Agents and HMRC

280. Further agent guidance from HMRC

HMRC has now published guidance for agents who change the legal entity through which they are operating. The new guidance covers situations such as a change from sole trade to partnership, incorporation, and a merger with another firm.

In the past, HMRC has sometimes agreed to move client authorisations from one agent code to another. General Data Protection Regulation requirements mean that this is no longer an option. It is necessary to register any new legal entity as an agent with HMRC. New authorisations to act must also be obtained from clients.

How to register your client for a tax service as an agent explains the different ways in which agents can register a client for a new tax. It lists those taxes where the agent can do this in advance of being authorised as an agent. For some taxes, such as capital gains tax property reporting and plastics packaging tax, the registration can only be done by the client. There is scope for further improvements to this page, such as making it clear that when registering a client for self assessment the online SA1 can be accessed by agents using their credentials.

Contributed by Caroline Miskin

281. CGT 60-day reporting: new agent authorisation process for digitally excluded

HMRC has issued step-by-step guidance regarding new processes to allow agents to act on behalf of digitally-excluded clients in respect of capital gains tax (CGT) 60-day reporting.

Guidance in Agent Update: issue 100 from HMRC explains how agents can report property disposals and pay the associated CGT liabilities for clients who have previously been unable to complete the digital authorisation process.

Until now, individuals have had to create an online UK Property Disposal account as a first step. They then must complete a ‘digital handshake’ to authorise new or existing agents to act on their behalf to prepare and submit a return following the disposal of a UK property. Many taxpayers have been frustrated with the additional complexity this creates. Those who have no access to the internet or do not use computers have clearly struggled with the authorisation process.

HMRC’s new process is not entirely painless; according to the guidance, digitally-excluded clients will still need to contact HMRC by phone at least twice, as well as receiving a call back from HMRC. Agents will be able to request access using the normal Agent Service.

Certain disposals of UK property cannot be reported via the online service yet. Situations where this applies are listed in HMRC’s manual. In these cases, paper returns will need to be requested by phone.

Contributed by Mei Lim Cooper

Personal taxes

282. Personal tax tips

It is a good idea to encourage your clients to access their online personal tax account (PTA), as they can find answers there to basic questions that they would otherwise bother you with, such as how much tax they owe.

However, from 3 October the PTA must be accessed using a government gateway ID and password. The other method of access using ‘verify’ has been discontinued.

Clients also need to be aware that once they have accessed their PTA, HMRC will automatically send them all tax-related notices electronically through that account and not on paper. There is a means to switch back to paper notices, which is found under ‘profile and settings’ in the PTA.

Individuals who have submitted their tax return on paper for years will get pushed to file online when they access their PTA, but filing online is not as easy as viewing the online PTA.

Many people are frightened of doing tax-related tasks online due to the number of fraudsters who pretend to be HMRC. Autumn is prime time for such scam artists to increase their activities, as individuals generally have a vague awareness of a tax deadline in January. Taxpayers may also be taken in by a phone call or email that promises a tax rebate, which HMRC would never do.

This can be an opportunity for you to help more people file their tax returns, but also to sort out those who have got in a muddle. A prime example of this is the case of Lucy Watt, who thought she had submitted her tax return online, but in fact hadn’t completed the process (see case link below). This is not uncommon.

When you are taking on a new tax return client, especially one who has any unusual tax affairs, it is well to check the exclusions list for self assessment tax returns first. This will tell you whether the return will have to be submitted on paper, which is likely to cost you more in processing time.

Government services available on gov.uk using Verify
Latest HMRC scam warnings
Lucy Watt v HMRC [2022] UKFTT 00329 (TC) 
Exclusions list for 2021/22 tax returns 

From the weekly Tax Tips published by the Tax Advice Network

Property taxes

283.Nudging property owners

The annual tax on enveloped dwellings (ATED) contains a trap that can blow up in your client’s face: the five-year valuation rule.

When a residential property is held through a company (or other non-natural person, eg, a trust) it must be valued on acquisition to determine whether it is worth over £500,000, and thus may be subject to ATED. However, the property must also be revalued every five years after acquisition, with the valuation undertaken on 1 April in 2012, 2017, 2022, 2027, etc.

The new valuation takes effect for the ATED reporting year starting on the following 1 April. Thus, the ATED return and payment for 2023/24 is based on the open market value of the property as assessed at 1 April 2022.

HMRC is writing to taxpayers who are currently paying ATED to remind them to revalue their properties at 1 April 2022 using an open-market value.

This could result in the property moving up a valuation band for 2023/24, say from the £500,000- £1m band, into the £1m-£2m band. Although the ATED charges for 2023/24 have not been announced yet, moving up a band will at least double the amount of ATED due, which needs to be budgeted for.

The bigger trap is when the property becomes subject to ATED for the first time, as the property value has exceeded £500,000. Even if the property is exempt from ATED, because it is commercially let to people unconnected with the company owners, an ATED relief return must be submitted by 30 April within the year. There are a number of other situations that give full relief from the ATED charge.

Failure to submit an ATED return on time will result in automatic late filing penalties. Also, failure to pay the right amount of ATED charge on time will generate a late payment penalty and an interest charge.

Valuing an ATED property 
ATED reliefs and exemptions
HMRC letters about ATED

From the weekly Tax Tips published by the Tax Advice Network

Payroll and employers

284. PAYE on business sale

When a business is sold and continues to employ staff under the new owner, HMRC should be informed immediately, via the Employer helpline (0300 200 3200) so a new PAYE reference can be issued.

The former business owner should not allow the previous PAYE reference to be used and should close down that PAYE scheme as soon as possible. This is not what happened in the case of Mrs Siva who sold her shop to one of her employees in February 2018.

The same accountant acted for both Mrs Siva and the new owner of business and they continued to use the existing PAYE reference to pay the staff until December 2019, when a new PAYE scheme number was received. At that point the new owner (or the agent) resubmitted full payment submissions (FPSs) for all periods under the new reference, but the FPSs submitted under the old reference were not corrected.

HMRC pursued Mrs Siva for the PAYE due from February 2018 to December 2019, based on the FPS issued under the old PAYE reference, which should have been a liability of the new owner. However, HMRC had apparently already received the PAYE due from the new owner paid under the new PAYE reference.

The First-tier Tribunal was unable to sort out the mess and struck out the case. It probably didn’t help that the taxpayer and her agent refused to attend the hearing. The muddle may have been avoided if the FPSs submitted under the old PAYE scheme had been reduced to nil, and it is surprising that the tax agent did not do this.

What to do if business is sold or merges
Sumangkaly Siva v HMRC [2022] UKFTT 344 (TC) 

From the weekly Tax Tips published by the Tax Advice Network

285. Amounts included in PAYE settlement agreements – are they income for other purposes?

Where an employer has paid the tax and national insurance contributions on a benefit under a PAYE settlement agreement (PSA), does that benefit still form part of adjusted net income for the purposes of things like the £100,000 point where you lose your personal allowance or the high income child benefit charge?

Unlike benefits reported on a P11D, an employer does not have an obligation to share PSA information with employees. Furthermore, the amounts are grossed up as the employer is meeting the employee’s tax obligation. Therefore, instinctively the conclusion is that the employee does not include the PSA amount in their taxable income. But where can you substantiate this conclusion in the legislation?

Section 706(a) and (d), Income Tax (Earnings and Pensions) Act 2003 grants the power for the PAYE regulations to provide “that sums accountable for by an employer under a PAYE settlement agreement … are to be treated as excluded from the employee’s income for such further purposes of the Income Tax Acts, and to such extent, as may be prescribed”. Regulation 107(1), Income Tax (Pay as You Earn) Regulations 2003, SI 2003/2682, states: “Qualifying general earnings included in the PSA are treated as excluded from an employee’s income for the purposes of determining the amount of the employee’s liability to income tax for the tax years to which the PSA relates.”

CGT

286. It’s all foreign to me: CGT and non-sterling assets

Now might be an apposite time to remind ourselves of how capital gains tax (CGT) deals with foreign currency and other non-sterling assets. It’s worth noting before we start that if you are dealing in such things as a business activity, income tax rather than CGT will be relevant and nothing we say below will apply.

The basic rule is that the cost and disposal proceeds of any asset must always be quantified in sterling. If you bought a property for $500,000 at a GBP/$ exchange rate of $1.30 and you sell it for $450,000 at the rate of $1.10, you have (for UK CGT purposes) made a capital gain of £24,476, not a capital loss of $50,000.

If you borrowed $400,000 to buy the property and you repaid that debt out of the proceeds of sale, you have made a ‘loss’ on the debt of £55,944. But (since CGT deals with assets rather than liabilities) you get no tax relief for that loss.

Similarly, if sterling were to appreciate during your period of ownership of an asset denominated in foreign currency and financed by a foreign currency loan, you may find that you have a gain (in foreign currency terms) on the asset but a CGT loss; and a tax-free ‘gain’ (in sterling terms) on repayment of the loan.

Of course, other countries as well as the UK have the impudence to charge tax on capital gains. Usually, on a disposal of real property, tax will be levied by the country in which the property is located, even if the disposal is made by a non-resident – the UK’s generous disavowal of a charge on non-residents until relatively recently was an exception to the norm. These countries will, naturally, compute any gain or loss according to their own rules, and by reference to their own currencies.

It’s therefore perfectly possible for the same transaction to give rise to a taxable gain for overseas tax purposes and a loss for UK tax purposes, or vice versa. Any tax charged by the ‘host’ country is set off against any UK CGT chargeable on the gain: but that’s as far as it goes. There can be no kind of netting off of a foreign-tax loss against a UK gain on the same transaction, nor of a UK loss against a foreign-tax gain: and where foreign tax is paid on a transaction that gives rise to a loss for UK purposes, no relief will ever be available for that foreign tax.

Gains or losses on foreign currency itself are fairly straightforward. You are not chargeable to UK CGT in respect of gains (nor entitled to relief for losses) on the disposal of:

• foreign currency you acquired for your own (or your family’s or dependents’) personal expenditure outside the UK;
• debts denominated in foreign currency, where you are the original creditor (as distinct from an assignee) unless the debt is a ‘debt on a security’; or
• foreign currency bank accounts (although if the account was held before the rules changed in 2012 the position can be more complicated – seek advice).

For this purpose, ‘foreign currency’ does not include cryptoassets, the taxation of which is a whole topic in itself.

Contributed by David Whiscombe writing for BrassTax, published by BKL

Trusts

287. Updates to TRS guidance for excluded express trusts

HMRC’s updated Trust Registration Service (TRS) guidance sets out the main types of excluded express trusts. The list includes bare trusts for holding a child’s bank account, pilot trusts and trusts for holding certain life insurance policies. More detail can be found in HMRC’s Trust Registration Service Manual.

Excluded express trusts do not automatically need to be registered on the TRS. They only need to be registered if the trust becomes taxable. In that case, the deadline for registration depends on:

• when the trust was created;
• the tax that the trust is liable for; and
• whether the trust has been liable for income tax or capital gains tax previously.

Trusts that were registered on TRS before 17 October 2022 will need to declare that the trust is an excluded express trust when next updating the TRS. Trusts registering on or after 17 October will declare that the trust is an excluded express trust as part of the registration process.

Excluded express trusts are not subject to data sharing requests, unlike most other trusts registerable on the TRS. Trusts are required to keep their information up-to-date on the TRS. Even if an update is not required for another reason, it would be sensible to make an update to flag that the trust is an excluded express trust.

The updated guidance can be found at:

Register a trust as trustee
Register a trust as an agent
Managing a trust’s details 

Contributed by Mei Lim Cooper

Stamp taxes

288. Public right of way does not make a property mixed use for SDLT

The First-tier Tribunal (FTT) has found that a property including a section of public highway was not classed as mixed-use for stamp duty land tax (SDLT). The fact that the path was used for access by a farm did not mean that it was commercial land.

The taxpayers originally filed an SDLT return on the basis that their property purchase was residential. Soon afterwards, they filed an amendment classifying it as mixed use due to the existence of a public right of way across the property. This was a public highway used by vehicles, running along the edge of the property. It was both how the owners accessed the property and access for other houses and a farm along the lane. HMRC refused to reclassify the property after enquiry. The taxpayers appealed.

The taxpayers argued that the path restricted their enjoyment of the land, as they could not use that area privately. They set out the various obligations the existence of a right of way placed on them, such as keeping it clear and maintained. The reasonable enjoyment test no longer applied, so before the FTT, they also argued that the land of the path was used for a separate commercial purpose, as it granted access to a farm, interrupting their use of it as a residential property.

The FTT considered the characteristics of the property and dismissed the appeal. It found that the use of the path by a farm did not make it a place where business was conducted, so did not change the residential character. The fact that the path came with burdensome obligations did not change its character as part of the grounds of the property.

Averdieck & Anor v HMRC [2022] UKFTT 374 (TC) 

From the weekly Tax Update published by Evelyn Partners LLP

VAT

289. VAT invoices for sale and leasebacks

In 2007, RED d.o.o. entered into a sale and leaseback transaction with Raiffeisen Leasing (Raiffeisen), in order to finance the construction of a new building in Ljubljana, Slovenia. Two VAT issues arose in connection with the deal. First, RED issued a VAT invoice to Raiffeisen for the sale of the land, but it had an old residential property on it and the sale should have been exempt. The Court of Justice of the European Union (CJEU) noted that input tax recovery does not extend to VAT that is due solely because it is mentioned on a VAT invoice, meaning that Raiffeisen should not have deducted input tax of €44,000.

Second, RED had immediately recovered all of the VAT on the leaseback (€110,000) on the basis that the documentation qualified as a VAT invoice, but Raiffeisen had not accounted for output tax in full at the start of the deal.

The CJEU has ruled that the leaseback was capable of being treated as a VAT invoice, provided that it contained sufficient information for RED to substantiate its right to recover input tax. The fact that some of the details normally required on an invoice (such as the applicable VAT rate) were implied rather than express did not prevent the leaseback from being treated as an invoice. The fact that Raiffeisen never intended the leaseback to be treated as an invoice was irrelevant. As Raiffeisen had issued a VAT invoice in 2007, it should have accounted for output tax at that time.

From the weekly Business Tax Briefing published by Deloitte

290. Input tax recovery by intending trader

Hedge Fund Investment Management Limited (HFIM) was set up to provide fund management, and research and introductory services, to HFIM Emerging Alpha Strategies Funds (an Irish open-ended investment company (OEIC)) and other funds. A prospectus intended to attract investment was produced, but the OEIC decided to delay its publication until HFIM had resolved litigation against a company in the Seychelles. By the time the Supreme Court of Seychelles ruled in its favour (some five years later), HFIM had undertaken no fund management and little research or introductory activity.

Nevertheless, the First-tier Tribunal has ruled that HFIM clearly intended to trade and should be entitled to treat VAT on costs incurred between 2015 and 2020 as relating to its business.

The Tribunal considered that the detailed and professional prospectus was powerful evidence of an intention to manage funds. Additionally, various emails and other documents showed HFIM pursuing research and introductory activities, albeit in a more limited way than it might have wanted to.

The Tribunal considered that it did not have sufficient evidence to conclude whether all the input tax assessed by HMRC was directly linked to HFIM’s outputs (or qualified as overhead input tax), and the Tribunal was not addressed on the question of whether HFIM’s supplies would have been exempt. The Tribunal therefore directed the parties to review recoverability of input tax on the basis that HFIM had been an intending trader.

From the weekly Business Tax Briefing published by Deloitte

291. VAT exemption for sub-participation

A number of Polish banks securitised loans with O. Fundusz, which advanced them a ‘financial contribution’ in return for undertaking under a sub-participation agreement to pass any loan repayments to the fund. The banks were clearly making VAT-exempt supplies of credit to their customers. Was O. Fundusz making an exempt supply of credit to the banks? The Polish tax authorities considered that the sub-participation agreements were different: the loans were not assigned or transferred to the fund, which was only entitled to receive payments from specified loans and could not pursue the banks for further payment if the debtors defaulted.

Those features had convinced Advocate General Laila Medina that O. Fundusz was providing a risk management service, but the Court of Justice of the European Union disagreed (see tinyurl.com/TX-Fundusz). In its judgement, the fund was making capital available in return for remuneration and this was not affected by the fund’s exposure to credit risk or the absence of any legal remedy against the bank in the event of debtor default. The fund was making an exempt supply of credit, valued as the estimated value of the receivables less its financial contribution.

From the weekly Business Tax Briefing published by Deloitte

292. HMRC’s assessments valid

DCM (Optical Holdings) (DCM), operating under the name Optical Express, makes both taxable supplies of frames and lenses for glasses, and exempt supplies of dispensing services. As part of a long series of disputes, HMRC assessed DCM for VAT on 20 October 2005 in respect of issues arising from its attribution of discounts to taxable, rather than exempt, supplies. DCM appealed, arguing that the assessment was invalid. This was on the basis that HMRC was time-barred in accordance with s73, VAT Act 1994 (VATA 1994), which requires HMRC to make an assessment no later than two years after the end of the relevant accounting period or one year after evidence of facts comes to HMRC’s knowledge which is, in HMRC’s opinion, sufficient to justify making the assessment.

DCM argued that HMRC knew that “something was wrong” by January 2004 and therefore had one year from then to assess, meaning it was out of time. In respect of additional disputed decisions between 2008 and 2013, DCM argued that HMRC did not have the power to make the relevant decisions by reducing the input tax credit on its VAT returns, as s25(3), VATA 1994 mandates HMRC to pay DCM the VAT credits that it claimed.

The Supreme Court has unanimously dismissed DCM’s appeal. The October 2005 assessment was not time-barred as HMRC obtained the last pieces of evidence during a visit ending on 1 September 2005, before which time HMRC did not have evidence of facts sufficient to justify that assessment.

In respect of the later periods, HMRC’s powers are set out in statute either expressly or by implication, including that it is implicit in s25(3) that the obligation on HMRC to pay a VAT credit arises only once it is established by the verification process that the VAT credit is due (not on the say-so of the taxable person).

From the weekly Business Tax Briefing published by Deloitte

293. Insufficient evidence for VAT claims 

NHS Lothian Health Board operates laboratories that provide clinical services to the NHS (a non-business activity for VAT purposes), and external private work (a business activity). In 2009, NHS Lothian submitted a Fleming claim to HMRC for input tax incurred in relation to its business activities for the period from 1974 to 1997, which it had not previously recovered. As NHS Lothian did not have sufficient records to establish the apportionment between business and non-business work in the period, it calculated its claim by applying to the claim period the percentage of business activity undertaken in 2006/07 – 14.7%, which HMRC rejected. The Supreme Court has now ruled in favour of HMRC. The Court held that it is not sufficient for a taxpayer to show that it has incurred VAT for the purpose of a business activity. The taxpayer must also be able to present either the requisite documentation or “devise a credible alternative method” to estimate the claim with reasonable certainty. Although under the EU principle of effectiveness, national law must not make claims based on directly effective EU rights “virtually impossible or excessively difficult” to exercise, there was nothing in HMRC’s approach that infringed this principle.  

From the weekly Business Tax Briefing published by Deloitte

294. Car parking held to be chargeable to VAT

NHS hospitals in England frequently charge for car parking. The Upper Tribunal has considered the issue of whether Northumbria Healthcare NHS Foundation Trust was acting as a taxable person when supplying car parking that was chargeable to VAT; or as a public authority and such supplies were made pursuant to a ‘special legal regime’ and if so, whether treating the Trust as a non-taxable person would lead to a significant distortion of competition.

The Upper Tribunal has held that the First-tier Tribunal (FTT) had not erred in law in concluding that the Trust did not provide the parking under a special legal regime (see tinyurl.com/TX-Northumbria). The fact that a public authority is required to act in accordance with statutory powers is not sufficient – it is necessary to show that the pursuit of the specific activities involves or is closely linked to the exercise of the rights and powers of the public authority. It also held that the FTT had not erred in concluding that treating the Trust as a non-taxable person would lead to significant distortions of competition: there was actual competition between the Trust and private car park operators; there would be distortion of competition if the Trust did not charge VAT; and there was sufficient evidence for the FTT’s conclusion.

From the weekly Business Tax Briefing published by Deloitte

295. Carbon emission allowance trading and MTIC fraud

Climate Corporation Emissions Trading GmbH, an Austrian company, sold greenhouse gas emission allowances to Bauduin Handelsgesellschaft mbH, a German company. The place of supply of the services for VAT purposes was Germany, where the recipient belonged. However, the Austrian tax authorities determined that Bauduin was a ‘missing trader’ and that Climate Corporation knew, or should have known, that the allowances would be used for the purposes of tax evasion. Consequently, it sought to tax the supply in Austria where the supplier belonged.

The Court of Justice of the European Union (CJEU) was asked whether the place of supply of services by a taxable person established in an EU member state to a taxable person established in another member state can be deemed to be the supplier’s member state where that transaction involves VAT evasion.

The CJEU has held that “the place of supply of services cannot be altered in disregard of the clear wording of Article 44 of the VAT Directive on the ground that the transaction at issue is vitiated by VAT evasion”. Such a finding would run counter to the objectives and general scheme of the EU Principal VAT Directive. The Court also noted that the law concerning goods and services are distinct, so any case law or arguments based on the VAT treatment of the intra-Community supply of goods were not relevant.

From the weekly Business Tax Briefing published by Deloitte

296. VAT treatment of children’s face masks

HMRC released Revenue and Customs Brief 11 (2022) (RCB 11/22) on 24 October 2022, setting out HMRC’s revised position regarding the VAT treatment of children’s face masks.

Having reviewed the evidence, HMRC now accepts that face masks are items of clothing. Where face masks are specifically designed and held out for sale to young children under the age of 14, they will be subject to the existing zero rate of VAT for children’s clothing.

Businesses that have previously treated sales of children’s face masks as taxable at the standard rate can reclaim VAT by following the guidance outlined in section 2.2 of VAT Notice 700/45. RCB 11/22 should be quoted on any VAT652 or claim letter submitted.

Contributed by Ed Saltmarsh

297. Changes to option to tax processes and forms

Previously, when a taxpayer submitted a notification of an option to tax (OTT), HMRC would carry out checks of the notification before sending back an acknowledgement. HMRC will no longer carry out these checks on the validity of the notification. Under the new process, HMRC will simply issue a receipt confirming that the notification of the OTT has been received.

It has always been the responsibility of the taxpayer to confirm the validity of its OTT notifications. That remains the case. The change in process removes the blurred line where, previously, taxpayers may have believed HMRC’s acceptance of the OTT confirmed that it was valid. HMRC will take corrective action should it later transpire that the OTT is invalid.

HMRC has previously carried out extensive checks of its systems to find details of historic OTT notifications. Going forward, if HMRC is unable to locate a valid notification of an OTT on the property in question, it will request further information from the opter or an authorised representative.

In addition to the changes to the process of notifying an OTT, HMRC has also removed the ‘print and post’ versions of the following forms:

• VAT1614B: Stop being a relevant associate to an option to tax
• VAT1614E: Notification of a real estate election

These can now only be completed online. Please note the online form can still be posted but it must be completed in full before it can be printed. The form can also be emailed to optiontotaxnationalunit@hmrc.gov.uk.

Contributed by Ed Saltmarsh

Compliance and HMRC powers

298. SDLT discovery assessment valid

The First-tier Tribunal (FTT) has found that a discovery assessment can be valid, even if one particular discovering officer cannot be named.

The taxpayer, then a QC, purchased the property in 2008, and submitted a stamp duty land tax (SDLT) return stating that the consideration was £120,000. Almost five years later, HMRC raised the issue that the Land Registry had consideration recorded as being much higher, and that the taxpayer was thought to have used an ineffective SDLT mitigation scheme. The taxpayer’s disagreement was rejected in 2017.

The issue of the SDLT due was not before the FTT, merely the validity of the discovery assessment. HMRC had investigated this return after the stamp office became concerned about many taxpayers using SDLT reduction schemes. This return was flagged up when historic SDLT returns were reviewed to find any with this issue. This was a team effort, and HMRC could not identify one individual officer responsible for the discovery.

The FTT found for HMRC that if it is evident that an officer must have made the discovery, then the particular officer does not need to be identified. It also found that the other tests for validity, including the reasonable belief of an officer that there was a loss of tax, was met.

The discovery assessment was upheld.

Wilby v HMRC [2022] UKFTT 348 (TC) 

From the weekly Tax Update published by Evelyn Partners LLP

Appeals and taxpayer rights

299. Successful appeal on information notices

The First-tier Tribunal (FTT) has cancelled information notices as the taxpayers demonstrated the data was not reasonably required. HMRC was also directed to issue closure notices.

The taxpayers, a married couple who operated a property investment business in partnership, were issued with information notices in the course of enquiries into their 2017/18 returns. HMRC believed that their disclosed income did not match their personal expenditure. A variety of information was provided to HMRC about the business, which involved 26 rental properties. HMRC also looked at financing, including how the purchase of the couple’s own home was financed, and made estimates of what it believed their income to have been. The taxpayers explained the use of bridging loans for financing, but refused to provide some information for earlier years than that under enquiry.

The information notices required information on all refinancing from 2014/15 onwards, bank statements for 2016/17, and other sources of money used for personal or business finance from 2014/15 onwards. The FTT allowed the appeal against the information notices, concluding the information requested was not reasonably required to check the tax position for 2017/2018. In respect of the means position, the FTT held that the taxpayers had provided sufficient evidence to show that they were able to support themselves and buy an expensive property from taxable and non-taxable sources. The only tax loss that had been established was an overclaim in respect of loan interest relief, which had arisen due to the capital accounts of the partners being overdrawn.

The FTT held that the information requested by HMRC was too onerous and not reasonably required to establish what adjustments were required, which it concluded could be agreed between HMRC and the taxpayers, whose adviser had already calculated and submitted figures to HMRC for agreement.

Davies & Ors v HMRC [2022] UKFTT 369 (TC) 

From the weekly Tax Update published by Evelyn Partners LLP

300.Appeal dismissed on furlough scheme information notice

The First-tier Tribunal (FTT) found that bank statements are statutory records, so the tribunal had no jurisdiction to exclude them from an information notice.

The taxpayer, an IT support company, claimed about £73,000 in payments under the coronavirus job retention scheme (CJRS). Due to its VAT deregistration and lack of corporation tax returns, HMRC wanted to check its entitlement to the grants. HMRC issued an information notice requesting copies of bank statements, and other details such as a description of the business activities, and a breakdown of how the claims for grants were calculated.

The taxpayer appealed, although did not attend the hearing nor send representation. The only information it had supplied was heavily redacted bank statements.

The FTT confirmed its view that payments made under the CJRS can lawfully be the subject matter of an information notice. It struck out the appeal in relation to the bank statements. These are statutory records, and the company could not withhold them nor could it redact them.

The appeal was also dismissed in relation to the other details, which HMRC demonstrated that it reasonably required to check the position.

Fresh Consulting And Support Ltd v HMRC [2022] UKFTT 353 (TC) 

From the weekly Tax Update published by Evelyn Partners LLP

301. HMRC civil tax dispute resolution procedure

HMRC has published information about its internal procedures for resolving civil tax disputes.

This covers the general approach, including the HMRC charter, and how HMRC maintains fairness internally. It briefly explains the alternative dispute resolution procedure, reviews, appeals, the general anti-abuse rule (GAAR), accelerated payment notices, and follower notices.

From the weekly Tax Update published by Evelyn Partners LLP

Tax avoidance

302. Advisory panel decides against an SDLT arrangement

The general anti-abuse rule (GAAR) panel has found that a particular set of stamp duty land tax (SDLT) arrangements in relation to the sale and purchase of a residential property involving an alternative finance agreement and a lease agreement constituted tax avoidance.

In summary, the arrangements consisted of the taxpayers buying a residential property in a complicated way to save SDLT, as advised by a tax avoidance scheme promoter. They entered into a contract to buy the property, then settled the sum needed to purchase it into a company, which settled the same amount back onto them under a bare trust. The money remained in one account throughout, held by a manager who received instructions that he was holding it as nominee for each party at handover. The taxpayers then bought the property, theoretically in a bare trust where the trustee was the company, so they paid it a peppercorn rent.

The GAAR panel held that both entering into and carrying out the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions. 

From the weekly Tax Update published by Evelyn Partners LLP

303. GAAR panel opinion on extraction of cash from close company

The general anti-abuse rule (GAAR) panel found that the arrangements, using trust interests, limited liability partnership and the novation of loans, were abusive.

The panel looked at a case where a settlor established several settlements as part of an elaborate arrangement ostensibly to avoid a loans to participators charge on a close company. Some were amalgamated, and funds were extracted by assigning a beneficiary’s rights under and debt obligations to the settlement elsewhere, before the rights were transferred to an LLP as an asset. The overall effect of the arrangements was essentially to create an arrangement whereby the shareholder effectively borrowed £950,000 from a company without the charge arising, although the GAAR panel did not make a decision as to whether or not alternative dividend or remuneration charges were the more appropriate alternative tax treatment.

The opinion was that both entering into and carrying out the tax arrangements was “not a reasonable course of action in relation to the relevant tax provisions”. 

From the weekly Tax Update published by Evelyn Partners LLP

304. HMRC factsheet on penalties for facilitating avoidance schemes

This document sets out details about the information notices that may be issued if HMRC suspects an individual may be liable for a penalty for facilitating an avoidance scheme involving a non-resident promoter.

It explains what an information notice is, what happens if it is not complied with, and the appeal rights, among other general information.

From the weekly Tax Update published by Evelyn Partners LLP

International

305. Taxpayer wins unilateral relief case

The Upper Tribunal (UT) agreed with the First-tier Tribunal (FTT) that a UK company could claim unilateral relief against US withholding tax despite being refused treaty relief by the Internal Revenue Service (IRS) under the limitations of benefits provisions. It found that the UK/US tax treaty does not include express provisions prohibiting relief for the arrangement in question.

The taxpayer was a UK company that suffered US withholding tax on interest payments from its US subsidiary. The US competent authority denied the taxpayer the benefits of the UK/US tax treaty, which could have reduced the withholding tax to nil, on two grounds. First, the taxpayer was not a ‘qualified person’ under the UK/US tax treaty. Second, it was not clear that obtaining treaty benefits was not a principal purpose of the arrangements.

The taxpayer then claimed unilateral relief in the UK, which amounted to approximately £4.5m. HMRC denied relief, arguing that the case fell within the exclusion provisions. Unilateral relief is not available where the arrangements made in relation to a territory outside the UK include express provisions that deny credit relief. HMRC interpreted the UK/US tax treaty as containing such provisions.

The FTT found for the taxpayer. It held that the UK/US tax treaty, and in particular the limitation of benefits article, is not explicit as to the cases and circumstances in which credit relief is not available. UK unilateral relief was therefore available.

The UT has now dismissed HMRC’s appeal, holding that the limitation of benefits article was not an express provision. It noted that “the fact that a domestic law provision may be inconsistent with a treaty provision does not mean, without more, that it is ineffective”.

Aozora GMAC Investment Limited v HMRC [2022] UKUT 258 (TCC) 

From the weekly Tax Update published by Evelyn Partners LLP

306. Taxpayer found to be UK resident under old residency rules

The First-tier Tribunal (FTT) has found that, under the rules predating the statutory residence test, a taxpayer remained UK tax-resident despite a theoretical move to Belgium. The pattern of his UK visits indicated an ongoing connection.

The taxpayer, a successful businessman who was born and raised in the UK, moved to Belgium in early April 2006 to develop his European business further. He returned to the UK in 2013. HMRC argued that he remained UK resident for tax purposes throughout this period.

Initially, he rented a flat in Belgium, before purchasing a property, which he moved into in November 2006. His wife visited, but largely remained living in the UK. He took some steps to transfer his life to Belgium, such as closing some UK bank accounts and opening Belgian ones, resigning from UK clubs, and notifying his new address to organisations and contacts.

The FTT however found for HMRC that he remained UK tax resident. His wife remained in the UK family home, which he visited despite staying in hotels overnight. He saw friends in the UK, and attended sporting fixtures there. Although he spent relatively little time in the UK and there had been a clear change in the pattern of his life, his visits were frequent and there was not a sufficient loosening of his ties with the UK.

The FTT also found that for the purposes of the double tax treaty, his UK property remained his permanent home. The fact that he had transferred it solely into his wife’s name and did not stay there overnight was an artificial step that carried no weight. His personal and economic interests remained in the UK, which was his centre of vital interests, meaning that he was treaty resident in the UK.

McCabe v HMRC [2022] UKFTT 356 (TC) 

From the weekly Tax Update published by Evelyn Partners LLP

307. OECD releases updated country-by-country reporting implementation guidance

The Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on base erosion and profit shifting (BEPS) has released an updated version of its guidance on the implementation of country-by-country (CbC) reporting to tax authorities under Action 13 of the BEPS project.

The guidance, which is updated periodically, aims to facilitate the consistent implementation of Action 13 CbC reporting by tax authorities and taxpayers and to provide increased certainty. This is the first update to the guidance document since December 2020 and includes new content on the following topics:

• the use of positive and negative figures in completing Table 1 of a CbC report (an overview of financial data of a reporting group, aggregated by tax jurisdiction);
• descriptions to be used for permanent establishments in Table 2 of a CbC report (a list of all the constituent entities of a reporting group); and
• guidance and examples on the constituent entity data which can be used for Tables 1 and 2 where the ultimate parent entity has a reporting fiscal year longer or shorter than 12 months.

From the weekly Business Tax Briefing published by Deloitte

308. OECD publishes transparency framework for crypto-assets

On 10 October 2022, the Organisation for Economic Co-operation and Development (OECD) published its report Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard. Further to consultations held earlier in 2022, the rules establish crypto-asset due diligence and reporting requirements for crypto-asset service providers under a new Crypto-Asset Reporting Framework (CARF). They also amend existing due diligence and reporting requirements for financial institutions under the Common Reporting Standard (CRS), for example, in relation to the CRS treatment of digital financial products.

From the weekly Business Tax Briefing published by Deloitte

309. OECD Forum on Tax Administration publishes bilateral advance pricing arrangement manual

On 28 September 2022, the Organisation for Economic Co-operation and Development’s Forum on Tax Administration (FTA) published a new manual on the operation and streamlining of bilateral Advance Pricing Arrangements (bilateral APAs).

The manual is intended as a guide for businesses and tax authorities in order to improve the bilateral APA process, and includes best practice recommendations to achieve advance certainty on transfer pricing matters.

From the weekly Business Tax Briefing published by Deloitte