I note commentary in Taxation approving of ‘High Tech’ solutions. This would encompass (I gather) everyone signing up to the ‘Cloud’.
Technology is wonderful. BUT:
Some points. They are meant for debate, and I certainly do not believe in the extremes some of the ideas below may suggest (so no abuse to anyone, please, just healthy discussion).
1. Tax Authorities are obliged to deal with everyone (presuming they wish everyone to pay tax). This must include the elderly and the computer illiterate. The Victorians did not exempt those who could not read from tax. Try to be fair Government! It will get you far more benefits that you could imagine.
2. I did a Bio-Chemistry Degree and learned exciting things about genetics! Who would have thought (query designer babies?) that the recessive gene for sickle cell anaemia (bad) actually is in its more common form, beneficial in terms of resisting malaria?
3. Monocultures are dangerous in terms of ecosystems. I suspect they are also bad in terms of governance and economics? Perhaps not everything should be run through companies quoted on a stock exchange, nor every tax return run through the same memory system.
4. Having experienced the dire impact of a computer crash on a number of occasions, the point about monocultures is perhaps exemplified. In the ‘olden days’ (not that long ago) when a crash happened we just went back to those tasks we could do by hand. Now, we sit frustrated. When it happens, small business owners worry about economic loss; employees worry about whether they may get paid, and if so how soon they may legitimately disappear back home/to the pub/etc. PLC’s wish to send out questionnaires from the call centres, but cannot because the system has failed.
5. Unfortunately, evil exists in the world, and I fear a Government with a one track computer system may well find it has been hacked? At what level of loss does it go from being an embarrassment to be kept secret to an outright potential coup? A Government with no money will swiftly run out of a mandate to govern!
6. How many Government computer projects have developed totally smoothly, efficiently and on budget?
7. This is not to dismiss the Fool on the Hill, Head in a Cloud – It is just that the Man of a thousand voices is talking perfectly loud. (Thank you Lennon and McCartney). Those voices encompass the lonely who may not have computer access. Would Eleanor Rigby have had a laptop next to her face in a jar? How would she submit her tax returns?
8. As I think most people would agree Windows and Google are fantastic – when they work… Imagine a virus when they did not?
9. The recent debates suggest TAX = POLITICS. The LA Gangs got this right when saying a mugging was a ‘tax’. Why give money to someone you do not support? Do not give it to a gang. This is the reason you can vote and Government should look after all, not just their voters. It should mean a vote for someone who does not get in, is not ‘wasted’. It should be like an insurance premium. You do not wish the disaster risk you insure against to occur. Still pay it – it is better than the alternative!
10. HMRC should employ and train more technical Revenue Officers. There is no shortage of rules. My belief is HMRC are short of the resources to enforce them. From my experience losing enforcement ability is the easiest way to lose compliance enthusiasm from the general public.
Vote and then demand intelligence and flexibility from those who get it. [Not mere lobby fodder].
Views welcome. Share them also with the prospective MPs who intend to write your tax laws for the next 5 years.

The first-tier tribunal has ruled that Bridge is not a sport and as a result tournament entry fees are not exempt from VAT.

The English Bridge Union (EBU) were appealing HMRC’s decision not to repay VAT on £631,000 on tournament fees raised between 30 June 2008 and 31 December 2011.


Under current UK legislation entry fees may qualify for exemption where:

  • they are for entry to a competition in sport or physical education and the total amount of the entry fees charged is returned to the entrants of that competition as prizes; or
  • they are for entry to a competition promoted by an eligible body, which is established for the purposes of sport or physical recreation.

HMRC’s VAT notice Notice 701/45 provides a list of all the sports and physical activities that it believes qualifies for the exemption.

Taxpayers Arguments

The EBU argued that Bridge was a sport for a number of reasons:

– it is recognised as a sport by the Olympic Committee

– The natural meaning of “sport” is not limited to activities which principally involve skill or exertion

– Bridge is on a par with darts, croquet, billiards, flying and gliding (accepted as sports by HMRC) in that physical activity plays second fiddle to mental skill

They also argued that bridge unions in France, Holland and Belgian (amongst others) were not required to pay VAT on their entry fees.

HMRC’s Arguments

– Sport is something that involves physical activity or fitness and the European article defining the VAT exemption was intended to promote physical and mental health

– Bridge does not involve a significant element of physical activity or fitness

Tribunal’s Ruling

The tribunal concluded that the normal English meaning of “sport” involves a significant element of physical activity and stated that “sport normally connotes a game with an athletic element rather than simply a game”.

Bridge does not contain an athletic element and therefore does not meet the conditions necessary for the VAT exemption.


Some commentators have likened the case to the great biscuit/cake debate around Jaffa Cakes; however this ruling seems much clearer cut and is unlikely to garner much media attention.

The ruling should not have any wider implications other than to reinforce the definition of what constitutes a sport for VAT purposes as initially established in the Royal Pigeon Racing Association Case (VDT 14006).

The recent First-Tier Tribunal (FTT) case of Donovan & McLaren v HMRC has confirmed that regular dividend waivers constitute a settlement for Income Tax purposes.


It was argued by HMRC that the effect of the dividend waivers and the intention of them was to allow higher dividends to be paid to the two directors’ wives than their respective shareholdings entitled and lower dividends to be received by the two directors.

HMRC stated that according to ITTOIA 2005 s.620 the directors’ dividend waivers and the consequent payment of dividends to their wives constituted an arrangement that can be defined as a ‘settlement’ whereby the directors were the settlors. HMRC inferred that the directors waived entitlement to dividends as part of a plan that dividend income otherwise due to the directors would be paid to their wives, therefore constituting an ‘arrangement’ under the settlements legislation. It was argued that this scheme was used for tax avoidance purposes so that the directors and their wives could reduce this aggregate liability income tax by using the wives’ unused basic rate band of tax.

HMRC rejected the alleged commercial rationale for executing the dividend waiver which was to maintain reserves and cash balances in order to accumulate sufficient of each to fund the purchase of the company’s own freehold property. They contended that this could have been more easily achieved by voting a lower rate of dividend.

The settlements legislation also requires an element of bounty to be part of the arrangement. Consequently, HMRC argued that the directors’ arrangement was not one that was entered into at arm’s length and the arrangement therefore contained an element of bounty.


The two directors failed to provide any evidence to defend their position other than inferences from previous correspondence submitted by them and their accountant. Furthermore it had been admitted by the appellants and their agent in a letter to HMRC that ‘dividend waivers are by their very nature not on arm’s length or commercial’ which substantially weakened their appeal.

They had also argued that structuring the waivers as they did was tax efficient and made commercial sense.


The FTT found that the directors had waived their entitlement to dividends as part of a plan to ensure that the dividend income became payable to their wives so as to reduce their aggregate liability to Income Tax. The income which arises from the dividend waiver arrangement clearly arose during the lives of the director and the dividend income paid to their wives from their shares together with the dividend rights attached to them are benefits enjoyed by the directors’ wives. On the balance of probabilities the FTT accepted the submissions by HMRC; including the opinion that there was no commercial purpose for the waivers and that they did not have taken place at arm’s length.

The FTT also found that there was a lack of sufficient distributable reserves within the company were it not for the directors waiving the dividends.

Finally, they rejected the claim by the directors that the discovery assessments raised by HMRC were invalid. All appeals asserted by the two directors were dismissed.


This case serves as a reminder that companies need to be cautious when considering the use of dividend waivers. The definition of a ‘settlement’ is wide-ranging and to avoid being caught in an arrangement which may constitute a settlement arrangement it is best to seek professional advice.

There are options that remain effective for efficient tax planning through family companies that can be used without the need for dividend waivers. Seeking professional advice in advance is preferable to finding out the planning did not work in the Courts.

Loan to Participators (Overdrawn Directors Accounts) – s.455 Tax Charge

Budget 2013 announced various anti-avoidance measures aimed at the loan to participators/overdrawn directors accounts s.455 tax charge.

Read the full article.

Disclosure Update: Isle of Man, Jersey & Guernsey

HMRC announced three more disclosure facilities in quick succession as they attempt to tighten the net on tax evaders operating closer to the UK. 

 Read the full article.

Fairness in Tax – A Round-up of Some Recent Cases

There has been much publicity in the media in recent months over tax avoidance, and whether certain parties are paying the “right” amount of tax.    The theme of fairness ran through three recent tax cases heard by the courts.

Read the full article.

New Disclosures – Lessons from the Liechtenstein Disclosure Facility (LDF)

In many ways these new tax treaties are similar to the Liechtenstein Disclosure Facility (LDF) which has been operating for some time now.  It therefore makes sense to consider them in the light of experience and lessons learned from the LDF.
Read the full article.

Entrepreneurs’ relief on Enterprise Management Incentives (EMI) share options

Draft proposals under the Finance Bill 2013 could make it much easier to qualify for entrepreneurs’ relief on shares acquired through a qualifying EMI share option scheme.
Read the full article.

Changes to Corporation Tax deductions available for employee share schemes

Read the full article here.

Under current legislation a corporate tax deduction is given on shares acquired through employee shares schemes. The amount of the deduction available is the amount that is chargeable to income tax when the shares are acquired by the employee or the amount that would be chargeable if the employee was a UK resident and other reliefs were unavailable.
The legislation introduced under Finance Bill 2013 clarifies that if relief is given under Part 12 CTA 2009 it is not possible to claim any other deduction for Corporation Tax in relation to those employee shares or options.
The legislation also highlights that no Corporation Tax deductions are available to a company in relation to employee share options unless shares are actually acquired by an employee in accordance with the option.
It appears these provisions are largely to prevent avoidance and should not affect genuine planning using tax efficient options such as EMI schemes.

The First Tier Tax Tribunal decided in the case of Prince & Others v HMRC that it had no jurisdiction over the application of ESC A19.

It was heard that the application of an extra statutory concession is governed by public or administrative law, and therefore this case needed to be settled through a judicial review.

The taxpayers’ appeals were struck out and we must now see whether a judicial review goes ahead.

Inheritance Tax is a thorny subject for families and can affect couples with more than £650,000 of net wealth between them (2012/13 rates).

 For such couples planning to avoid inheritance tax is never easy because there is a balance to be achieved between maintaining a standard of living through the later years and giving assets to younger generations.

 It is never too early to start planning for IHT mitigation; but typically it would be sensible for the process to begin in the late 50s or 60s.

 It is important to understand that capital gains tax can often hamper planning for IHT and so succession planning in relation to property, shares and businesses is important if this is to be accounted for.

 The first stage of planning is to estimate a family’s current exposure to IHT and if this is material some initial ideas can be suggested. It will become clear to the family which ideas are practical and which are not, and then we can focus on the ones which have a chance of practical success.

For an initial consultation please call Eaves & Co on 0113 2443502 to arrange an appointment. We have much experience in this area of tax planning and testimonials are available on our website.

It was announced in the Autumn budget report that the statutory residence test, due to come into effect in April 2012, has been delayed until April 2013.
When it is implemented the test will provide taxpayers with a greater degree of certainty regarding their tax residence status.
However even though it has not yet been implemented it is still worth bearing in mind. Particularly as the number of days an individual is present in the UK in prior years will determine the relevant criteria under the statutory residence test.
If you are going to be working abroad call our Leeds office on 0113 2443502 to understand your UK residence status, before you leave

UPDATE: Please see Eaves and Co’s Swiss Treaty Brochure for full details of the treaty

The UK and Swiss governments have now signed the long awaited UK-Swiss Confederation Taxation Cooperation Agreement. The new treaty still has to be ratified before coming into effect, but is expected to be fully effective from 1 January 2013.

The treaty will generally apply to UK taxpayers who held a Swiss account as of 31 December 2010 and where the account remains open as of 31 May 2013. Non-UK domiciliaries will have to prove, by way of a certification by a lawyer or tax agent that they have claimed the remittance basis of taxation for the year in question, and give notice to opt-out of the agreement. Under the terms of the agreement, UK taxpayers may either:

1) Retain anonymity and suffer an initial one off deduction of between 21-41%, or

 2) Make a voluntary disclosure to HMRC regarding their Swiss assets and income.

Option 1

There will be an initial one-off deduction, in order to settle past tax liabilities, of between 21% and 41% applied to the balance of a UK resident’s existing Swiss accounts as of 31 December 2010.

The rate charged depends upon the number of years of investment and the account movement. It is estimated that the applicable rate will be 22-28% for most taxpayers.

 In addition to this from 2013 there will be a withholding tax of 48% on interest income, 27% on Capital Gains, and 40% on dividends.

Taxpayers who pay the levy and withholding tax will be able to retain anonymity (subject to EU approval).

Option 2

Alternatively the taxpayer can make a full disclosure of untaxed Swiss income and gains to HMRC. HMRC will then seek unpaid taxes, interest and penalties from this disclosure.

If a disclosure is made, the taxpayer’s accounts will not be subject to the one off charge and future withholding tax. However the taxpayer must inform their banks that they have chosen to disclose otherwise the one-off levy will be automatically applied.

 What to do now

 It is likely that UK persons with undisclosed Swiss income will need to contemplate whether to make a disclosure or pay the one off levy and suffer the withholding tax moving forwards.


There is no specific disclosure facility contained within the Treaty, so HMRC will levy penalties at normal rates on any liabilities disclosed. HMRC can assess such tax liabilities for up to twenty years so the total cost of tax, interest and penalties could be very high.

A more generous disclosure opportunity is available using the Liechtenstein Disclosure Facility (LDF). The LDF provides certainty of settling past worldwide tax issues, with liabilities being limited to those arising after April 1999, and with a set 10% penalty rate for years up to 5 April 2009. More importantly, the LDF provides immunity from prosecution.

Pay the Levy and Withholding Tax

The one off charge is levied on the value of Swiss funds as of 31 December 2010 and therefore only clears tax liabilities associated with those funds and therefore does not guarantee that all past Swiss liabilities will be settled.

 As a result it does not offer immunity from prosecution but does however ensure that anonymity is retained.

Move Assets to another Jurisdiction

It is possible to move assets to another jurisdiction before the 31 May 2013 to avoid the regime; however Swiss banks will be providing information to HMRC on the top ten destinations where funds are being moved. If the taxpayer is subsequently caught they will be liable for tax due going back to 20 years, penalties of up to 200%, public ‘naming and shaming’ and the risk of prosecution.

How Eaves & Co Can Help

Based on the LDF’s that Eaves & Co have already made for clients, the average cost is around 17% of the account value at the time of the disclosure. This is less than the 21%-41% levied under the Swiss Tax Treaty; however each case will need to be judged on its own merits.

In order to establish the best option for the individual involved it would be useful to undertake a technical review to compare the net costs of both options. Eaves & Co would be happy to have a no names discussion (so as not to contravene the money laundering rules) to discuss the options available in more detail to anyone feels they may be affected.

The Supreme Court recently upheld the Court of Appeal’s decision that Mr
Gaines-Cooper was a resident of the UK despite spending the majority of his
time in the Seychelles.

Mr Gaines-Cooper’s main argument centred on the application by HMRC of their guidance set out in the IR20 booklet on residence.  This has since been replaced by HMRC6.

Despite following HMRC’s guidance on residence, Mr Gaines-Cooper was found to be UK resident.  The case revolved around whether there was an ‘implied’ requirement for there to be a distinct break from the UK in order to become non-UK resident.

The case highlights the fact that HMRC guidance is not the law, and following it will not necessarily provide protection. Similar principles have applied in the taxpayers’ favour in recent cases on ‘reasonable excuse’ which have found HMRC’s guidance to be stricter than the actual wording of the legislation.

Going forward, the new statutory rules on residency should provide taxpayers with more clarity, however for prior years the case law principles will still apply.