Rachel Reeves has been appointed as the new Chancellor and James Murray as the new Exchequer Secretary to the Treasury, the ministerial post now responsible for tax.

Following the General Election, Rachel Reeves has been appointed as Chancellor of the Exchequer, replacing Jeremy Hunt. She takes overall responsibility for the work of the Treasury, including the Budget.

James Murray has been appointed as Exchequer Secretary to the Treasury, and responsibility for tax has been moved to this role. He will be chiefly responsible for dealing with HMRC and the tax system. In the last Government the minister responsible for tax was the Financial Secretary to the Treasury, who was then Nigel Huddleston. 

We wish them well in their new roles.

www.gov.uk/government/ministers/chancellor-of-the-exchequer

www.gov.uk/government/ministers/exchequer-secretary-to-the-treasury

HMRC has written to a number of individuals who are registered as a person of significant control (PSC) for a limited company. There are two versions of this letter.

A PSC is someone who meets certain conditions indicating they have ownership or control over the company. The basis for HMRC’s letters is an expectation that a PSC is likely to have sources of income or gains arising from that company.

There are two versions of the letter. The first type has been sent to those who did not submit a 2022/23 tax return. They have been asked to check whether or not they should have done so. If they do need to register for self-assessment then they are told to submit the 2022/23 return by 23 August 2024. Recipients who believe that they were correct in not submitting a 2022/23 tax return are asked to email or call the team at HMRC using the contact details in the letter, and explain why they do not need to register for self-assessment.

The second type has been sent to those who submitted 2022/23 and possibly 2023/24 tax returns, but with lower income levels than expected by HMRC. They are asked to check their returns to ensure that they are complete and correct. If amendments need to be made to the 2022/23 return, they are asked to do so by 23 August 2024.

The tax implications for a PSC can be complex and wide-reaching, depending on their financial relationship with the company. HMRC lists several examples in the letters, such as share transactions, loan relationships and use of company assets. Those in receipt of these letters may wish to seek advice before responding to HMRC. Our specialist team can assist.

www.tax.org.uk/hmrc-one-to-many-letters-to-persons-of-significant-control

The FTT has upheld a failure to notify penalty charged on a landlord who did not register for self-assessment. His belief that all the rental income could be treated as his wife’s was not a reasonable excuse.

The taxpayer and his wife jointly bought a property which he lived in until 2007, then it was let out. In 2022, HMRC wrote to him about a potential underpayment, and after receiving information from the taxpayer issued failure to notify penalties for the tax years from 2006/07 onwards. The taxpayer appealed against these, stating that he and his wife had regarded all the property income as hers, so as it came below her personal allowance they did not know that anything should be declared.

The FTT upheld the penalties. Although the taxpayer did not know that the income from their jointly owned let property was deemed to be split equally between them, he had failed to seek advice on the question. The rental income was also paid into his bank account. Proceeding on a misguided assumption without making an effort to ascertain the correct tax treatment was not a reasonable excuse.

Bevan v HMRC [2024] UKFTT 586 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09225.html

In a careful analysis of items requested in an information notice, the FTT found that some were not reasonably required to check the tax position, for example as HMRC had not proved that they were statutory records in the foreign jurisdiction.

HMRC opened an enquiry as it wished to check the taxpayer’s income from property and directorships. An information notice was issued that referred to a number of companies, the taxpayer’s level of involvement with which was unclear. The taxpayer disputed every item requested in the notice.

The FTT partially upheld the information notice, after assessing each element. HMRC had failed to prove that bank statements and accounts for one Hong Kong registered company were statutory records, or that they were in the possession or power of the taxpayer, so they were removed from the notice. HMRC had not brought evidence about the company records laws in Hong Kong. One item, which requested information about a credit card, was not sufficiently clear so was not a valid request. HMRC could not explain why it wanted information about the taxpayer’s payments to this credit card, so could not prove that the information was reasonably required to check the taxpayer’s tax position. The FTT was critical of deficiencies in HMRC’s bundle. It also kept focussed on the actual enquiry, rejecting nearly all requests for information for periods before the 2015/16 tax year, as that was the year for which the enquiry was open, so HMRC had to show that information was reasonably required for its actual period of enquiry.

Sangha v HMRC [2024] UKFTT 564 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09220.html

The FTT considered the validity of enquiry notices where losses were incurred in one year but carried back to the previous year, finding in favour of HMRC.

The taxpayer entered into an avoidance scheme since found not to work. He had claimed losses created through this scheme in 2006/07 and carried them back to 2005/06. The HMRC enquiry notice into the claim was issued on the basis that the claim had been made outside a return, though it was included on the 2005/06 return. It issued an enquiry into the 2006/07 return as well, where a note about the claim was included.

The FTT agreed with the taxpayer that the original enquiry notice into a claim outside a return was invalid, as issued on the wrong basis. However, the enquiry into the 2006/07 return was valid, so the closure notice disallowing the loss could still be upheld, and the taxpayer lost his appeal.

Murphy v HMRC [2024] UKFTT 537 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09207.html 

The FTT found that despite the existence of a constructive trust, HMRC was entitled to make a discovery assessment as it could not have been expected to be aware of the trust.

The taxpayers, a married couple, transferred a property into a company of which they were the sole directors and shareholders. The property was one that they were developing gradually, transferring plots of land into the company one by one. For the plot in question in this case, the legal interest was transferred in 2016/17, but the taxpayers argued that effectively the transfer was in 2015/16, as the development was started then by the company, and the transfer was included in board minutes, they simply had not completed the legal paperwork for transfer.

The FTT agreed with the taxpayer that a constructive trust arose in 2015/16, so the transfer was effective for CGT then. The transfer had been agreed and the company was acting as though the plot were its own, so beneficial interest had been transferred. However, the FTT found that HMRC could assess the transfer in 2015/16. A hypothetical HMRC officer could not reasonably have been expected to be aware that the transfer happened in the earlier year, so the later discovery was valid. HMRC therefore essentially won the case despite losing on the constructive trust point.

Morgan & Anor v HMRC [2024] UKFTT 537 (TC) 

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09221.html

A taxpayer who decided not to take professional tax advice due to the cost has been found not to have a reasonable excuse for non-compliance with a follower notice.

Due to concerns about the off-payroll working rules, the taxpayer entered into a tax avoidance scheme promoted by Montpelier. After he left the scheme he used Montpelier only for tax advice. Following investigations into the scheme, which Montpelier told him about, he received a follower notice but did not comply with it as the promoter told him it was not lawful.

The FTT upheld penalties on the taxpayer for not complying with the follower notice in time. He had known that penalties were a possibility, and had chosen not to take independent tax advice as he was unable to find an adviser he did not regard as too expensive. His choice to wait for the outcome of the litigation challenges which he was not a party to was not reasonable.

Moore v HMRC [2024] UKFTT 518 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09206.html

A taxpayer who was a financial adviser and long term director has lost his appeal on a CGT penalty, with the FTT finding that he should have known he needed to take independent advice.

The taxpayers, a married couple, gave away some of their shares in a company in 2019 to other shareholders. This took their holdings below 5% each. 20 days later, they disposed of their remaining holdings, and claimed ER on the disposals. It was agreed with HMRC on enquiry that these claims were invalid, and they withdrew them.

HMRC then issued penalties of 15%, over £16,000 each, for careless behaviour.  It refused to suspend them, as the situation was unlikely to arise again so making the penalty conditional on it not happening again was not a suitable condition. The taxpayers contested the penalties, arguing that it was reasonable for them to have relied on professional advice provided to the company on ER entitlement. The advisers were only engaged by the company, not the taxpayers, but the taxpayers considered that it was always clear to the advisers that ER was a priority.

The FTT upheld the penalty. HMRC argued that as an experienced director the husband should have been aware that he could not rely on advice to the company, and needed his own advice. The tribunal agreed that it was not reasonable to rely on advice to the company, and given the taxpayers’ attributes, being company directors and the husband a financial adviser, they had not behaved reasonably.

Cox v HMRC [2024] UKFTT 510 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09198.html

The FTT has found that an LLP was trading, as although the activity was not fully set-up enough progress towards that goal had happened in the relevant time period.

The taxpayer disposed of a holding in an LLP. The project aimed to use waste biomass for electricity generation, and received various permissions and an option over a site. In 2015, after considerable preparation, it sought additional financing, and the taxpayer took equity in the new LLP. The project progressed and electricity was generated commercially in 2019, though the company remained in a loss position. The taxpayer disposed of his interest in 2020.

HMRC issued a closure notice denying ER on the disposal. It stated that the business had not been trading for a full two years before the disposal, based on the position of the project at that time. At the point two years before the disposal, accreditation  was outstanding and construction incomplete.

The FTT allowed the taxpayer’s appeal. The LLP had a specific concept of the type of activity to carry on, and had set-up. The FTT found that “set-up” for this test did not require 100% completion. Set-up can coexist with operational activity, there is not necessarily a line between them. Given the partnership agreement, the decision making was organised. As there was financing in place, the funding was organised. Dealing with third parties had also commenced. The LLP was trading in the relevant period and the taxpayer was entitled to ER.

Wardle v HMRC [2024] UKFTT 543 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09213.html 

The UT has allowed an appeal on sideways loss relief and remitted it to the FTT for rehearing, as the FTT initially used the wrong test.

The taxpayers, participants in a scheme, both claimed losses on contracts for difference sales. They claimed to be self-employed options traders, and as such offset the losses against other income as trading losses. The FTT found that there was no trade, merely a tax avoidance scheme in which the taxpayers had little involvement, and there was no economic loss. Although it had been 16 years since the events, the discovery assessment was valid, as the taxpayers were aware that there was no real trade, so had behaved deliberately.

The UT decided to allow the taxpayers’ appeal, and remitted the case to the FTT for rehearing. The only issue in the FTT decision was that it had applied the wrong test in deciding whether or not the conduct was deliberate. It had reasoned objectively, when the correct test was subjective. In particular while it had assessed that there was no trade, it had not considered the taxpayers’ understanding of what amounts to a trade.

Outram & Anor v HMRC [2024] UKUT 00203 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2024/203.html 

The CA has upheld the lower court’s decision that the main purpose of a loan relationship to which the taxpayer was party was to obtain a UK tax advantage. The loan therefore had an unallowable purpose, and no deduction was allowed for the resulting interest expenses.

The taxpayer, a UK incorporated company, was a member of a multinational group with its ultimate parent company in the US. It was set up to acquire a US group worth $1.1bn. The transaction involved a series of steps that sought to maximise group interest deductions whilst minimising taxable credit interest. Overall, the funding arrangements provided a deduction for third party interest in the US, and group interest in the UK with no taxable credits in the US, UK, or Cayman Islands where a finance company had also been set up.

The FTT and the UT agreed that the presence of free-standing loan relationship deficits that were surrendered by way of group relief to UK members of the group, without any corresponding taxable receipts, did mean that the taxpayer had secured a tax advantage by being party to the loan relationship. Evidence, including reports and internal emails, showed the sole purpose of the funding arrangement was to obtain a UK tax advantage. The UK and Cayman Island companies had no employees or tangible assets, which further evidenced the lack of genuine commerciality in the loan agreements.  The CA agreed with the Tribunals stating that the taxpayer’s purpose was ‘to play the part that had been devised for it so as to obtain a tax advantage’ and that being so had a main purpose of tax avoidance.

The taxpayer appealed the FTT decision on the grounds that it had looked too widely, considering why the taxpayer, as opposed to another group company, was party to the loan rather than focusing on the motives of the taxpayer company alone. The UT rejected this argument stating that narrowing the interpretation of the law would go against Parliament’s intention. The CA agreed with the UT that adopting a ‘tunnel-vision’ approach was not appropriate, and that the taxpayer having a commercial purpose for the funds did not over-ride the avoidance purpose.

The CA ruled that the FTT was correct to conclude that the debits were wholly attributable to the unallowable purpose, and so no apportionment was required, and no deduction available for any of the interest expense arising on the loan.

JTI Acquisitions Company (2011) Ltd v HM Revenue & Customs [2024] EWCA Civ 652

www.bailii.org/ew/cases/EWCA/Civ/2024/652.html 

The FTT has ruled that loan relationship losses arising on the redemption of loan notes should be disallowed as the loss was referable to a period when the company was not UK-resident.

The taxpayer, UKC1, a Guernsey resident company acted as the issuer of loan notes secured on the UK care home business of the Bupa Group.  The taxpayer was not, at that time, part of the Bupa Group.  In 2016 Bupa Group wanted to sell several of the care homes which were being used as security.  As a result, the taxpayer was acquired by the Bupa Group, became UK resident and redeemed the loan notes. The redemption gave rise to an accounting loss of £150m, which the taxpayer brought into account as a loan relationship debit in its corporation tax return.  HMRC took the position that, with the exception of £57m early redemption penalties, the loss was referable to a time when the taxpayer was non-UK resident and therefore disallowed.

The FTT agreed with HMRC that except for the penalty for early redemption the loss related to the period the company was non-UK resident. It was changes in market conditions pre-migration to the UK, including changing interest rates, and expenses incurred in relation to the loan notes pre-migration that gave rise to the loss.  

The taxpayer went on to argue that it had brought in to account an expense not a loss and the legislation at s327 CTA 2009 refers specifically to a disallowance of losses.  This argument was dismissed as although there is no specific reference to expenses the legislation is drawn widely referring to ‘losses in connection with’ a loan relationship rather than a more restricted ‘losses arising from’ a loan relationship.

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09212.html

UK Care No 1 Ltd v HM Revenue & Customs [2024] UKFTT 542 (TC) 

The CA has overturned the UT decision in a capital allowances case involving a marketed tax scheme, stating that the legislation and the transaction needed to be viewed as a whole rather than looking at each clause and step in isolation.

The taxpayer had used a marketed tax avoidance scheme involving the sale and leaseback of assets to significantly increase the level of capital allowances available. The case centred on whether or not the taxpayer had disposed of the assets in line with the capital allowances legislation.  

The CA found the UT had made its decision ‘by reference to a snapshot in time, not over a period of time’ and in doing so had failed to consider the scheme as a whole.  Although each step in the scheme had the legal effect it was purported to have, as a whole the scheme was entirely tax motivated and none of the steps had a commercial purpose. The likelihood of any of the steps not taking place was minimal and so the CA found that the taxpayer did not cease to own the assets when they were sold to the bank.

Altrad Services Ltd and others v HM Revenue & Customs [2024] EWCA Civ 720

www.bailii.org/ew/cases/EWCA/Civ/2024/720.html 

The case considers the interaction between the ring-fenced trade, transfers of trade and capital allowances rules, concluding that using assets outside of the ring-fenced trade does trigger a disposal for capital allowances purposes.

The operation of the ‘CATS pipeline’ by Amoco, a UK resident company, was treated as a single ring-fenced trade.  The pipeline and all associated assets were transferred to CNSL, a subsidiary company, by way of a hive-down. Amoco subsequently disposed of its shares in CNSL to a third-party.  Following the hive-down and prior to the disposal, CNSL’s activities were partly inside the ring fence and partly outside.  

The FTT considered whether the transfer of trade provisions should apply given the fact that the transferor had one single ring fenced trade whereas the transferee had activities both in and outside the ring fence. They concluded that the provisions did apply as in substance the activities carried on by both parties with respect to the pipeline were the same.

They went on to consider whether CNSL starting to use the pipeline in activities outside of the ring-fence constituted a disposal for capital allowances purposes.  The FTT found that as the qualifying activity for Amoco was a single ring-fence trade, when CNSL began to use the pipeline for activities outside of the ring fence, it had wholly or partly begun to use the assets for purposes outside of the qualifying activity and therefore triggered a disposal.  The disposal value should be the market value of the assets, resulting in a significant balancing charge for CNSL.  No further balancing charges arose on the disposal of CNSL to the third-party.

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09200.html

CATS North Sea Ltd v HM Revenue & Customs [2024] UKFTT 512 (TC) 

The SC has ruled that expenses incurred by an investment holding company on the disposal of a subsidiary company are management expenses, and of a capital nature and so no relief is available.

The taxpayer, an investment holding company and member of a large group, incurred professional fees in relation to the disposal of a subsidiary company.  The CA had held that these costs were management expenses, with the SC asked to consider whether the expenses were of a capital nature.

The taxpayer argued that the words ‘expenses of a capital nature’ had a narrower meaning than the phrase ‘items of a capital nature’ that applies to trading companies. This argument was dismissed stating there is nothing to indicate that the exclusion for management expenses was intended to be narrower than that for trading companies, both are intended to exclude capital expenditure based on well-established tax case law. 

The Court went on to note that investments of a holding company are generally capital assets, and money spent on the acquisition or disposal of a capital assets should be regarded as capital expenditure. The fact the taxpayer continued to hold other investments did not override the fact the costs in relation to the disposal in question were of a one-off nature. The taxpayer’s appeal was dismissed, and expenses in relation to the disposal were not deductible as expenses of management.

Centrica Overseas Holdings Ltd v HM Revenue and Customs [2024] UKSC 25

www.bailii.org/uk/cases/UKSC/2024/25.html 

The FTT has ruled that dip pots provided as part of a takeaway meal deal are not a separate supply but part of a single supply of hot food and so standard-rated for VAT.

Typically, hot takeaway food is standard rated for VAT, whilst cold takeaway foods are zero-rated. The taxpayer, an operator of several KFC fast-food outlets, had initially treated the dip pots as part of a single-standard rated supply of hot takeaway food, being the meal deal. Following advice, the taxpayer submitted a claim for overpaid output tax on the basis that the dip pots were a separate supply and so zero-rated. HMRC agreed and made the repayment. A further claim was made on the same basis for a later period which HMRC refused to pay, this also called in to question whether the initial overpayment claim had been correct.

The FTT found that there was a single standard-rated supply of hot food, as for a typical consumer the dip was a means of better enjoying the hot food. There was no evidence that a dip pot was eaten on its own unlike other legitimate cold takeaway items such as a cookie or coleslaw, it was an accompaniment to the hot food, not an aim in itself.

The taxpayer also appealed the decision on procedural grounds arguing that HMRC wasprevented from recovering the tax either based on legitimate expectation or estoppel by convention. Both arguments were dismissed by the FTT who found that it was not sufficiently unfair of HMRC to retract its initial acceptance of the repayment claim, and that there had been no detrimental reliance on the original position taken by HMRC.

The taxpayer’s appeal was dismissed on all grounds.

HM Revenue & Customs v Queenscourt Ltd [2024] UKFTT 460 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09184.html 

The UT has agreed with the FTT in finding that mixed-use SDLT rates applied to a house with a paddock let out for grazing. The FTT was entitled to reach the conclusion it had on the facts of the case, so there were no grounds for the UT to interfere.

The taxpayers, a married couple, bought a house and a paddock in one transaction, and filed an SDLT return on the basis that this was a mixed-use property, as the paddock was non-residential. HMRC failed in its argument that the property was sold as an equestrian property, of which the paddock was a necessary part, and that the paddock was part of the garden and grounds. The house and the paddock were on separate titles.

The FTT found for the taxpayers, as the property did not have any stables and consisted solely of the actual garden and tennis court, with the paddock not being an integral part, and not visible from the house or gardens. A third party held a grazing lease over the paddock, which had separate access not over the rest of the property. The paddock had a separate title from the rest of the property, and the taxpayers would not have bought it if it had been possible to purchase the rest of the property without it.

HMRC appealed to the UT. It argued that the grazing lease was not relevant, as it had been granted on the day of completion, so post-purchase, and that the taxpayers had not established that part of the property was non-residential. The UT dismissed the appeal. It agreed with HMRC that the grazing lease should not have been taken in to account, as it was not in place at the time of completion. However, the FTT’s conclusion that the paddock was not part of the grounds, based on the facts presented, was not “rationally insupportable”, so the UT declined to alter it.

HMRC v Suterwalla & Anor [2024] UKUT 188 (TCC)

www.bailii.org/uk/cases/UKUT/TCC/2024/188.html 

The FTT has accepted a taxpayer’s appeal on mixed-use SDLT treatment, finding that woodland bought with a property was non-residential.

The taxpayer bought a large home set in 16.6 acres, of which 12 acres were woodland. After initially declaring a residential transaction for SDLT, she submitted a claim for a partial refund on the grounds that mixed-use treatment should apply as the woodland was non-residential property. It was contiguous with woodland not owned by her, and all the woodland was used by the general public for walking. She put effort into their upkeep, but they were not fenced off in any way, access was open despite a “private” sign. The garden was fenced off from the woods, as it had been when she bought the property, so there was no view of the woods from the house. The position was the same for her neighbours who owned other parts of the surrounding woodland, and they were all signed up to a scheme for landowners owning part of the wood. It is a requirement for purchasers of these properties to sign up to it.

HMRC argued that the woodland was part of the garden or grounds of the property. It had been sold with the property and enhanced its rural character.

The FTT found for the taxpayer. On the facts, and in the unusual arrangements set out in the landowners’ scheme, the woods did not have a function connected to the home. They did not provide privacy or security due to the public use.

Guerlain-Desai v HMRC [2024] UKFTT 515 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09203.html 

The FTT has found for a taxpayer who argued that part of her property was used commercially as a hotel. Residential rates of SDLT did not apply.

The taxpayer bought a property suitable for use as a dwelling. She argued that mixed-use treatment applied as part of the property was used as a home, and part as a hotel. The FTT upheld the taxpayer’s appeal. She provided considerable evidence of the running of the hotel business, and amenities offered, proving her case.

An additional argument, that mixed-use treatment should otherwise apply as a farmer leased a meadow attached to the property, was not upheld. The use was not on a commercial basis.

Hurst v HMRC [2024] UKFTT 540 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2024/TC09210.html 

The following Tax publications have been published.

• Insurance Premium Tax Part 4 - IPT oddities
• General election 2024: SNP, Plaid Cymru and DUP Tax Policies
• General Election 2024 Comparison table of party tax policies
• UK tax environment for UK and international private equity executives
• Labour and inheritance tax: what might we see from the new Government?
• The importance of customs data analytics

The following client webinars are coming up soon.

• 11 September - Redefining Real Estate: How PropTech can help with rising ESG expectations
• 9 October - Business Exit - Pre-exit planning for business owners - October 2024
• 16 October - Business Exit: Post-exit planning for business owners - October 2024

Here at And finally we pride ourselves on finding the tax angle in any story. From fun questions like how to tax medals (exempt from income tax in the UK, though they do not come within the IHT exemption for medals for valour, but US taxpaying medal winners are taxed on the value) to panics about tax residency, the Olympics is fertile ground.

We just have to hope that the Parisian team fares better than the Japanese Olympic Committee, which has just recently found itself with a tax bill for two billion yen following findings of accounting errors. An Olympic Games can indeed leave many legacies.

www.reuters.com/sports/japanese-olympic-committee-pays-13-million-bill-back-taxes-2024-03-07/