Horwath Clark Whitehill - Corporate Taxes Update - 28 April 2008

Apr 6, 2009 | Publisher: CroweClarkWhitehill | Category: Business & Jobs |  

A summary of the latest UK tax news www.horwathcw.com Corporate Taxes Update 28 April 2008 In this issue: • ECJ historic ruling on key VAT case • OECD releases draft 2008 update to the Model Tax Convention • Benefits to retired ex- employees – reporting requirements • HMRC announce new interest rates • Renovations to residential properties – HMRC announce changes ECJ historic ruling on key VAT case The European Court of Justice has given a ruling on a long-standing VAT case of Marks & Spencer plc v Revenue and Customs Commissioners. In 1973 when VAT was introduced to the UK, HM Customs commissioners took the view that the chocolate covered teacakes marketed by Marks and Spencer (M & S) were biscuits and not cakes. Therefore these teacakes were subject to VAT at the standard rate rather than zero rate (the rate applicable to cakes). Between April 1973 and October 1994 M & S therefore paid VAT on the sale of these teacakes. However in 1994 Customs acknowledged that they had made an error and that the teacakes were in fact cakes and not biscuits and therefore that VAT at zero-rate rather than standard rate should have applied. M & S therefore submitted a claim for a repayment of the £3.5 million that they had paid in error between 1973 and 1994. Although the claim was accepted in principle Customs concluded that M & S should only be entitled to 10% of the VAT because in their view around 90% of the VAT had been passed onto the ultimate customers of VAT. Customs said that to repay more than the 10% would amount to ‘unjust enrichment’, M & S appealed to the House of Lords. The House of Lords referred some specific principles to the ECJ to check the position in EU law. On 10 April 2008 the ECJ gave their ruling and concluded that M & S had not been treated fairly under the principle of equal treatment and therefore that the UK courts should order the repayment of the VAT to M & S irrespective of whether there was or was not unjust enrichment of M & S. We await the House of Lords for the final decision. This case is important because it indicates that HM Revenue and Customs are not entitled to apply the defence of unjust enrichment for claims to recover of output tax before 26 May 2005 and therefore HMRC should repay on open claims. Business-owners and taxpayers should therefore review any situations whereby HMRC (previously HM Customs and Excise (HMCE)) has previously denied a repayment of overpaid VAT on similar grounds and consider whether to lodge a clam to recover VAT. OECD releases draft 2008 update to the Model Tax Convention Globalization and the international movement of individuals and businesses create interesting dynamics across different tax jurisdictions. To prevent double taxation in such circumstances, the tax authorities in each location agree between themselves how residents of each jurisdiction will be taxed in respect of income and gains. Such double tax treaties have a common structure being based on the Model Tax Convention of the Organisation for Economic Co-operation and Development (OECD). On 22 April 2008 the OECD released a draft 2008 update to their Model Tax Convention. The changes include updates based on reports previously released as well as other proposed changes including amendments to the concept of the ‘place of effective management’ (the tax residence of a company) and the definition of royalties. Corporate Taxes Update A summary of the latest UK tax news www.horwathcw.com 28 April 2008 For more information please contact: Chris Denning Tax Partner chris.denning@horwath.co.uk Stuart Weekes Senior Tax Manager stuart.weekes@horwath.co.uk Horwath Clark Whitehill LLP Aquis House 49-51 Blagrave Street Reading, RG1 1PL Telephone: 0118 959 7222 Fax: 0118 958 4640 Such changes may influence future tax treaties and therefore may be of interest to companies that are affected by international matters (e.g. have an overseas branch/subsidiary or employees located overseas or overseas employees in the UK). To read the document visit www.oecd.org/dataoecd/48/60/40489100.pdf Benefits to retired ex-employees – reporting requirements Many employers provide benefits to retired former employees. By doing so these employers create an ‘Employer-Funded Retirement Benefits Scheme’ (EFRBS) for which there are reporting requirements to HM Revenue and Customs (HMRC). Such benefits provided for retired ex-employees are taxable in a similar way to P11D benefits provided to existing employees. A return of such benefits has to be submitted to HMRC by 7 July following each tax year. There is no official form, but employers are advised not to use form P11D. HMRC has stated that a list of the benefits under the heading ‘Employer-Financed Retirement Scheme – Relevant Benefits for tax year 2007/08’ should be sufficient. Certain benefits are specifically excluded including living accommodation where the accommodation qualified for tax exemption while the individual was employed, annual social functions costing up to £150 per attendee, per year and the costs of writing wills. When negotiating exit arrangements with key directors and employees employers should be aware of these reporting requirements and plan them into their compliance schedule. This advice is included in the latest Employer Bulletin (no 29) provided by HMRC. HMRC announce new interest rates HMRC has announced that the rate of interest payable in respect of early and late paid corporation tax changed on 21 April 2008. From that date the rate of interest charged on underpaid instalments of corporation tax reduced from 6.25% to 6%. The rate of interest on overpaid instalments of corporation tax and on corporation tax paid early (not due by instalments) similarly reduced from 5% to 4.75%. Renovation of residential properties HMRC announce changes HMRC has announced that from 1 January 2008 renovations and alterations to residential properties that have been empty for at least two years will be eligible for a reduced VAT rate of 5%. Previously this was available after three years. Contactors renovating residential properties that have been empty for at least two years should account for 5% on supplies that take place on or after 1 January 2008. In case of uncertainty about when these provisions apply seek help from a VAT specialist. This information is published without responsibility on our part for loss occasioned to any person acting or refraining from acting as a result of any information published herein. © Horwath Clark Whitehill LLP April 2008

Horwath Clarke Whitehill - Corporate Taxes Update - 28 April 2008.pdf

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