The Budget, delivered by The Chancellor on 19 March 2014, contained little in the way of new
tax announcements of relevance to corporates that had not been previously trailed.
Much of the media focus has been on the sweeping changes to the personal pensions regime,
widely regarded as long overdue and (some might say) not surprising given the crucial role
older voters are likely to play in next year’s general election.
There was, however, some good news outside of the pensions sector. Business will welcome
the increase in the Annual Investment Allowance (AIA) cap from £250,000 to £500,000, for an
extended temporary period running to 31 December 2015. As the AIA provides a 100% allowance
for qualifying expenditure on plant and machinery, this double “gift” will be of benefit to small
and medium sized businesses.
Elsewhere, and despite the introduction last summer of the general anti-abuse rule, there was a
continued drive to tackle perceived tax avoidance.
One particular development worthy of mention is the proposed introduction (with
retrospective effect from 19 March 2014) of a new anti-avoidance rule to prevent the profits of
one group company being transferred to another, where the obtaining of a tax advantage is
a main reason for doing so. If the new legislation applies, the profit transfer will be ignored in
computing the transferor company’s taxable profits.
Although this new rule is packaged as a response to marketed schemes that have (according
to the Government) emerged since the announcement in last December’s Autumn Statement
of a specific anti-avoidance measure aimed at tax deductions claimed in respect of total return
swaps – on which, see below – the draft legislation and guidance published alongside the
Budget announcement suggests the latest new rule could have (much) wider application.
The guidance confirms that ordinary, commercial group reinsurance arrangements “would
not ordinarily” fall foul of the new rule, but that royalty arrangements might. No doubt further
clarification will be requested, as the only statutory “safe harbour” at present is the absence of a
tax avoidance motive.
Corporation tax – general
Trading, investment business and property business losses and change in
company ownership – relaxation of rules
The rules which disallow the carry forward of trading, investment and property business losses
where there is a change in company ownership are to be relaxed.
The rules, in Part 14 of Corporation Tax Act 2010, currently apply to disallow loss carry forward
1. within a three year period, there is both a change in ownership of the would-be loss claiming
company and (whether before, after, or at the same time) there is a major change in the
nature or conduct of the company’s trade; or
2. at any time after the scale of the activities of the company’s trade has become small or
negligible, but before any significant revival in the trade, there is a change in ownership.
The draft Finance Bill 2014 relaxes the effect of these rules, by providing that there will be no
“change in ownership” where:
• a new holding company (N) acquires all the issued share capital of the would-be loss claiming
• N possesses all voting power in C, is beneficially entitled to 100% of C’s profits available for
distribution and would be so entitled to 100% of C’s assets on winding up
• the only consideration for the acquisition of C is the issue by N of shares to C shareholders,
so that immediately after the acquisition there is equality, or at least near equality, of
shareholders (ie a share for share exchange)
In addition, the latest draft Finance Bill 2014 makes it clear that a “new” holding company can be
one that is preparing to carry on a trade or business. A change of ownership will also be ignored
for these purposes if it takes place by way of a Companies Act 2006 scheme of reconstruction
(or foreign equivalent) involving a share cancellation.
These changes will have retrospective effect for changes in ownership from 1 April 2014.
EU Commission approves UK video games tax relief
In April 2013, the European Commission announced that it was to investigate the UK’s proposed
tax relief for video games meeting certain cultural criteria. The Commission considered that,
unlike other creative sectors (high-end television and animation) the video games sector, as an
expanding industry, was not in need of such assistance (which could constitute state aid).
On 27 March 2014, it was announced that approval had been received from the Commission for
the video games tax relief to take effect, from 1 April 2014.
The rules of the relief will be modified so that relief will apply to all EEA expenditure (not just UK
expenditure). The relief enables companies to be eligible for a payable tax credit worth 25% of
qualifying production costs.
“White list” of investment transactions – Regulations made
On 17 March 2014 the Investment Transactions (Tax) Regulations 2014 were made.
The Regulations set out those transactions which give rise to income that will not be treated
as trading income for certain tax purposes. Specifically, such income will not be trading income
(and so will not be taxed as income) for authorised investment funds, exempt unauthorised unit
trusts, investment trusts and reporting offshore funds. Such income will also be sheltered from
UK tax if the “white list” transactions are carried out by an independent UK fund manager on
behalf of a non-UK resident, under the investment manager exemption.
The Regulations, which came into force on 8 April 2014, include as “investment transactions”
any transaction in “carbon emission trading products” (now defined as any transferable unit
relating to emissions of greenhouse gases, and no longer restricted to EU tradeable emissions
allowances and transferable credits under the Kyoto protocol) and any transaction in “rights
under a life insurance policy”. The Regulations therefore expand on the previous “white list”,
which comprised transactions in stocks and shares, loan relationships, units in collective
investment schemes, foreign currency, other transactions in certain securities, options,
futures and contracts for differences.
To view the Regulations, click here.
Marks & Spencer group relief litigation – the final word?
The Supreme Court, on 19 February 2014, gave its decision on the three remaining issues arising
out of the long-running Marks & Spencer (M&S) cross-border UK group relief litigation.
M&S had, over a decade ago, claimed UK group relief in respect of losses made by two of its
EU subsidiaries (in Germany and Belgium). The claim was denied by HMRC and spawned a series
Both HMRC and M&S had appealed the Court of Appeal’s (October 2011) decision. A first
Supreme Court decision, in May 2013, had considered the so-called “no possibilities” test,
and held that the test should be applied at the date of the claim for group relief (rather than,
as HMRC argued, the end of the accounting period in which the losses concerned crystallised).
The most recent Supreme Court decision considered the remaining issues. In summary, it held:
1. that M&S could make successive claims in relation to the same (overseas) loss;
2. that M&S’s “pay and file” claims were time barred; and
3. that losses should be computed using UK principles. Although local rules should determine
whether a loss exists in the first place (and the amount of such loss that is “unused’), UK rules
should then be used to ‘convert” the overseas loss into a UK equivalent loss.
This would seem to mark the end of a long-running battle. It only now remains to be seen
whether the UK’s group relief rules will be amended yet again.
Taxpayers who have submitted group relief claims should consider submitting new claims
(withdrawing previous claims) if still within the time limit for doing so and provided the
“no possibilities” test is satisfied.
To view the Supreme Court decision, click here.
Targeted anti-avoidance rule – using capital losses to reduce income profits
On 30 January 2014, draft legislation was published to amend the targeted anti-avoidance
rule (TAAR) preventing the use of capital losses against income profits. The measure, which
takes effect on the same date, is aimed at so-called “contrived” avoidance schemes involving
derivative contracts and other financial products.
The existing TAAR (i) prevented an income receipt being converted into a chargeable gain in
order to access capital losses, and (ii) prevented an income deduction arising in connection
with an accrued gain.
The amendments remove the requirement that, for the TAAR to bite, there must be a disposal.
To view the draft legislation, click here.
ECJ considers validity of deferred exit charge and related security
The European Court of Justice (ECJ) has held:
1. that the German corporate exit charge, which gives the taxpayer the ability to spread
payment of the charge over five years, is satisfactory and proportionate as a measure to
preserve the balanced allocation of taxation powers between member states; but
2. a member state cannot require a taxpayer to obtain a bank guarantee without first having
assessed the actual risk of the particular taxpayer not paying the exit charge.
The ECJ decision would appear to give support to the UK Government’s view that the UK’s new
exit charge is compliant with EU law. The new UK charge includes an option to pay the tax in
six annual instalments and security may only be sought by HMRC is there is “serious risk” of
Click here for the ECJ’s decision.
Avoidance using total return swaps: revised Finance Bill 2014 clauses
On 23 January 2014, revised draft Finance Bill 2014 clauses were published, which will deny
corporation tax deductions for payments under intra-group derivative contracts.
This measure was first announced as part of last December’s Autumn Statement. The Technical
Note published alongside the revised draft legislation states that the changes address concerns
that the original draft clauses were too wide in scope and would affect genuine commercial
There are undoubtedly aspects of the revised draft legislation that are welcome. There is now
an exclusion for “ordinary course” transactions involving derivatives, and the effect of the
total return swap must now be that “all or a significant part” of the profit must be transferred.
However, further guidance as to what HMRC regards as a “significant” part of profit, and as to
how HMRC intends to apply the anti-avoidance rule generally, would be helpful.
For the revised draft legislation and HMRC guidance, click here.
Consultation on bank levy “banding”
On 27 March 2014, HM Treasury launched a consultation on a new “banding” charging
mechanism for the UK bank levy.
The bank levy, which took effect from 1 January 2011, aims to both ensure that banks make
a “fair” contribution to the economy, and to encourage banks to move away from riskier
funding models. The rates at which the bank levy is charged have been repeatedly increased
since 2011, as the Government struggles to maintain its target receipts from the levy
(originally £2.5bn a year).
As proposed, banks would be allocated to bands according to their chargeable equity and
liabilities, and a set amount would be charged on banks in each band.
The aim therefore is to increase the predictability of the levy (with a fixed charge, rather
than a percentage charge on liabilities). The largest, and “riskiest”, banks would face the
Various features of the existing bank levy would be incorporated into the proposed new model
– for example, in order to retain the current allowance of £20bn, there would be a bottom band
attracting a zero charge.
Any greater predictability would be welcomed, given the constant increases in the rates of the
levy since 2011. However it is hard to imagine that any fixed charges would not be tampered
with, in the event of falling bank levy revenue.
Comments are invited by 8 May 2014, and any changes are expected to take effect for periods
beginning on or after 1 January 2015.
To view the consultation, click here
ECJ holds that an occupational defined contribution pension scheme can fall
within the scope of the VAT exemption for fund management
The ECJ has held that an occupational defined contribution pension scheme may constitute
a “special investment fund” for the purposes of the EC VAT Directive. That is, provided the
scheme is funded by members, the funds are invested with the principle of spreading risk,
and members bear the investment risk.
Schemes that bear these characteristics should therefore be entitled to claim the VAT
exemption on third party management fees.
To view the ECJ decision, click here.
2015 changes to VAT place of supply rules for broadcasting,
telecommunications and e-services
HMRC has published a note reminding taxpayers that the VAT place of supply rules for certain
services are to change on 1 January 2015.
From that date, the VAT place of supply rule for supplies of broadcasting, telecommunications
and e-services (BTE services) from business to consumer (ie to a private individual) will be such
that the supply is treated for VAT purposes as being made where the consumer is located.
Currently, such BTE services are treated as taking place for VAT purposes where the supplier
is located. This will require affected businesses to obtain additional information from
1 January 2015.
There is no change for businesses supplying BTE services to other businesses.
HMRC’s note gives examples of arrangements whereby a business making a supply directly to
a private consumer can make a presumption as to the location of the consumer. For example,
where the service is supplied via a mobile phone, the place of supply will follow the country
code of the SIM card.
The note also reminds affected taxpayers that, in order to reduce the administrative burden
of the new rules, they can take advantage of the new VAT Mini One Stop Shop online service
(MOSS) from 1 January 2015 (although registration will be available from October 2014).
Using the MOSS, EU businesses can register in their business establishment member state
(ie where their head office is) to submit a single VAT return and payment covering all BTE
supplies to consumers, to one member state.
Non-EU businesses can also use the MOSS service in any member state where they have a
“fixed establishment”. The MOSS removes the need for businesses to register in all member
states where they do business, as a result of the 2015 changes to the BTE place of supply rules.
To view HMRC’s note, click here.
HMRC withdraws policy on VAT treatment of defined benefit pension
management costs – response to PPG Holdings BV
On 3 February 2014 HMRC issued a Brief (06/14) that withdrew its existing policy as to the extent
to which an employer could deduct input VAT on costs incurred in relation to the management
of its defined benefit occupational pension funds.
The ECJ decision in PPG held that an employer that has set up a legally and financially separate
defined benefit pension fund can deduct input tax incurred on administration and fund
management services provided there is a direct and immediate link between those services and
the employer’s own supplies.
HMRC’s prior policy had been to make a distinction between costs incurred (i) in setting up,
and in the day to day administration of the pension fund, and (ii) in management of the fund’s
investment activities. Under HMRC’s prior policy, the former were VAT-deductible for the
employer (as overheads of the employer, with a direct and immediate link to the employer’s
business activities) the latter were not (as relating solely to the pension fund itself).
In cases where the employer is provided with a single invoice from a third party pension fund
manager for both administration and management services, HMRC’s prior policy was, “by way
of simplification”, to allow the employer to claim 30% of the VAT as relating to management
services, and to allow the pension fund itself to claim 70% of the VAT as relating to investment
With effect from 3 February, HMRC has now changed its policy.
Provided that the employer can demonstrate the requisite direct and immediate link between
the pension fund administration and management services and its own taxable supplies –
which, in HMRC’s view, means that the services must “go further than the management of the
investments” – the employer will no longer be prohibited from claiming input tax in respect of
such services. Whether the link is direct and immediate will depend on whether the cost of the
input services is incorporated in the price of the supplies made by the employer in the course of
However, input VAT will not be deductible by the employer where:
• the supplies were not made to the employer; and/or
• the supply is limited to investment management services only (ie it is not a combined supply
of administrative and management services)
As a transitional measure, an employer and pension fund may continue to adopt the 30/70 split
referred to above for a further six months from 3 February 2014.
Employers are invited to make claims for refunds of input VAT not previously claimed, on the
basis of HMRC’s prior policy (subject to the usual four year limitation period).
For Revenue & Customs Brief 06/14, click here.
For the ECJ’s decision in PPG, click here.
TOGC treatment on transfer of business into a VAT group denied
The First-tier Tribunal has held that transfer of a going concern (TOGC) treatment is
not available where a business is transferred to a member of a VAT group (not being the
representative member) that makes only intra-VAT group supplies. This is the first time that
the interaction between the TOGC and VAT group rules has been judicially considered.
As the UK VAT grouping rules work so that intra-VAT group supplies are disregarded,
the transferee in Intelligent Managed Services Ltd v HMRC was not treated as making any
supplies for VAT purposes, so that the business it acquired was deemed to have ceased.
Following this decision, transferees acquiring business solely with the intention of making
intra-VAT group supplies will need to consider carefully whether VAT on the transfer can
To view the Tribunal decision, click here.
Abolition of stamp taxes on securities traded on recognised growth markets:
On 17 March 2014, HMRC published revised guidance on the abolition of stamp duty and stamp
duty reserve tax (SDRT) on securities traded on “recognised growth markets” (which include
AIM and ISDX traded shares).
The guidance confirms that no substantive changes to the planned abolition are being made
following the consultation on the measure. The abolition will therefore take effect from
28 April 2014.
As a reminder, from this date there will be no stamp duty or SDRT on transfers of shares traded
on markets “recognised” by HMRC and where at least one of the following requirements is met:
1. the majority of companies on the particular market have market capitalisations of less than
2. the market’s admission rules require companies to demonstrate at least 20% compounded
annual growth in revenue or employment over the 3 financial years preceding admission.
To view the revised HMRC guidance, click here.
Abolition of stamp taxes on transfers of units in exchange traded funds –
On 13 February 2014, HMRC published draft regulations to abolish stamp duty and SDRT on
the transfer of units in exchange traded funds (ETFs). An ETF is an open-ended collective
investment scheme, which:
• is admitted to trading on a regulated market or a “multilateral trading facility”; and
• is authorised as a UCITS pursuant to Directive 2009/65/EC
The draft Regulations provide that:
1. transfers (or agreements to transfer) ETF units will be exempt from SDRT; and
2. instruments that transfer ETF units will not attract stamp duty.
Although there are currently no UK-domiciled ETFs, it is to be hoped, however, that the
changes (which take effect from April 2014) will boost the attractiveness of the UK as a home
To view the draft Regulations, click here
Enterprise Investment Scheme (EIS) relief not available for film and TV
On 12 March 2014 HMRC published a note on Enterprise Investment Scheme (EIS) and
Co-productions in Film and Television, to clarify the interaction of the above and, in particular,
the eligibility of co-productions to access EIS relief. HMRC notes that films and programmes
are often produced by means of co-production, with multiple producers being involved in
a project. Each producer is usually responsible for creation of a certain part of the film or
programme, with a majority producer usually responsible for collating those parts into the
finished product. The intellectual property created is normally jointly owned by the parties and
income shared between them, often in a ratio equivalent to their contribution.
In the past, HMRC has on occasion accepted that if a majority producer (ie creating in excess
of 50% of the production) receives royalties or licence fees then under section 195 Income
Tax 2007 (ITA) it is not conducting an excluded activity and thus eligible to be considered as
a qualifying company for EIS purposes.
However, HMRC notes that qualification for the EIS is dependent on section 183 ITA. This
requires that no part of the qualifying trade be carried on by a person other than the company
or a “qualifying 90% subsidiary”. In a co-production, because there is a single product produced
by the activities of multiple parties, section 183 is not satisfied and so the EIS does not apply.
To read the HMRC note, click here.
“Salaried members” of LLPs – revised Finance Bill 2014 clauses
On 7 March 2014, revised Finance Bill 2014 clauses were published, that will apply to “salaried
members” of LLPs from 6 April 2014.
The new “salaried members” rules have attracted much publicity since last summer’s
consultation and, according to press reports, are resulting in a significant increase in bank
lending activity as members of certain professional firms and other LLPs scramble to ensure
they have a sufficient capital contribution in the LLP by early July 2014 (the time allowed for
existing members to have finance arrangements put in place in order to meet the 25% capital
The revised draft legislation maintains that a member of an LLP will only be treated, for tax
purposes, as an employee (subject to tax and national insurance under the PAYE system) if:
1. he/she is in receipt of a “disguised salary”; and
2. he/she does not exert “significant influence” over the LLP; and
3. he/she has not made a sufficient “capital contribution” to the LLP.
Changes to the “disguised salary” and “capital contribution” conditions, first revealed in HMRC’s
updated guidance (see below), are now reflected in the draft legislation.
To view the revised legislation, click here.
“Salaried members” of LLPs – revised HMRC guidance
On 21 February 2014, HMRC published a revised technical note and guidance on the new LLP
“salaried members” anti-avoidance rules which takes effect from 6 April 2014.
The guidance considers each of the three conditions that must, under the new rules, be
satisfied, for an LLP member to be taxed as a “salaried member”. It also comments on the
targeted anti-avoidance rule (TAAR) that accompanies the new measure, and gives a number
of worked examples as to how the new rules will operate.
The guidance states that prior to businesses being able to access the planned formal clearance
procedure (not available under after the legislation receives Royal Assent in July 2014) the
guidance represents HMRC’s “informal” view of the new rules.
It is now confirmed that Condition A (disguised salary) will be met if it is reasonable to
expect that the LLP member will receive all, or “substantially” all, his or her remuneration as
“disguised salary” (ie fixed salary, or salary not affected/varied by reference to the LLP’s overall
profits/losses). “Substantially” for these purposes means, in HMRC’s view, at least 80% of the
As for Condition C (capital contribution), the guidance confirms what is not included as
“capital”. Excluded from the calculation are sums the individual may be required to pay in the
future, and amounts that are part of arrangements to ensure the member falls outside the new
measure (ie where the member does not bear any economic risk).
Importantly, on the TAAR, the guidance confirms that loans taken out by members to ensure
they have a sufficient capital contribution in the LLP at the relevant time (so as not to fall foul of
the new rule):
• are acceptable if provided by a third party bank; but
• will not be acceptable (meaning the TAAR will be triggered) if the loan is non- or
limited-recourse, if the LLP bears the cost of any interest, or if the LLP provides the funds
To view HMRC’s guidance, click here.
REITS legislation amended
On 6 March 2014 the Real Estate Investment Trust (Amendments to the Corporation Tax Act
2010 and Consequential Amendments) Regulations 2014 were made. The Regulations came into
force on 1 April 2014.
One of the changes to the REIT tax regime that the Regulations have made is that UK REITs
(and their overseas equivalents) now fall within the definition of an “institutional investor”.
This relaxes the “not a close company” REIT condition, and means that a would-be REIT can
meet the test for REIT status even if owned by another REIT.
To view the Regulations, click here.
FATCA-style intergovernmental agreements (Crown Dependencies and
Gibraltar) – regulations made
On 6 March 2014, regulations were made to implement the FATCA-style intergovernmental
agreements (IGAs) between the UK and the Crown Dependencies and Gibraltar. The
Regulations came into force on 31 March 2014.
To view the Regulations, click here.
HMRC’s FATCA guidance updated
On 28 February 2014, HMRC updated its guidance relating to the UK Regulations implementing
the UK-US FATCA IGA.
This guidance supersedes the earlier August 2013 version. Helpfully, the revised guidance
highlights the changes that have been made, and HMRC have committed to producing
stand-alone updates in the event of significant changes and (otherwise) updates every
To view the revised HMRC guidance, click here.
IRS issues final set of FATCA regulations
On 20 February 2014, the IRS and US Treasury Department published the final set of FATCA