UK: Weekly Tax Update - Monday 3 September 2012

Last Updated: 6 September 2012
Article by Richard Mannion

1. General news

1.1. SDLT on purchase of a chargeable interest by joint purchasers using a bare trustee

The Pollen Estates Trustee Company Ltd (PETCL) and Kings College London (KCL) was a case concerning an appeal against decisions made by HMRC where charities relief was denied in respect of the portion of a joint interest purchased by a charity via a bare trustee acting for the whole purchase.

PETCL had previously appealed to the First-tier Tax Tribunal (FTT) against the decision made by HMRC in its Closure Notice dated 16 February 2010 issued under paragraph 23 of schedule 10 to the Finance Act 2003 following the enquiries HMRC had made into the land transaction returns made by PETCL in respect of the acquisition of four properties in London. The FTT decision was to refuse PETCL's claim for repayment of a proportion of the SDLT which PETCL had already paid in respect of these acquisitions. The basis of the claim for repayment was that as PETCL was acting as bare trustee for the beneficiaries of The Pollen Estate Trust ("The Pollen Estate") in making those acquisitions and since two of those beneficiaries were UK registered charities, partial relief should be allowed under schedule 8 to the FA 2003 in respect of the 74.33% proportion of the properties attributable to those charitable beneficiaries.

PETCL had also claimed that since one of the beneficiaries was Greenwich Hospital, whose assets were held by the Secretary of State for Defence in his capacity as trustee for the Queen holding all the land and property for the exclusive benefit of Greenwich Hospital, then the Minister of the Crown exemption should apply under section 107 of the FA 2003 in respect of the proportion of the properties attributable to Greenwich Hospital.

HMRC had refused the claim as their view was that relief from SDLT is only available in the case of joint purchasers where all of the joint purchasers are entitled to the relief; their view was that by virtue of paragraph 3(1) to schedule 16 to the FA 2003 where a land transaction involves a number of persons acquiring a property through a bare trust the purchasers are treated as joint purchasers and the transaction is taxed as a single land transaction.

The second appellant KCL had also appealed to the FTT against the decision made by HMRC in its Closure Notice dated 28 September 2006 following enquiries HMRC had made into the land transaction return made by KCL in respect of the acquisition that a Professor Trembath, one of KCL's senior academic employees, had made of a property in London. The FTT decision was to refuse KCL's claim for charities' relief on a portion of the purchase price of the property. The basis of the claim for relief was that as Professor Trembath was acting as bare trustee for himself and KCL in making that acquisition and KCL was a UK registered charity, partial relief should be allowed under schedule 8 to the FA 2003 in respect of the 46.3% proportion of the property attributable to KCL. HMRC refused the claim on the basis of arguments similar to those made in respect of PETCL's appeal, as described above.

Both cases were then considered at the Upper Tier Tribunal, who could find no or little policy rationale for treating the acquisition of an existing undivided share by a charity differently compared to the acquisition of an undivided share as a result of a joint purchase between a charity and a non-charity, and considered the issues as if there was no such policy. The judges agreed with HMRC that the charity relief required the purchaser to be a charity, and as the acquisition by a bare trustee for the joint purchasers was regarded as a single land transaction, the charity exemption could not be met.

1.2. Discovery assessments and time limits

Two cases have been heard at the First-tier Tribunal concerning HMRC's ability to raise discovery assessments. In both cases the discovery assessments were upheld. A further recent case questioning the ability of HMRC to raise a discovery assessment, again with HMRC's view upheld by the Tribunal is covered at 5.9 below.

Christopher Johnson and the ability to offset losses against general income

This case concerned an individual who had bought a yacht for personal use and boat chartering and sought to offset losses arising in this business from capital allowance claims against his other employment income from Jupiter International Group. The loss offset claims which were subject to discovery assessment were made for the years ended 5 April 2004 to 5 April 2006 and were made on 24 March 2010.

The issue as to whether the loss from the yacht business could be offset turned on whether the business was one of provision of services or leasing of plant or machinery. In the latter case, the loss offset would have been restricted as a result of what was ICTA s384(6) and is now ITA s79(1), where the individual does not devote substantially the whole of his time to the business. The Tribunal determined that the business was one of provision of plant or machinery rather than services, so the losses relating to capital allowances were not available for offset.

Concerning the discovery point, the Tribunal determined the taxpayer had not been negligent in filing his returns on the basis that relief was due. However they also determined the HMRC officer could not reasonably have been expected to be aware of the under-assessment until the enquiry was opened and the taxpayer provided further information about the boat chartering business on 22 September 2008 in response to an enquiry raised in relation to his 2006/07 return. The time limit for raising discovery assessments at the time was five years and 10 months after the end of the tax year (the ordinary time limit then in operation by virtue of TMA s34), so that the assessment for 2003/04 was dismissed, while those for 2004/05 and 2005/06 were upheld.

Matthew and Daniel Brown and the validity of discovery assessments in respect of gains that should have been declared as income

In this case two shareholder directors submitted their self-assessment returns (through an agent) for 2007/08 on the basis that share purchases by their company resulted in capital gains rather than income distributions. It was accepted that they should have been declared as distributions and therefore subject to income tax. The enquiry window for this year closed on 31 January 2010.HMRC only started to enquire into the return on 17 September 2010 and discovery assessments were raised in May 2011.

On behalf of the taxpayers the argument was put forward that a reasonable inspector should have inferred that the purchases from the directors were made by the company, though the personal tax returns did not identify the purchaser. It was also contended that the inspector should been expected to liaise with the inspector dealing with the company's corporation tax return and should have reviewed the company accounts.

These arguments were rejected by the Tribunal. Without any finding of fact regarding careless or negligent behaviour the time limit for raising these assessments was four years after the end of the year of assessment (by virtue of the updated TMA s34) and so the assessments were upheld

1.3. HMRC agent update

The latest HMRC agent update can be found at the following link. Amongst other things it covers:

  • Gift aid small donations relief.
  • Penalties factsheet.
  • Tax adviser authorisation for compliance checks.
  • Contractual schemes for collective investments.
  • National minimum wage rates from 1 October 2012.
  • RTI - customer migration - legal direction.
  • Scope of RTI pilot.
  • Business investment relief.
  • Direct selling campaign.
  • Providing information about new limited companies.
  • Latest consultations.

1.4. Pilot of 'agent view'

HMRC recognises the concerns raised by agents in response to last year's consultation - 'Establishing the future relationship between the tax agent community and HMRC' about proposals for an 'agent view' (bringing information together on agents and their clients) and improving standards. HMRC will now proceed with this work at a slower pace and has made a commitment to the professional agent bodies through the Joint Tax Agent Strategy Steering Group (JTASSG) that there will be full transparency and consultation.

HMRC will provide another update when it is ready to start the pilot. Those selected will receive a letter giving them the opportunity to discuss with the Agent Support Officer reasons why some customers who appoint an agent still fail to file returns or pay their taxes on time.

A more complete note of the news item can be found at:

2. Private Clients

2.1. Reduced rate Inheritance Tax

HMRC has published new guidance on the reduced rate of Inheritance Tax for charitable gifts in its Inheritance Tax Manual (IHTM). This replaces the temporary guidance and follows the Finance Bill 2012 receiving Royal Assent on 17 July 2012.

2.2. Foreign tax credit relief or dividend tax credit re an offshore company dividend

The First tier Tax Tribunal has recently considered the case of Vanessa Buxton (TC02183). Ms Buxton claimed tax relief in respect of a dividend that she received in 2003, paid by a company out of profits taxed in Guernsey.

The 2003/04 return had been submitted showing the dividend grossed up, for the 20% corporation tax suffered by the company, with a claim for the 'tax suffered'. Following an enquiry, HMRC issued a closure notice denying foreign tax credit relief and amended the self-assessment return. This was appealed and in subsequent correspondence the question was raised of a possible EC Treaty contravention in restricting a 1/9 dividend credit to UK resident company distributions.

When the appeal was heard, it had been accepted that Ms Buxton had no statutory entitlement to unilateral foreign tax credit relief under ICTA s790. However, it was submitted that Ms Buxton had a valid claim to one-ninth tax relief under ICTA s231 (now ITTOIA s397).

The issues before the tribunal were whether:

  • the appeal against the closure notice could be widened to cover this new point (the original claim argument)
  • earlier letters should be read as seeking an amendment to the return (the amendment argument) or
  • these earlier letters should be considered as an 'error or mistake' claim (the new claim argument), as by the time the s231 issue was being focused on the 31 January 2010 time limit for an 'error or mistake' claim had passed.

The tribunal found that the although new arguments could be put forward in respect of a matter under appeal the duty of the tribunal is to determine the "subject matter" of the appeal, and it has jurisdiction to consider any evidence or legal argument relevant to that subject matter (Tower MCashback). In this case the "subject matter" was a claim for foreign tax credit relief and not a claim under ICTA s 231. The original claim argument was therefore rejected.

The tribunal found that the agent's letter of 21 April 2010 said that Ms Buxton was continuing with her original claim for "tax withheld on the dividend by way of unilateral tax double tax relief", and that the ICTA s 231 claim was in the alternative. Its decision was that there was no amendment of the original claim, but if anything at all the addition of a new claim "in the alternative", and it rejected the argument that the earlier letters constituted an amendment.

As regards whether the earlier letters could constitute a new claim, the tribunal found that neither of these letters, both of which related to a pending appeal against a closure notice rejecting a foreign tax credit relief claim, appeared to be a new claim for relief under s 231.

3. IHT & Trusts

3.1. New forms IHT 35 & IHT 38

HMRC has published new forms IHT 35 Claim for relief - loss on sale of shares, IHT 35(CS) continuation sheet and IHT 38 Claim for relief - loss on sale of land.

If schedules are attached to the forms they need to be in the same format as the IHT 35 or IHT 38, otherwise the claim may be rejected.

4. PAYE and Employment matters

4.1. Advisory fuel rates from 1 September 2012

HMRC has published updated advisory fuel rates applicable for all journeys on or after 1 September 2012.

5. Business tax

5.1. Changes to the way some companies contact HMRC by telephone

HMRC is changing the way Corporation Tax 'customers' should make contact by phone, to bring them into line with other HMRC 'customers'. From 17 September 2012, most calls about Corporation Tax will be routed to one of two contact centres, based in Cardiff and Glasgow, through a new number. Further details can be found at the following link:

5.2. Transfer pricing statistics

HMRC has published transfer pricing statistics, covering the periods 2009/10 to 2011/12 under the following headings:

  • Time taken to resolve enquiries.
  • Transfer pricing yield.
  • APA (advance pricing agreement), ATCA (advance thin capitalisation agreement), MAP (mutual assistance procedure) statistics.

5.3. DOTAS

Two consolidating statutory instruments have been issued relating to DOTAS. Both instruments come into effect on 1 September 2012.

i) SI 2012/1836 has been issued to revoke and replace the Tax Avoidance Schemes (Information) Regulations 2004 (S.I. 2004/1864) ("the 2004 Regulations") and consolidate all subsequent amendments to those Regulations with some minor further amendments.

These regulations prescribe the information which is to be given to HMRC under Part 7 of the Finance Act 2004 ("the 2004 Act") in relation to tax avoidance schemes which are prescribed by the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (S.I. 2006/1543). It covers information requirements relating to schemes concerned with capital gains tax, corporation tax, income tax, inheritance tax and stamp duty land tax.

ii) SI 2012/1868 has been issued to revoke and replace the National Insurance Contributions (application of Part 7 of the Finance Act 2004) Regulations 2007 (S.I. 2007/785) ("the 2007 Regulations") and consolidate all subsequent amendments to those Regulations with minor further amendments./

These Regulations make provision corresponding to the Part 7 of the Finance Act 2004 ("the 2004 Act") and apply regulations under that Part (with necessary modifications) to the extent that they relate to income tax to arrangements or proposals for arrangements which are intended to avoid national insurance contributions.

5.4. Whether costs incurred wholly and exclusively for corporation tax

This case considered whether a contribution (totalling £3.8m, the majority of which was made in the year ended 31 December 2002) by Purolite International Ltd (PIL) to the legal costs of a US company (which was effectively a one- third owner of PIL were deductible for corporation tax by the UK company.

Steve Brodie and his brother Don Brodie each owned 50 per cent of the share capital in Bro-Tech Corporation ("BTC"), a Delaware corporation which traded as "The Purolite Company". Steve Brodie, Don Brodie and BTC each owned one-third of the share capital in Bro-Tech Limited ("BTL"), a UK company. At the material time, BTL owned 95 per cent of the share capital in PIL, the other five per cent being owned by the late Henri Bousquet (who died in or around 2007). PIL owned a number of overseas subsidiaries.

At the relevant time PIL sold ion exchange resins to the US but also to Cuba. The sales were made via BTC's representatives in Canada, but latterly directly to Cuba using BTC's assistance. The US government prosecuted BTC and its two 50% shareholders and another under the Trading with the Enemy Act 1917 and the Cuban Assets Control Regulations. This resulted in fines of $250,000 on BTC and £10,000 on its two shareholders.

Largely as a result of direction by Steven and Don Brodie (who were also among the directors of PIL), it was agreed that PIL would make a contribution of £3.8m to the legal costs involved. However the Tribunal did not find any evidence that PIL was being prosecuted by the US government. They also found it inherently improbable that Steve Brodie and Don Brodie would have taken the decision regarding allocation of legal costs solely with PIL in mind. While the Tribunal acknowledged that the decision to arrive at the allocation of legal costs between the companies was understandable as a commercial matter, they concluded that the costs incurred by PIL were not incurred wholly and exclusively for its trade, and were therefore not deductible for corporation tax.

5.5. SEIS - HMRC guidance and confirmation on denial of SEIS status if SEIS

HMRC has added guidance giving an overview of the Seed Enterprise Investment Scheme (SEIS) to its website.

Neither an EIS nor SEIS company can be controlled by another company. The well-established EIS legislation states that this must be satisfied from the date of issue of the relevant EIS shares (in other words for periods before the date of EIS share issue the condition does not have to be satisfied). However the new SEIS legislation states that this condition must be satisfied for the period beginning with the incorporation of the company.

HMRC has confirmed to us that an SEIS company cannot be controlled by a corporate at any time from incorporation to the period ending three years after the relevant share issue.

5.6. Whether payments made by an individual represent deductible interest and from what time a settlement agreement reached with HMRC was binding

In the case of Garrett Paul Curran the First-tier Tribunal considered whether the payment of interest in advance (in respect of loans used to fund onward loans to close companies) was deductible under what was then ICTA s360 (now ITA s392). The loans were used to fund onward loans by the taxpayer to close companies set up to trade or develop property. There was no detailed discussion of whether the taxpayer had a material interest in the companies to which he lent money and for which he was seeking to claim interest relief, and it is assumed that this requirement was met.

The terms on which the taxpayer borrowed funds to finance these onward loans were for repayment of principal in 30 years, with interest at what was agreed to be commercial rates. However, shortly after taking out the loans (just longer than a month and just before the end of each tax year), the taxpayer was offered the opportunity to pay interest for the whole loan term in advance. This offer was taken up and claims were made for tax relief against income from other sources (the taxpayer was a managing director in Investment Banking at Credit Suisse). HMRC disputed claims for relief on interest payments of £899,995 for 2001/02 and £755,788 for 2002/03.

A settlement agreement was reached in December 2005 (further ratified by the taxpayer in November 2007) whereby relief was given for 50% of the payment, the remaining interest to be deducted annually in proportion over the remaining term of the loan. There was a further claim for relief of interest for 2006/07 in relation to an advance interest payment amounting to £2.59m.

HMRC contended that the settlement agreement was void as there had not been full disclosure of all relevant facts. It also contended that the payments were capital rather than revenue and therefore did not represent interest. It also contended that relief was prevented by what was ICTA s787 (now ITA s809ZG - tax relief for interest denied where the sole or main benefit is the obtaining of a reduction in income tax liability).

The investments and loans were made to entities generally controlled or run by a Mr Byrne. Although the trail of loans and investments was complex, as at the date of the hearing and in addition to the advance interest payments mentioned above, it appeared the taxpayer had made loans and investments still outstanding of £6.2m and there was a put option on one of his investments giving him the opportunity in March 2012 of selling that investment for around £6.2m. The case indicated that the taxpayer made a significant loss on investments and loans, but there is no quantification of this loss.

On the facts and after advice from experts on the economics of the timing of interest payments, the Tribunal concluded that tax was not the sole or main objective of the arrangement and that the advance interest payments were fully deductible and did in fact represent payments of interest. The tribunal also concluded the events not disclosed in relation to the settlement agreement were not significant in that those events kept to the terms of the agreement and therefore did not act to nullify that agreement. The tribunal also concluded the terms of the settlement agreement (specifically clause 6 of that agreement) was not an ultra vires forward tax agreement as the availability of relief was determined by actual transactions that had already happened. They also concluded the settlement agreement was binding when made in 2005 and not when subsequently ratified by the taxpayer in 2007.

5.7. Conversion of loans into Qualifying Corporate Bonds

The case of William Blumenthal considered (i) whether an arrangement to convert non-qualifying corporate bonds to qualifying corporate bonds did so in a manner that successfully depressed the market value of the loan notes just prior to conversion and so generated a loss on eventual redemption and (ii) whether HMRC were entitled to raise a discovery assessment despite disclosure of the figures involved and enquiries having been raised within time on other taxpayers with identical disclosures. The First-tier Tribunal decided against the taxpayer on both issues.

The taxpayer received loan notes (with a par value totalling £328,860) on the acquisition of his interest in a company by what eventually became O2. The loan notes were drawn up as non-qualifying corporate bonds so as to preserve the taxpayer's right to CGT treatment for the gain or loss on eventual disposal. This was done by providing an option for the redemption of the loan notes in dollars at a sterling dollar exchange rate applicable at the closing mid-point spot rate three days prior to the redemption date.

An arrangement was then put in place, with the agreement of all the note holders (not all of the note holders participated in full), that for those participating note holders the terms of their notes would be varied. The variation changed the dollar conversion term so that if the sterling-US$ rate moved by 1.5% or more during a period of 33 days between 16 February and 17 March 2004, then from the date on which that movement occurred the exchange rate would be the mid-point spot rate prevailing at the time of repayment of the loan notes. Anecdotal evidence was given that there was a 25% chance that the movement in the exchange rate would cause the change in conversion term. According to the designers of the arrangement TCGA s117(2)(b) meant that if this provision was triggered the loan note would effectively become a qualifying corporate bond.

There was a further term in the variation which gave O2 the option to elect that the loan note redemption price be reduced to 3% of the par value. The election could only be made in the period 16 February to 21 March 2004 in respect of (i) specified note holders who were not registered note holders on 31 December 2003, or (ii) in the case of note holders who were registered note holders on 31 December 2003 if more than three of six particular note holders died in the 36 day period for the election. It was contended that this term reduced the value of the loan notes to £9,866 just prior to conversion so that (for Mr Blumenthal) a loss of £26,379 accrued on conversion to the QCB, which would have been realised on redemption or disposal of the loan notes. It was contended that any difference between this 'market value' and the actual redemption proceeds would be free of capital gains as the notes were then QCBs. Charitable deeds of covenant were entered into with the note holders so that if they purchased loan notes for less than par they would pay double the difference to a charity.

It was a condition of the loan notes that, other than on certain occasions (e.g. insolvency) early redemption of the loan notes had to be on the normal quarter days, and Mr Blumenthal redeemed his loan notes on 25 March 2004. The early redemption condition was amended by the variation so that the company could accept notice of early redemption not less than 3 or 30 days before the quarter end date.

Did an allowable loss accrue on redemption?

The tribunal concluded that the variation and the change in the clause affecting the exchange rate on redemption did in effect cause the old conversion term to disappear and therefore caused a conversion from a non-QCB to a QCB. The Tribunal discussed the difference between the situation in Harding v HMRC (79 TC 885), where the Court of Appeal concluded the expiry of a currency conversion provision did not cause the loan note to convert from a non-QCB to a QCB, with the Upper Tribunal's conclusion in Klincke v HMRC (2010 STC2032) where the foreign currency conversion terms of a loan note modified by deed of variation was held to be effective in turning a non-QCB to a QCB. Whereas in Klincke the variation affected all note holders, the fact that the variation in this case did not affect all note holders was not held to be a significant point of difference in concluding that the variation was effective in the Blumenthal case.

On a purposive construction of TCGA s116(10) and s272, market value could not refer to a value or price which had been artificially manipulated solely for tax purposes in a wholly uncommercial fashion to produce a temporarily depressed value. It was agreed that the likelihood of the terms permitting the company to elect to redeem the notes at 3% of value were extremely small in relation to Mr Blumethal.

The Tribunal also considered that the Ramsay principles could be applied to a valuation process, despite comments by Lord Hoffman in McNiven v Westmoreland that Ramsay was 'limited by the paramount necessity to give effect to the statutory language so that if a transaction falls within its legal description it makes no difference as to its business purpose'. The comments of Lord Nicholls in Barclays Mercantile Business Finance Ltd were cited as support for the fact that this should not provide a substitute for close examination of what the statute means.

It was further considered that the variation introducing the 3% redemption clause was ineffective, as it could only have effect during a period between 16 February and 21 March 2004, when the redemption date was 25 March 2004. There was discussion on whether the broad intention of a variation given by the parties implementing it should be given effect, rather than the plain effect of the words in which the variation was written. However despite a divergence of approach in previous cases, the Tribunal concluded they could not interpret the language of the variation in a way the appellants intended unless there is an action for rectification. It was therefore held that the variation was also ineffective in introducing a clause permitting redemption at 3% of par.

Was the tax return disclosure sufficient to prevent a discovery?

Identical disclosures had been given on the tax returns of two other affected note holders, and HMRC had opened enquiries into these returns. No clarification was available, however, on whether the enquiries were as a result of the disclosure. While an enquiry had been raised on one aspect of Mr Blumentthal's return, this had been concluded and the enquiry closed. The enquiry into the loss on disposal of the loan notes occurred after the tax return enquiry window closed and assessments were raised with HMRC contending these were appropriate because of their discovery powers.

The Tribunal concluded that a discovery was appropriate as the quality of disclosure was insufficient to prevent a discovery. The disclosure is reproduced below:

"The chargeable loss shown in box 8.2 of this tax return arose as a result of my redemption of £328,860 Loan Notes in O2 (UK) Limited on 25 March 2004.

During the year 1998/99, I received 2748 shares in Cleversort and 2748 shares in Ever 1199 in exchange for 2748 shares in Aarco 152 Ltd. Clearance under section 138 TCGA 1992 was obtained.

The shares in Ever 1199 were exchanged for £338,460 [this figure was thought to be a mistake and probably should have been £265,960]"A" loan notes £62,900 "B" loan notes and £7,500 in cash on 28th February 1999. The disposal of the cash element was reported on my tax return for the year ended 5th April 1999.

The loan notes were non-Qualifying Corporate Bonds when originally issued. However, on 13 February 2004 a deed of variation was entered into by the parties to the loan note, which in certain circumstances would vary its terms and the price at which it could be redeemed. The loan notes were converted into Qualifying Corporate Bonds on 27 February 2004, at a time when their open market value was estimated to be £9,866. This is the value that the issuer had the ability to repay the loan notes for at that time on any transfer in the open market. No independent valuation has been obtained. The chargeable loss was calculated at the time of the conversion but falls to be taxed at the date of redemption in accordance with s.116 (1) TCGA 1992."

The Tribunal concluded that this was deficient because very little information was given about the deeds of variation - there was no description of the terms, the temporary nature of the depressed value, there was no mention of the charitable deed of covenant. Also there was no explanation of the circumstances in which there could be a variation of the terms and price at which the loan notes could be redeemed. The Tribunal respectfully declined to follow Lord Bannatyne's views in the Scottish Pattullo case on the need to indicate participation in a tax avoidance scheme to highlight a potential insufficiency, but concluded that the advent of DOTAS (not applicable at the time of the transactions for the Blumenthal case) probably meant the case was now of less significance in this respect. In conclusion the Tribunal held that HMRC was entitled to raise the discovery assessment.

6. VAT

6.1. Input tax deduction on costs incurred for private use

The decision of the CJEU in the case of X v Staatssecretaris van Financiën(Case C-334/10) has clarified that where it is not possible to say with certainty that, having regard to the durability of the expenditure incurred on a capital asset, it is to be used exclusively for non-business purposes, then there is a right to input tax deduction, with appropriate adjustment (if required) in the period of expenditure and/or future periods according to the use to which the expenditure was put. The case concerned costs incurred in converting the attic of a warehouse for temporary occupation as a dwelling, before its later conversion to full business use.

6.2. The meaning of 'additional income' for the purpose of exemption from VAT

EC Directive 2006/112 article 132(1)(m) provides that the supply of certain services closely linked to sport or physical education by a non-profit making organisation to those persons taking part in sport or physical education should be exempt from VAT. Article 133(d) provides that member states may give this exemption to those persons governed other than by public law subject to certain conditions, including (at s133(d) where the exemption could be likely to distort competition to the disadvantage of commercial enterprises subject to VAT. Article 134 provides that the exemption shall not be granted where the supply is not essential to the transaction and where the supply is for the purpose of obtaining additional income in direct competition with commercial enterprises.

HMRC Brief 30/11 issued on 27 July 2011 ( ) referred to a decision of the First-tier Tribunal in favour of the taxpayer (The Bridport and West Dorset Golf Club) where it was held that green fees charged to non-members by members' non-profit making golf clubs should be VAT exempt. It commented that it had sought leave to appeal to the Upper Tribunal and would be rejecting any new claims for repayment.

The legislation at VATA Sch9 group 10 (sports, sports competitions and physical education) provides VAT exemption for:

"The supply by an eligible body to an individual, except, where the body operates a membership scheme, an individual who is not a member, of services closely linked with and essential to sport or physical education in which the individual is taking part."

The taxpayer had held that the exclusion of income derived from non-members was contrary to the VAT directive which did not distinguish between members and non-members. The tribunal agreed ( ), pointing out that the legislation also introduced an anomaly where a body which had no members (such as a charity) would be treated differently to a body which had members.

The appeal has now been heard by the Upper Tribunal (the amount of VAT at stake in the case of Bridport Golf Club was £140,358 and there are now 458 cases standing behind it) where the decision has been taken to make a reference to the CJEU. It was noted that there appeared to be differing interpretations of the relevant provisions of the VAT directive across Europe (contrasting the approach taken in the UK and Ireland with that taken in the Netherlands and Germany), and that questions should be referred on whether the implementation of what is now VAT directive article 133(d) should require the elimination of all distortions of competition, and what was meant by 'additional income' in what is now article 134(b).

HMRC has issued Brief 25/12 commenting that their position is as set out in their earlier brief on the issue, and that it does not expect the case to be heard at the CJEU until the summer of 2013.

6.3. HMRC guidance on the cost sharing exemption (VATA Sch9 group 16)

HMRC has issued guidance on the application of the cost sharing exemption introduced by Finance Act 2012.

6.4. HMRC guidance on partial exemption methods for HEIs

HMRC has issued guidance on formulating partial exemption (PE) special methods for Higher Educational Institutions (HEIs), in particular:

  • How to determine a fair 'value' for supplies of grant-supported education.
  • When to add 'sectors' to a PE method.
  • How to identify and deal with 'distorting supplies'.

Its use is not mandatory, but HMRC indicate that adopting its principles will enable them to more readily give approval for a PE special method for which a Statutory Declaration has been made. It has been prepared by working with the British Universities Finance Directors' Group (BUFDG), the representative body for the tax affairs of universities, and the university funding councils via the Higher Education Funding Council for England (HEFCE).

7. Tax Publications

NTBN227 - Entrepreneurs' Relief

Entrepreneurs' relief reduces the rate of UK CGT to 10% on some disposals. But the rules are complex and fairly restrictive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Richard Mannion
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Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions