Tax & VAT Briefing January 2017 | Croner Taxwise


HMRC Updates

Collecting tax from high net worth individuals

London, United Kingdom - July 6, 2016: HM Revenue and customs forms background. HMRC is the department of the UK government that is responsible for the collection of taxes.

A Public Accounts Committee report is critical of HMRC’s dealings with high net worth individuals and says that Government must be tougher and clearer in its approach to taxing the very wealthy. The Committee arrived at the following conclusions:

  • HMRC lack of transparency has eroded public trust in a fair tax system and makes it more difficult for the department to explain what it does well.
  • HMRC’s approach to dealing with the very wealthy suggests that they get help with their tax affairs that is not available to other taxpayers.
  • HMRC has not been tough enough in dealing with tax evasion and avoidance by the very wealthy, and it does not know whether its activities are enough to deter non-compliant behaviour.
  • Collecting the right amount of tax from high net worth individuals is made harder because they do not have to declare details of their wealth.
  • The rules on ‘image rights’ as they are applied in football and some other industries are being exploited.
  • HMRC has not yet assessed the strengths and weaknesses of its approach to collecting tax from high net worth individuals or considered the different approaches it could take.


Disagreements with HMRC decisions
HMRC has updated its guidance on action which can be taken by a taxpayer who disagrees with one of their tax decisions – Factsheet HMRC1 which can be found at

The guidance relates solely to tax decisions but contains links to guidance in respect of Tax credits, child benefit, child trust funds and restoration of seized goods.

Annual Tax on Enveloped Dwellings
HMRC basic guidance has been updated to reflect the new charges which come into effect on 1 April 2017 and can be found at Guidance on the more technical aspects is still to be found at

Treasury Committee report on Making Tax Digital

The Chairman of the Treasury Committee has said that, carefully introduced, MTD can be “an opportunity greatly to improve the administration of the tax system in the long term” but the Committee has expressed some reservations and concerns:

  • The costs and administrative burden for very small businesses could cause them to close down or move into the shadow economy.
  • The speed at which MTD is being implemented and insufficient engagement and consultation with the business community will leave many small businesses ill-equipped to deal with the new reporting requirements.
  • Government runs the risk of jeopardising taxpayer trust and goodwill with the result that the risk to the yield to the economy could outweigh the hoped for extra revenue from MTD.

The Committee has therefore made several recommendations:

  1. The proposed £10,000 threshold should be abandoned. The Committee has seen no evidence strong enough to justify a threshold below the VAT threshold.
  2. An implementation date of April 2018 looks unachievable and should be delayed until at least 2019-20.
  3. More comprehensive pilot schemes are essential.
  4. The pilots need to be designed to cover the entire reporting cycle and Parliament needs to see evidence of proper evaluation before full implementation.
  5. Adequate free software will need to be made available to smaller and less complex businesses.

The Chartered Institute of Taxation has welcomed the Treasury Committee report:

Voice recognition

Some taxpayers are already able to access their tax information using fingerprint identification and the HMRC mobile app. Some taxpayers calling the tax credits and self-assessment helplines will be able to enrol for voice identification which HMRC claims will improve and speed up the security steps undergone when taxpayers call HMRC.

Double Tax Agreements

The UK has entered into new agreements with the United Arab Emirates and Turkmenistan. Amendments have been made to the agreements with Guernsey, Jersey, the Isle of Man and Estonia.

Other news

The proposed Lifetime ISA and help-to-save schemes have now become law. The former is to be made available in April 2017 and the latter in 2018.

Revised draft legislation has been published in connection with deemed domicile, carry forward of corporate losses and the restriction of interest relief for certain large companies and groups.

HMRC guidance has been issued or updated on the following topics:

List of approved professional bodies whose membership subscriptions may be allowable for tax purposes (HMRC List 3).

Seeking HMRC statutory and non-statutory clearance or approval.

The apprenticeship levy and apprenticeship funding which take effect from 6 April 2017 and May 2017 respectively.

In The Courts

Employment status – TC05583 – RS & GP Dhillon – (2017) UKFTT 17 (TC)

A partnership called upon the services of a pool of drivers who carried out delivery services using its lorries. There were no contracts and drivers were generally unsupervised while carrying out deliveries. Drivers were paid by shift with an occasional discretionary bonus but no holiday pay. They were able to use a substitute driver (for example, when the limit of permitted driving hours had been reached) and they were free to work for other businesses.

The Tribunal acknowledged there were some indicators of self-employment but found the drivers not to be self-employed because of mutuality of obligations, the partnership’s degree of control and the fact that the drivers could not be said to be in business on their own account.

Principal private residence relief – TC05521 – Oliver – (2016) UKFTT 796 (TC)

The taxpayer, who ran a letting business, suffered a breakdown in his relationship with a long-term partner and decided he needed a new home. He acquired a property, paid a premium to extend the lease, sold the property and then returned to the family home to attempt a reconciliation, all within the space of just over three months.

The Tribunal ruled PPR relief was not due since, although the taxpayer may have stayed at the property on a few occasions, it was never his intention to reside there. The ‘evidence’ he provided to the Tribunal was found to be unreliable and did not demonstrate his occupation had the necessary degree of permanence, degree of continuity or expectation of continuity.

Farming losses – Scambler – (2017) UKUT 0001 (TCC)

This case explores in some detail the legislation, and existing case law, governing loss relief for farmers and the reasonable expectation of future profits test. At the end of their judgement the Tribunal Judges said: “It follows from our analysis that we do not accept that the purpose of the legislation was to ensure that competent farmers doing everything they could within their control to address profitability were entitled to sideways loss relief indefinitely.”


HMRC Updates

Revenue and Customs Brief 17 (2016): VAT – treatment of colouring and dot-to-dot books:


At the end of 2016 HMRC issued Revenue and Customs Brief 17/2016 setting out its policy, effective from 1 April 2017, on the VAT treatment of colouring and dot-to-dot books, many of which are specifically labelled as suitable for children and/or adults. From 1 April 2017, HMRC will accept that colouring or dot-to-dot books are VAT zero-rated unless one of the following applies. The books:

  • are marked as suitable for adults or grown-ups;
  • are offered for sale in retail shops together with other adult books that are unsuitable for children or are not appropriately marked as suitable for children when for sale on a website; or
  • contain images reflecting profanity, pornography, violence and illegal acts

If the book meets any of the three conditions above, it will be a standard rate supply.

This policy will come into effect on 1 April 2017. This will allow suppliers to use up existing stocks as well as to review how they intend to market the books in the future. HMRC feels that many of the colouring books that were zero rated prior to 1 April 2017, could have met the conditions to be zero rated had the suppliers understood the rules. Therefore, HMRC have decided not to seek to recover of VAT on adult colouring and dot-to-dot books prior to 1 April 2017.

Withdrawal of extra statutory concessions 2017: HMRC have opened a technical consultation on the impact of withdrawing three extra-statutory concessions (ESCs) relating to VAT.  Two of the concessions concern the VAT relief for computer equipment and processors designed for use by disabled persons. HMRC deem these reliefs to be obsolete due to technological advances. The third permits profit-making sports clubs to treat affiliation fees charged to members as VAT-free disbursements. However, clubs will still be able to treat the charges as disbursements if they satisfy all the usual conditions for disbursements.  HMRC is seeking the views of anyone who may be affected by the withdrawals of these non-statutory tax reliefs. The consultation closes on 7 March 2017. More details can be found here: the Courts

VAT Notice 702: HMRC has revised VAT Notice 702: Imports. This notice has been updated to change the contact details for the centralised processing unit dealing with post-clearance non-revenue amendments.

G B Housley Limited – Court of Appeal
This case was represented by Glyn Edwards of Croner Taxwise who instructed Michael Thomas, Counsel at Pump Court Tax Chambers. G B Housley Limited was a scrap metal dealer who operated self-billing. To guard against fraud, it insisted that new suppliers provide copies of their VAT registration certificates and it checked these with the HMRC. However, actual self-billing agreements with suppliers (a self-billing condition under Regulation 13 (3A)) were not entered into.

HMRC found that four of the taxpayers suppliers had de-registered from VAT but the taxpayer was not aware of this and so continued to raise self billed invoices showing their suppliers’ output tax which it claimed as input tax. HMRC refused to exercise its discretion to allow the VAT to be recovered even though the value of the purchases meant the suppliers should have been VAT-registered. HMRC rejected Housley’s claim on the sole basis that it did not hold self-billing agreements.

The First-tier Tax Tribunal found in favour of the taxpayer because HMRC should have considered using their discretion to allow VAT recovery, and they could have done so, given that Housley took reasonable steps to verify the validity of the suppliers.

HMRC appealed to the Upper Tribunal which ruled, last year, that HMRC should be given a fresh chance to exercise their discretion and, assuming that they then still refused to allow deduction of the tax by the company, that the case should be sent back to the First-tier to make a fresh decision.

The Court of Appeal overturned the Upper Tribunal and restored the decision of the First-tier in the taxpayer’s favour. The key point was that HMRC had not properly considered whether to allow deduction and, had they done so, it wasn’t inevitable that they would have refused to allow the company to claim the VAT. HMRC get one chance to get this right and it would be unfair on the taxpayer to allow them a second bite of the cherry so long after the event.

Croner Taxwise’s comment: For self-billing businesses, the case is a reminder that HMRC see this as high-risk and you must meet all the legal requirements including agreements with suppliers.

Wilton Park Limited – Court of Appeal

The taxpayer runs a table and lap dancing establishment. Customers can purchase “secrets money” (a voucher with a face value) which can be used to purchase drinks or to pay dancers. At the end of the evening, each dancer can exchange the vouchers for cash but is required to pay a 20% commission to the taxpayer. The taxpayer contended that these transactions are exempt from VAT.

HMRC are of the opinion that the charge is for much more than simply exchanging the voucher into cash. The First-tier Tribunal and the Upper Tribunal agreed with HMRC and so the taxpayer appealed to the Court of Appeal.

However, the Court of Appeal also dismissed the taxpayer’s appeal concluding that the commission charged to the dancers is part of the overall consideration paid by the dancer for the wider facilities provided to enable her to trade and thus standard rated.

Brockenhurst College – Advocate Generals Opinion

Brockenhurst College is an educational establishment that provides education and training to students. To provide practical experience for students enrolled on catering and performing arts courses the college runs a subsidised training restaurant and puts on theatrical performances for members of the public. The college argues that the restaurant services and performances provide practical experience to students enrolled in the catering and drama and should be regarded as ‘closely related’ to the principal supply of education.

HMRC on the other hand consider that the restaurant services and theatrical performances are separate supplies made to members of the public in return for payment and therefore cannot be closely related to the supply of education. The college was successful at both the First-tier Tribunal and the Upper Tribunal. HMRC appealed to the Court of Appeal which decided that it needed assistance from the European Court of Justice.  Advocate General Kokott is of the opinion that HMRC’s interpretation is correct. The full court will deliver its judgment in due course. It does, however, seem unlikely that the court will come to a different conclusion which will be a disappointment for other colleges that have made claims standing behind Brockenhurst College.

Doran Bros Limited – First-tier Tribunal

Following advice from a tax consultant (Qubic Tax), Doran Bros Limited (DBL) implemented certain measures, including buying some investment gold to put into an employee trust for the benefit of DBL’S sole director and employee. Qubic Tax invoiced DBL for £50,000 (plus £10,000 VAT) for the advice.

HMRC refused DBL’s claim for input tax on the basis that it had failed to demonstrate a sufficient link between the expenditure and the taxable supplies it made. HMRC claimed that the expenditure was incurred on advice to mitigate tax and NICs on extracting money from DBL and that this was for the personal benefit of its sole director. The First Tier Tribunal allowed the appeal against HMRC’s decision on the basis that advice given to a person on how to cut its tax and NICs liabilities in rewarding staff is given for the purpose of the business.

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.


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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.