219. MTD ITSA pilot closed to SEISS and CJRS claimants

Taxpayers that have claimed grants under the Self-Employment Income Support Scheme (SEISS) or the Coronavirus Job Retention Scheme (CJRS) will not be able to join the Making Tax Digital for income tax self assessment (MTD ITSA) pilot for 2021/22. HMRC had intended to deliver the functionality to allow such taxpayers to join the pilot for 2021/22 (having excluded them for 2020/21), but it has now decided to prioritise functionality needed for the longer term.

Contributed by Caroline Miskin

220. HMRC clarifies employees’ working-from-home deduction

HMRC has confirmed ICAEW Tax Faculty’s interpretation that eligible employees can claim the full year’s entitlement to the £6 per week (£26pcm) working from home deduction against earnings for 2020/21 and 2021/22 if they have been told to work from home because of coronavirus by their employer, even if it has been for only one day during the tax year(s). The best way to claim is via HMRC’s online portal. The portal cannot be used by agents, and employees in self assessment must claim via their tax returns.

Contributed by Peter Bickley

221. Pensions schemes and leases to connected tenants

In its Pension schemes newsletter 130, HMRC has highlighted issues for self-invested personal pensions (SIPPs) and small self-administered scheme (SSAS) pensions that hold commercial properties. In particular, it reminds scheme administrators that payment holidays should be on a commercial basis to a connected party, otherwise unauthorised payment changes may arise. It also reminds administrators that renegotiation of lease terms should be on commercial terms where the tenant is connected. Evidence should be retained to support the basis that terms are agreed for both payment holidays and renegotiated lease terms.

222. Pipe repairs do not qualify for land remediation relief

The Upper Tribunal (UT) has upheld a First-tier Tribunal (FTT) ruling that improvements to underground gas distribution pipes did not qualify for land remediation relief (LRR). The decision clarifies the interpretation of the conditions for LRR.

The taxpayer was a gas distributor that had acquired a large system of iron pipes from what had been its parent company at that time. It was required by law to replace the iron pipes for safety reasons. The taxpayer claimed LRR on the expenditure, which was denied by HMRC. The law has since changed, and this case relates to provisions of LRR that are no longer in force.

The FTT had ruled that the expenditure did not meet two of the conditions required to qualify for LRR. First, because the expenditure was not incurred on or in relation to physical land. Second, because the contamination was at least partly as a result of the actions of a company connected with the taxpayer.

The UT upheld this decision, although with some differences in the interpretation of the law. The land was contaminated at least partly because gas was pumped through the iron pipes by both the taxpayer and its predecessor. That was sufficient to cause the LRR claim to fail, and the fact that neither the taxpayer nor its predecessor had laid the iron pipes did not change that outcome. The UT also went on to find that the expenditure did not qualify because it did not have the requisite connection with land. Expenditure on chattels such as pipes was found to be capable of being sufficiently connected to land. But in this case, that connection was lacking. The appeal was dismissed.

Northern Gas Networks Limited v HMRC [2021] UKUT 157 (TCC)

From the weekly Tax Update published by Smith & Williamson LLP

223. Tax relief for final business costs

When a professional business ceases to trade, there is generally an obligation to keep professional indemnity insurance (PII) in place for at least six years.

These costs are deductible as post-trading expenses (see HMRC’s Business Income Manual, paragraph 90080), but only against post-trading receipts. If the trading company is dissolved, there are no post-trading receipts.

The solution is to make a provision in the final accounts for the cost of PII premiums for the next six years and, if possible, actually pay those premiums in advance to the broker before the business ceases. This does not give rise to a taxable benefit in kind for the individual director as a deduction is also permissible under s346 and s365, Income Tax (Earnings and Pensions) Act 2003.

Such an accrual of expenses in a company may create a terminal loss, which can be carried back under s37 or s39, Corporation Tax Act 2010 against profits of the three years preceding the final period of trading.

Business Income Manual, paragraph 90080

From the weekly Tax Tips published by the Tax Advice Network

224. Supreme Court judgement in FII GLO

The Supreme Court has given judgement in Test Claimants in the Franked Investment Income Group Litigation v HMRC (1) and (2). These are the latest judgements in the Franked Investment Income Group Litigation Order (FII GLO), which concerns long-running litigation on claims brought by UK multinational groups that argued that the (now repealed) advance corporation tax (ACT) and franked investment income (FII) rules imposed higher tax burdens on UK groups with foreign subsidiaries compared with UK groups without foreign subsidiaries and hence infringed EU law. Two key points in the latest judgement that may have application to many companies in receipt of pre-July 2009 dividends (whether involved in the group litigation or not) are:

• that UK law breached EU law so far as it prevented the carrying forward of unused double tax relief (DTR) credits (for example, due to the offset of management expenses or group relief in any particular period). Any unused DTR credits (calculated on a foreign nominal rate basis) must, in principle, be regarded as remaining available to be applied against other income in subsequent years, notwithstanding any statutory provisions or other domestic rules of law to the contrary effect.
• that the standstill provision ceased to have effect from 31 March 2001 when the eligible unrelieved foreign tax (EUFT) rules were brought into operation. This is of particular significance in considering the taxation of third country (non-EEA) dividends from group companies (ie, non-portfolio holdings of 10% or more). The tax treatment of third country (non-EEA) dividends for portfolio dividends (sub 10% holding) had previously been decided in the Prudential case in favour of the taxpayer.

The issues covered in this judgement (taken from the Supreme Court’s summary) are:

1. Is HMRC barred from contesting an award of compound interest for tax paid prematurely by the claimants?
2. On what basis are the claimants entitled to recover interest for tax paid prematurely?
3. What is the nature of the remedy required by EU law in respect of the set off of DTR?
4. Was HMRC enriched as a matter of English law, given the interaction of ACT with shareholder credits?
5. Does it make any difference that the UK group had a non-resident parent that received double taxation treaty credits?
6. Is the taxation of dividend income from non-resident sources provisions permitted by the standstill provision of Art 64(1), Treaty on the Functioning of the European Union in light of the EUFT rules?
7. When and to what extent should unlawfully charged ACT be regarded as ‘surrendered’?

The Supreme Court has ruled in favour of HMRC in relation to issues 1, 2 and 7, and in favour of the claimants in relation to issues 3, 4, 5 and 6.

The decision will have wider application, in particular to funds, asset management and insurance companies. The judgement may also affect a pending decision from the FTT on questions from other taxpayers about the procedure for making claims for DTR and the calculation of those claims.

Test Claimants in the Franked Investment Income Group Litigation (Respondents) v Commissioners for Her Majesty’s Revenue and Customs (Appellant)

From the weekly Business Tax Briefing published by Deloitte

225. Correcting share plan payroll errors

Completing annual employment-related securities returns often uncovers payroll compliance errors. What should employers do to correct the position?

What can go wrong?

Employee share plans can be complex.

Payroll errors often arise, for example, where:

• overseas parented companies don’t tell UK employers about awards held by internationally mobile, or even domestic, employees;
• employers aren’t aware that income tax charges arose in connection with employment-related shares (for example, when restricted shares vested); or
• unlisted companies are unaware that their shares are ‘readily convertible assets’ and therefore within the scope of payroll withholding.

What do employers need to do?

Employers should voluntarily disclose any payroll withholding errors identified when completing the share plan returns and settle the amounts due with HMRC as soon as possible. This is important to minimise interest on late payment.

Additionally, if an employer makes an unprompted disclosure and cooperates fully with HMRC, this can mitigate any penalty charge, potentially reducing it to nil. While employers could correct errors by submitting a revised Full Payment Submission for 2020/21 (previously by using an Earlier Year Update), this doesn’t enable companies to contractually settle late payment interest and/or mitigate penalties.

Employers who identify share plan payroll errors should consider the following points before disclosing errors to HMRC:

What’s the total liability?

It’s necessary to identify all employment tax withholding and reporting errors, not just those in relation to share plans. Errors in one area could indicate other weaknesses.

HMRC generally expects employers to identify errors that arose in the past four tax years (or the past six years if HMRC successfully argues the errors arose due to ‘carelessness’).

Can you recover from employees?

It’s the employer’s responsibility to settle any outstanding payroll withholding with HMRC. However, it could be possible to recover PAYE and employee’s National Insurance Contributions (NIC) (and employer’s NIC where validly transferred) from employees. Employers should review the share plan documentation to confirm what rights of recovery they might have.

Have employees already paid the income tax?

If employees have already paid any of the income tax through self assessment, it should be possible to offset those amounts against the employer’s PAYE liability. You cannot do this automatically however, and it requires HMRC and employee consent via a specific regulation.

Have additional liabilities arisen?

Where employees do not ‘make good’ PAYE on share awards within 90 days of the end of the relevant tax year – including where PAYE was not operated at all – additional ‘tax on tax’ charges can arise.

The employer must account for NIC, and apprenticeship levy, where relevant, on these amounts. The income tax is due under self assessment. If it wishes to, the employer can settle this additional income tax on a ‘grossed up’ basis on the employee’s behalf. However, ‘making good’ is broader than cash reimbursement. It’s important to examine the drafting and operation of the plan to determine whether additional charges have in fact arisen, or if adequate indemnities themselves constitute ‘making good’ by the employee.

How did the errors arise?

Employers should carefully review why errors or omissions arose and ensure their systems and processes are improved to make them more robust.

It’s important to show HMRC that steps have been taken to prevent error reoccurrence. Sometimes, evidence of such remedial steps and systems controls changes can support a suspension of any penalty charge.

This is particularly important for employers within the senior accounting officer reporting regime.

From KPMG’s Tax Matters Digest

226. Compensation paid for loss of allowance taxable as employment earnings

The First-tier Tribunal (FTT) has found that a compensation payment made by an employer was taxable as employment earnings. It was paid following the discontinuance of an allowance paid as a regular part of the taxpayer’s salary, so although the cancellation and compensation were decided separately, the payment was derived from employment.
In addition to his salary, the taxpayer was entitled to an allowance for staff in his discipline. Following an equal pay review, these were discontinued, and compensation payments made. The taxpayer argued that this payment should not be taxable, as it was made not in return for services but for the employer to avoid the risk of claims under the Equal Pay Act.

There was no requirement for him to continue in the employment, and it was not calculated as exact compensation for the amount lost. However, the FTT agreed with HMRC that this was taxable as employment income, as it was paid solely for a change in the terms and conditions of his employment, which was solely the loss of the allowance. It was intended as a replacement for those payments.

McAllister v HMRC [2021] UKFTT 232

From the weekly Tax Update published by Smith & Williamson LLP

227. Taxation of settlement payments

The Upper Tribunal (UT) has overturned a First-tier Tribunal (FTT) decision on the taxation of sums paid by an employer to settle claims brought by employees. The settlement sum was only taxable to the extent that it was not used to pay for the legal and insurance costs incurred in bringing the claim.

An employer had settled a dispute with some of its employees over unpaid overtime and hardship allowances. The total payment comprised agreed court costs and a settlement sum. The employees paid their legal and insurance costs relating to the case out of the settlement sum. HMRC argued that the total settlement sum was employment income subject to income tax. The taxpayer, one of the claimants, argued that the portion of the settlement sum used to pay legal and insurance costs was not employment income subject to income tax.

The FTT found for HMRC based on the terms of the settlement agreement. It held that the settlement sum arose from the taxpayer’s employment and the use of those funds to pay legal and insurance costs did not change the nature of the settlement sum. The UT overturned this decision. It ruled that the sums used to pay legal and insurance costs did not differ from the agreed court costs, except insofar as the former were not yet ascertained at the time of the settlement agreement. Furthermore, even if the amount used to pay the legal and insurance costs arose by reason of the employment, it was not profit of the taxpayer from his employment. The taxpayer’s profit from his employment was limited to the settlement sum less the costs he had to incur to obtain that payment. Only that amount was subject to income tax. The amounts used to pay legal and insurance costs were therefore not taxable employment income.

Keith Murphy v HMRC [2021] UKUT 152 (TCC)

From the weekly Tax Update published by Smith & Williamson LLP

228. Bonus payments made to LLP members

The Upper Tribunal (UT) has given its decision in Charles Tyrwhitt LLP v HMRC. The case concerned bonus payments made to five members of an LLP, who were formerly employees of the LLP, under a long-term incentive plan that they had become members of while still employees. The amount of the payments was calculated by reference to the profits of the LLP, but the First-tier Tribunal held that they represented income from the former employment and were liable to class 1 national insurance. The UT has upheld this decision and dismissed the LLP’s appeal, confirming that the payments had their source in the former employment rather than in the self-employment as members of the LLP.

Charles Tyrwhitt LLP v The Commissioners for HM Revenue and Customs [2021] UKUT 0165 (TCC)

From the weekly Business Tax Briefing published by Deloitte

229. 30-day reporting

When a client notifies you of the 15-digit number (in the format XYCGTxxxxxxxxxx) following their own registration, do not lose it, as you will need it after you have signed into your agent services account to access the reporting section.

Also, when entering the estimated income for the year (in order to calculate the capital gains tax rates), you should exclude savings and dividend income chargeable at 0% (covered by the savings and dividend allowances), as the HMRC calculation assumes all income is chargeable at 20% or more.

Contributed by Stephen Franklin FCA CTA – Chartered Accountant and Chartered Tax Adviser

230. New HMRC tool to help decide whether IHT is due

HMRC has launched a tool to assist with calculating the value of an estate (tinyurl.com/TX-Valuing2). It is designed to work out the approximate value of the estate and help to decide whether any inheritance tax (IHT) is likely to be due. It does not, however, provide an estimate of the amount of IHT due.

Contributed by Caroline Miskin

231. Taxpayer loss on review of non-resident trust tax credits

On judicial review, the High Court (HC) has agreed with HMRC that extra-statutory concession (ESC) B18 only allows a taxpayer a tax credit on payments from a non-UK resident trust if that income arose to the trustees within the past six years. The taxpayers argued that the six-year limit did not apply.

Beneficiaries of non-UK resident trusts are not automatically entitled to tax credits on payments from the trust. There is however an ESC, B18, that allows the beneficiary to claim a UK tax credit if the underlying source of the payment is income on which the trustees paid UK tax. This is limited to income arising within the six years preceding the tax year in which the payment was made.

In this case, the taxpayers wished to claim a credit for older tax of about £4m and asked the HC to conduct a judicial review to determine whether or not the ESC really did impose a six-year limit.

The HC considered the changes in wording of the ESC, as it has been updated several times since being introduced in 1978. The taxpayers argued that on a strict reading, the six-year limit did not apply to payments to UK resident beneficiaries, as the payment is effectively treated as if made from a UK resident trust. The HC rejected this, agreeing with HMRC that despite changes to the wording of the ESC, the six-year time limit applied.

Murphy & Anor v HMRC [2021] EWHC 1914 (Admin)

From the weekly Tax Update published by Smith & Williamson LLP

232. SDLT refunds

Stamp duty land tax (SDLT) must be paid within 14 days of the completion of the property deal. The amount due is calculated according to the purchase price of the property, so normally a refund of SDLT will not be necessary as the correct amount will have been paid.

However, where one or more of the purchasers owns an interest in two or more residential properties at the end of the day on which the deal was completed, the SDLT will include the 3% supplement on the entire value. This can happen where the individual has bought a new home before they have sold their old home.

When the purchasers sell their original main home within three years of the purchase of their new main home, they can claim a refund of the 3% SDLT supplement. These SDLT refund claims will now be paid out without prior eligibility checks by HMRC, which should speed up the process.

However, repaying out the SDLT doesn’t mean that HMRC has agreed the refund is correct. HMRC has nine months to carry out compliance checks for amended SDLT returns and refund claims. If HMRC finds that the SDLT refund was not due, the taxpayer will be required to pay it back with interest.

SDLT return guidance from HMRC

From the weekly Tax Tips published by the Tax Advice Network

233. HMRC wins appeal on SDLT refund time limit

The Upper Tribunal (UT) has found that the 12-month time limit for amending stamp duty land tax (SDLT) returns still applies even if the amendment is to obtain a repayment of SDLT in respect of a substantially performed contract that was never fully performed. This overturned the First-tier Tribunal (FTT) judgement.

The taxpayer purchased a 25-year lease on a property, with agreement that he could develop it. He also purchased a separate lease of the property for 201 years. Two years later, both leases were given by the taxpayer to his brother. There were still payments due to be made for the 201-year lease, which became the brother’s responsibility. Having made an SDLT return for the full amount ultimately due, the taxpayer claimed an SDLT refund for the amounts of consideration that he had not paid before the gift.

The FTT found that this amendment was in time, as although the normal deadline for amendment has passed, on its reading of the legislation the 12-month time limit is overridden in circumstances where an amendment is made to an SDLT return that had been filed when a contract was substantially performed, but ultimately the contract was never completed. The UT overturned this, finding that no exception applied.

HMRC v Candy [2021] UKUT 170 (TCC)

From the weekly Tax Update published by Smith & Williamson LLP

234. New VAT1 form for manual applications for VAT registration

HMRC has requested that businesses wishing to register for VAT by post should use the new ‘print and post’ version of the VAT1. It appears that a significant number of older versions of VAT1 are still being used by agents. HMRC claims that using the new form should help with the correct and efficient processing of the manual applications. All businesses registering by post must print out, complete and post the VAT1 form.

Contributed by Neil Gaskell

235. HMRC extends deadline for non-EU businesses to make a VAT repayment claim

Some non-EU businesses claiming refunds of VAT from HMRC for the year 1 July 2019 to 30 June 2020 have encountered difficulties obtaining a certificate of status to enable the refund. The deadline for claims was 31 December 2020, but the deadline for submitting the supporting certificate of status had previously been extended to 30 June 2021. The deadline for submitting a certificate of status has now been further extended to 31 December 2021.

Refunds will not be made until a valid certificate of status has been received and HMRC has warned of potential processing delays owing to the volume of outstanding certificates. Overseas businesses (and their agents) are also reminded to submit refund claims for the period 1 July 2020 to 30 June 2021, on or before 31 December 2021. Any certificates of status provided to HMRC during 2021 will remain valid for those claims.

236. Outsourced loan servicing is subject to VAT

Since the Court of Appeal’s (CA) judgement in EDS in 2003, HMRC has accepted that outsourced loan servicing is exempt from VAT, provided that the servicer is involved in arranging the initial transfer of funds to the borrower. In Target Group, the CA has endorsed this approach.

Target provided a complete loan administration service to banks: processing loan repayments, contacting borrowers where necessary, calculating interest and maintaining loan accounts. However, its involvement only started once the bank had made the loan. Target was not involved in originating the loan and the CA held that its other activities did not amount to exempt payment processing services in their own right. Target did not credit or debit accounts directly and payments were executed by third parties (such as BACS) acting on its instructions, rather than by Target itself.

Applying Court of Justice of the European Union judgements such as DPAS, this was not an exempt payment processing service. The CA also rejected Target’s arguments that it was providing transactions concerning debt (which might, in any event, have been taxable debt collection), and that it was operating bank accounts. Its appeal was dismissed.

Target Group Ltd v Her Majesty's Revenue And Customs [2021] EWCA Civ 1043

From the weekly Business Tax Briefing published by Deloitte

237. Terminal Markets Order to apply to UK emissions trading scheme

In a written ministerial statement, the government has confirmed that emissions allowances traded on the UK emissions trading scheme (UK ETS) are covered by the Terminal Markets Order (TMO) (where the relevant conditions are met) and that legislation will be introduced to this effect.

Market participants can bid for UK ETS allowances on a UK auction platform or acquire future contracts in UK ETS allowances on the secondary market. The zero-rating afforded to such trades under the TMO reduces the administrative burden while ensuring that the correct amount of VAT is collected at the final stage of consumption.

From the weekly Business Tax Briefing published by Deloitte

238. Claims for input tax on Mailmedia services were invalid

For Zipvit Ltd to recover VAT on Mailmedia services provided by Royal Mail in 2006-2010, VAT must have been ‘due or paid’ and should have been evidenced by a VAT invoice. At the time, however, the services were (incorrectly) considered exempt.

Although HMRC chose not to pursue Royal Mail for output tax that it should have paid, Zipvit still sought to recover input tax. In the Opinion of Advocate General (AG) Julianne Kokott, VAT had been ‘due or paid’ by Royal Mail, regardless of whether HMRC could or should have assessed it. The fact that Royal Mail provided a service that should have been taxable established a right for Zipvit to recover input tax in principle. However, Zipvit’s claim failed because of the absence of a VAT invoice.

The AG listed five essential characteristics of a VAT invoice, one of which is the VAT amount. If an invoice is defective in other respects, then it can be fixed. However, the documents issued by Royal Mail simply did not mention an amount of VAT, which meant that they could not be recognised as VAT invoices at all. Failure to specify a VAT amount made it impossible for supplier, customer or HMRC to verify how much VAT Royal Mail had included in its charges. As no VAT invoice had ever been issued, the AG’s view was that Zipvit was not entitled to recover any input tax.

From the weekly Business Tax Briefing published by Deloitte

239. Insurance commission must be recognised in standard method

Rádio Popular, a Portuguese retailer that sells computers, phones and domestic appliances, earned commission from selling extended warranties for its products on behalf of an insurer. The commission was exempt from VAT, but Radio Popular excluded it from its partial exemption calculations on the basis that it was generated by incidental financial transactions. The Court of Justice of the European Union did not even need to consider whether the commission was ‘incidental’.

In its judgement, the court noted that the EU Principal VAT Directive specifically omits insurance transactions from the definition of incidental financial services (that can be left out of standard partial exemption method calculations). The court ruled that insurance could not be defined as a type of financial service (which Rádio Popular thought might be an alternative way of excluding the exempt turnover). Regardless of whether or not the insurance commissions were incidental, Rádio Popular should have included them in its partial exemption calculations.

From the weekly Business Tax Briefing published by Deloitte

240. VAT on commission due when property sale completed

In 2012, X GmbH arranged the sale of real estate in Germany belonging to T GmbH, for which it was paid €1m. Payment was spread over five equal annual instalments of €200k, and X considered that it should account for VAT when payment was received.

However, in the Opinion of Advocate General (AG) Maciej Szpunar, X had to account for VAT when its services completed. X could not invoke the rules on credit notes (as the agreement to pay by instalments did not modify what it was owed) or the rules on bad debt relief (as the consideration had not become irrecoverable) to defer the tax point. In the AG’s opinion, the rule prescribing that some services are completed when the period to which they relate expire (thereby deferring output tax) only applies when there would otherwise be uncertainty about the time of completion, and there was no such uncertainty here. The fact that X had to finance the VAT due on its services, as it would not be paid in full for several years, was its own commercial choice. Taxpayers cannot determine tax points simply by adjusting payment terms.

From the weekly Business Tax Briefing published by Deloitte

241. Date of joining VAT group cannot be amended

Dollar Financial UK Ltd (Dollar), a payday lender, applied to include Dollar Financial Group Inc (DFGI), its US parent, in its UK VAT group. DFGI had seconded staff to Dollar in 2011/12, but it only applied to join the VAT group from June 2013. In 2016, Dollar asked for DFGI’s VAT group membership to be backdated (on the basis that DFGI had a UK establishment from 2011 and would have joined Dollar’s VAT group at that time). If VAT grouping could be amended in this way, then Dollar should not have accounted for VAT of £2.2m on charges from DFGI under the reverse charge.

The First-tier Tribunal (FTT) noted that VATA 1994 refers to four specific types of VAT grouping application, including an application for another person (ie, a company outside the VAT group) to be included in the VAT group. However, there is no statutory provision that states that an existing member can change the date on which it joined a VAT group. The FTT has therefore ruled that the request submitted by Dollar in 2016 was not a valid VAT grouping application. The FTT also rejected Dollar’s attempt to present its case as relating to VAT registration or overpaid VAT, as HMRC had not made any decision on these issues. In the absence of an appealable decision, the FTT struck out Dollar’s appeal. There was therefore no need for the FTT to consider whether the presence of the US secondees meant that DFGI has a UK establishment, an issue that will come before the Upper Tribunal in October 2021 in HSBC.

From the weekly Business Tax Briefing published by Deloitte

242. Information notices

HMRC is issuing increasing numbers of taxpayer information notices under para 1, Sch 36, Finance Act 2008, seeking information that is reasonably required for the purpose of checking the tax position of the taxpayer.

The meaning of what is ‘reasonably required’ for the purpose of checking a person’s tax position is very wide (and includes any penalties that may arise) and this frequently gives rise to arguments and appeals.

(However, arguments and appeals are pointless where the information notice has been issued with the prior approval of the Tribunal under para 3(2) – to which approval process the taxpayer has no right to appear – because there is then no right of appeal: per para 29).

The reasonableness test was recently considered by the First-tier Tribunal (FTT) in the case of Avonside Roofing Ltd v HMRC [2021] UKFTT 0158 (TC). HMRC sought information relating to the behaviour of the taxpayer in connection with a tax scheme to see whether they had been careless and therefore liable to a penalty. This was all to do with whether the taxpayer had reasonably followed professional advice (which is one of the grounds for a reasonable excuse) or whether they had not taken reasonable care when implementing the scheme.

That seems fair enough and HMRC had seven grounds for its requests for information. However, the FTT said that the alleged careless behaviour was not an abstract concept. It was necessary to show that an inaccuracy in each of the documents requested was due to a failure by the taxpayer to take reasonable care.

HMRC had not established this linkage in any of its grounds and the information notices were therefore invalid.

It is a welcome relief to find that there is some limitation on the scope of an information notice – even though this one was confined to the specific issue of penalties. It is not known whether this will be enough to protect the taxpayer from penalties – for example, if HMRC has enough information from elsewhere to support an allegation of carelessness.

Contributed by Peter Vaines, Field Court Tax Chambers

243. No right for taxpayers to attend third-party information notice hearings

The Court of Appeal (CA) has found that when deciding whether or not to approve a third-party information notice, the First-tier Tribunal (FTT) cannot hold the hearing in the presence of the taxpayers. In addition, the hearing should normally be private.

In the course of enquiries into the taxpayers’ corporation tax returns, HMRC wished to send third-party information notices to some individuals, and it applied to the FTT for permission to issue them. The companies and individuals applied to the FTT for permission to attend the hearing, and to make representations at it. The FTT and Upper Tribunal declined the request, and the CA has now agreed that the appellants cannot attend.

The CA considered the tribunal regulations, and the legislation governing information notices. It found the FTT had no power to permit the taxpayers to attend and, in addition, that the hearing should normally be private.

Kandore Ltd & Ors v HMRC [2021] EWCA Civ 1082

From the weekly Tax Update published by Smith & Williamson LLP

244. FTT cannot determine domicile in an information notice hearing

The First-tier Tribunal (FTT) has found that it cannot determine the issue of a taxpayer’s domicile in the course of an appeal against an information notice.

The taxpayer, who claimed a non-UK domicile, was issued with information notices by HMRC requiring information on his worldwide income and gains. He appealed the notices on the grounds that the information was not reasonably required to establish his UK tax position as he was non-UK domiciled, and asked the FTT to determine his domicile as part of the hearing.

The FTT dismissed his appeal and found that it did not have jurisdiction to determine domicile at an appeal against an information notice. As long as an HMRC officer had a rational basis to challenge the taxpayer’s domicile, they did not need to prove domicile to obtain an information notice. Alternatively, the FTT found that if it did have jurisdiction, it should not exercise it in the circumstances.

Perlman v HMRC [2021] UKFTT 219 (TC)

From the weekly Tax Update published by Smith & Williamson LLP

245. How HMRC plans to deal with tax debt

HMRC has set out its approach to recovering tax debt from individuals, businesses and via company voluntary arrangements as government measures relating to the coronavirus pandemic come to an end and economic activity increases. It pledges to continue supporting viable businesses where it can, making sure they are accessing other government support available to them, such as the Bounce Back and Recovery Loan schemes. HMRC reminds businesses that where they need more time to pay their tax, it will continue to take a flexible approach to Time to Pay, providing them with bespoke, affordable payment plans following a review of their financial affairs. It also recommends calling its dedicated Payment Support Service as soon as a business requires assistance.

Contributed by Richard Jones

246. HMRC introduces new ‘pay by bank account’ payment method

Taxpayers and agents who pay HMRC via debit or corporate credit cards now have the option to make payments straight from their bank accounts, HMRC confirmed in Agent Update 86. After logging into an HMRC online account, taxpayers can be connected to their online banking to authorise a secure payment and then returned to HMRC. All payment details will be pre-populated to ensure that the correct payment reference number will be used. HMRC has confirmed the payment method is currently only available to customers using their HMRC online accounts, but it plans to extend the service to those who do not wish to use an online account and other regimes.

Contributed by Caroline Miskin

247. Supreme Court upholds quashing of follower notice/accelerated payment notice

The Supreme Court (SC) has dismissed HMRC’s appeal against the Court of Appeal’s (CA) decision in R on the application of Haworth v HMRC. The issue is whether HMRC’s issuing of a follower notice, and a subsequent accelerated payment notice, was lawful.

The background relates to ‘Round the World’ (RTW) tax arrangements, which typically involved transferring a trust, temporarily, to another jurisdiction such as Mauritius and taking advantage of the UK/Mauritius treaty. In 2010, HMRC was successful in a RTW case in the CA – Smallwood v HMRC. Following the Smallwood case, HMRC’s solicitor’s office circulated internal advice on the factors that it considered would, if present in similar cases, lead to similar results. The High Court held that HMRC’s actions complied with the legal framework on follower notices, and the notices were valid. The CA held that to give a follower notice, HMRC must be of the opinion that the principles or reasoning in the ruling in question would deny the relevant advantage, not merely that they would be more likely than not to do so.

The SC has upheld the CA’s judgement. The use of the word ‘would’ indicates that HMRC must form the opinion that there is “no scope for a reasonable person to disagree that the earlier ruling denies the taxpayer the advantage… An opinion merely that is likely to do so is not sufficient.” The SC also held inter alia that HMRC had misdirected itself in its analysis of Smallwood.

From the weekly Business Tax Briefing published by Deloitte

248. European Green Deal announcements

The European Commission has released a package of proposals under its European Green Deal, aimed at reducing net greenhouse gas emissions by at least 55%, compared with 1990 levels, by 2030. Key proposals include: a revision of the Energy Taxation Directive to align the taxation of energy products with EU energy and climate policies; changes to the European Emissions Trading System, with the overall emissions cap further reduced; and the new Carbon Border Adjustment Mechanism (CBAM).

The CBAM will establish a carbon price on imports of a targeted selection of products to prevent ‘carbon leakage’ and to encourage countries outside the EU to take steps in the same direction. The CBAM is expected to be fully operational from 2026, following a transitional phase from 2023 to 2025. The products within the initial scope of the CBAM proposal are cement, iron and steel, aluminium, fertilisers and electricity generation. EU importers of such products will be required to buy CBAM certificates from their national authorities, with carbon prices already paid on production deducted from the certificate price.

From the weekly Business Tax Briefing published by Deloitte

249. Jersey’s economic substance regime extended to partnerships

The draft Taxation (Partnerships – Economic Substance) (Jersey) Law 2021, which extends Jersey’s economic substance rules to partnerships in line with commitments given to the EU Code of Conduct Group, was lodged with the Jersey States Assembly on 18 May 2021. It was passed without amendment on 29 June 2021 and came into force for financial periods commencing on or after 1 July 2021 for new partnerships formed on or after this date. For existing partnerships (ie, those in existence prior to 1 July 2021), it will take effect for financial periods commencing on or after 1 January 2022.

The legislation broadly mirrors Jersey’s existing economic substance legislation for companies. Where a ‘resident partnership’ has gross income in relation to relevant activity carried on by or through that partnership, it will be required to meet the economic substance test. ‘Relevant activity’ definitions largely follow those set out in the existing company economic substance rules. As with companies, persistent failure could lead to the partnership being wound up or dissolved.

From the weekly Business Tax Briefing published by Deloitte