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. Private client
1.1 FTT dismisses multiple dwellings relief appeal
A claim to multiple dwelling relief has been dismissed, as although capable of separate occupation, a basement annexe was used as part of the main house.
The taxpayers, on purchasing a property, filed an SDLT return on the basis of it being one dwelling. The following year they amended the return, as they were advised that multiple dwellings relief might apply. The property consisted of a house with basement annexe. HMRC enquired into the amended return and issued a closure notice on the basis that it was one dwelling.
There was a dispute over the date the return was amended, but the FTT found that it was not when the taxpayers first wrote to amend the return, but on receipt of their second letter, which did not provide additional details but enclosed the contract for sale in support. Under the legislation a valid amendment must be accompanied by the contract, so the later date was the date of amendment.
Given this finding, the amendment had been filed out of time, but was treated by HMRC as valid. The enquiry notice was also valid, as it was issued within the time limit counting from the second letter. Finally, the FTT found that the house and basement annexe were one dwelling. Although the basement had the facilities to be a separate dwelling, it was used only as part of the main house.
Merchant & Anor v HMRC  UKFTT 299 (TC)
1.2 Details of COVID-19 support penalties announced
HMRC has announced details of the penalty scheme for those claiming too much from the self-employment income support scheme (SEISS).
The deadline for notifying HMRC of an overpayment is 90 days from the date of receipt of the grant, or change of circumstances affecting eligibility, or 20 October 2020 if later.
Failure to notify penalties will be in line with normal UT failure to notify penalties, and if a taxpayer claimed an SEISS grant when unaware they were ineligible, no penalties will be due if it is repaid by 31 January 2022.
2. Trusts, estates and IHT
2.1 ATT publishes Trust Registration Service guidance
The ATT has published updated guidance on how to update the Trust Register, in collaboration with HMRC.
The ATT guidance covers the process for updating the Trust Registration Service (TRS), including the new agent authorisation process. It also comments on specific situations as follows:
- where there is no tax liability in 2019/20, based on HMRC’s list of relevant taxes, there would usually be no requirement to update the TRS for that tax year. The ATT notes, however, that if an obligation to report arose in 2017/18 or 2018/19, that change must be updated by 31 January 2021;
- where the trustees are digitally excluded, one trustee should call the trust helpline for support;
- trustees or agents who experience IT problems using the new service can call the trusts helpline or raise a digital ticket with HMRC;
- where a trust which registered in 2017 has since been wound up, it is still necessary to update the TRS to confirm the trust has ended. Concerns on trustee awareness of this issue and the ability to pay fees for dealing with the update have been raised with HMRC.
3. PAYE and employment
3.1 UT rules on employment status for IR35
The UT has overturned an FTT decision in respect of services provided by a radio presenter to a radio station. It allowed HMRC’s appeal and held the relationship between the presenter and the radio station was one of employment. In remaking the decision, the UT found that the FTT erred in its findings on mutuality of obligation.
The FTT had found that the radio station was not obliged to provide work to the radio presenter, but merely for the radio presenter to perform it when offered. The contract between the station and the presenter’s personal service company therefore lacked mutuality of obligation and the framework for control was too narrow to indicate employment. It was therefore not a contract of employment subject to PAYE and NICs. This was the decision of the presiding member of the FTT; the Tribunal member had dissented.
The UT disagreed with the FTT’s interpretation of the contract in respect of both the mutuality of obligations and controls tests. Mutuality of obligation did exist because the radio station was obliged to provide the presenter with work for a minimum number of shows each year, unless it exercised its right of termination or suspension. In reaching its decision, the UT compared the hypothetical contract between the taxpayer and the radio station to the written contract between the station and the personal service company. It held that this was not a case where the intentions of the parties were only partially set out in the written agreement and the remainder was implied by conduct and oral terms. The UT found that in this case the written contract was the same as the hypothetical contract. Since the interpretation of a written contract is a matter of law, not fact, the UT could overturn the FTT’s decision. HMRC’s PAYE assessments and notices of determination for NIC purposes were therefore upheld.
3.2 Extension to the Job Retention Scheme disclosure period
Finance Act 2020 introduced further details on the Coronavirus Job Retention Scheme (CJRS) penalty regime and the disclosure of overclaimed grants.
If a claimant has received too much financial support due to an error in a CJRS claim, it must repay the excess. It can do this either by reducing the next online claim by the excess, or by contacting HMRC to make a repayment. Finance Act 2020 extended the disclosure period to notify HMRC of overclaiming that has not yet been repaid. Overclaiming must be notified to HMRC by the latest of:
- 90 days after the date the overclaimed grant was received;
- 90 days after the date the claimant’s circumstances changed such that it was no longer entitled to keep the grant; and
- 20 October 2020.
HMRC may recover overpaid amounts by issuing tax assessments. If an assessment is not raised on an overclaimed amount that has not been repaid, details of that amount must be included on the claimant’s IT or CT return.
Penalties of up to 100% of overclaimed grants may be enforced. HMRC has stated that it will not be actively looking for innocent errors.
4. Business tax
4.1 FTT rules on when goodwill is created
A taxpayer has been denied deductions for amortisation of goodwill acquired from related parties that carried on the business before 1 April 2002. The FTT upheld the general principle that goodwill cannot be acquired separately from the business in which it was created.
The taxpayer company acquired the assets of two dentistry businesses in 2010. These businesses had been carried on since 1996 by two self-employed dentists who were now equal shareholders in, and directors of, the taxpayer. On acquisition, the accounts recognised £1.4m of acquired goodwill. Tax deductions were claimed for amortisation of this goodwill under the intangible fixed assets (IFA) regime. The issue was the date on which the goodwill was created as goodwill acquired from a related party that arose from a business carried on before 1 April 2002 is outside the IFA regime. The rules for claiming amortisation of goodwill have since changed.
The FTT found that goodwill cannot be acquired independently from the business in which it was created. The ‘business in question’ in the provisions which determine when goodwill is treated as created, must mean the business in which the goodwill was created. That was each of the acquired businesses and not the business carried on by the taxpayer. Since those businesses had been carried on by related parties prior to 1 April 2002, the goodwill was not within the IFA rules and the amortisation was not allowed for tax purposes. The FTT also found that the discovery assessments were valid.
Armstrong & Haire Limited v HMRC  UKFTT 296 (TC)
5.1 VAT and SDLT on variations to leases
HMRC’s view on the VAT and SDLT implications of varying a lease has been set out in Revenue and Customs Brief 11 (2020). Lease variations are likely to result in VAT and SDLT liabilities if the tenant provides consideration for the variation, such as carrying out works to the property.
These rules have not changed, but they have become more relevant because the COVID pandemic has resulted in more lease variations. If the tenant provides no consideration for the variation, there is no supply and therefore the VAT liability is unlikely to change. If, however, the tenant provides services or other consideration in exchange for the variation, the tenant may be making a taxable supply on which it must charge VAT. VAT invoices may also be required. If the landlord has opted to tax the property and receives services in exchange for a rent reduction, it will usually need to account for VAT as though the rent was still being paid. The guidance contains useful examples of the VAT impact of different types of lease variation.
If a tenant provides no consideration for a lease variation, there will generally not be any implications for SDLT. There may be an SDLT liability if the lease is extended, a new lease is granted or if the tenant carries out works in exchange for the variation.
5.2 HMRC publishes new guidance on e-publications and VAT
New guidance has been published that sets out HMRC’s position on the zero-rating of some epublications. It explains what publications are eligible for zero-rating and the transitional rules for supplies spanning 1 May 2020.
It was announced at the 2020 Budget that the Government intended to legislate to apply a zero rate of VAT to the supply of particular e-publications such as e-newspapers, e-magazines and academic journals.
This change was initially planned to take effect from 1 December 2020. The Government brought forward the implementation date to 1 May 2020 in order to reduce the cost of access to these publications during COVID-19. The position before 1 May remains subject to continuing litigation.
5.3 Proposed amendments to VAT for Northern Ireland
The EC has proposed the introduction of special identification numbers for businesses in Northern Ireland. This will ensure that the VAT rules apply correctly to trade between Northern Ireland and the EU once the UK has passed the withdrawal period from the EU.
The special identification numbers will ensure that EU VAT provisions can be properly applied to goods. Under the Withdrawal Agreement between the EU and the UK, EU VAT provisions will continue to apply to goods traded in Northern Ireland after the transition period of the UK’s withdrawal. Goods traded between Northern Ireland and the EU will be treated in the same way for VAT purposes as cross-border supplies of goods within the EU. Supplies of services in Northern Ireland will be subject to UK VAT, rather than EU VAT, so no special identification numbers will be required in respect of these supplies.
An Introduction to Challenging HMRC - Appeals & the First Tier Tax Tribunal – 10 September (1.25 CPD hrs)
Access Code: 34aay7
6. And finally
6.1 O for a silly season
Pandemics aside, the rhythm of the year continues, and HMRC issues its annual statistical update on nondomiciled taxpayers. In 2018/19 there were very slightly fewer of them, and they paid slightly more tax each.
In these preternatural times, even after significant changes to non-dom taxation with accompanying dire warnings of consequences, this announcement is refreshing. Let us summarise the findings for you: no news today.
|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|
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.