Northern Ireland Tax Developments February 2005
Author:
Phillip McMaw
Taxation of companies and business
UK to UK transfer pricing and employee share schemes
The Inland Revenue has published an updated version of its International Manual reflecting the Finance Act 2004 changes to the transfer pricing rules extending their scope to UK to UK transactions. Draft guidance has also been published outlining how the extended transfer pricing regime interacts with corporation tax relief for the cost of the provision of employee share schemes introduced by Schedule 23 of Finance Act 2003. The Revenue note that this guidance is likely to change significantly due to comments received during consultation and should not be assumed to apply to accounting periods starting after 31 December 2004.
IFRS: UK tax implications
Finance Act 2004 included legislation to ensure that companies choosing to adopt IFRS to draw up their accounts receive broadly equivalent tax treatment to companies that continue to use UK GAAP. At the Pre-Budget Report in December, drafts of further legislation for the 2005 Finance Act were published and five statutory instruments were made under powers given by the FA 2004 legislation. All the above will be effective for accounting periods beginning on or after 1 January 2005. In addition, the Inland Revenue have issued detailed guidance comparing the accounting treatment under IAS with existing UK GAAP and explaining the appropriate tax treatment. This guidance can be found on the Inland Revenue website.
Taxation of individuals and trusts
Self assessment following Veltema
The Court of Appeal judgment in a recent case, Langham v Veltema, raised concerns over the Revenue's powers to raise a 'discovery assessment' outside the normal twelve month enquiry period following the self assessment filing date of 31 January and the consequent lack of certainty for taxpayers in their tax affairs.
Guidance has been developed in consultation with representative bodies to help taxpayers achieve finality for most practical purposes.
In summary:
4 Most taxpayers who use a valuation in completing their tax return and state in the Additional Information space at the end of the Return that a valuation has been used, by whom it has been carried out, and that it was carried out by a named independent and suitably qualified valuer if that was the case, on the appropriate basis, will be able, for all practical purposes, to rely on protection from a later discovery assessment, provided those statements are true.
4 Most taxpayers will be able to gain finality with exceptional items in accounts. An example might be a deduction in the accounts under Repairs. If an entry in the Additional Information space points out that a programme of work has been carried out that included repairs, improvements and new building work and that the total cost has been allocated to revenue and capital on a particular basis, the inspector should not enquire after the closure of the enquiry period unless he becomes aware that the statement was patently untrue or unreasonable.
4 Taxpayers who adopt a different view of the law from that published as the Revenue's view can protect against a discovery assessment after the enquiry period. The Return would have to indicate that a different view had been adopted by entering in the Additional Information space comments to the effect that they have not followed Revenue guidance on the issue or that no adjustment has been made to take account of it.
The detailed guidance is available on the Inland Revenue website.
Stock dividends received by Trusts
The appeal by the trustees of the Robin Settlement concerned stock dividends received by a discretionary trust. The appeal was lost at the Special Commissioners in December 2003 and in the Court of Appeal in July 2004. The taxpayers then applied to the House of Lords for leave to appeal. On 9 December 2004 the taxpayers' petition for leave to appeal was dismissed. The Court of Appeal decision is therefore final, and its effect will apply not only to the Robin trustees but also to all such cases that are open for enquiry. The decision confirms that stock dividends received by a discretionary trust are taxable at the dividend trust rate, with a credit for tax at the dividend ordinary rate.
Indirect tax
Car dealers and motor traders should note that new valuation rules, covering supplies of demonstrator cars made to employees and relatives, were brought into force on 1 January 2005. From that date, where the consideration for the car is less than its open market value, Customs can direct that the consideration should be its open market value. See Business Brief 31/04 for more information. This change is being introduced to block a well known avoidance scheme.