Weekly Tax Update 20 August 2019

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

Accounting 641524333
Ami Jack
Published: 20 Aug 2019 Updated: 31 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 Tax Update and the Summer Bank Holiday

Tax Update will be taking a break next week. The next issue will be on 3 September.

1.2 HMRC Agent Update 73 released

HMRC has published Agent Update 73, which provides an overview of the recent issues of which tax agents should be aware.

The latest Agent Update summarises various recent issues and changes, with guidance on:

  • changes to the trust registration service;
  • the introduction of NIC on termination payments and sporting testimonials;
  • including student loans in self-assessment, and when running payroll;
  • helping clients to understand the High Income Child Benefit Charge;
  • projected changes to the Annual Investment Allowance;
  • disguised remuneration schemes – settling loan charges and a warning not to use ‘loan-busting’ schemes;
  • the issues with class 2 NIC and self-assessment;
  • the off-payroll working rules;
  • making tax digital.


1.3  Chancellor aims to simplify UK tax system

Sajid Javid has stated his aim to simplify the UK tax system, and denied plans for changes to SDLT liability.

In an interview the new Chancellor, Sajid Javid, has described his aim to simplify the tax system. The proposal is lacking in detail, but he has denied plans to switch SDLT liability to sellers. He has described himself as a ‘low tax guy’. He will present his first budget this autumn.


2. Private client

2.1 Investor loyalty payments subject to tax deductions

The UT has granted HMRC’s appeal in the Hargreaves Lansdown (HL) case, holding that the ‘loyalty bonuses’ represent pure income profit and are therefore taxable annual payments. HL should have deducted tax at source prior to passing on rebates from fund providers to users of the investment platform.

HL provided a service through which investors could access investment products offered by various fund providers. It also offered other financial services. Prior to 2013, it did not charge investors directly, but was paid a proportion of the fund providers’ annual management charges. In 2013, the rules were changed such that any rebates of the management charges deducted from the funds had to be paid on to the investor. The ‘loyalty bonus’ was paid if the investor had a minimum holding and had paid the management charge.

An organisation must deduct tax from payments to customers if four conditions are met. The FTT and UT agreed that three of the four were met, including that the payments were recurring, but the FTT had found that the true nature of the payment was not profit, but a reduction of net costs for the investor. The UT attached more importance to the contractual position, finding that the payments were pure income profit in the hands of the recipient, as they rewarded customers for remaining with the fund. HL should therefore have deducted income tax from the loyalty bonus payments.

HMRC v Hargreaves Lansdown Asset Management Ltd [2019] UKUT 246 (TCC)


2.2 Payments held to be personal income rather than that of company

A taxpayer argued that payments were compensation to his practice to pay for a locum whilst he was working for the second body. The FTT decided that it was his personal employment income based on the contract between him and the body.

The taxpayer was sole director of his medical practice. He also spent some days working for the area NHS authority as a member of its board. The authority made payments, which he argued were compensation to the practice, as it had to employ a locum on those days. HMRC held that the payments were remuneration to him in his role as an officer of the board.

HMRC’s case was largely based on the contract, which was between the taxpayer and the NHS authority without reference to the company/his medical practice. The taxpayer argued that as a sole practitioner there was no distinction between him and the practice, so the contract was effectively with his company. The payments were made to the company account. The FTT agreed with HMRC and dismissed the appeal.

Cawdron v HMRC [2019] UKFTT 492 (TC)


3. PAYE and employment

3.1 Discovery assessment in a tax avoidance case found to be valid

The discovery assessment in a tax avoidance case was found to be valid; the fact that it resulted from a prescribed calculation process did not render it null and void. HMRC’s decision to disapply particular aspects of the PAYE regulations was held to be within its powers. The liability therefore fell on the individual taxpayer, not the end user of his employment services.

The taxpayer had engaged in a tax avoidance scheme, under which his income was partly paid in the form of interest-free loans. The employers were not UK resident, and paid sums into Employee Benefit Trusts (EBTs), which were intended for on-lending to the taxpayer with the understanding that they would never need to be repaid. The case was designated a lead case, with 34 cases joined to the appeal. Before the case was heard, the taxpayer agreed that, in accordance with the judgement in a different case, the sums paid to the EBTs for onward loans to the taxpayer were properly taxed as his earnings. The issues before the FTT were therefore limited to the validity of the discovery assessment, HMRC’s decision to disapply particular PAYE regulations and the application of the income tax Transfer of Assets Abroad (TOAA) provisions.

It was found that the discovery assessment had been validly made by HMRC. Although the HMRC officer applied a prescribed, mechanical process to determine whether or not there was an insufficiency of tax paid, the officer genuinely made a discovery. The fact that the calculation process had been devised by another officer and applied to a large number of taxpayers did not mean the officer failed to exercise judgment and discretion. HMRC was held to have the discretion to disapply the PAYE regulations such that the taxpayer, not the end user of his services, was liable for the underpaid tax. The FTT did not have the power, however, to determine whether or not that discretion was properly exercised by HMRC. Finally, the TOAA provisions were found to be potentially applicable to this case. The entry by a UK resident into an employment contract with the offshore employer, which resulted in fees arising to the employer, constituted a transfer of an asset abroad. The amount of income transferred to the offshore employer, however, was nil, so the TOAA rules had no effect.

Stephen Hoey v HMRC [2019] UKFTT 489 (TC)


4. Business tax

4.1 HMRC publishes guidance on Structures and Buildings Allowance

Guidance on claiming capital allowances under the new Structures and Buildings Allowance regime has been published by HMRC. It sets out the general rules and the process for claiming relief.

This extension to the capital allowances regime was announced at the 2018 Budget. It provides for relief at 2% per year for 50 years for some costs of construction and renovation of non-residential buildings or structures. The guidance gives a general overview of the rules and explains the process for preparing an allowance statement to support the claim.


5. VAT

5.1 Taxpayer win in agency salary sacrifice scheme

The UT has upheld the FTT’s decision that an employment agency did not carry on an economic activity when it provided a salary sacrifice scheme for which it charged a small administration cost. It held that although the FTT had erred in law by concluding that the company made a supply for VAT purposes to the employees who participated in the arrangement, this did not change the overall outcome: the company did not have to account for VAT on the administrative payments.

The taxpayer provided workers to clients, and offered the workers two options for structuring their remuneration. They could receive their payment in full and claim deductions for the cost of expenses directly from HMRC when they submitted their tax returns. Alternatively, they could select the Mobile Advantage Plan (MAP), a salary sacrifice scheme under which their remuneration would be reduced but the company would pay their travel and subsistence expenses. The take home pay would be higher under the MAP due to the NIC savings. Workers were charged £0.50 or £1 per shift to be paid under the MAP.

HMRC contended that these payments by the workers to the taxpayer company were made in exchange for a taxable supply and the company should have accounted for VAT on that income. The FTT found for the taxpayer: it held that operating the MAP was a supply, but it did not amount to an economic activity. It was therefore not within the scope of VAT.
On appeal, the UT found that the FTT had erred in law by concluding that the taxpayer had made a supply of services to the workers who opted into the MAP. The company had simply offered its employees two remuneration options and then carried out the payrolling obligations arising from those options. The UT did accept that the administrative payments were capable of being consideration, but this did not change the VAT position. It agreed with the FTT’s decision that the taxpayer did not undertake an economic activity by providing the MAP. The payments were therefore outside the scope of VAT. The appeal was dismissed.

HMRC v Pertemps Ltd [2019] UKUT 234 (TCC)


5.2 HC rules against HMRC in judicial review case

The HC has criticised HMRC’s refusal to allow a claim for under-recovered VAT. HMRC had initially decided to accept the claim, and though it did not inform the claimant of its decision it did enter into correspondence with the claimant to clarify details of the claim. HMRC then denied the claim ten years later on the basis that the wrong company had made the claim. By this time, the deadline for the claimant to rectify the position had passed.

The taxpayers made a claim for the repayment of VAT following the EU case Kretztechnik AG. In that case, the CJEU found that the issue of shares was not an activity within the VAT regime, so VAT paid on related expenditure was recoverable. Companies were required to make claims by 31 March 2009 to recover VAT under this decision. The taxpayers made the claim, which was followed by several exchanges of correspondence with HMRC discussing further information. The claim related to activities undertaken from 1973 to 1997, and the companies involved had changed VAT groups several times in the intervening years. Ten years after the initial claim, HMRC rejected it on the grounds that it was not made by the correct company. By this time, the deadline to submit a fresh claim had passed.

The HC examined the decision-making process carried out by HMRC and found that the original, fully-informed determination had been completely reversed. HMRC had initially decided not to reject the claim on the basis of the entitlement of the claimant to make it. A reversal was made years later, at which time the taxpayers had no means to reformulate and resubmit the claim. HMRC was not found to have deliberately withheld the reason for the refusal. The reversal of the positon, however, after the claim deadline without any change in circumstances was held to be not lawful as a matter of public law. The Judge stated that that the decision was ‘so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question could have arrived at it’. HMRC was ordered to uphold the claim and repay the VAT.

R (on the application of Phoenix Life Holdings Ltd and other companies) v HMRC [2019] EWHC 2043 (Admin): (link not available)

Kretztechnik AG [2005] ECR I-4357:

6. And finally

6.1 What’s in a name?

As for books, so for downloads; you shouldn’t judge by the cover. There have, though, been mutterings, at what we should describe as Higher Up, that, may be, our publishing title ‘Tax Update’ might be a bit humdrum, not to say dull. Let us all resist the temptation to say ‘apt’, then. We are always open to change, so we put it to some of our colleagues. One suggested ‘Pulse’ or even ‘Tax Pulse’, which was regretfully dismissed as too lenticular. Our own preference for ‘Wonderland News and Looking Glass Gazette’, though accurate, felt a bit regional.

Over, then, to you, dear reader. We thought it only sensible since you, we hope, will be reading the publication, and therefore might want to come up with the name. It is of course its own prize; if we get an inspirational name we shall be delighted to use it and credit you, if you wish, with your sagacity. If it remains unchanged, either there will have been a storm of protest, as for suggesting changing the music for The Archers, or, just possibly, no one has done better than ‘Update’. Surely not? Over to you!




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.