Weekly Tax Update 14 January 2020

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

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Ami Jack
Published: 15 Jan 2020 Updated: 30 Jan 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.


1.1 Budget date announced

The Chancellor has announced that the next Budget will be delivered on 11 March 2020. 

This will be the first Budget for Chancellor of the Exchequer Sajid Javid and Prime Minister Boris Johnson’s Government. The CIOT has raised concerns that the lateness of the Budget will only allow a very short period for the Scottish Parliament to agree the rates of Scottish IT. The CIOT warns that, if the Scottish IT rates are not agreed ahead of the new tax year, the UK IT rates will apply to Scottish taxpayers by default.

Budget date announcement: www.bbc.co.uk/news/business-51011000

CIOT press release: www.tax.org.uk/media-centre/press-releases/press-release-uk-budget-date-leaves-scotland-little-room-manoeuvre

1.2 Four HMRC employees recognised in the New Year’s Honours

We congratulate Richard Las, Deputy Director, HMRC, on his being made a Commander of the Order of the British Empire in the New Year’s Honours. 

Julie Jarvis, Head of Commercial Engagement and Development was made an Officer of the Order of the British Empire in recognition of her public service. Carole Martin and Patricia Wilkinson were both made Members of the Order of the British Empire. Our congratulations to these recipients.

1.3 Tax treaty with Colombia enters into force

The 2016 UK-Colombia Double Taxation Convention entered into force on 16 December 2019. 

In the UK, the treaty will take effect from 1 January 2020 for withholding tax, 1 April 2020 for CT and 6 April 2020 for IT and CGT. In Colombia, the treaty will take effect from 1 January 2020 for all taxes. 


1.4  Draft Welsh Budget released

The Welsh Assembly released its draft Budget in December 2019. No changes are planned for Welsh rates of income tax or to land transaction tax rates, though increases to landfill disposals tax rates in line with inflation.

Following the results of the General Election, and in anticipation of the Government’s Budget in March, the Welsh National Assembly released its draft Budget in December. This Assembly’s Budget includes no planned increases to the Welsh rates of income tax and there are no plans to change the rates or bands of the land transaction tax. Landfill disposal tax rates, however, will increase in line with inflation.

The Budget will be finalised following the Government’s Budget in March.


1.5 No new tax measures in December Queen’s Speech

There were no new tax measures announced in the Queen’s Speech setting out the new Government’s plans, though manifesto promises were confirmed.

The Queen’s Speech of 19 December 2019 included no new tax announcements. The speech confirmed many of the manifesto pledges that the Conservative Party had included in their campaign in the run up to the General Election. Key tax points confirmed were:

an increase the NIC threshold to £9,500 from April 2020;

an increase the R&D tax credit rate from 12% to 13%;

no changes to VAT, income tax or NIC rates;

some relief from employer’s NIC when employing former armed forces personnel;

a review of alcohol duty to ensure the system supports Scottish whisky and gin producers;

plans to devolve corporation tax to Northern Ireland and consider devolution of short-haul air passenger duty;

introduction of a plastic packaging tax through the Environment Bill; and

doubling the maximum prison term to 14 years for individuals convicted of serious tax fraud.

The above points may be included in the new Government’s first Budget, which is due to be held on 11 March (see item 1.1 above).


2. Private client

2.1 Situs of cryptoassets for individuals

HMRC has updated its policy paper on the taxation of cryptoassets for individuals. This now includes a section on determining the location of exchange tokens (such as bitcoins). HMRC’s view is that the location of cryptoassets for tax purposes will be the residence of the beneficial owner.

HMRC’s guidance has been updated to provide high level comments regarding the situs of exchange tokens. HMRC considers that the statutory situs rules do not apply to exchange tokens in most cases. HMRC has instead determined that a “clear, logical, predictable and objective rule” is that the situs of the exchange tokens should be determined by the residence of the beneficial owner.

There does not appear to be any strict basis in law for this approach and therefore it may well be litigated, unless there is supervening legislation.


2.2 Late payment penalties – HMRC’s prerogatives

The UT found for HMRC in a recent case concerning penalties for the late filing of tax returns and the late payment of taxes.

The case centred around the interpretation of two points relating to the level of penalties due for the late filing of a tax return and the late payment of tax. The UT found that the FTT had erred in law in both respects, ruling against the taxpayer, and clarified that:

a. HMRC does not need to estimate the amounts which would have been shown in an accurate return which has not yet been submitted. Thus, HMRC may proceed to issue 6 and 12 month late filing penalties of £300 for a return which has not yet been submitted and such penalties may be issued automatically.

b. Following the receipt of a late tax return, HMRC may reassess 6 and 12 month late filing penalties by either i) making a new assessment, which completely replaces the first assessment, or ii) by making a further assessment, which would be in addition the first.

HMRC v Duncan Hansard [2019] UKUT 391 (TCC) 


2.3 Notices to file can be issued by unidentifiable officer

The UT found for HMRC in two recent cases regarding the issuance of penalties for late filing of tax returns where the notice to file was not issued by an identifiable officer. The UT considered that there were material errors of law in the FTT’s decisions and its decision was procedurally unfair.

The UT overturned the decision of the FTT in two cases related to penalties for the late filing of self-assessment returns where both taxpayers claimed they had a reasonable excuse for the late submission of their tax returns. The FTT’s initial judgement was based on an argument that a notice to file was required to be given by a ‘flesh and blood’ officer of the Board, rather than under the direction of the Board.

The UT found the FTT’s decision to include material errors in law as well as to be procedurally unfair as it was not the argument presented by the taxpayers themselves. The UT considered in both instances that the taxpayers did not have reasonable excuses for the late submission of their returns and so were liable to the penalties charged by HMRC.

The UT decision also included some guidance for the FTT on how to address any future concerns that it has on the validity of notices to file personal tax returns.

HMRC v Nigel Rogers and Craig Shaw [2019] UKUT 0406 (TCC)


2.4  Closure notice confirmed and appeal dismissed

The FTT confirmed the closure notice and dismissed the taxpayer’s appeal as the expenses claimed against his self-employment income were not found to be genuine.

The taxpayer claimed expenses for professional fees of £25,000 against his employment income and self-employment expenses of £120,000 for services provided to his own company. This resulted in an overall loss of £115,000 being claimed on the taxpayer’s personal tax return.

The FTT found that the majority of the professional fees were in fact for the benefit of the taxpayer, separate to his employment activities and thus not incurred wholly, exclusively and necessarily in the performance of his employment. Further, the FTT disallowed the full £120,000 of expenses as it found that the taxpayer had failed to explain adequately what the services were. As the taxpayer could not justify the expenses they were considered to be either not genuinely incurred, or the trade was not commercially carried out with an expectation of profit and so not allowable.

The FTT confirmed the closure notice and dismissed the appeal.

Jordan v HMRC [2019] UKFTT 0743 (TC)


2.5  FTT finds a taxpayer knew a ‘loan’ was an unauthorised pension withdrawal

A taxpayer has lost his appeal that a loan was not an unauthorised payment after he agreed to invest in a particular company connected to the lender. The FTT also rejected his argument that he had taken reasonable care but could not obtain independent professional advice. 

The taxpayer, who was below the pension age, engaged in an arrangement where he received a loan by investing his pension in a particular company. The lender was subsequently wound up for misleading and misadvising its clients. The FTT found that the loan constituted an unauthorised payment for tax purposes because the lender was connected to the company in which the taxpayer invested his pension funds. That loan therefore attracted an unauthorised payment charge, but it was not disclosed on his tax return. The FTT rejected his argument that he had a reasonable excuse for the error. It found that he knew his investment was linked to the loan. The FTT also did not accept that the taxpayer could not obtain professional advice because there was no one willing to advise on such a specialist area.

Robert Rowland v HMRC [2019] UKFTT 0741 (TC) 


2.6  FTT rules that electronic notices are validly served

The FTT has ruled against a taxpayer who had signed up to paperless communications but did not read the emails from HMRC. It confirmed that electronic notices are valid for tax purposes and a reasonable taxpayer will check his secure online mailbox for tax communications. 

The taxpayer had confirmed with HMRC over the telephone that he did not need to submit a tax return after ceasing to act as a director. He also consented to receive paperless communications with HMRC to a secure electronic inbox. When the taxpayer received emails from HMRC, however, he assumed they were spam. He deleted them without reading them in full, and did not check the mailbox. He therefore did not know he had received a notice to file a tax return, or penalty notices for failing to file it.

The taxpayer argued that issuing a notice to file a tax return to an electronic mailbox did not amount to ‘giving’ valid notice under tax law. The FTT disagreed on the grounds that, under the provisions of the Electronic Communications regulations, the paperless notices were deemed to have been ‘given’. The FTT also found that there was no need for an individual HMRC officer to issue the notices. It was sufficient that HMRC had decided on a general policy under which the notices were issued.

The fact that he had obtained confirmation that a return was not required would have amounted to a reasonable excuse for the failure to file. This excuse was overridden, however, by his decision not to read the communications from HMRC. A reasonable person would have expected to receive some communications from HMRC and checked the mailbox. The penalties were upheld and the appeal dismissed.

Benjamin Liam Smith v HMRC [2020] UKFTT 2 (TC) 


2.7  Agent Update: Self-assessment Special 2020

HMRC have released a special edition of the Agent Update, specifically addressing tools and products to help agents in the countdown to the 2020 self-assessment submission deadline of 31 January.

The Update reminds agents of the resources available to them from HMRC in the lead up to the deadline, including:

Talking Points: weekly online webinars for tax agents and advisers, with HMRC specialists on hand to answer questions;

Toolkits: regularly updated guidance on common errors that HMRC sees frequently in filed returns;

YouTube: HMRC’s YouTube channel includes help and support videos on a range of different tax matters.

The Update also includes some additional hints and tips from HMRC on common questions they have received.


3. Trusts, estates and IHT

3.1 Trust Registration Service

HMRC has provided the professional bodies with an update on the Trust Registration Service aspects of the 5th Money Laundering Directive (5MLD). The rules were due to be transposed into UK law by 10 January 2020 but this has not yet happened, and HMRC will now run a more detailed technical consultation and publish draft legislation in early 2020.

Regulations have been laid to implement the customer due diligence aspects of the 5MLD, which took effect on the transposition deadline of 10 January 2020. These do not however include the Trust Registration Service aspects, which were also due to be transposed by the same date under 5MLD.

HMRC has confirmed that it will run a more detailed technical consultation on the details of the implementation in early 2020, and the consultation will include additional information on the proposals for the type of express trusts that will be required to register, data collection and sharing, and penalties. As part of this technical consultation, HMRC will also publish draft legislation for the trust registration elements of 5MLD.

The update from HMRC also notes: ‘We will keep impacted trusts and their representatives up to date on when the requirement to provide information on TRS under 5MLD will commence and understand that sufficient notice will be required in order to ensure business readiness.’


4. PAYE and employment

4.1 Review of the disguised remuneration loan charge is adopted by the Government

Sir Amyas Morse’s Review recommends that the charge should not apply to cases before 9 December 2010, nor for cases before 6 April 2016 where there was adequate disclosure of the arrangements to HMRC. This has been adopted by the Government together with proposals for extending spreading of the charge over three years.

This will however not affect cases before December 2010 where HMRC were already conducting an inquiry, which will run its usual course, possibly ending in litigation.

Sir Amyas conducted a wider-ranging review examining the history and background of the legislation. He concluded that he supported the essential purpose of the charge to counteract avoidance. He also concluded for the charge to be proportionate and justified in looking back 20 years as the charge had done the taxpayers’ would have had to have acted perversely and this had not happened. They had been entitled to rely on the decisions of the courts.

He was also concerned that the charge meant the tax was all payable in one year. He recommended that tax payers should be able to spread the charge over three years no one should have to pay more than half of their disposable income in a year, or to lose a house or pension pot or be made bankrupt.

He also made other recommendations including an external body to provide independent advice on options available for those who were unable to pay.

The recommendations have been overwhelmingly accepted by the Government.






4.2 Spread Betting arrangement ‘Alchemy’ found to be taxable employment income

The FTT has held that contrived spread betting arrangements involving equal and opposite bets broadly designed to leave the employee with a gain and the employer with a corresponding loss that funded the gain created employment income.

The taxpayer had marketed an employment income scheme known as Alchemy. This case involved the use of the scheme by the employees of the taxpayer itself.

We reported as follows on the arrangements in our 26 September 2017 edition of Update when the FTT looked at whether or not the scheme was disclosable under DOTAS:

The scheme involved an employee entering into a spread bet with an established spread betting business over the performance of a basket of funds. At the same time, the employee entered a second mirror contract with the effect that, if the employee won on the one, he would lose on the other and there was always a small loss representing the counterparty’s turn. Either the employer or an EBT took over the mirror contract by novation when the potential liability of the contract was low. This was a taxable benefit. If the contracts fell out as hoped, the employee won on the retained contract and the loss on the mirror contract was borne by the employer or EBT leaving the employee with the gain.

In this case, the counter party, to whom the unfavourable contract was novated, was the employer itself, as the employees were also the owners of the employer.

As it turned out, the employees generally won under the contracts.  The FTT was not concerned that there was a possibility that the arrangements would not be favourable.   The court had little difficulty following, among others, the Rangers decision, in finding that the amounts won by the employees under the retained contract were earnings.

The court did not consider whether or not the payment could have been a distribution.

Root 2 Tax Ltd v Revenue & Customs [2019] UKFTT 744 (TC) www.bailii.org/uk/cases/UKFTT/TC/2019/TC07502.html

RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) (Appellant) v Advocate General for Scotland (Respondent) (Scotland) [2017] UKSC 45

4.3  Treasury launches Off-payroll working review

In advance of the rule changes for contractors, known as IR 35, due to be introduced in April, the Government has launched an enquiry into the implementation of those changes, to ensure smooth implementation.

The review is focussed on the process of introducing the changes rather than the changes themselves. The purpose is to see whether or not additional support is needed to ensure the successful implementation of the reforms. The review will engage with affected individuals and businesses. A series of roundtable meetings with stakeholders is envisaged, with the review concluding in Mid-February.

The review is also intended to assess whether or not any additional support is needed to ensure those that the self-employed who are not in scope are not impacted. It is, however, possible that end user businesses with a strong economic advantage over contractors may take a safety-first approach and require PAYE to be operated even where that may not be strictly necessary.

What is not mentioned, though may be inferred, is that it is recognised that with the delay of the Budget to March, there will be very little time for those involved to absorb and implement the new rules, a point picked up by the ATT in a call for a delay in implementation.



4.4 HMRC releases updated guidance on expenses and benefits

The latest version of Tax Guide 480 has been published, which sets out HMRC’s position on the tax treatment of expenses and benefits of directors and employees. 

The guidance also includes HMRC’s approach to non-cash benefits received in connection with the termination of employment and employer-financed retirement benefits schemes. It is updated annually by HMRC.


5. Business tax

5.1 UT partially overturns FTT ruling on consortium relief

The UT has found in favour of HMRC regarding the operation of anti-avoidance provisions that limit claims for consortium relief. It clarified that voting arrangements preventing a shareholder from having control are caught by the rules if the shareholder would have had control in the absence of those arrangements. 

HMRC had opened enquiries into the CT returns of the taxpayers, which included investigating consortium claims. After an extended period, the taxpayers applied to the FTT for directions that HMRC close the enquiries. The issue in question was whether or not new anti-avoidance provisions applied to limit the available consortium relief. If the provisions applied, HMRC was entitled to continue the enquiry.

Consortium relief may be restricted by 50% where arrangements exist that enable a person to prevent the link company from controlling the claimant company, and there is a tax avoidance motive. In this case, the voting rights of the taxpayers had been amended to increase their rights from 40% to 74.6% and the required voting threshold to pass shareholder resolutions was increased from 50% to 75%. These changes were made when new rules regarding consortium relief were announced, and the effect was to allow a greater claim for relief.

The UT agreed with the FTT’s ruling that the changes to the voting rights amounted to an ‘arrangement’ for the purposes of consortium relief. It found, however, that the FTT had erred in law when it concluded that the arrangements did not prevent the link companies from exercising control. The UT held that, had the voting arrangements not been in place, the link companies would have had control. The arrangements were, therefore, capable of triggering the anti-avoidance rules. The direction to issue closure notices was overturned, and HMRC might reasonably continue the enquiry.

HMRC v Eastern Power Networks PLC and others [2019] UKUT 367 (TCC) 


5.2 European Parliament pushes for an EU digital tax if the OECD plans fail

The European Parliament has adopted a resolution that calls on the EC to agree a joint position on the ongoing OECD discussions on taxing the digital economy. The resolution also invites the EC to propose an EU solution to the issue if an international deal is not reached by the end of 2020. 

The resolution was passed as international talks for a global approach to taxing the digital economy continue through the OECD. The European Parliament expressed concern that the EU has not yet made a coordinated response to these talks, and called for the EC to agree a joint position. It also called for an EU solution to taxing the digital economy to be developed that allocates taxing rights such that a ‘fair share’ of taxes is paid in the jurisdictions where the economic activity and value creation take place.


6. VAT

6.1 HMRC wins judicial review case

The UT has refused an application for judicial review where HMRC terminated an agreement for the VAT treatment of supplies. It held that it was not unreasonable for HMRC to terminate the agreement without notice or a transitional period. 

The taxpayer supplied various educational materials, some of which were zero-rated and some that were standard-rated. An agreement had been reached with HMRC in 2000 regarding the VAT rating of course fees. This agreement carried on without change for over nine years. HMRC subsequently terminated the agreement on the basis of a House of Lords decision, but not until almost four years after the decision was published. HMRC initially argued that the termination had retrospective effect, but later conceded that the termination could only be prospective. The taxpayer sought permission for judicial review on two bases. First, that there should have been a transitional period before the new approach was taken. Second, that supplies made under contracts entered into before the date of the termination letter should be subject to the original agreement. The UT dismissed both arguments. The original agreement contained an express provision allowing HMRC to terminate it without a transitional period. The fact that the taxpayer made commercial decisions based on the agreement was also immaterial; the agreement was for the tax treatment of supplies, not to address commercial concerns.

The Queen (on application of Metropolitan International Schools Ltd) v Revenue and Customs [2019] UKUT 407 (TCC)


6.2 UT rules that e-Newspapers can be zero-rated

A publisher has successfully argued at the UT that digital versions of newspapers can be zero-rated. The UT overturned the FTT’s decision on the grounds that services are not precluded from zero-rating. 

The UT has ruled in favour of a taxpayer, a VAT group that publishes newspapers including The Sun and The Times, that digital offerings of newspapers should qualify for zero-rating. This is in line with the treatment that applies to printed newspapers. The FTT had previously ruled that digital versions did not qualify for zero-rating because they are not ‘newspapers’ for the purposes of the zero-rating legislation.

The FTT had rejected the taxpayer’s arguments primarily on the basis that zero-rating can only apply to goods, and digital versions are considered to be services. The UT, on the other hand, found that the zero-rating provisions did not preclude items that are services. The UT also noted that, when the legislation was written in 1972, services did not need to be considered because online newspapers did not exist. Under the ‘always speaking’ doctrine of statutory construction, however, the legislation should be interpreted in light of technological advances. It may therefore also apply to services.

This decision has wider application to other e-services and may be pursued further by HMRC. Considering the recent EU legislation allowing Member States to align the VAT treatment of physical and electronic publications, it will be interesting to see how HMRC, and the Treasury, choose to respond to this decision.

News Corp UK & Ireland Limited v HMRC [2019] UKUT 404 (TCC) 


6.3  Taxpayer win on VAT treatment of activity boxes

The FTT has examined the supply of educational children’s boxes and ruled that they were a mixed supply of crafts and a magazine. The decision clarifies the characteristics of a mixed supply.

The taxpayer provided activity boxes for children that were designed to be both educational and entertaining. One of the boxes contained a magazine with removable instructions explaining the craft activities supplied in the box. The taxpayer contended that the box was a mixed supply of a zero-rated magazine and standard-rated craft products. HMRC, however, argued that it was a single, standard-rated supply of craft products and issued accordingly.

The FTT determined that the product was a mixed supply for four reasons. First, the magazine and crafts were capable of being sold separately and actually were available for separate purchase or had been in the past. Second, a customer survey showed that a typical consumer viewed the box as a supply of crafts and a magazine, not a single supply of crafts. Third, neither the magazine nor the crafts were subservient to the other as supplies; they were distinct and separate elements. Finally, while the craft instructions were attached to the magazine, they were removable and were therefore not part of the magazine and did not link the two items. The appeal was allowed.

Dodadine Limited t/a ToucanBox v HMRC [2019] UKFTT 0748 (TC)


7. And finally

7.1 Hip, hip…

The dust is settling on Sir Amyas Morse’ review of the Loan Charge, but we cannot leave the subject without a, final, comment. As far as the taxpayers involved are concerned, our view is that the proposed settlement is broadly a reasonable one and we are glad that common sense and humanity has prevailed. One cheer.

Sir Amyas exploration of the background was thorough, and we are reassured that he identified that taxpayers were entitled to rely on the courts’ interpretation of the law over HMRC’s stated view. Two cheers.

Sadly, not a third cheer. There is a great deal of exploring how to combat tax avoidance in the Review, but we think this is in context largely beside the point. What the Review does not do is identify that the Loan Charge catastrophe was somebody’s fault. People died. There will be people in HMRC and the Treasury who should have this disaster and those deaths on their conscience. It is shocking that so inhumane a policy was defended by both organisations in their overzealousness to counter avoidance. The defence of it was about the ends of the policy – fairness to other taxpayers – whereas the problem was the means. Those means were unacceptable. It is concerning that no one in the Executive felt that could even be said before an independent enquiry found it.

We suggest two things. First, we don’t suppose that either HMRC or the Treasury imagined that the Loan Charge would cause such misery, but cause it it did. That deserves an apology, not least to help those within those organisations who are troubled by what has happened. Second, Sir Amyas does not properly consider how this particular kind of insufficiently considered misuse of power can be prevented. It mustn’t happen again. The Review wonders about regulation of the tax profession, but what about independent supervision, Oftax?, of those who this time went too far?


Approval code: NTAJ14012024


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.