PRACTICAL POINTS
Practical points
THIS MONTH...
17
Agents and HMRC
56. Finding guidance on GOV.UK and archived
information
Tips and reminders, short technical notes
and news of recent developments in tax.
Contributions to this section from readers
are always welcome: [email protected]
Digital matters
57. Update on the personal tax account
18
Personal tax
58. Issue of 2015/16 SA returns and filing
notices
Savings and investment
59. Dividends and interests: impact of April
2016 changes
60. Collecting the tax
61. Property income distributions
19
62. Foreign income of UK residents
63. Income tax calculations for non-UK
resident individuals
64. Interest on a loan to a company
Property tax
65. Testing the new ATED digital service
Business tax
66. Use of FRS 105 by unincorporated
businesses and individuals
20
67. When is a trade commercial?
68. Whether holiday letting was a trade
Company tax
69. CT61 and payment of interest by a
company
70. Paying interest to a director
21
71. New rules on distributions and winding-up
Charities
72. New XBRL accounts taxonomy for charities
PAYE and employers
73. How to report PAYE on time
74. Appealing against a penalty
22
CGT
75. Non-resident disposing of UK residential
property: reporting requirements
VAT
76. Importance of group management
agreements
23
77. Can you amend the reasons for a refund
claim?
78. Retention of a small portion of front facade
denies zero-rating
24
Tax payments and debt
79. Changes to HMRC banking services
International
80. Resolving international tax disputes
81. US model double tax convention
TAXline APRIL 2016
AGENTS AND
HMRC
56. FINDING GUIDANCE
ON GOV.UK AND
ARCHIVED INFORMATION
Agents frequently seek guidance on
GOV.UK and the HMRC web archive.
In Agent Update 52, HMRC has
provided some hints and tips for
getting the most out of these
sources of information:
When seeking guidance the GOV.UK
Tax agent and adviser guidance
page is a good place to start a search
(tinyurl.com/GOV-AgentGuide). The
topics that agents regularly search
for are grouped together on this
page. Agents can receive
notification of updates to GOV.UK
by registering for automatic email
alerts (tinyurl.com/GOV-SignUp).
Not all HMRC guidance content
previously published on the HMRC
website has been carried across to
GOV.UK. If the guidance searched
for is not available on GOV.UK,
search in the HMRC web archive
(tinyurl.com/GOV-WebArchive).
When a document is first published
or has factual changes made on
GOV.UK it appears under the
‘Latest’ section within the HMRC
organisational home page (tinyurl.
com/GOV-Home). Factual changes
are flagged up using a change note,
shown in the Updated section at the
bottom of pages. By clicking ‘+full
page history’ the change note for
each amendment can be viewed,
giving the date and what has been
changed. Agents who have
subscribed to the topic the
publication is tagged to will receive
an email alert when a factual
change to content has been made.
Legislative changes and new
legislation are not published on
GOV.UK. This information is
available on legislation.gov.uk
Agents can provide feedback on each
page, which will assist GOV.UK to
improve the service.
The Tax Faculty also welcomes
members’ feedback on GOV.UK –
contact Caroline Miskin.
DIGITAL
MATTERS
57. UPDATE ON THE PERSONAL
TAX ACCOUNT
The Personal Tax Account (PTA) is
currently in ‘public beta’ testing and is
due to go live in April 2016. This
follows the government
announcement at Budget 2015:
“By early 2016 five million small
businesses and the first 10 million
individuals will have access to a
secure, personalised digital tax
account. By 2020 more than 50
million individuals and small
businesses will have a secure,
personalised digital tax account —
removing the need for millions to
complete a tax return and simplifying
the tax system for millions more.”
The Tax Faculty continues to make
representations about the fact that the
PTA can be accessed by individual
taxpayers, but not their agents, and
the difficulties this causes. We have
been assured that it will be possible
for agents to access this information,
but as yet there is no firm timetable.
As we have previously reported,
agents have been cautioned by HMRC
not to use their clients’ details to
access PTAs; doing so may be picked
up by HMRC security processes.
As noted in practical point 38 last
month, PAYE notices of coding being
issued by HMRC in the general coding
run for 2016/17 include an insert
encouraging taxpayers to access their
PTA. Agents may get queries from
17
their clients about accessing these
accounts so may find it useful to
understand what they offer.
Accessing the PTA
Until recently, access to the PTA was
available only by going through the
Government Digital Service Verify
identity assurance process. It is now
possible for most taxpayers to apply
for a government gateway account
and to access their PTA using these
details. This option is available to
PAYE taxpayers who are not in self
assessment (SA) as well as to those
who are in SA but are not selfemployed. It is anticipated that the
self-employed will be able to access
the PTA when it goes live in April.
The government gateway is the first
option listed on ‘sign in to your PTA’
(gov.uk/personal-tax-account) with
Verify being given as an alternative.
Services available through the PTA
New services are being added to the
PTA on a fairly regular basis. It can
currently be used to:
check an income tax estimate and
tax code;
tell HMRC about a change of
address;
check or update company car details;
check and manage medical benefits;
apply for the marriage allowance;
manage ‘trusted helpers’ (ie,
register to help friends or family
with their tax, or appoint them to
help with yours);
track tax forms submitted online;
fill in, send and view a personal tax
return (but use HMRC’s online services
instead for self-employed earnings).
HMRC online forms
It is now possible to file a number of
HMRC income tax forms (as well as
self assessment return forms) online
using the government gateway. These
forms include:
P87 Tax relief for expenses of
employment;
P85 Leaving the UK – getting your
tax right;
P50, P50Z, P53, P55 Repayment
18
claims when stopped working or to
claim a repayment of tax deducted
from a flexibly accessed pension.
Clicking the link to the appropriate
form takes the taxpayer to a
government gateway sign-in screen
with an option to create an account
if necessary.
Although the PTA is not currently
accessible by agents, the Tax Faculty
would welcome feedback on the
experiences of agents and their staff
and clients who use the PTA in a
personal capacity.
Contributed by Sally Ferguson
PERSONAL TAX
58. ISSUE OF 2015/16 SA
RETURNS AND FILING NOTICES
HMRC advises that 2015/16 SA paper
returns are scheduled to arrive with
clients by the end of April 2016 at
the latest.
Notices to complete a tax return
(SA316), issued to those who file
online, will be issued over a longer
period and are due to arrive by the
end of May 2016.
HMRC expects to issue 1.7 million
notices electronically, to those who
have opted into paperless SA.
HMRC says it is making a number of
significant improvements to the digital
services provided for SA customers
and their agents during 2016/17.
SAVINGS AND
INVESTMENT
59. DIVIDENDS AND INTERESTS:
IMPACT OF APRIL 2016 CHANGES
As readers will be aware, there are
important changes from April 2016
to the tax treatment of dividend and
savings income.
All the practical points in this
section look at various consequences
of the changes. The changes
themselves have been covered in
previous TAXline articles.
All these points have been compiled
by Lindsey Wicks
60. COLLECTING THE TAX
Financial institutions will no longer
deduct tax from interest on or after
6 April 2016. Taxpayers who have
interest income above the personal
savings allowance (PSA) will have tax to
pay for 2016/17. If the taxpayer is in SA
their dividends and interest will be
reported and the tax collected in the
usual way.
PAYE taxpayers will generally pay
any tax due on interest and dividends
by an adjustment to their tax code.
The adjustment for interest is based
on information provided to HMRC by
financial institutions. HMRC does not
have a similar source of information
on dividend income, other than
previous SA returns. Tax coding
notices for 2016/17 including these
adjustments should be checked even
more carefully than usual.
A small number of taxpayers may
need to complete SA tax returns for
the first time (for 2016/17). However,
it is possible that HMRC will issue a
simple assessment rather than a
notice to complete a tax return.
HMRC has not yet indicated how it
intends to use the power to issue
a simple assessment proposed in
the draft Finance Bill 2016. This
new power will apply for 2016/17 at
the earliest and the Tax Faculty
will issue updates on how it will be
used once further information
is available.
61. PROPERTY INCOME
DISTRIBUTIONS
Real estate investment trusts and
property authorised investment
funds make property income
distributions. The taxation of
property income distributions is
unaffected by the introduction of the
savings allowance and the dividend
nil rate band from 6 April 2016. This
is because the distribution is
generally treated as property income
in the hands of the recipient
(exceptions being members of Lloyd’s
or financial traders that record the
distributions as trading receipts).
Property income distributions will
APRIL 2016 TAXline
PRACTICAL POINTS
BUSINESS TAX
continue to be paid with basic rate
income tax deducted at source.
62. FOREIGN INCOME OF
UK RESIDENTS
From 6 April 2016, foreign interest
will fall within the PSA and foreign
dividends will fall within the
dividend nil rate band for a UKresident individual, unless it is
relevant foreign income.
There will be no grossing-up of
dividends from non-resident
companies from 6 April 2016 (the
grossing up provision of s397A,
Income Tax (Trading and Other
Income) Act 2005 is repealed).
63. INCOME TAX
CALCULATIONS FOR NON-UK
RESIDENT INDIVIDUALS
Chapter 1, Part 14, Income Tax Act
2007 sets out the limits on the liability
to income tax for non-UK residents.
This provides that the income tax
liability for an individual cannot
exceed the aggregate of the tax
deducted and tax credits from any
disregarded income (amount A) and
the amount chargeable if disregarded
income and personal reliefs are
ignored (amount B) (s811, ITA 2007).
Disregarded income includes
savings income and dividend income.
From 6 April 2016, the tax deducted
figures and tax credit figures in
amount A of the calculation may
change for non-UK resident taxpayers
(the reference to tax credits is omitted
and banks will no longer be deducting
tax at source from interest).
For the purposes of calculating the
income tax liability against which
the limit should be compared, the
dividend nil rate band and PSA
should be used.
64. INTEREST ON A LOAN TO
A COMPANY
When an individual makes a loan to
their personal company and that loan
is made otherwise than on an
interest-free basis, the interest will be
savings income of the recipient and
will therefore be eligible for the PSA.
TAXline APRIL 2016
Where there are loans between
connected parties, there is always the
question about the rate of interest that
should be charged. Rules such as
transfer pricing should be considered.
PROPERTY TAX
65. TESTING THE NEW ATED
DIGITAL SERVICE
HMRC is developing a new digital
service for the annual tax on
enveloped dwellings (ATED) and live
testing of the process is currently
ongoing.
The new system will enable:
the chargeable person or their agent
to register for the new ATED digital
service; and
the chargeable person to appoint an
agent online to act on their behalf
for ATED.
And then you are able to:
file an online return declaring a
liability for chargeable periods
2016/17 onwards;
file an online ATED relief
declaration return for 2016/17
onwards;
obtain a payment reference
number; and
make an online amendment to an
ATED return already filed using the
new digital service.
For the 2016/17 chargeable period
access to this new service is going to
be by private invitation only but if you
would like to take part in the trial
please send the following information
to [email protected]
using the email subject title ‘ATED
Private Beta Volunteer’:
Contact name
Contact telephone number
Contact email address
If you do take part in the trial please
let us have feedback on your
experiences – contact Sue Moore.
66. USE OF FRS 105 BY
UNINCORPORATED BUSINESSES
AND INDIVIDUALS
The FRSSE (the accounting standard
applied by small entities and
companies applying the microentities regime) is being replaced by
FRS 105 The Financial Reporting
Standard applicable to the Microentities Regime for accounting periods
beginning on or after 1 January 2016.
The Financial Reporting Council
(FRC) does not explicitly permit or
prohibit the use of FRS 105 by
unincorporated businesses or
individuals (ie, those which, if
companies, would be eligible for
the micro-entities regime) for tax
purposes. Instead, it notes that this
is a matter for the tax authorities.
HMRC has confirmed to ICAEW
that it will accept calculations of
trading profits for income tax
purposes prepared under FRS 105 if
the size criterion to apply FRS 105
has been met.
The size criterion is met if two
out of the following three
thresholds are not exceeded:
Turnover
£632,000
Balance sheet
total
£316,000
Number of
employees
10
The turnover limit is adjusted
proportionately if the financial year
is longer or shorter than 12 months.
In March, the UK Government
issued draft amendments to align
the financial reporting regimes for
limited liability partnerships (LLPs)
and companies, and to introduce
the micro-entities regime for LLPs
and qualifying partnerships. When
approved, the amendments will
come into effect for financial years
beginning on or after 1 January
2016, with early adoption permitted
for financial years beginning on or
after 1 January 2015.
Contributed by Sarah Dunn (Financial
Reporting Faculty) and Lindsey Wicks
19
67. WHEN IS A TRADE
COMMERCIAL?
The case of Kevin Johnson v HMRC
TC04805 concerned a claim by Mr
Johnson of a loss incurred in his
business activities. It sounds a bit
dull, but the case had some
interesting features.
The published comments on this
case have highlighted the parts of the
decision which dealt with bartering but
it seems to me there is a much more
important issue to which I refer below.
Anyway, the First-tier Tribunal (FTT)
went through the conventional analysis
of how to define a trade, adding that it
is not limited to an activity in which
money is received. It said that an
activity of bartering is no less capable
of being a trade than one in which
barter is replaced by the exchange
of money.
Mr Johnson became involved in tree
surgery and undertook a number of
assignments from November 2010. It
seems that he was not paid for this
work but he was able to take away for
his own use several trailer loads of
wood. Mr Johnson incurred various
expenses including purchasing a
chipper and a trailer.
The FTT found that in providing his
services in return for the wood, Mr
Johnson was providing his labour in
return for a benefit and this was
capable of being a trade.
The Tribunal went through the
badges of trade and concluded that Mr
Johnson was carrying on a trade and
that the trade commenced in
November 2010.
That sounded good for Mr Johnson,
but it was not the end of the matter
because s66, ITA 2007 provides that
relief for a trading loss is not available
unless the trade is conducted on a
commercial basis and with a view to
the realisation of profits.
The FTT noted that in the first year,
2010/11, the value of the wood received
by Mr Johnson in return for his
activities exceeded his expenditure.
The Tribunal set out the net taxable
profit and loss for 2010/11 showing the
value of the income for the year at
20
£1,500 and the allowable expenditure
at £400. However, there was a further
deduction: an investment allowance on
the chipper and trailer of £5,000 which
turned the profit of £1,100 into a loss of
approximately £4,000.
Given that the profit or loss has to be
calculated on generally accepted
accounting principles one might
wonder why the results of Mr Johnson’s
business was not a profit of £1,100
because the annual investment
allowance is a capital allowance in
respect of capital expenditure. That
does not turn his profit into a loss – it
merely means that he is entitled to
capital allowances.
It would seem that HMRC was
concluding that because he made a loss
claim, this must be the loss he made in
his business – but that would surely be
wrong. On generally accepted
accounting principles the business
made a profit; the loss which he
claimed was entirely the result of his
entitlement to capital allowances.
The FTT had another argument
which was that although in the first
year Mr Johnson’s activities were
beginning to deliver benefits and a flow
of work was starting, his later success
could not be relied on. It was a time of
relative economic uncertainty and Mr
Johnson had said to HMRC that it was a
marked achievement to have managed
to establish a business. The Tribunal
concluded that because Mr Johnson
actually succeeded did not mean
that it was objectively reasonable
to suppose that he would succeed.
Accordingly, he could not have
expected to have made a profit
and therefore his activity was
not commercial.
Wow – that is really tough. I wonder
what would have happened if Mr
Johnson had disclaimed his capital
allowances to defer the benefit of the
allowances until a later year. Would the
profit he made on his trading have
been tax-free because it was not
objectively reasonable for him to
expect to make a profit? Possibly not.
Contributed by Peter Vaines, Field Court
Tax Chambers
68. WHETHER HOLIDAY LETTING
WAS A TRADE
The case of Julian Nott v HMRC
TC04897 is a reminder that while
income from letting of furnished
holiday accommodation might be
treated as a trade for income tax
purposes, it is not a trade for class
4 NIC purposes.
Mr Nott contended that the five
holiday cottages on his estate that he
rented out for periods, typically of two
weeks at a time, were run as part of a
trade whose losses could be offset
against his other income for class 4
NIC purposes. The cottages were
made available with the option of a
daily breakfast and/or cleaning service.
The FTT determined that the
business, even if it qualified as
furnished holiday letting
accommodation, was a property
business for NIC purposes and
not a trade.
There is HMRC guidance on
this in the Property Income Manual
at PIM4120.
From the weekly Tax update published
by Smith & Williamson LLP
COMPANY TAX
69. CT61 AND PAYMENT OF
INTEREST BY A COMPANY
The removal of the obligation to
deduct tax at source from interest
paid from 6 April 2016 generally only
applies to those that previously
operated the tax deduction scheme
for interest, ie, banks, building
societies and deposit-takers, plus also
National Savings & Investments.
This means that companies making
payments of yearly interest (other
than to UK banks) will still need to
deduct tax and report this to HMRC
via form CT61.
Contributed by Lindsey Wicks
70. PAYING INTEREST TO
THE DIRECTOR
In 2016/17 a UK-domiciled taxpayer
will be able to receive up to £16,000
of interest which will be subject to
APRIL 2016 TAXline
PRACTICAL POINTS
PAYE AND
EMPLOYERS
tax at 0% where it falls within
these allowances:
personal allowance (PA): £11,000;
savings rate band (SRB): £5000;
personal savings allowance
(PSA): £1,000.
Most taxpayers will not receive
anything like £16,000 of interest in one
tax year, but they may hold credit
balances on loans within their own
companies on which they could receive
interest. As dividends received in
excess of £5,000 will be taxed at a
minimum of 7.5%, the receipt of
interest will be an attractive alternative.
To formalise the payment of
interest on a director’s loan account an
agreement should be drawn up
between the company and individual
setting the rate of interest and terms
for repayment. Where the individual is
a controlling shareholder or director of
the company, the two parties will be
“related” or “connected”, so a
commercial rate of interest should be
used. To judge what a reasonable
commercial rate would be, investigate
what the company would have to pay
if it borrowed a similar sum from a
third party.
Unless the company is a bank or
building society, payments of yearly
interest must have basic rate tax
deducted before the net amount is paid
to the individual. This tax deduction
mechanism is not changing on 6 April
2016. Yearly interest is a recurring
payment of interest, so any amount
that is not a one-off payment.
Where the director lends a
significant sum to the company, in
order to receive a reasonable rate of
interest those funds need to be used
for a productive purpose by the
company. If the cash sits in the
company’s bank account doing little,
there is a danger that the company will
lose its trading status for entrepreneurs’
relief. Also the payment of interest on
those funds may not be tax deductible
as the funds would not be used for the
purpose of the company’s trade.
From the weekly newsletter of the Tax
Advice Network
TAXline APRIL 2016
71. NEW RULES ON
DISTRIBUTIONS AND
WINDING-UP
Clause 18 of the draft Finance Bill 2016
introduces a targeted anti-avoidance
rule in respect of distributions in a
winding-up. In terms of commencement,
it is proposed to apply to distributions
made on or after 6 April 2016 (see
Company distribution: capital or
income? in February 2016 TAXline).
HMRC has stated in correspondence
that, as currently drafted, where a
winding-up ends on or after 6 April
2016, but all distributions were made
on or before 5 April 2016, the
legislation will not apply. Where a
winding-up has some distributions on
or before 5 April 2016 and some on or
after 6 April 2016, the legislation will
only apply to those distributions made
on or after 6 April 2016.
Contributed by Charles Pascoe, BDO LLP
CHARITIES
72. NEW XBRL ACCOUNTS
TAXONOMY FOR CHARITIES
The FRC and the Charity Commission
(CC) have issued a new charity
taxonomy, created in line with the
charity Statement Of Recommended
Practice (SORP) (FRS 102) and the
FRC’s financial reporting standard FRS
102 (tinyurl.com/GOV-CTR).
HMRC plans to update its systems
in April 2016 to accept company tax
returns containing accounts that have
been tagged with this new taxonomy.
Large charities with income over
£6.5m must fully tag their accounts
with new charity taxonomy if the
accounts are:
for a period of account starting on
or after 1 January 2016;
submitted as part of a company tax
return; and
filed with HMRC on or after
1 October 2016.
The charity taxonomy can be used by
all charities that have to prepare
accounts under the charity SORP.
From the weekly Tax update published
by Smith & Williamson LLP
73. HOW TO REPORT PAYE
ON TIME
In Employer Bulletin 58, HMRC provides
some tips on avoiding some of the
common mistakes it has seen since the
introduction of in-year PAYE filing
penalties:
If you think you have a reasonable
excuse for filing late you should use a
late reporting reason code. Use the
code for every payment on the full
payment submission (FPS) where the
circumstances apply.
Use the late reporting reason code H
if you need to make a correction to a
previous submission and the
payment date(s) you are reporting is
a date earlier than the date you
submit the FPS. This includes
submissions that you have corrected
and resubmitted because the initial
submission was rejected.
Be careful with leavers and use late
reporting reason H where
appropriate. An example might be
where you’re unable to report
payroll information on time when an
individual leaves your employment
before the regular reporting date.
Use late reporting reason F where
you report within seven days
because it was impractical to report
on or before the pay day due to the
nature of the work.
74. APPEALING AGAINST
A PENALTY
Employer Bulletin 58 provides
guidance on how to appeal against a
PAYE late filing penalty.
HMRC recommends using the
online appeals service which can be
accessed through PAYE Online. This
should mean your appeal will be
dealt with more quickly than if you
appeal in writing. You can appeal in
writing, and if you do so, it will not
affect the outcome of your appeal.
When the appeal is received HMRC
will send a generic notification service
message to let you know how your
appeal is progressing.
HMRC says that when using
the online appeals service, select the
reason for your appeal from the
21
drop-down menu and avoid using
‘other’ if there is a suitable alternative
option. You should only use ‘other’ if
your reason for appeal doesn’t fall into
the categories in the online system.
For example, if you were unable to
report on time because your
employee’s payday was on a bank
holiday and you didn’t indicate a late
reporting reason on the full payment
submission when you reported the
payment, then the appeal reason
‘missed correction/easement’ may be
more appropriate. Or, if you
experienced difficulty using your
payroll package then the appeal
reason ‘IT difficulty’ may be more
appropriate. You can provide further
facts to support your appeal in the
additional information box.
No penalty is charged in the first
month in the tax year for which you
fail to file on time but you are still
entitled to appeal against HMRC’s
decision. HMRC calls this the ‘first
unpenalised default’ and it will be
displayed on your penalty notice and
on the online appeals service. Make
sure you appeal against all of the
defaults shown on your penalty
notice, including the first unpenalised
default, that you think are incorrect.
If your appeal is accepted, the
unpenalised default will be carried
forward to a later month, reducing the
value of any future penalty charges
you might incur.
CGT
75. NON-RESIDENT DISPOSING
OF UK RESIDENTIAL PROPERTY:
REPORTING REQUIREMENTS
With effect from 6 April 2015
non-resident individuals have been
liable for CGT on the disposal of a UK
residential property. Any disposal
after that date by a non-resident is
liable to pay CGT on gains arising from
6 April 2015.
A report of the disposal has to be
made within 30 days of the
conveyance and any tax due paid
within the same 30-day period unless
22
the individual is already registered for
self assessment – in that case, the
payment can be deferred until the
normal due date of 31 January
following the end of the tax year.
There was a requirement to file a
return even where there was no gain
to report, a particularly common
situation in these early days of the tax,
as it only applies to gains arising from
6 April 2015.
The Tax Faculty has been advised
by HMRC that a new section will be
inserted into Taxes Management Act
1970 by Finance Bill 2016 making the
return elective (ie, optional rather
than mandatory) where there is:
a disposal of a residential property
on or after 6 April 2015 for no gain
or loss; or
the grant of a lease for no premium
to an unconnected person in a
bargain at arm’s-length.
As the relaxation is backdated to
6 April 2015, anybody who has not
filed a return for a disposal at no gain
or loss will not now face penalties and
any elective late return will not be
liable to penalties.
Contributed by Sue Moore
VAT
76. IMPORTANCE OF GROUP
MANAGEMENT SERVICE
AGREEMENTS
In Norseman Gold Plc v HMRC [2016]
UKUT 69 (TCC), it was held that a
holding company was not making
taxable supplies as there was no
agreement from subsidiaries to pay
for management services and no
price fixed.
Norseman provided management
services to its subsidiaries; however, at
least initially, there was no agreement
between the parties as to the cost of
those management services. HMRC
raised queries on the VAT registration
and the company told it that there
would be a management charge. At
that stage a process of raising invoices
was started, with output tax declared
on the value of the services by
Norseman. However, the invoices
were not actually settled by the
subsidiaries (although debts were
recorded in the accounts) and the
value of the charges was not sufficient
to cover Norseman’s costs. Norseman
made claims for input tax recovery.
HMRC argued that Norseman was
not carrying on economic activity
because it was not making, nor did it
have an intention to make in the
future, supplies for consideration for
VAT purposes.
The FTT agreed with HMRC. The
FTT judge accepted that what
Norseman supplied to its subsidiaries
was in principle capable of amounting
to a taxable supply. But what it
supplied in the relevant period was
not in fact supplied for consideration
and was not therefore a taxable
supply. He held that any
understanding between Norseman
and its subsidiaries about payment for
services provided was insufficient to
establish that supplies would be made
for consideration with the result that
there was no right to recover input tax
incurred during the relevant period.
He said: “The failure to determine the
amount of the charge beforehand is in
my view fatal to Norseman’s case.”
Norseman appealed to the Upper
Tribunal (UT). It argued that an
intention that payment should be
made in respect of supplies was
enough to establish consideration.
In the UT, Mr Justice Warren
dismissed Norseman’s appeal saying:
“Putting the matter in the very briefest
of ways, this is a case where one party
(Norseman) has supplied services to
closely related parties (its subsidiaries)
with, at best from Norseman’s point
of view, an intention on its part to
charge at some unspecified time in
the future for its services, but with
no agreement with the subsidiaries to
that effect (even to the effect that the
subsidiaries would pay if and when
they had funds available to do) and
no understanding of the amount of
timing of such payment.
“The charge/payment, if and when
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introduced, might or might not match
or exceed recovery of the costs
incurred in providing the service and
might or might not include a profit
element. It might even be nominal
consistently with the intention which
the Judge identified …. This is an
insufficient basis on which to be able
to say, at any time prior to or during
the relevant period, that the eventual
charge and payment would have the
immediate and direct link with the
services provided which EU law
requires. If it is not possible to find the
necessary link in relation to future
supplies and the intended payments
for those supplies, still less is it
possible to find a link where there has,
as yet, been no payment at all, in
particular in relation to services
provided during the relevant period.”
This case illustrates the importance
in groups of looking at the VAT
position of a holding company early
and agreeing the basis on which
charges for management services
will be made.
From PM-Tax published by Pinsent
Masons LLP
77. CAN YOU AMEND THE
REASONS FOR A REFUND CLAIM?
The case of HMRC v Vodafone Group
Services Ltd [2016] UKUT 0089 (TCC)
looked at whether in circumstances
where a VAT-registered taxpayer has
submitted a claim for a refund in a
VAT period, in accordance with the
time limits set out in s80, Value
Added Tax Act 1994 (VATA 1994),
the taxpayer can maintain the
quantum of the claim but vary the
methodology by which the claim is
calculated (for example by
substituting a different reason for
claiming an identical or lower
amount), after the expiry of the time
limits set out in s80, VATA 1997 but
while the claim remains unresolved.
In January 2007 Vodafone Group
Services Limited made a voluntary
disclosure for repayment of
£4,173,388.61 representing overdeclared liability for output tax
relating to its participation in the
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Nectar card scheme. HMRC did not
agree that there was any overdeclaration of output tax and it
rejected the claim.
Between 2009 and 2011 Vodafone
made several more voluntary
disclosures, some of which included
claims for the repayment of further
output tax which it had overdeclared in accounting periods
including those covered by the
Nectar claim. Those over-declarations
have nothing to do with the Nectar
scheme, but were attributable to
other accounting errors.
The FTT found for Vodafone. HMRC
therefore appealed to the UT, at which
it argued that what Vodafone was
aiming to do was advance completely
new claims and not an amended
version of the original claim (which is
generally possible). It was proposing
simply to abandon the Nectar claim
and make in its place new claims
which, as it accepted itself, were out
of time. Moreover, HMRC argued, it
was not only the reasons which had
changed but also the method of
calculation. A comparison of the
original calculation accompanying the
Nectar claim and the calculations
supporting the later claims showed
that they were completely different.
The UT referred to the case of
Reed Employment Ltd v Revenue and
Customs Commissioners [2013] UKUT
109 (TCC), where the taxpayer
attempted to enlarge its claim by
adding to it a further element arising
from similar facts but in respect of
supplies which were not within the
contemplation of its original claim,
and agreed that it was not permissible
to effect such an amendment. It said
that Vodafone wished to go even
further: by changing the entire basis
of its claim, it was attempting to
abandon one claim and pursue
another. The UT said that this is not a
permissible course; it amounts to an
attempt to circumvent the time limit
imposed by s80(4).
The UT accepted that the result of
that conclusion is that HMRC will not
be required to meet an otherwise
meritorious claim, but that is the
ordinary consequence of the
operation of a time limit and not a
peculiar feature of the Vodafone case.
From the KS Weekly VAT Update
published by Kingston Smith LLP
78. RETENTION OF A SMALL
PORTION OF FRONT FAÇADE
DENIES ZERO RATING
HMRC denied zero rating of the
construction of a dwelling on the basis
that the resulting dwelling was not new
because the existing dwelling had not
been completely demolished.
The FTT agreed with HMRC, and the
taxpayer, Boxmoor Construction,
appealed to the UT. It was stated that
the retention of part of the façade was
not mentioned in the planning
consent, but the plans stated “new
brickwork to match existing”, “walls
rendered to match existing” and “new
roof tiling to match existing” which
suggested to the UT that a lot more of
the original building was retained than
just a bay.
The UT therefore agreed with the
FTT and with HMRC, and concluded
that the retention of part of the façade
was not a condition or requirement of
statutory planning consent or similar
permission and the part retained could
not be disregarded as de minimis.
Therefore it concluded that the works
were the alteration and extension of
the original building and so standard
rated (Boxmoor Construction v HMRC
[2016] UKUT 91 (TCC)).
A large number of cases are lost on
reasons connected with planning
consent and plans and it is therefore
imperative to address that at the
planning stage.
From the KS Weekly VAT Update
published by Kingston Smith LLP
23
+
TAX PAYMENTS
AND DEBT
79. CHANGES TO HMRC
BANKING SERVICES
HMRC’s Agent Update 52 provides a
reminder that HMRC has moved its
bank accounts (again), to Barclays.
Taxpayers in the UK who pay
electronically do not need to take any
action. The account numbers and sort
codes of the HMRC accounts are
moving to the new bank, so all UK
electronic payments will proceed as
normal. Also all cheques sent to HMRC
will be processed as normal and those
who have existing paying-in books can
continue to use them.
However, clients who make
payments from overseas do need to
take action and use a new International
Bank Account Number (IBAN).
Customers who currently pay using
Bank Giro or Transcash payslips
should consider alternative ways to
pay, such as electronic payments.
Details are on GOV.UK at Pay your Self
Assessment tax bill (tinyurl.com/
GOV-PaySA).
INTERNATIONAL
80. RESOLVING INTERNATIONAL
TAX DISPUTES
The European Commission has
published a questionnaire, Consultation
on Improving Double Taxation Dispute
Resolution Mechanisms, for comment
by 10 May 2016. The consultation seeks
to gather views on:
the relevance of removing double
taxation for enterprises operating
cross border;
the impact and effectiveness of
double taxation dispute resolution
mechanisms for business and
enterprises established in the
European Union;
how these mechanisms can be
further improved; and
the solutions proposed.
A key question is number 4.2 where
the Commission sets out four possible
options for comment:
1 A soft law mechanism to encourage
member states to revise their
24
treaties to include a dispute
resolution mechanism in the light of
the experience from the Arbitration
Convention and the BEPS 14
recommendations, including an
arbitration clause.
2 A soft law mechanism to encourage
member states to introduce in their
treaties a provision that gives the EU
Court of Justice jurisdiction to
decide on a double tax case, after a
specified time period.
3 A binding measure obliging member
states to provide access to binding
arbitration or mediation by another
body, after a specified time period,
eg, two years.
4 A comprehensive EU legal
instrument providing for
elimination of double taxation and
a dispute resolution mechanism.
Contributed by Ian Young
balance of negotiated benefits and
the need for the treaty to reduce
double taxation.
The 2016 Model includes measures
to reduce the tax benefits of
corporate inversions. Specifically, it
denies reduced withholding taxes
on U.S. source payments made by
companies that engage in inversions
to related foreign persons.
It also contains rules requiring that
tax treaty disputes be resolved
through mandatory binding
arbitration, taking the ‘last best
offer’ approach.
The US Treasury issued a press
release explaining some of the
background and key features of the
Model (tinyurl.com/USGOV-Treasury),
of which the most important ones are
discussed above.
Contributed by Ian Young
81. US MODEL DOUBLE
TAX CONVENTION
When negotiating treaties with other
countries the US has its own model,
the US Model Income Tax Convention,
which acts as its blueprint in
negotiations. This is similar to other
countries using either the OECD or the
UN models for similar purposes.
The US has recently published a
2016 version of this model (tinyurl.
com/USGov-Model), together with a
preamble to the 2016 US Model
Income Tax Convention that spells
out the background to the
Convention and highlights some
of the key provisions.
Points to note in the 2016
Model are:
It does not reduce withholding
taxes on payments of highly mobile
income such as royalties and
interest that are made to related
persons that enjoy low or no
taxation with respect to that income
under a preferential tax regime.
A new article obligates the treaty
partners to consult with a view to
amending the treaty as necessary
when changes in the domestic law
of a treaty partner draw into
question the treaty’s original
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