1. General
1.1 Gift aid small donations scheme consultation responses
The Government has issued a summary of responses to its consultation on the gift aid small donations scheme (GASDS).
1.2 Consultation on Gift Aid and intermediaries
The Government has issued a consultation on draft regulations giving intermediaries a greater role in administering Gift Aid. Responses are due by 5 October 2016.
The aim is to simplify the existing process and increase Gift Aid on eligible donations. The new process would be voluntary and an alternative to the existing methods. Rather than completing a separate Gift Aid declaration for each charity, an individual would be able to complete one declaration per intermediary, who can then be authorised to complete declaration on their behalf for the rest of the tax year.
1.3 Consultation on stamp duty land tax
The Government has issued a consultation on changes to the filing and payment process for stamp duty land tax (SDLT). Responses are due by 7 October 2016.
The proposals are intended to make the filing and payment process faster and easier. The main proposed changes are:
- A reduction in the SDLT filing and payment window from 30 days to 14 days (to be implemented between 1 January 2018 and 1 March 2018);
- Mandatory online filing for agents, including penalties for failing to submit online;
- Mandatory electronic payment for agents including penalties for failing to pay online;
- Including the facility to allow a user to provide direct debit details on the online return; and
- Building in functionality to amend the SDLT return within 12 months.
1.4 Crowdfunding and ISAs
Following a consultation last year, HMRC has released draft legislation for including certain debt securities offered via a crowdfunding platform as qualifying investments for innovative finance ISAs. Interest, gains and other payments from these investments will qualify for tax advantages when held in an innovative finance ISAs.
This will have effect from 1 November 2016.
2. Private client
2.1 Distributions on winding up clearance requests
HMRC has advised the CIOT that it has received several clearance requests for the new targeted anti-avoidance rule (TAAR) for certain distributions made on a winding up. This is due to the uncertainty as to its application. There is, however, no statutory clearance procedure for the new TAAR. HMRC has therefore drafted a standard reply which includes some examples.
HMRC has provided the CIOT with its standard reply to be used in response to requests for clearance from the new TAAR for distributions on a winding up, introduced by clause 35 of the Finance Bill 2016. The drafted standard reply is intended to act as an aide memoire.
The standard reply sets out HMRC's position, expands on its view of how the new rules work and includes basic examples. This is not intended to replace the guidance that HMRC is currently working on. The guidance is due to be released before the end of the year.
2.2 Supporting documents for mortgage applications
HMRC has issued a list of lenders or mortgage providers who have agreed to accept tax calculations that agents have printed themselves. This must be provided together with a tax year overview from the HMRC online account.
2.3 Tax deduction for annual payments
The Court of Appeal has dismissed an appeal against a decision of the Upper Tribunal (UT) to deny a tax deduction for payments made as part of a tax avoidance scheme. The payments were held to be part of a scheme that had no commercial or other purpose than to obtain relief and could therefore not qualify as deductible manufactured overseas dividends (MODs). The deduction was for approximately £303K.
The scheme used a combination of the transfer of overseas securities and payment of MODs. The court held that the payments formed part of a tax avoidance scheme and the transactions had no commercial or other purpose other than the avoidance of tax. The provisions of TA 1988 Sch23A para 4(1) and Reg 2B SI 1993/2004, under which relief for MODs would have been obtained, did not apply to such arrangements.
The court compared the position to UBS AG and Deutsche Bank Group Services (UK) Limited v HMRC [2016] UKSC 13 and, for the same reasons dismissed the appeal.
www.bailii.org/ew/cases/EWCA/Civ/2016/809.html
2.4 Capital Gains Tax – entrepreneurs' relief
The First-tier Tribunal (FTT) has dismissed an appeal against a refusal by HMRC to allow entrepreneurs' relief (ER). Dilip Amin disposed of part of his beneficial interest in business premises and an audit practice. The disposal of the business premises was however not a distinct part and therefore could not qualify for ER.
Mr Amin made a partial disposal of his business premises between April 2008 and April 2010. In May 2008, he sold the goodwill of his audit practice. Mr Amin argued that he had therefore sold part of his business and should be entitled to entrepreneurs' relief on the partial disposal of the premises.
The FTT held that the sale of the premises and goodwill were wholly unconnected transactions and therefore ER was not available. It noted that ER may have been available if Mr Amin had sold a distinct office space in the premises because he no longer needed it as a result of no longer carrying out audit work.
www.bailii.org/uk/cases/UKFTT/TC/2016/TC05265.html
2.5 Consultations
HMRC has published the following consultations:
- Personal portfolio bonds;
- Authorised contractual schemes
Personal portfolio bonds (PPB's)
The consultation looks at the property categories for a PPB at ITTOIA 2005 s.520. The property categories listed can be included in the terms of a life insurance policy without it being deemed a PPB.
The types of investment vehicle that have been suggested to be included in ITTOIA 2005 s.520 are:
- Real estate investment trusts;
- Overseas equivalents of UK approved investment trusts; and
- Authorised contractual schemes.
HMRC is also seeking views on any additions as well as areas where the categories should be narrowed.
Responses are requested by 3 October 2016.
Authorised contractual schemes
The consultation covers the tax rules for investors in Authorised Contractual Schemes (ACS) and their reporting requirements. The purpose of the consultation is to:
- set out capital allowances principles and the difficulties that may affect some ACS investors, and seek views on potential solutions;
- set out the Government's proposals for changes to requirements on ACS to report information both to investors and to HMRC; and
- invite suggestions of other tax changes that would improve the tax framework in this area. Responses are requested by 3 October 2016.
2.6 Consultation on 'lifestyling' of child trust funds responses
The Government has issued a summary of responses to its consultation on the costs and benefits of lifestyling for child trust funds (CTF). Lifestyling is a process designed to manage risk and volatility in account investments as the CTF approaches maturity. The Government has confirmed that it intends to remove the requirement for such funds to be subject to lifestyling. It is considered that the requirement is no longer necessary and potential benefits may arise as a result of the removal.
Legislation to amend the regulations will be introduced to Parliament later this year.
2.7 The Ingenious judgement and its ramifications
The FTT has recast the Ingenious LLPs in a thorough and practical way that also affects other trading loss schemes.
We reported briefly last week that the Ingenious decision, Ingenious Games LLP and others v HMRC [2016] UKFTT 0521(TC) had been released. As the case involves some potential £1bn of tax, interest and penalties and has wide implications, it is worth commenting further.
What was the arrangement? It's all about Black Tuesday
Broadly, Ingenious funded film and computer games production that was done through a series of LLPs that they operated. These LLPs included individual members who contributed capital. Investment in films is inherently reasonably speculative, with many films making losses and some not even making it to the screen. On the other hand, successful films can hit the jackpot. The consequence of this is that any investment in a film is sharply written down in the first year on the assumption the film will not make money but the initial loss can be written back as the film comes on stream and possibly takes off. This creates profits in the second and subsequent years with a tail for other rights such as video and TV. The Ingenious model allocated the year one loss to the individual members to offset against other income.
The next step was that the scheme was designed fiscally to reduce the individual members' economic exposure by allocating virtually all the losses to the individual members. The issue was that after 'Black Tuesday' when the relevant law was changed in 2004, members could only claim losses up the amount of their capital subscription. To make the arrangements economically safer for the individual investors, the amount of their subscription had to be increased by fiscal means using additional funding and guarantees that were not necessarily needed to ensure that all the losses were available.
The nub of the case boiled down to two broad issues. The first was, was each LLP really trading with a view to a profit? If it was not the losses fell away. The second issue was whether the financial arrangements entered into reflected the legal reality. Were the individual investors really contributing the big contribution to cover all the losses, or were the additional fiscal arrangements not really part of the trading activity or part of the LLP at all?
The approach of the FTT was to strip away the additional funding arrangements and to look at the core activity of the LLPs. Looking at this core, it found that the film LLPs were indeed trading. Next they considered whether it was trading with a view to a profit and made a detailed analysis of what 'with a view to a profit' actually meant in context. Profit, for this purpose was an overall final surplus of income over expenditure, rather than a profit in any year or a post-tax profit. The answer in two of the three was 'yes' but, for the games LLP, 'no'. Ingenious as operator conducted complex negotiations and evaluated films and were concerned over the size of their budgets. This was contrasted with other schemes in the Eclipse 35,(Eclipse Film Partners No 35 v HMRC [2015] EWCA 95) Proteus and Samarkand [2015] UKUT 211 and Degorce [2015] UKUT 447 (TCC) cases where the LLPs were held simply to have purchased income streams and who were therefore not trading.
This part of the decision will not help any appeal in those or similar cases (see our note on the Icebreaker LLPs below).
They were therefore trading; but was this with a view to a profit? This in part depended on the second issue: the finance. Put simply, the FTT stripped out the additional funding. Looking at the trading position when it had done, it was comfortable that there was trading with a view to a profit on the film LLPs.
The recasting of the LLP's trade on this basis meant the interpretation of GAAP in the accounts had been based on a false premise and thus had to be prepared afresh.
HMRC has trumpeted this case as a victory see 2.10 below. The fact is, though, it did not succeed in landing its first prize of overturning the whole scheme. 'Partial victory' would be more accurate and Ingenious will take comfort from the recognition that the film LLPs were indeed trading with a view to a profit. With such a long judgment, of some 342 pages, it is not altogether surprising that the parties do not altogether agree on the outcome. An appeal seems highly likely.
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