This time we feature some detailed analysis of the potential consequences of an 'upstream' loan in a management buyout. We also note that HMRC has some unusual wording in some tax enquiry letters, there is an update on the new identity verification process that will soon be required by Companies House and another useful selection of cases from the tribunals.

SME tax news 2

We have made a detailed look at the Chartered Institute of Taxation (CIOT)'s proactive submission to HMRC, which highlights that a strict interpretation of the loan to participator rules could lead to 'unfair' s.455 charges. There is no response as yet from HMRC, obviously due to the election purdah.

Our review of tax tribunal decisions this time covers a partnership which failed to notify HMRC about its profits and used the cash basis in error. We also have two appeals in respect of the ever-popular Business Asset Disposal Relief (BADR).

One case highlights the importance of seeking independent professional advice and ensuring this advice is updated when changes are made to proposed transactions. This oversight caused taxpayers to lose their BADR and incur a 15% penalty for carelessness.

In a separate appeal, an unrepresented taxpayer has won his BADR case. The taxpayer successfully argued that his Limited Liability Partnership had been trading for the two years prior to the disposal. Mr Wardle's successful appeal comes after losing a previous appeal on similar grounds for a disposal of an interest in the same partnership.

There is 'ignorance of the law' and then there is making it up as you go along. We spotted an unusual section number in one of HMRC's Enquiry letters as a result of its Income from Letting campaigns, it was combined with an unusual reference to powers. Was it the work of a 'hallucinating' AI or have you seen similar wording in any letters to your clients? Do let us know and do share any other examples. 

Tax featured so prominently in all the parties' manifestos that it will be exciting to see what the winner of the general election will do. We are eagerly awaiting the date of the next budget.  The bets are on: September or October, perhaps?

Back soon

Nichola & the Team


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

Quick News 

Is a chatbot writing for HMRC?
There are some curious typos in an HMRC Income from Property information request letter combined with an evident misunderstanding of HMRC's powers. Upon closer inspection, it looks suspiciously like the work of ChatGPT, or is it just human error?

Loans to participator pitfalls
The Chartered Institute of Taxation (CIOT) has recently highlighted concerns about the application of loan to participator rules and their potential 'unfair' effect on legitimate tax planning, such as where an 'upstream loan' is made to fund a Management Buy Out (MBO). 

Identity verification proposals for Companies House
Draft amendments to the Companies Act 2006 will see stringent identity verification procedures introduced for those setting up, running or controlling companies. It aims to stamp out money laundering through fake identities.

Concerns over s.455 charges on buy-outs
The Chartered Institute of Taxation (CIOT) has recently highlighted concerns about the application of loan to participator rules and their potential 'unfair' effect on legitimate tax planning, such as where an 'upstream loan' is made to fund a management buyout.

Tax Cases

No suspension for careless BADR claim
In Philip Cox and Deborah Cox v HMRC [2024] TC09198, the First Tier Tribunal (FTT) found that the taxpayers' incorrect claim for Entrepreneurs’ Relief (now known as Business Asset Disposal Relief) was made carelessly. The taxpayers failed to obtain appropriate professional advice and were liable to penalties of 15% of the Potential Lost Revenue (PLR).

Failed on ER won on BADR as trading had begun
In John Douglas Wardle v HMRC [2024] TC09213, the First Tier Tribunal (FTT) allowed a Business Asset Disposal Relief (BADR) for the disposal of a Limited Liability Partnership (LLP) interest. Mr Wardle's successful appeal comes after losing a previous appeal on similar grounds for a disposal of an interest in the same partnership.

Partnership could not use the cash basis 
In Patrick Rodney Boden & Anor v HMRC [2024] TC09181, the First Tier Tribunal (FTT) found that a partnership could not use the cash basis to exclude nearly £1m of unpaid sales from tax. HMRC’s discovery assessments were valid.

Incentive plan taxable on non-resident
In Michael Saunders v HMRC [2024] TC09129, the First Tier Tribunal (FTT) found that a Long Term Incentive scheme payment made after an employee had left the UK was taxable because it was general earnings attributable to work done in the UK whilst still resident.

Editor's Choice  

Loans to participator pitfalls
NEW: The Chartered Institute of Taxation (CIOT) has recently highlighted concerns about the application of loan to participator rules and their potential 'unfair' effect on legitimate tax planning, such as where an 'upstream loan' is made to fund a Management Buy Out (MBO). 

Management Buyout: What are your options?
What are the most straightforward options to facilitate a retirement by the businesses' owners and the management of the company to take over or buyout? For example, what happens when two current directors/shareholders wish to retire and sell to a manager? 

Guides & Updates 



Basis Year Reform: At a glance
What is all the fuss about? Does this affect you?

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


Disputed profit share: What do I put in my return?
Partners are assessed on the profits they are allocated on the partnership tax return. What happens when there is a partnership dispute?

Running an LLP in tandem with a company
It is possible to run a Limited Liability Partnership (LLP) or another form of partnership in tandem with a company. Partnerships can also have corporate partners. What needs to be considered? 

Directors & Companies  

Directors' loan accounts: Toolkit (subscribers)
HM Revenue & Customs (HMRC) have a director's loan accounts toolkit for advisers. This is our enhanced version with planning points.

Close company loans toolkit (loans to participators)
What is the Corporation Tax treatment when a close company makes a loan to a participator (director-shareholder)? How do the 'bed and breakfasting' rules work?


Employee Shares: Setting up different share classes
A guide which examines the planning points and pitfalls of multiple share classes.

Land & Property

Property Profits & Losses: Toolkit (2024-25)
Our Property Profits & Losses toolkit takes HMRC's version as its starting point and adds a great deal more information about what you can claim as an individual landlord.

Buy-to-let ownership: personal v. company? 
What is the most tax-efficient way to own buy-to-let property? Personally or via a company? What are the income and Corporation Tax, CGT, IHT, ATED, SDLT or VAT issues? With tips on profit extraction and other planning points, case studies and links to further guidance.

Penalties & Compliance

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?

Client guide: Reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless? 

Private Client & Estate Planning

Estates: Income Tax and Capital Gains Tax
UPDATE: How do executors deal with income and capital gains arising on the deceased’s estate? What allowances and reliefs are available? 

Trusts & Estates: Exit charge reporting requirements
What is an exit charge, or proportionate charge, and when does it apply?

Dividend tax
This practical tax guide explains how dividends are taxed. It includes HMRC's examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.

Trust Registration Service
What is the Trust Registration Service? What trusts does it apply to? What are the requirements and deadlines?

VAT News & Cases

Cars & Vans: VAT
What is a car for VAT? What is a van for VAT? What VAT can be recovered on a car that is bought? Leased? What about fuel? Or mileage reimbursements?

Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one?

Cash accounting
What is cash accounting for VAT? What are the benefits? What are the conditions?

Tax Tools & Calculators

Tax tools & calculators
UPDATE: 2024/25 versions available now. We have a suite of useful tax tools that help agents, business owners and sole traders calculate their taxes. 

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. 

CPD for Lunch

Byte-sized chunks of lunchtime CPD for subscribers 

More at CPD Index

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 wide range of expertise: covering direct and indirect tax, as well as accounting, R&D claims, reorganisations and much more.  

Missed the Last Tax Update?

Ross Martin Tax SME News: 27 June 2024

  • Ignorance of tax rules bolsters the tax gap
  • Remember to declare 'no Class 1A NICs to pay' 
  • Update on unexpected Class 2 NIC refunds
  • Welsh LTT consultation outcome
  • CoA rules loan had an unallowable purpose
  • HMRC raid led to valid discovery 
  • Woods non-residential for SDLT
  • Failure to take reasonable care
  • VtaxP: Virtual Tax Partner Tax Workouts: June 2024  ...More

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