Focus on some recent tax cases

Tony Jenkins outlines some recent tax cases worthy of attention.

September 2021

This article seeks to highlight some recent tax cases from the Courts worthy of attention - full details of each case can be found on relevant databases. Future articles will continue this objective.

The first case is Whyte [2021] TC 08215; [2021] UKFTT 270 (TC)) in which the First-Tier Tribunal (FTT) considered a number of issues connected with the disposal of a property outlined below in the decision. The FTT found that building plots in the ground of a derelict manor house sold to finance its restoration had been appropriated to trading stock. Private residence relief was not available on the appropriation because the plots had ceased to be “garden or grounds” and were not within the permitted area. They considered a number of important issues:

1. Could the disposals of the six plots be treated as part of the same overall transaction as her renovations to the Hall?
2. Were the disposals of the six plots adventures in the nature of a trade for income tax purposes?
3. Was private residence relief (PRR) available either on appropriation of the plots to trading stock or sale?
4. Was the ‘conservation deficit’ deductible from any profit or gain?
5. Did Mrs Whyte hold the proceeds of disposal of the six plots on trust?
6. Was there an overriding public interest consideration requiring the disposals to be considered in a particular way?

The second case is JRO Griffiths Ltd [2021] TC 08203; [2021] UKFTT 0257 (TC) in which the FTT upheld the taxpayer’s appeal finding that expenditure incurred on the construction of a potato store qualified for capital allowances as it met the definition of plant and machinery and was either a silo or a cold store. This case is similar to May & Anor [2019] TC 06928, where the FTT found that expenditure incurred on a facility for drying, conditioning and storing grain was P&M and a silo. Counsel for the Appellant commented that it was inappropriate for HMRC to fail to bring an appeal to the Upper Tribunal on a point of law already decided by the FTT and then seek to litigate the same point repeatedly at first instance.

The third case is Radice [2021] TC 08176; [2021] UKFTT 0227 (TC) in which the FTT found that it was reasonable for a taxpayer to have relied on his accountants to advise him on the remittance rules and to complete his tax return accordingly. Whether a taxpayer’s reliance on a professional adviser amounts to taking reasonable care, and therefore prevents the taxpayer from having to pay an inaccuracy penalty under FA 2007, Sch. 24, depends on the specific circumstances. In this case the errors concerned the ‘complex’ remittance rules for non-UK domiciles, and in particular the 17-year test.

The fourth case is Messrs Elliot Balnakeil [2021] TC 08143; [2021] UKFTT 0193 (TC) in which the FTT found that expenditure incurred on renovating a listed building was capital. This case demonstrates the distinction between works carried out to repair parts of an asset (Revenue) and works carried out which involve the renewal or replacement of the asset as a whole (Capital).

The fifth and final case is Rodriguez-Issa [2021] TC 08123; [2021] UKFTT 0154 (TC) in which the FTT allowed a taxpayers’ appeal against an inaccuracy penalty, finding that HMRC had failed to adequately prove that the taxpayer’s omission of £320,000 of income from his tax return was deliberate.

HMRC’s default position with errors in returns tends to be that they must have been caused by the taxpayer acting deliberately. As the FTT commented in this case to make such an allegation is serious. It must be backed up with proof, which HMRC did not do sufficiently.

Perhaps if HMRC had advanced an alternative case of carelessness, given the size of the omission from the  tax return, they might have achieved some penalty being payable.

by. Tony Jenkins