Nichola's SME Tax W-update 24 February 2022

Hello,

We have a new HMRC Agent update, a new, and maybe controversial HMRC interpretation of the purchase of own shares rules, plus some interesting cases and updates.

We detected that HMRC had changed its view on certain aspects of the qualifying conditions for a purchase of own shares (POS) when it declined to provide clearance on a couple of applications involving multiple completion contracts. It took a while to work out the issues, and now HMRC has described its thoughts in detail. Whether its new interpretation, as detailed below, will ever be tested by the tribunals remains to be seen, as there are other ways to achieve a buy out of retiring shareholders, some of which are also much easier for lawyers to draft.

Bring on the sheep! We have the outcome of two long-running Stamp Duty Land Tax (SDLT) appeals in which two sets of taxpayers purchased houses 'with land'. In each case it was a paddock comprising a couple of acres. Both expected their land to be non-residential, as it 'obviously' was 'land land' and not part of the garden. Not so, said the Court of Appeal (CoA) on finding that the SDLT legislation places no size limit when it comes to the scale of the grounds of a residential property. The taxpayers' land purchases were thus found to be residential and subject to a higher rate of SDLT than had the land been non-residential and a mixed rate applied. The outcome is very confusing for taxpayers who might think that Parliament would set a size limit for grounds in SDLT, just as there is for Capital Gains Tax Private Residence Relief.

Now that we have that decision in the bag, it would be quite useful to set a limit for residential grounds, as a typical 'equine' property could be sold with land from about one to 20+ acres. As things stand, based on this decision all that land could be deemed to be residential if it is just used by the owners for domestic pleasures. A pragmatic solution is presumably to use the land for commercial farming before and during the sale process, hence 'bring on the sheep'. Other farm animals are available from normal agricultural outlets.

Back soon, 

Nichola Ross Martin FCA CTA (Fellow)
Tax Director

www.rossmartin.co.uk

Your Virtual Tax Partner® online PRACTICAL support for accountants, tax advisers BY accountants and tax advisers.

Quick News (Freeview)

Agent update: February 2022
HMRC have issued their Agent Update for February 2022. We have summarised the key content for you with links to our detailed guidance on the topics covered.

HMRC'New take on Purchase of Own shares via multiple completion contracts 
HMRC have changed their view on the Purchase of Own Shares ‘connection test’: this affects multiple completion contracts.

Taxpayer exposed to long-term risk from COVID fraud 
The Public Accounts Committee has published 'COVID-19 cost tracker update'. It expects that all Coronavirus state-backed schemes will cost at least £15bn in fraud and has exposed the taxpayer to "substantial, long-term financial risks".

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Guides & Updates (subscribers)  

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Herd basis: Farming
The 'herd basis' recognises, for tax purposes, the economic nature of animals held for production as capital assets, rather than trading stock. This can be of benefit to some farmers and result in tax savings.

Land & Property   

Annual Tax on Enveloped Dwellings (ATED)
What is the Annual Tax on Enveloped Dwellings (ATED)? Who does ATED apply to? What relief is available and how is it claimed? What are the ATED return filing dates?

Replacement of Domestic Items Relief (subscriber guide) 
What is Replacement of Domestic Items Relief? When can it apply and what conditions must be met? 

Directors & Companies 

Tax planning for directors: Index
Editor's choice: some of our favourite tax guides, toolkits & checklists for directors.

Disguised Remuneration loan charge
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Employers

Accommodation benefit
When is accommodation a taxable benefit? What are the exemptions? How is the benefit calculated? Can accommodation be claimed as part of business travel?

Pecuniary Liabilities
Where an individual incurs a liability personally but it is paid by their employer special rules apply. This is referred to as settlement of a Pecuniary Liability.

Private Client & Estate Planning 

Pensions: Tax charge for excess contributions
UPDATE: HMRC have opened a technical consultation on the draft legislation which extends information and reporting deadlines for Scheme Pays. The consultation closes on 15 March 2022.  

Non-resident trusts
When is a trust non-resident? What are the UK tax implications of a non-resident trust? What are the UK tax implications for any beneficiaries? What are the UK administrative requirements for a non-resident trust?

IHT: Loans and restrictions on liabilities against the estate
When are loans deductible from the estate on death? What restrictions are there? What anti-avoidance rules do I need to consider? 

Tax Cases 

'Pony paddocks' are residential for SDLT purposes
In (1) David Hyman and Sally Hyman and (2) Craig Goodfellow and Julie Goodfellow v HMRC [2022] EWCA Civ 185, the Court of Appeal (CoA) found that there is no acreage limit on the land that could be classed as residential property for Stamp Duty Land Tax (SDLT) purposes. 

HMRC AML visit costs £16k+ penalty for small firm
A cautionary tale: in Delta Tax Agents Ltd v HMRC [2022] TC8403 a small firm of tax agents received a high penalty for failing to demonstrate that were undertaking Anti-Money Laundering compliance in accordance with the regulations. They were then unsuccessful in making a late appeal against the penalty.

VAT Cases & Guides 

Revenue and Customs Brief 3 (2022): Postponed VAT accounting and the Flat Rate Scheme 
HMRC have published Revenue and Customs Brief 3 (2022): ‘postponed VAT accounting and businesses registered under the Flat Rate Scheme’. This details how VAT on imports should be accounted for by VAT Flat Rate Scheme (FRS) users from 1 June 2022.

Input VAT on delivery charges was not recoverable 
In Y4 Express Limited v HMRC [2022] UKUT 00040 the Upper Tribunal (UT) found that a company could not recover VAT on delivery charges as its suppliers were not in business. 

VAT Tool: when do points-based penalties apply?
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Tax Toolkits 

Tax Tools
Be a winner with our game-changing tax diagnostics tools for Business Asset Disposal Relief, SDLT & annexes/subsidiary properties, Company reorganisations, R & D Zone and TAAR on winding up. Sign up now!

Tax Queries?

Virtual Tax Partner© Support
Have a tax query? Need a second option? Open a ticket and ask a question. A team of tax experts with a very wide range of expertise: covering direct and indirect tax, as well as accounting, R&D claims, reorganisations and much more. 

CPD for lunch 

Byte-sized chunks of CPD for subscribers

• CPD: Business Asset Disposal Relief
• CPD: Appeals: How to Appeal a Tax Penalty
• CPD: VAT: Land and Property

More at CPD Index

Missed last time's Web-update?

Nichola's SME Tax W-update 17 February 2022

• Meaning of substantial extent for BADR
• Employer Bulletin: February 2022 
• Coronavirus reconciliation headaches for HMRC
• Research: Impact of Making Tax Digital for VAT 
• Consultation: ‘Call for evidence: An Independent Customs Regime’
• Starting in business: start here!
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• Is it a trade, a business or an investment activity
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