Weekly Tax Matters. 21 August 2015. kpmg.co.uk

Weekly Tax Matters 21 August 2015 kpmg.co.uk

contents CORPORATE TAX HMRC hold an informal consultation on the scope of ATED reliefs INDIRECT TAX Redcats Brands First-tier Tribunal decision EMPLOYMENT TAX August Employer Bulletin The Scottish rates of income tax and employers INTERNATIONAL STORIES Tax Journal International briefing for August International round up OTHER NEWS IN BRIEF

CORPORATE TAX HMRC hold an informal consultation on the scope of ATED reliefs HMRC are exploring solutions to alleviate the issue of businesses inadvertently coming within the ATED and 15 percent SDLT charges. The annual tax on enveloped dwellings (ATED) reliefs are turning out to be potentially insufficient for certain businesses, who are inadvertently coming within the charge in a limited number of cases. Broadly, issues in the following situations have been identified and are currently being consulted on informally by HM Revenue & Customs (HMRC): Companies holding interests in residential property under equity release schemes; Management companies holding an interest over a building consisting of apartments subject to long leases over those apartments held by their members (individual owner occupiers); and Companies that hold residential property for investment and which permit a caretaker (or similar employee) to occupy an apartment. HMRC invited practitioners from various bodies to discuss the problems at a meeting earlier in the month. These problems were identified and HMRC will now explore solutions for these businesses affected. Suggestions put forward at the informal consultation meeting included considering if the conditions of the reliefs could be altered, and if the definition of connected persons could be re-defined. Sean Randall T: +44 (0)20 7694 4318 E: sean.randall@kpmg.co.uk Preema Patel T: +44 (0)20 7311 3583 E: preema.patel@kpmg.co.uk

INDIRECT TAX Redcats Brands First-tier Tribunal decision The FTT has given its decision in this case about value of supplies and adjustments to the taxable amount after the time of supply. The Redcats Brands First-tier Tribunal (FTT) case concerns a situation where the amount an end consumer paid for a supply was ultimately less than the amount the supplier had received for it, due to a third party funding commissions paid to the customers. The customers were (non VAT registered) mail order agents. These commissions normally have the effect of reducing the value of the supply to the agent after the supply has taken place. Redcats ran Empire Stores which it sold to Littlewoods. The book debts were also sold and the amount Empire received for the debts was adjusted to take account of unpaid commissions up to a certain sum (the reserve amount). Therefore Empire funded the reserve amount by way of receiving less for the debts it sold. Ultimately Littlewoods paid more than this sum to the agents. Empire had not funded this excess payment but still looked to adjust the VAT it had declared on the underlying goods on the grounds the amount the final consumer had paid for the goods had gone down as a result of the commissions it received. As that should be the basis for calculating the VAT due on the goods, it did not matter who had funded the commission. HM Revenue & Customs (HMRC) argued that where Empire had not funded the commission the amount it had received for the goods had not changed and so it had no entitlement to adjust the VAT. The FTT found for HMRC. The taxable amount was based on the supplier s position. Where the consideration Empire received for the goods had not changed it could not adjust the VAT originally declared. The case contains interesting analysis around Articles 73 (taxable amount) and 90 (situations where the taxable amount can be adjusted after the supply) of the Principal VAT Directive. Littlewoods had no VAT claim to make in respect of the excess sums as it had not made the original supplies of the goods. The result is therefore asymmetrical but would appear to be correct in law. Karen Killington T: +44 (0)20 7694 4685 E: karen.killington@kpmg.co.uk

EMPLOYMENT TAX August Employer Bulletin HMRC s latest Bulletin includes items on getting PAYE payments right, new student loan rules and the end of the dispensations regime. HMRC have published the latest edition of their Employer Bulletin. Some of the items covered by this latest edition are: Payments for 2014/15 PAYE Settlement Agreements (PSAs), which are due by 22 October 2015. The Bulletin also includes a reminder for employers of how to ensure that their payment is correctly allocated against their PSA rather than their normal PAYE account. A further look at what employers need to do to ensure that they get their PAYE payment references correct. This follows detailed articles in previous editions of Employer Bulletin, which we have also covered in Weekly Tax Matters. HMRC note that there has been an increase in the number of employers supplying an incorrect reference number. The article looks again at when employers should use the longer-format 17-digit reference as opposed to their standard 13-digit payment reference, and cautions that employers need to remember to update or remove the additional four digits when making the next payment, to avoid it being allocated to the wrong month. An overview of the move from the current dispensations regime to a new expenses exemption from next April. As well as an overview of the changes, the article also touches on the need for employers to ensure that they have appropriate systems in place, and looks at how benchmark scale rates, bespoke rates and the mileage allowance and Advisory Fuel Rates will operate under the new system. HMRC are to publish details of how to apply for bespoke rates later this year. The practical implications of the introduction of a new threshold for student loan repayments, also from 6 April next year. An important point here is that individuals repaying under the current threshold will not be affected by the change, and that employers will, therefore, need to be aware of which plan type an employee falls within and ensure that this information is correctly entered in their payroll software. More detailed guidance is expected before the new threshold is introduced. Alison Hobbs T: +44 (0)20 7311 2819 E: alison.hobbs@kpmg.co.uk The Scottish rates of income tax and employers From 6 April 2016, the Scottish rates will apply to employment income of Scottish Taxpayers : employers need to be aware of the potential impact of the changes. At present the rates of tax that apply to employment income are uniform throughout England, Northern Ireland, Scotland and Wales. However, the introduction of the Scottish rate of income tax (SRIT) from 6 April 2016 means that from that date individuals who are Scottish Taxpayers may (depending on the rates set by the Scottish Parliament in this autumn s Budget) be subject to different rates of tax on their employment income from those paid by other UK taxpayers. Whether an individual is a Scottish Taxpayer is determined by reference to their main place of residence in the UK (or where there is no main place of residence, by counting days spent in Scotland in the year in question): the location of the employer is not taken into account. Any organisations that employ Scottish Taxpayers will, therefore, be affected by the changes, even if they do not themselves carry on any business in Scotland. Weekly Tax Matters 3

The attached note considers both the definition of a Scottish Taxpayer and the implications for businesses employing Scottish Taxpayers in more detail. If you have any questions or would like further information on the SRIT and its implications for your business please get in touch with your usual Tax contact. Eddie Norrie T: +44 (0)131 527 6724 E: edward.norrie@kpmg.co.uk Mike Lavan T: +44 (0)20 7311 1437 E: mike.lavan@kpmg.co.uk Scott McCrorie T: +44 (0)131 527 6744 E: scott.mccrorie@kpmg.co.uk Weekly Tax Matters 4

INTERNATIONAL STORIES Tax Journal International briefing for August Chris Morgan s latest summary of international developments. In the latest of his regular articles for Tax Journal 1, Chris Morgan (Head of Tax Policy and of the EU tax group at KPMG in the UK) rounds up recent international developments. This month s article looks at: Implications of the falling UK corporation tax rate for companies incorporated in Jersey and tax resident in the UK; A draft report from the European Parliament s special committee on tax rulings; A recent EC decision that French corporate tax reliefs granted in 1997 were incompatible with the State aid rules and therefore must now be recovered; and Mandatory reporting of transactions giving rise to tax benefits in Brazil. 1 First published online by Tax Journal on 17 August 2015. Reproduced with permission. Chris Morgan T: +44 (0)20 7694 1714 E: christopher.morgan@kpmg.co.uk International round up This week: Canadian 2015 Tax Facts guide; Barbados FATCA update; China BEPS alert; New Zealand GST proposals; ruling on taxation of management fees under UK-India treaty; Indian GST Bill delayed; court case in Finland on tax refunds for certain funds; guidance on APAs and information on competent authority assistance published in the United States; and South Korea publishes draft BEPS legislation. Every week, KPMG member firms around the world publish updates on developments in their country. In Weekly Tax Matters we ll highlight a selection that may be of interest to our readers. Americas Canada KPMG in Canada have prepared their annual Tax Facts guide, which is intended to provide quick answers to many practical questions that arise during the tax and financial planning process. Barbados - An intergovernmental agreement to implement the Foreign Account Tax Compliance Act (FATCA) regime has been signed. More TaxNewsFlash Americas can be found here. Asia Pacific China An alert has been issued by KPMG in China which covers the key areas of the base erosion and profit shifting (BEPS) implementation rules (Annoucement 16) and their implementation so far by tax authorities in various provinces. New Zealand The Government has released proposals for collecting goods and services tax (GST) on imported services and digital content. Weekly Tax Matters 5

India The Authority for Advance Rulings has concluded that services rendered by a group director to its group company in India were managerial services that did not make available any technical knowledge or skills and therefore were not taxable as fees for technical services under the India-UK tax treaty. India The passage of the GST Bill has been delayed. More TaxNewsFlash Asia Pacific can be found here. Europe Finland A recent court decision may allow non-ucits (Undertakings for Collective Investment in Transferable Securities) funds a refund of taxes based on EU law. More TaxNewsFlash Europe can be found here. Transfer Pricing United States - Guidance and updated procedures regarding advance pricing agreements (APAs) have been published. United States The tax authorities have issued further information with respect to requesting competent authority (CA) assistance. South Korea - Draft legislation to implement certain BEPS initiatives on transfer pricing documentation has been released. More TaxNewsFlash Transfer Pricing can be found here. Weekly Tax Matters 6

OTHER NEWS IN BRIEF A round up of other news this week This week: HMRC factsheet on the dividend allowance; increase in film tax relief receives State Aid approval; and KPMG/Markit Tech Monitor UK survey is released. HMRC have published a factsheet on the operation of the dividend allowance announced in the Summer Budget, which can be found here. An increase in the rate of film tax relief to 25 percent on qualifying productions has now received State Aid approval by the EU. The UK tech sector in the second quarter of 2015 signalled an overall slowdown in growth due to the impact of the General Election and euro area uncertainties, but at the same time, staff hiring intentions jumped to a surveyrecord high and tech companies signalled greater confidence about future workloads, according to the latest KPMG in the UK/Markit Tech Monitor UK survey. And finally Weekly Tax Matters will be taking a break next week for the summer bank holiday. We ll be back on 4 September 2015 as usual. Weekly Tax Matters 7

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