Weekly Tax Update 29 July 2020

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

Ami Jack
Published: 29 Jul 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 Finance Act 2020

Finance Bill 2019-21 received Royal Assent on 22 July 2020 as Finance Act 2020. 

The Act legislates several of the announcements previously made in the 2020 Budget. These include the introduction of the Digital Services Tax, changes to Entrepreneurs’ Relief (as was), and amendments to the operation of the loan charge. The Act also contains provisions:

  • confirming that coronavirus support payments received by businesses are taxable;
  • modifying the statutory residence rules in connection with the pandemic; and
  • amending the Enterprise Management Scheme rules in connection with the pandemic to prevent taxpayers from being disqualified if they are furloughed or their hours are reduced due to COVID-19.


1.2 HMRC releases new consultations

Consultations on tackling the promoters of tax avoidance and what expenditure should qualify for RDEC have been released, along with two calls for evidence.

One of the consultations, titled ‘Tackling promoters of tax avoidance’, looks at strengthening the sanctions under five anti-avoidance regimes, and general changes to them. This includes the general anti-avoidance rule and the disclosure of tax avoidance schemes regime. This consultation is a follow-up to the March Budget commitment to take further action against those who promote and market tax avoidance schemes.

The other consultation looks at the scope of qualifying expenditure for RDEC. The calls for evidence are on disguised remuneration, and modernising stamp duty.





1.3  Draft clauses for Finance Bill 2020-21

The Government has published draft clauses for Finance Bill 2020-21 for consultation. 

The draft clauses include provisions to:

  • impose a 2% SDLT surcharge on non-UK residents purchasing residential UK property from 1 April 2021;
  • reduce the van benefit charge from 6 April 2021 for zero emissions vans;
  • relax the working-time requirements for the Enterprise Management Incentive scheme in relation to the COVID-19 pandemic (see article 4.1 below);
  • make technical amendments to the Corporate Interest Restriction to ensure it operates as intended;
  • expand HMRC’s power to tackle promoters and enablers of tax avoidance schemes; and
  • introduce a new ‘Financial Institution Notice’ that will compel financial institutions to provide information about a taxpayer to HMRC.

The consultation on these clauses will close on 15 September 2020.


1.4  Judge raises concerns on independence of HMRC expert witnesses

The FTT has refused a taxpayer’s application for disclosure of communications between HMRC and an expert witness. The taxpayer’s concerns that HMRC had interfered with the report’s preparation did not override privilege.

The taxpayer applied to the tribunal for disclosure of the communications between HMRC and HMRC’s expert witness on the preparation of a report. The tribunal has directed each party to obtain a report on the availability of a particular corporate tax deduction under UK GAAP, and exchange them, which was done. They were also instructed to prepare a joint statement of areas of agreement and disagreement.

Based on the correspondence between the experts, the taxpayer raised concerns that HMRC’s instructing solicitor had interfered with the independent expert’s production of the joint statement. They applied for disclosure of the communications to establish the facts. HMRC resisted on the grounds of without prejudice privilege (WPP), and legal privilege. The FTT found that there were no grounds to lift WPP and dismissed the case, though it was noted that the expert witness had not disclosed all the information from which the statement was prepared within it.

Despite dismissing the case, the judge expressed some concerns. HMRC must appoint experts in their employ due to the need for independence from accountancy firms, and this must not lead to inappropriate interference. She commented ‘it is absolutely imperative that the independence of the expert is preserved, and that independence is seen to be preserved’.

Wired Orthodontics Ltd & Ors v HMRC [2020] UKFTT 290 (TC)

1.5  Expansion of Making Tax Digital (MTD)

HMRC has announced the forthcoming extension of MTD to smaller VAT registered businesses, sole traders and landlords.

Currently, MTD for VAT is mandatory for most VAT registered businesses with a taxable turnover above £85,000. HMRC has announced that, from 1 April 2022, all VAT registered businesses must use MTD to submit their VAT returns, regardless of their turnover. MTD will also be extended to sole traders and landlords from 2023. It will be mandatory for all sole traders and landlords with taxable turnover exceeding £10,000 to use MTD for IT from the first accounting period beginning on or after 6 April 2023. MTD for IT is currently only available on a voluntary basis to some businesses.



2. Private client

2.1 HMRC confirms position on 2019/20 top slicing relief

HMRC has confirmed that changes to the top slicing relief calculation made in the Finance Bill, and effective from 11 March 2020, will apply to all chargeable event gains in the 2019/20 tax year. The position for earlier years remains in dispute.

Following an FTT decision on technical details of the top slicing relief calculation, legislation was announced with the March Budget to confirm that the FTT view was correct. In many cases, HMRC had used an ambiguity in the legislation to reduce the amount of top slicing relief due in line with their interpretation of availability of the personal allowance.

HMRC has announced that the new legislation, which is effective from 11 March 2020, will be applied to all 2019/20 cases. 2018/19 returns will also be treated in the way as the case decision was released in April 2019, so those returns were prepared under that prevailing practice. HMRC will write to affected taxpayers due a repayment for 2018/19. The position for taxpayers who made gains in earlier years, and were charged tax under the old HMRC interpretation, remains less clear.


2.2 Interest on loans to partners not deductible from partnership profits

The FTT has found that the interest on loans made to partners in an Isle of Man (IoM) partnership was not deductible from the partnership profits. Based on the loan documentation there was no basis to treat the loans as effectively made to the partnership, so the interest could not be treated as paid by the partnership.

The taxpayers decided to run their property development business through an IoM partnership structure. Prior to this appeal it had been established that, contrary to the taxpayers’ intentions, they were taxable on the profits. The trade was funded by loans from an employee benefit trust to the two IoM companies that comprised the partnership, in their capacities as trustees of settlements. In this appeal the taxpayers sought to establish that interest charged on these loans was deductible from the partnership profits.

The taxpayers submitted that despite the loans being made to the partners (the companies as trustees) rather than the partnership itself, they should be treated as loans to the partnership as IoM partnerships do not have legal personality. The loans were effectively advanced to the partnership, so interest paid by the partnership should be deductible from partnership profits. The FTT agreed with HMRC that the loans were made to the companies as trustees of sub-settlements, and in their capacity as partners the companies as trustees advanced the money received to the partnership as a capital contribution. No interest deduction was therefore available.

Shiner & Anor v HMRC [2020] UKFTT 295 (TC)


3. PAYE and employment

3.1 CA rules on the meaning of ‘car’ and ‘van’

The CA has partially overturned an UT decision on the classification of vehicles as cars or vans. It clarified that the distinction between the two is not a balancing exercise. The law requires the vehicle to be predominately suited to the conveyance of goods for it to be a van. 

An employer had supplied its employees with vehicles, the classifications of which were disputed. HMRC argued that the vehicles were cars, which generally attract a higher tax charge than vans. The individuals and their employer argued that the vehicles were vans. The issue turned on whether or not the vehicles were ‘goods vehicles’: if so, they would be vans for tax purposes. The FTT and UT held that one type of vehicle was a van and the others were cars. Essentially, the FTT and UT had conducted balancing exercises and ruled that if a vehicle is marginally more suited to the conveyance of goods then it is a goods vehicle. In this case, one vehicle was marginally more suited to goods conveyance and the others were marginally more suited to other uses. Only one vehicle had therefore been found to be a van.

The CA rejected this approach. It found that a vehicle had to be predominately or primarily suited to the conveyance of goods for it to be a goods vehicle and therefore a van. A multi-purpose vehicle may, therefore, have no primary suitability. It would therefore not satisfy the definition of ‘van’ for tax purposes, and instead be taxed as a car. On this basis, the CA held that none of the vehicles were goods vehicles, and so they were all cars.

Noel Payne and others v HMRC [2020] EWCA Civ 889


3.2 UT corrects an FTT decision on tax payments

The UT has reversed an FTT ruling after finding that the FTT had misread the taxpayer’s bank statements and failed to consider vital evidence. The FTT should have found that the taxpayer had proven that her tax liability had been paid in full. 

The taxpayer had received a redundancy payment in instalments from her former employer. The final instalment was lower than she expected, and the taxpayer concluded that the 39.7% shortfall was in respect of IT deducted at source. She was subject to 40% IT on the instalment. The records held by HMRC, however, showed that the employer had only accounted to HMRC for a basic rate tax deduction of 20%. The employer had gone into liquidation before the issue was resolved, and HMRC assessed the taxpayer on the missing tax. The taxpayer appealed against the assessment to the FTT. The FTT ruled in HMRC’s favour, finding that the taxpayer had not discharged her liability.

The UT overturned this decision. First, it found that the FTT had misunderstood the taxpayer’s bank records and had treated a payment from the account as a receipt of income. Second, the FTT had erred in law by deciding not to consider email evidence that was submitted after the hearing. The email correspondence showed that the taxpayer had asked her former employer to explain the reduced instalment. The employer had assured her that the shortfall was comprised entirely tax withheld at source. The UT therefore found that HMRC had not proven that its discovery assessment was valid and the taxpayer’s appeal was upheld.

Heather Jones v HMRC [2020] UKUT 0229 (TCC)


4. Business tax

4.1 Changes to the working time requirement for Enterprise Management Incentives

Finance Act 2020 and the draft clauses of Finance Bill 2020-21 include amendments to the Enterprise Management Incentive (EMI) legislation. These measures will ensure that employees who have been furloughed or whose working hours have been reduced as a result of COVID-19 will retain the tax advantages of the scheme.

Employees participating or wishing to participate in an EMI scheme are required to work a sufficient number of hours for their employer. Broadly, this is the lower of 25 hours a week or 75% of their working time. Employees that are furloughed or have had their working hours reduced as a result of the COVID pandemic may not be able to meet this requirement.

Finance Act 2020 contains provisions that allow the time that an eligible employee would have spent working to be counted towards their working time for EMI purposes. A new time-limited exemption was also added to the disqualifying event rules. It ensures that existing participants of EMI schemes will not be forced to exercise their options earlier than planned if they cease to meet the working time requirement. These amendments only apply where the reason for the reduced working hours or furlough is connected to the COVID pandemic.

The draft clauses for Finance Bill 2020-21 include similar provisions for the issue of new EMI share options. The draft legislation will allow new options to be issued to employees who have been furloughed, taken unpaid leave or had their working hours reduced below the statutory working time requirement for EMI as a result of the pandemic.

The changes will take effect from 19 March 2020 and will end on 5 April 2021.


5. Tax publications and webinars

5.1 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.

5.3  Webinars

The following client webinars are coming up over the next few months.

  • S&W Sessions: COVID-19 – effectively managing your workforce and remuneration strategy


6. And finally

6.1 SOS

(Save Our Stamps)

We note with concern the latest call for evidence: modernisation of the stamp taxes on shares framework. The words are chilling ‘an anachronistic feature’ and a drift away from the paper-based system clear (responses by email only).

Regular readers will know our feelings on this matter – how could an official with any sense of history wish to deprive future generations of the embossed paper, the well-worn stamp? Even the parliamentary draftsman, writing in 2003, included in a schedule of SDLT exemptions not only enclosures under the 1845 Inclosure Act (nowadays rather rare) but sales of advowsons (mostly unlawful since 1927).

SD, surely, is one tax that should never be paperless: what is stamp duty without a stamp?


Ref: NTAJ14072093


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.