Ireland 
USA Weekly Tax Update 14 July 2021
The latest tax update and VAT round up for the week.
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 Legislation Day 2021 announced
Draft clauses for the next Finance Bill will be published on Tuesday 20 July 2021.
The related explanatory notes, tax information and impact notes, consultation responses and other supporting documents will also be released on that day. The statement from the Financial Secretary to the Treasury notes that the draft clauses will largely cover pre-announced policy changes.
https://questions-statements.parliament.uk/written-statements/detail/2021-07-07/hcws155
1.2 OTS report on improving use of third party data
The Office of Tax Simplification (OTS) has published a report with recommendations for HMRC on how to make better use of third party data on individual taxpayers. Key points are that this data should be visible to the taxpayer in their online account, and used to prepopulate tax returns.
HMRC is soon to replace the personal tax account and business tax account with a new ‘single customer account’, which should also incorporate other digital services currently accessed separately. In advance of the change, this report looks at how HMRC could use third party data such as bank interest amounts, and how to embed them into the account.
Key recommendations include that the use of third party data should be extended. It should be visible to taxpayers on the online account, and used to update tax codes and prepopulate tax returns. There is potential for some taxpayers to be removed from self-assessment by using this data more effectively. There should be a clear plan setting out the stages for greater use of this data, and safeguards for data security and accurate matching of data to taxpayers.
www.gov.uk/government/publications/making-better-use-of-third-party-data-a-vision-for-the-future
2. Private Client
2.1 Checks on self-employment income support reporting
HMRC has adjusted returns where its records on self-employment income support scheme (SEISS) grants did not match submitted returns. Taxpayers who may be affected have been written to, and are advised to check the adjustment and to contact HMRC if it is incorrect.
HMRC has made adjustments to a number of returns where the reported amount of SEISS payments did not match HMRC records, or where self-employment or partnership pages were not included, but a grant was claimed. Taxpayers who have submitted 2020-21 returns, and claimed an SEISS grant in 2020 or 2021, are advised to check their returns. Taxpayers who disagree with the change should contact HMRC within 30 days of receiving the letter informing them of the correction.
www.gov.uk/guidance/check-if-you-need-to-change-your-self-assessment-return-for-seiss
2.2 Sideways loss relief claim denied on film rights
The FTT found that the purchase and sale of film rights under a pre-arranged plan did not amount to a trade, so no sideways loss relief was due. In addition, closure notices were validly issued.
The taxpayer ceased employment. In the first year of his self-employment as a photographer he generated losses using an arrangement. Using a loan as funding, he purchased distribution rights for four films, then sold them in two transactions at a loss in exchange for income generated by the rights. He made a claim to set this loss against previous employment earnings. The FTT agreed with HMRC’s view that the purchases and sales of film rights did not amount to a trade, as all the steps were pre-arranged. Although the taxpayer had spent 18 hours a week on business activities such as reviewing film packs, it was clear that the essence of the transactions was laying out a capital sum to obtain a possible future income stream. This was enough to dismiss the claim, but the FTT also found that the trade was not carried out on a commercial basis with a view to profit.
The taxpayer also sought to argue that the closure notices were issued late and therefore invalid. It was agreed that the enquiries were valid, but there was a delay of several years before the closure notices were issued, partly as similar cases were being taken forward. The FTT dismissed this, as there is no time limit for HMRC to issue a closure notice. Taxpayers concerned about delay can apply to the FTT to request that HMRC issues a closure notice, which is an adequate safeguard against indefinitely long enquiries.
Poll v HMRC [2021] UKFTT 223 (TC)
2.3 FTT determines market value of shares when given to charity
The FTT has ruled on a share valuation case where the market value on the date given to a charity could be used by the taxpayer to claim income tax relief. The prospects of the business were studied in detail, and the FTT reached a valuation of its own based on the highest price a reasonably prudent purchaser might pay.
Two taxpayers gave shares to a charity after the company was floated on the Channel Islands Stock Exchange. They claimed income tax relief, which was due on the market value, but the correct value was disputed by HMRC. The gifts were made on various dates, and HMRC and the taxpayer’s valuations were very different. The FTT heard evidence about the business of the company and its history.
The arguments were very technical, but the FTT found that the correct valuation method was to identify the highest price that a reasonably prudent purchaser would pay, not the highest price a range of such purchasers might pay. The FTT determined this price based on the information available to a purchaser and weighing up various factors that they would consider. The valuations were between the two submitted for each date, but much closer to HMRC’s valuations.
McArthur & Anor v HMRC [2021] UKFTT 237 (TC)
2.4 FTT cannot determine domicile in an information notice hearing
The FTT has found that it cannot determine the issue of a taxpayer’s domicile in the course of an appeal against an information notice.
The taxpayer, who claimed a non-UK domicile, was issued with information notices by HMRC requiring information on his worldwide income and gains. He appealed the notices on the grounds that the information was not reasonably required to establish his UK tax position as he was non-UK domiciled, and asked the FTT to determine his domicile as part of the hearing.
The FTT dismissed his appeal, and found that it did not have jurisdiction to determine domicile at an appeal against an information notice. As long as an HMRC officer had a rational basis to challenge the taxpayer’s domicile, they did not need to prove domicile to obtain an information notice. Alternatively, the FTT found that if it did have jurisdiction, it should not exercise it in the circumstances.
Perlman v HMRC [2021] UKFTT 219 (TC)
3. PAYE and employment
3.1 Extension to exemptions for home office expenses and antigen tests
The current tax exemptions for home office expenses and coronavirus antigen tests will apply until the end of tax year 2021-22.
Last year, the Government introduced an exemption from IT and Class 1 NICs for reimbursements by employers of purchases of some home office equipment by employees. Employer-provided and employer-reimbursed coronavirus antigen tests were also exempted from IT, and from Class 1A NICs. These exemptions have now been extended, and will apply until 5 April 2022.
3.2 Compensation paid for loss of allowance taxable as employment earnings
The FTT has found that a compensation payment made by an employer was taxable as employment earnings. It was paid following the discontinuance of an allowance paid as a regular part of the taxpayer’s salary, so although the cancellation and compensation were decided separately, the payment was derived from employment.
In addition to his salary, the taxpayer was entitled to an allowance for staff in his discipline (ICT). Following an equal pay review, these were discontinued, and compensation payments made. The taxpayer argued that this payment should not be taxable, as it was made not in return for services, but for the employer to avoid the risk of claims under the Equal Pay Act. There was no requirement for him to continue in the employment, and it was not calculated as exact compensation for the amount lost. The FTT however agreed with HMRC that this was taxable as employment income, as it was paid solely for a change in the terms and conditions of his employment, which was solely the loss of the allowance. It was intended as a replacement for those payments.
McAllister v HMRC [2021] UKFTT 232
4. VAT
4.1 Another extension to notifying an option to tax
The extended time limit for notifying HMRC of an option to tax (OTT) will apply to decisions made until 31 July 2021.
The time limit to notify HMRC of an OTT land and buildings was extended from 30 days to 90 days in 2020 because of the pandemic. The end to the extension has been delayed several times. The 90-day time limit will now apply to decisions made between 15 February 2020 and 31 July 2021.
4.2 Repayments to non-EU overseas businesses not UK VAT registered
Overseas business not in the EU and not VAT registered in the UK have an additional 6 months to submit certificates of status. This deadline extension applies to claims under the overseas VAT refund scheme for prescribed year 1 July 2019 to 30 June 2020.
Overseas businesses not in the EU can reclaim UK VAT under the overseas VAT refund scheme. A certificate of status is required, which was due by 31 December 2020 for claims made in prescribed year to 30 June 2020. Last year, HMRC allowed a six-month extension to that deadline. Revenue and Customs Brief 10 (2021) provides for a further extension to 31 December 2021 because obtaining those certificates has continued to be difficult due to the pandemic. It also confirms that HMRC aims to make payments within 6 months of receiving the certificate.
4.3 Transactions in emissions trading scheme allowances to be zero-rated
New legislation will be introduced to enable zero-rating for trades in UK emissions trading scheme allowances.
The Financial Secretary to the Treasury has announced that legislation will be introduced to allow trades in UK emissions trading scheme allowances to be zero-rated. This legislation will be introduced at the earliest opportunity. It will be in line with the existing treatment of transactions on terminal commodities markets. The zero-rating for UK emissions allowances will apply to transactions occurring since trading began in May.
https://questions-statements.parliament.uk/written-statements/detail/2021-07-05/hcws148
4.4 CJEU reaffirms that a VAT invoice is needed to claim input tax
The CJEU has found that a VAT invoice must be, or at some point have been, held by a taxpayer in order for it to claim input tax. This ruling informs a case currently with the SC, which is a lead case affecting VAT claims made against HMRC of between £500m and £1bn.
The taxpayer, a UK company, received services from Royal Mail. The taxpayer, Royal Mail and HMRC believed the services to be exempt from VAT. A subsequent ruling by the CJEU in an unrelated case established that the postal services exemption was narrower than generally accepted in the UK. The services provided to the taxpayer by Royal Mail were therefore standard-rated. HMRC did not seek to recover the uncharged VAT from Royal Mail, because after all relevant payments and recoveries the net result to the public revenue would have been nil. The statutory time limits for the contract between the taxpayer and Royal Mail to be varied had also expired, so the price could not be adjusted on services rendered.
The taxpayer then sought to recover the uncharged, unpaid VAT from HMRC. HMRC denied the reclaim on the basis that the taxpayer did not pay any VAT so it should not be allowed to recover any VAT. The FTT, UT and CA found for HMRC. The SC requested a preliminary ruling from the CJEU, which is the subject of this case.
The CJEU held that a taxpayer cannot make a valid claim to deduct VAT unless it holds, or at some point held, an invoice separately stating the amount of VAT passed on. In doing so, the CJEU distinguished between a right to deduct VAT in principle, and a right to deduct a particular and specific amount of VAT. An invoice is not needed for the taxpayer to have the right to deduct VAT in principle, but it is needed in order for the taxpayer to deduct a specific amount of VAT. In this case, the taxpayer did not have, nor did it ever have, an invoice setting out the VAT charged on the services. The case is now to be decided by the SC.
Case C 156/20
5. Tax publications and webinars
5.1 Tax publications
The following Tax publications have been published.
5.2 Tax podcasts
The following Tax podcasts are available now.
5.3 Webinar
The following client webinars are coming up over the next week.
- 14 July 2021: S&W Sessions: Impacts to the R&D Incentive Landscape
- 29 July 2021: The Contemporary FD Bitesized
6. And finally
6.1 Hidden powers
In a recent article, Dame Margaret Hodge voiced her concerns over the ineffectiveness of the proposed global minimum tax rate: “What could have been a once-in-a-generation moment for change is in danger of becoming a damp squib”. We are almost certain Dame Margaret was referring to a waterlogged firework, but we do sincerely hope she was referencing Harry Potter. A squib, in J K Rowling’s fantasy world, is someone born to a wizarding family who has no magical powers. In the same way, Dame Margaret is concerned that the global minimum tax rate will not have the ability to work magic.
But let us not forget. Though squibs may not be magical, magical abilities may resurface in their descendants who believed themselves to be muggles; that is, non-magic folk. Even if the global minimum tax rate lacks teeth, cooperation between 130 states on any subject is practically magic.
https://www.thetimes.co.uk/article/the-worlds-drive-for-tax-justice-is-in-danger-wxpllfgds
Disclaimer
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.
