2013 August | Exchange Accountancy Services

Archive for August, 2013

Vodaphone settlement

Thursday, August 29th, 2013

In a previously unreported settlement with the UK Government, Vodaphone appears to have made a large payment to HMRC. The additional taxes related to the tax returns of an Irish subsidiary. Although the overall amount settled was not disclosed Vodaphone were required to reclaim approximately £57m from the Irish Government in tax that should have been paid in the UK.

For a four year period Vodaphone had used the Irish subsidiary to collect royalties from most countries and to remit more than one billion Euros of dividends to the low tax jurisdiction of Luxemburg. Vodaphone are reported as saying:

“In all respects and at every point, Vodaphone has conducted itself with the highest integrity and in full compliance with the law.

The settlement with HMRC related to a number of technical factors regarding inter-group transfer pricing arrangements.”

HMRC added:

“We do not comment on the affairs of individuals or companies, but we do ensure that multinationals pay the tax which is due under the law.”

Good news, exports on the increase

Wednesday, August 28th, 2013

The period April – June 2013 has seen positive economic growth for the second quarter. The economy expanded by 0.7%. Hopes of rebalancing the economy towards trade and investment were given a boost by an impressive 3.6% increase in exports in the same period.

However, the good news may too good for the Bank of England. It has pledged to hold the current low interest rates until unemployment drops below 7%. This is not expected to happen until 2016. The markets are now discounting a rise in interest rates as early as March 2015 on the basis that the economy is recovering faster than expected.

Business investment is also on the up, increasing by 0.9%; pay has increased by 2.6%, although this was distorted by delayed bonuses taken during April 2013; and household spending in the UK rose by 0.4%.

These statistics are by no means exceptional but they do point to a more encouraging outlook.

Economist warn that when the next election is past we will likely see Government returning to the reduction of Government expenditure; this will no doubt be a drag on any long term growth in UK trade and investment.

Partnerships and LLPs

Wednesday, August 21st, 2013

HMRC closed their consultation on the proposed changes to the taxation of partnerships and LLPs on 9th August.

Any subsequent changes will be introduced in the Finance Bill 2014, and be effective from 6 April 2014. Two possible changes are worth highlighting.

1. Disguised employment

HMRC aim to create a new concept for LLPs, a salaried member. They believe that the present presumption, that all members of an LLP are self-employed, has been abused. In effect, salaried employees have been elevated to member status and their previous employed status changed to self-employed status. In certain circumstances this can lead to significant National Insurance savings.

From April next year it is likely that this type of arrangement will be reversed.

2. Allocation of profits

The second area that HMRC want to tackle is the artificial allocation of profit and losses by partnerships with corporate members and schemes involving the transfer of profits between members with different tax status.

Many partnerships allocate profits to corporate partners in order to pay tax at the lower corporation tax rates. In this way the partnership retains more of its working capital.

Partnerships likely to be affected should start to reconsider their planning options, although it would be sensible to delay implementation of changes until the scope of the new legislation is confirmed.

Off-shore, online gambling to pay UK tax

Monday, August 19th, 2013

Online betting companies that have based their operations in offshore tax jurisdictions, to avoid Britain's gambling taxes, will be hit with a new levy to be introduced from December 2014. It is estimated that the new tax may raise £300m for the UK taxpayer.

The Government is to impose a 15% tax on operators in the £2bn remote gambling market. In a somewhat controversial approach, the UK will tax gambling revenues based on where the customer is located, rather than where the business is based.

Economic Secretary to the Treasury, Sajid Javid, said:

"It is unacceptable that gambling companies can avoid UK taxes by moving offshore, and the Government is taking decisive action to ensure this can no longer happen. These reforms will ensure that remote gambling operators who have UK customers make a fair contribution to the public finances."

The shift will affect some of the industry's largest players including: Ladbrokes, William Hill and Betfair, all of which have online operations based in Gibraltar, where taxes are levied at 1% and capped at £425,000.

If introduced, the 15% levy would mean that offshore operators are taxed at the same level as domestic internet betting companies.
 

New report from OTS

Thursday, August 15th, 2013

The Office for Tax Simplification has published a new list of tax issues for review. They include:

• Increasing the present £8,500 limit, below which employees (not directors) do not suffer benefit in kind charges. This limit was introduced in 1979 and was apparently based on the amount at which a married man started to pay higher rate tax. An inflation adjusted figure now would be close to £40,000. It’s unlikely HMRC would seek to increase the present limit to this level!

• Payrolling certain benefits so that tax is paid as the benefits are provided rather than at the end of the tax year.

• Changes to the cycle to work scheme.

There are also a number of suggestions to smooth the differences between the tax and National Insurance treatment of certain benefits.
OTS director John Whiting says:

“It is clear the current system for reporting expenses and benefits is simply not working well for employers or employees and also, in many cases, HMRC.

Time and again, through our workshops and in submissions, people have told us the rules around travel and subsistence, accommodation or HMRC admin, are causing them problems and costing them time.”

The Treasury will now have to consider whether the OTS proposals are worthy of serious consideration and new legislation.
 

Ten new tax dodgers

Monday, August 12th, 2013

Ten new tax defaulters have been added to HMRC’s rogues’ gallery. This follows the publication of twenty tax offenders’ details last year. So far only one of the original twenty has been caught.

HMRC has statutory authority to “name and shame” taxpayers who they consider to be deliberate tax defaulters. Generally speaking these are persons who have received penalties for:

• deliberate errors in their tax returns or

• deliberately failing to comply with their tax obligations.

HMRC may publish information about a deliberate tax defaulter where:

• HMRC have carried out an investigation and the person has been charged one or more penalties for deliberate defaults, and

• those penalties involve tax of more than £25,000.

However, their information will not be published if the person earns the maximum reduction of the penalties by fully disclosing details of the defaults.
HMRC will publish sufficient information to identify the deliberate tax defaulter, the penalties imposed for their deliberate defaults and the amount of tax on which those penalties are based.

HMRC publish this information once these penalties are final. A penalty becomes final on

• the day after the end of the appeal period if the person does not make an appeal, or

• the date when an appeal is finally determined, or

• the date when a contract settlement is made.

The law requires that HMRC do not publish any information about the person for more than 12 months from the date HMRC first publish it.  

When is sports sponsorship tax deductible?

Wednesday, August 7th, 2013

In a recent case heard by the Upper Tribunal, Interfish Ltd were denied tax relief for sponsorship payments made to a local rugby club, Plymouth Albion.

The sponsorship payments were significant; over £1.2m over a number of years. The payments were used to fund the purchase of players as well as propping up the club’s finances.

During the hearing it became apparent that Mr Colam, the managing director of Interfish Ltd, was a staunch supporter of the club and had personally purchased shares that allowed him a measure of influence at board level.

In their judgements both the First Tier and Upper Tribunal panels held that the payments had been made with a duality of purpose and not, as the law demanded, wholly and exclusively for the purposes of the company’s trade.

Accordingly, the payments to the rugby club were disallowed for corporation tax purposes. Readers who may be contemplating large sponsorship payments should ensure that they take advice before signing the cheque!
 

Bonuses increase Treasurys tax take

Monday, August 5th, 2013

In March 2012 George Osborne and his Treasury advisors took a risk. They announced that on 6 April 2013 they would be reducing the additional rate of income tax from 50% to 45%. The Treasury was criticised at the time because the expected tax take from higher income earners was expected to fall in line with the reduction in the 50% rate. What the pundits underestimated was the incentive that the rate reduction offered to release bonuses that were not taken in the 2012-13 tax year.

Official figures for the growth in annual earnings shows that in April 2013 bonuses were up over 60% on a year earlier. Additionally, receipts from income tax and capital gains tax in the first quarter, April – June 2013, increased from £30.8bn (April – June 2012) to £33.6bn.

A significant proportion of this increase can be attributed to income shifting – delaying bonuses for the 2012-13 year until the rate dropped on 6 April 2013.

This would seem to demonstrate that high income earners have far less resistance to paying tax at a marginal rate of 45% than 50%. It also lays the ghost that rails against tax decreases on the basis that this will inevitably lead to a reduction in taxes collected.

Taxation of loans to directors and shareholders about to change.

Thursday, August 1st, 2013

The Government have launched yet another consultation, this time they are considering changes to the way in which loans to directors and shareholders of small companies are taxed.

Currently, if these loans are unpaid at the end of the company’s accounting year, an additional corporation tax charge equal to 25% of the loan outstanding will be payable unless the loan is repaid within nine months of the accounting year end date. If a loan is repaid after nine months the 25% tax will be refunded – although the refund process can be a drawn out affair.

One alternative now being considered is to increase the 25% rate to 40% and levy an additional permanent charge of 5%, on either the balance outstanding at each year end or on the average loan balance over the year.

The intention would seem to be to discourage these types of loans and instead increase remuneration in the form of salaries or dividends.

Any changes are likely to be included in the Finance Bill 2014.