1 General news

1.1 First-tier Tribunal awards costs in case where HMRC had no reasonable prospects of success

A case recently heard in the First-tier Tribunal has once again raised the question whether HMRC operates a suitably robust filter system to ensure that cases taken to Tribunal have merit.

On 13 September 2012 the Tribunal upheld an appeal by ND and RC Roden against a review decision issued by HMRC refusing to repay £70,000 in input VAT.

HMRC’s case at the hearing was in essence that the supply of accommodation in an hotel made by the appellants was exempt because it was not “the provision in a hotel of sleeping accommodation” as the appellant’s supply of an hotel room was (deemed) not to be made to a person who would actually use the accommodation and sleep in the room, but to an intermediary for such a person.

The judge dismissed HMRC’s case for three reasons:

a) the distinction HMRC drew between supplies to persons who would physically use the room and others was illogical and unlikely to have been intended by Parliament when enacting the legislation;

b) there was even less justification for reading the provision of the Principal VAT Directive (what is now the VAT Directive article 135(2)(a)) which VATA sch9 group 1 Item 1(d) enacted as intending such an illogical distinction between physical users of the room and others;

c) it was a well established rule of EU law that exclusions from exemptions (such as the provision of an hotel room as set out in Schedule 9 Group 1 Item 1(d)) should not be interpreted strictly.

The appellants subsequently applied for their costs on the grounds that they considered that HMRC had acted unreasonably in defending their appeal.

The same judge considered the application and ruled that HMRC should pay the appellants’ costs, based on the following conclusions:

“Was HMRC’s case without a reasonable prospect of success?

My conclusion is that, taking into account:

  • No authority even by analogy was presented to me;
  • Unless expressly stated in the legislation, the identity of the recipient of a supply is irrelevant to the status of the supply;
  • ” Exceptions to exemptions are not interpreted narrowly; ” There was nothing in the wording of either the UK legislation or EU Directive which implied that the identity of the recipient was significant.

HMRC’s case did not have a reasonable prospect of success.

Should HMRC have realised its case did not have a reasonable prospect of success? Taking into account HMRC’s resources, they ought to have been aware of the normal rules of interpretation of exceptions to exemptions. They should have been aware that, without some kind of authority by analogy to support their case, or at least some kind of argument founded in law, it was extremely unlikely a Tribunal would read into Item 1(d) a limitation that was not indicated on its face, was irrational, and (in view of its unfortunate consequences for taxpayers in the hotel business) was unlikely to have been intended by the EU Council.

In conclusion, while there is nothing wrong in principle with taking to tribunal novel points of law unsupported by authority, in this case I find that HMRC acted unreasonably in defending this case based on this single, novel point of law which they ought to have known had no reasonable prospect of success.”


1.2 HMRC Agent Update

  • HMRC’s Agent Update for October/November covers (amongst other things).
  • ATED-related Capital Gains Tax.
  • Offshore tax avoidance: Contractor loan schemes.
  • Data payment crackdown (concerning credit & debit card payments).
  • Goodwill in Trade Related Properties.
  • An updated SEIS1 – Seed Enterprise Investment Scheme Compliance Statement.
  • Machine Games Duty (MGD) returns – penalties for late filing update.
  • National Minimum Wage (NMW) rates from 1 October 2013.
  • Alternative Dispute Resolution (ADR) for SMEs and individuals.
  • Checklist for Limited Company Subcontractors claiming back CIS deductions.
  • Tax Agent Strategy – update.


1.3 Jersey and Guernsey exchange of information agreements with the UK

The government has stated that it will look to sign further Agreements with other jurisdictions as part of their commitment to combat tax evasion. The Crown Dependencies (Isle of Man, Guernsey and Jersey) and the British Overseas Territories (the Cayman Islands, the British Virgin Islands, Bermuda, Anguilla, Turks and Caicos Islands, Montserrat and Gibraltar) have all agreed to enter into automatic tax information exchange agreements with the UK.

The UK and the Isle of Man signed an IGA – the ‘UK-Isle of Man Agreement to Improve International Tax Compliance’ – on 10 October 2013. This is the first agreement of this type to be signed and published where neither party is the USA.

Guernsey and Jersey signed IGAs with the UK on the 22 October 2013 (the ‘UK-Guernsey Agreement to Improve International Tax Compliance’ and the ‘UK-Jersey Agreement to Improve International Tax Compliance’ ) meaning that all the Crown Dependencies have now entered into automatic tax information exchange agreements with the UK. Selected areas of draft guidance have been published alongside the Agreements to give clarity on the key differences in scope. Further draft guidance relating to issues specific to the Agreements will be published in full, along with draft regulations, later this year.


2 Private client

2.1 Pension liberation

HMRC has issued the following statement.

“HMRC is committed to combating pension liberation activity. HMRC has been working closely with other government departments/agencies and the pension industry to take action to prevent pension liberation and preserve pension savings.

Increasing numbers of pension savers are being targeted by unscrupulous companies encouraging them to access their pension savings early. This is commonly known as ‘pension liberation’ and has significant tax consequences.

HMRC has made a number of changes to strengthen existing processes to deter pension liberation and safeguard pension savings. These changes will take effect from 21 October 2013.

Registering a pension scheme

HMRC has made the pension scheme registration process more robust by moving away from a ‘process now, check later’ approach. Scheme registration will no longer be confirmed on successful submission of the online form. This will enable HMRC to conduct detailed risk assessment activity before making a decision on whether or not to register a scheme.


Transferring pension funds between registered pension schemes To help scheme administrators decide whether to make a transfer, HMRC has revised the process for responding to requests for confirmation of the registration status of the receiving scheme. Under this new process HMRC will respond to requests for confirmation of the registration status without seeking consent from the receiving scheme. However HMRC will only provide confirmation where the receiving scheme is registered and the information held by HMRC does not indicate a significant risk that the scheme was set up, or is being used, to facilitate pension liberation. Otherwise, a response will be issued setting out the conditions in which HMRC will confirm registration status and explain that one or both of the conditions are not satisfied.


Other Information

HMRC will continue to raise the profile of the dangers of pension liberation to deter individuals from liberating their pension. HMRC has and will continue to publish clear information on their website. HMRC has recently added a factsheet to their website to highlight the tax consequences of pension liberation on pension savers.


Together with the Department for Work and Pensions and the Pensions Regulator, HMRC has produced a pension liberation update with more information on their work to combat pension liberation.


HMRC is continuing to take firm action to detect and pursue those who deliberately bend or break the rules by offering schemes to liberate pension savings. These changes are part of a continuing strategy to combat pension liberation, as is the ongoing review of the pension tax legislation and HMRC will not hesitate to make further changes if necessary.”

www.hmrc.gov.uk/news/pensionliberation.htm?j=474611&e=richard.mannion@smith.willia mson.co.uk&l=346_HTML&u=12535852&mid=1062735&jb=0

2.2 HMRC guidance on the cap on income tax reliefs

HMRC has published guidance on the cap on income tax reliefs legislation introduced in FA13.


2.3 HMRC guidance on residence, domicile and remittance basis

HMRC has issued a guide (RDR1) for residents and non-residents on the residence, domicile and remittance basis rules for tax years 2012-13 onwards. It replaces the booklet HMRC6. This RDR1 guidance reflects the introduction of the legislative changes to the remittance basis that came into effect for tax year 2012-13 and the introduction of the statutory residence test for tax years 2013-14 onwards. However, comprehensive details of these changes are not yet included and are available in separate notes:

http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=YdWGuSSGR24&formId=74 05





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