UK: Weekly Tax Update - Monday 5 August 2013

Last Updated: 8 August 2013
Article by Smith & Williamson

1 PRIVATE CLIENT

1.1 Equitable Life compensation

We are seeing payments coming through for those policy holders who had pensions and annuities with Equitable Life who are receiving compensation for poor performance. The loss is calculated and then interest added and then the whole payment is subject to an adjustment leaving the client with 22.4% of the total as calculated.

The question arises whether the interest element is taxable. Interest would be taxable under normal principles, but in this case the Taxation of Equitable Life (Payments) Order 2011 clearly states that "An authorised payment shall be disregarded for the purposes of the Income Tax Acts" and this seems to cover the whole amount.

www.hmrc.gov.uk/briefs/cgt/brief2611.htm

1.2 Capital Gains Tax – evidence of cost of improvements

The First-tier Tribunal has considered the case of Tobias Ridpath (TC02785).

It transpired in 2010 that Mr Ridpath had disposed of two rental properties in 2004/5. His accountant submitted CGT computations showing gains calculated by deducting the original costs of acquisition and selling costs from the proceeds. HMRC originally intended to deal with the tax position by means of a contract settlement, but Mr Ridpath failed to make an offer in settlement because the computations did not take account of the costs of improvements. No details were forthcoming and HMRC issued assessments. Mr Ridpath appealed on the basis that £40,000 had been spent on improvements, but no evidence was produced.

Mr Ridpath gave evidence to the Tribunal which is summarised in the decision as follows:

The Appellant could not provide any precise evidence about the expenditure incurred. He explained that the initial letter from his previous accountant Mr Roberts suggesting a figure of £40,000 was too low and may have related to only one of the properties - Coldharbour Lane – and indeed the accountant only referred to one property in the initial correspondence. He explained this by saying that his focus at the time had been on Coldharbour Lane because he never imagined he had made any money at all on London Road. The Appellant had a bank account in his name described as Blue Square Trading. The properties were sold in mid-2004 (Coldharbour Lane) and January 2005 (London Road). We saw bank statements for this account. The opening balance in January 2004 was £121,174.67 and £80,633.98 was paid in during June 2004 (total £201,808.65). There were numerous cheques drawn on the account during 2004 and just a few direct debits in favour of utility companies. The balance in December 2004 was £72,988.88 showing withdrawals made in the year of just over £128,000 the bulk of which was incurred in 2004 and £56000 of which was incurred in or before June of that year when the first sale (Coldharbour Lane) took place. The Appellant told us that these amounts did not relate to personal expenditure and therefore the bulk of what was withdrawn must have been expenditure incurred on the two properties. He blamed his then accountant for failing to claim the expenditure. Unfortunately the Appellant was unable to recall how the amounts were spent even when asked about specific withdrawals during the relevant period. He had been unable to obtain copies of cheques. He had always been self-employed and knew he should keep records. He thought he might have cheque books at home but did not have them with him at the hearing and his accountant had not seen them. The work was done by various contractors and he coordinated the work. He employed an architect for the work done on London Road but not for the Coldharbour Lane changes. He thought the cost of work done on Coldharbour Lane was "about £53,000" and the balance had been spent on London Road thereby creating a loss on its disposal.

The Tribunal dismissed the appeal saying:

"We can see it is very likely the Appellant incurred some expenditure on the properties. The difficulty is that we have no idea how much was spent. We are invited to find that some or all of the bank withdrawals were used in this way. The Appellant was unable to point to a single item and explain by way of illustration how the money leaving his account had been spent. Mr Catterall had given him ample opportunity to provide evidence of expenditure. Indeed we can see that the Appellant was treated very tolerantly by Mr Catterall. We have no idea why the Appellant was so vague about the expenditure. It is impossible for us to conclude, as Mr Dubell invites us to do, that he spent some reasonable figure on these works and then guess how much that is - or accept what seems to us equally to be guess work by the Appellant about the expenditure. It is very unfortunate that the Appellant was unable to provide some details of expenses but that was not the case and we have no alternative but to dismiss the appeal."

A salutary tale which demonstrates the fundamental importance of keeping contemporaneous records of improvements carried out to assets that may one day be liable to CGT.

www.bailii.org/uk/cases/UKFTT/TC/2013/TC02785.html

2 BUSINESS TAX

2.1 Actor's claim for travel expenses tax relief to be reconsidered

The Upper Tribunal has overruled the decision of the First-tier Tribunal to allow the actor Tim Healy income tax relief on all his travel, subsistence and accommodation expenses which he incurred when working away from his home on a nine-month assignment. The Upper Tribunal decided that the First-tier Tribunal had failed to apply the 'wholly and exclusively' test properly, and sent the case back for reconsideration.

We accept Mr Conolly's submission that the FTT failed to apply the "wholly and exclusively" test properly and in doing so made an error of law.

The correct approach to the "wholly and exclusively" test, as demonstrated by the authorities, is to consider it by reference to the dual purpose test. In this case this required the FTT to ascertain whether there was a dual purpose on Mr Healy's part in entering into the tenancy agreement for the flat in London for the duration of the Billy Elliot production. In that context, the FTT needed to consider whether in all the circumstances of the case, the sole purpose for renting the flat was in order to carry on his profession of an actor. In order to determine that issue it needed to consider whether the effect of his taking the flat, namely of providing him with the warmth, shelter and comfort that we all need was merely incidental to that purpose or was a shared purpose. If the former were the case the expenditure would have been deductible, if the latter there was a dual purpose and the expenditure would not be deductible.

It is clear that the FTT did not approach the test on this basis. Its finding, as set out in paragraph 36 of the Decision, focused purely on the issue as to whether in taking on the tenancy he was seeking a home in London. It appears to us that the test applied by the FTT was to ascertain whether Mr Healy had moved his home to London and proceeded on the basis that if he had not, then the expenditure could be regarded as having been made wholly and exclusively for a business purpose.

This approach would explain why, in its decision refusing permission to appeal, the FTT commented that if a duality of purpose test was applied expenditure for hotel accommodation could never be deductible as it inevitably provided shelter and warmth. However, as discussed in paragraph 28 above, the duality of purpose test is the test to be applied to see if the expenditure can be deductible, and the cases show that duality of purpose will not be found where the sole purpose is a business purpose and the accommodation costs which result in the provision of warmth and shelter are purely incidental to that. Applied in that way, that is considering whether the warmth and shelter is merely an incidental aspect rather than a purpose in itself, creates no difficulty in finding that accommodation expenses can have a business purpose.

It is therefore clear that the FTT deliberately did not consider the question as to whether the shelter and warmth that inevitably follows from arranging accommodation was anything more than incidental to the business purpose that Mr Healy had in mind.

www.tribunals.gov.uk/financeandtax/Documents/decisions/hmrc-v-tim-healy.pdf?j=371480&e=richard.mannion@smith.williamson.co.uk&l=346_HTML&u=10709266&mid=1062735&jb=0

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.