Tax Update Bulletin - July 2007

1. Accommodation Agreement

H M Revenue & Customs have agreed to enter into a local negotiated agreement with the hotel trade and their representatives, in connection with own board, accommodation and lodgings adjustments, which can be made rather than restricting expense claims for private use in business accounts.

2. VAT Registration

H M Revenue & Customs have admitted that they are experiencing delays in processing VAT registration forms. This has been going on for some months and currently (17 July 2007) applications were averaging 38 days to be processed. It is not possible for a trader to issue VAT invoices without a VAT number, but they need to remember to include in their amount charged to customers an amount for VAT, from the date that they should have been registered. Once they become registered and receive a VAT number, then proper VAT invoices can be sent out to customers and the VAT on that paid over in the usual way to H M Revenue & Customs, whilst the customer can consider reclaiming VAT if they are a VAT registered business. This is obviously not an ideal situation, but H M Revenue & Customs have apologised for the delays.

3. Employer Verification Service

H M Revenue & Customs offer an employer verification service, to check entitlement to work for individuals coming in to the U.K. if an employer is unsure. This is worth using.

4. Fuel Rates

From 1 August 2007 new advisory H M Revenue & Customs fuel rates to be used where fuel only is paid to employees, in cases where cars are already provided by the employer, but not the fuel. This is the second time these have been changed; the last time was 1 March 2007. If these rates are used then there are no deductions of Tax or NIC on these to the employee. The revised rates per mile, from 1 August 2007 are:

C.C.                   Petrol           Diesel           LPG

1400 or less       10p                10p               6p
1401-2000          13p                10p               8p
2001 or more     18p                13p             10p

5. Benefit in Kind

From 17 July 2007, H M Revenue & Customs will release draft legislation to exempt from benefit in kind rules, properties brought abroad through local country companies. Currently the situation is that if you are a director of those companies, you could have a benefit in kind on the accommodation provided to you, even though the company was abroad, under normal legislation.

6. Fraudulent Documents

There are a number of fraudulent documents in circulation purporting to come from H M Revenue & Customs in attempts to extract funds from taxpayers. It is recommended that you check with us if we act for you, or your accountant, to ensure that any documents are genuine before making any payments or corresponding in that connection if you are unsure.

7. Settlements Legislation

On 25 July 2007, the House of Lords found in favour of the taxpayers in the case of Jones V Garnett, as the judges rejected H M Revenue & Customs appeal to tax a husband on the dividends paid to his wife from their company ‘Arctic Systems Ltd’ using existing settlements legislation. The case has been running for four years and should remove H M Revenue & Customs ability to collect tax over the last six years on taxpayers in similar circumstances.

However following this decision, a written ministerial statement was issued by the Exchequer’s Secretary to the Treasury on 26 July 2007, announcing their intention to legislate against non commercial arrangements to divert income to others, which is, in substance, their own, in order to minimise their tax liabilities. The Treasury views this as unfair as it increases the tax burden of others and creates a competitive business disadvantage. The tax profession are urging caution to the government and have asked that they fully consult on the matter before creating new legislation as a response to the decision going against them.