Tax & VAT Briefing February 2017 - Croner Taxwise

TAX

HMRC Updates

Making tax digital – responses to consultation and draft legislation

HMRC has published the responses to the six MTD consultation documents published last year together with some initial draft legislation to be included in Finance Bill 2017.

https://www.gov.uk/government/consultations/business-income-tax-simplifying-tax-for-unincorporated-businesses


Simplified cash basis for unincorporated businesses 
Included in HMRC’s response to the MTD consultation is news that the entry threshold for the cash basis will be increased to £150,000 with effect from 6 April 2017 and the scheme will be widened to include property businesses carried on by individuals and partnerships (but not limited liability partnerships).

In addition, there will be a relaxation of the general rule which prohibits deductions for capital expenditure although certain categories of expenditure will still be disallowed including:

  • Costs related to the acquisition or disposal of a business
  • Assets which are not depreciating assets
  • Land
  • Cars

https://www.gov.uk/government/publications/cash-basis-treatment-of-capital/reforming-the-cash-basis-expenditure-rules


Employer Bulletin – February 2017
The HMRC Bulletin for February 2017 contains several news items not dealt with elsewhere in this update including:

  • Year-end reporting
  • Checking correct application of the expenses exemption
  • Payrolling taxable expenses and benefits
  • Links to various YouTube guidance videos
  • Payment methods

https://www.gov.uk/government/publications/employer-bulletin-february-2017


Advisory fuel rates for company cars
HMRC has issued revised fuel rates to apply from 1 March 2017 (although the old rates can be used for up to one month from the date the new rules apply). These advisory rates are only to be used where employers either reimburse employees for fuel costs incurred in respect of business travel or where employees are required to repay employers for the cost of fuel used for private travel.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/594411/CC-FS17_01_17.pdf


Pensions

Following a period of consultation, a new pensions advice allowance will be introduced from 6 April 2017. This will allow individuals to withdraw £500 tax-free from their pension fund to pay for pensions or retirement advice. The £500 allowance can be used three times during their lifetime but only once in any given tax year and it can be used alongside the proposed tax exemption for staff pensions advice provided by employers.

https://www.gov.uk/government/consultations/introducing-a-pensions-advice-allowance

HMRC has published Pension Schemes Newsletter 84.

https://www.gov.uk/government/publications/pension-schemes-newsletter-84-february-2017


Other news

Annual Tax on Enveloped Dwellings (ATED) – Tax agents are now able to register for a new digital reporting service in advance of the April 2017 filing period.

https://www.gov.uk/guidance/register-for-the-annual-tax-on-enveloped-dwellings-online-service


Non-resident Capital Gains Tax returns – HMRC reports that many taxpayers who have incurred a loss or no gain under the NRCGT calculations are failing to submit returns and are incurring penalties as a result. The reporting requirement is only lifted in cases of “no gain/no loss” disposals such as transfers between spouses.


Apprenticeship funding – HMRC guidance first published in March 2016 has been updated.

https://www.gov.uk/government/publications/apprenticeship-levy-how-it-will-work


In addition, a new Apprenticeship Levy Manual has been published.

https://www.gov.uk/hmrc-internal-manuals/apprenticeship-levy


Tax avoidance schemes – Two further Spotlights, on the subjects of disguised remuneration using loans or annuities, have been published.

https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight


Agent Update 58 – HMRC has published the February/March 2017 issue of its round-up of news updates for accountants and tax professionals.

https://www.gov.uk/government/publications/agent-update-issue-58


Offshore matters – HMRC Factsheet CC/FS17 on the subject of higher penalties for offshore matters has been updated.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/594411/CC-FS17_01_17.pdf


Finance Bill 2017 – The Treasury has announced a publication date of 20 March 2017.


In The Courts

 

IHT valuation of estate – TC05646 – BS Lidher – (2017) UKFTT 0153 (TC)

 The appellant was executor and trustee of his father’s estate. The IHT returns reported a half share in a property registered in the sole name of his father which, it was claimed, was beneficially owned as to 50% by the appellant by virtue of him having acquired his mother’s 50% interest on her earlier death. There was no evidence that his mother had owned a share in the property and the appellant’s representative who claimed “there must have been a will” could not produce one and admitted he had never seen one. In the absence of a will, the Tribunal pointed out that even if the mother had an interest in the property, which was doubtful, it would have passed to the father either through joint tenancy rules or intestacy rules.

Similarly, claims that the father had no interest in a particular bank account were dismissed by the Tribunal due to a combination of lack of evidence together with inconsistent and implausible evidence. Perhaps the appellant’s arguments in connection with the bank account might have been helped if his representative had been allowed to give evidence about Indian cultural traditions but he had ignored several requests to provide witness statements in advance of the hearing so the evidence was not admitted.

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j9619/TC05646.pdf


National Insurance Contributions – TC05641 – M Najib & Sons Ltd – (2017) UKFTT 147 (TC)

Following a compliance check, HMRC sought to charge Class 1 NIC on mileage allowances paid for which no mileage records existed and for payment of the directors’ private health insurance premiums in the five years ending February 2011. The appellant company then debited the disputed amounts to directors’ loan account (DLA) and argued the rectification removed the NIC charge. The DLA was overdrawn at various times during the relevant period.

The Tribunal found that the directors had enjoyed a benefit in four of the tax years in the relevant period and that the NIC charge on those earnings could not be extinguished by making good the earnings in a later year. In connection with penalties attributable to NIC on the insurance premiums, the Tribunal said that even though the directors and the company’s advisers had instructed the company bookkeeper to debit the payments to DLA when they were made, the directors were at fault because they should have realised their instructions had not been carried out.

http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC05641.html


VAT

HMRC Updates

VAT Notice 733: The flat rate scheme:

HMRC have finally updated their Flat Rate Scheme VAT Notice to provide some much needed further guidance for businesses who may be affected by the “Limited Cost Trader” provisions. Section 4: Determining your flat rate percentage has been updated by the addition of paragraphs 4.4, 4.5 and 4.6.   These provide Information on determining whether you are limited cost trader;  how to treat VAT returns spanning the 1st April when the changes come into force, and examples of relevant goods ( and supplies which will not be relevant goods).  The Notice can be found at:-

https://www.gov.uk/government/publications/vat-notice-733-flat-rate-scheme-for-small-businesses/vat-notice-733-flat-rate-scheme-for-small-businesses#introduction


VAT Notice 700/67: Registration scheme for racehorse owners:
HMRC has updated its guidance on the VAT registration scheme for racehorse owners for the first time since 2002. The updated guidance includes new advice on how to register, a reminder of the VAT status of any winner’s trophies and a change in contact details.


In The Courts

British Film Institute (C-592/15)

The British film Institute (BFI) is a not for profit organisation established to promote film and cinema. It charges a fee for admission to films and claimed that the showing of films is a cultural service and exempt from VAT. HMRC deemed the income to be subject to the standard rate of VAT on the basis that the showing of films is not a cultural service that should benefit from the exemption.

BFI won its case for exemption at both the First Tier and Upper Tier Tribunals but the CJEU has held that member states are permitted to prescribe which services are ‘cultural’ within their own territories and entitled to exclude certain types of services from the scope of the exemption.

Read the decision here: http://curia.europa.eu/juris/document/document.jsf?text=&docid=187864&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=621678


Associated Newspapers [2017] EWCA Civ 54

The Court of Appeal has issued its judgement in the case of Associated Newspapers. The issue was whether the purchase of high street vouchers by the taxpayer who then gave those vouchers away in a business promotion scheme constituted a ‘deemed supply’ for VAT purposes on which output tax was due.

HMRC contended that as the vouchers were given away free of charge there was a ‘deemed supply’. However, the Court of Appeal has decided that HMRC’s interpretation is incorrect. It has concluded that as the vouchers were purchased and given away in order to entice new customers to buy the taxpayer’s newspapers the vouchers were purchased for a business purpose. Consequently, there was no ‘deemed supply’ and no VAT was payable when the vouchers were given away to customers.

HMRC also contended that as the vouchers were given away free of charge this was a non- business activity and therefore the VAT incurred by the taxpayer on the purchase of the vouchers could not be recovered.

The Court of Appeal disagreed with HMRC on this point as well. It concluded that where the vouchers were purchased from intermediary suppliers the VAT incurred was for the purpose of the business. However, where the vouchers were purchased directly from the retailer UK law states that such supplies are outside the scope of VAT meaning there is no output tax charged by the retailers. The taxpayer therefore did not have a right to deduct input tax on vouchers purchased directly from retailers.

To access the full decision click here: http://www.bailii.org/ew/cases/EWCA/Civ/2017/54.html


University of Newcastle [2017] UKFTT 0145 (TC)

Many universities engage with overseas agents to help recruit overseas students. In return, the university will pay a fee or commission for each student that enrols.

HMRC have long been of the opinion that the payment of the fees requires universities to account for VAT on the value of the agents’ services under the reverse charge mechanism.

Newcastle University, a lead case for many universities, contended that the overseas agents made two supplies: a supply to the university of recruitment services and a supply to the students of support services. The university suggested that the commission it pays should therefore be apportioned to reflect that fact.  It also argued that if VAT was payable under the reverse charge the VAT should be treated as residual input tax allowing for partial recovery.

The Tribunal concluded that before 2010, and the place of supply changes, the agents’ supplies were made where they belonged. They were therefore outside the scope of EU VAT and no reverse charge VAT was due. However, since 2010 the reverse charge is due and the input tax is not recoverable (even as residual input tax) by the taxpayer.

Read the decision here: http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j9611/TC05639.pdf


Wheels Private Hire Ltd [2017] BVC 506

The taxpayer runs a taxi business. Some of the drivers rent a car with radio services from the taxpayer at a cost of £120 per week. The taxpayer also has a block insurance policy and drivers of the rented cars are offered the option of third party insurance for an additional £45 per week (although drivers can also arrange their own insurance). HMRC viewed the insurance as being part of a single overall supply of the taxi and standard rated. However, the Upper Tribunal ruled in favour of Wheels. It viewed the case as being on all fours with the CJEU’s judgment in BGZ Leasing meaning that the option given to drivers to purchase insurance from Wheels was a significant indicator of a separate independent exempt supply.

Read the decision here: https://assets.publishing.service.gov.uk/media/58ac310fed915d603800002b/HMRC_v_Wheels_Private_Hire_Ltd.pdf


Nigel Williams [2017] UKFTT 846 (TC)

The First-tier Tribunal decided in favour of HMRC in the case of Nigel Williams.

In order to zero-rate the construction of new residential property correct planning permission must be in place. In some cases planning permission is initially obtained to extend an existing property, but the permission is later changed (due to circumstances) to allow demolition and rebuilding. A question then arises as to whether such a change in permission can affect the VAT on the construction services pre-dating the change.

In this case, the taxpayer originally intended to build an extension to an existing dwelling, which included the demolition of one wall of the existing dwelling. This work would have been subject to VAT at 20%. However, in the early stages of the project, it became apparent that the property needed to be demolished and a new dwelling built in its place.

As the building contractors were already on site, the work continued and the owner applied for a new retrospective planning permission for a new build.

The retrospective planning application was accepted and having obtained planning permission for a new dwelling, the taxpayer thought the work would be zero-rated for VAT

However, the Tribunal concluded that although there was no question that a new dwelling had been built, any work done before the retrospective planning application was approved could not be zero-rated.  This was on the basis that zero rating can only apply from the date on which the permission is  granted and not from its effective date.

Read the decision here: http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2016/TC05571.html&query=(nigel)+AND+(williams)+AND+(2017)


Wetheralds Construction Ltd [2016] UKFTT 827 (TC)

This case looked at the VAT treatment of the supply and installation of a solid roof system designed as conservatory insulation. The system involves the exterior of the roof being covered with heat reflective plastic tiles which give the impression of a tiled roof.

The taxpayer’s view was that the supply was one of insulation for roofs and conservatories which could be subject to the reduced rate of 5%. However, HMRC argued that the taxpayer was installing a roof, the supply of which is subject to VAT at the standard rate of 20%. Ultimately, the Tribunal decided that there that there was a single supply of energy saving materials, which qualified for VAT reduced rating.

Read the decision here: http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2016/TC05552.html&query=(Wetheralds)


At Croner Taxwise we have a team of more than 35 Tax and VAT consultants with over 750 years’ experience. Please get in touch with a member of the Croner Taxwise team if you would like to discuss any VAT issue.


Contacts:

Tax Advice Lines 0844 892 2470 taxadvice@cronertaxwise.com

VAT Advice Lines 0844 892 2470 vatadvice@cronertaxwise.com

VAT & Tax Consultancy 0844 728 0120 consultancy@cronertaxwise.com

 

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Colin began to specialise in tax in 1983. He has previously spent time as a tax partner with two leading accountancy firms and, more recently, as partner in a specialist tax consultancy business providing planning advice and problem solving for successful owner-managed businesses and their owners across the UK.

Julie joined the team in 2007 where she has gained extensive knowledge of many aspects of VAT and advises clients at Croner Taxwise on the VAT advice line, undertakes bespoke consultancy and has editorial responsibility for the team’s journal VAT Voice.