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NEW DEVELOPMENTSFinance Bill progressThe Bill moved to the Report stage where further amendments to the Bill were considered which took place on 2 and 3 July 2012. The Commons completed all stages of the Finance Bill on 3 July 2012. The Bill has now moved to the House of Lords. First reading took place on 4 July 2012 and all remaining stages will take place on 16 July 2012.

See p. 9 for full details.

Recent statutory instruments The Stamp Duty Land Tax (Amendment to the Finance Act 2003) Regulations 2012 (SI 2012/1667) amends the Finance Act 2003, Sch. 17A, para. 10 (c. 14), which lists tenant’s obligations, etc. that do not count as chargeable consideration. This amendment follows the repeal of Council Regulation (EC) No. 1782/2003 and its substitution by Council Regulation (EC) No. 73/2009 on 19 January 2009.

See p. 15 for full details.

Sacre bleu! Taxes on Brits’ French homes set to soarThe worst nightmare of 200,000 Brits who own second homes in France looks set to be realised after newly-elected French President François Hollande announced he will increase taxes on foreign-owned second homes.

Tax on rental income is set to leap from 20 per cent to 35.5 per cent, while capital gains tax on property sales would rocket from 19 per cent to 34.5 per cent.

The inheritance tax-free allowance between parents and children of about €160,000 (£134,000), available to any child of the deceased, is expected to be slashed to €100,000 (£79,413).

The moves are part of a wider series of increases set be voted through in the French parliament this week, designed to accrue €7.2bn (£5.8bn) to plug a massive budget deficit.

Hollande also plans to abolish the tax exemption for overtime hours and scrap existing plans to increase VAT by 1.6 per cent in October 2012.

Extra-statutory concession A19 reviewHMRC have launched a consultation to explore the option for a revised version of extra-statutory concession (ESC) A19. The closing date for comments is 24 September 2012.

ESC A19 sets out how HMRC may exercise its discretion not to collect income and capital gains tax which is lawfully payable, due to HMRC’s delay in acting on relevant information in prescribed circumstances.

Issue 7411 July 2012

Welcome to your latest issue of CCH Tax News. Each issue contains New Developments, Court Round-up and a feature article. Future issues may cover topics such as Diary Dates, Financial Reporting Information and Questions & Answers.

If you have received the print version of this newsletter then you will need to access the e-mail version in order to view the source materials cross-referred to in the New Developments and Court Round-up sections.

In this IssueNew developments 1

Court round-up 4

Feature article 6

Source materials and case digests 9

CCH Tax News

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s The consultation aims are to present and seek views on a revised version of ESC A19.

The consultation document is available from HMRC at http://tinyurl.com/crncnja.

Summary of responses – simplification of regulatory penaltiesA summary of responses to the June 2011 consultation on the simplification of regulatory penalties has been published. The reform proposals have been watered down and will consider a ‘housekeeping’option to legislate in Finance Bill 2013.

The consultation sought to establish the design principles which should be applied to the reform of regulatory penalties, and to examine possible features of a new model, or models.

HMRC, which met with key interest groups and representative bodies, received ten responses from various professional institutions and representative bodies.

The summary of responses document is available from HMRC at http://tinyurl.com/6bj5qjr.

Brace of senior HMRC appointmentsTwo senior appointments at HMRC have been made in a bid to fill the vacuum caused by the imminent exodus of 80 per cent of the organisation’s top team this summer.

Edward Troup, the Treasury’s director general for tax and welfare, will take up the role of tax assurance commissioner and second permanent secretary at HMRC. Meanwhile, Ian Barlow, currently chair of WSP Group plc, has been appointed as the lead non-executive director, in succession to Mike Clasper.

Tax return initiative launchedHMRC have launched its tax return initiative. The scheme is specifically aimed at those who are required to pay tax at the highest rates – 40 per cent and 50 per cent – and are required to complete a self-assessment tax return for tax years 2009–10 or earlier and have not yet done so. The campaign starts on 3 July and runs until 2 October 2012.

Anyone sent returns or been told to complete tax returns for years 2009–10 or earlier and has yet to do so should submit their returns and pay what they owe by 2 October. By coming forward in this campaign, they will receive favourable terms and any penalties.

This campaign is part of a wider HMRC campaign aimed at tackling failures to submit completed returns and will provide a time limited opportunity to encourage those who want to get their tax affairs up to date to come forward. Other HMRC campaigns have so far netted over £510m.

More details are available from the HMRC at http://tinyurl.com/c8ps4kw.

Latest taskforces to bring in £30m for HMRCHMRC expects to add a further £30m to the £50m already collected by its anti-tax evasion taskforces, with the launch of four more campaigns targeting ‘high-risk’ cash in hand trades across the country.

The latest target sectors will be Scottish pubs and clubs, hairdressers and beauticians in Northern Ireland, the motor industry in South Wales, Yorkshire, Nottinghamshire, the North East and South Wales and restaurants in the South West and South Wales.

Further details are available from HMRC at http://tinyurl.com/c8ps4kw.

Offshore tax dodger to pay back over £800k A property developer, who closed a secret Swiss bank account to avoid detection, has pleaded guilty and been ordered to pay fines and compensation totalling £830,000.

Michael Shanly, 66, who features on the Sunday Times Rich List, previously failed to disclose a Swiss offshore account to HMRC during a civil enquiry where he was found to owe the taxman some £1.5m.

The fraud was unearthed when information about UK taxpayers with HSBC bank accounts in Geneva was handed over to HMRC.

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HMRC adds new features to online servicesHMRC have added a VAT view liabilities and payments feature to the business tax dashboard and VAT online services.

The department’s online service is aimed at smaller businesses. Firms need to enrol to use either HMRC’s corporation tax or self-assessment online service before being able to set up a dashboard. It will enable users to see their tax position across different business taxes.

This includes payments made and amounts owed. Registered users will be able to see either corporation tax or self-assessment information – depending on their business type as well as viewing information on VAT and PAYE for employers.

More details are available from HMRC at http://tinyurl.com/cdvukmq.

New guidance notes for completing SDLTIf you file your stamp duty land tax (SDLT) return on paper you’ll need to use the new version of the SDLT guidance notes which are now available from HMRC.

Old paper versions of the SDLT6 guidance notes have now been withdrawn and it’s no longer possible to order these but you can print your own copy of the new guidance notes if you wish to.

The guidance notes are available from HMRC at http://tinyurl.com/d9wh2j5.

Landfill tax – interim advice on lower ratingFollowing recent consultation with representatives of the waste management industry and other stakeholders, HMRC have issued advice whcih clarifies matters relating to the recent HMRC Briefs 15/12 and 18/12. It seeks to clarify matters relating to the acceptance of materials by landfill operators and deals with specific queries that have arisen since the briefs were issued.

This advice does not replace the previous briefs. It will be reviewed regularly and once finalised HMRC will consider the best means of consolidating the briefs and this guidance. HMRC will also update the Landfill Tax Notice, LFT1.

The guidance is available from HMRC at http://tinyurl.com/c6g8j22.

Removal of some occupations listed as being employees for NIC purposes ‘Lecturers, teachers or instructors’ are no longer included in the list of occupations for NIC purposes covered by Social Security (Categorisation of Earners) Regulations 1978 (SI 1978/1689). Normal employment status rules apply. The ‘CWG2(2012) Employer further guide to PAYE and NICs’ Ch. 1, p. 5 has been updated.

The updated guidance is available from HMRC at http://tinyurl.com/c9dkwvc.

VAT Information Sheet 05/12VAT Information Sheet 05/12 details the currency exchange rates needed by non-EU businesses registered for the special scheme in the UK for reporting period ending June 2012.

The information sheet is available from HMRC at http://tinyurl.com/bwaodof.

HMRC notices VAT Notice 700/64 Motoring expenses explains what a car is for VAT purposes, the VAT treatment of motoring expenses incurred by your business, what vehicles qualify and whether you can claim back all or some of the VAT charged and more. This notice cancels and replaces Notice 700/64 (November 2011).

The updated notice is available from HMRC at http://tinyurl.com/bsp4noe.

Notice 199 Imported goods – Customs procedures and Customs debt outlines the Customs procedures which apply to the importation of goods into the United Kingdom from places outside the Community, from the time of their arrival until they are entered to free circulation or another Customs procedure. This notice cancels and replaces Notice 199 (April 2010).

The updated notice is available from HMRC at http://tinyurl.com/d4oekh5.

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s On the HMRC websiteThe following items have recently appeared on the HMRC website (www.hmrc.gov.uk/news/index.htm):

◾ improvements to money laundering regulations (MLR) forms;

◾ News Release: Testing time for fuel fraud – an international search for a new fuel marker to help in the fight against diesel fraud has been announced by revenue authorities in the UK and Ireland;

◾ Excise Information Sheet 04/12 – this information sheet provides information for excise warehousekeepers about the prohibition on luxury goods destined for Syria and is effective from 16 June 2012.

COURT ROUND-UPEUROPEAN COURT OF JUSTICEDTZ Zadelhoff vof v Staatssecretaris van Financiën (Case C-259/11)

The exemption from VAT in Directive 77/388 (the sixth VAT directive), art. 13B(d)(5) covered transactions which were designed to transfer shares in the companies concerned and had that effect but which, in the final analysis, concerned immovable property held by those companies and the indirect transfer of that property. The exception to the exemption provided for in the second indent of art. 13B(d)(5) was not applicable if the member state had not availed itself of the possibility provided by art. 5(3)(c) of treating as tangible property shares or interests equivalent to shares giving the holder rights of ownership or possession over immovable property.

European Court of Justice (Sixth Chamber)Judgment delivered 5 July 2012

For further details, see p. 16.

For commentary on European legislation on VAT, see the CCH British Value Added Tax Reporter ¶2-000.

UPPER TRIBUNALPope & Ors v R & C Commrs

Where the assured under a life insurance policy was missing presumed dead, a payment to his parents representing interest on the sum insured was not taxable in their hands since they were not ‘entitled to the income’ for the purposes of ICTA 1988, s. 59(1), having only an indirect interest in the deceased’s estate.

Upper Tribunal (Tax and Chancery Chamber)Decision released 26 June 2012

For further details, see p. 17.

For commentary on estates and the administration period, see the CCH British Tax Reporter ¶363-150.

FIRST-TIER TRIBUNALRubio [2012] TC 02047

The First-tier Tribunal decided that payments made to a taxpayer due to termination of his employment in lieu of notice, were not chargeable as earnings under the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’), s. 62, but were within the provisions of ITEPA 2003, s. 401. The applicable foreign service exception under ITEPA 2003, s. 413 made such payments not chargeable to tax. Hence, the taxpayer was entitled to a refund of the amount of tax already paid. However, the Tribunal ruled that the taxpayer was not, in any way, entitled to a refund of an additional payment made by his former employer to HMRC under a contractual settlement to account for its Pay As You Earn (‘PAYE’) liabilities, because the taxpayer was never a party to the agreement and he neither suffered nor was liable to suffer for the same.

First-tier Tribunal Decision released 30 May 2012

For further details, see p. 18.

For commentary on taxation of employment income, see the CCH British Tax Reporter ¶405-000.

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Owolabi [2012] TC 02020

The First-tier Tribunal decided that a taxpayer’s position as a sub-postmaster was an office based on the contract, and as such it had an existence independent of the person who held it and was filled by successive holders, under the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’), s. 5(3). Given that the position was an office, and in the absence of any evidence to the contrary, the Tribunal further ruled that the compensation payment the taxpayer received in respect of the closure of the post office was a payment directly or indirectly in consideration or in consequence of, or otherwise in connection with the termination of the taxpayer’s office and therefore a payment which fell within ITEPA 2003, s. 401(1)(a). Hence, such payment was taxable.

First-tier Tribunal Decision released 11 May 2012

For further details, see p. 21.

For commentary on employee compensation payments, see the CCH British Tax Reporter ¶422-000.

Williams [2012] TC 01988

The First-tier Tribunal found that a taxpayer acted as a shadow director of its company, and, in the process, instructed its bookkeeper to reconstruct its records to ensure that he had no personal tax or national insurance contributions (‘NIC’) liability on the drawings he made from the company for the tax year 2006–07. Hence, he knew that the company failed to deduct sufficient tax from relevant payments made to him, and that he received those payments knowing that the company wilfully failed to deduct sufficient tax therefrom, under the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) (‘PAYE Regulations 2003’), reg. 72.

First-tier Tribunal Decision released 9 May 2012

For further details, see p. 22.

For commentary on wilful failure to deduct, see the CCH British NIC Reporter ¶341-525.

Clarke & Co [2012] TC 01986

The First-tier Tribunal decided that the taxpayer, who provided information to his clients related to their tax affairs, was a tax adviser. Since he also practised as an accountant, he was deemed an external accountant under the Money Laundering Regulations 2007 (SI 2007/2157) (‘MLR 2007’), s. 3(7). The Tribunal also ruled that HMRC took reasonable steps to inform those affected of the requirement for registration under the regulations, albeit the steps they took were not the best. MLR 2007, reg. 32(5) merely required HMRC to take simply reasonable steps. The Tribunal further ruled that the taxpayer did not take reasonable steps to comply with the registration requirement of MLR 2007, reg. 33 when he failed to take steps immediately after his medical condition had improved. Lastly, the Tribunal considered the taxpayer’s sickness as a factor in reducing the assessed penalty.

First-tier Tribunal Decision released 3 May 2012

For further details, see p. 24.

For commentary on HMRC supervision, see the CCH British Tax Reporter ¶196-800.

Goldman [2012] TC 01999

The First-tier Tribunal decided that the amount paid to the taxpayer by his employer in settlement of his claims arising from his termination from employment without notice was deemed earnings under the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’), s. 62. The amount was paid to the taxpayer pursuant to a provision in his employment agreement, and not as damages for the employer’s breaches of the agreement. The amount did not relate to the economic consequences of such breaches and had its source in the taxpayer’s contractual entitlement under the employment agreement.

First-tier Tribunal Decision released 24 April 2012

For further details, see p. 25.

For commentary on taxation of employment income, see the CCH British Tax Reporter ¶405-000.

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s Harte & Anor [2012] TC 01951

The First-tier Tribunal decided that the taxpayers did not occupy a property in such a manner that it became their residence. They never put bills into their own name; neither did they move any of their own items in to, nor entertain guests in that property. Thus, they did not satisfy the test of residence within the meaning of the Taxation Chargeable Gains Act 1992 (‘TCGA 1992’), s. 222(5).

First-tier Tribunal Decision released 18 April 2012

For further details, see p. 26.

For commentary on private residence relief, see the CCH British Tax Reporter ¶540-000.

Wirral Independent Recycling Enterprise (‘Wire’) Ltd [2012] TC 01960

The First-tier Tribunal decided that lack of registration with the Charities Commission was not conclusive as to whether the taxpayer company had exclusively charitable purposes at the relevant time. The Tribunal also decided that the taxpayer’s charitable status should be determined on the basis of its original memorandum and articles of its association. Lastly, the Tribunal decided that the taxpayer did not have a charitable status that would exempt it from VAT. Its memorandum and articles of association were not worded in a way so as to be exclusively for charitable purposes. Its objectives did not prevent those of unlimited means from availing themselves of the taxpayer’s activities. Furthermore, upon its dissolution, it was possible for funds to be transferred to non-charitable organisations.

First-tier Tribunal Decision released 17 April 2012

For further details, see p. 28.

For commentary on benefit of charitable status, see the CCH British Value Added Tax Reporter ¶50-000.

Partito Media Services Ltd [2012] TC 01949

The First-tier Tribunal decided that HMRC failed to validly serve the notice to file corporation tax return to a taxpayer for an accounting period because it was sent to the address of the taxpayer’s former agent whose address was no longer the taxpayer’s registered office and place of business. It also ruled that HMRC failed to validly serve the penalty notices in three of four instances because they were sent to the taxpayer’s old registered address. The Tribunal also held that an invalid flat-rate penalty for late filing did not transmute a penalty for failure to notify chargeability. Finally, the Tribunal decided that since the penalty notices were not validly served on the taxpayer, the latter had reasonable excuse for the late filing of its returns.

First-tier Tribunal Decision released 10 April 2012

For further details, see p. 29.

For commentary on delivery and service of documents, see the CCH British Tax Reporter ¶812-600.

FEATURE ARTICLEK2, Brute?Contributed by Trevor Johnson

A tiny sparrow was freezing to death in the wastes of Siberia, when a kindly crow spotted him. Picking the sparrow up in his beak, the crow flew off to a nearby farmyard where there were a number of freshly deposited cowpats. The crow dropped the sparrow into one of the warm cowpats and the sparrow began to revive. Eventually the sparrow felt much better and began to sing. He sang so loud that he came to the notice of the farmer’s cat, who promptly ate him. The moral of the story is that it is not always your enemies that drop you in it and, if you are in it, don’t expect any sympathy.

Jimmy Carr will appreciate that story. He is, I am given to understand, a popular entertainer who appears in television programmes of a comical and satirical nature. He has recently attracted a degree of opprobrium over revelations about his tax affairs. These revelations seem to be due to the unguarded comments and excessive braggadocio of a person who acts as a salesman for the tax scheme adopted by Carr. This person seems to have suffered from Vince Cable Syndrome; making comments, in an effort to impress, that would have been best left unsaid, had he known that the listener was a newspaper reporter. Carr’s name was apparently mentioned as

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one of those who had already signed up for the scheme, which goes under the name of K2 (one wonders what happened to K1?). So much for client confidentiality.

There cannot be anyone in the country who is not aware of the controversy that this revelation created. This remained a hot topic for nearly a week, until, as is usually the case, it was replaced by another scandal. Everyone had an opinion; often merely an expression of their own personal prejudices. Debate ranged around whether the scheme was legal and even if so was it morally acceptable. Inevitably some blamed the Government for defective tax legislation which allowed such schemes to exist, whilst the politicians themselves tried to score party political points off each other. No one however has asked the question, ‘Does it work? ’.

Of course the promoters of the scheme will have a counsel’s opinion to say that it does work (or at least it stands a good chance of working). But then again so did every case that has been lost in the House of Lords. As might be expected, only brief details of the actual mechanics are within the public domain. It is, of course, inadvisable to offer a technical analysis based upon incomplete information, but what the heck! Let’s do it anyway!

As I understand it, Carr has his own management company which contracts out his services to event promoters, television companies and such like. (No, let’s not go down the IR35 road, life’s too short). Carr resigns his position as a director/employee of his management company and takes up a contract of employment with K2, a company resident in Jersey. Apparently this is a company which has contracts with many other high earning individuals and in which, I guess, they are all shareholders (but not directors).

K2 then enters into contracts to supply Carr’s services back to the management company (which has sub-contracted those services to promoters and television companies) or perhaps it supplies the services directly to those promoters. Therefore the payments made for his appearances flow to K2 in Jersey. Under Carr’s contract he will receive a fixed salary only, the balance of his earnings (less, no doubt a commission for K2) will be retained in that company. As K2 is contracting with a number of high-earning individuals, there would need to be some form of ‘ring-fence’ to ensure that Carr’s retained earnings did not accrue to the benefit of someone else. This may perhaps be by each individual holding a separate class of shares which is entitled to benefit only from the retained earnings generated by that individual.

However there is no intention to pay dividends on the shares. Instead the retained earnings are loaned to the individual interest free. Because K2 is non-resident, there is no UK tax charge under the close company provisions (CTA 2010, s. 455). Carr will have a taxable benefit under the beneficial loan regime (four per cent on the outstanding loan; ITEPA 2003, s. 175) so at the top rate he will pay an effective tax rate of two per cent on the earnings loaned to him. If he earns £1m he pays £20,000 tax instead of £500,000, but of course he has to pay the £20,000 every year.

These arrangements raise some interesting questions. Does it makes sense to sign an employment contract for a salary which is considerably less that the amount the company is going to get for your services? What guarantee do you have that you are going to get your hands on the rest of the loot? Are you prepared to trust the promoters to advance you the balance on loan or should you have some form of enforceable undertaking whereby they are obliged to make those funds available to you? If there is some form of contractual obligation, this then begs the question as to whether a ‘loan,’ which may never be repaid, is not in fact some form of remuneration. Put simply, is the whole set-up just a sham?

We can be charitable and answer that question in the negative, because the whole of Carr’s earnings can be taxed on him anyway. This is a case of a UK resident individual having the power to enjoy income which has been received by a non-resident as the result of a transfer of assets (ITA 2007, s. 720).

Although we know from the Bensons Hosiery case (53 TC 241) that the rights under a contract of employment are an asset, it might be thought that there has not been transfer of assets because the contract with Carr’s management company was terminated rather than transferred to K2. A ‘transfer’ requires an asset to be given up by one person and received by another. However in relation to rights, a transfer is to include the creation of rights. By entering into a new contract with K2, Carr created new rights in favour of that non-resident company which clearly result in income arising to it. Equally clearly, the existence of any form of ring-fence will mean that Carr has the power to enjoy that part of K2’s income because it is calculated to accrue for his benefit, it increases the value of his shareholding, he receives a benefit out of it in the form of an interest-free loan and he also probably has indirect control over how those funds are to be applied. For good measure he is also caught by ITA 2007, s. 727 because he has received a capital sum which is in some way connected to the relevant transfer.

Of course there is a commercial let-out to these provisions, though I rather fancy making out a commercial argument for these arrangements might be stretching belief a little too far. However just in case HMRC think that a commercial argument could be advanced, they can always fall back on the settlements legislation, which

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s does not afford the taxpayer that escape route. For these provisions to apply, there must needs be an act of bounty. Entering into a contract where you allow another person to receive and retain the vast bulk of the income generated by your appearances seems pretty bountiful to me and indeed was so held in Crossland v Hawkins (39 TC 493). Again there are two lines of attack; Carr retains an interest in the income of K2 (ITTOIA 2005, s. 624) and he also receives a capital sum in the form of a payment by way of a loan (ITTOIA 2005, s. 633).

So what is all the fuss about? The scheme doesn’t work, so Carr has not avoided tax of £millions. (Of course, if any of the scheme’s promoters are reading this and would like to explain why it does work, I would be delighted to hear from them).

Above all else, what this incident has demonstrated, is the growing power of public opinion in the tax avoidance debate. Unfortunately that opinion is ill-informed and stoked up by journalists who are not going to let the facts get in the way of a good scandal.

Trevor Johnson is a senior technical editor with CCH.

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SOURCE MATERIALS AND CASE DIGESTSPARLIAMENTFinance Bill progressThe Bill moved to the Report stage where further amendments to the Bill were considered which took place on 2 and 3 July 2012. The Commons completed all stages of the Finance Bill on 3 July 2012. The Bill will now move to the House of Lords.

New clauses added:

Fuel duties: rates of duty and rebates from 1 August 2012 to 31 December 2012NC1–

‘In relation to products charged with duty under HODA 1979 on or after 1 August 2012 but before 1 January 2013, that Act has effect as if the amendments made by section 20 of FA 2011 had never been made.’.

Face-value vouchersNC4–

‘(1) In Schedule 10A to VATA 1994 (face-value vouchers), after paragraph 7 insert–

“Exclusion of single purpose vouchers

7A Paragraphs 2 to 4, 6 and 7 do not apply in relation to the issue, or any subsequent supply, of a face-value voucher that represents a right to receive goods or services of one type which are subject to a single rate of VAT.”

(2) The amendment made by subsection (1) has effect in relation to supplies of facevalue vouchers issued on or after 10 May 2012.

(3) Subsection (4) applies where–

(a) a face-value voucher issued before 10 May 2012 is used on or after that date to obtain goods or services,

(b) paragraphs 2 to 4, 6 and 7 of Schedule 10A to VATA 1994 would not have applied in relation to the issue, or any subsequent supply, of the voucher because of paragraph 7A of that Schedule if the voucher had been issued on or after 10 May 2012, and

(c) VAT is not payable under the law of another member State on the supply of the voucher to the user.

(4) The use of the voucher is to be treated for the purposes of VATA 1994 as a supply of the goods or services by the person from whom they are obtained to the user of the voucher.

New Schedules added:

SCHEDULE 26 – CATEGORISATION OF SUPPLIESPART 1 – ZERO-RATED SUPPLIESINTRODUCTORY1 Part 2 of Schedule 8 of VATA 1994 (zero-rating) is amended as follows.

FOOD2(1) Group 1 (food) is amended as follows.

2(2) After excepted item 4 insert–

‘4A Sports drinks that are advertised or marketed as products designed to enhance physical performance, accelerate recovery after exercise or build bulk, and other similar drinks, including (in either case) syrups, concentrates, essences, powders, crystals or other products for the preparation of such drinks.’

2(3) In Note (3), omit the words from ‘and for the purposes of paragraph (b) above’ to the end.

2(4) After that Note insert–

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s ‘(3A) For the purposes of Note (3), in the case of any supplier, the premises on which food is supplied include any area set aside for the consumption of food by that supplier’s customers, whether or not the area may also be used by the customers of other suppliers.

(3B) ‘Hot food’ means food which (or any part of which) is hot at the time it is provided to the customer and–

(a) has been heated for the purposes of enabling it to be consumed hot,

(b) has been heated to order,

(c) has been kept hot after being heated,

(d) is provided to a customer in packaging that retains heat (whether or not the packaging was primarily designed for that purpose) or in any other packaging that is specifically designed for hot food, or

(e) is advertised or marketed in a way that indicates that it is supplied hot.

(3C) For the purposes of Note (3B)–

(a) something is ‘hot’ if it is at a temperature above the ambient ail’ temperature, and

(b) something is ‘kept hot’ after being heated if the supplier stores it in an environment which provides, applies or retains heat, or takes other steps to ensure it remains hot or to slow down the natural cooling process.

(3D) In Notes (3B) and (3C), references to food being heated include references to it being cooked or reheated.’

PROTECTED BUILDINGS3(1) Group 6 (protected buildings) is amended as follows.

3(2) Omit items 2 and 3 (approved alterations and building materials).

3(3) In Note (3), for ‘(12) to (14) and (22) to (24)’ substitute ‘and (12) to (14)’.

3(4) For Note (4) substitute–

‘(4) For the purposes of item 1, a protected building is not to be regarded as substantially reconstructed unless, when the reconstruction is completed, the reconstructed building incorporates no more of the original building (that is to say, the building as it was before the reconstruction began) than the external walls, together with other external features of architectural or historic interest.’

3(5) In Note (5), in paragraphs (a), (b) and (c) omit ‘or other supply’.

3(6) Omit Notes (6) to (11).

CARAVANS4(1) Group 9 (caravans and houseboats) is amended as follows.

4(2) For item 1 substitute–

‘1 Caravans which exceed the limits of size of a trailer for the time being permitted to be towed on roads by a motor vehicle having a maximum gross weight of 3,500 kilogranunes and which–

(a) were manufactured to standard BS 3632:2005 approved by the British Standards Institution, or

(b) are second hand, were manufactured to a previous version of standard BS 3632 approved by that Institution and were occupied before 6 April 2013.’

4(3) In item 3 for ‘5(3)’ substitute ‘5(4)’.

4(4) In the Note for ‘item 3’ substitute ‘item 4’.

PART 2 – EXEMPT SUPPLIES5(1) In Part 2 of Schedule 9 to VATA 1994 (exemptions), Group 1 (land) is amended as follows.

5(2) In item 1, after paragraph (k) insert–

‘(ka) the grant of facilities for the self storage of goods;’

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5(3) In that item, omit ‘and’ at the end of paragraph (m) and after that paragraph insert–

‘(ma) the grant of facilities to a person who uses the facilities wholly or mainly to supply hairdressing services; and’

5(4) In that item, in paragraph (n), for ‘(m)’ substitute ‘(ma)’.

5(5) After Note (15) insert–

‘(15A) In paragraph (ka)–

‘facilities for the self storage of goods’ means the use of a relevant structure for the storage of goods by the person (or persons) to whom the grant of facilities is made, and

‘goods’ does not include live animals.

(15B) For the purposes of Note (15A), use by a person with the permission of the person (or any of the persons) to whom the grant of facilities is made counts as use by the person (or persons) to whom that grant is made.

(15C) A grant of facilities for the self storage of goods does not fall within paragraph (ka) if–

(a) the person making the grant (‘P’)–

(i) is doing so in circumstances where the relevant structure used is, or forms part of, a relevant capital item, and

(ii) is connected with any person who uses that relevant structure for the self storage of goods,

(b) the grant is made to a charity which uses the relevant structure solely otherwise than in the course of a business, or

(c) in a case where the relevant structure is part of a building, its use for the storage of goods by the person (or persons) to whom the grant is made is ancillary to other use of the building by that person (or those persons).

(15D) In Notes (15A) and (15C) ‘relevant structure’ means the whole or part of–

(a) a container or other structure that is fully enclosed, or

(b) a unit or building.

(15E) In Note (15C)(a)(i) ‘relevant capital item’ means a capital item which–

(a) is subject to adjustments of input tax deduction by P under regulations made under section 26(3), and

(b) has not yet reached the end of its prescribed period of adjustment.’

5(6) After Note (16) insert–

‘(17) Paragraph (ma) does not apply to a grant of facilities which provides for the exclusive use, by the person to whom the grant is made, of a whole building, a whole floor, a separate room or a clearly defined area, unless the person making the grant or a person connected with that person provides or makes available (directly or indirectly) services related to hairdressing for use by the person to whom the grant is made.

(18) For the purposes of Note (17)–

(a) ‘services related to hairdressing’ means the services of a hairdresser’s assistant or cashier, the booking of appointments, the laundering of towels, the cleaning of the facilities subject to the grant, the making of refreshments and other similar services typically used in connection with hairdressing, but does not include the provision of utilities or the cleaning of shared areas in a building, and

(b) it does not matter if the services related to hairdressing are shared with other persons.

(19) For the purposes of Notes (15C) and (17) any question whether a person is connected with any other person is to be determined in accordance with section 1122 of the Corporation Tax Act 2010 (connected person).’

PART 3 – SUPPLIES CHARGEABLE AT REDUCED RATE6(1) Schedule 7A to VATA 1994 (charged at reduced rate) is amended as follows.

6(2) In Part 1 (index to reduced-rate supplies of goods and service), at the appropriate place insert–

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s “Caravans ...........Group 12”’

6(3) In Part 2 (the groups), at the end insert–

‘GROUP 12 – CARAVANS

Item No1 Supplies of caravans which exceed the limits of size of a trailer for the time being permitted to be towed

on roads by a motor vehicle having a maximum gross weight of 3,500 kilogrammes.

2 The supply of such services as are described in paragraph 1(1) or 5(4) of Schedule 4 in respect of a caravan within item 1.

Note:This Group does not include–

(a) removable contents other than goods of a kind mentioned in item 4 of Group 5 of Schedule 8, or

(b) the supply of accommodation in a caravan.’

PART 4 – COMMENCEMENT AND TRANSITIONAL PROVISION7(1) Subject to sub-paragraphs (2) and (3), the amendments made by this Schedule come into force on 1 October 2012.

7(2) Paragraphs 4 and 6 come into force on 6 April 2013.

7(3) Paragraph 3(2) to (6) comes into force, in relation to relevant supplies, on 1 October 2015.

7(4) A supply is ‘relevant’ if it is–

(a) a supply of any services, other than excluded services, which is made–

(i) in the course of an approved alteration of a protected building, and

(ii) pursuant to a written contract entered into, or a relevant consent applied for, before 21 March 2012, or

(b) a supply of building materials which is made–

(i) to a person to whom the supplier is supplying services within paragraph (a) which include the incorporation of the materials into the building (or its site) in question, and

(ii) pursuant to a written contract entered into, or a relevant consent applied for, before 21 March 2012.

7(5) In relation to supplies made on or after 1 October 2012 but before 1 October 2015, Group 6 has effect as if, for the purposes of item 1 of that Group, a protected building were also regarded as substantially reconstructed if sub-paragraph (6) or (7) applies.

7(6) This sub-paragraph applies if at least three-fifths of the works carried out to effect the reconstruction (measured by reference to cost) are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works would, if supplied by a taxable person, be relevant supplies.

7(7) This sub-paragraph applies if–

(a) at least 10% (measured by reference to cost) of the reconstruction of the protected building was completed before 21 March 2012, and

(b) at least three-fifths of the works carried out to effect the reconstruction (measured by reference to cost) are of such a nature that the supply of services (other than excluded services), materials and other items to carry out the works would, if supplied by a taxable person, be relevant supplies but for the requirement for a written contract to have been entered into or relevant consent to have been applied for before that date.

7(8) For the purposes of sub-paragraph (4), works carried out that are not within the scope of the written contract entered into, or the relevant consent applied for, as it stood immediately before 21 March 2012, are not a supply made pursuant to that contract or relevant consent.

7(9) In this paragraph–

‘excluded services’ means the services of an architect, surveyor or other person acting as consultant or in a supervisory capacity;

‘Group 6’ means Group 6 of Part 2 of Schedule 8 to VATA 1994 (protected buildings);

‘relevant consent’ means–

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(a) in the case of an ecclesiastical building to which section 60 of the Planning (Listed Buildings and Conservation Areas) Act 1990 applies, consent for the approved alterations by a competent body with the authority to approve alterations to such buildings, or

(b) in any other case, consent under any provision of–

(i) Part 1 of the Planning (Listed Buildings and Conservation Areas) Act 1990,

(ii) Part 1 of the Planning (Listed Buildings and Conservation Areas) (Scotland) Act 1997,

(iii) Part 5 of the Planning (Northern Ireland) Order 1991,

(iv) Part 1 of the Ancient Monuments and Archaeological Areas Act 1979, or

(v) Part 2 of the Historic Monuments and Archaeological Objects (Northern Ireland) Order 1995.

7(10) The Notes of Group 6 apply in relation to this paragraph as they apply in relation to that Group, except that in applying Notes (9), (10) and (11), references to item 2 are to be read as references to sub-paragraph (4) of this paragraph.

The following Clauses and Schedules were amended as follows:

Clause 195–Amendment No.135, page 115, line 3 [Clause 195], at end insert–

‘(1) Schedule (Categorisation of supplies) contains provision about the categorisation of supplies for the purposes of value added tax.’’.

Clause 208–Amendment No.5, page 120, line 19 [Clause 208], at end insert–

‘( ) in subsection (1), after paragraph (c) insert “or,

(d) in a case where paragraphs (a), (b) and (d) of section 74A(1) are satisfied–

(i) it is a reversionary interest, in the relevant settled property, to which the individual is beneficially entitled, and

(ii) the individual has or is able to acquire (directly or indirectly) another interest in that relevant settled property.

Terms used in paragraph (d) have the same meaning as in section 74A.”.’

Amendment No.6, page 120, line 23 [Clause 208], leave out from beginning to end of line 30 on page 121 and insert–

‘“(3D) Where paragraphs (a) to (d) of section 74A(1) are satisfied, subsection (3)(a) above does not apply at the time they are first satisfied or any later time to make the relevant settled property (within the meaning of section 74A) excluded property.”.’.

Amendment No.7, page 121, line 32 [Clause 208], leave out from beginning to end of line 7 on page 122 and insert–

‘“74A Arrangements involving acquisition of interest in settled property etc

(1) This section applies where–

(a) one or more persons enter into arrangements,

(b) in the course of the arrangements–

(i) an individual (‘the individual’) domiciled in the United Kingdom acquires or becomes able to acquire (directly or indirectly) an interest in property comprised in a settlement (‘the relevant settled property’), and

(ii) consideration in money or money’s worth is given by one or more of the persons mentioned in paragraph (a) (whether or not in connection with the acquisition of that interest or the individual becoming able to acquire it),

(c) there is a relevant reduction in the value of the individual’s estate, and

(d) condition A or condition B is met.

(2) Condition A is that–

(a) the settlor was not domiciled in the United Kingdom at the time the settlement was made, and

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s (b) the relevant settled property is situated outside the United Kingdom at any time during the course of the arrangements.

(3) Condition B is that–

(a) the settlor was not an individual or a close company at the time the settlement was made, and

(b) condition A is not met.’.

Amendment No.8, page 123 [Clause 208], leave out line 15 and insert–

‘74C Interpretation of sections 74A and 74B

(1) Subsections (2) to (4) have effect for the purposes of sections 74A and 74B.

(2) An individual has an interest in property comprised in a settlement if–

(a) the property, or any derived property, is or will or may become payable to, or applicable for the benefit of–

(i) the individual,

(ii) the individual’s spouse or civil partner, or

(iii) a close company in relation to which the individual or the individual’s spouse or civil partner is a participator or a company which is a 51% subsidiary of such a close company, in any circumstances whatsoever, or

(b) a person within sub-paragraph (i), (ii) or (iii) of paragraph (a) enjoys a benefit deriving (directly or indirectly) from the property or any derived property.

(3) A ‘relevant reduction’ in the value of the individual’s estate occurs–

(a) if and when the value of the individual’s estate first becomes less than it would have been in the absence of the arrangements, and

(b) on each subsequent occasion when the value of that estate becomes less than it would have been in the absence of the arrangements and that difference in value is greater than the sum of any previous relevant reductions.

(4) The amount of a relevant reduction is–

(a) in the case of a reduction within subsection (3)(a), the difference between the value of the estate and its value in the absence of the arrangements, and

(b) in the case of a reduction within subsection (3)(b), the amount by which the difference in value mentioned in that provision exceeds the sum of any previous relevant reductions.

(5) In sections 74A and 74B and this section–

‘arrangements’ includes any scheme, transaction or series of transactions, agreement or understanding, whether or not legally enforceable, and any associated operations;

‘close company’ has the meaning given in section 102;

‘derived property’, in relation to any property, means—

(a) income from that property,

(b) property directly or indirectly representing–

(i) proceeds of that property, or

(ii) proceeds of income from that property, or

(c) income from property which is derived property by virtue of paragraph (b);

‘operation’ includes an omission;

‘participator’ has the meaning given in section 102;

‘the relevant time’ means–

(a) the time the relevant reduction occurs, or

(b) if later, the time section 74A first applied;

‘51% subsidiary’ has the same meaning as in the Corporation Tax Acts (see Chapter 3 of Part 24 of the Corporation Tax Act 2010).”.’

Amendment No.9, page 123 [Clause 208], leave out lines to 17 to 22 and insert–

‘“(4A) Where–

(a) a charge to tax arises under or by virtue of section 74A, or

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(b) in a case where paragraphs (a) to (d) of section 74A are satisfied, a charge to tax arises under section 64 or 65 in respect of the relevant settled property (within the meaning of section 74A), subsection (1) of this section has effect as if the persons listed in that subsection included the individual mentioned in section 74A(1)(b)(i).”.’.

Amendment No.10, page 123, line 23 [Clause 208], leave out subsections (5) and (6) and insert–

‘(5) The amendments made by this section are treated as having come into force on 20 June 2012 and have effect in relation to arrangements entered into on or after that day.’.

Schedule 23–Amendment No.4, page 549, line 41 [Schedule 23], leave out from ‘subsection’ to end of line 8 on page 551 and insert ‘(5) insert–

“(5A) In relation to the carriage of a chargeable passenger on an aircraft to which section 30(4F) applies–

(a) if the rate which (apart from this subsection) would apply is the rate set for the purposes of subsection (3)(a) or (b), the following rate is to apply instead–

(i) the rate set by an Act of the Northern Ireland Assembly for the purposes of this paragraph, or

(ii) if no rate is so set for the purposes of this paragraph, a rate equal to twice the rate set for the purposes of subsection (3)(b),

(b) if the rate which (apart from this subsection) would apply is the rate set for the purposes of subsection (4)(a) or (b), the following rate is to apply instead–

(i) the rate set by an Act of the Northern Ireland Assembly for the purposes of this paragraph, or

(ii) if no rate is so set for the purposes of this paragraph, a rate equal to twice the rate set for the purposes of subsection (4)(b), and

(c) if the rate which (apart from this subsection) would apply is the rate set for the purposes of subsection (5)(a) or (b), the following rate is to apply instead–

(i) the rate set by an Act of the Northern Ireland Assembly for the purposes of this paragraph, or

(ii) if no rate is so set for the purposes of this paragraph, a rate equal to twice the rate set for the purposes of subsection (5)(b).”.’.

Schedule 26–Amendment No.18, page 588, line 16 [Schedule 26], leave out sub-paragraph (1).

Amendment No.19, page 588, line 24 [Schedule 26], after ‘a supply’ insert ‘of a description specified in paragraph 3’.

Amendment No.20, page 588, line 28 [Schedule 26], leave out ‘the order’ and insert ‘the amendments made by Schedule (Categorisation of supplies)’’.

STATUTORY INSTRUMENTSSTAMP DUTY LAND TAX (AMENDMENT TO THE FINANCE ACT 2003) REGULATIONS 2012 (SI 2012/1667)Made on 27 June 2012 by the Treasury, in exercise of the powers conferred by s. 50(2) and (3) of the Finance Act 2003. Operative from 19 July 2012.

CITATION, COMMENCEMENT AND EFFECT

1(1) These Regulations may be cited as the Stamp Duty Land Tax (Amendment to the Finance Act 2003) Regulations 2012 and come into force on 19th July 2012.

1(2) These Regulations have effect in relation to land transactions with an effective date (within the meaning of Part 4 of the Finance Act 2003) on or after the day these Regulations come into force.

AMENDMENT OF THE FINANCE ACT 2003

2 The Finance Act 2003 is amended as follows.

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s 3 In Schedule 17A (further provisions relating to leases), in paragraph 10(1)(h), for ‘Council Regulation (EC) No 1782/2003’ substitute ‘Council Regulation (EC) No 73/2009’.

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend paragraph 10 of Schedule 17A to the Finance Act 2003 (c. 14), which lists tenant’s obligations etc that do not count as chargeable consideration. This amendment follows the repeal of Council Regulation (EC) No 1782/2003 and its substitution by Council Regulation (EC) No 73/2009 on 19th January 2009.

Regulation 1 provides for the citation and commencement of these Regulations.

Regulation 3 amends paragraph 10(h) of the Finance Act 2003 by substituting Council Regulation (EC) No 73/2009 for Council Regulation (EC) No 1782/2003.

A Tax Information and Impact Note has not been prepared for this Instrument as it contains no substantive changes to tax policy.

EUROPEAN COURT OF JUSTICEDTZ Zadelhoff vof v Staatssecretaris van Financiën (Case C-259/11)The exemption from VAT in art. 13(B)(d)(5) of Council Directive 77/388 (the sixth directive) covered transactions which were designed to transfer shares in the companies concerned and had that effect but which, in the final analysis, concerned immovable property held by those companies and the indirect transfer of that property. The exception to the exemption provided for in the second indent of art. 13(B)(d)(5) was not applicable if the member state had not availed itself of the possibility provided by art. 5(3)(c) of treating as tangible property shares or interests equivalent to shares giving the holder rights of ownership or possession over immovable property.

FactsThe taxpayer was a real estate brokerage and consultancy business in the Netherlands. It was instructed by a Swedish company, F, to find a buyer for a property in Amsterdam which was owned and operated by companies owned by F. F transferred the property to the buyer by transferring the shares in the companies. The taxpayer was also instructed by a Netherlands company, S, to find a buyer for an office complex in ’s Hertogenbosch, which was owned and operated by a company (D) owned by S. The question remained open as to whether ownership of the complex or ownership of the shares in D was to be transferred. The taxpayer found a buyer, to whom the shares in D were transferred.

The taxpayer did not charge or pay VAT in respect of the services provided to F and S of finding buyers for the properties in question. The tax authorities issued an additional VAT assessment on the basis that the services were not exempt and were deemed to have been supplied in the Netherlands.

The Supreme Court of the Netherlands took the view that the appeal court had correctly determined that the Netherlands was the place where the services were deemed to have been performed. On the other hand, the court had doubts as to the correct classification, for the purposes of exemption from VAT, of a transfer of company shares which also entailed the transfer of the ownership of immovable property held by such companies. Accordingly, the court stayed the proceedings and referred to the Court of Justice for a preliminary ruling.

According to the referring court, the Netherlands had not made use of the option granted to member states by art. 5(3)(c) of Directive 77/388 (the sixth directive) to treat as tangible property shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof.

Issues(1) Whether the exemption from VAT in art. 13(B)(d)(5) of the sixth directive covered transactions, which were designed to transfer shares in the companies concerned and had that effect, but which ultimately concerned immovable property held by those companies and the indirect transfer of that property. (2) Whether the exception to the exemption provided for in art. 13(B)(d)(5) was applicable even if the member state had not availed itself of the possibility provided by art. 5(3)(c) of treating as tangible property shares giving the holder rights of ownership or possession over immovable property.

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DecisionThe Court of Justice (Sixth Chamber) (Ruling accordingly) said that the words ‘transactions … in securities’ within the meaning of art. 13(B)(d)(5) referred to transactions which were liable to create, alter or extinguish parties’ rights and obligations in respect of securities.

The fact that, when it instructed the taxpayer to find prospective purchasers for the office complex, S had failed to indicate whether it was the ownership of the complex or the ownership of the shares in D which was to be transferred to the purchasers was irrelevant. It was necessary, in accordance with the VAT system’s objectives of ensuring legal certainty and facilitating application of the tax, to have regard, save in exceptional cases, to the objective character of the transaction in question. Thus, irrespective of any original intention on the part of S, the transaction which ultimately took place was, from an objective standpoint, a transaction in shares.

The purpose of the brokerage and consultancy activities undertaken by the taxpayer, which consisted in finding, for a fee, buyers for immovable property that was subsequently sold and transferred by means of a share transfer, was to ensure that F and the buyer and S and the buyer, respectively, concluded a contract, without the taxpayer having any interest of its own in the terms of the contracts. Those activities therefore corresponded to the word ‘negotiation’ in shares within the meaning of art. 13(B)(d)(5).

Article 13(B)(d)(5) covered transactions, such as those at issue in the main proceedings, which were designed to transfer shares in the companies concerned and had that effect but which, in the final analysis, concerned immovable property held by those companies and the indirect transfer of that property.

The exception to the exemption provided for in the second indent of that provision was not applicable if the member state has not availed itself of the possibility provided by art. 5(3)(c) of considering shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property to be tangible property.

European Court of Justice (Sixth Chamber)Judgment delivered 5 July 2012

UPPER TRIBUNALPope & Ors v R & C Commrs [2012] UKUT 206 (TCC)Where the assured under a life insurance policy was missing presumed dead, a payment to his parents representing interest on the sum insured was not taxable in their hands since they were not ‘entitled to the income’ for the purposes of ICTA 1988, s. 59(1), having only an indirect interest in the deceased’s estate.

FactsA geologist (P) working in Angola was abducted by rebels in 1998. Nothing had been heard of him since then. He had entered into a life assurance policy on his own life, with a sum assured of £100,000.

P’s mother had a power of attorney. She negotiated with the insurance company and in 2002 it agreed to make a payment under the policy of the principal amount insured (£100,000) plus an additional amount of £36,425.97 (‘the extra payment’), described as interest.

For the tax year 2002–03, HMRC issued income tax assessments to P’s parents as his next of kin in respect of the extra payment. They appealed against those assessments. The First-tier Tribunal (FTT) decided that the extra payment of £36,425.97 was not exempt from tax under ICTA 1988, s. 329 as interest on damages; was a payment of ‘interest’ for tax purposes, and thus chargeable to income tax under ICTA 1988, s. 18 (Sch. D, Case III); and that the parents were ‘entitled to the income’ under ICTA 1988, s. 59(1) and thus liable for the tax ([2010] UKFTT 506 (TC); TC 00761). The parents appealed.

IssuesWhether the FTT erred in law in deciding that (1) the extra payment was not exempt from tax under s. 329; (2) it was taxable as interest; (3) the parents were liable for the tax since they were entitled to the income within s. 59 of ICTA.

DecisionThe Upper Tribunal allowed the appeal on the third issue.

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s ICTA 1988, s. 329The extra payment was plainly not interest on damages within ICTA 1988, s. 329 (s. 751 of the Income Tax (Trading and Other Income) Act 2005). It was a payment made pursuant to the death of a person whose life had been insured under a life insurance policy, which was not a payment of ‘damages’.

Extra payment a payment of interest?The FTT was right to decide that the extra payment was interest (Re Euro Hotel (Belgravia) Ltd (1975) 51 TC 293 and National Westminster Ltd v Riches (1945) 28 TC 159 considered).

It was clear from the fact that it was the general principle adopted by the insurer to pay interest at a given rate following the date when the death benefit was due that the insurer’s payment of interest was not ex gratia, but simply part of its normal practice.

It could not be said that there was no debt due under the life policy at the time of the extra payment. It was clear from the terms of the policy that there was no need for the insurer to possess anything other than satisfactory proof of P’s death for the death benefit to be due.

Where a debt was due on a given date, irrespective of the cause of that debt, including death, any payment which was made so as to compensate the creditor by reference to the passage of time that had passed since the due date was interest. It was payment by time for use of money (Bennett v Ogston (HMIT) (1930) 15 TC 374 applied).

Whether parents properly assessable for tax on extra paymentHMRC and the FTT had erred in law in treating the next of kin as ‘entitled to the income’, namely the interest represented by the extra payment, for the purposes of ICTA 1988, s. 59(1). Because P’s estate was unadministered, and not even in the course of administration, at the time when the extra payment was made by the insurer, no person entitled under his assumed intestacy would have had any sufficient entitlement to the death benefit and the extra payment to make him or her entitled to the income in respect of which the tax was directed by the Income Tax Acts to be charged.

The tribunal had to proceed on the basis that P had died and that he was intestate. It was established for purposes of English law in Marshall (HMIT) v Kerr [1994] BTC 258 that beneficiaries under an intestacy did not have a direct interest in the assets of the estate until it was ascertained in due course of administration.

The statements in the deed of discharge that payment was to be made to the parents as next of kin covered their rights and obligations as against the insurer, but did not make them ‘entitled’ in the relevant sense. Thus, when they came to pass on the payment of the death benefit and the extra payment to P’s account, they were not exercising rights as beneficial owners of the money. In the hopes that P might still be alive, they were exercising such rights as the choses in action (if any) under the unadministered estate of P gave them and placing the money in an account that bore his name. Accordingly, the FTT erred in law in holding that the parents were liable for the tax on the extra payment.

Upper Tribunal (Tax and Chancery Chamber)Decision released 26 June 2012

FIRST-TIER TRIBUNALRubio [2012] TC 02047The First-tier Tribunal decided that payments made to a taxpayer due to termination of his employment in lieu of notice, were not chargeable as earnings under Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’), s. 62, but were within the provisions of ITEPA 2003, s. 401. The applicable foreign service exception under ITEPA 2003, s. 413 made such payments not chargeable to tax. Hence, the taxpayer was entitled to a refund of the amount of tax already paid. However, the Tribunal ruled that the taxpayer was not, in any way, entitled to a refund of an additional payment made by his former employer to HMRC under a contractual settlement to account for its Pay As You Earn (‘PAYE’) liabilities, because the taxpayer was never a party to the agreement and he neither suffered nor was liable to suffer for the same.

FactsThe taxpayer appealed against amendments made by HMRC under Taxes Management Act 1970, s. 28A(1) and s. 28A(2) following an enquiry into his personal tax return for 2003–04.

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The taxpayer, a resident of Spain, was employed by a company in Spain (‘Symbol Spain’) under an employment contract dated 1 August 1991. The terms of the contract substantially provided, among other things, that in the event of involuntary termination, the employee would receive financial compensation equivalent to one and a half year’s pay with bonuses and other benefits of the post.

On 30 June 2000, the taxpayer was assigned to a position working for a UK-based associated company (‘Symbol UK’), and employed on a UK based local contract and on local terms. His employment contract stated that he would be regarded as under a leave of absence from Symbol Spain, but his status and compensation level was maintained. His contract in the UK was extended until June 2003. However, the taxpayer’s relationship with his employers soured by April 2003, and by 9 June 2003, Symbol UK revoked the taxpayer’s company ID card and prevented him from accessing his office, his company email and voicemail.

After negotiations, Symbol UK, Symbol Spain and the taxpayer entered into a compromise agreement dated 7 August 2003, which provided that the taxpayer’s employment with Symbol UK, Symbol Spain and all associated companies was terminated on 31 July 2003. It also provided that taxpayer would be paid various sums amounting to £694,783.

During his assignment to Symbol UK, the taxpayer was resident, but not ordinarily resident, in the UK. HMRC accepted that, during his employment by Symbol UK, the taxpayer spent 60.5 per cent of his time working outside the UK and, as earnings under ITEPA 2003, s. 62 was limited by ITEPA 2003, s. 25 to general earnings in respect of duties performed in the UK, it followed that only 39.5 per cent of his income was subject to UK tax. HMRC accepted that Symbol UK paid £694,783, less deduction of £72,477.16 tax under PAYE, to the taxpayer on 15 August 2003.

In his return for 2003–04, the taxpayer submitted that the amount £694,783 in box 1.25 qualified for foreign service and disability relief. He made a white space entry stating that the amounts included in boxes 1.24 to 1.26 were non-contractual amounts paid by his former employer by way of compensation for loss of rights, as set out in the compromise agreement dated 7 August 2003. The return showed that Symbol UK had deducted tax of £72,477.16 under PAYE and claimed a repayment of £59,681.72 on the basis that the taxpayer’s actual liability to tax for the period was £12,795.58.

HMRC opened an enquiry into the return and, after an exchange of correspondence with the taxpayer, the tax treatment of several amounts remained in dispute.

Symbol UK had deducted tax of £72,477.16 from the payment to the taxpayer in 2003. Moreover, following an employer compliance review, Symbol UK paid £24,012 to HMRC on account of tax due in relation to the taxpayer on 22 November 2006. At the conclusion of the employer compliance review, HMRC determined that the further amount that should have been deducted by Symbol UK was £17,165.57. That amount (plus interest) was settled by deduction from the amount paid in November 2006. The correct further amount of tax should have been £10,530.13.

HMRC issued a closure notice on 10 February 2011 showing the refund due as nil and the additional tax due as £10,530.13. Because an amount in excess of £10,530.13 had already been paid by the employer, HMRC gave the taxpayer credit for £10,530.13 and amended the return to nil. Following correspondence between HMRC and the taxpayer, the latter appealed to the Tribunal, stating that the amendment to the return was incorrect and an amount of £83,693.72 (the £59,681.72 repayment claimed by him in his return and £24,012 paid by Symbol UK in November 2006) should be refunded to him.

HMRC submitted that the taxpayer’s contract dated 1 August 1991 with Symbol Spain had revived, with its original terms and conditions intact, when the contract with Symbol UK ended on 31 July 2003. They relied on the fact that the parties had originally intended that the taxpayer would transfer back to Spain at the end of the assignment to the UK as his assignment was described as a leave of absence. They added that the 1991 contract contained provisions for payment in lieu of notice, namely the clause that provided that the taxpayer was entitled to receive financial compensation equivalent to one and a half year’s pay with bonuses and other benefits if the contract was terminated after 31 December 1991.

HMRC’s case was that the 1991 contract was in force when the payment was made by Symbol UK on 8 August 2003 and that the disputed elements of the payment were made under that contract and so were taxable under ITEPA 2003, s. 62. HMRC contended that the three payments in lieu of salary, bonus and benefits matched the notice provisions in the 1991 contract and, therefore, such payments were from the employment with Symbol Spain rather than from the termination of the employment with Symbol UK.

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s HMRC also submitted that the 22 November 2006 payment was made under the informal procedure, an alternative to the notice procedure in Income Tax (PAYE) Regulations 2003 (SI 2003/2682), (‘PAYE Regulations 2003’), wherein HMRC might agree to an amount to be paid by any employer in settlement of any claims. Such was the payment made in 2006, on account of an amount owed by Symbol UK in respect of PAYE. The taxpayer did not suffer deduction as the company paid to HMRC in November 2006 after having already paid the taxpayer. He had by then long since severed any connection with the company, having resigned in August 2003 and so it was too late for the company to make any deduction.

The taxpayer submitted that the 1991 contract ceased to have effect on 30 June 2000 and, in the absence of any contractual entitlement, the payments in dispute should properly be categorised as payments of damages. He contended that that the disputed elements were chargeable under ITEPA 2003, s. 401, and that ITEPA 2003, s. 413 provided relief on the full amount as he had left the UK and was in Spain when the payment was made to him.

The taxpayer also argued that, with respect to the payment made by Symbol UK in 22 November 2006, HMRC relied on the PAYE Regulations 2003, reg. 185 as basis for their refusal of repayment. He contended that the regulation was not engaged in this case because such applied only where the employer was liable to deduct tax. If the tax was not chargeable, the employer would not be liable to deduct it under PAYE and it should be repaid to the taxpayer because it was paid on his account.

Issues(1) Whether the disputed amounts paid by Symbol UK to the taxpayer on 15 August 2003 were payments of the

taxpayer’s earnings in relation to his employment, and thus within ITEPA 2003, s. 62, or payments paid in consideration of, or in consequence of, or otherwise in connection with, the termination of his employment, and thus within ITEPA 2003, s. 401.

(2) Whether the taxpayer was entitled to a refund of any part of the amount originally paid by Symbol UK to HMRC in 22 November 2006.

Held, allowing the taxpayer's appeal in part:The Tribunal explained that the taxpayer’s termination case fell within the fourth category enunciated by Lord Browne-Wilkinson in Delaney v Staples [1992] 1 AC 687, namely, that ‘[w]ithout the agreement of the employee, the employer summarily dismissed the employee and tendered a payment in lieu of proper notice.’ In this case, Symbol UK, without the agreement of the taxpayer, summarily dismissed him and agreed to make a payment in lieu of proper notice. Symbol UK was in breach of contract by dismissing the taxpayer without proper notice, but the summary dismissal was effective to put an end to the employment relationship. As the employment relationship had ended, it followed that no further services were rendered by the taxpayer under the contract. He was even prevented from accessing the premises or his company email. It followed that the payment was not a payment for work done under the contract of employment with Symbol UK.

The Tribunal did not accept HMRC’s submission that the payments were made under the 1991 contract with Symbol Spain that had revived on the termination of the contract with Symbol UK. The compromise agreement dated 7 August 2003 clearly stated that the taxpayer’s employment with all Symbol companies, including Symbol Spain, terminated on 31 July 2003. Further, the 1991 contract with Symbol Spain never had any separate existence in 2003; it terminated on 30 June 2000 and did not revive thereafter. As the disputed payments made by Symbol UK to the taxpayer on 15 August 2003 were not payments made under any contract of employment, they were not within ITEPA 2003, s. 62 but within ITEPA 2003, s. 401 and outside the charge to tax by virtue of ITEPA 2003, s. 413. The taxpayer, therefore, was entitled to a repayment of £59,681.72 claimed on the return.

In respect of the second issue, the Tribunal ruled against the taxpayer. The payment was made by Symbol UK because it believed, at the time, that it was or might be liable to pay such amount to HMRC as a result of its failure to deduct the amount as PAYE. It was never a payment to discharge a liability of the taxpayer to HMRC. The company could not deduct it from the payment that had already been made, and there was no evidence that it ever tried to recover that amount from the taxpayer. The payment was made under an agreement between HMRC and Symbol UK in settlement of the company’s supposed PAYE liabilities. Nothing in the legislation and regulations could give the taxpayer any claim to money that he had never paid and that was, in fact, paid to HMRC by a third party (Symbol UK) under a negotiated agreement to which he was never a party.

The same conclusion would be reached if the provisions of the PAYE Regulations 2003 were applied. Where, either under a notice under PAYE Regulations 2003, reg. 80, or as here, under a contractual settlement, the

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employer had paid to HMRC more than it ought to have deducted, PAYE Regulations 2003, reg. 185(5)(b) limited, entirely reasonably, the employee’s credit to the amount that ought to have been deducted. He could not have credit for an amount that he neither suffered nor was liable to suffer.

[2012] TC 02047Decision released 30 May 2012

Owolabi [2012] TC 02020The First-tier Tribunal decided that a taxpayer’s position as a sub-postmaster was an office based on the contract, and as such it had an existence independent of the person who held it and was filled by successive holders, under the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’), s. 5(3). Given that the position was an office, and in the absence of any evidence to the contrary, the Tribunal further ruled that the compensation payment the taxpayer received in respect of the closure of the post office was a payment directly or indirectly in consideration or in consequence of, or otherwise in connection with the termination of the taxpayer’s office and therefore a payment which fell within ITEPA 2003, s. 401(1)(a). Hence, such payment was taxable.

FactsThe taxpayer appealed against HMRC’s decision on the tax treatment of the compensation payment she received from Post Office Limited (POL) in respect of the closure of the post office which she ran.

The taxpayer purchased a post office branch and carried on the business from November 2003 as its sub-postmaster. The business had been in existence as far back as 1964, and was passed on from one sub-postmaster to another by means of sale and purchase of the business and the premises. The taxpayer was not an employee of POL but had contracted to provide premises and post office services to the latter.

On 2 May 2008, POL wrote to inform the taxpayer that a decision had been taken to close her branch. The letter included a closure and compensation pack. The taxpayer chose the maximum compensation figure and accepted that her contract would terminate early. She received the compensation payment of £74,177 at the end of June 2008. She did not include the compensation payment as taxable income on her 2008–09 tax return.

HMRC opened an enquiry into the return. The only matter in issue was the compensation payment. HMRC concluded that the payment was chargeable to tax when it ended the enquiry.

The taxpayer argued that the payment was for compensation for loss of her business and that the amount received was partly capital and partly revenue. She stated she paid to purchase the business and to improve the premises. She also had to discharge an obligation on a long term lease and that the cost of the disposal totalled £74,850.

HMRC argued that the payment was for compensation for loss of an office and that, subject to an exemption of £30,000, the payment counted as employment income of the taxpayer under ITEPA 2003, s. 401. They argued that while the taxpayer was not an employee of the POL, her role of sub-postmaster entailed her holding an office for the purposes of ITEPA 2003, s. 5.

Issues(1) Whether the taxpayer’s role as a sub-postmaster was an office under ITEPA 2003, s. 5(3).

(2) Whether the payment received by the taxpayer was a payment received directly or indirectly in consideration or in consequence of, or otherwise in connection with the termination of an office under ITEPA 2003, s. 401, and therefore taxable under ITEPA 2003, s. 403.

Held, dismissing the taxpayer's appeal:Under ITEPA 2003, s. 5(3), office includes in particular any position which has an existence independent of the person who holds it and may be filled by successive holders. In this case, the summary of the sub-postmaster’s contract and the statements made in the taxpayer’s correspondence showed that the post office had been in existence since 1964 and that there had been a succession of sub-postmasters. The Tribunal, thus, found that the position of sub-postmaster was an office under ITEPA 2003, s. 5(3), in that it had an existence independent of the person who held it and was filled by successive holders.

With respect to the second issue, the Tribunal found that the terms in which the person making the payment described the payment could not be conclusive of whether the payment fell within ITEPA 2003, s. 401(1), but it

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s was nevertheless a factor which was relevant to the question of whether the payment fell within that provision. Having concluded that the taxpayer held an office, and in the absence of any evidence to suggest that the payment was not that as described by POL, namely, a payment for the taxpayer’s loss of office, the Tribunal held that the payment the taxpayer received was a payment directly or indirectly in consideration or in consequence of, or otherwise in connection with the termination of her office. It was, therefore, a payment which fell within ITEPA 2003, s. 401(1)(a) and as such, it was taxable under ITEPA 2003, s. 403.

The Tribunal explained that while the taxpayer did incur costs in the buying of the business and making adaptations, there was no evidence around the circumstances showing the payment to have had the character of something other than compensation for loss of office. Such fact of having expenditure of the type described by the taxpayer would not displace the view that the payment was in connection with the termination of an office.

[2012] TC 02020Decision released 11 May 2012

Williams [2012] TC 01988The First-tier Tribunal found that a taxpayer acted as a shadow director of its company, and, in the process, instructed its bookkeeper to reconstruct its records to ensure that he had no personal tax or national insurance contributions (‘NIC’) liability on the drawings he made from the company for the tax year 2006–07. Hence, he knew that the company failed to deduct sufficient tax from relevant payments made to him, and that he received those payments knowing that the company wilfully failed to deduct sufficient tax therefrom, under the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) (‘PAYE Regulations 2003’), reg. 72.

FactsThe taxpayer appealed against a direction made by HMRC under the PAYE Regulations 2003, reg. 72(5) which raised a discovery assessment to income tax of £56,979.60 for tax year 2006–07 raised under the Taxes Management Act 1970, s. 29(1) and a liability in the amount of £4,367.15 as NIC.

The taxpayer was the majority stockholder, owning 65 per cent of the controlling interest, of a company involved in joinery installations. The company had a sole director (‘Mr GM’).

The taxpayer received salaries below the allowed personal allowance for the two tax years 2004–05 and 2005–06; hence, the company had no liability to account for tax on such salaries. He also received a combined amount of £168,000 in dividends for the two years. The company was required to prepare and maintain a deductions working sheet for PAYE purposes under PAYE Regulations 2003, reg. 66 but it did not do so.

The company moved into a loss making situation in the tax year 2006–07 and it was not in a position to pay dividends out of income or out of reserves. Nevertheless, both the taxpayer and Mr GM continued a practice of withdrawing round sums from the company’s bank account on a weekly basis. Such monies were initially shown in the company’s nominal activity ledger as ‘dividends’. The taxpayer continued withdrawing sums until April 2007, but claimed that from April 2006 onwards, those monies represented salary net of tax and NIC.

The company submitted its annual return of the PAYE tax and NIC for which it had to account, showing tax due of £174,465.20 and NIC of £75,892.01. The majority of the tax returned related to payments made to the taxpayer and Mr GM and had not been paid. It went into liquidation on May 2007 with substantial unpaid taxes with HMRC.

The taxpayer included a salary of £249,400 from the company in his self-assessment return for 2006–07, and claimed that tax of £91,706 had been deducted therefrom. He claimed a tax refund amounting to £1,265.36. HMRC requested the taxpayer to provide evidence of deduction of tax and NIC from his salary. The taxpayer only produced payslips, which HMRC rejected, as those were prepared no earlier than February 2007.

HMRC, under PAYE Regulations 2003, reg. 72, directed the taxpayer to pay the tax of £56,979.60 which the company ought to have deducted but did not in fact deduct from relevant payments made to him in 2006–07. The assessment was raised against the taxpayer personally as the company allegedly failed to deduct sufficient tax from relevant payments. HMRC were of the opinion that he received those payments knowing that his employer wilfully failed to deduct sufficient tax therefrom.

HMRC also determined that the company failed to pay sufficient primary Class 1 NIC in respect of earnings paid to the taxpayer. They notified the taxpayer that he was liable to pay such in the sum of £4,367.15. They said that the failure was due to an act or default of the taxpayer and not to any negligence on the part of the company.

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The taxpayer submitted that whilst he was a majority shareholder, he was not a director of the company. His day to day job was to make sure that installation sites were fully manned and operated smoothly. He did not control cash flow, debt collection, credit control, regular bill payments, HMRC payments or returns, as these were entirely handled by the director, Mr GM. He became concerned that the company did not have the facilities to fund or manage larger installations projects, so he transferred ownership of his remaining shares to Mr GM and severed all ties with the company.

He denied that he was in control of the company despite suggestions from company records of such fact. He said HMRC did not even interview him. He claimed that HMRC had no solid evidence to prove their allegations that under Condition B of the PAYE Regulations 2003, s. 72(5), he knew that there would be wilful non-payment of PAYE.

HMRC submitted that the taxpayer, whilst not a director, was deemed to be a controlling party as he owned 65 per cent of the issued capital share of the company. They claimed that he had significant controlling influence with the company and was also a signatory to the company bank accounts. They stated that whilst the taxpayer claimed to have severed all connection with the company and to have transferred his shareholding to Mr GM in January 2007, he still signed bank authorisation payment in February 2007 from the company’s bank account. He continued to withdraw weekly sums until April 2007. He instructed the company’s bookkeeper to reconstruct its nominal activity account to increase the company PAYE liability.

HMRC alleged that they offered to interview the taxpayer which the latter did not take up. There was also no requirement in the law for interview. They also stated that ‘wilful non-payment of tax’ was not a statutory requirement of PAYE Regulations 2003, reg. 72, only that HMRC had to be of the opinion that the employee had received relevant payments ‘knowing that the employer wilfully failed to deduct the amount of tax which should have been deducted from these payments’.

They also submitted that HMRC furnished copies of all the documents they relied upon to the taxpayer.

Issues(1) Whether the taxpayer received the payments from the company knowing that the latter wilfully failed to

deduct the amount of tax which should have been deducted from the payments.

(2) Whether the taxpayer should pay the primary Class 1 NIC which the company failed to deduct from payments it made to the taxpayer.

Held, dismissing the taxpayer's appeal:The Tribunal did not accept the truth in any of the taxpayer’s submissions.

The Tribunal, after having accepted that the taxpayer was a controlling party and for practical purposes a shadow director of the company, found that he did not sever his connection with the company in January 2007. He remained the controlling party until the company went into liquidation, was closely connected with the daily operation of its financial affairs, and dealt with its finances.

All the evidence, particularly that of the company not having declared a dividend in November 2006, point to his having been advised, or realised, that the company was not in a position to pay a dividend in 2006–07. The Tribunal found that he deliberately instructed the bookkeeper to reconstruct company records in such a way to ensure that he had no personal tax or NIC liability on the drawings he had made from the company in that year.

The Tribunal agreed with HMRC that it was the intention of the taxpayer to cover his drawings by the payment of dividends. When it became apparent that the company had insufficient distributable reserves, and no doubt those behind the company having been advised that any such distribution would be closely scrutinised by any liquidator who might have to be appointed, and would almost certainly result in its having to be repaid, an alternative method was sought to ‘cover’ the monies already withdrawn from the company.

The Tribunal was satisfied, on the balance of probabilities, that the company failed to deduct sufficient tax from relevant payments made to the taxpayer. The taxpayer received those payments knowing that the company wilfully failed to deduct sufficient tax therefrom. The Tribunal was satisfied that the situation in which the taxpayer was assessed to tax was brought about deliberately by his acting on the company’s behalf. HMRC fairly treated the monies withdrawn by the taxpayer from the company in 2006–07 as a gross payment of salary and/or bonus. Hence, the taxpayer would be liable on the tax assessed and interests under PAYE Regulations 2003, reg. 72.

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s The Tribunal was also satisfied that the primary Class 1 NIC which ought to have been deducted by the company from the taxpayer’s salary and/or bonus in 2006–07 were not recovered from him by way of deduction. The failure was due to an act or default on the taxpayer’s part, and not to any negligence on the company’s behalf. The taxpayer was liable to pay the contributions in question.

[2012] TC 01988Decision released 9 May 2012

Clarke & Co [2012] TC 01986The First-tier Tribunal decided that the taxpayer, who provided information to his clients related to their tax affairs, was a tax adviser. Since he also practised as an accountant, he was deemed an external accountant under the Money Laundering Regulations 2007 (SI 2007/2157) (‘MLR 2007’), s. 3(7). The Tribunal also ruled that HMRC took reasonable steps to inform those affected of the requirement for registration under the regulations, albeit the steps they took were not the best. MLR 2007, reg. 32(5) merely required HMRC to take simply reasonable steps. The Tribunal further ruled that the taxpayer did not take reasonable steps to comply with the registration requirement of MLR 2007, reg. 33 when he failed to take steps immediately after his medical condition had improved. Lastly, the Tribunal considered the taxpayer’s sickness as a factor in reducing the assessed penalty.

FactsThe taxpayer, a proprietor of an accounting firm, appealed against a penalty imposed by HMRC under MLR 2007, reg. 42. The penalty related to his failure to register as a tax adviser or external accountant in the period between 1 January 2009 and February 2011.

HMRC said that they decided to establish a register of external accountants and tax advisers on 1 April 2008. The last date for registration was extended to 1 January 2009.

The taxpayer practised as an accountant and tax adviser from about 1970. He did not register until February 2011, after he received a letter from HMRC in January 2011. Though he questioned some of the statements made in it, he completed the requirements for registration, including the payment of a fee and was registered with effect from 31 January 2011. As a result, he was in default of MLR 2007, reg. 33 from 1 January 2009 to February 2011 and was, thus, liable to a penalty under MLR 2007, reg. 42.

The taxpayer argued that he did not give tax advice, but merely told his clients what the relevant laws were and answered letters his clients received from HMRC. He stated that HMRC did not take reasonable steps to advertise the maintenance of register, as required by MLR 2007, reg. 32(5). He said that HMRC could easily and should have emailed or written instead to each accountant and adviser with whom it had dealings to inform them of the need to register. He argued that the publication of information on HMRC’s website required searches to find relevant information and did not bring matters to users’ attention.

In respect of his registration, the taxpayer said he took all reasonable steps as soon as he was told by HMRC that he should register. He said that until one knew of a requirement to register, there was no reasonable step that such person had failed to take in relation to being registered. He said that due diligence should be seen from that context. He submitted that he was seriously ill since 2007 and had limited practice, particularly in 2009. His ill health limited the steps which was reasonable for him to have taken for his registration. He also submitted that the penalty against him should be reduced considering his sickness and his compliance with registration upon learning that he had to register.

HMRC stated that it decided to establish a register of auditors, external accountants and tax advisers under MLR 2007, reg. 32(4). The registration notice was published and advertised in several newspapers, aired on radio, published online, and published in HMRC’s publications. They also submitted that the taxpayer conducted substantial business in the relevant period of his ill health and, therefore, he should have complied with the registration requirement of MLR 2007. HMRC further argued that the penalty was directed to all persons potentially affected by the regulations so that they were encouraged to comply.

Issues(1) Whether the taxpayer was an external accountant under MLR 2007, reg. 3(7) or a tax adviser under MLR,

reg. 3(8).

(2) Whether HMRC took reasonable steps to advertise maintenance of register under MLR 2007, reg. 32(5).

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(3) Whether the taxpayer took reasonable steps to comply with the registration requirements of MLR 2007, reg. 33.

(4) Whether the penalty was appropriate.

Held, affirming HMRC's decision but lowering the penalty chargedThe Tribunal found that the information the taxpayer provided to his clients related to their tax affairs and was given in the course of his business. There was no doubt that he was a ‘tax adviser’ and was such at all relevant times. Since he practised as an accountant in the period 2009 to 2011, providing accountancy services to other persons, he was therefore an ‘external accountant’ as defined by MLR 2007, reg. 3(7).

On the issue of advertising the requirement to register, the Tribunal recognised the argument submitted by the taxpayer that sending an email to all known tax agents would have been a surer way to reach all those potentially affected by the regulation notice. However, MLR 2007, reg. 32(5) did not require HMRC to take all reasonable steps; simply reasonable steps. Here, the steps HMRC took were reasonable by reference to the required purpose, even if they were not the best steps that they could have taken. Besides, even if HMRC had not complied with MLR 2007, reg. 32(5), there was nothing in the regulations which made that compliance a condition for the maintenance of a register, or for the prohibition in MLR 2007, reg. 33 on practice without registration, or for the imposition of penalties in MLR 2007, reg. 42.

On the issue of whether the taxpayer had taken reasonable steps to comply with MLR 2007, reg. 33, the Tribunal stated that the taxpayer should be treated as knowing the law and his obligations under it. Whilst in the nine months from 27 November 2009 the severity of his medical condition might well have meant that it would not have been a reasonable step for the taxpayer to have sought to register, it would have been a reasonable step to have sought to have done so in the period before and after that nine-month stretch. The Tribunal, therefore, concluded that the taxpayer did not take all reasonable steps to comply with the requirements of MLR 2007, reg. 33 in the relevant period.

With respect to the penalty charged, the Tribunal stated that it had a freestanding power to vary the amount of the penalty. It must determine an appropriate penalty – one which should be effective, proportionate and dissuasive. There were three particular facts which were relevant to the proportionality of the penalty. First was the taxpayer’s illness. Second, the fact that he complied soon after being told of his obligation to do so. Third, the fact that HMRC did not avail themselves of the opportunity of taking the reasonable step of notifying known tax advisers by email. Overall, this suggested that only a modest penalty would be proportionate.

The Tribunal decided that it would be effective, proportionate and dissuasive that some element of the penalty should reflect the period during which the taxpayer carried on business without being registered. The period was almost two years and two months. But in that period, there were some nine months in which the taxpayer’s ill health effectively prevented him from paying attention to his business. It would be proportionate for that period of severe ill health to be excluded. The original penalty of £237.91 representing registration fee was therefore reduced by £82 to consider the taxpayer’s ill health in 2009.

Merely putting the taxpayer in the financial position in which he would have been if he had complied with the regulations did not effectively dissuade either the taxpayer or the wider public from contravention of the regulations. Some additional amount was necessary if the penalty was to be appropriate. Taking into account the circumstances of the taxpayer’s default, the Tribunal reduced the original penalty of £500 to £400.

[2012] TC 01986Decision released 03 May 2012

Goldman [2012] TC 01999The First-tier Tribunal decided that the amount paid to the taxpayer by his employer in settlement of his claims arising from his termination from employment without notice was deemed earnings under the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’), s. 62. The amount was paid to the taxpayer pursuant to a provision in his employment agreement, and not as damages for the employer’s breaches of the agreement. The amount did not relate to the economic consequences of such breaches and had its source in the taxpayer’s contractual entitlement under the employment agreement.

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s FactsThe taxpayer appealed against HMRC’s amendment of his self-assessment tax return for the year ended 5 April 2008. The amendment included as income chargeable to income tax the whole £123,750 paid to the taxpayer on the termination of his employment with a company (‘SVL’).

The taxpayer was the chief operating officer of SVL beginning 20 November 2006 with, gross basic salary of £165,000 per annum. His employment agreement (‘the agreement’) with SVL, particularly clause 21.3, provided payment of certain amounts in lieu of notice within 14 calendar days of the termination date. Such termination would be for any reason other than performance or conduct-related issues.

Difficulties arose in the working relationship between the taxpayer and the chief executive officer (‘the CEO’). On 26 June 2007, the CEO informed him that she was terminating his employment. No written notice was given to him. However, 14 calendar days from 26 June 2007 had elapsed and no payment had been made to the taxpayer. After several exchanges of correspondence between the taxpayer and SVL, they entered into a compromise agreement settling the taxpayer’s claim. In that agreement, the taxpayer accepted less than his entitlement under clause 21.3. SVL deducted income tax from the whole sum of £123,750 which was paid in three equal instalments. The taxpayer objected to the deduction in respect of the first £30,000 on the basis that it was not required by law. In his self-assessment tax return, he reclaimed the income tax deducted on payment of the first £30,000.

The taxpayer argued that the £123,750 was not paid under clause 21.3, but was paid to settle his claims for his wrongful dismissal due to non-performance related issues. He said that SVL breached the agreement in not making payment within 14 calendar days and in not paying the full amount due. He submitted that the payment made under the compromise agreement was damages for SVL’s breaches of the agreement and was made to avoid litigation, rather than to settle a debt or to settle his claim to be entitled to reasonable notice of the termination of the agreement.

HMRC submitted that the amount of £123,750 was not paid as damages outside the employment agreement, but was made as settlement of a dispute over the application of clause 21.3. The aim of the compromise agreement was to secure partial implementation of the agreement.

IssueWhether the £123,750 was paid to the taxpayer pursuant to clause 21.3 of the employment agreement or as damages for SVL’s breaches of agreement.

Held, dismissing the taxpayer's appeal:Payment in lieu of notice made in pursuance of a contractual provision, agreed at the outset of the employment, which enables the employer to terminate the employment on making that payment, is properly to be regarded as an emolument from that employment (EMI Group Electronics Ltd v Coldicott (HMIT) [1999] BTC 294, considered). Such payment falls squarely within one as being paid to an employee in return for acting as or being an employee and as being an emolument from being or becoming an employee (Hochstrasser (HMIT) v Mayes (1959) 38 TC 673, Shilton v Wilmshurst (HMIT) [1991] BTC 66, considered).

Here, the Tribunal ruled that SVL’s payment of £123,750, in lieu of notices in all respects in accordance with his contractual entitlement under clause 21.3 of the agreement, was undoubtedly emolument or earnings within the general definition of earnings under ITEPA 2003, s. 62. The payment was not in any realistic sense damages for SVL’s breach of the agreement as the sum did not relate in any way to the economic consequences of such breaches. The payment undoubtedly had its source in the taxpayer’s contractual entitlement under clause 21.3.

If the taxpayer’s argument were correct, it would be open to anyone entitled to a contractual payment in lieu of notice to accept less, in settlement of his claim to enforce the contractual entitlement, and thus achieve exemption from tax under ITEPA 2003, s. 403 in respect of the first £30,000. This would not be a sensible result consistent with a purposive interpretation of the legislation.

[2012] TC 01999Decision released 24 April 2012

Harte & Anor [2012] TC 01951The First-tier Tribunal decided that the taxpayers did not occupy a property in such a manner that it became their residence. They never put bills into their own name; neither did they move any of their own items in to, nor

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entertain guests in that property. Thus, they did not satisfy the test of residence within the meaning of Taxation Chargeable Gains Act 1992 (‘TCGA 1992’), s. 222(5).

FactsIn this joined appeal, the taxpayers, married to each other, appealed against a closure notice amending their 2007–08 self-assessment tax return under the Taxes Management Act 1970, s. 28A(1) and (2). They claimed capital gains private residence relief (‘PRR’) in respect of the disposal of a residential property (‘Alder Grove’) which HMRC disallowed.

The first taxpayer (‘Mr MH’) inherited Alder Grove on the death of his father in 1992. His stepmother occupied the property until her death on 20 May 2007. On 21 June 2007, ownership of the property was transferred from Mr MH to joint ownership with the second taxpayer.

Before the joint ownership of Alder Grove, Mr MH bought a property (‘Crofts Road’) sometime in 1968 or 1969 and this became his and his wife’s private residence. They then sold Alder Grove to their neighbour in October 2007. From May 2007 until Alder Grove was sold, the bills for utilities were addressed simply to ‘the Occupier’.

The taxpayers made an election under TCGA 1992, s. 222(5) to treat Alder Grove as their main residence from 20 May 2007 to 19 October 2007. At all other times, Crofts Road was the taxpayers’ main residence for capital gains tax purposes. There was no record of the dates that they actually occupied each property. HMRC stated in the closure notice that PRR was not available to the taxpayers in relation to the disposal of Alder Grove; hence, they were liable to capital gains tax on it.

The taxpayers submitted that they were in a fortunate position of owning two houses with no financial pressure to sell. It was only when their neighbour expressed interest in purchasing Alder Grove at a good price that they considered selling it. They claimed that during the period right up to the sale, they used Alder Grove as a private residence. Initially, they only needed to take personal items when going to Alder Grove, but eventually did not need to take anything as they had everything at each of the houses. The only work done was to fix one leaking gutter. They did not entertain family or friends there and none came to stay. They said they occupied both house simultaneously, such that Alder Grove became one of their residences.

HMRC argued that for TCGA 1992, s. 222(5) to apply, the property must have been occupied by the individual as his residence at some point during the ownership. The fact that the Alder Grove title was transferred to the joint names of the taxpayers, despite the fact that Mr MH had already owned it for 15 years, suggested that the transfer was in contemplation of sale to enable both taxpayers to benefit from PRR. HMRC further submitted that Crofts Road had been the taxpayers’ residence for many years and remained so. Alder Grove was available to the taxpayers as a potential residence between 20 May 2007 and 19 October 2007 and any occupation of Alder Grove was in the manner of temporary stays and the property was not being occupied as a residence. Once the decision to sell had been taken, any occupation after that date could not be said to possess any degree of permanence, continuity, or expectation of continuity.

IssueWhether Alder Grove was ever a residence of the taxpayers within the meaning of TCGA 1992, s. 222(5).

Held, dismissing the taxpayers' appeal:The Tribunal found that the quality of the taxpayer’s occupation of Alder Grove – the degree of permanence, the degree of continuity, or the expectation of continuity – did not amount to residence within the meaning of TCGA 1992, s. 222(5).

The Tribunal explained the evidence did not establish that they ever made Alder Grove their residence. They never put any of the bills into their own name. They never entertained or had friends or family to stay there. Until the property was sold, the furniture and personal effects of Mr MH’s stepmother remained in the house as they were, notwithstanding the taxpayers’ claim that they were not close to her. They did not move in any of their own furniture, pictures, or ornaments. They undertook no work on the property other than to repair one drain. Mr MH said in evidence that the longest continuous period spent at Alder Grove was approximately three weeks.

In the absence of any other evidence of what periods were spent at Alder Grove, the Tribunal was not persuaded that the quality of the occupation and the intentions in respect of the occupation of the property were such as to satisfy the test of residence in TCGA 1992, s. 222(5).

[2012] TC 01951Decision released 18 April 2012

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s Wirral Independent Recycling Enterprise (‘Wire’) Ltd [2012] TC 01960The First-tier Tribunal decided that lack of registration with the Charities Commission was not conclusive as to whether the taxpayer company had exclusively charitable purposes at the relevant time. The Tribunal also decided that the taxpayer’s charitable status should be determined on the basis of its original memorandum and articles of its association. Lastly, the Tribunal decided that the taxpayer did not have a charitable status that would exempt it from VAT. Its memorandum and articles of association were not worded in a way so as to be exclusively for charitable purposes. Its objectives did not prevent those of unlimited means from availing themselves of the taxpayer’s activities. Furthermore, upon its dissolution, it was possible for funds to be transferred to non-charitable organisations.

FactsThe taxpayer company appealed against HMRC’s decision to register it in respect of taxable supplies it made, on the basis that it was not considered to be a charity at the relevant time.

The taxpayer was incorporated on 11 December 2004 and was registered as a limited company for value added tax (‘VAT’) with effect from 1 November 2006. It carried on a business of selling second hand furniture. By practice, it collected donated furniture and made it available to individuals in the community in social and economic difficulty. It also operated a shop selling furniture directly to the public, which helped fund its operations.

In November 2005, the taxpayer’s company secretary (‘Mr G’) investigated with HMRC the possibility of the taxpayer being VAT exempt as a charity. Mr G stated that the taxpayer’s business was a social enterprise, was limited by guarantee, and was a non-profit organisation. He added that the turnover for the shop had increased and would breach the VAT registration threshold. In response, HMRC stated that any business, including charities, making taxable sales in excess of the VAT registration threshold, should register for VAT. HMRC then advised the taxpayer that it should complete a VAT 1 form and that, if necessary, it could apply exemption from registration. The taxpayer submitted its VAT 1 application form in July 2007.

In August 2007, HMRC informed the taxpayer that they should be satisfied that it was a registered charity or accepted as a charity by their charities team. In September 2007, the taxpayer provided its memorandum and articles of association to HMRC by letter. It explained that it was a social enterprise with charitable aims and that its application for exemption from VAT was on the basis that it was a charity, albeit not registered with the Charity Commission (‘the Commission’).

In November 2007, HMRC wrote to the taxpayer to explain that its turnover had exceeded £5,000 per year and that if it was a charity, it had to register with the Commission before HMRC could consider a claim to the charity tax exemptions. When HMRC found that the taxpayer was not on the Commission’s register, they requested the taxpayer to provide registration details or copies of correspondence which could confirm that it was unable to register. The taxpayer did not respond and the application for exemption remained unprocessed.

On 25 August 2009, HMRC officers visited the taxpayer and confirmed that it was not VAT registered and did not have charitable status. Upon review, HMRC confirmed the findings of their officers; hence, the taxpayer should remain VAT registered. The taxpayer then amended and, by a special resolution dated 26 June 2010, adopted its new memorandum. It was eventually registered as a charity following its adoption on the said date.

On appeal to HMRC, the taxpayer submitted that it was wrong for HMRC not to recognise its charitable status as a social enterprise. It reiterated that HMRC erred in concluding that just because its income exceeded £5,000, there was an obligation to register with the Commission.

HMRC contended that as early as 2007, they already informed the taxpayer that there was a legal requirement to register with the Commission if its income exceeded £5,000 per year. They argued that it was not a charity because its objectives were not worded in a way that was wholly and exclusively charitable at law. They said that there was no clear separation between its objectives and powers as required by law, and that on dissolution, it could pass any assets to a non-charitable company. On review, HMRC upheld their decision and added that the taxpayer was not registered with the Commission at the time of their visit in August 2009. This confirmed that it was not a charity at that time. They further submitted that the memorandum and articles of association, in their original form, were not sufficient for the taxpayer to be deemed a charity.

The taxpayer contended that HMRC should review the decision on the basis of the amended articles of association, as the original ones no longer existed. It also stated that it was now registered as a charity with the

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Commission. It submitted that HMRC could back date tax exemption to the date to which an organisation started to carry out exclusively charitable aims, even if this was before the date of its registration with the Commission.

HMRC contended that the criterion for charitable status had not changed during the relevant period as not all of the objects of the taxpayer in its memorandum and articles of association were exclusively charitable. They maintained that the relevant articles were those in existence at the time at which the taxpayer was required to be registered, i.e. on 1 November 2006.

Issues(1) Whether the taxpayer should be registered with the Commission to be considered a charity.

(2) Whether the original or the amended articles of association was applicable in ascertaining whether the taxpayer had charitable status.

(3) Whether the taxpayer had charitable status.

Held, dismissing the taxpayer's appeal:Registration gave a body charitable status which would have, had the taxpayer registered, undoubtedly ensured that its application for exemption from VAT would have been accepted by HMRC in the first instance. However, registration was not a prerequisite of tax relief under the law. Also, the lack of registration was not conclusive of the issue as to whether the taxpayer had exclusively charitable purposes at the relevant time on the basis that registration with the Commission had not been refused to the taxpayer, but rather registration had never been applied for.

The Tribunal then agreed with HMRC and ruled that the taxpayer was governed by its original memorandum and articles of association at the relevant time and therefore, it was on that basis that the issue of charitable status should be determined.

With respect to the issue of whether the taxpayer had a charitable status, the Tribunal noted the guidance enunciated in the case of Incorporated Council of Law Reporting in England and Wales v AG (1972) Ch 73, where Buckley LJ stated at (79): ‘To ascertain for what purpose the council was established one must refer to its memorandum of association and that alone…[I]n order to determine whether an object, the scope of which has been ascertained by due processes of construction, is a charitable purpose it may be necessary to have regard to evidence to discover the consequences of pursuing that object.’

After carefully considering the taxpayer’s memorandum, the Tribunal found that its provisions were not worded in a way that the taxpayer was exclusively charitable. One of the objects of the taxpayer in the memorandum, i.e. to provide the local community with a ready source of fully restored and attractively finished pre-owned furniture at realistic prices, did not prevent those of unlimited means from availing themselves of the taxpayer’s activities. There was nothing to prevent any member of the public from entering the taxpayer’s shop and purchasing furniture. Also, the taxpayer’s object of providing charitable groups free access to its resources did not separate the taxpayer’s objects and powers sufficiently.

The Tribunal also noted that one of the provisions in the memorandum, which provided for the transfer of funds on dissolution or winding up of the taxpayer, was not worded in a way so as to be exclusively charitable as it was possible for funds to be transferred to organisations with similar objects. Having found that the taxpayer’s object was not exclusively charitable, it followed that the funds could be distributed to other non-charitable organisations upon its dissolution.

[2012] TC 01960Decision released 17 April 2012

Partito Media Services Ltd [2012] TC 01949The First-tier Tribunal decided that HMRC failed to validly serve the notice to file corporation tax return to a taxpayer for an accounting period because it was sent to the address of the taxpayer’s former agent whose address was no longer the taxpayer’s registered office and place of business. It also ruled that HMRC failed to validly serve the penalty notices in three of four instances because they were sent to the taxpayer’s old registered address. The Tribunal also held that an invalid flat-rate penalty for late filing did not transmute a penalty for failure to notify chargeability. Finally, the Tribunal decided that since the penalty notices were not validly served on the taxpayer, the latter had reasonable excuse for the late filing of its returns.

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s FactsThe taxpayer company appealed four penalty assessments by HMRC for the late filing of its corporation tax (‘CT’) returns for the accounting periods 31 August 2007 and 31 August 2008.

The taxpayer was a one-person company headed by its director (‘Mr NH’). It was formerly represented by an agent but the latter left in 2007. The agent did not inform the taxpayer that it needed to file a CT return. On 24 September 2007, HMRC issued the taxpayer a notice to file the CT return for the accounting period ended (‘APE’) 31 August 2007. This notice was sent to the taxpayer’s then registered office, the address of the agent. This was not forwarded by the agent to Mr NH. On 25 April 2008, the taxpayer’s registered office was changed to Mr NH’s home address.

On 22 September 2008, a fixed penalty for late filing of £100 was made, and this was issued on 23 September 2008. HMRC also issued a notice to file the CT return for APE 31 August 2008. HMRC’s document showed that it was sent to the address of the agent. On 16 December 2008, a second penalty notice increased the fixed penalty to £200.

On 14 September 2009, HMRC issued a determination of the tax due for APE 31 August 2007, and as the return had not been delivered, a tax penalty was issued at the same time. Both were sent to the taxpayer’s new registered office. On 23 September 2009, HMRC issued a fixed penalty of £100 for APE 31 August 2008. This was sent to the new office.

Mr NH appealed the penalties for the APE 31 August 2007 and APE 31 August 2008 on behalf of the taxpayer. He also filed the CT returns for the two accounting periods and paid for both.

An HMRC officer visited Mr NH and the latter explained that he had appealed the penalties. He was told that this would be looked into. Mr NH subsequently tried to call HMRC on over 30 occasions, but to no avail. He did not succeed in finding out what happened to his appeals. After a further correspondence, with Mr NH sending the copies of his appeals to another office of HMRC, the latter confirmed the penalties upon review.

The taxpayer submitted that the notices to file the CT returns were not validly served since those were sent to its former agent’s residence, so it should not be liable for the penalties. It argued that if it were chargeable, it had a reasonable excuse for the same.

HMRC countered that they were not informed of the change in business address, as specifically mentioned in their website. They added that the taxpayer was required to notify chargeability if it had not received a notice within 12 months from the end of an accounting period. Thus, the taxpayer should be liable for the penalty assessments.

Issues(1) Whether the two notices to file CT returns were validly served to the taxpayer.

(2) Whether the CT returns were filed late.

(3) Whether the tax-related penalty notices were validly served to the taxpayer.

(4) Whether the taxpayer was liable for the penalty for its failure to inform HMRC of its chargeability.

(5) Whether the taxpayer had reasonable excuse for its late filing of its CT returns.

Held, allowing the taxpayer's appeal:Under the Companies Act 2006 (‘CA 2006’), s. 1139, a document is validly served on a company if sent to its registered office. The Taxes Management Act 1970, s. 115(2)(b) states that a notice can be validly served if it is addressed to a company ‘at any other prescribed place’. It is possible to validly serve a notice by delivering it to the company’s registered office, to its place of business, or by effectively communicating the notice in some other way. A notice is not served on a company by merely delivering it to its last known registered office.

Here, the Tribunal found that the notice to file the CT return for APE 31 August 2007 was validly served even though the agent formerly representing the taxpayer did not forward the same to Mr NH. However, the notice to file the CT return for APE 31 August 2008 was not validly served under CA 2006, s. 1139 because the agent’s address was no longer the taxpayer’s registered office. Also, the agent’s office was not the taxpayer’s place of business. It was clear that Mr NH was unaware of the notice, so there had been no effective intimation by a different route.

HMRC’s argument that they were not informed of the change of the taxpayer’s address fell within the two conflicting guidance on whether companies should directly inform HMRC of a change of registered office.

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The first one provided that taxpayers should inform Companies House of such changes and should then inform HMRC. The other one stated that after informing Companies House, there was no need to inform HMRC separately.

The Tribunal concluded that HMRC were told of the taxpayer’s change of registered office before 23 September 2008, almost five months after it was logged on the Companies House site, even if, for whatever reason, that information did not find its way onto the HMRC’s CT records, and despite the fact that Mr NH did not inform them of the change of registered office. With the change, the new registered office was the taxpayer’s last known residence. Hence, sending the notice to the taxpayer’s former agent did not constitute service.

With respect to the second issue, since the APE ended 31 August 2007 was validly served, the Tribunal ruled that the CT return was late.

With respect to the third issue, the Tribunal found that the fixed penalty for APE 31 August 2007 was made on 22 September 2008, the same the day the notice to file for the following accounting period was sent to the old registered office. On the balance of probabilities, it ruled that the penalty notice was also sent to the old registered office and therefore not validly served upon the taxpayer. The Tribunal reached the same decision on the reissue for the second fixed penalty notice. The Tribunal, however, ruled that the penalty notice sent on 14 September 2009 was validly served to the taxpayer’s new registered office.

With respect to the fourth issue, the Tribunal decided that whilst HMRC had the power to impose penalty for a taxpayer’s failure to notify chargeability, no such penalty had been imposed against the taxpayer in this case. If the flat-rate penalty for late filing was found to be invalid, it did not transmute into a failure to notify chargeability.

On the fifth issue, the Tribunal recognised that only one of the four penalties charged, i.e. that issued on 14 September 2009, was valid. However, a tax-related penalty was normally preceded by two fixed penalty notices, neither of which was served validly on the taxpayer. The Tribunal concluded that the taxpayer had a reasonable excuse for not filing the return before the 18-month trigger point for the penalty and therefore set aside the penalty.

[2012] TC 01949Decision released 10 April 2012