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.
1.1 Increase in HMRC information gathering powers
Finance Bill 2020-21 will give HMRC a new power to obtain information about taxpayers’ affairs. The new Financial Institution Notice (FIN) can force financial institutions to provide information about a specific taxpayer to HMRC without approval from the tribunal.
Currently, HMRC can only obtain details about a taxpayer from financial institutions such as banks with the approval of the tribunal. In order to speed up the process of obtaining information, HMRC is to be granted a new power to obtain this information in the 2020-21 Finance Bill. HMRC will be able to issue the third party with a FIN, and issue penalties if the information is not provided.
FINs can only be issued if various criteria are met, as a ‘taxpayer safeguard’. The main ones are:
- the information requested must be reasonably required to check the specific taxpayer’s tax position;
- documents to which legal professional privilege applies cannot be requested;
- HMRC must tell the taxpayer why the information is requested, unless the tribunal allows an exception;
- FINs must be approved by an authorised HMRC officer with the relevant experience and training; and
- financial institutions have a right of appeal against penalties for non-compliance with an FIN.
Information gathered using FINs can be used for debt collection purposes as well as checking the taxpayer’s tax position. HMRC will report to Parliament each year on the use of FINs.
1.2 Tax avoidance schemes: Accelerated Payment Notices
HMRC has updated its list of the avoidance scheme reference numbers (SRNs) whose users may be issued with an accelerated payment notice (APN).
HMRC confirms that this list is under continual review to ensure that only current and newly-disclosed schemes whose users may receive an APN are included.
Two new scheme reference numbers have been added: 01926446 and 74910569.
No scheme reference number has been removed.
2. Business tax
2.1 HC allows HMRC to take General Electric to trial over tax fraud
The HC has ruled that HMRC may pursue its claim that the General Electric group (GE) had acted fraudulently in relation to the tax treatment of an international lending arrangement. The case will therefore go to trial. It is reported that approximately $1 billion of tax is at stake.
GE had made a settlement agreement with HMRC in 2005 regarding the UK anti-arbitrage rules in relation to a number of transactions. During this process, GE had also obtained clearance from HMRC in respect of ongoing activities of the GE group. One of these transactions included the acquisition of an Australian LLP by a UK company. The LLP was treated as transparent for UK tax purposes but opaque for Australian tax purposes. This acquisition involved a complex lending structure, through which the group obtained interest deductions on the same sum in both the UK and Australia. This arrangement would have been caught by the UK anti-arbitrage rules if the main or one of the main purposes of the arrangement was to obtain a UK tax advantage. At the time of the clearance, HMRC understood that this condition was not met by GE. The anti-arbitrage rules have since been abolished and replaced by the anti-hybrid regime.
HMRC subsequently obtained information that, it argued, showed that GE did not correctly present the facts when the clearance was provided. HMRC purported to rescind the settlement agreement made in 2005, and then applied to the courts for a declaration that the rescission had been valid. It also claimed that GE had deliberately misstated facts, and fraudulently misrepresented that it had made a full disclosure of the facts.
The HC in this case was only considering whether or not HMRC could pursue the case; it was not determining if GE had in fact acted fraudulently. It held that, if GE had falsely represented that full disclosure of the facts had been made, then the prospect of that misrepresentation being fraudulent was not merely fanciful. HMRC is therefore allowed to take the case to trial.
IGE USA Investments Limited and others v HMRC  EWHC 2121 (Ch)
2.2 FTT rules on limited partnerships arrangement
A Cayman company was found to be liable to UK CT on its share of profits in a UK limited partnership (LP), to which it was indirectly entitled through a Cayman LP. The FTT also held that individual partners in the UK LP were subject to UK IT on allocations of ‘special capital’, which were analogous to taxable bonuses.
This is a very complex case involving a detailed cross-border partnership structure. Broadly, a Cayman company was incorporated to acquire a 19% interest in a UK LP, and it incurred interest expenses on a loan to facilitate that acquisition. The company then contributed its interest in the UK LP as capital to a Cayman LP, in which it became the general partner. The FTT ruled that the company alone, rather than all the partners of the Cayman LP, was subject to UK CT on the share of profits allocated to the Cayman sub-LP by the UK LP. It also held that the interest expense on the loan to acquire the interest in the UK LP was not tax-deductible.
The UK LP had also established an incentivisation plan under which profits were allocated to a corporate partner that reinvested those amounts into the UK LP as ‘special capital’. Shares in the special capital were awarded to the individual partners in accordance with their performance in the business. The FTT found that the awards of capital amounted to miscellaneous income subject to UK IT in the hands of the individual partners.
BCM Cayman LP and others v HMRC  UKFTT 298 (TC)
3. Tax publications and webinars
3.1 COVID-19 hub
Our Coronavirus hub is designed to answer your key questions and will be updated regularly over the next few months. It contains a number of detailed articles on the measures introduced to help with the financial impact of COVID-19.
4. And finally
4.1 Baby on board
We were befuddled this week by some new HMRC guidance. The guidance itself was clear; that was not the problem. It was this instruction: ‘use this form to ask HMRC to verify that you had a new child’.
We have always known HMRC to be an administrative behemoth capable of great feats of paperwork that do not always have an obvious point. Perhaps we should not have been so surprised. If anyone could invent a form to confirm a baby’s existence to his own parents, it would be HMRC.
So, just in case you aren’t entirely sure of the answer for yourself, rest assured that HMRC can apparently confirm your parental status for you. But only if you’re self-employed or a member of a partnership. And only if you ask before 5 October 2020.
|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.