Weekly Tax Update - Monday 2 April 2012

Author:Mr Richard Mannion
Profession:Smith & Williamson

    1.1. Finance Bill 2012

    The Finance Bill and explanatory notes (issued on 29 March 2012) can be found at:



    1.2. Protocol on unscheduled announcements of changes in tax law

    The Government has published the process it will follow in respect of retrospective changes in tax law:

    The Government has made clear its aim to strike the right balance between restoring the UK tax system's reputation for predictability, stability and simplicity and preserving its ability to protect the Exchequer by making changes where necessary. In particular, changes to tax legislation where the change takes effect from a date earlier than the date of announcement will be wholly exceptional.

  2. Ministers undertake to observe the following criteria when considering a change to tax law which will:

    be announced other than at Budget; and take effect before the legislation implementing the change is enacted.. 2. Such changes to tax law will normally only be announced other than at Budget where:

    there would otherwise be a significant risk to the Exchequer; significant new information has emerged to identify the risk or indicate its scale; and changing the law immediately is expected to prevent significant losses to the Exchequer. Announcements will usually take the form of a Written Ministerial Statement to Parliament before 2pm..

  3. Legislative changes announced in this way will be confined to addressing the risk to the Exchequer that has been identified. A change in HMRC's interpretation of the law (unless prompted by a Court ruling) will not be regarded as 'significant new information'.

  4. Where Ministers believe that such a change is justified, the process will be as follows:

    a Minister will make a public announcement of the intention to change the law and make clear that the change will take effect before the legislation is enacted; the public announcement will be accompanied by the technical detail necessary to amount to a sufficiently clear warning of the nature of the change and its timing; HMRC will publish the Written Ministerial Statement and draft clauses on the HMRC website as soon as practicable after the announcement to Parliament. If, exceptionally, draft clauses cannot be published on the day of the announcement, a detailed technical note explaining the nature of the proposed change and the reasons for it will accompany the announcement; and legislation to give the measure effect will be included in the next available Finance Bill. 5. Whilst the Government will not invite comment on the intention to legislate, the nature of the change or on its timing, it will consult after the announcement to establish whether the draft legislation would achieve its objective and change the law as intended. Subject to the risk of forestalling, consideration will be given to consulting informally in confidence before an announcement is made.

  5. As part of the normal Budget process, the Office for Budget Responsibility will scrutinise the estimates of Exchequer impact associated with any change to tax policy.


    1.3. Tax consultations tracker

    HM Treasury has updated its tax consultation tracker, which sets out a timetable of planned tax consultations for 2012/13, following the 2012 Budget.



    2.1. Planning for the drop in the additional rate of tax to 45%

    The announcement of a reduction of the additional rate of tax from 50% to 45% from April 2013 provides an incentive for deferring income and/or bringing forward expenditure that is either deductable from or relievable against income. The tax benefits needing to be weighed against the cash flow implications.

    Although the focus on such planning will increase in the lead up to 5 April 2013, those with profits assessable based on an accounting date near the start of the tax year should be considering their options now. A sole-trader or partnership with a 30 April year end will be taxed in 2012/13 on the profits of the year to 30 April 2012 with the profits earned from 1 May 2012 being taxable in 2013/14.

    Similar timing issues and considerations will apply where there are losses due to the announcement of a cap to apply with effect from April 2013 on 'unlimited' reliefs.

    2.2. Discovery assessments – conditions to be met

    The First-Tier Tax Tribunal has considered the case of David Stephen Sanderson (TC01902) and revisited the decision in the Veltema case as well as Lansdowne, Corbally-Stourton an the recent case of Chartlon..

    In this case the FTT found that that, at the time the enquiry window closed, the hypothetical officer could not have been reasonably expected, on the basis of the information made available to him before that that time to be aware of the insufficiency of tax. It therefore found that the condition in s 29(5) TMA was fulfilled and that HMRC was entitled to raise the discovery assessment.

    The key element in this case appeared to be in indentifying the information available in addition to what was shown on the return itself and also what constituted a discovery.

    In the additional information, "white space", section of the return, using the specific wording agreed by leading tax Counsel, supplied to Mr Sanderson by Hanover Veriti Limited a promoter of the Scheme in a letter dated 10 June 1999, it was stated:

    EUROPEAN AVERAGE RATE OPTION (TRADE NO. 82831) I am entitled to the loss of £1,825,663 by virtue of the provision of TCGA 19992 s 71(2). The loss is part of a loss of £1,000,000,000 which accrued to the Trustees of the Castle Trust on 8 April 1997, on the disposal of a European Average Rate Option (Trade No. 82831) relating to shares in Deutsche Telecom.

    BENEFICIAL INTEREST IN THE CASTLE TRUST On 24 November 1998, I purchased for a fee (part of which iscontingently payable) from the Trustees of the Charter Trust 2.273% of their beneficial interest in the Trust Fund of the Cstle [sic] Trust. The interest determined on 25 November 1998, when I became absolutely entitled to receive from the Trustees of the Castle Trust the sum of £16.04.

    A possibly significant difference between this 1998/99 return disclosure and that for the one for Charlton in respect of 2006/07 was the absence of a Scheme Reference number.

    In that case, although the disclosure did not identify the insufficiency the FTT took the view that no officer could have missed the point that an artificial tax avoidance scheme had been implemented and simply not followed up on the point because "some tax avoidance schemes fail and others do not". Their view was that the notional officer might more sensibly take the view that he should make an assessment, charging the gross gains and disallowing the losses, under the alternative expression, that "some assessments are sustained on appeal, and others are not".



    3.1. EMI and CGT entrepreneurs' relief: further information

    Budget 2012 announced that, subject to State aid approval, the Government will reform the EMI scheme in Finance Bill 2013 to allow gains made on shares acquired through exercising EMI options on or after 6 April 2012 to be eligible for capital gains tax entrepreneurs' relief. A note has been published which gives further information on the proposed changes.

    Proposed changes

    To enable shares acquired on exercising EMI qualifying options to qualify for entrepreneurs' relief, despite the individual not holding a 5 per cent stake in the company, the Finance Bill 2013 will make changes as follows:

    Individuals who dispose of shares acquired on exercising EMI qualifying options will not have to meet the "personal company" condition in relation to that disposal. All other relevant conditions for entrepreneurs' relief will have to be met throughout the usual one-year qualifying period. The company will have to be a trading company (or holding company of a trading group). The individual will have to be an officer or employee of the company (or a member of the group). In addition, the individual will be required to have held the shares disposed of throughout the one-year qualifying period. To establish whether shares acquired on exercising EMI options after the new rules start (see below), have been held throughout the one-year qualifying period it will be necessary to treat individuals as holding them separately from other shares of the same class they hold in the company. Where individuals dispose of only some of their shares (of the class in question), they will be able to choose which shares they have disposed of in determining whether entrepreneurs' relief is due.


    The new rules will apply where shares are acquired on exercising EMI qualifying options on or after 6 April 2012. As shares must be held for at least one year to qualify for entrepreneurs' relief under the new rules, the earliest date on which shares can be disposed of and attract entrepreneurs' relief under the new rules will be 6 April 2013.


    3.2. Loans from EBTs and 5 April 2012 deadline

    It is quite common for the trustees of an EBT or a related family trust to provide loans to beneficiaries, often unsecured and interest free. The disguised remuneration rules in ITEPA Part 7A now tax such loans (if made on or after 9 December 2010) in full, and there is no clawback if the loan is repaid. Loans granted by the trustees between 9 December 2010 and 5 April 2011 are also subject to Part 7A, but only if the loan remains outstanding after 5 April 2012. There is thus a short window for such loans to be repaid in order to avoid a disguised remuneration charge crystallising on 6 April 2012.


    4.1. Corporation tax rates

    The corporation tax rates of 24% effective from 1 April 2012 and...

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