1.1 Plastic bag 'tax'
DEFRA has published a note of the results and impact of the plastic carrier bag charge of 5p per bag that large shops were required to charge from 5 October 2015. For the first six months, the impact seems to have been to reduce the issue of single-use carrier bags by the largest seven retailers to 1.1 bn, or 1/6 of the figures in 2014. In addition, at least £29.2m of the proceeds was donated to good. The drop in use is greater than the government anticipated, which was 80% for supermarkets and 50% for other high street shops.
2. Private client
2.1 Ingenious tribunal decision
As we go to press the First-tier Tribunal (FTT) has published the decision in the long-running Ingenious Film case. The decision, which runs to over 340 pages and even includes contents pages to help navigation, covered the appeal of Ingenious Games LLP, Inside Track Productions LLP and Ingenious Film Partners 2 LLP against HMRC. The outcome, which has been reported as a victory for all parties, appears to be mixed: the partnerships were held to be trading, which differentiates these investments from certain avoidance schemes, but the FTT has required a disallowance of some of the expenses incurred.
We plan to study the case over the coming days or weeks.
3. PAYE and employment
3.1 Spotlight 32: Managed service companies avoidance schemes
HMRC has issued Spotlight 32 in which it highlights the managed service company (MSC) legislation following its success at the First-tier Tribunal (FTT), against a tax avoidance scheme involving unpaid PAYE and Class 1 National Insurance contributions on employment income.
In Christianuyi Ltd & Ors v Revenue and Customs UKFTT 272 (TC) (21 April 2016) HMRC successfully argued that the MSC legislation applies to arrangements established and run by a third party.
4. Business tax
4.1 Greene King tax avoidance case – partial win for HMRC
The Court of Appeal has dismissed Greene King's appeal against the decision of the Upper Tribunal (UT) on the Project Sussex scheme seeking to provide a tax deduction mismatch on an intragroup loan arrangement. The court did however conclude that there was in fact a loan relationship between the two group entities which removes the potential double charge to tax.
The brewery Greene King used a tax avoidance scheme involving the use of loans between group companies. In our Tax Update of 28 April 2014, we advised that the UT had dismissed Greene King's appeal against the First-tier Tribunal's (FTT) decision and outlined the issues considered. The scheme aimed to allow one company in a group to get tax relief on the interest paid on an intragroup loan arrangement without the corresponding taxable credit. The tax deduction for Greene King was in excess of £20m.
The court disagreed with the UT and FTT on one point by concluding that there was a loan relationship between the two group entities within the meaning of FA 1996 s.81. This means that the interest credit, which otherwise would have been subject to additional tax under FA 1996 s.84(1)(a), was excluded from this by application of FA 1996 s.84(2)(a). This decision will also affect a number of other corporate groups who used the scheme. In total, £30m of tax is due to HMRC.
Greene King Plc & Anor v Revenue And Customs  EWCA Civ 782
4.2 Country-by-country reporting guidance
The OECD has updated its guidance on country-by-country reporting to clarify that partnerships are within scope as reporting entities.
4.3 OTS discussion documents
The Office of Tax Simplification (OTS) has published discussion documents on 'lookthrough' taxation and a sole enterprise protected assets (SEPA) business model. Responses to both documents are due by 12 September 2016.
This paper focuses on the OTS' lookthrough model in relation to taxing small companies and their owners.
The owners would be taxed directly on the company's income under income and CGT rules. This would be instead of corporation tax. The paper looks at five key issues in relation to lookthrough:
- Who would lookthrough apply to (or be available for)?;
- Is it possible to define easily the affected taxpayers?
- How would it apply: how would profits be allocated to proprietors?
- What tax consequences ensue: how would the tax be collected?
- Would this be an optional, default or compulsory system?
- Overall, would this deliver simplification?
SEPA business model:
The OTS is exploring the SEPA business model which would make provision for protecting one or more of the assets of a self-employed individual. This would potentially eliminate the need to incorporate solely for limited liability. Those using SEPA would not have a separate legal identity.
The paper focuses on whether there are any further areas that need to be explored and whether or not it is something that is likely to be taken up.
Comments for each document should be sent to firstname.lastname@example.org.
5.1 Reasonable excuse for late payments of VAT
The First-tier Tribunal (FTT) has partly allowed a taxpayers' appeal against default surcharges on the basis that she had reasonable excuse for one default but not for subsequent defaults. The FTT held that non-receipt of a letter from HMRC constituted a reasonable excuse for some of the late payments but not the later defaults, which arose because she did not read subsequent letters thoroughly. The decision addressed the standard of care required from a professional person.
The taxpayer, Angela Spence, was a solicitor and the FTT commented that they would expect a high standard of care and probity from a professional. They did however take into account that she was not a tax specialist. Angela Spence T/A Spence and Horne v Revenue & Customs  UKFTT 507 (TC)
5.2 Zero-rating and clubhouse construction
The Upper Tribunal (UT) has refused an appeal by HMRC against a decision of the First-tier Tribunal (FTT) on the VAT treatment of the construction of a clubhouse. The VAT treatment was dependent on the use of the clubhouse and the UT agreed with the FTT that this could be determined retrospectively.
The club argued that zero-rating should apply to the construction of the clubhouse as it was a village hall, or similar, used by a local community for social or recreational purposes and therefore fell within Group 5 of VATA 1994 Sch 8.
HMRC argued that the key issues were the intended use of the clubhouse pre-construction and the fact that it was not controlled by the community meant that the building should be standard-rated. There was a broader community use post construction than the club had anticipated.
In our Tax Update of 14 September 2015, we advised that the FTT had found that a building's use after construction could be taken retrospectively to determine its intended use before completion. The UT has agreed with the FTT ruling and dismissed HMRC's appeal on the basis that HMRC's interpretation of note 6(b) Group 5 of VATA 1994 Sch 8 was not correct and it is not a requirement for the local community to control the use of the building. Further to this, HMRC failed to demonstrate any error of law on the part of the FTT.
Revenue and Customs v Caithness Rugby Football Club  UKUT 354 (TCC)
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