Weekly Tax Update 10 March 2020

The UT has overturned an FTT decision, finding that the transfer of assets abroad (TOAA) code did not apply to a transaction where the business of a company was transferred to an overseas company, as the shareholders in this case did not procure the transfer. It also considered the application of EU principles of freedom of establishment and free movement of capital for an EEA national and her UK national husband.

The taxpayers transferred their gambling business from a UK company to a Gibraltar company, as it was commercially advantageous to offer customers a reduced rate of betting duty. The UK resident taxpayers, a family group, were directors and shareholders of both companies, so paid tax in the UK on salary and dividends. HMRC sought to tax them on the entire profits of the transferee company, in proportion to their shareholdings, on the grounds that they had made a transfer of assets abroad. Much of this profit had been reinvested in the business.

At the previous hearing, the FTT found for HMRC for two of the taxpayers, who were UK nationals, and against for the third, who was a UK resident Irish national. It held that an Irish national was entitled to rely on the principles of freedom of establishment and freedom of movement of capital, but that these could not be claimed by UK nationals on transfers to Gibraltar, as Gibraltar and the UK were not separate states for this purpose. The UT found that the principles should extend to one of the UK nationals, the husband of the Irish national, as interference with his freedoms would impede hers, but agreed that the adult son of the parties could not rely on the defence.

However, the UT overturned the decision on other grounds, finding that the TOAA code did not apply to this transaction. The taxpayers had not made a transfer, as the assets were the property of the company which transferred them. Although this would not be the case if assets had been put in a company just as preparation for moving them offshore, in this case the transferor was a genuine company that had been trading for many years. In addition, the taxpayers had not procured the transfer, as none of them had a controlling interest.

The UT also found that had TOAA applied, the taxpayers had a valid motive defence. It noted that the TOAA code could apply to avoidance of any tax (here betting duty), not just income tax, so tax avoidance was a motive, but in this case the transaction was made for the purpose of saving the business, as customers were using overseas competitors to benefit from the lower betting duty rate.

Fishers v HMRC [2020] UKUT 0062 (TCC)

https://assets.publishing.service.gov.uk/media/5e5fc9e1e90e077e3c38a30b/Fishers_v_HMRC.pdf

Two members of a film partnership have lost their challenges to the validity of closure notices, with the FTT finding that earlier letters advising them of changes to the partnership return were not closure notices. A deemed enquiry into a partner’s return, opened with the enquiry into the partnership tax return, has to be treated separately.

The taxpayers argued that letters notifying them of a change to the partnership tax return made by HMRC were closure notices, and that as such the later official closure notices denying their loss claims had no effect. They contended that the advance payment notices (APNs) were also invalid, as the appeals were not on the basis of tax advantage, but on the validity of the assessment.

The FTT found that the letters advising the taxpayers of changes to the partnership return did not constitute closure notices. The FTT refused permission for the taxpayers to bring judicial review proceedings on this point. It also found that the APNs were valid, as the taxpayers were making the appeal in connection with HMRC seeking to deny a tax advantage. The technical detail of the appeal was not relevant, and the applications for judicial review on this point were dismissed.

1) Mark Reid 2) Simon Emblin v HMRC [2020] UKUT 61 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2020/61.html

Penalties for failing to comply with follower notices by the deadline have been upheld by the FTT, despite the taxpayers agreeing HMRC’s position shortly after the deadline. The penalties were, however, reduced to account for their cooperation.

The taxpayers were issued with follower notices requiring them to take corrective action within three months. They requested additional information from HMRC, which was received five days before the deadline. As the taxpayers were away, their agent’s response to HMRC was sent eight working days late. The agent agreed with HMRC’s position, but did not comply with the requirements of the legislation for corrective action, such as amending the returns. No tax was payable, as HMRC had retained repayments.

HMRC issued penalties for non-compliance of 30% of the disputed tax. The FTT upheld the penalties, finding that the taxpayers had no reasonable excuse, but reduced the penalties to 20% to acknowledge the taxpayers’ cooperation.

Unsworth & Anor v HMRC [2020] UKFTT 94 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07588.html

The FTT has found that it is likely that a taxpayer posted a pension protection claim to HMRC 12 years ago. Although HMRC had no record of receipt, his late notification should have been accepted as he had adequate proof of making the original notification.

The taxpayer asserted that, in 2006, he had sent a notification form to HMRC to claim enhanced protection of his pension, and had made no further pension contributions. In 2018, following his retirement, he discovered that HMRC had no record of receiving the form, and HMRC rejected his attempt to make a late notification at that point.

The taxpayer appealed. He had taken independent pension advice in 2006, and kept a photocopy of the completed signed form, although 12 years on he had no proof of postage. HMRC argued that his letter noted that he would receive a certificate of protection, which he never received. Having never received the certificate, he had no reasonable excuse for not ensuring that the notification was correctly made.

The FTT allowed the appeal, noting that it was improbable that the taxpayer had not made the notification, and that on discovering the error he had acted promptly to rectify it. The late notification was accepted.

Hayes v HMRC [2020] UKFTT 92 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07586.html

The FTT has dismissed a taxpayer’s appeal on the amounts of assessments, upholding the HMRC estimates as he did not supply evidence to disprove them. It accepted that much of his documentation had been lost during a period of homelessness, but found that in the six years since the compliance check began he had had the opportunity to obtain third party records.

The taxpayer, a market trader, formerly owned a number of rental properties that had been repossessed. He did not supply sufficient evidence during an HMRC compliance check to support his income position, so HMRC issued assessments for a number of years. He explained that he was currently homeless, so had lost much of his documentation, and argued that the HMRC estimates were excessive.

The tribunal accepted that the HMRC assessments were estimates based on a formula, and not necessarily accurate, but found that they were not ‘arbitrary or wholly unreasonable’. There were inconsistencies in the taxpayer’s evidence, and as the compliance check had begun in 2014, he had had the opportunity to obtain third party records to support his position, but had not done so. The penalties were also upheld. 

Okusanya v HMRC [2020] UKFTT 83 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2020/TC07577.html