Practical points: April 2021

083. Budget 2021

The Budget took place on 3 March.

The Tax Faculty’s summary of the announcements can be found at icaew.com/TFbudget.

The Tax Faculty also held a webinar on 5 March to discuss the measures.

084. Finance Bill 2021

The Finance Bill was published on 11 March 2021.

085. HMRC accepting electronic signatures on some forms

In Agent Update 82, published on 17 February, HMRC confirmed it will now accept electronic signatures for:

• P87 claims for employment expenses;
• marriage allowance claims; and
• 64-8s to authorise an agent.

Signatures must be either signed on the screen of a digital device or displayed in a keyboard-typed font, and to be valid, the taxpayer must have provided the signature themselves.

HMRC confirms that where it has “legitimate reasons” to doubt that the taxpayer has provided the signature it will “seek assurances from the agent or request further information about the processes that the agent uses”. Documents where the taxpayer did not place the signature themselves will be invalid.

Original ‘wet’ signatures are still required on all other income tax claims and paper tax returns. This includes SA700 and SA900 returns. HMRC has declined a request from professional bodies for an easement on these forms.

The temporary COVID-19-related easements for inheritance tax (IHT) forms continue.

Contributed by Caroline Miskin

086. Does your MTD for VAT software need to be reauthorised?

One of the steps involved in signing up to Making Tax Digital (MTD) for VAT is to authorise the software. This step effectively sets up the connection between the software and HMRC’s systems.

Reauthorisation is required periodically. HMRC requires that software be reauthorised at least once every 18 months, although some software developers have designed their systems to require more frequent authorisation. The process can be cumbersome as it involves two-step verification.

The Tax Faculty has been receiving more reports of submission failures resulting from the need to reauthorise software – probably owing to the time that has elapsed since the start of MTD for VAT.

According to feedback from members, the error message received is not very clear.

Any queries on how to reauthorise software should be directed to the software provider.

Contributed by Caroline Miskin

087. Enterprise Investment Scheme Relief denied on preferential shares

The Upper Tribunal (UT) has upheld the First-tier Tribunal’s (FTT’s) decision to refuse an application under the Enterprise Investment Scheme (EIS). One class of the company’s shares had an excluded preferential right to dividends.

The company had obtained non-statutory advanced assurance from HMRC that EIS authorisation would be granted. The authorisation was denied, however, on the basis that excluded preferential rights were attached to one class of shares.

The FTT had denied the taxpayer’s appeal. The B shares were entitled to 44% of the distributable profits in preference to the other shareholders. This priority entitlement to dividends did not disqualify the company from the EIS; the right was fixed and could not be altered by a director or member. The Articles of Association did not, however, fix a date or event for when dividends become payable on the B shares. The date on which the dividends were payable was held to be dependent on the decision of the company, a shareholder or some other person. The UT therefore upheld the FTT’s decision, dismissing the company’s arguments that other events were potential triggers for dividends becoming payable.

Foojit Limited v HMRC [2021] UKUT 14 (TCC) 

From the weekly Tax Update published by Smith & Williamson LLP

088. Capital allowances: hydroelectric scheme

The Court of Appeal has largely dismissed HMRC’s appeal in SSE Generation Limited (SSEG), which concerned the tax treatment of a number of assets constructed by SSEG. The assets concerned were a group of long-life infrastructure assets within a hydroelectric power scheme. SSEG contended that the relevant assets were ‘plant’ and the relevant expenditure was capital expenditure ‘on the provision of plant’ for the purposes of Part 2 of the Capital Allowances Act 2001 (CAA 2001). The dispute concerned civil engineering works that enabled water to be taken into and from a dammed area and channelled under high pressure to the turbine to generate electricity, and for the used water to be discharged into Loch Ness.

The FTT decided that, in principle, the expenditure incurred on a considerable number of the items concerned was allowable. The UT agreed, and also found that the costs of the construction of the ‘cut and cover’ water conduits, which had been determined to be non-qualifying by the FTT, qualified in full.

The Court of Appeal has now upheld the UT’s decision, apart from its decision to allow the expenditure on the ‘cut and cover’ conduits. That part of the UT’s decision was reversed on the basis that SSEG had not sought permission to appeal from the FTT on the point. The Court of Appeal agreed with the UT and the FTT that s22(1)(a), CAA 2001 and s22(1)(b), CAA 2001 are mutually exclusive, and that there is no overlap between the two provisions. The Court also discussed the application of the principle noscitur a sociis (ie, that the meaning of words used in legislation should be considered in the context of the words around them). 

From the weekly Business Tax Briefing published by Deloitte

089. End of the payroll year

Data tidy

At the end of the tax year, you may think about disposing of old payroll records that are more than six years old, and HMRC is doing just the same. It is removing payroll data more than six years old from the Business Tax Account.

The following data will be removed:

• tax year 2013/14 – by the end of February 2021;
• tax year 2014/15 – in April 2021.

If you think there is an issue to be resolved in either of these years – a PAYE credit that has not been used, perhaps – take a copy of that data now.

Forms P60 and P45

Don’t forget that HMRC will no longer issue most employers with blank P60 and P45 forms. All employers who are required to submit RTI returns online have to print these forms using their own free or commercial software.

The few employers who have an exemption from online filing can order P60 and P45 forms by phone.

Earlier year update

The earlier year update (EYU) is being abolished for 2020/21 and later years. Until 5 April 2021 you can use an EYU to amend figures for 2019/20 or an earlier tax year, but submission of an EYU will not be accepted after that date. All adjustments to earlier years will have to be made on a full payment submission (FPS).

Final submission

The last FPS for the year needs to be flagged as ‘final’. Some payroll software doesn’t allow a final indicator to be included on the FPS. In this case, submit an employer payment
summary with the final submission indicator ticked.

Employer Bulletin February 2021

From the weekly Tax Tips published by the Tax Advice Network

090. Cars: beware of benefits

The recent FTT case of Tim Norton Motor Services Ltd [2020] UKFTT 503 (TC) underlines how difficult it is for the director of a ‘husband and wife’ company to escape a car benefit charge.

Mr and Mrs Norton owned a company operating a car dealership. The company owned a couple of exotic cars, partly as investments and partly as business promotional tools.

Much of the time the cars were off the road (one of them was “kept in the back of a large garage, which generally meant shuffling a number of vehicles to get it out”) and Statutory Off-Road Notifications (SORNs) were made to the DVLA, rendering road use illegal. On each occasion on which a car was used for business, vehicle excise duty would be paid before it was used. After use, a further SORN would be made.

Broadly, a car benefit charge arises on a director or employee if and to the extent that a car owned by the employer is ‘available’ for the private use of the director or employee. Actual use is irrelevant here: what matters is availability.

Although a number of issues were rehearsed before the Tribunal, the one that concerns us here is whether the making of a SORN renders a car ‘unavailable’ for the period for which the SORN has effect and thus removes the car benefit charge. Common sense might be thought to suggest that it does. The Tribunal, in a decision that endorses HMRC’s published guidance, held that it does not.

HMRC guidance demonstrates the great difficulty facing taxpayers like Mr Norton.

HMRC accepts that a car is unavailable if:

• “the car is physically incapable of being used, for example it has broken down and has not been repaired, or is still in the garage undergoing repairs; or
• the employee is unable to gain access to the car because he or she does not have the keys to the car, and has no power or authority to:
  – direct the person who has the keys to hand them over; or
  – direct the person who has the keys to drive the employee to a location of the employee’s choice”.

The latter two points will seldom if ever avail directors of a ‘husband and wife’ company, such as the Nortons.

By contrast, HMRC expressly says that a car does not, in its view, count as unavailable “simply because there is no current:

• road tax;
• MOT certificate; or
• car insurance”.

The inconsistency of HMRC’s position is apparent:

• If a car has a defect that stops it being used at all, it is ‘unavailable’ (regardless of how cheap and simple it may be to remedy the defect); but
• if it has a defect that merely renders any use illegal and potentially dangerous, it remains ‘available’ (regardless of how costly and difficult it may be to remedy the defect).

This is patently absurd. And the suggestion that a car that lies mouldering at the back of a cowshed uninsured, untaxed and minus MOT is treated for tax purposes in the same way as a vehicle that is used privately on a daily basis is beyond ridiculous.

Sometimes (and especially in the case of electric cars) owning via a company can be tax efficient. In other cases, unless you are inured to the very strong likelihood of a car benefit charge, think twice before owning cars through your company.

Contributed by David Whiscombe writing for BrassTax, published by BKL

091. HMRC outlines support for those affected by IR35 changes

HMRC has reaffirmed there will be no penalties for inaccuracies in the first year of the expanded off-payroll working (OPW) rules in a document pledging to support taxpayers who are trying to comply.

In a new policy briefing published on 15 February, HMRC outlines its ‘compliance principles’ for implementing the expanded OPW regime. It commits to supporting those who are “trying to do the right thing” and to helping taxpayers meet their new responsibilities and correct their mistakes.

Reiterating its advice of February 2020, HMRC confirms that it will not issue penalties for inaccuracies in the first 12 months of the regime, unless there is evidence of deliberate non-compliance.

HMRC also confirms that it will not use information it receives under the expanded regime to open new compliance enquiries into returns for tax years before 2021/22, unless there is reason to suspect fraud or criminal behaviour.

While HMRC reaffirms that it is taxpayers’ responsibility to determine whether they need to apply the rules, it may contact taxpayers to discuss how the implementation is going and will provide additional support to those that need it. This support could be a webinar, workshop or a one-to-one advice call.

The guidance states: “We’ll provide support based on our view of the employment status indicators and give advice on best practice to help you fulfil your obligations. However, we will not make employment status determinations for you or assure the status of specific engagements or processes you have in place.”

The document outlines the responsibilities that taxpayers may have under the rules and provides a series of case studies to illustrate how the rules apply in practice.

Alongside outlining support, HMRC clarifies how it will identify and correct  non-compliance, with specific information on how it will challenge those taxpayers who it believes are deliberately not applying the rules.

Contributed by Peter Bickley

092. Guidance for employers on NIC holiday for veterans

As part of government action to boost employment of those leaving the armed forces, employers will be able to claim relief on secondary National Insurance contributions (NIC) from April 2021 for the first 12 months of a veteran’s civilian employment.

The relief, which was announced in the Budget 2020, is available for any former member of the regular armed service (Army, Royal Navy or Royal Air Force) who has completed one day of employment. The guidance confirms that this includes those who completed one day of basic training.

The 12-month relief period starts on the veteran’s first day of civilian employment, and subsequent employers will have to confirm this date to make their claim. The onus is on the employer to check whether an employee qualifies for the relief and to keep records proving this and the date of their first civilian employment.

The guidance confirms that the relief only applies to earnings up to the secondary threshold and for earnings over this threshold NIC will have to be paid as normal. Employers should also note that the relief is not an exemption of secondary NIC but a zero rating, which means it is included in calculations for the apprenticeship levy.

The IT systems to process the relief through PAYE are not yet live, so organisations wanting to claim the relief between 6 April 2021 and 5 April 2022 will have to pay the secondary NIC and then manually claim to recover the payments from HMRC. From 6 April 2022, the relief should operate automatically via payroll software.

From the draft legislation and guidance, the Tax Faculty understands that the relief should be available where a veteran has concurrent employments, (ie, more than one job at any one time), as well as for consecutive jobs within the 12-month timeframe.

Contributed by Peter Bickley

093. HMRC wins appeal on entrepreneurs’ relief for trusts

The UT has found in favour of HMRC in an entrepreneurs’ relief (ER) case, as it was then known. It found that the FTT made an error in law in concluding that a beneficiary did not need to have been a qualifying beneficiary for a year prior to disposal.

The three taxpayers were each granted an interest in possession (IIP) in three separate settlements in July 2015. A relation gave an equal number of trading company shares to each settlement in August 2015, and the trusts disposed of them less than four months later. The three taxpayers were officers of the trading company, and their holdings were sufficient to meet the personal company rules as individuals. This case related only to the shares in which they held an IIP. HMRC denied ER on the disposals, on the grounds that the beneficiaries were qualifying beneficiaries for under a year. The FTT found for the taxpayers, holding that a qualifying beneficiary only has to hold an IIP under the trust at the time of the trustees’ disposal of the shares.

The UT accepted HMRC’s appeal, finding that a qualifying beneficiary must be so for a year before disposal of their interest. In making its decision, it considered the historical basis for ER, looking at its predecessors and the rationale behind the relief. It found that the availability of ER to a trust beneficiary was closely linked to that beneficiary, rather than looking solely at the trust. The FTT had believed that by adding the IIP provision Parliament was extending the entrepreneurial connection to IIP disposal cases, but in fact a trust beneficiary also had to have this entrepreneurial connection, including the qualifying period. Otherwise, the relief for trustees would be a ‘tick-box exercise’.

HMRC v (1) The Quentin Skinner 2005 Settlement L (2) The Quentin Skinner 2005 Settlement R (3) The Quentin Skinner 2005 Settlement B [2021] UKUT 29 (TCC) 

From the weekly Tax Update published by Smith & Williamson LLP

094. IHT: The loan dis-arranger

In calculating the value of an estate for the purposes of IHT, the general rule is that liabilities may be deducted, though anti-avoidance rules may operate to deny or restrict deduction. For example, special rules apply where you borrow in order to acquire property that does not bear a charge to IHT (such as property that qualifies for business property relief or ‘excluded property’ owned by a person not domiciled in the UK).

Less well-known is the effect of s103, Finance Act 1986 (FA 1986).

A liability is deductible for IHT only if and to the extent that it is incurred for a consideration in money or money’s worth (unless it is imposed by law, as for taxes, fines, penalties etc). Thus, no deduction is available for a mere promise to pay, even where that promise is made legally enforceable by being evidenced by a properly executed deed.

So, can you turn the trick by making a gift of money and immediately borrowing back the same amount from the donee?

No: this is what is countered by s103, FA 1986, presumably on the basis that the economic substance of such an arrangement (as distinct from its legal form) is that no consideration has been received in respect of the loan.

However, the scope of s103 is wider than that: it can apply in much less obvious circumstances. Suppose, for example, I give my daughter an investment property, with the intention (on the part of both myself and my daughter) that the gift is to be an outright one with no strings attached. Ten years later, I unexpectedly find myself short of cash to pay care home fees. My daughter unhesitatingly raises a mortgage on the property to fund a loan to me. Section 103 will deny any deduction from my estate for the amount of the debt. This is because the consideration she has given for the debt derives from the property gifted.

In fact, s103 goes even further than that. If I have made a gift to a person, no deduction may be made in computing my estate for any debt owed to that person if and to the extent that the loan could have been made out of the property gifted (even if it is plain that it was not) unless it can be demonstrated that the gift “was not made with reference to, or with a view to enabling or facilitating” the making of the loan.

Thus, even if my daughter is able to, and does, fund the loan out of assets other than the property gifted (so that the loan is not in fact ‘derived from’ the gift), it is also necessary to show (if the loan is to be deductible from my estate) that there was at the time of the gift no plan that it would ‘free up’ other assets to finance a future loan back.

This may seem obscure, but it is not a ‘dead letter’: in its published guidance, HMRC enjoins officers to look out for s103 liability. So be aware.

Contributed by David Whiscombe, writing for BrassTax, published by BKL

095. House with annexe one property for SDLT

Multiple dwellings relief has been refused on the purchase of a house with an annexe, as the living and bathing facilities were not sectioned off from the main house. The annexe was not suitable for use as an independent dwelling.

The taxpayers initially filed a stamp duty land tax (SDLT) return for a single dwelling. Their later amendment to claim multiple dwellings relief was accepted by HMRC, but an enquiry concluded that the annexe was not a separate dwelling, as it did not have a self-contained bathroom. The previous occupants had used the whole property as a single dwelling.

The annexe had a separate entrance, kitchen and garden, but the bathroom was accessed through the main house. It was not used by the occupants of the main house, and there were plans to split it off to form part of the annexe. The FTT agreed with HMRC and dismissed the appeal. The annexe was not suitable for use as a separate dwelling, and plans for future adaptation did not affect the position at time of purchase.

Partridge v HMRC [2021] UKFTT 6 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

096. UT dismisses appeal on SDLT annuity arrangement

The UT has upheld an FTT decision on an SDLT avoidance arrangement, finding that for purchase of land with an annuity, the redemption payment was part of the chargeable consideration. The taxpayers had argued that the consideration was limited to the first 12 annuity instalments under the SDLT annuity rules. The annuity, however, had been set artificially low.

The taxpayers jointly purchased a property for an initial deposit and a small annuity. The taxpayers’ obligation to pay the annuity was then assigned to a third party for the aggregate cost of the payments plus a 10% fee and the court accepted this as a novation. Before the first annuity payment was due, it was redeemed by the vendors and the assignee repaid the balance. The SDLT return showed the consideration as just the deposit and the value of the first 12 annuity payments. The annuity had been so low that the principal would have been repaid after 1,893 years’ worth of payments.

The UT agreed with the FTT finding that the transaction had been designed to trigger the submission of an SDLT return without generating a tax liability. The redemption payment was made at the taxpayers’ direction, not the assignees’, on completion. The effective date of transaction was the date of completion, not the date the annuity was created. The chargeable consideration was therefore the amount paid on completion, not the expected value of the first 12 annuity payments. Even if this were not the case, anti-avoidance provisions would operate to treat the redemption payment and deposit together as the consideration.

Hannah & Anor v HMRC [2021] UKUT 22 (TCC) 

From the weekly Tax Update published by Smith & Williamson LLP

097. Q&A: Domestic reverse charge for construction industry

Neil Warren answers a selection of questions raised during a Tax Faculty webinar that he delivered on 3 February concerning the new reverse charge VAT rules for builders that took effect on 1 March 2021.

Does a business buying reverse charge services from another builder include the value of the work in Box 6 of their VAT return, the outputs box, so it matches the VAT accounted for in Box 1 as output tax?

No. The seller records his sale in Box 6 but not the buyer. The buyer accounts for the reverse charge in Box 1 and Box 4 (output tax and input tax) and records the net value of the supply in Box 7, the inputs box.

Does the reverse charge apply to project management services supplied to a building business?

The reverse charge does not apply to professional services, only to building work that falls within the scope of the Construction Industry Scheme (CIS).

We are a pub company and have both managed and tenanted pubs. Are we an end user in both cases?

The reverse charge, as a starting point, will only apply if the buyer of the service is registered for both VAT and the CIS. A pub will almost certainly not be registered for the CIS, so the reverse charge rules do not apply – VAT is charged as normal on sales invoices issued by builders.

How is a builder affected if they use the cash accounting scheme?

A builder selling reverse charge services can still record sales in Box 6 of his VAT return based on the date he is paid by his customer. However, a business buying reverse charge services must do reverse charge entries based on invoice or payment date, whichever is first.

I know that the reverse charge rules do not apply to an employment business. But what exactly is an employment business?

An employment business supplies staff rather than building services. The labour provided by the business comes under the control of the building company doing the work. In other words, the employment business supplies the person, and the builder directs the work that he or she carries out.

Who is the end user – the supplier of building services or the buyer?

It is always the customer buying construction services who confirms whether or not they are an end user or otherwise for that job (ie, they are not selling on the building services in question). A supplier of building services could include a sentence in their standard terms and conditions, along the lines of: “we will assume you are an ‘end user’ or ‘intermediary supplier’ unless you tell us otherwise”. In other words, VAT will be charged at 5% or 20% as the default position, and the reverse charge will only apply if a CIS-registered customer says otherwise.

What about building work on new houses?

Building services on new dwellings are zero-rated, and the reverse charge does not apply to zero-rated supplies, only to those subject to either 5% or 20% VAT.

Contributed by Neil Warren, VAT consultant and author

098. News Corp: online newspapers subject to VAT pre-May 2020 

In News Corp, the Court of Appeal has ruled that online newspapers, including The Times, despite being a faithful reflection of the zero-rated print edition, were subject to VAT at 20% (until May 2020).

The court had to resolve conflicting principles: on the one hand, zero-rating should not be denied simply because online newspapers did not exist when the rules were written; on the other hand, the zero rate was subject to standstill provisions, and could not be extended under EU law. In the court’s judgement, both principles needed to be taken into account in a single exercise of statutory construction.

The language originally used in the zero-rating provisions specifically refers to goods (such as printed music, and covers or cases for printed matter), and later changes assumed that the relief applied only to goods, whereas online newspapers are digital news services. The UT had allowed itself to imagine what Parliament might have done had it contemplated online newspapers when it introduced VAT, and paid insufficient attention to the wording of the provisions and the need to construe VAT reliefs strictly. HMRC’s appeal was allowed.

From the weekly Business Tax Briefing published by Deloitte

099. Changes to the VAT treatment of early termination fees will not be applied retrospectively

In September 2020, HMRC issued Revenue and Customs Brief 12 (2020) providing an update on the VAT treatment of compensation and similar early termination payments following judgements of the Court of Justice of the European Union (CJEU). On 25 January 2021 HMRC announced that it would be applying the updated VAT treatment “from a future date”, addressing concerns that the original brief took effect retrospectively. The move means that historic adjustments for following previous guidance are no longer applicable. HMRC has confirmed that revised guidance will be issued “shortly”.

Contributed by Neil Gaskell

100. EU fiscal representation for UK businesses

The UK-EU Trade and Cooperation Agreement includes a protocol on administrative cooperation and combating fraud in the field of VAT, as well as mutual assistance for the recovery of claims relating to taxes and duties. As a result, businesses established in the UK should, in principle, be able to register for VAT in EU Member States without having to appoint a fiscal representative. However, the European Commission is reviewing this and is expected to confirm whether fiscal representation is required in April. Until then, the requirement for UK taxpayers to appoint a fiscal representative continues to be determined by individual EU Member States. Some, (including Poland and Hungary), currently require UK businesses to appoint a fiscal representative, others do not, and some Member States have not yet clarified their position.

The position is continuing to evolve, and UK businesses with VAT registration obligations around the EU will need to monitor developments and appoint fiscal representatives where appropriate.

From the weekly Business Tax Briefing published by Deloitte

101. HMRC tips to avoid common VAT registration errors

HMRC has asked agents and taxpayers to check the following details on their applications to avoid common errors that cause processing delays:

• the addresses provided on the application match the business’s principal place of business;
• the trade classification matches the work that the business itself carries out;
• the VAT liability of trading is correctly identified;
• the signatory for the application is valid – for a corporate body, for example, it must be a director, company secretary or authorised signatory or an authorised agent;
• the dates on the application are valid – for example, the effective date of registration requested matches the circumstances that have been outlined for requesting registration elsewhere in the application; and
• the bank account details provided are in the name of the taxable person.

HMRC also encourages agents and businesses to check that all information requested is included with their application to avoid delays, and to use the online VAT registration service wherever possible. HMRC states that online registration is generally quicker than applying by paper – particularly if the application can be fully processed straightaway.

102. Conditions for inward processing duty relief

Rottendorf Pharma imported 12.5kg of ertugliflozin from the US for the production of diabetes medicine. When it had to pay the associated customs duty, it realised that it could have claimed inward processing relief (IPR), as the finished product was going to be re-exported. The German customs authorities granted IPR retroactively, provided that the medicine was presented to the Beckum customs office prior to export. Rottendorf Pharma, which was not very familiar with customs processes, failed to modify the data in its systems and did not therefore present the drugs when they were re-exported.

Customs duty rules include a general equity provision that allows duty to be remitted in ‘special situations’ if a taxpayer has not been manifestly negligent. There was some question as to whether Rottendorf had been negligent by failing to observe the IPR conditions, but ultimately that was a question for the national court to decide. It may find it unnecessary to do so, however, as the CJEU has ruled that Rottendorf was not in a ‘special situation’. It had not shown that IPR was particularly complex, nor that IPR caused particular issues for it compared to other pharmaceutical companies. The error may have arisen because, on retroactively being granted IPR, Rottendorf failed to update the status of the drugs in its systems, but that fell short of being a special situation which would justify duty remission. Even though the ertugliflozin was imported, processed and re-exported, Rottendorf Pharma will have to pay customs duty of €179k. 

From the weekly Business Tax Briefing published by Deloitte

103. Guidance updated for HMRC compliance checks

HMRC guidance has been updated with more information for agents and taxpayers on how to assist HMRC with compliance checks.

The new ‘Helping us with the checks’ section explains what taxpayers may be asked to do during an enquiry, such as sending in documents, meeting an officer to discuss the matter, or agreeing to an inspection. It also covers what may happen if the taxpayer does not agree. This includes issuing information notices, and potential outcomes of checks, including appeal rights.

The guidance also covers what to do if the taxpayer is affected by the impact of coronavirus, what to do if help is needed and whom to ask, including links to independent organisations.

It is written in simple terms and includes links to several videos that explain the more complicated points. 

From the weekly Tax Update published by Smith & Williamson LLP

104. Third-party access to information

In 2019, I drew attention to the case of Cape Intermediate Holdings Ltd v Dring [2019] UKSC 38 where the Supreme Court explained how much of the written material placed before a court in a civil action should be accessible to people who were not party to the proceedings.

Lady Hale said that the issue was all about the fundamental constitutional principle of open justice. A third party has no right to such access, but the court has power to grant access if the applicant has a legitimate interest and if it would advance the open justice principle. Her Ladyship suggested that a clean copy of the trial bundle may be the most practical way of providing access to third parties – but it is entirely a matter for the court to decide what if any access should be permitted.

With this background, it is interesting to read the details of the application in the case of Fastklean Limited v HMRC and Keith Gordon [2020] UKFTT 511 (TC). Mr Gordon had noticed that in a Tribunal decision last year concerning Fastklean, reference was made to a particular email which had been presented in evidence. He claimed a legitimate interest in this email on the grounds that he was interested in related litigation and more generally as a barrister practising frequently in the Tribunal.

The Tribunal agreed that he had a legitimate interest in obtaining access to this document and granted access on the grounds that it would advance the open justice principle without any risk of harm which its disclosure may cause to the maintenance of an effective judicial process.

All very technical – but it could prove extremely valuable if things appear in reported cases that might be of interest.

Contributed by Peter Vaines, Field Court Tax Chambers

105. Advisory Panel opinion: loans to participators scheme is abusive

The General Anti-Abuse Rule (GAAR) Advisory Panel has opined that a scheme involving a loan to a participator is not a reasonable course of action. The scheme involved generating an artificial loan repayment by establishing a new company with uncalled share capital to create value equal to the outstanding loan.

The scheme was designed to prevent a loan to participator charge arising on an outstanding loan to a participator. The shareholder who owed the debt to the company incorporated a second company that issued £2m of new shares that were not called up. The individual personally guaranteed the uncalled share capital. He also agreed to retain that obligation even after the shares were transferred to a different entity. The shares were initially held by offshore nominee companies on behalf of the individual. The shares were subsequently transferred to the original company in satisfaction of the outstanding loan. Thus, the loan to the participator was technically repaid before a loan to participator charge arose. Uncalled share capital does not constitute a debt.

The GAAR Advisory Panel found that the scheme was contrived and abnormal. The funding arrangements lacked economic substance. The net result of the scheme was that the individual effectively still owed the money to the company: he retained the obligation to contribute the share capital when it was called. Although some of the characteristics of the scheme may not be contrived in isolation, in this context the overall scheme was not a reasonable course of action to take. 

From the weekly Tax Update published by Smith & Williamson LLP

106. Jersey: economic substance rules for partnerships from 1 July 2021

The government of Jersey has published a consultation on extending the scope of Jersey’s economic substance regime to apply to partnerships in addition to Jersey tax resident companies. This is necessary in order to fully deliver on commitments made to the EU Code of Conduct Group in 2018. In-scope partnerships are expected to be those that are managed and controlled in Jersey, which could include certain foreign partnerships, and the rules could also apply to Jersey limited liability companies (LLCs). Jersey officials are in discussions with the EU Commission on various possible exemptions, (eg, for fund vehicles). Legislation is anticipated by 30 June and the extended scope is likely to take effect from 1 July 2021, with a maximum six-month extension for existing partnerships. The consultation period will run until 1 March 2021.

Guernsey and the Isle of Man have made similar political commitments to the EU, and it is understood that Guernsey has announced its intention to legislate for similar rules by 30 June, but that consultation is with interested industry groups only. 

From the weekly Business Tax Briefing published by Deloitte

107. Non-UK resident taxation of COVID-19 UK workdays 

The latest update from HMRC is directed to non-UK residents. It confirms that HMRC would not seek to tax income related to UK workdays performed if an individual is genuinely stuck in the UK.

The exemption applies to the period between the dates the individual intended to leave and actually left the UK providing that:

• the individual is a non-UK tax resident under domestic rules (exceptional circumstances should be considered when determining tax residence);
• the individual was genuinely stranded in the UK due to COVID-19 restrictions;
• the workdays are taxed in the individual’s home country; and
• the individual left the UK as soon as they reasonably could.

Unfortunately, HMRC mandates that an individual must file a UK income tax return complete with residence pages to claim this exemption. Practically, it is anticipated this will cause difficulties – from registering with HMRC to filing the tax return: non-residents cannot use HMRC’s online service and instead will need to file by post (with an earlier 31 October deadline), or to use commercial software or engage a tax agent to file on their behalf.

In addition, HMRC is not currently commenting on what constitutes ‘stuck in the UK’ and will review circumstances on a case-by-case basis. The example given in its guidance is in respect of an individual self-isolating. However, HMRC has indicated that it will look favourably at claims from individuals who can demonstrate that they were genuinely stranded in the UK (eg, by travel restrictions). 

From The PwC Suite - Weekly bulletin