Churchill Tax Advisers have successfully assisted a medical clinic that had been under investigation regarding the exemption of its supplies. HMRC believed that the supplies being made were taxable at the STANDARD RATE. Working with our client we were able to demonstrate that the client’s work fell completely within the medical exemption as set out in the VAT legislation. We were also able to bring to HMRC’s attention, changes in case law which also favourably demonstrated our client’s position. The outcome was that our client maintained its system of charging and did not become twenty per cent more expensive in delivering its services.
There have been many decisions released in the last few weeks in relation to late filing penalties and the various reasons why this has occurred. I will not set out any one case, but would seek to remind our readers, that excuses such as a reliance on an accountant or lack of knowledge or any similar reason, will only have a chance of success if you decide to appeal the penalty, if you have specific and documented evidence. For example reliance on an accountant does not reduce the taxpayers obligation to ensure returns are made and are correct. However, if reliance on the accountant was because the taxpayer had been incapacitated in some way and could not provide the required oversight, then if that incapacitation could be evidenced then there may be a chance the taxpayer has a reasonable excuse. It is likely as the COVID-19 crisis continues that late-filing penalty appeals by taxpayers will become common. Again, if late filing or late payments are directly linked to the pandemic the Court will wish to see direct evidence of COVID’S effect.
The FTT rejected the company’s appeal against HMRC’s refusal to allow input tax to be credited in relation to the purchase of plant and machinery. Nine purchases had been made from vendors who had subsequently become “missing” and who had not declared the VAT that had been charged on the sales. The FTT judged the Appellant either “knew or should have known”, that in eight of the nine cases there was a likelihood of fraud. No allegation is made against Peterborough Plant Sales, but as the end-user they have become responsible for the missing VAT. It is clear as these judgments are issued that if you are in a supply chain it is extremely important that you carry out due diligence to ensure that your counterparties are legitimate and competent especially when it comes to VAT. HMRC have issued new guidance on this and it is vital that traders affected obtain a copy and read it. They offer guidance on things you should do for your due diligence, but the onus remains on the taxpayers to use their judgement and to be able to demonstrate how they reached the decisions they made
This case has been recently released by the ECJ. It seeks to address some of the issues around the implementation of the Kittel principle. Although the case started in relation to a criminal investigation that went nowhere, the subsequent civil litigation where there was an attempt by the authority to withhold VAT it believed was connected to fraud led the Court firstly to say that if a taxpayer was denied access to information the tax authority held and which was material to the case, then any decision made may have to be annulled or reversed. Secondly, where VAT was withheld based on uncorroborated doubts the authority has about certain economic activity, should no longer preclude the deduction of VAT where a valid tax invoice is held. The ruling makes clear that a tax authority may require additional documents, but the only document it can require to enable the deduction of VAT is a valid tax invoice as it set out in the VAT directive.
This year’s Finance Bill received Royal Assent on 22 July 2020 and will now pass into law as the Finance Act 2020. There are a lot of new items, here are the headlines:
Loan Charge (Disguised Remuneration)
Possible repayments for existing settlements can now start to be made for tax years that HMRC will no longer pursue under the Loan Charge rules following the last few years of representations and reviews. HMRC will write to everyone it thinks is due a repayment over the next few months and all forms have to be sent back to HMRC by 30 September 2020. The grounds for refunds or waivers can be complex and IHT may still be due. Please get in touch if you need assistance.
Hidden Economy – Contingent Licencing
Draft legislation has been issued with the intention that certain trade licence renewals will require proof of tax registration. Initially this is intended to apply to taxi and personal hire vehicle drivers and businesses and scrap metal dealers and mobile collectors. If this is successful it could be extended to other sectors.
There will be no benefit in kind charge for employees having the private use of zero CO2 emission vans from April 2021.
Making Tax Digital (‘MTD’)
MTD will be extended as follows:
- From April 2022, MTD will apply to all VAT-registered business (currently it only to businesses with a turnover over the VAT threshold)
- From April 2023, businesses and landlords liable for Income Tax, with business income over £10,000 per annum, will need to keep digital records and use software to update HMRC quarterly through MTD. They can register to join a pilot scheme from April 2021 and the long warning time is to allow software providers to develop the tools.
In the case of R (on the application of Cartref Care Home)  an application was made for a Judicial Review to quash Partnership Follower Notices and Loan Charge Notices on the basis they were not compatible with the Human Rights Act 1998. The application was dismissed, but as HMRC seek to deal with the loan charge issue, it is likely that this type of court case will occur quite regularly.