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. Private client
1.1 Taxpayer estopped from challenging enquiry validity
The SC has found that a taxpayer could not challenge the validity of a notice of enquiry, as he had corresponded with HMRC as though the notice was valid for several years, before querying its validity. This shared assumption that there was a validly opened enquiry could not be challenged, as it was ‘estopped by convention’. This overturns the CA judgement.
An HMRC officer sent a notice of enquiry to a former residence of the taxpayer, and a copy to the taxpayer’s agent. HMRC had been advised of the correct address but this was not used. The enquiry proceeded normally, until the taxpayer challenged the closure notice on the grounds that the original enquiry notice was invalid, as it was not sent to him personally at his current or last known address. HMRC contended that, as the taxpayer and his agent had corresponded with HMRC on the shared assumption that the enquiry was validly opened, he was estopped from challenging that assumption.
The CA found for the taxpayer that the enquiry notice was not valid and that he was not estopped from challenging the its validity. HMRC appealed to the SC on the estoppel point only.
The SC found for HMRC that the taxpayer was estopped, so the appeal was allowed. It considered the case law on estoppel by convention, that is, where two parties have established a convention, and decided that the correspondence between the parties met this standard. Although HMRC initiated the common mistake of assuming the enquiry was valid, the agent had not simply repeated the mistake, but had operated for some years as though the enquiry was valid. This affirmation of HMRC’s assumption meant that responsibility for the mistake was shared, and no challenge to the validity of the enquiry was allowed.
Tinkler v HMRC  UKSC 39
1.2 HMRC completes investigation of family investment companies
The HMRC unit investigating the risk of tax avoidance from use of family investment companies (FICs) has been closed. It found that the use of the structures did not suggest that taxpayers using them were non-compliant.
The unit was created in 2019, as HMRC had observed FICs growing in popularity as an option for succession planning, alongside more traditional options like family trusts. HMRC notes that it has gained a better understanding of the characteristics of FICs, and concluded that ‘the use of these structures does not suggest those taxpayers that use them are non-compliant when it comes to their tax affairs’.
This does not preclude future legislative changes.
2. PAYE and employment
2.1 HMRC’s response to disguised remuneration loan repayment demands
HMRC is aware of repayment demands being made for loans made under disguised remuneration schemes. If the loan charge has been paid in respect of those loans, it cannot be recovered even if the loan is repaid.
In new guidance, HMRC explains that it is aware of some taxpayers receiving demands to repay loans that were created as part of disguised remuneration schemes. The demands usually come from third parties to whom the debt has been sold. The taxpayer may have been told that under the disguised remuneration scheme the loan would never have to be repaid. In many cases, the taxpayer has already paid the loan charge in respect of the loan outstanding on 5 April 2019, or made a settlement agreement with HMRC. The guidance confirms that the loan charge liability still applies, even if the loan is repaid. The loan charge cannot be repaid, nor can a settlement agreement be altered, although Time To Pay arrangements can be made if the taxpayer is struggling to pay his tax. HMRC expresses its concern over these repayment demands, and provides advice on what actions a taxpayer can take in response.
3. Business tax
3.1 Consultation on reporting by digital platform operators.
HMRC is seeking views on the implementation of the OECD’s model reporting rules for platform operators.
As announced in the 2021 Budget, the Government plans to introduce domestic legislation to implement the OECD’s model reporting rules for platform operators. These rules will apply to operators of websites and apps that connect consumers with sellers of goods and services. Operators of these platforms will be required to provide information to HMRC on the income sellers earn through their sites. The aim of the rules is to improve tax compliance by sellers using digital platforms and make it easier for them to get their tax right.
The consultation closes on 22 October 2021, and the new regulations are expected to come into effect in January 2023 at the earliest.
4.1 The temporary extension for notifying an option to tax has ended
The 60-day extension to the deadline for notifying HMRC of a decision to opt to tax land or buildings has now ended. The deadline, which had temporarily been extended to 90 days, is now 30 days.
Between 15 February 2020 and 31 July 2021, HMRC allowed taxpayers 90 days to inform it of a decision to opt to tax land or buildings. This was due to the ongoing impact of the pandemic. The relaxation ended on 1 August 2021, and the original 30-day deadline now applies. HMRC also allowed taxpayers to use electronic signatures when notifying options to tax during the pandemic, provided that particular conditions were met. This change has been made permanent.
4.2 Penalties for unpaid deferred VAT
HMRC has published details of the penalties for non-payment of VAT deferred due to coronavirus
To support businesses during the pandemic, the Government allowed VAT liabilities to be deferred and repaid in instalments under the VAT deferral new payment scheme. The scheme closed earlier this year. Details of penalties for non-payment have now been added to HMRC’s guidance. Penalties will be charged at 5% of the unpaid deferred VAT. They will not apply if the taxpayer made an ‘arrangement to pay’ with HMRC before 30 June 2021. Details on how to appeal against penalties or obtain a statutory review are also included in the guidance.
5. Tax publications and webinars
5.1 Tax publications
The following Tax publications have been published.
The following client webinars are coming up over the next week.
- 11 August 2021 - S&W Sessions: Global Mobility
6. And finally
6.1 Supremely minor
In 2005, someone in HMRC made a mistake with recording a taxpayer’s address. Sixteen years later, the SC got involved. The best of us can find ourselves tangled up in legal issues – P G Wodehouse once dedicated a book to the barrister who won his tax case – but this whole mess serves as a salutary reminder of just how minor the stumbling block can be. Our sympathies to the taxpayer and original HMRC officer, and our thanks for a tale full of twists and turns.
Tinkler v HMRC  UKSC 39
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.