Weekly Tax Update - Monday 30 January 2012

1. General news

   1.1. EC reference to ECJ concerning the UK's restriction of the limitation period in old actions for mistake of law to direct tax

   The European Commission has decided to refer the United Kingdom to the EU's Court of Justice for abolishing the "remedy for repayment of taxes paid in mistake of law" without proper transitional rules. On 30 September 2010 the Commission formally requested the United Kingdom (IP/10/1251) to ensure compliance with the EU rules, but the latter refused to change its law. The September 2010 request took the following form:

   The European Commission has formally requested the United Kingdom to change its Finance Act 2007 to ensure that the abolition of the "remedy for repayment of taxes paid in mistake of law" is subject to proper transitional rules. Under EU law, the reimbursement of taxes paid in violation of EU rules should be granted according to the national rules on internal tax reimbursements and should not be made impossible or excessively difficult. A retroactive limitation of the rights of taxpayer in this respect contravenes this principle. The request of the Commission takes the form of a 'reasoned opinion', the second step of an EU infringement procedure. In the absence of a satisfactory response within two months, the Commission may refer the United Kingdom to the EU's Court of Justice.

   The UK's Finance Act 2007 [FA07 s107] retroactively abolishes one of the remedies used by taxpayers seeking reimbursement of taxes paid in breach of EU law, thereby preventing the exercise of rights conferred by EU law in certain cases. This measure seems to exceed the limits of national procedural autonomy stemming from Article 4(3) of the Treaty on the European Union.

   Since the limitation period introduced does not provide for any proper transitional rules (except in certain circumstances), it is therefore almost impossible to exercise the rights conferred by EU law.

   Finance Act 2007 s107 excluded s32(1)(c ) of the Limitations Act 1980 (extended period for bringing action in case of mistake) from any action brought before 8 September 2003 for relief from a mistake of law relating to tax under the care of HMRC.

   Since the limitation period introduced does not provide for any transitional rules (except in certain circumstances), it is therefore almost impossible to exercise the rights conferred by EU law in the area of direct taxation. This is particularly true for cases that were initiated before 2007 concerning taxes paid more than six years ago.

   http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/64&format=HTML&aged=0&language=en& guiLanguage=en

   1.2. The Government's power to retroactively modify the rate of feed in tariff

   The Court of Appeal has upheld a 21 December 2011 decision at the High Court that the government had no power to retroactively reduce the tariff rate to be paid in respect of certain solar PV installations.

   An October 2011 consultation proposed the tariff rate to be paid in respect of solar PV installations which become eligible for payment on or after 12 December 2011 should be reduced on 1 April 2012. The rate is fixed by reference to the year in which the installation becomes eligible, which at the time of this appeal (to the High Court) is 1 April 2011 – 31 March 2012, (known as "FIT Year 2"). But the proposal is to vary and reduce that rate at the end of the current year, not merely in relation to installations becoming eligible after the modifications come into effect but also in respect of those which became eligible in the three and a half months before the modifications are brought into effect. It should be stressed that it is proposed that those installations which became eligible on or after 12 December 2011 will receive the higher FIT Year 2 tariff until the modification comes into effect on 1 April 2012, but thereafter they will receive the new lower rate.

   Lord Justice Moses (with whom Lord Justices Richards and Lloyd agreed) concluded the Government had no power to introduce a modification which reduced a rate fixed by reference to an installation becoming eligible prior to the modification. However he differed with the High Court (Mitting J) as to the reason.

   I do not base my decision on the basis that changes by reference to a date earlier than 1 April 2012 are not calculated to further the statutory purpose. It is unnecessary to expand on my reasons for rejecting that approach. As I have already indicated, I can well understand why the Secretary of State would seek to prevent a surge in small solar PV systems prior to the introduction of a modification which reduces the Tariff rate. I am not sure it would be open to a court to say that that is not calculated to further the statutory purpose. But that is not the question. The question is whether the Secretary of State has power to do so. In my view, he plainly has no such power. Mitting J's second reason was expressed as follows:-

   "The whole tenor of the Scheme is prospective. I cannot discern in it a clear Parliamentary intention to permit the Secretary of State to make a modification which has a significant adverse impact on those proposing to install small-scale assistance before the date on which the modification is made and comes into effect."

   The quest, in my view, is to identify a clear Parliamentary intention to take away an existing entitlement to a fixed rate of return for capital investment incurred by a small-scale low-carbon generator. The question, I respectfully suggest, is not whether the proposed modification may have a significant adverse impact on those proposing to install small solar systems once the proposal was announced, but rather whether Parliament conferred a power to make a modification with such a retrospective effect. It did not. In these circumstances, it is not necessary to rule on the arguments concerning abuse of power raised in the Respondents' Notice. In the light of the terms of Mitting J's conclusion, I would grant permission. But I would refuse this appeal.

   www.bailii.org/ew/cases/EWCA/Civ/2012/28.html

2. Private Clients

   2.1. Self Assessment deadline - late filing penalty

   HMRC has announced that, because of the strike action planned by HMRC staff on 31 January, no penalties will be charged for the late filing of 2010/11 tax returns provided they are submitted electronically before midnight on 2nd February.

   The press briefings were related to the acceptance of reasonable excuse appeals, against late filing penalties, and a blanket late filing penalty amnesty to avoid the costs and time in looking at individual cases.

   The note that then appeared on the HMRC website said that "The SA deadline remains midnight on 31 January. But HMRC will treat all returns that come in by midnight on 2 February as though they were submitted by 31 January. No customer will have to pay interest on payments due on 31 January that are paid on 1 or 2 February."

   HMRC has confirmed that it will stand by this statement, which will mean that although a return submitted on 1 or 2 February is late, HMRC will treat it as filed on time so that, not only will no penalty arise, the return enquiry window is not extended. This goes beyond what was said in the press briefings.

   This extension beyond the normal filing date of 31 January should be viewed with care because it only applies for the purposes of the late filing penalty and the return itself. There are some time critical claims and elections that might be included in a tax return, such as the carry-back gift aid relief, which have to be made by the normal filing date of the return which are not being extended.

   It should be noted that, because of a decision made by the Special Commissioners in the case of Steedon v Carver heard in 1999, the deadline for avoiding a penalty for filing a self assessment return late has in practice always been 1 February. In other words it appears that for this year only this deadline has been extended by a further 24 hours.

   2.2. Resident or non-resident

   In the case of Dr Paul Broome v Revenue & Customs [2011] UKFTT 760 the First Tier Tribunal had to consider whether Dr Broome was resident in the United Kingdom at any time during the tax year ended 5 April 2001 and whether Dr Broome was chargeable to capital gains tax on the disposal of two...