Tax specialist at accountancy firm, Baker Tilly, has penned his weekly round-up detailing significant changes or developments in the world of commercial and private taxation.

By George Bull, Head of Tax, Baker Tilly

1. Morecambe unwise?

Colbert famously observed that the art of taxation is to pluck the goose in a way which produces the maximum amount of feathers with the minimum amount of hissing. In the case of the Budget Day increase in the supplementary tax levied on North Sea oil and gas production, the goose is fighting back with a vengeance. There are three grounds for its complaints.

First, nobody asked for the goose’s permission to be plucked. There was no consultation with the industry before the Budget Day announcement.

Second, two species of goose find their feathers threatened. The first species — oil producers in the North Sea — is defending itself vigorously but with rising oil prices and some compelling statistics from the government, is unlikely to prevail. However, the second species — gas producers, particularly Centrica in Morecombe Bay — has a stronger case. At current gas prices, Centrica plans to lay fewer golden eggs for the Exchequer by not reopening fields which have been closed for maintenance.

Both species of goose, however, are united in their final complaint: that their feathers are being wasted. While the Energy Secretary is arguing that the extra taxes raised are necessary to help repair the finances of the UK, the fact that the additional revenues have been diverted to winning electoral support through a reduction in pump prices (a reduction which may or may not have been passed on in full, but the effect has certainly been lost as a result of subsequent oil price increases) means that this is a hissing contest in which there will be no winners.

2. Will HMRC’s Swiss initiative bring in rolls of money or just crumbs?

While HMRC is likely to reach an arrangement with the Swiss banks and authorities to recover tax on Swiss bank accounts, the details are by no means clear. Furthermore, the precise form of the arrangement will bear on both the UK tax affairs of the depositors affected and HMRC’s relations with other “tax haven” countries, not least Liechtenstein.

It has been suggested that the arrangement will take the form of a payment from Switzerland to HMRC based on income earned on deposits in Switzerland, but that on its own would open up the possibility of penal additional taxation of UK residents whose affairs are already in order. Provision will be required to ensure that UK taxpayers who have declared their Swiss income to HMRC either:
• are not subjected to deduction under the scheme; or
• can claim credit for the tax the Swiss deduct.

It would be reasonable to expect that UK-resident depositors should be exempted from deduction if they satisfy the Swiss authorities that their income has been assessed correctly (or is not assessable in the case of, for example, non-domiciliaries using the remittance basis).

For other depositors Switzerland need not tell HMRC anything but instead can provide them with statements confirming the amounts deducted.

However, this arrangement can at best be regarded as a catching-up exercise and can only apply to income that arose in Switzerland. The terms of previous offshore disclosure facilities, including those for Liechtenstein, have required complete disclosure of all undeclared income and gains. It is therefore not stretching the imagination to suspect that HMRC is likely to offer a wider facility to accompany the recently extended Liechtenstein disclosure facility.

At the same time Liechtenstein may be wondering if the disclosure facility allowed to its depositors was that generous after all and HMRC will need to be careful to maintain the goodwill, or at least the cooperation, of the Liechtenstein authorities in future too.

We look forward to seeing more detail of how the scheme is to operate and how it will interact with HMRC’s other initiatives.

3. VAT is not due on all supplies of temporary staff

Many organisations, particularly charities, nursing homes, care homes and registered social landlords will have been following the debate on whether VAT should be applied to the full value of costs of temporary staff provided by employment businesses, or whether VAT should be applied to the commission element only. Resolution of this issue is extremely important for these organisations as they cannot fully recover VAT on underlying costs.

But the more fundamental question is whether such organisations should be charged VAT on temporary workers at all?

For example, nursing agencies (or employment businesses that provide nurses, nursing auxiliaries, care assistants and other health professionals) may treat their supplies of temporary workers as exempt from VAT by special concession.

To qualify for this concession, the employment business must be registered with the appropriate regulatory body and, in the case of nursing auxiliaries / care assistants; they must undertake some direct form of medical care (e.g. administering drugs, taking blood pressure) for the final patient.

The issue then is for affected organisations to determine if their suppliers of temporary staff are registered with the regulatory body responsible for quality standards, and if so, is the temporary worker providing welfare services or some direct form of medical care for the final patient. If this is the case, the supply of staff should be exempt from VAT.

If organisations using temporary staff have been wrongly paying VAT, they may be due a repayment covering the last four years.

4. Why have I received a reminder for last year’s tax return when I know I’ve submitted it?

HMRC has issued personal tax return reminders to 40,000 taxpayers showing the wrong year. They are meant to refer to the latest returns, for the year ended 5 April 2011 but a processing error meant that the reminders refer to 2009/10 instead of 2010/11. Anyone who has received a return reminder purporting to relate to 2009/10 should check whether it is valid before taking action.

5. Corporation tax reminders take paper-saving too far

Another printing glitch has seen agents being sent copies of corporation tax statements where different, unrelated companies’ details are shown on the same sheet of paper. We have not heard of this occurring with anything other than agents’ copies but anyone receiving a statement showing an unexpected CT liability should check to make sure it relates to the right company.