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Tax Bulletin Issue 81

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HM Revenue and Customs -Tax Authorities

Tax Articles
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February 2006

Contents

interpretations

miscellaneous

Internationally mobile employees - Simplifying our procedures

This article looks at some changes in PAYE and NICs procedures available to certain employers with internationally mobile employees. Taken together, the PAYE and NICs changes will provide an opportunity to reduce administration and give the employer longer to get things right. The changes relate to:

Modified PAYE for Tax Equalised Employees

Modified NICs for Tax Equalised Employees

Modified NICs for Certain Employees Working Abroad

Tax Equalised Employees and Modified PAYE

In this article, the expression "tax equalisation" refers to an arrangement between an employer and a foreign national employee who comes to the United Kingdom (UK) to work. Such arrangements are common in multinational groups with highly mobile employees.

Under the terms of a typical tax equalisation policy, the employee is entitled to specified net cash earnings and non-cash benefits. The employer undertakes to meet UK Income Tax liability arising from cash earnings and non-cash benefits and to provide a professional adviser to deal with the individual’s UK tax affairs.

Revised procedures

Under a longstanding arrangement set out in Appendix 6 of HMRC’s Employment Procedures manual (EP), employers can agree with their HMRC office to modify the operation of PAYE on the earnings of tax equalised employees coming from abroad to work in the UK. To make this Modified PAYE arrangement clearer and easier to use, we have made changes to Appendix 6. These changes reflect input from representatives of large employers and tax professionals experienced in dealing with the tax and National Insurance position of expatriate employees working in the UK. You can find further information in the revised procedures manual.

Employers who already operate Modified PAYE for tax equalised employees will need to re-apply under the revised procedures before 6 April 2007. Where an application has not been made under the revised procedures before 6 April 2007, any modified arrangement governed by an earlier version of EP Appendix 6 will be regarded as terminated with effect from the start of 2007-08. All new applications to operate Modified PAYE for expatriate employees should be made in accordance with the revised procedures.

Eligible employees


The revised procedures make it clear that the arrangement does not apply to employees who are resident, ordinarily resident and domiciled in the UK. Neither does the arrangement apply to employees who are equalised on only part of their earnings. For an employee to be included, the employer must equalise liability to UK Income Tax on all general earnings subject to the rules in Part 2 Chapter 5 Income Tax (Earnings and Pensions) Act 2003 (ITEPA) applying to employees resident, ordinarily resident or domiciled outside the UK. Broadly, this includes all cash earnings from the employment and all non-cash benefits treated as earnings. There is no requirement for the employer to equalise liability on specific employment income i.e. amounts that count as employment income such as termination payments and gains on the exercise of share options. Employers must apply PAYE in accordance with the relevant statutory provisions and regulations to any
non-equalised employment income of an employee covered by the arrangement.

The "best estimate"

Under the Modified PAYE arrangement in Appendix 6, employers prepare a best estimate of cash earnings and non-cash benefits at the beginning of each tax year. This estimate is grossed up because under the terms of the tax equalisation policy, the employer is obliged to meet the employee’s UK tax liability on cash earnings and non-cash benefits. Grossing up reflects the principle that the payment by an employer of an employee’s personal tax liability represents additional earnings from the employment.

The best estimate will include, where relevant, the annual salary, any cash bonus awards made to 5 April and non-cash benefits provided by a home country employer. The best estimate should also take into account provisional relief for overseas workdays (apportionment of earnings between UK and non-UK duties for the purposes of sections 25 and 26 ITEPA) based on each employee’s workday history or as anticipated by employees who join during the tax year. This saves the employer from having to apply for PAYE directions under section 690 ITEPA.

The employer may also take into account an individual employee’s entitlement to relief in circumstances where the employer is satisfied that the employee’s code would have reflected the relief in question. This will commonly provide a mechanism for giving provisional relief for employee contributions to qualifying overseas pension schemes. In general, employer contributions to overseas pension schemes and expenses paid to employees covered by a dispensation should also be excluded from the best estimate.

Employers are required to update their estimated PAYE calculation during the tax year to reflect arrivals and departures of employees subject to the arrangement. Between December and the end of the tax year, employers must carry out a review of the best estimate to take account of any material changes, and in particular, to ensure that calendar or tax year end bonuses are accounted for.

Under the arrangement, the employer gives personal allowances by applying the emergency code on a cumulative basis when calculating PAYE tax. This is the code to be entered on each employee’s P11 Deductions Working Sheet or equivalent record. By following these procedures, employers, employees and HMRC all benefit from fewer coding adjustments.

 

Calculating and paying PAYE tax

By entering into an agreement under Appendix 6 for a modified arrangement, the employer is required to pay 1/12 of the estimated PAYE for the tax year each month by the 19 or 22 of the following month (depending upon the payment method). Where the number of employees covered by the arrangement at any one time is five or fewer, the employer is entitled to pay on a quarterly basis i.e. 3/12 of the estimated PAYE tax on or before the 19 or 22 of July, October, January and April. Paragraph 11 of Appendix 6 gives fuller details.

Under these modified arrangements, the amount of tax paid under PAYE is likely to vary significantly from the amount that would otherwise have been due if normal PAYE procedures had been applied. Provided the employer follows the procedures set out in Appendix 6, interest will not be charged in accordance with the PAYE regulations in respect of any residual income tax liabilities as shown by the employees’ tax returns. By making an application under Appendix 6, the employer accepts that interest will run on any part of the estimated PAYE for a tax year due to have been paid under the arrangement that reaches HMRC after 19 or 22 April following the end of the tax year.

Employer Annual Return

HMRC must still receive by 19 May following the end of the tax year, a completed Employer Annual Return (Form P35 and Forms P14) in accordance with the P11 Deductions Working Sheets or equivalent record. And employers must continue to give forms P60 to the employees by 31 May after the end of the tax year. The figure of pay for each employee will comprise all cash payments and non-cash benefits in respect of which PAYE tax has been calculated before grossing-up. The figure of tax will be the total amount of PAYE tax paid under the modified arrangement in respect of the employee concerned.

Forms P11D

Under the arrangement, employers are still required to complete forms P11D or approved substitutes and associated form P11D(b) and to copy the P11D information to employees. However, provided HMRC receives the relevant information by 31 January following the end of the tax year, HMRC will not seek to impose penalties under section 98 TMA in respect of the failure to provide forms P11D / approved substitutes and form P11D(b) before 7 July following the end of the tax year.

Employee tax returns

It is a condition of an application under Appendix 6 for employers to have systems and procedures in place to ensure that each employee’s self assessment will include actual cash remuneration, all benefits and reimbursed expenses payments not covered by a dispensation and other amounts chargeable to tax as employment income, grossed up on a current year basis as appropriate. Each employee’s tax return must also include a note in the notes section of the relevant Employment Page to the effect that the employee is tax equalised and Modified PAYE has been applied.

Payment of employee’s residual liability

When making the application, employers undertake to pay any additional tax found to be due following the submission of the employee’s tax return by 31 January following the end of the tax year. Alternatively, if a refund is due, employers are expected to arrange for the employee to make the appropriate repayment claim. In most cases, the employee will authorise the employer to receive the repayment.

Where these arrangements apply, HMRC will not require the employees to make payments on account provided the relevant tax returns incorporate claims to cancel payments on account.

 

Table summarising key dates under EP Appendix 6 arrangement

 
In the tax year
Activity
Start of tax year Employer calculates best estimate on a grossed up basis
By 19 or 22 of each month
Employer pays 1/12 of
(depending on payment PAYE tax calculated on the
method) best estimate (unless
quarterly basis applies)
Between 1 January and
5 April
Employer carries out a fundamental review of best estimate
 
After the end of the tax year
Activity
By 19 or 22 April Employer pays balance of PAYE tax due on best estimate
By 19 May Employer submits Employer Annual Return
By 31 May Employer gives form P60 to employee
By 31 January 1) Employer submits Forms P11D, Form P11D(b), etc
2) Employee return submitted with any tax underpaid

Re-applying under the revised EP Appendix 6 arrangement

The revised arrangement is clearer and provides more detailed guidance than the existing version. This should help to reduce queries from employers and their agents and also the level of HMRC queries sent to employers and agents that are frequently caused by validation errors arising on the processing of employer and employee returns.

From 6 April 2007, all Modified PAYE arrangements for tax equalised employees must be in accordance with applications made under the revised Appendix 6. We think that some existing arrangements may include employees who are not eligible to be included in an application under the revised arrangement. For example, tax equalised employees working abroad who are UK resident, ordinarily resident and domiciled or employees whose general earnings are only partly tax equalised. Although such employees are not covered by the revised arrangements, tax equalised cash earnings should continue to be grossed up at the time of payment on first principles. And we will not object, if it remains convenient for both employers and employees, for the taxable value of tax equalised non-cash benefits and taxable expense payments to be included in the total net earnings to be grossed up for PAYE purposes. However, we will expect employers to comply with all statutory obligations under the PAYE regulations in relation to employees not covered by an Appendix 6 arrangement. This includes submission of forms P11D by 6 July following the end of the tax year and form P11D (b) by 19 July following the end of the tax year.

Modified NICs for Tax Equalised Employees

By giving the undertakings in an application made under the revised EP Appendix 6 arrangement, employers will become entitled to apply for a completely new procedure: EP Appendix 7A. You can find the new procedure at: www.hmrc.gov.uk/manuals/epmanual/epapp7a.htm. This significantly reduces the administrative burdens that can arise over calculating and paying National Insurance in respect of tax equalised employees who come from abroad to work in the UK. To benefit from the new procedure, employers have to apply in advance - before the procedure is first due to start. The earliest date this will be available will be 6 April 2006.

Procedures

The normal procedures for operating PAYE and NICs are explained in the booklet CWG2– “Employer’s Further Guide to PAYE and NIC”. Under this new procedure, employers authorised to apply the revised EP Appendix 6 procedures can, subject to certain conditions, enter into an agreement that will also allow them to account for NICs based on a best estimate of the earnings and then submit the correct figures, on a “NIC Settlement Return” by 31 March following the year end, without incurring interest and penalties. As with the Appendix 6 procedure, there has to be a formal agreement with HMRC.

Eligible employees

To be eligible for inclusion in an EP Appendix 7A agreement, employees must be:

  • subject to an EP Appendix 6 agreement, and
  • assigned to work in the UK from abroad and have an employer or host employer in the UK liable for secondary UK NIC liabilities, and
  • pay NICs on earnings above the annual upper earnings limit for the year, or on earnings at or above the upper earnings limit in each earnings period throughout the year.

If an employee joins, commences liability part way through an earnings period, or leaves the employment part way through an earnings period, that shall not invalidate the agreement, providing that:

  • for employees with monthly pay periods, that contributions are calculated and paid on earnings at or above the upper earnings limit in all months other than the month in which the employee joined or left,
  • for employees with an annual pay period, that contributions are calculated and paid on earnings to the person’s pro-rata upper earnings limit.

These restrictions make sure that HMRC have the right figures, at the right time for Social Security benefit purposes.

The "best estimate"

This works in a similar way to the tax. The employer has
to calculate and pay Class 1 NICs on a best estimate of those elements of the remuneration package that attract Class 1 NICs.

At the beginning of the year, or if liability commences after the beginning of the year, in the month when NICs liability first occurs, the employer has to prepare the “best estimate”. The estimate has to include all world-wide earnings paid from whatever source, including annual salary, any cash bonus awards made to 5 April, and any non-cash benefits that attract Class 1 NICs liability.

It is permissible to include in the best estimate of earnings for Class 1 NICs, non-cash benefits that would statutorily attract a Class 1A charge. However, the employer must correct this after the end of the tax year and pay the right amount of Class 1 and Class 1A using the NIC Settlement Return.

Later, between December and April, the employer has to review this estimate to take account of any material changes and, in particular, to ensure that:

  • any relevant bonuses are accounted for, and
  • NICs due on awards from share or security options, or awards at undervalue of shares or securities, are accounted for.

During the year, the employer must update the estimated Class 1 NICs to be paid to reflect arrivals and departures
of employees and other changes in the scope of the arrangements.

One advantage of this type of arrangement is that where an employer has employees who are not ordinarily resident in the UK and who meet the conditions set out in Tax Bulletin 79 as workers for whom salary can be apportioned between UK and non-UK days, the employer can initially compute earnings for Class 1 NICs on the basis of the estimate of UK and non-UK workdays they have used for income tax purposes. However, when they come to complete the NIC Settlement Return, this initial estimate must be corrected using the statutory NICs rules for non-UK days set out in Tax Bulletin 79 and the correct NICs must be paid.

Calculating and paying NICs

The employer pays to HMRC each month, Class 1 NICs due on 1/12 of the best estimate. These payments are made each month, by the 19 or 22 of the following month (depending upon the employer’s usual payment method). Where the number of employees covered by this arrangement at any one time is 5 or fewer, these payments can be made quarterly. More details are contained in the revised EP Appendix 6.

In entering into an agreement, the employer accepts that the NICs paid based on the best estimate may be different from the actual statutory liability - there could be a shortfall. The employer and HMRC agree that providing the employer keeps to the terms of the agreement, interest will not be charged on the difference between the estimate and the actual NICs liability. The employer also accepts that they will be required to fund the balance of any primary "employee" NICs that has not been recovered "in year" from the employee.

Class 1A NICs are to be paid based on the employer’s best estimate by the 19 or the 22 July (depending on the employer’s normal payment method) with the exception of Class 1A on non-cash benefits that have been included in the best estimate of earnings for Class 1 NICs. This exception is made on the understanding that the employer will pay the right amount of Class 1 and Class 1A using the NIC Settlement Return.

Employer Annual Return

As with tax, HMRC must receive by 19 May following the end of the tax year, a completed Employer Annual Return (Form P35 and Forms P14) in accordance with the P11 Deductions Working Sheets or equivalent record. And employers must continue to give forms P60 to the employees by 31 May after the end of the tax year. The figure of pay for each employee will comprise all earnings in respect of which Class 1 NIC has been calculated. The figure of Class 1 NIC will be the total amount of NIC paid under the modified arrangement in respect of the employee concerned.

Form P11D(b) for Class 1A NICs

Under the arrangement, employers are still required to complete form P11D(b) or approved substitute for Class 1A purposes. However, provided HMRC receives the relevant information by 31 January following the end of the tax year, HMRC will not seek to impose penalties in respect of the failure to provide form P11D(b) or approved substitute before 7 July following the end of the tax year.

Payment of residual NICs liability

When making the application, employers undertake, after the year end, to calculate the correct statutory amounts of primary and secondary NICs and then to pay any additional amount not on the P14, to HMRC by 31 March following. This 31 March deadline allows an additional opportunity to take account of earnings that may come to light when preparing the employee’s tax return. Alternatively, if the initial estimate on the P14 was too high, the employer can apply for a refund.

Table summarising key dates under EP Appendix 7A arrangement

 
In the tax year
Activity
Start of tax year Employer calculates best estimate on a grossed up basis
By 19 or 22 of each month
(depending on payment
method)
Employer pays 1/12 of NICs calculated on the best estimate (unless quarterly basis applies)
Between 1 January and
5 April
Employer carries out a fundamental review of best estimate
 
After the end of the
tax year
Activity
By 19 or 22 April Employer pays balance of NICs due on best estimate
By 19 May Employer submits Employer Annual Return
By 31 May Employer gives form P60 to employee
By 19/22 July Employer pays best estimate of Class 1A NICs
By 31 January Employer submits Form P11D (b)
By 31 March Employer submits “NIC Settlement” return with any Class 1 NICs underpaid or refund claimed. Balance of
any Class 1A NICs must
be paid

 

What if I do not keep to the terms of the EP Appendix 7A agreement?

Under the terms of the agreement, the employer has to comply with the terms of the agreement or HMRC may charge interest and penalties in accordance with the normal statutory provisions.

Modified NICs for Certain Employees Working Abroad

HMRC are scrapping an existing and little used simplified reporting procedure for NICs where employees work overseas and are replacing it with a new and easier system. This is set out in EP Appendix 7B

Unlike EP Appendix 6 and EP Appendix 7A, there is no need for the employees to be tax equalised. The new rules operate in a very similar way to EP Appendix 7A and will apply from 6 April 2006 onwards. Like EP Appendix 7A, employers must apply in advance of using the new system, but there will no longer be a need to sign up by November preceding the relevant tax year, as was the case with the old arrangements.

Procedures

The normal rules for operating NICs when the employee is abroad are explained in the booklet CWG 2 “Employer’s Further Guide to PAYE and NIC” and in the NI 38. Under this new procedure, employers can, subject to certain conditions, enter into an agreement that will also allow them to account for NICs based on a best estimate of the earnings and then submit the correct figures, on a “NIC Settlement Return” by 31 March following the year end, without incurring interest and penalties. As with the EP Appendix 6 and Appendix 7A procedures, there has to be a formal agreement with HMRC.

Eligible Employees

The arrangement applies only to those employees who:

  • are employed by a UK employer and are assigned to work abroad for a period of limited duration, but for more than a complete tax year,
  • have an ongoing liability to UK NICs whilst abroad,
  • earn above the upper earnings limit in every earnings period throughout the tax year 1,
  • are not resident and ordinarily resident for tax purposes and not liable for tax in the UK on the earnings from the relevant employment,
  • receive some earnings and benefits derived from the employment from sources other than the UK employer.

The "best estimate"

This works in a similar way to EP Appendix 7A above. The employer has to calculate and pay Class 1 NICs on a best estimate of those elements of the remuneration package that attract Class 1 NICs.

1 Where an employee earns less than the upper earnings limit in the pay period they join the employer, or in the pay period in which they leave, if in all other pay periods during the year, the upper earnings limit is exceeded, they can still qualify. However, in the case of employees with annual earnings periods, to be within the agreement, their earnings must exceed the annual upper earnings limit. This rule about the upper earnings limit is set so that HMRC are able to know the amount of earnings on which Social Security benefits are computed, at the right time.

At the beginning of the year, or if liability commences after the beginning of the year, in the month when NICs liability first occurs (or the beginning of the assignment if that is later), the employer has to prepare the “best estimate.” The estimate has to include all world-wide earnings paid from whatever source, including annual salary, any cash bonus awards made to 5 April, and any non-cash benefits that attract Class 1 NICs liability.

Later, between December and April, the employer has to review this estimate to take account of any material changes and, in particular, to ensure that:

  • any relevant bonuses are accounted for, and
  • NICs due on awards from share or security options, or awards at undervalue of shares or securities, are accounted for.

During the year, the employer is required to update the estimated Class 1 NICs to be paid to reflect arrivals and departures of employees who are subject to the application and changes in the scope of the arrangements as they apply to one or more employee.

Calculating and paying NICs

The employer pays to HMRC each month, Class 1 NICs due on 1/12 of the best estimate. These payments are made each month, by the 19 or 22 of the following month (depending upon the employer’s usual payment method). Where the number of employees covered by this arrangement at any one time is 5 or fewer, these payments can be made quarterly. More details are contained in the new EP Appendix 7B.

In entering into an agreement, the employer accepts that the NICs paid based on the best estimate may be different from the actual statutory liability - there could be a shortfall. The employer and HMRC agree that providing the employer keeps to the terms of the agreement, interest will not be charged on the difference between the estimate and the actual NICs liability. The employer also accepts that they will be required to fund the balance of any primary “employee” NICs that has not been recovered “in year” from the employee.

Employer Annual Return

As with EP Appendix 7A, HMRC must receive by 19 May following the end of the tax year, a completed Employer Annual Return (Form P35 and Forms P14) in accordance with the P11 Deductions Working Sheets or equivalent record. And employers must continue to give forms P60 to the employees by 31 May after the end of the tax year. The figure of pay for each employee will comprise all earnings in respect of which Class 1 NICs has been calculated. The figure of Class 1 NICs will be the total amount of NICs paid under the modified arrangement in respect of the employee concerned.

Payment of residual NICs liability

When making the application, employers undertake, after the year end, to calculate the correct statutory amounts of primary and secondary NICs and then to pay any additional amount not on the P14, to HMRC by 31 March following. This 31 March deadline allows an additional opportunity to take account of earnings that may come to light when preparing the employee’s tax return. Alternatively, if the initial estimate on the P14 was too high, the employer can apply for a refund.

Class 1A NICs

Any benefits provided to employees within this agreement will not represent taxable earnings in the UK where the employees are not resident and perform their employment duties outside the UK. Therefore, liability for Class 1A NICs will not arise.

Employee returns to the UK

In cases where an employee is repatriated to the UK before he/she has been overseas for a complete tax year and, as a result, his/her general earnings from the employment become chargeable to UK Income Tax, this agreement will no longer apply to that employee. The employer must cease to use estimates in respect of all earnings paid and benefits received after the employee has returned to the UK and use the statutory basis of calculating and returning both Class 1 and Class 1A NICs.

Table summarising key dates under EP Appendix 7B arrangement

 
In the tax year
Activity
Start of tax year Employer calculates best estimate
By 19 or 22 of each month
(depending on payment
method)
Employer pays 1/12 of NICs calculated on the best estimate (unless quarterly basis applies)
Between 1 January and
5 April
Employer carries out a fundamental review of best estimate
 
After the end of the
tax year
Activity
By 19 or 22 April Employer pays balance of NICs due on best estimate
By 19 May Employer submits Employer Annual Return
By 31 May Employer gives form P60 to employee
By 31 March Employer submits “NIC Settlement” return with any Class 1 NICs underpaid or refund claimed. Balance of
any Class 1A NICs must
be paid

What if I do not keep to the terms of the EP Appendix 7B agreement?

Again, under the terms of the agreement, the employer has to comply with the terms of the agreement or HMRC may charge interest and penalties in accordance with the normal statutory provisions. 

Interpretation

Certification of qualifying life insurance policies: revised requirements

Background

Life insurance policies attract certain tax advantages for policyholders if they are "qualifying policies". They are less likely to attract a charge under the "chargeable event regime" appearing at Chapter 9 Part 4 ITTOIA 2005, for example on surrender or maturity. And if made on or before 13 March 1984 they continue to attract life assurance premium relief so long as they are not varied to extend the term or increase benefits.

The rules defining qualifying policies are at Schedule 15 ICTA 1988. They are complex and it is a requirement that all policies must be certified by HM Revenue & Customs before they can be treated as qualifying. The relevant legislation is at paragraph 21 of Schedule 15.

This legislation provides for the certification of individual policies. It also provides for appropriate policies to be treated as qualifying if they conform with "a standard form certified by the Board as a standard form of qualifying policy … or … a form varying from a standard form so certified in no other respect than by making such additions thereto as are … certified by the Board as compatible …".

Previous view

We have previously taken a strict view of the requirement just outlined, so that any changes to the policy wording would trigger a requirement to seek re-certification of an existing qualifying policy. This included the situation where the insurer under the policy changed its name, or the insurer’s identity changed following a transfer of business from one insurer to another, including a transfer of engagements by a friendly society, even though the policy terms were unchanged.

Revised view

We have reconsidered our approach and concluded that some relaxation is acceptable. It remains important that any amendments to policy wording that could be regarded as affecting the terms are submitted for the purposes of re-certification. Where, however

  • there is simply a change of name of the insurer under the policy, or
  • the policies in question form part of a transfer of business from one insurer to another, but the terms of the policies are unchanged

it will be sufficient merely to inform HM Revenue & Customs at the address below.

This requirement is to enable effective records to be maintained identifying the insurer under the policies. We consider that the identity of the insurer under the policy forms part of its terms, but policies may continue to be regarded as certified provided HM Revenue & Customs is made aware of the identity of the current insurer.

This revised view should bring modest deregulatory benefits for insurers.

Changes of name or notice of transfers of business should be sent to

Insurance Group, Financial and Insurance Team
HM Revenue & Customs
Mailstation A, 3rd Floor
100 Parliament Street
London
SW1A 2BQ.

miscellaneous

Record Receipts for HM Revenue & Customs

(extract from recent news release)

HM Revenue & Customs (HMRC) accrued record receipts from taxes, duties and other revenue of more than £379bn in 2004/05, the first annual report released recently reveals.

In the last financial year – which ended with the Inland Revenue and HM Customs & Excise merging to form HMRC – our compliance work helped ensure that net VAT accrued receipts for 2004/05 increased by £3bn (4.2%) to just over £74bn, while income tax cash receipts increased by £9bn (8%) to £136bn due mainly to growth in incomes.

The annual report also shows that in 2004/05:

  • Nearly two thirds (64%) of all transactions with HMRC were completed online, with the largest components relating to international trade and VAT.
  • Nearly two thirds (64%) of all transactions with HMRC were completed online, with the largest components relating to international trade and VAT.
  • Over 5,150 National Minimum Wage investigations were undertaken, detecting a 35% incidence of non-compliance, with arrears identified for more than 11,000 workers.
  • HMRC took out 8,606kgs of cocaine and 1,613kgs of heroin, disrupted/dismantled 206 drug trafficking groups and recovered £17m of drug related criminal assets, contributing to the overall multi-agency outcomes of 10,626kgs of cocaine, 3,066kgs of heroin, 299 drug trafficking groups and £33.3m of drug related criminal assets.
  • 216,889kgs of illegal meat and other animal products
    were intercepted.
  • 2 billion smuggled cigarettes were seized, 68 major tobacco smuggling gangs broken up and £2m of assets confiscated from smugglers or suppliers of contraband.

The report notes that since it was created on 18 April 2005, HMRC has brought together around 100,000 employees to form a single department responsible for more than 20 different taxes and payments, as well as protecting the UK’s frontiers and facilitating trade across its borders. In its first 8 months, HMRC has already:

  • Introduced a new short tax return for 1.5m taxpayers.
  • Taken 1m people out of the Self Assessment regime.
  • Introduced a single point of contact for importers
    and exporters.
  • Consulted with small and medium enterprises on how to improve customer service.
  • Been recognised for its commitment to Corporate Social responsibility.

Announcing the report, Chairman of HM Revenue & Customs David Varney said:

"HM Revenue & Customs has made great strides in its
first six months, underpinned by the hard work and commitment of staff during a period of unprecedented change for the department.

We have shown that, in the year before the merger of the Inland Revenue and HM Customs & Excise, we were fully focused on our core business of revenue collection by posting record receipts.

ensure HMRC becomes a model of good practice across all areas of responsibility."

Welcoming the report, HM Revenue & Customs minister Dawn Primarolo said:

"The HMRC annual report highlights the fact that benefits from the merger are already being realised. Business areas across the direct and indirect tax divide are developing closer working relationships, the department is seeing efficiency gains from integration and there is a renewed focus on customer service.

The building blocks are in place for HMRC to reach some stretching targets and show real improvements in the way the department works and serves its customers. I am confident that HMRC can go from strength to strength in the coming year and beyond."


Copies of the report (PDF 3.1MB) are available.

 

Amendments

Tax Bulletin 78

Trust Management Expenses

There has been a change to the contact details previously given. Please now contact Marian Burns in HMRC Trusts Directors Office on 0151 472 6064

Email: Marian Burns

Tax Bulletin 80

Tax & Civil Partnership Regulations 2005

The following replaces some of the original text on pages 1253-1254 under the heading of Trusts and settlements and transfer(S) of assets abroad.

The first paragraph under this heading has had the words (e.g. husband/wife or parent) removed.

Main legislation:

The settlements legislation is in Part 5, Chapter 5 of the Income Tax (Trading and Other Income) Act 2005 (previously Sections 660A – 660G ICTA 1988).

Where the settlor has retained an interest in property in a settlement, any income arising is treated as the settlor’s income for all tax purposes. Subject to certain exceptions the settlor will have an interest in property if it or any income arising, is, or will, or may become payable to or applicable for the benefit of the settlor or his/her spouse or civil partner in any circumstances whatsoever.

Where income arises under a settlement and that income is paid to or for the benefit of a minor child of the settlor (or of his or her civil partner) and the child is neither married nor in a civil partnership, that income is treated as the settlor’s income for all tax purposes.

Transfer of assets abroad: Sections 739-746 ICTA 1988 recognises "husbands and wives".

Anti-avoidance provisions are triggered where an individual or that individual’s husband or wife is involved in certain transactions. This legislation aims to prevent individuals avoiding income tax by means of the transfer of assets. It applies where, as a result of a transfer and/or any associated operations, income becomes payable to persons resident or domiciled outside the UK.

The legislation provides that an income tax charge may arise on the husband or wife of an individual who makes a transfer of assets, where the spouse is involved in the transfer or associated operations. This will in future apply equally to members of civil partnerships.

In addition, the practice of not normally seeking to tax under section 739 UK domiciled individuals in relation to income of their non-domiciled husband or wife, where that spouse would be outside the section 739 charge because of his or her entitlement to the remittance basis, is extended to civil partners.

Employee Benefits and Expenses and other Consequentials (pages 1255-1256)

There have been some amendments made to some Statutory references within this article. The sub heading Employee Benefits and Expenses and other consequentials- Chapter ii Part V Taxes Act 1988 should read Chapters 3-11 ITEPA 2003. Any reference to Section 168(4) should read Section 721(5) ITEPA. 

 

Tax Bulletin Index 2005

Please note some late entries as articles that are no
longer relevant.

Issue 5 – S703 ICTA 1988 Intra Group Dividends
Issue 8 – Shepherd & Shepherd v CIR – Superseded by Tax Bulletin 34 article
Issue 34 – Abnormal dividends received by tax exempt bodies
Issue 37 – S703 ICTA 1988 & share buybacks.

Statement of Practice

Statement of Practice SP 16/1980 Lorry Drivers: Relief for expenditure on meals is being withdrawn with immediate effect.EIM 66150 will be amended accordingly.

Statement of Practice SP02/1988 The Former IR Statement on its Prosecutions and Criminal Policy has been withdrawn and replaced by a statement of the HMRC Investigation Policy

Prosecutions

The Revenue & Customs Prosecution Office (RCPO) was created by Royal Assent on 7 April 2005. An independent prosecuting authority, RCPO reports directly to the Attorney General, and is responsible for prosecuting some of the largest drug and fraud cases in the UK. As part of the wider publicity for this strategy, details of prosecutions are occasionally published in Tax Bulletin.

Shaun Benedict Gray

Shaun Benedict Gray was sentenced in Bournemouth Crown Court recently to 3 years imprisonment on each of 3 counts of false accounting and 2 of forgery, the terms to run concurrently. The false accounting charges arose from an Inheritance Tax return submitted by Mr Gray in respect of the estate of the late Helen Guiterman who was an authority on the 19th Century Scottish artist David Roberts. Investigation by officers of HMRC established assets to the value of approximately £500,000 had not been included on the return. The investigators also established that Gray had forged Helen Guiterman’s will making himself the main beneficiary.

The Court heard that under her previous will Helen Guiterman had left her important collection of David Roberts paintings to the National Art Collections Fund and most of the residue of her estate to charity. As a result of the HMRC investigation Helen Guiterman's collection of David Roberts paintings were recovered from Mr Gray and returned to the National Art Collections Fund.

Steve Doyle, an HMRC investigator, said: "This prosecution, the first Inheritance Tax case in England, demonstrates the seriousness with which HMRC view Inheritance Tax fraud and our determination to prosecute such cases. We were also pleased to play a part in disposing of the David Roberts collection in accordance with the original wishes of Helen Guiterman".

 

Inland Revenue Statements of Practice and Extra-Statutory Concessions issued between 01/12/2005 to 31/1/2006.

Extra Statutory Concessions

There have been no Extra Statutory Concessions for this period

Statements of Practice

There have been no Statements of Practice for this period
You can get the latest copies of SPs and ESCs by telephoning Chandra Chandramohan, on 020 7147 2363.

Content

The content of Tax Bulletin gives the views of our technical specialists on particular issues. The information published is reported because it may be of interest to tax practitioners. Publication will be six times a year, and include a cumulative index issued on an annual basis.

  • You can expect that interpretations of the law contained in the Bulletin will normally be applied in relevant cases, but this is subject to a number of qualifications.
  • Particular cases may turn on their own facts, or context, and because every possible situation cannot be covered, there may be circumstances in which the interpretation given here will not apply.
  • There may also be circumstances in which the Board would find it necessary to argue for a different interpretation in appeal proceedings.
  • The Bulletin does not replace formal Statements of Practice.
  • The Board’s view of the law may change in the future. Readers will be notified of any changes in future editions.
  • All the names used in examples and illustrations are imaginary and have no relation to real persons, living or dead, except by coincidence
    Nothing in this Bulletin affects a taxpayer’s right of appeal on any point.

About the Author

© Crown Copyright 2006.

A Licence is need to reproduce this article and has been republished for educational/ informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax bulletins are updated regularly and may be out of date at time of reading.


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Article Published/Sorted/Amended on Scopulus 2006-11-02 17:46:31 in Tax Articles

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