Weekly Tax Update - 22 April, 2013

1 GENERAL NEWS

1.1 Updated guidance on the general anti-abuse rule (GAAR)

Updated guidance (approved by the interim Advisory Panel) on the general anti-abuse rule was published on 15 April 2013. The guidance now covers:

Purpose, summary and specific points (parts A, B and C, which expand the previous part A guidance on scope) Examples: part D, expanded to cover 36 examples, and a section on the transitional application rules. This section now includes three examples on PAYE & NIC, though nothing on share schemes. The previous guidance on examples was known as part B and covered only fifteen examples. Procedure (now part E, previously part C). The examples aim to cover the following broad categories:

Straightforward legislative choices (situations envisaged by statute and where Parliament has given taxpayers a choice, such as the main residence election); Long established practice (arrangements that have become embedded into tax or business practice, for example a listed company seeking to return funds to shareholders and giving them a choice as to whether those funds are returned as capital or income); Situations where the law deliberately sets precise rules or boundaries (where taxpayers can assume they are on the right side of the line if they have satisfied the statutory condition and there is no contrivance about what they have done); Standard tax planning with some element of artificiality (moving more obviously into GAAR territory, though very much dependent on facts and circumstances. Examples of being on the right side of the line here are the examples concerning late paid interest and BMBF v Mawson in the context of corporation tax); Transactions demonstrably contrary to the spirit of the law (the case of Mayes is mentioned here); Contrived or abnormal arrangements that produce a tax result not in any way consistent with the legal effect and economic substance of the underlying transaction (the case of Mayes is mentioned for this category too). www.hmrc.gov.uk/avoidance/gaar-part-abc.pdf

www.hmrc.gov.uk/avoidance/gaar-partd-examples.pdf

www.hmrc.gov.uk/avoidance/gaar-parte-procedure.pdf

1.2 Scottish Landfill Tax

A bill has been introduced in the Scottish Parliament that makes provisions for a Scottish tax on disposals to landfill, to be called the Scottish Landfill Tax. The intention of the UK Government is that the provision in the 2012 Act disapplying the UK Landfill Tax regime from Scotland will be brought into force with effect from the end of March 2015 by a Treasury Order in the UK Parliament.

www.scottish.parliament.uk/parliamentarybusiness/Bills/62160.aspx

1.3 Spotlight - stripped bond tax avoidance scheme

The following note has appeared on HMRC Spotlights:

The First-tier Tribunal has ruled in HMRC's favour in two cases involving similar products marketed by banks as investments.

The cases concern 'Flexi-notes' supplied by Kleinwort Benson and STICS (Sterling Investment in Capital Security) supplied by UBS.

Broadly speaking, the banks sold bonds which had been 'stripped' of their interest coupons to their clients at a discount. Later, their clients would either sell the bonds back to the bank at a higher price or redeem them at maturity. The banks sold the products to give a relatively safe interest-like return 'tax free' but the tribunal ruled in both appeals that the return (the profit) was taxable as income.

As a result of HMRC's enquiries, the vast majority of people who took up these products have already agreed that the income they received from these products is taxable and have paid the tax due in full. Following these tribunal decisions, HMRC will now seek full payment of the tax due plus interest from the small number of users who have yet to concede.

Similar products were marketed by other banks. HMRC considers that the return made by investors in respect of all of these 'stripped bond' products is taxable as income. Finance (No. 2) Act 2005 brought in legislation which put the position beyond doubt.

If you've used this scheme and wish to minimise any potential interest (and penalties - were HMRC to find you had been careless), you should contact HMRC on either Tel 0161 261 3013 or Tel 0161 261 2193.

www.hmrc.gov.uk/avoidance/spotlights.htm

2 PAYE AND EMPLOYMENT MATTERS

2.1 Voluntary NI contributions

Social Security (Contributions) Regulations 2001 (SI2001/1004) makes provision, amongst other things, for the payment of voluntary National Insurance contributions (voluntary Class 2 and Class 3) to be made, subject to certain conditions, within a period of six years from the contribution year to which they relate. Amendments were made to extend the period of time in which to make voluntary contributions for contributors who will reach pension age on or after 6th April 2017, and as a consequence of the unavailability of pension statements between 2013/14 and 2016/17 (inclusive), will not be in a position to make an informed decision regarding payment of voluntary contributions for the tax years 2006/07 to 2016/17.

As a consequence of the introduction of the Single Tier Pension being brought forward to 2016, it is necessary to make provision to enable voluntary contributors who will reach pension age on or after 6th April 2016 to be able to take advantage of the extended period. SI 2013/718 makes this change.

www.legislation.gov.uk/uksi/2013/718/pdfs/uksi_20130718_en.pdf

3 BUSINESS TAX

3.1 Deductibility of loan relationship debit arising on a change from UK GAAP to IFRS

The First-tier Tribunal has concluded that a significant accounting debit (€83.8m) arising on a loan relationship, recognised on a change from UK GAAP to IFRS, was deductible for tax. It concluded that the accounting was correct and that the unallowable purpose rule was not triggered.

Fidex Ltd (Fidex - a UK company in the BNP Paribas SA group) and its holding company Fidex Holdings Ltd (FHL) were an off balance sheet group whose purpose was to issue commercial paper in the capital markets...