Practical points

001. Responsibility for digital records

Do you and your client understand and agree who is legally responsible for maintaining the digital accounting records that are held within your accounting software? When the client moves to another accountant, how will you hand over those records?

The legal responsibility for creating digital records under Making Tax Digital (MTD) lies with the taxpayer. The length of time the accounting records must be kept has not changed with MTD, and that remains at six years from the end of the period. However, the old records do not have to be maintained in digital format for those six years. Once the required data has been submitted to HMRC, the old records can be kept in another digital format or even on paper.

The guidance on records and documents from the professional accountancy bodies was generally written when accounting records were largely created and retained on paper, or at least in some form of physical storage, such as a CD or hard drive. Nowadays, the accounting records are likely to only exist in cloud-based software. What happens if the software licence is discontinued for any reason? Where are the backups of the accounting records kept?

The ICAEW guidance Documents and records: ownership, lien and rights of access recommends that the ownership of the accounting records is clearly set out in the client engagement letter. It also recommends that the accountancy practice should have a document retention policy.

This is expanded in the ICAEW helpsheet Document retention. Where digital records are held by way of licensed proprietary software (eg, Sage, Iris or other accounts preparation or tax software), the accountancy firm should make alternative arrangements to access the data after the software licence is relinquished. This may involve exporting the data to another electronic format or taking a printed copy.

ICAEW members are required to deal promptly with any reasonable request for the transfer of accounting records, as set out in the ICAEW Code of Ethics (para R320.7C)

ICAEW outgoing accountant fact sheet

ICAEW helpsheet (Document retention)

ICAEW guidance (Documents and records: ownership, lien and rights of access)

From the weekly Tax Tips published by the Tax Advice Network

002. Extension of MTD VAT from April 2022

HMRC is writing to VAT-registered businesses with turnover below £85,000 to alert them to the need to comply with Making Tax Digital (MTD) VAT requirements from April 2022. The first batches of letters were sent in November and December 2021 to stagger 1 and 2 quarterly filers and those who file monthly or annual VAT returns. Similar letters will be sent to stagger 3 quarterly filers in February 2022.

HMRC is trialling three different versions of the letters to help assess the success of slightly different approaches, which will help it to design future communications campaigns.

About a third of VAT-registered businesses with taxable turnover below the threshold have already signed up to MTD VAT voluntarily and should not receive a letter. Some businesses may wish to apply for a digital exclusion exemption. HMRC has indicated that it is now accepting applications from those who require an exemption from April 2022. 

Contributed by Caroline Miskin

003. Company not eligible for the EIS

The First-tier Tribunal (FTT) found that despite all activities being outsourced to third parties, the company was still trading. It was not, however, doing so on a commercial basis with a view to profit, due to the state of the business at the time, so this was not a qualifying trade for the enterprise investment scheme (EIS).

A company appealed to the FTT over HMRC’s refusal to allow it to issue EIS certificates to its investors. The appeal was over whether or not the company was carrying on a qualifying trade and met the risk to capital condition for EIS.

The company’s purpose was to create a children’s television series, develop and produce it, and sell merchandise relating to it, which would be the main source of profit. HMRC held that the company had no qualifying trade, as all activities were outsourced to other companies. It argued that the company had no control over business decisions and took minimal actions; it simply received royalties and licence fees indicating investment rather than trading activity. Even if it were trading, receiving royalties would be an excluded activity outside of the safe harbour.

The FTT found that during the time period at issue, the company was not carrying on a qualifying trade. It was trading, as although activities were outsourced, there was no effective difference between paying to outsource this and paying employees for the same services. It was, however, not doing so on a commercial basis with a view to profit. The FTT reached this conclusion because at the relevant time the turnover was falling, and for various reasons the company was realistically not going to make a success of the trade, so there was no view to profit.

This finding was enough to dismiss the appeal, but the FTT went on to consider the excluded activity and risk to capital issues. It accepted that the company was not carrying on an excluded activity, as the value of the intellectual property was created and held by the company. It found, however, that it would not have met the risk to capital condition, as in a similar way to the view on the profit test, at the time in question, the company did not have a realistic objective of growing and developing its trade in the long term.

CHF PIP! PLC v HMRC [2021] UKFTT 383 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

004. Obligation to withhold income tax on payment of UK source interest

The First-tier Tribunal (FTT) found that interest paid by a UK-resident company had a UK source and was yearly interest. The obligation to withhold income tax from interest was not overridden by the UK/Guernsey tax treaty, as no claim for exemption was made.

The taxpayer was the ultimate parent of a group of companies engaged in property investment in the UK. Informal loans from persons connected to the group were replaced by a complex financing structure involving a series of short-term loans from the same lenders, with the interest and principal assigned to a Guernsey-resident company or a Guernsey trust shortly before repayment. In some cases, the interest was re-assigned to a UK resident company. The purpose of the refinancing was to preserve corporation tax relief for the interest payments, while ensuring the interest income was not subject to UK tax by the recipients.

The FTT found that the interest had a UK source. The provision in the loan agreement requiring interest to be paid outside the UK was completely outweighed by the fact that the debtor was UK resident, the interest payments were funded out of assets situated, and the profits of activities carried out, in the UK. Even if any proceedings to recover debt had to be taken outside the UK, any judgement obtained would need to be enforced against UK assets and UK profits. That was the underlying commercial reality of the arrangements. Very little weight was given to the fact that the loans were governed by the laws of a jurisdiction outside the UK to the location of the creditor, to the source of the funds giving rise to the loan.

Notwithstanding the short-term nature of each loan, the FTT found that the loans provided the taxpayer with a measure of permanence, which had ‘a tract of future time’ and was in the nature of an investment for the lender. The interest arising was therefore yearly in nature.

The FTT dismissed the taxpayer’s argument that it was entitled to rely on the treaty to make gross payments of interest without the necessity for any claim or direction. The FTT also found that there was no business purpose for the inclusion of the UK company in the refinancing structure. It was therefore not the beneficial owner of the income received.

The income tax assessments were therefore upheld.

Hargreaves Property Holdings Ltd v HMRC [2021] UKFTT 390 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

005. Tribunals cannot overrule HMRC on late pension protection election

The Upper Tribunal (UT) has found that the First-tier Tribunal (FTT) does not have jurisdiction to overrule HMRC if it refuses to accept a late election for fixed protection for pensions. It can only consider whether or not the election meets the requirements for validity, which include being made on time. It does not have a general supervisory jurisdiction.

In previous years, when the pension lifetime allowance was reduced then taxpayers who may already have pensions in excess of the new allowance have been allowed to apply to ‘protect’ their lifetime allowance at the higher level. The taxpayers did not apply for fixed protection by the deadline, as their adviser mistakenly believed that they had applied for a different form of protection, so advised them not to apply for fixed protection.

The taxpayers made late elections, which were refused by HMRC, although it has discretion to accept late elections where it believes that there is a reasonable excuse. They applied to the FTT to overrule HMRC, but it refused on the grounds that HMRC was entitled to decide not to accept the elections, and that HMRC’s decision was reasonable on the facts of the case.

At the UT, the taxpayers’ appeals were still dismissed, but on different grounds. The UT found that, contrary to the FTT’s finding, the FTT did not have a general supervisory jurisdiction. All it could do was to consider whether or not the conditions for a valid election were met. It could not overrule HMRC’s discretion. As the appeal was outside the scope of the FTT’s jurisdiction, the taxpayers’ appeals could not be upheld.

The Executors of David Harrison (Deceased) and (2) Simon Harrison v HMRC [2021] UKUT 273 (TCC) 

From the weekly Tax Update published by Smith & Williamson LLP

006. ATED revaluations

The next fixed revaluation date for the annual tax on enveloped dwellings (ATED) is 1 April 2022. The 1 April 2022 valuation will be applicable to determine whether ATED applies and the relevant charging bands from 1 April 2023.

Interim revaluations can be triggered by increasing a dwelling’s value through a land transaction (eg, acquiring additional land or extending a lease), a part disposal of the property and in circumstances where the property leaves the scope of ATED and then returns.

However, an interim revaluation is not required to reflect improvements to the dwelling (including extensions) or to reflect market movements.

007. Registering to file an ATED return for a client

Businesses needing to make an annual tax on enveloped dwellings (ATED) return can register for the online service or appoint an agent to submit an online ATED return on their behalf. The deadline for the ATED return for the year from 1 April 2022 is 30 April 2022 where the property is owned on 1 April 2022.

HMRC has reminded agents that they have until 1 April 2022 to register to use the online service to file on time for their clients by 30 April 2022.

Agents will need to:

• register using their agency’s registered business name and unique taxpayer reference if it has one; and
• add their clients.

After a client has been added, the agent receives a unique authorisation number. The agent must give this number to their client, as the client will need it to appoint the agent. If the agency has more than one agent dealing with ATED, administrators will need to be added to the agency’s account.

HMRC has said that although it is not possible to submit a 2022/23 ATED return before 1 April 2022, the service should be available to pre-populate information from mid-March.

008. Mid-sized business support team

HMRC has provided tailored tax compliance support to the 2,000 largest UK businesses for many years, through a customer compliance manager (CCM) specifically allocated to each business. HMRC also has a dedicated team to support mid-sized businesses with their tax issues.

‘Mid-sized’ in this context means a business with turnover of more than £10m and at least 20 employees.

This support is referred to as CET (Customer Engagement Team), and the areas that CET can help with include:

• VAT questions;
• corporation tax technical questions;
• certificates of residence for companies;
• voluntary disclosure for corporation tax or employment taxes; and
• employer duties and employer tax questions.

Where your client qualifies for this support, you can access the CET on behalf of your client using your government gateway ID, plus your client’s UTR number and address details. Your own accountancy practice does not have to qualify as mid-sized to access support on behalf of your clients.

HMRC support for mid-sized businesses

HMRC support for large business

From the weekly Tax Tips published by the Tax Advice Network

009. Avoiding R&D credit claim delays

HMRC experiences a peak in claims for research and development (R&D) tax credit claims under the SME scheme each December and January. While HMRC endeavours to maintain its aim of processing 95% of online claims within 28 days, there are tips for avoiding delays:

• where possible, beat the rush and file as soon as possible;
• file online, as the 28-day processing commitment does not apply to claims not filed via the electronic portal; and
• ensure that the BACS details are correctly included.

To help during this peak period, HMRC requests that taxpayers do not make contact to check on the progress of their claim. Instead, they are encouraged to use their online accounts to determine whether a claim has been processed. Payments processed by HMRC will be visible on the company’s online account with 24 hours, but they may be subject to security checks before being issued.

010. Online service for reporting dormant companies

In November 2021, HMRC launched a new service to allow companies and their agents to notify that a company is dormant. The service is relevant to companies that have never traded, are currently dormant or have ceased to trade.  

011. Employment Appeal Tribunal rules that car rental payments reduced pay for national minimum wage

In a recent case, Augustine v Data Cars Ltd [2021] UKEAT 2020-000383, the Employment Appeal Tribunal (EAT) considered the correct test for assessing what expenses reduced pay for national minimum wage (NMW) purposes.

The EAT agreed with the claimant taxi driver’s arguments that car rental payments and a payment for uniform were ‘in connection with’ his employment and reduced his pay for NMW purposes. This decision may have ramifications for many employers.

Facts

Mr Augustine worked for Data Cars Ltd (DC) as a taxi driver. He pursued a few claims against DC. Among these were claims for a failure to pay the NMW. In particular, Mr Augustine argued that a number of expenses he paid during his employment with DC (for example, equipment rental fees, car lease payments and payments for uniform) were ‘in connection with the employment’ and reduced his pay below the NMW (reg 13(b), The National Minimum Wage Regulations 2015, SI 2015/621).

ET and EAT decisions

The Employment Tribunal (ET) agreed that costs paid by Mr Augustine to DC in respect of a ‘circuit fee’, equipment rental fee and equipment deposit fee to access DC’s systems reduced pay for NMW purposes because he was required to make these payments to perform his job.

However, in respect of other expenses, the ET acknowledged there was little case law on the application of the NMW Regulations and applied HMRC’s guidance from its NMW Manual. HMRC’s guidance set out that expenses must be a ‘requirement’ of the work to reduce pay for NMW purposes and not something paid by the employee by choice.

Applying HMRC’s guidance, the ET found that costs in respect of insurance, cleaning and fuel would also reduce pay for NMW purposes. However, the ET found that the claimant was not required to rent a vehicle from DC or an associated company and only needed a uniform if he wished to do certain types of work, which was optional. Therefore, the ET found that these expenses did not reduce pay for NMW purposes.

Mr Augustine appealed to the EAT on a number of grounds, including that the ET was incorrect in the approach taken to the car rental payments and uniform payments.

The EAT agreed with Mr Augustine. It stated that the ET had not applied the correct test and had “decided the matter on a different and irrelevant basis” being HMRC’s guidance. The EAT stated that the correct test was merely whether it was ‘in connection with the employment’ and that the employee’s choice was not relevant. The EAT found that, based on the facts, had the ET applied the correct test it would have found that these payments were in connection with employment and reduced pay for NMW purposes.

Implications for employers

The EAT’s judgement may worry employers who have relied on HMRC’s guidance, but the decision provided little guidance on what expenses are ‘in connection with the employment’ outside of the context of the facts before it. This case does demonstrate that it is broader than previously envisaged by HMRC, but gives little more. While based on specific facts, the EAT’s decision will be binding upon the ET’s and it is possible that arguments could be made for a number of expenses that employees incur that could be said to be ‘in connection with the employment’. In light of this judgement, employers should carefully consider what payments they require their employees to make and whether this would reduce pay.

Further, the EAT’s decision demonstrates a clear willingness to disregard HMRC’s guidance and apply the wording of the Regulations. This is a reminder to employers that while HMRC’s guidance is useful, it is not legally binding.

From KPMG’s Tax Matters Digest

012. IR35 appeal for TV presenter dismissed

The First-tier Tribunal (FTT) has agreed with HMRC that IR35 applied to a TV presenter who had worked through a personal service company (PSC), as there was mutuality of obligation and the TV station exercised control over his work. The presenter should have been taxed as an employee. PAYE and NIC were due.

A TV presenter set up a PSC that entered into contracts with Sky TV for the presenter’s services. Prior to this, he had been a sole trader and presented invoices to Sky, but he switched to a PSC at Sky’s request. HMRC issued determinations for five years, on the basis that the intermediaries legislation applied to this arrangement, so the presenter should have been taxed as an employee.

The FTT considered the terms of the contract and the work arrangements in practice. It considered what the terms of a hypothetical contract would be if describing the actual arrangement. It found that there was mutuality of obligation between Sky and the presenter as, although he was on fixed-term contracts and there was no intention to create an employment relationship, the presenter was paid the same amount each month, not reduced for no-shows or increased for working overtime. Sky also exercised control over the presenter’s work, as it chose what sporting events he covered and when, so selected the dates and times that he worked. It also exercised control on how he worked, as although he had a degree of independence, it controlled the production process. The FTT also noted that more than 50% of the presenter’s working time was devoted to Sky, taking into account preparation time, and that he was restricted such that he could not work for another broadcaster.

The PSC’s appeal was dismissed. The IR35 legislation was found to apply.

Little Piece Of Paradise Ltd v HMRC [2021] UKFTT 369 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

013. LLP: Employee or Member?

Although we are all familiar with the adjective ‘self-employed’, it is a logically nonsensical term: you cannot as a matter of law enter into a contract of service with yourself so as to become your own employee.

By the same token, you cannot be both a partner in an English partnership and an employee of it: but the position is much less clear when it comes to an LLP established under the Limited Liability Partnerships Act 2000 (LLPA 2000).

Peter Wilson is the latest in a line of cases in which the question has been considered – in this case, by the Upper Tribunal (UT) in [2021] UKUT 0239 (TCC), on appeal from the First-tier Tribunal (FTT). What was at stake, in practical terms, was liability to class 4 national insurance contributions.

Although it is for most tax purposes treated as if it were a partnership, an LLP is like a limited company – a body corporate with a legal existence separate from that of its members. Absent any special rule, therefore, it would be no more problematic for an LLP to employ one of its members than for a company to employ one of its shareholders.

But there is a special rule: and therein lies the confusion. Section 4(4), LLPA 2000 says: “A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership.”

Unfortunately, that provision raises as many questions as it answers. Read literally, it makes no sense, for “if [the member] and the other members were partners in a partnership”, the member could never be regarded as employed by the partnership.

In Tiffin v Lester Aldridge [2012] EWCA Civ35 the Court of Appeal had a stab at making sense of it, saying that: “It requires an assumption that the business of the limited liability partnership has been carried on in partnership by two or more of its members as partners; and, upon that assumption, an inquiry as to whether or not the person whose status is in question would have been one of such partners. If the answer to that inquiry is that he would have been a partner, then he could not have been an employee and so he will not be, nor have been, an employee of the limited liability partnership.”

Thus, the answer given by that case to the question whether you can be an employee of an LLP of which you are a member is: yes, it is possible. But whether you are or not depends on the facts.

However, in Clyde & Co LLP v Bates van Winklehof [2014] UKSC 32 the Supreme Court said that Tiffin was wrongly decided: “All that it [s4(4)] is saying is that whatever the position would be were the LLP members to be partners in a traditional partnership, then that position is the same in an LLP.”

There is, however, some dispute as to whether what was said in Clyde & Co was part of the reasoning for the decision (and therefore binding on the lower courts) or merely obiter dictum, leaving Tiffin as good law.

In the Wilson case, the UT declined to add its thoughts to the debate on s4(4). So, on the important question of precisely what the subsection means, we are as much in the dark as we ever were.

Instead, the UT was able to avoid that difficult question by considering whether Mr Wilson would have been an employee under the ‘Tiffin test’. It was thus necessary to consider whether, if the LLP had been a partnership, Mr Wilson would have been a partner: would he have been carrying on a business in common with the other members of the LLP with a view of profit?

This was a question of fact, albeit one requiring a recognition of the applicable legal principles. The FTT had found that, on the assumption required by Tiffin, Mr Wilson would have been a partner. The UT could find no fault with the FTT’s decision and dismissed Mr Wilson’s appeal.

Wilson dealt with events occurring between 2011 and 31 March 2014. Since 2014, the ‘salaried member’ rules have provided that a member of an LLP will be treated for tax purposes as an employee (and not as a member) if any one or more of three specified conditions are met. It thus seems unlikely (but not impossible) that HMRC would now seek to characterise as an employee a member who does not meet any of those conditions.

Nonetheless, the question ‘Is a member of an LLP capable of being an employee of it?’ may have implications beyond tax law (indeed neither Tiffin nor Clyde were tax cases). Final clarification of that question is long overdue.

Contributed by David Whiscombe writing for BrassTax, published by BKL

014. SSP three-day wait to be reinstated in 2022

The standard three-day waiting time for statutory sick pay will be reinstated for coronavirus-related claims from 25 March 2022, unless government extends the period.

Under standard rules in the UK, employers do not have to pay statutory sick pay (SSP) to an employee until the fourth qualifying day in the Period of Incapacity for Work (PIW). The PIW is a period of sickness lasting four or more consecutive calendar days, not all of which may be qualifying days. The standard rule, therefore, is to look at the PIW, look at the qualifying days and the first three are called waiting days.

During the coronavirus pandemic, the government suspended the three-day wait for COVID-19-related SSP, meaning that employers must pay it from the first qualifying day.

The amendment to the SSP rules was made in the Coronavirus Act 2020, which contains an expiry date, under which the suspension of the general law will cease two years after the date of Royal Assent. This means that, unless there is an intervention to continue the measure, coronavirus-related SSP waiting time will automatically revert to three days on 25 March 2022.

In this event, employers will need to:

• consider two weeks before the end of the 2021/22 tax year any changes that their payroll software may have made to accommodate the suspension of waiting days. This will have the effect of removing ‘coronavirus-related SSP’ and reintroducing waiting days for all absence types; and
• tell employees claiming coronavirus-related SSP from 25 March 2022 that their SSP will be paid from the fourth day qualifying day in the PIW, not from day one.

Contributed by Peter Bickley

015. Leases of ‘storage pods’

The taxpayer won its appeal regarding the VAT treatment of leases of ‘storage pods’. The taxpayer had purchased and fitted out a building with ‘store pods’, with the intention of granting 999-year leases in each of the store pods to private investors. The private investors would then lease back the store pods to the taxpayer, who would in turn rent the store pods to the general public. HMRC argued that the supply by the taxpayer to the private investors was standard rated, as a supply of storage facilities, whereas the taxpayer argued that the supply was exempt, as a licence to occupy.

The First-tier Tribunal ruled that the storage pods formed part of the property and therefore the grant of long leases to private investors were exempt from VAT and did not represent a taxable supply of storage facilities, as contended by HMRC.

Harley Scott Commercial Ltd (Formerly Store First Midlands Limited) v HMRC [2021] UKFTT 368 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

016. CHAPS payments to non-established traders

To date, HMRC has repaid VAT due to overseas traders that are registered for UK VAT by payable order. However, HMRC has been informed that there has been an increase in banks and countries that no longer accept payable orders. HMRC has therefore announced that it is creating a form, accessible through the government gateway, that will allow traders to provide details of their overseas bank accounts. These details will allow HMRC to make repayments by CHAPS instead of sending a payable order. 

From the weekly Business Tax Briefing published by Deloitte

017. ‘True beneficiaries’ of boathouse

Cambridge University Boathouse Ltd (CUBL) built a boathouse at Ely for £5m that it licenses to the university’s three elite rowing clubs, which are dedicated to beating Oxford in the boat race each year. The construction was funded through donations and loans, with the licence fee generating just enough revenue to cover the boathouse’s maintenance and utilities costs. HMRC denied input tax recovery on the construction, on the basis that the licences fell within the sporting exemption.

The First-tier Tribunal (FTT) has ruled, however, that the licence was granted to the clubs and not to the individual rowers who were members of the clubs. For example, CUBL provided storage for the expensive boats that belonged to the clubs, but rowers were not allowed to store their own kit or equipment there. The sporting exemption only applied if the ‘true beneficiaries’ of CUBL’s supply were the rowers. The FTT held that CUBL had granted rights to the clubs and not to the rowers, and therefore its supply was not exempt under the sporting exemption, and CUBL was not barred from recovering input tax on that basis. 

From the weekly Business Tax Briefing published by Deloitte

018. No VAT exemption for temporary consultant haematologists

Mainpay, an umbrella company, provided the services of temporary medical consultants and GPs to an employment business, which provided them to NHS Trusts. In Adecco, the Court of Appeal established the importance of who controls temporary staff in considering how VAT should be accounted for. In Mainpay, the Upper Tribunal (UT) has now ruled that ‘control’ does not necessarily mean control of the services being performed.

Neither Mainpay nor the employment business nor the NHS Trust was in a position to control the clinical decision-making of a specialist such as a consultant haematologist. The UT ruled that the First-tier Tribunal had been correct to consider the wider framework of control. Although Mainpay employed the consultants, it had no contract with them as to medical matters, was not involved in any aspect of their day-to-day work and was not involved in complaints against them. The UT confirmed that Mainpay was providing the consultants rather than the medical services that they performed and could not therefore exempt its services as supplies of healthcare. 

From the weekly Business Tax Briefing published by Deloitte

019. Information notice about trust distributions upheld

The First-tier Tribunal (FTT) has upheld an information notice finding that HMRC reasonably required documentary evidence to prove that payments to the taxpayer were indeed capital distributions from an offshore trust rather than a form of income. HMRC should not be expected to take the word of the trust company alone.

HMRC opened an enquiry into the taxpayer’s return, as it held information showing that a number of UK resident companies had made payments to him, but there was no mention of these payments on his return, including in the white space notes. The taxpayer told HMRC that the payments were capital distributions from a non-UK resident trust, but that he did not hold any documents nor have the name of the trust. HMRC issued an information notice, after which an employee of an offshore trust company wrote to HMRC to confirm the name of the trust and that the distributions were of capital.

The taxpayer appealed the information notice to the FTT, arguing that HMRC did not need further information. The FTT rejected this and upheld the notice, finding that HMRC reasonably required more information to check the tax position and has good reason to suspect an underpayment of tax.

Lawson v HMRC [2021] UKFTT 367 (TC)

From the weekly Tax Update published by Smith & Williamson LLP 

020. FTT partially refuses strike-out application

First-tier Tribunal (FTT) has considered the nature of an appealable decision by HMRC and allowed only part of a taxpayer’s appeal to proceed, finding that a relevant decision was made on NICs, but not on PAYE, in relation to the same claimed payroll error.

A company contended that it had incorrectly treated overnight allowances for drivers as taxable in its payroll software. The drivers received the correct net pay, but PAYE and national insurance contributions (NIC) were overpaid over a period of seven years and the company believed that this should be refunded to them. HMRC took the view that these were earnings, so correctly treated, and that in any case PAYE and employee NIC refunds would not go to the employer. In relation to the appeal, HMRC argued that it had not made an appealable decision and no formal claim had been made, so the appeal should be struck out.

The FTT agreed to strike out the appeal in relation to income tax, as a claim had not been properly made. 

For NIC, the appeal was allowed to proceed, as a letter from one of the HMRC officers was held to be an appealable decision.

Fieldmuir Ltd T/A Centurion Freight Services v HMRC [2021] UKFTT 389 (TC)

From the weekly Tax Update published by Smith & Williamson LLP 

021. New guidance on joint and several liability notices for COVID-19 support payments

HMRC has released guidance on how it will deal with individuals who are issued a joint and several liability notice relating to a potentially incorrect claim for COVID-19 support payments by a company. The guidance sets out the conditions that must be met for a notice to be issued and the safeguards.

The legislation covering the taxation of COVID-19 support payments includes some provisions for the recovery of payments to which the claimants were not entitled. In particular, if a company is found to have overclaimed, then a director, shadow director, or some other individuals associated with the company may be held jointly and severally liable for the relevant income tax liabilities.

The new guidance summarises the four conditions for these notices being issued. These include that the individual had responsibility for the management of the company and knew that the claim was incorrect, the company is subject to an insolvency procedure, or that there is a serious possibility that it will be, and that some or all of the amount owed as a result of the overclaim will not be paid. It also provides an example of a situation where a notice could be issued, sets out what must be included in the notice and explains the safeguards. These include rights of review and appeal. 

From the weekly Tax Update published by Smith & Williamson LLP

022. Concession to reduce interest

Clients who struggled during the pandemic may well have tax still outstanding from 2019/20 as they had little or no income from their trade in 2020/21. Where a tax repayment is due for 2020/21, you may assume that the repayment would be offset against the tax due and stop any further interest running.

The tax repayment for 2020/21 is generally offset against the outstanding tax, but the ‘effective date of payment’ for this offset is defined by para 5(1) and (2), Sch 54, Finance Act 2009 as being the statutory filing date for the later tax return, not the actual date when the return was submitted.

Example

Shirley is a beauty therapist whose salon was closed for most of 2020/21. She incurred losses for that period even after accounting for the local authority grants received. She owes tax of £2,000 for 2019/20.

Shirley has a tax repayment due of £3,000 from 2020/21 as she offset her trading loss against the temporary employment income she had in that year. She submitted her 2020/21 tax return on 3 June 2021.

The HMRC computer sets the £2,000 debt against the £3,000 overpayment but charges Shirley interest on the £2,000 debt from 31 January 2021 to 31 January 2022, plus a surcharge on 1 August 2021. Shirley feels that this is very unfair.

You can remedy this situation by calling HMRC and asking the operative to apply the concession set out in HMRC’s Self Assessment Manual at para SAM110220.

This allows HMRC to treat the effective date of payment as the date the later tax return was logged as received by HMRC.

For Shirley, this should wipe out the interest from 3 June 2021 to 31 January 2022 and remove the surcharge levied because the debt was apparently still outstanding on 1 August 2021.

If HMRC refuses to operate this concession, you can submit an objection to the interest charge and appeal against the surcharge, both on the basis that there was a reasonable excuse for non-payment (ie, the 2020/21 credit was available).

HMRC’s Self Assessment Manual, para SAM110220 

From the weekly Tax Tips published by the Tax Advice Network

023. How to pay self assessment liabilities without a UTR

Some taxpayers may need to consider settling self assessment liabilities before HMRC issues their unique taxpayer reference (UTR).

It is possible to make a payment in this situation, against the national insurance number (NINO) rather than the UTR (so it is not a solution for taxpayers with no NINO). As explained in HMRC’s guidance, Pay your self assessment tax bill: by cheque through the post, this involves generating a payslip and posting it with a cheque to HMRC.

It is not possible to pay at a bank or online without a UTR. It may be necessary to contact HMRC once the UTR has been issued to ensure that the payment has been correctly credited to the taxpayer’s self assessment account.

Late-filing penalties are not charged until at least three months from the date of the notice to file a return, so are not a concern where registration is delayed.

If the taxpayer has applied to be registered for self assessment by six months from the end of the tax year (ie, by 5 October 2021 for the 2020/21 tax year), that satisfies the notification requirement and failure-to-notify penalties will not be applied.

It may be important to make payment by 31 January 2022 to avoid interest charges and by 2 March 2022 to avoid a 5% late-payment penalty or where the 5 October deadline for notification of liability was missed.

Contributed by Caroline Miskin

024. Helping employers with paying HMRC correctly

ICAEW’s Tax Faculty has published guidance to support employers who are struggling to ensure their payments to HMRC are being correctly allocated.

In TAXguide 18/21, which is freely available, the faculty highlights that HMRC has two bank accounts for employer payments and confirms which types of payments need to be made to which account.

It goes on to describe how to ensure that payments must include the correct reference numbers for payments of:

• PAYE;
• Class 1A: Benefits in kind and expenses reported on form P11D(b);
• Class 1B: PAYE settlement agreements; and
• PAYE late payment or filing penalties.

These reference numbers are between 13 and 17 characters long, and the guide highlights that some online banking services do not allow for references that are 17 characters long. To resolve this problem, employers may need to change bank accounts.

Contributed by Peter Bickley

025. Action to take when HMRC’s bailiff team visits

As HMRC’s softer approach towards debt collection and time to pay during the pandemic comes to a close, ICAEW has become aware that some taxpayers are receiving unannounced visits from HMRC’s bailiff teams (known as ‘field force’). Not all taxpayers will be aware that they owe tax when HMRC field force arrives at their property. The visits are usually carried out under civil rather than criminal law, but they can be alarming nonetheless. Many also feel a sense of embarrassment as these visits are highly visible to neighbours.

There are several key points members with clients that receive a visit from field force agents should keep in mind:

• taxpayers are not legally obliged to let HMRC enter their property. If they receive an unannounced visit, they should not let HMRC enter their house or business premises and should ask them to leave the letter from HMRC’s debt management and banking department, which will set out the reasons for the visit. Taxpayers receiving a visit are advised to call their accountant or tax adviser immediately and ask them to liaise with HMRC to resolve the situation on their behalf;
• if HMRC has already entered the taxpayer’s property, the taxpayer is entitled to ask them to leave. There are no legal or financial repercussions from this;
• HMRC staff should not take any documents or information with them without the taxpayer’s consent and without leaving a receipt for any records taken. The advice is that taxpayers should not consent to documents or information being removed from the property. If a taxpayer is subject to a dawn raid, (ie, action under criminal law), they should seek legal representation from a criminal lawyer immediately, as different procedures and rights will apply; and
• if a business has a customer compliance manager (CCM) at HMRC and a paper amended return is being filed that reduces the tax due, it would be helpful to call the CCM and ask them to update HMRC’s data systems, including those that HMRC debt management teams have access to. Unfortunately, this solution will not be accessible to all.

Contributed by Richard Jones

026. Mauritania joins G20/OECD Inclusive Framework

The OECD has announced that Mauritania has joined the G20/OECD Inclusive Framework on BEPS, becoming its 141st member. The jurisdictions of the BEPS Inclusive Framework are, among other things, committed to implementing/maintaining BEPS minimum standards in the areas of Country-by-Country Reporting to tax authorities, dispute resolution, treaty abuse and harmful tax practices.

Mauritania has also committed to addressing the tax challenges arising from the digitalisation of the economy by joining the two-pillar plan to reform the international taxation rules. This brings the total number of jurisdictions participating in the agreement to 137.

The list of the 141 participating jurisdictions as of 4 November 2021

The 137 jurisdictions participating in the two-pillar plan

From the weekly Business Tax Briefing published by Deloitte

27. Large groups operating in EU Member States must comply with Public Country-by-Country Reporting rules from mid-2024

The European Parliament has formally adopted the EU Public Country-by-Country Reporting (CbCR) directive. In scope are large multinational groups with total consolidated revenue of more than €750m. These will be required to publish specified tax, financial and functional information by EU country – the latest initiative to increase tax transparency. Groups will need to submit the information, in a standard format, to the trade registry of each relevant Member State and to make it available on the group website(s). The directive is expected to be adopted into domestic law in EU Member States by 30 June 2023 and will be applicable, at the latest, for financial years beginning on or after 1 July 2024 (thus 2025 for calendar-year taxpayers). These dates are EU-wide deadlines: Member States may choose to apply the rules earlier.

Adoption of the directive marks the culmination (at the EU level) of a long-maturing process. The European Commission launched its proposals in 2016, drawing on earlier sector-specific regimes covering extractives and financial services. While the delay was due more to technical disagreements over the directive’s legal basis rather than reservations over transparency, scepticism over whether the proposals would ever be adopted was often seen. But a renewed push under the Portuguese Presidency in 2021 saw the legal debates put to rest. Rapid political and technical agreement soon followed.

Groups based both within and outside the EU will be within the scope of the rules, provided they operate anywhere within the EU (whether via subsidiaries or branches). This will include non-EU parented banks over the earnings threshold for which this will be a new requirement: their EU-parented counterparts in most cases can continue to rely on the existing financial services reporting regime. For all covered groups, the data must be broken down for each Member State in which the group is active, as well as for countries on the EU’s lists of non-cooperative and monitored jurisdictions.

If the report is not published by the non-EU parent, the EU entities will have to report, if possible, given the information available to them. And if some or all necessary information is not available, they must publicly say so. A safeguard clause empowers Member States to permit groups to defer disclosure of certain information for a maximum of five years.

Businesses should review their reporting systems and information availability to prepare for this requirement and manage these risks. The year 2025 may (or may not) sound like a long way away, but even where confident that Member States will not implement the rules sooner, groups should consider whether it will take some time to adapt their operations to comply with the new requirements. Whether internal accounting systems can be adapted easily will have a big impact on the extent of any additional compliance burden.

Businesses should also consider how to manage risks arising from disclosure of information previously treated as confidential. What will be the effect of the information becoming public? Is there a risk of public misinterpretation of the data, especially in the absence of full information about the group’s value chain, operations and resulting arm’s length-related party pricing? Will it be important to prevent unwarranted reputational damage through misinterpretation of ‘one-size-fits-all’ disclosure formats and limited context from which the reported numbers arise? Robust transfer pricing documentation is the traditional method of managing this risk: how should it be used in this new environment?

For a while it seemed unlikely that CbCR would arise. Here it is.

From KPMG’s Tax Matters Digest