EBT – THE BATTLE CONTINUES

Date Added: 27 August 2009

The publication of Revenue & Customs' Brief 49/09 on 11 August 2009 represents a further stage in HMRC's attempts to render tax planning through Employee Benefit Trusts "EBTs" counter productive.

The battle over the effectiveness of these arrangements has raged on throughout the past decade and has involved litigation to the House of Lords and redrafting of the relevant legislation.

HMRC has now made public its view that any close company that fails to secure a Corporation Tax deduction for its contribution to an EBT will face a potential Inheritance Tax charge. In their view, such a charge will apply if the participator is not excluded from benefitting by the Trust Deed, or if the participator is so excluded, but does in fact benefit through loans or the arrangement of funds to sub-trusts for the benefits of themselves or their family.

They have announced that pending the resolution of any legal challenge to this view, existing cases will be dealt with on this basis. These views are certain to be challenged by tax advisers and more litigation can be expected.

A MINIMUM RATE OF INTEREST ON OVERPAID TAX, AND OTHER RULES ALIGNED

Date Added: 17 August 2009

HMRC has announced changes to the rules for calculating rates of interest on late-paid and overpaid tax.

First of all, there is a welcome change to introduce a new minimum interest rate of 0.5% on tax repayments. This means that in future interest will still be payable even when the Bank of England base rate falls below 1.5%.

Also, the Government will be introducing changes to the current interest rates regime. The number of formulae used by HMRC to calculate its interest rates has reduced. Interest charged on late payments of tax will be the Bank base rate plus 2.5. For interest paid on overpayments, the rate will be the Bank base rate minus 1.

This follows the Budget 2009 announcement that the Government would introduce secondary legislation to harmonise interest rates for those taxes where HMRC currently charges and pays interest. The regulations have now been published. They are The Taxes and Duties (Interest Rate) (Amendment) Regulations 2009, SI 2009/2032. They were laid before Parliament on 22 July 2009 and come into force on 12 August 2009.

The new rates and the minimum repayment rate take effect 13 working days after the September 2009 meeting of the Bank of England Monetary Policy Committee. HMRC will recalculate its rates after the September Monetary Policy Meeting (MPC) using the new formulae provided in the regulations. Harmonising the rates will mean that some of them will change even if there is no change in the base rate announced by the MPC. The rates will be published in a press release and on the HMRC website.

The new rates will apply until there is a change in the base rate and it becomes necessary for HMRC to recalculate its rates again. The rates applied for all earlier periods are not changed - the new rates will not be retrospective.

These changes will pave the way for the implementation of full interest harmonisation which was legislated for in this year's Finance Act.

SECOND OFFSHORE DISCLOSURE AMNESTY DETAILS ANNOUNCED

Date Added: 14 July 2009

HM Revenue & Customs (HMRC) has confirmed that there will be a second opportunity for people with undeclared interest to come forward voluntarily in return for lower penalties.

Under the scheme, which HMRC will be promoting in the press to encourage take-up, taxpayers will be able to submit disclosures either on paper or online. For those using the paper form the submission period runs from 1 September until 31 January 2010. For those wishing to take up the online option they can do so from 1 October until 12 March 2010.

If you received a letter about your offshore accounts under the previous amnesty (in 2007) and did not participate, the maximum penalty will be capped at 20%. This will mostly be relevant to customers of RBS, Barclays, HSBC, HBOS and Lloyds TSB.

For those people receiving a letter from HMRC for the first time, the penalty will be capped at 10%. This compares favourably with the 30% minimum penalty that HMRC has said it will seek for those who do not voluntarily come forward.

If you have any concerns or you receive a letter from HMRC regarding an offshore account, you should speak to us now.

HMRC WINS AGAIN

Date Added: 14 July 2009

HM Revenue & Customs' previous victory in the Drummond case has been upheld by the Court of Appeal. The Drummond case concerned a marketed scheme that aimed to generate a capital loss with no associated economic loss using life assurance policies.

The Court of Appeal's ruling states that the legislation being relied on was designed solely to avoid a double tax charge that might otherwise have arisen; it could therefore not be used to create an "imaginary loss" to be set against a "real gain".