Previously the FTT held that if a limited liability partnership (LLP) is found to not be trading with a view to a profit, it is in effect a corporate entity and therefore should have filed a company tax return. Therefore, it found that an enquiry into the partnership return filed by such an LLP was void and the accounting period was closed without an enquiry. HMRC appealed this finding.
The Government subsequently introduced Clause 101 of the Finance Bill 2020 to retrospectively reverse this decision.
In a decision issued on 27 May 2020, the Upper Tribunal has now also upheld HMRC’s appeal. In that decision, it confirmed that such enquiries would not rendered a nullity by a finding during that enquiry that the incorrect return had been filed.
The tribunal therefore re-made the decision, holding that the closure notices were validly issued and that there is no basis in law for striking out the appeals. The tribunal’s decision in Inverclyde has therefore now been both negated y legislation and overturned on appeal.
HMRC have confirmed that if a taxpayer is unable to meet an obligation (such as a payment or filing deadline) due to COVID19 that will be accepted as a reasonable excuse provided the taxpayer is able to remedy the failure as soon as possible. Taxpayers will need to explain how they have been affected by COVID-19 in making their appeal.
Taxpayers affected by COVID-19 will also be given further time to seek a review of, or appeal against, an HMRC decision. HMRC will give an extra three months (in addition to the usual 30 days) to appeal any decision that is dated February 2020 or later.
The European Commission released a communication on 27 May 2020, setting its plan for recovery in Europe. This includes:
The Statutory Residence Test provides that an individual is considered to have spent a day in the UK if they are in the UK at the end of the day (midnight) subject to several exceptions, one of which is exceptional circumstances. The exception applies for 60 days only in any given tax year.
During the COVID-19 pandemic HMRC have confirmed that the following circumstances are considered exceptional:
Exceptional days up to a maximum of 60 days per tax year will be disregarded for the purposes of:
But importantly the concession will not apply for the counting of days in relation to:
Currently there is no definitive date after which all days are regarded as exceptional for 2019/2020. HMRC are still considering this point. 23 March 2020 (lock down announced) would seem to be a reasonable point.
As announced in July of last year, the 2020 Budget introduces a new deferred payment plan option for Corporation Tax charged on profits or gains arising from certain transactions between UK companies and EEA companies of the same group of companies. The new rules will allow the deferral of CT over a period of up to 5 years, and has effect from 11 July 2019 for transactions occurring in accounting periods ending on or after 10 October 2018. The new measures follow the FTT decision in Gallaher to the effect that the absence of a deferral option was in breach of EU law and the option could not be read into the legislation.
The 2020 Budget announced provisions to reverse last year’s FTT decision in Inverclyde. In that case, HMRC denied the appellant LLPs’ claims for Business Property Renovation Allowance on the basis that the LLPs did not carry on a business with a view to a profit. The LLPs argued that, if that were the case, HMRC were wrong to open enquiries into their members’ returns as the LLPs would be opaque for tax purposes, and thus the amendments removing the allowance were invalid. HMRC argued that, because the LLPs filed a partnership return, they were entitled to open an enquiry. The FTT agreed with the taxpayers.
Although the draft legislation has not yet been released, documents released alongside the budget indicate that the new provisions will reverse the Inverclyde decision retrospectively. From the date of Royal Assent of the Finance Bill 2020, HMRC will be allowed to amend LLP members’ returns to reflect its conclusion that an LLP is not trading with a view to profit. All amendments already made on this basis will also be valid.
HMRC continues to fight the good fight in its quest to cut down on tax avoidance and have recently been issuing further “nudge” letters to taxpayers who may have an income source or assets producing gains overseas and consequently an undisclosed outstanding UK tax liability. The letter reminds the taxpayer that HMRC have visibility on overseas income or gains via their network of global information exchange and the onus is on the taxpayer to regularise their tax affairs. Unforced disclosure will result in reduced penalties for non-compliance.
Batches of these letters are being sent out weekly by HMRC and ultimately thousands are expected to be issued. Some letters are accompanied by a certificate whereby the taxpayer can state that his tax position is up to date and all in order or that he needs to make a disclosure. Taxpayers need to ensure that they fully understand the statement they are making and the repercussions of making an inaccurate or incomplete statement before they return the form.
Changes have been made to the original wording of the letter but it still directs those who need to make a disclosure to the Worldwide Disclosure Facility which may not be appropriate in all cases, particularly as it does not offer protection or assurances against criminal investigation.
The First-Tier Tribunal (“FTT”) decision in Esso Exploration and Production UK Limited and others v HMRC, which relates to pre-2006 claims for Cross Border Group Relief, has now been released.
In its decision, the FTT did ultimately reject the claims but, whilst doing so it concluded that nothing in the case law of the CJEU challenges the Supreme Court ruling in Marks & Spencer Plc v Revenue and Customs Commissioners [2013] UKSC 30 that the “no possibilities” test should be applied as at the date of the claim.
The claim concerned an application for group relief of a UK company from an EU sister company joined by a common US parent. The claimants sought to rely on the non-discrimination article of the USA-UK Double Tax Convention on the grounds that group relief would have been available if the common parent was UK resident. The Tribunal, however, found that group relief provisions did not engage the NDA in DTCs.
Finally, in applying the “no possibilities” test, the Tribunal adopted a very strict test which does not appear to accord with the far more practical and liberal approach taken in recent EU cases (see for example C-607/17 Skatteverket v Memira Holding AB and C-608/17 Skatteverket v Holmen AB).
Should you be interested in the application of this decision to your claims for Cross Border Relief, please contact any member of our team who will be able to advise further.
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.
Change your attitudes towards preventing tax evasion or suffer the consequences. That was the very strong message intended by the government when new Corporate Criminal Offences (CCO) Powers for HMRC were announced in the March 2015 Budget. As such, since 30th September 2017, it has been a crime for corporations to fail to put in place reasonable procedures to prevent associated persons (those acting for or on their behalf) from criminally facilitating tax evasion. With unlimited fines and the reputational damage entailed from a finding of guilt, this was a significant new power.
Nearly 2½ years later, HMRC have announced that it has 9 live CCO investigations with a further 21 “opportunities” under review across 10 different business sectors, including financial services, oils, construction, labour provision and software development. It has further confirmed that these sit across all HMRC customer groups from small business through to some of the UK’s largest organisations.
Going forward, HMRC intends to update this information biannually.
