Keeping you up-to-date with tax

Issue No. 56March 2011

www.pwc.co.uk/tax

Tax First

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Tax FirstMarch 2011

Tax First – March 2011

The Chancellor, George Osborne, will be revealing his Budget in a matter of days. For all our latest predictions and insight into what the famous red briefcase may contain, you can visit www.pwc.co.uk/budget. We’ll bring you a full round-up of the major tax announcements next month in the April issue of Tax First.

The main news in our banking and capital markets section this month is the increase in the bank levy. Mr Osborne has increased the rate of the bank levy to be charged in 2011 to an average rate for the year of 0.075% – a move which will have a significant impact on the banking sector.

If your business’s main asset is its people, and you’re looking to improve your tax position, then a move to a limited liability partnership may be an option worth considering. In our business structuring section we look at the potential benefits for your business and for your senior people.

The Organisation for Economic Co-operation and Development (OECD) has been examining how the exchange of information between international tax jurisdictions could work in the future. Our finance and treasury section looks into the background to the work, its current status and possible future developments in this area.

Our HR section highlights a potential issue for those of you who run defined benefit (DB) pension schemes. The new ‘scheme pays’ legislation makes it easier for individuals who would otherwise have to pay more tax as a result of pension annual allowance changes, but may also mean that DB schemes have to meet some of the tax bill.

Still on the theme of pensions, the Wheels Common Investment Fund and the National Association of Pension Funds (Wheels) test case focuses on whether the management of occupational pension funds is exempt from VAT. Our indirect tax section outlines how

Welcome to the March issue of Tax First

pension fund managers should be thinking about whether all claims have been made to recover VAT charged on management services.

Rounding up this edition, we highlight the release of our Total Tax Contribution (TTC) survey. After six years of these surveys, TTC is a well understood and accepted approach for companies to measure all of the taxes that they pay. After a difficult period of recession, the results of this year’s survey paint a very informative picture of corporate tax in relation to other taxes. You can find the survey results at www.pwc.co.uk/ttc.

I hope you find this issue both interesting and informative; if you have any thoughts or comments on any of the topics covered, then please do contact me.

David Prosser Tax Partner 020 7804 5852

March 2011

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Chancellor announces increase in bank levy rate for 2011

The Chancellor, George Osborne, has announced that the rate of the bank levy to be charged in 2011 has been increased to an average rate for the year of 0.075%. This change will increase the revenue from the levy in 2011 by £800m to £2.5bn.

The levy, which was introduced from 1 January 2011, was initially planned to be phased in slowly, due to market conditions, with a reduced rate of 0.05% of short-term chargeable liabilities applying for 2011. The Government no longer considers this reduced rate to be necessary.

From 1 March 2011 the rate will be increased to 0.1% to offset the lower rate of 0.05% charged in January and February, before moving to 0.075% from 1 May 2011. The rates for 2012 onwards will continue to be those set out in the draft Finance Bill 2011 clauses. HM Revenue & Customs has confirmed that the rates will apply on a time apportionment basis.

Banking and capital markets

If you’d like to know more about any of the topics we’ve mentioned, you can email Justin Woodhouse or call him on 020 7804 6750.

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Business structuring

The attraction of a limited liability partnership (LLP) structureIn the current competitive, and for many businesses difficult, commercial environment, we’re seeing more and more companies questioning whether their existing operating structure remains the most efficient structure for them. One of the most important challenges for any business is how to attract, reward and retain its most valued people. With this aim in mind, could a move to an LLP structure be a sound move for your business?

The benefits of an LLP

An LLP is a flexible operating structure which can work for most businesses where their main asset is their people. An LLP structure combines tax efficiencies with the ability to adapt to meet commercial, tax or other changes. A move to an LLP gives your business an opportunity to review how you

reward your senior individuals. It also allows you to design strategies that combine tax efficiency with enhanced profit and cash-flow benefits – as well as allowing you to align your senior people’s long-term interests with those of the business.

One significant advantage over a company is the ability to offer your members capital interests with no up-front income tax charge and access entrepreneurs’ relief on a sale of their interests. This means a 10% tax rate on the first £5m of gains, which in the corporate environment is far more difficult to achieve.

To add to this, the move from employed status to that of self-employed member of an LLP brings with it increased profits due to the decrease in national insurance costs. Cash flow would also benefit due to the move from paying tax through the PAYE regime on a monthly basis to paying tax in instalments on a six-monthly basis.

From a cultural perspective, if your business moves from a corporate to a partnership culture, this can lead to increased motivation and a real feeling of team spirit within the organisation.

How PwC can help

LLPs can work for a wide range of businesses, from listed entities through to privately-owned companies. If the benefits and savings of an LLP structure sound compelling, you can call us to talk through the possible restructuring options for your business.

If you’d like to find out more, then please contact Leonie Kerswill on 020 7213 8588.

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Finance and treasury

Understanding the possible impact of the OECD’s work on tax havens

The Organisation for Economic Co-operation and Development’s (OECD) work on tax havens and offshore financial centres has achieved some high profile interest, with significant political backing over the last 18 months.

Our latest update examines the background to the work, its current status and possible future developments in this area. Could automatic exchange of information be the standard in the future? Will increased coordination and cooperation between states be applied in the fight against tax evasion? Will this lead to joint audits? What measures might individual countries introduce?

You can click here to read more

New value shifting rules replace complexity with uncertainty

While the immediate charge provisions for value shifting remain unchanged, the deferred charge rules are being completely rewritten and will be fundamentally different from the current regime.

Changes to the legislation (Taxation of Chargeable Gains Act [TCGA] 1992 schedule 29 to schedule 34) are expected to affect transactions once Royal Assent to Finance Act (FA) 2011 has been given – this is expected to be in July 2011. The main change substitutes over five pages of legislation with one, and replaces complex technicalities with a fairly simple test – but at the same time introduces substantial uncertainty. If your business is undertaking group restructuring and refinancing, then these changes should be considered.

You can click here to read more

Proposed new degrouping rules – simplifying due diligence work

The proposed rewriting of rules for de-grouping (TCGA 1992 s179) should simplify due diligence work, as the substantial shareholding exemption will now often apply to the gain which is triggered on de-grouping, and facilitate ‘divisionalisations’.

The new rules also clarify the subgroup exemption from the de-grouping charge, following the Johnston Publishing case, and introduce a just and reasonable override. The proposals are expected to affect transactions once Royal Assent to FA 2011 has been given.

You can click here to read more

If you’d like to find out more on any of the topics we’ve mentioned, you can email:

Neil Edwards (020 7213 2201) or Jeremy Rayner (0161 245 2220).

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HR

More complexity and cost if you have a defined benefit pension schemeThe new pension tax regime will mean some defined benefit (DB) scheme members face significant tax bills.

To make it easier for individuals to pay the tax, new legislation is to give people the power to have the tax paid out of their pension pot. This will be known as ‘scheme pays’ and, if requested by an individual, a DB scheme will have to meet some of the tax bill.

Scheme pays – people may choose to stay-and-pay

Scheme pays will make life easier for the individual as it reduces the issue of finding the cash to pay the tax bill. It will also reduce the overall burden of the tax as the member doesn’t have to pay the entire tax bill from net income.

As a consequence, where a DB member faces a tax bill, it’s likely that they’ll opt for scheme pays. It may also influence the decision for DB members as to whether to maintain their

full pension accrual and pay the tax (stay-and-pay) in preference to alternatives they may be offered, such as taking a restricted benefit with a cash top-up.

We think people are more likely to stay in DB schemes than would otherwise have been the case. Whilst scheme pays is good news from their point of view, the employer needs to be aware of the cost implications of this.

What should employers do?

As an employer, you have two options. You can either take control of the process or you can wait to be instructed by individuals or trustees.

In some cases this will change the decisions for members who were considering permanently opting out of their pension scheme. You need to make sure such decisions are made in the full knowledge of the scheme pays option or face potential legal action from individuals in the future.

If you’d like to discuss the potential implications for your organisation, please contact your usual PwC adviser or:

Marc Hommel 020 7804 6936

Carol Dempsey 020 7212 4641

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Indirect tax

VAT and pension fund management – could the Wheels case affect you?

The case of Wheels Common Investment Fund and the National Association of Pension Funds (Wheels) was heard before the First-tier Tax Tribunal from 10 February to 15 February 2011. Wheels is a test case, focusing on whether the management of occupational pension funds is exempt from VAT. We understand that the Tax Tribunal has decided to refer the matter to the European Court of Justice (ECJ) and that the exact questions to be referred should be submitted to the Tribunal by 5 April 2011.

If you’re a fund manager or manage a pension fund, you should consider whether all claims have been made to recover VAT charged on management services and whether these claims are up-to-date.

If you’d like to find out more about the potential implications of the Wheels case, you can contact Stephen Coleclough on 020 7212 4911.

Implications for the VAT treatment of UK customer payment charges

The ECJ gave judgment in Everything Everywhere (formerly T-Mobile [UK] Ltd) on 2 December 2010. The Court held that separate charges made to customers choosing to pay their bills by cheque or credit card, rather than by more automated methods such as direct debit, were not consideration for an exempt supply. The ECJ considered that there was a single supply of telecommunication services.

Where you make any form of separate charge for accepting a particular form of payment you’ll need to consider this

judgment and consider a review of your arrangements. If you’re a financial services business, or you provide outsourced and other VAT exempt services to the financial services sector, then this judgment may have an impact on your business. You may want to think about reviewing your existing contracts, VAT liability decisions and any HM Revenue & Customs rulings to assess whether changes are needed to maintain VAT efficiency.

If you’d like to know more about the potential effects of the Everything Everywhere judgment on your business, you can call Michael Bailey on 020 7804 3254.

VAT penalty regime webcast

The VAT penalty regime introduced in 2009 is still having an impact on a significant number of businesses, many of which hadn’t previously been affected by VAT or tax related penalties.

During this webcast, we’ll look at the background to the new VAT regime and will consider what effect it’s having on businesses. We’ll uncover the parts of the regime where there is significant subjectivity and will look at what you can do if you’re facing a penalty.

Webcast: VAT penalty regime webcast Date: 12 April 2011 Time: 11am

If you’d like to register your interest for this webcast, you can email Carrie Doman with your details.

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Total tax contribution

2011 Hundred Group Total Tax Contribution survey findingsWe launched the results of our sixth Total Tax Contribution (TTC) survey1 for The Hundred Group on 1 March 2011, after a further year of record participation.

The survey spans a particularly difficult period, which follows the financial crisis and a time when the UK economy was in recession. Falling commodity prices and lower profitability affected members’ corporation tax payments but the survey results show that they continued to bear and collect substantial amounts of both corporation tax and other UK taxes totalling £56.8bn – this is almost an eighth (11.9%) of total government tax receipts from all taxes.

The results also show that The Hundred Group members continue to be major employers in the UK with over 6% of the workforce generating total employment taxes of £16.7bn.

Corporation tax

Corporation tax is still the largest tax borne by survey participants, but the survey results show how volatile the tax is and that it now accounts for just 33.7% of total taxes borne. Falling profits, oil prices, and other commodity prices have all contributed to this.

After six years of these surveys, TTC is a well understood and accepted approach for companies to measure all of the taxes that they pay, and the individual data reports that companies receive are clearly valued. The Hundred Group companies that take part are using their own TTC data in many different ways, including internal communications, discussions with HM Revenue & Customs and in media releases and external relations.

Investment and employment

Over the last three years the world has experienced an extraordinary financial and economic upheaval. As the UK seeks to re-establish strong economic growth, it’s vital that the UK Government works together with UK businesses to continue to create investment and employment opportunities. To that end it’s crucial that the tax system in the UK is both predictable and internationally competitive. And the results from this survey will continue to be important in informing the dialogue with the Government.

If you’d like to find out more about the survey results, you can contact Susan Symons on 020 7804 6744 or visit www.pwc.co.uk/ttc

1 84 companies took part in the survey. This year’s survey looks at payments in these companies’ accounts periods ended in the year to 31 March 2010.

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Calendar

March1 Changes come into effect for the VAT

option to tax land and buildings and change of use of buildings used for relevant residential and charitable purposes

2 Deadline for comments to Department for Work and Pensions on proposals to use the consumer prices index (CPI) as the measure of price increases on private sector occupational pension schemes

3 Deadline for comments to HM Treasury on proposals re the discount rate used to set contribution rates for the unfunded public service pension schemes

7 Deadline for comments on draft legislation needed to give legislative effect to a number of HM Revenue & Customs (HMRC) extra-statutory concessions

Deadline for comments on draft guidance for offering a default option for defined contribution automatic enrolment pension schemes

9 Last date for comments on the International Accounting Standards Board’s exposure draft on hedge accounting

17 ICTA event, Transfer pricing – an OECD update, Charing Cross Hotel, London

21 Indirect Tax Forum event, PwC, Edinburgh

23 Chancellor’s Budget 201124 ICTA event, Budget update,

Charing Cross Hotel, London30 Indirect Tax Forum event, PwC,

Manchester31 Finance Bill 2011 expected to be formally

published End of first quarter for which promoters

must provide to HMRC a list of clients to whom they should have issued a tax avoidance disclosure Scheme Reference Number

31 End of quarter in which Common Consolidated Corporate Tax Base expected to be adopted by the European Union’s (EU) College of Commissioners

Last date for filing of corporation tax returns and accompanying statutory accounts for periods ending after 31 March 2010 in a format other than online in iXBRL

Last date for submission of claims for repayment of VAT incurred during 2009 in an EU member state other than that in which the taxable person is established

Last date before taxpayers stop receiving industrial buildings allowances

Last date (by 5pm) for certain actions to affect Pension Protection Fund (PPF) levies

ICTA event, Financial services: responding to the remuneration challenges, The Hilton Tower Bridge, London

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Calendar continued

6 Default retirement age of 65 starts to be phased out

NIC rate and threshold changes come into effect

New ISA subscription limits apply of £10,680 (cash ISA limit £5,340)

Annual limits for various visa applications begin alongside other immigration changes

Deadline for comments on consultation re late filing and late payment penalties for income tax self assessment

New structure for maximum 200% penalties for non-compliance with income tax and capital gains tax obligations with respect to offshore income, gains and assets

Extension of the DOTAS rules to disclosable inheritance tax schemes

7 Last date (by 5pm) for making and certifying contributions to pension schemes to reduce deficits for PPF levy purposes

18 Last date for comments on differences between occupational and workplace personal pension schemes

19 Deadline for comments on European Commission consultation on financial services taxation

22 Deadline for comments on the Pensions Regulator consultation on supporting the defined contribution market in the delivery of good outcomes for savers

26 Deadline for submission of evidence to the Workplace Retirement Income Commission on retirement savings

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

PwC Brand & Design 20625 (03/11)

30 Deadline for comments on European Commission consultation re levying and crediting of withholding taxes on dividend payments to non-resident portfolio and individual investors in the EU

Our March series of ICTA events are now fully subscribed, but you’ll be able to register for our April-June series shortly on our website.

April1 Corporation tax reforms including main

rate reduction to 27%, interim CFC amendments and the introduction of a foreign branch exemption

New election to choose in advance an appropriate computational currency for tax purposes applicable for any period beginning on/after 1 April 2011

New powers to investigate and tackle excise fraud commence

5 Deadline for questions to be sent to the First-tier Tax Tribunal re the Wheels test case

6 New pensions regime changes take effect Disguised remuneration main provisions

will come into effect Changes to the tax relief system for

childcare vouchers come into effect New rules on canteen salary sacrifice

schemes come into effect Restriction for furnished holiday lettings

begins that losses can only be set against profits for the same business