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 HMRC agent update 80
HMRC has published Agent Update 80, which provides an overview of the recent issues of which tax agents should be aware; principally, COVID-19 support measures.
The latest Agent Update summarises various recent issues and changes, including guidance on:
- the latest iteration of the COVID-19 self-employment income support scheme;
- the COVID-19 job retention scheme;
- the job retention bonus;
- self-assessment statements for those who deferred the July payment on account;
- the new time to pay for self-assessment online portal;
- tax relief for homeworking expenses;
- RDEC claims and furlough;
- the latest update to the CGT on UK property online service;
- top slicing relief on life assurance gains;
- the disguised remuneration loan charge; and
- social security payments and Brexit.
1.2 FTT finds discovery not stale
The FTT has upheld a discovery assessment issued over four years after submissions of two SDLT returns, 18 months after correspondence with HMRC about them had ceased. The judge found that the initial information supplied had not been enough for HMRC to make the discovery, as the taxpayers had not explained that two returns for different companies were linked, nor that a tax avoidance scheme had been used, nor that one company involved was unlimited. The discovery assessment made on review of the file after HMRC investigated these schemes was valid.
The taxpayer company (MD) purchased land from a third party, and later that same day made a distribution consisting of that land to the parent company (CEL), which wholly owned MD. The share capital of MD was reduced by this distribution. They claimed that no SDLT was due, as this was an intra-group transfer of non-cash assets, so consideration was effectively nil on each transfer. Eventually, it was agreed between the taxpayers and HMRC that SDLT was due, but the taxpayers argued that the assessment was invalid, as the discovery was ‘stale’.
After the initial SDLT returns were filed, HMRC had requested additional information as to why no SDLT was due, as there was a discrepancy on the form, and later issued corrections to charge SDLT. The taxpayer had included handwritten notes on the form, but these were not picked up by HMRC scanning systems. After two years of correspondence an HMRC official accepted the original returns, undoing the corrections. 18 months later, following an HMRC review of SDLT avoidance schemes, discovery assessments were issued.
The taxpayer argued that these assessments were invalid, as they had been issued too long after HMRC was aware of the issue. Full details had been given in the forms, or in the correspondence with HMRC. HMRC argued that the taxpayers had not alerted them to the fact that there was a connection between the two SDLT returns, though this had been noticed, nor that a scheme had been used. The earlier correspondence simply related to the issue in processing the returns, and the actual discovery had been made when the file was reviewed after a Counsel’s opinion on these schemes had been obtained, after the enquiry window had closed.
On review of the train of events and file notes, the FTT found for HMRC that the discovery assessment was valid. Although HMRC had some information earlier, the actual discovery had been made when all the facts came to light on review of the file.
Merit Developments NI & Anor v HMRC  UKFTT 414 (TC)
1.3 Consultation opens on non-resident SDLT surcharge
HMRC has opened a consultation on the draft statutory instrument regarding changes to the SDLT return form. These are designed to implement the 2% surcharge on purchases of UK property by non-residents to be included.
The surcharge, announced in the March 2020 Budget, is due to come into force on 1 April 2021. Responses to the technical consultation are requested by 23 November.
2. Private client
2.1 COVID-19: How to set up time to pay arrangements online
Following the announcement that self-assessment taxpayers would have expanded access to time to pay arrangements for tax debts, HMRC has updated its guidance with information on how to set up these plans online.
The extended time to pay arrangements are available to self-assessment taxpayers who owe less than £30,000. They must have no other payments plans or debts with HMRC, be up to date with their tax returns, and be applying less than 60 days after the payment deadline.
The plans are also subject to the normal time to pay eligibility rules, including around affordability. The tax debts can be spread over up to 12 months under these plans.
2.2 Member of Lloyds syndicate loses appeal over US tax credits
The FTT has dismissed an appeal from a taxpayer who challenged HMRC’s power to introduce simplified arrangements for giving foreign tax relief in complex scenarios. It found that although the arrangements meant that, for example, US and Canadian tax would be treated differently, HMRC had the statutory right to provide regulations for foreign tax relief, and this scheme was within acceptable limits.
The taxpayer had been a Lloyds underwriter, resident in the Isle of Man. His syndicate was tax-transparent in the UK, but opaque in the US, leading to problems in calculating foreign tax deductions. Under a simplified arrangement that HMRC agreed for all Lloyds underwriters, US tax credits can be relieved against UK tax from the ‘year of assessment next but one following the year of assessment to which the underwriting year for which the return is made corresponds’. The US tax year operates on a calendar basis. Towards the end of his time as an underwriter, he incurred substantial losses, which therefore could not be relieved. His agent requested concessionary treatment from HMRC on the grounds that the arrangement was unfair to him, as it artificially delayed tax relief on losses he had incurred earlier, and filed returns on that basis. HMRC issued closure notices applying the standard treatment.
The taxpayer appealed on the grounds that HMRC did not have power to introduce the simplified arrangement, as the legislation did not give power to introduce regulations that provided different relief in different circumstances. The FTT found that it did have jurisdiction to consider this, but dismissed the appeal, holding that although some schemes for providing foreign tax relief might be unacceptable, this arrangement did not cross that line, despite creating differences between the treatment of relief on tax charged by different foreign countries.
Challenges to the validity of the enquiry notices on multiple grounds were also not upheld.
Paul v HMRC  UKFTT 415 (TC)
2.3 FTT overturns child benefit charge penalties
The FTT has cancelled penalties relating to four years’ worth of the high income child benefit charge (HICBC). It accepted that the taxpayer had been unaware of the HICBC, as he became subject to it the year after it was introduced, and the media campaign was carried out. He had not been aware of his wife’s finances, and had dealt very promptly the matter when HMRC notified him of the liability.
The taxpayer’s wife claimed child benefit for four tax years, in which the taxpayer’s income was above the threshold to have a reduced entitlement. HMRC wrote to him on 30 September 2019 to explain the recent changes to child benefit for those on high incomes, and how they might apply to him. He responded on 4 October and provided income details for the relevant years rapidly. Assessments were issued for the overpaid child benefit, and penalties.
The taxpayer appealed the penalties, arguing that he and his wife were unaware of each other’s salaries and other income. He had been unaware of the HICBC until receiving the 2019 letter, and had dealt with the matter promptly and paid all tax due. HMRC asserted that he had been sent an awareness letter in 2013 about the HICBC. His efficiency in dealing with the 2019 letter was reflected in the penalties of £286.10, as he had been given the maximum reductions.
Taking into account the circumstances, the FTT allowed the appeal and cancelled all penalties, agreeing that the taxpayer had a reasonable excuse. He had not been subject to the HICBC at the time of the media campaign, and given the speed of his response to the 2019 letter it found that he had not received the 2013 letter.
Cockburn v HMRC  UKFTT 388 (TC)
2.4 HMRC announces three more nudge letter campaigns
HMRC is issuing letters to taxpayers regarding potential errors in 2018/29 tax returns. The three campaigns relate to sales of residential property, discrepancies in salary information, and persons controlling mid-sized businesses. They will be asked to review their tax affairs for 2018/19, and correct any errors. These campaigns are designed to resolve relatively minor issues without HMRC investing resources into a full compliance check.
The first group is taxpayers whose 2018/19 returns show different pay and tax figures than have been submitted to HMRC by their employer. They will be asked to check the figures, and amend the return if they identify an error. No action is needed if the taxpayer finds that their return is correct.
Secondly, HMRC will write to individuals on whose 2018/19 returns it has identified a potential error in declaring a residential property disposal, in that the disposal has been included as ‘other assets’ rather than as residential property, so CGT was charged at a lower rate. They will be asked to review their returns and correct any errors. No action is needed if the taxpayers find that their return is correct.
The third campaign consists of letters persons of significant control of mid-sized businesses, and are educational rather than triggered by discrepancies. Those not in self-assessment will be asked to consider whether they should be, and given examples of what might require them to register. Those in self-assessment will receive a list of events that may have tax consequences, such as using business assets for personal use. They will be asked to ensure that any of these that apply will be included in their 2019/20 returns, and to check their 2018/19 returns for any errors.
2.5 COVID-19: Increased support for the self-employed
In response to the lockdown, the Chancellor has announced an increase to the next grant under the self-employment income support scheme (SEISS) of just over a third, and arranged for it to be paid earlier. This is in line with the extension of furlough for employees.
The third grant of the SEISS was set at 40% of three months’ worth of average trading profits, covering November to January, but will now be set at 55%. The taxable grant will be capped at £5,160 rather than £3,750. This is broadly similar to increasing the November element to 80%, in line with the furlough extension, and keeping the December and January elements at 40%.
It was due to be paid from 14 December, but the claims window will now open on 30 November instead. This measure will apply to self-employed taxpayers across the UK, though introduced due to the English lockdown. The level of the fourth SEISS grant, covering February to April, has not yet been announced.
3. PAYE and employment
3.1 Diverted salary subject to IT without PAYE credit
In a lead case, the FTT found that for avoidance arrangements designed to take income out of the scope of IT and NICs no PAYE credit was due to reduce the bill. The FTT considered the PAYE regulations in detail, and excluded part of the earnings as subject to agency contracts, and part as the transfer of assets abroad (TOAA) rules applied and took precedence.
The taxpayers had participated in a DOTAS notifiable scheme, involving offshore arrangements designed to keep the majority of their income out of the scope of UK IT and NICs. Each set up an Isle of Man (IoM) trust, the trustee of which was an IoM company. The companies for each participant formed an IoM partnership. The taxpayers agreed to provide services to the partnership in exchange for a fee. The partnership contracted with a UK company, who contracted with a recruitment agent, to allow the taxpayers to work for end clients. The taxpayers received a fee for the contract, and a partnership profit share, totalling the amount paid by the end client less fees charged for the arrangements. They declared only the contract fee as liable to tax, not the profit share, relying on a provision of the double tax treaty.
HMRC amended the returns to charge IT and NIC on the profit share. Following a UT decision on another user of the arrangements, the taxpayers accepted that they were liable to tax, but argued that a PAYE credit should be due for tax that should have been withheld from their pay.
The grounds of appeal were that the income was earnings, so under the PAYE regulations tax should have been withheld by their employers. As this was the responsibility of the employer, the taxpayers were still entitled to claim a PAYE credit as though the tax had been deducted. HMRC was now out of time to open a claim against the employers for failure to withhold tax.
The FTT looked at whether the payments were earnings or taxable under the agency rules but in either event no PAYE credit was available under the TOAA rules. The taxpayers had transferred assets to the IoM trusts when entering into contract with the partnership, creating rights. The TOAA rules took precedence over PAYE.
Lancashire & Ors v HMRC  UKFTT 407 (TC)
3.2 Employment-related securities bulletin 37
The latest edition of this HMRC update includes guidance on what to do if COVID-19 has caused problems in meeting working time requirements.
Enterprise Management Incentive (EMI): As previously announced, those scheme participants who have been prevented from meeting scheme working time requirements due to the pandemic are permitted to maintain tax advantages and reliefs as though eligible. The legislative changes to support this have been included in the Finance Act. The modifications are effective from 19 March 2020 to April 2021, but the Treasury can extend them for 12 months, if necessary, at that point.
Save as you Earn (SAYE): Previously, HMRC had announced a payment holiday for contributions missed due to furlough or unpaid leave during the pandemic. Those working less than their usual hours under the job support scheme will be treated as part-furloughed for the purposes of SAYE, and the payment holiday will continue to apply to missed contributions.
Enquiries about employment-related securities can be emailed to HMRC on Shareschemes@hmrc.gov.uk. COVID-19 disruption may cause delays if you send enquiries by post.
3.3 Job Retention Scheme extended to December 2020
The Chancellor has extended the Coronavirus Job Retention Scheme (CJRS) as part of the next phase of the Government’s response to the pandemic. The Job Support Scheme will take effect after the extended CJRS has ended.
The support available under the extended CJRS will be the same as that offered in August 2020. The Government will pay 80% of the wages of eligible employees, subject to a cap of £2,500, for the hours a furloughed employee does not work. Employers will pay the NICs and pension contributions for staff under the CJRS. Flexible and full-time furloughing will both continue to be available.
4. Business tax
4.1 Updated guidance for non-resident companies disposing of UK property
HMRC has published details of the information to be included in a tax return when a non-resident company disposes of UK property.
A non-resident company that disposes of UK property will, unless an exemption applies, be required to submit a CT return together with iXBRL tagged computations. HMRC now requires such companies to include information on how any losses, exemptions and reliefs have been utilised. The calculation of the gain or loss must be explained, the address of the property disclosed, and the property must be classified according to its type. HMRC will accept these details in a separate covering letter submitted with the CT return.
5. Tax publications and webinars
5.1 Tax publications
The following Tax publications have been published.
The following client webinars are coming up over the next few months.
6. And finally
6.1 Brilliant news: tax simplification triumph
After relentless campaigning, not just by And finally, but across the tax profession and indeed within Parliament itself, there has been a staggering success in the simplifying of UK tax. In a series of unheralded secret moves the Government has moved to reform and simplify tax radically in the kind of shakeup we’ve been calling for for years. The latest Tolleys has shrunk as though it has been completely decimated!
It’s just a smaller edition.
|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.