Archive for August, 2013

Vodaphone settlement

Thursday, August 29th, 2013

In a previously unreported settlement with the UK Government, Vodaphone appears to have made a large payment to HMRC. The additional taxes related to the tax returns of an Irish subsidiary. Although the overall amount settled was not disclosed Vodaphone were required to reclaim approximately £57m from the Irish Government in tax that should have been paid in the UK.

For a four year period Vodaphone had used the Irish subsidiary to collect royalties from most countries and to remit more than one billion Euros of dividends to the low tax jurisdiction of Luxemburg. Vodaphone are reported as saying:

“In all respects and at every point, Vodaphone has conducted itself with the highest integrity and in full compliance with the law.

The settlement with HMRC related to a number of technical factors regarding inter-group transfer pricing arrangements.”

HMRC added:

“We do not comment on the affairs of individuals or companies, but we do ensure that multinationals pay the tax which is due under the law.”

Good news, exports on the increase

Wednesday, August 28th, 2013

The period April – June 2013 has seen positive economic growth for the second quarter. The economy expanded by 0.7%. Hopes of rebalancing the economy towards trade and investment were given a boost by an impressive 3.6% increase in exports in the same period.

However, the good news may too good for the Bank of England. It has pledged to hold the current low interest rates until unemployment drops below 7%. This is not expected to happen until 2016. The markets are now discounting a rise in interest rates as early as March 2015 on the basis that the economy is recovering faster than expected.

Business investment is also on the up, increasing by 0.9%; pay has increased by 2.6%, although this was distorted by delayed bonuses taken during April 2013; and household spending in the UK rose by 0.4%.

These statistics are by no means exceptional but they do point to a more encouraging outlook.

Economist warn that when the next election is past we will likely see Government returning to the reduction of Government expenditure; this will no doubt be a drag on any long term growth in UK trade and investment.

Partnerships and LLPs

Wednesday, August 21st, 2013

HMRC closed their consultation on the proposed changes to the taxation of partnerships and LLPs on 9th August.

Any subsequent changes will be introduced in the Finance Bill 2014, and be effective from 6 April 2014. Two possible changes are worth highlighting.

1. Disguised employment

HMRC aim to create a new concept for LLPs, a salaried member. They believe that the present presumption, that all members of an LLP are self-employed, has been abused. In effect, salaried employees have been elevated to member status and their previous employed status changed to self-employed status. In certain circumstances this can lead to significant National Insurance savings.

From April next year it is likely that this type of arrangement will be reversed.

2. Allocation of profits

The second area that HMRC want to tackle is the artificial allocation of profit and losses by partnerships with corporate members and schemes involving the transfer of profits between members with different tax status.

Many partnerships allocate profits to corporate partners in order to pay tax at the lower corporation tax rates. In this way the partnership retains more of its working capital.

Partnerships likely to be affected should start to reconsider their planning options, although it would be sensible to delay implementation of changes until the scope of the new legislation is confirmed.

Off-shore, online gambling to pay UK tax

Monday, August 19th, 2013

Online betting companies that have based their operations in offshore tax jurisdictions, to avoid Britain's gambling taxes, will be hit with a new levy to be introduced from December 2014. It is estimated that the new tax may raise £300m for the UK taxpayer.

The Government is to impose a 15% tax on operators in the £2bn remote gambling market. In a somewhat controversial approach, the UK will tax gambling revenues based on where the customer is located, rather than where the business is based.

Economic Secretary to the Treasury, Sajid Javid, said:

"It is unacceptable that gambling companies can avoid UK taxes by moving offshore, and the Government is taking decisive action to ensure this can no longer happen. These reforms will ensure that remote gambling operators who have UK customers make a fair contribution to the public finances."

The shift will affect some of the industry's largest players including: Ladbrokes, William Hill and Betfair, all of which have online operations based in Gibraltar, where taxes are levied at 1% and capped at £425,000.

If introduced, the 15% levy would mean that offshore operators are taxed at the same level as domestic internet betting companies.

New report from OTS

Thursday, August 15th, 2013

The Office for Tax Simplification has published a new list of tax issues for review. They include:

• Increasing the present £8,500 limit, below which employees (not directors) do not suffer benefit in kind charges. This limit was introduced in 1979 and was apparently based on the amount at which a married man started to pay higher rate tax. An inflation adjusted figure now would be close to £40,000. It’s unlikely HMRC would seek to increase the present limit to this level!

• Payrolling certain benefits so that tax is paid as the benefits are provided rather than at the end of the tax year.

• Changes to the cycle to work scheme.

There are also a number of suggestions to smooth the differences between the tax and National Insurance treatment of certain benefits.
OTS director John Whiting says:

“It is clear the current system for reporting expenses and benefits is simply not working well for employers or employees and also, in many cases, HMRC.

Time and again, through our workshops and in submissions, people have told us the rules around travel and subsistence, accommodation or HMRC admin, are causing them problems and costing them time.”

The Treasury will now have to consider whether the OTS proposals are worthy of serious consideration and new legislation.

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