Weekly Tax Update 12 May 2021

The latest tax update and VAT round up for the week.

Accounts 724599511
Ami Jack
Published: 12 May 2021 Updated: 13 Apr 2023

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. Private client

1.1 Problems with online CGT reporting

HMRC has acknowledged two issues affecting online CGT reporting services for 2021/22 disposals. There is as yet no timeframe for corrections to be applied.

Where a return was submitted for a disposal in 2020/21, submitting an online return for a disposal in 2021/22 will result in an incorrect calculation. Taxpayers in this position should call the CGT helpline to request a paper return to report the 2021/22 disposal.

The second issue affects payments. HMRC systems currently do not allow the CGT payments on account to be set against income tax due for 2020/21. If CGT is found to have been overpaid, HMRC says it must be reclaimed by amending the original CGT return. Any income tax must be paid separately, rather than allowing an offset. The ICAEW has raised this issue with HMRC and discussions continue.


1.2 CA confirms recipient liable for tax on dividend

The CA has found that the taxpayer, whose shares were subject to a share buyback, was the recipient of the deemed distribution of the proceeds. Although committed to use the funds to repay the loan for the purchase of the shares, this was not a composite transaction.

The taxpayer took over a company with a view to winding it up over two years. He had acted as management accountant for many years, and agreed to do this after other attempts at selling failed. He conducted the takeover by purchasing the shares then selling all but one share back to the company. HMRC treated the share buyback as a distribution, creating a large unanticipated liability. The UT and FTT have previously agreed that this was a distribution, rather than a trading transaction, or one composite transaction.

The CA has also dismissed his appeal, this time on who is liable to pay the income tax on a distribution. The taxpayer argued that in a technical sense he was not the person receiving or entitled to the distribution, so should not be taxable on it. Under the terms of the financing he had to use the proceeds of the buyback to repay a loan he had taken out to facilitate the purchase from the former shareholders. Regarded as a composite transaction, he had received no distribution. The CA agreed with HMRC that this interpretation was incorrect. Although less than an hour apart, the sale and purchase were distinct transactions, and the taxpayer had received the distribution. The fact that he had no practical control over the monies was irrelevant, as that is not a requirement to be the recipient of a dividend.

Khan v HMRC (Rev 1) [2021] EWCA Civ 624


1.3  LLP permitted to claim capital allowances on unused buildings

The UT has allowed an LLP to claim capital allowances on temporarily disused buildings. Although the buildings were never used in the LLP’s trade, as they were sold, there was no need for a period of use to follow the disuse for the disuse to count as temporary.

The LLP bought buildings that had been used for manufacturing by a previous owner. Its attempts to let the buildings were unsuccessful, so they were sold in batches, all under three years from purchase. The LLP claimed a form of capital allowances known as industrial buildings allowance (since abolished) on the grounds that though temporarily out of use the buildings remained industrial. HMRC contended that to count as merely temporary disuse the buildings should have been used at either end of the ‘temporary’ disuse period.

The UT disagreed and upheld the taxpayer’s appeal, reversing the FTT decision. There was no legislative requirement for use to follow temporary disuse. It could be followed by permanent disuse. The focus should be on what happened to the building, rather than how the particular owner used it, so the fact that it was sold did not necessarily mean that it became permanently disused.

Shaw (as nominated member of TAL CPT Land Development Partnership LLP) v HMRC [2021] UKUT 100 (TCC)


1.4  Taxpayer’s CGT liability increased on appeal

The FTT has dismissed a taxpayer’s appeal against a CGT liability, finding that not only had he not incurred the disallowed element of the deductions from the gain, but HMRC had been too generous in allowing other elements. His CGT liability was increased. Penalties for other inaccuracies were, however, reduced.

The taxpayer sold a residential property, and declared a gain to HMRC reduced by refurbishment costs of almost £100,000. HMRC disallowed a proportion of these, due to a lack of evidence that they had been incurred on allowable expenditure. The taxpayer appealed against this and penalties.

The FTT considered the evidence of expenditure in some details, along with the reliability of the witnesses. It found that the expenditure properly deductible was half that of the amount HMRC had allowed, and directed the officer to recalculate the liability. It upheld the penalty for deliberate behaviour, but reduced the penalties for other inaccuracies, as the taxpayer’s reliance on his accountant was not careless behaviour.

Iginla v HMRC [2021] UKFTT 98 (TC)


1.5  Taxpayer found to be self-employed

The FTT has dismissed a taxpayer’s appeal, finding that on review of the facts his relationship with a company was one of self-employment, not employment.

The facts in this case were a matter of dispute. An insurance company had worked with an unrelated company on a specific product. This relationship ceased. The insurer decided to develop the product itself, and engaged with the taxpayer, who had worked with the unrelated company, to assist them as an insurance broker. There was no signed or written contract.  The relationship terminated after three years. The taxpayer mostly worked at home, or at the offices of insurers with whom he was negotiating. He had no desk at the company’s offices, but was provided with a laptop.

The taxpayer’s status was discussed with HMRC at various points, but not resolved. After he left the company, he lost a claim for unfair dismissal and other breaches, as the employment tribunal found that he was not an employee and struck out his claim. HMRC subsequently assessed him as self-employed, and he appealed the decision.

The FTT considered the facts in detail, looking at the parties’ intentions at the start, remuneration, and the company’s control, as well as regulatory requirements and other matters. Ultimately, it found that he was not an employee, based on the weight of the evidence. His evidence was unreliable, and he was aware that the company had told HMRC one year into their relationship that it did not consider him an employee, and he could not prove that the company had told him it had rectified the matter. He had previously been offered an employment contract, which he did not accept. He did not receive monthly wages, but irregular payments without payslips. He was responsible for settling his own working hours, and was not precluded for working for other companies, though he did not do so.

Phillips v HMRC [2021] UKFTT 91 (TC)


1.6  Multiple dwellings relief refused as property found to be one unit

The FTT has refused a multiple dwellings relief (MDR) claim, finding that an annex was not a distinct dwelling on the facts of the case.

The taxpayers purchased a house in one transaction, and filed an SDLT return on the basis that it was one dwelling. They later amended it to claim MDR on the grounds that an annex was a separate dwelling. The FTT upheld HMRC’s refusal of this claim, finding that although the en suite annex bedroom had access to its own basic utility room, as they were not interconnected, they were not separate from the main dwelling. There was no real separation, with a joint garden, joint hot water and joint central heating controls. The taxpayers’ alternative argument, that the bedroom was a separate dwelling without the utility room, was also dismissed.

Wilkinson v HMRC [2021] UKFTT 74 (TC)


1.7  FTT upholds information notices

The FTT has held that information notices issued to 21 pension scheme administrators were valid, and most of the information asked for reasonably required.

The FTT considered 21 appeals together. Each taxpayer was scheme administrator for a particular pension scheme, and was issued by HMRC with an information notice requesting information that HMRC contended was necessary to establish whether or not the schemes were liable for tax, and if so whether or not the scheme administrator was liable. The administrators appealed against the notices, and argued that the information in the notices was not reasonably required.

The FTT found that the notices were valid as, although addressed to the pension schemes rather than the administrators as individuals, it was clear that they were the persons required to produce the information. The issue as taxpayer rather than third part notices was correct. Some elements of the information requested were agreed by the FTT to not be reasonably required, so the information notices were directed to be slightly amended.

Hargreaves & Ors v HMRC [2021] UKFTT 80 (TC)


2. PAYE and employment

2.1 BBC reports on tax avoidance by umbrella companies

Widespread tax avoidance involving the Employment Allowance has been reported by the BBC. The findings show that approximately 48,000 small umbrella companies have been created over five years to take advantage of this NIC exemption. 

The Employment Allowance provides a £4,000 annual exemption from Class 1 Secondary NICs to small businesses. The investigation uncovered a trend whereby a recruitment agency sets up numerous umbrella companies to employ a small number of people each and claim the Employer’s Allowance. On incorporation, the company usually has a UK-based director, who shortly resigns and is replaced by a overseas director. In particular, the BBC notes that this structure has been used by recruitment agencies sourcing staff for the NHS Test and Trace programme.

This report coincides with new guidance from HMRC on working through an umbrella company. The guidance explains how umbrella companies work and warns against using them for tax avoidance.



2.2 HMRC continues focus on freelancers

A new case indicates that HMRC is continuing its focus on challenging off-payroll working, which has seen several media figures in the tax courts.

Since the introduction of the IR35 off payroll working regulations, HMRC has brought a number of cases against those who work through personal service companies rather than as employees. It has had mixed success, with cases determined on the facts of exactly what work was performed, and issues such as control. Many have received considerable attention, as they often involve media figures.

The most recent case has yet to receive a full hearing, but an application to amend grounds of appeal has been made. This further case indicates that HMRC is far from finished with investigating the issue.


3. Business tax

3.1 Additional guidance on claiming extended loss carry back relief

HMRC has published further guidance on the process of claiming the temporary three-year carry back loss relief. The requirements to claim depend on the amount of relief claimed. 

Claims for extended loss carry back relief in excess of £200,000 must be made in a company tax return. On the Form CT600, box 45 (claims and reliefs affecting an earlier period) should be ticked, and further details on the claim should be included in the tax computation in the same way as for one-year carry back claims. Companies do not need to submit amended tax returns online for the earlier periods affected by the extended relief claim. The amendment deadline for these earlier periods will have passed, so online amendments will be rejected.

Where the claim is for less than £200,000 it can be made by letter after the Finance Bill receives Royal Assent, which is expected in mid-July. Such claims may be made as soon as the accounting period in which the loss occurs has ended. The letter must include specific details as set out in the guidance, including details of the amount of loss carried back to the relevant earlier periods and draft management accounts as evidence of the loss incurred.


3.2 Consultation on residential property developer tax

A new residential property developer tax (RPDT) has been proposed. It will apply to property development businesses with profits exceeding £25m, and is expected to take effect in April 2022. 

As announced in February 2021, the Government is introducing a new tax to fund the removal of unsafe cladding on residential properties. The RPDT will take effect on 1 April 2022, and will apply to companies and groups undertaking UK residential property development activities. There will be an annual allowance of £25m, such that companies and groups with profits below this amount will not pay the RPDT. The rate of tax has not yet been proposed. The consultation confirms that the RPDT will be a temporary measure, but does not specify when it will come to an end. It does, however, state that the Government expects to raise £2bn from the tax over a decade, suggesting that the RPDT may exist for ten years.

The consultation closes on 22 July 2021. The Government intends to introduce the RPDT in the 2021-22 Finance Bill.


3.3  Taxpayer wins unilateral relief case

The FTT ruled that a UK company could claim unilateral relief against US withholding tax despite being refused treaty relief by the IRS under the limitations of benefits provisions. It found that the UK/US tax treaty does not include express provisions prohibiting relief for the arrangement in question. 

The taxpayer was a UK company that suffered US withholding tax on interest payments from its US subsidiary. The US competent authority denied the taxpayer the benefits of the UK/US tax treaty on two grounds. First, the taxpayer was not a ‘qualified person’ under the UK/US tax treaty. Second, it was not clear that obtaining treaty benefits was not a principal purpose of the arrangements. The taxpayer then claimed unilateral relief in the UK, which amounted to approximately £4.5m. HMRC denied relief, arguing that the case fell within the exclusion provisions. Unilateral relief is not available where the tax treaty includes express provisions that deny credit relief. HMRC interpreted the UK/US tax treaty as containing such provisions.

The FTT found for the taxpayer. It held that the UK/US tax treaty, and in particular the limitation of benefits article, is not explicit as to the cases and circumstances in which credit relief is not to be made available. UK unilateral relief was therefore available.

Aozora GMAC Investments Limited v HMRC [2021] UKFTT 99 (TC)


4. Tax publications and webinars

4.1 Webinars

The following client webinars are coming up over the next week.


5. And finally

5.1 Monster tax

And finally readers know that using the phrase ‘fair share of tax’ is fraught with peril.  A moment’s thought leads to the conclusion that even if there is such a thing, it’s impossible to find it: it’s a tax cryptid, like yetis, or unicorns.   Our yeti spotter this week was the intrepid Cecilia Rouse, economic adviser to President Biden, who commented that a global minimum tax would see the US working with trading partners to ensure that corporations ‘are paying their fair share worldwide’.  And finally doesn’t comment on policy issues as a matter of policy, though we do have a natural inclination in favour of yetis.  But to believe that there is such a thing as worldwide tax fairness was one big step for our credulity.  Such a big step needs a Bigfoot.

View previous Tax Updates

Ref: NTAJ14052154


Organisations CourtsTaxes etc
ATT – Association of Tax TechniciansICAEW - The Institute of Chartered Accountants in England and WalesCA – Court of AppealATED – Annual Tax on Enveloped DwellingsNIC – National Insurance Contribution
CIOT – Chartered Institute of TaxationICAS - The Institute of Chartered Accountants of ScotlandCJEU - Court of Justice of the European UnionCGT – Capital Gains TaxPAYE – Pay As You Earn
EU – European UnionOECD - Organisation for Economic Co-operation and DevelopmentFTT – First-tier TribunalCT – Corporation TaxR&D – Research & Development
EC – European CommissionOTS – Office of Tax SimplificationHC – High CourtIHT – Inheritance TaxSDLT – Stamp Duty Land Tax
HMRC – HM Revenue & CustomsRS – Revenue ScotlandSC – Supreme CourtIT – Income TaxVAT – Value Added Tax
HMT – HM TreasuryUT – 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.