Wishing a Prosperous New Year to all our subscribers and readers.
This is an update that covers our essential reading highlights of 2017. We have picked the top cases and legislative amendments that we think matter most to SME owners and advisers.
2017 was something of a nightmare for anyone trying to stay up to date in tax: we had two finance acts, the budget was moved to Autumn and this created a new finance bill. Brexit dominated the headlines however its tax effects will not be fully known until we know the actual deal available.
2017: at a glance
- MTD for VAT will be introduced from April 2019, this is on the basis that most VAT registered traders are already filing online.
- The catch is that whilst VAT registered traders have been told that they need to find fully functional software for MTD, no one actually knows what they are going to be reporting beyond the normal 9 totals on the current VAT return.
Sole traders and landlords were due to be mandated into quarterly online reporting under MTD from 2018. This was postponed as it was just asking too much too soon: we may have had the brains, however the technology was lacking. Software could not do what it was required to do, not all taxpayers have fast broadband or the necessary IT skillsets, and agents do not have the capacity to assist some 5 million taxpayers file even more returns per year
Public sector contracting and the move to IR35
- Since 6 April 2017 workers providing their personal services either personally or via a Personal Service Company (PSC) to a public sector body have been taxed as if they are employees, with the public authority or agency responsible for assessing their employment status.
- A sudden change with a big impact; probably more to come on this in 2018 as the government looks at applying the rules to the private sector.
Penalties excused for late non-resident capital gains tax return
- In Rachel McGreevy v HMRC [2017] TC06109 penalties for a late non-resident capital gains tax return were cancelled; no disposal was proved in the relevant tax year, the taxpayer had a reasonable excuse or special circumstances.
- This resulted in HMRC cancelling daily penalties for NRCGT returns generally.
Restricting mortgage interest relief
One of the biggest methodology changes to occur was the idea that mortgage interest should not be treated as a deduction when calculating profits from the letting of residential property for income tax purposes.
- From 6 April 2017, a new regime is being phased in whereby instead of deducting mortgage interest from profits, the tax bill (relating to the property) will be reduced by 20% of the interest.
- For 2017/18, the new regime applies to 25% of the interest, with the affected proportion increasing by 25% each year until 2020/21 when 100% will be subject to the new rules.
Non-UK domicile status and tax
- 6 April 2017 saw a radical change to the taxation of long term UK resident non-domicled individuals with the extension of “deemed domicile” status, which has long applied for IHT, to income tax and CGT, and the conditions reduced to 15 (from 17) years’ UK residence of the last 20.
Credit card payments to HMRC stop on 13 January 2018
- Government bodies are no longer allowed to charge to accept credit cards: this means that rather than pay the card fees themselves they will no longer accept payment.
- This interestingly timed change needs to be flagged more, given most clients will not pay their tax until the actual due date.
Corporate Criminal Offence: failure to prevent tax evasion
- From 30 September 2017, companies, partnerships and LLPs face an unlimited fine if convicted of the new offence of “failure to prevent tax evasion”.
UK residential property brought within the charge to IHT
- From 6 April 2017 UK residential property is with IHT for non-residents where it is held in an offshore structure such as a company or a trust.
- In the Autumn 2017 budget came the announcement of further changes to come over the next few years for Non-residents holding UK property.
Devolution
- In December Scotland determined it's new Income tax rates to apply from 2018-19 and was able, for the first time, to introduce a different tax rate and banding structure to the rest of the UK, whilst Wales announced the Land transaction tax rates which will apply from April 2018 instead of SDLT.
Cases
Share issue overturned
In Power Adhesives Limited v Stephen James Sweeney & Others [2017] EWHC 676 the High Court set aside the decision by a company’s board to convert a directors loan into shares by applying 'the Hastings Bass principle' (that allows the correction of a fiduciary's mistake). An intriguing result: the court got involved in a private company's transaction and allowed it to be reversed.
Company loss scheme: controlled and managed from the UK
A radical change in the way that 'control and management' of offshore companies is determined. In Development Securities (No 9) Ltd & others v HMRC [2017] TC06007 a Jersey company was held to be UK resident: it undertook transactions (part of a tax scheme) engineered by its UK parent. The combination of the lack of the commerciality of the transaction and the lack of benefit to the company meant that the tribunal took the view that the Jersey board of directors was acting like a puppet of its UK based parent.
- In Noel Payne, Christopher Garbett, Coca-Cola European Partners Breat Britain Limited v HMRC [2017] TC06082 the FTT had to decide whether the VW Kombi and the Vauxhall Vivaro were cars or vans for the purpose of assessing employee benefits.
- The judge used “the duck test” to reach his conclusion, and the rational reasoning behind the decision may provide guidance for similar cases, although the decision (being FTT) is not a legal precedent.
Court of Appeal finds no legitimate expectation in Mansworth v Jelley loss claim
- To recap, Mansworth v Jelley was a 2002 case where a capital loss arose on the disposal of shares due to an unorthodox (but correct) interpretation of the rules for unapproved share options. In January 2003, HMRC published guidance to this effect and “everyone” affected attempted to revise their tax returns to claim the loss. In 2009, HMRC revised their guidance and declared that anyone with open enquiries covering this claim should withdraw it.
- In R (Hely-Hutchinson) v HMRC [2017] EWCA Civ 1075 the Court of Appeal held that this chain of events had not created a Legitimate Expectation that the taxpayer could rely on.
No negligible value claim for Executors
- In HMRC v Execs of Mr Jeffrey Leadley [2017] UKUT 0111 the Upper Tribunal (UT) overturned the original decision of the First-Tier Tribunal (FTT) and found that Executors were not entitled to make a negligible value claim.
Football and tax
Football clubs and their players have been under close scrutiny by HMRC ever since journalists started to add up and publicise the numbers. It is unclear just why HMRC allowed some clubs to build up massive tax debts and how PAYE avoidance became so popular that players and managers regarded it as 'the norm' the whether via image rights, disguised transfer fees or player loans. We can speculate that this may be due to the fact that some inspectors were such big football fans that their failed to 'see the wood for the trees'. The situation may be brighter fo taxpayers, during 2017 HMRC claimed that it was recovering some £80m per year as a result of enquiries into the tax affairs of the industry.
Ranger's EBT was a disguised remuneration scheme
The football-tax highlight for 2017 was that the 5 year battle over between HMRC and Rangers Football Club was decided by the Supreme Court in July. The court found that loans made to employees under the club's EBT loan scheme were in fact remuneration and so subject to tax and NIC.
Another win for Spurs
In HMRC v Tottenham Hotspur Limited [2017] UKUT 0453 (TCC), the Upper Tribunal (UT) considered whether termination payments to two football players (Peter Crouch and Wilson Palacios on their transfer to Stoke) should be subject to tax and NIC as earnings “from an employment” rather than under the special rules.
HMRC’s search of Newcastle United valid
In Newcastle United Football Club Ltd and Ors v HMRC [2017] EWHC 2402 (Admin), the High Court considered a judicial review of HMRC’s decision to apply for search and seizure warrants. The case concerned enquiries into the alleged concealment of transfer fees.
Further highlights of 2017 and a look at 2018?
See Subscriber guides:
Finance Acts 2017: tax update and rolling planner
What's hot for the 2017/18 tax year.
Finance Act 2018-19: tax update and rolling planner
What the 2018/19 tax year has in store.
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