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 Evelyn Partners contact. Alternatively, Ami Jack can introduce you to relevant specialist tax advisors within our firm.
1.1 Finance Bill due to receive Royal Assent
The Government has indicated that the Autumn 2023 Finance Bill is expected to receive Royal Assent on Tuesday 10 January.
This will bring the various pieces of legislation introduced in the last fiscal event into force. These include changes to the energy profits levy, the annual exempt amount for CGT, and the change to the additional rate threshold for IT.
2. Private client
2.1 Erroneous nudge letters about unfiled returns
Due to a mailing list error, some taxpayers whose tax affairs are up to date have received nudge letters about outstanding tax returns.
These letters relate to 2020/21 returns. HMRC has paused the whole nudge letter campaign while the issue is investigated, to avoid sending more incorrect letters.
Those who received one by mistake, who are certain that the return was filed on time, do not need to take any action.
2.2 Arrangements to create tax-free dividend defeated
The UT has upheld an FTT judgment that arrangements designed to avoid a tax charge on a dividend were ineffective. Diverting the distribution through a settlor-interested trust did not leave the liability with the settlor company, as the company shareholders retained ultimate control and on a purposive interpretation they received the distribution.
The taxpayers entered into arrangements whereby funds left a company (A) of which they were the sole shareholders and directors, and reached their hands indirectly. A subscribed for shares in a new subsidiary (B), and settled them on trust for the shareholders, though the company was to receive a portion of any trust income, and the trust property was to revert to it. B reduced its share capital and declared a dividend, which was paid to the trust beneficiaries. This was the lead case for several appeals on similar arrangements.
The taxpayers contended that under the settlements legislation, as B retained an interest in the trust it settled, the income of said trust was taxable solely on B. HMRC argued that under a purposive construction of the legislation the income was simply a distribution from A to the taxpayers. The UT agreed with HMRC and the FTT and dismissed the appeal. Before the year in which this marketed tax arrangement was used, A had made yearly distributions to the taxpayers in the normal way. The taxpayers did not dispute that the main purpose of the arrangements was to negate tax on the dividend. Under the Ramsay principle, the income was a direct distribution rather than income from a settlement.
HMRC also suggested that the taxpayers were the true settlors, so taxable on the income, as they had retained full control over A. The FTT concluded that the directors were not settlors on analysis of the settlements legislation, as they had not provided an element of bounty to the trust. The UT disagreed, and remade the decision on this point to find that they were settlors, but this did not affect the outcome of the appeal overall.
Clipperton & Anor v HMRC  UKUT 351 (TCC)
3. PAYE and employment
3.1 Tax simplification report on hybrid and distance working
The Office of Tax Simplification (OTS) has published a report on the tax implications of changing working practices, with recommendations for future changes.
The OTS surveyed a wide range of stakeholders including employers and employees. The consensus was that hybrid working will continue to play a large part in working practices. Challenging areas of tax that could be reviewed were identified, including the expense and benefits systems, and cross-border working. Recommendations for improvements to HMRC guidance and working practices were also made.
This is the final report from the OTS before its planned closure.
4. Business tax
4.1 Draft guidance on R&D tax reliefs
HMRC has published for consultation draft guidance on the proposed reform to R&D tax reliefs from 1 April 2023. The guidance explains how these changes will work in practice and includes a list of the additional information that will be required for claims.
The guidance includes more detail and examples on the reforms announced previously, including bringing pure mathematics research within scope of the reliefs, including data and cloud computing as qualifying costs, and restricting expenditure on some overseas R&D activities. It also covers the new claim notification form that first time R&D claimants and R&D claimants who have not made an R&D claim in any of the previous three calendar years must submit within 6 months of the period end to inform HMRC that the company is planning to make a claim. The guidance also sets out the additional information that must be submitted by all taxpayers before or at the same time as the R&D claim. This includes the contact details of the person responsible for the R&D claim and any agent, the type of business, the amount of qualifying expenditure split into specified categories, the amount representing qualifying indirect activity, the number of projects along with descriptions, and the number and PAYE scheme reference of externally provided workers. The claims notification and additional information forms will be available in April 2023.
All these measures apply to accounting periods starting on or after 1 April 2023. Draft legislation was published for comment on 20 July 2022 and final legislation will be included in Finance Bill 2023. The consultation on this guidance closes on 28 February 2023.
4.2 Draft regulations on transfer pricing documentation
Multinational enterprises with turnover of €750m or more that operate in the UK will become subject to new record keeping requirements in accordance with the OECD transfer pricing guidelines. HMRC has published draft regulations for comment.
These regulations will apply for CT for accounting periods beginning on or after 1 April 2023, and for IT for 2024/25 onwards. The regulations also provide HMRC with the power to introduce a requirement to complete a summary audit trail, which details the main actions undertaken in preparing the local file. This requirement will be subject to a separate consultation. It will not come into force on 1 April 2023.
The consultation on the draft regulations closes on 31 January 2023.
5. Tax publications and webinars
6. And finally
6.1 Excellent use of time
We are sure that, for most of our readers, filing their 2021/22 tax return is a distant memory. Still, so surprisingly, every year the approaching 31 January deadline brings a rising tide of submissions.
In what is now an annual tradition, HMRC has released the Christmas submission results. 2,828 celebrated the day itself by hitting submit on their return, perhaps as part of a party game, but many more, 19,802, submitted on Christmas Eve, and enjoyed the festive season with a warm glow of smugness.
Yet who are we to criticise? 25 December submitters are a model of efficiency to the 31 January crowd.
Approval code: NTAJ14012301
|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