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Tax Bites - June 2023

Published on 01 June 2023

Welcome to the latest edition of RPC's Tax Bites - providing monthly bite-sized updates from the tax world.


UK rules implementing the Common Reporting Standard extended

Regulations have been made to extend the International Tax Compliance Regulations 2015 (SI 2015/878) (the Compliance Regulations). The Compliance Regulations require UK financial institutions to report information on certain non-UK account holders to HMRC. HMRC exchange this information with over 100 jurisdictions to comply with their obligations under international arrangements for the exchange of tax information for the purposes of the adoption and implementation of the Common Reporting Standard (CRS).

At present, the Compliance Regulations apply to arrangements implementing the CRS entered into as at 20 April 2022. The extension regulations (which came into force on 17 May 2023) extend this date to 19 April 2023.

HMRC guidance on residence, domicile and the remittance basis updated

HMRC has updated its guidance on residency, domicile and the remittance basis (RDR1) in relation to employees of the EU.

The guidance has been updated at section 4.20 ‘Employees of the EU', to explain that following the UK’s exit from the EU on 31 December 2020, the residence status of a UK resident will change if they first work for the EU after 31 December 2020. For example, if a UK resident first works for the EU (in, for example, Luxembourg) after 31 December 2020, they become a Luxembourg resident.

New government consultation on the taxation of decentralised finance involving the lending and staking of cryptoassets

The government has issued a consultation inviting comments on a potential legislative solution which is intended to better align the taxation of cryptoassets used in certain decentralised finance transactions with the underlying economic substance.

Under the proposed changes, the use of cryptoassets in decentralised finance transactions would no longer be treated as giving rise to a disposal for tax purposes. Instead, a tax disposal would arise when the cryptoassets are economically disposed of in a non-decentralised finance transaction.

HMRC expands its guidance on the loan relationships unallowable purpose rule

HMRC has amended its guidance in its Corporate Finance Manual on the loan relationship regime's unallowable purpose rule.

The guidance includes HMRC's views on whose purposes (including shareholder and wider group purposes) are relevant (CFM38125).There are currently two cases under litigation which consider this issue, HMRC v BlackRock Holdco 5 LLC [2022] UKUT 199 (TCC) and JTI Acquisition Company (2011) Ltd v HMRC [2022] UKFTT 166 (TC). RPC has published commentary on the former here, and is currently representing the appellant taxpayer in the latter case.


Case reports

Documents subject to legal advice privilege were not disclosable to HMRC

In Refinitiv UK Holdings Ltd and Another v HMRC [2023] UKFTT 222 (TC), the First-tier Tribunal (FTT) held that certain documents requested by HMRC in an information notice issued under Schedule 36, Finance Act 2008, did not have to be disclosed because they were subject to legal professional privilege (LPP).

The applicants provided the disputed documents to the FTT for consideration by the tribunal judge (but not HMRC). The FTT concluded that the disputed documents were subject to LPP as they constituted a 'continuum of communications' between in-house lawyers and their client, the dominant purpose of which was to allow for legal advice to be sought and provided. Accordingly, the applicants were not required to disclose any part of those documents to HMRC.

This decision provides a useful indication of how the FTT is likely to approach disputes regarding whether certain documents are subject to LPP and need not therefore be disclosed to HMRC in response to an information notice issued under Schedule 36, Finance Act 2008.

Our comment on the decision can be read here.

Tribunal finds HMRC's discovery assessment to be invalid

In Robson v HMRC [2023] UKFTT 226 (TC), the FTT allowed the taxpayer's appeal against a discovery assessment issued by HMRC under section 29, Taxes Management Act 1970 (TMA), as it had not been validly raised.

Mr Robson had a varying pay structure and bonus scheme which meant that he had, at times, overpaid tax and become entitled to a tax rebate. In 2016, he thought he may be entitled to a further tax rebate and sought help from a third party to make a claim to HMRC on his behalf. Mr Robson instructed Capital Allowances Consultants Ltd (CACL), who had been recommended to him by a colleague.

Rather than apply for a tax rebate, CACL filed tax returns on Mr Robson's behalf which included fictitious EIS investments to generate tax credits. HMRC raised discovery assessments which were challenged by Mr Robson on the basis that CACL was not acting as his agent when filing the returns because they had not been instructed to do so.

The FTT found that a valid return had not been filed and therefore, under section 29, TMA, the assessment was also invalid.

Our comment on the decision can be read here.

Taxpayer confidentiality and a crisis of confidence?

In Mitchell v HMRC [2023] EWCA Civ 261, the Court of Appeal (CA) considered HMRC’s powers to disclose taxpayer information and the FTT's jurisdiction in respect of such disclosures. The CA held that HMRC had discretion to disclose confidential documents obtained (through a Code of Practice 9 enquiry) about one taxpayer to another taxpayer and neither it nor the tax tribunals had jurisdiction over such disclosure.

While the CA’s decision contains an unsurprising statement of the law, the fact that HMRC sought the protection of an FTT order before making disclosure demonstrates a curious lack of confidence when it comes to the exercise of certain of its statutory powers.

Our comment on the decision can be read here.

And finally...

We are excited to announce the launch of our new tax and regulatory platform aimed at accountants and tax advisers. We appreciate that keeping up with developments in the tax world can be a daunting task, with a myriad of HMRC filing deadlines, tribunal decisions and HMRC guidance to stay abreast of whilst servicing the needs of your clients. In recognition of this and following an extensive period of development and content curation, we are delighted to have recently launched Tax Take +, a new educational platform for small to mid-size accountants and tax advisors to help them keep up to date with developments in the rapidly moving tax world and provide their clients with the best possible advice.