Technical update, pt 2

UK

Taxation

S660A ICTA 1988 - the settlement provisions
Professional bodies, including ACCA, recently met with the Inland Revenue to discuss the application of the settlement provisions to husband and wife companies and various other company and partnership situations.

Tax credit success!
Dawn Primerola has welcomed new statistics which she says are 'further evidence of the huge success of the Child and Working Tax Credits'.

Inland Revenue preferential rights
The Enterprise Act, which came into effect on 15 September, abolished (amongst other things) the Inland Revenue's preferential claim to income tax - and Customs' claim to VAT - ahead of unsecured creditors.

Cross-border information on savings income
Draft regulations on the reporting of savings information have been published for comment by 28 November. They can be found on the Inland Revenue website at www.inlandrevenue.gov.uk/si/savings-inc-draft-regs-03.pdf.

Double taxation agreements
- A discussion is to take place on revisions to the agreement between the UK and Luxembourg.
- The annual review of agreements is taking place and representations concerning new treaties or amendments to existing ones should be sent to Jas Sahni, Inland Revenue Policy International, Victory House, 30-34 Kingsway, London WC2B 6ES no later than 12 December.
- Draft treaties with Australia and Chile have been published on the Inland Revenue website.

Schedule 22 FA 2003 - commencement provisions
An Inland Revenue press release gives the following dates:
- Chapters 2, 3 and 5 of Schedule 22 and new sections 698 and 700 are effective from 1 September.
l - Chapters 3A, 3B, 3C, 3D, 4 and 5 are effective from 16 April and the definition of readily convertible assets from 10 July.

New publications
The following new or revised booklets have been published:
- Film Industry Guidance Notes
- IHT 18, The Foreign Aspects of IHT
- CA 07, Late and Unpaid NI Contributions
- CA 16, Appropriate Personal Pension Schemes Manual
- IR 121, Income Tax and Pensioners
- IHT 4, Informal Calculations of Inheritance Tax.
All these documents can be viewed on the Inland Revenue website.

Business by telephone
Much Inland Revenue business is now done through designated contact centres which have high levels of security.
Non contact centres have only been able to deal with business by telephone when individual taxpayers have called on their own behalf. Non contact centres will now be allowed to do business by telephone with personal representatives where their identity and credentials can be verified and they hold written evidence of consent by the taxpayer.
The Inland Revenue will deal with the following matters by telephone:
- changes of names, address, postcode and telephone number
- changes in personal circumstances, such as marriage, separation and divorce
- other personal information, such as date of birth, NI number, etc
- details of employer and date of commencement
- works or payroll number
- details of earlier employments
- claims to personal allowance married couples allowance and blind persons allowance
- estimates of income for the purpose of age allowance
- claims for flat rate expenses
- claims for professional subscriptions up to £100
- repeat claims to certain travelling expenses
- notification of benefits in kind
- receipt of national insurance retirement pension
- receipts of taxable incapacity benefit
- small amounts of income, such as bank or building society, received gross.
The Inland Revenue will provide the following details over the telephone:
- payments made on account
- sums outstanding
- repayments awaiting issue, and
- amounts of unpaid tax for earlier years.
The range of business that can be dealt with through contact centres has also been expanded.
This is set out in full in SP 3/03 and supersedes the two statements made in 1988 which set out the position in relation to taxpayers and their agents.
Full details, including a list of contact centres, can be found on the Inland Revenue website.

Statutory instruments
The following statutory instruments have been made:
- the appointed day for the purpose of various research and development reliefs given by S168 FA 2003 has been fixed as 27 September (SI 2497/2003)
- The Income Tax (Employments) (Amendment) Regulations (SI 2494/2003) amend the PAYE regulations to allow mandatory electronic filing
- The Income Tax (Incentive Payments) for Voluntary Electronic Communication of PAYE Returns (SI 2495/2003) allows incentives to be given to employers who voluntarily file and of year PAYE Returns for the years 2004-05 to 2008-09 inclusive
- S196 and Sch.41 FA 2003, which refer to companies in administration, were brought into force on 15 September by SI 2093/2003
- SI 2096/2003 amends various references in ICTA 1988 and FA 2000 and 2001 to companies in administration to bring them into line with the Enterprise Act 2002 (Insolvency)
- The Tonnage Tax (Training Requirement) (Amendment) Regulations 2003 came into force on 1 October and increase the amounts payable in lieu of training (SI 2320/2003)
- The Social Security (Categorisation of Earners) (Amendment No.2) Regulations 2003 (SI 2420/2003) came into force on 13 October
- The Land Fill Tax (Amendment) (No. 2) Regulations 2003 (SI 2313/2003) came into force on 1 October
- The Child Tax Credits Act (Transitional Provisions) Order (SI 2170/2003) makes transitional provisions which apply for the period 22 August to 30 September to individuals over 60 who claim child tax credit. The claimant is deemed to have made a claim for child tax credit on 22 August in order to allow the Board of Inland Revenue to make a decision on the claim
- SI 2339/2003 clumsily entitled The Taxation of Benefits under Government Pilot Schemes (Return to Work Credit and Employment Retention and Advancement Schemes Order) exempts from income tax payments made under certain pilot schemes from 1 October
- SI 2172/2003 and SI 2173/2003 extend the definitions of investment transactions which are exempt from reporting requirements with effect from 12 September. The regulations apply to the UK representatives of non-resident persons
- SI 1874/2003 and SI 2340/2003 came into effect on 8 August and 1 October respectively. Both of these relate to workers engaged through intermediaries and bring the national insurance contribution requirements in line with the income tax position
- The Capital Allowances (Environmentally Beneficial Plant and Machinery) Order 2003 (SI 2076/2003) specifies plant and machinery that may qualify for 100% first-year allowances as from 1 September
- The Insurance Companies (Calculation of Profits: Policy Holders' Tax) Regulations 2003 (SI 2082/2003) makes provision for a deduction for tax expended on behalf of policyholders or annuitants from profits of an insurance company under Sch.D Case I. Effective from 1 September
- The Stamp Duty Reserve Tax (virt-x Exchange Limited) (Amendment) Regulations 2003 (SI 2078/2003) extend the existing exemptions from stamp duty reserve tax from 17 November
- The Children Act 1989, S17 (12) Regulations 2003 (SI 2077/2003) have been made to present circularity due to the interaction of tax credit and Children Act rules
- The Child Benefit and Guardian's Allowance (Administration) (Amendment No. 3) Regulations 2003 (SI 2107/2003) amend the Child Benefit and Guardian's Allowance (Administration) Regulations 2003 (SI 492/2003) from 3 September
- The Social Security Contributions (Intermediaries) (Amendment) Regulations 2003 (SI 2079/2003), remove the requirement that a worker performs services for the purpose of a business from 1 September
- The Social Security (Contributions) (Amendment No. 5) Regulations 2003 (SI 2085/2003) amend Social Security (Contributions) Regulations 2001 to take account of changes to the taxation of share-based earning and ITEPA 2003 from 1 September.

MF Freeman (Plant) Ltd v Jowett (HMIT)
In this case one company within a group purchased machinery and plant, which was then provided to another group member for an annual charge.
First year allowances were refused to the company which had acquired the machinery and plant on the grounds that the arrangement amounted to a letting for hire.
The special commissioner found for the Inland Revenue.

Lavery v Macleod (HMIT)
In this case the taxpayer successfully appealed against the Inland Revenue's refusal to allow him the foreign earnings deduction for work done on 'jack up drilling rigs'. The case was heard by the special commissioners on application by the Inland Revenue.
Unknown to the taxpayer certain other cases had already been decided for the taxpayers concerned by general commissioners and subsequently confirmed by the High Court and the Appeal Court.
As a result, the Inland Revenue withdrew their appeal against the special commissioners' decision in the Lavery case.
The taxpayer applied for costs on the grounds that the Inland Revenue had acted unreasonably in forcing the taxpayer to have his case heard by the special commissioners and, therefore, obliging him to incur substantial costs.
The special commissioners dismissed the appeal on the narrow grounds that the Inland Revenue had not acted un- reasonably in the conduct of the hearing before them - but rather more generally in the general conduct of all of the relevant appeals taken as a whole.

European business law

Proposed new EU technology transfer regulation
All those involved with patent, know how and copyright licences need to take account of EU competition law and regulation 240/96. That regulation - the technology transfer - is to be replaced by a new regulation in May 2004 and a draft of a new regulation has been issued. The DTI is consulting on the EU consultation on the draft regulation and detailed guidance notes to go with it. It is extremely important for those drafting software copyright and other intellectual property licences. It provides, for the first time, block exemption protection from Article 81 of the Treaty of Rome for software copyright licences, whether licensed with know-how or patents, or not. The existing regulation does not. Where software is sold by a distributor, but no copying takes place, it is possible to benefit from the other block exemption in this area for vertical agreements. Other changes include a distinction between licences, between competitors (which are quite anti-competitive and, thus, more strictly treated) and non-competitors.
The regulation exempts licences between competitors or potential competitors where their market shares are under 20%, and non-competitors under 30%, a new and important introduction of market share criteria for the first time in this area. This makes it harder to apply the regulation/ exemption because often the parties do not know what their market share is. Competitors are allowed fewer restrictions in their licences than non-competitors and, for both, a list is provided in the draft regulation. Sixty pages of draft guidance notes have also been issued for comment. Agreements which fall within EU exemption regulations such as this are automatically also exempt from UK competition law in the Competition Act 1998.
Key features of the draft block exemption regulation:
- will separate agreements between competitors and non-competitors and allow fewer restrictions where the parties compete. In the current draft potential competitors are treated as competitors. These include those who would, on realist grounds, gear up to enter the other party's market
- will not apply at all where certain market share criteria are exceeded (which will make it very hard indeed to advise or indeed draft enforceable intellectual property licences where the parties have high market shares)
- will no longer have a list of permitted restrictions which do not breach Article 812
- includes software copyright licensing for the first time which will benefit and exempt many such agreements
- exclusivity can last as long as the knowhow is secret - no 10-year period limitation as now
- the current permitted absolute export ban for five years from when products are first put on the market is abolished. Instead, for agreements between non-competitors, the draft guidelines with the regulation say such a ban, even on passive selling, may be allowed for up to two years 'normally'
- for competitors there is a huge change in the restrictions which are permitted, which is very much reduced. Most restrictions on customers, markets and output are banned. For competitors exclusive licences, territorial, field of use and customer restrictions will infringe
- there is a list called 'conditions' of provisions which are void but which are not on the hard core list of banned restrictions. This means such restrictions, if included, are invalid but that does not mean the rest of the agreement loses the benefit of the block exemption as would the presence of any hard core restrictions. The conditions include obligations to assign IP rights in improvements and not to challenge if patents are valid.
The draft new block exemption is at www.europa.eu.int/comm/competition/antitrust/legislation/draft_technology/regulation_en.pdf.
For guidelines, see www.europa.eu.int/comm/competition/antitrust/legislation/draft_technology/guidelines_en.pdf.
The Patent Office is consulting on its provisions (see www.patent.gov.uk).

E-privacy regulations published
New regulations dealing with unsolicited e-mails, traffic data, fax and other forms of marketing and direct mail, cookies and tracking devices have been prepared.
The regulations will mean:
unsolicited commercial e-mail (spam) and text messages (SMS) to individual subscribers will need their prior agreement so that they may only be sent if the recipient has agreed in advance. There is an exception to this rule for some existing customers
new requirements on firms using cookies and similar Internet tracking devices will be required to provide information and a chance for the user to refuse the cookies
network operators and their partners will be able to provide subscription and advertising services based on location and traffic data to their customers. There is no restriction on the type of services that may be provided as long as subscribers give their consent and are informed of the data processing implications.
The Government has also announced its intention to extend the telephone preference service to corporate subscribers next year. This means that all businesses as well as individuals will be able to opt-out of phone marketing. This move is backed by the British Chambers of Commerce and the Federation of Small Businesses. The Privacy and Electronic Communications (EC Directive) Regulations 2003 (SI 2003/2426) will come into force on 11 December and are published on the Internet at www.dti.gov.uk/industry_files/pdf/regulations_20030918.pdf.
A landmark decision from the Advertising Standards Authority confirms that there is a need to check for explicit consent before using a marketing list for an e-mail campaign, even if it is believed the list comprises only those who have opted to receive marketing - see www.out-law.com/php/page.php?page_id=firstukrulingunde1063203882&area=news. Separately, the EU has launched a new consultation on the legal barriers to conducting business electronically. Comments are due by 7 November.
See europa.eu.int/yourvoice/forms/dispatch.jsp?form=259&lang=EN.