Weekly Tax Update - Monday 8 October 2012

1. GENERAL NEWS

1.1. Changes to the income tax rules on interest

HMRC has published a summary of the responses received to the consultation on possible changes to the income tax rules on interest which includes the proposals that Government intends to take forward.

The aim of the consultation was to seek views on possible changes to the charge to income tax on interest under Part 4 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA), and the requirement to deduct income tax from interest and other payments in accordance with Part 15 of the Income Tax Act 2007 (ITA). The consultation document made proposals for changes to the following aspects of the taxation of interest:

Interest included in compensation payments would be subject to deduction of income tax at source. References to 'yearly' interest in Part 15 of ITA would be removed, and changes made to the meaning of the term 'arising in the UK'. The exemption from the requirement to deduct income tax from quoted Eurobonds would be restricted where such bonds were held between companies in the same group. 'Interest-in-kind' would be subject to deduction of income tax at source in cash, and the rules on funding bonds aligned with such treatment. Legislation would be introduced on 'disguised interest'. Many responses made the comment in relation to all the proposals in the consultation, that any changes would need to be accompanied by improvements to HMRC's guidance, and that due provision for commencement, transitional rules and 'grandfathering' provisions would be needed to minimise the impact on existing arrangements.

The document set out the proposals the Government intends to take forward from the consultation. In summary, legislation will be introduced in Finance Bill 2013 on:

deduction of tax from interest included in compensation payments; specialty debt (to make it clear that the location of the debt instrument or deed has no bearing on whether interest arises in the UK for withholding tax purposes); interest in kind & funding bonds (to distinguish between the two and require a certificate of value to be given at issue of the interest in kind or funding bond); disguised interest to align the income tax rules more with the corporation tax rules. The proposals in the consultation document on 'yearly' interest, the quoted Eurobond exemption and cash payment of tax on funding bonds will not be taken forward. A further consultation will take place on simplifying the deep discounted bond and accrued income scheme rules, with the aim of introducing any new legislation required in Finance Bill 2014. The Government will further consider the circumstances where there is withholding tax on cross border interest flows.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032340

1.2. Contractual Disclosure Facility

HMRC has changed the address for sending in the form CDF1, Contractual Disclosure Facility (voluntary). The new postal address for sending in the form is:

HM Revenue & Customs RIS CDF S0914 PO Box 4362 CARDIFF CF14 8JE Fax number: 0117 915 3576 www.hmrc.gov.uk/admittingfraud/cdf1.pdf

1.3. David Gauke MP on taxation for the 21st century

Exchequer Secretary to the Treasury gave a speech to the Chartered Institute of Payroll Professionals on 5 October on taxation for the 21st century. He covered:

Modernising PAYE Real time information Modernising the personal tax system Tax and transparency Income tax and NIC integration. With regard to tax...