Weekly Tax Update 30 July 2019

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

Tax Article Large Companies 1500X1000 May 22
Ami Jack
Published: 31 Jul 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 Sajid Javid appointed as Chancellor of the Exchequer

Sajid Javid has been appointed to replace Philip Hammond as Chancellor of the Exchequer.

Following Philip Hammond’s resignation as Chancellor of the Exchequer, Rt Hon Sajid Javid MP has been appointed as his replacement. He takes overall responsibility for the work of the Treasury, including the Budget.

Jesse Norman MP remains Financial Secretary to the Treasury.


1.2 Taxation trends in the EU

The 2019 report on Taxation Trends in the European Union has been published. It provides an overview of recent trends in taxation revenues, tax structures and reforms across the EU and including Iceland and Norway.

The report found that taxation is a source of debate, especially in regard to tax policies. It is noted, however, that taxes are critical for sustaining public finances and as a policy lever for transforming society.

The report is designed to inform the debate on tax policies by providing taxation data for the EU member states, Iceland and Norway. The data has been compiled from government finance statistics, national tax lists, and contributions from experts of the Ministries of Finance in each country.


1.3 Institute for Government report: Taxing Times

The Institute for Government has published a report on current issues in the UK tax system. It recommends major structural reforms.

The report notes that increasing pressure on public spending will move tax policy further up the political agenda. It states that, as a share of national income, total tax revenues have stayed broadly flat in recent years. This, combined with the UK’s ageing population, which puts further pressure on publicly-funded health and adult social care and increases pension costs, means tough decisions will need to be made. Future governments will have to decide between raising revenue via taxation or further borrowing, or reconsider the scope and scale of public services.

It suggests that the current tax system needs a major reform, instead of tweaks with no overarching strategy. It finds that politicians should acknowledge how revenue is raised, so that the Government can raise revenue with fewer detrimental side effects. The report explains why tax reform will become a pressing issue with a coming future report explaining the obstacles to reform.


1.4 The President elect of the EC has commented on fair taxation

Ursula von der Leyen, the next President of the EC, laid out her views on EU taxation in her manifesto. These primarily deal with fair taxation.

The manifesto of Ursula von der Leyen, who will take office as President of the EC in November, outlined a number of guidelines for fair taxation in the EU. She believes that the EU and international corporate tax systems are in urgent need of reform, that they are not fit for the modern global economy, and do not capture the new business models in the digital world.

Taxation of big tech companies is a priority for her, along with a common consolidated corporate tax base in the EU, and tackling tax fraud more strongly. If by the end of 2020 there is no global solution for fair digital tax, she has stated that the EU should act alone. She plans to pass the proposals by votes in the Council, so that action can be taken more quickly.


1.5 Government responds to HMRC powers report

The Government has published its response to the report on the powers of HMRC. HMRC has been tasked to carry out a review of its powers, along with other measures, following the report’s criticism of the balance between its powers and the fair treatment of taxpayers.

The Financial Secretary to the Treasury, Jesse Norman MP, has responded to the report ‘The powers of HMRC: treating taxpayers fairly’ published by the House of Lords Economic Affairs Committee in December 2018. The report was critical, finding that despite the need to deal with deliberate evasion and aggressive avoidance the balance had tipped too far in favour of HMRC.

Some of the recommendations from the report have been adopted, and the following actions are to be taken, with the support of stakeholder groups:

  • HMRC to establish a Professional Standards Committee to advise the Commissioners on issues relating to the implementation of HMRC powers;
  • HMRC to evaluate powers granted to it since 2012 in relation to the powers and safeguards principles;
  • HMRC to review findings of the 2019 Adjudicator’s report;
  • HMRC to report on effectiveness of support measures for taxpayers who need additional assistance with investigations;
  • HMRC to increase information in performance publications; and
  • HMRC to review taxpayer experience of compliance enquiries, including content, language, and tone of letters.


1.6 Draft regulations issued for mandatory disclosure of cross-border arrangements

HMRC has published the draft regulations to implement the sixth iteration of the Directive on Administrative Cooperation (DAC6) in the UK. The rules require intermediaries to disclose information regarding reportable cross-border arrangements to HMRC. ‘Reportable’ arrangements broadly include those purporting to achieve a tax advantage or avoid tax, but may also include commercially-driven arrangements.

The regulations have been drafted pursuant to Finance Act 2019, which gave HMRC the power to regulate the implementation of DAC6 in the UK. DAC6 requires intermediaries to submit reports to HMRC when that intermediary designs, markets, organises, or makes available for implementation a cross-border arrangement that meets one of five prescribed Hallmarks. It also applies to intermediaries that manage the implementation of, or provide advice, aid or assistance in relation to a reportable cross-border arrangement. DAC6 will apply to reportable cross border arrangements where the first step was implemented on or after 25 June 2018. The first reports will be due for submission to HMRC by 31 August 2020.

HMRC is seeking responses on the draft regulations, particularly as regards their effectiveness and proportionality. The consultation closes on 11 October 2019.


1.7 HMRC warns over more tax avoidance schemes - Spotlight 53

In the latest Spotlight, HMRC has stated that, in its view, a further group of schemes designed to avoid employment tax and NICs do not work. It has stated that it will challenge anyone operating them, and investigate the tax affairs of all users.

In Spotlight 53, HMRC has issued guidance that it is aware of a number of schemes designed to avoid employment tax and NICs through a combination of capital advances and complex offshore share ownership arrangements. It makes it clear that HMRC will challenge anyone operating them, and investigate the tax affairs of all users.

HMRC advises those using the schemes to withdraw from them and settle their tax affairs. It states that this will avoid the costs of investigation and litigation, minimise interest due, and minimise any penalty charges on the tax scheme users should have paid.


2. Private client

2.1 FTT upholds automatic penalties

A taxpayer’s appeal against numerous computer-issued late filing penalties was rejected. The FTT held that penalties did not have to be issued by an officer to be valid.

The appellant appealed against late filing penalties for two years. He contended that valid penalties could only be issued by an HMRC officer, so that as these were automatically generated by the HMRC IT systems the penalties should be cancelled. He also held that HMRC’s approach to cancelling penalties was arbitrary, comparing his case to others.

The FTT rejected the appeal. The judge noted that, in some circumstances, penalty assessments should be issued by officers, but in this late filing penalty case the argument was insufficient. The FTT refused to consider the ‘arbitrary’ argument, as it had no power to take account of HMRC’s approach to cancelling other taxpayers’ penalties when considering one taxpayer’s case.

Campbell v HMRC [2019] UKFTT 454 (TC)


2.2 Application to set aside decision due to incomplete facts refused

An application for an FTT decision to be set aside on the grounds that the taxpayer was unable to argue the case properly has been refused, as he was present at the hearing. Due to his severe dyslexia, the taxpayer was completely reliant on his adviser to read correspondence from HMRC and handle his affairs, and alleged that he only became aware of the full issues, and that the application was late, at the hearing. He informed the FTT of this some weeks later after complaining to his adviser.

A taxpayer applied for permission to set aside an FTT decision, by which he was refused permission for a late appeal. A friend, acting on his behalf, wrote to the FTT to explain information that had not been known to it at the hearing. She felt that the fact this evidence was not before the tribunal amounted to a procedural irregularity, and asked it to give the taxpayer a first opportunity to argue his case in a fair and just way.

She explained that the taxpayer, who is severely dyslexic, was unaware of many facts before the hearing. Although he had received the HMRC correspondence he had not been able to read it, so everything was passed to his tax adviser. His explanation, which he did not raise at the hearing, was that the adviser had not informed him of the full issues. He only found out at the hearing that it was an application for late permission to appeal, rather than a full hearing, and that his adviser had not properly dealt with his affairs. The case presented was therefore incomplete, and the hearing unfair.

The judge was sympathetic to the difficulties experienced by the taxpayer, but rejected his request. The taxpayer had been present at the hearing, and could have presented the information then, so no procedural irregularity had occurred and the decision could not be set aside. The adviser had not been given an opportunity to refute the allegations, so the judge did not draw any conclusions as to his conduct.

Askew v HMRC [2019] UKFTT 455 (TC)


3. Trust, estates and IHT

3.1 Quarter of IHT paying estates investigated by HMRC

Of the 22,000 estates liable to pay IHT just over a quarter were investigated by HMRC in the 2018/19 tax year.

In the last tax year HMRC has investigated 5,537 out of the 22,000 estates that are liable to pay IHT. Although 9% lower than the peak in 2013/14, it is an increase of 3% from 2017/18.

It has been suggested that the IHT department has been targeted by HMRC due to political pressure to tackle tax avoidance. Other comments included hat the investigations are not due to so much to attempts to defraud HMRC but rather the complexity of the IHT system leading to erroneous results.


4. Business tax

4.1 Ingenious Film Scheme cases lose on all grounds in the UT

The three interlinked cases taken by Ingenious have all been lost at the UT with the Tribunal holding that in each case the relevant LLP was not trading. Accordingly, sideways loss relief was not available for investors.

In another mammoth judgement, this time of some 140 pages plus an appendix, the UT held against the three appealing Ingenious LLPs (Ingenious Games LLP (IG)); Inside Track Productions LLP (ITP) and Ingenious Film Partners 2 LLP (IFP2)). It was prepared to open up the lower court’s extensive judgement to hold against the LLP’s, worsening their position.

The FTT had found that for ITP and IFP2 their activities did amount to a trade carried on with a view to a profit. It had though, limited expenditure incurred by these LLP. The higher court went further, reopening this approach and agreeing with HMRC, to find that none of the LLPs was carrying on a trade and therefore none was carrying a trade on with a view to a profit.

It then made subsidiary findings on incurring of expenditure and the computation of the profits, which it found were not computed in accordance with GAAP. It also found that the expenditure incurred by the LLPs was capital in nature rather than income. The overall effect of the decision is therefore to deny all relief for those investors’ in these partnerships.

It remains to be seen whether or not there will a further appeal.

Ingenious Games LLP and Others v HMRC [2019] UKUT 226 (TCC)


4.2 Appeals stayed pending international dispute resolution

The FTT has granted an application to stay appeals against Diverted Profits Tax (DPT) and CT pending potential resolution of the disputes under the Mutual Agreement Procedure (MAP) between HMRC and the Swiss tax authority. It was held that the taxpayer has the right to choose what method of appeal it wishes to use and that refusing to stay the appeals would deny the taxpayer the right to seek arbitration under the MAP.

The taxpayer, a UK oil and gas trader, had an arrangement with a related Swiss company under which payments were made for risk management, risk assumption and other facilities and services. HMRC took the view that these payments by the UK company amounted to the diversion of profits from the UK, and imposed a charge for DPT. This charge, together with other associated CT assessments, amounted to approximately £450m of disputed tax. The taxpayer appealed against these decisions under UK domestic law.

At a similar time, the Swiss company made three applications to the Swiss tax authority for the DPT and CT positions to be resolved under the MAP on the basis that HMRC’s assessments would result in double taxation. The Swiss tax authority determined that a unilateral response was not appropriate and requested that HMRC engage in a bilateral discussion. HMRC refused to engage in the MAP until the domestic appeals by the taxpayer against HMRC’s decisions were withdrawn, suspended or finally determined. The UK company therefore applied for the domestic appeals to be stayed.

The FTT agreed to stay the appeals for three main reasons. First, the fact that the Swiss tax authority had accepted the MAP applications weighed in the taxpayer’s favour. Second, a taxpayer has the choice of which procedure of resolution to adopt and it could therefore choose the MAP if it preferred. Finally, a refusal to stay would result in the taxpayer effectively losing the right to seek arbitration under the MAP.

It is worth noting that HMRC has consistently taken the view that DPT is not within the scope of double taxation treaties or the MAP. This is because it is not CT, nor is it substantially similar to CT, and it applies in cases of tax abuse, which are not protected by tax treaties. The evidence put before the FTT, however, included communications from the competent authority function of HMRC stating that both the DPT and CT issues were eligible for the MAP. The judgment notes that the appropriateness of DPT to be considered in the MAP can be determined as part of the MAP proceedings.

Glencore Energy UK Limited and another v HMRC [2019] UKFTT 438 (TC)


4.3 HC finds Bank Payroll Tax was not State Aid

The HC has found that the short-lived Bank Payroll Tax did not amount to state aid under EU law. There was no selective advantage granted to one group of taxpayers over another, even if some banks paid more tax than others because of the timing of their staff bonus payments.

Bank Payroll Tax (BPT) applied from 9 December 2009 to 5 April 2010 and imposed a 50% tax on some discretionary bonuses exceeding £25,000 paid to employees in the financial industry. BPT was payable by the employer, not the employee. BPT was intended to be a short term measure to discourage banks from paying out large bonuses rather than building up capital reserves, and the additional rate of IT was introduced shortly after BPT ceased to have effect.

The taxpayer has incurred approximately £238.8m of BPT. It appealed against this liability on the basis that BPT amounted to state aid because it conferred a selective advantage on banks that did not pay bonuses in the period during which BPT applied. The HC found that there was no selective advantage: BPT was intended to apply for a short time because retrospective application would not change past behaviour and forthcoming tax and regulatory changes would govern future behaviour. Banks that suffered BPT because of the timing of bonus payments were therefore not in comparable situations to banks that did not suffer BPT because they paid bonuses at a different time of year. Since the different treatment of banks that did or did not suffer BPT was a result of the nature and general structure of BPT, there could not be any selective advantage. The appeal was dismissed.

Credit Suisse Securities (Europe) Limited and others v HMRC [2019] EWCH 1922 (Ch)


5. And finally

5.1 Two things in life are certain

The Government has kindly released a step by step guide to the vast array of administrative requirements that follow a death. Evidently, this is designed to ease the minds of the recently bereaved as they struggle through a difficult time. Steps one to three, taking the bereaved through registration, arranging a funeral, and telling the Government are right on the spot: reassuring, helpful, and all in all respectful.

However, it is number four onwards that catches our interest, for here we hit tax. Regular readers will not be surprised to learn that the focus starts to shift, with increasingly complex rules, and advice to the newly bereaved to look at your income, as you may now need to pay more tax. This is before we even get on to inheritance tax! This section seems rather more geared towards ensuring that HMRC keeps its revenue up. This does not come as a surprise, as, after all, ‘In this world nothing can be said for certain, except death and taxes’.



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.