Tax Bites – July 2024

Welcome to the latest edition of RPC's Tax Bites – providing monthly bite-sized updates from the tax world.

News

HMRC has published guidance on Pillar 2 top-up tax requirements 

HMRC has published guidance on Pillar 2 top-up tax registration requirements. This guidance includes a notice containing tertiary legislation on how to register for the Pillar 2 top-up tax, the information required and how to notify HMRC of changes.

Pillar 2 top-up tax supports the OECD's goal of ensuring that large multinational enterprises pay a minimum effective tax rate of 15% on their worldwide profits. HMRC's requirements apply to all multinational enterprises with at least one UK entity and consolidated group annual revenues of €750 million in at least two of the previous four accounting periods.

Registration is required within 6 months of the end of the first accounting period that started on or after 31 December 2023.

HMRC has updated its guidance on mini umbrella company fraud

HMRC has updated its guidance on mini umbrella company (MUC) fraud following the recent First-tier Tribunal (FTT) decision in the test case Elphysic Ltd & Ors [2024] TC 09126.

MUC fraud takes various forms, but often involves creating a number of MUCs and each MUC hiring a few temporary workers. This creates an intentionally complicated supply chain to facilitate the fraud. The fraudsters then exploit the VAT Flat Rate Scheme and Employment Allowance incentives which can lead to the non-payment of PAYE, National Insurance and VAT.      

HMRC advises businesses to be alert to unusual company names and/or business activity, frequent movement of workers, short-lived businesses and foreign national directors, all of which can be warning signs of MUC fraud.

HMRC has published specific guidance to help businesses identify and work with legitimate umbrella companies avoid facilitating MUC fraud.

Multiple Dwelling Relief abolished

Multiple Dwelling Relief (MDR) is a form of relief from Stamp Duty Land Tax (SDLT), which was available until recently on purchases of two or more residential properties in England and Northern Ireland in a single transaction, or a series of linked transactions.

MDR was abolished with effect from 1 June 2024. It can still be claimed in relation to qualifying contracts which exchanged on or before 6 March 2024, or which completed or were substantially performed before 1 June 2024.

HMRC has updated its guidance on higher rates of SDLT to reflect this change.

HMRC has updated its Capital Allowances Manual

HMRC has made two changes to its internal Capital Allowances Manual (the CAM), to reflect SI 2024/574, which came into force on 21 May 2024 and which postpones the sunset dates for special tax sites in freeports in England to 30 September 2031 (and in all other special tax sites until 30 September 2034).

HMRC has updated section CA23122 of the CAM to note that qualifying expenditure on plant and machinery must be incurred before whichever sunset date applies to be eligible for an enhanced capital allowance. It has also updated section CA94751 of the CAM, which deals with enhanced structures and buildings allowance (SBA) in special tax sites. The relevant sunset date for enhanced SBA has also been extended by five years to 30 September 2031 for special tax sites in freeports in England (and in all other special tax sites until 30 September 2034).

Case reports

Tribunal allows entrepreneurs' relief appeal

In Cooke v HMRC [2024] UKFTT 272 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against HMRC's decision not to allow entrepreneurs' relief (ER) in relation to the disposal of his shares in a company.

HMRC denied the taxpayer's claim for ER because his shareholding in the company was slightly less than the required 5% of the share capital due to a spreadsheet rounding error (it was 4.99998%). The taxpayer appealed to the FTT, arguing that the High Court would rectify the documents to reflect the fact that he clearly intended to hold 5% of the share capital. The FTT confirmed it had jurisdiction to consider that the High Court would allow rectification and so deemed that the ER conditions were met.

Following Lobler v HMRC [2015] UKUT 0152, this is the latest example of the tax tribunals being willing to consider what the High Court would do in rectification proceedings and to proceed to determine an appeal as if rectification had been ordered by the High Court.

You can read our commentary on the decision here.

Tribunal awards taxpayer his costs due to HMRC's unreasonable conduct

In Aftab Ahmed v HMRC [2024] UKFTT 00236 (TC), the FTT granted the taxpayer's application for costs due to HMRC acting unreasonably in defending the appeal.

The taxpayer appealed to the FTT against a discovery assessment. Having been successful in his appeal the taxpayer applied for his costs, arguing that HMRC, by persisting with an argument that on the evidence it knew could not succeed, acted unreasonably in defending the appeal. HMRC submitted that just because its argument was unsuccessful in the appeal this did not mean that it acted unreasonably in defending the appeal and that if it had acted unreasonably in defending or conducting the appeal, the FTT would have referred to such conduct in its decision in the substantive appeal and it had not done so.

The FTT had little difficulty in concluding that HMRC's conduct in defending the appeal was unreasonable. The decision is a timely reminder that the FTT is willing to make a costs order against HMRC under rule 10 of the Tribunal Rules, in circumstances where HMRC (or its representative) has acted unreasonably in defending or conducting proceedings.

You can read our commentary on the decision here.

Taxpayer's appeal against penalties under the Follower Notice regime allowed

In Roy Baker v HMRC [2024] UKFTT 126 (TC), the FTT allowed the taxpayer's appeal and cancelled follower notice (FN) penalties that were issued as a result of the taxpayer's alleged failure to take 'corrective action'.

This case will be of interest to anyone receiving or advising their clients in respect of FNs. Whilst this decision was of course fact dependent, it does nonetheless confirm that in deciding whether it is reasonable for the recipient of a FN not to take corrective action, the FTT will apply an objective test. If a taxpayer intends to rely on advice received from an advisor who has been involved in the marketing of the tax avoidance arrangement, it is important that they carefully evaluate that advice with the assistance of independent legal advice provided by a lawyer with appropriate expertise in this complex area of the law.

You can read our commentary on the decision here.

And finally...

Alexis Armitage was joined by Paul Monaghan, Chief Executive and co-founder of the Fair Tax Foundation on the June edition of Taxing Matters, RPC's long-running podcast series which covers a diverse range of issues in the tax world. 

To listen to Alexis and Paul discussing the important topic of tax from an ESG perspective, or to keep up with past and future Taxing Matters episodes, follow the link here.