Tax & VAT Briefing March 2017

Much of the tax news in March flowed from the Budget and related announcements which have already been covered in other news updates and so are not repeated here.


HMRC Updates

Off-Payroll Working in the Public Sector

HMRC published a number of documents in early March. A general guidance note gives an overview of the forthcoming changes and includes links to draft legislation and regulations. A more detailed guidance is aimed at public authorities, employment agencies and other third parties who supply labour and another is aimed primarily at agents and advisers. Finally, there is a new guidance note on the subject of IR35 generally and an online tool intended to help determine employment status.

Making Tax Digital (MTD)

The House of Lords Economic Affairs Committee has welcomed the digitalisation of tax but has urged the Government to delay the launch of MTD until 2020 to allow for a full pilot. The Committee also made other recommendations:

  • Re-assess the benefits and costs: The Government’s estimate of the tax gap savings is ‘fragile’ and its estimate of a £280 cost to business does not reflect reality.
  • Make MTD optional for small businesses below the VAT threshold: Making smaller businesses report quarterly will impose an unnecessary burden and will be of limited use.
  • Reconsider which businesses should be included: Government should examine whether some businesses, such as those with seasonal or highly irregular income, should be outside the scheme.

The Association of Accounting Technicians (ATT) has also expressed concerns. It says that digital record keeping and quarterly updating will be burdensome for small businesses and the costs will be disproportionately expensive. A survey by the ATT and the Chartered Institute of Taxation found that 89% believe the timescale for implementing MTD should be extended.

On 20 March, HMRC published an update on the draft legislation along with an overview.

Employment Tax

HMRC has issued draft guidance, to be included in the Employment Income Manual, on a number of issues including:

  • Disguised remuneration
  • Provision of pensions advice
  • Assets made available to employees
  • Salary sacrifice
  • The alignment of dates for making good on benefits in kind

Tax Simplification

The Office of Tax Simplification (OTS) has published an update on its current activities.

In its review of monetary thresholds and the case for increasing some figures which have remained constant for many years, the OTS notes that one of the monetary values has remained constant since 1842!

Offshore Property Companies

HMRC has announced a consultation exercise on proposals to bring non-resident companies with income from UK real property within corporation tax.

Non-Domiciles and Offshore Trusts

HMRC has announced that some of the legislation intended for the current Finance Bill has been omitted due to lack of time. The announcement lists those provisions which have now been published and those which will be included in a future Bill.

Tax Case Decisions

Earlier agreements not necessarily binding – TC05712 – Stuart Gulliver – [2017] UKFTT 0222 (TC)

In 2003 the Capital Taxes Office of the Inland Revenue agreed that no Inheritance Tax liability arose on Mr Gulliver’s transfer of assets to a discretionary trust and that, by implication, he had shed his UK domicile of origin in favour of a Hong Kong domicile of choice. His domicile status was relevant to an enquiry into his 2013-14 return and he argued HMRC were “stuck with” their earlier decision.

The Tribunal cited earlier decisions by the Courts and found that a determination of fact made in relation to one tax year is not binding in relation to a later year. Accordingly, HMRC were not prevented from arguing that Mr Gulliver never acquired a domicile of choice in Hong Kong when determining an appeal in relation to the 2013-14 tax year.

This case may be of immediate relevance, because of the April 2017 changes to the deemed domicile rules, to taxpayers who are reconsidering their offshore structures which were set up at a time when they believed they were not domiciled in the UK.

Availability of holdover relief – TC05680 – Reeves – [2017] UKFTT 0192 (TC)

Mr Reeves transferred his interest in a hedge fund business to a new UK resident company and claimed holdover relief on the capital gain. Relief is unavailable if the transferee company is controlled by a person or persons who is or are not resident in the UK and is or are connected with the person making the disposal. Because of the rules relating to the attribution of rights and powers, Mr Reeves’ wife, who was not UK resident, was deemed to control Mr Reeves’ company and so his claim for holdover relief was denied.

Mr Reeves appealed on the grounds that a literal construction of the legislation produced an absurd and unjust result so a purposive interpretation of the legislation should be adopted. Alternatively, use of a literal interpretation was prevented by the European Convention on Human Rights and by EU law. The Tribunal dismissed both of Mr Reeves’ arguments.

This case highlights a very real potential pitfall for individuals who are rearranging their affairs and who have non-resident relatives.

Availability of negligible value claims – Exors of Leadley deceased –  [2017] UKUT 111 (TCC) 

The First-tier Tax tribunal had previously ruled that Mr Leadley’s executors were entitled to make negligible value claims on behalf of the deceased in respect of his shares and loans although the losses could only be used against gains arising during Mr Leadley’s lifetime.

The Upper Tribunal disagreed. The deceased individual and his personal representatives are two separate persons. The shares had not become of negligible value while owned by the PRs, nor did the PRs make a qualifying loan.


HMRC Updates

Revenue and Customs Brief 1 (2017): VAT – Historical Bad Debt Relief Claims

This brief sets out HMRC’s position on bad debt relief claims following recent litigation. It now accepts that claims for historic bad debt relief between 1989 and 1997 are valid and will be repaid on condition that it can be shown that the bad debts were incurred and that bad debt relief has not been claimed in the past.

To read the brief:

VAT: Refund Scheme for Museums and Galleries

This tax information and impact note is about changes to the list of museums and galleries who can use the VAT refund scheme. From 1st June 2017, the government has added 29 museums and galleries, which offer free admission to the public, to the VAT refund scheme as part of its commitment to free public access to collections displayed in national museums and galleries.

To read the tax information and impact not click here:

VAT: Tackling Fraud on Goods Sold Online – Update on Split Payment

HMRC have made a call for evidence on the alternative method to collect VAT known as split payment, in order to tackle fraud on goods sold online. The consultation will focus on how payment technology could be harnessed to extract VAT from online purchases at the point of purchase. The consultation closes on 30 June 2017.

To read the consultation click here:

VAT Fraud in Labour Provision in Construction Sector

HMRC have opened a consultation on policy and legislative options to tackle VAT fraud on the provision of labour in the construction sector. Organised fraud in labour provision within the construction sector presents a significant risk to the public revenue. The consultation will consider a range of policy options to prevent supply chain fraud in the sector, including a VAT reverse charge and changes to the qualifying criteria for gross payment status within the Construction Industry Scheme. The consultation closes on 9 June 2017.

To read the consultation click here:

The Following VAT Public Notices have been Updated:

  • VAT Notice 700/45: How to correct VAT errors and make adjustments or claims. The technical content of this notice remains but the address for the VAT Error Correction Team (VATECT) office in section 4.11 has changed.
  • VAT Notice 701/29: Betting, gaming and lotteries. This notice cancels and replaces Notice 701/29 (February 2013) and confirms that HMRC now accepts that all ‘Spot the Ball’ competitions are games of chance and are therefore exempt from VAT as a form of pool betting.
  • VAT Notice 733: Flat Rate Scheme. This revised notice replaces the February 2017 edition. There are slight amendments to Section 4 and paragraphs 2, 15.4 and 15.5.
  • VAT Notice 742A: Opting to tax land and buildings. This notice has been updated to reproduce guidance on the 2% occupation rule at paragraphs 13.8.7 and 13.8.8. Previously this guidance was only available in the VAT Land & Property Manual – VATLP 23430.
  • VAT Notice 1002: Adapted motor vehicles for disabled people and charities. This notice and forms VAT1615A and VAT1617A cancel and replace VAT help sheets VAT1615 and VAT1616. As set out in the recently published Finance Bill 2017, from 1st April 2017 the Government has implemented a number of changes relating to the VAT zero-rating for the purchase of adapted motor vehicles for eligible disabled users. The notice explains what motor vehicles can be zero-rated for VAT, how motor vehicles need to be adapted to be zero-rated, who is eligible to buy a motor vehicle at the zero-rate of VAT and what evidence is required to support eligibility for the zero rating of these supplies. Changes to the legislation are:
  1. the introduction of a limit on the number of vehicles that can be purchased under the relief, with an eligible individual now being able to purchase only one vehicle that meets the qualifying conditions every 3 years
  2. making customer eligibility declaration forms mandatory
  3. making it mandatory for suppliers to send HMRC information about their zero-rate supplies
  4. the introduction of a penalty that will apply to any person that provides an incorrect customer eligibility declaration form

VAT: Road Fuel Scale Charge Table:

HMRC have released the updated VAT Fuel Scale Charge rates, to apply from 1 May 2017.

The new rates can be found here:

VAT Case Decisions

Adecco UK Ltd & Ors v R & C Commrs [2017] UKUT 0113 (TCC)

This case concerns the nature of supplies made by employment businesses. Adecco argued that it was introducing ‘non-employed’ temporary workers to clients and should only charge VAT on its commission. HMRC considered that VAT should be due on the full amount received from clients because in their view there was a supply by the worker to Adecco and then a supply by Adecco to the client.

The Upper Tribunal agreed with HMRC that the value of Adecco’s supply was the full amount paid to Adecco by the client (including earnings paid to the temps). In finding for HMRC, the Upper Tribunal placed a lot of emphasis on the agreements between the parties and considered it significant that the workers had no direct contract with the clients and were paid by Adecco rather than by the clients.

To read the full case click here:

U-drive Ltd [2017] UKUT 112 (TCC)

U-drive is a car hire company. When one of its hire vehicles was involved in an accident that caused damage to a third party vehicle, U-Drive would sometimes agree with the vehicle owner that, as an alternative to an insurance claim, U-Drive would pay for the repair.

U-drive considered that as it arranges the repair and pays the garage it should be entitled to reclaim the VAT on the cost of the repair.  HMRC disagreed and considered that the supplies were not made to U-drive. The Upper Tribunal agreed with HMRC. It concluded that the economic reality was that U-Drive simply agreed to pay for the repairs and had no interest in the work. The fact that it contracted to pay the garages direct was not sufficient to justify VAT recovery.

To access the full decision click here:

Swanfield Limited [2017] UKUT 0088 (TCC)

This dispute concerned default surcharges. Swanfield was late with VAT returns/payments and subject to the Default Surcharge regime. Swanfield made advance payments to HMRC in respect of current VAT returns before they were rendered in an attempt to avoid default surcharges. However, HMRC allocated the payments to earlier outstanding VAT debts and imposed surcharges. The issue was therefore whether HMRC have the authority to allocate payments as they deemed fit or could the taxpayer make payments for specific periods. The Upper Tribunal held that Swanfield was entitled to allocate payments made to amounts which would become due on supplies made in the (then) current period, even though the due date had not yet arrived.  Additionally, HMRC did not have the authority to unilaterally allocate payments made by the taxpayer to historical liabilities as they saw fit, in cases where the taxpayer has explicitly made those payments in relation to current periods.

To read the case:

Quitie Ltd [2017] TC 05694

On 16 March 2007, Quitie Limited purchased land and buildings for £375,000 and subsequently obtained planning permission for a new dwelling. During the construction, Quitie Limited received a part payment. At the time the payment was received the planning conditions precluded the separate disposal of the dwelling and therefore zero-rating. However, by completion, the conditions had been removed. The First Tier Tribunal held that Quitie Limited was entitled to credit the VAT it had charged on the part payment. It concluded that the VAT liability of the supply could only be determined once the building was complete, and at that time, all conditions for zero rating were met.

To access the decision:

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 Tax or VAT issues.


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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.