpaid VAT should be calculated on a compound basis.

The question is further complicated by the need to clarify which court has jurisdiction over this matter with the Tax Tribunal and High Court potentially overseeing different aspects of the one consideration. The foremost case under consideration at present relates to an overpayment of tax by Grattan. In dismissing a claim by HMRC that elements of the case should not be referred to the ECJ, the tax tribunal ruled that “The substance of the question is whether the principle of effectiveness and/or the principle of equivalence would be offended if Grattan had to obtain (if successful in establishing a right to compound interest for overpaid VAT in the first place) part of its claim in satisfaction (to the extent of simple interest) under VATA 1994, ss 78 and 80, and the balance in a restitutionary claim before the English High Court.”

The outcome of the ECJ ruling is awaited with interest. This case highlights the potential complexities of tax matters and the need to consult a tax specialist when dealing with complex questions.

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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08 November 2011

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EU proposal for financial transaction tax

Posted on November 2nd, 2011

On 28 September 2011 the EU commission formally proposed to institute a common financial transaction tax (FTT). The tax is not expected to become effective until 1 January 2014, subject to the Council of Europe accepting the proposal.

Whilst day to day activities such as mortgages and insurance contracts would remain outside the scope of the tax, it would affect all transactions in financial instruments, such as bonds, shares and derivatives to which a financial institution is a party. Effectively the FTT is therefore a tax on the transactions of banks and finance houses. With share and bond transactions being subject to a 0.1% tax and derivatives at 0.01%, the FTT is expected to raise some €57billion per year.

However, as the majority of the affected transactions currently pass through London, it is expected that some 80% of the tax would be raised within the UK. For that reason, the UK has said that it will not support the tax unless it is implemented globally. The UK is not alone in condemning the FTT proposal. The European Banking Federation called the proposal “a nonsense” whilst Canada, the United States and China were among non-EU countries who opposed the idea of an FTT.

One key question still under consideration is how much the FTT would actually benefit the European economy. The UK already imposes a stamp duty on share transactions and if the FTT were to replace this then the income raised by such transactions would actually fall. In addition, auditors such as KPMG have highlighted the IT, reporting and compliance costs of the FTT. In fact the EU’s own financial model shows that the imposition of a 0.1% transaction tax could result in an overall drop in GDP of up to 1.76%. Newshams will be watching the evolution of this proposal with interest.

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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02 November 2011

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Business records and tax returns

Posted on October 14th, 2011

Self Assessment tax returns
With only a couple of weeks left to get paper self assessment tax returns in on time, HMRC are reminding taxpayers that if they do want to submit a paper return they need to do it soon. The rules on penalty charges have toughened up this year and taxpayers will be faced with a fine even if there is no tax to pay or they subsequently pay tax due on time in January. Bizarrely, if tax payers decide to file their returns on line but also send in a paper tax return which arrives after the 31 October deadline they will still be fined.

The alternative to paper filing is to file directly on line. This has the benefit of an extended 31 January deadline as well as instant acknowledgement of receipt of the return. Whichever method is chosen, it is important that deadlines are met or you may finish up facing instant penalties as well as further charges after 3, 6 and 12 months. A recent freedom of information request has revealed that this year 1.5million self assessment taxpayers were fined and experts expect the figure to be higher this time around as the regime gets tougher.

Business Records Check
HMRC have completed their initial business records assessment and have decided to extend the check from the initial eight areas of the UK into further key areas in the country. The initial exercise was commissioned to test the HMRC view that inadequate record keeping lead to underpayment of tax. Having found that 44% of businesses have problems with record keeping and 12% have seriously inadequate records, HMRC have decided to increase the number of full time staff employed on this exercise as they extend its scope across the country.

One area of concern which has been raised by accountancy bodies following the initial exercise is the perception of acceptable business records. In the past HMRC have accepted that depending on the business, a shoebox of receipts may be sufficient until the end of a tax year when all records should be brought up to date. The records check seems to be expecting receipts and payments to be entered on appropriate accounting spreadsheets on a regular basis throughout the tax year with adequate filing running alongside the data entry.

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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14 October 2011

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VAT and Salary Sacrifice

Posted on October 7th, 2011

The decision by the ECJ in the case of Astra Zeneca UK Limited v HMRC has had wide ranging implications for all businesses which offer employees benefits in return for salary sacrifices. The case revolved around the supply by Astra Zeneca to its employees of high street vouchers in return for a salary sacrifice. Prior to this case HMRC’s policy was that salary sacrifice did not count as consideration for benefits and therefore VAT did not apply. The ECJ has ruled that salary sacrifice does constitute consideration and therefore the supply of goods or services will attract VAT.

In its briefing note of 28 July 2011 (28/11)*, HMRC confirmed that it would apply the ECJ decision for salary sacrifice schemes with effect from 1 January 2012. Whilst the ruling applies to all salary sacrifice schemes the briefing note mentioned some schemes in particular where employers need to be careful about the implementation of the new ruling. These include:
• Cycle to work schemes
• Face Value vouchers
• Childcare vouchers
• Food and catering provided by the employer
• Benefits provided without consideration being payable
• Motor vehicles

More recently HMRC have given employers some leeway in implementing VAT for salary sacrifice schemes. Its briefing note of 3 October 2011 (36/11)** has listed a set number of circumstances in which employers may delay the accounting for VAT. These only apply to schemes which were in existence on or before 27 July 2011 and which are due to run past 1 January 2012. HMRC have confirmed that these schemes may continue to run free of VAT until the earliest of:
• A fixed term or fixed number of payments agreement expires
• The date of an employee’s annual salary review
• The date of any other review or renegotiation including changes in an employment contract

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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07 October 2011

*http://www.hmrc.gov.uk/briefs/vat/brief2811.htm
**http://www.hmrc.gov.uk/briefs/vat/brief3611.htm

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The Tax Gap

Posted on September 28th, 2011

There is a famous saying about lies and statistics which is often quoted when anyone doesn’t want to believe the statistics they are being presented with. Indeed, it is true that how you present statistics is as important as the statistics themselves. A recent science experiment on the television presented participants with two plates of bacon sandwiches. One was labelled words to the effect that “eating these will increase your risk of cancer by 20%”; the other label said that “eating these will increase your risk of cancer from 5-6%”. Both labels actually said the same thing. The background incidence for the particular type of cancer was 5 in every 100 or 5%. Eating a lot of processed meat gave an increased risk up to 6 in every 100, or 6%. So eating the bacon did raise the risk from 5% to 6% which was a 20% increase. Guess which plate of sandwiches went first?

Those analysing HMRC’s announcement on the tax gap recently may have had cause to wonder about the use of statistics and how much of the tax gap was fact ad how much extrapolation. In essence, the tax gap is the difference between how much the Revenue expects to collect and how much it manages to collect. Figures for the year 2009-10 show a drop of some £4billion over the previous year to £35billion, or 7.9% of liabilities.

Whilst the gap undoubtedly exists and is partly due to tax evaders, the fact that a large chunk of the reduction, £3.2billion, has been attributed to the fall in VAT from 17.5% to 15% does give rise to some concern on just how accurate are the extrapolations from nationally collated figures. Nevertheless, the figures make interesting reading, when compared on a like for like basis with previous estimates. HMRC attributes almost 50% of the gap to SMEs, around a quarter to larger businesses with the remainder being split between individuals (11%) and criminal activity (17%). It is easy to see therefore why HMRC have been placing such an emphasis on SME activity in the past year.

As tax mitigation specialists Newshams are able to give advice on how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.

Contact us now on 020 7470 8820 and ask to speak to a tax adviser about how we can reduce your tax costs or e-mail us at enquiries@newshams.com and we’ll get straight back to you.

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28 September 2011

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