Tax VAT Briefing May 2019


May was an embarrassing month for HMRC. First, they were ordered by the Information Commissioner’s Office to delete voice recognition date, which had been obtained in contravention of the General Data Protection Regulation. They next had to admit to issuing incorrect tax codes to some taxpayers in Wales who, as a result, paid tax at Scottish income tax rates.

Elsewhere in the news …


Spotlight 47

The Chartered Institute of Taxation (‘CIOT’) has published notes of a meeting with HMRC following the publication of Spotlight 47 ‘Attempts to avoid an income tax charge when a company is wound up’. Spotlight 47 is concerned with the Targeted Anti-avoidance Rule (‘TAAR’), sometimes referred to as the ‘anti-phoenixing’ rule which in certain circumstances can treat the proceeds of a formal liquidation as income rather than capital.

The CIOT’s notes can be found here. Unfortunately, HMRC’s comments do little to remove the uncertainty surrounding the scope and application of the TAAR.

Taxation of the self-employed

 The Low Incomes Tax Reform Group has published detailed tax guidance intended to assist the self-employed and their advisers. It can be found here.

Pension contributions

HMRC has updated two guidance notes:

Work out your reduced (tapered) annual allowance

Check if you’ve gone above the money purchase annual allowance

Taxation of non-UK domiciliaries

A number of CIOT technical notes on the application of the Finance (No. 2) Act 2017 changes are available here. Commentary on the extension of inheritance tax to overseas property representing UK property interests and on the foreign capital losses election has been updated to reflect HMRC’s comments.

Sporting testimonials

HMRC’s guidance has been updated to take into account the changes affecting National Insurance liabilities which come into force on 6 April 2020.

HMRC toolkits

HMRC has released the 2018-19 versions of two toolkits:

Chargeable gains for companies toolkit

Directors’ loan account toolkit


Hannover Leasing [2019] UKFTT 0262 (TC) – Stamp Duty Land Tax

The anti-avoidance legislation in s.75A Finance Act 2003 broadly states that the intervening steps in a series of transactions are ignored and tax is charged is if there has been just one transaction between the original vendor and the final purchaser. Although this was a tax avoidance case, the Tribunal has again confirmed that s.75A must be applied if the relevant conditions are met even though there may be no conscious tax avoidance motive.

Warshaw [2019] UKFTT 0268 (TC) – Entrepreneurs’ relief

The Tribunal was called upon to consider whether certain preference shares were ordinary shares for the purposes of the personal company condition for entrepreneurs’ relief. The shares entitled the owner to a cumulative annual 10% dividend. If the dividend was not paid on the due date, the outstanding amount was compounded and future dividends were to be paid at 10% of the aggregate of the share subscription price and the compounded amounts. The Tribunal decided that since the amount upon which the 10% was to be paid varied, the dividend was not a fixed dividend so the shares were to be treated as ordinary shares.

Platt [2019] UKFTT 0303 (TC) and ESE Rendering Solutions Ltd [2019] UKFTT 0309 (TC) – Penalties

These two cases confirm that when penalties are in dispute the onus is on HMRC to prove that the appropriate notices have been properly served. It is not the responsibility of the taxpayer to prove notices were not received.


PN 701/41 Sponsorship

The amendments to the PN relate to mixed sponsorship and donations.  The changes provide guidance for crowdfunding and input tax recovery for prizes in competitions.

Where donations are made separately from sponsorship and the agreement clearly identifies two payments for sponsorship and donations, no VAT is due on the donation.

A payment for crowdfunding is not a taxable supply when the funder receives nothing in return. Where a crowdfunding payment is made and the payer expects something return we suggest that further advice is taken.

Donations made when the donor expects nothing return remain outside the scope of VAT. 

PN 700/22 Maxing Tax Digital

There have been some changes to the guidance for MTD for particular transactions.

Charity Fundraising Events – There has been an easement of the law which allows charities to digitally record all supplies for an event on a single invoice.  Supplies received can also be treated the same way.

Petty Cash Transactions – Petty cash transactions can be inputted onto a single transaction document subject to £50.00 VAT inclusive limit per purchase and £500 per entry in the petty cash records.


National Car Parks (NCP) v HMRC (EWCA Civ 854)

The Court of Appeal ruled that if a customer overpays a parking fee and the operator’s machines do not give change the whole fee is subject to VAT. The agreed facts being that NCP machines do not dispense change, and if an overpayment is made by the customer, no refund is given.

NCP unsuccessfully argued that the overpayment was not a supply for VAT purposes.

The Court of Appeal was in agreement with the First Tier and Upper Tier tribunal decisions and ruled output tax was due on the full payment received.

Peter Hartigan trading as Striking Iron (TC2019/7109)

This case concerned a Late Registration Penalty of £30,000 which was appealed by the taxpayer.

The business commenced trading as a sole proprietor in 2005 and exceeded the VAT threshold in 2012 as per the sales recorded in Self-Assessment returns submitted to HMRC.

The Appellant claimed there was a misunderstanding about when the business should have registered for VAT and thought it was linked to profitability rather than turnover.

The Effective Date of Registration was calculated to be 01.12.2012 and assessment issued under the Flat Rate Scheme percentage at 9.5% for this trading activity due to weaknesses in the records. A £30,000 Failure to Notify penalty was issued by HMRC, which was appealed, rather than the actual VAT due.

Appellant claimed that he sought advice from the accountant but was incorrectly advised about registering for VAT and paying the FTN penalty would jeopardise the viability of his business.

Appeal dismissed as accountant has seemingly advised the client about VAT but this advice was ignored demonstrating that client cannot necessarily avoid a penalty by simply blaming their Accountant.

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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