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The programme for the next meeting on Tuesday 11 June is as follows:

• 8.00  Registration and breakfast
• 8.30  Chairman’s introduction
• 8.35  Vaughn Chown: Mixed supplies & VAT – the latest cases and how to navigate the complexity
• 9.00  Paula Tallon: Pre-sale planning for OMBs – structuring to minimise corporation and capital gains taxes
• 9.25  Ian Maston:   Succession planning for OMBs – passing on the family business tax efficiently
• 9.50  Q & A

Please note that we have chosen a new venue for 2013!

All meetings will be held at the Arundel House at 13-15 Arundel Street, Temple Place, London WC2R 3DX. Arundel House is situated in the heart of London, overlooking the Thames. It was built in the nineteenth century by the Duke of Norfolk and the venue has recently been refurbished. The views from our room are outstanding, capturing images of Tower Bridge in the east and London Eye, Big Ben and Parliament in the west. With state of the art AV equipment, professional team and delicious food, Arundel House is going to be a fantastic setting for our Breakfast Tax Briefings and we look forward to seeing you on 16 April!

To book a place please phone Egle Rimkiene on 0207 182 4754 or email her.

The Breakfast Tax Briefing is free and is an opportunity for accountants and other professionals to keep up to date with the latest tax and VAT news and planning ideas. It also gives you the opportunity to meet, and raise your tax issues with, other members of the Gabelle team in an informal and friendly environment.

The post The Breakfast Tax Briefing appeared first on Gabelle.

On 15 March 2013, we reported two contrasting cases relating to the exemption for investment fund managers.  The new RDR rules which came into effect this year for IFAs prompted HMRC to amend its guidance on when VAT advice could be exempt.  There have also been recent cases at European and domestic level on the exemption for portfolio investment services, amongst others.

In National Exhibition Centre Ltd v Revenue and Customs Commissioners ([2013] UKFTT 289 (TC), published 17 May 2013) the subtle distinctions between exempt and taxable services were highlighted once again.  The taxpayer helped to sell tickets for events and had three income streams: facility fees (charged to the event promoter), transaction fees (charged to the customer) and booking fees (also charged to the customer).  The transaction fees were for the administration involved in issuing a ticket, whilst the booking fees were for handling credit card transactions.

HMRC brought three arguments against the exemption for the booking fees services, involving agency rules, mixed supply rules and debt-collection rules.

• Booking fee services were part of the promoter’s services, or
• Booking fee services were part of an administrative service supplied by the taxpayer, or
• Booking fee services was debt-collection.

In its first argument, HMRC reasoned that the taxpayer was acting as agent for the promoter in receiving fees from the customers.  Booking fees would therefore be standard-rated as part of an overarching supply of tickets by the promoter.  The Tribunal considered the evidence, noted that appropriate contractual and practical steps had been taken by the taxpayer, and concluded that it was not acting as agent for the promoters in respect of the transaction fees and the booking fees.

In its second argument, HMRC reasoned that the taxpayer’s payment handling services were part of an overarching, standard-rated supply by the taxpayer of an administrative ticket-booking service.  In finding that the credit card handling services were a separate supply, the Tribunal distinguished other services performed by the taxpayer such as advice on seating, observing that these were performed freely whether or not a ticket was purchased by the customer.

In its final argument, HMRC reasoned that the collection of money from customers on behalf of the promoter was nothing more than the collection of a debt.  Debt collection is expressly excluded from the financial services exemption, so this would be a standard-rated supply.  The Tribunal again dismissed HMRC’s reasoning, stating that “to describe [the booking fees service] as a service of debt collection is an artificial analysis of a straightforward situation”.

In summary, the taxpayer’s booking fees were exempt as payment handling services.  However, the challenges brought by HMRC were supported by similar cases where the taxpayers had been found to be making standard-rated supplies.  Businesses in the financial services industry should consider carefully the detail of their transactions before concluding which supplies could be defended as qualifying for exemption.

For further information on the exemption for financial services, please contact the TaxDesk on 0845 4900 509 and ask for Vaughn Chown.

The post VAT and financial services: subtle distinctions between exempt and taxable supplies appeared first on Gabelle.

The key facts and consideration of the FTT’s decision were set out by Ian Maston in his 21 February article ‘Agricultural property relief – when occupation is sufficient’.

The FTT had considered technical arguments from both sides on the correct interpretation of the “character appropriate” test and the required connection between land and buildings for this purpose.  They had concluded in favour of the taxpayer noting that to meet the test the farmhouse need only be “in the same occupation” but that there was no further requirement that it is “in the same ownership as the agricultural land or pasture”.

It was this interpretation which was considered further by the UT.  They considered a number of examples of different ownership and occupation structures before concluding, in favour of the taxpayer:

Accordingly, it is right that there has to be some nexus which establishes that the agricultural land … is connected in a relevant way with the cottage, farm building or farmhouse … Given the references to occupation [in s115 IHTA 1984] … and the reference to occupation in section 117, we consider that the literal – or at least the more natural – construction is that for which the Respondent contends.

There was an acceptance on both sides that whether the “character appropriate” test was satisfied could turn on whether land farmed but not owned could be included.  The UT put this beyond doubt by noting:

We detected a hint [in HMRC’s argument] … that … the extent of the land available to support the “character appropriate” test should be restricted to the property subject to the charge … if he was making such a point, we reject it.

In summing up, the UT concluded:

We have taken account of those points [of the taxpayer] in addressing the arguments of HMRC … we do refer to what we see as the main thrust of his argument, with which we agree … that it is appropriate to … establish the reality of the farming unit.  A single farming unit is likely … to be in a single occupation.  And that is why occupation can be taken as a reliable touchstone for identifying “the property”.

The UT does, though, end on a note of caution:

We would only add that we do not decide that common occupation will always and necessarily constitute a sufficient nexus.  It may be right that there can be situations in which, although there is common occupation … there is not a sufficient
nexus.

Therefore each case does still need to be considered on its own merits.  What this case undoubtedly does, though, is provide a strong argument in favour of a claim for APR where ownership and occupation are divested (which is not uncommon in many family situations).

For further information and advice on issues arising from this case please contact the TaxDesk on 0845 4900 509 and ask for Lawrence Adair.

The post Common occupation, not ownership, is the key when applying the “character appropriate” test for APR appeared first on Gabelle.

The FTT decision, reported in March 2012, had been a very surprising one, casting doubt on the previously understood position that the active management of property was sufficient to constitute the carrying on of a ‘business’ for the purposes of s162 TCGA 1992 roll-over relief.

In considering the earlier decision, the UT judge was satisfied that the FTT had made an error in law in reaching its conclusion that the activities of Mr and Mrs Ramsay did not amount to a business for the purposes of s162 and that the proper decision was to allow the appeal and set aside the earlier decision.

The UT made some interesting and important points when considering the question of whether a business was carried on, which will be of interest to practitioners advising clients in similar situations.

The Upper Tribunal decision

The property in question, which had been transferred to a newly formed company in exchange for shares, was a large house in Belfast owned by Mr and Mrs Ramsay.  The house was divided into flats which were let.  Despite the fact that both owners had spent approximately 20 hours per week carrying out various activities linked to the property, including meeting and assisting tenants and repairing and maintaining communal areas, the FTT did not accept that they were carrying on a ‘business’ eligible for relief under s162.

The FTT had agreed with HMRC’s argument that the activities in the main were more akin to those carried out by the owner of a passively held investment. Their starting point in arriving at that conclusion, had been to consider whether the activities taken as a whole amounted to the carrying on of a property business (chargeable under Schedule A) or whether an actual trade was being conducted.  The UT believed this was the wrong approach.  In its view, the issue was whether the activities constituted a business and whether or not a trade was being conducted was not relevant for the purposes of s162 relief.

The UT underlined this point when commenting on the case law which had been used to support the FTT decision, in particular the reliance on the case of Rashid v Garcia (SpC348), an NIC case where the meaning of business had been closely associated with trades, professions and vocations.  The Judge believed that while this might have been applicable for NIC purposes it was not appropriate for s162.  The UT was also critical of the use of this case in supporting the qualitative approach taken in respect of activities undertaken and the view that these were not over and above those that might be required in respect of normally let property and that the scale of the activities was simply commensurate with the size of the property and the number of occupied apartments.  In the UT’s opinion it is the degree of activity as a whole which is material to the question of whether there is a business, and not the extent of that activity when compared to the number of properties or lettings.

The earlier FTT decision had called into question whether the activities undertaken by Mr and Mrs Ramsay would qualify for business property relief for IHT citing the case of Martin and another (executors of Moore deceased) v IRC [1995] STC (SCD) 5. In that case although HMRC accepted that the deceased activities constituted a business, relief was denied only because the business consisted wholly or mainly of making or holding investments. The UT stated that this test was not present in s162 calling into question the relevance of the case to FTT’s argument.

Business or trade?

One of the key aspects highlighted in this case is the importance of establishing whether, for the purposes of the relief, the activities undertaken constituted a business or whether there was a need for them to support the carrying on of a trade.  Some reliefs – e.g. Entrepreneurs’ Relief, ‘s.165’ Holdover relief, ‘s.152’ Roll-over relief, Substantial shareholding exemption – involve a positive ‘trading’ requirement.  Inheritance tax business property relief requires that a business is not ‘investment’ and certain forms of trading are also excluded.  But for ‘s.162’ roll-over relief in point here, there is no similar requirement.

As this case shows, however, there are wider aspects to consider when establishing whether activities constitute a business.

What constitutes a business for s162 relief?

The judgement made by the UT in this case was that the word “business” in the context of s162 TCGA 1992 is very broad. Based on specific case law the factors applying to the activities undertaken, which the UT believed were of general application to the question of whether a business is carried on, were summarised as whether they…

• Amounted to a serious undertaking or occupation earnestly pursued;
• Were something that was actively pursued with reasonable or recognisable continuity;
• Had a certain amount of substance in terms of turnover;
• Were conducted in a regular manner and on sound business principles;
• Were of a kind which, subject to differences of detail, are commonly made by those who seek to profit from them.

Although in this case the activities themselves could well have been undertaken by someone who was a mere property investor, the UT was satisfied that the degree of activity exceeded what a normal passive investor would carry out and that this represented the existence of a business. It is therefore the degree and regularity of the activities which appears crucial.

To an extent, this decision takes clients and practitioners back to where we started before the FTT decision so some uncertainty as to what extent of activities will be required to constitute a business in each particular case remains.  Nevertheless, the case does recognise that where activities do have substance, are carried out on a regular basis and can be distinguished from what a normal property investor would do, the existence of a business, crucial for the eligibility of s162 relief, can be supported.

If you would like to discuss this case and s162 roll-over relief in general please ring the TaxDesk on 0845 4900 509 and ask for Martin Mann.

The post Letting properties can qualify for roll-over relief appeared first on Gabelle.

The key facts were these:

• Albermarle 4 LLP (“the Partnership”) was formed in December 2002.
• Vacant commercial properties were acquired in April 2005 with a view to finding tenants, with the intention to selling on at a profit.
• No suitable tenants were found and the properties were subsequently sold at a loss.
• The 2005/06 partnership return included a trading loss of £252,751 while the balance sheet included the properties as fixed assets.
• The description of the trade was given as ‘property investment’.
• HMRC raised a discovery amendment to reclassify the loss as a rental loss (following a similar conclusion after enquiries into the returns for 2006/07 and 2007/08).
• In their correspondence HMRC did not give a statutory provision for the discovery but had previously referred to s29 TMA 1970.
• The Partnership appealed to the FTT.

In their appeal, the Partnership contended that there was no statutory basis for the discovery amendment – ether under s29 TMA 1970 or, alternatively, s30B TMA 1970.

They argued that s29, as put forward by HMRC, was not in point as it only related to returns for individuals or trusts (not partnerships).  HMRC did not counter this.

The Partnership also drew attention to s30B which did allow discoveries relating to partnership statements but only in three specific circumstances:

(a)    undeclared profits;

(b)   understated profits; or

(c)    excessive allowances or reliefs.

As there were no ‘profits’ and reliefs etc. were not in point, they argued that none of the three circumstances applied.

HMRC argued that ‘profit’ included ‘negative figures’ so that either the first or second circumstance applied.

The FTT concluded in favour of the Partnership that the discovery amendment was ineffective and so the appeal was allowed. The arguments of the Partnership were held to be consistent with the intention and wording of the legislation with regard to losses.  In reaching their conclusion the FTT commented that provisions relating to the submission of partnership returns and statements referred to ‘income or loss’ but that such explicit reference to ‘loss’ was missing from s30B.  If the intention had been to include loss situations, the legislation would have been explicit in this regard.

The FTT further commented that the heading of s30B referred to ‘loss of tax’. This, they noted, was in contrast to the wider powers relating to enquiries into partnership statements, which simply refer to ‘corrections’.  In terms of profits, the wording of the heading indicated an intention for the section to apply only where there were undeclared or understated profits.

This case raises a notable point relating to discovery as it applies to partnership statements.  It will be very helpful in resisting attempts by HMRC to raise discovery amendments where losses have arisen, including situations where an enquiry into the partnership statement would have been successful.  Where it will not help is in circumstances where reliefs or allowances are excessive (the third circumstance noted above).

What is not clear is whether attempts will be made to amend s30B to include references to both profits and losses, so watch this space …

For further information and advice on issues arising from this case please contact the TaxDesk on 0845 4900 509 and ask for Lawrence Adair in the first instance.

The post The FTT has refused HMRC’s discovery amendment in relation to a partnership loss appeared first on Gabelle.

HMRC received the paper partnership tax returns on 31 January 2012 for the tax year ended 5 April 2011.  As the deadline for filing a paper return is 31 October following the end of the tax year, HMRC imposed late filing penalties on the two partners, as per the statutory regulations.

The partnership appealed these penalties on the basis that they had a reasonable excuse, viz:

…the 31 October 2011 deadline was missed because it was not possible to submit the 2011 Partnership tax return online as HMRC’s software does not cater for Partnership tax returns.

HMRC asserted that the penalties should stand because the taxpayers had the choice of submitting either a paper return by 31 October or an online return by 31 January, and that there was therefore no need to use any software to file the return.

The FTT considered whether HMRC discriminated against the partnership and noted that self-employed taxpayers had the opportunity of using the free software provided by HMRC.  They ruled that HMRC did discriminate against the partnership in this instance and that it would be unreasonable and unfair to require a taxpayer to incur expenditure (the purchase of software) to satisfy a statutory obligation.  The taxpayer did therefore have a reasonable excuse.

The FTT then went further and stated that factors such as the need for extra time because the tax reference number has yet to be certified, or inadequate advice received from the provider to operate the online software might also count towards a reasonable excuse to submit the paper return, post the 31 October deadline.

This case is helpful for tax advisers and small partnerships, where the costs of acquiring the online software for filing a partnership return is not commercially viable.

Gabelle provides support to practitioners with HMRC disputes and enquiries into their clients’ affairs.  We can advise on all aspects of the enquiry and the appeal system including the referral of appeals to the First-tier Tribunal.  To discuss the implications of the case please contact TaxDesk on 0845 490 0509 and ask for John Hood.

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This might seem like an odd question.  After all, if someone receives compensation from their employer for an injury in the workplace, that would not be subject to VAT.

In fact, there are many scenarios in which compensation is considered to represent payment for supplies.  However, it is not always clear that a supply has been made in many instances and, in particular, those preparing contracts or handling negotiations in the event of a breach of contract should always take note of the potential VAT issues.

We reported an example of these issues on 25 October 2011 in the First-tier Tribunal case of Esporta Ltd ([2011] UKFTT 633 (TC)).  So as to confirm the difficulties involved, the Upper Tribunal has now reversed that decision – see Esporta Ltd v Revenue and Customs Commissioners ([2013] UKUT 173 (TCC), published 26 April 2013).

The taxpayer was a gym which charged output VAT on membership fees.  Some members had not paid the fees, so the taxpayer refused them access to the gym’s facilities until the fees were paid.  When the taxpayer eventually received these fees, it treated the payments as compensation for a breach of contract and outside the scope of VAT.

HMRC argued that output VAT should be accounted for on the recovered fees.  The taxpayer argued that no supply of gym facilities had been made; and as no supply had been made, no output VAT could be charged.

Whilst the First-tier Tribunal had agreed with the taxpayer, the Upper Tribunal agreed with HMRC’s view.  The Upper Tribunal reasoned that the taxpayer was still providing gym facilities under the terms of the membership which had not been terminated, even if the taxpayer was denying access to these facilities to those members whose membership fees were unpaid.  As such, the taxpayer was making a supply and output VAT should be charged.

Over the years there have been several cases on this point.  A common example is where one party cancels a contract and pays compensation for early termination.  However, if the contract had not been structured correctly, this can be construed as a supply by the party receiving compensation of a right to be released from the contract.  The compensation received could be subject to output VAT.

When a compensation payment is received, it is not always self-evident that a supply exists to which the compensation is linked.  Those practitioners involved with compensation scenarios should therefore ensure that VAT issues are given close attention.

For further information regarding VAT on compensation payments, please contact the TaxDesk on 0845 4900 509 and ask for Kevin Hall.

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