News archive

Tax stories from all four home nations and Denmark this week.

I will though start with some facts and figures.  It was reported this week that the average pensioner household paid £5,124 in tax over the past year.  That means the average UK pensioner household pays out 27% of its income to HMRC.  That is a combination of direct and indirect taxes which add up to an annual tax bill of more than £34 billion.   Further evidence of how large a contribution this age group contributes to national and local government finances.

Now to Wales and the Welsh Government’s introduction of a plastic bag tax.   Anyone who wants a plastic container to carry their shopping in will need to pay a 5p levy for the privilege.  They will also need to pay for plastic packaging for fast food items.

Staying with fast food but moving to Denmark.  Denmark has introduced what is believed to be the world’s first “fat tax”.  They have introduced a surcharge on foods that are high in saturated fat.  Butter, milk, cheese, pizza, meat, oil and processed food are now subject to the tax if they contain more than 2.3% saturated fat.  The UK Government are also considering such a tax the Scottish Government are not.  The  Scottish Government plans to work with manufacturers instead.

Now to Edinburgh and the latest local politician to suggest a tax change.   This time it is Colin Keir SNP MSP for Edinburgh Western.  His idea is to cut VAT rates for the tourism and golf services industry and as presently happens in Ireland.

There were this week a number of interesting announcements on additional tax powers for the Scottish Parliament.  The Scottish Government has called for the revenue from alcohol duty to be devolved to Scotland.  That makes sense when you consider that health is already devolved.  What though of tobacco duty?  Also why is the Scottish Government simply asking for this revenue to be assigned to it but not the power to vary duty rates or control over the underlying law?  I suspect that this “request” will receive the same reaction from the UK Government as the call for control of corporation tax and the Crown Estate.

More interesting was the call from a group of newly elected Tory MPs for the Scottish Parliament to have full tax raising powers in a book billed as the way forward for the Conservative Party.

Mixed news for Northern Ireland on fiscal powers this week.  Looks as if it will be given some Air Passenger Duty powers but that the devolving of some restricted powers over corporation tax will be at best delayed.

Few surprises at the Tory conference.   George Osborne confirms the English Council tax freeze and that there will be no temporary tax cuts.  This almost certainly means no change to the 50p rate of income tax or VAT.   The Tories also confirmed their opposition to a European Union financial transactions tax.  Iain Duncan Smith did though go off message when he called for breaks for the poor and married couples.

Outer House case considering the interpretation of missives between two builders for the sale of land at Broomhouse in Glasgow.

The land was to be sold by Bellway to Persimmon for £4.16m. Bellway were to undertake works before the sale and the date of entry was tied to Bellway’s completion of the sellers works (which involved the upgrading of a road and construction of a roundabout).

Condition 10 of the missives made provision for completion of the works and included a longstop date of 15 December 2007. Condition 12 of the missives also related to the long stop date and provided:

“In the event that the Seller has failed to Complete all of the Seller’s Works or the Seller has not fully implemented the Seller’s Obligations by the Long Stop Date as such date may be extended in terms of Condition 10(a) hereof then the Seller will be obliged to offer to sell to the Purchaser another residential development site within Central Scotland of comparable size and value to the Subjects. Upon settlement of the transaction contemplated by the missives in respect of the said other residential development site the missives to follow hereon (of which this offer forms part) shall be terminated”.

 Bellway failed to complete the works by the longstop date and wrote to Persimmon offering to sell a site in Airdrie to them instead. Persimmon sought damages for breach of contract.

There were two questions for the court:

(1)   Whether the requirement for Bellway to offer an alternative site to Persimmon was the only remedy available to Persimmon in the event Bellway failed to meet the longstop date or whether Persimmon were also entitled damages for breach of contact.

(2)   Whether condition 12 had in fact been breached by Bellway.

The remedies available to Persimmon

Persimmon argued that when Bellway failed to fulfil the obligation contained in condition 10 by the long stop date they were in breach of contract and the existence of Condition 12 was irrelevant to that.

However, Lord Glennie took the view that Bellway were not in breach of contract at this stage. Although the right to damages for breach of contract is an important right which can only be taken away by clear provision to the contrary, Bellway were not arguing that the provisions of condition 12 were an alternative to damages for non-performance of the contract. Instead, they were arguing that breach of Bellway’s obligation under Condition 10 gave rise to a further obligation under Condition 12 to offer an alternative site. If the alternative site were not offered then, at that stage, a breach of contract would occur giving rise to damages.

If the contract were construed in the manner suggested by Persimmon condition 12 would amount to an option exercisable by them. If that was what was intended it was difficult to understand why it was not expressed as such. That damages would not be available unless there was a failure to provide an alternative site, was further supported by the commercial background to the contract. What Persimmon wanted was an alternative site for development to enable them to deploy their resources efficiently. That could best be satisfied by the provision of an equivalent site if the Broomhouse site was unavailable. Thus the obligation to provide an alternative site was an essential feature of the structure of the contract and it was only if that obligation were breached that the right to rescind and claim damages arose.

Breach of Condition 12

The next question was whether the offer of the site at Airdrie was sufficient to satisfy the requirements of Condition 12. Lord Glennie found that it was not. Whilst, the Airdrie site was (taking a broad view) of comparable size (the difference in gross areas was 6.07% and the difference in net developable areas was 13.4%), it was not of comparable value. After considerable discussion as to the method of valuation to be applied, Lord Glennie found that the value of the Broomhouse site was 17% higher than that of Airdrie and, as such, the sites were not of comparable value within the meaning of Condition 12.

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.

For those interested in the Scotland Bill I would recommend that you look out for coverage of the evidence given to the Scotland Bill committee by Martin Sime of the SCVO.

The premise of the evidence is that the Scotland Bill will be irrelevant before it is implemented.  I have blogged on this issue before but from a tax perspective.

The Scotland Bill includes an income tax proposal that is overly complicated.  In addition the Scotland Bill fails to link up devolved responsibilities such as the environment with associated environmental taxes.  Or health and alcohol and tobacco duties.  Or succession law and inheritance tax.  Or giving OSCR sole responsibility for charity registration.  Devolving these and other similar taxes and duties, and certain specific tax powers, would have given the Scottish Parliament a greater number and more wide-ranging set of economic levers.   It would also simplify government both in Scotland and the rest of the UK.

More information on the evidence to be given by SCVO can be found here.

The Scottish Government has published its proposals for a new national mental health strategy.   The poposals seek to improve mental health services and in particular the Scottish Government are looking for views on the direction of travel for the next 4 years.

The consultation can be found here.

No shortage of matters to blog about this week.

I think I will start with Edinburgh and in particular the City of Edinburgh Council.  Last week a “hotel bed” tax was proposed by Jenny Dawe leader of the Council.  This idea has been recycled a number of times over the last few years.  This week she proposed a voluntary “festival ticket” tax.  Clearly the Council are turning their minds to how they might meet any future funding shortfall.  Not yet clear if this is just kite flying by Councillor Dawe or whether there is serious support for one or both of these ideas.  I do though like the fact that a local politician is willing to enter into this sort of debate.

Moving on to the Scottish Parliament and John Swinney’s latest Spending Review.  Business rates have dominated the coverage of the Spending Review.  There has been a public debate. For debate read “slanging match”, between the Scottish Government and the “Centre for Public Policy and the Regions” over how much business rates revenue is going to increase over the next few years and also what the causes of this increase will be.    This debate has surprisingly overshadowed the proposal for a new “public health levy” on the business rates of large alcohol and tobacco retailers.

Interested to see that Ken Macintosh, one of candidates for the leadership of the Scottish Labour party – and yes I can name the other candidates as well – says if elected and if he wins the next Scottish General Election he would cut the Scottish rate of income tax.  Not that we have a Scottish rate of income tax yet and it is not even certain that the Scottish Government will accept the income tax proposals contained in the Scotland Bill.  Nonetheless this is a welcome sign that that the Labour party in Scotland are joining the fiscal powers debate.

More evidence has been given this week on the Scotland Bill.  As noted by a number of commentators this week we are in the position that very few people seem happy with the fiscal and tax provisions as proposed.  Numerous questions remain over the income tax proposals.  Some minor taxes recommended for devolving by the Calman Commission have not even been included in the Bill.  One of these, Air Passenger Duty, is to be devolved to Northern Ireland.  A pattern does appear to be forming here.  Borrowing powers, corporation tax and now Air Passenger Duty.

The UK Government is unhappy with the Scottish Government.  The Scottish Government is unhappy with the UK Government and in particular the UK Treasury.  No side seems to be acknowledging how complicated all of this is.   This has “it is going to end in tears” written all over it.  I still don’t understand why so much energy is being wasted on income tax and corporation tax when there are numerous other taxes which would be much easier to devolve.  These taxes even if a majority were devolved would not provide as much revenue as income tax but would provide a greater number and a more wide-ranging set of economic levers for the Scottish Parliament.  Still I am sure our politicians know what they are doing.

One suggestion.  There are going to be two new Scottish taxes: Stamp Duty Land Tax and aggregates levy.  Can I suggest that the Scottish Government involves the Scottish Law Commission in the drafting of the legislation of these taxes.  Two reasons.  Firstly the expertise, experience and reputation of this body is second to none.  In addition, as more taxes are likely to be devolved, this will ensure that we start the job of creating an expert group going forward.  The recent Scottish Government paper on Corporation Tax shows just how much work requires to be done before such taxes can be devolved.

Now to Liverpool and the Labour party conference this week.  Ed Balls renewed his call for a cut in VAT and in particular a reduction to 5% for VAT on building repairs and renovations to residential property.   I have previously blogged on the Scottish campaign for a 5% VAT rate for repairs and renovations and in particular on the fact that the Isle of Man has already negotiated such a reduction with the UK Treasury.

Let’s not forget Europe in these troubled times.  The European Commission has now formally called for a new tax on financial transactions amongst EU members.  Note EU members not Euro members.  The UK Government has made its opposition clear to this proposal and in particular on the ground that it would primarily be a “London tax”.  Not yet seen or heard what the Scottish Government think of this proposal.

I wonder if the European Commission’s proposal will be mentioned at the UK Conservative party conference.

Glad to see that the Scottish Government are prioritising the integration of our health and care services as recommended by the Christie Commission.

This is from the Scottish Government’s response to the Christie Commission:

“Renewing Adult Health & Social Care

The Scottish Government is committed to the introduction of an integrated system of health and social care to ensure that older people continue to receive the care, compassion, support and dignity they need and deserve.

Strong evidence suggests that better outcomes for people, better use of resources (money and people’s time) and better experience of care and support can all flow from services that are planned and delivered in an effectively integrated way.

Over the next 20 years demography alone could increase expenditure on health and social care by 70 per cent. Reform is necessary to help address this unprecedented challenge.”

The paper “Renewing Scotland’s Public Services – Priorities for reform in response to the Christie Commission” can be found here.  Watch out for the “public sector speak”.

Interesting article in the Scotland on Sunday on HMRC’s power to inspect the tax records of small businesses.

HMRC has confirmed that it is proceeding with its programme to inspect the tax records of small businesses despite facing a barrage of criticism since a pilot was first announced in March.

The article questions whether HMRC has the power to impose a fine of up to £3,000 if  the tax records of a small business are not up to date.

I agree with the comment by Colin Borland of the Federation of Small Businesses in Scotland: “If businesses received guidance rather than fines the checks could be a positive move, but in their current form they were creating alarm among many small business.”

The article can be found here.

Yesterday saw John Swinney, Scotland’s Finance Secretary, give his first Spending Review (for Spending Review think Budget) of the first term of the new Scottish Parliament.  John Swinney made a number of tax related announcements.

The announcement that made most of the headlines was the proposal for a new public health levy.  A choice of words to be followed depending it seems on whether you agree with the proposal.  This proposal is similar to the proposal in the last Scottish Parliament that was dubbed “tesco tax”.  That proposal failed as the then Scottish Government did not have a majority.   That is of course not an issue for the present Scottish Government.   The levy will be a business rates supplement paid by large retailers of both tobacco and alcohol from April 2012.

Although not given as much publicity as the above levy, Mr Swinney also confirmed funding for the freezing of the Council Tax for the next 5 years.  It will be interesting to see how Scotland’s local authorities react to this policy in the months leading up to next May’s local elections.

A proposal that has received less attention, but nonetheless and in its own way may be just as important as the other proposals, is the commitment to introduce legislation to reform “empty property relief” from April 2013.  The aim is to support regeneration and introduce incentives to reduce empty shops in town centres.

The top rate of income tax debate continues with the first sign that the Liberal Democrats are not at one on this issue.  David Laws, former Chief Secretary to the UK Treasury albeit a short lived one, said that he saw the 50p top rate as a temporary measure.  That is the position being taken by most Conservatives on this issue.

Some good news for those proposing a fuel duty discount.  On Wednesday the UK Government said that the European Commission had agreed that rates of taxation on petrol and diesel could be reduced as proposed.   The scheme will cover the Inner and Outer Hebrides, the Northern Isles, islands in the Clyde and the Isles of Scilly.  No date has yet been set for the commencement of this scheme.  An interesting story from the BBC on reaction to this announcement can be found here.

I read with great interest of how the ex-boss of Marks and Spencer Sir Stuart Rose has said in an interview that he would be prepared to pay more than the current top rate of tax.  This follows similar statements by business leaders in other countries including France, Italy and the USA and including billionaire investor Warren Buffett.  Indeed a proposal by President Obama to increase taxes on America’s wealthiest have been dubbed the “Buffet Rule”.  I wonder how many others will follow the position taken by Sir Stuart Rose.

Inner House case in which Penny Uprichard challenged a decision of the Scottish Ministers to approve the Fife Structure Plan 2006-2026 with Final Modifications dated May 2009.

The Fife Structure Plan includes provision for a significant expansion of St Andrews with a view to making the town an ‘economic driver’ for Fife. The Council submitted a report containing modifications to the Structure Plan[1] and, after considering the Structure Plan and the Council’s modifications, the Scottish Ministers issued the Finalised Fife Structure Plan incorporating Scottish Government modifications for consultation. Ms Uprichard objected to the modifications to the Structure Plan as they did not reverse the plans for the expansion of St Andrews. However, the Scottish Ministers then approved the Structure Plan as modified and published a document[2] (the May Document) containing the reasons certain modifications had been made and other proposed modifications had not been made. 

Ms Uprichard challenged that approval and concentrated her argument on an objection to the effect that assessments had shown St Andrews to be at its landscape capacity. The reason given for rejection of that objection (in the May Document) was that a study[3] had shown that there was some scope for development to the west of St Andrews. Ms Uprichard argued that that was insufficient reason for rejecting the objection contending that the site to the west of St Andrews was insufficient to accommodate development on the scale envisaged in the Structure Plan. She claimed that it was for the Scottish Ministers to give a reason for proposing development to the west of St Andrews that was beyond the land available.

The Inner House refused Ms Uprichard’s reclaiming motion finding that, although her objection was described as being purely a landscape objection founded on the alleged inadequacy of the landscape capacity of St Andrews for the proposed level of development, it was in fact a root and branch objection to the fundamental aims of the Structure Plan so far as they affect St Andrews. As such it was directed against the strategic land allocation to the west of St Andrews and the identification of St Andrews as an economic driver for Fife.

The court found that there was a wealth of material entitling the Scottish Ministers to conclude that St Andrews West should be one of the strategic land allocations that were a key element in the Structure Plan. The question of landscape capacity was taken into account but did not outweigh other wider considerations that were inherent in the adoption of the overall Structure Plan strategy.

The reasoned justification that Fife Council had offered for its policy for the growth of St Andrews as an ‘economic driver’ for Fife had been constant throughout the Structure Plan. Reading the May Document in its entirety, the Scottish Ministers had given due consideration to both that justification and to the objections of Ms Uprichard and had decided in favour of the justification. Their acceptance of the Council’s justification was a clear and adequate answer to Ms Uprichard’s objection.

The Lord Justice Clerk (Gill) also made the following comments:

“In a case where the adequacy of reasons is challenged, the court should consider whether the informed reader would understand the basis for the decision complained of. The reasons must be intelligible and must deal with the substantive points that have been raised; but in my opinion it is important to begin by considering the nature of the decision that is complained against and the context in which it has been made. In a case of this kind it is also important to assess the adequacy of the reasons on the basis that they are addressed to persons who are familiar with the background and the issues.”

The full judgement is available from Scottish Courts here.

(See appeal to the Supreme Court here.)

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

Two new beer duties are to be introduced by the UK Government from 1 October 2011.

More information can be found here.