USA Weekly Tax Update 7 October 2020
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 Government response on the management of tax reliefs
HMT has responded to the Public Accounts Committee’s (PAC) recommendations on the management of tax reliefs. The PAC has expressed concern over HMRC and HMT’s lack of understanding of the economic impact of the major UK tax reliefs.
HMT has agreed to action the PAC’s recommendation to assess the groups and sectors benefitting from all significant reliefs. The results are to be publicly reported in 2021. It will also publish more information on the differences between the actual and estimated costs of various tax reliefs. HMT has, however, declined to prepare annual reports assessing the value for money of tax reliefs. It has also declined to evaluate the impact of pension tax reliefs within the next 12 months. The Government will only publish data showing the demographics of the taxpayers who benefit from pension tax relief.
1.2 Review of FTT
As over 10 years have passed since the FTT was established, the Tax Law Review Committee (TLRC) of the Institute for Fiscal Studies is conducting a review of its operation. It has requested input from tribunal users on their experiences.
The FTT was set up in 2009 as part of a reorganisation of the court and tribunal system. The TLRC was involved in the process of establishing its rules and procedures. In this review project it will inquire into and report on the operation of the FTT, with a view to making recommendations for improvement. The survey forms part of the review. Those who wish to take part can do so on the link below.
1.3 Tax at the Labour Party conference
No major tax announcements were made at this year’s Labour Party conference, but debate focussed on recovering from the pandemic.
The Shadow Chancellor Anneliese Dodds spoke at a debate organised by the IFS and CIOT. She stated that politicians of all parties should protect the tax base, and announced Labour policies of a Job Recovery Scheme, Business Rebuilding Programme, and nationwide Retraining Strategy.
She does not believe that now is the time for tax rises, but explained that Labour will formulate tax plans with input from stakeholders. Areas mentioned for attention included reform of business rates, taxation of the self-employed linked to increased security, and resourcing of HMRC.
2. Private client
2.1 UT rules against disclosing Mutual Agreement Procedure documentation
The UT has agreed with HMRC that Mutual Agreement Procedure (MAP) communications should not be disclosed to the taxpayer in question. In high-value, complex disputes, HMRC should disclose relevant documents to the taxpayer unless there is a good reason not to. In this case, however, it was of low relevance to the ongoing proceedings and outweighed by the need for confidentiality.
The taxpayer had applied to the Belgian and UK tax authorities for a ruling on his tax residence under the MAP in the UK/Belgium Double Taxation Agreement. The authorities decided that he was tax resident in the UK, but declined to provide him with the documents relating to the application of the MAP. He then made two appeals to the FTT: first, against the decision that he was UK tax resident, and second, that the documentation should be made available to him. On the second matter, the FTT ruled that the documentation should not be disclosed.
The UT agreed with this decision. It held that the MAP documents were of low relevance and they would not have ‘probative value’ in relation to the issue of the taxpayer’s residence. The MAP is a separate process to the FTT appeal on residence and would not provide any further information on the primary facts. The FTT had also correctly given weight to the issue of confidentiality of inter-governmental correspondence under the MAP. The appeal was therefore dismissed.
Kevin McCabe v HMRC [2020] UKUT 266 (TCC)
2.2 Latest HMRC statement on top slicing relief
HMRC has released another statement on top slicing relief, confirming its view that the new method of calculation should apply to 2018/19 cases, and explaining how it is identifying them. Taxpayers affected by the issue in previous years will not be contacted, in line with the HMRC policy that no amendments are required.
Following an FTT decision on technical details of the top slicing relief calculation, legislation was announced with the March Budget in line with the FTT decision.
HMRC had previously announced that the method in the new legislation would be applied to all 2019/20 and 2018/19 cases. The latest statement reiterates this position. It gives more details of the steps HMRC is taking to identify and contact taxpayers affected in the 2018/19 tax year. It also confirms HMRC’s view that this calculation method should not apply to earlier years.
3. PAYE and employment
3.1 Support for furloughed staff on jury service
HMRC has confirmed that support under the Coronavirus Job Retention Scheme (CJRS) will be available for employees on jury service in some circumstances.
An employer may continue to claim CJRS support in respect of employees called up for jury service if its usual policy is to continue to pay its employees when they are on jury service. Any top-up payments in excess of the CJRS must continue to be funded by the employer.
3.2 ICAEW recommends changes to the benefits-in-kind rules
The ICAEW has submitted representations to HMRC recommending several improvements to the employee benefits-in-kind rules. It argues that the rules need to be updated in light of the widespread changes to working practices caused by the COVID pandemic.
Four changes have been recommended by the ICAEW. The first is that the 24-month limit to temporary workplace claims should exclude time periods where employees cannot attend the work site. This would mean that periods of furlough or working at home would not affect claims for travel or subsistence expenses relating to temporary work sites. Second, temporary overnight accommodation and taxi expenses should be exempt benefits for key workers. Third, the temporary relief for home office equipment expenses should be made a permanent measure. Finally, the weekly £6 allowance for working at home should be made available to employees who are allowed to choose where they work and decide to work at home.
4. VAT
4.1 VAT early termination fees and compensation payments
HMRC has released Revenue and Customs Brief 12 in response to two decisions by the CJEU. The Brief sets out HMRC’s revised view that early termination fees and compensation payments are generally subject to VAT.
The CJEU recently released its judgments in the cases of Meo (C-295/17) and Vodafone Portugal (C-43/19), which examined the VAT treatment of contract termination fees and compensation payments. Following these decisions, HMRC has published its revised Brief and guidance in respect of these types of payment. Historically, the view was that they were outside of the scope of VAT. This was on the basis that there was no supply being made in return for the consideration.
Following the above CJEU cases, HMRC has revised its guidance to note that such payments are now considered to be in return for contracted supplies of goods or services. The payments are therefore generally within the scope of VAT.
HMRC has made it clear that this change takes retrospective effect. Businesses may need to consider how such fees and payments have been dealt with in the past, and whether or not there is now a VAT liability to settle.
5. And finally
5.1 The dream job
We were not surprised to read about the Irish Supreme Court’s decision that Subway bread rolls are not considered to be ‘bread’ for VAT purposes. After the Nesquik decision of 2018, bread not being bread cannot faze us. It did, however, make us think: someone, somewhere, once had the job of deciding what constitutes ‘bread’ for the purposes of tax law. There were, undoubtedly, political considerations influencing the outcome, but the decision had to work in reality. Someone decided that a 2% threshold for sugar and fat content was both commercially viable and optimal for tax policy.
But how? Did they taste-test various batches of rolls with different amounts of sugar? Did they consider loaves, bagels and dinner rolls, and was hot butter factored in? Was there a Bake Off-style reveal to announce 2% as the magic number?
And, most importantly, where can we apply for this job?
Glossary
| Organisations | Courts | Taxes etc | ||
| ATT – Association of Tax Technicians | ICAEW - The Institute of Chartered Accountants in England and Wales | CA – Court of Appeal | ATED – Annual Tax on Enveloped Dwellings | NIC – National Insurance Contribution |
| CIOT – Chartered Institute of Taxation | ICAS - The Institute of Chartered Accountants of Scotland | CJEU - Court of Justice of the European Union | CGT – Capital Gains Tax | PAYE – Pay As You Earn |
| EU – European Union | OECD - Organisation for Economic Co-operation and Development | FTT – First-tier Tribunal | CT – Corporation Tax | R&D – Research & Development |
| EC – European Commission | OTS – Office of Tax Simplification | HC – High Court | IHT – Inheritance Tax | SDLT – Stamp Duty Land Tax |
| HMRC – HM Revenue & Customs | RS – Revenue Scotland | SC – Supreme Court | IT – Income Tax | VAT – Value Added Tax |
| HMT – HM Treasury | UT – Upper Tribunal |
DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Disclaimer
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.
