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Business Tax Briefing - 11/10/2013

OECD publishes memorandum on transfer pricing documentation
The OECD has published a brief memorandum on transfer pricing documentation in advance of the public meeting on intangibles and transfer pricing documentation to be held in Paris on 12-13 November, mentioned last week.

The document sets out a number of questions for business. It covers what should go in the high level country by country template.  

Other issues include how income should be shown (ie whether it should it be accounting income or taxable income), whether the income of different entities should be combined and whether tax should be on the cash paid basis, or the accruals basis.  

The document also raises the question whether other measures should be included, such as sales revenue by customer location and details of employees.  

2011-12 Tax Gap figures published
HMRC have published their 2011-12 Tax Gap figures. The Tax Gap is regularly revised to take account of the latest available information, and the new figures include revisions going back to 2005 to 2006.

The Tax Gap has fallen steadily over the last six years, from 8.3% of tax due in 2005-06 to 7.1% in 2010-11 and 7% in 2011-2012. The proportion attributable to corporation tax payable by large business has also shown a steady decrease.

HMRC  estimate that SMEs are responsible for nearly half of the value of tax gap, largely attributable to error or failing to take reasonable care.

The figures are compiled from around 30 separate estimates for different taxes and broken down by type of tax, by taxpayer group and taxpayer behaviour. See

A two-page Briefing on the new figures is at

Treasury team and shadow Treasury team changes
There are a number of changes to the Treasury team and the shadow Treasury team following this week’s reshuffles. David Gauke remains as Exchequer Secretary.  

Nicky Morgan, who worked as a corporate lawyer until she entered Parliament in 2010, moves from the Whips Office to become Economic Secretary to the Treasury in place of Sajid Javid, who becomes Financial Secretary to the Treasury.

Greg Clark, the previous Financial Secretary to Treasury, moves to the Cabinet Office.  

Catherine McKinnell, formerly shadow Exchequer Secretary, is now shadow Economic Secretary. The new shadow Exchequer Secretary is Shabana Mahmood, formerly an employed barrister specialising in professional indemnity.

Goodwill where business transferred as going concern: HMRC note
HMRC have published an updated practice note on apportioning the price paid for the transfer of a business as a going concern where the business involves a trade related property.

When a business is sold as a going concern, the price paid must be apportioned between the various assets in order to establish the CGT position, to calculate SDLT payable by the purchaser and to calculate capital allowances.

HMRC's note deals mainly with issues that have arisen where the property is a ‘trade related property’ valued using a profits approach. Examples include public houses, hotels, petrol filling stations, cinemas, restaurants, care homes etc (see paragraph 4 of HMRC's note).

Identifying the sum attributable to ‘goodwill’, which is fundamental to the apportionment, is particularly difficult in such cases. Some of the principles will however apply to apportionments for all types of businesses.


Filing information at Companies House: consultation
The Government is consulting on simplifying the processes for filing information at Companies House so as to remove duplication of effort for companies where possible. There are over three million companies, limited liability partnerships etc on the UK company register held at Companies House.  

Of these, over 80% have two directors or fewer and five shareholders or fewer.

Where the directors and shareholders are the same people, it is suggested that the requirement to make the company registers available to the public at the Registered Office could be removed, because the information held on the public register and the company registers are identical.  

Comments are invited by 22 November. See

Office of Tax Simplification Paper: use of definitions in tax legislation
The Office of Tax Simplification (OTS) has published a paper which analyses the use of definitions across three acts of tax legislation- inheritance tax, capital gains tax and corporation tax.

The OTS has documented 1,989 definitions used across the three acts overall. The paper attempts to draw out some common themes and provide principles on what makes a ‘good’ definition, and how to avoid creating ‘bad’ definitions. It is not a formal consultation, but comments are welcome.

The paper is at

Court of Appeal holds that farm ‘caretakers’ were employees: 'control' test
The Court of Appeal has held that an agreement made in writing on 1 August 2009 between Troutbeck SA, a Panamanian company, and the claimants, Mr Gary White and Ms Katy Todd, was a contract of employment.

The claimants had agreed to caretake and to manage Starcross Farm. It was also agreed that they would live rent free in a flat adjoining the main house to facilitate this. The initial agreement had been oral; this was later superseded by the August 2009 written agreement.

The Employment Tribunal held that the claimants were ‘workers', but not employees.

The Employment Appeal Tribunal decided the Tribunal had made an error of law in treating the absence of day-to-day control as the deciding factor, rather than looking at the agreement and the factual context in the round, and the Court of Appeal agreed.

The agreement was the starting point for deciding the true nature of the relationship.

The claimants were employees, and entitled to claim for unfair dismissal and arrears of wages. See

VAT adjustment cannot pass down supply chain – CJEU judgment  
The CJEU has decided that the Dutch tax authority cannot collect VAT arising on an "upstream" adjustment other than from the taxpayer who reclaimed the VAT in the first place.  

The case concerned an adjustment that arose because Pactor Vastgoed used a property it had acquired (as a taxable supply by virtue of the Dutch "option to tax") to make exempt supplies (initially letting the building and later selling it).  

Since the Dutch rules require a building subject to the option to be used for activities that allow all, or almost all, of the VAT on the supply of it to be reclaimed, the exempt use of the building meant that the option to tax the supply to Pactor Vastgoed was disapplied.  

In turn, this meant that the supplier concerned made an exempt supply and hence that its input VAT recovery was restricted.  The Dutch tax authority raised an assessment against Pactor Vastgoed to collect the "upstream" adjustment that resulted from the use that Pactor Vastgoed made of the property.  

The CJEU has now agreed with the Advocate General that EU law precludes the recovery of amounts due following the adjustment of a value added tax deduction from a taxable person other than the person who applied that deduction.

See For further information, please contact Alistair Lord on 0117 984 2830.

Energy saving materials not subject to lower rate VAT when supplied with new boilers
The First-tier Tribunal has agreed with HMRC that the installation of energy saving materials that would qualify for the reduced rate of VAT when supplied on their own, has to be standard-rated when they are sold with a new boiler or central heating system.  

In the case of A N Checker Heating & Service Engineers
, the appellant argued that, even though the installation of new boilers and central heating systems, and the associated installation of energy saving materials (insulation, heating and hot water system controls and so forth) constituted a single supply for VAT purposes, it was appropriate to separate out the charges for the labour and materials that would qualify for the reduced rate when supplied separately, and account for VAT at that rate on that element of the overall bill.  

HMRC did not agree, and the Tribunal concluded, with some regret, that their argument succeeded.  

There was a single supply of the heating system/boiler and related energy saving items and that it attracted a single VAT rate – the standard rate.  The case was designated as a “lead case” on the issue and it seems possible that it could go further.  


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