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 Finance Bill 2021-22 to be published on 4 November
The Government has announced that Finance Bill 2021-22 will be published on Thursday 4 November, the week after the Budget. Draft legislation was published earlier in the year.
Draft legislation for the Finance Bill was published in July and September, and the final version will be published on 4 November, incorporating any changes announced in the Budget.
The Budget resolutions will be available after the Chancellor’s statement on 27 October.
2. Private client
2.1 Penalty of £350,000 issued for failure to supply information
The UT has imposed a penalty of £350,000 on a taxpayer who did not comply with an information notice. It was calculated by reference to the tax believed to be underpaid. This type of penalty is reserved for serious cases of non-compliance, which here amounted to a failure to provide HMRC with any information about an offshore trust.
HMRC believed that the taxpayer had settled an offshore trust of which he was the sole beneficiary, and as such was subject to anti-avoidance legislation including the transfer of assets abroad rules and the settlement rules. The taxpayer did not provide any of the information requested by HMRC about the trust, even after an information notice was issued. Discovery assessments were issued, and HMRC applied to the UT to impose a tax-related penalty for non-compliance with the information notice. This is reserved for cases of serious non-compliance, and the taxpayer argued that the criteria to issue the penalty were not met.
The UT disagreed and imposed the penalty, though at a lower level than requested by HMRC. The taxpayer had met the condition of failure to comply with the notice, even after the initial penalties were imposed, though the information was in his possession. He had been uncooperative, and it was his personal obligation to comply with the notice, so he could not leave it to an accountant. HMRC had reason to believe that tax had been underpaid, but could not establish the amount without the information requested. The UT was satisfied that it was appropriate for a penalty to be imposed, but gave a 50% reduction from the penalty requested by HMRC for various reasons, including that no dishonesty was alleged.
HMRC v Mattu  UKUT 245 (TCC)
3. Trusts, estates and IHT
3.1 Trust Registration Service update deadline to be treated as extended
The Government recently announced that it will extend the deadline for trustees to update the Trust Registration Service (TRS) from within 30 days of specific changes to within 90 days. HMRC has now confirmed that, although this change has not yet been legislated, it will not enforce the 30 day reporting requirement.
Trustees are required to update their TRS records if specific details about the trust change. The current rules require updates to be made within 30 days of the trustees becoming aware of the change. The Government has previously announced that this deadline will be extended to 90 days. HMRC has now confirmed to the CIOT that it will not enforce 30 day reporting requirements while waiting for the Government to amend the legislation, particularly as the overall deadline for registration of relevant trusts is not until September 2022.
4. PAYE and employment
4.1 Some accommodation costs allowed as deduction from employment income
The FTT has allowed a claim for a proportion of accommodation expenses as a deduction from employment income. The taxpayer was only allowed to deduct the expenses of accommodation for specific nights, such as when he was on call.
The taxpayer, an experienced dental surgeon from Southampton, chose to take a four year course to train as a maxillofacial surgeon in London. He rented modest accommodation locally and claimed the cost against his employment income while on the course. HMRC denied the claims, arguing that he was not required by his employment contract to live near the hospital, and he did not work from home. HMRC argued, therefore, that he did not incur the expenses in the performance of his duties, and derived personal benefit from the accommodation. To claim expenses against employment income, they must have been incurred wholly, exclusively, and necessarily for the purposes of the employment.
The taxpayer explained that London was the only available location to take the course, and his family could not move. He had found that the commute from Southampton left him too exhausted to discharge his obligations as a doctor safely. He was also required to spend two nights a week and one weekend in six on-call, when he had to be able to reach the hospital within 30 minutes. He was telephoned by the hospital on most other nights for advice. He had returned to the family home on his free weekends, using the accommodation only to study and sleep.
The FTT partially allowed the claim. It noted that the taxpayer’s obligations as a doctor to his patients were also obligations of his employment as a doctor. He had to live close to the hospital when on call, and the FTT agreed that it was unreasonable to expect him to move his family, or to use hospital accommodation with undergraduates when he was a mature student. The proportion of the accommodation costs related to the nights that he was on call was allowed, along with time taking telephone calls from the hospital, and visits to the hospital on nights that he was not formally on call. As he did not need to be close to the hospital for the rest of the time, that proportion was not allowed, as it was for his private benefit. Waiting at his accommodation for a call was not part of the performance of his duties.
Kunjar v HMRC  UKFTT 362 (TC)
5. Business tax
5.1 Insurance premium rebates found not to be taxable receipts
The UT has found that insurance premium rebates were not taxable receipts, as the mutual fund run by the company is for the benefit of the members who made that contribution.
The taxpayer company ran a membership scheme for medical staff where, in exchange for a subscription, benefits were provided, which included assistance with professional negligence claims. Using part of the members’ subscriptions, a mutual fund was created and used to provided indemnity cover for members facing professional negligence claims. Latterly, the taxpayer arranged for a third party insurance company to provide the professional negligence insurance cover to members, using its buying power to obtain favourable terms. Under the terms of this arrangement, if claims in earlier years were lower than expected then reduced premiums in later years would be available in the form of a partial refund, which was added to the mutual fund.
The FTT had found that this partial refund was taxable, but the UT overturned this, finding that the amounts were an adjustment to previous member contributions and were not a return on investment, so were not chargeable to tax. The relationship between the taxpayer and the insurance company did not result in a separate activity, but was part of the overall provision; there was a mutual trade. The fund maintained by the taxpayer belonged to the members of the taxpayer, and was to be used to protect them. It did not make any difference if the members received the return in different proportions.
The partial refund received by the taxpayer should be treated in the same way as if it had been repaid to the body members themselves. The Case highlights the importance of understanding the relationship between a mutual fund and its members.
The Medical Defence Union Ltd v HMRC  UKUT 249 (TCC)
6.1 FTT issues ruling in respect of ‘building materials’
The taxpayer substantially lost its appeal regarding certain goods supplied with and installed in a new care home.
The taxpayer was part of a corporate group that developed and sold new care homes. The taxpayer company acquired a site and developed the care home. The completed care home was then leased to another group member, which operated it.
The FTT considered two issues. First, to what extent the taxpayer is prevented from claiming input tax on those items of furniture, fittings and equipment that are incorporated into the building but not considered to be ‘building materials’ for the purpose of zero rating. The FTT set out a comprehensive analysis and ruled that most of the items considered were subject to the ‘builder’s block’, on which the taxpayer could not reclaim VAT.
Second, the FTT considered whether the supply of loose furniture, fittings and equipment by the taxpayer to the care home operating company was a separate supply and therefore subject to VAT, or whether it was a single supply, being part of the zero rated lease. The FTT decided that there was a separate supply, which was subject to VAT.
Silver Sea Properties (Leamington Spa) SARL v HMRC  UKFTT 350 (TC) TC08284
7. Tax publications and webinars
The following client webinars are coming up over the next week.
- 2 November 2021: Professional Practices Autumn Webinar Series
- 10 November 2021: S&W Sessions: Autumn Budget 2021
At the time of writing, before the Budget has been announced, the usual flurry of articles are out, from those vehemently against tax rises, and those who know exactly where tax should be increased. A few even express a willingness to pay more tax.
Well, if you just can’t wait there is no need to – the Treasury accepts donations. You can choose to help pay down the national debt or simply add to the general funds. Rare though this choice is, it will be happily accepted.
Unfortunately, no tax relief is available on the donations – fixing that is certainly a change we could get behind.