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 Season’s Greetings
The next edition of Update will be published on 14 January 2020.
We wish all our readers a merry Christmas and a peaceful and prosperous New Year.
2. Private client
2.1 Two appeals against ‘unfair’ LBTT law dismissed
In two similar cases regarding joint purchases, the taxpayer was denied a repayment of the additional dwellings supplement. This is the latest in a series of appeals on this point of law, all of which have been dismissed.
In both cases, the taxpayer had jointly purchased property with another person who, at that time, owned another dwelling. The additional dwellings supplement (ADS) was therefore paid. When the other purchaser subsequently disposed of his interest in his first property, a claim for a repayment of the ADS was made. RS denied both repayments because neither of the taxpayers in the two cases had disposed of an interest in his only or main dwelling; only the co-purchaser had done so. Since neither taxpayer owned another property before the joint purchases, it was impossible for the taxpayer to qualify for repayment.
The taxpayers appealed against the refused claims on the basis that the law was unjust. The Judge acknowledged that the taxpayers had reason for arguing that the law was unfair. The law, however, was unambiguous and the Tribunal did not have the jurisdiction to consider whether or not it was fair.
Mr John William Wallace and another v RS  FTSTC 13
Mr Neil Doherty v RS  FTSTC 14
2.2 Capital loss allowed for unbuilt Barbados properties
The FTT takes a ‘real world’ approach, ruling in favour of the Lord and Lady Lloyd-Webber, allowing them to claim a capital loss in respect of contractual rights over unbuilt villas in Barbados.
The taxpayers entered into a contract with a developer to purchase two beachside plots of land in Barbados, together with villas which would be constructed on the land as part of the agreement and as part of a larger development being built. The payments to the contractor were made in stages as construction progressed. After paying a total of over £6miilion to the developers, it became apparent that the contracts would not be fulfilled, and the villas would not be built as further funding could not be secured and the villas had been left to degrade. The taxpayers therefore proceeded to claim the capital loss on their tax returns of just over £3m each.
It was argued by HMRC that the sums paid under the contracts were made to acquire or enhance the estates in the land and not to acquire or enhance their contractual rights over the property. The right over the property would only be established once the sale was complete, which would rely on a change in the nature of the asset from a right consisting of a contract to land. Further, the expenditure must be incurred wholly and exclusively in either the acquisition of the asset or on the asset for the purpose of enhancing its value. HMRC contended that neither of these points was satisfied, so the loss was not allowable.
The FTT disagreed with HMRC. Having regard to all the circumstances, the FTT determined that the only asset the taxpayers acquired was a contractual right, which remained unfulfilled and therefore resulted in a real loss. The FTT allowed the appeal, ruling in favour of the taxpayers and noting that it was consistent with the wider scheme of the legislation.
Lady Lloyd-Webber, Lord Lloyd-Webber v HMRC  UKFTT 717 (TC)
3.1 VAT registration in advance of a no-deal Brexit
HMRC has confirmed that VAT registrations made under the Advanced Notification facility will be carried forward. The advanced notification date will be automatically updated to the day after a no-deal Brexit.
The Advanced Notification Facility allows businesses to apply early to register for VAT so that they can meet their new VAT obligations in the event of a no-deal Brexit. Since the UK did not withdraw from the EU on 31 October 2019, registrations prior to this date were not activated. HMRC has confirmed that these registrations will instead be carried forward and activated if and when the UK withdraws from the EU without a deal.
If the UK withdraws from the EU with a deal in place, a transition period of up to two years is expected. During that time the UK will operate under EU VAT rules.
3.2 Reliance on HMRC’s advice was not a reasonable excuse
A taxpayer that acted according to advice provided by HMRC has lost an appeal against a penalty notice. Reliance on that advice did not amount to a reasonable excuse because HMRC had warned that its response was not a definitive answer. The FTT did, however, express concern over HMRC’s conduct.
The taxpayer was a local cricket club (the Club) run by volunteers, which planned to construct a new pavilion and sports hall. The Club requested guidance from HMRC as to whether or not the supplies in the course of the construction should be zero-rated. HMRC’s letter in response indicated that it could not provide a definitive answer and directed the Club to published VAT notices. It went on, however, to conclude that the construction activities appeared to meet the requirements for zero-rating. The Club subsequently issued a zero-rating certificate to the builders, but since it was not a registered charity the supplies did not qualify for zero-rating. HMRC therefore issued a penalty to the Club.
The appeal was made on the grounds that reliance on the letter from HMRC amounted to a reasonable excuse. The FTT accepted that it is possible for advice to be provided by HMRC that does not create a legitimate expectation, yet can still provide a reasonable excuse if the taxpayer relies on it. In this case, however, the advice was not sufficiently certain to give rise to a reasonable excuse. The letter made it clear that it should not be relied upon as a statement of the correct position. The appeal was dismissed, but the FTT expressed concern at HMRC’s approach. It indicated its unease that HMRC would refuse to provide a definitive answer but then go on to state its position on the issue.
Westow Cricket Club v HMRC  UKFTT 712 (TC)
4. And finally
4.1 Third time’s the charm
As the annual frenzy of Christmas parties and tax return submissions descends once again, taxpayers around the country reluctantly pause their festivities to grapple with tax returns. If you are baffled by the online submission system or mired in accounts that refuse to be reconciled, take heart. HMRC, with its army of 55,000 employees, doesn’t always get it right either, even with a second go.
For the second time, the tax liability in the Rangers case has been reduced, this time by £5.2m. The running total of reductions now sits at over £29m, or over 30% of HMRC’s original demand for £94m. Fortunately for HMRC, there are no penalties for inaccuracies in calculating liabilities.
If HMRC is spectacularly off like this, what hope is there for all of the rest of us?
RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland  UKSC 45
|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. 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 publication.