SME Tax News

In Interfish Limited V HMRC [2013] UKUT  0336 the Upper Tier Tax Tribunal rejected an appeal by Interfish Limited that payments it made to Plymouth Albion rugby club as sponsorship were wholly and exlusively incurred for the benefit of the company.

In The Trustees of David Zetland Settlement v HMRC TC02690 [2013] the FTT agreed with HMRC's refusal to give IHT Business Property relief (“BPR”) on the grounds that the activity of owning and running serviced offices was “mainly” one of dealing in land or making or holding investments.

The GAAR (general anti-abuse rule) now applies following Royal Assent to the Finance Bill 2013.  The idea of introducing an anti-abuse rule has been debated extensively. This new law is a product of its time – marking public and government concern that some schemes have managed to conjure tax savings out of nowhere.  The approach of the courts to aggressive tax avoidance has meant that few such schemes actually work.  However, the GAAR should make it clear that abusive planning simply will not work. 

The GAAR applies to abusive tax arrangements that do not pass what has become known as ‘the double reasonableness test’ having regard to all thecircumstances, including the principles on which the legislation was based and whether the planning was intended to exploit any shortcomings. Those advising on or deciding a case may need to refer not just to the legislation but to explanatory notes, ministerial statements and other evidence.

Stephen Coleclough, President of the Chartered Institute of Taxation (CIOT), commented:

“The message for individuals tempted, for example, by schemes that promise more in tax refunds than the original investment is clear.  Don’t do it.  The tax refund won’t materialise and you may well lose your investment.

“The message for businesses in more nuanced.  Abusive planning won’t work, but the complexity of business transactions and our existing law will produce an element of uncertainty.  Businesses and their advisers will need to assess whether planning is reasonable in the context of the legislation and their commercial position.  The GAAR Guidance should help define what is, and what is not, acceptable.  We hope that HMRC and the independent GAAR Advisory Panel will continue to work on helping taxpayers and advisers understand where the GAAR applies and where it does not.

“Tax agents will need to start considering whether the GAAR applies when they complete a client’s self-assessment return.  The GAAR guidance makes it clear that much commonplace planning will be unaffected, which is helpful for many taxpayers and advisers alike. However, there is likely to be a long period of uncertainty whilst the GAAR matures. 

“The CIOT will be issuing guidance to its members to ensure that they have appropriate processes in place. Where a client has entered into a particular transaction, often on the advice of another party, it will be necessary to consider whether the GAAR applies. Sometimes specialist help will be required to help determine this.  The forthcoming revision of the tax profession’s code ‘Professional conduct in relation to taxation’ will include advice about the GAAR.

“Ultimately, the success of the GAAR will be judged on whether the marketing of abusive schemes is reduced and far fewer taxpayers choose to enter into them. A sustained review of the GAAR’s effectiveness will be crucial.”

In this time's web-update we have a new general income tax disclosure opportunity from HMRC, news of another consultation on a proposed reform of the Close Company Loans to Participators rules and a new Close Company Loans Toolkit. My pick of this time's 'Essential reading'.

This consultation has lapsed: HMRC decided not to take this any further at present.

HM Revenue & Customs have launched a new consultation on a proposed reform to the close company loans to participators rules. These proposals come on top of changes already made in Finance Act 2013.

The National Audit Office has finally published its report on Rural Broadband.


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