Ireland 
USA Weekly Tax Update 29 April 2020
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 Extension of general stay in relation to certain proceedings in the FTT
The President of the FTT has extended the current measures governing the operation of the FTT during the COVID crisis.
Directions were given in March 2020 that imposed a general stay on all proceedings in the FTT for 28 days. This general stay has now been extended to 30 June, for cases in the standard and complex categories that were received by the FTT and assigned before 24 March 2020. The dates of all hearing windows and for compliance with time limits in those proceedings have been extended by a further 70 days. This extension does not affect any statutory time limit for notifying an appeal to the FTT.
1.2 HMRC relaxes gift aid rules for non-refunded tickets
A simplified process can be used to claim gift aid on the cost of tickets for cancelled charity events, where the purchaser chooses to donate their refund to the charity.
Where a charity event is cancelled and the taxpayer chooses to donate the cost of the ticket to the charity, usually the charity would need to refund the taxpayer for the cost of the ticket. Only a subsequent donation of that refund could qualify for gift aid. HMRC has confirmed that, provided the taxpayer is offered a refund and completes a gift aid declaration, gift aid can still be claimed even if the charity does not actually issue a refund. This is intended to reduce the administrative burden on charities.
This temporary change applies to tickets for charity events cancelled due to COVID-19, but not those postponed.
2. Private client
2.1 Venture Capital Trust (VCT) campaign letter
HMRC has provided the CIOT with information regarding an educational campaign that it commenced in March 2020. The letter was sent to a sample of taxpayers who subscribed for VCT’s in 2015/16.
HMRC has confirmed to the CIOT that it recently wrote to a sample of taxpayers, who had claimed VCT income tax relief in 2015/16, reminding them of the income tax implications of disposing of the shares within 5 years. The letter asks the taxpayer to respond to HMRC, by 13 April, if they disposed of any of the VCT shares subscribed for in 2015/16 within 5 years.
The letter includes a form that can be used to provide the information, and the form asks for signed confirmation that the information provided is complete and accurate.
The CIOT has confirmed with HMRC that:
- in the light of COVID-19, the deadline has been relaxed;
- there is a specific email address which can be used to contact HMRC;
- HMRC is happy to accept any disclosures or communication in written form rather than completing the certificate. The taxpayer is under no statutory obligation to sign and complete the form and should bear in mind the consequences of an incorrect disclosure.
2.2 Temporary changes to pensions tax for returning public sector key workers
It has been confirmed in a written statement that the Government will introduce temporary tax changes to protect individual’s pension income following a return to work as a result of COVID-19.
Under existing tax rules, tax charges can apply where an individual, aged between 50 and 55, starts to receive pension income and subsequently returns to work. These rules will be temporarily suspended for all public sector workers who are returning to roles because of COVID-19. This will initially apply in respect of payments made in the period from 1 March to 1 June 2020.
The Government’s aim is to provide relevant individuals, with pensions in payment and pension benefits, assurance that these will be unaffected if they wish to play their part in the response to the virus.
HMRC will set out detailed guidance in due course.
3. PAYE and employment
3.1 UT reverses FTT decision on unauthorised pension payments
The ruling clarifies the legislative basis for HMRC’s power to impose scheme sanction charges on unauthorised pension payments. It also confirms that a taxpayer is not necessarily ‘careless’ if implicit, rather than explicit, advice is obtained from an adviser.
The taxpayer had made a loan that amounted to an unauthorised payment out of a registered pension scheme. HMRC therefore imposed a scheme sanction charge, an unauthorised payments charge, and an unauthorised payments surcharge. The appeal considered whether or not these assessments were valid.
The FTT had found that HMRC was not able to raise a scheme sanction surcharge as it did not have the power to do so. The UT reversed this decision, finding that HMRC did have the power to issue this assessment.
The unauthorised payment charge and surcharge were, however, set aside by the UT on the grounds that the taxpayer had not been careless. The assessments were therefore out of time. Although the taxpayer did not obtain express advice that the payments would be authorised, the advice it received implicitly confirmed this position. It was reasonable to infer that, if the adviser had been asked if the documentation it was producing would produce the desired result, it would have given that confirmation.
HMRC v Bella Figura Limited [2020] UKUT 0120 (TCC)
3.2 HMRC publishes data on the use of tax avoidance schemes
HMRC has released the evidence it submitted to the independent loan charge review. Three additional reports on the use of tax avoidance schemes have also been published.
HMRC and HMT provided extensive evidence to Sir Amyas Morse and his team for their review of the loan charge. This evidence is now available to the public. In addition, HMRC has published the results of three other research undertakings. These examined the experience of contractors in the avoidance market, the experiences of tax avoidance scheme users and the role of tax advisers and agents in the tax avoidance market.
Independent Loan Charge Review summary of evidence: www.gov.uk/government/publications/independent-loan-charge-review-summary-of-evidence
Understanding tax avoidance arrangements used by contractors: www.gov.uk/government/publications/understanding-tax-avoidance-arrangements-used-by-contractors
Understanding avoidance scheme users’ decision making, customer experience and future compliance intentions when settling their enquiry with HMRC: www.gov.uk/government/publications/understanding-avoidance-scheme-users-decision-making-customer-experience-and-future-compliance-intentions-when-settling-their-enquiry-with-hmrc
Understanding the evolving role of tax advisers and agents in the avoidance marketplace: www.gov.uk/government/publications/understanding-the-evolving-role-of-tax-advisers-and-agents-in-the-avoidance-marketplace
4. Business tax
4.1 Payments for termination of training contracts held to be trading income
The taxpayer’s partnership had received payments for the cancellation of a substantial contract for management training. The taxpayer had argued that the payments were for the loss of a secret proprietary process and were accordingly capital in nature. The UT upheld the FTT’s decision that the payments were for the cancellation of the contract and therefore a trading receipt.
The taxpayer’s partnership had provided management training to a commodities trading company. As part of this arrangement, the partnership had made available a proprietary performance management system. The taxpayer claimed that part of the compensation received under the termination agreement was in respect of the company’s likely continued use of the system. Under the case of Evans Medical Supplies Ltd v Moriarty [19 57] 37 TC 540 a similar, and the taxpayer argued, analogous, payment, had been found to be capital. The FTT and subsequently the UT distinguished this payment, holding that the evidence did not indicate that there had been any loss of intellectual property rights, nor that the company had either divulged those rights or used them itself. The payment was thus of an income nature.
Kieran Looney; Kieran Looney Associates v HMRC [2020] UKUT 0119 (TCC)
https://assets.publishing.service.gov.uk/media/5ea023c086650c0317159995/Kieran_Looney_v_HMRC_.pdf
4.2 CA upholds UT decision to deny a derivatives loss
The CA has agreed with HMRC’s decision to deny a £39m accounting loss arising from the recognition of a derivatives contract. It was found that, although an accounting loss existed, it did not ‘fairly represent’ the loss that had actually arisen.
The taxpayer had claimed a loss resulting from debits arising on the derecognition of a financial asset. The derecognition was part of an arrangement where the taxpayer was obliged to pay the economic benefit of the financial assets to its parent company as a dividend. The loss had been calculated in accordance with UK Generally Accepted Accounting Principles (GAAP), but the relevant tax legislation imposed specific provisions overriding the accounting treatment for tax purposes. The case primarily examined three issues: was the debit a ‘loss’ for tax purposes; if there was a loss, did it arise from the derivative contracts; and did that loss ‘fairly represent’ the loss that actually arose on the derecognition as required by statute? The FTT and UT had both found for HMRC, but on different grounds.
The CA agreed with the UT that a loss had arisen on the derecognition. ‘Loss’ in the legislation meant a loss recognised in accounts that are compliant with UK GAAP. That loss, however, was found not to fairly represent the loss arising on the derecognition of the derivative contracts. The correct approach is to examine the factual context of the transaction and decide if the accounting debit ‘fairly represents’ a loss under the specific legislation. In this case, it did not because the taxpayer did not lose an asset or incur a liability other than a liability to pay a dividend on shares. Since the payment of a dividend is not a loss, the CA concluded that an obligation to pay a dividend cannot be a loss. The CA went on to consider further issues, but these did not alter the outcome of the case. The appeal was dismissed.
The Union Castle Mail Steamship Company Limited v HMRC [2020] EWCA Civ 547
5. Tax publications and webinars
5.1 Tax publications
The following Tax publications have been published
5.2 COVID-19 hub
Our Coronavirus hub is designed to answer your key questions and will be updated regularly over the next few months. It contains a number of detailed articles on the measures introduced to help with the financial impact of COVID-19.
6. And finally
6.1 Le Chevalier Appleby
In a phrase we never expected to use, we were entertained this week by the introduction of DAC 6 mandatory cross border reporting rules. DAC 6 reporting kicks off on 1 July and there have been, if not exactly howls, then groans of protest at its imposition, Europe-wide, in the current emergency. We’ve managed, it might be said, without this form of enrolment since Quirinius was the Governor of Syria at the first Christmas, so perhaps a little delay might not be fatal. Give us a break.
Absolutely not, say the EU Commission. It goes ahead; mais, peut-être…
Just look, they say, at Belgium and Germany. They have suspended fines for non-compliance, but if you wanted to move the date you couldn’t do that without legislation. In other words, Member States, take the hint and fudge it. With DAC6 introduction, as with Covid-19, it seems there is no cure, but at least there could be a vaccine.
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Glossary
| Organisations | Courts | Taxes etc | ||
| ATT – Association of Tax Technicians | ICAEW - The Institute of Chartered Accountants in England and Wales | CA – Court of Appeal | ATED – Annual Tax on Enveloped Dwellings | NIC – National Insurance Contribution |
| CIOT – Chartered Institute of Taxation | ICAS - The Institute of Chartered Accountants of Scotland | CJEU - Court of Justice of the European Union | CGT – Capital Gains Tax | PAYE – Pay As You Earn |
| EU – European Union | OECD - Organisation for Economic Co-operation and Development | FTT – First-tier Tribunal | CT – Corporation Tax | R&D – Research & Development |
| EC – European Commission | OTS – Office of Tax Simplification | HC – High Court | IHT – Inheritance Tax | SDLT – Stamp Duty Land Tax |
| HMRC – HM Revenue & Customs | RS – Revenue Scotland | SC – Supreme Court | IT – Income Tax | VAT – Value Added Tax |
| HMT – HM Treasury | UT – Upper Tribunal |
DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Disclaimer
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.
