UK: Private Client Briefing For April 2018

Last Updated: 2 May 2018
Article by Andrew Goldstone and Nicola Simmons

Speed read

In West, an employee was made liable for PAYE/NICs instead of the employer. In Ackroyd, a BBC/personal service company arrangement was treated as one of employment for income tax purposes under IR35. HMRC continued its run of defeats for filing penalties in Jackson. HMRC has issued further guidance on the deemed domicile rules for cleansing mixed funds, and it has also on published new guidance on the IHT DOTAS rules. Consultations have been launched on extending entrepreneurs' relief; countering avoidance by profit fragmentation; and the tax treatment of charities.

West: liquidated employer's PAYE liability transferred to employee

In HMRC v S West [2018] UKUT 100 (TCC), the Upper Tribunal (UT) allowed HMRC's appeal to transfer an employer's PAYE liability to an employee.

Mr West was an employee, the sole director and shareholder of Astral Telecom Limited. He received a salary in 2011 that was designed to extinguish his outstanding director's loan account before the company entered voluntary liquidation. Mr West signed the company's liquidation accounts and his own personal tax returns, each of which made reference to the liabilities for PAYE and NICs. Following its liquidation, the company was unable to pay its outstanding PAYE and NICs liabilities for 2011/12 and some earlier tax years.

HMRC sought to transfer the company's liabilities to Mr West, on the basis that he received the salary knowing that the company had wilfully failed to deduct tax and pay NICs, as per Income Tax (Pay As You Earn) Regulations, SI 2003/2682, reg 72 and Social Security (Contributions) Regulations, SI 2001/1004/, treg 86(1)(a)(ii) respectively.

The First-tier Tribunal (FTT) by casting vote determined that through various book keeping and accounting entries, the company had not wilfully failed to deduct the tax nor wilfully failed to pay NICs, which under R v HMRC ex parte McVeigh [1996] STC 91 was a pre-condition for the regulations to apply. The FTT therefore held that the company's PAYE and NICs liability did not transfer to Mr West.

The UT disagreed, holding that despite the accounting records, there had been no deduction of tax or NICs. As Mr West was the sole director of the company, his intentions and awareness were ascribed to the company and Mr West knew that no payment of tax could or would ever be made by the company. The company had therefore wilfully failed to deduct the tax and NICs. The regulations applied and the company's tax liabilities were passed on to Mr West accordingly.

Why it matters

There is perhaps cause for concern over the judgment, as it appears to use the regulations as a way of protecting a company's creditors (in this case, HMRC), rather than as intended by Parliament, i.e. simply to assess and collect income tax (as per ITEPA 2003 s 684).

Ackroyd: IR35 win for HMRC against BBC presenter

In Christa Ackroyd Media Ltd [2018] UKFTT 69, HMRC successfully argued that the BBC presenter Christa Ackroyd would have been an employee under the IR35 and was therefore liable to income tax and NICs.

Ms Ackroyd was engaged by the BBC through her personal service company under fixed-term contracts. The contract gave the BBC 'first call' on Ms Ackroyd's services. She was not allowed to work for any other UK broadcaster or any online service, or to write for any UK publication, without the BBC's permission. Ms Ackroyd's company was to be paid in equal monthly instalments for a fixed number of performances (225 days per year in a seven year contract). The sums were paid regardless of whether the BBC had used the full number of days. Receipts from the BBC formed over 95% of the income received by the company for 2009 and 2010.

Under the arrangement, Ms Ackroyd was classed as a self-employed contractor, thus circumventing the requirement for the BBC to deduct income tax and NICs. The BBC said the use of personal service companies was 'standard industry practice' at the time.

IR35 tax status is determined by a 'hypothetical contract' that would have been agreed by Ms Ackroyd and the BBC had they contracted directly. In determining this, the FTT considered that the arrangement had a clear mutuality of obligation akin to employment, as Ms Ackroyd had to work for the fee. Perhaps more importantly, the BBC also had ultimate control over Ms Ackroyd by virtue of its 'first call' over her services, the length of her contract and the restriction that she could only work subject to the BBC's consent.

The FTT held that under Ms Ackroyd's hypothetical contract with the BBC, she would be regarded for income tax purposes as an employee, as per ITEPA 2003 s 49 (IR35). Ms Ackroyd was therefore liable to pay income tax and NICs on the service fees received from the BBC.

A similar analysis was undertaken in another recent case in MDCM Ltd v HMRC [2018] UKFTT 0147, whereby an independent construction contractor was not considered to be an employee under his hypothetical contract as he was not entitled to a notice period, holiday or employment benefits and the employer did not have control over him. That case emphasises that one factor should not override all others, although in MDCM the outcome fell in favour of the employee.

Why it matters

This is HMRC's first IR35 win in nine years. The decision clearly states that it is not a test case, despite being one of several such cases by TV presenters and their personal service companies. Of course, the decision is not precedent unless appealed above the Upper Tribunal. Notably, by that time, responsibility under IR35 to determine whether an individual is an employee or a genuine contractor may have passed to the 'engager' in all cases and not just for public sector bodies such as the BBC (as has been the case since April 2017).

Jackson: penalties for unfiled no gain NRCGT return reduced

In Jackson v HMRC [2018] UKFTT 64, the taxpayer successfully appealed to have penalties for the late filing of his non-resident capital gains tax (NRCGT) return reduced because HMRC had misapplied the law.

Mr Jackson disposed of two UK residential properties in May and September 2015. Whilst the sales generated no gains, as a non-UK resident Mr Jackson should have filed NRCGT returns within 30 days of disposal. Mr Jackson did not realise that the rules had changed until October 2016, when he submitted the returns.

HMRC issued penalties under FA 2009 Sch 55 totalling £1,400 (£100 fixed penalty for being late, £300 for being six months late and £300 for being 12 months late, for each property). Mr Jackson appealed.

In deciding whether HMRC had applied the penalty legislation correctly, the FTT held that the fixed penalty of £100 is imposed without reference to the tax due, so HMRC had applied this aspect of the legislation correctly. As to the other penalties, each of which were levied at £300, being the higher of £300 or 5% of the unpaid tax (i.e. nil), the judge held that HMRC had overlooked Sch 55 para 17(3). This provides that where a taxpayer is liable for a penalty under more than one paragraph of Sch 55 that is determined by reference to a liability to tax, the aggregate of the amounts of those penalties must not exceed 100% of the liability to tax (i.e. nil). The judge therefore concluded that the £300 penalties should not have been issued as they were capped at nil.

Further still, following the case of Welland [2017] UKFTT 870, the FTT held that Mr Jackson's scenario involved special circumstances (para 16(1)), which HMRC should have considered to reduce the penalties. The special circumstances were that Mr Jackson had not been given an opportunity to correct his behaviour; he had made two property sales in quick succession and so was unable to learn from his initial noncompliance. The tribunal therefore considered that only the first £100 penalty should be payable.

Why it matters

This decision confirms the view of the tribunal in Welland that, because the appellant had had no opportunity to correct his behaviour between the two late returns, special relief should be given to reduce the penalties on a later return. Perhaps of greater significance is the interpretation that when penalties are raised under more than one paragraph of Sch 55 in reference to an amount of tax, para 17(3) limits the total amount of those penalties to 100% of the tax liability. Given the wider implications of this decision, HMRC may seek to appeal the decision to the UT.

Cleansing for deemed domiciled individuals

HMRC has issued further guidance on the deemed domicile rules for cleansing mixed funds which came into effect from 6 April 2017, with several examples (see bit.ly/2DsoWpT).

Very broadly, it is possible to cleanse mixed funds by transferring money from one offshore account to another if the taxpayer is non-UK domiciled, was not born in the UK, can identify the make-up of their mixed funds, has claimed the remittance basis in any year from 6 April 2008 to 5 April 2017 and meets certain conditions. Such persons have a two-year window to cleanse funds, ending 5 April 2019.

New IHT DOTAS guidance

HMRC has published new guidance on the requirement to report on IHT avoidance schemes under the disclosure of tax avoidance schemes (DOTAS) rules from 1 April 2018 (see bit.ly/2JqDagY).

To be notifiable, the arrangement must provide an expected IHT advantage, the advantage must be one of the arrangement's main benefits and the arrangement must satisfy two conditions:

  • The tax advantage must relate to 'relevant property' IHT charges on trust assets, gifts with reservation of benefit or transfers that reduce the estate's value without giving rise to a chargeable transfer or a potentially exempt transfer.
  • The arrangement must involve a 'contrived or abnormal step' to achieve the tax advantage.

The guidance creates the concept of an 'informed observer' to determine whether the hallmark is met. The grandfathering rules have been replaced by a new 'established practice exception', meaning that previously excepted arrangements will need to be tested against the new IHT hallmark. HMRC has conceded that the use of trusts is not, in itself, notifiable.

What to look out for

  • HMRC has released details of the penalties framework under the new trust registration service (see bit.ly/2GyiphH), and confirmed that penalties for late returns for the trust registration service will not be automatically imposed.
  • HMRC is consulting on extending the eligibility requirements for entrepreneur's relief to include individuals who no longer hold the requisite 5% of the ordinary share capital in the company because of dilution by the company in issuing shares to raise capital for its trade (see bit.ly/2v8CU2T). The government does not propose to extend such rules to trustees. The new rules will apply to gains in shares held at the time of fundraising events from 6 April 2019. Responses are due by 15 May 2018.
  • The Charity Tax Commission has launched a consultation on the tax treatment of charities (see bit.ly/2JAAeyt): the first systemic review of charity taxes and tax reliefs in over 20 years. The review will examine the role the third sector plays in society and identify ways to improve the efficiency of the current system, including gift aid, VAT exemptions and IHT reliefs. The call for evidence closes on 6 July 2018.
  • In response to the BEIS's call for evidence, the government has reported its plans to implement a new register of the beneficial owner of overseas companies and other legal entities (other than trusts) that own UK property. The government intends to publish a draft bill imposing the register in Summer 2018, becoming operational in 2021.
  • The government has launched a consultation on how to tax UK traders and professionals currently avoiding tax by 'fragmenting' their UK business profits to entities resident in low-tax territories. A key focus is those currently falling outside of a charge under the transfer of assets abroad rules. Under the proposal the changes would apply from 1 April 2019 for corporation tax and 6 April 2019 for income tax. The closing date for comments on the consultation is 8 June 2018.

Originally published by Tax Journal.

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
Related Topics
 
Related Articles
 
Related Video
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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