Weekly Tax Update 22 October 2019

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

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Ami Jack
Published: 23 Oct 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 UK signs new tax treaty with Gibraltar

Double Taxation Agreement between the UK and Gibraltar was signed on 15 October 2019. 

The new tax treaty will come into force once the necessary legislative procedures have been completed and diplomatic notes have been exchanged. Currently, the only tax treaty between Gibraltar and the UK that is in force is in respect of tax information exchange.


1.2 Government responds to ‘Disputing Tax’ report

Recommendations about the handling of tax disputes have been considered by the Government, and the response includes commitments to publish more information about the outcome of various disputes. 

The Government has considered the recommendations of a recent Treasury Sub-committee report on tax avoidance and evasion, and HMRC enquiries and disputes with taxpayers. It has partially accepted recommendations.

The planned changes include publication of more information about how HMRC uses certain powers, such as data gathered under CRS, and the extended offshore time limits. Other plans include more support for vulnerable taxpayers, and improved guidance.


1.3  New HMRC Tax Assurance Commissioner

Melissa Tatton has been appointed as the new HMRC Tax Assurance Commissioner, with responsibility for overseeing tax dispute arrangements.

Following Jim Harra’s appointment as HMRC interim Chief Executive, Melissa Tatton has been appointed to replace him as HMRC’s Tax Assurance Commissioner. She is now responsible for overseeing the tax assurance and dispute governance arrangements of HMRC.

She will also remain in her current post of Chief Executive of the Valuation Office Agency, and will chair the Professional Standards Committee.


2. Private client

2.1 HMRC assessment upheld in absence of accounting records

The FTT has upheld an HMRC assessment on a sole trader, as he had failed to give credible explanations to disprove it. His contention that some deposits in his bank account related to transactions undertaken for no profit was dismissed, largely due to his lack of accounting records.

The taxpayer, a sole trader, had an international network of clients and agents. HMRC analysed his bank accounts, and raised assessments on the basis that he had not fully declared his income. He argued that a proportion of the incoming funds did not represent taxable income, as he undertook some transactions for clients for no profit or loss to generate goodwill. He regarded the funds for this as held on trust for the clients, separate from his trade.

The FTT agreed with HMRC’s position that the additional deposits were trading income. The taxpayer was unable to supply proper records to reconcile his accounts, or explain many transactions. It was not credible that such a large amount of the deposits was not part of his income.

Adelekun v HMRC [2019] UKFTT 613 (TC)


3. Trusts, estates and IHT

3.1 Legacy to Jersey charitable trust exempt from IHT

The SC has found that restricting the IHT exemption for charitable legacies to UK charities is contrary to the EU directive on the free movement of capital. It found that Jersey was a third country for this purpose, rather than part of the UK as an EU state, so a legacy to a charitable Jersey trust was exempt from IHT. Restrictions on the grounds of the difficulty of determining whether or not overseas trusts were charitable were unjustifiable.

In 2007, a Jersey resident left her UK estate in trust for charitable purposes. As the trust was established under Jersey law, HMRC charged IHT on the legacy, holding that it was not a gift to a charity. The HC and CA agreed with HMRC that the charity exemption was implicitly limited to UK charities, though had this been a UK trust it would have been available.

The executors made a separate appeal on the grounds that distinguishing between Jersey and UK trusts in this way was contrary to EU law on the free movement of capital. The CA agreed, holding that Jersey was a third country under EU law, rather than being part of the UK as an EU state. The UK legacy to a Jersey trust was therefore a transfer of capital across borders, and could not be subject to different tax treatment than a legacy from a UK trust. It refused the IHT exemption, however, agreeing with HMRC that the restriction to UK trusts was necessary due to the administrative problems HMRC would have in determining whether or not overseas trusts were charities for UK purposes.

The SC has now accepted the executors’ appeal and decided that the legacy was exempt from IHT. It found that, although there was at the time no mutual assistance agreement between Jersey and the UK, which would assist with determining the UK charitable status of a trust, this was not a requirement as it was not in the legislation. It also refused HMRC’s suggestion that the status of Jersey should be determined by the CJEU instead.

Routier & Anor v HMRC [2019] UKSC 43



4. PAYE and employment

4.1 Film partnership investors lose appeal over effect of enquiries

The CA has found that HMRC enquiries into loss claims were valid. Investors in film partnerships had argued that these were not effective, as HMRC had enquired into their returns, whereas each claim was made outside a return. It had previously been established that in many cases the losses were not valid.

The taxpayers had made losses investing in film partnerships. HMRC disallowed the losses.  The taxpayers applied to the courts for a declaration that they were entitled to the losses, regardless of the intrinsic merits of the claims, on the grounds that HMRC had used the wrong enquiry procedure. HMRC had enquired into the returns, but the taxpayers argued that the claims had been made outside returns, in which case the enquiry should have been opened under a different provision, which HMRC was now out of time to do.

The HC struck out the claims in a prior hearing, and it was accepted that the pre-2007 claimants could not succeed, due to an SC decision on the law prior to the 2007 Income Taxes Act. The CA found that the post-2007 enquiries were also valid, as the claims counted as made within a return. It commented that such a radical change was not intended to be made by the 2007 Act.

The CA also agreed with the HC that the claims should be struck out as the claimants should have sought a judicial review rather than instigating civil proceedings. The fact that the time limit for requesting a judicial review had expired was not reason enough for the civil courts to hear the case.

Knibbs & Ors v HMRC [2019] EWCA Civ 1719


4.2 HMRC Employer Bulletin – October edition

HMRC has issued another Employer Bulletin, with guidance on various current issues for employers. This includes a reminder on how to prepare EU employees in the EU post-Brexit, payroll tips, and notes on benefits in kind.

The update covers various current issues, including a reminder on the changes for UK employers with employees in the EU post-Brexit, and practical tips on how to prepare for new social security arrangements. Some of the other issues covered are:

  • a reminder of the delay to the VAT reverse charge;
  • advice on reporting disguised remuneration and the loan charge;
  • changes to the employment allowance for NICs; and
  • a reminder of the high-income child benefit charge.


4.3  Consultation on payment of NICs for termination awards and sporting testimonials

HMRC is seeking views on draft regulations regarding the collection of Class 1A NICs. The regulations will apply to termination awards exceeding £30,000 and non-contractual, non-customary sporting testimonials above £100,000. 

A new law that brings some termination payments and sporting testimonials within the charge to Class 1A NICs was passed earlier in 2019. HMRC has now introduced draft regulations that will align the reporting and payment of those Class 1A NICs liabilities with the reporting and payment of Class 1A NICs arising on cash income. The proposed rules will apply the Real Time Reporting legislation to the Class 1A NIC liabilities.

The consultation closes on 16 January 2020, and the regulations are expected to take effect on 6 April 2020.


5. VAT

5.1 VAT review of the Isle of Man finds no avoidance on aircraft or yachts

HMT has published its review of the VAT rules and procedures regarding the importation of aircraft and yachts in the Isle of Man. It did not find evidence of widespread VAT avoidance.

The Manx Government requested the review after allegations of VAT avoidance were made following the leak of the ‘Paradise Papers’ in 2017. The allegations included suggestions that wealthy individuals could mitigate their VAT liability by importing aircraft and yachts into the Isle of Man because of the specific rules applied in that jurisdiction. HMT found that the Isle of Man correctly implements and administers UK and EU VAT law for aircraft and yachts. It has been recommended that additional checks be carried out in the years following VAT registration to ensure that the correct amount of VAT continues to be collected.


5.2 New regulations on VAT group eligibility

New regulations have come into force appointing 1 November 2019 as the date on which the VAT group rules in FA 2019 will come into force. 

The rules in FA 2019 allow non-corporate entities to join VAT groups if they control all their corporate subsidiaries. This will apply to individuals, English partnerships and Scottish partnerships. VAT group eligibility will be extended to such persons on 1 November 2019.


5.3  FTT rules on the meaning of ‘annexe’

The FTT has allowed an appeal regarding the construction of a church annexe. The decision distinguishes between an annexe, enlargement and extension, and confirms the authority for the test in the Cantrell case. 

The Church had constructed a large room that shared a wall with the church building. It argued that the new structure was an annexe intended for charitable purposes that qualified for zero-rating. HMRC accepted that it was intended for charitable use, but contended that it was not an annexe. The FTT identified the primary issue as to whether the new structure was an annexe, an enlargement or an extension. The latter two are standard-rated for VAT.

The FTT stated that the judgment is to be made at the time of supply, which is the time of construction. The corridor linking the structure to the church building did not automatically make it an extension, nor did a shared wall. The test laid out in Cantrell v Customs and Excise Commissioners was applied: consider (i) the similarity in appearance, (ii) the layout and the purposes for which each could be used, and (iii) the functions each building is physically capable of performing. The new structure was different from the church building in all these respects. It was held to be a supplementary structure and therefore an annexe qualifying for zero-rating.

Immanuel Church v HMRC [2019] UKFTT 601 (TC):


Cantrell v Customs and Excise Commissioners [2000] EWHC Admin 283:


5.4  Deadline extension for adopting digital links for Making Tax Digital

HMRC has updated its guidance on when a business will qualify for an extension to the deadline for adopting digital links for Making Tax Digital (MTD). From 1 April 2020, most businesses are required to use digital links for any transfer or exchange of data when preparing VAT returns. This deadline may be extended if it would be unachievable and not reasonable for the business to adopt the necessary digital links by the deadline.

HMRC has updated VAT Notice 700/22 to include guidance on how to apply for an extension to the deadline for meeting MTD IT requirements. A business may qualify for additional time to link its different software applications or packages digitally, if it would be unachievable and not reasonable to have links in place by the applicable deadline. The usual deadline is 1 April 2020, or 1 October 2020 if the business is mandated to join MTD in 2019. The examples provided by HMRC include businesses with complex or legacy IT systems, and businesses that acquire another business. The VAT notice also sets out the application process and the specific criteria to be met by the applicant.


6. And finally

6.1 No, no, no, no, no

We fell off our chairs reading the announcement that Melissa Tatton had been appointed a new Tax Assurance Commissioner. Not indeed, at that appointment, in which we wish Ms Tatton well, but rather because of the statement that followed.

‘She also becomes chair of the Professional Standards Committee…’ (ditto) and then the bombshell: ‘…and the head of the tax profession.’ Since when did HMRC get to appoint the head of the tax profession?

We recall that even Dave Hartnett, former Permanent Secretary for Tax, HMRC, who was fully aware of his position, only claimed to be head of the tax profession in HMRC.

Perhaps, it was an editorial slip. But just in case it isn’t, on behalf of the Tax Profession, let us just say quietly but firmly, er… no; she does not.




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.