Agenda • Recent tax cases • CT losses following acquisition • CIS Gross payment status appeal • HMRC announcements • Other tax developments
Recent tax cases
Set off of losses following acquisition • Leekes Ltd v HMRC (2015) FTT 93 • L Ltd owned 4 department stores • Acquired C Ltd - 3 stores and b/fwd trading losses • Hived up trade – s940 CTA 2010 (s343) • C’s trade combined – 3 stores rebranded to L • Should losses be streamed against future profits of C? • FTT accepted that C’s trade subsumed into L’s trade and loss offset was available against profits of enlarged trade • Upper Tribunal has reversed – only against same trade • Court of Appeal has now upheld UTT decision
Hive Down/ Up Of Trade OLDCO LTD TRADE AND ASSETS(NG/NL) +LOSSES NEWCO
Hive Down/ Up Of Trade • 75% common ownership at some time • In 1 year before • And 2 years after transfer of trade • Trade not discontinued • Therefore losses c/fwd, no balancing charge on CA. • Loss transfer restricted if liabilities not taken over
Changes to company loss relief 2017 • New corporation tax loss set-off rules from 2017 • For new losses incurred on or after 1 April 2017 , companies will be able to use carried forward losses against profits from other income streams or other group companies • “Old” losses will still be streamed • Limited to 50% of future profits where company profits exceed £5m (1% of companies) • 25% set off restriction in the case of bank losses
Recovery of PAYE and NIC from Director • West v HMRC (2018) UKUTT • Director’s (Mr W) loan account £129,250 cleared by “bonus” net remuneration prior to liquidation • Gross income and tax deducted included in Mr W return • Company did not pay PAYE and NIC to HMRC • Could PAYE and NIC be transferred to director? • If he had been aware of the wilful default • Held that he was aware = thus liable for PAYE and NIC
Ex-Gratia Payment – Injury to Feelings • Moorthy v HMRC EWCA(2018) • Compromise agreement for unfair dismissal and unlawful age discrimination • £200,000 payment – taxable? • ITEPA 2003 s401 (1)(a) = payment received “in consideration or in consequence of, or otherwise in connection with” the termination of employment • Does s406 take the payment out of scope of s 401 as a payment “ on account of injury … to an employee”. • Court of Appeal held that s406 £30,000 exemption applied
Exercise of Share Options – Market Value Rule • Davies v HMRC UKUTT (2018) • Goldman Sachs MD exercised unapproved share options • Option gain charged as employment income • Claimed capital loss? – base cost MV plus income tax compared to MV • Mansworth v Jelley (2003) considered • Held - No allowable capital loss
Offer to Settle Tax on Film Partnership Scheme • Kyte v HMRC UKHC (2018) • 4 January 2016, HMRC officer sent an “offer” to the taxpayer setting out tax and interest • 12 January 2016 taxpayer sent his acceptance. • HMRC subsequently considered that an error had been made in the calculations • Held that not an “offer” but merely an “invitation to treat” as liabilities not finalised
Discovery Assessments • Tooth v HMRC UKUT (2018) • Accountants entered the employment related loss on the partnership pages of SA return and filed return electronically before the relevant deadline. • At time of submitting the return, Mr T was aware that the deduction was likely to be challenged by HMRC. • He entered in Box 30 the relief he was seeking • HMRC made “discovery” assessment after normal SA inquiry window
Discovery Assessments • (1) there had to be an inaccuracy in a document given to HMRC; • (2) that inaccuracy should have been deliberate; and • (3) the deliberate inaccuracy had to have brought about an insufficiency in an assessment to tax. • Held – the conditions for operation of TMA 1970 s29 had not been met in that there had been no inaccuracy. HMRC’s appeal was dismissed.
IHT – Deduction of Liabilities for BPR • William (exors Campbell) v HMRC UKFTT (2018) • Assets of business £171,790 • Obligations under lease (113,750) • Net value of business £58,040 • Lease obligations deductible against general estate or business? • Deductible against value of business for BPR
CIS Gross Payment Appeal • JP Witter (Waterwell Eng.) Ltd v HMRC UKSC (2018) • 2009 – Late paid PAYE – Gross payment cancelled • Company successfully appealed • Gross payment status restored but HMRC warning: • Payment of tax and filing of returns to be made on time. Under new CIS guidance, rules to be applied strictly with no scope to allow for “minor and technical” failures • Failed 2010 Annual Review - successfully appealed • Also failed 2011 Annual Review!!!
CIS Gross Payment Appeal • JP Witter (Waterwell Eng.) Ltd v HMRC UKSC (2018) • Failed Annual CIS Reviews 2009, 2010 and 2011 • Gross payment status cancelled – Appealed again • “Losing gross status would prevent the company from tendering for contract work and thus cause the company to cease trading and thus cause great hardship which is disproportionate to the level of the oversights” • FTT allowed appeal – HMRC failed to take into account the adverse effect on the Company’s business when exercising their discretion • Reversed at UTT and decision upheld at CofA and SC
Recent HMRC Announcements
Construction Sector – VAT reverse charge • New VAT rules from 1 October 2019 • Affects builders, contractors and other trades associated with the building industry • To prevent missing trader VAT fraud • Main contractor will account for the VAT on the services of any sub-contractor • The supplier (sub contractor) does not invoice for VAT • Main contractor shows as output tax and input tax • Only applies to construction businesses which then use them to make a further supply of building services, and not to end users eg private individuals
Construction Sector – VAT reverse charge • Applies to: • Construction, alteration, repairs, demolition, installation of heat, light, water and power systems, drainage, painting and decorating, erection of scaffolding, civil engineering works and associated site clearance, excavation, foundation works = definitions in CIS legislation • Excluded works: • professional services of architects or surveyors, or of consultants in building, engineering, interior or exterior decoration or in the laying-out of landscape • drilling for, or extraction of, oil, natural gas or minerals, and tunnelling or boring, or construction of underground works….ETC
MTDfB delayed still further • 2020 at earliest for quarterly updating by traders and landlords (IT and NICs) • But VAT quarterly updating from 2019 • 12 month pilot of new VAT reporting • More time for testing and software development • Not mandatory for businesses below VAT threshold
EBT Loan Schemes – Settlement COMPANY TRUST LOANS Taxable Sub Trusts
EBT Loan charge 2019 • Charge on any outstanding loans resulting from disguised remuneration tax avoidance schemes • Applies to any loans that were taken out under a disguised remuneration scheme since 6 April1999 . • Responsibility of the employer/company to pay the 2019 Loan Charge under PAYE legislation. • Employer then expected to pass cost on to the individual • Charge can be passed to the individual beneficiary of the scheme by HMRC. • Taxpayers should contact HMRC to settle tax by 30 Sept to obtain certainty of their liability and arrange payment
Advisory Fuel Rates – 1 June 2018 Engine Petrol Diesel LPG < 1400 cc 11p 7p < 1600cc 10p (9p) 1400 – 2000 14p 9p (8p) 1601 - 2000 11p > 2000 cc 22p 13p 14p (13p)
Employees charging own electric cars No BiK 100% FYA
Employees charging own electric cars • From 6 April 2018 charging facilities for all-electric and plug-in hybrid cars and vans exempt. Covers: • the cost of electricity • the cost to the employer of providing the charging facilities • any connected services • Charging must be available to either: • all the employer’s employees generally • all the employer’s employees generally at a particular location
Employees charging own electric cars • Must meet all of the qualifying conditions for exemption: • Electricity must be provided through a dedicated charging point. • = a charging point dedicated to charging all-electric or plug-in hybrid vehicles and specifically designed for this purpose. • The charging facilities must be provided at premises under the control of the employer • NB exemption does not apply where the charging facilities are at the employee’s home
Short Term Visitors Consultation • Short-term business visitors from the foreign branch of a UK company • Possible changes to ensure the UK is an attractive location for business headquarters • Two broad options: • Extend the UK workday rule from 30 to 60 days • Introduce a new tax exemption for short-term visitors from overseas branches.
HMRC Guidance on Trust Income Tax 1. Items taxed as income on trusts 2. Trust management expenses 3. Reliefs and allowances 4. Trusts with vulnerable beneficiaries 5. Tax pools
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