Tax Memo: Harmonisation of tax administration:
16 Jan 2012

Penalties - Deliberate error - Contractual Disclosure Facility

From 31 January 2012 HMRC will offer a new Contractual Disclosure Facility (CDF), under which those suspected of fraud will be able to avoid criminal investigation by taking advantage of the facility.
Under the CDF HMRC will contact a taxpayer, in writing, to inform him that he is suspected of serious tax fraud. HMRC will offer the taxpayer the opportunity to enter into a contract to disclose that fraud within 60 days. In return, HMRC will agree not to criminally investigate, removing the risk of prosecution by HMRC. The investigation will then be carried out using civil powers, with a view to a civil settlement for tax, interest and a financial penalty. Those who do not respond positively to HMRC's offer will face a full investigation by HMRC, possibly a criminal investigation with a view to prosecution. Moreover, HMRC say that anyone who signs the contract but does not go on to admit and disclose fraud will also face the possibility of a criminal investigation.
In addition, taxpayers who are not under investigation but who want to admit to tax fraud may fill out a form to voluntarily request that HMRC consider their suitability for a CDF arrangement. In these circumstances HMRC will retain discretion to decide which cases are dealt with civilly, and which are investigated with a view to criminal prosecution.

HMRC press release 11 January 2012

Tax Memo: Income tax: Employment income: Luncheon vouchers
12 Dec 2011

From 6 April 2013, the long-standing tax exemption for luncheon vouchers worth up to 15p will be abolished.

Draft Finance Bill 2012 6 December 2011

Tax Memo: Inheritance tax: Calculation: Reduced rate for charitable bequests
12 Dec 2011

At the death of an individual on or after 6 April 2012, IHT will be charged at 36% (instead of 40%) if 10% or more of the deceased’s net estate is left to charity (TM ¶6442).
The value of the estate on which the 10% threshold is based (the “baseline”) is equal to the deceased’s free estate after deducting IHT exemptions, reliefs and the nil-rate band, but excluding the charitable legacy itself. The total amount of charitable legacies will be compared with the baseline to determine whether the reduced rate applies.
If the estate includes assets additional to those in the free estate, the 10% test will be applied to each component of the aggregate estate such as the free estate, jointly owned assets, and settled property. If a particular component passes the test, tax will be charged on it at 36%. If the assets passing to charity from one component exceed 10% of the baseline, other components may be merged with it to give an aggregate baseline.
The provisions will apply equally to charitable legacies made by a Deed of Variation, provided the charity has been notified that the disposition of the estate has been varied in its favour. Personal representatives will be able to elect for the reduced rate not to apply if, for example, the benefit obtained from applying the reduced rate is likely to be minimal and they do not wish to incur additional costs of valuing items left to charity.

Draft Finance Bill 2012 6 December 2011

Tax Memo: Corporation Tax
21 Nov 2011

Research and development

A new pilot scheme has been started for small companies with fewer than 50 employees that are about to make their first R&D claim. Companies volunteering for the pilot will have the support of a designated expert who will offer one-to-one support on putting the claim together. The intention is that a basis will be agreed for the first claim and this can be used for the next 2 accounting periods. Provided there are no significant issues arising claims prepared on this basis will be accepted as accurate without query.
Any companies wishing to take part in the pilot should contact their local R&D Specialist Unit.

HMRC web statement 31 October 2011

Tax Memo: VAT
21 Nov 2011

Importing goods

From 1 April 2012 the low-value consignment exemption will be cancelled altogether in respect of imports from the Channel Islands.

HMRC web posting 9 November 2011

VAT Memo: Amount of bad debt relief

23 January 2012

The amount of bad debt relief is normally the VAT fraction of the outstanding amount. However, the Upper Tribunal has held that in very limited circumstances relief may be given for the entire unpaid sum.
The appellant was a firm of solicitors. It supplied services in connection with insurance claims. In compliance with an agreement between HMRC and the insurance industry, it issued VAT-only invoices to VAT-registered insured parties (the main charge being invoiced to the insurer). The Upper Tribunal decided that any amount of such VAT-only invoices which remained unpaid after six months was available in full for bad debt relief.

Simpson & Marwick v HMRC [2011]

VAT Memo: New buildings: What is a dwelling?

23 January 2012

Developers sometimes build what is known as “extra care accommodation”. This consists of self-contained flats, houses, bungalows or maisonettes sold or let with the option for the occupants to purchase varying degrees of care to suit their needs, as and when they arise. Some local authorities have classified extra care accommodation for planning purposes as a “residential institution”, rather than as “dwellings”. HMRC have confirmed that for VAT purposes such extra care accommodation qualifies as a dwelling, unless it is “accommodation where the occupant needs care or supervision of a type typically provided by an institution”. In other words, the planning classification is not determinative, whereas the characteristics of the accommodation are.

HMRC Brief 47/11

VAT Memo: EU VAT rates: Hungary

23 January 2012

From 1 January 2012 the standard rate of VAT in Hungary is 27% (increased from 25%). The EU “maximum” rate is 25% but this is advisory only.

VAT Information Sheet 02/12

Employment Memo: Increase to a week’s pay and other awards – 1 February
19 Jan 2012

There is a statutory cap on the amount of a week’s pay which is used to calculate certain awards, the most important of these relating to:

• statutory redundancy payments; and
• basic awards and additional awards in unfair dismissal cases.

The current maximum will be increased from £400 to £430 for events giving rise to the entitlement to compensation or other payments on or after 1 February.

Other rates and awards which are not linked to this statutory cap will also increase on or after 1 February.

The following table sets out the resultant changes:

SI 2011/3006

Employment Memo: Proposal to charge fees to bring employment claims and appeals - Government consultation on structure and level of fees
19 Jan 2012

The Ministry of Justice is currently consulting on charging fees in employment tribunals and the Employment Appeal Tribunal. In the Employment Tribunal, two alternative options are put forward.

Option 1: Separate issue and hearing fees are proposed. The fee would depend on the nature of the claim, with three suggested levels. Suggested fees to issue a claim are £150 (wages/redundancy), £200 (unfair dismissal) and £250 (discrimination/whistleblowing), with a subsequent hearing fee of £250 (wages/redundancy), £1000 (unfair dismissal) and £1,250 (discrimination/whistleblowing).

Option 2: A single fee determined by the nature of the claim and the amount claimed. Wages/redundancy claims with a value of less than £30,000 would attract a £200 fee. Unfair dismissal claims for under £30,000 a fee of £500. Discrimination/whistleblowing claims for under £30,000 a fee of £600 and any claim with a value of £30,000 or more a £1,750 fee.

Additional fees would be payable for making certain applications e.g. between £100 and £250 to request written reasons. A system of full or partial fee exemption would operate for those in receipt of certain state benefits e.g. income based JSA and those whose combined family income is very low (currently ranging from £13,000 for a single person with no children to £23,860 for a couple with two children).
Most of the fees (apart from counterclaim or application specific fees) will be payable by the claimant in advance of issuing a claim or the hearing (assuming option 2 is adopted) and no refunds will be made if a case settles. However, the party who is unsuccessful at hearing will usually ultimately bear the cost of the fee; this means that an employer who loses at tribunal will have to reimburse the claimant with any fees they have paid.

The consultation closes on 6 March 2012. Further information is available at: www.justice.gov.uk/consultations/et-fee-charging-regime-cp22-2011.htm

Employment Memo: Breach of contract - No claim for damages flowing from manner of dismissal
19 Jan 2012

The Supreme Court, in a majority decision, has held that an employee who is dismissed in breach of a contractual disciplinary procedure cannot claim damages for breach of contract flowing from the manner of their dismissal. Here, two claims were conjoined and in both cases the employees claimed damages on the basis that the employer was in breach of contract in not following its contractual disciplinary procedure. In both cases, the Court of Appeal held that the principle that there is no implied term of trust and confidence in relation to the manner of a dismissal did not mean that the employee could not recover financial damages flowing from a breach of the express term in his contract that the employer would follow its disciplinary procedure. Those decisions have now been overturned by the Supreme Court. There can be no claim for damages arising from the manner of dismissal in breach of implied or express contractual terms. The question in each case is, therefore, whether or not the loss founding the cause of action flows directly from the employer’s "failure to act fairly when taking steps leading to dismissal" and "precedes and is independent of" the dismissal process. In other words, the court must decide whether "earlier events do or do not form part of the dismissal process". This is a fact-specific question. On their facts, these cases fell within the manner of dismissal exclusion.

Edwards v Chesterfield Royal Hospital; Botham (FC) v Ministry of Defence [2011] UKSC 58

Employment Memo: Marital and civil partnership discrimination - Marriage to particular individual covered
19 Jan 2012

Marriage status is one of the protected characteristics under the Equality Act 2010.  The question in this case, which was brought under the predecessor provisions of the Sex Discrimination Act, was whether less favourable treatment because of marriage to a particular man, as opposed to the mere fact the employee is married, could be protected. The employee here was married to a man who was in dispute with her employer. She alleged that she was constructively unfairly dismissed as a result of that relationship; that the employer had treated the couple as a unit and had allowed its dispute with her husband to influence its treatment of her. She pointed to references to him, which the employer had made when dealing with her grievances and correspondence which demonstrated that the employer thought of them as one joint unit with whom it was in dispute. The EAT held that, although the employer did not discriminate against married people generally, the employee was entitled to claim that her unfavourable treatment was marriage-specific and specific to her particular marriage. A person who is married or who is in a civil partnership is protected against discrimination on the ground of that relationship and on the ground of their relationship to the particular partner. Any less favourable treatment which is marriage-specific is unlawful.

Dunn v The Institute of Cemetery and Crematorium Management [2011] UKEAT 0531_10_0212

Employment Memo: Equal pay claims – Can bring claim in civil courts after time limit expires for tribunal claim
19 Jan 2012

The Court of Appeal has confirmed that equal pay claims can be brought in the civil courts after the time limit to claim in the employment tribunal has expired; effectively extending the time limit to bring such claims from 6 months from termination in the employment tribunal to 6 years from the date of the last breach of contract (i.e. the last failure to pay equally) in the civil courts. In this case, a large number of former council employees brought equal pay claims in the civil court after the 6-month employment tribunal time limit had expired. The council applied to strike out the claims on the basis that the civil court should decline to exercise its jurisdiction to hear claims presented to the civil courts after the employment tribunal time limit had expired. There is a discretion to strike out claims that could more conveniently be determined in the employment tribunal, but the Court of Appeal held that it would be an extreme exercise of judicial discretion to strike out a claim for breach of an equality clause which had been brought within the civil court limitation period (which is 6 years). That discretion should be exercised only for the purpose for which it was conferred, namely the distribution of judicial business, and not to stifle claims that had been made in time. Save in exceptional cases amounting to an abuse of process, it is not for claimants to have to explain why they did not go to the employment tribunal in time. The Council has applied for permission to appeal to the Supreme Court.

Birmingham City Council v Abdulla [2011] EWCA Civ 1412

AFR Memo: : ASB PUBLISHES NEW VIEWS ON THE FUTURE OF FINANCIAL REPORTING IN THE UK
01 Feb 2012

The ASB has issued three Financial Reporting Exposure Drafts (FREDs 46 to 48) setting out revised proposals for the future of financial reporting in the UK and Republic of Ireland. These FREDs replace not only previous exposure drafts on the subject (FREDs 43 to 45) but, ultimately, also the current body of Financial Reporting Standards (FRS).
The FREDs were issued by the ASB after considering issues raised following the publication of FREDs 43 to 45, and the proposals represent significant changes.

In short, the revised proposals recommend:

he revised proposals are open for comment until 30 April 2012.  The proposed effective date is for accounting periods beginning on or after 1 January 2015.

AFR Memo: : IMPROVING THE FINANCIAL REPORTING OF INCOME TAX
Jan 2012

The financial reporting of income tax—as currently set out in IAS 12—has been the subject of criticism from both preparers and users for being difficult to understand and apply. Resulting disclosures, therefore, are less useful than could be hoped for. To address these issues, and to solicit views on how the reporting of income tax might be improved upon, the Accounting Standards Board (ASB) together with the European Financial Reporting Advisory Group (EFRAG) have issued a discussion paper inviting comments until mid-2012.

Complete and transparent reporting of tax is complex because the tax effects of transactions do not always fall in the same period as they are reported in the financial statements. Users want better disclosures not only in relation to an entity’s income tax charge but also as regards potential future cash-flow implications. The discussion paper examines possible changes to the reconciliation of tax expense to a standard rate; revisions to the requirements in respect of uncertain tax positions; and whether deferred tax should be discounted.

The paper also considers in some detail alternative approaches that could form the basis for a new accounting standard to replace IAS 12. The temporary-difference approach is the methodology that underlies IAS 12; under this approach, the tax effects of all temporary differences are recognised in the financial statements. The other approaches being proposed include:

• the flow-through approach (under which only the current tax—i.e., payable on taxable income for the accounting period—is reported as an expense);
• the partial allocation approach (under which only those tax effects likely to affect the tax payable for future periods is deferred);
• the valuation adjustment approach (under which tax effects are dealt with as part of the carrying amount of related assets and liabilities); and
• the accruals approach (under which the tax effect of all transactions are recognised and allocated to the period to which they relate).

AFR Memo: : Charities Act 2011 receives Royal Assent
21 Dec 2011

The Charities Act 2011 was granted Royal Assent on 14 December and will come into force in March 2012. The new Act repeals and replaces the Recreational Charities Act 1958, the Charities Act 1993 and many of the provisions of the Charities Act 2006. The new act consolidates the existing legislation and was developed by The Office for Civil Society, The Law Commission, and The Charity Commission, who advised on numerous technical drafting issues. References in the Charity Commission's guidance will now be amended to comply with the Charities Act 2011.