UK: The Finance Act 2022

A copy of the Finance Act 2022, which received Royal Assent last month, has been published: see here or  here (pdf). The materials accompanying the Act when it was, as a Bill, before Parliament are available here.

Amongst the provisions in the Act, the following are - for me - particularly noteworthy: sections 7 and 8 (replacing the current system of basis periods, and introducing a new method through which self-employment income/profits are allocated to tax years); sections 53 to 66 (the framework introducing the new Economic Crime (Anti-Money Laundering) levy); section 85 (providing HMRC officers with the power to seek the winding-up of a company, in the public interest, to protect the public revenue); and section 96 (the introduction of a new disclosure requirement, for large businesses, in respect of the 'uncertain tax treatment' of items in a tax return). 

UK: The Capital Allowances (Structures and Buildings Allowances) Regulations 2019

Section 30 of the Finance Act 2019 provided for the introduction of a new capital allowance in respect of expenditure incurred from 29 October 2018 in the construction of a building; it also provided the Treasury with the power, exercised through secondary legislation, to amend the Capital Allowances Act 2001 in order to provide for the operation of this new allowance.  That power has now been exercised, with the Capital Allowances (Structures and Buildings Allowances) Regulations 2019 being made earlier this week and now in force: see here or here (pdf). Further information is available in the accompanying explanatory memorandum: see here (pdf).

UK: Tax Tribunal decides that preference shares were part of company's ordinary share capital

The First-tier Tribunal (Tax) gave its decision a few days ago in Warshaw v Revenue & Customs [2019] UKFTT 268 (TC). The central question before Tribunal Judge John Brooks was whether the preference shares held by a taxpayer, Mr Warshaw, were regarded as "ordinary share capital" within the definition provided by section 989 of the Income Tax Act 2007: "all the company's issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company's profits". If Mr Warshaw's shares fell within this definition, the company in which he held the shares would have been his "personal company" under section 169S(3) of the Taxation of Chargeable Gains Act 1992 (as amended) and he would have been entitled to entrepreneurs relief.

The shares in question gave a right to a dividend and no other rights to share in the profits. This right was set out in the articles of association as follows:

“In priority to any other class of shares, each Preference Share shall have the right to a fixed cumulative preferential dividend (“the Preference Dividend”) which shall accrue on a daily basis from the dividend commencement date at the rate of 10 per cent per annum on the aggregate of (i) the subscription price of such Preference Share and (ii) the aggregate amount of Preference Dividend that has previously compounded and not yet paid. The Preference Dividend accruing on each Preference Share shall be compounded on each anniversary of its dividend commencement date to the extent not previously paid.”

Did these shares give a right to a dividend at a fixed rate? Mr Warshaw's counsel argued that because the rate of dividend was calculated by reference to any previously unpaid dividends, the preference shares did not have a right to a dividend at a fixed rate. Counsel for HMRC argued that there was a right to a dividend at a fixed rate because the rate at which the dividends were paid remained fixed at 10% even if the base in respect of which they were paid varied.

Judge Brooks agreed with Mr Warshaw's counsel and allowed the taxpayer's appeal: Mr Warshaw was, therefore, entitled to entrepreneur's relief because his preference shares fell within the definition of "ordinary share capital" under section 989. Judge Brooks stated: "if, as in the present case, at the time the preference shares are issued the Articles of Association provide that only one of these, the percentage element, is fixed and the amount to which that percentage is to be applied may vary, those shares cannot be regarded as having a right to a dividend at a fixed rate and are therefore ordinary share capital as defined by s 989 ITA" (para. [19]).

An appeal by HMRC seems inevitable.

UK: England and Wales: the definition of 'managed service company provider'

The Court of Appeal gave judgment earlier this week in Christianuyi Ltd & Ors v Revenue And Customs [2019] EWCA Civ 474. The decision is an important one - now the leading authority - on the definition of managed service companies (MSCs) and MSC providers within the tax anti-avoidance framework, following decisions of the Upper and First-tier Tribunals (see, respectively: [2018] UKUT 10 (TCC) and [2016] UKFTT 272 (TC)).

Specifically, the court considered the definition of MSC provider within section 61B of the Income Tax (Earnings and Pensions) Act 2003 and rejected the argument that, in order for a company to be a MSC provider, it was necessary for that company - in addition to being in the business of promoting or facilitating the use of companies through which individuals provide their services to clients - also to promote or facilitate the services provided by those companies.

Update (25 March 2019) - a summary of the case has been published by the ICLR: see here.

UK: administrators must deduct income tax when paying rule 14.23(7) interest

The Supreme Court gave judgment today in Revenue and Customs v Joint Administrators of Lehman Brothers International (Europe) [2019] UKSC 12 (on appeal from [2017] EWCA Civ 2124): see here or here (pdf). A summary of the decision is available here (pdf).

The court unanimously held that interest payable under rule 14.23(7) of the Insolvency Rules 2016 was "yearly interest" under section 874 of the Income Tax Act 2007. As such, the administrators were required to deduct income tax before paying the interest to the creditors.

UK: VAT repayment subject to corporation tax - Supreme Court gives judgment in post cessation receipts case

The Supreme Court gave judgment yesterday in Shop Direct Group v Revenue and Customs [2016] UKSC 7. The court unanimously held that Shop Direct Group (SDG), a company in the Littlewoods Group, was liable to pay corporation tax when it received a repayment (as beneficial owner) of overpaid value added tax of approximately £125 million. The repayment related to supplies made between 1978 and 1996 by companies within the Group, including SDG. In doing so, within the legislative framework for the taxation of post-cessation receipts, the court rejected the argument that the repayment was only taxable in the hands of the former trader. Lord Hodge stated: "No sound reason of policy has been suggested for confining the charge to the former trader and his personal representatives" (para. [21]). The legislation in question had its origins in measures designed to close a loophole whereby receipts received after the discontinuance of a trade escaped the charge to tax.

The hearing before the justices was recorded, and can be watched here. The court's judgment was delivered by Lord Hodge. A summary is available here (pdf) and was also delivered by Lord Hodge in person: see the video below.

UK: Share loss relief and the meaning of "issue"

The First-tier Tribunal (Tax) gave judgment a few days ago in Thomas v Revenue & Customs [2014] UKFTT 980 (TC). It was required to consider, amongst other things, whether shares had been "issued" in the context of a claim for share loss relief under the Income Tax Act 2007. Section 131 of the 2007 Act sets out the conditions and one of these is that the shares have been subscribed for by the individual. Section 135(2) states that an individual subscribes for shares in a company if they are "issued to the individual by the company in consideration of money or money's worth".

The Tribunal held that in the current context of "... very prescriptive statutory provisions ... it seems to us that if parliament had intended the word 'issue' for the purposes of share loss relief to mean something other than its normal company law meaning, it would have done so by means of an explicit definition" (para. [167]). The Tribunal therefore held, with reference to National Westminster Bank plc v Inland Revenue Commissioners [1995] 1 AC 119, that shares were only issued when the entire process of application, allotment and registration had been completed.

UK: Government consults on General Anti-Abuse Rule (GAAR)

HM Treasury has published for consultation its proposals for a General Anti-Abuse Rule applicable to income tax, corporation tax, capital gains tax, petroleum revenue tax, inheritance tax, stamp duty land tax, and the proposed new tax on ownership of high-value residential properties or dwellings: see here (pdf). The consultation paper also includes draft legislation.

UK: manufactured overseas dividends - clarification of tax treatment

The Government has announced, in a recently published Ministerial Statement (here, pdf), that it will be clarifying in the next Finance Bill the corporation tax treatment of manufactured overseas dividends (MODs) received by companies. Draft legislation has been published here (pdf). This follows the disclosure of a scheme under which the recipient of a MOD claims to have received it under deduction of UK income tax, which it then seeks to set off against its corporation tax liability, or to have repaid, in circumstances where no actual UK income tax had been paid. The Government has also announced that it will issue a consultation paper after next year's budget setting out further changes to the tax rules on MODs.