Under current rules taxpayers generally have up to five years and ten months, after a particular tax year, to correct errors and make claims that may have been overlooked. Similarly, except when there is fraud or neglect, HM Revenue & Customs (HMRC) can only raise assessments for outstanding tax for a period of six years after the year in question. Buried deep in the Finance Bill are proposals to reduce and align these limits to only four years in both cases.

Where there has been “fraudulent or negligent conduct” under the current rules HMRC can raise assessment for up to twenty years. The proposals are that where there is a “loss of tax brought about carelessly” the limit will be reduced to six years but will remain at twenty years where this is “deliberate”

Whilst the general shortening of the time limits are welcome the Low Income Tax Reform Group has picked up on the point that there are many cases where HMRC have been “careless” with a taxpayer’s affairs and will have six years to recover any tax. However HMRC will only make repayments going back four years.

The proposals are due to be debated in Parliament in the coming weeks and, if they remain unchanged, will form part of the Finance Act which should receive Royal Assent later this summer. The rule changes will come into effect once the Treasury issue the relevant Statutory Instrument which could be soon after Royal Assent.

This means that any outstanding claims for the tax year 2002/2003 and 2003/2004 which are currently “in-date” will become “out of date” overnight (unless some transitional rules are also introduced). Such claims might include:

• Age related personal allowances (including married couple’s allowance)
• Blind person’s allowances
• Pension contributions
• Qualifying loan interest
• Capital losses.

If there are any outstanding claims for these years it would be prudent to consider these sooner rather than later.

There is one situation where the proposal is to increase the time limit. In the case where someone dies HMRC currently only have three years and ten months after the year of death to raise an assessment and this will be extended to four years.

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Today is the day that you stop working for the government and start working for yourself. This is one day earlier than last year according to the Adam Smith Institute but generally Tax Freedom Day has been getting later and is now a full week later than it was in 2002 and more than five and half weeks later than in 1963 when it was first calculated.

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Please find below a blog which you might find of interest from my colleague Cathy Corns, who writes for our sister blog SME Plus...

HMRC has published new guidance on the new penalty provisions that will apply from April 2008.

HMRC states that it has designed the new penalties so that:

• If people take reasonable care when completing their returns they will not be penalised.
• If they do not take reasonable care errors will be penalised, and the penalties will be higher if the error is deliberate.
• Disclosing errors before HMRC find them will substantially reduce any penalty due.

The new penalties initially apply to VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme.

Further information can be found at:
http://www.hmrc.gov.uk/about/new-penalties/penalties-leaflet.pdf
http://www.hmrc.gov.uk/about/new-penalties/faqs.htm

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It is not often that the worlds of taxation and sport coincide but every now and then they do. Many years ago there were tax cases about whether the proceeds of benefit matches for cricketers were taxable and in 1991 England Goalkeeper Peter Shilton was the subject of a case relating to signing-on fees. More recently we have had a case involving Andre Agassi relating to sponsorship. Earlier this month the decision in a case before the Special Commissioners was published which concerned a professional Rugby Union player.

Simon Emms formerly of Llanelli Scarlets and Bath claimed income tax relief for almost £13,000 in respect of additional food and nutritional supplements that he needed to maintain the…

“required level of physical fitness for his employment as a professional rugby union prop forward”

It is a long established rule that for an expense to be allowable against employment income it must satisfy four conditions, namely it must be expended

• Wholly
• Exclusively and
• Necessarily
• In the performance of the duties of the employment.
  

Unsurprisingly Emms’ appeals against income tax assessments for 1999/2000, 2000/2001 and 2001/2002 were rejected on all four counts by the Special Commissioner. Full details of the decision can be found on the Tax Tribunals website.

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Please find below an interesting blog from my colleague Cathy Corns who writes for our sister blog SME Plus Blog...

You may well recall that the Chancellor announced some changes to personal tax from April next year, the main one being the reduction in the basic rate from 22% to 20%. Whilst the latter may seem to be nothing but good news there is unfortunately a knock-on effect on charities. At present if you are a higher rate taxpayer and give £100 to a charity it can reclaim basic rate tax at 22/78 increasing the value of your gift to £128 in its hands. The cost to you, after higher rate tax relief, will reduce to £77.

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Just about a year ago there was much media coverage to the Special Commissioners case of Robert Gaines-Cooper v Revenue & Customs Commissioners which highlighted the question of whether days of arrival and departure should be included when calculating whether someone is resident in the UK for tax purposes. In that particular case the Revenue said that these days should be included but subsequently announced that in most cases they would not include them. However it was announced in the Pre-Budget report that, from April next year, the rules will be changed and days of arrival and departure will be counted in future.

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An announcement has been widely expected and commented on in this and other blogs (see SME blog) following on from the Revenue’s defeat in the House of Lords. This is a case of the dog that didn’t bark or at least not yet….

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The immediate reaction to the Chancellor’s speech is that much of what he said was smoke and mirrors – The Inheritance Tax doubling of the nil rate band is not quite what it seems – 2 x 300,000 is still 600,000 so far as I know…

The capital gains tax simplification represents a significant increase in tax in a number of cases and if you are non UK domiciled and UK resident then keep checking this page. We are writing frantically as I type and a more detailed and coherent response will follow shortly….

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As mentioned on my colleagues SME plus blog , The Chancellor of the Exchequer, Alistair Darling, will be presenting his 2007 Pre-Budget Report and the outcome of the Comprehensive Spending Review on the afternoon of Tuesday 9th October.

Cathy Corns will post details of important announcements here shortly after the end of his speech.

Subscribe today to receive regular email updates on the latest business news and views from the partners of Mercer & Hole.

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Last month the American version of HM Revenue and Customs, the IRS published a radical “technical advice memorandum” (TAM) which set out its view that US beneficiaries of offshore (i.e. non US) trust / holding company are taxable on a corporate reorganisation within the structure under the Passive Foreign Investment Company (PFIC) rules.

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It was reported yesterday The Observer , and in both The Guardian and The Independent today that The TUC has joined the campaign to abolish the current tax rules for those resident but not domiciled in the UK.

The Sunday Times on the other hand ran a report about a poll that suggested that “two people in every five are either planning to move abroad or have seriously considered doing so”.

Maybe the new Chancellor will touch on this in his first Pre-Budget report next month.

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HMRC have tightened up their interpretation of rules which can enable employers to pay for taxis for late working employees without incurring a tax liability.

If an employee works later than usual at night it is not uncommon for an employer to pay for a taxi home. Is this a taxable benefit? In general – Yes – but there is an exemption in certain circumstance provided by the tax legislation (section 248 Income Tax (Earnings and Pensions) Act 2003).

The circumstances are:

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You may recall that earlier this week Cathy Corns, Corporate Tax Partner at Mercer & Hole wrote an article on the Jones v Garnett case for her SME Blog.  Following on from this piece Cathy has submitted an additional blog on the topical "Arctic Systems Ltd" case.

The House of Lords issued their judgement in the case of Jones v Garnett (also known as the “Arctic Systems Ltd” case) on 25 July 2007. To much rejoicing the case was decided in favour of Mr and Mrs Jones. However, the Revenue is a bad loser.

On 26 July a written Ministerial statement was issued by the Exchequer Secretary to the Treasury, announcing the intention to change the law.

Using the standard “the Government is committed to maintaining fairness in the tax system” statement the Government now believes it needs to do something to “ensure that there is greater clarity in the law regarding its position on the tax treatment of income splitting”. Actually, in my opinion, the law is now clear – it may not say what the Revenue wants it to, but that is unfortunate (for them) rather than unclear.

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Cathy Corns, Corporate Tax Partner at Mercer & Hole wrote this article for her SME Blog earlier today.

This all seems to have been going on for so long you may need reminding of what all the fuss is about; so 

 - Mr and Mrs Jones ran a small IT company of which Mr Jones was the sole director. They each owned one share in the company took a small salary and extracted the majority of their required funds by way of dividend. These, of course, were paid in line with the shareholdings, on a 50:50 basis.

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It has been announced that the House of Lords Judgement on the case of Jones v. Garnett will be released on 25 July. I had been expected that this would not be available until after the Summer recess.

Watch this space for further details next week.

Subscribe by email to be informed as soon as any updates appear on our Tax Plus Blog

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There has been further press coverage in the The Times online newspaper over the weekend about the taxation of non domicilaries in the UK.  The debate was sharpened when the director of the CBI, Richard Lambert, raised questions about the fairness or otherwise of the UK’s tax laws.

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Where an individual is subject to an income tax charge under the pre-owned assets tax (POAT) rules it is possible to elect for the assets from which the benefits derive to be treated as forming part of their estate for inheritance tax purposes.

The time limit for such elections is currently 31 January following the year of assessment in which the POAT charge first arises. For those individuals who first became liable to the charge in 2005/2006 the deadline came and went on 31 January this year.

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With less than 10 days to go to the first deadline of the Offshore Disclosure Facility of 22 June HM Revenue & Customs clearly think that not enough people are taking advantage of the so-called “amnesty”. HMRC are taking the unprecedented step of writing to and estimated 200,000 people suggesting that they might want to make a disclosure. The letter will be posted tomorrow and should dispel any reservations people may have had about whether HMRC already know about their accounts. Further details can be found on the BBC News website.

If you receive one of these letters – speak to your accountant without delay.

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The long running tax case of Jones v, Garnett has reached the House of Lords today. The story so far is summarised in the Times and a more technical summary can be found on accountingweb. I will keep you informed of developments in what is sure to be a landmark judgement either way.

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There has been much press coverage recently about HM Revenue & Customs targeting residential landlords particularly those in the Buy-to-let market.  This originated from a piece in The Times which was picked up by several other papers.

There is nothing new in this which serves to highlight the need for landlords to seek professional advice to establish their tax liabilities.  The Chartered Institute of Taxation have received a “message” from the Revenue stating that there was no intention of having a “crackdown” on landlords as implied by The Times.  The message stated:

 'By way of background, HMRC is not planning a tax crackdown in the way implied by the Times article. HMRC is planning to take a concerted approach to helping landlords of all descriptions (not just in the buy to let market) to understand and comply with their tax obligations in what they recognise to be a complex area. In taking this approach the explicit presumption will be that the majority of landlords want to make a correct return but that many may need some help to understand exactly how to do so.”
The full text can be found on the CIOT website.   As pointed out in The Times article if someone has undisclosed tax liabilities they can currently take advantage of the special disclosure facility  but action must be taken by 22 June.

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 Today – 1 June 2007 - Is Tax Freedom day

- that point in the year when the average taxpayer has finally earned enough to cover all their taxes and at last can start earning for themselves.

Each year the Adam Smith Institute calculates when Tax Freedom Day falls and this is becoming later every year. More details can be found here.

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On 6 March 2007 the European Court of Justice handed down its judgment in the Mielicke case. The Court decided that it was contrary to the free movement of capital for the German government to deny a tax credit on dividends from companies outside Germany. This echoes the decision in the Manninen case a few years ago which dealt with the tax system in Finland. Although both Germany and Finland have since changed their rules the systems at the time were similar to the UK system of taxing dividends.

Currently the recipient of a UK dividend is entitled to a notional tax credit to set against the tax due on that dividend. Recipients of dividends from non-UK companies are entitled to no such credit.

Significantly, the court in the Meilicke case has restricted the use of temporal limitation powers which open the door for other similar cases. As yet there has not been a case by a UK taxpayer but it must just be a matter of when rather than if.

HM Revenue & Customs have yet to comment on the case but they remained silent on the Manninen case. The CIOT even went as far as making a request under the Freedom of Information Act to find out the Revenue’s policy on Manninen.

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