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 New process for SDLT refunds
HMRC will now make SDLT repayments without first confirming the eligibility of refund claims. The refunds will not be agreed by HMRC until the 9 month period for compliance checks has ended.
To reduce the time taken for the refund process, SDLT refund claims will now be paid out without prior eligibility checks. The updated guidance states that the repayment does not constitute agreement by HMRC that the refund is actually due. HMRC has nine months to carry out compliance checks for amended returns and refund claims. If HMRC finds that a repayment was not due, the taxpayer will be required to pay it back with interest.
1.2 New checklist for statutory clearances
HMRC has produced a new checklist that sets out what should be included in applications for statutory clearance. The checklist also provides guidance on how to correspond with HMRC during the application process.
The list, which was shared with the CIOT, covers all types of statutory clearances for businesses and individuals. Some details are required for all applications; others are specific to applications for particular types of clearance. The necessary information includes evidence, explanations and diagrams. The list also includes guidance on communicating with HMRC by email, and the exact wording needed to enable HMRC to do so.
2. Private client
2.1 Change to HMRC manual on loan collateral
HMRC has made an unannounced technical change to its residence, domicile and remittance basis manual that could have unexpected tax consequences. HMRC has changed its stated view on the tax position where foreign income and gains are used as collateral for loans where the full value of the loan is remitted to the UK.
HMRC’s manual previously indicated that where a remittance basis user borrowed money, using foreign income and gains as collateral, and remitted this all the loan to the UK, the remittance would be capped at the level of the loan. The examples in the manual now indicate that if the collateral is of higher value than the loan, then the taxable remittance is not capped, if the full value of the loan is remitted, and can be the value of the collateral. This contradicts a different section of the manual, which still suggests that the remittance is capped at the value of the loan.
We understand that the professional bodies are urgently seeking clarification from HMRC on this issue.
2.2 UT refuses to consider preliminary issues before film partnership appeal
The UT has agreed with the FTT, finding that the issue of whether or not a disposal of an income stream could be caught under anti-avoidance legislation, if an LLP was not trading, was integral to the appeal on whether or not the LLP was trading. It could therefore not be heard as a preliminary issue.
The taxpayers had been involved in a film partnership scheme, and enquiries were opened for the years in which sideways loss relief was claimed. The scheme exit arrangements were that the taxpayers assigned their rights to income from the LLPs to an offshore company and repaid the capital contribution borrowings with the proceeds. In the next tax year, their remaining interest in the LLPs was transferred to a company in a third jurisdiction for a nominal sum. The trade and LLPs were then migrated to this jurisdiction and two non-UK resident companies became members. Tax returns were filed on the basis that the taxable amount under anti-avoidance legislation concerning the disposal of income streams was the nominal sum paid on the second sale, not the amount paid for the income rights.
The taxpayers asked the FTT to make a ruling on whether or not these anti-avoidance provisions could apply to a non-trading partnership, and whether or not it made a difference if the partnership had never traded, or if it had been trading but ceased to do so before the disposal. HMRC had previously accepted that the LLP was trading.
The FTT declined to make a preliminary ruling, finding that this was an integral part of the case, with intertwined arguments. The UT agreed, and found that it was not appropriate in these circumstances for it to interfere with the FTT’s discretion.
Hoyle & Ors v HMRC  UKUT 104 (TCC)
3. Business tax
3.1 UT rejects FTT’s approach to business premises renovation allowances
The UT has remade an FTT decision on how to determine eligibility for business premises renovation allowances (BPRA). The primary question is what the taxpayer ‘gets for its money’, and whether or not that is on or in connection with the conversion, renovation or repair of the building.
The taxpayer had paid a developer to convert a flight training centre into a hotel near Luton airport, and claimed BPRA on the full amount. BPRA is a specific type of capital allowance and was abolished in April 2017. HMRC rejected approximately £5 million of the £12.4m claim. The central issue was whether or not the expenditure was "on or in connection with the conversion, renovation or repair" of the building, as was required to qualify for BPRA.
The FTT found that the correct approach was to split the total development cost into discrete elements based on what the developer did with the money received from the taxpayer. It then determined the availability of BPRA for each element of the cost in accordance with whether or not it was incurred on or in connection with the conversion of the site.
The UT rejected this approach. It found that the central question is ‘what did the taxpayer “get for its money”?’. In this case, the taxpayer acquired a series of discrete rights and obligations from the developer. The UT split the total development cost between those rights and obligations, and then determined whether or not each element was incurred on or in connection with the conversion. On this basis, it remade several of the FTT’s decisions regarding different elements of the total development cost. The judgment contains a detailed analysis of how various fees and costs were connected to the conversion.
London Luton Hotel BPRA Property Fund LLP v HMRC  UKUT 0147 (TCC)
4.1 Outsourced fund management functions can be exempt from VAT
The CJEU has ruled that managing the tax-related responsibilities of special investment funds and the licensing for specialised software may fall within the existing VAT exemption for the management of special investment funds.
In the first of two joined cases, the taxpayer produced tax statements showing income earned by individual investors for funds that were managed by a separate investment management company. On the basis that the tax services were carried out specifically for unitholders of the special investment funds, the CJEU decided that the services formed a distinct whole that fulfils the specific, essential functions of the management of the special investment fund. As such, the services qualified for the VAT exemption.
In the second case, the taxpayer was an investment management company that acquired a licence for specialist software to manage the risk and performance of a special investment fund. On the basis that the licence was specifically to perform computations for the management of risk and performance of the special investment fund, the CJEU ruled that the services qualified for the VAT exemption.
In both cases, the CJEU considered whether or not the services formed a distinct whole that fulfilled the specific, essential functions of the management of the special investment funds. The CJEU also stated that special investment fund management does not become exempt if it is outsourced in its entirety. The court stated that, if a service can be used for the management of other types of investment funds as well as the management of special investment funds, these services will not be covered by the VAT exemption.
Joined cases C-58/20 (K) and C-59/20 (DBKAG)
4.2 CA upholds ruling on assessments for overclaimed VAT and public bodies
The CA has agreed with the FTT and the UT that HMRC has the power to raise assessments against public sector bodies for overclaimed VAT relating to the public sector refund scheme.
The taxpayer was an NHS trust that recovered VAT incurred on purchasing information technology equipment. HMRC later decided that total amount was not recoverable and issued an assessment for the overclaimed amount. This case considered whether or not HMRC had the right to raise such an assessment. The validity of HMRC’s decision to recover the part of the VAT paid is being argued separately.
The taxpayer argued that HMRC did not have the right to raise an assessment under particular provisions for two reasons. First, the VAT incurred was not input VAT; it was incurred under a special VAT refund scheme for public sector bodies. Second, the taxpayer was not a ‘taxable person’ for the purposes of the assessment provisions in question.
The CA upheld the decisions of the FTT and the UT. The taxpayer was found to have incurred VAT, and to be a taxable person. Additionally, the CA held that public sector bodies are not scoped out of the UK VAT system, even though they are outside the European VAT framework.
Milton Keynes Hospitals NHS Foundation Trusts v HMRC  EWCA Civ 942
5. Tax publications and webinars
5.1 Tax podcasts
The following Tax podcasts are available now.
The following client webinars are coming up over the next week.
6. And finally
6.1 Musical interlude
A musical recommendation this week, as the ICAEW publishes its first Spotify playlist. Though not strictly tax, their playlist in celebration of World Numbers Day, featuring such hits as 9 to 5 and Taxman, makes for refreshing listening. Certainly better than the HMRC hold music again.