Tax Bites - October 2023

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

Announcing our new weekly update – Tax Take +

Please note that from next month, our RPC's Tax Bites will be incorporated into RPC's brand new weekly update, Tax Take +, containing all the latest developments in the tax and regulatory world including key upcoming dates, news, blogs, guidance notes and our latest podcasts and webinars, all designed to keep you up to date with fast moving developments in the tax and regulatory world. We hope you enjoy the new format and please do reach out to the RPC Tax Team if you have any queries.

News

HMRC updates its Cryptoassets Manual in relation to consensus systems

HMRC has updated its Cryptoassets Manual in relation to Proof of Work and Proof of Stake consensus systems.

Given that many cryptoassets networks are not controlled by a single body, there are mechanisms in place to verify transactions or make technological changes. These mechanisms are known as a 'consensus'.

The Proof of Work consensus system requires a person to solve a complex cryptographic puzzle. The first person to do so can add a new entry to the distributed ledger.

The Proof of Stake consensus system is an alternative mechanism by which a 'validator' locks up tokens for a certain amount of time, this is known as 'a stake'. A stake is then randomly selected when a transaction needs to be validated on the distributed ledger. 

New requirement to complete additional information forms when submitting research and development tax relief claims 

Since 8 August 2023, companies that claim R&D tax relief (either SME R&D tax relief or R&D expenditure credit) have been required to complete an additional information form (AIF) (see guidance here). A large number of companies have failed to do so and, in response, HMRC has started issuing reminders.

HMRC is getting in touch with companies and their agents if a claim for R&D tax relief has been submitted without the relevant AIFs. HMRC is informing these companies that, because of this omission, the claim is invalid and will be removed from the company's tax return.

Companies are able to amend the tax return and send back completed AIFs provided the company is within the requisite time limit. The time limit is considered to be the anniversary of the filing deadline for the tax return. 

HMRC updates guidance within its International Exchange of Information Manual

HMRC has updated its International Exchange of Information Manual to include guidance on reporting arrangements which are designed or marketed to circumvent the Common Reporting Standard (CRS).

The updated guidance clarifies points raised in response to the consultation on the implementation of the rules. Examples of the new guidance include:

• details of the meaning of "resident" and "place of management" in relation to establishing if an intermediary needs to report to HMRC (IEIM721020);
• commentary to assist in determining whether an arrangement was designed to circumvent the CRS (IEIM730020);
• confirmation that "potential user" is interpreted narrowly in the context of a CRS avoidance arrangement (IEIM722010); and
• clarification as to the meaning of an intermediary (IEIM721040).

HMRC updates its guidance on its internal procedures for resolving tax disputes

HMRC has published new guidance and updates on the following:

The Code of Governance for Resolving Tax Disputes now provides further clarity and transparency as to HMRC's process for resolving tax disputes. The guidance also includes HMRC's approach to Alternative Dispute Resolution.

HMRC has published the Tax Disputes Resolution Board remit, outlining the remit and procedures of the Tax Disputes Resolution Board (TDRB).  The guidance notes the operational principles of the TDRB and the "trigger points" for the TDRB to refer matters to the Commissioners.

HMRC has published the Customer Compliance Group Disputes Resolution Board (CCG DRB) remit. The CCG DRB makes decisions, recommendations, or advises on areas which are beyond the remit of the TDRB.

Finally, HMRC has updated its guidance collection How HMRC resolves civil tax disputes to include sections on 'Dispute resolution governance board remits' and  'Dispute resolution governance boards'.

Case Reports

Tribunal finds in favour of taxpayer confirming that payments are consideration rather than a subsidy for expenditure

In HMRC v Perenco UK Ltd [2023] UKUT 169 (TCC), the Upper Tribunal (UT) held that payments made for goods and services under an arm's-length contract were consideration rather than subsidy for expenditure, even though the payments were calculated to reflect such expenditure.

This decision restricts HMRC's ability to disallow expenditure in the oil and gas industry. The reasoning also has potentially broader implications, particularly in relation to R&D relief. It is clear from the UT's decision that payment for goods and services under an arm's length contract should properly be regarded as consideration rather than a subsidy of expenditure. The argument advanced by HMRC in this appeal also failed in Quinn v HMRC [2021] UKFTT 437 (TC). Whether HMRC will now abandon this argument remains to be seen.

Our comment on the decision can be read here.

Tribunal allows taxpayer's appeal as HMRC had failed to prove there had been a loss of tax due to carelessness

In Strachan v HMRC [2023] UKFTT 617 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against assessments, despite a finding that he had been careless as HMRC had not discharged the burden of proving that the loss of tax was brought about by his carelessness.

This case provides a detailed discussion of the case law surrounding 'domicile of choice', which will be useful to anyone considering this important area of the law.

The FTT's decision that the burden of proof in relation to extended time limits for the purpose of discovery assessments is on HMRC, will be very disappointing to HMRC as the FTT confirmed that the burden does not shift to the taxpayer once HMRC has proved carelessness.

Our comment on the decision can be read here.

HMRC prevented from participating further in appeal following failure to comply with 'unless order'

In Ebuyer (UK) Ltd v HMRC [2023] UKFTT 00611 (TC), the FTT held that HMRC had committed a serious and significant breach of an 'unless order' in respect of disclosure, and therefore barred it from further participation in the appeal proceedings.

This decision emphasises the importance of complying with directions issued by the FTT and the serious consequences that can arise when those directions are not adhered to. Taxpayers will welcome the FTT's firm indication as to the standard of conduct expected of HMRC and the clear message that HMRC will not be permitted to ignore time limits contained in directions with impunity.

Our comment on the decision can be read here.

And finally...
It is hard to come by a good news story in the world of tax disputes … but in "Judicial developments in recent treaty cases", David Goldberg KC and RPC's Constantine Christofi explore the approach taken by the courts and tax tribunals in a spate of recent cases involving the application of double tax treaties. You can read the full article here. (Tax Journal subscription required).