News archive

The UK Supreme Court has found that sections 1 and 9 of the Tobacco and Primary Medical Services (Scotland) Act 2010 are within  the legislative competence of the Scottish Parliament.

(Section 1 of the 2010 Act prohibits the display of tobacco products in a place where tobacco products are offered for sale. Section 9 prohibits vending machines for the sale of tobacco products)

A summary of the judgement is available from the Supreme Court here.

The full judgement is available here.

Outer House case concerning an appeal by the City of Edinburgh Council against the decision of a reporter appointed by the Scottish Ministers.

The case relates to a listed tenement near the junction between Ferry Road and Newhaven Road in Edinburgh.  The owner of the property sub-divided the principal front room (with stud partitions) to create two bedrooms and a corridor without obtaining listed building consent.

The Council served an enforcement notice on the owner requiring re-instatement of the room to its original condition.  The owner appealed against the enforcement notice contending that: (1) listed buildings consent was unnecessary; or (2) that the consent should nevertheless be granted. In support of the second argument the owner pointed to the fact that the alterations came to light when he had made an HMO (Houses in Multiple Occupation) application for the property as a result of being accepted by the Council’s Adult Resource Team to provide supported lodgings for vulnerable adults. The reporter rejected the owner’s first contention but accepted his second contention (attaching considerable weight to what he called the “special needs argument” and noting that the changes were easily reversible) allowed the appeal and quashed the enforcement notice subject to the condition that the partitions be removed and the property be returned to its original condition when it ceased to be on the Council’s register of supported accommodation for vulnerable adults. The Council appealed to the court.

Lord Tyre refused the appeal. The appropriate starting was section 14(2) of the Planning (Listed Buildings and Conservation Areas) (Scotland)  Act, which requires the reporter to have special regard to the desirability of preserving the building or any features of special architectural interest which it possesses. It also creates a presumption against the granting of listed building consent in respect of alterations which have an adverse effect on the special interest of the building. Reading the decision letter fairly and as a whole, Lord Tyre found that the reporter, having identified the correct starting point, proceeded to assess whether there were considerations of sufficient force to overcome the presumption against alteration. His reasons for deciding that there were such considerations were clearly explained.  So far as the adverse effect is concerned, the reporter concluded that the external visibility of the subdivision was negligible and that the works were easily reversible without damage to internal decorative features. He regarded this “modest” impact on the building as outweighed by what he described as the special needs argument put forward by the property owner.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

My final “tax land” of 2012 as I have a looming chapter deadline on the subject of a Scottish tax system.

Where to start?  Let’s start with the UK Chancellor’s “Autumn” statement.

George Osborne admitted that the UK had missed its debt reduction targets putting the UK’s AAA credit rating under threat.  Osborne also announced that the planned rise on fuel duty is to be axed and the personal allowance of income tax payers is to be boosted.  Benefits are to be limited to a 1% rise a year for the next 3 years and economic growth will be lower than predicted until at least 2018.

In response the Institute of Fiscal Studies warned that one million people will find themselves joining the higher 40p income tax rate by 2015.  Far higher than the 400,000 figure quoted by Osborne.  The IFS also said further austerity measures to increase taxes and cut benefits were unavoidable to fix a £27bn black-hole in the UK economy before the next UK General Election.

Figures also showed that poorest 30% of households will suffer the most under the changes announced.  More on this from the Scotsman can be found here.

The AAA rating is of course an issue in the independence referendum.  One of the arguments made by those arguing NO is that an independent Scotland, notwithstanding its oil reserves, would lose its AAA credit rating.  This issue is now a problem for the NO campaign as the UK, in the event of a YES vote, would presumably be desperate to retain Scotland in a monetary union to protect its credit rating.

The YES campaign also received a further boost when it was confirmed that nearly 17 billion barrels of oil are to be recovered from the North Sea over the next 30 years following a £134bn investment by oil and gas companies.  The majority of the new developments will be in Scottish waters while production from gas fields in the southern North Sea begins a dramatic decline. More on this from the Scotsman can be found here.

Now to the tax avoidance debate.

The House of Commons Public Accounts Committee has warned officials from HMRC that firms that devise complicated tax regimes are “running rings” around them. The Committee Chair, Margaret Hodge MP, said that the public would consider such schemes “completely and utterly immoral”. More on this from the Guardian can be found here.  My recent blog on this and the lack of political will to reform the UK’s tax system can be found here.

Meanwhile the Chief Secretary to the UK Treasury, Danny Alexander, has warned against naming and shaming large firms who do not pay the correct amount of tax, insisting that he is obliged to defend firms’ “taxpayer confidentiality”. More on this from the Mirror can be found here.  This adds to the growing evidence that the UK Government is at best being half-hearted in its attempts to tackle this issue.

Further evidence for this claim can be found when you consider that only 5% of the UK Government’s announced investment into HMRC will be aimed at tackling tax avoidance.  The context to this is of course the large budget reduction and cut in staff numbers already made to HMRC.  More on this from the Times can be found here.

According to an investigation by the Times, offshore companies are exploiting a tax loophole which allows them to buy up some of the UK’s most expensive homes and avoid paying property stamp duty, inheritance tax and capital gains tax.  More on this from the Times can be found here.  The Times has done some excellent work on this issue over the last few months.

Figures from HMRC show that the number of people declaring an annual income of more than £1m fell from 16,000 to 6,000 after the previous 50p top rate was brought in.  More on this from the Telegraph can be found here.  What this statistic purports to show is though open to debate.

Final point on the tax avoidance and tax evasion debate.  The claim that I have made on many occasions that tax for some, namely large companies and the wealthy, is becoming a matter of negotiation – almost voluntary in nature – seems now to be generally accepted.  That is clearly what Starbucks think.

The Scottish Government has unveiled plans to reform stamp duty land tax in Scotland.  The importance of this should not be underestimated.  The Scottish Government must show that it has the competence to deal with tax matters.  The signs so far are positive.  More on this can be found here.

Now to matters slight further afield.

France’s Senate has rejected the Government’s 2013 Budget, which among other measures raised the marginal tax rate on annual income of over €150,000 to 45%, imposed a 75% “solidarity contribution” on income over €1m, and raised capital gains tax rates to match income tax rates.  The Budget will though almost certainly be forced through by the National Assembly.  More on this from Tax-news can be found here.

The Republic of Ireland Government has revealed its 2013 Budget.  It introduces a new annual property tax of 0.18% on properties valued below €1m, payable by owners.  More expensive properties will be taxed at €1,800 plus 0.25% of their value over €1m.  Initially, and until 2016, owners’ valuations will be accepted.  More on this from the Irish Times can be found here.

Finally to the USA.  The US Internal Revenue Service has published guidance on calculating the new 3.8% tax on investment income, imposed to pay for President Obama’s universal health insurance plan.  More on this from the Journal of Accountancy can be found here.

This has been a very interesting year for all those interested in tax and the wider Scottish tax and fiscal powers debate. I suspect that is not going to change in 2013.  Best wishes to you and yours for 2013.

Outer House case in which the Scottish Ministers sought an interim order bringing to an end a prohibition under regulation 47(10) of the Public Contracts (Scotland) Regulations 2006. The prohibition prevented the Ministers from entering contracts relating to the provision of services in relation to trunk roads.

In November 2010, the Ministers (acting through Transport Scotland) advertised two contracts for the management, maintenance and improvement of trunk roads. After adopting the competitive dialogue procedure the Ministers invited tenders. Amey and three other operators submitted tenders. However, the Ministers wrote to Amey advising that they considered Amey’s tender to be abnormally low. They stated that this presented them with unacceptable financial, operational and reputational risks in fulfilling their statutory duties. They considered that Amey had manipulated the prices and rates and explained their concerns in some detail. Correspondence followed in which Amey argued that it had taken a “holistic approach to the tender” and provided price and other information. However, the Ministers rejected Amey’s bid concluding that the offer: (a) carried significant unacceptable risks; (b) was neither economically viable nor sustainable; and (c) was not genuine.”

Noting that Courts function was limited reviewing the Ministers’ decision solely to see whether or not there is a manifest error and/or whether the process was in some way unfair, Lord Hodge saw no legal basis on which Amey could challenge the Minister’s conclusion that its offer (a) carried unacceptable risks for them and (b) was neither economically viable or sustainable. However, if by concluding that the offer was not genuine, the Scottish Ministers were suggesting that the offer was a sham that was more problematic. Lord Hodge though did not consider that that was what was meant. The bids were assessed on the “Comparative Cost of Tender” which was a figure based on prices and rates entered by the tenderers. Lord Hodge interpreted the use of the word “genuine” as referring to the way in which Amey chose to present its offer, noting that the prices and rates Amey provided bore little relationship to the turnover that Amey expected from the contract. However, even the Ministers’ use of the term ‘genuine’ had been incorrect, that would not have undermined their conclusions about the risk, economic viability and sustainability of the bid.

With regard to the limited scope of the court’s review, Lord Hodge found that Amey had at best a weak prima face case (for continuing the prohibition). That was an important factor when considering the balance of convenience.  Lord Hodge also took account of the need to avoid delay in the process which would in turn lead to mobilisation issues for the successful contractors and increased costs for both the successful contractor and the Scottish Ministers. On the other hand, if the contract went ahead and Amey subsequently successfully challenged the Ministers decision, it would then have a remedy in damages. Taking these factors into account, Lord Hodge found that the balance of convenience favoured lifting prohibition. He also found that consideration of the public interest favoured lifting the prohibition (noting the need for an effective and non-discriminatory procurement process but also taking account of the need for economic and efficient operation of the procurement process and the need for proper provision of the required services to Scotland’s trunk roads).

Consequently, Lord Hodge granted the Scottish Ministers’ motion and lifted the prohibition preventing Transport Scotland entering the proposed contracts with other contractors.

The full judgement is available from Scottish Courts here.

A lot has been written in the past dew weeks about the attitude of a number of international companies to paying UK corporation tax.  This issue is though only one of a number of matters that needs to be addressed.

Is there the political will to reform the UK’s tax system?  I would argue no.  What evidence do I have for this?

1. The reluctance of the UK Government to address the paying of corporation tax by large international companies.

2. There is a lot of talk of tax simplification but the reality is very different.  The new reduced rate of inheritance tax is but one example.

3. If the UK Government was serious about reforming the tax system we would be at least be debating publishing summaries of business tax returns and other ideas to increase transparency.

4. The introduction of morality into this debate does not help matters.  A robust tax system should not need to rely on what is and what is not “moral”.

5.  Fairness is though crucial.  The perception is growing that tax for certain sections of our society is optional.  This needs to be addressed as a matter of urgency.   The fact that it is increasingly difficult to tell what is “tax avoidance” and what is “tax evasion” does not help matters.

6.  The fact that the UK Government has allowed so many public sector people to be employed through service companies is nothing short of disgraceful.   This added to the perception of a lack of fairness.

7. The UK Government seemed to immediately say it would not introduce a Financial Transaction Tax because it was a European proposal.  The lack of a proper debate again added to the perception of a lack of fairness.

8. If the UK Government did care about the quality of UK’s tax system why have they made such deep cuts to HMRC’s budget and staff numbers.

This though is not just a UK Government matter.

It was reported a couple of months ago that a number of so-called celebrities were involved in schemes, perfectly legal, to reduce the amount of tax they paid.   The furore, if that is what it was, did not last long.  If the public do not seem to care too much about this issue then the UK Government might conclude it is not that important.

These issues apply just as much to the Scottish Government as further tax and fiscal powers reside in Edinburgh.

The Land and Buildings Transaction Tax (Scotland) Bill was introduced to the Scottish Parliament on 29 November. Some points of note:

• the Bill is expected to come into effect  on 1 April 2015;
• the Bill is the first of three-  a Landfill Tax Bill and Tax Management Bill will follow;
• the Scottish Ministers are the tax authority (s52) but the authority can be changed by order (a new body, Revenue Scotland has been established for that purpose);
• the tax authority can delegate administration and collection of the tax to Registers of Scotland (s53) (an idea first suggested by my colleague James Aitken);
• the tax will be progressive, i.e. tax is charged on the proportion  of the price exceeding the threshold rather than charging the higher rate of tax on the whole price (per SDLT)(ss24-26)
• like SDLT, LBTT will be charged on VAT (para 2, Schedule 2)
• the Bill contains a number of targeted anti-avoidance rules applying to specific exemptions and reliefs. The Scottish Government also intends to introduce a general anti-avoidance rule following a consultation on tax management;
• commercial leases are to be dealt with by subordinate legislation (s55) following consideration of the options (one of which is making tax payable annually on actual rent paid);
• residential leases are exempt (para 3, Schedule 1);
• licences to occupy are not exempt (ss14-16); and
• the Bill replicates existing SDLT provisions on partnerships & trusts. However, the Scottish Government intends to carry out further work on the provisions during the Bill’s Parliamentary passage to produce clearer legislation (to be brought forward at Stage 2).

The Bill is available here.
The Explanatory Notes are available here.
The Policy Memorandum can be found here.

Sheriff court case considering the interpretation of missives for a property in Ellon. Missives were concluded on 9 June 2010 and provided for a date of entry of 6 August 2010. The following clauses (from the Aberdeen and Aberdeenshire standard clauses) were incorporated:

 “(i)         So far as the Seller is aware the Property is not affected by:-
…

(g)          any proposals, applications or re-development plans affecting the Property or any adjacent or neighbouring property which could reasonably be considered to be detrimental to the Property.

 (ii)       Without prejudice to the foregoing, the Seller warrants that he has not been served with nor received any neighbour notification notice issued in terms of planning legislation by any third party. If such notice is served on or received by the Seller prior to the date of settlement, the Seller will immediately forward the notice to the Purchaser’s Solicitor. If the proposals contained in the notice would have a materially detrimental effect on the Property the Purchaser will be entitled to resile from the Missives without penalty due to or by either party.”

The sellers then sent the purchasers a letter (dated 27 July) purporting to re-open the missives and changing the date of entry to 5 August 2010. The purchasers replied (on 30 July) accepting the terms of the seller’s letter and again concluding the missives.

When the purchasers moved into the property following settlement they discovered a handwritten note from the sellers attached to a letter (which had been received by the sellers on 15 July) to the sellers from Aberdeenshire Council.  The letter advised that the Council had published the proposed local development plan and that it included a proposal for development on or adjacent to the property. The notice and plan were, it was said, being issued to the sellers in line with regulation 14(2) of the Town and Country Planning (Development Planning) (Scotland) Regulations 2008. The purchasers raised an action for breach of contract.

The sellers argued:

1. that the notice was not a “neighbourhood notification notice”; and
2. that the warranty in the missives applied as at the date of conclusion of the “original” missives (5 weeks before the Council’s letter was received) and not as at the date the “amended” missives were concluded (2 weeks after receipt of the letter).

The sheriff principal, agreeing with the sheriff’s interpretation of the missives, rejected these arguments.

The neighbour notification notice
The sellers had argued that “neighbour notification notice” is a term of art derived from the statutory scheme contained in The Town and Country Planning (General Development Procedure) (Scotland) Order 1992. In terms of that order, the owner of ground required to intimate his intention to develop its property to its neighbours. However, the scheme was changed when the 2008 Regulations (above) came into force, making the local authority responsible for intimating proposed planning developments (and containing no reference to a “neighbourhood notification notice”). The sheriff principal found that, nevertheless, the clause referred to “any neighbour notification”, the word ‘any’ being significant and indicating that the clause was intended to cover planning legislation as a whole[1].

The warranty
As regards the warranty, the sellers argued that the contract was concluded on 9 June and that the sole purpose of the later letters was to amend the date of entry (effectively meaning that the warranty was given as at 9 June). However, the sheriff principal found that the best approach was to consider what the parties intended to be the date at which the warranty was given. The parties agreed that the warranty was as at the date of conclusion of the missives rather than as at the date of the original offer. The effect of the later letters was to create a new date for the conclusion of missives. Thus the natural consequence of amending the date of entry was to create a new date as at which the warranty was given.

The sheriff principal refused the appeal and agreed with the sheriff’s finding to the effect that the sellers were in breach of contract.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case concerning the Westwood Neighbourhood Centre in East Kilbride. The centre contains a mix of flats, offices and shops. Dundas Heritable Limited owned the Westwood pub in the centre and concluded missives to lease part of the pub to Tesco for use as a Tesco Express. Russel Properties (Europe) Limited owned much of the non-residential property in the centre including two car parks. They sought an interim interdict preventing use of the pub as a shop pointing to a burden in the title to the pub which restricted its use to that of a pub or a restaurant:

“Subject to the provisions of these presents the feu and the buildings and others erected thereon, or any part thereof, shall not be occupied or used for any trade, business or purpose other than that of a licensed public house and/or public restaurant and purposes ancillary thereto … without the written consent of the Superiors.”

Although the feudal superior had been granted the primary right to enforce the burden, Russel argued that, on abolition of the feudal system, it had acquired the right to enforce the burden under s53 of the Title Conditions (Scotland) Act 2003. Put simply, s53 provides that, where burdens have been imposed under a common scheme on a group of related properties, the burdens can be enforced by any of the related properties.

Lord Woolman refused the motion for interim interdict finding that Russel had failed to establish that there was a case to answer. To do so they would have required to have shown evidence that there was a common scheme and that the properties were related.

Although there were also burdens in the titles to other properties at the centre which restricted the use of those properties, the burdens were not identical or even similar and did not show the required mutuality of interest or sense of equivalence which would give rise to the creation of reciprocal rights under a common scheme. Also, although the term “related properties” is not defined in the 2003 Act and the court has some discretion, Russel failed to argue that the properties fell within the classes of related property illustrated by examples provided in the Act. Lord Woolman therefore found that Russel had not satisfied the criteria necessary to enforce the burden.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Let’s start with an issue that is at last beginning to reach the top of the political agenda, tax avoidance.

The UK National Audit Office has released a report suggesting that HMRC is being “overwhelmed” by the scale of tax avoidance, claiming that the UK is losing out by more than £10bn in lost tax revenue.  The Comptroller and Auditor General, Amyas Morse, stated: “HMRC must push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes”.  But according to the NAO, between 2004 and 2011 approximately 2,300 avoidance schemes were disclosed to HMRC.  A report on this can be found on the BBC news website which can be found here.  The NAO report can be found here.

That shows the scale of the problem.

Then there is the sight of a number of Chief Executives from several of the world’s top companies giving evidence to the House of Commons Public Accounts Committee on the issue of tax avoidance.  Representatives from Google UK, Starbucks and Amazon were answering questions on tax arrangements for multinational companies.  Their responses show how big business views this issue and interference by politicians.  More on this from the BBC news website can be found here.

Also on this issue.  The Managing Director of John Lewis, Andy Street has said that the failure to resolve the issue would risk driving UK firms out of business.  Street’s comments were aimed at Amazon, which is accused of failing to pay the correct rate of UK corporation tax. He said that UK companies would be “out-invested” and “out-traded” by the US-based internet retail giant.  More on this from the Telegraph can be found here.

There is also some evidence that HMRC is losing this “battle”.  The European Court of Justice has ruled that the UK Government must refund several UK-headquartered multinationals up to £5bn worth of corporation tax.  The companies, led by British American Tobacco, were found to have been treated unfairly by HMRC which retrospectively blocked tax refund claims dating as far back as 1973.  HMRC said it was “very disappointed” at the ruling.  Glad that it was not “happy”.  More on this, again from the Telegraph, can be found here.

Then there is the tax tribunal decision in favour of the former Rangers Football Club.   The decision of the first tier tribunal was not unanimous and HMRC is considering an appeal.  More on this from the Scotsman can be found here.

An example of what HMRC is trying to do also highlights the scale of its task.  HMRC has launched a taskforce to pursue landlords in the south east of England who fail to declare rental income.  It is expected to recover £4m out of the estimated £550m of tax evaded annually by landlords across the UK.  A press release from HMRC on this matter can be found here. 

The statement from UK Business secretary Vince Cable sums up nicely the quandary for politicians.  Cable has called for action against corporate tax avoidance but also stressed the need to encourage investment.  He pointed to anger amongst small and medium sized businesses that multinational corporations are able to avoid tax without consequence.  More on this from the Scotsman can be found here.

I liked this: “High-street shops turn fire on Amazon’s tax avoidance”.  More on this can be found here.

Now to the fiscal powers debate.

Edward Troup, the person responsible for the collection of the Scottish rate of income tax at HMRC, has told MSPs that the Scottish Government would have to pay the costs of any changes to the Scottish rate of income tax.  More on this from the Scotsman can be found here.  This is in fact one of the reasons why I think a tax needs to be devolved in its entirety.

Also on this issue, and some sensible observations by Iain Gray, convener of Holyrood’s Audit Committee.  Gray said that the Scottish Parliament must be able to exercise greater oversight of HMRC when the Scottish Parliament will become responsible for raising half the income tax in Scotland from 2016.   More on this from the Herald can be found here.

The Devo Plus group, which was set up by Reform Scotland, has published its latest paper on further powers that could be devolved to the Scottish Parliament as long as Scotland votes NO.  More on this from the Scotsman can be found here.  The paper  can be found here. Notable that the Conservative representative acknowledged that he was there in a personal capacity and not representing his party.  Ruth Davidson has of course made her opposition to further powers clear.  The problem with this approach is an obvious one.  Can anyone say with a degree of certainty that major powers will be devolved to Scotland if Scotland votes NO.  To see how far apart the opposing sides in the independence debate are have a look at one of my recent blogs.  This blog lists the tax powers that Westminster has already said no to.  My earlier blog can be found here. Even the Liberal Democrats, the party that historically has went the furthest on this issue, now wishes to devolve only a handful of additional tax powers.

Now to some commentary on the recent Institute for Fiscal Studies report on the economic possibilities of an independent Scotland.  The excellent piece by Ian Bell in the Herald can be found here.  The argument that Scotland’s oil wealth is a potential problem for Scotland is simply ridiculous.

The Times has reported that sales of homes valued between £2m and £5m in Greater London have fallen by 29% per cent in the third quarter, according to figures from the Land Registry.  I was interested to read that “industry experts” have blamed the fall on changes to stamp duty land tax in the last UK Budget.  London Central Portfolio, a high-end residential property investment fund, said: “The fall in transactions is almost definitely a result of the uncertainty and negative sentiment caused by the tax changes announced in the 2012 Budget”.  It seems that uncertainty can be caused by something other than the debate on Scottish independence. The report in the Times can be found here.

And finally to France.  The French Government has announced new measures against tax avoidance and fraud for companies and individuals. Failure to disclose the origin of offshore assets will attract an automatic 60% tax rate.  The French tax authorities will also demand an explanation of all individual payments exceeding €200,000.  Vive la France.

Inner House case considering a lease of premises at Wardpark South Industrial Estate in Cumbernauld.  Batley were tenants and North Lanarkshire Council were sub-tenants.

At the centre of the dispute were works which the Council carried out to the property under a minute of agreement. In terms of the minute, the Council had to remove the works and re-instate the premises at the end of the agreement if they were required to do so by Batley.  Batley served a schedule of dilapidations after the end of the sublease.  However, the Council argued that the obligation to reinstate the premises died on the expiry of the sublease and therefore it did not require to comply.

In the Outer House, the temporary judge (Morag Wise QC) found that, in terms of the minute, there was no need for Batley to give written notice requiring removal of the works and allowed a proof to consider whether Batley had adequately conveyed its requirement for re-instatement when a surveyor acting on its behalf had telephoned the Council before the end of the sublease and indicated re-instatement would be required.

The Inner House allowed a reclaiming motion finding that the minute not only amended the sublease but also ratified provisions in the sublease. These included a provision incorporating a requirement for written notice which was contained in the lease. In the absence of such written notice there was no requirement on the Council to re-instate the premises. An attempt by Batley to claim the cost of re-instating the premises under the general repairing clause in the sublease also failed.

The full judgement is available from Scottish Courts here.

(NB: See appeal to Supreme Court)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.