notes accompanying the icas tax podcast for the week starting 21 january 2013

7/29/2019 Notes accompanying the ICAS Tax Podcast for the week starting 21 January 2013

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CA TAX UPDATE 21 JANUARY 2013

In this weeks edition of the tax update we look at:

1. Political commentary on tackling tax avoidance2. Payment to obtain a service contract was capital even though it failed3. Reminder that the filing deadline approaches4. HMRC announce settlement opportunity for film partnership loss claims5. Campaign to get VAT filing up to date

1. Political commentary on tackling tax avoidance

I am concerned at the debate on how tax avoidance should be challenged. Nobody likes topay tax especially if that taxation is viewed as unfair. Last week the news media advised usthat Blockbusters and HMV had gone into administration placing many jobs at risk and thepotential closure of a number of high street outlets.

I was interested to read an essay by Ed Balls at:

http://www.huffingtonpost.co.uk/ed-balls/we-need-action-to-end-tax-secrecy_b_2467078.html?icid=hp_uk_featured_art

In particular, he wrote:

In tough times, and when the government is cutting spending and raising taxes, it's even

more important that everyone plays their part and pays their fair share of tax.

It will surprise many readers to know that I agree with that sentiment. I have alwaysexpressed it as everyone should paythe right tax at the right time.

Mr Balls went on to add

Recent cases of companies who have manipulated the tax rules to reduce the tax theypay in UK to virtually nothing have rightly outraged all those people and businesses whopay their fair share of tax. They ask why some seem to think the rules not apply to them.This is not only unfair and also undermines companies who do pay their tax expectingthere is a level playing field.

Sometimes there will be good reasons why companies pay little tax - some companiesinvest large sums in research and development, assets and infrastructure, which weshould celebrate but we also need to know when companies are stripping their profits outof the UK through artificial schemes.

The government is failing to show the leadership we need.

There is a media and public frenzy about tax at present but most of the commentary is facile,ill-informed and emotional. Tax is complex and many businesses are struggling, makinglosses and not paying tax because we are, as a country generally, burdened by debt andfacing cutbacks.

Taxation is a cost to many businesses and it needs to be managed sensibly. Tax rules alsokeep changing. The complexity and rapidity of change reflect a failure by successive
http://www.huffingtonpost.co.uk/ed-balls/we-need-action-to-end-tax-secrecy_b_2467078.html?icid=hp_uk_featured_arthttp://www.huffingtonpost.co.uk/ed-balls/we-need-action-to-end-tax-secrecy_b_2467078.html?icid=hp_uk_featured_arthttp://www.huffingtonpost.co.uk/ed-balls/we-need-action-to-end-tax-secrecy_b_2467078.html?icid=hp_uk_featured_arthttp://www.huffingtonpost.co.uk/ed-balls/we-need-action-to-end-tax-secrecy_b_2467078.html?icid=hp_uk_featured_arthttp://www.huffingtonpost.co.uk/ed-balls/we-need-action-to-end-tax-secrecy_b_2467078.html?icid=hp_uk_featured_art


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governments to enact decent tax law which is fit for its purpose. Our tax law is a mess. It iscomplex, voluminous and difficult to understand and implement. HMRC does a difficult joband generally does it well but HMRC are facing ever more staff cutbacks. Numerically,HMRC has reduced its headcount from over 100,000 in 2005 to around 65,000 currently andmore staff cuts are in prospect but head count does not tell the full story. My experience isthat many call centre staff are good at dealing with simple enquiries but unless they have a

script to guide them, they are not good at dealing with the unusual. HMRC need more andbetter qualified staff if they are to close the tax gap.

More importantly, we need better tax policy. Successive governments have expressed thewish to make the UK attractive to business but in reality the constant change, complexity andinstability mean that the UK is less attractive than it should be. Anomalies need correcting.Businesses like Blockbusters and HMV will struggle to compete with say Amazon which islocated in Luxembourg and has a 3% VAT rate on electronic downloads. Blockbusters andHMV face VAT at 20% on electronic downloadable sales.

http://www.taxjournal.com/tj/articles/hmv-we-need-level-tax-playing-field-retailers-says-umunna-15012013

If politicians gave more thought and less rhetoric to creating a stable and sensible tax system,business might have a more level competitive market.

2. Payment to obtain a service contract was capital even though it failed

Grant Bowman t/a The Janitor Cleaning Company v Revenue & Customs [2012] UKFTT

Capital/Revenue Divide

In Grant Bowman t/a The Janitor Cleaning Company v Revenue & Customs [2012] UKFTT,the issue was whether consultancy fees paid by the business were revenue or capital innature. There was a secondary issue that if the expenditure was capital expenditure, could

capital allowances be claimed on the expenditure.

The dispute concerned a consultancy payment of 11,000 which HMRC argued was capitalwith the result that the taxpayers bill increased from 234 tax to 4,618.92.

The payment comprised two elements being:

1. A single payment of 3% of total contract value for the assistance given by Mr A S Asgarigiven in the negotiation and winning of a three contract with SMC valued at 300,000and;

2. A fee of 2,000 for identifying and then assisting in the negotiations for the businessplanning and potential purpose of cleaner times.

The cleaning contract with SMC was cancelled after ten months. The potential purpose ofcleaner times business fell through at the last moment and the fact that the sale did notproceed led to strained relationships between the Appellant and Mr Asgari.

Section 33 ITTOA 2005 provides that no deduction is allowed for items of capital expenditurein the computation of the profits of a trade.

Various court decisions have established a principle that if expenditure is incurred to acquire,dispose or modify a capital asset then the expenditure is capital.

In an appeal, it is the Appellant who has the responsibility for proving his case on the balanceof probability. In this case the Appellant did not attend the hearing and the evidence provided

by the Appellant was threadbare.
http://www.taxjournal.com/tj/articles/hmv-we-need-level-tax-playing-field-retailers-says-umunna-15012013http://www.taxjournal.com/tj/articles/hmv-we-need-level-tax-playing-field-retailers-says-umunna-15012013http://www.taxjournal.com/tj/articles/hmv-we-need-level-tax-playing-field-retailers-says-umunna-15012013http://www.taxjournal.com/tj/articles/hmv-we-need-level-tax-playing-field-retailers-says-umunna-15012013http://www.taxjournal.com/tj/articles/hmv-we-need-level-tax-playing-field-retailers-says-umunna-15012013


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The Tribunal makes findings of fact which cannot be disturbed unless the finding of fact wasso absurd that no reasonable person could make such a finding. This will not apply in a caselike this and so the decision of fact by the Tribunal is final and conclusive. The Tribunal heldthat the fee of 2,000 was made in connection with the intended but abortive acquisition of anidentifiable asset (the cleaner times business) and was in no doubt that the 2,000 feeconstituted capital expenditure.

The fee of 9,000 was spent on securing an introduction to obtain a long term contract whichwould have provided the business with an annual income of 100,000 which exceeded itsturnover prior to the acquisition. If it was part of the normal activity of the business to acquirenew contracts then this should be revenue expenditure but in this case the contract beingacquired exceeded the turnover of the previous business and securing that contract wouldhave secured an enduring benefit to the Appellants business.

The Tribunal therefore found as a fact that the 9,000 fee constituted capital expenditure.

To qualify for capital allowances, the expenditure must be shown to function as a tool in thetrade. The Appellant had provided no rationale to justify a claim to capital allowances and sothe Tribunal decided that none of the expenditure could qualify for capital allowances.

http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02284.html

3. Reminder that the filing deadline approaches

I have noticed a reduction in those annoying calls advising me to claim PPI compensation.For some recipients, the interest included in the repayment may be taxable either because ithas been paid gross or because the recipient is a higher rate taxpayer.

The filing (and payment) deadline for returns is approaching. I hope that all my readers haveorganised their clients and achieved 100% by the filing deadline but if not there may be anopportunity for a final push to hit the target. Good luck.

For those entitled to a repayment of tax on PPI interest included with the settlement, there issome basic advice from HMRC at:

http://www.hmrc.gov.uk/news/news100512.htm

4. HMRC announce settlement opportunity for film partnership loss claims

HMRC has written to individuals who have taken part in Film Production Partnershipschemes. Film Production Partnerships are those which seek to claim relief for expenditureincurred on the production of a qualifying British film under S.42 and 48 Finance Act (no. 2)1992. Loss relief against other income will be allowed in an amount equivalent to the

contribution to the partnership personally contributed by the claimant as the cash contribution,less any element expended on unallowable fees.

You can read the detail at:

http://www.hmrc.gov.uk/press/film-prod-partner.htm

HMRC have also announced a settlement opportunity for those claiming loss relief onpartnership losses and the terms are similar: loss relief against other income is allowed to theextent of the individuals cash contribution.

http://www.hmrc.gov.uk/news/sideways-loss-relief.htm
http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02284.htmlhttp://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02284.htmlhttp://www.hmrc.gov.uk/news/news100512.htmhttp://www.hmrc.gov.uk/news/news100512.htmhttp://www.hmrc.gov.uk/press/film-prod-partner.htmhttp://www.hmrc.gov.uk/press/film-prod-partner.htmhttp://www.hmrc.gov.uk/news/sideways-loss-relief.htmhttp://www.hmrc.gov.uk/news/sideways-loss-relief.htmhttp://www.hmrc.gov.uk/news/sideways-loss-relief.htmhttp://www.hmrc.gov.uk/press/film-prod-partner.htmhttp://www.hmrc.gov.uk/news/news100512.htmhttp://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02284.html


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5. Campaign to get VAT filing up to date

Nobody likes to pay tax and few people enjoy the process of having to complete returns.Sadly, a lot of registered traders are behind in the VAT compliance and so HMRC are runninga campaign to encourage those people who are late in filing to come forward and bring

themselves up to date.

The invitation carries something of a threat for anyone tempted to keep delaying. After all, ifsomeone is registered for VAT HMRC know about whether that person has filed or not and itis only a matter of time before HMRC gets around to using the information. The VATOutstanding Returns campaign is an opportunity for anyone potentially affected to bring theirVAT returns and payments up to date. To take advantage of the best possible terms theymust complete and submit their returns by 28 February 2013.

If the VAT returns are still outstanding after 28 February, the dilatory person s tax affairs willreceive closer attention from HM Revenue & Customs (HMRC).

http://www.hmrc.gov.uk/campaigns/vator.htm
http://www.hmrc.gov.uk/campaigns/vator.htmhttp://www.hmrc.gov.uk/campaigns/vator.htmhttp://www.hmrc.gov.uk/campaigns/vator.htm

notes accompanying the icas tax podcast for the week starting 21 january 2013

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