Extra statutory concession A19 (ESC A19) is available to taxpayers in certain situations where tax has not been correctly collected under PAYE and as a result the taxpayer has underpaid tax.
Broadly speaking the taxpayer is not required to pay the outstanding tax liablility where it can be shown that sufficient time has passed and HMRC had ‘relevant’ information to determine that the additional tax was due.
In determining what constitutes ‘relevant’ information for the purposes of ESC A19, HMRC guidance states that the end of year reconcilliations submitted by employers for each employee in a tax year (known as form P14), do not constitute relevant information.
However a recent freedom of information request by Keith Gordon (a barrister from Atlas Chambers) has discovered that HMRC’s guidance prior to well publicised errors with it’s system, found that P14’s were treated as relevant information (ESCapology, Taxation Issue 4376).
Despite the current assertion that P14s are not relevant information, Eaves & Co were recently able to successfully argue that a P14 did constitute relevant information which resulted in our client successfully having ESC A19 applied.
From speaking to other advisors this success may however be a one off as HMRC seem to be denying P14s as relevant information in most instances where ESC A19 is being sought.
The consulation for the revision of the conditions of ESC A19 has now closed with Eaves & Co submitting a response, in particular making a point for P14s to be included as relevant information. However we will wait and see the outcomes of this consultation and provide an update in due course.
In recent cases there has been a wide ranging application of the definition of “wholly and exclusively for the purposes of trade”, which is the general test for deductibility of expenses.
Two recent examples of this are Mclaren Racing Ltd v HM Revenue & Customs and Interfish v HM Revenue & Customs.
In the case of Mclaren Racing Ltd, the fine relating to the spying of Ferrari amounting to £34m was deemed to be deductible by a first tier tribunal. This was because the act (which was fined) was wholly and exclusively for the purposes of trade and no laws were broken.
Whereas in the case of Interfish Ltd v HM Revenue & Customs the first tier tribunal deemed that sponsorship to a local rugby club was not incurred wholly and exclusively for the purpose of trade. This was because one of the reasons why the company sponsored Plymouth rugby club was to help the club to buy players, and therefore the sponsorship had a dual purpose.
These two cases could suggest to general taxpayers that there is a disparity between how the wholly and exclusively is applied on a case by case basis, although it should be noted that the points at question were quite different to each other.
According to a recent study by Chantrey Vellacott DFK Accountants, only 17,000 out of 150,000 potentially qualifying companies that undertake research and development activities are making claims for R&D tax relief.
It is suggested that the low take up of R&D tax relief may be as a result of a misconception that R&D only takes place in laboratories, which means innovative work and problem-solving in many other industries, such as construction, logistics design engineering, manufacturing and new media, can be easily missed.
Companies that undertake qualifying R&D expenditure are eligible for an enhanced Corporation deduction equal to 225% of the R&D expenditure for SMEs and 130% for large companies.
If an SME makes a loss and incurs R&D expenditure in the year, it is possible to surrender some of the loss for tax credit payment equal to 11% of the lower of 225% of R & D expenditure and the loss.
Therefore these reliefs are extremely beneficial for the companies involved.
If you would like more information on R&D tax reliefs including details of what qualifies as R&D please contact a member of the Eaves & Co team.
“Prevailing Practice” prevents HMRC from recovering underpaid tax which has arisen from over claimed reliefs provided that the claims were made through practice prevailing at the time.
The recent case of Boyer Allen Investment Services v HM Revenue & Customs may make the application of prevailing practice more restrictive than previously thought. The ‘prevailing practice’ in question was the tax treatment of contributions to an EBT prior to the case of Dextra.
The tribunal dismissed the company’s appeal on the basis that “to be a practice, it must be something capable of being clearly articulated, and articulated not just by the Revenue, or just by taxpayers’ advisers, but by both, and by both in the same terms”.
The Tribunal also noted that there is a difference between what simply happens in practice and the identification or establishment of a particular practice. A common misunderstanding of the legislation cannot therefore give rise to a “prevailing practice”.
The taxpayer lost because th Tribunal did not believe that advisers would have been able to articulate HM Revenue & Customs’ supposed practice and it was agreed that there was a common misunderstanding of the interpretation of the rules by both HM Revenue and Customs and the tax profession.
A private residence relief (PRR/PPR) case was recently heard by the first-tier tax tribunal. The appellant, Mr Regan bought a house at the back of a club which was owned by a family company which he managed. The entertainment manager of the club also lived at the house.
In Christmas 1996, Mr Regan moved out of the property temporarily so that the entertainment manager’s wife’s family could stay.
At this time, Mr Regan and his new girlfriend (who later became his wife) spent most of their time at her flat. Despite this, most of his belongings had remained at the house behind the club, which he also continued to use as his main postal address.
In 1998, Mr Regan and his girlfriend purchased a new house together and his parents purchased the house behind the club from him in 2000.
HMRC argued that private residence relief (PRR) was not available as Mr Regan had not been able to demonstrate sufficient permanence in his occupation of the property. The tribunal found in favour of Mr Regan, stating that his occupation of his girlfriend’s flat did not have the required “settled quality” to detract from his occupation of the house. As he had moved out within 36 months of the sale of the property to his parents, relief was available.
An employee of RBS plc took out a mortgage with his employer. The terms of the mortgage were better than those available to normal RBS customers.
HMRC assessed Mr Flanagan with tax on a benefit in kind through the provision of a “Cheap Loan” by his employer (ITEPA s175), because the rate of interest was lower than the official rate determined by HMRC.
Mr Flanagan appealed on the basis that there were mortgages available in the open market with a lower interest rate than the official rate.
In upholding HMRC’s assessment the Judge had sympathy for the appellant but stated that under the rules tax was technically and correctly due.
From 7 January 2013, where a person earns more than £50,000 and they or their partner claim child benefit, a tax charge will apply in the form of the child benefit high income tax charge. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.
The effect of the child benefit high income tax charge will be to apply a tax liability via the self-assessment tax return system. The amount of the charge will be tapered where the child benefit recipient or their partner earns between £50,000 and £60,000, with the effect that once income reaches £60,000 the entirety of the child benefit payment will be reclaimed through the tax charge.
There are a number of areas where care should be given:
1. The charge applies where either the person claiming child benefit or their partner earns more than £50,000. Therefore it will be necessary to consider the earnings of a taxpayer’s partner. The charge will apply to the person with the highest net adjusted income – which may not be the recipient of the child benefit.
2. The child benefit high income tax charge applies from 7 January 2013 therefore a tax liability could arise in relation to the current (2012/13) tax year with the tax being due for payment by 31 January 2014.
3. Where a person is required to make payments on account, this will include any tax arising as a result of the child benefit high income tax charge thus increasing the tax payable at 31 January and 31 July respectively.
4. Where a person earns more than £60,000 it may be preferable to elect not to receive the child benefit payment (known as a ‘nil award’)
5. Claiming child benefit can protect eligibility for the state pension by way of an NIC credit. Therefore taxpayers earning more than £60,000 that do not currently receive child benefit but become eligible in the future should ensure that they do register for child benefit initially and then elect to receive a nil award so as to preserve this protection.