Tax Bites – June 2024

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

News

UK rules implementing Common Reporting Standard extended

The International Tax Compliance (Amendment) Regulations 2024 (SI 2024/544), in force from 14 May 2024, have simplified the process to extend the regulations governing the UK implementation of the Common Reporting Standard (CRS). The CRS obliges UK financial institutions to report information to HMRC on some non-UK account holders. HMRC in turn exchanges this information with other jurisdictions under various international agreements. 

Prior to the new regulations, the CRS applied to international arrangements in force as at 19 April 2023, with statutory instruments needed to extend the requirements to subsequently entered-into arrangements. The new regulations enable HMRC to bring new arrangements into scope by simple notice. 

HMRC updates its guidance on the new merged Research and Development expenditure credit 

HMRC has updated its recently-published guidance on Research and Development (R&D) Tax Relief: The merged scheme and enhanced R&D intensive support. This scheme replaces the old R&D expenditure credit and small and medium-sized enterprise schemes for accounting periods beginning on or after 1 April 2024.

The update confirms that all expenditure is subject to a payment condition. In other words, only expenditure that has already been paid before the claim is made will be eligible for relief. Expected payments must be claimed for after they are actually paid. The previous version of the guidance incorrectly suggested that this was not the case for all expenditure.

OECD publishes commentary on its Global Anti-Base Erosion model rules

The OECD has published consolidated commentary and examples on its Global Anti-Base Erosion (GloBE)  model rules. The GLoBE rules are a core part of the OECD's international tax strategy, which aim to impose a global minimum 15% tax rate on the profits of large multinationals. These new publications bring together commentary from 2022 and subsequent updated guidance from 2023. While they make no material changes to the individual items of guidance as previously published, they will be a useful consolidated resource for practitioners to consult. 

HMRC updates its Residence, Domicile and Remittance Basis manual

HMRC has updated its internal Residence, Domicile and Remittance Basis manual. The changes focus on the procedure for making claims on a remittance basis. They chiefly clarify the explanations of time limits and consequential remittance basis claims, as well as including a proviso that claims for overpayment relief are not available in relation to remittance basis claims.

Although the manual is designed for internal HMRC use, it is available to view online and provides a useful indication of HMRC's processes and criteria. 

Case reports

Tribunal dismisses HMRC's appeal and confirms transactions did not give rise to a taxable remittance

In HMRC v Sehgal [2024] UKUT 00074 (TCC), the Upper Tribunal (UT) dismissed HMRC's appeal and confirmed that transactions entered into by the taxpayers for the sale of shares did not give rise to a taxable remittance under section 809L, Income Tax Act 2007 (ITA).

The provisions concerning the remittance basis are notoriously complex and have generated a substantial body of case law in recent years. The UT's decision provides helpful clarification on, amongst other things, the meaning of "service", for the purpose of the conditions in section 809L, ITA, and guidance on determining the place of provision of the service. While the government has indicated an intention to abolish the remittance basis, and it remains to be seen whether HMRC will seek to appeal this decision, the UT's confirmation that the remittance rules are not anti-avoidance rules will be helpful to taxpayers challenging assessments issued by HMRC under the remittance rules.

You can read our commentary on this decision here.

Taxpayers' application for  protective costs order against HMRC refused

In (1) The Executors of the Estate of Peter John Linington (2) The Trustees of The Kent Trust V HMRC [2024] UKUT 00070 (TCC), the UT dismissed the taxpayers' application for a protective costs order (PCO) against HMRC under which they would not have been liable for HMRC’s costs in defending their appeals if the appeals were dismissed.

PCOs are not readily made by the tax tribunals and this decision provides useful guidance on how the UT and appellate courts are likely to approach and determine an application by a taxpayer for a PCO.

You can read our commentary on this decision here.

Tribunal allows taxpayer's appeal in R&D case against penalty assessment for careless inaccuracy

In H & H Contract Scaffolding Ltd v HMRC [2024] UKFTT 00151 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against a penalty assessment as the inaccuracy in the tax return was not careless.

This decision highlights the importance of taxpayers carefully considering  their eligibility for R&D claims before submitting such claims to HMRC. Taxpayers are required to take steps expected of a prudent and reasonable taxpayer in their position. Taxpayers need to consult competent advisors who have the necessary expertise to advise them appropriately and even then, depending on the circumstances, it may not be sufficient for a taxpayer to simply leave everything to their advisor.

This decision also highlights the importance of where the burden of proof lies. In this instance, the burden rested with HMRC and it failed to adduce sufficient evidence to establish that H&H had been careless.  

You can read our commentary on this decision here.

And finally...

Adam Craggs and Daniel Williams have published an article in Tax Journal on HMRC information notices. It covers HMRC's powers to gather information from taxpayers, financial institutions and other third parties, as well as the limitations on such powers.

The article can be read here (subscription required).