Tax Bites - September 2022

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

As always, if there are any areas you would like more information on (or if you have any questions or feedback), please let us know or get in touch with your usual RPC contact.

News

HMRC publishes responses to discussion documents on offshore tax compliance and international tax debt

HMRC has published summaries of responses to its discussion papers Helping taxpayers get offshore tax right and Preventing and collecting international tax debt.

As part of its follow up to the responses on the former discussion paper, the government is considering a pilot project to share with taxpayers data obtained through automatic exchange of information with foreign tax authorities, the aim being to prompt taxpayers with non-UK assets to register for self-assessment and declare any foreign income and gains. HMRC has also confirmed that it will not change the tax year end and instead will consider other ideas which might help to reconcile international data with the UK tax year.

With regard to the paper on international tax debt, taxpayers raised concerns about a lack of awareness of their obligations, difficulty in communicating with HMRC generally and difficulty paying tax from outside the UK. In response, HMRC is looking at developing the use of Form P85 (Leaving the UK – getting your tax right) to help collect tax debt at the point of a taxpayer's departure.

HMRC publishes response to consultation on implementing the OECD's model tax reporting rules for digital platforms

HMRC has published a summary of responses to its consultation on implementing the OECD's Model Reporting Rules for Digital Platforms, which require digital platforms to report details of the income of sellers on their platform to the tax authority and also to the sellers. The ultimate aim of the reporting rules is to improve tax compliance by sellers using digital platforms. The consultation outcome publication formed part of the draft Finance Bill 2023, which was published on the same day.

The responses to the consultation varied but the government has confirmed that it will implement the majority of the proposals contained in the consultation. One key announcement was that the new rules will not include the proposed exemption for small platform operators, due to concerns regarding fraud raised by a number of respondents. Details of the penalty regime applicable for non-compliance are also included.

The new rules will apply from 1 January 2024, with the first reports due by 31 January 2025.

HMRC updates its guidance on R&D tax relief

HMRC has updated its guidance on claiming research and development expenditure credit (RDEC) and Research and development (R&D) tax relief for SMEs.

The guidance on R&D relief for SMEs now includes information on what a company needs to complete before using the online service to submit details in support of its R&D claim.

On claiming RDEC, additional guidance has also been given on when RDEC can be claimed and further clarification provided in relation to what tax liabilities can be discharged with the credit.

HMRC publishes fresh guidance on common errors made in claiming furlough payments

HMRC has published guidance covering common errors made in the calculation of Coronavirus Job Retention Scheme grants for eligible employees, and how to correct them. The guidance, in Q&A format, provides worked examples of different typical scenarios which taxpayers face, including calculations made under previous guidance and not corrected, errors in calculations, and when repayments must be made.

Case reports

Permission to appeal not required for successful party to tax appeal

In HBOS Plc and Lloyds Banking Group Plc v HMRC [2022] UKUT 139 (TCC), the Upper Tribunal (UT) dismissed the appellants' application objecting to HMRC raising new issues in response to the appellants' arguments on appeal.

Since 6 April of this year, Rule 24(1C) of the Tribunal Procedure (Upper Tribunal) Rules, SI 2008/2698 (the UT rules), has permitted respondents to include a permission to appeal (PTA) application to the UT in their response to a notice of appeal (instead of making a separate PTA application to the First-tier Tribunal (FTT)) but the UT rules do not specify when a successful party is required to apply for PTA. This decision is therefore helpful in providing guidance to respondents when an unsuccessful party before the FTT appeals to the UT. Where a party has been entirely successful and the reasons for the relevant decision are clear, that party need not apply for PTA in order to rely on new arguments in response to the unsuccessful party's appeal.

You can read our commentary on the decision here.

Period of ownership refers to ownership of dwelling-house alone for Principal Residence Relief purposes

In Lee & Another v HMRC [2022] UKFTT 175 (TC), the FTT rejected HMRC's argument that a dwelling-house included the land on which it was built for the purposes of calculating Principal Residence Relief (PRR) under the Taxation of Chargeable Gains Act 1992 and allowed the taxpayers' appeals on the basis that "period of ownership" referred to ownership of the dwelling-house alone.

In departing from Henke v HMRC [2006] STC (SCD) 561, the FTT has left HMRC and taxpayers with conflicting authority on the proper construction of the PRR provisions. It will be interesting to see how that conflict is ultimately resolved by the UT or higher courts and it would not be surprising if HMRC sought to appeal this decision.

In the meantime, the decision is helpful to taxpayers when calculating their entitlement to PRR on the sale of a dwelling that has been in existence for less time than the period of ownership of the land on which it is built.

You can read our commentary on the decision here.

Tribunal confirms discovery assessment was invalid as enquiry window was still open

In Curtis v HMRC [2022] UKFTT 00172 (TC), the FTT allowed the taxpayer's appeal as HMRC had not raised a valid discovery assessment under section 29, Taxes Management Act 1970 (TMA), because the enquiry window was still open.

The FTT determined that the discovery assessment was invalid because it had been made before the enquiry window had closed and it was implicit that the discovery required by section 29 had to be made after the closure of the enquiry window. The balance of authority on this point now favours the taxpayer, the FTT preferring the decision of the Special Commissioners in Lee v HMRC [2008] SPC 715 to the FTT's decision in Tim Norton Motor Services Ltd and another v HMRC [2020] UKFTT 503 (TC).

HMRC issue many discovery assessments under section 29 (some would argue too many) and this decision demonstrates the importance of carefully considering whether all of the conditions in section 29 are satisfied. If they are not, the assessment will be invalid and there will be no need to consider the underlying substantive issue.

You can read our commentary on the decision here.

And finally...

Keep your eyes peeled for our Customs and Excise Quarterly Update and August's V@ Update in which we provide analysis and news from both the customs and VAT worlds relevant to your business.