UK: Weekly Tax Update - August 3, 2015

Last Updated: 6 August 2015
Article by Tina Riches


1.1 Tax avoidance schemes list: accelerated payments

HMRC has issued is quarterly list of tax avoidance schemes on which users may be charged an upfront tax 'accelerated payment'. There is no change from the list published in April.

1.2Smith & Williamson tax rate card

Our tax rate card was updated following the Summer Budget for the change in the annual investment allowance from January 2016. This is available at:

1.3 HMRC wins Ingenious accelerated payments judicial review case

The taxpayers have lost the judicial review case in the High Court against HMRC around the legality of the accelerated payment notices in exercise of HMRC's powers under Finance Act 2014.

As reported in HMRC's press release, the taxpayers had claimed that HMRC's action in issuing the accelerated payments notices were unreasonable, breached natural justice and represented an abuse of their rights under the European Convention on Human Rights to a fair trial and protection of property. They also claimed it took away the legitimate expectation they had when they joined the avoidance scheme that they wouldn't have to pay tax before the dispute had been resolved.

The court has however decided the case for HMRC. The taxpayers lost on all counts, however it seems that there may be scope for appeal. The issue around loss carry back does not seem to have been fully explored.

HMRC has asserted that it expects to complete the issue of around 64,000 accelerated payment notices by the end of 2016, amounting in total to £5.5bn in payments for the Exchequer by March 2020.


2.1 Tax charge on withdrawal of approval of a retirement benefit scheme

The Supreme Court has allowed, by a majority, the taxpayer's appeal in the case of John Mander Pension Scheme Trustees Ltd v HMRC [2015] UKSC 56 against tax assessments on the withdrawal of approval for a retirement benefits scheme. The issue concerned the validity of assessments raised on the trustee of the pension scheme (acting as administrator to the scheme) in respect of the 2000/01 tax year based on HMRC's withdrawal of approval for the retirement benefits scheme. The taxpayer contended that the tax arose in respect of the 1996/97 tax year when the scheme ceased to qualify.

The decision reverses that of the First-tier Tribunal (FTT), the Upper Tribunal (UT) and the Court of Appeal, which had each found in favour of HMRC. As this is the lead case with a number of cases following, this will have a substantial impact, as it seems that in this and in many other cases it is too late for HMRC to raise an assessment for the year when the scheme ceased to qualify.

As explained by Lord Sumption in his judgement:

'The Revenue argue that the effect of this subsection [ICTA 1988 s.591D(7)], as applied to schemes like this one whose approval is withdrawn under s.591B(1), is that approval of the scheme is treated as having been withdrawn when the Revenue gives notice of withdrawal: see para (b). The Court of Appeal accepted this submission, but I do not think that s.591D(7) will bear that construction. It does not refer to the Revenue's notice of withdrawal. It refers only to the "approval of the scheme being withdrawn under s.591B(1)". In themselves, these words beg the question whether approval is "withdrawn" under s.591B(1) when notice of withdrawal of approval is given or when it takes effect according to its terms. But read in the context of the sub-section as a whole, the inference is that it is when the withdrawal of approval takes effect.

'On the face of it, the draftsman is equating "approval of the scheme being withdrawn" with its "ceasing to have effect" and with the "cessation of approval". What then was the purpose of s.591D(7)? In my view there were two purposes. The first was to identify the three statutory bases on which an approval may "cease to have effect" for the purpose of s.591C(1). This was evidently thought necessary because none of the three provisions for the cessation of approval uses the expression "ceases to have effect" which appears in s.591C(1). The second purpose of the provision was to stipulate the date as at which the assets fall to be valued under s.591C(2) for the purpose of computing the charge. It is the date when the scheme's approval "ceases to have effect" under each of the three provisions.

'It follows that the tax falls to be assessed in the chargeable period with effect from which the approval ceased to have effect in accordance with the notice of withdrawal. 'The point is of greater significance than this rather technical statement of the issue might suggest. If the taxpayer is right, it may now be too late for the Revenue to raise a fresh assessment for 1996-1997. In some cases, although not this one, it will already have been too late by the time that the revenue learn of the facts leading to the withdrawal of approval. A substantial number of other schemes is affected. This is the lead case of a number of appeals awaiting decision in the First-tier Tribunal (FTT).'


3.1 Employment intermediaries: reporting requirements

HMRC has published a new guide for agents providing links to guidance and information about how to access the online 'Employment Intermediaries' service for their clients.

Intermediaries must return details of all workers they provide where the intermediary doesn't operate Pay As You Earn (PAYE) on the workers' payments. The return is a report (or reports) that must be sent to HMRC at least once every 3 months. HMRC's report template must be used to create the reports and HMRC has provided an online service to upload and send the reports.

To assist with compliance, the online reporting can be done by an agent. In order to use the HMRC online service to send reports for clients, the agent must have an agent Government Gateway account and use PAYE for Agents. Also, the client must authorise the agent's use of PAYE for Employers for them.

3.2 Reed employment case on employment agency travel & subsistence expenses

The Court of Appeal has dismissed the employment agency taxpayer's appeal, upholding the decisions of the First-tier Tribunal (FTT) and Upper Tribunal (UT), that the travel expenses under both the arrangements under consideration were taxable earnings in the hands of the employees and therefore liable for PAYE and national insurance contributions.

Reed operated two successive sets of arrangements, which were intended to make use of changes to the law relating to travel expenses paid to employees. The travel expenses also included subsistence expenses but it was not necessary to distinguish between them.

The principal issue raised was whether, under the employed temporary workers' contracts of employment, did Reed:

  1. make payments reimbursing the employed temps' travel expenses in addition to paying their wages; or
  2. make a single global payment in which the payment on account of travel expenses was simply part of the employed temps' overall wages.

Reed argued for (a) whereas HMRC viewed it was (b) and both the FTT and the UT had agreed with HMRC. If, but only if, Reed succeeded on this point there would have been other issues that would need to be considered.

Reed's case was that it paid employed temporary workers less by way of salary than would otherwise have been the case, together with contractually separate payments in respect of travel expenses, 'salary sacrifice'. Under the initial arrangement, the payment reimbursing expenses did not appear expressly on an employed worker's payslip but Reed contended that it was calculable from the figures shown. Following concerns expressed by HMRC over the payslips, Reed replaced this and under this arrangement the amount of the payment of travel benefit was expressly shown on the payslip.

If these arrangements were effective, Reed would leave the employed temp with at least the same net after tax pay as he or she would have had before the arrangements were implemented with Reed having to account for less tax and employer's NICs to HMRC in respect of that pay.

The Court of Appeal reviewed the contractual terms and was of the unanimous decision that both the FTT and the UT were correct in deciding the issue against Reed.


4.1 Legislation restricting deduction of foreign branches VAT deferred

In the March 2015 Budget, in response to CJEU judgment in the Le Crédit Lyonnais case, the Chancellor announced that legislation would be introduced that would restrict the deduction of VAT incurred within the UK in the management of foreign branches. Following a period of consultation, we understand that the legislation will now not be introduced in August as originally intended.

As part of the consultation, professional bodies such as the CIOT expressed concerns about the legislation. It appears that HMRC has listened to concerns.

4.2 Supply of medical care services via corporates/partnerships

The First-tier Tribunal (FTT) has released its decision in favour of the taxpayer on the City Fresh Services Limited case. In summary, the case concerns dentists supplying their services via a company and a partnership to the NHS. HMRC had contended that the company's supplies should be considered as the taxable supply of staff rather than an exempt supply of dental care.

The Court found in favour of the taxpayer, noting that the legal form of the person providing the medical care is irrelevant so long as the essential nature of the supply being made does not change. It was noted that there was no need for supplies of medical care to be made directly to the final patient. In this case, the treatment of the supplies should not be treated any differently between parties in a chain (even where the parties in the chain are corporates and partnerships); all were making exempt supplies of medical care.

The case was decided on the particular facts but undoubtedly, it will be of interest to businesses supplying medical services and especially those supplying medical services via a company.

4.3 Input tax recovery for hire purchase businesses

The Court of Appeal has released its decision on the Volkswagen Financial Services (UK) Limited (VWFS) partial exemption case, finding in favour of the taxpayer. The case concerns input VAT recovery for companies engaged in hire purchase transactions involving cars.

The issue on the appeal was whether any of the residual input tax paid by VWFS in respect of the general overheads of the business was deductible against the output tax paid on the taxable supply of vehicles to customers. HMRC had contended that the correct tax treatment of the residual input tax on overheads was that the overheads were all attributable to the exempt supplies of finance and the input tax was therefore irrecoverable.

As this is a complex case, we may provide further analysis in a future issue of Update. In the meantime if this might affect your business, please feel free to get in touch with your usual Smith & Williamson contact or a member of our VAT team.

We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2015

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Tina Riches
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