Corporate tax update - Second quarter 2018

Welcome to the latest edition of our Corporate Tax Update, written by members of RPC’s tax team and published quarterly.

In this second 2018 edition we highlight some of the key tax developments of interest to UK corporates from the second quarter of 2018.

VAT

Court of Appeal denies input tax recovery on supplies mistakenly treated as VAT exempt

On 29 June 2018, the Court of Appeal held that input tax could not be recovered by the recipient of a supply which, originally, was treated as VAT-exempt.

First-tier Tribunal holds option to tax not dis-applied where CGS rules come into play, even though legislation is “circular”

On 15 June 2018, the First-tier Tribunal held that the rules which dis-apply an option to tax in certain cases, were not triggered.

VAT recovery on (failed) share acquisitions – AG opinion

On 3 May 2018, the Advocate General (AG) opined that VAT on professional fees incurred on a failed takeover bid was recoverable by the bidder. The case relates to Ryanair’s failed 2006 bid to takeover Aer Lingus (AL). Ryanair’s intention was to provide VAT-able management services to AL.

First-tier Tribunal views outsourced “loan administration” services as standard-rated debt collection

On 20 April 2018, the First-tier Tribunal held that a supply of “loan administration” services to a bank was a standard-rated supply as they amounted to “debt collection”.

Employment

IR35 – private sector compliance consultation published

On 18 May 2018, HM Treasury published a consultation document exploring proposals to increase ‘IR35’ compliance in the private sector.

Compensation for injury to feelings not taxable as termination payment – Court of Appeal decision

On 20 April 2018, the Court of Appeal held that compensation for injured feelings in connection with a termination of employment fell within the statutory exemption for injury payments.

Termination payments and post-employment notice pay (PENP) – updated HMRC guidance

On 6 April 2018, HMRC updated its Employment Income Manual to address the changes (taking effect from the same day) to the taxation of termination payments.

Stamp taxes

Feeling Blue? Supreme Court reverses Court of Appeal decision – section 75A gave rise to a notional land transaction with consideration of £1.25bn (more than price paid for the land)

On 13 June 2018, the Supreme Court allowed HMRC’s appeal in the long-running case regarding the 2007 sale by the MoD of the Chelsea Barracks.

International

UK ratification of BEPS Multilateral Instrument

On 29 June 2018, the UK became the ninth jurisdiction to deposit with the OECD its instrument of ratification of the BEPS project’s “multilateral instrument” (MLI). This follows the making, on 23 May 2018, of the Double Taxation Relief (Base Erosion and Profit Shifting) Order 2018 which implemented the MLI in the UK.

Action required: mandatory disclosure of cross-border tax planning arrangements – effective now

New EU rules providing for mandatory disclosure of certain cross-border tax planning arrangements by intermediaries and taxpayers entered into force on 25 June 2018.

Miscellaneous

Court of Appeal upholds Upper Tribunal decision as to “multifactorial” test for determining “source” of interest

On 21 June 2018, the Court of Appeal upheld the Upper Tribunal’s decision in the Ardmore case. In summary, a multifactorial test is to be used when determining the “source” of interest (relevant for the purposes of the scope of UK withholding tax on interest payments).