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R & C Commrs (ex parte a taxpayer) [2018] TC 06330

The First-tier Tribunal has allowed HMRCʼs application for a third-party information notice, allowing HMRC to obtain more details and records from a liquidated companyʼs former accountants and tax advisers with the aim to making the companyʼs director at the time personally liable for the Pay As You Earn and National Insurance Contributions owned by the company.

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R & C Commrs v English Holdings (BVI) Ltd [2018] BTC 501

The Upper Tribunal has ruled that the taxpayer should be allowed to offset losses arising from a trade carried on through a permanent establishment (PE) in the United Kingdom (as it would have been subject to corporation tax in the UK if it had been profitable) against profits chargeable to income tax from a lettings business not carried on by the permanent establishment.

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Cooke [2018] TC 06239

In the case of Cooke, the First-tier Tribunal allowed a taxpayerʼs appeal against a discovery assessment. The Tribunal judges found that although the taxpayerʼs self assessment return included an excessive claim to double tax relief, the error had not been brought about carelessly or deliberately by the taxpayerʼs agent, and an HMRC officer could have been genuinely and reasonably expected to have identified the error in the return based on the information available therein.

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Two people arrested for tax fraud after HMRC tax investigation

Three individuals including two men and one woman have been arrested after a suspected £1m tax fraud. Over 120 HMRC officers raised 16 business premises and 2 residential homes and confiscated computer and physical records. Those arrested have been released on bail. Their names and addresses have not yet been released as these are usually made public once the individuals have been convicted and sentenced. Read more..

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Code of Practice 8 and Code of Practice 9 tax investigations

Our firm has recently been contacted by several individuals and accounting firms whereby their clients have been issued Code of Practice 8 (COP 8) or Code of Practice 9 (COP 9) investigation notices by HMRC. COP 8 and COP 9 investigations are extremely technical in nature and need to be dealt with extreme care. The disclosure reports made and how these are followed up including supporting evidence provided to HMRC can be a very sensitive matter. If there are discrepancies and inconsistencies, the COP 8 investigation can be upgraded to COP 9. Where in COP 9 (or Contractual Disclosure Facility) cases, if discrepancies and inconsistencies are found, the immunity provided is voided and there are strong chances of a criminal prosecution and imprisonment.

Our tax investigation specialists are very experienced in dealing with COP 8, COP 9, Contractual Disclosure Facility, Proceeds of Crime and Money Laundering cases (where underpayment of tax, tax fraud or tax evasion is involved) and can offer valuable advice at the right time to help avoid matters getting worse. If you would like to discuss a particular case with our tax investigation experts, please call us for a free and confidential consultation.

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Landlords alert: Mortgage interest relief restriction goes up to 50% for higher rate tax payers from April 2018

Under Section 24 of Finance Act 2015, landlords that are higher rate tax payers will have restricted relief on mortgage interest / finance costs. The restriction is being phased in gradually as follows:

• 2017-18: The mortgage interest deduction from property income (as is currently allowed) is restricted to 75%, with the remaining 25% being eligible for relief at the basic rate
• 2018-19: 50% mortgage interest deduction and 50% given relief at basic rate (20%)
• 2019-20: 25% mortgage interest deduction and 75% given relief at basic rate
• 2020-21: all financing costs incurred by a landlord will be given as a basic rate tax reduction

We have been contacted by numerous landlords recently they will start to feel the tax rise significantly from April 2018 as the only 50% of the relief for mortgage interest will be at 40%. There are a large of number of landlords that will be affected by the new restrictions being phased in and will see their tax liabilities rise.

One option is to incorporate the properties or in simple words, transfer the properties into a limited company. There are a number of benefits and risks associated with this approach and landlords who are seriously considering this should seek advice from a specialist on short and long term risks. There are capital gains tax and stamp duty implications which can be avoided if you seek specialist advice.

A few main risks that have highlighted to landlords in relation to incorporation of properties are listed below:

– What would happen if the properties are transferred into the limited company and the government introduces the same restriction for limited companies
– Once the properties go into a limited company, they are stuck. You cannot take them out without having to pay stamp duty land tax or income tax
– There is a possibility of paying tax twice if you sell the properties at a profit after incorporation and want to get the funds out. Effectively paying significantly higher tax than capital gains tax for individuals at 28%

In our view, there are better structures available than transferring properties into a limited company. We have advised a large number of high net worth landlords on such structures and helped them save on income tax, capital gains and inheritance tax. Please contact us if you would like to discuss this further.

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Margott [2018] TC 06278

The First Tier Tribunal has allowed an appeal against HMRC’s late filing penalties in respect of the apparent late filing of an LLP (Limited Liability Partnership) return. Due the fact that the Tribunal was required to follow a Court of Session decision, the judges found that the legislation allowing HMRC to issue a notice requiring a partnership tax return did not apply to Limited Liability Partnerships and therefore the penalties were held to be invalid.

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Barker v Baxendale Walker Solicitors [2018] BTC 6

The Court of Appeal has finally overturned the High Court decision on professional negligence in the case of Barker v Baxendale Walker Solicitors [2016] BTC 49. The Court of Appeal has ruled that the solicitor involved had breached their duty of care towards the client by failing to warn that there was a substantial risk of a tax avoidance scheme not working and the tax being paid ultimately.

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Probate valuations and Capital Gains Tax

This case was referred to our firm by another firm of accountants in London. The client had inherited some properties a few years ago that they wanted sell. The issue was that the valuation used for probate purposes was quite low compared to market value at the time of death which meant that the capital gains tax on sale would be significantly higher. Our team of tax specialists took on the case an applied to HMRC’s valuation team to get a correct valuation. HMRC initially objected to our proposals but having provided sufficient supporting evidence comprising property valuations and sold prices, we were able to agree a figure with HMRC that was much closer to our initial proposal. The agreement by HMRC’s valuation office meant that our client’s capital gains tax liability was reduced to a fraction of the initial figure before we took on the case. The client was over the moon with the savings.

Our analysis: At the time the case was referred to us, our clients or their accountants had not even thought about getting a valuation agreed from HMRC’s specialist unit in order to reduce the liability. Due to our long running experience in our dealings with HMRC, this strategy was discussed with the client and they were quite happy with the idea. The tax savings achieved by our client were far higher than their expectations. It is always a good idea to seek advice from a tax specialist as this can bring substantial savings compared to costs.

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2019 Loan Charge – Contractor Loans / EBT tax avoidance schemes

Previously a number of companies entered into tax avoidance schemes that primarily were arrangements allowing a company to reward their employees by way of a loan made by a third party such as Employee Benefit Trusts (EBTs). The company would receive a tax deduction for the contribution to the EBT and the EBT would make a non taxable loan to the employee – these loans were designed never to be repaid.

These types of tax avoidance schemes involving tax free loans were stopped by new legislations introduced in CTA 2009 and The Disguised Remuneration Rules introduced in FA 2011 in Part 7A of ITEPA 2003.

The rewarding of the employees in this manner also called ‘relevant steps’, taken before the new rules were introduced in December 2010 were not caught within the new anti avoidance provisions. This effectively meant that tax avoidance schemes already in place with loans outstanding were captured in hibernation mode and hence did not affect the users.

The 2019 Loan Charge is designed to revisit these tax avoidance schemes used previously, and any new tax avoidance schemes which have been brought, and apply a PAYE charge retrospectively. The PAYE charge will be payable by the Employer in the first instance and then to the Employee (under the proposals by HMRC).

The draft legislation for the 2019 Loan Charge effectively brings a new ‘relevant step’ as per the Disguised Remuneration rules. This will effectively bring those loans entered into before Part 7A was enacted within the PAYE charge of the loan which has not been repaid at 5th April 2019.

Accordingly, a “person” (i.e. the Trustees of the disguised remuneration scheme) is seen as taking a “relevant step” if:

a. The person has made a loan after 6 April 1999;
b. to a relevant person (ex, current or future employees or a person chosen by them); and
c. the loan remains partially or wholly outstanding at 5th April 2019.

This means that essentially the following loans will not meet the criteria for relevant step:

a. Loans or advances made before 6 April 1999
b. Loans made to non-employees
c. Loans or advances that have been fully repaid prior to 5th April 2019

The 2019 Loan Charge is a new form of retrospective legislation being introduced capturing loans made since 1999.

Disclosure / reporting requirements

HMRC have recently provided more details in relation to reporting requirements for such advances or loans.


By no later than 1 October 2019 all employees or relevant persons who have been in receipt of loans from such tax avoidance schemes are required to provide the following information to HMRC:

a. Their contact details
b. Case reference number if relevant
c. The amount of loan outstanding including repayments and write offs

The employer is required to report loan outstanding through PAYE.

Self employed contractors

Self-employed contractors that have used tax avoidance schemes using contractor loans are required to include the outstanding loan amount on their self-assessment tax returns. Providing inaccurate information or not declaring the outstanding loans is likely to result in penalties. There are also chances of criminal prosecution for deliberately making a false declaration.

What are the options

In our view, the best option is to agree a settlement with HMRC. We specialise in such settlements and will represent our clients throughout the process until matters have been fully concluded. If you are an employer, employee or a contractor and have previously used a scheme involving loans, please contact us on 0207 998 1834 to discuss your options.

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