Sixty-second Tax Bulletin
Sixty-second Tax Bulletin
Shortly before going to press, the Revenue's 62nd Tax Bulletin became available and coverage of this was not therefore possible in this issue of Taxation. However, in advance of extracts from the Bulletin in the 9 January issue of Taxation, readers may wish to know that the Bulletin contains articles on identifying trading companies for the purposes of taper relief; the substantial shareholdings exemption; certificates of United Kingdom residence for companies; and the application of the loan relationships provisions to partnerships which have one or more companies as one of the partners.
The article concerning trading companies covers much ground which will already be familiar from previous statements made by the Revenue. An activity is carried on in the course of a trade if it is carried on in the process of conducting or preparing to carry on the trade. So, for example, where a company renegotiates an ongoing trading contract relating to its trade, this will be an activity undertaken in the course of its trade. Land purchased by a property developer as trading stock or by a manufacturer to provide a site for a factory would 'probably count as trading activity'. The short term lodgement of funds from the sale of an asset in an interest-bearing deposit account or in quoted investments 'could count as a trading activity' if the funds are earmarked for some particular trade purposes in the future or if they are to be distributed to shareholders once the appropriate procedures have been carried out. Whilst the company is assessing the potential viability of new trades which it may commence or acquire, it may be regarded as continuing to carry on trading activities, but only if such activities are commenced as soon as is reasonably practicable in the circumstances.
The article on loan relationships and partnerships shows how the loan relationship rules are to be operated where the company and the partnership have different accounting dates.
As regards certificates of United Kingdom residence which may be issued to companies upon request, the article details the steps towards obtaining such a certificate and the information required by the Revenue.
Tax accounts
The Inland Revenue collected £108.7 billion in income tax for 2001-02 according to its accounts for that year published recently. Corporation tax amounted to £32 billion, capital gains tax £3 billion, inheritance tax £2.4 billion, stamp duty £7 billion, petroleum revenue tax £1.3 billion and National Insurance £65.3 billion. £5.7 billion was paid out by the Revenue in respect of tax credits.
The total net tax collected was £148.7 billion (excluding National Insurance), which compares to £148.9 billion in 2000-01.
The National Audit Office published a report on the Revenue's resource account and trust statement of tax and National Insurance collected. Overall, Sir John Bourn, comptroller and auditor general of the National Audit Office, said that the Revenue 'continued to secure an effective check over the assessment, collection and allocation of tax' during 2001-02. However, he said that problems existed in connection with reconciling the working families' and disabled person's tax credits where they were paid by employers, the amounts having first been authorised by the Revenue. While the errors were comparatively low, they could be substantial for the individuals involved. The report says that the error rate rose from 1.22 per cent in 2000-01 to 1.73 per cent in 2001-02, and that the Revenue should work to 'identify and address types of errors most likely to lead to significant under or overpayments'.
The fact that employers may find the forms confusing was acknowledged in the report, and so Sir John recommended that the Revenue tried to improve the necessary forms, and work more with employers to help them get the figures correct.
Another interesting area is the Revenue's receivables management service. This service has operated since April 2001, and combines the collection of taxes and debt management. In effect, it is responsible for collecting and accounting for all legally due and payable debt, other than stamp duty and Valuation Office Agency receipts. It maintains 1.5 million employer, 9.1 million self assessment, and over one million corporation tax accounting records on 'very large computer systems', according to the report.
Inevitably, the service has not been able to concentrate fully on all tax debts, and has focussed chiefly on the oldest and most recent debts. Sir John recommends that the service should 'take the earliest opportunity to pursue and clear all other debts'.
The service operates receivables telephone centres to encourage taxpayers to communicate by telephone. However, it is unable to measure how useful this service is, and Sir John suggests that it would be helpful to instigate management systems to help them do this.
Comptroller and Auditor General's Standard Report on the Accounts of the Inland Revenue 2001-02 is available from The Stationery Office (tel: 0845 702 3474), or can be downloaded from www.nao.gov.uk.
Official interest rate
The official rate of interest is to remain at five per cent for the 2003-04 tax year, subject to review in the event of significant rate changes.
(Source: Inland Revenue news release dated 12 December 2002.)
Double taxation
Lithuania
The provisions of the double taxation convention between the United Kingdom and Lithuania will apply:
* in the United Kingdom, from 1 April 2002 for corporation tax and from 6 April 2002 for income tax and capital gains tax;
* in Lithuania, from 1 January 2002.
A protocol to the double taxation convention between the United Kingdom and the Republic of Lithuania, which was signed in London on 21 May 2002, entered into force on 28 November 2002. The protocol amends the entry into force article of the convention, bringing the convention itself into force on the same date and into effect in the United Kingdom as from April 2002.
The text of the protocol has been published as the Schedule to the Double Taxation Relief (Taxes on Income) (Lithuania) Order 2002 (Statutory Instrument 2002 No 2847), copies of which are obtainable from The Stationery Office. The text of the order can be accessed on the Internet at www.hmso.gov.uk.
Annual review
In order to set its treaty priorities each year, the Revenue welcomes comments from all interested parties, including companies conducting business abroad and individuals with income from overseas.
General representations concerning new tax and contribution conventions, or suggestions about changes to existing conventions, are invited and should be sent by 11 January 2003 to: Mrs Jas Sahni, Inland Revenue, Revenue Policy International, Victory House, 30-34 Kingsway, London WC2B 6ES, e-mail: Jas.Sahni@ir.gsi.gov.uk.
(Source: Inland Revenue news release dated 5 December 2002.)