Practical points: May 2021

108. Amounts found not to be partnership profits

In an LLP with complex remuneration arrangements, amounts received by the members under a deferred payment scheme were found to be miscellaneous income, not partnership profits.

A group of employees were entitled to deferred remuneration. An organisational restructuring resulted in some of them becoming members of a new LLP, although they were seconded to the company that they had been working for as employees and continued to undertake the same work for it. The LLP was entitled to a share of the business profits, including the amount earmarked as deferred remuneration. Under the remuneration arrangements, the deferred remuneration was paid to a corporate member of the LLP, which invested the amount and contributed it back to the LLP as special capital in tranches at later dates. The individual members could then withdraw the amounts on demand if they had not left on bad terms.

HMRC assessed the partners to tax on the grounds that the amounts were part of their profit shares. The First-tier Tribunal (FTT) found that this was not so, as the individual members had no rights to the amounts allocated to the corporate member, merely a right to be considered for future distribution. The FTT found that the amounts were instead miscellaneous income, dismissing the members’ contention that the income lacked a source, so did not fall strictly within the wording of the miscellaneous income provision. The reallocation to the members under the arrangements by the LLP was not entirely voluntary, so a source existed.

HFFX LLP and others v HMRC [2021] UKFTT 36 (TC)

From the weekly Tax Update published by Smith & Williamson LLP

109. Amounts again found not to be partnership profits

In an investment management LLP, amounts received by the members under a deferred payment scheme were found to be miscellaneous income, not partnership profits.

The deferral scheme had routed the amounts through a corporate member of the LLP. As the individual members had no strict entitlement to the amounts, this was not part of the ‘profit-sharing arrangements’.

Each year, the LLP retained part of the profit shares that would otherwise have been due to its members and paid them out to those members in later years if set conditions were met. These withheld amounts were paid to a corporate member of the LLP. It had discretion to contribute the amounts back to the LLP as special capital, to then be invested in the fund managed by each member due to receive deferred remuneration. The members could withdraw the amounts from the fund later if they met the conditions.

The FTT found for the taxpayer that the members were not subject to income tax on the amounts they would have received if not for the deferral arrangement in the year they arose, as the members were not entitled to receive those amounts. They were instead taxable as miscellaneous income at the point when the members withdrew the special capital.

Odey Asset Management LLP v HMRC [2021] UKFTT 31 (TC)

From the weekly Tax Update published by Smith & Williamson LLP

110. Capital allowances: gas cavity not ‘plant’

The Upper Tribunal (UT) has dismissed the taxpayers’ appeal in Cheshire Cavity Storage v HMRC. The appeal concerns the availability of plant and machinery allowances under the Capital Allowance Act 2001 on expenditure incurred in relation to underground cavities for gas storage in Cheshire. The cavities are formed by injecting water into naturally occurring salt rock beneath the ground, which leaves a hole filled with saltwater when the salt rock dissolves. Gas is then pumped into the hole and the saltwater in it is expelled. The rock all around the hole creates a barrier so the gas cannot escape. The cavity is connected by pipes to the national transmission system for gas, which is owned by National Grid and which supplies gas to end users. The UT held that the FTT had made no error of law when it concluded that the cavities were not ‘plant’ under common law. 

From the weekly Business Tax Briefing published by Deloitte

111. Amortisation deductions allowed for a licence

The FTT upheld a taxpayer’s claim for amortisation deductions relating to intangible assets. The existence and nature of goodwill and licence were questions of fact and the FTT examined the agreements and conduct of the parties in detail.

The taxpayer was a company that had acquired the business of a partnership and the shares in a connected company. The assets acquired included goodwill and a licence. The licence conferred the right to use the partnership’s brand, know-how, assets and client data. The licence had previously been granted to the connected company for an annual fee. HMRC argued that the licence was a financial asset, rather than an intangible asset. It additionally argued that there was no goodwill that could be properly recognised, and that the accounts were not GAAP compliant. On that basis, HMRC disallowed the CT deductions for amortisation.

The FTT found for the taxpayer. The licence was held to be a genuine licence and an intangible asset. The partnership was also found to have had goodwill, which was transferred at the time of the acquisition. The fact that accountants and auditors over several years had all agreed this treatment was also in the taxpayer’s favour. Two past HMRC inquiries into the licence arrangement had found no errors, which also weighed in the taxpayer’s favour.

Roger Preston Group Limited v HMRC [2021] UKFTT 38 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

112. Court of Appeal dismisses taxpayer’s consortium relief appeal; comments on procedure

In Eastern Power Networks plc and others v HMRC, the Court of Appeal has upheld the decision of the UT in a case concerning an HMRC inquiry into the application of anti-avoidance legislation, s146B, Corporation Tax Act 2010, to a specific group structure and consortium relief/group relief claim. The effect of s146B, where it applies, is to reduce the number of losses claimable by 50%. In this case, the consortium company and its shareholders made changes to the capital structure and the articles of the consortium company, which, in the absence of s146B, would have had the effect of increasing the amount of losses that could be surrendered by some of the shareholder companies without adversely affecting the levels of control. The Court held that the arrangements, specifically the introduction of a 75% voting threshold in the company’s articles, met both the conditions in s146B(3)(a) and s146B(2)(b), so it was possible that s146B applied.

Therefore, HMRC could continue its enquiries to determine whether the main purpose test was also satisfied.

Lady Justice Rose commented that the procedure in this case had required the Courts to apply the statutory provision in the absence of any clear findings of fact. The overall dispute remains unresolved, even after the Court of Appeal’s judgement, despite 11 years having elapsed from the relevant events (and seven years from the start of HMRC’s enquiries). She would “firmly discourage” the FTT from embarking on this kind of hearing; the Tribunal’s jurisdiction to direct HMRC to issue a closure notice “is not generally a suitable vehicle for deciding points of law in the course of an enquiry”. (Footnote: it has been announced that Lady Justice Rose will become a Supreme Court Justice in April). 

From the weekly Business Tax Briefing published by Deloitte

113. Tackling R&D errors

Some specialist R&D claims firms have automated selling processes designed to convince businesses that they are undertaking R&D and so will qualify for a tax repayment by claiming R&D tax credits.

Those R&D claims often succeed because HMRC hasn’t properly reviewed them, but this is changing. There are more cases of unsupported R&D claims being taken to the tax tribunals. For example, see the case of AHK Recruitment Ltd, which is worth reading. HMRC has also updated its Corporate Intangibles Research and Development Manual to include common errors it finds when it examines an R&D claim (see CIRD80500). These errors cover almost every aspect of the R&D scheme, but the list starts with the basic: “project activities outside the scope of R&D for tax purposes”.

A myth being circulated in the building trade is that alterations to offices or buildings to accommodate COVID-19-secure working qualify as R&D – they don’t.

For a project to qualify as R&D for tax purposes it needs to involve “an attempt to achieve an advance (in knowledge or capability) in a field of science or technology, through the resolution of scientific or technological uncertainty”.

All those elements need to be present:

• an attempt to advance knowledge or capability;
• in science or technology; and
• resolving a scientific or technological uncertainty.

Guidance on what R&D is for tax purposes is set out in a paper below, which is referred to in the R&D regulations.

Even if the project does qualify as R&D, there are plenty of other mistakes that can be made with an R&D claim, from including the wrong categories of expenditure to claiming under the wrong scheme (SME or large company).

Common errors in R&D claims

AHK recruitment v HMRC [TC07718]

Guidelines on meaning of R&D for tax purposes

From the weekly Tax Tips published by the Tax Advice Network

114. The worrying lure of the 130% super-deduction

While the 130% deduction on plant and machinery expenditure appears very attractive to companies in the short term, especially those that want to buy long-term plant and machinery, the balancing charge could have an impact with an extra cost. Such relief might attract a lot of conversations to incorporating the business in the short term, but there is a sting in the tail.

Companies will be required to recognise the disposal proceeds with the 1.3 factor resulting in some extra corporation tax at the rate of 25% or the ‘tapered’ rate. For plant and machinery with a fast turnaround (for example, tractors and commercial vehicles), there could be a ‘net cost’ compared to the pre-Budget arrangement.

However, where there are long-term assets (eg, a functional grain silo or silage clamp), the cashflow advantage is attractive, particularly with the carry back of losses.

All potential claims should be fully researched and projections carried out as to the ‘real’ tax saving. Likewise, a mad rush towards incorporation must be looked at in the round – especially where some capital taxes could be jeopardised by the choice of the wrong trading vehicle.

Contributed by Julie Butler, Joint Managing Partner, Butler & Co

115. Enterprise Management Incentives – working time easement extended

Relaxations to the Enterprise Management Incentives (EMI) legislation made in response to the coronavirus outbreak were set to end on 5 April 2021. These will now extend to 5 April 2022, but employers might need to take steps now to ensure they and their employees benefit.

EMI share options

The EMI scheme offers the most flexible and generous UK tax advantages of any employee share options. However, certain conditions must be met for an employee to be granted a qualifying EMI option.

Among these is the ‘working time requirement’: that the employee devotes at least 25 hours per week, or 75% of their total working time, to the business of the relevant company.

Additionally, an employee must usually continue to meet the working time requirement until the date on which they exercise an EMI option in order to retain its full tax advantages and be taxed at lower CGT rates. If they do not, in certain circumstances, income tax and employee’s national insurance contributions (NIC) at up to 47% (or 48% for Scottish taxpayers), plus employer’s NIC at 13.8%, will arise on any growth in value of the underlying shares.

Temporary relaxation of the working time requirement

Subject to limited exceptions for ill health, etc, any reduction in an employee’s working time could, in principle, prevent them from being granted new EMI options and potentially jeopardise the tax advantages of EMI options they already hold. However, a temporary change to the EMI rules was announced last year.

This means an employee will not be prevented from meeting the working time requirement solely because, due to the coronavirus outbreak, they are:

• furloughed;
• working reduced hours; or
• taking unpaid leave.

This temporary change applies from 19 March 2020 and was originally due to end on 5 April 2021. However, legislation has been brought forward in the Finance Bill 2021 to extend this relaxation to 5 April 2022.

Do employers need to take any action?

HMRC has confirmed that employers and employees must retain evidence demonstrating a link between the coronavirus pandemic and the relevant reduction in working hours (ie, that the reduction in working hours below the required minimum results from the pandemic, rather than from some other cause). For employees who have been furloughed under the Coronavirus Job Retention Scheme (CJRS), the furlough agreement between the employee and employer should provide this evidence.

However, for employees who have taken unpaid leave, or who have worked reduced hours, without being furloughed under the CJRS, employers should ensure the link between the coronavirus outbreak and that leave or those reduced working hours is appropriately documented and copies of that evidence retained by the employee and employer. This is important to protect against any future challenge to the qualifying status of employees’ EMI options, either from HMRC or from a potential purchaser during a future due diligence exercise.

From KPMG’s Tax Matters Digest

116. Seafarers/mariners helpline numbers 

Income tax: there is no longer a specialist team within HMRC that deals with income tax inquiries relating to seafarers. HMRC’s general income tax inquiries line, 0300 200 3300, has access to guidance to enable operators to help those who contact them.

NIC: The number on the seafarer’s NIC page has been updated. The marine NIC team, which is responsible for establishing the UK NIC liabilities of individual mariners, can be contacted on 0300 322 9464. 

(NIC inquiries relating to share fishermen are taken on the general NIC helpline, 0300 200 3500.)

Contributed by Peter Bickley

117. Offshore workers NIC questionnaire for seafarers/mariners

Mariners who need to check their NIC position, pay voluntary contributions, claim a refund or check the status of their employer should complete HMRC’s mariners NIC questionnaire. 

HMRC has published a new e-form version of the NIC questionnaire.

When completing the e-form, make sure you have all information to hand before you start. In common with other HMRC e-forms, it cannot be saved mid-completion – ICAEW’s Tax Faculty has complained about this feature of HMRC’s e-forms in the past.

A PDF version of the mariner’s questionnaire can be found (use Google Chrome rather than Internet Explorer to download this). 

Once completed, the form should be submitted to ISBC, Campaigns and Projects, HMRC, BX9 1QZ (not the Glasgow address cited on the form).

As to processing these forms, HMRC has said:

• although the e-form replaced the PDF form, which was withdrawn from service around September/October 2020, it will still process the old PDF questionnaire;
• it can take between three to six months to process these questionnaires depending on the time of year of submission;
• questionnaires submitted in support of applications for Portable Documents A1 or S1 are treated as priority and taken up for processing within 15 working days of receipt. Those submitted in support of an application for the issue of a UK National Insurance number (NINO) are screened initially to determine whether or not there is a liability to UK NIC. If so, HMRC informs DWP of the UK NINO request and processes the questionnaire fully at a later date; and
• all questionnaires are screened upon receipt to ensure that those relating to offshore workers who are not classified as mariners for UK NIC purposes are forwarded as soon as possible to HMRC’s PT Ops North East England International Caseworker Section.

HMRC’s guidance National Insurance if you work at sea has been withdrawn, presumably as a result of Brexit. However, it contains helpful information and fortunately is still available on gov.uk.

Contributed by Peter Bickley

118. When is a gift not a gift? Transfers on relationship breakdown

The making of a gift is a disposal for the purposes of capital gains tax (CGT). The basic rule is that tax is payable as if the asset gifted had been sold for its market value. But in some circumstances – including where the asset gifted is a ‘business asset’ – it is possible for donor and donee to elect (jointly) that the disposal be treated as made at such a price as results in neither gain nor loss being recognised. In effect, the gain that would otherwise be recognised on the disposal is ‘held over’ and becomes chargeable (on the donee) when the donee eventually disposes of the asset.

There is, of course, a whole panoply of rules about what assets qualify and the precise conditions to be met, but the broad rule that a gain on a gift of a business asset can usually be ‘held over’ in this way will suffice for present purposes.

The gain can be ‘held over’ in full if there is no consideration for the gift. If it is a ‘partial gift’ (meaning that any consideration received is less than the market value of the asset transferred), the relief may be restricted.

How do these rules apply where business assets are transferred following the breakdown of a marriage or civil partnership?

The first point to bear in mind is that, until the end of the tax year in which the parties permanently separate, no joint election is needed: any assets transferred (whether or not business assets) are automatically deemed to go across on the ‘no-gain, no-loss’ basis.

It is, therefore, only in subsequent years (typically when assets are being divided up following the relationship breakdown) that the triggering of a tax charge becomes an issue. That may of itself be an incentive to sort these things out sooner rather than later. The problem is the question of ‘consideration’.

HMRC formerly accepted that where an asset was transferred pursuant to a Court Order (even a Consent Order formalising an agreement between the parties), there was no ‘consideration’ and no bar to a joint ‘holdover’ election: the asset had been transferred not because the recipient had given consideration but because the Court had required the transfer to be made.

Unfortunately, that is no longer HMRC’s view. HMRC’s current view is that, where an asset is transferred on the breakdown of a marriage or civil partnership, it will be exceptional for this to be a gratuitous transfer potentially qualifying for holdover relief. Normally, the transfer is not truly a ‘gift’ made for no consideration but is made because the recipient is giving something up – namely “rights which [the recipient] would otherwise have been able to exercise to obtain alternative financial provision”. That amounts, in HMRC’s view, to ‘consideration’ of a value equal to the market value of the property transferred. This is the case whether or not the transfer is made under a Court Order. Consequently, holdover relief will not normally now be available.

Contributed by David Whiscombe writing for BrassTax, published by BKL

119. Timeo Danaos et dona ferentes: IHT rules on lifetime gifts

The point is that marriage or civil partnership does not purify a gift made in advance, so it will often be a potentially exempt transfer (PET) on the transferor’s IHT ‘clock’ for the normal seven years, unless it is covered by an exemption other than that applicable to transfers between spouses. Most people are aware that there are exemptions in consideration of marriage, but less well-known is that the exemption for parties to the marriage is only £2,500. The position is more complicated if the giver reserves a benefit, as then the seven-year clock will not start to run.

Turning to the fictional world of ITV’s Finding Alice, the eponymous heroine’s partner Harry gifted the newly built family home to his parents shortly before falling victim to the lack of a stair banister. As recipients of a failed PET, they were primarily liable for the IHT occasioned by his untimely death.

The moral of the story is stop and think before making any substantial gifts and remember that gifts are disposals for CGT purposes.

Returning to the title – a reference to the caution with which a Trojan priest greeted the Greeks’ gift of a certain wooden horse – bear in mind that UK assets are always within the scope of IHT, even if the owners are non-UK domiciled.

Contributed by Terry Jordan writing for BrassTax, published by BKL

120. Clearance requests

HMRC advised in its August 2020 Trust and Estates Newsletter that it would no longer be stamping and returning the application for a clearance certificate (IHT30). Instead, HMRC is issuing a letter that contains a unique code. The letter serves the same purpose as the stamped certificate. The reason for the change was that HMRC staff need to be in the office in order to stamp and return IHT30s, whereas the letter can be issued if staff are working from home.

HMRC confirmed at the recent HMRC Trusts and Estates Agents Advisory Group (T&E AAG) that it is receiving high volumes of telephone calls, IHT400 accounts and IHT post. However, it is not treating clearance requests with any less urgency than any other work on hand.

 The form IHT30 explains that clearance should only be applied for when you are sure that there will be no more amendments to report to the estate and you are ready to make the final distributions from the estate. Nothing has changed in HMRC’s expectations in the move from the IHT30 to the issue of a letter in its place.

Contributed by Caroline Miskin

121. IHT calculations

HMRC outlined in the June 2020 Trust and Estates Newsletter that, with many more of its people working from home, it is currently unable to print and issue repayment calculations, or calculations where the balance to pay is ‘nil’. However, HMRC will normally write to you to tell you the amount of tax and interest it has calculated that is now due or repayable. If you think that HMRC has made a mistake in its calculations, please call the IHT helpline on 0300 123 1072.

HMRC explained at the T&E AAG that it needs staff to be present in the office to print these types of calculations. HMRC is not yet sure when it will be in a position to invite staff into the IHT office in greater numbers. HMRC is grateful for your patience and understanding until this can be achieved.

Contributed by Caroline Miskin

122. Gift with reservation and the IHT spouse exemption

HMRC has agreed an analysis of when the inheritance tax spouse exemption is available for assets held in a trust, which are treated as beneficially owned by the settlor as a result of the reservation of benefit rules.

The interaction of the spouse exemption and gift with reservation IHT rules has been a subject of debate, with some arguing that the spouse exemption is not available where the gift with reservation rules apply.

This has come into focus because of the excluded property changes in Finance Act (FA) 2020. The impact of the FA 2020 changes appears to be to remove the protection that excluded property treatment provided for gift with reservation purposes in certain cases where the trust was established prior to the FA 2020 changes.

This issue is being considered further by HMRC, but is coloured by the possible availability of the spouse exemption. Further information about the excluded property provisions in FA 2020 is available to Tax Faculty members in an article in the October 2020 edition of TAXline.

ICAEW, together with other professional bodies, provided an analysis of the rules, to which HMRC has now indicated its agreement and has amended the IHT manual (IHTM14303) to reflect it. The analysis states:

• property subject to a reservation at the donor’s death is treated by s102(3), FA 1986 as: “property to which he was beneficially entitled immediately before his death”;
• section 4, Inheritance Tax Act (IHTA) 1984 requires tax on death to be charged as if the deceased had made a transfer of value and: “the value transferred had been equal to the value of his estate immediately before his death”;
• section 5(1), IHTA 1984 provides that a person’s estate is: “the aggregate of all property to which he is beneficially entitled”;
• a chargeable transfer is a transfer of value which is not an exempt transfer;
• section 18(1), IHTA 1984 provides that a transfer of value is an exempt transfer: “to the extent that the value transferred is attributable to property which becomes comprised in the estate of the transferor’s spouse”;
• it follows that spousal relief applies to settled property subject to a reservation if on the death of the settlor the settlor’s spouse becomes beneficially entitled to the property under either:

(a) the original terms of the settlement; or

(b) a subsequent appointment made thereunder and prior to the settlor’s death;

• the same would apply where the spouse’s entitlement on the death of the settlor is to a qualifying interest in possession (ie, to an interest in possession to which s49, IHTA 1984 applies); and
• it is not considered spousal relief applies where settled property ceases to be subject to a reservation inter vivos. This is because s102(4), FA 1986 operates by deeming there to be a potentially exempt transfer rather than by deeming the donor to be beneficially entitled to the gifted property.

Contributed by Caroline Miskin

123. Non-taxpaying trusts given longer to register

The requirement to register on HMRC’s trust registration service (TRS) has been extended to non-taxpaying trusts. The regulations, introduced in SI 2020/991, implement the EU’s Fifth Anti-Money Laundering Directive into UK law. The original deadline for existing trusts to register was 10 March 2022. However, this was on the basis that the TRS would be open for registrations in spring 2021. This is now not expected until summer 2021. HMRC has indicated that the extension will provide trustees and agents with approximately 12 months from the date that the service is available to register. HMRC will provide further details in due course. Those who would like to be involved in testing the system should contact serviceteam17.digital_ddcn@digital.hmrc.gov.uk.

Contributed by Caroline Miskin

124. Faster process for temporary changes to partial exemption methods

VAT-registered businesses whose partial exemption method does not give a fair result because their trading activities have been affected by COVID-19 can request temporary alterations to their calculation methods. HMRC has confirmed it is now speeding up the process.

In Revenue and Customs Brief 4, HMRC explains a new accelerated process to swiftly respond to requests to change a partial exemption method that has become unfair due to the effects of the coronavirus pandemic on the business.

The partial exemption rules apply where a VAT-registered business makes a mixture of taxable and exempt supplies.

The standard method for calculating the amount of input tax that such businesses can recover can be overridden either by:

• the standard method override – where the deductible input tax differs significantly from that calculated based on the use of input tax in making taxable supplies; or
• requesting a partial exemption special method (PESM) if it produces a fairer reflection of the use of residual input tax than the standard method.

HMRC is encouraging businesses that use the standard method to use the standard method override, where it applies, rather than applying for a PESM.

Businesses that already have a PESM may serve a special method override notice on HMRC and these will be considered under HMRC’s accelerated process where the reason given is the impact of coronavirus.

Requests for such changes should be sent to PESMcovid19@hmrc.gov.uk.

The accelerated process is also available to businesses using a capital goods scheme special method.

The Brief also sets out the evidence that businesses should submit and how HMRC may apply time limits and agree to retrospection. 

125. Reverse charge on overseas investment management fees 

Wellcome Trust (a charitable fund worth more than £23bn, which supports medical research) incurred fees of £65m over five years from non-EU investment managers. It is registered for VAT in the UK (because it also receives substantial property income) and therefore was not receiving services as a consumer (B2C). Some 25 years ago, the Court of Justice of the European Union (CJEU) ruled that Wellcome was not acting in a business capacity either (when managing its non-EU investments) so Wellcome argued it should not apply the reverse charge to the investment managers’ services because it was not a ‘taxable person acting as such’ (ie, receiving B2B services).

The CJEU, however, has ruled that the definition of a business customer for the purposes of determining the place of a supply is broader than the definition of a business activity for input tax recovery purposes (the subject of its judgement in 1996). The definition of B2B services as being to a ‘taxable person acting as such’ is simply carving out services intended for the private use of the taxable person or their staff. Services that are received for a non-economic activity, such as the management of Wellcome’s non-EU equity portfolio, should be treated as B2B supplies and the reverse charge applied. 

From the weekly Business Tax Briefing published by Deloitte

126. VAT on charges from VAT group to branch

In the absence of VAT groups, financial services businesses can recharge costs cross-border between head offices and branches without creating a VAT cost. The branch is not economically independent of its head office and has no separate identity for VAT purposes. In 2014, the CJEU ruled that VAT was due if the branch joined a VAT group with other local companies, as the branch became assimilated with those group companies and could no longer be seen as indistinguishable from the head office (Skandia).

In Danske Bank, the CJEU has now ruled that the reverse is also true: where a head office that was part of a Danish VAT group provided IT support to its Swedish branch (which was registered for VAT on its own), then the head office and branch should be considered as independent from each other for VAT purposes. The Swedish branch should account for VAT on IT support provided by the head office under the reverse charge in Sweden.

From the weekly Business Tax Briefing published by Deloitte

127. Community cricket club not a charity

The Court of Appeal has determined that community amateur sports clubs (CASCs), such as Eynsham Cricket Club, cannot be treated as charities for VAT purposes. Consequently, the construction of Eynsham CC’s new pavilion did not qualify for zero-rating. Following the Charities Act 2009, a club registered as a CASC could no longer also be a charity – foregoing some charitable reliefs in return for avoiding the administrative burden of operating as a registered charity.

The following year, FA 2010 introduced a new EU-law compliant definition of ‘charity’ for tax law purposes. However, in the Court of Appeal’s judgement, there was no indication that Finance Act change was also meant to allow CASCs to enjoy charitable tax reliefs. The Court also rejected arguments that treating Eynsham differently from nearby Charlbury Cricket Club (a charity, not a CASC) breached the EU law principles of equal treatment or fiscal neutrality.

From the weekly Business Tax Briefing published by Deloitte

128. Accommodation essential to welfare services

The Lilias Graham Trust runs residential assessment centres that support parents (many of whom have mental health issues) in learning how to care for their children (for example, getting them to school on time, recognising if they are hungry or dirty and keeping their homes clean and tidy).

In 2019, the FTT ruled that the Trust’s services were exempt, as they were directly connected to welfare services, and dismissed the Trust’s appeal (it is one of those infrequent cases where a taxpayer wants to charge VAT in order to improve input tax recovery). The welfare exemption, however, only covers a supply of accommodation if it is ancillary to welfare services.

The Trust appealed, arguing that it made a ‘supply’ of accommodation as part of its welfare services, which was an essential part of those services and could not be regarded as ‘ancillary’. The UT has ruled that the Trust could not carve out a discrete supply of accommodation from its single exempt supply of welfare services. It also considered that essential accommodation should be more likely to qualify for exemption than ancillary accommodation. The UT decided that the FTT had correctly ruled that the Trust’s services were exempt and dismissed its appeal.

From the weekly Business Tax Briefing published by Deloitte

129. Six-month delay to UK import border controls

On 11 March, the UK government confirmed that the introduction of full import border controls has been postponed for six months. The change means that full declarations at the point at which non-controlled goods are imported into the UK from the EU will not be needed until 1 January 2022. Guidance from the government confirms that, while customs import declarations are still required, the option to delay for up to six months after the goods have been imported has been extended until 1 January 2022. Meanwhile, safety and security declarations will not be required until 1 January 2022. Find out more.

Contributed by Neil Gaskell

130. SME Brexit Support Fund

Small- and medium-sized enterprises can apply for grants of up to £2,000 to help with training or professional advice to meet their customs, excise, import VAT or safety and security declaration requirements.

To qualify for grant funding, the business must:

• be established in the UK;
• have been established in the UK for at least 12 months before submitting the application, or currently hold authorised economic operator status;
• not have previously failed to meet its tax or customs obligations;
• have no more than 500 employees;
• have no more than £100m turnover; and
• import or export goods between Great Britain and the EU, or move goods between Great Britain and Northern Ireland.

The business must also either:

• complete (or intend to complete) import or export declarations internally for its own goods; or
• use someone else to complete import or export declarations, but require additional capability internally to effectively import or export (such as advice on rules of origin or advice on dealing with a supply chain).

Applications can be made for a training grant, a professional advice grant or both, but the total amount of funding requested cannot exceed £2,000. Applications must be made by 30 June 2021 at the latest. As the total fund is limited to £20m, applications will close sooner if the total fund is allocated before the 30 June deadline.

Advice provided by ICAEW members competent to deliver consultancy advice to enable the grant applicant to discharge its obligations to HMRC, such as customs, excise, VAT relating to importing or exporting or safety and security declaration obligations would qualify for grant funding if the expenditure was made on or after 11 February 2021.

The expenditure would have to be evidenced and submitted by the applicant within two calendar months of the grant offer being issued and by 31 August 2021 at the latest.

More information on grants to help small- and medium-sized businesses new to importing or exporting. To find out about professional advice grants. For training grants.

131. Polish and Hungarian turnover taxes not unlawful State aid

In cases C-562/19 P Commission v Poland and C-596/19 P Commission v Hungary, the CJEU has upheld the EU’s General Court in finding that progressive turnover taxes imposed by Hungary and Poland do not violate EU State aid rules, dismissing the appeals of the European Commission.

The cases involved a Polish tax on the retail sector and a Hungarian tax on advertisements. The CJEU found that EU law on state aid does not, in principle, preclude Member States from deciding to opt for progressive tax rates intended to take account of the ability to pay, nor does it require Member States to reserve the application of progressive rates only for taxes based on profits, to the exclusion of those based on turnover.

The CJEU held that the General Court was justified in its conclusions that the Commission had not sufficiently established that the tax measures adopted by Hungary and Poland were designed in a “manifestly discriminatory manner, with the aim of circumventing the requirements of EU law on State aid”. The judgements generally follow Advocate General Juliane Kokott’s Opinions published on 15 October 2020. 

From the weekly Business Tax Briefing published by Deloitte