Tax VAT Briefing October 2018

News Updates

The main tax news item this month was of course the Budget on 29 October.

Our colleagues at Croner-i have produced an overview of the Budget announcements, which can be found here. Our summary of the income tax and NIC implications can be found here.

Elsewhere in October’s news …


TAX

Employment-Related Securities and EMI schemes

HMRC have issued updated two of their guidance notes on the subject of employment-related securities, Tell HMRC about your employment related securities schemes and Submit your employment related securities return.

In addition, they have updated the guidance on how to tell HMRC about the grant of an Enterprise Management Incentives option: Submit an EMI notification    

Company Losses

The HMRC Company Losses Toolkit has been updated following criticisms by various professional bodies. The CT600 Company Tax Return Guide has similarly been updated.

The HMRC toolkits are designed to assist tax agents and advisors on topics where errors are commonly made.

April 2019 Loan Charge

Taxpayers facing the prospect of an “April 2019 loan charge” as a result of their involvement in disguised remuneration schemes were given the opportunity to notify HMRC by 30 September if they wished to work towards a settlement.

The Low Incomes Tax Reform Group has issued a reminder that HMRC is still asking taxpayers who have missed the deadline to come forward. HMRC have said they cannot in these cases promise to reach a settlement before the charge arises but they will make every effort to do so.

The LITRG article can be found here.

Certificates of Tax Residence

Tax treaty reliefs may be available to UK resident individuals, companies and organisations who have overseas sources of income. The overseas tax authority will normally ask for proof of UK residence before granting relief and HMRC have recently updated their guidance on how to apply for a certificate of residence

 2016-17 Returns

HMRC have announced they have identified up to 30,000 self-assessment returns for 2016-17 where there is a risk that their tax calculator has incorrectly computed the individual’s tax liability. They will be starting a review of these returns on 19 November and estimate around half of the cases will require amendment.

The individuals concerned will receive a revised SA302 tax calculation and will have 28 days to pay any additional tax liability before any interest and late payment penalties are applied. Unfortunately, there are no plans to issues copies of the forms SA302 to agents.

TAX CASE DECISIONS

Higgins [2018] UKUT 0280 (TC) – Capital Gains Tax Main Residence Relief

This was an appeal against a decision by the First-tier Tribunal that Mr Higgins’ period of ownership of a property for main residence relief purposes began on the date of completion rather than the contract date. The Upper Tribunal disagreed noting that the gain accrued over the whole period of ownership of the interest in the property and the legislation specifically restricted relief for periods of non-occupation.

Higgins


Lo [2018] UKFTT 0605 (TC) – Capital Gains Tax Main Residence Relief

In another case involving main residence relief, the FTT accepted that the taxpayer had stayed at the property at various times but then had to decide whether any of those periods of occupation amounted to residence. The taxpayer told the Tribunal it was always her intention to make the property, which was purchased in the certain knowledge it would increase in value, her permanent home. The Tribunal identified a number of aspects which did not fit comfortable with the taxpayer’s contention and although some of those aspects, taken in isolation were minor, were minor the Tribunal decided the overall picture did not suggest the degree of intention of permanence required.

Katie Lo


Haughton [2018] UKFTT 0560 – Over Repayment of Tax

 The appeal failed because it was outside the Tribunal’s jurisdiction. The Tribunal did however express sympathy with HMRC’s view that if a taxpayer receives a large tax repayment, he has a responsibility to try and understand the reason for the repayment and not to simply spend the money.

Haughton


C-153/17 Volkswagen Financial Services (UK) Ltd

The CJEU have held that hire purchase transactions should be treated as two supplies for VAT purposes and input tax recovery on overheads are eligible for recovery in the cases where the goods are resold at cost without factoring in the overheads into the margin. Historically HMRC have argued that in such cases the transaction is one single exempt supply of finance as the seller usually makes their profit from any interest charge. The CJEU held that the taxpayer has a right to recover a portion of the VAT on overheads based on such costs relating to the HP transaction as a whole. However, there is still uncertainty how residual input tax is meant to be apportioned as the court held that an alternative to the turnover based partial exemption method should only be used if it would produce a more accurate reflection, whilst asserting that excluding the value of the car from the calculation as HMRC propose will not do so.


Stoke by Nayland Golf and Leisure Limited [2018] UKUT 0308 (TC)

An interesting case relating to eligible bodies under Sch 9, Group 10, Item 3, VATA 94. It is a case worth noting for organisations falling under the exemption but have a related company to which transactions occur between the two. This case involved a company limited by guarantee operating a golf club and fitness centre. It was the tenant of another company within the same group. An exchange occurred between the two companies regarding the licence fee payable to the landlord company in exchange for green fees.

As a result, HMRC argued that this was a covert way of distributing profits and that the exemption should therefore not apply due to commercial influence and a desire to make and distribute profits.

The UT relied upon the helpful set of facts identified by the FTT which would help others when HMRC are seeking a similar ruling. In summary, the UT found that based on such facts and evidence, the taxpayer did satisfy the criteria for exemption. They concluded that the mere fact that there is a close relationship between the two bodies does not mean that one body has control over the other.

Stoke by Nayland Golf & Leisure


Golden Cube Ltd [2018] UKFTT 0488 (TC) – Invigilation Exercises

This is a useful case to note for restaurants and takeaways suffering the nationwide campaigns HMRC is conducting and the excessive assessments being issued based on HMRC’s expected ratio of liabilities.

The matter involved a Subway outlet which, after a VAT compliance visit, had the ratio of standard-rated and zero-rated sales brought into question. Later, it was agreed that HMRC could conduct an invigilation which showed a larger portion of standard-rated sales than had been declared. As a result, HMRC issued an assessment for under declared VAT.

The taxpayer subsequently argued that the invigilation period was not a representative sample of their normal trade and therefore the assessment was not accurate.  The FTT considered three main facts:

  1. There was no evidence to suggest that standard rated sales had been deliberately suppressed
  2. Evidence such as oral evidence provided by employees stating that the till did record sales accurately.
  3. There were multiple reasons why there would be a variation on liabilities, which would include variations in the weather and the shop’s oven being intermittently out of order.

 Golden Cube



VAT

VAT Notice 701/21 – Gold Acquisitions, Imports, and Investments

HMRC have updated the notice to provide details on applying the VAT rules to supplies, acquisitions and imports of gold and investment gold. It cancels out and replaces the previous October 2011 versions. Paragraph 11.6 has been updated to help clarify the correct accounting treatment of output tax due under the special accounting scheme.

VAT Notice 701/6 – Charity Funded Equipment

HMRC have updated the list of qualifying zero-rated goods and services which can be found in paragraph 4.11 of the notice

VAT on E-Books

The EU’s Economic and Financial Affairs Council has approved a proposal to amend the VAT Directive 2006/112 which would remove the distinction made between the VAT treatment of printed publications to those that are digital based. Currently, printed publications are zero-rated, whilst E-Books for example are standard-rated. The change will allow member states to zero-rate digital publications the same way its printed counterparts are. However, HMRC have not announced any changes to the legislation yet.

Revenue and Customs Brief 6 – Extra Statutory Concession 3.18

HMRC have published guidance on when the Extra Statutory Concession 3.18 applies and the action property management or similar companies must take if they have wrongly applied the concession.

ESC 3.18 is a concession that allows for the same VAT treatment of mandatory service charges to a freehold occupant as to a leaseholder or tenant.

Confusion regarding the concession can arise when a landlord employs a property management company to fulfil their legal obligations to the occupants of the estate. The management company often incorrectly applies the concession on their services to the landlord which is usually a standard rated supply.


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.


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.