Insufficient Breaking of Ties (Yates v HM Revenue & Customs TC02220)

In the case of Yates V HM Revenue & Customs, the taxpayer Ms Yates appealed against the decision that she was UK resident from the tax years 2003/04 to 2006/07.

Ms Yates claimed she was resident in Spain following her decision to move there in 2000 predominantly for health reasons. During this time her husband remained in the UK. In the period 2003/04 to 2006/07 Ms Yates made sizeable share disposals amounting to over £3 million which HM Revenue & Customs deemed to be taxable in the UK.

The first tier tribunal understood that Mrs Yates had moved abroad due to her health problems and that she had spent less than 180 days in the UK in each of the years. However, it was decided that Ms Yates had not made a sufficient break from the UK in order to be no longer deemed resident or ordinarily resident and hence her appeal was dismissed.

The tribunal cited a number of reasons as to why there was a insufficient breaking of ties, such as, when she returned to the UK she stayed with her husband in their marital home, she still received disability living allowance from the Department for Work and Pensions and that correspondence was still being sent to the marital home in the UK.

This is an interesting case following on from that of Mr Gains-Cooper and Eaves & Co would be glad to help with any residency advice that you require.

Entrepreneurs’ relief on the disposal of land – William S G Russell v HMRC (TC02299)

A recent first-tier tribunal case (William S G Russell v HMRC (TC02299)) involved a claim for Entrepreneurs relief (ER) on the disposal of farm land.

Mr Russell was a one third partner in a farming business, run with his brother and sister-in-law.   Some farming land that was disposed by the partnership was agreed as being 35% of the land that that was capable of being farmed.

Mr Russell made a claim for Entrepreneurs’ relief (ER) on the basis that the sale was a material disposal of a business asset.  His main argument was that as there was a fall in profit that tied in with the percentage of land sold and the land sold was still being farmed, it therefore constituted a business.

The tribunal found that the sale did not amount to the disposal of a business, simply a disposal of a business asset.  This was because the business was being run in exactly the same way following the sale.

Interestingly, it might have been possible to successfully claim for Entrepreneurs’ relief had Mr Russell undertaken suitable planning before the sale.  A disposal of even a small part of his partnership share would have allowed the land sale to be an associated disposal.  Incorporation could also have been used in order to effect a cessation of the partnership business, thus allowing a claim for an associated disposal.

Planning before transactions take place is essential to ensure that any potential problems can be identified before they arise.  Please contact us if you are planning to dispose of assets in our Leeds office on 0113 2443502.

The CDF – HMRC’s Contractual Disclosure Facility

The Contractual Disclosure Facility or CDF is the new way in which HMRC tackle suspected tax fraud.

The CDF facility provides an option for the taxpayer to declare all their tax irregularities and settle them along with interest and penalties.  In return HMRC will not bring criminal charges, provided the declarations under the CDF are complete and accurate.

We have seen a number of examples of HMRC applying the new CDF process recently.  It is important to note if the taxpayer does decide to make a detailed declaration that good consideration should be given the content of the “Outline Disclosure” that HMRC request within 60 days of their initial letter.   HMRC do put a lot of emphasis on what was said in the Online Disclosure during the rest of their investigation, in terms of penalties and threatening to bring criminal charges.

UK-Swiss Tax Treaty – Swiss Banks to Contact UK Taxpayers

Following the UK-Swiss Tax Treaty which was signed in October 2011, Swiss banks are now sending letters to all account holders that have a connection to the UK and may therefore be liable to tax charges under the UK-Swiss Tax Treaty.

Some banks have already posted the letters, whilst others will send them out during the next month or so.  Eaves & Co have already been contacted by concerned taxpayers in receipt of letters from their Swiss bank.

If you/your client receive letters regarding the UK-Swiss Tax Treaty then you should ensure that swift action is taken if you wish to avoid the one off levy in May 2013 and on-going withholding taxes.

Where there are undisclosed tax liabilities in issue then it will be necessary to consider whether to continue under the withholding system set out in the UK-Swiss Tax Treaty and retain anonymity or make a disclosure to HMRC – perhaps by taking advantage of the Liechtenstein Disclosure Facility (LDF).

It is important that clients with no undisclosed liabilities do not simply ignore the letters because the terms of the UK-Swiss Tax Treaty mean that the Swiss bank will need to receive confirmation from a UK tax professional certifying that the income has been disclosed to HMRC (or that the taxpayer is non UK domiciled and claims the remittance basis so disclosure is not required) before they can dis-apply the one off levy and annual withholding tax.

Hok Ltd v HMRC – HMRC Wins Appeal

HMRC have successfully appealed against the decision of the first tier tribunal in the case of Hok Ltd v HMRC.

In the original case (see our blog http://wp.me/p2JyHb-7i), Hok Ltd claimed that HMRC’s practice of delaying sending out penalty notices for the late submission of form P35 (PAYE end of year return) by 4 months was unfair as they had already built up penalties of £500 before they knew they had to submit the return.

Following the decision in Hok Ltd and a number of similar cases being found against them, HMRC changed their practice such that employers will now receive earlier correspondence regarding the late submission and penalties.

The upper tier tribunal found that the first tier tribunal erred in its judgement on the basis that the company (Hok Ltd) did not deny that the return was late nor attempt to argue that they had a reasonable excuse, as such the first tier tribunal did not have the jurisdiction to mitigate the penalty.

The upper tier tribunal considered that the first tier tribunal has no statutory power discharge or adjust a penalty because of a perception that it is unfair. Thus in the absence of a statutory route of appeal, the only option available to the taxpayer is to seek a judicial review.