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 Two new HMRC manuals on disputes
HMRC has published two new manuals. These cover guidance on alternative dispute resolution (ADR), and the litigation and settlement strategy (LSS). These manuals do not change HMRC’s position, but they provide detailed guidance on HMRC’s processes and procedures in relation to each framework.
ADR is a mediation process offered by HMRC as an alternative means to resolve a dispute without litigation. It is most commonly used to resolve long-running disputes that are particularly entrenched. The new ADR guidance manual explains the process in full. It addresses which cases are and are not suitable for this process, describes a typical day of mediation and explains what a conclusion might look like.
The LSS is a governance framework within which HMRC operates to resolve tax disputes. The LSS itself has not changed, but the new manual provides further guidance on how HMRC should apply the LSS in practice, including examples of the key factors that affect HMRC’s decision-making when handling disputes with taxpayers. It sets out HMRC’s duties, how it aims to handle disputes and how it aims to resolve them.
The Tax Dispute team at Evelyn Partners has significant experience with the LSS and in assisting clients through the ADR process. Over 80% of ADR processes in 2021/22 resulted in resolution, however, over 50% of applications were rejected at the outset, highlighting the importance of obtaining specialist advice on whether a dispute is likely to be accepted into ADR.
1.2 Personal liability notices upheld
The FTT has upheld personal liability notices (PLNs) served on a director in a case where it found there had been deliberate VAT and CT inaccuracies in his company’s declarations.
The taxpayer, sole shareholder and director of a company that he had incorporated from his sole trade, was issued with PLNs for VAT and CT inaccuracies. HMRC officers had visited the business, a diner, on two occasions, and their observations of takings did not match those declared. Following interviews of the taxpayer, the business was issued with estimated CT and VAT assessments for undeclared income, as well as penalties. The business was likely to become insolvent, and in fact later applied to be struck off, so HMRC issued the taxpayer with PLNs. The taxpayer argued that these were invalid, as the inaccuracies were not deliberate. On assessment of the evidence of the operation of the business, and how the returns were prepared, the FTT found that there had been deliberate inaccuracies attributable to the taxpayer, so upheld the PLNs.
This can be contrasted to the recent Bachra case, where the FTT cancelled PLNs for VAT liabilities. The FTT found that, although the company should have known about the inaccuracy in the submitted VAT returns, this was not the same as actual knowledge. The errors were therefore not deliberate inaccuracies, so a PLN could not be levied on the sole director.
Malone v HMRC  UKFTT 98 (TC)
Bachra v HMRC  UKFTT 91 (TC)
2. Private client
2.1 Reminder: restrictions to NIC top-ups from April
Currently, individuals can make voluntary NI contributions to rectify gaps in their contribution record as far back as April 2006. From April, it will only be possible to do this for the previous six tax years.
The ICAEW has flagged the importance of the extended window to make voluntary NI contributions, which will close on April 2023, reverting to a much more restrictive system. It will only be possible to remedy gaps in the NIC record from 6 April 2006 to 5 April 2017 until 6 April 2023, when the opportunity will close. Thereafter, only the previous six tax years can be remedied.
Many benefits depend on the NIC record, and the state pension entitlement can vary hugely based on how many years of contributions have been made. Individuals are advised to check their national insurance records as soon as possible, which can be done online, and carefully consider whether or not additional contributions would be worthwhile, of class 2 NI or Class 3. It is also important to check for discrepancies where you think HMRC records may not reflect your full contribution history.
Internationally mobile employees who have worked in ‘rest of the world’ countries such as India, Australia or Singapore may be more likely to have incomplete NI records. These individuals should consider requesting a state pension forecast from HMRC to ascertain and gaps in historic coverage, and consider making top up contributions to protect state pension entitlements.
2.2 Staleness appeal dismissed
The UT has held that a discovery assessment was valid, as the discovery had not become “stale” in the time elapsed between HMRC making the discovery and issuing the assessment. This is in keeping with the SC’s previously stated position that staleness was not a valid concept. Although this statement was part of the SC’s additional commentary on a case, so not binding on the UT, the UT still chose to adopt that position.
The taxpayer was issued with a discovery assessment for 2007/08, charging him to income tax on his share of the proceeds of a property sale. The FTT upheld this assessment. The taxpayer appealed to the UT that this discovery was “stale”. The assessment had been raised over 12 months after HMRC made the discovery. The UT refused this argument, as although the SC’s comments on the invalidity of the staleness concept were further commentary on a judgement, rather than a part of the judgement itself, so not binding on the UT, they should still be followed.
A further argument raised by the taxpayer, on the quantum of the assessment, was also dismissed. There was no error of law in the FTT’s decision on this matter.
Harrison v HMRC  UKUT 38 (TCC)
3. Business tax
3.1 Survey: how are you dealing with plastic packaging tax?
Evelyn Partners is conducting some research into how businesses are dealing with plastic packaging tax (PPT) and the associated data requirements, and would be grateful for your help. If you would like to contribute, please use the link below.
If you would like to complete our survey on how businesses are dealing with PPT, please click here.
We will be publishing our findings. Any data you supply will be anonymised, and no marketing emails will be sent to you as a result of completing this survey. If you would like a copy of our PPT guide, please let us know.
3.2 Forthcoming CT changes in 2023
From 1 April 2023 a higher 25% main CT rate will come into effect, coupled with the return of the ‘associated companies’ rules. Planning now may be beneficial for many companies, including family investment companies.
As announced last year, the main rate of CT will shortly increase to 25%. This applies to companies with taxable profits exceeding the ‘upper limit’ or those companies that are not eligible for the ‘small profit rate’. Those ineligible for small profit rate include close investment holding companies (such as family investment companies) and non-resident companies that are liable to UK CT. The 19% small profits rate will remain for eligible companies. Eligible companies with profits between these limits will be taxed at a marginal rate, requiring careful calculation.
For stand-alone companies, the lower limit of taxable profits is £50,000 and the upper limit is £250,000. Where there are associated companies, these thresholds are divided by the number of active associated companies.
The associated companies rules will also become relevant when considering if a company is liable to pay tax by quarterly instalments.
Companies with year ends straddling 1 April 2023 will have their profits apportioned on a just and reasonable basis, with the upper and lower limits also apportioned to calculate the appropriate tax rate.
Businesses may wish to review their associated companies and consider whether or not any planning should be taken to simplify structures ahead of 1 April 2023. In specific circumstances, it may be beneficial to consider other possibilities, such as accelerating disposals of chargeable assets to exchange before 1 April 2023. This could prevent profits being brought into the 25% CT rate unnecessarily.
3.3 Super deduction for partnerships with all corporate members
HMRC has updated its guidance to state that partnerships can claim the 130% super deduction, provided that every partner is a corporate partner. Previously, the assumption was that only companies could claim this deduction.
The new page added to the guidance states:
“…a partnership whose members are all within the charge to corporation tax…may be entitled to claim capital allowances that are only available to companies within the charge to corporation tax, for example certain first year allowances.”
Partnerships with only individuals as members cannot claim the super deduction. This perceived shift in position may mean that already filed returns could be updated to claim additional relief.
4. Tax publications and webinars
The following client webinars are coming up soon.
- 16 February - Editions by Evelyn Partners – National Minimum Wage
- 23 February - The financial implications of a divorce or dissolution
5. And finally
5.1 Exemption, exemption, wilt thou be mine?
How do tax advisers celebrate Saint Valentine’s Day? Well, with a #taxvalentine, of course! Yes, these poems, the very best use of Twitter, have come round once more. We encourage you to peruse them at leisure, and, of course, write your own*.
Roses are red,
A wealth tax1 would make me blue,
Let’s dissipate my assets,
On dinner for two.
*Given the events of last year, the editorial team would once again like to reiterate that it accepts no liability for any adverse consequences for your personal relationships.
Approval code: NTAJ14022312
|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