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 FTT dismisses late payment penalty appeal using COVID as an excuse
A taxpayer company who failed to pay Land Transaction Tax (LTT) due in January 2020 has lost its appeal against penalties, with the FTT finding that COVID delays could not be a reasonable excuse for penalties charged as early as 4 February.
The taxpayer company purchased a hotel in Wales, and submitted the required LTT return on time. The tax payment due by 5 January was not made, and remained outstanding at the date of the hearing. A late payment penalty was applied on 4 February 2020, and the taxpayer appealed in April following reviews.
The grounds of appeal were that the taxpayer had intended to take out a loan for the ‘stamp duty’, as they had to purchase the property, but the bank had put the application on hold due to the pandemic. A director in India was unable to transfer funds due to lockdown, and the purchased hotel had been closed due to UK lockdown, so no money was coming in to make the tax payment. The Welsh Revenue Authority (WRA) confirmed at the hearing in August that it had now received a time to pay application, and it was being considered.
The FTT dismissed the appeal, noting that if the penalty appeal was on the grounds of special circumstances it must fail, as this ground excludes ability to pay. It equally dismissed the taxpayer’s arguments as a reasonable excuse for late payment, as the tax was due prior to the pandemic interfering with daily life. The taxpayer should have ensured that funds were in place before purchasing the property.
Prime Aesthetics Ltd v The Welsh Revenue Authority  UKFTT 474 (TC)
1.2 Details of HMRC as a preferential creditor
HMRC has published a policy paper setting out in more detail the new insolvency procedures that began on 1 December.
When a company becomes insolvent, there is a strict order of priority for paying off creditors from the likely insufficient funds. The new measure brings taxes collected by the business on behalf of HMRC up the priority list, to prevent them being used for other payments. These are PAYE and NICs deducted from employees’ wages, as well as VAT, student loan repayments and Construction Industry Scheme deductions. HMRC is now classed for these debts as a secondary preferential creditor, after preferential creditors, creditors with a fixed charge, and the fees of insolvency practitioners.
Plans to introduce this measure were announced in the 2018 Budget, and enacted in Finance Bill 2020. It only applies to businesses entering insolvency on or after 1 December 2020.
1.3 HMRC digital services updates
HMRC has issued an update on various digital services.
The update notes that:
- the Trust Registration Service (TRS) will be expanded to allow registration of non-taxable trusts;
- around 86% of businesses mandated to use making tax digital for VAT from April 2019 have signed up; and
- the TRS micro-service is fully functional.
1.4 LITRG publishes report on low income taxpayers
The Low Incomes Tax Reform Group (LITRG) has published a paper setting out recommendations on improving the tax system for low income taxpayers. These cover both administrative and policy changes.
The group considers that the tax system is unnecessarily complex and burdensome for those on low incomes, leading some to get into difficulties. It divides its report into seven themes that should guide those with responsibility for design of the tax system including being just, joined up, and simple.
The key recommendations of the report are:
- Government guidance for taxpayers to be clearer and easier to navigate;
- maintenance of easily accessible non-digital channels for ‘digitally excluded’ taxpayers to interact with HMRC;
- new, simpler ways of taxing ‘gig economy’ workers to be explored;
- a senior official to take responsibility for policy on agency workers and umbrella companies;
- action to ensure all low-income earners benefit from tax relief on pension contributions; and
- a clear mechanism for taxpayers to challenge inaccurate information held by HMRC.
2. Business tax
2.1 FTT rules that HMRC must follow SC ruling on contingent consideration
The FTT ruled against HMRC’s refusal to repay SDLT in respect of unpaid contingent consideration. It found that contingencies associated with features of an arrangement are not to be ignored when deciding whether or not an amount is contingent consideration. In addition, HMRC was estopped from arguing that the consideration was not contingent, because the SC had ruled that it was.
In 2018, the SC found that the SDLT anti-avoidance provisions applied to the acquisition of Chelsea Barracks and SDLT was payable. In that decision, the SC ruled that part of the consideration was contingent consideration. SDLT was held to be due on that amount, but subject to repayment if that contingent consideration was never paid. The taxpayer subsequently made a claim for the repayment of £11.64m of SDLT relating to that unpaid contingent consideration. HMRC refused the claim on the grounds that the unpaid consideration was not contingent consideration.
The FTT rejected HMRC’s interpretation of ‘contingent consideration’. It held that the fact that something is a feature of an arrangement does not mean that contingencies associated with that feature are to be ignored. The unpaid amount was therefore contingent consideration. Furthermore, the FTT held that on the basis of the SC’s decision, HMRC was estopped from arguing that the unpaid consideration was not contingent.
Project Blue Limited v HMRC  UKFTT 475 (TC)
3.1 HMRC launches UK VAT number checker
The UK’s online system for checking UK VAT numbers is now live.
The service allows users to check if a UK VAT registration number is valid, and the name and address of the business to which the number is registered. It is the UK equivalent of the EU VAT Information Exchange System (VIES), which provides a similar service for EU VAT numbers.
4. And finally
4.1 Not a major problem
We note with interest the following extract from a recent, perhaps slightly awkward, discussion between HMRC and the Public Accounts Committee:
[A committee member] highlighted that in submitting HMRC’s supplementary estimate to the Treasury in February of this year, HMRC incorrectly reduced the amount of cash they needed for the 2019-20 accounting period by £1.2 billion. Not identifying that error ultimately led to HMRC breaching their net cash spending control by £726 million. Harra accepted that this is a ‘serious matter’ and ‘embarrassing’. He explained that HMRC “incorrectly treated our non-voted working capital, which resulted in an error in that supplementary estimate” – but stressed there were no wider impacts for the overall fiscal position. …[The chief finance officer] emphasised that there had been ‘no real-world impact from this error’; he said that HMRC did not overspend or exceed their budget - but they did use up more cash than they had predicted.
The last sentence is our favourite.
We accept that HMRC gallops to correct errors – a missing ‘not’ was recently added to the residence manual – but perhaps this new experience will help soften the hearts of its officers in defining errors as ‘careless’ for penalty purposes.
|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.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.