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 Interaction of corresponding deficiency relief and CGT
The CA has upheld the UT decision to dismiss the taxpayer’s appeal on his interpretation of the legislation dealing with corresponding deficiency relief (CDR). The taxpayer claimed his chargeable gains (amounting to £8.8m in 2006/07 and £14.7m in 2007/08) should be taxable at 20% following a claim for CDR.
The taxpayer participated in a scheme involving insurance policies that provided a substantial amount of CDR. The CDR available was higher that the taxpayer’s total income. He interpreted the legislation as meaning that his basic rate band could effectively be extended by the amount of CDR available. He therefore submitted his tax returns for the two years concerned on the basis that CGT was due on his gains at 20% rather than 40%.
The CA disagreed with the taxpayer. It found that while CDR reduces the total amount of income for the purposes of calculating the available basic rate band, it cannot be reduced below nil, as negative income is not a meaningful concept. The judge noted that if Parliament had wished to extend the taxpayer's basic rate band for the purposes of the charge to CGT by the full amount of the CDR, it would have said so clearly and explicitly.
The taxpayer’s appeal was dismissed.
Scott v HMRC  EWCA Civ 21
1.2 FTT upholds income assessment against under-reported partnership income
HMRC has won its case against a partner whose business had failed to declare significant amounts of income over several years. The taxpayer was found to be untruthful, and the business had refused invigilation by HMRC.
The taxpayer and his partner ran a restaurant as a partnership. HMRC had issued assessments that significantly increased the taxable profits of the partnership after discovering that the business income had been substantially under-reported for five years. The only credible evidence available to the FTT was 118 handwritten slips from 17 non-consecutive weeks. The taxpayer offered as evidence a report by a reputable tax adviser, but this was dismissed by the court as it was based entirely on what was reported by the taxpayer and his partners. The FTT upheld the assessments.
Ghulam Rubani T/A Shama Bingley v HMRC  UKFTT 0021 (TC)
2. Trusts, estates and IHT
2.1 HMRC opens technical consultation on changes to the Trust Register
HMRC has published a technical consultation and draft regulations on changes to the Trust Register, required under the Fifth Money Laundering Directive (5MLD). This directive widens the definition of trusts required to register, removing the link to a tax liability, and changes the registration requirements. It also extends access to third parties, in some instances.
HMRC suggests in the consultation that various types of trust should be out of scope of the trust register, assuming the trustees do need to register to notify a tax liability, with bare trusts still requiring further consideration. Out of scope trusts include:
- jointly held property;
- trusts to hold life policies and income protection policies;
- registered pension schemes held in trust; and
- charitable trusts.
Deadlines for registration are proposed as follows:
- 10 March 2022 for trusts in existence at 10 March 2020;
- within 30 days or by 10 March 2022 if set up after 10 March 2020, whichever is later;
- 30 days to update details when there are changes.
The intention is to introduce a new penalty regime, with no penalty for failure to register and £100 penalties for the second and subsequent failures to update, unless the failure is deliberate.
HMRC also notes that not all respondents to the initial consultation agreed with its interpretation of when a business relationship would require a non-EU trust to register on the Trust Register. HMRC notes that it will continue to explore this as part of the consultation.
The consultation closes on 21 February 2020.
3. PAYE and employment
3.1 First instalment of legislation implementing the loan charge review published
HMRC has published some, but not all, of the legislation required to implement the recommendations of Sir Amyas Morse’s review. It moves the retrospective effect of the legislation imposing a loan charge on outstanding employee loans from 6 April 1999 to 2010. It also makes provision for disclosed loan arrangements between 2010 and 2016. It further provides for spreading the charge over three years. It makes no provision for the promised repayment of voluntary restitution payments after 2016.
The draft legislation provides for the loan charge not to apply to loans before 9 December 2010. For later periods up to 5 April 2016, the charge can be reduced where there has been reasonable disclosure of the loan in the tax return. This is provided the liability is not otherwise enforceable.
The charge may by irrevocable election be spread over the years 2018-19, 2019-20 and 2020-21. The effect of this is not as generous as it might at first appear because there is only one future period (2020-2021) over which the payment may be spread.
There are also relieving provisions effectively giving a period of grace without interest until the end of September.
In addition, there is further detailed guidance published for various categories of employer and employee.
The clauses and guidance do not give the necessary details of the Government’s commitment to repay voluntary restitution payments made since the loan charge was introduced in March 2016. This is promised before the Finance Bill.
3.2 HMRC opens another consultation on the off-payroll working rules
HMRC is seeking technical comments on the draft secondary legislation to reform the taxation of off-payroll working in the private sector. The legislation is expected to take effect on 6 April 2020.
An initial consultation was held in 2019 regarding the reform of the off-payroll working rules in the private sector. Broadly, the reform will shift the responsibility for applying the off-payroll working rules from the worker’s company to the organisation to which the individual provides his services (the ‘deemed employer’). The draft secondary legislation that has now been published will enable HMRC to recover unpaid tax and NICs from another entity in the supply chain when there is no realistic possibility of it being recovered from the deemed employer.
The consultation closes on 19 February 2020.
In addition, HMRC has published a factsheet for contractors.
4. And finally
4.1 Slotting it
Fun time again as, with a couple of weeks to the January 31 tax return deadline, HMRC has been publishing taxpayers’ more absurd excuses and expense claims. This time it’s slightly different. In Match of the Day terms, we’ve moved from Own Goal of the Month to Own Goal of the Decade. Yes, it’s been ten hungry years of hamsters munching the brown envelopes. All of which, though, might be slightly predictable, even the mother-in-law’s witch’s curse. While my-hamster-ate-my-mother-in-law excuses are indeed entertaining, (and thank you HMRC) we feel it may be missing a trick.
How about next time doing it the other way round? Man bites dog. How about spectacular and bizarre excuses or claims that scored with HMRC? Taxpayers who against all the odds hit the back of the net with ridiculously improbable reasons in the manner of Ronnie Radford (spectacular) or Ernie Hunt (bizarre)? And for those who neither know nor love football, take a moment to Google or YouTube either name, and you will see just what we mean. HMRC could relax: they just couldn’t be repeated. Now, that would be truly memorable and diverting.
|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.