INLAND REVENUE TAX BULLETIN 
Issue 11

CONTENTS

Countering Avoidance of PAYE (Article no longer current)

Relocation Packages

Self-Assessment and Partnerships (Superceded by BIM72200 onwards)

Farming: Compensation Paid to "SLOM" Producers

interpretations

Capital Gains Tax:

Corporation Tax:

International Taxation:

Schedule E:

miscellaneous

Inland Revenue Reorganisation: The Large Groups Office (Article deleted since index 2004)

Self-Assessment: a guide (Article deleted since index 2004)

Self-Assessment Seminars (Article Is No Longer Current)

Tax Treaty Network (Article deleted since index 2004)

Change to Repayment Arrangements

Schedule D Cases I and II: Deduction for PPPs

Schedule E: mobile telephones (Article deleted since index 2004)

Lloyds Underwriters Seminars (Article Is No Longer Current)

IR Booklets

Statements of Practice and Extra-Statutory Concessions

FOREWORD

The content of Tax Bulletin offers some insight into the thinking of our technical specialists on particular issues. The Bulletin does not replace formal Statements of Practice.

Publication will be four times a year, and include a cumulative index on an annual basis.

Please send any comments and suggestions, including your views on those subjects you would like to see covered, to:

Miss Louise Boyle
Room 402,
22 Kingsway,
London, WC2B 6NR

We are sorry though that neither she nor our contributors will normally be able to enter into correspondence about Tax Bulletin or its contents.

Tax Bulletin is covered by Crown Copyright. There is no objection to firms copying the Bulletin for their own use. Anyone wishing to republish Tax Bulletin or extracts more widely should write to Louise Boyle.

Distribution is automatic to those on the Revenue Press Release mailing list. Others wishing to subscribe should complete the slip appearing at the back of each issue.

! This Article Is No Longer Current (Deleted Index 1999)

COUNTERING AVOIDANCE OF PAYE

The Finance Act 1994 has extended the scope of PAYE so that it now applies to certain payments in the form of assets, and to payments made by intermediaries of employers. These new PAYE rules come into effect 21 days after the Notional Payment Regulations are laid before Parliament (see Press Release). The aim of the legislation is to discourage employers from using artificial means of providing cash to employees in order to avoid PAYE. However, these devices may continue to be used for non-tax reasons, and in those cases the new PAYE rules will come into operation. This article explains when those rules will apply and how they will operate, and answers questions employers may ask.

COVERAGE OF THE NEW RULES

The scope of the new rules is set by Sections 203B and 203F to 203I of the Taxes Act. Section 203F is the key section. This section treats as a payment for PAYE purposes the provision of Schedule E income in the form of a "tradeable asset". This is defined in Section 203F(2) as either

  • an asset capable of being sold on a recognised investment exchange, or
  • an asset which can be sold using "trading arrangements" (defined in Section 203K).

Sections 203G to 203I deal with the provision of money or "tradeable assets" using vouchers or credit tokens. These sections reflect the special rules for vouchers etc in Sections 141 to 143 of the Taxes Act. Section 203B deals with payments made by intermediaries of employers; this is not dealt with in the rest of this article.

WHAT DOES THIS MEAN FOR EMPLOYERS?

It means that if employees are provided with remuneration in the form of assets which can be sold on certain exchanges, (or with vouchers for such assets or with credit cards which are used to acquire such assets), then the employer should operate PAYE. The assets covered include shares tradeable on the Stock Exchange, futures tradeable on the LIFFE, and commodities tradeable on the London Metal or Commodity Exchanges. More generally, if employees get assets or vouchers and arrangements exist, which enable them to convert them into an amount of cash roughly the same as what the assets or vouchers cost the employer, then PAYE will apply.

WHAT ABOUT EMPLOYEE SHARE SCHEMES?

This measure only applies where the provision of assets results in Schedule E income. Shares provided under approved employee share schemes are not affected by this measure, as for most there is no Schedule E income. For unapproved schemes, if the employer is a quoted company, or if arrangements for selling the shares exist, then the shares are "tradeable assets". However Regulation 3 of the Notional Payments Regulations takes out of PAYE shares (and rights over shares) in the employer company, or a company controlling the employer company. This is a change from the draft Regulations published on 1 March, and was made in response to requests from employers and their representatives.

AMOUNT SUBJECT TO PAYE

Sections 203F to 203I each provide a definition of the amount to which PAYE is to be applied. It is intended that PAYE should be applied to the amount of income which will be taxed under Schedule E: it is not the intention to require PAYE to be operated on an amount greater than the Schedule E income concerned. As long as an employer can show that a reasonable attempt at arriving at the proper amount for the purposes of PAYE has been made, then the Revenue will not argue that there has been a PAYE failure because of small differences (for example, variations in the market price of an asset during the day it was provided).

OPERATION OF PAYE

Where should payments be recorded?

Payments in the form of "tradeable assets" (known as "notional payments") should be entered on the deductions working sheet, or equivalent payroll record, for the pay period in which the date of the notional payment occurs. Tax should be calculated in the normal way, usually on a cumulative basis.

What can the tax be deducted from?

Tax on the notional payment must be deducted from any actual payments made at the same time as the notional payment, and from any other actual payments paid later in that pay period. This tax is deducted in addition to tax on the actual payment and other deductions including NICs. If both a notional and an actual payment are made at the same time then for the purpose of calculating the tax on the notional payment it should be treated as the top slice of pay.

What if the employee has a K code?

Where a K code is being operated, the 50% overriding limit on the tax that can be deducted from any payment should be ignored, when calculating the deduction from any actual payment in respect of notional payments. Similarly, if the tax on the notional payment is more than the actual pay, then no attempt should be made to collect any tax which could not be deducted in the immediately preceding period because of the 50% overriding limit. Instead, the excess from the preceding pay period should be carried on to the following pay period.

What if it is not possible to deduct all the tax on the notional payment?

All the tax due on the notional payment has to be accounted for to the Collector (along with ordinary PAYE deductions for that period) 14 days after the end of the period in which the notional payment was paid. If the tax could not all be deducted from the employee's pay, then there will be a further Schedule E charge on that amount unless that amount is made good to the employer within 30 days of getting the notional payment.

What should be included in end of year pay and tax details?

Care needs to be taken, particularly where a non-cumulative code has been used, when completing end of year forms (P14, P35 and P60), and indeed P45s, to include the notional payment in pay, and to include all the tax which has been paid to the Collector in the year in tax details (whether or not the employee has made good to the employer any tax on a notional payment that it was not possible to deduct from pay).

What should be entered on Forms P9D and P11D?

Notional payments, where PAYE has been applied, should not be included on Form P11D. However, as mentioned above, a tax charge (under the new Section 144A) does arise if the employer has accounted for PAYE tax which could not be deducted from actual pay, and the employee has not made good to the employer the excess tax within 30 days. This amount not made good within 30 days should be recorded on Form P11D or P9D as appropriate. The employer will need to make sure that all necessary records (of tax deducted, tax simply accounted for, and the date and amount of any employee reimbursements to the employer) are kept so that this income can be reported.

RELOCATION PACKAGES:
GUARANTEED SELLING PRICE
(OR SIMILAR) SCHEMES

Employers often use guaranteed selling price (or similar) schemes (GSP schemes) to help their employees who are making a job- related house move to dispose of their existing homes.

WHAT ARE GSP SCHEMES?

GSP schemes take various forms. But most of them include all or some of the following characteristics:

  • employees are offered a guaranteed selling price (minimum purchase price) for their homes;
  • a relocation company is used to attend to the details of the transactions;
  • employees transfer the beneficial interest in their homes either to their employer or to a relocation company, and the employer or relocation company makes sub-sales to third parties;
  • employees are given the right to all or some of the additional proceeds if their properties are sold to the third parties for more than the guaranteed prices.

We have been asked about the tax implications of GSP schemes for both employees and employers. The precise tax implications in each case will depend on the exact legal effect of the contracts entered into by the respective parties. What follows are general guidelines. Unless otherwise stated, the guidelines are based on the assumption that the guaranteed selling price offered to the employee is the open market value of the property at the time of the offer.

The point at which the beneficial interest passes from the employee may vary from scheme to scheme. In addition, there is a fundamental difference between English and Scots Law as regards the date when beneficial ownership passes on a sale of land. For tax purposes that is relevant only insofar as the point in time from which tax consequences will flow, change or cease, will be different.

TAX IMPLICATIONS FOR EMPLOYEES: RECEIPT OF THE GUARANTEED SELLING PRICE

If the employee is a director or employee within Part V Chapter II ICTA 1988, we take the view that the GSP scheme is one of the facilities within the meaning of "benefits or facilities" in Section 154(2). The tax charge on such a facility is its cash equivalent.

The statutory definition of the cash equivalent is in Section 156. This provides that the cash equivalent of the benefit is the cost of the benefit less any amount made good by the employee. And the cost of the benefit is the expense incurred in, or in connection with, its provision.

This definition may encompass more than the price paid (or other valuable consideration given) for the property. For instance, the legal costs incurred by the employer or relocation company, as purchaser, would be part of the expenses. Where the facility consists of the relocation company acquiring the beneficial interest, on the understanding that the employer will meet any handling, financing or other costs related to the purchase, the cash equivalent would usually, under the law, include all the costs the employer meets.

However, where an employee sells or transfers his or her property through a GSP scheme, the cost of the benefit so provided will, by concession, be taken as

  • the price paid (or other valuable consideration given)

together with

  • any costs which would normally be the vendor's and which, by reason of the employment, are borne by someone other than the employee.

Other costs incurred in or in connection with the sale or transfer will be ignored.

The concession which enables GSP arrangements to be treated in this way was announced in an Inland Revenue news release "Benefits In Kind: Extra-Statutory Concession" issued on 27 April 1994. It applies from 1994-95 onwards. For years up to and including 1993-94, the Inland Revenue will not seek tax on more than the benefit computed on the basis of the new concession, provided the employee's tax liability for that year had not been settled before 27 April 1994.

STATUTORY EXEMPTIONS

Where a Schedule E charge arises in the above situations and is not covered by the Extra-Statutory Concession, the charge may be relieved by the exemption set out in Sections 191A, 191B and Schedule 11A, if it relates to qualifying removal expenses and benefits. Details about this new exemption were set out in Issue 9 of Tax Bulletin on page 94.

TAX IMPLICATIONS FOR EMPLOYEES: THE RIGHT TO ADDITIONAL PROCEEDS

Where the contract for the sale of the employee's property, either to the relocation company or to the employer, provides for the employee to receive additional proceeds if the property is actually sold to a third party for more than the guaranteed selling price, this is a right which may have a value. In which case there could be a Schedule E charge if the value of the right plus the guaranteed amount paid to the employee exceeds the open market value -- the amount made good by the employee. The tax charge is on the amount by which the open market value is exceeded.

Any additional proceeds which are paid to the employee in satisfaction of the right are capital receipts. But any capital gain arising from such a capital receipt may be relieved by Extra- Statutory Concession D37 to the extent that the employee satisfies the conditions for the private residence exemption in respect of the property. An Inland Revenue Press Release "Private Residence Exemption: Clarification of Concession for Relocation Arrangements" issued on 27 April 1994 confirmed that this was so irrespective of whether the beneficial interest in the property is transferred to the relocation company or to the employer.

Where the contract of sale makes no provision for the employee to receive any additional proceeds as a right, but any amount is nevertheless subsequently paid over to the employee, it is probable that the amount would give rise to a charge under Schedule E as an emolument from the employment.

TAX IMPLICATIONS FOR EMPLOYEES: OTHER MATTERS

Employee's own legal costs etc.

The costs of the employee selling the property need to be considered irrespective of the person to whom the property is sold (a relocation company, the employer or a third party). There may be tax consequences if the employer or relocation company, for example:

  • pays the employee an amount to, say, cover the costs of a solicitor to act on behalf of the employee, or meets the employee's liability in respect of such services -- those payments would be emoluments from the employment and chargeable under Schedule E;
  • provides, say, legal services or arranges for them to be provided -- this would be a benefit for employees within Part V, Chapter II.

Of course, any tax charge arising in such circumstances may be relieved by the exemption set out in Section 191A and Schedule 11A provided the payments or services are qualifying removal expenses or benefits. For more details see Issue 9 of Tax Bulletin, at page 94.

Sale of property at an overvalue

If either an employer or the relocation company buys an employee's property for more than its market value, regardless, the excess paid to the employee will be an emolument chargeable to tax under Schedule E.

TAX IMPLICATIONS FOR EMPLOYERS

Trading companies/businesses

The costs of relocation packages provided by an employer for employees who relocate at the request of the employer should normally be allowed as a Case I or II deduction.

Where the employer acquires the beneficial interest in the employee's property, and that property is actively marketed and sold by the employer as quickly as possible without being used by the employer, the transaction will be dealt with on revenue account. Accordingly, the incidental costs and any loss on disposal of the property will normally be allowable deductions. Equally, any profit on disposal of the property will be taxable as a Case I or II receipt.

Investment companies

Where an investment company provides relocation packages for its employees who are obliged to relocate reasonable costs may be allowed as expenses of management.

However, where the investment company acquires the beneficial interest in the employee's property, the purchase and subsequent sale of the property will normally fall to be dealt with under the Capital Gains Tax rules.

(Superceded by BIM72200 onwards)

SELF-ASSESSMENT
PARTNERSHIPS AND THE
CURRENT YEAR BASIS OF ASSESSMENT

The main changes introduced in the Finance Act 1994 will apply to partners just as they apply to other taxpayers who make returns. But there will also be some changes particular to partnerships. Issue 10 of Tax Bulletin touched briefly on how the change to the "current year" (CY) basis of assessment will affect partnerships in the context of the computational rules for the transitional year. Apart from that, we have received a number of questions on how the new rules will apply in the less straightforward types of situation, and this article seeks to cover some of these areas.

EXAMPLE 1

On 1 July 1994 A and B go into business in partnership for the first time. Their annual accounting date is 30 June. On 1 October 1994, C joins. Basis periods etc. will beBasis Period Partners A and B Partner C

Basis Period      Partners A and B           Partner C
1994-95             1 July 1994 to 5 April 1995    1 October 1994 to
5 April 1995
1995-96             1 July 1994 to 30 June 1995    1 October 1994 to
30 September 1995
1996-97             1 July 1995 to 30 June 1996    1 July 1995 to 30
June 1996
Overlap profit      9 months                       9 months
(for later relief)  - 1 July 1994 to 5 April 1995  - 1 October 1994
to 5 April 1995
plus 1 July 1995
to 30 September
1995

Assuming the business does not as a question of fact cease, the computation of partnership profits and the basis periods of A and B are not affected by the arrival of a new partner. There is no question, for tax purposes, of the partnership ceasing or commencing just because there is a change in partners.

NEW PARTNERSHIPS COMMENCING AFTER 5 APRIL 1994

As with sole traders, where a new partnership commences after 5 April 1994, the CY basis rules apply immediately. These include personal basis periods and overlaps for each partner as well as the end of the option of continuation or cessation and commencement treatment on a change of partners. (See Example 1.) The continuation election option remains for any partnership that was in existence on 5 April 1994 but if the partners do not elect for continuation on any change after that date it becomes a new partnership from the date of that change.

CONTINUATION TREATMENT WHERE THE PARTNERSHIP EXISTED AT 5 APRIL 1994

EXAMPLE 2

If, in Example 1, the business had been carried on by A, B and D since 1988 (say) and D leaves on 30 June 1994 the position is slightly different in that a continuation election is still competent. If one is submitted:

  • all the existing rules continue to apply, so the CY basis of assessment does not come into immediate effect; and
  • a further continuation election is competent when C joins the partnership on 1 October 1994 and, assuming one is made on that occasion, on any subsequent partnership change up to 5 April 1997. If one is made then, or in respect of any change in partnership composition short of total cessation of the business, the "preceding year" (PY) basis and transitional year basis period rules will apply just as for sole traders; and
  • joint liability for the partnership tax will also continue up to and including 1996-97.

But if, at either of the changes in Example 2, a valid continuation election is not made:

  • there is a deemed cessation and recommencement;
  • the old style cessation rules will apply to the ceasing partnership;
  • the CY basis will apply immediately to the new partnership (as in Example 1 -- Section 61(4) ICTA 1988, being "old" rules, is overridden); and
  • the new partnership will continue for tax purposes until the business ceases in fact, notwithstanding any subsequent changes in composition.

Clearly therefore it will be important to give early attention to the question of whether or not to submit a continuation election in respect of partnership changes during 1994-95, 1995-96 and 1996- 97.

PARTNERS JOINING "CONTINUING" PARTNERSHIPS BETWEEN 6 APRIL 1994 AND 5 APRIL 1997

A mechanism is needed to work out the personal basis period for 1997-98 of a partner who joins a continuing partnership during the three years ended 5 April 1997. This is straightforward in most cases because the same pattern is followed as for a sole trade which has the same start and cessation dates as the partnership. In most cases a partner's first CY basis period will be the same as the partnership's 12 month accounting period ending in 1997-98.

But where partners newly join in 1996-97 they may not have been in the partnership for as long as 12 months by the firm's accounting date in 1997-98. 1996-97 will be assessed on the partnership on its transitional basis period. For 1997-98 it is necessary to look at the notional trade which will determine the partner's basis periods after 1997-98 and ask what the basis periods of that trade would have been if it had been put straight on to the CY basis from the time the partner joined the partnership.

EXAMPLE 3

Partnership PQ has been running for many years accounting to 30 April annually. On 1 October 1996, R joins the partnership. This has the following consequences:

1996-97   1 May 1994 to 30 April 1996 x 12/24 
          -- partnership assessment.
1997-98   1 May 1996 to 30 April 1997 
          -- basis period for both P and Q.

In addition they will later be due transitional relief in respect of the profits for the period 1 May 1996 to 5 April 1997.

1997-98   R is treated as if his notional trade 
          had begun on 1 October 1996. If it 
          had, the basis periods under the
          new rules would be:
1996-97 1 October 1996 to 5 April 1997
1997-98 1 October 1996 to 30 September 1997
1998-99 1 May 1997 to 30 April 1998

For 1997-98 and 1998-99 these are also the actual basis periods for R. For 1996-97 the real basis period was the transitional basis period. That does not change. R's share of the partnership profits assessed for that year would be determined in the normal way as his allocation of profits on the fiscal year basis to 5 April 1997. But it is necessary to determine the notional basis period for 1996-97 so that the basis periods for later years can be properly calculated, and in particular that a full 12 months can be assessed for the second year.

The precise amount of profit potentially available as transitional and overlap relief also needs to be calculated. In this example, the period from 1 October 1996 to 5 April 1997 will be subject to transitional relief, and that from 1 May 1997 to 30 September 1997 to overlap relief. Although the mechanics of computation and method of giving effect to transitional and overlap relief are identical, the distinction is important because transitional relief is subject to the proposed anti-avoidance provisions announced in the Press Release of 31 March 1994.

EXAMPLE 4

If, in Example 3, partner R had joined one year earlier on 1 October 1995, the outcome would be the same for the 1996-97 transitional basis period on the partnership. The notional details for R personally are:

1995-96   1 October 1995 to 5 April 1996
1996-97   1 October 1995 to 30 September 1996
1997-98   1 May 1996 to 30 April 1997 
          (Transitional relief 1 
          May 1996-5 April 1997)

The notional periods for 1995-96 and 1996-97 are ignored as those years were assessed on the partnership. But for 1997-98 the notional basis period becomes the actual basis period.

PARTNERSHIP CESSATIONS DURING 1997-98 AND 1998-99

The article in Issue 10 of Tax Bulletin described the "direction" which can be issued by the Revenue in respect of 1995-96 and 1996-97 where the business ceases in the year ended 5 April 1998 (or 1996-97 only for cessations in the year ended 5 April 1999). Such a direction will only be possible where the business fully ceases, i.e. the business ceases to exist, or the business continues but there is a complete change in the persons carrying it on.

EXAMPLE 5

Partnership WXYZ has been in business for many years with results for the most recent periods as follows:

Year ended 30 April 1994           £100,000
Year ended 30 April 1995           £120,000
Year ended 30 April 1996           £150,000
Year ended 30 April 1997           £180,000
Period ended 31 October 1997        £75,000

On 31 October 1997 the business closed down. Original assessments would be:

1995-96 £100,000 (Preceding year
basis to 30 April 1994)
1996-97 £135,000 (Average of two
years to 30 April 1996)
1997-98 £180,000 (CY) (£165,000
transitional relief arises in
respect of the period from
1 May 1996 to 5 April 1997).
On cessation:
1997-98                           £180,000
£75,000
£255,000
less transitional relief          £165,000
(£90,000)
1996-97
Actual    £ 180,000 x 11/12 =     £165,000
£ 150,000 x 1/12  =      £12,500
£177,500
1995-96
Actual     £150,000 x 11/12 =     £137,500
£120,000 x 1/12  =      £10,000
£147,500
£147,500                          £100,000
£177,500                          £135,000
£325,000      is greater than     £235,000

so a direction can be issued to apply the old computational rules throughout. Practically, this means revising 1995-96 and 1996-97 assessments to the fiscal year basis.

EXAMPLE 6

The figures are the same except that cessation takes place one year later and closing results are:

Year ended 30 April 1998           £150,000
Period ended 31 October 1998        £80,000
Assessments would be:
1996-97   £135,000 (averaged under the transitional rules, as in
Example 5)
1997-98   £180,000 (as in Example 5)
1998-99   £230,000 (the basis period for all partners is 1 May 1997
to 31 October 1998, thus £150,000 plus £80,000)
less      £165,000 transitional relief

Because of the cessation in 1998-99 the amount assessed for 1996-97 is reviewed. As above, actual earnings in that year are £177,500.

As this sum is greater than the amount assessed (£135,000) a direction can be issued to increase the assessment.

Contrast with Example 5 -- for a cessation in 1997-98 both 1995- 96 and 1996-97 are reviewable in the normal way. But the 1998-99 cessation does not open up 1997-98 for review because the CY basis operates for that year. The above example is of course equally applicable to individual taxpayers. Where a partner leaves in the two years to 5 April 1999 but the partnership continues, no adjustments to 1995-96 or 1996-97 are made either to the partnership or the retiring partner. (See Example 7.)

SUBSIDIARY INCOME

Many partnerships also receive income which is not trading or professional income, e.g. interest on bank deposits. The strict position presently is that such income is removed from the partnership accounts and assessed on the partners separately under, e.g. Case III on a fiscal PY basis. Treating the income separately from other income, and by reference to different basis periods, overlooks the underlying reality, that the income belongs to the partnership. In practice it is in fact often aggregated with the mainstream income. The new system will reflect that reality. Thus, for trading and professional partnerships only, the same basis period rules will apply to partnership Case III to VI income and Schedule A income as apply to trading or professional income.

This will be straightforward once the new rules are firmly established. But it does have implications for the transition and for new partners. Example 8 shows how the new rules apply in the same way on joining a partnership as for trading or professional income, as well as confirming how this change fits with transitional relief.

EXAMPLE 7

A long-standing partnership ABCDE accounts annually to 30 April. Partner E leaves on 31 December 1997. The basis periods and assessments are as follows.

Taxpayer        1996-97           1997-98          Transitional/
Partnership     1 May 1994        None             None
to 30 April 1996
x 12/24
A, B, C and D   None              1 May 1996 to    1 May 1996 to
(individually)                    30 April 1997    5 April 1997
E               None              1 May 1996 to    1 May 1996 to
31 December      5 April 1997 --
1997 (less       given immediately*
transitional
relief)

* Effectively tax is due for 1997-98 on the profits from 6 April 1997 to 31 December 1997. This of course is just as it would be at present.

EXAMPLE 8

A long-running professional partnership, LM, makes up accounts to 30 April each year. It also receives bank interest (untaxed) on partnership funds. A new partner, N, joins on 1 May 1997.

Basis periods will be:

1996-97 (Interest arising in the 2 years
to 5 April 1997) divided by 2
("old" rules apply)
1997-98 For L and M, the year to 30 April 1997.

Transitional relief arises for the period 1 May 1996 to 5 April 1997.

N's assessment will relate to the basis period 1 May 1997 to 5 April 1998.

1998-99 Interest arising in the year to
30 April 1998.

This applies to the new partner as well. Overlap profit arises to him for the period 1 May 1997 to 5 April 1998.

Future articles

It is planned in coming editions of Tax Bulletin to illustrate, amongst other things, how the new filing/payment and Revenue enquiry rules will affect partnerships, as well as covering the administrative (as opposed to computational) transitional arrangements.

FARMING:
MILK PRODUCERS --
SLOM COMPENSATION

When milk quota was allocated in 1984 producers received amounts based on production in a reference period. Some producers (the so- called SLOM producers) were not allocated quota because, as a consequence of taking part in an EC scheme for temporary non- production of milk, they did not produce milk in the reference period. So participation in a temporary scheme had the unforeseeable consequence of depriving them of quota.

Following court action SLOM producers were awarded quota to make good their loss. Some people took further action because they had lost income as a result of being temporarily without quota.

The European Court ruled on 19 May 1992 that compensation for loss of income should be paid to 5 SLOM producers. On 5 August 1992 the Community announced that the compensation scheme, once decided, would be extended to all SLOM producers who met criteria to be set.

The criteria were set out in a Council Regulation which came into force on 8 August 1993. Producers who wanted compensation for loss of income had to apply to MAFF (or the equivalent body in other countries) on a special form by 30 September 1993. Offers of payment were made within four months of the return of the form to MAFF and producers then had two months to accept or reject the offer. In the overwhelming majority of cases producers accepted the offer and, with a few exceptions, the process of offer and acceptance was completed by the end of March 1994. A large number of payments were made by April 1994 to those SLOM producers who were no longer bound by restrictions in EC legislation relating to the transfer of their SLOM quota (SLOM 1 producers). Payments of compensation to SLOM producers still bound by those restrictions (SLOM 2 producers) will be made after 1 July 1994.

The Council Regulation makes it clear that the compensation is paid because the producers concerned were temporarily deprived of income as a result of not being allocated quota in 1984. Following decided cases, such as London and Thames Haven Oil Wharves Ltd v Attwooll, 43 TC 491, it is clear that the compensation is on income account. But the compensation is computed by reference to loss of income for particular periods (in most cases 5 August 1987 to 29 March 1989 (SLOM 1) or to 15 June 1991 (SLOM 2)) and we have been asked when it should be recognised for income tax purposes and, in particular, whether accounts for periods which have already been settled should be reopened.

We consider that:

  • the compensation should be recognised as income in one sum in the accounting period in which legal entitlement arises and the amount paid can be quantified with reasonable certainty using information available at the time the accounts are finalised. (On this basis the earliest period for including the compensation will be the accounts covering the date of the judgement (19 May 1992) and the latest period will be the accounts covering the making and acceptance of the offer in settlement.);
  • the date of recognition cannot be backdated by the reopening of accounts but the normal farmer's averaging provided by Section 96 ICTA 1988 may apply;
  • additions to the sums paid to producers for interest up to the date of payment should be dealt with in accordance with the normal Case III rules.

In our view such treatment accords with commercial accountancy practice and is supported by case law.

In Johnson v W S Try Ltd, 27 TC 167, Lord Greene reviewed earlier cases and concluded that in cases where receipts had been related back there was something which could "fairly be regarded as analogous to a trade debt". He recognised that even where receipts were analogous to trade debts it might not be good accounting practice actually to bring them into the account as trade debts. But he went on to say that in the case before him, "what director, what accountant, could possibly in any circumstances in the case of this compensation, hedged round as it is with every kind of contingency and speculation, bring into the account any figures whatsoever as representing what they hoped they would get by way of compensation in the future?".

In Severne v Dadswell, 35 TC 649, Roxburgh J took account of Lord Greene's comments in deciding that remuneration paid to a miller under a wartime arrangement should be referred back to the period of the arrangement. He said, "authority in my view establishes the proposition that if it can be said at the moment of discontinuance that the payment for some work already done has not been finally settled, even though there is no legal claim for any more, then if a further payment is made afterwards, even though it is wholly gratuitous, the account can be reopened so as to let in what is analogous to a trade debt at the figure actually received. If, on the other hand, the item is not analogous to a trade debt, or if there has been a final settlement, the account has been finally closed".

SLOM compensation is not, in our view, analogous to a trade debt. In the period by relation to which the compensation was computed the possibility of compensation was too contingent and speculative for anything to have been recognised.

revenue interpretations

! This Article Is No Longer Current (Deleted Index 2004)

CAPITAL GAINS TAX:
COMPENSATION FOR PERMANENT
CUTS IN MILK QUOTA

Milk quota, which allows a milk producer to produce a certain amount of milk without paying a supplementary levy, was introduced in 1984.

In June 1991, milk producers in the United Kingdom suffered a 2.2% cut in the amount of milk quota they held. They were entitled to compensation for the amount of quota they had lost and the first payment of this was received in June 1992. Further payments may be received in 1993, 1994, 1995 and 1996.

Similar arrangements apply to producers who, as part of the overall process of reducing milk production, elected to cease production completely.

We have been asked how this compensation will be treated for Capital Gains Tax. As it represents a payment for the loss of all or part of a producer's quota, it will be treated as a capital sum derived from an asset and will be chargeable in the year(s) of receipt (Section 22(1)(a) and (2) TCGA 1992).

The treatment of compensation received for cuts in quota which were announced prior to 1991 is not affected by this. Such compensation was taxable in the first year of receipt.

! This Article Is No Longer Current
MILK QUOTA:
A REQUEST TO PRACTITIONERS

In Tax Bulletin Issue 6, February 1993, we explained why we did not consider that the decision in Faulks v Faulks [1992] 1 EGLR 9 affected the treatment of milk quota for Capital Gains Tax purposes. Nothing has happened since that article was published to make us alter that view but a case involving the point will be heard by the Commissioners in the near future.

We are asking practitioners who have open cases involving quota if they are prepared to await the outcome of this case and local Inspectors are writing to those involved.

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REINVESTMENT RELIEF

Reinvestment relief is a new relief brought in by the finance Act 1993. The scope of the relief was widened in the Finance Act 1994.

Under the relief certain chargeable gains accruing to individuals and trustees of certain settlements may be rolled over if the proceeds from the relevant disposal are reinvested in qualifying shares in an unquoted trading company or the unquoted holding company of a trading group.

We have been asked to explain our views on three aspects, in particular, of the legislation which is found in Sections 164A to 164N Taxation of Chargeable Gains Act (TCGA) 1992 (subject to the amendments included in Schedule 11 Finance Act 1994).

WHAT DOES "THE ACTUAL AMOUNT OR VALUE OF THE CONSIDERATION" MEAN IN SECTION 164A(2)(a)(ii)?

This question is, briefly, whether the word "actual" means literally that, or whether, in the case of a gift or legacy, it means the market value of the asset (because subsection (10) of Section 164A applies the market value rules first).

Our view is that "actual" means literally "actual". So, it is not possible to rollover gains on to shares which are inherited or received as a gift.

CAN A REINVESTMENT BE MADE IN A COMPANY WHICH IS NOT RESIDENT IN THE UK?

This question relates to Section 164N(2) which applies Section 170 TCGA to the reinvestment relief scheme. Section 170(2)(a) requires a company to be resident in the UK for the purpose of interpreting the Capital Gains group provisions. We have been asked whether this implies that a non-resident company could not be a qualifying company for the purpose of reinvestment relief.

Our view is that a singleton company, that is, a company with no subsidiaries and which is not itself a subsidiary, does not have to be UK resident in order to be a qualifying company.

But, a non-resident holding company will not qualify under Section 164G(2). Nor will a non-resident trading company which has trading subsidiaries. And a non-resident company which is itself a subsidiary will be excluded by the rule in Section 164G(3)(b).

IS RELIEF AVAILABLE ON A CHARGEABLE GAIN WHICH ARISES UNDER SECTION 116(10)(b) WHEN A QUALIFYING CORPORATE BOND (QCB) IS DISPOSED OF?

When a QCB is redeemed or otherwise disposed of that disposal does not give rise to a chargeable gain -- Section 115 TCGA 1992. So reinvestment relief cannot be available in respect of that disposal. However, in calculating any chargeable gain under Section 116(10)(a) a claim for reinvestment relief may be made on the basis of a disposal at the date that the chargeable gain is calculated -- in other words, at the time of the relevant exchange. So reinvestment relief will be available in accordance with the provisions in Finance Act 1993 where the exchange took place on or after 16 March 1993. And relief under the Finance Act 1994 provisions will be available in respect of chargeable gains calculated on exchanges on or after 30 November 1993.

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RESTRICTIONS ON SETTING OFF CAPITAL LOSSES:
TIME LIMITS FOR ELECTIONS --
SCHEDULE 7A TCGA 1992

This article tells you about cases in which we will automatically extend the time limits for elections in paragraphs 4(8)(a) and 5(8)(a) Schedule 7A of the Taxation of Chargeable Gains Act (TCGA) 1992.

The Finance Act 1993 introduced a new Section 177A and Schedule 7A into TCGA. These provisions restrict the set-off of capital losses brought into a group of companies, as a result of a company joining a group on or after 1 April 1987. They apply where the losses are set off against gains arising on or after 16 March 1993. Certain amendments to Schedule 7A were made by the Finance Act 1994.

The provisions apply to:

  • losses which arose on disposals before the company joined the group. In these cases, the whole of the loss is a pre-entry loss; and
  • losses which arose after the company joined the group on disposals of assets which were held by the company when it joined. In these cases, there are detailed rules to determine the pre-entry proportion of the loss. The normal time apportionment basis is subject to an election to have the pre- entry loss computed by reference to the market value of the asset at the time it was brought into the group. For pooled assets, there can also be an election concerning the identification of the assets treated as included in any disposal.

There are time limits for these elections. In each case, the election should be made to the Inspector within:

(a) two years from the end of the accounting period in which the loss arose, or

(b) such longer period as the Board of Inland Revenue may allow.

As the provisions can operate in relation to losses which arise on disposals of assets by companies which became members of the relevant group on or after 1 April 1987, they may apply in situations where elections would be beneficial, but the normal two year time limit has already passed. We intend to extend the period for elections for these cases, and others where the time limit would expire less than two years after the 1993 Finance Bill received Royal Assent. This was on 27 July 1993.

Inspectors will, accordingly, accept elections under paragraphs 4(8) and 5(8) Schedule 7A TCGA as made in time in all cases where they are made within two years of the date of Royal Assent, that is by 27 July 1995.

Any queries concerning the above should be addressed to:

Mark Preston
Capital & Valuation Division (CGT)
Sapphire House
550 Streetsbrook Road
Solihull B91 1QU
Tel: 021-711 3232 ext 2220

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CORPORATION TAX:
ALLOWANCE OF INTEREST PAID BY
COMPANIES WITH NEITHER TRADING
NOR INVESTMENT STATUS

Section 338 ICTA 1988 provides for the allowance of charges on income and capital. Amongst other things it allows the deduction of the payments of interest described at subsection (3). Subsection (6) provides that the interest is only available as a deduction where the company paying the interest is a trading or an investment company, where it is paid for the purposes of a trade carried on by the company, or where the interest would have been allowable, under Section 353 ICTA 1988, if it had been paid by an individual. This last category (Section 338(6)(d)) allows companies which are neither trading nor investment companies a deduction for interest paid on loans to buy land which meet the conditions in Section 354 ICTA 1988. This provision is of value to companies such as housing associations which, although neither carrying on a trade nor qualifying as an investment company, pay interest on loans to purchase property. Section 338(6)(d) only provides for a deduction to be made in the period of payment of the interest. Should the interest exceed the profits, there is no provision for the carry forward of the excess interest to future periods, and no such carry forward can be allowed or made.

The question of carry forward of interest allowed under Section 338(6)(d) has caused some confusion in the past and there have been cases where carry forward has been accepted where there is no statutory entitlement. We will not seek to disturb such cases where carry forward has already been allowed. Where the carry forward of excess interest in respect of an accounting period was agreed with the Inspector before 16 May 1993, but a deduction for the interest has not yet been allowed in a later period, that interest will continue to be carried forward until it can be deducted against future property income, provided that the company continues to let out the property for whose purchase or improvement the original loan was obtained. In any other case excess interest under Section 338(6)(d) cannot be carried forward.

[Section 338 ICTA 1988]

INTERNATIONAL TAXATION:
VISITORS TO THE UK:
RESIDENCE POSITION FOR TAX PURPOSES

A revised edition of the booklet IR20, 'Residents and non- residents -- Liability to tax in the United Kingdom' was issued last November. This note supplements Chapter 3 of the booklet about determining the residence status of certain individuals coming to the UK.

Where an individual comes to the UK as a short- term visitor, he or she will be treated as resident only if visits to this country total 183 days or more in a tax year, or average 91 days or more a year over 4 tax years (paragraph 3.3 of booklet IR20 refers). From 6 April 1993 the fact that a short-term visitor may have accommodation in the UK available for use is no longer relevant in determining residence (Section 208 Finance Act 1993).

However, an individual who comes to the UK with the intention of either living here permanently or remaining here for at least 3 years is treated as resident from the outset (paragraph 3.1 of booklet IR20 refers). Where such an intention exists, it is likely that the individual would be regarded as resident even where absent from the UK for part of the time -- even if the individual were present here for less than 91 days in a particular year.

If there was no positive intention to remain in the UK for at least 3 years and the individual has not come to the UK to work for at least 2 years (paragraph 3.6 of booklet IR20 refers), such a person would be treated as a short-term visitor. Alternatively, someone might have the intention at the outset of coming to and remaining in the UK for at least 3 years but subsequently change those plans, for example, in the first year. On the face of it, that individual would initially be treated as a long-term visitor and resident in the UK; but the position would be reviewed when the change of circumstances occurred and this might lead to a revision of residence status.

In determining which category applies in any particular circumstances, it will be necessary to consider all the facts, in particular the individual's intentions and what the normal living pattern will be. For example, someone might come to the UK with the intention of being based here for at least 3 years, but would nevertheless be treated as a short-term visitor if he or she intended to stay for less then 91 days a year on average.

This could be, say, an individual previously resident in Australia who takes up a post as manager of a group's European operations -- a post involving work in several countries and expected to last for 5 years. He moves his wife and family to the UK. His intention from the outset is to spend two months of each year in the UK and the rest of his time elsewhere in Europe -- either working or on holiday. In these circumstances, the visits in each year are for a temporary purpose only and the individual would be treated as a short-term visitor, and not resident in the UK for each year where the limits in paragraph 3.3 of booklet IR20 were not exceeded. Of course, each decision depends upon its own particular facts.

For brevity, this note does not deal with ordinary residence, but that would be a factor in arriving at an individual's precise tax position.

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SCHEDULE E:
TRAVELLING AND SUBSISTENCE EXPENSES --
TEMPORARY ABSENCE FROM NORMAL PLACE OF WORK

We have been asked in what circumstances employees temporarily absent from their normal place of work can claim a deduction for travelling and subsistence expenses under Section 198 Income and Corporation Taxes Act 1988.

Where it is expected that employees will be temporarily absent from their normal place of work, they can claim a deduction for expenses necessarily incurred in traveling to the temporary work place. If the duties, or the distance involved, make an overnight stay at that place necessary, a deduction for accommodation and subsistence can also be claimed.

Normally employees are not regarded as temporarily absent from the normal place of work unless:

(a) the absence is not expected to, and does not in fact, exceed 12months; and

(b) the employee returns to the normal place of work at the end of it.

If these conditions are not satisfied, any travel, accommodation and subsistence expenses payments made by the employer will be taxable.

But where:

(a) an employee is initially expected to be absent from the normalplace of work for a period of up to 12 months before returning tothe normal place of work; and

(b) circumstances change during the period and it becomes known thatthe absence from the normal place of work will exceed 12 months;

we take the view that any travel and related subsistence expenses may be paid free of tax up to the date when the change of circumstances became known. Travelling and subsistence expenses paid after the date the change of circumstances became known are taxable in the normal way.

Employers with dispensations for expenses payments to employees temporarily absent from their normal place of work need not report payments up to the date when the change of circumstances becomes known. Other expenses should be reported on form P11D.

Booklet 480 Chapter 8.9 should be read as revised accordingly.

[Section 198 ICTA 1988]

miscellaneous

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INLAND REVENUE REORGANISATION:
THE LARGE GROUPS OFFICE

Readers will want to know that the three London Regional Executive Offices were merged into one on 1 April 1994 with John Carling as the Controller. On the same date the Department set up the Large Groups Office as a new Executive Office. Its controller is Dick Jones.

This reorganisation marks a significant step in the programme of change now gathering pace in the Inland Revenue.

The Large Groups Office (LGO) will have responsibility for the 33 senior Districts in the City as well as the Department's Special Investigation Section and its National Audit Group. These two latter sections will continue to make their specialist compliance services available to other Executive Offices. The LGO is not therefore tied to a specific geographical base but will continue to play a role as part of the Inland Revenue's local office network.

The 33 City Districts deal with the corporation tax affairs of most insurance companies and banks which operate in England and Wales (including the subsidiaries and branches of overseas insurance and banking companies trading in the United Kingdom), the Stock Exchange, Lloyd's underwriting syndicates and many of the larger companies operating in the industrial, commercial and financial sectors.

The Special Investigation Section will continue to undertake investigations into major corporate tax avoidance and offer specialist advice and guidance on the subject to all network offices and Head Office. It will also he responsible for the application of the anti-avoidance legislation, including the clearance work, set out in Sections 703-709 ICTA 1988 and Sections 135-138 TCGA 1992. The National Audit Group, which has 16 offices, will audit the PAYE of 2,500 of the country's largest employers, including those in the public as well as the private sector. This activity will also cover the way in which these concerns manage their obligations under the Sub Contractor and NIC Regulations.

The LGO is to introduce a new system of co-ordinated case working. The District Inspector will ensure that all parts of the Department, with an operational interest in a case, work together in a properly organised way and in concert with one another. The aim is to identify and eliminate both the overlap and the conflict between the various activities. The careful coordination of the working arrangements in this way will allow the Department to take a sensible and comprehensive over-view of the taxation position of the cases concerned and will ensure that it manages its affairs in a professional, cost effective and business-like manner.

At the same time this new system of working will provide companies and their agents with an opportunity to organise and manage the way in which they respond to the wide range of enquiries which are made at different times and by different parts of the Inland Revenue. This will lead in due course to a reduction in compliance costs for all concerned and should eventually provide a counter to the oft-heard complaint that the various arms of the Department act without liaison or consultation with one another.

This modern and better planned approach to the handling of the affairs of the country's major taxpayers follows logically upon the systems of work now being developed in the new Tax District Offices. These offices are being set up under the Department's New Office Structure programme for rationalising its local office network. The new arrangements will provide a substantial improvement in the standards of customer service offered by the Department.

The LGO has published a brief handbook describing its activities. A copy can be obtained on application to:

Dick Jones
New Court,
48 Carey Street,
London, WC2A 2JE
Tel: 071-324 1321.

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SELF-ASSESSMENT:
(1) THE NEW CURRENT YEAR BASIS
OF ASSESSMENT -- A GUIDE FOR
INLAND REVENUE OFFICERS
AND TAX PRACTITIONERS

This guide will be published in May, and will be distributed during May and June.

It will explain the changes to the Income and Corporation Taxes Act 1988, (and the Capital Allowances Act 1990), in the Finance Act 1994 for the new current year basis of assessment for Cases I to VI of Schedule D and associated changes to capital allowances, loss relief, and Double Taxation relief. It will also cover the changes for partnerships and the transitional arrangements for 1996-97.

Our offices will be distributing a free copy of the guide to all tax practitioners and accountancy firms in their areas. Additional copies will also be available, at cost. Details of how to obtain additional copies will be announced in a Press Release in due course.

A further guide explaining the changes to the Taxes Management Act 1970 will be published later in the summer, and will be distributed on the same basis.

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SELF-ASSESSMENT SEMINARS

The Inland Revenue will be joining the Institute of Chartered Accountants in England and Wales in a series of seminars entitled 'Gearing up for Self-Assessment', to be held in various locations throughout the country, from June to November this year. We hope to arrange something similar for Scotland and Northern Ireland.

For details of the seminars in England and Wales, telephone Stel Kyriacou of Accountancy Courses and Conferences on 071-920 8800.

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TAX TREATY NETWORK

Double taxation agreements (DTAs) are an important aspect of the Department's relationship with the UK business community. They are part of the international framework for removing tax impediments to free and open trade and investment in the global economy. More directly, DTAs assist UK companies' overseas activity by removing double taxation and -- often equally important -- by reducing compliance burdens for UK companies in dealing with overseas tax administrations.

In May 1993 we published details of the UK Tax Treaty Network. An updated list is attached of the treaties in force, together with a list of treaties which are currently under negotiation. Over the last twelve months three new or revised treaties have come into force (India, Uganda and Ukraine). A further ten treaties have been signed. Most of these (and other treaties in the pipeline) are with the countries of the former Soviet Union, Latin America and South East Asia/Pacific rim. This reflects the Department's priority for treaties with newly developing markets for UK business.

As we said in our 1993 article, we consult closely with the UK business community before drawing up the annual treaty negotiations programme we agree with Treasury Ministers. Decisions to open negotiations are announced by news release, to give interested parties an opportunity to make representations about negotiating objectives which are important to them.

REPRESENTATIONS ABOUT NEW DTAs OR SUGGESTIONS ABOUT DESIRABLE CHANGES TO EXISTING DTAs SHOULD BE ADDRESSED TO:

Peter Dennis
Inland Revenue
International Division
Room 314, Strand Bridge House
London WC2R 1HH
Tel: 071-438 6333

REPRESENTATIONS FOR NEW OR REVISED DTAs COVERING INHERITANCES, GIFTS AND ESTATES SHOULD BE ADDRESSED TO:

Jeffrey Worrell
Inland Revenue
Capital and Valuation Division
Room 306, Duchy Rooms
Somerset House
London WC2R 1LB
Tel: 071-438 7741

QUESTIONS REGARDING DTAs ON INHERITANCES, GIFTS AND ESTATES SHOULD BE ADDRESSED TO:

Nigel Moore
Inland Revenue
Capital Taxes Office
Room 145, Minford House
Rockley Road
London W14 0DF
Tel: 071-603 4622 Ext 291

THE UNITED KINGDOM'S WORLD NETWORK OF DOUBLE TAXATION AGREEMENTS (POSITION AS AT 1 MARCH 1994)

I. AGREEMENTS IN FORCE (a) COMPREHENSIVE AGREEMENTS COVERING TAXES ON INCOME, PROFITS AND CAPITAL GAINS:

ANTIGUA and BARBUDA    GRENADA                 MYANMAR
AUSTRALIA              GUERNSEY                NAMIBIA
AUSTRIA                GUYANA                  NETHERLANDS
BANGLADESH             HUNGARY                 NEW ZEALAND
BARBADOS               ICELAND                 NIGERIA
BELARUS /1/            INDIA                   NORWAY
BELGIUM                INDONESIA               PAPUA NEW GUINEA
BELIZE                 IRELAND, REPUBLIC OF    PAKISTAN
BOTSWANA               ISLE OF MAN             PHILIPPINES
BRUNEI                 ISRAEL                  POLAND
BULGARIA               ITALY                   PORTUGAL
CANADA                 IVORY COAST             ROMANIA
CHINA                  JAMAICA                 RUSSIAN FEDERATION /1/
CROATIA /2/            JAPAN                   ST KITTS & NEVIS
CYPRUS                 JERSEY                  SIERRA LEONE
CZECH REPUBLIC /3/     KENYA                   SINGAPORE
DENMARK                KIRIBATI                SLOVAK REPUBLIC /3/
EGYPT                  KOREA, REPUBLIC OF      SLOVENIA /2/
FALKLAND ISLANDS       LESOTHO                 SOLOMON ISLANDS
FAROE ISLANDS          LUXEMBOURG              SOUTH AFRICA
FIJI                   MACEDONIA /2/           SPAIN
FINLAND                MALAWI                  SRI LANKA
FRANCE                 MALAYSIA                SUDAN
GAMBIA                 MALTA                   SWAZILAND
GERMANY                MAURITIUS               SWEDEN
GHANA                  MONTSERRAT              SWITZERLAND
GREECE                 MOROCCO                 THAILAND
TRINIDAD & TOBAGO      UGANDA                  YUGOSLAVIA /2/
TUNISIA                UKRAINE                 ZAMBIA
TURKEY                 UNITED STATES  OF       ZIMBABWE
TUVALU                 AMERICA
UZBEKISTAN /1/

/1/ The UK's agreement with the Soviet Union is to be regarded as in force between the UK and those former Soviet Republics marked. The position with regard to former Soviet Republics not listed is less clear, but the UK will in all cases apply the provisions of the agreement on the basis that it is still in force (until such time as new agreements take effect with particular countries).

/2/ The UK's agreement with Yugoslavia is to be regarded as in force between the UK and Croatia, Slovenia and Macedonia. The position as at March 1994 with regard to other parts of what was Yugoslavia was undetermined.

/3/ Honouring UK/Czechoslovakia DTA

(b) LIMITED AGREEMENTS, COVERING TAXES ON INCOME FROM INTERNATIONAL TRANSPORT

ALGERIA (Air Transport)  CHINA (Air Transport)     RUSSIAN
FEDERATION
ARGENTINA (Shipping        /1/                       (Air Transport)
and Air Transport)     ETHIOPIA (Air Transport)     /1/)
BELARUS (Air             IRAN (Air Transport)       UZBEKISTAN (Air
Transport) /1/         JORDAN (Shipping and Air     Transport) /1/
BRAZIL (Shipping and       Transport)               VENEZUELA
Air Transport)         KUWAIT (Air Transport)       (Shipping and
CAMEROON (Air            LEBANON (Shipping and        Air Transport)
Transport)               Air Transport)           ZAIRE (Shipping
and Air
Transport)

/1/ Countries honouring Air Transport Agreements which were not terminated by the later Comprehensive Agreements, and remain in force alongside these agreements. The agreement with the former Soviet Union is to be regarded as in force with those countries marked. The position with those countries not listed is less clear, but the UK will in all cases apply the provisions of the agreement on the basis that it is still in force (until such time as new agreements take effect with particular countries).

(c) AGREEMENTS COVERING TAXES ON ESTATES, GIFTS AND INHERITANCES:

FRANCE                   NETHERLANDS         SWEDEN
INDIA /1/                PAKISTAN /1/        SWITZERLAND
IRELAND, REPUBLIC OF     SOUTH AFRICA        UNITED STATES OF
AMERICA
ITALY

/1/ Agreements of limited effect following the abolition of Estate Duty in each of the Contracting States.

Copies of individual Agreements in force can be obtained from HMSO, quoting the Statutory Instrument number of the DTA (listed under "Double Taxation Relief: List of Orders" in the Statutory Regulations section of the Taxes Acts). Volumes containing all the United Kingdom's Agreements are also available from specialist financial publishing houses.

2. OTHER AGREEMENTS UNDER NEGOTIATION OR CONCLUDED BUT NOT YET IN FORCE

ARGENTINA (Comprehensive)
AUSTRIA (Protocol covering non-profit making orchestras) /*/
AZERBAIJAN (Comprehensive) /*/
BAHRAIN (Air Transport)
BELARUS (Comprehensive) /1/
BOLIVIA (Comprehensive)
CHINA (Protocol to existing DTA)
COLOMBIA (Comprehensive)
ECUADOR (Shipping)
ESTONIA (Comprehensive)
FINLAND (Protocol to existing DTA)
FRANCE (Comprehensive) /1/
GERMANY (Comprehensive) /1/
GHANA (Comprehensive) /*/ /1/
GUERNSEY (Supplementary Arrangement)
INDONESIA (Comprehensive) /*/ /1/
ISLE OF MAN (Supplementary Arrangement) /*/
JERSEY (Supplementary Arrangement) /*/
KAZAKHSTAN (Comprehensive)
LATVIA (Comprehensive)
LESOTHO (Comprehensive) /1/
LITHUANIA (Comprehensive)
MALTA (Comprehensive) /1/
MEXICO (Comprehensive)
MONGOLIA (Comprehensive)
NAMIBIA (Comprehensive) /1/
NORWAY (Protocol to existing DTA)
OMAN (Air Transport)
QATAR (Air Transport)
RUSSIAN FEDERATION (Comprehensive) /*/ /1/
SAUDI ARABIA (Air Transport) /*/
SPAIN (Exchange of Notes)
SWITZERLAND (Estates, Inheritances and Gifts)  /*/ /1/
SWITZERLAND (Protocol to existing DTA) /*/
UNITED ARAB EMIRATES (Air Transport)
UZBEKISTAN (Comprehensive) /*/ /1/
VENEZUELA (Comprehensive)
VIETNAM (Comprehensive)

/*/ Signed but not in force.

/1/ Agreement will supersede in due course the current Agreement listed in Section (1).

Questions about a particular agreement and its effect on a person's own affairs should be addressed to that person's local office.

CHANGE TO REPAYMENT ARRANGEMENTS

Some practitioners may have noticed a recent change in the way we make repayments. An automated system was introduced last month which affects overpayments of Schedule D, Schedule A, Capital Gains and Higher Rate Tax plus Class 4 NIC and associated interest. Under the new arrangements the Accounts Office can reallocate most overpayments against other outstanding tax or make repayment. Any repayment supplement is automatically calculated.

A further change will occur from July 1994 when tax offices will be able to use the computer to reallocate or repay the remaining overpayments of this type.

When a repayment or reallocation is made, computations showing how the overpayment has been calculated will be issued. Where appropriate, a computer printed payable order will be attached. Should a taxpayer or practitioner require a computation showing how any revised interest or repayment supplement has been calculated, this information will be provided on request.

Under the new system taxpayers can still authorise accountants or other nominees to receive repayments. The taxpayer's authority should be sent to the tax office in the same way as in the past. The tax office will then stop the issue of the repayment to the taxpayer and arrange for it to be sent to the authorised person.

Practitioners will need to ensure that authorisations are sent to the tax office before the amended assessment showing the overpayment is issued. This is because the repayment will normally be sent to the taxpayer shortly after the issue of the amended notice.

The changes will mean that repayments can be made more quickly and generally allow an improved service to be provided.

SCHEDULE D CASES I AND II:
WHETHER A DEDUCTION FOR PERSONAL
PENSION PAYMENTS (PPPS) IS ALLOWABLE
IN ARRIVING AT THE PROFIT FOR
CLASS 4 NIC PURPOSES

We have previously confirmed that in our view such a deduction is not allowable (see Tax Bulletin Issue 7 page 74) and this point has been placed beyond doubt by legislation which received Royal Assent in February 1994.

Section 3(1) Social Security Act 1994 amends paragraph 3(2) of Schedule 2 Social Security and Contributions Act 1992 to include a new subsection (g) which adds PPPs to the list of specific reliefs which are not to be deducted in computing Class 4 NIC profits.

These amendments are deemed to have had effect from the commencement of Section 31 Finance (No 2) Act 1987 (deduction of personal pension contributions from relevant earnings) -- now Section 639(1) ICTA 1988.

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SCHEDULE E:
MOBILE TELEPHONES --
BOOKLET 480

Unfortunately the 1994 version of Booklet 480 (Expenses and Benefits -- a tax guide) contains an error in the chapter on mobile telephones. There is no liability to tax on the benefit in kind of a mobile telephone available for private use if the employee is required to and does make good the full cost of any private use (Section 159A(3)(b) ICTA 1988). "Full cost" is defined in the legislation (Section 159A(8)(e)). Paragraph 22.3 of the 1994 version of Booklet 480 says that:

"'Full cost' means the cost of private calls plus a proportionate share of any rental costs plus (if the employer owns the telephone) a proportionate share of what the annual value of the use would have been if Chapter 6.5 [assets placed at disposal of employee] had been applicable."

After the House of Lords' judgement in Pepper v Hart, we take the view that employees are no longer required to reimburse the proportionate share of any rental costs, (in order to make good the full cost of any private use), where the mobile telephone is provided partly for business and partly for private purposes.

The words shown above in italics are therefore incorrect. The error will be corrected in the next version of Booklet 480.

[Section 159A ICTA 1988].

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LLOYD'S UNDERWRITERS SEMINARS:
FINANCE ACTS 1993 AND 1994

Substantial changes have been made in the taxation of individual members of Lloyd's. Lloyd's and the Inland Revenue will be holding a series of joint seminars in June and July to help explain the changes and how they will affect members and their accountants. The seminars will be held in various locations and there will be a charge to attend.

Full details of the seminars are available from:

Mr R Ramage
Lloyd's of London
One Lime Street
London EC3M 7HA
Tel: 071-327 6852

IR BOOKLETS ON EXTRA-STATUTORY
CONCESSIONS AND STATEMENTS OF PRACTICE

NEW EDITION OF BOOKLET IR1

A new edition of booklet IR1 will be published in May. It will be available free of charge to personal callers at any Tax Enquiry Centre or Tax Office, and from the Public Enquiry Room, West Wing, Somerset House, Strand, London WC2R 1LB.

The new edition contains a comprehensive index of concessions issued up to 31 December 1993 and the full text of all those still current. This new edition replaces the 1992 edition and its subsequent supplement.

NEW BOOKLET IR131

A new booklet in the Practitioners Series will be available from May.

The booklet (IR131) will contain a comprehensive index of all Inland Revenue Statements of Practice (SPs) issued up to 31 December 1993 and the full text of all those which are still current. It will be available from the same outlets as booklet IR1. The booklet groups the SPs under general subject headings and separately identifies those which primarily deal with the administration of tax rather than the interpretation of legislation. It also identifies (in the index) SPs which are now obsolete, or which have been superseded by legislation, extra-statutory concessions, codes of practice or new SPs. This new comprehensive booklet replaces those produced in July 1987 and should therefore be particularly welcomed by practitioners and taxpayers alike. The booklet will he updated at regular intervals.

INLAND REVENUE STATEMENTS OF PRACTICE AND
EXTRA-STATUTORY CONCESSIONS ISSUED BETWEEN
28 JANUARY 1994 AND 30 APRIL 1994

EXTRA STATUTORY CONCESSIONS

Number 	Title 	                       Date of Issue 	
D47       Temporary loss of charitable         9/3/94
status due to reverter of school
and other sites
C4        Trading activities for               11/3/94
charitable purposes                  (revision)
C24       General Insurance Business:          28/3/94
claims and elections
C25       Long term insurance business:        28/3/94
claims and elections
A84       Allowances paid to detached          29/3/94
national experts
D48       Capital gains tax                    14/4/94
retirement relief
A19       Arrears of tax arising through       26/4/94
official error                       (revision)
A85       Transfers of assets by               27/4/94
employees and directors to
employers and others
D37       Private residence exemption:         27/4/94
relocation arrangements              (revision)

STATEMENTS OF PRACTICE

Number   Title                           Date of Issue
1/94      Non-statutory redundancy payments    17/2/94

You can get copies of SPs and ESCs from Christine Jordan at the Public Enquiry Room, Somerset House. Telephone 071-438 7772.

CONSULTATIVE DOCUMENTS: Deadline for comments

Title           Price    Deadline for comments   Address for comments
Self-Assessment:   £4.00     8/7/94                 		Miss Jo Simcox
what it will mean                                    		Room S11, West Wing
for employers and                                    		Somerset House
employees                                            		London WC2R ILB

You can get copies of the above from: Inland Revenue, Reference Room, Room 8, New Wing, Somerset House. Please enclose your remittance with the order, and make your cheques payable to the Inland Revenue.

The information published in Tax Bulletin is reported because it may be of interest to tax practitioners. 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.
  • "Revenue decisions" report conclusions that were reached on the facts of individual cases, but do not necessarily include all the detailed facts which may have been relevant to the decision. They provide an indication of the approach the Revenue has adopted in the past, but have not been drafted as generally applicable statements of the Revenue's position. It cannot be assumed therefore, that interpretations of the law contained or implicit in these decisions will necessarily be applied in other cases.
  • The Board's view of the law may change in the future. Readers will be notified of any changes in future editions.

Nothing in this Bulletin affects a taxpayer's right of appeal on any point.

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To find out more, contact:

Tom Davis or Alan Brown, Inland Revenue Press Office, 6th Floor, North West Wing, Bush House, Aldwych, London WC2B 4PP
Telephone: 071-438 6692/6706/7327.

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