Tax Bites - May 2023
Welcome to the latest edition of RPC's Tax Bites - providing monthly bite-sized updates from the tax world.
News
HMRC issues disguised remuneration briefing paper
An updated HMRC policy paper has been published providing information on disguised remuneration avoidance schemes, i.e. arrangements that involve loans being made to workers instead of the payment of income with the aim of avoiding income tax and national insurance contributions. It explains how taxpayers can settle with HMRC and/or pay the loan charge.
HMRC publishes online service for declaring unpaid tax
HMRC has issued guidance which explains how taxpayers can use HMRC's website to make a disclosure of onshore and offshore income or gains which have not been declared for previous tax years. It usefully provides a calculator to help taxpayers work out the amount of tax, interest, and penalties owed.
GAAR panel finds that SDLT planning involving a sub-sale and an annuity was not a reasonable course of action
On 11 April 2023, the GAAR advisory panel, following a referral by HMRC under Schedule 16, Finance (No 2) Act 2017 (which sanctions enablers of defeated tax avoidance), published a notice produced under paragraph 34, Schedule 16, that the entering into and carrying out of certain defeated arrangements, intended to save SDLT, were not, in its opinion, a reasonable course of action.
DAC 6 reporting service to close on 31 May 2023
HMRC will close its DAC 6 reporting service on 31 May 2023. Thereafter, the Mandatory Disclosure Rules service will be available to report some arrangements that seek to avoid the Common Reporting Standard.
With effect from 28 March 2023, the International Tax Enforcement (Disclosable Arrangements) Regulations 2023 (SI 2023/38), revoked the UK DAC 6 disclosure rules and replaced them with rules requiring disclosure of some cross-border tax planning arrangements that seek to avoid reporting under the Common Reporting Standard.
Case reports
'Voice of Rugby' wins IR35 tax appeal
In S&L Barnes Ltd v HMRC [2023] UKFTT 42 (TC), the First-tier Tribunal (FTT) held that the intermediaries legislation (IR35) did not apply to a personal service company which supplied the services of former England rugby international Stuart Barnes to Sky TV Ltd as a rugby co-commentator and pundit.
Whilst this decision will no doubt be welcomed by Mr Barnes, it should be noted that the decision went in favour of the taxpayer on the basis of numerous factors that are highly context-specific. 'Celebrity' IR35 cases tend to be different in nature to other IR35 disputes involving self-employed individuals. As the appeals brought by Gary Lineker (see further below) and Eamon Holmes ([2023] UKUT 00083 (TCC)) have recently demonstrated, the application of IR35 in practice is not a straightforward exercise and it may only be a matter of time before a statutory test for employment is enacted.
Our comment on the decision can be read here.
Tribunal orders HMRC to close its enquiries
In J Hitchins and others v HMRC [2023] UKFTT 127 (TC), the FTT granted the taxpayers' applications, made pursuant to section 28A, Taxes Management Act 1970 (TMA), for a direction requiring HMRC to issue closure notices.
The FTT held that HMRC's enquiries had been conducted to a point where it was reasonable for HMRC to make an “informed judgment” of the matter, even though every line of enquiry may not have been pursued to the end. Whilst HMRC had not received answers to all of its questions, the FTT considered that the outstanding questions relating to a £40m distribution did not have a reasonable basis and amounted to a "fishing expedition" by HMRC.
One of the keenest areas of contention between HMRC and taxpayers is the length of time enquiries can take before they are finally concluded. As the legislation does not provide a time limit by which HMRC is required to conclude an enquiry, enquiries often become unfocussed and protracted. There will therefore be occasions when a taxpayer decides that an enquiry has gone on for long enough and wishes to bring it to an end. Section 28A, TMA, provides an effective mechanism by which a taxpayer can apply to the FTT for a direction requiring HMRC to close its enquiry within a specified time period. We are finding that clients are increasingly choosing to make such an application.
Our comment on the decision can be read here.
Tribunal finds that IR35 rules do not apply to Gary Lineker's services
In Gary Lineker and Danielle Bux t/a Gary Lineker Media v HMRC [2023] UKFTT 00340 (TC), the FTT held that the IR35 rules do not apply to a television presenter's services which were provided via an intermediary partnership, because he himself had signed the relevant contracts in his capacity as a partner in that partnership and therefore had a direct contract with the relevant clients.
This is the first time that the issue of whether there was a direct contract between the worker and the client has come before the FTT. The decision suggests that those drafting the IR35 provisions did not have general partnerships at the forefront of their mind when doing so, even though the legislation does refer to a partnership or an unincorporated body as a potential intermediary body. It may initially seem counter-intuitive for the result here to depend on which partner executed the contractual agreements, but the FTT noted that that was the effect of the decision. HMRC may well seek a re-match by way of an appeal to the Upper Tribunal, in order to correct what it will no doubt consider to be a lacuna in the law. Our comment on the decision can be read here.
And finally...
Taxpayer confidentiality is a fundamental tenet of the UK tax system. The understanding that sensitive information shared with HMRC will be held in confidence is integral to maintaining taxpayer trust and compliance. Understanding HMRC’s approach to confidentiality is therefore of significant importance. Robert Waterson and Liam McKay consider taxpayer confidentiality and whether HMRC have suffered a crisis of confidence when exercising certain of its statutory powers in an article recently published in Tax Journal.