UK: HMT, HMRC and BEIS call for evidence - the umbrella company market

A joint call for evidence - from HM Treasury, HMRC and the Department for Business, Energy and Industrial Strategy - has been made in respect umbrella companies: see here (pdf). An umbrella company is, for the purposes of the call for evidence, defined as a "business which employs a worker with a view to that worker being supplied to work for, and under the control of, the end-client". The call for evidence seeks views on the role that such companies play in the labour market and the interactions they have with the tax and employment rights systems. It does so noting that concerns have been made about the risks to workers and taxpayers associated with the umbrella company model. 

UK: The Finance Act 2020 receives Royal Assent

The Finance Act 2020 received Royal Assent a few days ago and has now been published: see here or here (pdf). The Act includes - in section 100 and schedule 13 - provisions making directors jointly and severally liable, in certain circumstances involving insolvency or potential insolvency, for amounts owing by companies to HMRC. Background information, published to accompany the (then) Bill's parliamentary passage, is available here.

UK: Companies House independent adjudicators' annual report published

The Companies House independent adjudicators have published their annual report for the year to 31 March 2019: see here (pdf). The report contains data on the appeals heard by the adjudicators as well as recommendations for improving Companies House procedures.

Prominent in this year's report is the adjudicators' concern - expressed to Companies House for some time - with the high number of appeals they receive from newly incorporated companies and from dormant companies. The adjudicators argue that more needs to be done to improve compliance amongst such companies, particularly because directors often (wrongly) assume that the Companies House filing obligations are identical to those imposed for tax purposes and filing with HMRC.

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: the corporate criminal offences of the failure to prevent the facilitation of tax evasion - awareness and impact

HMRC has published research undertaken by Ipsos MORI regarding the new corporate criminal offences relating to the failure to prevent the facilitation of tax evasion (as found in Part 3 of the Criminal Finances Act 2017): see here (pdf).

Given that these offences were, according to the report, designed to "drive a cultural and behavioural shift among companies and partnerships to take an active and increased responsibility for preventing the facilitation of tax evasion" it seems disappointing that over two-thirds of those interviewed - 72% in fact - were unaware of the new offences. Only 12% of respondents - and there were 1,002 in the survey - were aware of the new offences and the implication of them for their business.

Note:

The Government has provided information and guidance about the offences here.

UK: the governance of charities - updated HMRC guidance on the 'fit and proper test' for charity trustees and directors of corporate charities

The Finance Act 2010 (section 30 and schedule 6) introduced a definition for tax purposes of charities and other organisations entitled to UK charity tax reliefs, including a 'management condition' that is satisfied where the managers of a body of persons or trust are 'fit and proper persons to be managers of the body or trust'. The legislation does not define or explain what is meant by 'fit and proper'. HMRC does, however, provide guidance and an updated version of this guidance was published today: see here.

UK: HMRC's duty of confidentiality towards taxpayers - strong words from the Supreme Court

The Supreme Court gave judgment today in Ingenious Media Holdings plc, R (on the application of) v HMRC [2016] UKSC 54. The case concerned the duty of confidentiality owed by HM Revenue and Customs and the exemptions provided by section 18 of the Commissioners for Revenue and Customs Act 2005. The court unanimously held that the duty had been broken when the (then) Permanent Secretary for Tax, Mr David Hartnett, provided information "off the record" to two journalists about Ingenious Media and its founder and chief executive, Mr McKenna.

Lord Toulson (who retired from the Supreme Court last month) delivered the court's judgment and had this to say about the justifications for disclosure that HMRC had provided (paras. [34] and [35]):

As to the justifications put forward by HMRC, a general desire to foster good relations with the media or to publicise HMRC’s views about elaborate tax avoidance schemes cannot possibly justify a senior or any other official of HMRC discussing the affairs of individual tax payers with journalists. The further suggestion that the conversation might have led to the journalists telling Mr Hartnett about other tax avoidance schemes, of which HMRC knew nothing, appears to have been no more than speculation, and is far too tenuous to justify giving confidential information to them.

The fact that Mr Hartnett did not anticipate his comments being reported is in itself no justification for making them. The whole idea of HMRC officials supplying confidential information about individuals to the media on a non-attributable basis is, or should be, a matter of serious concern. I would not seek to lay down a rule that it can never be justified, because “never say never” is a generally sound maxim. It is possible, for example, to imagine a case where HMRC officials might be engaged in an anti-smuggling operation which might be in danger of being wrecked by journalistic investigations and where for operational reasons HMRC might judge it necessary to take the press into its confidence, but such cases should be exceptional". 

A written summary of the judgment is available is here (pdf). Lady Hale provided a spoken summary of the court's judgment this morning: see the below video (also available here).

UK: Finance Bill amendment on country by country reporting accepted by the Government

The Finance Bill 2015-16 to 2016-17 completed Report stage in the House of Commons yesterday: see here. Among the amendments accepted by the Government, and therefore incorporated into the Bill, was one tabled by the Rt Hon. Caroline Flint MP. This amendment, number 145, provides the Treasury with power, through Regulations, to require the new group tax strategy report - a public document, which certain large businesses will be required to publish - to include a country by country report (as defined by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016, which do not currently provide for public disclosure).

UK: HMRC consultation - strengthening tax avoidance sanctions and deterrents

Her Majesty's Revenue and Customs published a discussion document today titled Strengthening Tax Avoidance Sanctions and Deterrents: see here (pdf). The document has attracted much media attention, in particular the penalties proposed for those involved in advising on aggressive tax avoidance schemes: see here or here. What is arguably more interesting is the potential reach of the proposed liability regime, which would operate in respect of defeated tax avoidance arrangements: it would encompass 'enablers', described as including "anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements and without whom the arrangements as designed could not be implemented" (para. 2.7).

Whilst company formation agents and those providing the infrastructure through which the avoidance takes place (e.g., nominee services; company director services) are obvious examples of enablers, the discussion document states (in case study 2.1) that companies would also fall within the new penalty regime where they have been used to enable the defeated tax avoidance arrangements.

UK: new corporate offence - the failure to prevent the criminal facilitation of tax evasion - consultation on legislation and guidance

Last year HMRC consulted on the legislation required to introduce the new corporate criminal offence of the failure by a company or partnership to prevent the criminal facilitation of tax evasion: see here (pdf). A further consultation paper was published yesterday, with revised legislation and guidance, for public comment: see here (pdf).

UK: FRC has "significant concerns" with HMRC proposal for named director to have responsibility for tax strategy

Earlier this year HMRC published a consultation paper titled Improving Large Business Tax Compliance: see here. Amongst the proposals set out in the paper was one for legislation to require large businesses to publish their tax strategy as it relates to (or affects) UK taxation, and for this strategy to be "formalised, articulated and owned" by an executive director within the business. The latter has proved controversial. Indeed, the Financial Reporting Council, referring to the board's collective responsibility, says that it has "significant concerns" with HMRC's proposal for a named individual be responsible: see here (pdf).

UK: HMRC consultation - Improving Large Business Tax Compliance

Her Majesty's Revenue and Customs published a consultation paper earlier this week titled Improving Large Business Tax Compliance: see here (pdf). The paper sets out three main proposals: [1] a requirement, through law, for all large businesses to publish their tax strategy; [2] a voluntary code of practice on taxation for large businesses; and [3] a targeted 'special measures' regime, directed at those large businesses that do not engage with HMRC in an open and collaborative manner or persistently undertake 'aggressive tax planning'. What is meant by aggressive tax planning is explained in the paper: "Tax avoidance or aggressive tax planning involves bending the rules of the tax system to gain a tax advantage that Parliament never intended" (see annex c).

With respect to the first proposal, the intention is that there should be a named individual, at board level, responsible for the strategy and, in the words of the consultation paper, "owning and signing off" this strategy. Views are sought on what should be in the strategy and subject to disclosure. The paper suggests that the tax should strategy should cover a business’s attitude to tax risk, its appetite for tax planning, and its approach to its relationship with HMRC.

The factors influencing businesses' tax strategy have recently been explored in an HMRC research report titled Exploring Large Business Tax Strategy Behaviours: see here (pdf). Some of the research findings are referred to in the consultation paper.

UK: consultation on new corporate criminal offence - the failure to prevent the facilitation of tax evasion

Four consultation papers were published today by HMRC under the title of 'Tackling offshore evasion': see here. One of these papers seeks views on a new corporate criminal offence - the failure by a company or partnership to prevent the facilitation of tax evasion - and is available here (pdf). This new offence is modelled on one of the criminal offences introduced by the Bribery Act 2010: the failure by a commercial organisation to prevent bribery.

UK: HMRC consultation - reform of close company loans to participators rules

HMRC has published a consultation paper in which views are sought on possible options to reform the rules governing close company loans to participators: see here (pdf).

UK: corporate tax reform - consultation on proposed controlled foreign company rules

HM Treasury has published detailed proposals setting out how the UK's new controlled foreign companies tax regime will operate: see here (pdf). The intention is that the new rules will be included in the Finance Act (2012). Further background information is available here. In making changes to the regime, the Government's objectives are to: [a] target and impose a CFC charge on artificially diverted UK profits, so that UK activity and profits are fairly taxed; [b] exempt foreign profits where there is no artificial diversion of UK profits; and [c] not tax profits arising from genuine economic activities undertaken offshore.

UK: the taxation of 'disguised remuneration'

Draft legislation was published for comment last December in respect of arrangements intended to 'disguise' remuneration in order to avoid or defer income tax and/or national insurance contributions: see here (pdf). In response to comments received, HMRC has published FAQs and indicated where the proposed provisions require amendment: see here (pdf). In response to concerns about the effect of the proposed legislation on deferred rewards, the FAQ document states:

The policy intention is that the new rules should apply to arrangements involving a third party to reward employees and directors which seek to avoid, defer or reduce income tax and NICs and also to arrangements that are used as a tax‐advantaged way to save for retirement, using an employer financed retirement benefit scheme (EFRBS) as an alternative to, or to top up, savings in a registered pension scheme. However, it is not the policy intention that the new rules should apply to deferred rewards which are subject to a specified vesting date and on which income tax under PAYE and NICs will be due, particularly where the reward is subject to meaningful and time‐specific conditions which there is a realistic chance will not be met".

UK: Holland v HMRC judgment given - Mr Holland not a de facto director

The Supreme Court handed down its judgment in Holland v HMRC Commissioners [2010] UKSC 51 shortly before 10 am today: see here (pdf) or here (html). A press summary is available here (pdf). By a majority (3:2) the Court held that Mr Holland was not a de facto director.  There are substantial reasoned opinions from four of the five justices and opinion is strongly divided. The judgment is the leading authority on de facto directorship.

Lord Hope did not accept that Mr Holland had acted as a de facto director of the composite companies (ie., those companies having another company as sole director, this other company being one for which Mr Holland was a director). Lord Collins agreed, observing that "For the court to hold that every significant decision of individual directors of a corporate director is to be regarded as being taken as if they were directors of the company of which it is the corporate director goes considerably beyond the law as it has been developed at first instance and by the Court of Appeal in the modern de facto director cases, and beyond what I would regard as the function of the court" (para. [96]).

Lord Saville, in a short opinion, agreed with Lords Hope and Collins, observing that "it does not follow from the fact that Mr Holland caused the corporate director to make decisions in relation to the composite companies that he was accordingly a de facto director of the composite companies. To suggest that he was is to ignore or bypass the separate legal personality of the corporate director ..." (para. [98]).

Lords Walker and Clarke were in the minority. Lord Walker began his opinion by expressing a fear: that the Court's decision would "make it easier for risk-averse individuals to use artificial corporate structures in order to insulate themselves against responsibility to an insolvent company's unsecured creditors" (para. [101]). Lord Walker added: "The repeated assertion that everything that Mr Holland did was done in his capacity as a director of [the corporate director], and was within his authority as a director of that company, is no doubt not 'pure sham' but it is, in my view, the most arid formalism. In my view Mr Holland was acting both as a de jure director of [the corporate director] and as a de facto director of the composite companies" (para. [115]). Lord Clarke agreed: in his view "Mr Holland was a de facto director of the composite companies on the ground that he in fact made directorial decisions with regard to them" (para. [145].

A summary of the Supreme Court's judgment has been published by the ICLR as part of its WLR Daily service: see here. The Court of Appeal decision ([2009] EWCA Civ 625) is available here and the High Court decision ([2008] EWHC 2200 (Ch)) here.

UK: Scotland: restoration to the register of companies

In August 2007 a company - Spring Salmon & Seafood Ltd. - was struck off the register of companies. On 14 July 2010, Lord Glennie granted a petition presented by the Advocate General for Scotland (on behalf of HMRC) under Section 653 ("objection to striking off by person aggrieved") of the Companies Act (1985) for the company to be restored to the register. Lord Glennie's reasons for doing so were given in a short extempore judgment, an extended version of which has recently been published: see [2010] CSOH 117. The effect of the company's restoration is to permit HMRC to levy tax due.

UK: England and Wales: the director's duty of reasonable skill, care and diligence

Judgment was given last week in Abbey Forwarding Ltd v Hone & Ors [2010] EWHC 2029 (Ch), a case in which several allegations were made against four directors, including that they had breached the duty to exercise reasonable care, skill and diligence under Section 174 of the Companies Act (2006) by allowing the company to become exposed to various liabilities to HMRC.

The trial judge, Lewison J., was not prepared to find that the directors had breached Section 174, noting the system of due diligence in place and the fact that evidence concerning industry practice had been provided by only one individual. With regard to the Section 174 duty, Lewison J. observed (at para. [198]):

In deciding whether directors have fallen short of their duty of skill and care, particularly where the breach of duty concerns the precise way in which the business is run, evidence of what is normal in the field of commerce in which the company operates is of considerable relevance. Although it is only an analogy, in Sansom & Or v Metcalfe Hambleton & Co [1998] 2 EGLR 103 (which was a case of alleged professional negligence) Butler-Sloss LJ said:

"In my judgment, it is clear, from both lines of authority to which I have referred, that a court should be slow to find a professionally qualified man guilty of a breach of his duty of skill and care towards a client (or third party) without evidence from those within the same profession as to the standard expected on the facts of the case and the failure of the professionally qualified man to measure up to that standard. It is not an absolute rule, as Sachs LJ indicated by his example, but, unless it is an obvious case, in the absence of the relevant expert evidence the claim will not be proved."

UK: corporation tax, small companies' rate - proposed reform to the associated companies' test

HM Treasury and HMRC have published a consultation paper setting out a proposed new test for determining whether companies are associated for the purposes of the small companies' rate of corporation tax. Where a company is deemed to be associated with other companies the corporation tax thresholds are reduced. The purpose of reform (to quote from the consultation paper (at para. 3.3):

... is to provide a test that retains those aspects of the current test that work well within a new test that attributes rights held between linked persons only in circumstances where actual links between the companies make it appropriate to do so. Put broadly, the new test seeks to ensure that companies cannot be associated by an attribution of rights by mere ‘accident of circumstance’".