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 CA confirms informal HMRC investigation lawful
The CA has confirmed the HC’s finding that HMRC can conduct informal investigations without opening formal enquiries. Permission for a judicial review was refused to the taxpayer, who had been subject to a long-running informal investigation into him and his business interests.
The taxpayer and his five businesses had been subject to a long-running HMRC investigation, in the course of which he had responded to requests for information, but no formal enquiry had ever been opened. When he applied to the HC for judicial review, it was refused, and the findings of the court included that the informal investigation was lawful under HMRC’s powers, and that judicial review of this power of HMRC’s is only available in wholly exceptional circumstances. This did not apply to this case.
The taxpayer’s appeal to the CA on these points was dismissed. It agreed with the HC that HMRC’s statutory duty to collect taxes must extend to a duty to find out the correct amount of tax. It therefore has a general power to conduct investigations, not solely under its power to open enquiries. The judge also noted that it is good administration to use voluntary powers as a first step in obtaining information, rather than using compulsory intrusive powers at the outset.
JJ Management Consulting LLP & Ors v HMRC  EWCA Civ 784
2. Private client
2.1 Penalties cancelled for taxpayer with family difficulties
The FTT has cancelled late payment penalties for a taxpayer who paid one year’s tax bill late when confronted with difficult circumstances. It found that he has acted reasonably, had repeatedly tried to contact HMRC, and had come to arrangements to pay off the tax debt.
The taxpayer, who had never previously paid tax late, incurred late payment penalties for paying his 2014/15 tax bill over 12 months late. He appealed against the penalties on the grounds that his family difficulties constituted a reasonable excuse. Due to a family member’s sudden ill health, he had had to give up his job and contribute to the costs of care, leaving him in a difficult financial situation, and had also suffered from stress and anxiety. He had made efforts to pay his tax, having contacted HMRC on multiple occasions and come to an agreement with the debt management team.
The FTT agreed with HMRC that insufficiency of funds is not a reasonable excuse for late payment of tax, but found that in these particular circumstances the penalties should be cancelled as taken as a whole he had a reasonable excuse for non-payment. The taxpayer had acted reasonably when confronted with circumstances that were ‘unforeseeable and unexpected and outside of [his] control.’
Catchpole v HMRC  UKFTT 212 (TC)
3. Trusts, estates and IHT
3.1 IHT returns to be submitted by Dropbox
The June edition of the HMRC Trusts and Estates Newsletter has been released, with a new process to submit IHT returns online, and explanations of other process changes implemented due to the pandemic.
A selection of the news is as follows:
- agents will be permitted to submit forms IHT400 and IHT100 on Dropbox, if they first notify HMRC on email@example.com. A hard copy will not be required at any point;
- July self assessment payments can be deferred to January, but only if the taxpayer has been financially affected by the pandemic;
- agents can submit IHT returns without wet signatures if a specified procedure is followed; and
- a reminder that payment and repayment processes have been updated due to the pandemic.
4. PAYE and employment
4.1 June Employer Bulletin
The latest edition of the Employer Bulletin provides reminders and updates on tax issues for employers.
The 84th edition covers issues such as:
- a summary of the temporary tax exemption for employee purchases of home office equipment that are reimbursed by employers;
- a reminder of the forthcoming deadline for submitting P11Ds on 6 July;
- a reminder of how to operate PAYE for short-term business visitors; and
- an update on the online disguised remuneration loan charge form.
4.2 Updated guidance on employment expenses and COVID
HMRC has provided updated guidance on the employment tax effects of returning office equipment and paying expenses for employees travelling to temporary workplaces.
Where an employer has provided office equipment to enable an employee to work from home, there is generally no taxable benefit provided the ownership of the equipment is not transferred to the employee. HMRC’s guidance confirms there is no tax charge when the employee returns that equipment to the employer. It notes that where the employer reimburses an employee for equipment, the equipment is treated as being owned by the employee unless the employer specifies that the ownership has been transferred to it. No taxable benefit arises on the reimbursement of home office equipment.
Paying the travel and subsistence expenses of an employee who is travelling to a temporary workplace is usually a non-taxable benefit. A workplace is generally considered to be ‘temporary’ if the employee has or is expected to work there continuously for up to 24 months. The updated guidance explains that, in HMRC’s view, furloughed periods should be counted when determining how long an employee has worked at a temporary workplace. Similarly, periods of working from home will also be considered by HMRC to comprise part of the continuous period.
5. Business tax
5.1 Claiming an early repayment of CT and quarterly instalment payments
HMRC has updated its guidance on early repayments of CT, including CT paid by quarterly instalment payments (QIPs). It confirms that a repayment may be available where a company can demonstrate that anticipated losses in the current period should allow for a carry-back loss claim.
HMRC has recently released its guidance explaining its policy on repaying tax between the payment due date and date the liability is finally established. It confirms that, in exceptional circumstances, HMRC may make a repayment of CT before the tax liability in finally established. This includes where the anticipated tax loss of the current accounting period is so high that the company is expected to be able to make a claim to carry-back losses to the prior period. In such circumstances, HMRC may make a repayment of CT in respect of the previous accounting period before the current period tax return and claim to carry-back losses are submitted. Companies will be required to provide HMRC with evidence to support these claims, such as management accounts, forward-looking reports to the board of directors, and relevant public statements. HMRC will consider each claim on a case-by-case basis.
This also applies to payments of CT made by QIPs. It has been widely understood that HMRC would repay overpaid QIPs in the current accounting period where forecast profits had decreased. The updated guidance explains that HMRC may also repay excessive QIPs made in respect of the prior period where the company can demonstrate that anticipated losses in the current period will comfortably shelter any income of the current period to allow for a carry-back loss claim.
5.2 HMRC guidance on crisis-driven changes to trading activity
HMRC’s position on the tax effects of changes to trading activities in a crisis has been published in its Business Income Manual. It makes specific reference to the COVID pandemic and provides useful examples of how businesses might need to treat changes to activity during lockdown for tax purposes.
The guidance explains how to determine whether or not a business changed the nature of its trade if it began to carry out different activities during the pandemic. It confirms that carrying out a new activity that is broadly similar to its existing trade should not be treated as the commencement of a separate trade. A temporary cessation of trading where trading is expected to resume after lockdown restrictions are relaxed is generally not a cessation of trade for tax purposes. Receipts of donations intended to meet revenue expenditure will usually be treated by HMRC as taxable trade receipts for a company. It also explains HMRC’s view on the tax deductibility of expense items; in particular, donations by a business, gifts, discounted sales and refunds may be deductible in some circumstances.
6.1 End of VAT deferral period confirmed
HMRC has updated its guidance on the VAT payment deferral period to confirm that it will not be extended past 30 June 2020.
The VAT payment deferral period was introduced to support businesses that have been adversely affected by the COVID crisis. It allows businesses to defer VAT payments due between 20 March 2020 and 30 June 2020 until 31 March 2021. No interest or penalties apply to the deferral, but it is not available for import VAT payments or payments under the VAT Mini One-Stop Shop scheme. Businesses that chose to defer payment under the scheme will now need to set up direct debits, if they were cancelled during the deferral period, in enough time for HMRC to take payment.
7. Tax publications and webinars
7.1 COVID-19 hub
7.2 Tax publications
The following Tax publications have been published.
8. And finally
8.1 Deeming provisions
There has, predictably, been a lot of recent media attention devoted to ideas to raise revenue in response to Government borrowing. And, just as predictably, all the usual old chestnuts have been resurrected for the umpteenth time. Wealth taxes; taxation of large corporates. Yawn.
The US Supreme Court in 1893 took a far more imaginative approach to raising revenue: don’t change the law, change the facts. It ruled that a tomato, though botanically a fruit, was a vegetable for tax purposes because it was not served as dessert. The result? Tomatoes were therefore subject to a 10% import tax, unlike imported fruits.
|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.