Tax Bites – November 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 how to apply for clearance or approval of a transaction 

HMRC has updated its Guidance on how to apply for statutory and non-statutory clearances or approvals for a transaction.

The Guidance explains that no assurances will be given by HMRC where, in its view, the transaction constitutes tax avoidance, but HMRC will continue to discuss with large businesses and wealthy individuals and confirm, where appropriate, the tax treatment of commercial arrangements. The Guidance covers non-statutory clearances or approvals as well where HMRC's clearance service should be used.

HMRC updates its Guidance on disclosing tax fraud using the Contractual Disclosure Facility

HMRC has updated its Guidance on how a taxpayer can use HMRC's Contractual Disclosure Facility (CDF) to disclose tax fraud.

The Guidance explains that HMRC will write to taxpayers it suspects of committing tax fraud and invite them to make a disclosure using the CDF. Alternatively, a taxpayer can contact HMRC to make a voluntary admission. HMRC does not have to offer a contract and will be unable to do so if the taxpayer is already involved in a criminal investigation by HMRC or another law enforcement agency.

If a taxpayer is already dealing with HMRC on other tax issues, they can contact the HMRC officer they are dealing with to make a request.

OECD issues model competent authority model for simplified transfer pricing

The OECD/G20 Inclusive Framework (IF) has published a Model Competent Authority Agreement on the Application of the Simplified and Streamlined Approach.

This agreement can be used as a model by IF members to facilitate the implementation of the optional simplified and streamlined transfer pricing framework for in-scope baseline marketing and distribution activities, also known as 'Pillar One – Amount B'.

The use of a model agreement should ensure consistency between IF members. 

HMRC updates its Guidance on R&D tax relief

HMRC has updated its Guidance on Enhanced Research and Development intensive support which allows loss-making R&D intensive small and medium-sized enterprises (SMEs) to:

• deduct an extra 86% of qualifying costs in addition to the 100% deduction which already appears in their accounts – providing a total deduction of 186%; and
• claim a non-tax liable tax credit which is worth up to 14.5% of the surrenderable loss.

HMRC notes that for these purposes, a SME is defined as loss-making if it makes a trading loss for tax purposes before the additional deduction is taken.

Case reports

HMRC's DOTAS application struck out

In HMRC v Elite Management Consultancy Ltd (in administration) and Adam Bale [2024] UKFTT 00567 (TC), HMRC's DOTAS application was automatically struck out when it failed to serve its authorities bundle on time in breach of an 'unless' order which had been issued by the First-tier Tribunal (FTT).

This decision serves as a timely reminder to both taxpayers and HMRC that deadlines stipulated in case management directions must be adhered to and failure to comply with an 'unless' order, issued by the FTT, under Rule 8(1) of the Tribunal Rules, will result in the offending party's case being automatically struck out. If HMRC wishes to pursue its DOTAS application, it will have to apply to the FTT, under Rule 8(5) of the Tribunal Rules, for its application to be reinstated and persuade the FTT why it should be permitted to pursue its application notwithstanding its failure to comply with the 'unless' order.

You can read our commentary on the decision here.

Tribunal confirms that trading had commenced for the purposes of Entrepreneur's Relief

In John Douglas Wardle v HMRC [2024] UKFTT 00543 (TC), the FTT allowed the taxpayer's appeal and confirmed that a limited liability partnership had commenced trading, for the purposes of Entrepreneur's Relief.

This decision provides some helpful guidance on the approach to be taken when determining the commencement of a trade and confirms that a trade can commence despite not all of the underlying infrastructure being complete and in place.

It is understood that HMRC intends to appeal this decision and, assuming it is given permission to appeal, it will be interesting to see what approach the Upper Tribunal takes to this very important issue.

You can read our commentary on the decision here.

Tribunal confirms principal private residence relief available where development began before sale of land

In Andrew Nunn v HMRC [2024] UKFTT 298 (TC), the FTT allowed the taxpayer's claim for principal private residence relief from capital gains tax where the taxpayer had entered into an agreement with a developer to carry out development on land that formed part of the taxpayer's property before the exchange of formal contracts to sell the land.

This decision will be welcome news to taxpayers who find themselves in a similar position to the taxpayer in this case. Taxpayers should pay particular attention to the nature of any agreement they make with a developer and any works entered into as a result of any such agreement and also note the importance of the timing of key events, such as the making of agreements and the commencement of development works.

You can read our commentary on the decision here.

And finally...

Join RPC on 5 December 2024, when we will be attending Women in Tax's Christmas fundraiser and networking drinks event, kindly hosted by RSM UK. This is an informal evening of networking over drinks and canapés with Women In Tax at RSM UK's offices at 25 Farringdon Street, London, EC4A 4AB.

More information on this event can be viewed here.