Weekly Tax Update 15 July 2020

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

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Ami Jack
Published: 15 Jul 2020 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. General

1.1 Chancellor’s Plan for Jobs

On Wednesday 8 July the Chancellor gave his Plan for Jobs economic update to Parliament, with details of further support for the economy. This was principally focused on improving employment, but included cuts to SDLT and VAT, and the introduction of the furlough bonus scheme.

He also confirmed that the next Budget will be in the Autumn, and noted that he would deal with ‘the challenges facing our public finances’. We expect further, more substantial changes to be announced at that time.

The chief executive of HMRC raised concerns over the value for money of the furlough bonus scheme prior to the update, but has been directed to proceed with it.



1.2 Temporary cut to SDLT

SDLT has been temporarily reduced for all residential property purchases in England and Northern Ireland. Similar measures will be introduced in Scotland. The reductions will apply until 31 March 2021.

The reduction for England and Northern Ireland was announced as part of the Chancellor of the Exchequer’s Plan for Jobs last week. It is achieved by an increase in the nil rate band for SDLT on residential properties from £125,000 to £500,000, effective 8 July 2020. The additional dwelling supplement still applies to buyers of second properties who are not replacing their main residence. Such buyers will therefore be subject to SDLT at 3% on the first £500,000 of the purchase price. The reduction is also available to corporate purchasers of residential property, in some circumstances. There is no change to SDLT on purchases of commercial property.

A similar cut will be implemented in Scotland, effective from 15 July 2020. The minimum threshold for Land and Buildings Transaction Tax (LBTT) in Scotland will increase from £145,000 to £250,000.

The Welsh Government has yet to announce whether or not similar reductions will be introduced for purchases in Wales.



2. Private client

2.1 All UK residential property disposals to be reported on new online service

HMRC has updated its forms and guidance such that all disposals of UK residential property, including those by non-residents, must now be reported using the new online service.

HMRC’s original guidance stated that indirect disposals and disposals of mixed-use property by non-residents should be reported on the old non-resident CGT (NRCGT) form. The guidance has now been updated to confirm that these disposals must instead be reported through the new CGT on UK property return. The old NRCGT form can now only be used for disposals prior to 6 April 2020.


2.2 HMRC wins lead case on settlements rules

The FTT has found that, although a dividend paid on shares a taxpayer had put into trust was not a distribution to him, the settlements provisions applied such that he was liable to tax on it. This was the lead case in HMRC’s investigation into the scheme.

In 2012/13, the taxpayer had entered into an avoidance scheme designed to allow extraction of profits from a trading company free of income tax. It was notified to HMRC under the disclosure of tax avoidance schemes rules, and HMRC sought to tax the extracted profits as a dividend.

The scheme was complex, but in summary involved the creation of a new class of share in the company. Those shares were transferred to a non-resident individual (N), who transferred them to a non-resident trust. N retained an interest in the trust, but the original shareholder could benefit, and received most of the proceeds when a dividend was subsequently declared on the shares.

The taxpayer argued that under the settlements legislation only N, as settlor, was liable to tax on the dividend. HMRC contended that the taxpayer himself was a settlor of the trust, or alternatively that the dividend should be taxed on him under the transfer of assets abroad anti-avoidance provisions.

The FTT agreed that the final payment was not a distribution to him but to the trustees. It found, however, that the taxpayer was subject to the settlements provisions as a settlor and the income was therefore taxable on him. It went on to find that even if he was not a settlor, he would have been taxable under the transfer of assets abroad provisions.

Dunsby v HMRC [2020] UKFTT 271 (TC)


2.3  Bonus payments made to LLP members taxable as earnings

The FTT held that bonus payments, made to former employees after they became members of an LLP, should be treated as earnings for IT and NICs.

Bonuses were paid to five members of an LLP under a Long-term Incentive Plan (LTIP). They were all previously employees of the LLP and were admitted to the scheme whilst still under employment. Under the contract, payment would be made once prescribed conditions had been met. At the time of payment, the five employees had become members of the LLP. The taxpayer claimed that the payments were made to the individuals in their capacity as a member of an LLP, so should be treated as a share of the LLP profits. This would have been subject to IT and Class 4 NIC. HMRC sought to tax the payments as deferred employment income subject to IT and Class 1 primary and secondary NIC.

The taxpayer argued first, that the members’ status as an LLP member was an absolute bar to receiving employment income from an LLP. Second, they claimed that the accrued bonus payments were contingent on the contractual requirements being met, which only happened after the employees had become members. Third, they asserted that the recipients were members of the LLP at the time of payment and could only receive the payments as a share of the trading profits.

The FTT held that the bonus payments should be treated as earnings received from employment for the purposes of IT and NIC. Whilst the most common form of payment to a member of an LLP was a share of the profits, it did not follow that all payments received by a member should be characterised as such. Furthermore, the payment was not made solely by virtue of their member status. They were also required to satisfy the conditions of the scheme, which was only open to employees.

Charles Tyrwhitt LLP v HMRC [2020] UKFTT 272 (TC)


2.4  Judicial review refused on HMRC interpretation of the remittance rules

Two taxpayers have been refused judicial review of an HMRC interpretation of the remittance basis rules. The relevant provision was new, so they could have no legitimate expectation of a particular treatment, regardless of HMRC comments before it came into force.

The taxpayers had agreed to indemnify a company (C) against non-payment of a debt by another company (I). The parent company of I, settled the debt by making a payment to another company in the same group as C. That group then issued a credit note to I in respect of the debt. The taxpayers had taken on responsibility for the indemnity when they sold their interest in the group to C.

HMRC analysed the receipt of the credit note by I, so releasing the taxpayers from their obligation to indemnify, as a remittance of property by the taxpayers, and set out the analysis in a series of letters, including the position that the last steps were ‘uncommercial and contrived’. The taxpayers applied for judicial review on the grounds that HMRC’s reliance on its interpretation was unlawful and unreasonable.

The UT noted that the taxpayers’ argument of legitimate expectation was not arguable, as the provision HMRC relied on was new. It rejected the argument that HMRC was incorrect, as this was not grounds for judicial review: the taxpayers could take it to the FTT. The application for judicial review was therefore refused.

Mehan & Anor, R.(on the application of) v HMRC [2020] UKUT 213 (TCC)


3. PAYE and employment

3.1 Guidance on COVID-19 tests at work

HMRC has reversed its guidance on the tax treatment of COVID-19 tests provided by employers. The guidance now confirms that such tests will not be subject to IT or Class 1A NICs.

HMRC’s guidance on expenses and benefits provided during the pandemic was updated last week to state that employer-provided COVID-19 tests were a taxable employment benefit. Following criticism from MPs, this section of the guidance was retracted. It has subsequently been updated to confirm that COVID testing provided to employees will not incur IT or Class 1A NICs. Legislation is expected to be passed, after which the guidance will be updated.


4. Business tax

4.1 HMRC wins international royalties case

The FTT has ruled against a Canadian bank that failed to declare royalty income from oil production in its UK tax returns. The royalty income was found to arise from the right to exploit natural resources, even though it was acquired as satisfaction of a bad debt from an insolvent debtor. 

The bank made a significant loan to enable the borrower to acquire the rights to an oil field in the North Sea. The borrower subsequently sold those rights, partly in exchange for an entitlement to royalties from the oil field. The borrower later went into receivership while it owed the bank CAD$185 million. The Canadian courts assigned the bank the rights to the royalties for nominal consideration. The bank declared that income in its Canadian tax return, but not in the UK tax return of the UK permanent establishment. HMRC argued that the UK had primary taxing rights over the royalties under the UK/Canadian Double Taxation Agreement (DTA).

The first issue was how the royalties should be treated under the DTA. The FTT held that the payments amounted to income from immoveable property under Article 6, so the UK had the primary taxing right. The FTT clarified that Article 6 covered both income from the grant of the right to exploit natural resources and income from subsequent dealings in that right. The second issue was how those payments should be taxed in the UK. The FTT rejected the bank’s argument that the income was that of a banking trade and not from exploration or exploitation rights. It found that the rights to the royalties amounted to rights to the benefit of oil production. The profits from those rights were therefore subject to UK CT by the deemed UK permanent establishment. The FTT went on to determine that the only deductible expense of that trade was the cost of acquiring the rights: the nominal consideration paid.

Royal Bank of Canada v HMRC [2020] UKFTT 0267 (TC)


5. VAT

5.1 Reduced rate of VAT on food, drink and accommodation

The Chancellor has announced that a reduced rate of VAT, at 5%, will apply to particular supplies of food, drink, accommodation and attractions.

These measures were announced in the Chancellor’s statement last week as part of the plan to support the hospitality and tourism sectors. The reduction from the standard rate of VAT at 20% will take effect from 15 July 2020 and will cease to apply on 12 January 2021. The reduced rate of VAT will apply to on-premises catering and hot takeaway food and drink, excluding alcohol. It will also apply to sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.

Alcoholic drinks are excluded from the VAT rate reduction and will continue to attract VAT at 20%.


6. Tax publications and webinars

6.1 COVID-19 hub

Our Coronavirus hub is designed to answer your key questions and will be updated regularly over the next few months. It contains a number of detailed articles on the measures introduced to help with the financial impact of COVID-19.

6.2 Tax publications

The following Tax publications have been published

7. And finally

7.1 Paddington’s Fence

It’s that time of year again. Regular readers will know that we are drawn like a salmon to a fly to the Tax Gap numbers and this year is as interesting as ever.

The first and most obvious point is that the gap is the same this time as last, and has indeed hardly changed in money terms since 2005: Paddington’s planks. He is a neat bear. The claim therefore that the gap has decreased is nonsense. The gap as a percentage of the total tax collected has fallen, but that is hardly the same thing. And the summary does not mention that last year’s figures have been revised down by some 10%.

There has been virtually no progress against tax avoidance this year down from £1.8bn to £1.7bn. Based on these numbers, there don’t appear to be any great avoidance victories left to be won. As ever, that’s worth bearing in mind when there is talk of clamping down on it.

Who are the culprits of this apparent misbehaviour? A very large share is in the small business group and only a comparatively small amount is big business. The large faceless corporates are not the villains. And we just have to add that there is still a large amount of activity carried out by criminal customers. We may groan when taxpayers are called that, but you have to admire HMRC’s consistency.


Ref: NTAJ14072087


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.