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Weekly Tax Update 1 December 2021
The latest tax update and VAT round up for the week.
Tax Update provides you with a round-up of the latest tax developments. Covering matters relevant to individuals, trusts, estates and businesses, it keeps you up-to-date with tax issues that may impact you or your business. If you would like to discuss any aspect in more detail, please speak to your usual Smith & Williamson contact. Alternatively, Ami Jack can introduce you to relevant specialist tax advisors within our firm.
1. General
1.1 HMRC agent update 90
HMRC has published Agent Update 90, which provides an overview of the recent issues of which tax agents should be aware. It includes updates on HMRC services, and forthcoming changes.
The latest Agent Update summarises various recent issues and changes, including:
- a summary of continuing guidance on COVID-19, including residence status advice;
- how to declare support grants on tax returns;
- agent access on HMRC online forms;
- ATED returns;
- the changes to online CGT reporting announced in the Autumn Budget;
- updates on making tax digital; and
- support for agents.
www.gov.uk/government/publications/agent-update-issue-90/agent-update-issue-90
2. Private client
2.1 Dividend is a taxable distribution on the person to whom it belongs
The UT has found that a dividend, paid on shares that had been settled into trust, was in fact a distribution to the taxpayer.
The taxpayer had entered into an avoidance scheme in 2012/13, designed to allow extraction of profits from a trading company free of income tax. It was notified to HMRC under the disclosure of tax avoidance schemes rules, and HMRC sought to tax the extracted profits as a dividend.
The scheme was complex, but in summary involved the creation of a new class of share in the company. Those shares were transferred to a non-resident individual (N), who transferred them to a non-resident trust. N retained an interest in the trust, but the original shareholder could benefit, and received most of the proceeds when a dividend was subsequently declared on the shares.
The FTT found that, although a dividend paid on the shares held in the trust was not a distribution to the taxpayer, the settlements provisions applied such that he was liable to tax on it. The UT agreed that he was a settlor of the trust, and that he was taxable on the income of the trust. It found however that this did not matter as, viewed realistically, there was no doubt that the taxpayer was the ‘person to whom the distribution truly belongs’. It should not matter precisely how the flow of funds was implemented so as to put the dividend in the hands of the taxpayer. He therefore received a distribution and is chargeable to tax on that basis.
Dunsby v HMRC [2021] UKUT 289 (TCC)
2.2 UT upholds FTT judgment on entrepreneurs’ relief
The UT upheld the FTT findings that, when the taxpayer sold shares in a company, entrepreneurs’ relief (ER) was not available but there was no ‘transaction in securities’, so the gain was subject to CGT. Payments made to the taxpayer by a company resulted in a remittance.
The taxpayer sold shares in a family-owned company to another company. He claimed ER, as it was then known, on the disposal, which HMRC denied on the basis that the company had substantial non-trading activities. The UT agreed with HMRC and the FTT, finding that the FTT was entitled to take into account the turnover and use of capital in the company when judging its trading activity, and that its view on the meaning of ‘substantial’ did not take into account irrelevant factors.
The taxpayer was a non-dom on the remittance basis. He made loans to a group company on which he claimed business investment relief. The company later paid him dividends that he left in the company pending subsequent withdrawal, crediting them to his loan account. The amounts were later paid out, and HMRC held that these were then taxable remittances. The FTT agreed, and at the UT he appealed only in relation to one of the loans, claiming that the FTT had not taken into account evidence that that dividend was not added to the loan account. The UT refused to interfere with the FTT’s judgment on this point.
HMRC appealed against the FTT finding that there was no transaction in securities. The UT rejected this, stating that there was no error of law in the FTT finding that obtaining an income tax advantage was not one of the taxpayer’s main purposes.
Allam v HMRC [2021] UKUT 291 (TCC)
2.3 HMRC ‘nudge’ letters: capital gains on residential property disposals
HMRC has announced a new campaign of ‘nudge’ letters, sent to taxpayers that HMRC believes may have made errors in declaring residential property disposals. The letters aim to get them to correct errors without further intervention from HMRC, such as an enquiry, and signpost them to guidance.
These letters will be sent to taxpayers who, in their 2019/20 self-assessment returns, put a disposal in the ‘other property, assets, and gains’ section of the CGT pages, but did not include any information in the boxes for residential property disposals, although HMRC has information suggesting that they disposed of a residential property. The address of the property in question will be listed.
The letter asks them to check that they have included all residential property sales in the correct boxes, and if not to correct the error by 31 January 2022. It includes guidance and a set of frequently asked questions to help taxpayers to identify what they need to do.
www.tax.org.uk/hmrc-s-one-to-many-letter-capital-gains-residential
2.4 HMRC ‘nudge’ letters: CGT on sales of unlisted shares
HMRC has announced a new campaign of ‘nudge’ letters, sent to taxpayers that HMRC believes may have made errors in declaring disposals of shares in companies over which they had control . The letters aim to get them to correct errors without further intervention from HMRC, such as an enquiry, and signpost them to guidance.
HMRC will write to taxpayers on whom it holds data from Companies House showing that they ceased to be a person of significant control for a company in 2019/20 but did not include share disposals in their self-assessment tax return for that period. This might indicate that they had disposed of some or all of their shares in the company but did not report the disposal correctly on the tax return.
The letter will explain how at a basic level how CGT on share disposals works, with advice on how to access further guidance. Recipients will be asked to check their returns and make any necessary corrections by 31 January 2022.
www.tax.org.uk/hmrc-s-one-to-many-letter-disposal-of-unlisted-shares-cgt
2.5 HMRC ‘nudge’ letters: partners’ returns not matching partnership returns
HMRC has announced a new campaign of ‘nudge’ letters, sent to taxpayers linked to partnerships whose personal returns do not tally with the partnership returns. The letters aim to get them to correct errors without further intervention from HMRC, such as an enquiry, and signpost them to guidance.
HMRC will write to taxpayers who are linked to a partnership return, but whose individual self-assessment return for 2019/20 either shows no partnership income, or a partnership income figure that does not match the partnership return. Recipients will be asked to check their returns and make any necessary corrections by 31 January 2022.
The letter explains the issue, and directs the taxpayer to further guidance.
www.tax.org.uk/hmrc-s-one-to-many-letter-partnership-discrepancies
2.6 Taxpayer loses film scheme appeal at UT
The UT has upheld an FTT decision that a taxpayer was taxable on monies from a film scheme. Although they were not paid directly to him but used to offset interest costs, he was entitled to them and benefited from them. He was not permitted to offset the interest costs, as they were not for the sole purpose of generating income.
The taxpayer entered into a tax avoidance scheme under which he purchased and sold film distribution rights. As part of the proceeds, he was paid a share in the film profits annually, which had a fixed minimum level. The scheme generated a loss, which he claimed to set against his other income. Before the UT, the taxpayer appealed against the FTT’s decision that he was taxable on the annual payments.
The UT agreed with the FTT finding that the taxpayer was not trading, and that he was entitled to the income. The income was not paid directly to the taxpayer, but was used to offset his interest costs. This was found to be an ‘enduring and real benefit’ to him, and it was found that he had rights to these payments under the terms of the contracts. Although he did not control the payment, he was entitled to it, so taxable on it. The interest costs were found not to be allowable deductions, as there were not for the sole purpose of generating income – the taxpayer also needed them for the main purpose of the scheme, generating losses.
Good v HMRC [2021] UKUT 281 (TCC)
3. Business Tax
3.1 New guidance on temporary first-year allowances
HMRC’s Capital Allowance Manual has been expanded to provide guidance on the temporary super-deduction and Special Rate (SR) allowances.
FA 2021 introduced a new 130% super-deduction for expenditure incurred on new, qualifying plant and machinery in the two years from 1 April 2021. A 50% SR allowance was also introduced for expenditure that ordinarily qualifies for special rate relief of 6%.
The new section in the manual explains the conditions that must be met to claim to the super-deduction or SR allowance, the circumstances after 1 April 2023 where a reduced super-deduction may apply, and how to treat the disposal of plant and machinery on which the super-deduction or the SR allowance has been claimed.
CA23161 - Capital Allowances Manual - HMRC internal manual - GOV.UK (www.gov.uk)
4. VAT
4.1 UT issues ruling in respect of roof insulation
The taxpayer lost its appeal regarding the reduced rate of VAT applied to insulated roof panels.
The taxpayer supplied and fitted insulated roof panels onto customers’ pre-existing conservatories to assist with temperature regulation across the seasons. The issue was whether these panels were subject to a reduced rate of VAT on the basis that it is a supply of qualifying insulation materials for roofs or insulated roofing materials subject to the standard rate of VAT. The FTT ruled that it was a supply of a standard rated roof. The taxpayer appealed to the UT on the grounds that the relevant legislation was not applied correctly.
A reduced 5% rate of VAT is available for energy-saving materials installed in residential accommodation. Energy saving materials are defined as insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings. Greenspace submitted that its supplies were the application or addition of insulation to an existing roof and not the provision of a new roof. The UT upheld the FTT decision that although the panels had insulating properties, ultimately the taxpayer was supplying standard rated roof panels.
Greenspace Ltd v HMRC [2021] UKUT 290 (TCC)
5. Tax publications and webinars
5.1 Webinars
The following client webinars are coming up over the next month.
- 8 December 2021: S&W sessions: Taxation of Real Estate – a changing landscape webinar
- 14 December 2021: Professional Practices Autumn Webinar Series
6. And finally
6.1 Weighing up
As keen readers of the Chancellor’s weekly newsletter will know, last week the Treasury officials were down at the Royal Mint, anxiously waiting to hear if the nation’s coinage had passed various tests. Randomly selected coins are weighed and analysed to ascertain whether or not they meet the specifications laid out in law. The result came back as a pass, which will be a relief, considering that historically at least one Chancellor has been imprisoned following a poor result. Considering that the Trial of the Pyx has been going since the thirteenth century, in general, we can be fairly happy that the currency is up to scratch.
In a world of cryptoassets, where worth can change in the blink of an eye, physically weighing coinage may seem old hat, but it has a reassuring simplicity - would that the worth of taxes could be tested so clearly.
www.royalmint.com/discover/uk-coins/history-of-the-trial-of-the-pyx
www.assayofficelondon.co.uk/news/chancellor-rishi-sunak-passes-the-annual-trial-of-the-pyx
Disclaimer
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.
