Nichola's SME Tax W-update 7 December 2023

Hello,

Don't rely on 'AI' like ChatGPT to generate your legal argument! The decision in Felicity Harber's tax appeal, hot off the press today, illustrates how a large language model AI generated invented case law. The First Tier Tribunal (FTT) judge was not fooled, unlike the unfortunate taxpayer who lost her appeal.

HMRC has launched a new disclosure campaign to encourage taxpayers to settle outstanding tax liabilities on gains and income from Cryptoassets. We observe that HMRC has access to a lot of big data these days and we are anticipating years of tax enquiries in this often highly complex area of tax.  

Another big story this week in SME tax was the news that BBC TV presenter Kaye Adams has finally succeeded in convincing the First Tier Tribunal (FTT) that she worked directly for the BBC, not via her Personal Service Company, Atholl House Productions Limited. That hypothetical contract would have been on a self-employed basis. This 'IR35' appeal, originally heard by the FTT had gone all the way to the Court of Appeal before being sent back first to the Upper Tribunal and then back again to the FTT. 

It must have been agony for the taxpayer, and the costs for both sides, far outweigh the tax due for the two years in question.

The case illustrates very clearly the outcome of bad legislation. There are no winners in these situations. During the nine years of Ms Adam's appeal, IR35 itself was reformed. We now have 'Off-Payroll Working' rules which apply to contractors who freelance for large and medium-sized clients and any client in the public sector. HMRC has also created a Check Employment Status Tool (CEST) that should be used in all contracting situations. Whether the CEST would have been able to deal with the vast amount of evidence that was presented during Ms Adam's appeal is a moot point. It would be interesting for the FTT judge to run his decision through it, just to test it out.

With more severe weather warnings on the way, perhaps the best thing to do is to wrap up warm and finish off all those outstanding tax returns. As the 31 January filing deadline draws near, HMRC today announced that both the Self-Assessment helpline, and Agent Dedicated Line, will focus on 'priority queries' between 11 December and 31 January. Where possible, agents and taxpayers will be redirected to HMRC’s online services to resolve issues. 

Don't forget that if you have a company or Limited Liability Partnership (LLP) with a March 31 year-end, you have filing obligations at the start of the new year.

More news, cases and updates are below; we especially like the case on camping pods! In the Editor's Choice we dig deeper into the essential take-homes from the Adams' case.

Back soon

Nichola Ross Martin

www.rossmartin.co.uk

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

Quick News (Freeview)  

ChatGPT fluffs tax appeal
In Felicity Harber v HMRC [2023] TC09101, ‘artificial intelligence’ (AI) failed to assist a taxpayer in her appeal against penalties after it emerged that it had invented the case authorities she had relied on in her defence. The First Tier Tribunal (FTT) found that this was not the first time that AI created fake cases.

HMRC helpline to focus on ‘priority queries’
HMRC have announced that between 11 December 2023 and 31 January 2024 its Self-Assessment helpline and Agent Dedicated Line will focus on ‘priority calls’.

Disclosure of cryptoasset income & gains
HMRC is inviting taxpayers to make a voluntary disclosure of Income Tax or Capital Gains from cryptoassets. It is publicising two options for disclosure

Consultation responses on Construction Industry Scheme reform  
HMRC have published responses to their earlier consultation ‘Construction Industry Scheme reform’. The consultation focused on three areas within the Construction Industry Scheme (CIS): compliance, administrative easements, and simplification. As a result of the consultation, a number of changes have been announced. 

Helping to comply with Off-Payroll Working rules
HMRC has issued new guidance “Help to comply with the reformed off-payroll working rules (IR35), and avoid common mistakes. The title of the guidance is confusing for some. 

Tax Cases  

Only basic camping pods qualified for capital allowances
In Acorn Venture Ltd v HMRC [2023] TC09006, the First Tier Tribunal (FTT) found that basic camping pods provided to school children for residential adventure holidays qualified for plant and machinery capital allowances. Pods with greater facilities, for teachers, did not qualify.

Compensation for loss of pension rights was earnings 
In HMRC v E.ON UK Plc [2023] EWCA Civ 1383, the Court of Appeal (CoA) found that a payment made to an employee as part of a package of changes, which included adverse changes to pension rights, was earnings from employment. It was subject to Income Tax and National Insurance. 

Editor's Choice

IR35: Kaye Adams was self-employed
The First Tier Tribunal (FTT) has found in favour of TV presenter Kaye Adams. Her income from a BBC contract and paid to her company, Atholl Productions Limited, was not within the legislation known as IR35. She was validly engaged under a contract of self-employment.

SEIS case study: Can directors or employees qualify?
When can directors or employees qualify for Seed Enterprise Investment Scheme (SEIS) relief? 

Tax Tools 

Tax calculators
UPDATE for NICs changes: FREE for subscribers: We have a suite of useful tax tools that help agents, business owners and sole traders calculate their taxes. 

Tax Tools
FREE add-on for subscribers, or available separately

Calendar of tax deadlines and new tax measures
UPDATE: This is a freeview 'At a glance' rolling calendar of common recurring tax deadlines, new tax measures and other tax significant events.  

Guides & Updates (subscription content)

Self-Employed  

Cash or accruals accounting toolkit
UPDATE: Unincorporated businesses can elect to use one of two different methods of accounting for tax: simpler accounting (cash basis) or accruals basis accounting.

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

Partnerships

Partnerships: Capital Gains Tax
How does Capital Gains Tax (CGT) work for partners and partnerships? What is HMRC’s Statement of Practice D12? How are transactions between partners treated? What if the partners are connected persons for CGT?

Partnership agreements: What should be considered?
Partnership agreements can be invaluable to clarify everyday matters and settle disputes within a partnership. What sort of things should be discussed for inclusion in a partnership agreement? Why are they important?

Employers

Employers' NICs relief for veterans
UPDATE: Since April 2021, a relief from Class 1 National Insurance has been available for employers who hire veterans within their first 12 consecutive months of civilian employment. 

CIS: Contractors and Subcontractors
UPDATE: What is the Construction Industry Scheme? Who does it apply to? How does it work?

Directors & Companies 

Salary 2023/24 (avoiding NICs)
UPDATE: What amount of salary can be paid by an employer to a director/shareholder and avoid or reduce National Insurance Contributions (NICs) in 2023-24? Is it beneficial to pay a slightly higher salary to claim the Employer's NICs allowance and pay some NICs?

Do I pay a salary or dividend? 2023/24
UPDATE: This guide explores the tax-planning points and pitfalls of using dividends to create a tax-efficient pay package.  

Private Client & Estate Planning

Gift Aid: How it works
UPDATE: What is Gift Aid? How does it work? What are the rules? 

National Insurance: What's the maximum payable?
UPDATE: How are National Insurance Contributions (NICs) limited? What is the maximum payable? What different rules apply to employment and self-employment income? 

Land & Property

National Insurance for landlords
UPDATE: When are National Insurance Contributions (NICs) payable by landlords? Can landlords pay Class 2 NICs voluntarily?

Joint property: Legal v beneficial ownership
What is the difference between legal and beneficial ownership? What are the tax consequences? Are the rules different for married couples and civil partners?

Capital Allowances

Full expensing & First Year Allowances
UPDATE: What is full expensing? When does it apply and what is the rate of allowance? How are disposals of full expensing assets dealt with? What assets qualify for the 50% First Year Allowance (FYA)? How do I deal with disposals of 50% FYA assets? How do I make a claim?

Annual Investment Allowance (AIA): Related companies
What restrictions to AIA apply to companies? What does common control mean? When are companies related?

VAT News & Cases

VAT DIY housebuilders: new guidance
A number of changes to the VAT DIY housebuilders scheme came into effect on 5 December 2023. Claims can now be made online and the claim deadline is extended to six months. HMRC have just published a collection of new guidance on obtaining a VAT refund under the scheme.

Agents and principals
UPDATE: What is an agent for VAT purposes? What is a principal? When do the agency rules apply? 

Energy-Saving Materials
UPDATE: The supply and fitting of energy-saving materials in residential accommodation attracts the zero rate of VAT. What does it apply to? What are the qualifying conditions? What case law is there on this topic?

CPD for Lunch

Byte-sized chunks of lunchtime CPD for subscribers

• CPD: Corporation Tax Part 1: Rates and Challenges
• CPD: Corporation Tax Part 2 Associated Companies
• CPD: Corporation Tax Part 3 Augmented Profits & Marginal Relief

More at CPD Index

CPD Workouts

Two hours of CPD: Unravelling the diverse tax rules over a range of topical subjects

• VtaxP Tax Workouts 2023: AML Essentials update & IHT and Family Investment Company case studies
• VtaxP Tax Workouts 2023: Tax Update for OMBs & Taxing the Digital Nomad

Tax Queries?

UK Agent for registration of Overseas Entities
Do you require assistance in the registration and verification of an overseas entity that owns UK land or property?

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.  

Missed Last Time's Web-update?

Nichola's SME Tax W-update 30 November 2023

• MPs issue recommendations on Making Tax Digital
• Expanding the cash basis, consultation responses 
• Permanent Full Expensing consultation
• Advisory fuel rates from 1 December 2023 
• HMRC reports on review of MTD for ITSA for small businesses
• Call for Evidence: UK visual effects sector
• Energy Price Guarantee for domestic users
• Fuel and hired plant were separate supplies for VAT 
• Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of shares or securities in a company
• Accountancy & tax fees
• Agency Workers: Employment intermediaries rules (subscribers)
• Leaving payments and directors
• Named tax avoidance schemes, promoters, enablers UPDATE
• Restricting mortgage interest relief: client guide
• VAT fraud: What is the Kittel principle?
• Striking off a company: Step-by-step
• Self Assessment Return 2022/23: What's new?
• Online filing exclusions for 2022-23 tax returns
• SRT: Split Year Treatment
• Disposal values & rules ...More

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