Inland Revenue Tax Bulletin - Issue 57

Contents

Interpretations

Miscellaneous

Double Taxation Relief: Tax consolidations falling within Section 803A of ICTA 1988

Paragraph 15 of Schedule 30, Finance Act (FA) introduced a new Section 803A into Income and Corporation Taxes Act (ICTA) 1988. In some countries the law may provide that one company may pay tax in respect of the aggregated profits of itself and others as if they were a single entity. The new provisions at Section 803A provide that, for the purposes of calculating credit relief:

  • the relevant profits of these companies are regarded as a single aggregate figure in respect of a single company; and
  • the foreign tax paid by the responsible company as having been paid by that single company.

Tax Bulletin Issue 54 published in August 2001 brought together guidance previously published on the Inland Revenue website concerning additional situations on which we had given individual guidance. Since then we have been able to look at how tax consolidations work in various countries, and the implications for treatment under Section 803A. If entities other than companies resident in the relevant territory are included in the group then the appropriate amounts of relevant profits and foreign tax will need to be excluded from the calculation of underlying tax for the S803A entity.

Netherlands
A fiscal entity can be formed if one company owns at least 99% of a subsidiary. Neither parent nor subsidiary need be Dutch incorporated or resident, but all companies involved should be subject to the same Dutch tax regime. The formation of a fiscal entity is deemed to be a merger of the subsidiaries into the parent and all tax is assessed on the parent. However all companies within the fiscal unity are jointly and severally liable for the tax, although strictly the liability of subsidiaries is secondary. The fiscal unity is within Section 803A, even if the parent company is a company that is not resident in the Netherlands, because tax is payable by any other company any may be the "responsible company" and the fiscal unity will be within Section 803A.

USA
A US resident entity and its 80% subsidiaries may elect to file a consolidated federal income tax return. This may include non-corporate entities e.g. single member LLCs and non-US resident single member companies, if (re the latter) transparency has been elected under check-the-box. Each company is jointly and severally liable for the tax of the group.

Any company in the consolidated return may be the "responsible company". Section 803A applies, even if the parent company is a non-resident company or a non-corporate entity. This point is covered more fully in Tax Bulletin Issue 54.

Germany
From 1 January 2001 an "Organschaft" can exist for federal tax if an entity and its subsidiaries:

  1. are integrated financially with the dominant entity having more than 50% of the voting rights in each subsidiary; and
  2. have a profit or loss pooling arrangement in place.

It is also possible to have an Organschaft for trade tax purposes but, until 31/12/01 only if the dormant entity and its subsidiaries are economically and organisationally integrated. So a group may have either a federal or a trade tax Organschaft, or both.

The dominant entity may be a German company or partnership, or a German branch of a non-German company. It is liable for the Organschaft's tax. This is in respect of its own profits as augmented by those of subsidiaries, in other words the aggregate profits of all the companies.

From 1/1/02, only financial integration is required for trade tax organschaft.

Both federal and trade Organschaften are within Section 803A. Provided a group forms an Organschaft for one tax, Section 803A will apply in respect of both. This follows the principle set out in Tax Bulletin 54 for federal and state taxes in the USA.

Where a federal organschaft is headed by a KG, OHG or branch, as the subsidiaries' profits will move up by way of profit pooling payment, there will be no dividend in practice in respect of which S803A can apply. In that case Section 801B, which deals with profits transferred other than by way of a dividend, will apply.

France
Any entity which either:

  1. is subject to French corporation tax; or
  2. can elect to be taxed as a company; or
  3. is a permanent establishment of a non-French company

can form an "Intégration Fiscale" with its 95% subsidiaries. Each group entity completes a tax computation on a stand-alone basis. These are then consolidated with adjustments made for intra-group dividends, etc.

Tax on the net consolidated profits is assessed on the top company. Although the subsidiaries are in principle jointly liable for the group's tax liability, this is statutorily limited to the stand-alone tax that a subsidiary would have paid if it had not been a member of the Intégration Fiscale.

As the parent entity is responsible for paying French tax in respect of all members of the Intégration Fiscale the tax grouping will fall within Section 803A unless the parent entity is a non-corporate entity or a French branch of a non-French company.

Tax is always assessed on the "top" company. Therefore examples A and C included in Tax Bulletin 54 cannot in practice arise for a French tax consolidation.

Two other consolidation systems are available in France, "Bénéfice Consolidé" and "Bénéfice Mondial". However these are usually only available to a French company that heads an international group. The Section 803A position has not therefore been considered.

Luxembourg
A fiscal unity can be formed between Luxembourg resident companies where a fully taxable company and one or more fully taxed subsidiaries are integrated financially, economically and organisationally. The parent company is responsible for paying the consolidated tax liability.

Effective 1/1/02, only financial integration (now 95% ownership, rather than 99%, previously) is required. Moreover, Luxembourg branches of non-resident companies (which themselves are fully liable to a tax corresponding to Luxembourg tax) may now head a Luxembourg fiscal unity.

Such a tax consolidated group will fall within Section 803A, the parent company begin the "responsible company". As this will always be a Luxembourg-resident company, there will be no exceptions.

New Zealand
Groups of resident companies with 100% common ownership may elect to be subject to the consolidated companies' regime. The group files a single return and receives a single tax assessment. This may be issued to any company in the group and all other group members remain liable for their share of the group tax liability.

The company to which the group tax assessment is issued is the "responsible company" and Section 803A applies. As this will always be a New Zealand-resident company, there will be no exceptions.

Spain
A Spanish resident company may elect to file a consolidated return on behalf of itself and its 90% Spanish resident subsidiaries. The tax is assessed on the parent company, but each company is jointly and severally liable for the tax.

Section 803A applies. Any company may be the responsible company although this will normally be the parent company.

Future changes
Changes are proposed to the consolidation arrangements in the Netherlands from 1/1/03. The potential implications of these for Section 803A will be considered later once they are implemented and become relevant.

Contact Points
Further advice in a particular case may be obtained from

Paul West
International (External Relations Group), (Underlying Tax Group)
Fitzroy House
PO Box 46
Castle Meadow Road
Nottingham
NG2 1BD
Tel: 0115 974 2020

Or more general policy advice from

Susan New
International (External Relations Group)
Victory House
30-34 Kingsway
London
WC2B 6ES
Tel: 020 7438 7250

E-mail: Susan.New@ir.gsi.gov.uk

Although the Inland Revenue is responsible for the conclusions reached, we are grateful to PricewaterhouseCoopers for their assistance in gathering information about the legislation in other countries.

Schedule E - foreign earnings deduction (FED) for seafarers - meaning of ship

Litigation on the meaning of ship for FED purposes
On 27 July 2001, the Court of Appeal gave judgement in favour of the three taxpayers in the joined cases of Perks v Clark (HMIT), Perks v Macleod (HMIT) and Newrick & Granger v Guild (HMIT) - TL 3649. The point at issue was whether their earnings were "emoluments from employment as a seafarer" for the purpose of paragraph 3(2A) of Schedule 12 Income and Corporation Taxes Act (ICTA)1988. If they were then they could take advantage of more generous FED provisions. "Employment as a seafarer" is defined as "employment consisting of the performance of duties on a ship (or of such duties and others incidental to them)".

During the relevant years, the taxpayers performed the duties of their employment on jack-up drilling rigs in the offshore oil and gas industry. A jack-up rig has a floating hull and retractable legs. For the purposes of drilling the legs are lowered so that the feet stand upon the seabed and the hull is jacked up so that it is clear of the water. The legs are then retracted upwards to enable the floating hull to be towed from place to place. Neither of the two rigs in these cases had a rudder or motive power. When under tow, the navigation of the rigs and their towing vessels was under the command of a towing master located on the rigs themselves and assisted by navigational equipment also located on the rigs. In addition, the rigs carried specialist equipment normally carried by ships and had to satisfy various statutory requirements commonly associated with ships.

The General Commissioners considered the line of authorities concerned with the definition of ship for the purposes of the Merchant Shipping Acts. They decided that these showed that it was sufficient for a vessel to be a ship if it was capable of and used in navigation. Both rigs were capable of and used in navigation and had sufficient of the characteristics associated with ships to be ships for the purposes of the definition in Schedule 12 ICTA 1988. Therefore, the taxpayers who worked on these vessels were entitled to FED as seafarers.

The Revenue's appeal to the High Court succeeded on the basis that the "real work" of these two jack-up rigs was to drill for oil whilst stationary with their legs resting on the seabed. Any navigation was incidental to their main purpose.

However, the Court of Appeal ruled that the judge in the High Court had not been entitled to interfere with the decisions of the Commissioners. The word "ship" was an ordinary English word and the meaning of an ordinary word in the English language was not a question of law. It was for the Commissioners to decide as a question of fact whether the statutory words applied to the facts that they had found. Their decisions were within the limits of reasonableness and the Commissioners had not misdirected themselves by considering authorities concerned with the definition of ship in the Merchant Shipping Acts.

The Court of Appeal also considered the merits of the Revenue's "real work" test. The Court found little support for the Revenue's position in the authorities. The common thread running through the cases dealing with the definition of ship in other contexts was the use of a vessel in navigation. Navigation connoted no more than ordered movement across the water. For a vessel to be used in navigation, it did not need to be self-propelled or to convey persons or cargo. Whether a vessel that was capable of navigation was a ship would depend on the extent to which it was used in navigation.

Application of the decision of the Court of Appeal - FED before 17 March 1998
The decision is now final and we have accepted that before 17 March 1998 jack-up rigs will be ships for the purposes of FED.

In the absence of a statutory definition of the word ship, our previous view was that for the purposes of FED a ship had to satisfy three conditions. These were that it had to be:

  1. capable of navigation;
  2. used in navigation; and
  3. navigation was more than incidental to its function.

It is clear from the judgement that the third of these tests is not a relevant consideration. The critical question is whether a structure is used in navigation. Provided navigation is a significant part of the function of the structure in question, the mere fact that it is incidental to some specialised function does not take it outside the definition of ship.

It is also clear that relative infrequency of navigation does not necessarily exclude a structure from the definition of ship. The Court agreed that in most cases, the categorisation of a structure should be governed by its design and capability rather than by its actual use at any time.

In addition to jack-up rigs, there may be other floating structures in the offshore oil and gas industry that are capable of satisfying the tests advocated by the Court of Appeal. We will consider such structures on the specific facts of each case. We will be revising our published guidance to reflect our changed view and in particular paragraph 33102 in the Inland Revenue's Schedule E manual.

Changes to FED effective from 17 March 1998
FED was withdrawn for all employees other than seafarers in March 1998. From 17 March 1998, Section 192A(3) ICTA 1988 excludes offshore installations within the meaning of the Mineral Workings (Offshore Installations) Act 1971 from the definition of ship for FED purposes. This means that employees who perform the duties of their employment on jack-up rigs or similar structures in the offshore oil and gas industry can no longer be regarded as seafarers and are therefore not entitled to FED.

FED claims from employees working on jack-up rigs before 17 March 1998
As we have decided to apply the Court of Appeal's decision more widely, employees who worked on jack-up rigs before March 1998 may be entitled to FED provided they satisfy all the other conditions for the deduction and are eligible to make a claim.

Open appeals against Schedule E assessments for 1995-96 or earlier or against Revenue amendments to SA returns for 1996-97 or 1997-98 can now be settled where the point at issue is whether a jack-up rig is a ship for the purposes of FED. Open SA enquiries dealing with the same point can also be settled.

A very few employees may still be in time to amend their SA returns for 1996-97 or 1997-98. However, we expect that most will be seeking to establish entitlement to FED and to obtain a repayment for closed years. FED is not claimed under Section 42 TMA or subject to the associated machinery in Schedule 1A TMA for dealing with claims outside of returns.

Those employees who have made a return and paid tax charged by an assessment (including a self-assessment) may be able to claim relief for an error or mistake in their return under Section 33 TMA. Claims for relief under Section 33 are subject to the proviso in Section 33 (2) (Section 33(2A) for 1996-97 and subsequent years) which restricts relief where the return was made in accordance with generally prevailing practice. Before 6 April 1995, we consider that there was a generally prevailing practice that jack-up rigs were not ships. Therefore, employees who did not include FED in returns made before that date are not in a position to claim relief by reason of an error or mistake in their returns.

Section 33 claims for 1996-97 and 1997-98 must be made by 31 January 2003 and 31 January 2004 respectively. The time limit for 1995-96 or earlier years is six years from the end of the year of assessment in which the assessment was made.

Employees who have not made a return for 1996-97 or 1997-98 must complete SA returns for those years. Where income has been taken into account for the purposes of PAYE, then Section 205 ICTA 1988 permits an employee to require an officer of the Board to give him a notice under Section 8 TMA 1970 to make a personal return. Section 205(4) sets out time limits so that for 1996-97 employees cannot require a Section 8 notice after 31 October 2002. The time limit for 1997-98 is 31 October 2003.

Employees without a return or assessment for 1995-96 or earlier and whose income was subjected to PAYE can no longer request a Schedule E assessment for those years. The version of Section 205 that was in force before 1996-97 gave the taxpayer five years from the end of the year of assessment to require the inspector to make a Schedule E assessment. Therefore, the time limit for 1995-96 expired on 5 April 2001.

In a number of cases, the issue of foreign earnings deduction for work carried out on jack-up rigs will have been openly addressed in the course of correspondence or discussions between the taxpayer and the Inland Revenue. If these exchanges resulted in the determination of appeals whether by the Commissioners or by agreement, then the position is final for that year and an error or mistake claim cannot be accepted so far as it relates to this issue.

More detailed guidance can be found in the Inland Revenue's Schedule E manual which lists paragraphs relevant to FED at SE33000. There is also a guidance note to assist individuals who believe that they were entitled to FED and who now wish to claim error or mistake relief. A copy of this can be obtained from your tax office.

National Insurance Contributions
We also accept that jack-up rigs will be ships for the purposes of Regulation 115 of the Social Security (Contributions) Regulations 2001. This sets out interpretation provisions in relation to "Mariners" who represent a special class of earners for the purposes of National Insurance Contributions.

Further information

Martin Delnon
Personal Tax (Technical)
Sapphire House
550 Streetsbrook Road
Solihull
B91 1QU

Tel: 0121 713 4634
Fax: 0121 713 4620
E-mail: Martin.Delnon@ir.gsi.gov.uk

Daily Penalties for outstanding Self Assessment (SA) returns

Over the coming months we will be increasing the use we make of daily penalty proceedings for outstanding SA returns.

Daily penalties under Section 93(3) & Section 93A(3) can only be imposed following a direction from the General or Special Commissioners. The maximum penalty is £60 for each day on which the failure continues after the notification of the Commissioners' direction. The hearings before the Commissioners are ex-parte, however, if a penalty determination is issued it will carry a right of appeal to the Commissioners.

The daily penalties will continue until we receive the outstanding return. Unlike the £100 late filing penalties these penalties are not capped if the return eventually shows the liability to tax is less than the total of the daily penalties.

Where a number of returns are outstanding we might commence proceedings in respect of more than one return. The maximum penalty is then £60 per return for each day on which the failure continues.

In many cases, any penalty determination will be issued by the officer in the Receivables Management Service who is responsible for pursuing the outstanding return and payment of the penalty and of any tax due.

Referrals to the Special Commissioners during an enquiry

In Tax Bulletin Issue 53 (June 2001) we told you about the Finance Act 2001 changes to Self Assessment machinery legislation. One of these changes was the new right to make a joint referral to the Special Commissioners during an enquiry into a Corporation Tax Self Assessment (CTSA) or an Income Tax Self Assessment (ITSA) return.

The regulations to allow the Special Commissioners to hear and decide these joint referrals were made on 31 January 2002.

The joint referrals legislation is at paragraphs 31A to 31D of schedule 18 to the Finance Act (FA) 1998, for CTSA and at Sections 28ZA to 28ZE Taxes Management Act (TMA) 1970, for ITSA.

The new referrals will allow matters to be heard while evidence is fresh. The referrals must be jointly made by the Revenue and the customer and will only be worthwhile in complex cases where the enquiry will not be completed for a number of years. In most cases it will be easier to complete the enquiry first and address any contentious issues through an appeal against the closure notice.

Provisional figures in returns

We are sorry to have to address the issue of provisional figures in returns so soon after the article published in June 2001 of Tax Bulletin (Issue 53). Following an appeal against a late filing penalty, we have sought further legal advice about the use of provisional figures. As a result of that advice, on 23 October 2001, we changed our guidance to staff on how to handle ITSA returns containing provisional figures or CTSA returns containing estimated figures. At the same time we put an article onto the Inland Revenue website, explaining the position.

We now accept that a customer has made a return (assuming there are no other problems) where they have used a provisional or estimated figure. We will no longer send back a return that does not have an adequate explanation for why provisional or estimated figures are needed or does not give a date for the supply of final figures. The omission of that information will, however, be a factor we take into account in order to decide whether we need to open an enquiry into the return.

Past Revenue practice on provisional or estimated figures was based on our earlier legal advice and understanding of the law. Any resulting late filing penalties before 23 October 2001 were on this basis and carried the right appeal.

It is possible for the use of provisional or estimated figures to result in an incorrect return for which a penalty may be charged. This can be because the customer did not take reasonable care when they calculated the figures or because final figures could have been obtained before the return was sent to the Revenue.
We will look at the changes we can usefully make to the wording about provisional or estimated figures in ITSA and CTSA returns for 2003 onwards

Interpretations

Modern Printing Equipment - Application of Long-Life Asset Rules - Sections 90 to 104 Capital Allowances Act (CAA) 2001

Introduction
We have been asked to explain how we apply the capital allowances rules for long-life assets to equipment used in the printing industry.

Historically, equipment used in the printing industry had a long expected economic life. This is evidenced by a strong second hand market in printing presses, and by the availability in that market of a significant amount of printing equipment manufactured in the 1970's and early 1980's.

We have received representations from the printing industry that changes in practices and advances in technology in recent years mean that equipment is more likely to become obsolete in a shorter time than was previously the case. The industry has expressed concern that the Inland Revenue, in applying the capital allowances rules for long-life assets, is not taking full account of the changes that have taken place.

This article outlines our approach to the long-life asset rules generally, and explains how we would expect the rules to apply to modern printing equipment in particular.

The General Approach
The long-life asset rules apply to plant or machinery that, when new, it is reasonable to expect will have a useful economic life of at least 25 years. When applying this test each asset must be dealt with on its own facts. It is possible that two identical assets could have different expected economic lives because of the predicted use of the asset in the particular trade in which it is employed.

Where there is no established second hand market for a particular category of asset, the Inland Revenue will generally follow the depreciation policy for the asset used in the accounts, provided this is reasonable. Where, however, there is an active second hand market other factors are relevant. These include how long the particular business typically keeps that type of asset before it is replaced, whether the business has a history of selling assets into the second hand market or scrapping them, and whether there are rapid technological or market changes in the sector.

The Approach to Modern Printing Equipment
We have had discussions with representatives of the printing industry and have looked at trends in the second hand market for printing equipment. We will continue to deal with each case on its own particular facts, but unless there are exceptional circumstances we accept that modern printing equipment purchased new and unused is unlikely to have an expected useful economic life of 25 years or longer. As a result, traders in the printing industry can expect to obtain the benefit of the standard writing down allowance of 25% and, if they are small or medium sized enterprises, a first year allowance of 40% of the cost.

Purchase of Second-hand Printing Equipment
Where second-hand printing equipment is acquired the treatment will depend on whether or not the seller claimed capital allowances on it. If it is acquired from a person who has claimed capital allowances on the asset the purchaser will obtain the same treatment as the seller. If the seller treated the asset as a long-life asset the purchaser will obtain relief at the 6% rate. If the seller received writing down allowance at 25% the purchaser will receive the same.

If the asset is acquired from a dealer in second-hand equipment, or another person who has not claimed capital allowances on the particular asset, then the general approach outlined above will be applied. A key additional factor to those outlined above will be the age of the equipment on acquisition.

Equipment Covered by This Article
Printing equipment broadly falls into three categories

  • pre-press;
  • printing presses; and
  • finishing equipment.

Pre-press is a distinct function in the printing process. Pre-press equipment is used to prepare the text and images for imposition onto an image-carrying device, usually a printing plate that is then fitted to the printing press. Examples might be proofing devices, imagesetters and computer to plate devices. Advances in digital technology mean that the printing plate is becoming obsolete. Products that enable images to be sent electronically to a digital or quasi-digital press are coming onto the market. Rapid technological advances mean that pre press products on the market today are becoming obsolescent in an increasingly short time.

Printing presses are the means by which the images are transposed onto paper or some other medium. The largest sector of this market is for sheet-fed offset presses. Other types of presses include heat and cold set "web offset" used for magazine and long run commercial print; "flexographic" used for packaging and labels; "gravure" used for long run magazines and packaging; and "digital" used for short run colour and variable data printing.

Finishing equipment is used for such things as folding, cutting and binding the printed product. Although very often a stand-alone investment, finishing equipment is increasingly becoming computer controlled and more productive and is acquired as an integral part of a modern printing equipment package.

Miscellaneous

Capital Gains: Simpler Procedures For Companies Valuation of Large Land Portfolios at 31 March 1982

This article aims to consolidate previously published information about two schemes, the Multiple Land Valuation Scheme and the Pre-disposal Portfolio Valuation Scheme, which are available to reduce the compliance burden for those taxpayers who make large numbers of property disposals in any one accounting period. Both schemes offer the benefit of a full monitoring service and a single contact point. There is no charge for either of these services.

The first of these schemes, the Multiple Land Valuation Scheme, was introduced in 1990 and is open to taxpayers who dispose of 30 or more interests in land in a year of assessment or in an accounting period. A group of companies is considered together to decide if the disposal threshold has been reached.

Sampling is carried out by the Land Portfolio Valuation Unit of the Valuation Office Agency (LPVU) whereby only a proportion of the total number of valuations referred, usually between 25% and 50% of valuations (depending on the total number of valuations involved) may be selected for valuation review (having regard to the number and nature of the properties and potential risk). These are referred by the Unit to the local District Valuers who conduct negotiations where necessary to reach agreement.

When the results of the sample are known and a variance is indicated, they will be discussed with the taxpayer with the aim of settling all the valuations. This may result in changes to the valuations returned by the taxpayer: (1) for those sampled in the light of the District Valuer's reports; and, (2) for the non-sampled properties where a discernible pattern has emerged from the reports received. Where no pattern has emerged, or where particular properties need to be reviewed, it may be necessary to expand the sample group to ensure representative results.

To conclude the referral, the LPVU will agree with the taxpayer the valuations that have been amended and confirm all other valuations for that year or accounting period are agreed as returned. The Inspector is informed of progress at all stages.

If agreement cannot be reached as to the interpretation of the sample results, it may be necessary for all returned valuations to be referred to the local District Valuer. The scheme does not, of course, restrict either party's right of appeal in the event of disagreement, but in practice this has rarely occurred.

If you require further information about the scheme or would like to be considered for inclusion in it, the address to write to is:

Land Portfolio Valuation Unit
District Valuer Services
5th Floor Sherbourne House
1 Manor House Drive
Coventry
CV1 2TG

Tel: 0121 633 1271

The second scheme, the Pre-disposal Portfolio Valuation Scheme, was announced on 21 March 2000 to run for an initial trial period. Although it is too early for a formal review, there has been an encouraging level of take up to date and it has generally been well received by users. The scheme enables participants to agree the value of land and buildings owned on 31 March 1982 in advance of a statutory need for such valuations. The portfolio valuation service helps companies and groups of companies to meet their obligations under Corporation Tax Self-Assessment by avoiding the need to agree individual 31 March 1982 valuations as and when properties are sold. Participation is conditional on holding a property portfolio that meets the minimum size requirement of:

  • 30 or more properties owned at 31 March 1982, or
  • a lesser number of properties, also owned at 31 March 1982, with a current aggregate value of more than £30 million.

We have been asked whether we will consider part portfolios and we have agreed that these may be admitted, but only if they can be clearly distinguished from other property held, on the basis of objective commercial criteria, and only if they meet the minimum size requirement.

We are unable to agree values for properties situated outside the United Kingdom. A portfolio that includes such properties but which otherwise meets the minimum size criteria will be admitted, but only in respect of the United Kingdom properties included in it.

If a company or group of companies wishes to participate in the scheme, we will limit the information we initially ask for about the individual properties to the absolute essentials, and we will subsequently seek further information only for those properties in the portfolio, which are selected for valuation checking.

The essential information initially required for every property in a portfolio comprises:

  1. the full address and postcode of each property, together with a plan if required for better identification;
  2. a description of the property and its actual use in 1982;
  3. the interest held in the property as at 31 March 1982 and,
  4. if not freehold, full details of the interest held at 31 March 1982 including term, date of commencement, passing rent and details of rent reviews;
  5. a professional valuation of the property (by which we mean a valuation carried out by a professionally qualified valuer, whether employed by the taxpayer or an independent company) together with a note of the basis upon which the valuations have been made and the date to which they relate.

For those properties selected for valuation checking, more detailed supporting information may then be required including (inter alia) planning matters, development potential, state of repair and other relevant and material facts. The LPVU, in the light of discussions with the company or group of companies or its agents, will decide on these specific requirements.

The work on agreeing 1982 valuations will be carried out by the LPVU, which will select a sample for review very much along the lines of the check carried out for the Multiple Land Valuation Scheme. Using the service will not prevent an applicant from agreeing individual valuations following the normal procedures or the new pre-return valuation service (as announced in the Inland Revenue Press Release of 10 January 2000) if it sells a property before the portfolio valuations have been agreed.

Any company or group of companies interested in using the new service can obtain further information from:

Inland Revenue
Capital and Savings
Room 133 Sapphire House
550 Streetsbrook Road
Solihull
West Midlands
B91 1QU

A note of the tax office and reference to which the company's Corporation Tax is submitted should be provided. (For a group of companies, this information should be provided in relation to its principal company.)

New Form 41G(Trust) - Trust details

This is the form trustees can use to provide details of a new trust. We have recently produced a new version. There are no major changes, but minor changes are as follows:

  • The form is now described as 'trust details' rather than 'trust enquiry'.
  • There are two trustees' details boxes.
  • There are new boxes to identify Scots law trusts and employee benefit trusts.
  • We have added a box for the date the trust commenced in a will trust.

We have also tried to improve clarity with a view to helping trustees get it right first time. The form is now available from all IR Trusts offices and the Centre for Non-Residents, Bootle.

Trust expenses guidance in IR manual
The Trusts & Settlements Manual (TSM) was published in April 2001 to coincide with the establishment of the new Inland Revenue Trusts business stream. It replaced the Trust Manual. Unfortunately, in carrying across guidance from the old manual, some material about trust expenses in different types of trusts got mixed up, and the TSM guidance was not entirely correct. You should not refer to the affected section of the 2001 manual, TSM3505-3545 'Trust income and gains - Trust Management Expenses'. We have rewritten the guidance to reflect the original position, and to cut out some obsolete (pre-Self Assessment) procedures. The new guidance will be incorporated in the TSM from mid-February 2002 as TSM3505-3545 'Trust income and gains - Trust Expenses'.

Pensions Update No 114 - A Synopsis

Inland Revenue Savings, Pensions, Share Schemes (IR SPSS) - which includes the former Pension Schemes Office - issued Pensions Update No 114 direct to practitioners on their mailing list on 21 January 2002. The Update and associated forms are available on the Inland Revenue website.

The Update introduces a revised procedure for obtaining IR SPSS acceptance that an overseas pension scheme corresponds to a UK approved occupational pension scheme and for claiming income tax relief on contributions to the scheme. The revised procedure took effect from 31 January 2002 but the existing procedure may still be used until 6 April 2002 to cater for applications that were already in the pipeline.

Old Procedure
An application for Inland Revenue acceptance that an overseas pension scheme corresponds to a UK approved pension scheme was made in writing to IR SPSS. Normally, a copy of the rules of the overseas pension scheme had to be sent with the letter of application. But, if the rules are written in a foreign language, IR SPSS accepted a completed questionnaire which gave detailed information about the scheme.

An employee is eligible for tax relief under Section 192(3) of Income and Corporation Taxes Act (ICTA) 1988 providing all the following conditions are met:

  • the scheme is accepted by IR SPSS as corresponding;
  • the employee is not domiciled in the UK; and
  • the employee is employed by an employer that is not UK or Irish resident.

Tax relief will be due on their personal contributions paid to the scheme in respect of UK chargeable duties. If the above conditions are met, Section 596(2)(b) ICTA 1988 will dis-apply the employee's liability to a charge to tax under Section 595 ICTA 1988 in respect of any employer contributions to the scheme.

New procedure
An applicant need no longer provide IR SPSS with a copy of the scheme rules (or the questionnaire for scheme rules written in a foreign language). Instead, applications for corresponding relief should be made on a new form - PS 3008. The form includes a declaration by the applicant that the overseas pension scheme corresponds to a UK approved retirement benefits scheme (self-certification).

Self-certification makes the application procedure simpler and more stream-lined. It also ensures that IR SPSS adopt a consistent approach in dealing with applications and should significantly reduce the time taken to deal with them.

The main elements of the new procedure are:

  • All applications should be made on a new self-certification form PS3008. As these forms require a formal declaration, customers should use only those versions of the form available with the Update or from the Inland Revenue website.
  • As before, an undertaking must be submitted where the overseas pension scheme's rules allow members to obtain in-service loans or withdraw all or part of their share of scheme funds. Employees and scheme administrators should give the required undertakings on form PS3008(UA) or PS3008(UB) attached to the Update. It is important to note that such undertakings are ineffective where, as in the case of Swiss pension schemes, members have a legal right under the law of the overseas jurisdiction which applies to the overseas pension scheme to access scheme funds. In such cases, IR SPSS will reject the application.
  • IR SPSS may ask for a copy of the scheme rules and/or more information in respect of applications where we believe there may be a serious risk that scheme members can access scheme funds prematurely.
  • Where the application form PS3008 is incomplete and/or is not accompanied by an acceptable undertaking (where appropriate), IR SPSS will reject it. The application form will be returned to the applicant explaining why it has been rejected.
  • Where the application is satisfactory, IR SPSS will issue an acceptance letter setting out the conditions under which the tax relief is being given. We will also notify the Schedule E tax office of the employees concerned that they are entitled to tax relief under Sections 192(3) and 596(2)(b) ICTA 1988.
  • IR SPSS may subsequently audit a number of applications to ensure that the new procedure is operating correctly. If it turns out that the information provided was incorrect, we may refuse to grant tax relief to scheme members and/or withdraw any tax relief already given. In some circumstances, there may also be a liability to penalties.

Claiming Tax Relief Under Double Taxation Agreements (DTAs)
Some DTAs (currently those with Denmark, France and the Republic of Ireland) contain an article allowing individuals to claim tax relief in respect of pension scheme contributions. The revised procedure does not apply to claims for relief made under the provisions of a DTA. Such claims should continue to be made in accordance with existing practice.

Revenue Prosecutions

The Inland Revenue has a policy of selective prosecution involving the most serious cases across the tax and tax credit system. The Board sees this as an important part of its strategy to deter fraud and evasion. As part of the wider publicity for this strategy, details of Revenue prosecutions are occasionally published in Tax Bulletin. The following cases relate to the new work taken on by the Revenue in respect of prosecution of Working Family Tax Credit fraud.

Lorraine Miller
In the first Working Family Tax Credit (WFTC) case prosecuted in Northern Ireland, the Director of Public Prosecutions (Northern Ireland) prosecuted the case on behalf of the Inland Revenue.

Lorraine Miller, a Belfast woman, was sentenced to 100 hours community service after pleading guilty to seven charges of falsifying documents in relation to WFTC claims. The charges were under Section 17(1)(a) of the Theft Act (Northern Ireland) 1969. The claims were supported by false employment and earnings details.

The magistrate commented that Lorraine Miller would have received a custodial sentence if it was not for her previous good character.The document falsification allowed her to receive WFTC of £3429 which she was not entitled to.

Irene Bradley and Michelle Bradley
Care assistant Irene Bradley was jailed for 4 months at Salford Magistrates Court for falsifying her Working Families Tax Credit (WFTC) claim. Irene Bradley had pleaded guilty to falsifying her employment details in order to obtain the maximum Tax Credit. She used a stamping kit to endorse documents to support her fraudulent claim.

She was also sentenced to 4 months imprisonment on 5 Charges of False Accounting in connection with fraudulent Housing Benefit offences.

Mrs Bradley used the same stamping technique to enable her daughter Michelle Bradley to receive WFTC even though she was unemployed at the time of the claim. Michelle Bradley was sentenced to 120 hours Community Service and to pay £250 compensation.

The total loss was £2479.88.

This was a joint prosecution between the Inland Revenue and Salford Housing Benefit Dept.

(Superceded by SP 4/01)
Statement of Practice 3/92 - Double Taxation Relief: Status of the UK's Double Taxation Conventions with former USSR and with newly independant states

Statement of Practice 3/92 (SP3/92) has been withdrawn and replaced by Statement of Practice 4/01, which sets out the latest position. SP 4/01 is now available on the Internet at: /pdfs/sp4_2001.pdf

Index 2001

The following articles should have been deleted from the index published in the December 2001.

Please amend your issue accordingly to reflect these changes:

  • Tax Bulletin 38 Self Assessment: 31 January 1999 Deadline page 618
  • Tax Bulletin 40 Abolition of advance Corporation Tax page 655
  • Tax Bulletin 41 Errors in some returns 1998-99 Self-Assessment Tax Returns page 674
  • Tax Bulletin 44 Self Assessment: 31 January Deadline page 703

Inland Revenue Statements of Practice and Extra-Statutory Concessions issued between 1 December 2001 and 31 January 2002.

Extra Statutory Concessions

There have been no Extra Statutory Concessions issued in this period.

Statements of Practice

Number Title Date of Issue
03/01 Relief for underlying Tax 27/11/01
04/01 Double Taxation Relief: Status of the UK's double taxation conventions with the former USSR and with newly independent states (see above) 19/12/01
05/01 CTSA: Claims to relief capital allowances and group relief outside limit 21/12/01

You can get copies of SPs and ESCs by telephoning 020 7438 4266.

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 issued 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, Julia Hawkes, Room S18, West Wing, Somerset House, Strand, London, WC2R 1LB or e-mail Julia.Hawkes@ir.gsi.gov.uk. We are sorry though that neither she nor our contributors will normally be able to enter into correspondence about Tax Bulletin or its contents.

Subscription

The subscription for 2002 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 Mr Bryan Kearney, Room S15, West Wing, Somerset House, Strand, London, WC2R 1LB. Telephone: 020 7438 6373. 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 S15, West Wing, Somerset House, Strand, London, WC2R 1LB.

   
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