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Revenue news - National Insurance and business travel

15 August 2001
Issue: 3820 / Categories:

Draft regulations, which amend the Social Security (Contribution) Regulations 2001, provide alignment for National Insurance contributions with the new statutory tax free approved mileage rates and the 10,000 miles breakpoint introduced in the 2001 Finance Act. They also include alignment with the new five pence a mile passenger rate. A technical amendment is also included to standardise the liability for National Insurance on fuel provided for use in a company car. The regulations will come into force from 6 April 2002.

Draft regulations, which amend the Social Security (Contribution) Regulations 2001, provide alignment for National Insurance contributions with the new statutory tax free approved mileage rates and the 10,000 miles breakpoint introduced in the 2001 Finance Act. They also include alignment with the new five pence a mile passenger rate. A technical amendment is also included to standardise the liability for National Insurance on fuel provided for use in a company car. The regulations will come into force from 6 April 2002.

The regulations provide that mileage allowance payments which an employer pays to employees who use their own cars for business travel, are disregarded from earnings on which Class 1 National Insurance is due so long as they do not exceed the approved rates set out for income tax purposes in Schedule 12AA to the Taxes Acts 1988.

They also introduce for National Insurance the 10,000 business miles breakpoint. This means that employers will need to keep sufficient records of the mileage payments made to their employees to enable them to identify when the lower mileage rate needs to be applied to the National Insurance calculation.

The regulations allow an employer to pay up to five pence a mile to an employee for carrying a passenger (who is a fellow employee also travelling on business) without incurring a National Insurance liability.

The regulations also disregard from earnings for Class 1 National Insurance purposes payments in respect of car fuel which are provided for use in a company car and on which a charge to income tax under section 158, Taxes Act 1988 arises. The amendment confirms the current Class 1A National Insurance liability on these payments.

Comments on these regulations should be sent to: Mellanie.merrifield@ir.gsi.gov.uk by 31 October 2001.

Interest rates

The Revenue has announced new rates of interest for underpaid and overpaid instalment payments of corporation tax, and early payments of corporation tax not due by instalments, in respect of accounting periods ending on or after 1 July 1999.

The rate of interest charged on underpaid instalment payments of corporation tax has decreased from 6.25 per cent to 6 per cent. The interest rate on overpaid tax has decreased from 5 per cent to 4.75 per cent.

These rates take effect from 13 August 2001.

(Source: Inland Revenue press release dated 9 August 2001.)

Settlors of non-resident trusts

The Revenue has announced a change of interpretation relating to non-resident trusts and the gains and losses accruing in the transitional period to trusts brought within the settlor charge by Finance Act 1998. The details will also appear in a future issue of the Tax Bulletin.

As a consequence of recent legal advice, the Revenue has changed its position on the availability of net losses realised by non-resident trustees in the transitional period from 17 March 1998 to 5 April 1999 for set off against capital gains accruing to such trustees during 1999-2000, in respect of which a settlor is chargeable under section 86, Taxation of Chargeable Gains Act 1992. Until now it has taken the view that net capital losses incurred in the transitional period are not available for set off against 1999-2000 gains. However the Revenue now accept that such losses can in fact be set off in this way.

Similarly, the Revenue now accepts that net losses incurred by non-resident trustees in 1999-2000 can be set against gains arising in the transitional period in respect of which a settlor is chargeable under section 86.

Settlors affected by the transitional provisions whose capital gains position for 1999-2000 has been settled on the basis of the Revenue's previous interpretation may now amend their self assessments for 1999-2000 in order to put into effect the changed interpretation. The amended self assessment must be submitted before the time limit for amending self assessments expires i.e., in most cases 31 January 2002.

For further advice, write to Mike Corcoran (Technical Adviser), Centre for Non-Residents 2 (Non-Resident Trusts), Room 310, St John's House, Merton Road, Bootle, Merseyside L69 9BB.

(Source: Inland Revenue website www.inlandrevenue.gov.uk.)

Corporate debt

The Inland Revenue published on 26 July 2001 a consultative document entitled 'Corporate Debt, Financial Instruments and Foreign Exchange Gains and Losses'.

This document is the next stage in the review of three blocks of legislation which contain the rules for taxing companies in relation to:

* borrowing and lending, including interest payments;

* foreign exchange gains and losses; and

* derivative financial instruments.

The consultative document sets out and seeks comments on the Government's proposals for changes in the above three areas. The main changes, as announced in the 2001 Budget Day press release REV2 ('a competitive and modern tax system for multi-national and large business') are as follows:

* the separate block of legislation on companies' foreign exchange gains and losses will be assimilated into the corporate debt (loan relationships) and financial instruments legislation;

* the scope of the financial instruments legislation will be extended to cover, depending on the outcome of the consultation, either most or all derivative financial instruments;

* to make them fairer, there will be changes in the way the loan relationships rules deal with bad debts where borrower and lender are connected.

The consultative document also contains measures to counter avoidance schemes which have been used to exploit the existing loan relationships and financial instruments legislation. One type of scheme relies is based on the rules relating to 'premiums' and 'discounts' on currency contracts. Others concern the rules relating to certain convertible or asset-linked securities where part of any profit or loss is within the rules for corporation tax on chargeable gains rather than income. The wording of the legislation will be amended. Legislation will be introduced in the 2002 Finance Bill to block these schemes. Draft clauses and explanatory notes are in Appendix 5 of the consultative document. These changes will apply for accounting periods ending after 26 July 2001, unless the company is no longer a party to the contract or security at that time.

Draft clauses

The document also contains, at Appendices 2 to 4, draft clauses together with explanatory notes. These are not yet final but they illustrate how the Government's main proposals would be given legislative effect.

The Government's intention, subject to the outcome of the consultation, is to publish final clauses towards the end of the year. These would then be included in the 2002 Finance Bill and would have effect for companies' accounting periods beginning on or after 1 January 2002.

The document is on the Revenue website.

Initial reaction

It appears that the proposals to change the taxation of international financing and trading transactions could leave companies with an unexpected and large tax bill for the current accounting year, according to PricewaterhouseCoopers. Many of the proposed anti-avoidance measures will actually destroy the tax neutrality of commercial arrangements, creating a tax liabilty where there is no economic profit. The firm notes that the Revenue claims to have listened to businesses over the last six months, but has failed to act on many of their concerns. The only real concession the Revenue has made, concerning buying connected party debt obligations from third parties, will not take effect until 2002, despite the Revenue acknowledging that current legislation disadvantages many businesses. This is in contrast to the retrospective application of the anti-avoidance measures, where it was the Revenue that was being disadvantaged.

Comments

Comments on the consultative document and replies to the questions asked in it, and in particular comments on the draft legislation included in the Appendices to the document, should be sent, preferably by e-mail, and to arrive not later than 12 October 2001, to david.gillon@ir.gsi.gov.uk

(Source: Revenue press release dated 26 July 2001.)

Issue: 3820 / Categories:
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