Tax Bites - January 2024

Welcome to the latest edition of RPC's Tax Bites - providing monthly bite-sized updates from the tax world.

News

HMRC updates its guidance on when penalties will be issued for failure to register or maintain details of a trust

HMRC have updated its guidance on when it will issue a penalty charge for failure to register or maintain the details of a trust.  

Trustees within the scope of the trust registration service must register the relevant trust with HMRC and keep the information up to date. 

A trust must be registered if it becomes liable for:

• capital gains tax;
• income tax;
• inheritance tax;
• stamp duty land tax;
• stamp duty reserve tax;
• land and buildings transaction tax (in Scotland); and
• land transaction tax (in Wales).

Alternatively, even if the trust has no tax liability, all UK express trusts (unless specifically excluded) must be registered in addition to non-UK express trusts. This includes trusts which acquire land or property in the UK, or have at least one trustee resident in the UK and enter into a ‘business relationship’ within the UK. 

Failure to register the trust and keep the information up to date can result in a fixed penalty of £5,000.

As the registration of a trust is a new requirement, HMRC will not charge trustees a penalty for failing to register or maintain a trust if the trustees rectify the situation within the time limit set by HMRC. 

If a penalty charge is issued, trustees can request a review or they can appeal the penalty if they disagree with HMRC's decision to issue a penalty.

OECD/G20 Inclusive Framework publishes further guidance on Pillar Two 

The Organisation for Economic Co-operation and Development /G20 Inclusive Framework on BEPS (Inclusive Framework) has released further guidance to assist governments with the implementation of the global minimum corporation tax under Pillar Two.

The guidance supplements the Commentary to the Global Anti-Base Erosion Model Rules and seeks to clarify the application of the rules. The guidance  provides clarification on issues identified with the application of the transitional Country-by-Country Reporting safe harbour and explains the simplified income calculations that a multinational enterprise may apply to its non-material constituent entities. 

The Inclusive Framework also published a statement updating the timeline to finalise the text of the Multilateral Convention (MLC) under Pillar One. The text of the MLC is due to be finalised by the end of March 2024, followed by a signing ceremony which should take place by the end of June 2024. 

Government launches consultation on transparency of land ownership involving trusts

The government has announced a consultation on the transparency of land ownership involving trusts. Ownership of land can be opaque when trust arrangements are utilised and the consultation seeks to gather views as to how to improve transparency whilst putting in place necessary privacy safeguards. 

There are three overriding principles which the government considers important to the consultation:

• greater transparency of land ownership where trusts are involved is a matter of public interest; 
• greater transparency will support a housing market that better delivers for the public; and 
• transparent ownership can help with tackling illicit finance and corruption.

The consultation seeks views on a variety of topics including on the various options to widen access to trust information held on the Register of Overseas Entities and what data would be most useful to be shared publicly in relation to the ownership of land involving trusts and why this data would be useful. 

The consultation closes on 21 February 2024. 

HMRC updates its guidance on claims for Research and Development tax relief 

HMRC has updated its guidance on submitting a claim for Research & Development (R&D) corporation tax relief.

The updated guidance details how to submit an additional information form and what information must be submitted. Guidance is now included for agents making authorised claims on behalf of companies.

Additional information forms must be submitted to HMRC to support new claims for R&D tax relief and expenditure credit. 

Case reports

Tribunal allows taxpayer's appeal against discovery assessment

In Abigail Wilmore v HMRC [2023] UKFTT 00858 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal. The FTT concluded that an agreement between separating spouses over the division of properties had created a constructive trust which resulted in a disposal for Capital Gains Tax (CGT) purposes, allowing no gain/no loss treatment to apply, pursuant to section 58, Taxation of Chargeable Gains Act 1992 (TCGA).

This decision is only likely to be of assistance to anyone who found themselves in a similar position to Ms Wilmore before 6 April 2023. For disposals on or after 6 April 2023, the CGT no gain/no loss window is extended for transfers in connection with a divorce. The rules now apply beyond the end of the tax year of separation.

Interestingly in this case, the FTT raised potential concerns over the validity of HMRC's discovery assessment that was issued to Ms Wilmore for the recovery of the alleged CGT in respect of the disposal of Thornfield. However, as Ms Wilmore raised no challenge to the validity of the discovery assessment, the FTT did not fully consider this issue in its decision although it did note in its decision that in the event of an onward appeal by HMRC it had not heard submissions from the parties on this point.

Our comment on the decision can be read here. 

Court of Appeal considers 'main purpose' test and finds in favour of taxpayer

In Delinian Ltd (formerly Euromoney Institutional Investor Plc) v HMRC [2023] EWCA Civ 1281, the Court of Appeal upheld the Upper Tribunal's decision, finding that the avoidance of liability to tax was a purpose, but not the main purpose, or one of the main purposes, of the relevant arrangements, for the purposes of section 137(1), TCGA.

This decision provides helpful guidance on the tribunals' and courts' approach to interpreting the 'main purpose' test in the context of section 137(1), TCGA and is likely to be of wider relevance to the other anti-avoidance provisions contained within the tax code which require an assessment of whether a tax saving is a sole, or main, purpose of a transaction. 

The decision also confirms that the correct approach is to consider multiple contextual factors in deciding if the main purpose, or one of the main purposes, was tax avoidance. The Court rejected HMRC's approach of dissecting elements of a transaction so as to focus on the tax avoiding element only.   

Due to the amount at stake and the important principles involved in this case, it will be interesting to see if HMRC seek to appeal the decision to the Supreme Court.

Our comment on the decision can be read here.

Directors not liable under PLNs as HMRC failed to establish deliberate conduct by the company

In Sharon Suttle and another v HMRC [2023] UKFTT 873 (TC), the FTT allowed the appellants' appeals against personal liability notices (PLN) on the basis that the company, of which they were directors, did not make deliberate inaccuracies in various returns submitted by it to HMRC.

Sharon Suttle and John Jaekel were the directors of Earn Extra 139 Ltd (EE139), an umbrella company which provided its own employees to other employment businesses or end clients.

Following an investigation, HMRC concluded that EE139 had deliberately submitted P35 returns, P14 returns and Real Time Information returns which it knew to be inaccurate and concealed those inaccuracies and issued PLNs to its two directors.

This decision confirms that HMRC bears the burden of proving deliberate inaccuracies on the part of the company concerned when issuing PLNs to its directors. In the present case, although the appellants were found to have inadequate processes in place, the evidence relied upon by HMRC was not sufficient to establish that its behaviour was deliberate or that the inaccuracies led to an understatement of the amount of tax which was assessed. The decision will be of particular interest to those advising umbrella companies.

Our comment on the decision can be read here. 

And finally …

In the latest episode of our Taxing Matters podcast, Alexis Armitage and Olivia Dhein discussed the potential benefits and risks of Artificial Intelligence.

Click here to listen.