Weekly Tax Update 18 May 2022

The FTT has found that a taxpayer was non-UK resident, despite exceeding the permitted days. The fact that she was in the UK to care for a relative who could not be helped by others met the criteria for exceptional circumstances. The FTT also rejected some of HMRC’s submissions on the nature of the exemption, keeping to the statutory basis.

The taxpayer moved to Ireland on 4 April 2015. In the 2015/16 tax year she received dividends on which over £3m of IT would have been due had she remained UK resident. In that tax year, she had to spend 45 or fewer days in the UK to be non-UK resident, but in fact spent 50 days in the UK. She argued that 6 of these days should be discounted, as she had visited the UK in December and February of that year to support her twin, who was experiencing serious ill health, and to assist in the care of her twin’s children.

The FTT had to consider what the test defined as exceptional circumstances. HMRC contended that foreseeable circumstances were not exceptional, and that the taxpayer would have been aware of her sister’s difficulties before she moved. The FTT found that foreseeability was not a factor which prevents circumstances from being exceptional. HMRC also argued that the exemption should only apply where a person was physically unable to leave the UK, or kept there by a legal obligation. The FTT found that moral obligations could also qualify, such as a need to attend a deathbed. HMRC also argued that the exemption should only apply to those who came to the UK and were then prevented by leaving when the circumstance arose, rather than those who came to the UK due to the circumstance. The FTT rejected this, as there was no statutory justification.

Overall, the FTT allowed the appeal. It accepted the taxpayer’s evidence that she was the only person able to assist her twin sister at the time, and was under a moral obligation to come. It also agreed with her that HMRC’s submission that she could have left the UK at the end of each day, then returned the next, was impractical, despite the fact that she had a private jet at her disposal.

A taxpayer v HMRC [2022] UKFTT 133 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2022/133.html

A taxpayer with low income appointed an agent who then filed a fraudulent return and kept the refund. He has won an appeal against HMRC’s attempt to recover the tax directly from him.

The taxpayer, who was homeless and unemployed, earned £2,500 which he wanted to report to HMRC. He appointed an agent he met in a pub, who filed a return including a fraudulent claim to SEIS relief, and reporting a much higher income than he had had. The repayment generated was paid to the agent. The taxpayer appealed HMRC’s discovery assessment, as he had never seen the return that was filed, and had just been told that the matter was sorted. He received no correspondence from HMRC as he had no permanent address.

The agent he had tried to appoint was the sister company of the one that filed his return. The FTT found that an appointed agent cannot delegate authority to file a return, so the filing agent had not been appointed by the taxpayer, and the return was invalid. The taxpayer was unsophisticated, had tried to comply with obligations, but fallen victim to a fraud, so the discovery assessment was invalid.

McCumisky v HMRC [2022] UKFTT 00128 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2022/TC08459.html

The FTT has granted an offshore oil rig worker permission to make a late appeal. Much of the delay was due to his work, and as an unsophisticated taxpayer whose agent had defrauded him, a lack of knowledge about how to appeal was understandable.

The taxpayer, who worked on offshore oil and gas rigs, wanted to file a return to claim expenses for equipment he had purchased. The agent he appointed claimed relief for non-existent EIS investments, and kept 70% of the tax repayments generated, without giving him details. He had limited time onshore, and little contact with the world when offshore, so did not receive correspondence from HMRC.

He appealed HMRC’s assessments reclaiming the tax repayments, out of time.  In his shock when he finally received the assessment letter, he had not read to the end and noticed the appeal rights. He had called HMRC in the appeal period, not been told he had to appeal, and had then been offshore for two months. He had submitted a written appeal on his return. Given the nature of his work, and his lack of knowledge about tax, as well as falling victim to a fraud, the FTT granted permission for a late appeal. Given the decision reported above at 1.2, this indicates the FTT’s sympathy towards taxpayers who have, through no fault of their own, fallen victim to fraud.

Huntly v HMRC [2022] UKFTT 135 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2022/TC08466.html

The FTT has cancelled non-compliance penalties issued to a taxpayer who was advised by his agent not to obey follower notices relating to a scheme they had sold him. It was reasonable for him to rely on their advice.

The taxpayer had worked as an IT contractor, and decided to use the tax planning services of a firm recommended by his colleagues, which appeared to be of good reputation. Unbeknownst to him, a tax scheme they promoted was one in which they held a vested interest, and led to enquiries into his returns. He was issued with follower notices and advance payment notices, but was told by the firm not to comply as they were appealing.

He was issued with penalties for non-compliance. The FTT cancelled these, finding that it was reasonable for him to rely on the firm’s advice. He was not tax literate, and had carefully researched to find a firm he considered reputable for the umbrella company he needed.

Andreae v HMRC [2022] UKFTT 142 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2022/TC08473.html

The FTT has refused an application by a partner for the enquiry into his own return to be closed while enquiries into his partnerships continued. He was involved in complex arrangements, and HMRC needed more time and information to consider claims in his return.

HMRC opened enquiries into the returns of several partnerships that had claimed a type of capital allowance that gives 100% relief in 2016/17. The appellant was a partner in all of them, and an enquiry was also opened into his return 2017/18 regarding the partnership losses that he had set against income of that year. The taxpayer applied for a closure notice to be issued in respect of this enquiry.

The FTT refused the application. The lack of finality in his tax affairs was primarily due to his participation in several DOTAS registered schemes involving the partnerships. It was appropriate for HMRC’s enquiry into 2017/18 to continue, it was not unreasonably protracted and HMRC needed more information about complex arrangements become coming to a conclusion.

Stockler v HMRC [2022] UKFTT 132 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2022/TC08463.html

The FTT has found that the transactions in securities (TIS) provisions applied to a company reorganisation for which clearance had previously been obtained. The application had not mentioned that preference shares were redeemable.

Each of the three taxpayers owned 30% of the issued share capital in company P. A holding company J was inserted above P as part of a share reorganisation. The entire share capital of P was acquired by J. In return, each taxpayer swapped their shares for 25% of J’s ordinary share capital and £600,000 £1 preference shares. HMRC granted a statutory clearance for this transaction in advance, but the application did not disclose the intention to repurchase the preference shares. The preference shares were subsequently redeemed with each taxpayer receiving £600,000. HMRC argued that the disposals should be taxed to IT, not CGT, as the TIS rules applied to the reorganisation, which had been designed to obtain an IT advantage.

The taxpayers argued that this was a commercial transaction, giving extensive evidence as to the company’s affairs and why the reorganisation happened, including their retirement plans. The FTT however dismissed the appeal, finding that although there were other reasons for the transaction, one of the main ones was to extract £1.8 million from the company in the form of capital, rather than income. The clearance application did not include all material facts and this allowed HMRC to treat the clearance as void.

Wroe & Ors v HMRC [2022] UKFTT 143 (TC)

www.bailii.org/uk/cases/UKFTT/TC/2022/TC08474.html