Crow Metals Limited v HMRC

Crow Metals Limited v HMRC

This was a decision of HMRC to disallow input tax claimed by the Appellant in relation to purchases of scrap metal. The FTT decided that although the due diligence carried out by the Appellant left something to be desired the number of transactions where they had purchased stock and which had led to a failure to declare Vat was 403 from 7 suppliers meaning that the number of deals in question represented 2% of the company’s total deals and that as the deals were very similar to the other 98% the Appellant had a justification for failing to rigidly apply the due diligence protocols that were put in place with their accountants. 

Although HMRC are highly successful in these “Kittel” appeals, this case does demonstrate that there is high burden on them to prove their case, which is to be expected when they say that transactions in question are “connected to fraud”.

Crow Metals Limited v HMRC

Dolan v HMRC

The Appellant was a UK non-resident who prior to leaving the UK had received a dividend payment of £320,000. He submitted his tax return showing the dividend but the return stated he had not been resident in the UK for the year in question. This was an error on the Appellant’s part as he had not realised non-resident rules had changed. After investigation HMRC charged for the tax and a penalty based on their belief that the error was deliberate. The Appellant contested this and the First-tier Tribunal agreed with the Appellant that his prior knowledge which was out of date had led him to make the mistake he had. Instead of a deliberate error it was decided that the error was careless. 

This case shows that although HMRC appear to have an automatic assumption that every error is deliberate, if you are convinced that the error that has arisen was not deliberate then you should challenge that penalty decision.

Crow Metals Limited v HMRC

Core and Others v HMRC

This was a case where the appellant had contested HMRC’s decision to charge Capital Gains Tax. The Appellant disagreed with the decision saying that they qualified for principal private residence relief. The Appellant had bought the house, whilst previously renting and had intended to refurbish the property and then move in with his family. However, another buyer came along and offered a price, more than the Appellant had paid for the house. HMRC viewed this as a Capital Gain, but the Appellant was able to show that he actually moved into the house, albeit briefly, and that his original intention in buying was as a family home.

This case highlights that if you can show your intention and exactly what happened then HMRC will have to accept the PPR relief will be applicable.

Crow Metals Limited v HMRC

Office Of Tax Simplification (OTS) Publishes First Capital Gains Tax (CGT) Report

The Office of Tax Simplification (OTS) has published its first report as part of the capital gains tax (CGT) review shown at the chancellor’s request.   This to help ‘identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent’.

The report shows 4 areas that recommends the following 11 simplifications.  These will be used to smooth out distortions, improve administrative efficiency and make the tax easier to understand and predict.

1. Rates and boundaries:

  • Consideration should be given to more closely aligning CGT rates with income tax rates, and the boundaries between the two taxes should be analysed (particularly looking at the interaction of taxes in relation to share-based remuneration and the accumulation of retained earnings in smaller owner-managed companies).
  • If the rates are to be more closely aligned, the government should consider reintroducing a form of relief for inflationary gains, address any interactions with the tax position of companies, and consider allowing a more flexible use of capital losses.
  • If there remains a disparity between CGT and income tax rates, and the government wishes to make tax liabilities easier to understand and predict, it should consider reducing the number of CGT rates and the extent to which liabilities depend on the level of a taxpayer’s income.
  • In relation to CGT/IT boundary issues, the government should look closely at whether employees and owner managers are treated consistently in terms of remuneration from personal labour, and should consider taxing share-based rewards arising from employment and accumulated retained earnings in smaller companies at income tax rates.

2. Annual exempt amount:

  • If the intention is to operate the AEA as an administrative de minimis, the government should consider reducing its level.
  • Any reduction should be considered together with reform of the chattels exemption (introducing a broader exemption for personal effects), formalising the real-time CGT service (linking returns up with the personal tax account), and potentially requiring investment managers to report CGT information to taxpayers and HMRC to make compliance easier for individuals.

3. Interaction with lifetime gifts and inheritance tax:

  • Where an IHT exemption or relief applies, the government should consider removing the CGT uplift on death, and treat the recipient as acquiring the asset at the historic base cost of the person who has died.
  • Consideration should be given to applying the above principle more widely (replacing capital gains uplift on death with base cost).
  • If the capital gains uplift were to be removed more widely, the government should also consider a rebasing of all assets (the OTS suggests to the year 2000) and extending gift holdover to a broader range of assets.

4. Business reliefs:

  • The OTS suggests the Government should consider replacing business asset disposal relief (formerly entrepreneurs’ relief) with a relief more focused on retirement; and abolish investors’ relief.
  • This is the first of two reports on CGT by the OTS. The second will follow in early 2021 and will focus on technical and administrative issues.