• Andrew McKenzie-Smart FCCA CTA – Smart Solutions

A Seminar for theChartered Institute of Taxation

Sussex Branch

UK Tax Cases Update

“Not just Gains Cooper”

Leading Tax Cases

• As well as Gaines Cooper there’s….

• Barnetts• Littlewoods Retail..• Wood• Wilkinson • Total People Limited• Williams• Antique Buildings

Limited• Convery….

and a few more

• HL decision soon..(?)

• A few other important ones• Hankinson• Tuberville• Grace• Favell • Osborne• Patmore• Brander• Raha• Moore• Voong

Gaines Cooper [2010] EWCA Civ 83The Background

• Judicial review case linked with Davies & Anor

• Challenge is that HMRC did not follow their guidance in IR20

• Or unannounced change of policy re their interpretation

• TP claimed not to be UK resident• Covers 1993/94 to 03/04• Legitimate expectation that HMRC would follow

IR20 (rejected by Special Commissioner)

Gaines Cooper [2010] EWCA Civ 83The Court of Appeal (February 2010)

• Any HMRC statement formally published would be binding for any case clearly within the ambit of the statement– Considered number of return visits– Whether there had been a change of policy– Leaving the UK permanently or indefinitely– Leaving to work full time abroad

• Held no unannounced alteration to their interpretation of the guidance in IR20 and

• Effectively G-C had mis-interpreted IR20• Judicial review application dismissed but • Accepted application for case to be reviewed in

the Supreme Court

Gaines Cooper .. continued

Case expected very soon

Keep up to date by reading…www.robertgainescooper.com

Has personal background to case

“My case is not just about non-doms and non-residents. My case is about fighting for clarity in the UK tax system and for fair and consistent treatment of all taxpayers so that we can all plan our tax matters with certainty, pay the tax which is due and get on with our lives.“

Hankinson & Tuberville

• Both residence cases • Tuberville [2010] UKFTT 69 (TC)• Ord Res in 01/02 &

02/03 ?• Accountant working

for Shell Oil• Decided on the facts• Of wider note ?• During Nov 02 &

Dec 02 not possible to say where resident – “time of transition”

• Hankinson• UT [2010] TC 00319• Discovery assessment• “clever” tax planning?• F/t working abroad for

Dutch subsidiary• Less than 183 days in

the Netherlands• Negligent/ Incomplete

return submitted?

Grace [2011] TC 00913

• Another residence case! – physical presence….

• Bought house• Argued that he is SA

resident from this time

• Continued presence in the UK

• Spec Cmr for Grace• High Court for

HMRC• CA - back to FTT• FTT for HMRC…

• Airline pilot working for British Airways

• Based on the facts• Re 1997/98 to 02/03• Flights from gatwick &

heathrow• Until 1997 lived at house

in Horley• Aug ’97 rented

apartment in Cape Town

Favell [2010] TC 00642 & Raha

• PPR case – 2 of the 1,042 reliefs/exemptions for the Office of tax Simplification

• Claimed 36/56 months of gain exempt due to PPR (s222 & s223 TCGA)

• Claimed occupation Jan to Nov ’01• Query whether temporary occupation• No documentary evidence to support

occupation• Clear message get sufficient evidence to

support your planning!

Favell:

Favell & Raha [2010] TC 00590

• Rental expenses after ceasing rental business• Taxpayer claims for water, council tax, furniture

clearance, service charges, electricity between 03/04/06 & 01/09/06

• HMRC “reflected in the state or nature of the asset at the time of sale”

• HMRC ‘quantifiable improvement in the asset’• No of cases/ enquiries in this area run

Raha:

Osborne [FTT]

• Not about George• Gift aid on part of

subscription paid for membership of Masonic lodge

• 6 years claimed under gift aid

• Element of subscription forwarded to Masonic Grand Charity but

• Payment was for the lodge membership

Patmore [FTT]

• Strange case & stranger decision• Similar area to Jones vs Garnett – Arctic Systems • “lack of commerciality” by both H & W

• Acquisition of business by joint mortgage • Reorganisation of shares wife had

– 2% of A shares– 10% of non voting B shares

• Protect wife from inherent risk• S660A needs gratuity/ bounteous intent• Dividends paid to clear mortgage monies

Brander [2010] UKUT 300(TC)

• IHT case re BPR• BPR available for trading entities (not mainly

or wholly making investments)• Deceased died whilst farming in partnership• Query whether the estate management and

farming activities were managed as a single composite business

• “not withstanding the estate trustees and the deceased were 2 distinct entities they could run a composite business

• Of wider note for trading partnerships…

Administration Cases

• Moore• Voong• Barnetts• Littlewoods Retail Limited• Smith• Icebreaker 1 LLP• Christopher Lunn (Sussex’s finest tax adviser….)

Moore vs R & C Commrs[2010] TC 00565 [2010] UKFTT 271

• Negligent filing of incorrect Self Assessment Rtns – abatement of penalties

• FTT increased the abatement of penalties from 45% to 75%

• Considered it impossible for taxpayer to produce documents that had been destroyed

• Wrong amount of bank & building soc interest for 2001/02 to 2002/03

• First case re new penalties regime (?)

Voong vs R & C Commrs[2010] TC 00604 [2010] UKFTT 317

• Self Assessment case for a takeaway• Discovery assessments re under-declared

takings• Onus on tax payer to disprove HMRC’s

revised figures• HMRC used “business economics exercise”• No credible explanation from tax payer

Barnetts vs R & C Commrs[2010] TC 00575

• Client account interest on solicitors trading in partnership

• Practice was loss making due to competitive market conditions for conveyancing work

• Relied on the interest earned on their client account monies for the mortgages drawn down to offset their trading losses from the fees charged

• Tax payer interest is trading income• HMRC interest isn’t trading income.• Taxpayer wins on facts

Littlewoods Retail Ltd & Ors vs R & C Commrs [2010] EWHC 2771 (Ch)

• Restitution case to forward to the ECJ• Compound interest due when recovering

overpaid VAT?• Catalogue company 1973 to 2004 paid VAT

on agent’s commission• HMCR accepted that no VAT due• Only paid simple interest on the recovered

amounts

Smith [2010] TC 00403

• Accounting practice case re contract income• Ground works contractor for building firms• Costs were labour, materials, plant• Fixed price contracts ranging from one

month to a year, typically 2 to 3 months• Accountant did not use client’s Quantity

surveyors reports prepared for the application of payments

• 1999 to 2002 used estimated figures of £2,000, £2,500 and £3,000

• Stock & WIP in 2000 was £60,600• Method used wasn’t “GAAP”

Icebreaker 1 LLP vs R & C Commrs[2010] UKUT 477 (TCC)

• Film Scheme case• Appeal against FTT decision re allowable

deductions• 6 individuals and 2 corporate partners• £1.5m contributed of which £1m was non

recourse loans• 26 documents executed on 5th April 2004• £46,950 paid to SPAM (10 yr licence for

screenplay)• £170,000 for admin & advisory to IML• £1,273,866 paid under “head distribution

agreement”

R (on application of Lunn & others) vs R & C Commrs [2011] EWHC 240 (Admin)

• Sussex’s finest hour..?• Christopher Lunn practising accountant in

Crowborough…• Concerns withdrawal of tax agent status (only

the second time ever HMRC have done this)• 08/09 HMRC had concerns

– re significant number of tax returns submitted (over 7,000 clients)

– & re the level of skill and care– Obtained search warrants for premises

• Submission from investigators led HMRC to withdraw tax agent status without notice

• HMRC using the case to beat up tax agents?

R (on application of Lunn & others) vs R & C Commrs [2011] EWHC 240 (Admin)

• Agent status withdrawn in November 2009 without notice

• Investigators found 1,850 cases out of 7,000 where the accountancy fees were inflated in the Client’s tax returns

• Of 450 cases they sampled 98% had false inflated expenditure levels for– Accountancy– Recharacterised personal expenses as business

expenses

• Personal tax affairs were also of concern re WIP, use of subcontractors….

Employment Cases

• Wood• Wilkinson • Total People Limited• Williams• Antique Buildings Limited• Convery

Wood [2010] TC 00577

• Redundancy case• Payments made after contract terminated• Claimed £30,000 exemption under s401• Paid net of basic rate tax & NI• “the fact that tax had been deducted at

source did not meant that the additional payment did not qualify for the exemption”

• HMRC PAYE Update 39 – T0 basis from 6th April 2011…

Wilkinson [2010] TC 00572

• Travelling costs made by trainee registrar• On rotational placements • Costs didn’t qualify as removal benefits or

travel expenses• Emergency callouts exempt under FCPS• 4 NHS trusts • Eligible for relocation expenses, claimed

lump sum for excess mileage• Lived near Guildford, moved to Winchester• HMRC separate employments…

Total People Ltd [2010] TC 00661

• Unusual payments for motoring expenses.• First Tier Tribunal case• Appeal made to High Court• Payments made were “relevant motoring

expenses” not earnings therefore no NI• 160 Training Advisers visited employers and

trainees• 2 options for staff

• Straightforward mileage at FCPS rates• Or 12p/13p per mile plus annual lump sum paid

monthly• HMRC claimed 2nd option should be earnings

Williams [2010] TC 00397 • Newsreader• Claims for

Professional clothing• Laundry (£325)• Costs (£3,231)Professional hairdo & colouring

(£975)• Plant & Machinery• Necessary for performance of

duties• Mallalieu vs Drummond cited

Her legal team told the tribunal that if she “wore the same clothes frequently when appearing on television she would lose her job. The appellant would be prepared to wear no clothing when performing her job but is required to do so by her employer

Antique Buildings Ltd [2010] TC 00408

• Class 1A NIC case• Covers the period 6th April

2003 to 5th April 2006• Use of helicopter for business

& personal use• Benefit included on tax returns• Business use agreed with

HMRC• Query concerned the basis that

the Class 1 charge would be based on

John Avery Jones found that the legislation was in favour of HMRC, but preferred the “taxpayers words”

– appeal allowed & business usededuction accepted

Convery [2010] TC 00401

• Appellant fell off a roof whilst involved in a renovation project

• House being worked on was the Co. Regd. Office and home of the Director

• Claimed to be an employee to claim disablement benefits

Convery [2010] TC 00401

• Claimed to be an employee to claim disablement benefits

• Judgement obtained in a civil claim for compensation against a scaffolder rather than a Company and its directors

• No contract evidence between him and the Company at all

• Claim based on seeing the name of the Company on the site

VAT Cases

• National Transport Authority vs Mauritius Secondary Industry

• Lower Mill Estate Ltd• Megantic Services Ltd• Bryce t/a The Barn• Deliverance Limited• Sub One Limited t/a Subway

National Transport Authority vs Mauritius Secondary Industry

[2010] UKPC 31

• Privy Council case• Lease between parties• NTA leased office building from MSI• Lessor (MSI) regd for VAT• Agreed monthly rent but no mention of

VAT• Inclusive or exclusive?• No claim for further payment for the VAT

as not a contract term

Lower Mill Estate Ltd vs R & C Commrs [2010] UKUT B25 (TCC)

• Supply of land by one company • Zero rated supply for VAT

• Construction services to build holiday homes performed by an associate • Standard rate for VAT

• ? Single supply• ?Abuse of practice re Halifax case• Appeal from FTT to UT successful

Megantic Services Limited[2011] UKUT B2 (TCC)

• Missing Trader Intra Community Fraud Case• HMRC chain of transactions in mobile phones

derived from hard disk of First Curacao International Bank [Netherlands Antilles]

• 2006 action taken against FCIB• 2,300 GB of digital data taken• Hard disk copied from server• HMRC Prosecutors applied to the Dutch

authorities for a copy• Taxpayer objected to the evidence as no

consent from NL requested • FTT considered acceptable appeal to UT• UT considered it to be reliable and consent

implied by request for a copy of hard drive

Bryce t/a The Barn

• Day care nursery• Provided children’s, cooking and craft

parties from the Barn• TP claimed children’s parties were single

supply of exempt supplies of a grant to occupy land

• 3 components to children’s party (occupy hall, use of play eqmt, refreshments)

• FTT - split supply - standard and zero rated items

• UT - single supply of standard rated supplies

Deliverance Ltd [2011] UKUT 58(TCC) & Sub One Ltd t/a Subway

• VAT on hot food - standard rate• VAT on cold food – zero rate

• Catering company delivered food cooked to order by motorcycle with 45mins of being ordered

• Dispute re crispy duck pancakes, spring rolls, samosas, falafels & dip, sesame prawn toast, onion bhajis,etc

• Aim “not to provide hot food” but freshly cooked food for customers

• UT found for tax payers..

Deliverance Ltd & Sub One Ltd t/a Subway

• Note – Subway now has more outlets than McDonalds

• Dispute re toasted Subway sandwiches and meatballs

• Again are these supply of “hot food”• Establish whether the main purpose for heating

the sandwiches was for consumption above ambient air temperature

• Subway’s case – purpose was to “firm up the bread and improve texture and flavour”, “enhance visual appearance”, “improve aroma” & “infuse with marinara sauce”

• Appeal dismissed…standard rate to be applied

For Further Information Contact me at:

Andrew McKenzie-SmartSmart Solutions88 Pollards Oak RoadHurst Green Oxted Surrey RH8 0JW

Tel: 01883 715848Mob: 07952 217249

Email : mac@smartsolutions-online.co.ukWebsite: www.smartsolutions-online.co.uk

Disclaimer

• The illustrations and information presented is produced for your general information. It is based upon our understanding of current legislation and correct at the time that the seminar was prepared and presented. You should contact us before taking any specific action based on the information shown on these slides or any handouts provided as part of the seminar. No responsibility can be accepted for any use made of the illustrations or information presented herewith.

 • Whilst every effort is made to ensure the accuracy of information

contained herein, we cannot accept liability for any reliance placed on these seminar materials and strongly advise that you seek further specific advice relevant to your individual circumstances.