Weekly Tax Update - Monday 18 February 2013

1 GENERAL NEWS

1.1 Regulation of will-writing, probate and estate administration activities

The Legal Services Board has recommended to the Lord Chancellor that will-writing activities should be made subject to regulation.

This recommendation concludes a two year investigation by the LSB. The investigation, under sections 24 and 26 of the Legal Services Act 2007, also considered the regulation of estate administration and probate activities.

The LSB's main conclusions are:

Will-writing activities

The LSB found comprehensive evidence that the market is not working efficiently - to the detriment of consumers and providers alike. Alternatives to statutory regulation have been tried but have not been successful. The LSB's recommendation, if accepted, will:

give consumers better protection and consistent access to redress by allowing access to the Legal Ombudsman for consumers of all will-writing providers; increase competition by creating a level-playing field between traditional law firms and new forms of service provider, making both subject to equivalent regulation; require regulators to develop proportionate and targeted approaches to supervising providers by identifying and targeting risks and taking swift enforcement action if things go wrong. Estate administration activities

The LSB considered carefully the reported risk of fraud in estate administration but has concluded based on the available evidence that statutory regulation would not be effective in preventing what amounts to criminal behaviour. The LSB is instead recommending a range of policy initiatives to raise standards and help the market work well for consumers including:

major providers working together to produce voluntary schemes to promote standards and provide minimum protections for consumers; improving the information available to consumers when they purchase these services to help them choose with confidence and understand potential risks. Probate activities

Probate activities are currently subject to regulation and the LSB has concluded that no additional evidence has been presented to warrant changing this.

www.legalservicesboard.org.uk/Projects/reviewing_the_scope_of_regulation/will_writing_and_estate_administration.htm

1.2 HMRC - Fraud Civil Investigation Manual (FCIM)

HMRC has now published the full online version of the FCIM which contains the guidance applicable from 1 January 2012 on the new Contractual Disclosure Facility offered under Code of Practice 9 for investigations where tax fraud is suspected. Under this disclosure facility, taxpayers are offered the chance to enter into a contract to disclose details within 60 days in return for civil, rather than criminal, investigation.

The manual replaces interim guidance issued in February 2012.

www.hmrc.gov.uk/manuals/fcimanual/index.htm

1.3 OECD report on Addressing Base Erosion and Profit Shifting

The OECD report on "Addressing Base Erosion and Profit Shifting" has been published. The accompanying press release is copied below.

12/02/2013 - Global solutions are needed to ensure that tax systems do not unduly favour multinational enterprises, leaving citizens and small businesses with bigger tax bills.

An OECD study commissioned by the G-20 finds that some multinationals use strategies that allow them to pay as little as 5% in corporate taxes when smaller businesses are paying up to 30%. OECD research also shows that some small jurisdictions act as conduits, receiving disproportionately large amounts of Foreign Direct Investment compared to large industrialised countries and investing disproportionately large amounts in major developed and emerging economies.

"These strategies, though technically legal, erode the tax base of many countries and threaten the stability of the international tax system," said OECD Secretary-General Angel Gurría. "As governments and their citizens are struggling to make ends meet, it is critical that all tax payers - private and corporate - pay their fair amount of taxes and trust the international tax system is transparent. This report is an important step towards ensuring that global tax rules are equitable, and responds to the call that the G-20 has made for the OECD to help provide solutions to the global economic crisis."

Many of the existing rules which protect multinational corporations from paying double taxation too often allow them to pay no taxes at all. These rules do not properly reflect today's economic integration across borders, the value of intellectual property or new communications technologies. These gaps, which enable multinationals to eliminate or reduce their taxation on income, give them an unfair competitive advantage over smaller businesses. They hurt investment, growth and employment and can leave average citizens footing a larger chunk of the tax bill.

The practices multinational enterprises use to reduce their tax liabilities have become more aggressive over the past decade. Some, based in high-tax regimes, create numerous off-shore subsidiaries or shell-companies, each time taking advantage of the tax breaks allowed in that jurisdiction. They also claim expenses and losses in high-tax countries and declare profits in jurisdictions with a low or no tax rate.

The report "Addressing Base Erosion and Profit Shifting" does not suggest optimal tax rates - each government decides its own. In the coming months, OECD will draw up an Action Plan, developed in co-operation with governments and the business community, which will further quantify the corporate taxes lost and provide concrete timelines and methodologies for solutions to reinforce the integrity of the global tax system.

www.oecd.org/ctp/beps.htm

1.4 Tax and procurement

HMRC has issued a document concerning how the Government will apply tax and propriety based criteria at the selection stage in their procurement processes.

Under the new policy, potential suppliers to central government for contracts advertised from 1 April 2013 above a threshold will have to self-certify, as part of the selection stage of above-threshold procurements, their recent tax compliance history. In addition, Contracting Authorities will ensure contractual documentation contains a standard clause enabling them to terminate a contract, at their discretion, if a supplier has had an 'occasion of non-compliance'. It also places a contractual obligation on the supplier to keep the Contracting Authority notified of changes in relation to tax compliance. Failure to do this will also trigger remedies including, potentially, termination of the contract.

The new policy will apply to:

UK and foreign suppliers participating in procurement exercises subject to the threshold; Sub-contractors performing a significant part of the contract; and Individuals and partnerships as well as companies bidding (whether individually or as part of a consortium or other wider body) for any contracts over the threshold value. An occasion of non-compliance occurs if:

Any tax return is found to be incorrect as a consequence of HMRC successfully taking action: under the General Anti-Abuse Rule (GAAR) to be enacted in Finance Bill 2013; or under any targeted anti-avoidance rule (TAAR); or under the "Halifax abuse" principle; or Any tax return is found to be incorrect because a scheme which the supplier was involved in, and which was or should have been, notified under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, has proved to have failed; or The supplier's tax affairs have given rise to a conviction for tax related offences or to a penalty for civil fraud or evasion. Where a return is amended, whether following the outcome of litigation or simply by agreement between HMRC and the taxpayer (by reason of GAAR, TAAR, etc.), that is also an "occasion of non-compliance".

It is proposed the timeframe for which 'non-compliance' must be considered cover a ten year history, although this is still under consideration. The time limit will apply to the date that the non-compliance is recognised (eg the date of a Court decision, or date when the return was amended) rather than the date that the particular arrangements were entered into or carried out.

www.hm-treasury.gov.uk/press_10_13.htm

1.5 Guidance on the tax treatment of dividends and distributions

HMRC has issued two guidance notes on:

the treatment of UK dividends and distributions received by individuals following a share capital reduction, to include its views on what may constitute new consideration received for a new issue of shares; and the treatment of overseas dividends and distributions received by UK companies. The notes can be found at the following links: www.hmrc.gov.uk/specialist/draft-amended-indiv-guidance.pdf

www.hmrc.gov.uk/specialist/guidance-payments-uk-companies.pdf

2 PRIVATE CLIENT

2.1 ISA Limits - 2013/14

With effect from 6 April 2013 the ISA subscription rates will increase as follows:

For individuals aged between 16 and 18, the overall annual subscription limit for an ISA account rises from £5,640 to £5,760; For all other qualifying individuals holding ISA accounts, the overall annual subscription limit rises from £11,280 to £11,520; and For holders of junior ISA accounts, the overall annual subscription limit rises from £3,600 to £3,720. 2.2 HMRC launches new taskforces

HMRC has announced three further taskforces to tackle:

fast food outlets in East Anglia, expected to recover £5m; the jewellery trade in the Midlands, expected to recover £2.5m; and tax evasion in Northern Ireland, expected to recover £3.45 million. 3 IHT AND TRUSTS

3.1 HMRC Post - Scanning post starts in Trusts & Estates

From 11 February 2013, if HMRC has opened an enquiry into a trust return or inheritance tax account then letters should be sent to Netherton, Merseyside to be scanned.

Trusts & Estates have joined the growing number of HMRC businesses who use the system called Caseflow. There will be a new postal address on some letters received from them, and a second...