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Online success
1,989,927 self-assessment tax returns were filed online by 31 January 2006. This is a 38% increase on last year, when 1,599,364 returns were filed online. This number includes some 293,000 tax returns filed using the electronic lodgement system, due to disappear in April this year.
The HMRC website processed 719,913 self-assessment returns during January. 336,277 returns were received in the final seven days, and 216,154 in the final four days until midnight on 31 January.
During the mornings of 30 and 31 January, the HMRC website was processing around 8,700 returns an hour, and a further 2,300 returns were received between 11pm and midnight of 31 January.
The total number of self-assessment returns returned both on paper and electronically will not be known for several weeks, as paper returns are processed manually. A total of 9.8 million tax returns were issued during 2004-05.
HMRC deserves to be congratulated on their efforts this January. Readers may recall that I have not held back in criticising the department for not being able to cope with the inevitable surge in use of the online system over the last few days before the 31 January deadline, but this has not been the case this year. Anecdotal evidence seems to support this and, personally, my return went through smoothly shortly before midnight on 30 January. The option to pay tax using a debit card online via the HMRC website is also very helpful. I can hardly believe that I am writing this, but well done HMRC! Allison Plager
HMRC news release dated 1 February 2006
Trusts
Over two years since the Pre-Budget Report announcement that trust legislation was to be modernised, HMRC have published various documents regarding the taxation of trustees' income and gains, including draft legislation and explanatory notes and a paper on the correct tax treatment of trust management expenses. The draft legislation covers the following measures:
- a common meaning of settled property;
- a common meaning of settlor;
- provision for the trustees of a settlement to be treated as a single person;
- a common test to determine whether the trustees of a settlement are resident in the UK;
- provision for the trustees of certain settlements to elect to be treated as non-UK resident;
- provision for the trustees of a settlement to elect that a sub-fund of the settlement be treated as a separate settlement;
- provision for the income of settlor-interested settlements to be treated as though it had arisen directly to the settlor;
- a measure designed to legislate the existing practice of not taxing beneficiaries who receive discretionary income payments from the trustees of settlor-interested trusts; and
- modifications to some of the provisions in the TCGA which determine whether a person is a settlor in relation to a settlement, so that account is taken of dependent minor children.
Work will also be carried out on income streaming and the abolition of the tax pool, as the question of how best to deal with settlements where the trustees and beneficiaries are non-UK resident has raised some complex issues. Work is also continuing on a possible future package of measures aimed at reducing tax burdens on the personal representatives of deceased estates.
Comments on the draft legislation should be sent to HMRC by 17 February 2006 to: Rachel Salisbury, Trusts modernisation team, Room G45, 100 Parliament Street, London SW1A 2BQ or e-mailed to: Andrew.Hayward@hmrc.gsi.gov.uk
Guidance on trust management expenses has also been published. However, HMRC were not able to reach agreement with the representative bodies over the deductibility of certain trustees' fees, and the paper reflects HMRC's views on that subject. The guidance clarifies the existing legal position and does not change the way expenses are dealt with.
The Society of Trust and Estate Practitioners is concerned that a, presumably unintended, consequence of the draft legislation is that giving business property to dependent children under 18 years old could be restricted, although arrangements for over 18s would still be allowed.
The new legislation would harmonise the definitions of when a trust is treated as one in which a settlor has an interest for capital gains tax and income tax. This in turn would restrict people's ability to give business property standing at a gain to their dependent children under 18 without triggering a capital gains tax charge. John Riches, chair of STEP's technical committee said: 'People thinking of making gifts of business property into trust for their children under age 18 would be well advised to do so before 6 April 2006 in case this anomaly is not corrected'.
www.hmrc.gov.uk
Double tax
A protocol amending the 1977 UK-Switzerland double taxation convention was recently agreed at official level. The main amendments are the elimination of taxation at source on dividends where the beneficial owner of the dividends has a substantial participation in the payer or is a pension scheme. The protocol also amends the exchange of information article. It provides that, in future, information will be exchanged in cases of tax fraud or the like, and in cases involving holding companies.
The protocol also contains measures relating to pensions. In future, lump sum payments may be taxed only by the state in which they arise. Also, pension contributions paid to a scheme recognised for tax purposes in one country may, under certain conditions, be deductible in the other country.
A comprehensive double taxation convention between the UK and Japan was signed on 2 February 2006. It will replace the existing convention that dates from 10 February 1969. Important features of the new treaty include complete elimination of source-country withholding taxes on: all royalty income; certain interest income, including interest income earned by financial institutions; and dividend income paid to parent companies with a controlling interest in the paying company.
The text of the Convention is available on HMRC's website, at www.hmrc.gov.uk/international/japan.pdf and will be published in due course as a schedule to a draft Order in Council and laid before the House of Commons for approval.
In the UK the convention will take effect from 1 January with respect to taxes withheld at source; 1 April for corporation tax purposes, and from 6 April for income tax and capital gains tax purposes following the date of entry into force. In Japan, the provisions will take effect in respect of taxes withheld at source and taxes chargeable from 1 January following the date of entry into force.
www.hmrc.gov.uk and HMRC news release dated 2 February 2006
