Weekly Tax Update - Monday 7 January 2013

1 GENERAL NEWS

1.1 UK/US FATCA agreement

On 18 December HMRC published a response document, draft regulations and guidance following earlier consultation on the implementation measures for the US/UK FATCA agreement. Comment is invited by 13 February 2013.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document& columns=1&id=HMCE_PROD1_032480

www.hmrc.gov.uk/budget-updates/march2012/draft-dpa-fatca-faqs.pdf

www.hmrc.gov.uk/drafts/uk-us-fatca-regulations.pdf

www.hmrc.gov.uk/drafts/uk-us-fatca-guidance-notes.pdf

1.2 HMRC Digital Strategy

In November 2010 the UK Digital Champion published a report on how Government should deliver its digital and internet services in the future. The report set out how government should transform its digital services and use of the internet so that public services are provided digitally 'by default'. Key to this approach is that non-digital solutions to service delivery are only implemented by exception.

HMRC has published a report on its digital strategy setting out 22 ways in which HMRC will make its digital services straightforward, convenient, and the channel of choice for customers.

www.hmrc.gov.uk/about/2012-digital-strategy.pdf

2 PRIVATE CLIENT

2.1 Statutory residence test

HMRC has published draft guidance on the application of the statutory residence test and eligibility for overseas workday relief.

www.hmrc.gov.uk/budget-updates/11dec12/stat-res-test-note.pdf

www.hmrc.gov.uk/budget-updates/11dec12/stat-res-test.pdf

2.2 Personal representatives and agent authorisation

HMRC has changed its processes to accept a form 64-8 for a deceased customer as long as the department is able to verify the personal representative who has signed the form.

When completing form 64-8 the personal representative should:

Put their name in the first box on the left. They should also add their signature next to their name. Enter their address in the 'Give your personal details or company registered office here' box. Include their date of birth and National Insurance number just above the 'For official use only' on form 64-8. The National Insurance number or Unique Tax Reference (UTR) of the deceased person should be included in the boxes on the right. The completed form should be sent to HMRC at the following address:

HM Revenue & Customs Central Agent Authorisation Team Benton Park View Longbenton Newcastle upon Tyne NE98 1ZZ

2.3 Settlement opportunity for participants in tax avoidance schemes

HMRC has issued the following press release:

"On 3 December 2012, the Government announced additional investment in HMRC to clamp down on tax avoidance and evasion. Following this announcement, we are inviting some participants in certain schemes to settle their tax liabilities by agreement, without the need for litigation. We believe that this settlement opportunity offers both the taxpayers and HMRC the best opportunity to resolve these disputes in a way which is cost-effective and consistent with the law. Where people decline the settlement opportunity, we will increase the pace of our investigations and accelerate disputes into litigation.

We will update these pages with details of the opportunity available for specific schemes as they become available. We aim to contact all those who are eligible for the offer by the end of January 2013.

The settlement opportunity is made in accordance with HMRC's Litigation and Settlement Strategy. HMRC will advance all available arguments if disputes are litigated. As well as continued uncertainty, delay in resolution, additional costs and potential reputational damage, taxpayers who choose the litigation route may end up with a worse tax result than they would obtain under the settlement opportunity.

Outline of the settlement opportunity

The schemes included in the settlement opportunity generally seek to create tax relief much greater than the real economic cost borne by the participants. HMRC has a high success rate in litigating these types of scheme.

The settlement opportunity will be offered to participants in the following schemes:

schemes which seek to use Generally Accepted Accounting Practice (GAAP) to write off expenditure or the value of assets to create losses either for sole traders, or individuals or companies in partnership; schemes seeking to access the film relief legislation for production expenditure; schemes seeking to create losses in partnerships through reliefs such as first year allowance, payments made for restrictive covenants, specific capital allowances. There are some schemes with these features which are specifically excluded from the settlement opportunity (see FAQs). More detail will be given for individual schemes which are included but, broadly speaking, we will restrict relief so that expenditure which is not part of the real economic cost borne by the participants will be excluded when calculating losses or capital allowances. Broadly this means that, subject to the particular facts of the scheme, only amounts equivalent to the actual cash contribution funded by the participant and expended in the claimed trade will be allowed when computing losses or capital allowances. No relief will be allowed for interest on any loan used to fund contributions to the partnership in excess of the initial cash contribution. Where fees are paid for the provision of the wider funding arrangements, tax advice or litigation protection, it is likely that they will not be allowable.

Under this settlement opportunity the treatment of income that is received by the partnership, individual or company will depend on the particular arrangements. In general where there is a contingent right of future income from the asset purchased, it is expected that that income will be taxable in full. Where the income arises directly from the repayment of the circular loan finance, amounts received over and above the initial finance will be taxed as investment income on an amortised basis over the period of the unwind. The return of the initial finance will be treated as a capital receipt and not taxed.

We reserve the right to rely on all arguments available including those that may deny any relief completely in litigation.

The settlement opportunity is open to partnerships, individual partners, company partners and sole traders who have used certain schemes. The settlement opportunity extended to partners is restricted to the specific circumstances of the schemes covered by this settlement opportunity. It is not open to partners in any other partnerships."

http://www.hmrc.gov.uk/press/settle-opp-tax-avoid.htm

2.4 Self Assessment auto-coding: a guide for tax agents

HMRC has published guidance to explain how PAYE tax codes are automatically updated with information from Self Assessment (SA) tax returns. The guide explains what auto-coding is, when it happens, and provides answers to commonly asked questions.

Auto-coding was introduced for SA tax returns for 2010/11 where taxpayers have a PAYE source of income. Auto-coding uses the information of other income and deductions from the return to calculate and issue a revised tax code automatically for the current tax year.

www.hmrc.gov.uk/news/sa-auto-coding.htm

2.5 Damages following fraudulent misrepresentation in promoting a film tax scheme

The High Court has determined that a taxpayer was entitled to damages against an individual who fraudulently misrepresented information about a film tax scheme and her expertise in this area in order to entice investors to participate. In this instance the damages (computed by considering the amount of tax the taxpayer had to refund HMRC) were £185,832.

www.bailii.org/ew/cases/EWHC/QB/2012/3626.html

3 IHT AND TRUSTS

3.1 Newsletter for trusts and estates practitioners

HMRC has published the latest newsletter for trusts and estates practitioners, with items on Excepted Estates, New Inheritance Tax toolkit, Paying Inheritance Tax by instalments, HM Revenue and Customs Bereavement processes, Reduced rate of Inheritance Tax – form changes, Reduced rate of Inheritance Tax – guidance, Foreign Tax Credit Relief, Time limits for claiming reliefs and Legislation for the Inheritance Tax (Market Makers and Discount Houses) Regulations 2012.

www.hmrc.gov.uk/cto/newsletter-dec12.pdf

3.2 Gift Aid Small Donations Scheme becomes law

The Small Charitable Donations Bill received Royal Assent on 19 December 2012 and takes effect from 6 April 2013.

GASDS allows eligible charities and Community Amateur Sports Clubs to claim Gift Aid style top-up payments on small cash donations without requiring the donor to provide a Gift Aid declaration.

HMRC is due to publish guidance regarding the scheme for consultation in early 2013.

www.legislation.gov.uk/ukpga/2012/23/contents/enacted

4 PAYE AND EMPLOYMENT MATTERS

4.1 Finance Bill 2013 – EMI Options

The relaxation of the 5% of shares rule for shares acquired under an EMI option put forward in the Budget proposals of March 2012 has been further widened. In addition to removing the 5% threshold test for shareholdings, the holding period of one year will be deemed to have commenced at the date of grant of the option rather than from the date of exercise.

This means that options holders can access the advantageous rates of CGT under Entrepreneurs' Relief (currently 10%) without the requirement that the shareholder own 5% of the capital of the company or having held the shares for at least a...