Latest Rates of Inflation and Interest
The following are the current rates at February 2014
Current Rates February 2014
Retail Price Index: January 2014 252.6
Inflation Rate: January 2014 2.8%
Indexation factor from March 1982:
to April 1998
to December 2013
to January 2014
Not yet published
Interest on overdue tax
Interest on all unpaid tax is charged at the same rate.
The formula is Bank base rate plus 2.5% which gives a present rate of 3%.
There is one exception: Quarterly instalments of corporation tax bear interest at only 1.5%.
Interest on all overpaid tax is payable at the same rate.
The formula is Bank base rate minus 1% but with an overriding minimum of 0.5% which applies at the
Official rate of interest
To 6 April 2014: 4%
From 6 April 2014: 3.25%39 Offices in 19 Countries 4 squiresanders.com
Marketed Tax Schemes
HMRC are pulling out all the stops against anybody who promotes (or participates in) marketed tax
schemes. Of course one can have sympathy for their point of view - but there is a real danger here of
overkill with a risk of a serious loss of public support if they go too far. Let us hope that there is
somebody in HMRC who understands that public support comes not only from dealing appropriately
with people who cheat and those whose avoidance arrangements are unacceptably aggressive, but
also from being sympathetic to the vast majority of taxpayers who are honest and trying to deal with
their tax affairs properly. Assuming that everybody is fiddling their taxes is the best way to ensure that
they end up doing so.
Some new rules are going to be introduced soon for dealing with marketed tax schemes. They are set
out in a consultation document published in January and although there are bound to be some
revisions, the fact that the draft clauses are already published indicates that the appetite for
amendment will be very small.
There are a number of themes. The first relates to when the disputed tax should be paid. The
document does not start well with the statement that:
"There is no inherent presumption that the tax should remain with the taxpayer during a
Er, actually there is. There is an inherent presumption that the state does not have the right to take
away your money before they have established any right to it.
Actually, the proposals aren't (quite) as bad as that - but expressing them in this way at the front of the
document exposes their cultural approach extremely clearly.
What is proposed is that if there is a decision in favour of HMRC in another case which is the same as
(or very similar) to your case, you should pay the tax because they have established reasonable
grounds for their view. On the basis that marketed tax schemes are likely to have a number of features
which are identical, there is clearly some sense here. However, they are not all the same, they may
have been implemented differently and the result of one case may have no representative quality at all.
One might say that is just a casualty of a broad brush approach. However the unreasonableness is
revealed when we learn that it is HMRC who decides whether the cases are similar - and there is to be
no right of appeal.
The idea is to prevent any cashflow advantage being obtained by the taxpayer by entering into a tax
scheme which will take years to come to Court. That is not fair says HMRC. OK - one can understand
that. However, what HMRC suggest is that they have the money instead so that they get the cashflow
advantage. So a course of action is unfair if it is undertaken by the taxpayer - but it is entirely
reasonable if it is undertaken by HMRC. This approach is unlikely to be helpful if HMRC are serious
about their relationship with taxpayers generally.
Unfortunately, it gets worse. This requirement to pay the tax up front will also apply to taxpayers whose
arrangements have not even been challenged by HMRC. If they are in the DOTAS regime then they
will have to pay the tax upfront. This is seriously over the top. The DOTAS regime is merely the
provision of information carrying no implication that the arrangements may be ineffective. Nobody will
now make a precautionary DOTAS report just to be on the safe side, if they will be penalised for their39 Offices in 19 Countries 5 squiresanders.com
candour and caution. That must be seriously counter productive.
Oh no - it is not finished yet. Promoters of tax schemes are in for a seriously hard time from HMRC
and the relevant black list can extend to any number of professional advisers on the periphery who are
instructed by clients to help. It would perhaps be kind to say that those who think this is a good idea
are likely to be in the minority.
Let us hope that somebody with some common sense realises that some serious amendment is
required to these proposals.
CGT : Enhancement Expenditure
The Tribunal recently had occasion to consider the meaning of enhancement expenditure for capital
gains tax purposes under Section 38(1)(b) TCGA 1992 in the case of Blackwell v HMRC TC 3243.
At the risk of oversimplifying things, Mr Blackwell was proposing to sell shares in his family company.
He entered into certain agreements regarding the possible sale of his shares but a little while later a
third party appeared who offered him a great deal more. This placed him in difficulty in respect of the
earlier agreements. So he ended up making a payment of £17.5 million to get out of the earlier
agreements so that he could accept the higher offer for the shares. In computing the capital gain on
the sale of his shares he claimed a deduction for the £17.5 million which had put him in a position to
proceed with the sale.
Instinctively one feels that a deduction should be permitted for this expenditure, but the terms of
Section 38 are not helpfully worded for this circumstance. To be entitled to relief he had to show that
the expenditure was incurred on the asset
"for the purpose of enhancing the value of the asset, being expenditure reflected in the
state or nature of the asset at the time of disposal".
Mr Blackwell believed (with good reason) that the expenditure would enhance the value of his shares
because it would enable the higher bid to be accepted. However, it is not enough just for the
expenditure to enhance the value of the asset; it is necessary for the expenditure to be reflected in the
state or nature of the asset. HMRC argued that there was no change in the state or nature of the
shares: they were merely able to be sold at a higher price. Furthermore, the payment was actually to
release Mr Blackwell from various undertakings and was not expenditure on the shares at all.
However, the Tribunal decided that the expenditure was incurred on the shares in the sense that it was
incurred in respect of the shares and for the purpose of enhancing their value. The Tribunal also
concluded that the state of the shares was different by reason of the payment because having been
released from his obligations, Mr Blackwell became free to vote as he wished without risk of litigation
for breach of contract.
I imagine that there will be a number of people finding it difficult to follow this reasoning and will
conclude that it is only the brilliance of counsel for the taxpayer which enabled the Tribunal to come to
such a conclusion.39 Offices in 19 Countries 6 squiresanders.com
One could understand if the decision had been made (as counsel for the taxpayer urged) on the basis
of a purposive construction of the legislation. This would have been welcome because such purposive
constructions in the taxpayer's favour are few and far between. However, the Tribunal expressly
stated that a purposive interpretation was not possible in this case - although many may feel that this
was exactly the position.
IHT : Business Property Relief
There is yet another case concerning business property relief on property letting and management :
John Best v HMRC TC 3217. The question was whether a company providing business property
letting and management services was excluded from business property relief by Section 105(3) IHTA
"The business carried on by the company consists wholly or mainly of one or more of the
following, that is to say, dealing in securities, stocks or shares, land or buildings or
making or holding investments."
There are many cases on this subject involving the letting of property and what mattered here was
whether the additional services provided were merely incidental to the business of holding property as
an investment or whether they took the activity beyond the business of merely making or holding
investments. In this case, the company did provide various additional services - but not enough to
make the difference.
I think the arguments on this point have probably run their course - and no matter how extensive the
services, it seems impossible to have a property letting business categorised as anything other than
Another aspect has also become pretty clear - that a business for inheritance tax and a business for
capital gains tax are not the same thing at all.
No reference was made to the case of Elizabeth Moyne Ramsay v HMRC  UKUT 0226 where
Mrs Ramsay had a number of let bungalows and provided rather fewer services than in the case of
John Best but the Upper Tribunal found that this was a business for capital gains tax purposes entitling
her to various reliefs.
This was of course a capital gains tax (and not an inheritance tax) case, but as "business" is not
defined in either the inheritance tax or capital gains tax legislation one might have thought it could
mean broadly the same thing. Clearly not.
For the moment, the inheritance tax position is in complete conflict with the position for capital gains tax
and I guess will remain so unless and until they are reconciled by the Court of Appeal.39 Offices in 19 Countries 7 squiresanders.com
The Annual Tax on Enveloped Dwellings has quietened down a bit with most people affected by this
new tax having decided whether to pay the tax or de-envelope their properties.
I don't suppose it will be very welcome to mention that the ATED return for 2014/15 must be submitted
by 30 April 2014 and the tax paid at the same time.
It should also be remembered that where the property is eligible for a relief - for example because it is
let commercially to an unconnected third party, you still have to submit the form and claim the relief,
even if there is no tax payable.
It will be even less welcome to be reminded that for 2014/15 the charge will be increased in line with
the CPI. The figures have not been published yet but it looks like they will be increased by 2.7%. By
my calculation the £15,000 will go up to £15,400 and the £35,000 will go up to nearly £36,000 and so
CGT : Entrepreneurs Relief : Cessation of Trade
The recent case of Jeremy Rice v HMRC TC 3273 was concerned with entrepreneurs' relief and
whether it applied to Mr Rice on the disposal of a business asset. However, the point at issue did not
really have much to do with entrepreneurs' relief at all; the case was all about the meaning of ceasing
Mr Rice carried on a trade of selling used cars. He also owned the premises. He stopped using the
premises for his business and started to sell cars on the site adjoining his home. He later sold the
original premises. The gain on this sale would only qualify for entrepreneurs' relief if it was an
associated disposal under Section 169I TCGA 1992 - that is to say the premises were sold within 3
years of the business ceasing to be carried on.
The question was whether when Mr Rice moved his business from the original site to the site adjoining
his home, that was the cessation of a business and the commencement of a new one. If so, he would
be entitled to entrepreneurs' relief. If the business was continuing there would be no cessation of the
trade and no entitlement to entrepreneurs' relief for an associated disposal. (I suppose there would
have been the opportunity for rollover relief under Section 152 TCGA 1992, but that does not look like it
was of much use to Mr Rice.)
HMRC argued that there was no cessation of the trade. They said that Mr Rice continued to carry on
the trade of selling used cars and all he did was to change the location where the trade was carried on.
He was selling used cars before the move; he was selling used cars after the move so how could he
say the trade had ceased.
The Tribunal took a much more sympathetic view and pointed to a number of differences between the
activities carried on at the different locations, the different type of cars sold in the two locations and that39 Offices in 19 Countries 8 squiresanders.com
the number of cars he had in stock was greatly reduced. The old premises were clearly trading
premises with a forecourt and signs which encouraged passing trade whereas the replacement
premises were much more discreet and were not obviously trading premises with much business being
done on line. The Tribunal concluded that the differences in the way in which the activities were
carried on (as well as their locations) meant that there was a cessation of one trade and the
commencement of another.
It is a bit odd that no reference was made in the judgment to Section 712 CTA 2010. It is well known
that losses of a trade can be carried forward against the profits of the same trade - not against the
profits of a new trade. Section 712 provides that even profits of the same trade cannot be carried
forward if there has been a major change in the nature or conduct of the trade. This means:
(a) A major change in the type of property dealt in, or services or facilities provided in the trade; or
(b) A major change in customers, outlets or markets of the trade.
This provision was considered by the Court of Appeal in Willis v Peeters Picture Frames Limited 
STC 453 where the company had sold its products direct to customers, mainly wholesalers and later
did so through distribution companies. That was not even regarded as a major change in the nature or
conduct of the trade - still less a cessation of the trade. Having regard to the clear statutory recognition
that a trade continues despite (by the look of it) all the elements which occurred in the case of Mr Rice,
one might wonder how these decisions can be reconciled.
Just in case anybody has not noticed, the official rate (which applies for beneficial loans, pre-owned
assets, and sometimes for the attribution of trust gains) is being reduced to 3.25% on 6 April 2014.
It is perhaps about time. Certainly Mr Curtis will think so having regard to the recent decision in Curtis
v HMRC TC 3303. Mr Curtis was employed by RBS and borrowed money from NatWest (part of the
same group) for a house purchase. At the time he took out the loan the NatWest base rate was 5%
and he paid interest at 0.44% over base.
However, during 2009/10, the NatWest base rate was 0.5% so Mr Curtis paid interest at 0.94%. This
was rather lower than the 4% specified as the official rate in respect of employee related loans in
Section 175 ITEPA 2003. It was therefore a cheap loan and HMRC therefore charged him to tax on a
benefit in kind.
Mr Curtis complained that this was unreasonable because a loan at 4% would be wholly uncommercial
being miles higher than the market interest on such a mortgage. Unfortunately, Section 175 and the
related provisions are not concerned with any considerations relating to commerciality or the market. If
the rate of interest charged was less than 4%, it represents a cheap loan and that is the end of it.
Mr Curtis sought exemption from this charge under Section 176 which provides that a loan on ordinary
commercial terms is not a taxable cheap loan. Mr Curtis argued that the loan was from a bank whose
business was the lending of money and this loan was on the same terms as comparable loans
generally made by Nat West to members of the public.39 Offices in 19 Countries 9 squiresanders.com
Unfortunately, this could not be sustained. The evidence showed that NatWest were unlikely to make
loans available to others at the same rates as applied to his loan. Furthermore, Mr Curtis did not pay
an arrangement fee for his loan whereas NatWest were unlikely to have lent to a member of the public
without such a fee.
Although the position will be improved by the reduction in the official rate, it will be impossible for an
employer to provide loan facilities to an employee without giving him a tax penalty. Not an ideal way of
generating employee goodwill. The rate they would have to charge is very much higher than would be
obtainable from a high street bank. Although the employee may wonder why he should suffer a tax
charge by having a loan at exactly the same interest rate as would apply to a loan from a high street
bank, that is the position - and will remain so until interest rates rise sufficiently to eliminate this
The Tribunal recognised that this unfairness resulted from the legislation losing touch with reality but it
was not in their power to provide any relief.