Weekly Tax Update 25 February 2020

A taxpayer claimed sideways loss relief on losses realised from an LLP of which he was a member. HMRC denied the claim and removed it under a closure notice. The FTT has upheld HMRC’s decision.

The taxpayer was a non-active member of an LLP and had losses of £422,312. The taxpayer claimed £25,000 of the loss against his other income for the year. HMRC enquired into his personal return but not that of the LLP.

HMRC denied the sideways loss relief claim and the balance of carried forward losses. HMRC’s reasoning was that the LLP was not carrying on a trade, or at least was not carrying on a trade commercially. To make a loss relief claim against income, a trade had to be carried on commercially.

The taxpayer argued that HMRC could not deny the sideways loss relief claim on this basis without enquiring into the LLP’s tax return. The judge dismissed this appeal on the basis HMRC can enquire into anything contained in the return. It was up to the taxpayer to prove that there was a trade and it was being carried on commercially, which the taxpayer did not do.

Christopher J Grinyer v HMRC [2020] UKFTT 0064 (TC)

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11517/TC07560.pdf 

The FTT has overturned HMRC’s decision to deny a taxpayer the right to appeal against eight assessments to income tax and failure to notify penalties. The FTT found that there was no evidence to deny the right to appeal.  

HMRC contended that regular deposits into the taxpayer’s bank accounts were taxable income. HMRC subsequently issued the taxpayer with eight assessments to income tax totalling £290,928.56 and failure to notify penalties of £132,193.25.

The taxpayer asserted that he was a successful gambler and that all funds stemmed from his gambling winnings. The deposits would not, therefore, be taxable. The taxpayer’s appeal against the assessments and penalties had been denied by HMRC after an internal review.

Having stopped gambling in 2010, the taxpayer’s records were required to be kept until at least 31 January 2013. HMRC’s enquiries commenced in October 2013, meaning that the taxpayer’s statutory obligation to retain his records had ceased.

The FTT commented that whilst the taxpayer did not have any records of his gambling winnings, he reasonably demonstrated that he did not have a taxable income source. Under thorough crossexamination, witnesses were held to be truthful and credible in the evidence they gave supporting the taxpayer’s assertions. HMRC did not show any evidence of employment or trading.

The FTT allowed the taxpayer’s appeal.

Mr Simon James McMillan v HMRC [2020] UKFTT 0082 (TC)

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11525/TC07595.pdf 

The taxpayer claimed that a payment from his company in 2014 was to purchase goodwill, which he held personally. The taxpayer claimed Entrepreneurs’ Relief (ER) on this transaction. HMRC opened an enquiry the taxpayer’s 2014/15 tax return. When issuing a closure notice, HMRC determined that the payment was employment income rather than for a disposal for capital gains purposes. 

The taxpayer had operated a business through a variety of structures over more than two decades. The taxpayer maintained that the goodwill of the business remained with him personally throughout this period.

In September 2014, the company operating the business was said to purchase the goodwill from the taxpayer for £1.2m. This was treated as a capital transaction on the taxpayer’s 2014/15 tax return, into which HMRC enquired. HMRC amended the tax return to report the £1.2m as employment income, which resulted in extra tax due, and issued a closure notice.

The FTT has upheld this amendment. This was on findings of fact and inconsistencies in the taxpayer’s evidence, which did not prove that he owned any goodwill personally. The payment of £1.2m should be treated as earnings as it was not consideration for goodwill or a distribution.

Neill Dyer v HMRC [2020] UKFTT 0072 (TC)

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11526/TC07567.pdf 

The FTT has ruled in favour of the taxpayer by reducing late filing penalties from £2,160 to £430. The FTT cancelled the penalties for one tax year on the basis of a reasonable excuse and reduced penalties for the next tax year by half, due to special circumstances.

The taxpayer has been in self-assessment since at least 2005. He often submitted his return late. The 2013/14 tax return was filed in September 2015. The 2014/15 tax return was filed in July 2016. HMRC raised late filing penalties accordingly and correctly in line with the legislation. The £100 late filing penalty was not disputed and had been settled in both instances.

The taxpayer contested the amount of the additional late filing penalties, mainly on the basis of proportionality. In assisting the taxpayer, the FTT considered the appeal on grounds of reasonable excuse and special circumstances, although the taxpayer did not fairly make these arguments in his submissions.

The FTT found that a reasonable excuse existed for the late filing of the 2013/14 return because of the new two-step verification process used to access HMRC and bank records. These penalties were therefore cancelled.

The FTT then found that. while the same excuse was not reasonable for the late filing of the 2014/15 return, special circumstances existed. These were that the taxpayer was meticulous in his approach to his filings, and his “propensity for complexity” was considered to contribute to the length of time taken to prepare and submit his return. The penalties were reduced by half.

David Ferguson v HMRC [2020] UKFTT 0066 (TC)

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11519/TC07562.pdf