UK: Weekly Tax Update - Monday 5 October 2015

Last Updated: 13 October 2015
Article by Tina Riches


1.1 Response to HMRC consultation on tax enquiries closure rules

HMRC has published a summary of responses to its July 2015 consultation on the tax enquiry framework. As the outcome is not clear cut, further discussion will take place in working groups with a view to including legislation for references to a Tribunal for full or partial closure of an enquiry in either Finance Bill 2016 or 2017.

The main points raised in the original consultation were as follows:

  • the inflexibility of the current enquiry process means enquiries can take a long time to settle;
  • complex cases involving significant amounts of tax can delay the settlement of simpler disputes within the same enquiry; and
  • in cases affecting more than one taxpayer under enquiry, the process of selecting a representative case means that those taxpayers with other complexities to their dispute are less likely to be selected (an unintended benefit).

Responses recognised that there was a need to streamline the enquiry process but the majority did not approve of HMRC's original proposal of HMRC having a unilateral power to apply for a Tribunal Referral Notice (TRN – concerning either full or partial closure of an enquiry). There were suggestions for making the operation of TRNs equitable between taxpayers and HMRC.

In conclusion the response document comments:

'HMRC proposes to proceed on the basis that there is a need to provide a partial closure provision. However, as the most practicable way to give that effect is not clear cut, HMRC proposes to develop a small number of alternative models. HMRC will then consult stakeholders in order to identify the optimum model.

'HMRC's aim is to bring forward legislation in Finance Bill 2016. However, given the differing views of respondents on the optimum approach, and the time needed to consult further, it may be necessary to defer legislative change until Finance Bill 2017.'


2.1 Government confirms consultation on tax reform of non-domiciliaries

The promised consultation document on the reform of tax for non-doms has been released in virtually unchanged form.

In last weeks' Update we reported on the main contents of the consultation and that the document had been released momentarily and been withdrawn. It has now been re- released, but because of the delay the period of consultation has been extended with responses required by 11 November.

We have prepared a briefing note covering the consultation document, which can be accessed at:


3.1 September 2015 HMRC employment related securities (ERS) newsletter

HMRC's September ERS newsletter covers the following points:

  • restricted stock units (RSUs) – it is recognised that there is uncertainty in applying the new rules for ERS for internationally mobile employees contained in FA 2014 Sch9 concerning application of national insurance charges to RSUs depending on whether they are charged as earnings or as employment related securities options .

    HMRC are considering a change to the legislation and will hold a stakeholder meeting to discuss this;
  • ERS on-line - HMRC is concerned by the number of cases in which a company has registered a share scheme for the tax year 2014 to 2015 but has not submitted an annual return. If a scheme has been registered in error, HMRC suggests logging on and entering a final event date of 6 April 2014. In addition, due to a technical fault, the data from some submitted 2014 and 2015 returns has not been captured. Some employers may receive a request for re-submission and we have seen this happening for some unlucky clients.

3.2 September 2015 HMRC pension schemes newsletter – LTA reduction

HMRC's September pension schemes newsletter covers a number of points including the following important message regarding the current absence of legislation concerning the reduction in lifetime allowance (LTA) from £1.25m to £1m on 6 April 2016 and any associated fixed protection. The newsletter indicates further details will be issued in October:

'Legislation for both the reduction in the LTA and the protection regimes (fixed protection 2016 (FP2016) and individual protection 2016 (IP2016)) will be delivered in Finance Bill 2016. As a result it will not be possible for scheme members to apply for protection until after April 2016. This means that individuals cannot notify us of their intention to rely on FP2016 in advance. Individuals who want to rely on FP2016 need to start thinking about what arrangements they need to make to stop accruing benefits after 5 April 2016.

'The application process for FP2016 and IP2016 will be online and will require the member (or their authorised representative) to provide similar information and declarations as for FP2014 and IP2014. The online system will provide a response to the notification along with a protection reference number. The member will need to provide this protection reference number to their pension scheme in order to take their benefits using a protected LTA. For these protection regimes no certificate will be issued.'

It seems that it will be important for individuals affected by the LTA reduction to take their decision and act accordingly from 6 April 2015, even though the election cannot be made until after that. It may be wise to take advice from your financial adviser. S&W financial advisers can assist in such matters.

3.3 Registering overseas pensions

HMRC has issued a note on notification obligations for registered overseas pension schemes (ROPS) and qualifying registered overseas pension schemes (QROPS) wanting to maintain or obtain QROPS or ROPS status.

It points out that ROPS are required to notify HMRC of their ROPS status every five years and adds:

'You must notify HMRC of your ROPS status every five years from the date that HMRC gives you your QROPS number. You must provide the same information as you did when you first notified your schemes' ROPS status.

'You have six months before the re-notification deadline to tell HMRC that your scheme meets the requirements to be a ROPS.

'The ROPS re-notification process begins from 6 April 2016 and for the first re-notification HMRC will write to tell you that you must re-notify your scheme as a ROPS.

'If you don't successfully re-notify HMRC of the ROPS status of your scheme, it will be suspended from the list and HMRC may exclude the scheme from being a QROPS.'


4.1 Reforming the business energy efficiency tax landscape

HMRC has issued a consultation requesting responses by 9 November 2015, concerning reforming the business energy efficiency tax landscape. The consultation considers the following areas:

  • Climate Change Levy (CCL);
  • Carbon Reduction Commitment Energy Efficiency Scheme (CRC);
  • taxes on other fuels – eg heating oils;
  • Climate Change Agreements (CCAs);
  • mandatory greenhouse gas (GHG) reporting;
  • Energy Saving Opportunity Scheme (ESOS);
  • Enhanced Capital Allowances (ECAs); and
  • Electricity Demand Reduction (EDR) pilot.

The proposals are to:

  • simplify reporting and tax systems so that any overlap between different aspects is minimised and a single business or organisation faces one tax and one reporting scheme;
  • propose the development of a single reporting regime through ESOS;
  • replace the CRC and CCL with a new energy consumption tax based on the CCL;
  • request views as to the balance of tax costs across fuels, where proposals can better deliver carbon reduction potential;
  • request views on the effectiveness of CCAs, which exempt some industry sectors from energy taxes;
  • request views on options for incentives for energy efficiency. In the context of fiscal consolidation, proposals would need to be funded through increases in tax. In designing any new incentive the following principles will need to apply:

    1. it incentivises energy efficiency and carbon reduction;
    2. is simple for businesses to understand, access and comply with; and
    3. it maximises its impact.
  • request views on how the public sector and charity sectors would be affected.


5.1 Alcohol wholesaler registration scheme

The 'alcohol wholesaler registration scheme' was due to open on 1 October 2015, but this has been deferred to 1 January 2016. Details of the scheme and revised dates are set out on the website and supersede the note in HMRC VAT Notes 3 2015.

Under the Finance Act 2015, businesses will need to apply to register for AWRS or be at risk of trading illegally.

HMRC says:

'All alcohol wholesalers, including those who already hold other excise registrations, will have to submit their AWRS application between 1 January and 31 March 2016. New wholesalers who start trading after 31 March 2016 must apply for registration at least 45 days before they start trading. They must not start trading until HMRC have assured their fit and proper status, otherwise they will be subject to a penalty.

'HMRC will scrutinise all applications and carry out any site visits between 1 January 2016 and 31 March 2017. Therefore wholesalers will hear the outcome of their applications at different times, but all will hear by 1 April 2017. Critically where a business fails the scheme's 'fit and proper' test, HMRC may remove a business's right to wholesale alcohol at any time during the introduction of the scheme.

From 1 April 2017 wholesalers and alcohol trade buyers (for example brokers, auctioneers, alcohol retailers) must also source alcohol only from HMRC approved businesses (unless they are buying direct from abroad or from another retailer whose wholesale sales are purely incidental to their retail business).'

5.2 Exempt and taxable supplies link prevents recovery of input VAT

The First-tier Tribunal (FTT) has rejected a taxpayer's appeal against HMRC's denial of input VAT recovery on costs in connection with the refurbishment of a golf clubhouse. In line with previous case-law the FTT found that there was a 'direct and immediate link' such that the input VAT on the refurbishment costs related to both exempt membership and taxable food and drink supplies, and should therefore be treated as residual, with recovery according to the club's partial exemption method.

Bedale Golf Club Ltd (B) refurbished chairs, replaced curtains and carried out maintenance work on the lift in its clubhouse. B argued input VAT was recoverable on the costs involved because the lounge and bar area where the work was carried out was used exclusively for the taxable supply of food and drink.

B contended this was distinct and separate from the exempt supply of golf membership it also provided. HMRC argued the supplies were connected, with the food and drink intrinsically linked to the golf membership, and therefore input tax could only be recovered according to the club's residual input tax recovery method.

The FTT agreed with HMRC's analysis, stating that 'from an economic perspective, the exempt and taxable supplies are closely interconnected and are intended to feed off each other' and that 'use of the clubhouse by the members is an intrinsic part of their membership and is inseparable from the exempt supplies of sporting services.' It therefore found that the costs involved were not incurred exclusively for making taxable supplies and dismissed B's appeal.

5.3 Charitable activities and temporary letting of rooms

The First-tier Tribunal (FTT) has found that output VAT should have been accounted for on the disposal of a property to a charity. The charity's (realised) intention to rent rooms in the property temporarily to its beneficiaries represented the furtherance of a business, despite there being no profit motive. It dismissed the charity's appeal to the contrary and provided further commentary on what it considers furtherance of a business for these purposes.

This case concerned the Trustees of the Book Production Consultants Retirement and Death Benefit Scheme. The Trustees sold a property on which the option to tax had been made to The Institute for Orthodox Christian Studies (OCS). No VAT was accounted for on this sale as OCS had made a declaration that it intended to use the property for a relevant charitable purpose. OCS was established to further religious education of the Orthodox Church. OCS contended the temporary letting of rooms to its students formed part of this relevant charitable purpose. A relevant charitable purpose is something done otherwise than in the course of furtherance of a business (VATA 1994 Sch 8 group 5 note 6).

The FTT considered what constituted the furtherance of the business and found that 'there is a presumption that any supply of goods or services in return for a consideration amounts to a business activity, and this is so even if services are subsidised or there is no intention to make a profit'. The onus was on OCS to show its activities did not involve the furtherance of a business.

The FTT did, however, find that this did not mean 'any activity carried out for remuneration on a permanent basis must be an economic activity if it is carried out for consideration'. It stated there was scope for the intrinsic nature of what the charity does to prevent its activity being defined as the furtherance of a business. On analysis, it was found that, although the greater part of the charity's activities involved the carrying out of charitable activity, the rental activity did, in fact, represent the furtherance of a business.

OCS, which had appealed the decision as a third party, therefore had its appeal dismissed with the consequence that VAT of £133,333 was due on the deemed VAT inclusive sale price of £800,000.

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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Tina Riches
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