USA Weekly Tax Update 31 March 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 Tax Update and Easter
Tax Update will be taking a break for the Easter holiday.
The next issue will be on 20 April. We wish you a safe, healthy and happy Easter holiday.
1.2 Tax Day: Offshore tax issues - general
No major announcements were made in relation to offshore matters, but two discussion documents were published on international tax debt and offshore tax compliance.
One discussion document covers international tax debt. It looks at its causes and the difficulties with identifying it, as well as how to help taxpayers not to accrue it. It discusses using third party data, and what barriers there are to collection. It also discusses making it easier for taxpayers to pay, and considers withholding options. HMRC would like to improve its guidance and communications, and work with agents and intermediaries to ensure that the guidance has an impact. One section looks at sanctions for debtors, including inhibiting access to UK markets for deliberate overseas tax evaders, particularly companies.
The second looks at developing new ways to help taxpayers with their offshore tax affairs. It looks at the causes of non-compliance, and covers how HMRC could support taxpayers better, for example how to help non-UK residents access support, as well as ideas for working with agents and intermediaries to promote compliance, and the use of third party data.
www.gov.uk/government/consultations/discussion-document-helping-taxpayers-get-offshore-tax-right www.gov.uk/government/consultations/discussion-document-preventing-and-collecting-international-tax-debt1.3 Tax Day: Call for evidence on more timely payment
HMRC is considering requiring more frequent payments of corporation tax and self-assessment income tax.
HMRC is looking at the possibility of changing the payment regime for self-assessment income tax, and corporation tax for companies not in the quarterly payment regime.
Currently, self-assessment taxpayers pay tax 9 months after the end of a tax year, much later than PAYE taxpayers, who pay monthly. A stated benefit of this is that paying tax closer to the date the income is received would increase the chance of the taxpayer having funds to pay. It has to be said, however, that traders, for example, often use unpaid tax as part of their working capital, so this would also represent a clear disadvantage for some.
The call for evidence acknowledges that there would be difficulties in changing regimes, and asks for suggestions on managing impacts.
www.gov.uk/government/consultations/call-for-evidence-timely-payment1.4 Tax Day: Consultation on raising standards in the tax advice market
Following an earlier call for evidence on this topic, this newly published consultation focuses on professional indemnity insurance, and defining tax advice.
The consultation seeks views from tax advisers, as well as other stakeholders. One key proposal to make it compulsory for tax advisers to have their own professional indemnity insurance if they give tax advice. The consultation looks at proposed minimum levels of cover, and enforcement options, including ways for taxpayers and the Government to check an adviser’s cover, and sanctions for non-compliance.
The other key proposal is to agree a definition of tax advice for this purpose. The Government would like a wide definition, to reduce scope for grey areas, and provide the most protection for taxpayers.
www.gov.uk/government/consultations/raising-standards-in-the-tax-advice-market
2. Private client
2.1 UT dismisses three SDLT appeals on mixed use property
The UT has upheld the FTT finding in three separate cases that land can form part of the garden or grounds of a house for SDLT, and therefore be subject to residential rates, even if not needed for the reasonable enjoyment of the house.
The UT considered three joined appeals, all of which had been lost by the taxpayer at the FTT. In each case, the FTT had found that land sold with a house was part of the garden or grounds, so did not qualify as mixed use property, and was subject to residential SDLT rates. The taxpayers all held that the additional land, such as a barn and meadows, did not ‘form part’ of the garden or grounds of the properties. They submitted that in order to come within this definition it should also satisfy the test of being needed for the ‘reasonable enjoyment’ of the house.
The UT agreed with the FTT and dismissed the appeals, agreeing with HMRC that the correct statutory construction did not need a ‘reasonable enjoyment’ test to be met. The land in each case was part of the grounds of the house as a matter of fact. HMRC guidance prior to 2019 had indicated that a permitted area test existed, but that guidance was corrected in 2019 as it did not accord with the SDLT legislation.
Hyman & Ors v HMRC [2021] UKUT 68 (TCC)3. Trusts, estates and IHT
3.1 Tax Day: IHT reporting requirements to be simplified
The number of non-taxpaying estates that must file IHT returns will be reduced. In addition, ‘wet’ signatures will no longer be required on IHT forms.
The Government has decided to adopt some recommendations from the OTS’ first report on IHT. From 1 January 2022, over 90% of non-taxpaying estates will not need to complete an IHT return if probate is required. Reporting regulations will also be updated to clarify the requirement for estates to submit an IHT account where the deceased was never domiciled in the UK, but owned indirect interests in UK residential property.
In addition, the current provision allowing IHT forms to be filed without physical signatures will be made permanent. This was brought in as a temporary measure during the pandemic.
The second OTS report on IHT, which recommended more structural changes, has not yet received a response.
3.2 Tax Day: Trust review does not suggest changes
HMRC has reported that the responses to its review “did not indicate a desire for comprehensive reform of trusts at this stage”.
The review of the taxation of trusts was conducted from 2018 to 2019, seeking views and evidence on if, and how, to increase trust transparency and make the taxation of trusts fairer or simpler. After receiving over 100 responses, HMRC concluded the review without making recommendations for changes. A summary of responses has been published.
The review does however mention that the Government will keep the issues raised under review “to ensure that its long-term approach to the taxation of trusts meets its objectives”. In the shorter term specific areas of trust taxation may be revied on a case by cases basis, and the responses to this review used to inform any changes.
www.gov.uk/government/consultations/the-of-taxation-of-trusts-a-review4. Business tax
4.1 UT upholds FTT decision to deny capital allowances on satellite leases
The UT has agreed with the FTT’s ruling on succession provisions, which have since been repealed. A deemed sale of leases on succession did not extend to deeming the successor to own the leased assets.
Six satellites were launched many years ago by a tax-exempt body corporate. That entity bore the launch costs but leased the satellites. The taxpayer later succeeded to the trade, and the leases were novated to it. The taxpayer claimed capital allowances on the market value of the satellites that was attributable to the launch costs incurred by its predecessor. It argued that the satellites were deemed to have been sold to it on the succession and should therefore be treated as belonging to it. These succession provisions have since been repealed.
The UT upheld the FTT’s ruling that the deeming provisions did not extend so far as to treat the taxpayer as the owner of the satellites. The taxpayer remained a lessee for capital allowances purposes and was not eligible for relief. The UT did, however, overturn the FTT’s decision that the launch costs did not constitute expenditure on the provision of plant and machinery.
Inmarsat Global Limited v HMRC [2021] UKUT (TCC)
https://www.bailii.org/uk/cases/UKUT/TCC/2021/59.html4.2 Consultation on transfer pricing documentation
The Government intends to strengthen the transfer pricing documentation requirements for businesses already within the UK transfer pricing regime. This includes increased disclosure requirements and an annual international dealings schedule (IDS).
The first new requirement will be for multinational businesses already within the Country-by-Country Reporting (CbCR) rules. Those businesses probably already prepare Master and Local files as prescribed by the CbCR rules. The new proposal will introduce a mandatory requirement for businesses to provide HMRC with a copy of those reports upon request.
The second new requirement is an IDS. All businesses within the UK transfer pricing regime would be required to file an annual IDS notifying HMRC of cross-border intra-group transactions. Small and medium-sized enterprises that are exempt from transfer pricing would also be exempt from filing an IDS.
The consultation closes on 1 June 2021.
https://www.gov.uk/government/consultations/transfer-pricing-documentation4.3 Consultation on uncertain tax treatment by large businesses
HMRC has published a second consultation on the proposed requirement for large businesses to notify it of uncertain tax treatments. Following responses to the initial consultation, the scope of the proposal has been narrowed.
From April 2022, large businesses will be required to notify HMRC when they adopt a tax treatment that is ‘uncertain’. The second consultation considers particular concerns raised in responses to the initial consultation. These include the definition of ‘uncertain tax treatment’ and exclusions from the requirement to notify. Notably, the scope of the requirement has been narrowed to only CT, IT, PAYE and VAT. The threshold for reporting has also been increased from a £1m to a £5m difference between HMRC’s supposed tax calculation and the business’s tax calculation.
The requirement is expected to apply to tax returns submitted from April 2022. It will therefore apply to tax treatments adopted before that date. The consultation closes on 1 June 2021.
A comforting observation is that “[t]his measure is not intended to promote any assumption that HMRC’s interpretation is correct, nor that HMRC is a final arbiter of tax law.”
4.4 New guidance on Senior Accounting Officer penalties
Following a recent FTT decision, HMRC has updated its guidance on Senior Accounting Officer (SAO) penalties. HMRC will consider tax risks, overall compliance and the nature of failures when assessing SAO penalties.
In Castlelaw (No.628) and another v HMRC, the FTT set out several factors HMRC should consider when exercising its discretion to impose SAO penalties. The updated guidance now includes these factors. It states that HMRC will not normally impose penalties where the failure relates to a low-risk dormant company. When assessing penalties, HMRC’s policy is now to consider the nature of the failure, overall compliance level and whether or not the failure is symptomatic of an underlying weakness in the tax accounting arrangements. The guidance also notes that taxpayers may make representations to HMRC that it should not assess a penalty if they have failed to comply with the SAO rules.
https://www.gov.uk/hmrc-internal-manuals/senior-accounting-officers-guidance/saog18000
5. VAT
5.1 CJEU rules on the reverse charge and non-economic activities
The CJEU has clarified that the reverse charge applies where a taxable person receives services relating to non-economic activities carried out in a business capacity. Only services received for private use fall within the carve out for taxable persons not acting as such.
The Wellcome Trust undertook both charitable and business activities and was VAT registered in the UK. It incurred significant fees from non-EU investment managers. The central issue in this case was whether or not the reverse charge should be applied to those services. The Trust was a taxable person, but the reverse charge rules provide a carve out for taxable persons not ‘acting as such’.
The Trust argued that it was not acting as a taxable person because the services were in relation to non-economic activities. The Trust believed it was supported by a 1996 CJEU ruling on input tax recovery. In that case, the CJEU found that the Trust was not acting in a business capacity in respect of its non-EU investments.
The CJEU rejected this argument. It held that the definition of ‘business customer’ for the purposes of the reverse charge is wider than the definition of ‘business activity’ for the purposes of input tax recovery. The 1996 ruling did not prevent the Trust from being a business customer in relation to the place of supply of the investment management fees. The carve out for taxable persons not ‘acting as such’ is intended to exclude services for private use, not services for non-economic activities carried on in a business capacity. The investment management fees were therefore business-to-business supplies and the reverse charge was applicable.
HMRC v Wellcome Trust Limited Case C-459/19https://curia.europa.eu/juris/liste.jsf?language=en&num=C-459/19
6. And finally
6.1 Wait for it
Following a quiet Budget, we nodded sagely and mentioned the potential for big announcements on Tax Policy and Consultations (TPAC) day.
Well, see announcements above.
To repeat a theme: we anticipate that changes could be announced in the Autumn Budget, or on Autumn TPAC day, or later.
Disclaimer
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.
