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 Tax administration and maintenance day
The Government has announced that there will be a tax administration and maintenance day on 30 November 2021.
It was announced at the Autumn Budget that further announcements on tax administration would follow later in the Autumn. This has now been confirmed for 30 November. The Government will publish a ‘Tax Administration and Maintenance Command Paper’, which will outline further steps the Government is taking to progress tax simplification, tackle non-compliance and ensure the UK tax system is fit for the modern world. It is expected that a number of other documents will be published, including consultations for announcements made at the Autumn Budget, summaries of responses to recently closed consultations and technical information notices. None of the announcements will be introduced in the next Finance Bill.
2. Private client
2.1 HMRC service levels and self-assessment
The professional bodies have received an update from HMRC, confirming that it is working to clear the significant post backlogs that have built up. HMRC aims to have cleared all outstanding self-assessment registrations next month.
HMRC has noted that it is working through the post backlog that built up over the last year, as it prioritised delivering COVID-19 support packages and Brexit. HMRC is beginning to see a reduction in the post backlog and expects reductions to continue in coming months.
The update from HMRC states that it is on track to have cleared all outstanding self-assessment registrations next month. The online SA1 form that agents can used should be processed within 10 working days.
3. Business Tax
3.1 Obligation to withhold IT on payment of UK source interest
The FTT found that interest paid by a UK-resident company had a UK source and was yearly interest. The obligation to withhold IT from interest was not overridden by the UK/Guernsey tax treaty as no claim for exemption was made.
The taxpayer was the ultimate parent of a group of companies engaged in property investment in the UK. Informal loans from persons connected to the group were replaced by a complex financing structure involving a series of short-term loans from the same lenders, with the interest and principal assigned to a Guernsey-resident company or a Guernsey trust shortly before repayment. In some cases, the interest was re-assigned to a UK resident company. The purpose of the refinancing was to preserve CT relief for the interest payments while ensuring the interest income was not subject to UK tax by the recipients.
The FTT found that the interest had a UK source. The provision in the loan agreement requiring interest to be paid outside the UK was completely outweighed by the fact that the debtor was UK resident, the interest payments were funded out of assets situated, and the profits of activities carried out, in the UK. Even if any proceedings to recover debt had to be taken outside the UK, any judgment obtained would need to be enforced against UK assets and UK profits. That was the underlying commercial reality of the arrangements. Very little weight was given to the fact that the loans were governed by the laws of a jurisdiction outside the UK to the location of the creditor, to the source of the funds giving rise to the loan.
Notwithstanding the short-term nature of each loan, the FTT found that the loans provided the taxpayer with a measure of permanence, which had ‘a tract of future time’ and was in the nature of an investment for the lender. The interest arising was therefore yearly in nature.
The FTT dismissed the taxpayer’s argument that it was entitled to rely on the treaty to make gross payments of interest without the necessity for any claim or direction. The FTT also found that there was no business purpose for the inclusion of the UK company in the refinancing structure. It was therefore not the beneficial owner of the income received.
The income tax assessments were therefore upheld.
Hargreaves Property Holdings Ltd V HMRC  UKFTT 390 (TC)
3.2 New guidance on enhanced capital allowances in a Freeport tax site
HMRC has published new guidance on how to claim enhanced capital allowances and enhanced Structures and Buildings Allowance (SBA) in Freeport tax sites. These reliefs can apply from the date the Freeport tax site is designated until 30 September 2026.
As announced in the Spring Budget, businesses operating in a designated Freeport tax site can claim 100% capital allowances relief on qualifying plant and machinery incurred up to and including 30 September 2026. An enhanced SBA of 10%, compared to the 3% standard rate, can also be claimed by businesses registered for either CT or IT on structures or buildings brought into use for qualifying purposes by 30 September 2026. The construction must begin when the site is within the area designated as a Freeport tax site to claim the relief.
Various conditions need to be met in order to claim these reliefs. The new guidance explains how businesses qualify for these reliefs, how much relief can be claimed and how to claim. It also explains when enhanced capital allowance relief can be withdrawn, and provides practical examples.
4. Tax publications and webinars
4.1 Tax publications
The following Tax publications have been published.
The following client webinars are coming up over the next month.
5. And finally
5.1 No excuse
Yet again, And finally has its fingers on the tax pulse. Readers will recall that last week we suggested introducing a reasonable excuse mechanism where HMRC failed to refund taxpayers in time. This week, we publish the excuse (see article 2.1).
It is heartening to see that the word ‘sorry’ is used, though where HMRC’s so-called ‘customers’ are creditors, perhaps a bit more is appropriate.
HMRC understandably claims COVID is a reasonable excuse; but from the taxpayers’ point of view, an absence of a reasonable excuse gives rise to a penalty, which is hardly a hazard HMRC itself runs.
HMRC does not need a reasonable excuse to escape the equivalent of the taxpayer’s penalty, precisely because it can’t be penalised. Equally, HMRC does not have a legislated defence of reasonable excuse. Is regret, which is really just an excuse, really a substitute for an apology?
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.