Tax Bulletin Issue 41

This article explains the arrangements for the new Decisions and Appeals system in respect of National Insurance Contributions, Statutory Sick Pay, Statutory Maternity Pay and related matters. The new system was introduced from 1 April 1999 throughout the United Kingdom to coincide with the transfer of the Contributions Agency to the Inland Revenue.

SUMMARY

It may help practitioners to gain an overview of the new Decisions and Appeals system by starting with a list of key points:

under the new system formal decisions in respect of National Insurance Contributions (NICs), Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP) can be made by officers of the Board of Inland Revenue;
a formal decision is merely a mechanism for granting a right of appeal and settling a dispute. The issue of a decision does not alter the date from which payment was due or the amount of any interest charge;
most cases involving NICs will be settled informally by applying the law to the relevant facts and without making a formal decision;
contributors are entitled to ask for a formal decision, at any time. Once a decision has been made it can be appealed;
formal decisions involving SSP and SMP will be made when the employee or the Secretary of State for Social Security has requested one;
copies of formal decisions will be issued to professional advisers and agents and appeals accepted from them;
appeals against decisions which cannot be settled by agreement will be heard by the Tax Appeal Commissioners. These are the General and Special Commissioners who are independent tribunals;
appeals will be listed for hearing in the same way as tax appeals and taken to the General Commissioners by the local Tax Office.

The new system provided for by Part II of the Social Security Contributions (Transfer of Functions, etc) Act 1999 applies only to work with which the Contributions Agency was involved. It does not apply to income tax or Class 4 NICs collected via Self Assessment.

NEW SYSTEM

The new Decisions and Appeals (DAA) process for NICs, SSP and SMP is similar to the Decision Making and Appeals (DMA) process which would have been introduced in the Contributions Agency under the Social Security Act 1998 and will be put into effect by the Benefits Agency and other DSS agencies during 1999-2000. Decisions and Appeals provides, for the first time, a wholly independent appeal right covering both fact and law. Responsibility for making formal decisions rests with NICs staff in the Inland Revenue. These staff already dealt with disputes on an informal basis. The aim is to produce a more efficient and consistent system as well as granting the new right of appeal.

THE THREE STAGES

The new Decisions and Appeals process can be broken down into 3 stages:

Stage 1 -- the informal stage

The informal stage reflects part of the previous system of dealing with NICs issues. Staff offer an opinion on, for example, the contributor’s liability to pay NICs. At this stage any disputes can be settled by discussion and agreement. Usually a formal decision is required only where the normal process of discussion is exhausted and agreement cannot be reached.

An opinion is appropriate in SSP and SMP cases where, for example, an Officer of the Board discovers that an employer is doing something wrong or the employer asks for one.

Stage 2 -- the formal decision

Where agreement cannot be reached, or a request for a decision is received, a formal decision will be made. It must be made to the best of the officer’s information and belief. Each person in respect of whom the decision is made will be sent a Notice of Decision (form DAA1) and therefore have a right of appeal. The Notice of Decision will be accompanied by an explanatory letter whenever that would be helpful and by the DAA2 Guide "A Guide to your Notice of Decision" , which explains what action the person should take if they do not agree with the decision. The DAA2 Guide contains an appeal form (form DAA3) which can be used to make an appeal. Once the formal decision is made and the notice is issued, the contributor or employer has 30 days from the date of issue of the notice in which to appeal.

For SSP and SMP there will often be an established dispute when the case is referred to the Inland Revenue. In these cases a formal decision is made and a Notice of Decision issued when requested by the employee or Secretary of State for Social Security.

There is no statutory time limit for making a NICs decision. It may be appropriate to make a decision on whether contributions have been paid for a period many years ago because it affects basic retirement pension entitlement.

Copies of the Notice of Decision and accompanying explanatory material will be sent to the professional adviser or agent where one is acting.

Stage 3 -- the appeal

Appeals against formal decisions can be settled in one of three ways:

by the officer of the Board and the appellant or appellants coming to an agreement;
by the appellant withdrawing their appeal;
by the General or Special Commissioners.

Practitioners will recognise close similarities with the way in which tax appeals are settled, particularly those for the pre-Self Assessment era.

DECISION CATEGORIES

Most decisions made under Section 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 (the Transfer Act) will fall into just six classes:

Category of earner.
Liability to pay contributions and the amount.
Entitlement to pay contributions and the amount.
Whether contributions have been paid.
SSP and SMP entitlement decisions.
SSP and SMP recovery decisions.

In some cases the issue will arise as a sub-question resulting from a contributory benefit claim and will need to be resolved before a final decision on benefit entitlement can be given by the Benefits Agency.

NICS DECISIONS

Category of earner

This decision is about whether someone is or was gainfully employed in Great Britain, either as an employed earner or a self-employed earner.

An employed earner is someone who is employed under a contract of service, or in an office with emoluments chargeable to tax under Schedule E. A self-employed earner is someone who is gainfully employed other than under a contract of service.

But the category of earners in certain occupations is specified by regulations. The Social Security (Categorisation of Earners) Regulations 1978 provide for:

earners to be switched from one category to another: for example, to treat an employed earner as self-employed, or vice versa; and
certain employments to be disregarded alltogether so that there is no NI liability.

Liability to pay

There are six classes of contributions which people may be liable or entitled to pay. Some contributions count towards certain benefits.

Class 1 contributions are paid by people who work as employed earners and their employers.
Class 1A are paid only by employers who provide employees with cars/fuel for private use.
Class 1B will be paid by employers only on payments on which NICs are due and are included in a PAYE Settlement Arrangement and will be first payable for 1999-2000.
Class 2 are paid by people who are self-employed.
Class 3 are voluntary contributions paid by people who wish to protect their entitlement to the state pension and do not pay enough NICs in another class.
Class 4 are generally paid by people who are self-employed.

Entitlement to pay

Class 3 (voluntary contributions) are paid by people who wish to protect their entitlement to retirement pension. Often contributors wish to pay voluntary contributions for periods in their working lives when they were not employed or did not earn enough to pay Class 1 or 2 contributions. There are time limits and residence tests for the payment of Class 3.

Whether contributions have been paid

Contributors who claim short-term incapacity benefit, jobseeker’s allowance or a retirement pension may be disallowed benefit or have a reduced rate entitlement to benefit because of an incomplete National Insurance record. Deficiencies in their record may have arisen because their former employers defaulted on paying NICs, perhaps because they went bankrupt, and the employees require the Inland Revenue to consider treating contributions as paid.

On retirement, contributors may dispute their basic retirement pension entitlement and query their contribution record. Many married women chose to pay reduced rate NICs which gives no title to benefits, however on retirement they may query the period of their reduced rate contributions.

SSP AND SMP DECISIONS

The issues on questions relating to SSP and SMP include whether the employee satisfies the conditions for receiving SSP and SMP and whether an employer is entitled to make deductions from his NICs in order to recover his liability to pay SSP and SMP.

LEGISLATION

The primary legislation on Decisions and Appeals in the Transfer Act underpins legislation in the Social Security Contributions & Benefits Act 1992, the Social Security Administration Act 1992, the Social Security Act 1998 and related regulations. The Decisions and Appeals process is supported in particular by the Social Security Contributions (Decisions & Appeals) Regulations 1999 and the Statutory Sick Pay and Statutory Maternity Pay (Decisions) Regulations 1999.

WHO MAKES DECISIONS

Section 8 of the Transfer Act provides that it is for an officer of the Board to make decisions. In order to assist the smooth introduction and effective operation of the Decisions and Appeals process the Inland Revenue (NI) National Insurance Contributions Office (formerly the CA Longbenton) and Inland Revenue NICs offices (formerly the CA field offices) have nominated officers to make decisions. As integration of ex-CA and IR compliance staff takes place any compliance staff may make formal decisions.

In employment status cases any opinion given will normally apply to both tax and NICs. All NICs status disputes are referred to the nominated Status Inspector in the Tax Office for authorisation before a decision is made to ensure that the approach to status disputes is consistent and
co-ordinated for both tax and NICs.

WORDING OF THE DECISION

The wording of the decision has:

to reflect one or more decisions which officers of the Board can make under Section 8(1) of the Transfer Act;
to include certain factual information required by Regulation 3(1) of the Social Security Contributions (Decisions & Appeals) Regulations 1999;
- to show the date from which the decision has effect (eg the commencement date from which the decision states that there is liability or entitlement to pay contributions);
- where appropriate, to show the period for which the decision has effect. For instance if the employer’s Class 1 NICs liability for a particular tax year is in dispute, the beginning and end dates for the tax year are shown;
- the names of persons in respect of whom the decision has been made.

THE NOTICE OF DECISION

Formal decisions for NICs, SSP and SMP are notified on a notice prepared in accordance with Regulations 3 and 4 of the Social Security Contributions (Decisions & Appeals) Regulations 1999. An example of a Notice of Decision is shown below.

Image: Notice of Decision [20k]

The notice is distinctive and tells the recipient to let their professional adviser or agent, if they have one, see it at once.

Where more than one person is named, usually an employer and one or more employees, a version of the notice containing notes reflecting the different position relating to payment and any interest charge is issued to the employees.

A copy of the Notice of Decision is issued to the agent where one is acting. There is also a payslip for use when making payment of NICs to the Revenue. The wording of the decision follows a prescribed format which reflects the statutory rules. Officers making decisions use the wording of a range of examples in composing their own decisions. Some of these examples are reproduced below.

Example 1 -- Status

That Mr A is an employed earner in respect of his engagement with B W Ltd for the period from 4 September 1997 to 6 December 1997
That B W Ltd is liable to pay primary and secondary Class 1 contributions in respect of the earnings from that engagement
The amount that B W Ltd is liable to pay in respect of those earnings is [£ amount]

Example 2 -- Remuneration in non-cash form

That D F Ltd is liable to pay primary and secondary Class 1 contributions for the period 6 April 1996 to 5 April 1999 in respect of the earnings of Miss E
The amount D F Ltd is liable to pay in respect of those earnings is [£ amount]
The amount D F Ltd has paid in respect of those earnings is [£ amount]
The difference is due to Class 1 contributions on payments made by [commodity].

Example 3 -- NICs paid by employee -- dispute over short term benefit claim

That you have paid the following Class 1 contributions

6 April 1996 to 5 April 1997
[£ amount]

6 April 1997 to 5 April 1998
[£ amount]

PERSONS NAMED IN THE NOTICE OF DECISION

Under Section 3(1) of the Social Security Contributions (Decisions and Appeals) Regulations 1999 the decision must state the name of every person in respect of whom it is made. A person is named in the decision if they are affected by it. This gives them the right of appeal on a matter which affects them personally and means they are bound by the final decision. A person is affected by a decision if they will suffer or enjoy any consequence as a result of the decision:

by payment or non payment of contributions,
by change to their contributions record,
by payment or receipt of SSP or SMP.

In deciding who to name in the Notice of Decision, the following rules are followed:

Class 1 contributions

The employer is named if they are affected whether it be because of their liability to pay secondary contributions or empowerment to deduct and liability to primary contributions.
Each employee affected is named if the number of such employees (including directors) is 6 or less. Separate decisions may be made for each employee if that is necessary to ensure confidentiality.
Where the number of employees exceeds 6 we will seek to agree a representative sample of employees with the employer or their agent and name those employees in the decision. One representative employee may be sufficient.

Class 1A contributions

Class 1A is a liability of the employer. Employees have no liability and there are no benefit implications. There is therefore no obligation to name an employee in the decision. However, we name the employee or employees when the decision concerns the provisions of a particular car or cars.
Where the dispute is a general one, not concerning particular cars and employees, a decision is made which does not name any employee.

Class 2, 3 & 4 contributions

There should normally only be one person to name in the Notice of Decision.

SSP and SMP

In SSP and SMP payment cases both the employer and the employee must be named.

LETTER OF EXPLANATION

A letter of explanation is sent with the Notice of Decision and each agent’s copy whenever it will be helpful for the person involved. The letter explains the reason for the decision. The letter will, in practice, often be a summary of what has been established earlier in the correspondence since it will be unusual to put new points at the time the decision is made.

DAA2 GUIDE

The DAA2 Guide, "A Guide to Your Notice of Decision", is issued with each Notice of Decision and agent’s copy. The guide contains the information about the Notice of Decision and appeal rights and explains how payment can be made if NICs are due or payable. It also contains a tear-off appeal form which can be used to appeal.

APPEALS

The appeal rules are contained in Part III of the Social Security Contributions (Decisions & Appeals) Regulations 1999. Practitioners familiar with the pre Self Assessment appeal system for tax will find some close similarities.

If a person disagrees with the decision or thinks it is wrong in other ways they should:

write to the officer of the Board who made the decision giving their name and the reference number shown on the notice;
say they wish to appeal and the reason for the appeal;
if possible, say what they consider the correct decision should be. This may help to speed up the settling of the appeal;
say where they want their appeal to be heard.

An appeal form is included in the DAA2 Guide issued with the Notice of Decision and it will usually be convenient to use this form. The appeal does not have to be on the appeal form but it does have to be in writing.

Each person named in the Notice of Decision has a right of appeal against it. Appeals will be accepted from a professional adviser or agent authorised to act on behalf on someone who has a right of appeal.

There are 30 days in which to appeal from the date of issue of the Notice of Decision. After that the decision is normally final and cannot be changed unless there is a change of circumstances, or further facts materialise, or it turns out to be wrong.

Collection of any amount included in the decision is suspended pending the outcome of the appeal. This is automatic whenever there is an appeal. There is no need to apply for payment to be postponed.

WHERE APPEALS ARE HEARD

Normally a choice can be made whether the appeal is to be heard by the General or Special Commissioners. If the choice is for the Special Commissioners the officer of the Board should be told at the time of the appeal. However, if an election is not made for the Special Commissioners at the time of the appeal, it may be possible for us to agree at a later point that it should be heard by them if the need for a hearing becomes apparent and that is what is wanted.

Appeals against a decision transferring the employer’s liability for NICs to a director can only be heard by the Special Commissioners.

When an appeal is made to the General Commissioners the person can choose, within the time allowed for making an appeal or such later time as the Board allows, to have their appeal heard by the Commissioners for the division

where they live, or
where they work, or
if they are in business, where they have their business premises.

Where the decision names more than one person then all appeals against that decision must be heard at the same place and time. Where there is more than one appeal against a decision which involves different places and an appeal hearing is necessary, we will try to settle the place of hearing informally where possible.

SETTLING AN APPEAL BY AGREEMENT

An appeal may be settled by agreement under Regulation 11 of the Social Security Contributions (Decisions and Appeals) Regulations (the DAA Regs). This may happen where, for instance, an appellant supplies further information in support of their appeal. An appeal is determined by agreement in writing between the officer of the Board and the person (or persons) who appealed. An agreement does not have to include any person who has not appealed against a decision.

However, before reaching an agreement with the appellant we will try to take into account the interests of any non appellant. We will not normally enter into an agreement to vary the decision where we believe that it will not be acceptable to a person who has not appealed without making that person aware of our view of the correct position first. For instance, we may be prepared to agree with an employer that SSP is not payable in circumstances where it is unlikely that the employee will readily accept that conclusion. We will therefore try and ensure the employee accepts our view of the correct position before determining the appeal.

On the other hand, a person who has not appealed may not be concerned about the outcome of the appeal. For instance, this may be the case where only a secondary NICs liability is in dispute. In this situation we will enter into an agreement to vary a decision without involving a person who has not appealed.

If the agreement changes the decision then the determination of an appeal by agreement involves a variation of the decision. Determination of an appeal in this way gives each person named in the decision a further right of appeal under Section 12(1) of the Transfer Act. This protects the interest of non appellants who are not party to the agreement. The above arrangements are intended to minimise the occasions where agreement between an appellant and officer of the Board is followed by an appeal from another person named in the decision.

The officer’s letter determining an appeal by agreement will state the terms of the agreement, either that the decision is not changed or how the decision is varied, and that the appeal is determined under Regulation 11 DAA Regs 1999. Notice of agreement is sent to all the persons named in the decision, including those who have not appealed against it.

The determination by agreement under Regulation 11 has the same consequences as if it had been determined by the Commissioners but subject to a right of appeal against any associated variation of the decision.

When an appeal is determined by agreement and this involves varying the decision, notice of the varied decision is issued to each named person. The DAA2 Guide is issued with the notice of varied decision and explains that the person has a further right of appeal. Collection of any amounts of NICs due resumes if no further appeals are received within the new appeal period.

Appeals can be settled by agreement with an agent or professional adviser.

Withdrawal of appeal

An appellant can give notice either orally or in writing that he does not want to proceed with the appeal. The notification must be made to the officer of the Board and any person named in the decision. Unless the officer (or any other person who could have appealed against the decision) gives notice in writing to all other affected persons within 30 days of the notification that he is unwilling to accept the withdrawal of the appeal it is treated as withdrawn.

Appeal hearing

If an appeal cannot be settled by agreement it will be considered by the General or Special Commissioners who are both independent tribunals. If the appeal is to be heard by the General Commissioners the papers will be referred to the local Tax Office responsible for taking appeals before that division of the General Commissioners. A notice will be issued, copied to any professional adviser or agent, giving the date, time and place of hearing and normally giving at least 28 days notice of the hearing. The hearings operate under the same rules as those for tax although one significant difference is that sometimes with NICs appeals, and always with SSP and SMP appeals, more than one person [apart from the Revenue], will have an interest in the outcome.

For instance:

both a work provider and a worker will have an interest in whether the worker is an employee or self employed;
both the employer and the employee have an interest in the outcome of an appeal on SSP and SMP entitlement.

The Commissioners have the power to link people to an appeal even though that person may not have appealed themselves. We will seek to ensure that appeals involving a common issue are dealt with together by asking the Commissioners to use those powers. And we will try to ensure that a person named in a decision who did not appeal will have the opportunity to have their say at any appeal hearing relating to that decision.

Taking matters further

If either the Inland Revenue, the appellant or another party to the proceedings think that the Commissioners’ decision is wrong on a point of law the appeal can be taken to the Courts. The NICs that are due as a result of the Commissioners’ decision have to be paid but are repaid if the Courts decide the decision was wrong.

If the appeal hearing was in connection with SSP or SMP employers do not have to pay SSP or SMP to their employees until the Courts have settled the appeal.

The rules to be followed depend upon whether the appeal was decided by the Special Commissioners or General Commissioners:

decisions made by the Special Commissioners are given in writing and there are 56 days to send a notice to the High Court indicating that an appeal is being made and stating the grounds for that appeal. Copies of that notice must be sent to both the Special Commissioners and the Inland Revenue;
decisions made by the General Commissioners can be contested by writing to the Clerk to the Commissioners within the 30 day time limit asking for a case to be stated for the opinion of the High Court (in Scotland the Court of Session and in Northern Ireland the Court of Appeal) and enclosing the statutory fee (currently £25).

VARYING DECISIONS

A decision can be varied either by determination of an appeal or otherwise by an officer of the Board if he or she has reason to believe it was incorrect at the time that it was made.

Decisions will usually be varied because new information has become available meaning the original decision was based on information which was inaccurate or incomplete. Any change in circumstances will have occurred before the decision was made but will not have been properly taken into account in making the decision.

Notice of variation must be given to the same persons as the Notice of Decision and in the same manner.

We will not vary a decision which is under appeal unless the appeal is determined at the same time.

Where a decision is being varied as a result of an agreement the decision box on the Notice of Decision will show:

"The decision issued on (date) is varied in accordance with the agreement to the following"

Where a decision is varied but not under appeal the decision box will show:

"The decision issued on (date) is varied to the following"

Otherwise the wording of varied decisions is formed in the same way as for the original decision.

The issue of a notice of variation of a decision, whether or not an appeal is determined, gives the right of appeal within 30 days of the issue of the notice.

SUPERSEDING DECISIONS

Regulation 6(1) of the Social Security Contributions (Decisions and Appeals) Regulations 1999 permits an officer of the Board to supersede an earlier decision or varied decision which:

has been made covering an open-ended period of time;
is correct for the period up to the date on which it is made;
later on ceases to be correct after there is a change in the relevant circumstances.

A superseding decision has effect from the date of the change in circumstances which rendered the earlier decision inappropriate. The earlier decision ceases to have effect as soon as the superseding decision, which carries with it the normal appeal rights, has effect.

However, there are no plans at present to make decisions covering an open-ended period of time.

TRANSITIONAL ARRANGEMENTS

Prior to the introduction of the new Decisions and Appeals arrangements from 1 April 1999, the only formal process for determining disputes over NICs and other matters was to ask a question of the Secretary of State for Social Security. As part of the transitional arrangements for the period from 1 April 1999, Section 17 (Section 15 in Northern Ireland) cases still awaiting a decision at the time of the commencement of the Decisions and Appeals system, will be dealt with under the new arrangements. A formal decision will be issued and carry a right of appeal to the General or Special Commissioners.

The new decisions and appeals arrangements do not apply to any case in which a Section 17 decision was made before 1 April. In these cases, the only right of appeal is on a point of law to the High Court.

For SSP and SMP cases where a decision has been made by an Adjudication Officer, any appeal which is subsequently made will go to the Social Security Appeals Tribunal. Cases where a decision has not yet been made by an Adjudication Officer will be referred to the local Inland Revenue NICs Office for a decision under the Decisions and Appeals system.

INTEREST

Interest is chargeable on late and unpaid Class 1, 1A and 1B NICs. Where this happens the interest normally runs from the day after payment should have been made until the date of payment.

The issue of a Notice of Decision or its variation does not alter the due date for calculating interest. Interest on Class 1 NICs normally runs from 14 days after the end of the tax year in which the payment was due until the date of payment. Interest on Class 1A and Class 1B NICs runs from the day after the payment should have been made until the date of payment.

DECISION MAKING AND APPEALS

This is the new arrangement which mainly affects DSS and DHSS (Northern Ireland) involving formal decisions appealable to new appeal tribunals and is to be brought in during 1999-2000. It includes decisions on benefit entitlement which are made by the Benefits Agency. There are two areas of Inland Revenue work which will use Decision Making and Appeals rather than Decisions and Appeals:

Questions relating to contracted-out employment are handled by the Contracted-out Employment Group within the Inland Revenue (NI ) Contributions Office with decisions being made on behalf of the Board.
Work relating to Home Responsibilities Protection (HRP) and certain non-benefit related credits will be dealt with centrally within the Inland Revenue National Insurance Contributions Office with decisions provided by Inland Revenue officers acting on behalf of the Secretary of State for Social Security.

PUBLISHED INFORMATION

The existing IR37 leaflet on Appeals against Tax has been updated to include appeals against NICs, SSP and SMP. It contains information about the new appeal arrangements and is available from Inland Revenue offices.

(Superseded by CISM3141)

CONSTRUCTION INDUSTRY SCHEME

This second article of two is intended to try and cover some more of the questions that have been raised about the introduction of the new Construction Industry Scheme (CIS) on 1 August 1999.

CURRENT CERTIFICATES THAT EXPIRE AFTER 1 AUGUST 1999

There is no transitional period for the introduction of the new Scheme. All existing documentation becomes obsolete when CIS starts on 1 August 1999. Current certificate holders are not automatically entitled to a Subcontractors Tax Certificate under the new Scheme but will need to pass the business, compliance and turnover tests in order to qualify.

TURNOVER TEST AND CHANGE IN TYPE OF CONCERN

How is the turnover test applied where the applicant’s business changes?

General

By ‘concern’ we mean whether a business is a sole trader, a partnership or company.

No change

Where the number of partners within an existing partnership, or directors/shareholders in an existing company, changes, there is no change in the type of concern. New partners/directors should apply for additional certificates, but there is no need for the partnership or company to go through the turnover test again. When the certificate needs to be renewed, the change in the number of persons will need to be taken into account in determining the turnover threshold.

Changes

However, where for example:

a partnership becomes a sole trader;
a sole trader or partnership becomes a company;
a sole trader becomes a partnership;
two or more sole traders or partnerships merge to form a new partnership;

there is a change in the type of concern. If the subcontractor already holds a certificate under the new Scheme, the new concern will need a new certificate. The applicant should inform the Revenue of the details of the change and make an application on the appropriate form:

CIS2 for new sole trader concerns and partnerships
CIS3 for new companies

The applicant might not be able to use the turnover test grids on the CIS2 or CIS3 in every case. For example, two sole traders forming a new partnership might have had different accounting periods over the 3 test years. In such cases, the applicant should set out their figures on a separate sheet of paper.

In the first applications for certificates under the new Scheme, if there has been a change during the 3-4 years up to the date of application, the applicant should use the form appropriate to the current type of concern, and give details of the change separately.

Which test the new concern uses depends on whether it needs to be treated as a new concern (and use the six month test) or can be treated as an established concern (and hence use a three year test).

The questions we ask will be:

is the business itself unchanged apart from the type of concern?
does it have the same assets, goodwill, and largely the same personnel?
is it carrying out the same sort of work?

If the business itself is essentially unchanged from before the change in type of concern, we will treat it as an established business, and so the new concern may apply on the basis of a three year test, as long as each old concern involved has a 3-4 year history.

If the business itself has changed, we will treat it as a new business, and the new business will have to use the six month test as soon as it can.

Partnership becoming sole trader

If the new concern is essentially the same business as the old one, i.e. it has the same assets and goodwill and does the same type of work, then an application can be made using the three year test. The multiplier rule would not apply, as the business is a sole trader at the date of application, and the business’s turnover would be measured against the individual threshold throughout. For example, a husband and wife partnership ceases when the wife leaves the partnership, but the business remains unchanged.

If the new concern is not carrying on the same business as the old one, we will treat it as a new business. For example, a partnership of 3 builders becomes a sole trader concern, and the nature of the business and its ownership is dramatically changed. The new business can use the six month test as soon as it has built up an appropriate level of turnover over a period of up to six consecutive months from its inception.

Sole trader becomes partnership

This is where a sole trader takes on a new person as a partner, without also taking on other business activities belonging to the new partner.

If the nature of the business and its assets are largely unchanged, the new partnership can use the standard or alternative three year test. For the standard partnership test, the multiplier rule would be applied to each test year. For example, if the change occurred half way through the three year test period when the sole trader became a partnership of 2, the multiplier for the threshold would be as follows:

year 1:1
year 2:2 (maximum number of partners at any time during the test year)
year 3:2

If the new concern is not carrying on the same business as the old one, the applicant can use the six month test as soon as it has built up an appropriate level of turnover over a period of up to six consecutive months from the start of the new business. The applicant is a partnership at the date of application, and the multiplier for the six month test is the maximum number of partners at any point during the period chosen.

Sole traders or partnerships merging to form new partnerships

Where two or more existing businesses merge, the new partnership created would normally be treated as a new business. The six month turnover test can be used with figures from the new partnership’s turnover. The number of partners will be the maximum number of partners at any point during that six month period.

Where the partnership claims to use a three year test because using the six month test would be a severe disadvantage, it should set out its proposed turnover test figures with an explanation.

We may consider such claims on the following basis:

the new business is essentially the sum of the operations of the original business;
the multiplier is the maximum number of ‘partners’ in each test year;
for ‘partners’ we will count all sole traders and all partners involved in all the concerns in each year.

For example, 2 sole traders plus a partnership of 2 individuals form a new partnership of 4. The multiplier for each year is as follows:

year 1:4
year 2:4
year 3:4

Sole trader or partnership becomes a company

Where a sole trader or partnership incorporates, it is likely that the new concern will be essentially the same business as the old one, despite the change in type, and the new company may use a three year test, as long as the old concern was running for 3-4 years.

If the nature of the business and its assets are largely unchanged, the new company can use the standard or alternative three year company test. For the standard company test, the multiplier rule would be applied to each test year. For example, if the change occurred half way through the three year test period when a sole trader became a company of 3 relevant persons, the multiplier for the threshold would be as follows:

year 1:1
year 2:3 (maximum number of relevant persons* at any time during the test year)
year 3:3

* ‘Relevant persons’ in this context means any director (and beneficial shareholder in the case of close companies) or partner who was carrying on the business at the relevant time.

However, for applications made before 1 August 2001, the multiplier for all three years can be based on the maximum number of relevant persons at any point in the final six months of the three year period if that is beneficial under the extra-statutory concession B52.

If the business has essentially changed, the applicant can use the six month test as soon as it has built up an appropriate level of turnover over a period of up to six consecutive months from the start of the new business. The applicant is a company at the date of the application and the multiplier for the six month test is the number of relevant persons during the period chosen.

DOUBLE TAXATION RELIEF ON UK
COMPANY INTEREST PAYMENTS:
PROVISIONAL TREATY RELIEF
(PTR) SCHEME

BACKGROUND

Any person who receives interest arising in the UK is liable to tax on that income. Generally if the recipient is resident abroad this UK tax liability is collected via the payer. Under Section 349(2)(c) of the Income and Corporation Taxes Act (ICTA) 1988, the payer must deduct the relevant amount from each payment of interest made and pay this over to the appropriate Accounts Office.

Most double taxation agreements contain provisions that can relieve all or some of this tax. These are invoked by the overseas owner of the interest making a claim for repayment of the tax so deducted from the Financial Intermediaries and Claims Office (FICO) at Nottingham. Alternatively, the overseas resident can ask FICO to authorise the UK payer of the interest to give the treaty relief itself when making payments, under SI 1970/488. If the application is successful the payer will receive a notice from FICO authorising it to make future payments on this basis. The overseas resident needs to send the application via its own tax authorities for certification.

However relief may not always be due, and until such time as the payer receives notification from FICO that interest may be paid gross or with a reduced rate of tax deducted, it should deduct the full rate of tax from payments. The eventual notice authorising treaty relief will normally be retrospective to the date that FICO received the application to pay gross from the relevant overseas tax authority -- as explained in Tax Bulletin Issue12, published in August 1994.

It can take some time for the certified application to reach FICO in the first place. Only then will the Inland Revenue normally be in a position to start processing it (this will typically involve liaising with the tax office for the payer of the interest). The cumulative time-lag involved can create difficulties if the first payment date is soon after the loan in question starts, as the payer may be unaware of the progress of an application, or even if one has been made at all. These problems can be worsened where there is more than one beneficial owner of interest paid under a loan. For example, where there is a syndicated loan involving a number of lenders, which may include a mix of UK and overseas lenders. Each overseas lender seeking treaty relief is required separately to claim it in their own right. It is common for individual lenders to sell their debt-rights on the "secondary loan market", which can mean the automatic cancellation of an existing authority, pending reissue once the new owner has itself successfully applied for relief.

FICO has received a number of representations asking for the whole relief process to be speeded up as an aid to British business and giving quicker effect to the UK’s treaty obligations. It has accepted that a good case has been made for streamlining procedures in low-risk cases, and over the course of the past year has discussed this with a number of interested parties. With due regard to the interests of the UK Exchequer and taxpayers, FICO can now offer the following Provisional Treaty Relief (PTR) scheme. They aim to make this available from 1 September 1999.

OUTLINE OF THE PTR SCHEME.

The scheme is entirely voluntary, and complements rather than replaces existing arrangements. It is limited to two types of loan where there is only a negligible risk that an application for relief would fail:

"one to one" company loans where there is no shareholding relationship or common ownership between the parties involved, for example where the lender is an overseas lending institution;
syndicated loans, where there is a Syndicate Manager.

But the acceptance of a loan in the PTR scheme does not necessarily imply that treaty relief will automatically be due, and will have no bearing on the allowability of the interest paid for the purposes of the borrower’s corporation tax liability.

ONE TO ONE COMPANY LOANS

For a loan to qualify, it is important to note that there must be no common shareholding or ownership between the parties to it. If there is no link of this sort, then as soon as a loan commences, or the lender changes, the borrower can, if they wish, approach FICO to ask for its provisional authority to incorporate treaty relief in its payments.

FICO keeps a database of overseas concerns which it has had recent dealings with. Where such dealings have involved a formal consideration of the overseas lender within the preceding three years, then a loan made by that company to a UK company will be eligible for consideration under the new scheme. The most typical cases will be where there has been a successful application for relief at source, or a paid repayment claim. UK companies wanting to know whether an overseas lender is included on that database can seek confirmation from FICO (if necessary, by telephoning 0115 974 1904). If it is, then the borrower can then seek FICO’s provisional authority to give relief right away, applying to do so on a form PTRPAY1.

This provisional authority is strictly conditional on FICO getting a normal double taxation treaty application from the recipient within three months of this provisional authority. If such a certified application is not received within three months, or relief is found not to be due, or due in some restricted manner only, then the provisional authority will be withdrawn. FICO would then look to the UK company for the tax that should have been deducted from any payments made and, if applicable, interest arising thereon.

FICO will process the formal treaty relief application as usual, although the information received at the initial provisional relief stage will help to shorten the time needed for this. Ultimately, FICO will send a formal SI 1970/488 authority to the UK payer, assuming relief is appropriate.

SYNDICATED LOANS

These will have more than one lender participating in the loan, and are administered by Syndicate Managers. In recognition of these factors FICO will in future concentrate on the loan itself rather than the separate participators within it, treating the Syndicate Manager as representing to a far greater degree the members of the syndicate. In return the Syndicate Manager will be expected to assume a greater role in providing information about -- and assurances concerning -- the syndicate’s members and the loan.

The Syndicate Manager will first apply to FICO for provisional relief, summarising the main details about the loan on a form PTRSM1. An undertaking must be given that a composite treaty application in the syndicate’s name, and on behalf of all its qualifying overseas members, will be delivered to FICO by the Syndicate Manager within three months of any provisional authority.
If all is in order, FICO will issue the Manager with a provisional authority allowing the incorporation of treaty relief into interest payments. The Syndicate Manager will in turn pass on a copy of this provisional authority to the UK borrower which can, if it chooses, act on it when making payments.
A formal application for relief, in normal form, must then be received within the three months. This will be sent direct to FICO by the Syndicate Manager, without the need for foreign revenue certification.
The Revenue will liaise with the overseas tax authorities for exchange of information purposes, and FICO will ultimately issue the UK borrower with the formal authority under SI 1970/488, assuming relief is appropriate.
Thereafter, arrangements will be made between FICO and the Syndicate Manager to keep that authority under review from time to time. Any changes in the composition of the syndicate -- for example, as a result of the trading-on of debt-rights -- can then be dealt with speedily and easily between FICO and the Syndicate Manager, adjusting the scope of the SI authority as required.

FURTHER INFORMATION

A copy of the PTR scheme’s explanatory "Guidelines" can be obtained from:

Complex Claims Group
(Provisional Treaty Relief Scheme)
FICO
Fitz Roy House
PO Box 46
Nottingham
NG2 1BD

Helpline 0115 974 1904
Fax 0115 974 1918

to whom any requests should be made for copies of the PTR application forms PTRPAY1 (for one-to-one loans) and PTRSM1 (syndicated loans).

The operation of the scheme will be monitored, and FICO welcomes any comments on it. Please address these to Brian Place of FICO’s Technical Advice Group, at the above address, or by fax on 0115 974 2063. Brian’s telephone number is 0115 974 2025.

! This Article Is No Longer Current (Deleted Index 2001)

RECOVERY OF UNPAID NATIONAL INSURANCE CONTRIBUTIONS (NICs)
FROM COMPANY DIRECTORS ETC.

Under new rules which came into force on 6 April 1999 the officers of a company may be liable to pay its outstanding National Insurance Contributions (including any interest or penalty) if the company’s failure to pay is due to their fraud or neglect. The liability extends to all of a company’s outstanding NICs and not merely those referable to an officer’s own earnings from the company.

New sections of the Social Security Administration Act 1992 will apply to contributions which a company is liable to pay for the 1999-2000 tax year onwards where:

the company has failed to pay the contributions at or within the time limits prescribed for the purpose; and
the failure appears to be attributable to fraud or neglect on the part of one or more individuals who, at that time were officers (any director, manager, secretary or member in a similar position) of the company ("culpable officers").

INTENDED USE

When this legislation passed through Parliament in 1998, it was the responsibility of the Department of Social Security. DSS Ministers gave undertakings that the provisions would be invoked sparingly, that is in serious cases of abuse and principally to counter a device often known as ‘phoenixism’. This involves a business being carried on successively through a series of companies in the same ownership each in turn becoming insolvent as a result of substantial unpaid NICs (due from it as an employer), tax and similar debts to government departments. The company carrying on the business at the time then transfers its business minus these debts to the next. Commercial suppliers may be paid in full but the debts to government departments left behind are usually irrecoverable.

NIC liability will not be transferred under these provisions where for example the officers of a company act in good faith and employers’ contributions are unpaid as a result of unexpected commercial misfortune.

ADMINISTRATION

A specialist national unit in the National Insurance Contributions Office in Newcastle is being set up to look after the operation of the provisions and to take the key decisions.

The total NIC debt will be apportioned between culpable officers in proportion to their degree of culpability.

A "personal liability notice" may be served on any culpable officer specifying the amount of the contributions due. The notice will require the officer to pay the specified amount and interest. Interest will run from the date on which the notice is issued until payment is made in full.

Where the company subsequently meets part of the amount due, the amount shown on the personal liability notice(s) will be reduced accordingly. If any overpayment results a refund will be made, with interest where due.

APPEALS

An individual who is served with a personal liability notice may appeal to the Special Commissioner on the following grounds:

that the amount, or part of the amount, specified does not represent NICs for which the company is liable;
that the failure to pay was not attributable to any fraud or neglect by the individual;
that the individual was not an officer of the company at the time of the alleged fraud or neglect; or
that the opinion formed by the Inland Revenue as to an individual’s sole culpability, or as to the proportion of the total liability referable to an individual, was unreasonable.

Further information

Questions relating to this article should be addressed to:

George Steel
Inland Revenue
National Insurance Contributions Office
Technical Support Group
Room 77C
Longbenton
Newcastle upon Tyne
NE 98 1ZZ

Telephone 0191 225 5452

[Social Security Act 1998 (c14) Section 64 which introduced Sections 121C and 121D to the Social Security Administration Act 1992.]

interpretations

(Superseded by CA23781)

APPLICATION OF THE
LONG-LIFE ASSET RULES TO JET AIRCRAFT

In Tax Bulletin Issue 30 (August 1997) we explained how we interpret and plan to operate the rules for capital allowances on long-life assets in Chapter IV A of Part II CAA 1990. We said that we would welcome industry wide agreements on which assets are or are not long-life.

The Large Business Offices (LBOs) dealing with the airlines (City B, Manchester and Nottingham) have reached an agreement with the British Air Transport Association (BATA) on the application of the long-life asset rules to jet aircraft capable of a configuration of 60 or more seats and used primarily for the carriage of passengers or freight for profit (referred to below as "jet aircraft") which make up the bulk of the aircraft operated by members of BATA. The agreement runs up until 31 December 2003. The LBOs and BATA have agreed to reconsider the issue before that date taking into account all the relevant information then available with a view to the renewal of the agreement on the same, or appropriately amended, terms.

The LBOs and BATA both recognise that the 25 year test is particularly difficult to apply to jet aircraft. From the evidence available, the LBOs consider that the useful economic life of a current generation jet aircraft would normally be more than 25 years. BATA consider that the evidence shows that it would be less than 25 years. Both sides remain convinced of the rightness of their views but have been unable to persuade the other of the correctness of the inferences they sought to draw from the evidence available. Both sides recognise that a test case is unlikely to resolve the issue for jet aircraft generally given the range of possible interpretations of the evidence and the extent to which the decision would depend on the facts of the particular case at the particular time.

The agreement also takes other factors into account. In Tax Bulletin Issue 30, we gave an example of the engines being treated as separate assets for tax purposes. BATA estimate that up to 50% of the cost of a jet aircraft can be made up of major components which are not in themselves long life and may be treated as separate assets. BATA estimate that only 39% by value of the original aircraft remains in existence at the end of its useful economic life.

In the light of these considerations and in order to resolve the treatment of aircraft on a basis which is:

simple and straightforward for the airline and the Inland Revenue to administer,
fair to the airline and other taxpayers, and
provides certainty for the airline,

the LBOs have agreed with BATA that individual airlines may choose to enter into an arrangement with the Inland Revenue. The arrangement will be open to the parent company of the airline and will apply to all its subsidiary companies. It will apply to all jet aircraft acquired by the airline under contracts entered into between the start of the long-life asset rules on 26 November 1996, other than ones excluded from the rules under the transitional provisions in Section 38H CAA 1990, and 31 December 2003.

For jet aircraft which come within the arrangement, the total expenditure on the aircraft in its ready for service configuration will be treated as made up of two equal sums, one of which is long-life and attracts allowances at 6% while the other is not long-life and attracts allowances at the normal rate for plant and machinery. Disposal proceeds will be apportioned in the same ratio.

Under the arrangement, the airline also undertakes to inform the Inland Revenue of the details of any finance lease in respect of jet aircraft entered into up to 31 December 2003 within 3 months of so doing.

The arrangement will be open to lessors so that they too can have certainty in planning their transactions. In the case of finance lessors, we will accept an arrangement with an individual company which does not apply to other members of the leasing group.

In order to give airlines and lessors sufficient time to consider the consequences, we will allow them until 30 September 1999 to enter into an arrangement. Where an airline or lessor does not incur any expenditure to which the arrangement would apply until after that date, we will allow it to enter into the arrangement up until it makes its first claim to capital allowances in respect of such expenditure.

We will consider any claim for capital allowances on a jet aircraft not brought into an arrangement in the light of its particular facts, starting as explained above with the presumption that the aircraft will normally be a long-life asset.

Discussions are continuing with representative bodies on the treatment of other types of aircraft including regional jets below 60 seats configuration, corporate jets, turboprops and other aircraft used in general aviation. We hope to be able to issue a further Tax Bulletin article on the outcome of those discussions in the near future.

The details of the arrangement are contained in the text of formal agreements (one version for airlines, the other for lessors) and an explanatory statement agreed between the LBOs dealing with the airlines (City B, Manchester and Nottingham) and BATA. Copies of the agreements and explanatory statement are available from any of these LBOs or from

Business Tax Division
Room 301
22 Kingsway
London
WC2B 6NR

Any enquiries concerning the agreement can be made to any of these offices.

(Superceded by CG 61940)
COMPULSORY ACQUISITION OF FREEHOLD OR EXTENSION OF LEASE BY TENANT:
TENANT’S RIGHT TO BUY:
STATEMENT OF PRACTICE 13/93:
SECTION 247 TCGA 1992

Section 247 TCGA 1992 allows roll-over relief in certain circumstances where a landlord disposes of land to an "authority exercising or having compulsory powers" and acquires replacement land. "Authority" is defined in Section 243(5) TCGA 1992 to mean a person or body of persons with compulsory purchase powers.

An existing Statement of Practice, SP13/93, was issued to make it clear that relief under Section 247 may be claimed by a landlord, if the conditions of the Section are met, where tenants exercise their statutory right to acquire the freehold reversion or an extension of their lease under the Leasehold Reform, Housing & Urban Development Act 1993. It replaced SP7/90 which applied the same treatment to cases under the Leasehold Reform Act 1967.

We have been asked to extend the statement of practice to deal with cases where a tenant’s right to buy under the Housing Acts 1985 to 1996 has been preserved following a transfer of housing stock into the private sector. This is of particular importance where there has been a large-scale voluntary transfer from a local authority to a registered social landlord. A revised statement of practice making it clear that Section 247 can apply to the landlord in these circumstances is reproduced below.

STATEMENT OF PRACTICE: COMPULSORY ACQUISITION OF FREEHOLD OR EXTENSION OF LEASE BY TENANT

Section 247 TCGA 1992 allows roll-over relief in certain circumstances where a landlord disposes of land to an "authority exercising or having compulsory powers" and acquires replacement land. "Authority" is defined in Section 243(5) TCGA 1992 to mean a person or body of persons with compulsory purchase powers.
In the Inland Revenue’s view, relief under Section 247 may be claimed by a landlord -- subject to the general conditions of the Section -- where a tenant exercises the following rights to acquire an interest in the tenanted property from the landlord:
- the right to acquire the freehold reversion or an extension of the lease under the Leasehold Reform Act 1967 or the Leasehold Reform, Housing & Urban Development Act 1993, or
- the right to buy or to acquire the freehold or an extension of the lease under the Housing Acts 1985 to 1996.

EXTENSION OF LEASES: EXTRA STATUTORY CONCESSION D39

For convenience, a change to our practice in relation to capital gains tax on the extension of a lease, as embodied in Extra-Statutory Concession D39, is set out below.

Extra Statutory Concession D39 applies where a lease is extended by the surrender of the old lease and the grant of a new lease. Where the lease is surrendered before its expiry and the conditions of the concession are met the tenant is treated as not having made a disposal or part disposal of the old lease.

One of the conditions is that the surrender and re-grant must be between unconnected parties bargaining at arms length. The concession has now been amended so that it can apply also to transactions between connected parties provided that the terms of the transaction are equivalent to those that would have been made between unconnected parties bargaining at arms length.

(Superceded by INTM 162120)

DOUBLE TAXATION RELIEF:
ADJUSTMENTS TO FOREIGN TAX PAID

Section 107 FA 1998 introduced amendments to Section 806 Income and Corporation Taxes Act 1988. The new provisions require taxpayers (both individuals and companies) to notify the Inland Revenue within one year of any adjustment to the amount of foreign tax in respect of which they have claimed credit relief against United Kingdom tax. This article seeks to clarify what is meant by an adjustment and when it should be considered to have been made for the purposes of Section 107.

The requirement only applies however in circumstances where the adjustment is such that it results in a claim to relief becoming excessive.

The notice must be given in writing within one year from when the adjustment was made. A person who fails to give the required notice within the time limit is liable to a penalty of an amount not exceeding the amount by which the credit allowed has been rendered excessive by reason of the adjustment. Any penalty chargeable is subject to the provisions of Section 100, Taxes Management Act 1970 and to the normal abatement procedure.

WHAT IS AN ADJUSTMENT?

This new provision relates to foreign tax paid under a wide variety of systems and methods of collection. It is not possible therefore to define precisely what constitutes an adjustment of the tax paid. However, in most cases this will involve the foreign tax authority formally accepting that the amount of tax paid is excessive and agreeing to repay the excessive tax, either directly, or indirectly by setting it off against other liabilities that the taxpayer may have.

WHEN IS AN ADJUSTMENT MADE?

An adjustment should be considered to have been made when the foreign tax authority issues a notification, in writing to the person (or their advisers) who has paid the tax in respect of which the claim to relief has been made, that it accepts that the amount of tax paid is excessive. Where the foreign tax authority does not issue such a notification but simply repays or sets off the excessive tax, the date when the repayment was issued or the set off carried out should be taken as the date when the adjustment was made.

In some circumstances, for example where underlying tax is involved, claims may be made in respect of foreign tax paid by a person other than the person claiming relief in the United Kingdom. Notification of any adjustment to the amount of tax paid will normally be sent only to the person who has paid that tax. Persons who have claimed relief in the United Kingdom in respect of foreign tax paid by another person should therefore ensure that they will be made aware of any subsequent adjustment to the amount of foreign tax on which their claim is based.

miscellaneous

ALLOCATION AND RE-ALLOCATION OF PAYMENTS
BY THE REVENUE, WITH PARTICULAR REFERENCE
TO THE JULY 1999
SELF ASSESSMENT STATEMENTS OF ACCOUNT

This article provides information about the Revenue’s current practice on repayment, and allocations and re-allocations of overpayments. It considers particularly the position for the forthcoming July 1999 Self Assessment Statements of Account.

ALLOCATION OF OVERPAYMENTS

Where a payment made to the Revenue is set against a liability and the liability is subsequently reduced, repayment interest (known as repayment supplement) is due. Whether the overpayment is repaid or reallocated to another liability repayment interest will be credited from the date of payment to the date of repayment or reallocation. The repayment interest will normally also be repaid or reallocated, along with the original overpayment. Where a payment is not set against any tax liability and repayment is not claimed the payment will remain on the record until the next liability arises, but no repayment interest will be due.

The Self Assessment Statements of Account are issued some weeks in advance of the due date to alert taxpayers and to provide the payslip to make payment. It therefore makes sense to check whether there are any overpayments on the record and to allocate them to the forthcoming liability before issuing the statement. This is a matter of sensible practice. But if the taxpayer wants a repayment to be made before the due date, perhaps for cashflow reasons, then the repayment should be made. Depending on the timing of the repayment the statement may still show the overpayment at the time of issue. So agents will need to advise clients to pay the full amount by the due date.

SA STATEMENTS FOR JULY 1999

This year we will once again be issuing the statements in late June and early July to collect the second payment on account for 1998-99 due on or before 31 July. We are expecting to issue around 3m statements. The extraction and printing of the statements will be spread over a period, but if statements have not been received by 15 July you should contact your tax office.

Electronic copies of clients’ statements will be issued to agents linked to the Electronic Lodgement Service; and some agents will receive the client’s paper copy where the necessary form 64-8 election has been made. Otherwise agents should refer to the statement of account agent details issued to them in late April/early May. The second payment on account will be the same as the first payment on account shown there (to within a penny), unless a claim to reduce the payments on account has been made subsequently.

METHODS OF PAYMENT

Previous Tax Bulletin articles have referred to the importance of using the right payment methods to achieve fast and accurate allocation of the moneys. The Revenue experienced many fewer problems in January 1999 than previously in processing Self Assessment payments. We would like to thank agents for their contribution to this improvement in performance. Please keep up the good work.

To summarise the key points again we recommend that payment is made by Bank Giro or Girobank as the quickest and most efficient way, using the payslip with the statement for that taxpayer since it contains encoded personalised details. This approach ensures the payment is allocated quickly to the right account and so avoids the issue of further statements showing tax still outstanding. If a cheque payment is made by post it should be sent in the envelope provided accompanied by your client’s personalised payslip. If you still have the Helpcard on payments by post issued in January please refer to that. If payment is made to a local office there will inevitably be delays. If you need a replacement payslip, please contact your local tax office in good time before the payment date. We hope to be providing personalised payslips direct to agents for the January 2000 payment.

Payment can also be made electronically by PC or telephone banking. The details a bank or building society needs to arrange payment electronically are shown on the back of the statement. For the first time this July, we will be offering some taxpayers the option of paying by debit card to test demand for this payment facility. A leaflet explaining how to pay SA liability by debit card will accompany some taxpayer statements.

LATE PAYMENT INTEREST

Returning to the allocation of payments, where payment, or the allocation of an earlier overpayment, is made before the due date, then there is no interest charge. Where a payment is made after the due date (or a payment after the due date against another liability is reallocated to this liability) interest will be charged from the due date to the effective date of payment.

On occasion, because of the complexity of reallocations in Self Assessment, there will be circumstances where repayment interest is credited and interest is charged for a common period. A particular example is where an overpayment is made earlier but only identified as such after the due date of the liability to which it is then allocated. We are trying to identify such cases and put things right, but if you do come across such a case please let your local tax office know.

! This Article Is No Longer Current (Deleted Index 2001)

ERRORS IN SOME 1998-1999 SELF ASSESSMENT TAX RETURNS

We want to apologise for some errors in parts of the tax returns for 1998-99 where we refer to the year ended 5 April 1998 instead of 5 April 1999. The errors affect:

people to whom we issued only the eight-page core return. The header to the last page reads "OTHER INFORMATION for the year ended 5 April 1998, continued". All other pages show the correct year;
partnership returns. Page 7 (out of 8) reads "PARTNERSHIP STATEMENT (SHORT) for the year ended 5 April 1998, continued". The headers to all other pages in the partnership return are correct;
some people to whom the land and property supplementary pages have been issued. Where these form the inside back cover of the return the heading to the first land and property page reads "Income for the year ended 5 April 1998".

The errors are only in returns issued on 6 April 1999. All other return material including returns issued during the year, the material issued by the Orderline, and the returns guides for tax practitioners and staff, are unaffected.

Everyone involved in preparing and issuing the returns tries extremely hard to ensure that there are no errors but unfortunately a few slipped through the net this year. We apologise for the inconvenience this will cause agents and their clients.

Our solicitor’s advice is that all the returns are legally valid. Any returns sent in will not be rejected simply because of these errors.

Our main worry was whether taxpayers might be confused or misled by the errors:

on balance we decided that it would not be helpful to alert taxpayers to the errors in the core and partnership returns as the errors are on a continuation page and all other pages are correct;
we decided to tell taxpayers about the error in the land and property page. While the return itself clearly shows the year ended 5 April 1999, the first land and property page they will see shows "the year ended 5 April 1998". We have therefore issued an explanatory letter to all affected taxpayers together with a correct version of the land and property page to use instead of the one sent to them with their return if they wish;
our staff have been briefed to deal with queries. We will remind them again towards the end of September and again in January when more returns are being completed as many taxpayers may not spot the errors until they get round to filling in their return.

We are very sorry for the mistakes and will do our best to make sure they do not happen again.

TAX LAW REWRITE PROJECT

BACKGROUND

The Tax Law Rewrite project (TLR) aims to rewrite all (or most) of the UK’s primary direct tax legislation so that it is clearer and easier to use, without changing or making less certain its general effect.

During the first half of 1999, the TLR has published its annual report, three Exposure Drafts and a response document.

Exposure Drafts contain draft legislation at an early stage of the rewrite process to give all interested parties the opportunity to comment. We normally ask for comments within 2 to 3 months from publication, and we aim to respond to comments in a response document.

ANNUAL REPORT -- PLANS FOR 1999-2000

Our annual report, published on 23 March as Plans for 1999-2000, reviewed the progress of the TLR during 1998-99 and set out a programme of work for the current year.

During 1998-99 we published three substantial Exposure Drafts:

Savings and Investment Income: Part 1 -- July 1998.
Capital Allowances: Part 1 -- October 1998.
Trading Income of Individuals: Part 2 -- March 1999.

Plans for 1999-2000 included the stocktake of the project sent last December to the Chancellor of the Exchequer by Lord Howe of Aberavon, the Chairman of the Project’s Steering Committee, and the exchange of correspondence between Lord Howe and the Chancellor. The stocktake report showed that the rewritten legislation has been well received by tax professionals and that they are enthusiastic that the project should continue. The Chancellor of the Exchequer fully endorsed the project in his reply to Lord Howe.

RECENT EXPOSURE DRAFTS

Trading Income of Individuals: Part 2

The second Exposure Draft on trading income of individuals was published in March 1999. This publication rewrites the legislation covering some of the rules for calculating the profits of a trade, the basis period rules and the rules on farming. The consultation period ended on 31 May and a response document is planned for October 1999.

Capital Allowances: Part 2

The second Exposure Draft on capital allowances was published in April 1999. It contains rewritten legislation on some of the provisions on capital allowances for plant and machinery and all the provisions for dredging and patents. The consultation period lasts until 31 July 1999. The rewritten legislation will form part of the first Rewrite Bill.

Employment Income: Part 1

The first Exposure Draft dealing with employment income was recently published. It contains clauses and commentary dealing with the identification of what is chargeable to tax as employment income, the computation of what is chargeable, who is chargeable to tax on employment income and when the charge arises. The consultation period ends on 30 September 1999.

RESPONSE DOCUMENT

In April 1999 we issued a document responding to the many helpful comments we received on our Exposure Draft Savings and Investment: Part 1, which we published last July. This has been sent to all those who gave us comments and has also been made generally available on the Internet.

FUTURE PUBLICATIONS

During the remainder of 1999-2000 the TLR plans to publish further Exposure Drafts on:

trading income;
savings and investment income;
income from property;
employment income;
capital allowances;

along with several response documents. On the basis of comments received on the Exposure Drafts we will also start putting together the Capital Allowances Bill. This will be our first rewrite Bill. After being published in draft for a final round of consultation, it will probably come before Parliament in the second half of 2000.

OUR APPROACH TO CONSULTATION

Over time the work of the TLR will impact on everyone who works with tax legislation. We will continue to consult fully throughout the life of the project.

If you want to find out more about the Rewrite project or comment on our work, all our publications are available on the Internet at www.inlandrevenue.gov.uk or can be obtained, free of charge, from

Inland Revenue
Information Centre
Bush House
South West
Strand
London
WC2B 4RD

(Article no longer current)

INLAND REVENUE ACCOUNTS OFFICE OPEN DAY

The Accounts Offices will be holding an open day for accountants and agents on 19 November 1999. The aim of the day will be to help our "shared customer" -- the accountant’s client and the Inland Revenue’s taxpayer.

The day will provide an opportunity to see how the volumes of payments are processed and to talk with Accounts Office managers about:

how payments are handled;
how correspondence is dealt with;
how telephone calls, covering a wide range of tax matters are handled.

The venue will be the Accounts Office at Shipley, Yorkshire. The invitation is for accountants and agents who contact the Accounts Office at Cumbernauld as well as the Shipley Office.

Places are limited so make your reservation quickly. Contact Laura Campbell at the Accounts Office Shipley, telephone 01274 539 636, fax 01274 539 610.

! This Article Is No Longer Current

INFORMATION POWERS AND LEGAL ADVICE

A recent Special Commissioner’s decision (SpC 189) is relevant to the question of whether legal advice can be sought in a notice under Section 20(1) TMA 1970. This decision has attracted significant interest. It is intended that an article on the Inland Revenue view of the limited circumstances in which it may be appropriate to seek such advice will be published in a forthcoming issue of Tax Bulletin.

REVENUE PROSECUTIONS

The Inland Revenue has a policy of selective prosecution involving the most serious cases across the whole range of the tax system. The Board see this as an important part of its strategy to deter tax fraud and evasion. As part of the wider publicity for this strategy, details of Revenue prosecutions are published in Tax Bulletin.

Charles Robertson (formerly Wilkins)

Charles Robertson was an accountant who operated out of a garden shed in London. Acting as agent for a number of sub-contractors in the construction industry, he submitted false SC60s, R38s and other supporting documents on behalf of two of his clients that triggered repayments that he then paid into his own bank account. He pleaded guilty to one charge of cheat and four charges of theft. Robertson was sentenced to 3 years imprisonment. The tax loss was estimated at £1 million.

Malcolm William Moffat

Mr Moffat, a self employed building consultant from the Wirral, was sentenced to 15 months imprisonment for tax evasion. He pleaded guilty to 2 charges of tax evasion in a case brought jointly by the Inland Revenue and HM Customs and Excise. Moffat was accused of failing to notify the Inland Revenue of income on which he should have paid tax and National Insurance from December 1987 to 1996. The tax loss was estimated at £120,000 plus interest.

Balbir and Gurmail Sahota

Father and son Balbir and Gurmail Sahota, property lettings partners, were charged with failing to disclose the true value of the rents and profits received by them from 22 Southampton properties. They both pleaded guilty to 1 count each respectively of cheating the public revenue. Balbir Sahota was sentenced to 9 months imprisonment suspended for 2 years and ordered to pay costs of £8,055. Gurmail Sahota was fined £4,000 and ordered to pay costs of £2,500. The tax loss was estimated at £24,000 plus interest of £8,000.

Alan Geoffrey Frost

Alan Geoffrey Frost of Huddersfield, a self employed industrial patternmaker, was sentenced to 23 months imprisonment for tax evasion. Frost was accused of understating profits and the use of false invoices and records between the tax years 1986-87 and 1995-96. He was also accused of failing to disclose to the Inland Revenue details of income on which he should have paid tax between 1985-86 and 1996-97. There were two indictments; 21 months imprisonment and a £40,000 fine for the understatement of profits using false invoices and records, 23 months imprisonment and £60,000 fine for failing to disclose details of income to the Inland Revenue. The sentences are to run concurrently. The tax loss has been estimated at £117,000 plus interest.

INLAND REVENUE STATEMENTS OF PRACTICE AND EXTRA-STATUTORY CONCESSIONS ISSUED
BETWEEN 1 APRIL 1999 AND 31 MAY 1999

Extra Statutory Concessions

Number	Title	Date of issue
A14	Deceased person’s estate: residuary income received during the administration period	01/04/99
A93	Payments from offshore trust to minor, unmarried child of settlor: Claim by settlor for credit of tax paid by trustees	01/04/99
B18	Payments out of discretionary trusts. UK Resident Trusts	01/04/99
D40	Non-resident trusts: definition of participator	01/04/99

A temporary ESC entitled: Remission of Interest on Disputed National Insurance Contributions Liability was issued on 18/05/99. Where a decision on liability was requested under the pre 1 April 1999 procedures and interest on unpaid NICs did not accrue up to that date, it will continue to be remitted until 1 August 1999.

Statements of Practice

There have been no Statements of Practice issued in this period.

You can get copies of SPs and ESCs from Christine Jordan at the Inland Revenue Information Centre, Ground Floor, South West Wing, Bush House, Strand, London WC2B 4RD. Telephone 020 7438 7772.

CONTENT

The content of Tax Bulletin gives the views of our technical specialists on particular issues. The information published is reported because it may be of interest to tax practitioners. Publication will be six times a year, and include a cumulative index on an annual basis.

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.
The Bulletin does not replace formal Statements of Practice.
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.

Letters on any article appearing in Tax Bulletin should be sent to the Editor, Jeremy Sherwood, Room 402, 22 Kingsway, London WC2B 6NR. We are sorry though that neither he nor our contributors will normally be able to enter into correspondence about Tax Bulletin or its contents.

SUBSCRIPTION

The subscription for 1999 is £22. If you would like to subscribe to Tax Bulletin please send your name and address together with your cheque to Inland Revenue, Finance Division, Barrington Road, Worthing, West Sussex BN12 4XH. Cheques should be crossed and made payable to "Inland Revenue".

If you would like information regarding Tax Bulletin subscription or distribution please contact Miss S. Williams, Room 530, 22 Kingsway, London WC2B 6NR. Telephone: 020 7438 7700. For more general information regarding Tax Bulletin, please contact Ms Nahid Shariff, Assistant Editor, on 020 7438 7842 or at the address below.

COPYRIGHT

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 for permission to Ms Nahid Shariff, Assistant Editor, Room 408, 22 Kingsway, London WC2B 6NR.

TAX BULLETIN PROVIDED IN WEB READY FORMAT COURTESY OF TAX ANALYSTS AND TAXBASE

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Tax Bulletin Issue 41

INLAND REVENUE TAX BULLETIN Issue 41

CONTENTS

DECISIONS AND APPEALS

SUMMARY

NEW SYSTEM

THE THREE STAGES

Stage 1 -- the informal stage

Stage 2 -- the formal decision

Stage 3 -- the appeal

DECISION CATEGORIES

NICS DECISIONS

Category of earner

Liability to pay

Entitlement to pay

Whether contributions have been paid

SSP AND SMP DECISIONS

LEGISLATION

WHO MAKES DECISIONS

WORDING OF THE DECISION

THE NOTICE OF DECISION

Example 1 -- Status

Example 2 -- Remuneration in non-cash form

Example 3 -- NICs paid by employee -- dispute over short term benefit claim

PERSONS NAMED IN THE NOTICE OF DECISION

Class 1 contributions

Class 2, 3 & 4 contributions

SSP and SMP

LETTER OF EXPLANATION

DAA2 GUIDE

WHERE APPEALS ARE HEARD

SETTLING AN APPEAL BY AGREEMENT

Withdrawal of appeal

Appeal hearing

Taking matters further

VARYING DECISIONS

TRANSITIONAL ARRANGEMENTS

INTEREST

DECISION MAKING AND APPEALS

PUBLISHED INFORMATION

(Superseded by CISM3141) CONSTRUCTION INDUSTRY SCHEME

CURRENT CERTIFICATES THAT EXPIRE AFTER 1 AUGUST 1999

TURNOVER TEST AND CHANGE IN TYPE OF CONCERN

How is the turnover test applied where the applicant’s business changes?

General

No change

Changes

Partnership becoming sole trader

Sole trader becomes partnership

Sole traders or partnerships merging to form new partnerships

Sole trader or partnership becomes a company

DOUBLE TAXATION RELIEF ON UK COMPANY INTEREST PAYMENTS: PROVISIONAL TREATY RELIEF (PTR) SCHEME

BACKGROUND

OUTLINE OF THE PTR SCHEME.

ONE TO ONE COMPANY LOANS

SYNDICATED LOANS

FURTHER INFORMATION

! This Article Is No Longer Current (Deleted Index 2001) RECOVERY OF UNPAID NATIONAL INSURANCE CONTRIBUTIONS (NICs) FROM COMPANY DIRECTORS ETC.

INTENDED USE

ADMINISTRATION

APPEALS

interpretations

(Superseded by CA23781) APPLICATION OF THE LONG-LIFE ASSET RULES TO JET AIRCRAFT

(Superceded by CG 61940) COMPULSORY ACQUISITION OF FREEHOLD OR EXTENSION OF LEASE BY TENANT: TENANT’S RIGHT TO BUY: STATEMENT OF PRACTICE 13/93: SECTION 247 TCGA 1992

STATEMENT OF PRACTICE: COMPULSORY ACQUISITION OF FREEHOLD OR EXTENSION OF LEASE BY TENANT

EXTENSION OF LEASES: EXTRA STATUTORY CONCESSION D39

(Superceded by INTM 162120) DOUBLE TAXATION RELIEF: ADJUSTMENTS TO FOREIGN TAX PAID

WHAT IS AN ADJUSTMENT?

WHEN IS AN ADJUSTMENT MADE?

miscellaneous

ALLOCATION AND RE-ALLOCATION OF PAYMENTS BY THE REVENUE, WITH PARTICULAR REFERENCE TO THE JULY 1999 SELF ASSESSMENT STATEMENTS OF ACCOUNT

ALLOCATION OF OVERPAYMENTS

SA STATEMENTS FOR JULY 1999

METHODS OF PAYMENT

LATE PAYMENT INTEREST

! This Article Is No Longer Current (Deleted Index 2001) ERRORS IN SOME 1998-1999 SELF ASSESSMENT TAX RETURNS

TAX LAW REWRITE PROJECT

BACKGROUND

RECENT EXPOSURE DRAFTS

Trading Income of Individuals: Part 2

INLAND REVENUE TAX BULLETIN
Issue 41

(Superseded by CISM3141)

CONSTRUCTION INDUSTRY SCHEME

DOUBLE TAXATION RELIEF ON UK
COMPANY INTEREST PAYMENTS:
PROVISIONAL TREATY RELIEF
(PTR) SCHEME

! This Article Is No Longer Current (Deleted Index 2001)

RECOVERY OF UNPAID NATIONAL INSURANCE CONTRIBUTIONS (NICs)
FROM COMPANY DIRECTORS ETC.

(Superseded by CA23781)

APPLICATION OF THE
LONG-LIFE ASSET RULES TO JET AIRCRAFT

(Superceded by CG 61940)
COMPULSORY ACQUISITION OF FREEHOLD OR EXTENSION OF LEASE BY TENANT:
TENANT’S RIGHT TO BUY:
STATEMENT OF PRACTICE 13/93:
SECTION 247 TCGA 1992

(Superceded by INTM 162120)

DOUBLE TAXATION RELIEF:
ADJUSTMENTS TO FOREIGN TAX PAID

ALLOCATION AND RE-ALLOCATION OF PAYMENTS
BY THE REVENUE, WITH PARTICULAR REFERENCE
TO THE JULY 1999
SELF ASSESSMENT STATEMENTS OF ACCOUNT

! This Article Is No Longer Current (Deleted Index 2001)

ERRORS IN SOME 1998-1999 SELF ASSESSMENT TAX RETURNS

(Article no longer current)

INLAND REVENUE ACCOUNTS OFFICE OPEN DAY

! This Article Is No Longer Current

INFORMATION POWERS AND LEGAL ADVICE

INLAND REVENUE STATEMENTS OF PRACTICE AND EXTRA-STATUTORY CONCESSIONS ISSUED
BETWEEN 1 APRIL 1999 AND 31 MAY 1999