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 Tribunals cannot overrule HMRC on late pension protection election
The UT has found that the FTT does not have jurisdiction to overrule HMRC if it refuses to accept a late election for fixed protection for pensions. It can only consider whether or not the election meets the requirements for validity, which include being made on time. It does not have a general supervisory jurisdiction.
In previous years, when the pension lifetime allowance was reduced then taxpayers who may already have pensions in excess of the new allowance have been allowed to apply to ‘protect’ their lifetime allowance at the higher level. The taxpayers did not apply for fixed protection by the deadline, as their adviser mistakenly believed that they had applied for a different form of protection, so advised them not to apply for fixed protection.
The taxpayers made late elections, which were refused by HMRC, though it has discretion to accept late elections where it believes that there is a reasonable excuse. They applied to the FTT to overrule HMRC, but it refused on the grounds that HMRC was entitled to decide not to accept the elections, and that HMRC’s decision was reasonable on the facts of the case.
At the UT, the taxpayers’ appeals were still dismissed, but on different grounds. The UT found that, contrary to the FTT’s finding, the FTT did not have a general supervisory jurisdiction. All it could do was to consider whether or not the conditions for a valid election were met. It could not overrule HMRC’s discretion. As the appeal was outside the scope of the FTT’s jurisdiction, the taxpayer’s appeals could not be upheld.
The Executors of David Harrison (Deceased) and (2) Simon Harrison v HMRC  UKUT 273 (TCC)
2. PAYE and employment
2.1 UT delays IR35 decision to wait for relevant CA decision
The UT found that the FTT had erred in law in its findings on the notice period and work-providing obligations in a hypothetical contract. This may lead to the taxpayer winning its appeal against the FTT finding that the IR 35 rules applied to that engagement, but the final decision in the case has been postponed. At the time the case was heard, a relevant CA decision was expected on mutuality of obligation for IR35, so this case will be reheard after that.
The taxpayer, a personal service company (PSC), engaged with hospitals to provide the services of the company’s owner as a locum doctor. Two of these engagements were assessed by HMRC as falling within the IR35 legislation. On constructing the hypothetical contracts, the FTT found three differences between them which it assessed as meaning that one was a contract of employment, subject to IR35, while the other was not. The first allowed one week’s notice of termination, and imposed an obligation on the hospital to provide work, and on the doctor personally to perform it. The second allowed the doctor the right to substitute another person to complete the work, allowed only one day’s notice on termination, and placed no obligation on the hospital to provide work.
At the UT, the PSC appealed against two of the FTT’s findings of fact on the first contract. It argued that the FTT had no evidential basis on which it could find that there was a week’s notice period, nor that the hospital would use reasonable endeavours to provide the doctor with the amount of work stated. The UT allowed this, finding on consideration of the evidence that the FTT had erred in law in making those two findings.
Despite that win for the taxpayer, the overall appeal has been postponed to a later hearing. The parties accepted that a case, HMRC v Professional Game Match Officials Ltd that was due then to be heard by the CA, and since has been, would be relevant to the mutuality of obligation test. Since this judgment was written, the CA has remitted that case back to the FTT for reconsideration, though it did make find errors in law in the previous mutuality of obligation findings.
HMRC v Professional Game Match Officials Ltd  EWCA Civ 1370
2.2 FTT partially refuses strike-out application
The FTT has considered the nature of an appealable decision by HMRC, and allowed only part of a taxpayer’s appeal to proceed, finding that a relevant decision was made on NICs, but not on PAYE, in relation to the same claimed payroll error.
A company contended that it had incorrectly treated overnight allowances for drivers as taxable in its payroll software. The drivers received the correct net pay, but PAYE and NICs were overpaid over a period of seven years, and the company believed that this should be refunded to them. HMRC took the view that these were earnings, so correctly treated, and that in any case PAYE and employee NIC refunds would not go to the employer. In relation to the appeal, HMRC argued that it had not made an appealable decision, and no formal claim had been made, so the appeal should be struck out.
The FTT agreed to strike out the appeal in relation to IT, as a claim had not been properly made. For NICs the appeal was allowed to proceed, as a letter from one of the HMRC officers was held to be an appealable decision.
Fieldmuir Ltd T/A Centurion Freight Services v HMRC  UKFTT 389 (TC)
3. Business Tax
3.1 New guidance on joint and several liability notices for COVID-19 support payments
HMRC has released guidance on how it will deal with individuals who are issued a joint and several liability notice relating to a potentially incorrect claim for COVID-19 support payments by a company. The guidance sets out the conditions that must be met for a notice to be issued, and the safeguards.
The legislation covering the taxation of COVID-19 support payments includes some provisions for the recovery of payments to which the claimants were not entitled. In particular, if a company is found to have overclaimed, then a director, shadow director, or some other individuals associated with the company may be held jointly and severally liable for the relevant income tax liabilities.
The new guidance summarises the four conditions for these notices being issued. These include that the individual had responsibility for the management of the company and knew that the claim was incorrect, the company is subject to an insolvency procedure, or that there is a serious possibility that it will be, and that some or all of the amount owed as a result of the overclaim will not be paid. It also provides an example of a situation where a notice could be issued, sets out what must be included in the notice, and explains the safeguards. These include rights of review and appeal.
3.2 FTT finds company not eligible for the Enterprise Investment Scheme
The FTT found that despite all activities being outsourced to third parties, the company was still trading. It was not, however, doing so on a commercial basis with a view to profit, due to the state of the business at the time, so this was not a qualifying trade for Enterprise Investment Scheme (EIS).
A company appealed to the FTT over HMRC’s refusal to allow it to issue EIS certificates to its investors. The appeal was over whether or not the company was carrying on a qualifying trade and met the risk to capital condition for EIS.
The company’s purpose was to create a children’s television series, develop and produce it, and sell merchandise relating to it, which would be the main source of profit. HMRC held that the company had no qualifying trade as all activities were outsourced to other companies. It argued that the company had no control over business decisions and took minimal actions, it simply received royalties and licence fees indicating investment rather than trading activity. Even if it were trading, receiving royalties would be an excluded activity outside of the safe harbour.
The FTT found that during the time period at issue the company was not carrying on a qualifying trade. It was trading, as, although activities were outsourced, there was no effective difference between paying to outsource this and paying employees for the same services. It was, however, not doing so on a commercial basis with a view to profit. The FTT reached this conclusion because at the relevant time the turnover was falling, and for various reasons the company was realistically not going to make a success of the trade, so there was no view to profit.
This finding was enough to dismiss the appeal but the FTT went on to consider the excluded activity and risk to capital issues. It accepted that the company was not carrying on an excluded activity as the value of the intellectual property was created and held by the company. It found, however, that it would not have met the risk to capital condition, as in a similar way to the view on the profit test, at the time in question the company did not have a realistic objective of growing and developing its trade in the long term.
CHF PIP! PLC v HMRC  UKFTT 383 (TC)
4.1 The FTT issues ruling in respect of ‘storage pods’
The taxpayer won its appeal regarding the VAT treatment of leases of ‘storage pods’
The taxpayer had purchased and fitted out a building with ‘store pods’, with the intention of granting 999-year leases in each of the store pods to private investors. The private investors would then lease back the store pods to the taxpayer, who would in turn rent the store pods to the general public. HMRC argued that the supply by the taxpayer to the private investors was standard rated, as a supply of storage facilities, whereas the taxpayer argued that the supply was exempt, as a licence to occupy.
The FTT ruled that the storage pods formed part of the property and therefore the grant of long leases to private investors were exempt from VAT and did not represent a taxable supply of storage facilities, as contended by HMRC.
Harley Scott Commercial Ltd (Formerly Store First Midlands Limited) v HMRC  UKFTT 368 (TC)
5.1 Tax publications
The following Tax publications have been published.
The following client webinars are coming up over the next month.
6. And finally
6.1 No reasonable excuse
What do you think would happen if you ignored HMRC’s letters, and refused to pay them money that you owed them?
Well, we don’t think we would be very surprised if you ended up with quite a lot in the way of penalties and interest, increasing with time. An excuse of being ‘too busy’ would not really stand up, barring unusual and dramatic circumstances. After all, you could appoint a tax adviser to sort it out for you.
Why, then, are matters reaching such a pass the other way round?
No one could criticise some initial disruption, as HMRC staff adapted to home working, and were redeployed to urgent work on the COVID-19 support schemes, but as of now some response times are getting beyond a joke. In particular, the new system of checks on electronic repayments, a laudable idea to reduce scams, means in practice that taxpayers must fill out a long form, then wait for their refund for, in some cases, most of a year with still no sign of it. Recently, HMRC said that response times would be back to 30 days on these repayment forms by the end of November. We’re holding our breath.
We may start asking HMRC to send us reasonable excuse forms.