Weekly Tax Update 19 November 2019

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

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Ami Jack
Published: 20 Nov 2019 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. General

1.1 Civil partnerships extended to opposite-sex couples 

New regulations have been passed that remove the requirement for a couple to be of the same sex to be eligible to enter into a civil partnership. Tax laws that provide relief to civil partners will therefore also be available to other couples who enter into a civil partnership. 

Tax reliefs that are available to married couples are also available to those in a civil partnership. Previously, opposite-sex couples (sic) who were not married did not have access to these reliefs. The regulations take effect on 2 December 2019. 


1.2 CIOT urges politicians to make good tax policies 

The CIOT has issued a press release reminding politicians of the eight principles of good tax policymaking. 

The press release urges political parties to avoid ‘rabbit out of a hat’ tax policies that are not based on appropriate consultation or preparation. It proposes that good tax law should be: clear, simple, certain, equitable, just, accessible, joined-up and inclusive.


2. Private client

2.1 Entrepreneurs’ relief (ER) denied as there was no trade

The FTT has found that ER was not available on the sale of two units offering secure storage and workshop facility hire, as the activities carried out did not constitute trading.

The taxpayers jointly acquired two units, which were initially used in Mr Reneaux’s trade. After selling his business, the taxpayers, who were by this time divorced, tried unsuccessfully to sell or let the units. They instead set up a business, which offered secure storage in one unit, and the opportunity for third parties to hire workshop facilities in the other. 

The storage unit was hired out for five months for £10,000 and the workspace hire business produced some income, which the taxpayers reported on their tax returns. The units were then sold for £600,000 and the taxpayers claimed ER on the disposal.

The FTT considered the badges of trade and found that the activities did not constitute trading and ER was therefore not available. It did go on to consider whether or not the taxpayers were acting in partnership. It found that while they had not entered into any formal partnership agreement, did not report the income as partnership income and did not register the business as a partnership with HMRC, they were carrying on a business in common with a view to profit. They were therefore in a partnership.

Reneaux and Reneaux-Smith v HMRC [2019] UKFTT 0666 (TC)


3. PAYE and employment

3.1 HMRC overstated Rangers’ penalties by £26m

HMRC has been accused of overstating the tax penalties owed by the Rangers Football Club (the Club), which contributed to its collapse. The former Club Chairman is reported to have claimed that the Club may not have been liquidated if the penalties had been correctly estimated. 

In 2017, the Club lost a long-running tax case regarding the use of employee benefit trusts. At the time, HMRC claimed that the Club owed tax, interest and penalties of approximately £94m. The Liquidators have since announced that HMRC has revised that claim, and reduced the total liability to approximately £68m. 

The former Club Chairman is reported to have said that, had the tax figures been correctly stated at the time, more buyers would have been interested in acquiring the Club. The extremely high level of debt was a primary reason for the sale to a particular venture capitalist, who liquidated the Club. It has also been reported that the stakeholders are considering taking legal action against HMRC. 


3.2 Obligations of an ‘Employment intermediary’ cannot be imposed on an agent 

A penalty notice has been vacated by the FTT because it was issued to a director rather than to her company. The director acted as an agent for the company, and was not liable for its PAYE filing obligations. 

The taxpayer was the sole director of a company that operated a café. A penalty notice was issued for failure by a specified employment intermediary to file a particular PAYE return disclosing information on its workers and wages paid. The notice was, however, addressed to the taxpayer, not to the company. There was some confusion among the HMRC officers involved as to the person being penalised. The FTT found that, as a matter of fact, it was the taxpayer. Her appeal was upheld on the basis that she was not an employment intermediary; an agent acting for an employment intermediary is not himself an employment intermediary. The penalty was therefore fundamentally flawed. Furthermore, the penalty was determined by a computer, not a real life HMRC officer, and the taxpayer had a reasonable excuse. It fell to be vacated on these grounds also. 

Angela Salazar v HMRC [2019] UKFTT 0614 (TC) 


3.3  57 questions on off-payroll working in the private sector 

The ICAEW has released a new guide containing the answers to 57 questions on off-payroll working in the private sector. 

The questions cover topics including employment status, withholding PAYE and who the ‘client’ is under the new rules. The off-payroll working rules will be extended to the private sector on 6 April 2020. 


4. Business tax

4.1 UT dismisses HMRC appeal in capital allowances case 

The UT has broadly agreed with the FTT’s decision in the Loch Ness hydroelectric power scheme case. It clarified the meaning of particular words, and upheld the FTT’s interpretation of the specific exemptions in the Capital Allowances legislation. 

The company had incurred costs of approximately £260m on the development of a hydroelectric power scheme. The FTT examined these in detail, and determined what items were eligible for capital allowances.  

On appeal, the UT broadly agreed with the FTT, save for the treatment of one item, but for different reasons. It clarified the meaning of the words ‘tunnel’, ‘aqueduct’, and ‘pipeline’, and confirmed that such words should be given their ordinary meaning. The UT also agreed with the decision in Cheshire Cavity that ‘installation’ requires putting something pre-existing in place. It does not include the alteration of land involved in the creation of an asset or structure, even if the structure is not subsequently moved. 

HMRC v SSE Generation Limited [2019] UKUT 332 (TCC):


Cheshire Cavity Storage 1 Limited and another v HMRC:


4.2 OECD proposal for a minimum international business tax rate 

The OCED has opened a consultation on addressing the tax challenges arising from the digital economy. It includes a proposal for a minimum rate of business tax to be imposed internationally. 

The minimum international business tax rate is part of the Global Anti-Base Erosion proposal of Pillar Two of the OECD’s response to taxation of the digital economy. It is not, however, limited to the digital economy. The minimum tax rate has not yet been determined; it will be discussed by OECD members once the consultation is closed. An international minimum rate would, the OECD suggests, reduce the benefit obtained from shifting profits into a lower tax jurisdiction. The proposal would give a jurisdiction the right to tax a branch of a multinational entity if it is not taxed at the minimum level in its jurisdiction of domicile. Provisions have also been suggested for simplification options, carve-outs, and blending rates at jurisdictional and global levels. 


4.3  OECD updates guidance on Country-by-Country Reporting

Additional guidance has been released to provide greater certainty for multinational entities submitting Country-by-Country (CbC) reports. A summary of common errors and the correct treatment has also been published. 

CbC reports are required from very large multinational enterprises, and provide tax authorities with key information on international activities. The OECD has expanded its guidance to include new topics such as:

  • the treatment of dividends;
  • the use of rounded amounts;
  • short and long accounting periods; and
  • local filing. 

Guidance on CbC Reporting: www.oecd.org/tax/guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf

Common errors: www.oecd.org/tax/beps/common-errors-mnes-cbc-reports.pdf

5. VAT

5.1 FTT confirms that an economic activity does not require a profit motive 

A school that was partly funded by donations has been found to carry on an economic activity, despite not having a profit-making motive. The construction of an annexe could not, therefore, qualify for zero-rating. 

The school had constructed an annexe, and argued that the construction costs should be zero-rated under as a relevant charitable building. The FTT ruled, however, that the school was carrying on an economic activity, and could not, therefore, qualify for zero-rating. Although the students’ fees were set below the running costs of the school, they amounted to consideration received for educational services. The fees were not charitable donations, unlike the donations received from the wider community. The FTT also noted that the fees were commensurate with the fees of similar educational institutions. 

This ruling confirms the established principle that a profit-making motive is not necessary for an entity to be engaged in economic activity for the purposes of VAT. It is possible for a supplier to be motivated by charitable objectives and yet still be carrying on an economic activity. 


5.2 Increased anti-fraud measures, and simplification for small businesses

Member States have agreed to strengthen anti-fraud measures by making cross-border payment information available to EU tax authorities. Agreements were also reached to simplify VAT for small and medium enterprises, and for supplies to armed forces. 

The proposed rules will require information to be disclosed by credit and debit card providers that facilitate over 90% of online purchases in the EU. Such disclosures would be limited to particular cross-border payments, and would be made available to anti-fraud specialists. These rules are yet to be agreed by the European Parliament, and are expected to come into effect in January 2024. 

Further agreements were reached to harmonise the turnover thresholds for VAT and simplify registration and reporting requirements. The proposed threshold is €85,000 for business operating only within their own Member State, and €100,000 for cross-border businesses to be eligible for exemption in another Member State. These rules are expected to take effect in January 2025. 

Member States also agreed to exempt supplies to armed forces where the forces are deployed outside their Member State as part of a European defence effort. 


5.3 EC proposes to extend UK input tax restriction on private use of leased cars 

The EC has proposed that the current UK VAT derogation on leased cars should be extended to 31 December 2022. This would ensure that the UK rules on the use of such vehicles continue to operate without alteration. 

The derogation allows the UK to impose a 50% input tax deduction on leased cars that are partly used for non-business purposes. It also permits the UK to exclude the private use of leased business vehicles from being treated as supplies of services for consideration. If the extension is agreed by the European Council it will apply until 31 December 2022 or, if it happens earlier, the date the UK withdraws from the EU. 

The extension will ensure that lessees continue to enjoy a lower administrative burden; under the derogation they do not have to account for VAT on the private use of leased business vehicles, or maintain exhaustive mileage records. 


6. Tax publications and webinars

6.1 Tax publications 

The following Tax publications have been published

7. And finally

7.1 Look back in anger

We are dismayed at the proposal to include in the next Finance Bill a law that will retrospectively legalise HMRC’s use of automated processes to issue statutory notices.  Our beef is not about automation. There is case law holding that these past notices were ¬not issued in a manner consistent with the law. The proposed legislation would retrospectively sweep this aside and pretend that the law always said what HMRC wanted it to say. And what justification is offered for such brazenness?  The efficient use of resources and the practicalities of large-scale decisions

Let’s face it: cost management doesn’t really justify legalising past unlawful behaviour. It seems HMRC did not act within the powers conferred on it by statute when it collected penalties from taxpayers, and it now seeks to make it law that it did. But those statutory notices should never have been enforced, and those penalties should never have been collected. HMRC’s promise that the new law would not overturn the settled decisions of past courts is a small mercy; no protection is offered to taxpayers who have not realised they were unlawfully penalised or to those whose cases have not yet been finalised. 

It is not a big deal, unlike the retrospective aspects of the loan charge; but it’s the same point and we feel the same way.   




Organisations   Courts Taxes etc  
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    


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.