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.
1.1 UK cross-border tax reporting regulations finalised
The UK regulations implementing DAC6 have been laid before Parliament. The regulations impose a reporting obligation on intermediaries and taxpayers involved in cross-border arrangements. They will come into effect on 1 July 2020.
The sixth iteration of the EU Directive on Administrative Cooperation (DAC6), under which these regulations were developed was passed in May 2018. These regulations will implement DAC6 for UK domestic law. DAC6 requires intermediaries, such as tax advisers, accountants and lawyers, to inform HMRC of particular details of cross-border arrangements. It only applies to arrangements that meet at least one of five prescribed hallmarks. DAC6 states that its purpose is to counter aggressive tax planning, but the rules are widely drawn and will capture some non-tax arrangements. Reporting commences in July 2020. The regulations apply retroactively to cross-border arrangements implemented on or after 25 June 2018.
SI 2020/25 The International Tax Enforcement (Disclosable Arrangements) Regulations 2020
1.2 Updated SDLT guidance from HMRC
HMRC has substantially updated the SDLT Manual, following the outcome of the Project Blue case in June 2018. The updates include several new sections on the application of the anti-avoidance provisions.
Its sections addressing anti-avoidance have been under review since May 2019. The new material is significantly more detailed. It sets out HMRC’s position on the anti-avoidance provisions in light of recent case law.
Current guidance: www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09050
1.3 Scottish Budget set for 6 February
The Scottish Budget has been set for 6 February, more than a month before the UK Parliament Budget on 11 March.
The Scottish Finance Secretary Derek Mackay MSP has announced that the Scottish Government’s Budget will be published on 6 February 2020. The announcement commented that the UK Government’s timing of the 11 March Budget is ‘totally unacceptable’ and shows a ‘disregard for devolution and a lack of fiscal responsibility’.
The Scottish Budget will be held in advance of the UK Government’s Budget to allow for scrutiny and for local authorities to set their budgets.
It has been announced that the Scottish Budget will include points to help tackle the global climate emergency, reduce child poverty and boost the economy.
2. Private client
2.1 FTT upholds determinations of under-declared income
A taxpayer who failed to keep sufficient business records has lost an appeal against determinations and compulsory VAT registration. Test purchases by HMRC and a self-invigilation period showed that he had under-declared his business revenue for several years.
The taxpayer operated a fish and chip shop as a sole trader. His record-keeping systems were poor, and the records mostly handwritten. HMRC determined that he had underdeclared his trading income for several years, and that he should have been VAT registered since 2010. The FTT agreed with HMRC’s conclusions and upheld the determinations, penalties and compulsory VAT registration. It also confirmed that the discovery assessments were not stale, despite having been issued more than a year after HMRC made the discoveries. The delay had not been due to inaction; HMRC had acquiesced to the taxpayer’s request for a delay whilst the outcome of the VAT appeals was pending. This is an acceptable reason for delay and did not cause the discovery to become stale.
Tahsin Dagelen (T/A Deep Sea Fish Bar) v HMRC  UKFTT 0009 (TC)
2.2 Pension taper rules may be amended to alleviate NHS staffing issues
It has been reported that HMT is planning to increase the threshold at which the pensions annual allowance is triggered. It is suggested that this is a response to doctors refusing overtime work to avoid incurring tax liabilities on additional pension contributions.
The current tapering rules apply to taxpayers with annual incomes exceeding £110,000. The annual allowance for pension contributions for affected taxpayers can be reduced by up to £30,000. The reports indicate that HMT will increase the taper threshold to £150,000. The Government has confirmed that the review of the NHS pension problem will be included in the next Budget.
2.3 Taxpayer loses at UT because of accountant’s carelessness
The UT has reversed a decision by the FTT on the grounds that that taxpayer’s accountant acting on his behalf had been careless. The accountant had assumed the role of a tax adviser and provided advice on matters on which he was not competent to advise.
The taxpayer had participated in a tax avoidance scheme and claimed significant IT losses. The availability of those losses was not disputed in this case; the taxpayer argued only against the validity of the discovery assessments. The FTT had found for the taxpayer. It had held that neither the taxpayer nor anyone acting on his behalf had acted carelessly or deliberately in relation to the loss claim. It also held that the information provided to HMRC was adequate to alert a hypothetical officer to the potential insufficiency of the original assessment. The discovery assessment was therefore held to be invalid.
The UT overturned this decision by finding that the taxpayer’s accountant, who acted on his behalf, had acted carelessly. He had formed an opinion as to the tax avoidance scheme without being either in a position to do so, or qualified to do so. He also gave tax advice that a reasonably competent tax adviser would not give, and failed to give the tax advice a reasonably competent tax adviser would give. The time limit for a discovery assessment was therefore six years, not four, and the assessments were valid.
HMRC v John Hicks  UKUT 12 (TCC)
3. Business tax
3.1 New guidance on non-resident landlords transitioning to CT
HMRC has published guidance for corporate non-resident landlords ahead of the shift to CT from IT on 6 April 2020. The guidance sets out information on the application of CT rules, how to make tax payments and administrative points.
The guidance confirms the following points:
- IT losses arising before 6 April 2020 can be offset against CT profits from the same UK property business;
- no balancing charge will arise for capital allowances purposes on the transition to CT;
- the Corporate Interest Restriction may restrict the deduction of interest expenses under CT; and
- the quarterly instalment rules will not apply in the first period after the transition to CT.
It also explains that any IT credit balances at 6 April 2020 will be repaid, rather than set against future CT liabilities, if the company is no longer subject to IT. HMRC has confirmed that all corporate non-resident landlords that are registered for IT will be automatically registered for CT and issued with a CT UTR by 30 June 2020.
4. And finally
We were diverted by a Private Members Bill in the House of Lords this week, that set us thinking and will, we bet, do the same for you. This was the Inheritance Tax Act 1984 (Amendment) (Siblings) Bill. It provides for siblings to be able to inherit IHT free from each other provided, broadly, they lived together for 7 years and were both over 30. The thing is, the minute you start thinking about it, out come the questions. Why 7 years; why 30? We don’t apply those limitations for spouses; perhaps we should? It gets worse; why are siblings a special case? Can we think of other worthy causes? Of course, we can. Or perhaps, perish the thought, the reform should go the other way, and no one should have exemption.
We’ll eat our Tolley’s Yellow Tax Handbooks if this Bill is made law unaltered; but that’s not its purpose. It is intended to highlight a situation which some think an anomaly; others, an unfairness. On the other hand, we’ll eat our Orange ones (tastier, obviously) if everyone can agree together what would be fairer. Just fairer, not even fair. We haven’t a clue, but we did have a great debate. Enjoy!
Inheritance Tax Act 1984 (Amendment) (Siblings) Bill
|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.