That case was dealt with under the provisions of the Capital Allowances Act 1990 (since rewritten as the Capital Allowances Act 2001), and centred around the availability of industrial buildings allowances.

The taxpayer (Maco Door) had claimed industrial buildings allowance in respect of a building that it used for storage. Maco Door was a subsidiary of an Austrian hardware manufacturing company, and its business was to import products manufactured by the parent company. These it then sold on within the United Kingdom. Its customers tended to require delivery at reasonably short notice, so the company would order in stock which it would store so that, when required, it could dispatch them to its UK customers with minimum delay.

Definition of an interest in possession trust

There is no statutory definition for an interest in possession trust. However, in the case of Pearson v IRC, the House of Lords defined an interest in possession as a 'present right to present income'. Shortly stated, if the beneficiary has the right to income under the trust, or to enjoyment of trust property, you are looking at an interest in possession trust.

A beneficiary is chargeable to tax on all the income arising in an interest in possession tax. This is because in trusts of this type, 'look through' the trustees and apply the tax treatment to the beneficiary. This is somewhat similar to a bare trust, where the legal interest is held by a nominee.

Submitting a tax return

Self-employed individuals, trustees and partners are required to submit tax returns. What normally happens is that HMRC sends out a notice after the tax year, requiring the taxpayer to submit a return of his income and gains in the tax year. The return must be accompanied by a self-assessment of the tax liability for the tax year. The date for submission depends on when the notice from HMRC is given. If the notice is given on or before 31 October following the tax year, the tax return must be submitted by 31 January following the tax year. The tax year runs from 6 April to 5 April. Here is an example:

The 2005/06 tax year ran from 6 April 2005 to 5 April 2006. If the notice from HMRC was sent on or before 31 October 2006, the submission date would be 31 January 2007.

However, if the notice from HMRC is given after 31 October following the tax year, then the return must be submitted within three months from the date it was sent.

The taxpayer may prefer to save himself the bother, and ask HMRC to calculate the tax liability. If so, he needs to submit the return a little earlier than is the case above. The submission date also depends on when the notice from HMRC requiring a return was given. If it was given on or before 31 July following the tax year, then he must submit the return by 30 September following the tax year. If given after 31 July, then the submission date is two months after the date the notice was received.

Where a scheme covers both tax and NICs, the promoter must disclose as before, but only a single disclosure need be made. However, included in the disclosure must be clear explanation as to how the scheme works for NIC purposes.

HMRC have provided guidance for payroll managers who may not be certain whether or not they need to disclose certain schemes. Basically, says HMRC, most payroll schemes would not be caught by the disclosure rules. They would not be likely to pass the test for disclosure, ie is it a scheme expected to provide someone with a NICs advantage, that advantage being one of the main benefits of using the scheme?

The answer, in HMRC's view, is in most cases, likely to be no.

In the few instances that the answer is yes, there are further 'hallmarks' that the scheme must exhibit before the rules on disclosure apply. These are hypothethical tests:

What is a managed service company?

Simply put, it is an intermediary company through which workers supply their services to clients. A worker may wish to operate through a company structure, but lack the time and resources to arrange this efficiently. However, there are some packaged, ready to use companies through which the worker may supply his services. He pays a fee to the provider of the packaged company, and buys shares in the company. In return, the provider takes care of all the administrative and regulatory requirements of running a company. As for remuneration, the worker is paid salary and dividends often in a combination likely to be the most tax-efficent.

An MSC is different from a personal service company. In the latter case, the worker is in business on his own account. He runs the company, and is most likely the only shareholder. A worker operating through an MSC does not have such control over the company. That remains with the provider. The IR35 provisions still apply to personal service companies, but MSCs will be taxed under a separate regime to be enacted by the Finance Act 2007.

Why the change in the law?

MSCs (together with personal service companies) are currently within the intermediaries legislation for tax and NIC purposes. The rules treat payments received by individuals providing their services through intermediaries as earnings from employment, provided certain conditions are met. The test is applied on a case by case basis.

In December 2006, the Government expressed concern that the intermediaries rules were not being followed by MSCs, resulting in large-scale tax avoidance by these companies.

The Government's way of dealing with this issue is to draft an effective definition of an MSC, so that if a company falls within that definition, then the MSC rules introduced by the Finance Act 2007 apply. This is a more efficient way of tackling the problem than operating on a case by case basis, as is the case under the intermediaries legislation.

HMRC recently won a court case forcing five high street banks to disclose details of their offshore account holders. Armed with that information, they are in a good position to determine if any UK-resident holders of offshore accounts are evading tax. To save itself the administrative burden of investigating, it has set up the facility so that affected investors can come forward to give full disclosure.

The disclosure is in two stages. At the first stage, the investor  notifies intention to disclose, while the second stage involves the disclosure and payment. Notification of intention to disclose must be done by 22 June 2007. Disclosure and payment must be made by 26 November 2007.

This decision led to the loss of about £5bn annually from such funds, causing much public disquiet. In order to address the shortfall in their pension funds, many employers switched from defined benefit (final salary) schemes to the less attractive defined contribution (money purchase) schemes.

But what is the dividend tax credit, and why did the above tax change have such a significant effect on pension funds? This article will attempt to answer these questions.

It all began in July 1997. Notes accompanying the Budget Statement informed us that: "[p]ayment of tax credits will be abolished for pension schemes and UK companies (other than charitable companies) on dividends paid on or after [Budget Day]."

Some background. A company is charged to corporation tax on its profits, as adjusted for tax. Dividends are paid out of taxable profits. Where dividends are paid to individuals who are liable to income tax, there is likelihood of a double tax charge arising: first, the corporation tax payable on the distributed profits, and then, any income tax payable by the shareholders for the dividends received. To address this, the legislation provides for a dividend tax credit of 1/9 of the dividend, to be imputed to the shareholder. The result is that the shareholder is treated as having paid income tax of 10 per cent on the dividend received. This notional payment is deemed to satisfy the income tax liability for a basic rate taxpayer. As the dividend higher rate is 32.5 per cent, higher rate taxpayers must pay a further 22.5 per cent on any dividends received. This gives an effective rate, for higher rate taxpayers, of 25 per cent. 

For capital expenditure to qualify, it must be expenditure incurred on the construction of  an agricultural building, for the purposes of husbandry on the land. In addition, the 'relevant interest' should not have been sold, or if it has been sold, it has been sold only after the first use of the building. Generally speaking, the 'relevant interest' is the freehold or leasehold to which the person incurring the expenditure was entitled.

'Husbandry' includes any method of intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption, and the cultivation of short rotation coppice.

Unlike industrial buildings allowance (IBA), there are no provisions for restricting allowances if the building is not in agricultural use at the end of an accounting period. However, if the first use of an agricultural building is for non-agricultural purposes, no allowances are to be given. Any allowances already given are clawed back.

Like IBA, relief is given at 4 per cent per year on a straight-line basis, with the result that no relief is given after the building has passed its 25th year.

Balancing adjustments

Budget 2007 provides for the phasing out of ABAs with effect from 2009-10. However, in order to ease the way to its abolition, 'balancing adjustments' are withdrawn in respect of any contracts entered into for the disposal of agricultural buildings on or after 21 March 2007.

For the rest of this article, I will focus on the operation of the industrial buildings allowance.

Except.

Yes, except. Many years ago, my personal tax lecturer taught me something very true: there is no such thing as a straightforward tax rule. There is always an exception or three. Remember that, and you won't go wrong. Always look for the 'except'.

Back to the topic: you can deduct from the death estate debts or liabilities owed by the deceased at the time of his death. So if the deceased had a death estate of, say, £200,000, and was owing £5,000 in bills, etc, the death estate is £200,000 - £5,000 = £195,000.

However, this article is about a specific anti-avoidance measure aimed at catching out people who try to reduce the IHT payable by creating artificial debts, which can then be deducted from their death estate.

The cap on the deduction is also being increased, with effect from that date. In place of the current restriction of the deduction to £1,500 per building, there is a new restriction of £1,500 per property. So if a landlord owns several flats in a block, he may, from 6 April 2007, claim a deduction of up to £1,500 per flat. Before that date, he would have had to restrict himself to a total deduction of £1,500, irrespective of how many flats he had in the building, and how much expenditure he had incurred on each one.

The Government hopes that these incentives will encourage landlords to consider energy-efficient ways of developing their properties.

Tasty carrots. Infinitely preferable to a big stick.

Reference: Energy-Saving Items Regulations 2007, SI 2007/831 (pdf).

A trade was carried on by a company (which we shall call 2SPD), which had issued share capital of 60,000 ordinary shares of 1p each.

Of that number, 59,932 (ie 99.87%) were held by a holding company (BHP). Of the remaining 68 shares, the taxpayer and his wife held 53, and the balance was held by a third party.

All of the shares in BHP were held by the taxpayer and his wife, the taxpayer holding a little over 50 per cent. The taxpayer claimed that his wife exercised her voting rights in accordance with his wishes, as he was in charge of running the business.

The taxpayer and his wife owned some farms and feed mills which they rented to 2SPD at normal commercial rates. They sold the assets and wished to claim rollover relief in respect of replacement assets.