Weekly Tax Update 21 April 2020

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

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Ami Jack
Published: 22 Apr 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 OECD guidance on tax treaty issues and COVID-19

The OECD has published its analysis of cross-border issues that may arise due to the COVID-19 crisis. The report sets out the OECD’s view of how tax treaties should be interpreted to resolve these issues. 

Many governments have imposed quarantine measures or prohibited travel in response to the spread of COVID-19. These restrictions on movement have, in some cases, resulted in individuals carrying out work in a different jurisdiction from their usual place of work.

In the OECD’s view, an employee dislocated to a different jurisdiction from his usual place of employment is unlikely to create a permanent establishment. It notes, however, that there may still be a requirement to register for CT under domestic law in the jurisdiction of the quarantined employee. The OECD also believes that a company’s residence or place of effective management is unlikely to change as a result of senior staff being quarantined in countries other than the jurisdiction of company residence. Attending meetings virtually is a temporary issue and will not usually trigger a different outcome in the tie-breaker residence test in tax treaties.

There may also be uncertainty regarding the taxation of an employee’s salary if he is quarantined in a different jurisdiction from his usual place of work. If a Government subsidises his wage by making a payment to his employer, the OECD believes that the income should be taxable in the jurisdiction where he would work if not for the current restrictions.

The OECD has also taken the view that the current travel restrictions are unlikely to change an individual’s treaty tax residence.


1.2 Agent Update 77

The latest edition of Agent Update contains reminders about recent changes to tax law and procedure. It includes changes to processes that have been introduced as a result of the COVID disruption. 

Agent Update 77 covers issues such as:

how to obtain agent authority for a corporate non-resident landlord that has not yet received its CT Unique Taxpayer Reference from HMRC;

the delay of the off-payroll working reforms to the private sector;

how to claim refunds of voluntary payments under the loan charge;

changes to the short-term business visitors special arrangements; and

how to claim repayment of CT paid under quarterly instalments if a business suffers a reduction in profit due to COVID-19.

It also confirms that HMRC will no longer receive post by fax.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/ 879454/Agent-Update-WT-77_v6_Accessible.pdf

1.3  Stamp taxes newsletter

The April 2020 edition of the stamp taxes newsletter contains a summary of HMRC’s view on recent cases discussing the meaning of ‘residential’ property.  

This edition of the newsletter includes reminders on several procedural points, as well as HMRC’s interpretation of recent SDLT cases. The two FTT cases discussed were decided in HMRC’s favour. They both considered the test for whether or not a property comprising of a dwelling and extensive land was wholly ‘residential’. HMRC notes that the test to be used for the nature of a property is not one of reasonable enjoyment, but whether the land is an appendage to the dwelling or a self-standing function.

The newsletter also contains a helpful summary of the recent changes to the SDLT manuals, and changes to procedures during the COVID-19 disruption.


1.4  HMRC enquiries

It has been widely reported that HMRC is offering to suspend enquiries into taxpayers’ tax affairs in response to COVID-19.

HMRC is writing to taxpayers under enquiry stating that due to the pandemic, it will not request information or documents during the current lockdown, nor press for responses to requests already made. Some letters state there is a temporary hold on the enquiry. If the taxpayer wishes to continue the enquiry process, they should let HMRC know.



2. Private client

2.1 HMRC amendments to partners’ tax return after partnership enquiry

Two taxpayers have lost their main appeal at the CA, with HMRC’s method of issuing a notice for repayment of an excessive refund held to be lawful. The taxpayers argued unsuccessfully that the notices were invalid as they were effectively closure notices and so should have specifically included the final amount of tax due.

The taxpayers joined a partnership that generated losses. Their claims to set these losses against income of prior years were initially agreed by HMRC, and repayments were issued. Following an enquiry into the partnership tax return, HMRC disallowed the taxpayers’ loss claims.

The taxpayers argued that the notices served on them to repay the excessive tax refunds were ineffective. The primary ground was that the notices issued by HMRC to amend their personal tax returns were effectively closure notices. The notices should therefore have included the final amount of tax due, but they only included details of the reduction to their allowable losses. The CA found that the notices issued to amend individual partners’ tax return following closure of the partnership enquiry are not themselves closure notices and the notices were therefore valid.

The CA did, however, find in favour of one of the taxpayers on one ground of appeal. HMRC had chosen to carry back her loss, rather than claim sideways loss relief. The CA found that this went beyond the scope of the notice and did not therefore give rise to an obligation to pay the tax sought by HMRC.

Amrolia, R (On the Application Of) v HMRC [2020] EWCA Civ 488


2.2 Tax residence rules relaxed for COVID-19 workers

The statutory residence test (SRT) rules have been temporarily relaxed for highly-skilled individuals working in the UK on the pandemic response. This is designed to prevent these individuals from compromising their UK tax position while engaged in this work.

The Chancellor has announced that any time spent in the UK by individuals working on COVID-19-related activities will not count towards the residence tests, for a short period. This is predicted to apply to, for example, engineers working on medical equipment and medical staff, though full guidance has not yet been released.

The scheme has only been announced for the period 1 March to 1 June 2020, but the duration will be kept under review.


2.3  CGT 30-day reporting – property disposals

HMRC has published guidance on reporting CGT on UK property disposals. This covers disposals of UK residential property by UK residents under the new rules applying from 6 April 2020. It also covers direct disposals of any UK property or land by non-UK residents under existing rules, although only disposals from 6 April 2020 should be reported using the new form.

HMRC’s new guidance on reporting CGT on UK property disposals includes:

  • confirmation as to what disposals should be reported using the new form, covering disposals by UK residents and non-residents. The new form cannot currently be used where the individual who disposed of the property has died. Indirect disposals by non-residents also cannot be reported on this form and should still be reported on a NRCGT form;
  • details of the new authorisation process to allow agents to file a property return on the taxpayer’s behalf; and
  • details of what is needed to complete the return.

HMRC has separately confirmed that no late filing penalties will apply to late returns submitted by 31 July 2020, although late payment interest will apply. It is not yet completely clear whether or not this concession on penalties only applies to UK residents, or if it could also apply to non-residents.





3. Trusts, estates and IHT

3.1 Trust Registration Service records can now be updated online

The online portal for the Trust Registration Service (TRS) has been updated to include the ability for trustees, or their agents, to update a TRS record online.

Almost three years on from the introduction of the TRS, HMRC has upgraded the service to allow trustees to update a trust’s record online. Changes that need to be reported include the retirement or appointment of trustees, and changes to the settlor or beneficiaries.



3.2 COVID-19: Changes to IHT administration at HMRC

HMRC has updated procedures relating to IHT payments and signatures on IHT forms, due to difficulties arising from COVID-19.

HMRC has informed the professional bodies that, due to administrative difficulties caused by the pandemic, some IHT procedures are being changed. The main points are as follows:

  • IHT payments can no longer be made by cheque;
  • repayments from HMRC will only be made by bank transfer; and
  • where an agent is used, printed signatures will be acceptable on IHT forms if a set declaration is supplied with the form.

HMRC notes that further changes may follow.


4. PAYE and employment

4.1 Impact of COVID-19 on taxing benefits under salary sacrifice schemes

HMRC has confirmed that changes to salary sacrifice arrangements as a result of COVID-19 will not affect transitional arrangements under the optional remuneration arrangement (OpRA) rules. 

The OpRA rules came into force in April 2017 and changed the tax treatment of some employee benefits provided through salary sacrifice schemes. Arrangements already in existence were subject to transitional rules until April 2021 unless they were altered before this date. As a result of the COVID disruption, some employees may have altered their salary sacrifice arrangements. HMRC has confirmed that such variations will not cause an arrangement to become subject to the OpRA rules. Transitional relief in these circumstances will continue to apply because the variation is beyond the control of the parties.


5. Business tax

5.1 HMRC guidance on company residence and COVID-19

HMRC has published its view that a company’s tax residence will not necessarily change as a result of the current travel restrictions. It will take a holistic view to determine residence; a few board meetings held in the UK will not usually result in a company becoming UK tax resident. 

The new section of the International Manual sets out HMRC’s position on how the current travel restrictions will affect corporate residence. It confirms that HMRC is ‘very sympathetic’ to the difficulties COVID-19 is causing to companies. Temporarily holding board meetings in the UK will not necessarily be sufficient to move the central management and control of the company to the UK. It also notes that, because of the tie-breaker test in most double taxation treaties, it may be that the company will not be treated as UK resident even if central management and control has moved to the UK.


6. VAT

6.1 SC refers long-running VAT case to the CJEU

The SC has stayed the proceedings of a case where HMRC denied the refund of input VAT that was considered not to have been paid by the supplier. The lower courts all agreed with HMRC that there could be no recovery of VAT that should have been charged and could not have been considered to be inclusive in the price. 

In 2009, the CJEU ruled that where a universal postal provider had individually negotiated postal contracts, these supplies should have been taxable; they were not exempt from VAT. Input tax, which should therefore have been charged by Royal Mail on particular postal contracts, had not been charged, nor had it been paid to HMRC.

In response to the CJEU’s decision, a party to one of the postal contracts attempted to recover from HMRC the VAT that should have been charged. The taxpayer contended that the supplies it received were subject to VAT, so it was entitled to recover that VAT on the basis that the invoices were to be deemed to be VAT inclusive. No VAT invoices had been received by the taxpayer, however, nor had it demonstrated any intention of requesting VAT invoices. HMRC denied the taxpayer’s claim.

The FTT, UT and CA had all dismissed the taxpayer’s appeals, finding that HMRC was correct to deny the recovery of VAT by the taxpayer. The SC has, however, stayed the proceedings and referred four questions to the CJEU for a preliminary ruling on the correct interpretation of the VAT Directive. The referral demonstrates the continued importance of EU law despite the withdrawal of the UK from the EU.

Zipvit Ltd v Her Majesty’s Revenue and Customs [2020] UKSC 15


7. Tax publications

7.1 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.

8. And finally

8.1 WAH!

Now, more than ever, is the time to resist ‘working from home’. We have long fought a battle over this and have tried to discourage it wherever it has been mentioned. Indeed, even some of our tax colleagues, who really should know better, have, in our view very unwisely, been embracing it, and in the current emergency we are up against it.

Unconvinced? We think you’ll find that the rules for homeworker’s additional household expenses are very clear. Employment income tax relief for homeworking arrangements is given where the employment is ‘at home’. Not ‘from’; ‘at’. There can be no doubt that for tax people at least ‘working at home’ is correct. That’s what we should be doing, where we can, and for which there may even sometimes be some tax relief.



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.