Ingenious LLPs v HMRC – Permission to appeal partially granted
This is a long-running dispute between HMRC and investors over tax liabilities related to film and game investment schemes promoted by the Ingenious group of LLPs. Having lost the appeal to the First-Tier Tribunal, the LLPs appealed to the Upper Tribunal on eight grounds. HMRC cross-appealed on two grounds.
The hearing at the Upper Tribunal centred on, among other points, whether the LLPs were trading with a view to a profit. If not, HMRC argued, they were not entitled to offset losses amounting to over £1.6bn against their other taxable income. By judgment released on 26 July 2019, the LLPs’ appeal was dismissed and HMRC’s cross-appeal was allowed.
The LLPs sought permission to appeal to the Court of Appeal on seven grounds. Permission has now been granted to appeal only on Grounds 1 and 3, namely, whether the partnerships were carrying on business “with a view to profit” and whether the tribunal was wrong to conclude that the partnerships were not trading.
Interestingly the Court has refused permission to appeal on the issue of whether the expenses were income or capital in nature. The refusal of this ground appears to render the hearing of Grounds 1 &3 pointless. If it remains that the expenditure incurred by the LLPs was of a capital rather than revenue nature then no deduction could be made whatever the outcome of the appeal
This, however, is not the end of the road as Ingenious can renew its application for permission on the rejected grounds at an oral hearing. If that oral hearing for permission occurs at the same time as the main appeal hearing (which is the usual practice) then the appeal will extend to consideration of the dismissed issues anyway.
Offshore Structures and Onward Gifts
The so-called “onward gift” tax anti-avoidance rules were introduced by the Finance Act 2018 to complement the changes brought in the previous year aimed at restricting the UK tax privileges afforded to non-UK domiciled individuals. The rules were designed to close some perceived loopholes in relation to the taxation of non-UK resident structures (including but not limited to non-UK trusts). With effect from 6 April 2018, it would no longer be possible for an individual to receive a gift without questioning its providence, particularly where family trusts are involved.
The rules were designed to prevent non-UK structures from using non-chargeable beneficiaries as conduits through which to pass payments in order to avoid tax charges. Gone are the days of “washing out” any trust gains that could be matched to offshore income or gains by prefacing a payment to a UK-resident taxable beneficiary with a non-taxable primary payment to a non-UK resident beneficiary.
“It is notoriously challenging to prove a negative (especially to HMRC) and even more tricky where the taxpayer must speak to someone’s intention other than their own.”
Note that the new rules will apply where funds are received from non-UK resident structures before 6 April 2018 to the extent that they are subsequently gifted after that date.
Increased Investment in Personal Tax Compliance in the UK
Changes in public opinion, advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. In addition, the Russian invasion of Ukraine and the corresponding economic fallout have prompted governments to increase transparency in relation to investments by wealthy foreign individuals in their countries.
The UK’s HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work.
It should therefore be well placed to take advantage of new international efforts to increase tax compliance, particularly against the backdrop of the already extensive network of bilateral tax treaties in the UK, and not forgetting that the UK was a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
Case note: Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC)
As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, taxpayers need to be vigilant about evidential requirements that HMRC must fulfil in order to discharge their burden of proof. Read JHA’s latest insight into the First-tier Tribunal’s decision in Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC).
If you require any further information about the Kittel, Mecsek, and Ablessio principles, or any other allegations by HMRC of fraud or fraudulent abuse, please contact Iain MacWhannell (email@example.com).
Preparing for the Possibility of a Domicile Enquiry
Helen McGhee, a director and chartered tax advisor at Joseph Hague Aaronson, explores who might be vulnerable to an HMRC enquiry on domicile and how best to deal with such enquiries.
The Kittel Principle - Sweet Sixteen
The following is an article written by David Bedenham about HMRC’s wide-ranging application of the ‘Kittel principle’. The current focus appears to very much be on the labour supply industry and the allegation of ‘Mini Umbrella Company Fraud’ (or ‘MUC Fraud’). This article highlights the need for taxpayers to get specialist advice at an early stage when faced with a Kittel decision. If you have any queries about Kittel-related issues or similar denials of input VAT or assessments to VAT, please contact Iain MacWhannell (firstname.lastname@example.org).