News archive

Not a great week for the UK Government and in particular George Gideon Oliver Osborne.  The problem here for the coalition government is not just the fact that there has been three U-turns in one week, it is the feeling that the March Budget was a bit of a shambles.  I would not go as far as that but it does seem a bit odd to me that so much was made of the so called “pasty” and “caravan” taxes and not that the UK Government did not even consider reducing VAT on repairs and renovations on residential property. 

As suspected the proposed cap on tax relief for charitable donations has been dead in the water for a number of weeks.  All we heard this week was  confirmation of that fact.  One final point on this.  These three U-turns come at a cost of approximately £150m.  Where is that revenue now to come from?   

“Flat rate” taxes were all the rage a few years ago.  Personally I have not been persuaded by the arguments put forward.  That said, as we start to think about how a Scottish tax system might look flat rate taxes should also be considered.  The latest call again came from those generally regarded to be on the political “right”, the TaxPayers’ Alliance and Institute of Directors.  In addition to arguing for a single rate of income tax the usual noises were made for the tax system to be simplified.  No-one is likely to argue against a simpler tax system until specific proposals are made.  For example, recent changes to the amount of personal allowance for those aged over 65.  This change has been termed the “granny tax”.  I did though like the idea of abolishing certain taxes although not necessarily those listed in this report.  It is claimed that the cost of these proposals would be met by prolonging the UK Coalition’s spending cuts by an extra five years.  More on this can be found here.  The report also claims that these changes would increase gross domestic product by 8.4% over 15 years.

Again on tax rates.  According to City A.M. the UK has continued to raise taxes while most other European Union countries tax rates have fallen.  The European Union average top rate of income tax decreased from 44.8 to 38.1% between 2000 and 2012.  In this same period, the UK’s average rose from 40 to 50% although the top rate is to fall from April 2013.  Unless of course we see another U-Turn.  The UK has though followed the European Union wide trend for raising VAT.  The average rate has risen from 19.2 to 21%, with the UK’s up from 17.5 to 20%.  The report from City A.M. can be found here.

Some stories do not surprise you in any way.  This is one of them.  Taxpayers are spending more than £1 million every month on the rent and upkeep of empty fire service control rooms that have never been used.  Details revealed under Freedom of Information legislation show that only one of the nine Fire Control centres is operational, despite the fact that taxpayers will continue to pay for their upkeep for up to 20 years.  This was reported in the Times on 24 May. 

Then there are stories that do surprise you but shouldn’t.  This is one of them and is also a story I have covered recently.  3,000 civil servants are employed by private firms in order to keep their tax bills down.  By remaining off the UK Government’s payroll, thousands of officials are avoiding paying national insurance contributions and are able minimise their overall tax contributions.  The report from HM Treasury can be found here.    

Good news that could have been even better news.  HMRC collected an extra £4.32bn during the last five years.  This is 11 times greater than the investment made for collecting this extra revenue.  However, a House of Commons Public Accounts Committee report claims that another £1.1bn could have been collected without job losses at HMRC.  A report on this from the BBC news website can be found here.

The International Monetary Fund (IMF) and in particular its managing director Christine Lagarde, is rarely out of the news these days.  Lagarde has said said that the UK economy had underperformed and unemployment remained much too high.  The IMF urged the UK Government to consider cutting interest rates and a further round of quantitative easing.  Ms Lagarde also said that UK ministers should prepare a plan for a worse economic environment which could include a cut in VAT.  However, the IMF also said that the UK Government should not divert from its aim of deficit reduction.  A report from the BBC news website can be found here.    

How to win friends and influence people.  Political parties in Greece have criticised Christine Lagarde for suggesting that Greeks were avoiding paying taxes.  Socialist leader Evangelos Venizelos accused Ms Lagarde of “insulting the Greek people”.  A report, again from the BBC news website, on this can be found here. 

There may be trouble ahead.  The UK Supreme Court has ruled that HM Treasury breached European Union law by retrospectively blocking tax refund claims.  The amount involved could be as much as £5bn.  Not surprisingly, HMRC has said that it is “considering the implications of this complex judgement carefully.”   A report on this from City A.M. can be found here. 
 
Now to what some might consider an overreaction.  Some US politicians are so irked at the idea that Americans are renouncing their citizenship to avoid tax, that they are introducing a new Senate bill to tax them forever.  A report on this from ABC news can be found here.  In addition, Congress is close to approving a law under which the Internal Revenue Service will be able to revoke the passports of Americans who owe substantial unpaid taxes.  An article from the Wall Street Journal on the passport claim can be found here. 

I think I will finish with fiscal powers.  HMRC is under no obligation to implement any tax proposal made by the Scottish Government under the Scotland Act.  HMRC can effectively veto any proposal if it differs too greatly from the UK system.  A report on this from the Herald can be found here.  I find it worrying that anyone is at all surprised about this.  I would be even more worried if I thought that anyone actually believes that HMRC and HM Treasury are happy to see tax powers being devolved.  I suspect that there are very few people in HMRC and HM Treasury who are happy to see the beginning of the end for a unified UK tax system.  An earlier blog on this point can be found here.     

Also on fiscal powers.  I still think it is unlikely that the so called “second question” will be asked as part of the independence referendum.  What will those who are arguing for “devo plus” and/or “devo max” do?  Will they vote for independence or the status quo and the hope of something more in the future?  This is an issue I will come back to after my well deserved holiday.  

Have a good weekend.

This calculator can be used to estimate the amount of Income Tax (not other taxes such as Capital Gains Tax) and National Insurance contributions you can expect to pay on your income – and find out how this money gets spent by the UK Government.  It is aimed at people who pay tax through Pay As You Earn (the system used by employers and pension providers to deduct tax from your wages or pension). 

More on this can be found here.

Outer House case concerning a rent review under a lease of premises in Helensburgh.  The landlords were the trustees of a pension fund. The tenants were Argyll and Bute Council.

On 19 July 2010 a surveyor wrote to the Council purporting to act for the landlord in relation to a rent review of the property and specifying the revised fair market rent for the property was £58k. The letter contained several errors (including naming an entirely different company as landlord and stating an incorrect review date).  On 24 August 2010 the surveyor again wrote to the Council in relation to the rent review of the property and specifying the rent but this time correcting the errors in the previous letter.

The Council did not serve a counter notice but continued to pay the rent payable prior to the review and the trustees sought declarator that the rent had been effectively reviewed.

Lord Menzies held that the errors contained in the letter dated 19 July were failures to comply with the fundamental requirements of the lease and the letter did not operate as an effective rent review notice.  However, the second letter did satisfy those requirements. The Council‘s argument that it was also invalid as it had not been signed by an officer of the landlord (as specified in the notice clause of the lease) was rejected by Lord Menzies as this was not a mandatory requirement; the provisions of the notice clause not suggesting that different methods of service would result in invalidity.

After considering the rent review clause as a whole, Lord Menzies also found that time was of the essence in relation to the 3 month period by which any counter notice (requiring determination of the rent by an independent surveyor) had to be served by the Council in terms of that clause. The failure of the Council to serve a counter notice within that period meant that the rent had been effectively reviewed at the review date.

The full report is available from Scottish Courts here.

(See also appeal in the Inner House here.)

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

Let’s start with the recent local government election.  I was disappointed that none of the main parties, of which Scotland now only appears to have three, put forward any serious proposals for reforming how we pay for our local services.  There is though one body actively campaigning on this issue and that is the think tank, Reform Scotland.  An article in the Scotsman on this can be found here.  Reform Scotland want our local authorities to have the power to decide whether to adopt a property tax such as the Council Tax or a land value tax or instead opt for an income tax, a consumption tax or a number of different local taxes.

Now to fiscal powers and the fact that National Insurance turns 100 in July.  100 not out but for how much longer?  The idea of combining income tax and National Insurance was considered by a working party as long ago as 1993.  The main reason for this is the erosion of the link between National Insurance contributions and welfare benefits.  This issue is again being looked at.  Do I think we will see a complete merger?  No, unless both income tax and National Insurance are controlled by the Scottish Parliament.  This is an example of how a Scottish tax system could create a more simplified system.

Again on fiscal powers.  I was not surprised to see a number of Conservative MPs arguing for a “Devo Plus Bill” as part of an “alternative Queen’s Speech”.  This was published on the Conservative Home website.  Conservative Home support the Reform Scotland proposal which would devolve all taxes to Scotland except VAT and National Insurance.  More on this can be found here.

Now to a group of people termed “High Net Worth”.  HMRC has announced that its High Net Worth Unit’s tougher approach on wealthy taxpayers has resulted in an extra £200m of tax revenue.  David Gauke, Exchequer Secretary to HM Treasury, said: “The Unit’s approach ensures that HMRC is working as effectively as possible with the very wealthy and that they are contributing a fair share”.  This was reported in the Financial Times on 6 May.  The article also claims that the amount collected by this Unit has doubled since it began operations in 2009-10.  The aim is for £560m by 2014-15.  This does though beg the question: why was this Unit only set up in 2009?

Now to a claim that the UK Government Minister for Civil Society, Nick Hurd, was never consulted about the cap on charitable tax relief announced by HM Treasury in March.  More on this from the STEP journal can be found here.  The UK Government has been at sixes and sevens on this policy.  I will be surprised if it survives the summer.  Unless of course summer is already behind us.

Again from the STEP Journal.  1.6 million people should have received letters by now from HMRC warning them that they have been undercharged tax under the PAYE system and will have to pay extra.  Another 3.5 million people will be given a tax refund.  The STEP article can be found here.  An example of the sheer scale of the UK tax system and the problems it faces.

Good to see that the Scottish Government’s prosecution service has passed 20 cases of large scale tax avoidance to HMRC for investigation.  An article on this from the Scotsman can be found here.  The referencing of Al Capone must be compulsory when journalists write about this subject.

Sometimes an argument just makes you shake your head.  The Scottish Government has announced that the minimum price for alcohol will be 50p.  Although this proposal has received a huge amount of support, the leader of the CBI in Scotland has warned that supermarkets are likely to receive millions in extra revenue from drink sales.  That of course is true.  So why is this organisation against the devolving of control of alcohol duty to the Scottish Parliament and the Scottish Government’s Public Health Levy (also known as the “Tesco tax”)?  There is of course no need to answer that question.  An article from the Scotsman on this can be found here.

It seems that top rates of personal income tax across the Organisation for Economic Cooperation and Development (OECD) countries have begun to rise again in recent years after three decades of steady reductions.  The OECD press release can be found here.  Let’s not forget one of the main reasons for the reduction.  Politicians decided that “stealth taxes” were a better option.  For “better option” read “will help me get elected”.  The economic crisis put paid to that “cunning plan”.

“A serial killer is stalking the wealthy suburbs of Athens with an idiosyncratic choice of victims. They are all rich Greeks who have failed to pay their taxes, and their corpses have been left scattered among the ruins of the ancient city, dead of hemlock poisoning, the means of Socrates’ execution.”  This is the plot of the latest bestselling novel by Petros Markaris, who has combined the roles of thriller writer and social commentator in Greece to such an extent that he has become one of the most widely quoted voices in the crisis.  The article on this from Business insider can be found here.

Now to a story that combines sport, tax and the financial crisis.  Diego Maradona is suing the Italian government for £40m, despite owing it £32m in unpaid taxes.  Only in Italy!  The article from the Metro can be found here.

Lastly, an update on an issue I wrote about recently.  Co-founder of Facebook, Eduardo Saverin, is one of the thousands of wealthy Americans to have renounced his citizenship recently in order to avoid the country’s international taxation regime.  An issue for those planning a Scottish tax system to ponder.  An article on this from the STEP journal can be found here.

Have a good week.

A reminder to charities and Community Amateur Sports Clubs (CASC) from HMRC to use form R68(i) to claim tax repayments on Gift Aid donations.  More information on this from HMRC can be found here.

Further update from Office of the Public (Scotland) on processing times for powers of attorney.  The update can be found here.

Cameron & Ors v Revenue & Customs [2012] EWHC 1174 (Admin)

A taxpayer is entitled to rely upon a statement made in a formal HMRC publication unless and until the statement was revoked, withdrawn or altered with reasonable notice to all relevant taxpayers.  This applies even if a tax inspector had expressed a contrary view.  This matter concerned the application of concessionary treatment for seafarer’s earning deduction relief.

This decision appears to contradict the Supreme Court’s finding in the Gaines-Cooper residence case.   The full report from the England & Wales High Court administrative division  can be found here.

Orsman v Revenue & Customs [2012] UKFTT 227 (TC)

HMRC cannot introduce an additional argument in its statement of case to a tribunal that it had not included in its closure notice.   A “closure notice” is usually a letter issued by HMRC to the customer that its enquiry has ended.  The purpose of the “statement of case” is also to tell the customer what HMRC’s case is and is submitted to the tax tribunal.  

This matter concerned a Stamp Duty Land Tax return. 

The full decision of the First-tier Tax Tribunal can be found here.

Inner House case concerning a compulsory purchase order (CPO) made in relation to property on Argyle Street/Robertson Street in Glasgow.  The owners of the properties which were subject to the CPO raised an appeal in which they sought to quash the decision of the Scottish Ministers to confirm the CPO.  The CPO had been issued as part of a back-to-back scheme between the Council and a developer for the conversion of the property into, amongst other things, a hotel and apartment complex.

However, the scheme had fallen through when the developer became insolvent and the Irish Government’s National Asset Management Agency failed to re-instate a guarantee by Anglo Irish Bank.

Although all of the parties were then agreed that the CPO should not take effect, there were two practical difficulties:

1. there is no statutory procedure by which the Ministers can rescind a decision made by them to confirm a CPO; and
2. there is no statutory procedure by which an acquiring authority can withdraw a confirmed CPO.

This meant that the CPO would remain valid until it expired by the passage of time (on 7 September 2013) adversely affecting the interest of property owners (and that of their heritable creditors) in the property.

The Council therefore granted an undertaking which extended to successors in title confirming that it would take no further steps to acquire the land subject to the CPO.  The court took the view that, in this case, that was the best means by which the Council could give effect to its intention not to implement the CPO. After considering the authorities and noting that it is possible for a local authority to abandon its rights under a CPO by its conduct, the court found that, all the more so, it was possible for it to abandon its rights by express words.

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.

English High Court case concerning a break option contained in a sublease between Cancer Research (the landlord) and PCE (the tenant).  PCE sought to exercise the break option which was conditional on payment of the rent up to the break date.  The break date occurred shortly after a quarter day and, after receiving an invoice for a full quarter’s rent (payable quarterly in advance) from Cancer Research, PCE sent an email to Cancer Research’s managing agents advising them that a payment had been made for the rent for the period between the quarter day to the break date and asking whether that was the correct basis for calculating the rent for that period. The managing agents did not respond.

Cancer Research then argued that the PCE had failed to terminate the lease properly contending that, to do so, PCE would have to (amongst other things) pay the full rent for the quarter in advance. The court agreed with Cancer Research.  On the September quarter day it could not be said with certainty that the sublease would terminate on the break date as the tenant may have been in breach of another condition of the break option. The clear obligation on the quarter day to pay a full quarter’s rent could not be retrospectively reduced merely because an event which occurred after that date operated to terminate the sublease from the future date.

PCE’s alternative argument based on estoppel also failed. On the facts before the court, there was no basis for finding that there was a duty on the part of the Landlord to tell the Tenant that the Landlord believed the full rent was due.

The full judgement is available from Bailii here.

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

This case concerend an actor working away from home and whether his accommodation, subsistence and travel expenses were “wholly and exclusively” incurred for the purpose of his profession.

Healy who is based in Cheshire was contracted to appear in the West End of London in the musical, Billy Elliot.  Healy claimed tax relief on the costs of his accommodation, subsistence and travel to and from the theatre.

The First-tier Tribunal held that the cost of his accoomodation was allowable but that his subsistence expenses and taxi fares were not.  The accommodation was allowable primarily because the actor had not moved to London.  He was only there during the week for the purposes of performing on stage.   That therefore met the “wholly and exclusively” test.

Healy’s subsistence expenses and taxi fares were disallowed on the basis that there was insufficient evidence to show the nature of the expense.

The full decision of the Tribunal can be found here.