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Practical points: June 2021

Helpsheets and support

Published: 01 Jun 2021 Update History

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In each issue of TAXline the Tax Faculty publishes short, practical pieces of guidance to help agents and practitioners in their day-to-day work. Here is a complete digest of these tips.

Savings and investment

132. HMRC publishes manual on cryptoassets

HMRC has replaced its guidance on the tax implications of cryptoassets for businesses and for individuals with its internal manual on cryptoassets.

Published on 30 March 2021, the manual offers additional commentary, but there has been no change in the guidance. The manual is split into three sections: the first two cover cryptoassets for individuals and businesses, while the third focuses on compliance. Read the manual in full.

ICAEW also has articles, webinars and other helpful guidance on cryptocurrencies, including what they are, how you account for them and how you tax them.


133. Late application for enhanced protection accepted

A taxpayer has been allowed to claim an enhanced lifetime allowance for his pension, despite applying years late, due to his reasonable reliance on advice.

The taxpayer had financial advisers to assist with his pensions and investments, but they did not bring the existence of enhanced protection to his notice until 2013, when he applied for the 2014 lifetime allowance. After changing advisers in 2015, he was informed of the 2009 and 2012 opportunities and submitted a claim in 2016. HMRC accepted that he had a reasonable excuse for the delay until 2015, but not for the 14-month gap before the application. The First-tier Tribunal (FTT) permitted the late application, finding that problems with his professional advisers, including following their complaints procedure, constituted a reasonable excuse for that period.

Gammell v HMRC [2021] UKFTT 49 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

Business taxes

134. Taxation of litigation settlement payments

The FTT has found that a payment to settle actions against an auditor and an accountant was revenue in nature. The payment was compensation for lost profits rather than compensation for lost cash or consideration for giving up the right to pursue the claims.

The taxpayer was a company from which an employee embezzled funds and was later imprisoned. The taxpayer later pursued breach of contract and negligence claims against its accountant and auditors, which were settled out of court. A payment was made to the taxpayer, which it treated as a capital receipt. HMRC argued that the payment should have been a trading receipt.

The FTT ruled in favour of HMRC. It found that the settlement was not a payment in exchange for relinquishing the right to litigate. It was a commercial decision on the optimal recovery with the least risk and cost. The payment was therefore compensation for the losses sustained by the taxpayer due to the failures of the accountant and the auditor. The fact that the payment was accounted for as a capital receipt was not determinative. Instead, the FTT found the payment to be revenue in nature. The payments compensated for a loss of profit, not a loss of cash. The stolen sums had never been taxed and had actually received corporation tax deductions. The appeal was dismissed.

Charlton Chauffeur Driver Limited v HMRC [2021] UKFTT 56 (TC)

From the weekly Tax Update published by Smith & Williamson LLP

Company tax

135. Lapsed share options: permission to appeal to the Supreme Court

HMRC has been given permission to appeal to the Supreme Court against the Court of Appeal’s judgement in HMRC v NCL Investments Limited & Another. The issue is the availability of a ‘general principles’ deduction for the accounting cost associated with employee equity awards in cases where a statutory deduction was not available.

These deductions were claimed prior to an amendment to Pt 12, Corporation Tax Act 2009 in March 2013, which was introduced to prevent any further deductions being claimed on this basis. The cases involved deductions claimed under five different share plans, as well as the use of an employee benefit trust to grant and settle the awards and recharge agreements for the subsidiaries to pay the IFRS2 cost to the parent.

The Court of Appeal, the Upper Tribunal (UT) and the FTT all held that the accounting debit arising under IFRS2 was deductible as a trading expense of the employing companies. 

From the weekly Business Tax Briefing published by Deloitte

Payroll and employers

136. Working-from-home tax relief continues, but new claims required

Employees working from home due to the coronavirus pandemic can continue to claim tax relief on costs not reimbursed by their employer, but a new claim will need to be made for the 2021/22 tax year, HMRC has confirmed.

Normally, employers can pay a tax-free allowance of up to £6 per week/£26 per month to employees required to work from home. During the coronavirus pandemic, employees can claim tax relief for this amount when employers do not reimburse costs.

The allowance is to cover tax-deductible additional costs that employees who are required to work from home have incurred, such as heating and lighting the workroom, and business telephone calls.

The maximum amount reimbursed on which tax relief is allowed is £4 per week up to 5 April 2020 and £6 per week thereafter. Alternatively, employers can reimburse actual costs, subject to the employee being able to provide evidence of the amounts incurred, such as phone bills.

Where employees are not reimbursed by their employers, it is not normally possible to claim tax relief for any additional costs of working from home.

However, a relaxation was announced in a parliamentary question answered on 27 March 2020. The change enables employees working at home because of COVID-19 to claim a deduction (under s336, Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)) where they have not been reimbursed by their employer (which would be exempt under s316A, ITEPA 2003).

This relaxation means employees who are not reimbursed by their employer can claim tax relief in their tax returns (self assessment return or a postal form P87) or via the government gateway to claim tax relief in-year through their PAYE code. To find out which route to use, visit HMRC’s online claims checker.

Where claims were made in the 2020/21 tax year, these will not be automatically rolled forward. Where employees continue to work from home, a new claim will need to be made for the 2021/22 tax year.

ICAEW understands that once the pandemic is over, these rules will revert to the previous position under which the allowance is tax-free only where paid by employers.

HMRC has previously confirmed that the £6 per week/£26 per month is available in full, even if an employee splits their time between home and office (ie, the amount does not need to be prorated over the number of days spent each week at home and in the office.)

ICAEW understands that if an employee who has told HMRC that they are working from home returns to working in the office, there is no requirement for the employee to tell HMRC, so the relief can apply to the whole of the tax year.

The relaxation to allow tax relief to be claimed during the pandemic is explained in HMRC’s guidance at EIM32815 and the normal conditions that need to be met are in EIM32760. See EIM32825 for the relationship between:

  • employees’ expenses deductible under s336, ITEPA 2003; and
  • reimbursements by employers exempted under s316A, ITEPA 2003.

137. Amending a PSA for COVID-19 benefits

A PAYE settlement agreement (PSA) enables an employer to settle the tax and national insurance on qualifying benefits and expenses on their employees’ behalf. Tax is paid on the value of the benefits, grossed up at the employees’ marginal rates of tax. Class 1B national insurance contributions (NIC) are paid in place of the class 1 or class 1A national insurance liability that would otherwise arise, and also on the tax due under the PSA.

A PSA is an enduring agreement and, once set up, it remains in place unless amended by HMRC or by the employer. A new PSA must be agreed, or an existing PSA amended, by 6 July after the end of the tax year to which it relates (so by 6 July 2021 for a PSA for 2020/21).

Many employees’ normal working arrangements changed as a result of the COVID-19 pandemic and the benefits provided to them may have changed as a result.

Normally, where an employer wishes to add additional items to a PSA, HMRC will issue a new form P626. However, where additional items are added for 2020/21 that relate only to COVID-19, HMRC will not issue a new form P626; instead, it will add an appendix to the existing enduring PSA. Employers who wish to add COVID-19 benefits that fall outside existing or temporary exemptions to their PSA should email HMRC at lbs.compliance@hmrc.gov.uk.

Tax and national insurance due under a PSA for 2020/21 must be paid by 22 October 2021 where payment is made electronically, and by 19 October 2021 where payment is made by cheque.

Agent Update 83

PAYE Settlement Agreements

From the weekly Tax Tips published by the Tax Advice Network

138. Hoey: credit for PAYE tax not deducted

The planning undertaken by Stephen Hoey was not particularly intricate. He was an IT specialist who provided his services to end-users through an offshore company established by the promoters of the planning. The company employed him on a modest salary, but most of the reward for his services came through the company making contributions to a trust, which duly lent the money to Mr Hoey interest-free and without any real expectation of repayment. The planning was sold to him on the basis that he would pay tax only on the salary and on the small ‘benefit in kind’ of the loan. Not that he stood to profit greatly from the scheme: most of the supposed tax saving was absorbed by the charges levied by the promoters.

Even before the case came before the FTT, it had been accepted that following the decision in Rangers, the contributions to the trust fell to be treated as employment income of Mr Hoey and as taxable on him.

Why, then, did the recent UT judgement in Hoey v HMRC [2021] UKUT 0082 (TCC) run to 86 pages? And in what sense did HMRC both win and lose the case?
It’s complicated. The case ranges widely over the transfer of assets abroad rules, their interaction with EU law on freedom of movement of capital, and whether HMRC had made a valid ‘discovery’.

But the key point of Mr Hoey’s appeal was very simple: if the payment to the trust was employment income (as it was), then the legislation required tax to have been accounted for under PAYE (albeit, in the circumstances of the case, by the end-user rather than the offshore employer); and Mr Hoey was entitled in his self assessment to be credited with that tax, regardless of whether it had actually been accounted for by the payer.

That, as a general proposition, is undoubtedly correct.

However, HMRC purports to have absolved the end-user from the obligation to operate PAYE. Thus, that aspect of the case resolved itself into the questions (a) whether HMRC was entitled to do so; and (b) if it was, whether the result was that Mr Hoey ceased to be entitled to the credit.

HMRC won the case in the sense that the UT followed the FTT in declining to afford Mr Hoey the benefit of the tax credit. But this was on the basis that the availability (or not) of the tax credit was, essentially, a question of collection rather than of the assessment of liability; and was thus outwith the jurisdiction of the Tribunals. But, as the Tribunal said, “There is no reason to suppose the amount of the PAYE credit cannot be litigated in collection proceedings.”

And HMRC may yet be in some difficulty when it comes to those proceedings. Rather than stopping at simply saying that it did not have jurisdiction in the matter, the Tribunal went on to say what it would have decided if it had had jurisdiction:

“If we were wrong in finding against Mr Hoey that the FTT lacked jurisdiction to consider the PAYE credit, we consider that, given the scope of the 7A discretion and the fact it only applies prospectively with no indication it can overturn the effect of obligations, which have already been incurred, Mr Hoey would be entitled to the PAYE credit as the discretion would be ineffective to remove the PAYE liability from the end-users after those liabilities had been incurred.”

The UT’s obiter is not, of course, binding on a different court in any collection proceedings. But we envisage that HMRC’s battle to collect from Mr Hoey (and the other 15,000 people that HMRC has estimated to be engaged in similar arrangements) may not yet be over.

Contributed by David Whiscombe writing for BrassTax, published by BKL


139. Voluntary class 2 National Insurance

Self-employed taxpayers whose profits are below the small profits threshold (set at £6,515 for 2021/22) do not have to pay class 2 NIC, but can choose to do so voluntarily. This can be a cheap option for securing a qualifying year for state pension and contributory benefit purposes – class 2 contributions are £3.05 per week for 2021/22, whereas class 3 voluntary contributions are £15.40 per week. Class 2 contributions are payable via the self assessment system by 31 January after the end of the tax year to which they relate.

To help taxpayers affected by COVID-19, HMRC waived the late-filing penalty for the 2019/20 self assessment tax return as long as the return was filed by 28 February 2021. However, this caused problems for taxpayers opting to pay voluntary class 2 contributions for 2019/20, where the return was filed after 31 January 2021, even if the voluntary class 2 contributions were paid by this date.

HMRC’s systems were unable to deal with the payment of voluntary class 2 contributions where the 2019/20 tax return was filed after 31 January 2021 and were unable to implement alternative procedures at the time. Contributions paid before the return was filed could not be processed, as HMRC was unaware of what the payment related to, whereas contributions paid when the return was filed were paid late and the return was corrected to remove those voluntary contributions. Payments made in respect of voluntary class 2 contributions were either allocated elsewhere, held on account or refunded.

HMRC has now addressed this issue. Contributors affected should contact HMRC’s national insurance helpline on 0300 200 3500 to ensure that they receive credit for 2019/20 for their voluntary class 2 NIC. If the contributor has not received a refund, HMRC will arrange for the payment made to be recorded correctly as voluntary class 2 NIC. Where the payment has already been refunded, HMRC will provide details of alternative ways for the contributor to pay voluntary class 2 national insurance for 2019/20.

Where payment was made after the class 2 payment deadline of 31 January 2021, HMRC will determine whether payments can be treated as paid on time, depending on the individual’s circumstances.

Agent Update 83

From the weekly Tax Tips published by the Tax Advice Network

State benefits and statutory pay

140. HICBC and NIC credits

The high income child benefit charge (HICBC) was introduced to claw back child benefit paid to higher-earning families. It was not supposed to have an impact on basic rate taxpayers. The income threshold for the highest earner in the family was crudely set at £50,000, with the charge withdrawing child benefit at the rate of 1% for every £100 of income above that threshold.

That income threshold hasn’t been changed since 2013. From 6 April 2021, the higher rate tax band starts at £50,270 (including the personal allowance of £12,570). In 2021/22, a basic rate taxpayer could have some of their family’s child benefit clawed back if their taxable income, before deduction of allowances, is £50,100 or more. Income must exceed £50,099 to trigger the minimum HICBC of 1% of child benefit received.

Where your clients have total income around £50,000, and the family receives child benefit, encourage them to make small gift aid donations, or pay personal pension contributions in 2021/22 to extend the basic rate band.

Also check which parent or partner made the child benefit claim, as this can be important for class 3 national insurance credits, which help build up entitlement to the state pension. Where the earning parent made the child benefit claim, the non-earning parent who is providing full-time childcare will not receive the national insurance credits, which are automatically given if the child is under the age of 12.

However, it is possible to transfer class 3 national insurance credits to a family member who has been involved in caring for the child or children. The parent or person with the main responsibility for the child must agree to allow the transfer of what would otherwise have been their national insurance credits. For each tax year NIC credits are transferred, it could boost the state pension of the recipient by £260 a year.

HICBC liability

National insurance credits

Transferring NI credits

From the weekly Tax Tips published by the Tax Advice Network


141. FTT upholds taxpayer’s appeal on reconstruction relief

Tax avoidance was found to be a purpose but not a main purpose of arrangements for the sale of shares. The FTT found that the evidence showed the deal would have progressed, regardless of the tax outcome.

The taxpayer was a company that sold shares in two subsidiaries in exchange for ordinary and preference shares in a third company. Initially, it agreed to receive ordinary shares and cash.

At a late stage in the deal, the cash was substituted by preference shares. Cash would have generated an immediate taxable gain, but preference shares were expected to be eligible for the substantial shareholding exemption (SSE) and therefore exempt from corporation tax if sold after being held for a year.

Advance clearance from HMRC had been sought, but the deal completed before a response has been received. The taxpayer treated the transaction as exempt from tax under reconstruction relief. When it sold the preference shares, it treated the disposal as exempt under SSE.

HMRC denied the reconstruction relief, arguing that anti-avoidance provisions applied. Reconstruction relief is not available if the main or one of the main purposes of the arrangements is tax avoidance. The FTT found that the arrangements must be taken as a whole and not limited to the arrangements that concern only the acquisition of preference shares.

Avoiding a liability to tax was held to be a purpose of those arrangements, but it was not a main purpose. The email and verbal evidence showed that the taxpayer would not have substituted preference shares for cash if that change had endangered the deal. The tax at stake was not significant compared with the overall transaction value, and the taxpayer did not invest much effort in exploring the tax outcomes. The anti-avoidance rules therefore did not deny reconstruction relief and the appeal was upheld.

Euromoney Institutional Investor plc v HMRC [2021] UKFTT 0061 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

142. Clarification on the substantial shareholding exemption and groups

The FTT has ruled on the interpretation of the SSE deeming provisions for groups. The provisions only extend the period of ownership of a subsidiary during such a time as the subsidiary’s trading assets were used by another company within the same group.

The taxpayer was a company that owned shares in a subsidiary for less than 12 months prior to disposal. The disposal triggered a gain of approximately £53.2m. It claimed SSE, relying on the deeming provisions for groups to extend its ownership of the shares to the requisite 12 months. In this case, the taxpayer, a standalone company, transferred trade and assets to a new subsidiary incorporated in June 2015, and then sold the subsidiary to a third party in May 2016. The question before the FTT was whether or not SSE was available when a company sells a subsidiary that has been owned for less than 12 months and there has not been a group of companies in existence for the 12 months prior to the share sale.

The FTT agreed with HMRC that the deeming provisions only apply insofar as the taxpayer is part of the group. A group must therefore exist for the 12 months prior to the disposal for SSE to be available. However, the judge noted that the law was not clear on this point. The outcome is ‘odd and arbitrary’, but it is not unjust or absurd.

M Group Holdings Limited v HMRC [2021] UKFTT 69 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP


143. Donner et retenir ne vaut: IHT rules on gifts with reservation of benefit

In the May edition of TAXline, practical point 119, Timeo Danaos et dona ferentes highlighted one pitfall of the inheritance tax (IHT) rules on lifetime gifts. But there are others: in this note we look at some of the consequences of ‘reserving a benefit’ in a gift.

Capital transfer tax (CTT), in force from the early 1970s, had no need of ‘reservation of benefit’ rules: it applied equally to gifts during lifetime or on death. But when it was replaced by IHT in 1986, the old estate duty concept of a ‘gift with reservation of benefit’ (GROB) was reintroduced. The effect of this is that where a donor retains anything but a negligible interest in the property gifted, the entire property is treated as remaining in his or her estate for IHT purposes.

For example, if a father gives his son his house but continues to live in it, the gift will be a GROB unless he pays his son a full market rent for his continued occupation. Nor does it matter whether any rent paid is nothing at all or 90% of market rates: a GROB is all or nothing and, in either case, the whole value of the house remains in the father’s estate and will suffer IHT on his death.

The courts have recognised the draconian nature of the provision, observing that: “Not only may you not have your cake and eat it, but if you eat more than a few de minimis crumbs of what was given, you are deemed for tax purposes to have eaten the lot.”

But it gets worse.

Although the GROB remains in the father’s estate, this does not mean that the gift is ignored for other purposes or even for the general purposes of IHT.

So, for example:

  • any charge to capital gains tax (CGT) that arose on the making of the gift is unaffected;
  • despite being charged to IHT as part of the father’s estate, the property will not benefit from the usual CGT-free uplift to market value on death;
  • even if the father’s estate is left entirely to his widow so that ‘spouse exemption’ applies to his estate, that exemption will not apply to the house;
  • because the property is in fact owned by the son, it also forms part of his IHT estate and is liable to IHT on his death;
  • despite remaining in the father’s estate, the gift is nonetheless a ‘potentially exempt transfer’, and if the father dies within seven years of the gift, the amount of the gift itself will be added to the father’s estate;
  • if the father moves into care and the reservation ceases, he will be deemed to make a (further) potentially exempt transfer at that time and another seven-year clock will start to run; and
  • it is also possible to be caught by ‘resuming a benefit’ in an asset gifted. So, if the house were an investment property, there would be no reserved benefit to start with, but if the father later moved in, the earlier gift would retrospectively become a GROB.

There are regulations for avoiding multiple charges to IHT in such circumstances, but their application is complex. It is best to avoid having to rely on them.

“Qu’ils mangent de la brioche!” as Marie Antoinette may or may not have said.

Contributed by Terry Jordan writing for BrassTax, published by BKL

Stamp taxes

144. UT dismisses three SDLT appeals on mixed use property

The UT has upheld the FTT finding in three separate cases that land can form part of the garden or grounds of a house for SDLT, and therefore be subject to residential rates, even if not needed for the reasonable enjoyment of the house.

The UT considered three joined appeals, all of which had been lost by the taxpayer at the FTT. In each case, the FTT had found that land sold with a house was part of the garden or grounds, so did not qualify as mixed use property, and was subject to residential SDLT rates. The taxpayers all held that the additional land, such as a barn and meadows, did not ‘form part’ of the garden or grounds of the properties. They submitted that in order to come within this definition, it should also satisfy the test of being needed for the ‘reasonable enjoyment’ of the house.

The UT agreed with the FTT and dismissed the appeals, agreeing with HMRC that the correct statutory construction did not need a ‘reasonable enjoyment’ test to be met. The land in each case was part of the grounds of the house as a matter of fact. HMRC guidance before 2019 had indicated that a permitted area test existed, but that guidance was corrected in 2019 as it did not accord with the SDLT legislation.

Hyman & Ors v HMRC [2021] UKUT 68 (TCC) 

From the weekly Tax Update published by Smith & Williamson LLP


145. The importance of invoices in Directive claims

In 2012, Wilo Salmson (based in France) bought tooling from ZES Zollner Electronic in Romania, as part of an agreement for ZES to manufacture goods for Wilo Salmson there. The Romanian tax authorities rejected a Directive claim for VAT of €92k on the tooling, as ZES had not apparently been paid (a requirement in Romania at the time) and because its invoice was defective. In 2015, ZES therefore cancelled and reissued the invoice, and Wilo Salmson submitted a second Directive claim.

In the Opinion of AG Julianne Kokott, invoices are essential in showing how much VAT can be claimed, and so there can be no VAT recovery before an invoice is issued. If the invoice issued in 2012 was valid (there have been several Court of Justice of the European Union (CJEU) judgements confirming the validity of invoices even if they breach certain formal requirements) then Wilo Salmson should have contested Romania’s decision to reject the first Directive claim, and its second Directive claim was time-barred. However, if a valid invoice was only issued in 2015, then that was the first occasion on which Wilo Salmson was entitled to reclaim the VAT, and its second Directive claim would be in time. 

From the weekly Business Tax Briefing published by Deloitte

146. Do fast-food outlets provide food or catering?

In Poland, ready meals are subject to a reduced VAT rate of 5%, whereas catering and restaurant services are subject to a reduced rate of 8%. The difference between the two classifications is not as stark as in the UK (zero-rated or 20%), but was sufficiently important for one fast-food franchisee to seek a reference to the CJEU.

The CJEU has provided further guidance on how to distinguish between food and catering, drawing on the definition of catering for place-of-supply purposes, as well as from previous CJEU judgements. In its view, food accompanied by ‘sufficient support services intended to enable immediate consumption’ is a supply of catering. The national court should consider whether waiters served customers at their tables, whether customers ate in an enclosed room, and whether the franchise provided access to toilets, as well as use of furniture, crockery and cutlery.

Such factors should be assessed from the customer’s perspective (ie, if they did not use the facilities, but decided to take their meal away, then it was a good indicator that the service element of the franchisee’s supply was not important and a supply of food was taking place). 

From the weekly Business Tax Briefing published by Deloitte

147. VAT on use or enjoyment of phones in Austria

SK Telecom (SKT), a mobile phone provider based in South Korea, incurred Austrian VAT on fees charged by an Austrian network operator, which it passed on to its customers (ie, South Koreans visiting Austria) as roaming charges.

The Austrian tax authorities rejected SKT’s Directive claim on the basis that effective use and enjoyment of its services took place in Austria, and SKT should have accounted for Austrian VAT on the roaming charges. The CJEU has agreed.

In considering the two questions referred to the CJEU together, it was held that roaming services, a distinct service in their own right, supplied by an operator established in a third country to its customers who also belong in that third country, of allowing them to use a network of the Member State in which they are temporarily staying, must be considered to be ‘effectively used and enjoyed’ within that Member State. Furthermore, the application of such use and enjoyment provisions is not dependent on any tax treatment adopted outside of the EU to the extent it prevents non-taxation in the EU. 

From the weekly Business Tax Briefing published by Deloitte

148. Car parking chargeable to VAT

NHS hospitals in England frequently charge for car parking, which subsidises the provision of healthcare and deters people from parking at the hospital for free and walking to nearby shops.

In Northumbria Healthcare NHS Foundation Trust, the FTT has ruled that NHS car-parking charges were subject to VAT. The Trust was supplying car parking for consideration in the course of an economic activity. Special rules for bodies governed by public law did not override this treatment, as the car parking was not provided under a special legal regime (notwithstanding NHS guidance on how to charge for car parking) and was potentially in competition with private car park operators.

The FTT also ruled that the car parking was not exempt as ‘closely related’ to hospital or medical care, as it was not an indispensable stage in diagnosing, treating or curing disease.

Even if it was an essential part of the therapeutic process, then it would be excluded from exemption, as the car parking was in competition with commercial operators.

The Trust’s appeal (relating to a claim for VAT of £267k for 2013-16) was dismissed. 

From the weekly Business Tax Briefing published by Deloitte

149. Sale and leaseback does not trigger VAT self-supply charge

Balhousie Holdings Ltd had a new care home constructed, and financed its development through a sale and leaseback with a Real Estate Investment Trust. The construction qualified for zero-rating, but in 2019, the Court of Session ruled that Balhousie had disposed of its entire interest in the property through the sale (which immediately preceded the leaseback), and this triggered a self-supply charge that clawed back the zero-rating relief.

The Supreme Court has now overturned that decision. The purpose of the self-supply charge was to encourage businesses like Balhousie to commit to building and operating care homes for at least 10 years. In the Supreme Court’s judgement, the sale and leaseback occurred simultaneously and were indissolubly bound together, and in that context, there was no point when Balhousie did not have an interest in the property. As Balhousie had not disposed of its entire interest, the self-supply charge did not arise.

The majority of the Court found it unnecessary to apply the CJEU’s reasoning in Mydibel, which suggests that sale and leaseback transactions should in some situations be regarded as a means of finance rather than as two separate transactions for VAT purposes. 

From the weekly Business Tax Briefing published by Deloitte

150. Historical bad debt relief claim rejected

A time limit for VAT bad debt relief (BDR) claims was introduced in 1997 with prospective effect only, and to this day it therefore remains possible to submit BDR claims for 1989-97. The UT’s decision in Saint-Gobain Building Distribution Ltd, however, has shown how difficult this can be in practice. Many such claims are based on an acceptance that legal title to goods did not transfer to customers because of retention of title clauses which, combined with a deficiency in the BDR scheme at the time, would have prevented businesses from making claims.

However, retention of title clauses are not always effective – where builders’ merchants such as Jewsons (owned by Saint-Gobain) sold timber, bricks or copper pipe, legal title probably transferred to customers when they incorporated the goods into buildings, regardless of any retention of  title clauses. Consequently, the UT saw nothing wrong with the FTT’s conclusion that Saint-Gobain had been able to claim BDR in the 1990s, and had failed to prove on the balance of probabilities that it had not. Its appeal was dismissed. 

From the weekly Business Tax Briefing published by Deloitte

151. VAT i-forms

Members whose clients have exercised an option to tax an interest in land or buildings will be aware that the option normally needs to be notified to HMRC within 30 days of the date when it is made. This is extended to 90 days from the date the decision to opt was made where the decision is made between 15 February 2020 and 30 June 2021. This extension is one of the temporary easements during the coronavirus pandemic.

The usual way to notify an option to HMRC is to use form VAT1614A. This is an ‘i-form’ that is completed online, although there are at least two disadvantages to using it. Fortunately, the i-form itself is not mandatory and it is possible to notify the option by letter or use a simple PDF version of the form if you are able to find one.

The first disadvantage of the i-form is that it is not possible to view all the questions before starting to complete the form. Pleas to HMRC to change this feature have to date been fruitless.

The second disadvantage is that the HMRC page “Tell HMRC about an option to tax land and buildings” contains a link to access the form, which when selected may produce an error message: “If this message is not eventually replaced by the proper contents of the document, your PDF viewer may not be able to display this type of document”.

When this is pointed out to HMRC, it often advises the user to reinstall Adobe Reader or even to access the link from a different computer, which usually has the same result.

There is a workaround shown further down the web page: right-click on the link “Tell HMRC about an option to tax land and buildings”, select “Save link as” and save the link with a filename of your choice. Go to the file location, double-click to open the file and it will take you to the i-form, which you should be able to complete, print and send to HMRC. However, this does not work for all web browsers.

The same solution potentially works for form VAT5L, which a business registering for VAT must complete if its business activities are land or property-related.

Contributed by Peter Hughes, a freelance chartered accountant practising in York

Customs and other duties

152. How to treat a teddy bear’s heart

How can you tell if a plastic heart, which gives a cuddly toy a ‘realistic pitter-patter’ heartbeat, is designed for a bear (and therefore subject to duty at 4.7%) or a doll (duty free)? In Build-A-Bear, the UT has considered how to classify both hearts and other accessories (such as shoes, clothing and wigs), which could be used with either.

It decided that where accessories were designed principally for bears or for dolls, then Note 3 to Chapter 95 of the Combined Nomenclature classified them accordingly. Therefore, wigs that had slits and loops to fit over a bear’s ears were principally suitable for teddy bears and were subject to duty. However, bears and dolls both need hearts, and in that case Note 3 did not help. Classification of the hearts depended on the existence of a subheading in the Combined Nomenclature for ‘parts and accessories’ of dolls, but there was an absence of any equivalent for bears, meaning that they should be classified as duty-free.

From the weekly Business Tax Briefing published by Deloitte

Compliance and HMRC powers

153. Senior Accounting Officer: update on penalties

HMRC updated its Senior Accounting Officer (SAO) guidance on 25 March 2021, responding to the decision in Castlelaw. In Castlelaw, an SAO appealed a penalty where they had erroneously omitted a dormant entity from their SAO filings.

HMRC’s updated guidance now confirms that HMRC may exercise discretion in relation to the assessment of penalties in such circumstances. The guidance notes that, in exercising discretion, HMRC will consider the company’s compliance record and HMRC risk assessment. 

From the weekly Business Tax Briefing published by Deloitte

Tax avoidance

154. HMRC wins follower notice penalty appeal

The UT has allowed HMRC’s appeal in HMRC v Comtek Network Systems (UK) Limited, which relates to follower notices. Finance Act 2014 permits HMRC to issue a follower notice where it considers that there is a final judicial ruling in another case that is determinative of a dispute between HMRC and the taxpayer. If the taxpayer then fails to take the ‘necessary corrective action’ (eg, by telling HMRC that they have given up their claim to the tax advantage) the taxpayer can be charged a penalty of up to 50% of the tax in dispute. In this case, HMRC issued a notice in relation to a stamp duty land tax decision and followed it up with a penalty. The penalty was overturned by the FTT, which held that it was reasonable in all the circumstances not to take corrective action. However, the UT found the FTT had misapplied the concept of ‘reasonable in all the circumstances’, in particular when considering actions occurring after the statutory deadline had passed. It reinstated the penalty, although in a reduced amount. 

From the weekly Business Tax Briefing published by Deloitte


155. Council of the EU adopts Directive on reporting rules for online platforms (DAC 7)

The Council of the EU has adopted DAC 7, the EU Directive that will introduce a new reporting requirement for digital platforms. From 1 January 2023, the Directive will extend the scope of the existing provisions on exchanges of tax information between EU Member States by requiring digital platforms to collect and report information on income realised by their sellers. The rules will apply in respect of platforms that allow sellers to be connected with customers for the provision of the sale of goods, the rental of immovable property (eg, accommodation), the provision of personal services and the rental of transport.

HM Treasury published a policy paper at the Budget, confirming that there will be a consultation this summer on the introduction in the UK of reporting rules for digital platforms, based on the Organisation for Economic Co-operation and Development model rules. 

From the weekly Business Tax Briefing published by Deloitte