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 Tax Update and the Summer Bank Holiday
Tax Update will be taking a break next week. The next issue will be on 7 September.
1.2 HMRC agent update 87
HMRC has published Agent Update 87, which provides an overview of the recent issues of which tax agents should be aware. It includes
The latest Agent Update summarises various recent issues and changes, including guidance on:
- the remaining COVID-19 support measures;
- social security and travel restrictions;
- the basis period reform consultation;
- unfunded pension arrangement tax avoidance schemes;
- support with the IR35 rules;
- next steps with the trust registration service;
- making tax digital; and
- HMRC agent services.
2. Business tax
2.1 Draft guidance on notification of uncertain tax treatment
HMRC has released its draft guidance on the forthcoming notification requirements for large businesses.
As announced in the 2021 Budget, new measures are being introduced that will require large businesses to notify HMRC when they adopt tax treatments that are uncertain. These will apply to returns due to be filed on or after 1 April 2022 where the net tax advantage is at least £5m. ‘Large business’ for these purposes means businesses with a UK turnover exceeding £200m or a UK balance sheet total exceeding £2bn. A tax treatment will be uncertain and needs reporting if a large business meets one or more of three notification tests. These are that a provision has been made in the accounts in respect of an uncertain tax outcome, the position taken differs from HMRC’s known interpretation of the law, or there is a substantial possibility that a tribunal or court would rule against the position taken by the taxpayer. Draft legislation has already been released, together with a policy paper and an explanatory note. HMRC has now published draft guidance setting out its interpretation of the draft legislation.
2.2 New guidance on repayment of loans to participators
HMRC’s Company Taxation Manual has been expanded to provide guidance on repayments of overdrawn directors’ loan accounts (DLAs).
The first new section notes that HMRC is encountering an increasing number of cases where overdrawn DLAs are said to be repaid but in fact are not. This is often because debts are moved around between associated companies, or because a debt to one company is satisfied by funds are borrowed from an associated company. In both situations, it is HMRC’s view that the tax charge on outstanding loans to participators should apply to the original lending company. The second new section explains that HMRC is also seeing transfers of assets from the director to the company used to satisfy overdrawn DLAs. In such situations, the guidance emphasises that it is the market value of the transferred asset that constitutes repayment. If the debt exceeds the market value of the asset, a tax charge on outstanding loans to participators will apply.
3.1 UT upholds ruling that claiming PPI compensation is a standard-rated supply
The UT has agreed with the FTT that recovering compensation on mis-sold insurance did not qualify for the VAT exemption for insurance transactions.
The taxpayer recovered compensation on mis-sold payment protection insurance (PPI) on behalf of customers, in exchange for a proportion of the compensation. In some instances, the recovery of compensation also involved the termination of insurance contracts. It had not accounted for VAT, on the basis that the exemption for insurance and reinsurance transactions applied. HMRC argued that the supplies were standard-rated. The FTT agreed. It found that the supplies did not amount to insurance contracts, nor was the taxpayer an insurance broker, agent or intermediary that made supplies related to insurance transactions. The exemption therefore did not apply.
The UT upheld both of these findings. It examined the contractual arrangements and agreed with the FTT that the economic purpose and commercial reality of the supplies were not those of an insurance transaction. The purpose of the supply was, rather, making claims for compensation for mis-sold PPI. No support in legal authorities was found for the proposition that the cancellation of an insurance policy, or the procurement of such a cancellation, was an ‘insurance transaction’. The UT also agreed with the FTT that the taxpayer was neither an insurance agent nor performing related services to an insurance transaction.
4. Tax publications and webinars
The following client webinars are coming up over the next week.
- 7 September 2021: The Contemporary FD Bitesized
- 8 September 2021: S&W Sessions: Employee Ownership Trust
5. And finally
5.1 A precise judge
Those of you who read our report of the Whyte case may have spent the last week dreaming of moving to the village of Bunny, or even Bunny Hall, given the pleasing Wind in the Willows air of its name. Unlike the residence of Mr Toad however, this is not the case, as helpfully set out by the FTT judge:
66. The name of the village has nothing to do with rabbits.