Agenda Recent tax cases CT losses following acquisition CIS Gross - - PowerPoint PPT Presentation

• Recent tax cases
• CT losses following acquisition
• CIS Gross payment status appeal
• HMRC announcements
• Other tax developments

Agenda

Recent tax cases

• Leekes Ltd v HMRC (2015) FTT 93
• L Ltd owned 4 department stores
• Acquired C Ltd - 3 stores and b/fwd trading losses
• Hived up trade – s940 CTA 2010 (s343)
• C’s trade combined – 3 stores rebranded to L
• Should losses be streamed against future profits of C?
• FTT accepted that C’s trade subsumed into L’s trade and

loss offset was available against profits of enlarged trade

• Upper Tribunal has reversed – only against same trade
• Court of Appeal has now upheld UTT decision

Set off of losses following acquisition

Hive Down/ Up Of Trade

TRADE AND ASSETS(NG/NL) +LOSSES OLDCO LTD NEWCO

Hive Down/ Up Of Trade

• 75% common ownership at some time
• In 1 year before
• And 2 years after transfer of trade
• Trade not discontinued
• Therefore losses c/fwd, no balancing charge on CA.
• Loss transfer restricted if liabilities not taken over

• New corporation tax loss set-off rules from 2017
• For new losses incurred on or after 1 April 2017,

companies will be able to use carried forward losses against profits from other income streams or other group companies

• “Old” losses will still be streamed
• Limited to 50% of future profits where company

profits exceed £5m (1% of companies)

• 25% set off restriction in the case of bank losses

Changes to company loss relief 2017

• West v HMRC (2018) UKUTT
• Director’s (Mr W) loan account £129,250 cleared by

“bonus” net remuneration prior to liquidation

• Gross income and tax deducted included in Mr W return
• Company did not pay PAYE and NIC to HMRC
• Could PAYE and NIC be transferred to director?
• If he had been aware of the wilful default
• Held that he was aware = thus liable for PAYE and NIC

Recovery of PAYE and NIC from Director

• Moorthy v HMRC EWCA(2018)
• Compromise agreement for unfair dismissal and unlawful

age discrimination

• £200,000 payment – taxable?
• ITEPA 2003 s401 (1)(a) = payment received “in

consideration or in consequence of, or otherwise in connection with” the termination of employment

• Does s406 take the payment out of scope of s 401 as a

payment “on account of injury … to an employee”.

• Court of Appeal held that s406 £30,000 exemption

applied

Ex-Gratia Payment – Injury to Feelings

• Davies v HMRC UKUTT (2018)
• Goldman Sachs MD exercised unapproved share options
• Option gain charged as employment income
• Claimed capital loss? – base cost MV plus income tax

compared to MV

• Mansworth v Jelley (2003) considered
• Held - No allowable capital loss

Exercise of Share Options – Market Value Rule

• Kyte v HMRC UKHC (2018)
• 4 January 2016, HMRC officer sent an “offer” to the

taxpayer setting out tax and interest

• 12 January 2016 taxpayer sent his acceptance.
• HMRC subsequently considered that an error had been

made in the calculations

• Held that not an “offer” but merely an “invitation to

treat” as liabilities not finalised

Offer to Settle Tax on Film Partnership Scheme

• Tooth v HMRC UKUT (2018)
• Accountants entered the employment related loss on the

partnership pages of SA return and filed return electronically before the relevant deadline.

• At time of submitting the return, Mr T was aware that the

deduction was likely to be challenged by HMRC.

• He entered in Box 30 the relief he was seeking
• HMRC made “discovery” assessment after normal SA

inquiry window

Discovery Assessments

• (1) there had to be an inaccuracy in a document given to

HMRC;

• (2) that inaccuracy should have been deliberate; and
• (3) the deliberate inaccuracy had to have brought about

an insufficiency in an assessment to tax.

• Held – the conditions for operation of TMA 1970 s29 had

not been met in that there had been no inaccuracy. HMRC’s appeal was dismissed.

Discovery Assessments

• William (exors Campbell) v HMRC UKFTT (2018)
• Assets of business

£171,790

• Obligations under lease

(113,750)

• Net value of business

£58,040

• Lease obligations deductible against general estate or

business?

• Deductible against value of business for BPR

IHT – Deduction of Liabilities for BPR

• JP Witter (Waterwell Eng.) Ltd v HMRC UKSC (2018)
• 2009 – Late paid PAYE – Gross payment cancelled
• Company successfully appealed
• Gross payment status restored but HMRC warning:
• Payment of tax and filing of returns to be made on time.

Under new CIS guidance, rules to be applied strictly with no scope to allow for “minor and technical” failures

• Failed 2010 Annual Review - successfully appealed
• Also failed 2011 Annual Review!!!

CIS Gross Payment Appeal

• JP Witter (Waterwell Eng.) Ltd v HMRC UKSC (2018)
• Failed Annual CIS Reviews 2009, 2010 and 2011
• Gross payment status cancelled – Appealed again
• “Losing gross status would prevent the company from

tendering for contract work and thus cause the company to cease trading and thus cause great hardship which is disproportionate to the level of the oversights”

• FTT allowed appeal – HMRC failed to take into account

the adverse effect on the Company’s business when exercising their discretion

• Reversed at UTT and decision upheld at CofA and SC

CIS Gross Payment Appeal

Recent HMRC Announcements

• New VAT rules from 1 October 2019
• Affects builders, contractors and other trades associated

with the building industry

• To prevent missing trader VAT fraud
• Main contractor will account for the VAT on the services of

any sub-contractor

• The supplier (sub contractor) does not invoice for VAT
• Main contractor shows as output tax and input tax
• Only applies to construction businesses which then use

them to make a further supply of building services, and not to end users eg private individuals

Construction Sector – VAT reverse charge

• Applies to:
• Construction, alteration, repairs, demolition, installation of

heat, light, water and power systems, drainage, painting and decorating, erection of scaffolding, civil engineering works and associated site clearance, excavation, foundation works = definitions in CIS legislation

• Excluded works:
• professional services of architects or surveyors, or of

consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape

• drilling for, or extraction of, oil, natural gas or minerals,

and tunnelling or boring, or construction of underground works….ETC

Construction Sector – VAT reverse charge

• 2020 at earliest for quarterly updating by traders and

landlords (IT and NICs)

• But VAT quarterly updating from 2019
• 12 month pilot of new VAT reporting
• More time for testing and software development
• Not mandatory for businesses below VAT threshold

MTDfB delayed still further

EBT Loan Schemes – Settlement

COMPANY TRUST LOANS Sub Trusts Taxable

• Charge on any outstanding loans resulting from disguised

remuneration tax avoidance schemes

• Applies to any loans that were taken out under a

disguised remuneration scheme since 6 April1999.

• Responsibility of the employer/company to pay the 2019

Loan Charge under PAYE legislation.

• Employer then expected to pass cost on to the individual
• Charge can be passed to the individual beneficiary of the

scheme by HMRC.

• Taxpayers should contact HMRC to settle tax by 30 Sept

to obtain certainty of their liability and arrange payment

EBT Loan charge 2019

Advisory Fuel Rates – 1 June 2018

Engine Petrol Diesel LPG < 1400 cc < 1600cc 11p 10p (9p) 7p 1400–2000 1601 - 2000 14p 11p 9p (8p) > 2000 cc 22p 13p 14p (13p)

No BiK 100% FYA

Employees charging own electric cars

• From 6 April 2018 charging facilities for all-electric

and plug-in hybrid cars and vans exempt. Covers:

• the cost of electricity
• the cost to the employer of providing the charging facilities
• any connected services
• Charging must be available to either:
• all the employer’s employees generally
• all the employer’s employees generally at a particular

location

Employees charging own electric cars

• Must meet all of the qualifying conditions for

exemption:

• Electricity must be provided through a dedicated charging

point.

• = a charging point dedicated to charging all-electric or

plug-in hybrid vehicles and specifically designed for this purpose.

• The charging facilities must be provided at premises

under the control of the employer

• NB exemption does not apply where the charging

facilities are at the employee’s home

Employees charging own electric cars

• Short-term business visitors from the foreign branch of a

UK company

• Possible changes to ensure the UK is an attractive

location for business headquarters

• Two broad options:
• Extend the UK workday rule from 30 to 60 days
• Introduce a new tax exemption for short-term visitors

from overseas branches.

Short Term Visitors Consultation

• 1. Items taxed as income on trusts
• 2. Trust management expenses
• 3. Reliefs and allowances
• 4. Trusts with vulnerable beneficiaries
• 5. Tax pools

HMRC Guidance on Trust Income Tax

• Some items that may not appear to be income in the

hands of the trustees are taxed as income at the rates for accumulation, discretionary or interest in possession

• trusts. The items are known as ‘deemed income’ and

include:

• gains on life insurance policies
• accrued income scheme profits
• lease premiums (lump sum payments received instead of

rent)

Items taxed as trust income

• Expenses allowed
• Only trustee expenses that relate directly to trust income

are allowed as trust management expenses. Includes:

• preparing a tax return for income received (this does

not cover the cost of preparing capital gains pages - which must be excluded from the expenses claimed)

• deciding which beneficiaries to pay and how much
• paying income to beneficiaries

Trustees expenses

• Expenses not allowed, include:
• expenses incurred for the benefit of the whole trust -

such as most legal expenses

• the cost of investment advice or of changing trust

investments Under trust law, the above expenses relate to trust capital not trust income.

• Expenses for things like trading or running a business

do not count as trust management expenses. A trust’s business expenses are deducted from its trading profits just as they are with any other business.

Trustees expenses

Order for deducting expenses Trust management expenses are deducted in the following

• rder:
• 1. From dividend-type income, eg income from stocks and

shares

• 2. From from non-dividend-type income, eg rent, trade,

savings.

Trustees expenses

• Tax pools apply to discretionary trusts
• When trustees make a discretionary payment of income it’s

treated by the beneficiary as if Income Tax has already been paid at the trust rate (currently 45%)

• This means the beneficiary could claim some or all of the tax

back if they’re a non-taxpayer or pay tax at 20% or 40%.

• When trustees make a payment, they must have paid enough

Income Tax (in the current or previous years) to cover the 45% ‘tax credit’ (tax treated as deducted).

• The tax pool keeps track of Income Tax the trustees pay.
• If the tax credit on payments to beneficiaries cannot be covered

by the amount of tax recorded in the tax pool, the trustees must pay the difference.

• Use the tax pool calculator on HMRC website

Tax Pools

• Proposed 12-year time limit for offshore cases where

there has been a non-deliberate error.

• 20-year time limit, for deliberate non-compliance, to

remain for both onshore and offshore cases

• CIOT concerns over new 12 year time limit – normally 6

year limit for careless errors

Offshore Assessment Time limits