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 Spring Bank Holiday
Tax Update will be taking a break next week for the Spring Bank Holiday. The next issue will be on 9 June.
1.2 HC dismisses Danish Tax Authority’s claim
The Danish Tax Authority (SKAT) has been denied the assistance of the HC in enforcing the return of funds which it alleges UK taxpayers obtained fraudulently, as refunds of withholding tax. The HC found that the claim was inadmissible as an English court could not assert the powers of a foreign state in England.
The SKAT withholds 27% of dividends. Non-residents are often entitled to claim this back under a double tax agreement, and a standard form is used. The SKAT determined that a number of claims made by UK residents could have been invalid, and sought the return of the funds. The primary source of the claims was an LLP that it believed had been deliberately making fraudulent claims in bulk. It applied to the HC to ask it to enforce the return of the funds, some £1.5bn, to Denmark.
The HC dismissed the claim, as under common law it could not enforce the law of a foreign state. The SKAT had argued that this was not a sovereign claim, but simply an attempt to recover losses for damage to its property. The HC however determined that the basis of the claim was the Danish tax system, and enforcement of its dividend tax regime was not possible.
Skatteforvaltningen (The Danish Customs And Tax Administration) v Solo Capital Partners LLP & Ors  EWHC 974 (Comm)
1.3 HMRC agent update 84
HMRC has published Agent Update 84, which provides an overview of the recent issues of which tax agents should be aware, focusing on the new tax year.
The latest Agent Update summarises various recent issues and changes, including guidance on:
- COVID-19 support and what is still available;
- claiming tax relief for home working;
- self-assessment for the tax year ended 5 April 2021;
- updates to the Trust Registration Service;
- claiming extended loss carry back;
- the VAT reverse charge;
- working through and umbrella company;
- employer provided medical benefits;
- the Tax Administration Framework Review; and
- the latest consultations.
1.4 New consultation on tax avoidance
HMRC is seeking views on draft regulations to strengthen anti-tax avoidance measures. The proposed measures will extend HMRC’s powers where tax schemes have not been disclosed under existing anti-avoidance regulations.
The changes to the Disclosure of Tax Avoidance Schemes (DOTAS) and Disclosure of Avoidance Schemes for VAT and Other Indirect Taxes (DASVOIT) regulations were announced in July 2020. They enable HMRC to allocate reference numbers to arrangements that have not been disclosed but which HMRC reasonably suspects to be notifiable. The draft measures also expand the existing disclosure requirements to all persons HMRC reasonably suspects to be supplying the arrangements and their clients.
The changes to the Promoters of Tax Avoidance Schemes (POTAS) regime widen the definition of ‘promoter’. They ensure that a person cannot be excepted from being a promoter if he is a member of a promotion structure.
The consultation closes on 13 June 2021. If enacted, the draft regulations will take effect on 9 September 2021.
1.5 HMRC digital services update
HMRC has issued an update on its digital services. This covers:
- progress on the making tax digital project;
- changes to the trust registration service; and
- the VAT deferral new payment scheme
1.6 OTS reports on CGT simplification
The Office of Tax Simplification (OTS) has published the second part of its review of CGT, with 14 recommendations on practical, technical, and administrative issues. It is yet to be decided which, if any, will be implemented by the Government
The first report, covered in our article linked below, looked at the design of the CGT system as a whole, and looked at how policy intent is met, or behaviour distorted. This second report is narrower in scope, looking at key practical, technical, and administrative issues.
On Private Residence Relief (PRR), a review of the system of nominations is recommended, to make it easier to nominate the relieved property, and to make the process it better known. In addition, the OTS considers that the rules on garden developments should be adjusted to allow land to be split whilst retaining PRR. The OTS recommends extending the right of separating spouses to transfer assets between them tax-free, as currently this is only allowed up to the end of the tax year of separation, which is too short a window for many.
Practical recommendations include system integration, so that taxpayers are not dealing with separate accounts for CGT property returns and CGT real-time return as well as the personal tax account for self-assessment, but one single customer account. The OTS also recommends a longer deadline for property CGT returns, as 30 days is unworkable in many cases.
The other recommendations include various reviews, and asking HMRC to improve its guidance in specific areas.
2. Trusts, estates and IHT
2.1 Trust Registration Service manual published
For the first time, HMRC has collated its guidance on the Trust Registration Service (TRS) and published it in a dedicated manual.
The manual does not cover new ground, but will be helpful to all those involved in registering trusts, particularly in advance of the TRS extension to non-taxable trusts. The TRS has been in operation for some time, so the release of this guidance is a welcome development.
2.2 Trust Registration Service update
The Trust Registration Service (TRS) is now expected to open to non-taxable trusts in summer 2021, and a few changes have been made in preparation for the update, which will also affect registrations of taxable trusts.
It has previously been announced that some non-taxpaying trusts will need to register on the TRS. The online service does not yet have the functionality for them to be registered, but as part of the preparatory work the registration process for taxable trusts has been changed to request additional information. This is whether or not the trust is an express trust, if non-UK trusts have UK business relationships, if a trust has purchased UK land or property, and if a trust has a controlling interest in a non-EEA company.
The method of checking the details of individuals connected with trusts is also changing, and an option to add additional information about them, such as nationality, country of residence, and whether or not they have mental capacity, has been added.
3. Business tax
3.1 Substantive enactment of the Finance Bill
The Finance Bill was substantively enacted on 24 May 2021 for UK GAAP and IFRS purposes.
The third reading of the Finance Bill in the House of Commons was heard on 24 May 2021. The Bill is therefore substantively enacted for UK GAAP and IFRS purposes. It will not, however, be substantively enacted for US GAAP purposes until Royal Assent is received later in 2021.
The Bill includes three provisions that will have a particularly significant impact on tax accounting. These are the increase in the main rate of CT to 25% in April 2023, the capital allowances super deduction and the temporary three-year loss carry back relief.
3.2 Background plant and machinery now eligible for the super deduction
An amendment has been made to the super deduction provisions in the Finance Bill. Background plant and machinery in leased property will now be eligible for the relief.
The amendment relaxes the original exclusion of leased plant and machinery to allow background plant and machinery. Background plant and machinery is that which would ordinarily be expected to be installed in a particular type of building, to enable it to function as that facility. Background plant and machinery included in leased property will not be excluded from the super deduction or the 50% first year special rate (SR allowance).
4.1 HMRC’s policy on the VAT treatment of juice cleanses
Whether or not a drink is a beverage eligible for zero-rating depends on a multifactorial assessment. The way in which the drink is marketed is potentially relevant in every case.
Revenue and Customs Brief 6 (2021) sets out HMRC’s position on the VAT treatment of juice cleanses. This follows the UT’s decision in HMRC v The Core (Swindon) Limited  UKUT 301 (TCC). The Briefing states that, though HMRC lost that case, the fact-based approach taken by the UT agrees with HMRC’s approach. Although ‘food’ includes ‘drinks’ under the zero rating provisions, there are specific exceptions. These include ‘other beverages (including fruit juices)’.
The UT ruling clarified how to determine if a drink is a beverage: in more complex cases, a multifactorial assessment is needed. This is likely to include:
- how the drink is held out for sale;
- the circumstances of consumption;
- the taste and texture;
- the manufacturing process;
- the ingredients; and, in particular,
- how the drink is marketed for sale.
5. Tax publications and webinars
5.1 Tax publications
The following Tax publications have been published.
6. And finally
6.1 Time for a bevvy
If you drop your coppers in some lemon juice for a few minutes they can come out shiny. This though, is not necessarily juice cleansing (item 4.1, above). Fill your tum with fruit juice and this can be cleansing, counterintuitive though that may sound. Who cares? VAT, that’s who. If you look in Chambers a beverage is just any drink, which would be bad news for tax payers; but this is, fortunately, just not the tax case, because VAT is much more fun than that. It turns out that there are any number of factors that make a drink a beverage including how it is sold, why you drink it and, wait for it, how it tastes.
What about our lemon juice? What if it was sold to flavour pancakes but we used it clean our coinage and detox with the rest? It doesn’t bear thinking about. Only VAT, our very favourite tax can come up with this. It makes our heads spin. In fact, we need a drink. Now what’s the VAT on that?
|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.