Weekly Tax Update – Monday, 17 November 2014

1 GENERAL NEWS

1.1 Upper Tribunal (Tax and Chancery) has moved

The Upper Tribunal (UT) in London has moved from Bedford Square to the Rolls Building in Fetter Lane.

www.justice.gov.uk/contacts/hmcts/tribunals/tax-and-chancery-upper-tribunal

2 PRIVATE CLIENT

2.1 Distributions from non-UK resident companies

A First-tier Tribunal (FTT) has allowed a taxpayer's appeal that he is entitled to be treated, under ITTOIA 2005 s.399, as having paid income tax at the 10% dividend rate on distributions from non-UK resident companies. HMRC's view had been that such treatment only applied to distributions from UK resident companies.

In the case Philip Shirley v HMRC (TC/2012/11057), the Appellant's position was that the wording of the ITTOIA 2005 s.399 is clear and it applies to dividends received by UK resident individuals from non-UK resident companies. As such, he was entitled to be treated as having paid income tax equal to the ordinary dividend rate on distributions not qualifying for a 1/9 tax credit under s.397 (applicable to distributions from UK resident companies) nor, post FA 2008, the similar 1/9 tax credit under s.397A (for qualifying distributions from non-UK resident companies).

HMRC's position is that s.399 does not apply to UK resident individuals who receive distributions from non-UK resident companies. HMRC's view is that the alternative interpretation suggested would be against the overall purpose and rational of Chapter 3 and Part 4 of ITTOIA and that ITTOIA is a tax law rewrite statute and there was no intention to change the law.

In deciding the case the FTT looked at how legislation is to be interpreted and when and how antecedent legislation, ie that preceding the tax law re-write, can be referred to. The FTT found that the literal reading of the legislation is unambiguous and supported the Appellant's contention. In addition, as there is no difficulty in interpreting the literal words of the statute, and as there is no ambiguity, it could not consider antecedent legislation.

The impact of the decision will be less for the current in-date tax years than would have been the case prior to 2008/09, following the introduction of a 1/9 tax credit for qualifying distributions non-UK resident companies. However there are a number of unrelated open cases where EU law obligation questions have been raised regarding the restriction of the 1/9 tax credit under s.397 to only UK resident companies. It may be that the taxpayers in those cases might look to this as an acceptable fall-back position.

2.2 Updates to HMRC IHT manual

HMRC updated its IHT manual on 10 November to reflect:

changes in the rules of intestacy from 1 October 2014 onwards; HMRC current thinking and practices on lifetime transfers. Out of date procedural; guidance has been removed; and current practices and correct small errors. Some pages have been deleted, including all pages that begin with IHTM32, apart from IHTM32191

www.hmrc.gov.uk/manuals/ihtmanual/updates/ihtmupdate101114.htm

2.3 OTS review of penalties

The Office of Tax Simplification (OTS) has produced a report addressing inconsistencies and other issues in the application by HMRC of the tax penalty provisions introduced in Finance Acts 2007, 2008 and 2009. Its research revealed the regime itself was generally viewed as sound. Overall the OTS concluded that there needs to be the full post implementation review and assessment of where the regime could be simplified, together with a general review of whether the design features of the system are appropriate in an increasingly automated world. The OTS has made some 14 immediate recommendations, all aimed at improving the workings of the penalties system:

To have a facility for excluding from automatic inclusion in self assessment (SA) those receiving overseas pensions who were consistently below the tax threshold; To have a reminder in the on-line SA form for income tax that despite actually completing the information and making the payment, the on-line procedure for submission needs to be completed to avoid a late filing penalty; Further training and helpsheets on late filing penalties be provided for HMRC contact call centre staff; If zero income SA returns are submitted for two or more consecutive years, it is recommended that an automated letter is generated asking if the taxpayer still needs to be on the SA register; Further information be included in the January SA reminder letter, covering penalties for late submission, that a submission of the current return is required, and how to notify HMRC if a return is no longer required in future; Explanatory letters should accompany the summary information sent out on tax, interest and penalties owed; Currently, if not in the PAYE system the only way to pay overdue PAYE/NICs is by cheque in UK sterling. It is recommended that HMRC set up a system for taxpayers to pay the tax due by an alternative method such as credit card or bank transfer; HMRC provide further training for managers to emphasise their role in how penalties are applied and to get more consistency amongst their staff; Further examples be provided to staff on how to avoid errors when discussing penalty suspension; HMRC carry out assurance work on suspension of penalties for carelessness, aimed at achieving greater consistency across HMRC; HMRC investigates alternative methods of publicising the behaviours and suspension criteria so that staff gain a better understanding of how to apply these; HMRC review their guidance on 'special reduction' and put more emphasis on training in this area; The VAT register be examined...

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