Practical points: November 2021

273. Regulations extending MTD VAT laid before parliament

Legislation enacting the extension of Making Tax Digital (MTD) for VAT was laid before parliament on 7 September.

Under the Value Added Tax (Amendment) Regulations 2021, SI 2021/986, it is confirmed that VAT-registered businesses with a turnover less than £85,000 will be subject to the MTD VAT rules from their first VAT period starting on or after 1 April 2022.

274. MTD ITSA regulations laid before parliament

The Income Tax (Digital Requirements) Regulations 2021, SI 2021/1076 legislating the implementation of Making Tax Digital for income tax self assessment (MTD ITSA) were laid before parliament on 23 September 2021.

The regulations confirm that MTD ITSA will be implemented from April 2024 for income from self-employment and property – one year later than had been previously announced.

It also makes it clear that MTD will start for all those businesses in scope from 6 April 2024, regardless of their accounting date. The start date for partnerships has not been set in legislation, but the government has announced it will be put back to 2025.

The threshold of £10,000 gross income from self-employment and property remains. This threshold applies to the total income from all such sources. Businesses will be allowed to exit MTD ITSA if they fall below the threshold for three successive years.

The Finance (No. 2) Act 2017, Sections 60 and 61 and Schedule 14 (Digital Reporting and Record-Keeping) (Appointed Day) Regulations 2021, SI 2021/1079 were also laid before parliament on 23 September 2021, setting 6 April 2024 as the date from which the requirements contained in primary legislation come into force.

275. Penalty reform

HMRC is implementing a new regime for late-submission and late-payment penalties to underpin Making Tax Digital (MTD). The legislation is included in Finance Act 2021.

Alongside the announcement of a one-year delay to the implementation of Making Tax Digital for income tax self assessment (MTD ITSA), the ministerial statement confirmed that the start date for the new penalty regimes is also delayed until the 2024/25 tax year for those mandated for MTD ITSA from that date, and from 2025/26 for all other ITSA taxpayers. No change to the expected start date of 1 April 2022 for MTD VAT was announced.

276. 18-year-olds urged to check if they have a child trust fund

A year on from the first child trust fund (CTF) maturing, HMRC is urging teenagers to check whether they have one of the savings accounts. Around seven million CTF accounts were set up by parents and HMRC for children born between 1 September 2002 and 2 January 2011, using government-provided vouchers. The aim of the scheme was to provide young people with a sum of money when they turned 18. HMRC estimates that 55,000 CTF accounts are maturing each month, but many remain unclaimed. The accounts were set up for children whose parents were in receipt of child benefit, and prospective claimants can check if an account exists by using HMRC’s online tool.

277. Appeal allowed regarding a form mix-up

A company accidentally submitted an enterprise investment scheme (EIS) form instead of a seed enterprise investment scheme (SEIS) form. The First-tier Tribunal (FTT) ruled that the company should not be denied authority to issue SEIS certificates to its investors, without which they could not claim SEIS relief.

An online fashion start-up company had received investment under the SEIS, for which it had received advance assurance from HMRC. It then mistakenly submitted an EIS compliance statement instead of an SEIS compliance statement. HMRC refused to authorise the company to issue SEIS certificates to its investors, arguing that the statutory requirements had not been satisfied in relation to the shares. The investors were therefore prevented from claiming SEIS IT relief in respect of those shares.

The FTT upheld the taxpayer’s appeal against HMRC’s refusal. It noted that the requirements for HMRC to authorise a company to issue SEIS certificates are substantively the same as for EIS certificates. Furthermore, both parties agreed the matter arose from a genuine mistake. The FTT held that the equitable remedy of rectification was available to the company. The erroneous form should be treated as if it had been rectified to reflect the information and declarations of the correct form.

Fashion on the Block Limited v HMRC [2021] UKFTT 0306 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

278. Increase in dividend tax rates

Alongside the health and social care levy (HSCL), the government has announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers; 33.75% for higher rate taxpayers; and 39.35% for additional rate taxpayers. The £2,000 dividend allowance will remain.

The increase in dividend tax rates will be legislated for in the next Finance Bill.

Companies will be affected by a combination of the cost of the HSCL and also the increase in corporation tax rates from April 2023. Owner-managed companies will need to carefully consider effective tax rates where a combination of dividends and salaries are paid.

279. Definition of small and medium-sized enterprises for R&D

A company was held not to breach the small and medium-sized enterprise (SME) thresholds because its investor was a venture capital (VC) company. The First-tier Tribunal (FTT) did not define ‘venture capital company’, but it did provide a list of characteristics common to such companies.

The taxpayer was a company involved in gene sequencing detection. It claimed research and development (R&D) relief under the SME scheme. HMRC argued that it was a large company and therefore only entitled to R&D relief under the large company scheme.

The taxpayer did not breach the financial thresholds for being an SME on its own. The size limits, however, generally require the financial figures to be aggregated with partner enterprises. If the partner enterprise is a VC company, it may be exempted from this rule. It was agreed that if the major corporate investor in the taxpayer was a VC company, the taxpayer did not breach the SME limits and was therefore entitled to SME R&D relief.

There is no statutory definition of ‘venture capital company’, but the FTT listed eight characteristics that such companies usually exhibit. These include investment in high-risk, speculative new ventures with a view to a high reward, and an intention to maximise return through an exit strategy. It agreed with HMRC that a strategic investment in order to benefit the wider group is generally not the activity of a VC company.

In this case, the investment was more of an opportunistic one, the investor company satisfied the eight characteristics, and any strategic benefit was ancillary to its main purpose of achieving a high return. The investor was found to be a VC company. The taxpayer was therefore an SME and the appeal was upheld.

DNAE Group Holdings Limited v HMRC [2021] UKFTT 0284 (TC)

From the weekly Tax Update published by Smith & Williamson LLP

280. Unallowable purpose and debt restructuring

The First-tier Tribunal (FTT) has disallowed interest deductions for a group, finding that the debits related to an unallowable purpose. The group had reorganised its debt with the aim of claiming increased interest deductions and accessing significant losses much earlier than would otherwise be possible.

The taxpayers were a group of companies that undertook a debt reorganisation. This involved assigning several intra-group loan receivables to one group company, increasing the interest rate on those loans, and issuing new loans. As a result, the creditor company was able to utilise brought-forward non-trade loan relationship losses of £48m in two to three years, rather than an estimated 25 years. The group also incurred increased interest costs. HMRC denied a large proportion of the tax deductions relating to these arrangements on the basis that the loans were for an unallowable purpose.

The FTT found that the only purpose of the new loans was to obtain a tax advantage by way of the group accessing losses earlier and claiming higher tax deductions for interest payments. There were found to be two main purposes of the pre-existing loans: the obtaining of a tax advantage, and the original commercial purposes for which the loans were first taken out. In particular, the fact that the interest rates had been increased during the reorganisation indicated that the original commercial purpose was no longer the only purpose.

The FTT held that all the debits in respect of the new loans were attributable to the unallowable purpose and were therefore disallowed. The debits in respect of the pre-existing loans were disallowed to the extent of the increased interest rate. The total disallowance was capped at the amount of losses used by the creditor company to offset the loan relationship income. The fact that the restructuring had been informally discussed with the group’s customer relationship manager did not amount to HMRC’s approval of the arrangements, especially because not all the facts were disclosed.

Kwik-Fit Group Limited (and others) v HMRC [2021] UKFTT 0283 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

281. Evidence of investment management

The Upper Tribunal (UT) has confirmed that formal evidence of managing an investment business is not required to claim management expenses. Even if a parent company is involved in managing an investment business, management expenses may be claimed if the company’s directors participate in the decision-making processes.

An intermediate holding company (the taxpayer) owned a Dutch company, which owned four subsidiaries. The taxpayer undertook a partial demerger that resulted in the sale of the assets of some of those subsidiaries. The taxpayer claimed deductions for the associated expenses, which HMRC denied on the basis that they were not management expenses.

The First-tier Tribunal (FTT) found that the expenses did not qualify as management expenses because the management activities in relation to the demerger had been carried out by the taxpayer’s parent company, not the taxpayer. This finding was made because of the lack of formal evidence that the individuals who made the key decisions were acting in their capacity as directors of the taxpayer. Instead, the FTT found that they were acting in their capacity as senior members of the wider group, such that the investment business of the taxpayer was managed by its parent.

The UT rejected this ruling. It held that there is no need for formal evidence of the management of the investment business. The fact that the taxpayer’s directors participated in the decision-making processes of the demerger was sufficient. The expenses did not fail to qualify as management expenses on this basis. The UT went on to consider the deductibility of specific elements of the expenses. It examined how to split the costs of selling a business between management expenses and expenses relating to capital disposals. It ruled that a ‘bright line’ could not be drawn at a specific date such that expenses incurred after that date automatically relate to the disposal of an investment rather than to the management of an investment. The nature of the expenditure is important rather than when it was incurred.

Centrica Overseas Holdings Limited v HMRC [2021] UKUT 0200 (TCC) 

From the weekly Tax Update published by Smith & Williamson LLP

282. HMRC wins appeal on the taxation of football referees

The Court of Appeal (CA) has found that the Upper Tribunal (UT) and First-tier Tribunal (FTT) erred in law in their approaches to tests to determine whether or not a contract engaging a referee for a football match was one of employment. It remitted the case back to the FTT for it to consider if the CA findings about mutuality of obligation and control were sufficient for it to classify the contracts as those of employment.

The taxpayer, a company, engaged referees for football matches who were paid per match attended. HMRC issued determinations on the basis that these payments should be subject to PAYE and national insurance contributions as employment income, and the taxpayer appealed. The FTT and UT had found that these engagements were self-employments, on the basis that there was insufficient mutuality of obligation.

The CA considered a number of previous cases in the area. It did not consider the overarching contracts – instead, it looked at the specific contracts engaging a referee for each game. It found that the FTT erred in law in finding that the ability of each side to pull out negated mutuality of obligation, as did the UT.

The UT further erred in finding that contracts could not be for employment if they merely provided for a worker to be paid for the work he did. The CA also found that the FTT had erred in finding that the coaching system for referees was irrelevant to the question of control.

The case has been remitted back to the FTT for it to reconsider whether or not there was sufficient mutuality of obligation and control in the individual contracts for these to be contracts of employment in light of the CA conclusions.

HMRC v Professional Game Match Officials Ltd [2021] EWCA Civ 1370

From the weekly Tax Update published by Smith & Williamson LLP

283. Trust income found not to be earnings

Loans made by a remuneration trust to the sole shareholder of a company have been found not to be taxable as earnings, despite the fact that the trust was funded by this company through which he worked. The company agreed that the loans were taxable as distributions.

A dentist, who had previously been self-employed, established a company through which his dental practice was run. The company established a trust, which received payments from the company of its entire profits. Loans were then made to the dentist indirectly. The amounts and timings of the loans matched the payments to the trust closely. This was a scheme intended to extract profits from the practice tax-free for the dentist, and allow the company to obtain a tax deduction for payments to the trust.

HMRC contended that PAYE and national insurance contributions were due on the payments to the trusts, as they were earnings from employment or disguised remuneration, as ‘fruits of his work’, and challenged the availability of this deduction for the company. The First-tier Tribunal (FTT) found that the payments were not earnings, but that if it was incorrect in that then a deduction would be available. The company had previously accepted that the loans should be taxed as dividends.

The FTT came to its conclusion after a thorough review of case law, finding that such evidence as there was pointed to the monies being paid to the dentist for his services as a director rather than as a salary. If he had not used the trust, he stated that he would have received dividends, not salary, which was in fact the arrangement he is now using. The fact that he used an ineffective structure did not change the underlying reason for the extraction of funds.

Marlborough DP Ltd v HMRC [2021] UKFTT 304 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

284. Cars found to be taxable benefits although company fully reimbursed

Directors leased cars through their company at no cost to the company, as they reimbursed it in full. The First-tier Tribunal (FTT) found that there was a taxable car benefit, as the directors had obtained a more advantageous financing deal by using the company name rather than leasing the cars personally.

A company acquired some cars on lease purchase and made them available to the two directors. The full costs were recharged to the directors. This was done through the company, as it was offered a good finance rate. The directors were paid a mileage allowance when on company business. HMRC considered that provision of the cars was a taxable benefit, and it issued assessments for income tax and national insurance contributions (NIC).

The FTT found that although the directors had reimbursed the company for its costs, they had still obtained a benefit, as the finance terms were better than they could have obtained as individuals, although at no cost to the company. Income tax and NIC were due on the car benefit, which under the legislation is calculated to be a greater value than the actual benefit received. The behaviour of the taxpayers was found not to be careless, as it was a reasonable assumption that there was no benefit, and professional advisers were employed. Some of the assessments therefore failed as the extended time limit did not apply and penalties for inaccuracies were cancelled.

Smallman & Sons Ltd, Lisa Garrity & Brian Garrity v HMRC [2021] UKFTT 300 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

285. Court of Session reinstates ruling on employment-related securities

The Court of Session (CSIH) ruled that the grant of an option by an employer was not by reason of employment, nor were the deeming provisions triggered. But the decision was not unanimous, and the judges in agreement had different reasons for their conclusion.

A company issued share options to an adviser to settle a debt that it could not afford to pay in cash. Later, as part of a rescue package, that adviser was appointed as a director, the original option was cancelled and he was granted a new option. The disputed issue was whether or not the new option was employment-related. If so, the exercise of that option was subject to income tax and national insurance contributions.

The First-tier Tribunal (FTT) found that the second option was granted as a replacement for the first option rather than by reason of his employment. It then considered the deeming provision whereby share options must be treated as provided by reason of employment if they are issued by the employer. The FTT found that this deeming provision should not operate in this situation, so as to prevent, as they saw it, an absurd outcome.

The Upper Tribunal (UT) overturned this decision. It found that the grant of the second option was conditional on both the adviser becoming a director and the first option being cancelled or amended. It was sufficient that one of the reasons for the grant was the individual’s employment, so the option was employment-related. The deeming provision did not need to be considered.

In a split decision, two of the three CSIH judges rejected the UT’s ruling, but for different reasons. One judge held that the second option was granted to secure the necessary financial investment in the struggling company. Another judge held that the second option was granted in return for the original option being given up. Both judges therefore concluded that the second option was not employment-related. They also both found that the deeming provision was not triggered.

The Lord President dissented, agreeing with the UT’s ruling. One of the two judges in agreement noted in his opinion that he initially agreed with the UT before reading the opinions of the other Lords.

Vermilion Holdings Limited v HMRC [2021] CSIH 45 

From the weekly Tax Update published by Smith & Williamson LLP

286. Fifth of CEST outcomes ‘undetermined’

In its latest quarterly update on the use of its check employment status for tax (CEST) service, HMRC has confirmed that in more than 20% of cases put through the tool, it wasn’t able to determine whether the worker fell within the off-payroll working (OPW) rules. According to HMRC, the tool has been used to try and identify whether the OPW rules apply in more than 1.8m cases between 25 November 2019 and 31 August 2021. HMRC figures reveal that in cases where the worker was using an intermediary, 49% were determined as outside OPW rules, 30% inside the rules and 21% of cases were undetermined. For those not using an intermediary, 55% were self-employed for tax reasons, 25% were employed and 20% were undetermined.

287. NIC holiday for employing veterans

A zero-rate of class 1 secondary national insurance contributions (NIC) can be applied up to the upper secondary threshold for the first 12 months of civilian employment. This relief applies from April 2021. But from April 2021 to March 2022, employers will need to pay the associated secondary class 1 NIC as normal and then claim it back retrospectively from April 2022 onwards.

The qualifying period starts on the first day of civilian employment after the veteran left the forces and ends 12 months after. Subsequent and concurring employments within that period will qualify. A period of self-employment after leaving the forces and before starting civilian employment does not trigger a qualifying period.

Evidence that the employee is a qualifying veteran includes:

• the veteran’s P45 from leaving HM Armed Forces;
• discharge papers from HM Armed Forces;
• the veteran’s identification card (which marks their time in the armed forces); and
• a letter of employment or contract with HM Armed Forces.

Evidence that the relief is being claimed within the veteran’s qualifying period includes:

• the veteran’s P45 from leaving HM Armed Forces (showing the discharge date);
• P45(s) from previous civilian employment(s) (showing start and end dates); and
• an employment contract from a previous employment, if applicable (in order to determine the start date).

288. Temporary increase in NIC and the health and social care levy

From 1 April 2022, there will be a temporary 1.25% increase in class 1 (employee) and class 4 (self-employed) national insurance contributions (NIC) paid by workers, as well as a 1.25% increase in class 1 secondary NIC paid by employers (so 2.5% in total). The 1.25% increase will also apply to class 1A and class 1B NIC paid by employers.

The increase will apply to employed (including deemed employees) and self-employed individuals and partners earning above the class 1 primary threshold/class 4 lower profits limit (currently £9,568 in 2021/22). Employers will pay the additional 1.25% for employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22). Existing reliefs and allowances from employers’ secondary class 1 NIC will apply to the levy, including the £4,000 employment allowance, reliefs for employers of apprentices, newly employed veterans and new employees in freeports.

From April 2023, the increases will be legislated separately as a health and social care levy (HSCL) and NIC rates will return to 2021/22 levels. From that date, the legislation will also extend the HSCL to individuals over state pension age in employment or self-employment, who are currently exempt from paying NIC.

From April 2022, employers will be asked to include a special message on payslips to emphasise that the national insurance rise is for the HSCL. From April 2023, the HSCL will be shown as a separate deduction on employee payslips.

Aside from factoring the additional cost into workforce budgeting from April 2022, employers may also want to review some of their other policies, including:

• the impact on agreements to transfer employer’s NIC on share-based payments;
• international assignments; and
• staff benefits that can be delivered under salary sacrifice arrangements (eg, pensions).

289. Trust registration service opens to all non-taxable trusts

HMRC has opened the trust registration service (TRS) to all non-taxable trusts. The deadline for registering these trusts has been extended to 1 September 2022.

New rules that came into force on 6 October 2020 require all UK express trusts and some non-UK trusts to register with HMRC. This includes non-taxable trusts unless the trust is specifically excluded.

The TRS is now accepting registration of non-taxable trusts and trustees and agents should take steps to register relevant trusts.

Details of trusts that need to be registered and those that are excluded can be found on gov.uk with additional technical information available in HMRC’s Trust Registration Service Manual.

HMRC has advised that, in line with the original policy intention, amendments will be made to the legislation to clarify that all healthcare policies held in trust, including those that are not part of a wider life policy, are excluded from registration. Amendments will also be made to ensure that trusts required to open a bank account for a child are excluded from registration.

The relevant deadlines for registration are:

• non-taxable trusts in existence on or after 6 October 2020 must be registered by 1 September 2022;
• non-taxable trusts created after 1 September 2022 must be registered within 90 days of creation; and
• changes to the trust details and/or circumstances must be notified within 90 days of the change.

These deadlines allow more time than is set out in current legislation. The legislation will be amended to reflect the position explained above.

To register a trust as a trustee, go to Register a trust as a trustee and click on the ‘register now’ button.

To register a trust as an agent, go to Register a trust as an agent and click on the ‘register now’ button.

If there is a problem using the service, the user should raise a ticket by selecting ‘Get help with this page’ on the appropriate page within the service. Enquiries can also be directed to the trusts helpline.

Contributed by Caroline Miskin

290. Protecting VAT claims: a tale of two farmers

Towards the end of 2012, HMRC wrote to two farmers informing them that their entitlement to use the agricultural flat rate scheme (AFRS) was being revoked for the protection of the revenue. Mr Hewitt accepted HMRC’s decision. Mr Shields did not, and, following a reference to the Court of Justice of the European Union (CJEU), he eventually overturned HMRC’s decision in 2017.

Mr Hewitt then sought to resurrect his claim, but the First-tier Tribunal refused him permission to submit an appeal, which by then was five years after HMRC’s original decision. The Upper Tribunal has rejected Mr Hewitt’s appeal against that decision. The principle of effectiveness did not require time limits for submitting an appeal to be measured from the date of the CJEU’s judgement in Shields, nor from the date that Mr Hewitt became aware that he had valid grounds for challenging HMRC. Like Mr Shields, Mr Hewitt could have challenged HMRC’s decision immediately. He chose not to do so, and as a consequence he had no entitlement to backdate his AFRS registration to 2012.

From the weekly Business Tax Briefing published by Deloitte

291. The difference between amusement parks and fairs

The Principal VAT Directive allows EU Member States to apply a reduced VAT rate to amusement parks and fairs. The fact that it lists both of them implies they are different. The Court of Justice of the European Union (CJEU), in Phantasialand, describes fairs as temporary and itinerant, whereas amusement parks are permanent. Germany was therefore allowed to apply a 7% reduced rate to fairs but not to amusement parks like Phantasialand, provided that the difference did not infringe the principle of fiscal neutrality.

The CJEU acknowledged that consumers would visit fairs or amusement parks for many of the same reasons: they provide thrills, entertainment and a day out with friends. However, there are differences: fairs are temporary, often based on local customs and may be subject to different licensing rules on opening hours. Whether such factors justified Germany’s decision to limit the reduced rate to fairs is a matter for the national courts to decide, but the CJEU’s judgement suggests that Germany was perhaps entitled to require Phantasialand to charge VAT at the standard rate on admission. 

From the weekly Business Tax Briefing published by Deloitte

292. Interest on historical bad debt relief claims

Until 1997, the UK’s VAT bad debt relief (BDR) scheme was subject to a ‘property condition’, which denied VAT relief unless title in the goods had passed to the customer. This condition was challenged in the courts, and taxpayers including HBOS and Lloyds submitted historical BDR claims pending the conclusion of the litigation. When the courts eventually ruled in the taxpayer’s favour, HMRC paid historical BDR claims, including a payment of £12.2m to HBOS and Lloyds in 2019. However, HMRC only paid statutory interest from the date claims were submitted (in 2007-09) rather than from when the taxpayers should have been able to claim BDR (in the 1990s).

The First-tier Tribunal has now endorsed this approach. Statutory interest was due to the extent that an error by HMRC caused a delay in taxpayers’ BDR refunds. The property condition, however, was set out in UK VAT legislation. It was not an error on HMRC’s part, but a deficiency in an act of Parliament. HMRC may have reflected this error in its guidance, but the taxpayers had not submitted claims earlier because they believed that the property condition was legally valid, not because they had relied on the guidance. Therefore, although there had been a delay in the taxpayers’ BDR refunds, it could not be attributed to HMRC and interest was only payable from 2007-09 to 2019. 

From the weekly Business Tax Briefing published by Deloitte

293. Repayment supplement following assignment of input tax credit

In 2018, Acepark Ltd bought Toys ‘R’ Us Properties Ltd (TRUP) and transferred its properties to Bollinway Properties Ltd (a new subsidiary) for £355m. Bollinway included an input tax credit of £71m in a VAT return, which it filed on 2 November. It asked HMRC to offset the credit against TRUP’s corresponding output tax liability, and, following some enquiries from HMRC and the signing of a letter of authorisation, HMRC credited the input tax to TRUP on 20 December. Bollinway, recognising that this was more than 30 days after it had submitted its repayment return, requested repayment supplement of £3.5m.

The First-tier Tribunal has ruled that supplement was not due. Any delay in HMRC processing the repayment was, once time for reasonable enquiries had been factored in, less than 30 days. Even if there had been a longer delay, the Tribunal determined that Bollinway had, by its letter of authorisation, assigned its input tax credit to TRUP. Although the assignment did not take place until after the alleged delay, it extinguished Bollinway’s entitlement to the input tax and also any entitlement to repayment supplement. Bollinway’s appeal was dismissed. 

From the weekly Business Tax Briefing published by Deloitte

294. Royal Mail Group Litigation: no obligation to issue VAT invoices

Until the Court of Justice of the European Union’s (CJEU’s) judgement in TNT in 2009, it was commonly believed that Royal Mail should exempt its business services, whereas it should have charged VAT. One group of claimants is therefore trying to persuade the CJEU (in Zipvit) that they should be entitled to recover input tax even in the absence of VAT invoices. Another group is demanding that Royal Mail should issue VAT invoices now, but the Court of Appeal (CA) has rejected their claim.

Applying the reasoning of AG Kokott in Zipvit, the CA considered that the claimants could not demonstrate that VAT had been passed on to them. Even if they had paid VAT, they could not demand VAT invoices from Royal Mail.

Businesses that make taxable supplies should generally issue VAT invoices, and UK VAT legislation should be read in conformity with EU law at the time (ie, Royal Mail’s business services should be viewed as taxable). However, on its own this did not mean that a claim existed. The CA ruled that a private law claim in EU law would only arise if Parliament had intended it to, and listed several reasons why no such intention existed. For example, it considered that the primary purpose of VAT invoices was to allow HMRC to ensure VAT compliance, not to allow taxpayers input tax recovery. In the absence of any valid claim, the appeal was dismissed. 

From the weekly Business Tax Briefing published by Deloitte

295. HMRC combines group VAT registration forms

As of 13 September, group VAT registration and amendments can be made using a single form (VAT50/51) rather than two separate forms. Previously, applications would have been made using form VAT50 and details of each company or corporate body in the group were provided using form VAT51.

Initially this form will be required for all new VAT group registrations from 13 September 2021.

In later developments to the VAT registration service, it is intended that HMRC will gather the data for up to 20 members digitally. The VAT50/51 form will still be required as an attachment for group registrations for the details of additional members where there are more than 20.

Changes to group amendments will remain a manual print-and-post process.

296. Import VAT statements and simplified declarations for imports

Postponed accounting for import VAT was reintroduced from 1 January 2021. This means that UK VAT registered businesses importing goods to the UK can account for import VAT on their VAT return rather than paying import VAT on or soon after the time that the goods arrive at the UK border.

The information to make the required entries on the business’s VAT return should be obtained from any customs entries the business has made in its own records and copies of monthly postponed import VAT statement.

Following an initial issue with access to and accuracy of import VAT statements in January and February 2021, HMRC has identified a problem for those using simplified declarations for imports.

Where a supplementary declaration is required, it should be submitted and accepted by HMRC by the fourth working day of the month after:

• a simplified frontier declaration is accepted;
• a customs clearance request is accepted; or
• an entry was made in the business’s records to release goods.

The entries on a supplementary declaration made at the start of the following month for goods imported in the previous month have been allocated to the wrong import VAT monthly statement.

While HMRC is seeking a solution to this problem, affected businesses can either:

• complete their VAT return using the figures on the import VAT statements; or
• if they can identify the incorrectly allocated entries, manually reallocate the figures to the correct monthly statement and use these adjusted figures to complete their VAT return.

297. Reconstruction of a listed building

The First-tier Tribunal (FTT) has ruled that a reconstruction of a listed building did not qualify for zero rating, as the retained element of the existing building was not de minimis.

The taxpayer acquired a listed building that previously operated as a care home, which was then converted into 86 flats. The conversion included the retention of external walls, the majority of the roof and also additional internal features, including the chapel and marble staircase, in compliance with planning requirements.

HMRC argued that the retention of the additional features precluded zero rating and the sale of the converted flats was exempt from VAT, thereby preventing VAT recovery on conversion costs.

The taxpayer argued that specific features were retained in order to maintain the structural integrity of the exterior of the property and that other retained features, such as the chapel and marble staircase, were de minimis. The taxpayer also maintained that the EU principle of fiscal neutrality and proportionality should apply in its favour.

The FTT considered the features of the converted building and found that some retained elements, such as the staircase, were significant and could not be considered as de minimis. The FTT also considered fiscal neutrality and proportionality and found that neither of these principles were breached and therefore dismissed the appeal.

Richmond Hill Developments (Jersey) Ltd v HMRC [2021] UKFTT 0290 (TC)

From the weekly Tax Update published by Smith & Williamson LLP

298. HMRC issues guidance on the VAT liability of COVID-19 testing services

In Revenue and Customs Brief 11 (2021), HMRC confirms its views on the treatment of coronavirus testing services and supplies based on the existing rules and policies concerning the VAT exemption for the supply of medical care. The Brief provides various examples of COVID-19 testing provision and the correct
VAT treatment in each circumstance (ie, standard rated or exempt).

299. Review of VAT concession for counsel’s fees

HMRC has confirmed that it is considering withdrawing the existing concession for legal counsel’s fees paid into and kept in a client account.

A concession was agreed when VAT was first introduced in relation to fees for counsel paid into and kept in a client account by a law firm. The concession allows law firms to treat counsel’s fee as a disbursement for VAT purposes, rather than use normal VAT accounting. The Law Society has announced that HMRC has confirmed that the concession is still available, but it is under review and may be withdrawn. If it is withdrawn, the change will be prospective and notice will be provided in advance. 

From the weekly Tax Update published by Smith & Williamson LLP

300. First-tier Tribunal needs more resource to tackle delays

The Institute for Fiscal Studies’ Tax Law Review Committee (TLRC) has recommended that the Tax Chamber of the First-tier Tribunal (FTT) increases its number of sitting days and ensures judges have sufficient paid writing and preparation days to “realistically discharge” their duties.

In a new report looking to the next 10 years of the FTT, the TLRC outlines the key concerns of current users as delays, lack of communication, lack of engagement by some judges and the allocation of cases to judges with the appropriate knowledge. The report offers several recommendations to help the FTT reduce delays, including additional resource, shorter decisions, more robust case management and, in some cases, reducing the number of levels of appeal. 

301. Appeal allowed in discovery case

The First-tier Tribunal (FTT) found that discovery assessments were invalid, although issued in relation to a real discovery, as the taxpayers had not acted negligently. The taxpayers entered into avoidance schemes for stamp duty land tax (SDLT) sub-sale relief, which were later agreed to be ineffective. HMRC did not raise enquiries in the enquiry window in error, despite spotting an issue, but later raised discovery assessments. These were in relation to retrospective legislation introduced in FA 2013, as the SDLT returns had not been amended to accord with the new legislation. The FTT found that a discovery had been made as insufficient tax had been paid in relation to the transaction.

The FTT went on to find that the assessments were invalid, and allowed the appeals, as the taxpayers had not acted negligently in failing to amend their returns to accord with the retrospective legislation, nor had anyone acting on their behalf.

The promoter had been acting on behalf of some of the appellants, as they had written to HMRC regarding the retrospective legislation. However, HMRC had not met the burden of proof to show that the promoter’s conduct was negligent, as HMRC had not established whether or not a reasonably competent tax adviser would have taken the view that the return needed to be amended.

G C Field & Sons Ltd & Ors v HMRC [2021] UKFTT 297 (TC) 

From the weekly Tax Update published by Smith & Williamson LLP

302. Eclipse Film Partnership members given six months to settle

HMRC has announced it is offering a settlement opportunity to members of the Eclipse Film LLPs. This follows Tax Tribunal and Court of Appeal decisions that the no.35 LLP was not trading and members were not entitled to tax relief for interest arising on bank borrowings to buy licensing rights to feature films.

HMRC will contact the members of all related LLPs. Under the settlement opportunity, which will be available for six months, members would be required to give up their interest relief claims and pay any tax due, together with late payment interest. However, HMRC will not pursue members for tax on income treated as paying back borrowings, including for periods after individuals had exited the LLPs. 

303. Scheme notifiable under DOTAS

A tax avoidance scheme involving forward purchase and sale contracts was notifiable to HMRC under the disclosure of tax avoidance schemes (DOTAS) regime.

The taxpayer was a limited liability partnership that had designed and promoted a tax avoidance scheme. The scheme involved an individual simultaneously entering into a forward purchase contract and a forward sale contract in respect of financial securities. In all cases, the scheme users repeated the transaction until a significant tax loss was generated. In a separate case, the First-tier Tribunal (FTT) had found that the only or main purpose of the arrangements was to secure a tax loss. This ruling only considered whether or not the financial structures were notifiable under DOTAS.

The FTT found that the structures were notifiable. The structures amounted to arrangements, and those arrangements were expected to enable a person to obtain a tax advantage. That tax advantage was the main or one of the main benefits expected to arise from the arrangements. It also met three of the prescribed hallmarks: a premium fee was charged, it was a standardised tax product, and it was a loss scheme. The taxpayer was therefore liable to penalties for failing to notify HMRC of the scheme.

HMRC v Redbox Tax Associates Limited LLP [2021] UKFTT 0293 (TC)

From the weekly Tax Update published by Smith & Williamson LLP

304. Economic crime levy

All entities subject to the money laundering regulations and with UK revenue of more than £10.2m will be subject to the economic crime levy (ECL) from 2022/23. The government intends for the ECL to raise about £100m a year to help meet the costs of new and uplifted capabilities to tackle money laundering.

The exact final fixed fees and turnover bands will be included in the Finance Bill. However, the ECL will be tapered according to the size of the entity.

305. Scottish Budget date

Finance Secretary Kate Forbes MSP has announced that the Scottish government will publish its Budget for 2022/23 on Thursday 9 December 2021. The Budget will include proposals for tax rates and bands for 2022/23 for the devolved elements of income tax and land and buildings transaction tax (LBTT). The Scottish government has recently confirmed commitments for the duration of the current parliament to maintaining the current rates and bands for LBTT, to freezing income tax rates, and to increasing income tax thresholds by no more than inflation.

From the weekly Business Tax Briefing published by Deloitte

306. Border controls for incoming goods from the EU postponed again

The coronavirus pandemic, global freight transport costs and other pressures on agri-food supply chains are cited as reasons for a further delay to introducing border controls for incoming goods from the EU.

Following the end of the transition period on 31 December 2020, the UK was set to introduce the same border controls on incoming goods from the EU as goods from the rest of the world. To ensure a smooth transition, the introduction of full border controls was originally timetabled to come into effect from 1 July 2021.

To enable recovery from the coronavirus pandemic, it was announced on 11 March 2021 that the timeline for the introduction of full border control processes would be pushed back to 1 January 2022. However, from 1 October 2021 pre-notification requirements for products of animal origin, certain animal by-products and ‘high risk’ foods that are not of animal origin would be introduced with export health certificates required for some of those products (originally planned to come into force from 1 April 2021).

Recognising that the agri-food sector in particular continues to be affected by supply chain issues following the pandemic, a written ministerial statement on 14 September 2021 has set out further revisions to the timetable:

• the requirement for pre-notification of agri-food imports will be introduced on 1 January 2022 rather than 1 October 2021;
• the new requirements for export health certificates will be introduced on 1 July 2022 rather than 1 October 2021;
• phytosanitary certificates and physical checks on sanitary and phytosanitary goods at border control posts will be introduced on 1 July 2022 rather than 1 January 2022; and
• the requirement for safety and security declarations on imports will be introduced on 1 July 2022 rather than 1 January 2022.

Businesses should note, however, that the timetable for the removal of the current easements in relation to full customs controls and the introduction of customs checks remains unchanged and will be introduced as planned on 1 January 2022.

307. UK and Swiss deal on social security payments

On 9 September, the UK and Switzerland signed a Convention on Social Security Coordination ensuring that cross-border workers and employers will only be liable to pay social security contributions in one state at a time. Under the convention, workers will receive social security entitlements in the country in which they are working, including healthcare cover and uprated state pensions.

Eligible individuals travelling to either country will also have access to healthcare using a European Health Insurance Card or its UK successor, the Global Health Insurance Card.

Legislation has been passed enacting the deal. The Social Security (Switzerland) Order 2021, SI 2021/1088 came into force on 29 September 2021.

308. Global tax reform edges closer

On 8 October, the OECD announced that 136 countries and jurisdictions had now signed up to its two-pillar solution aimed at tackling the international tax challenges arising from digitalisation. Since the details of the two-pillar solution were announced on 1 July, further negotiations have been happening.

The latest eight-page statement on the reforms reveals some additional details compared to the 1 July version.