Non-Resident Capital Gains Tax (NRCGT) Return – Reasonable Excuse Allowed

As we have written previously (see the rules requiring a Non-Resident Capital Gains Tax (NRCGT) return to be filed within 30 days of disposing of relevant property have the potential to cause taxpayers problems.

A recent case highlighted this point in that it dealt with a late NRCGT return. The facts of the case in P Saunders v HMRC were that the taxpayer was resident in Saudi Arabia and had been since 2012. She continued to file UK tax returns as she was still receiving rental income from the property.

The property was sold in November 2015, which was only a few months after the new rules came into force. As she was not aware of the rules she did not complete an NRCGT return but instead included the disposal (which in fact gave rise to a capital loss) on her self-assessment return as normal. HMRC were seeking penalties of £1,300 which the taxpayer appealed to the Tribunal.

HMRC argued that the taxpayer should have been aware of the new rules and that she could have found out about it through the chancellor’s autumn statement and on HMRC’s website.

The Tribunal judge considered whether this was reasonable, stating, “Was it reasonable to expect her to read the Chancellor’s Autumn Statement in December 2013? The Statement (Green Book) ran to 123 pages and the proposal regarding non-resident capital gains on the sale of UK properties was 20 contained in a six line paragraph at 1.295”. The implication appears to be that it was not reasonable to expect this!

They also considered the idea that ignorance of the rules is not a reasonable excuse. It was noted that, “The concept in criminal law that ignorance of the law does not excuse is necessary, otherwise proof of intent could be impossible. In civil law however it does not apply, otherwise it would mean that everyone must know all the law, all of the time”. It is, however, noted that the presumption of knowledge is “necessarily set at a high threshold”.

The judge found that in this case, it was reasonable that the taxpayer was not aware about the legislation or where to find it and their appeal was allowed.

Interestingly, they also considered as an aside that there may not even have been an obligation to complete a return as there was a capital loss. This revolved around a strict reading of the legislation at TMA 1970 s12ZA and s12ZB as to whether she could be a “taxable person” given that she would have not been chargeable to Capital Gains Tax and that there would not have been any chargeable NRCGT gain. One suspects HMRC would not be happy with this reading but it could be an interesting argument to take in future cases.

HMRC Win Surprising Decision on the Meaning of “from”

A recent case was heard at the First-tier Tribunal concerning the meaning of the word “from”, when considering HMRC’s right to enquire into a Corporation Tax return.

The taxpayer company filed their return at 2.30pm on 31 January 2012, for the accounting period to 31 March 2011.

HMRC issued a notice to enquire into the return on 31 January 2013. The taxpayer argued that HMRC were out of time as the enquiry window closed on 30 January 2013, as FA 1998, sch 18 para 24(2) states that “notice of enquiry may be given at any time up to 12 months from the filing date”.

The Tribunal found that “from” in this case should be considered as similar to “after”, which would mean the enquiry window should exclude the day on which the return was filed. This appears slightly odd as it effectively gives HMRC an extra day that it is hard to prove was intended by the rules. As the notice was issued within the period specified by the Tribunal, the taxpayer’s appeal was dismissed.

HMRC Announces Further Avoidance Powers Consultation – ‘Strengthening Sanctions for Tax Avoidance’

HMRC has published a further consultation setting out proposals to attempt to punish taxpayers who use a series of tax avoidance schemes, so called “serial use”.

The plans propose a surcharge for those who repeatedly use failed avoidance schemes as well as further reporting requirements on such users.

It is also proposed that there could be a specific GAAR-related penalty (general anti-abuse rule), together with plans to publish the names of serial tax avoiders repeatedly using tax schemes that fail.

In addition the government also wish to implement further rules including a change to the thresholds at which the POTAS rules (promoters of tax avoidance schemes) kick in.

The government and HMRC have already produced a number of new rules and sanctions for users of avoidance schemes, and it remains to be seen how effective they have been.  Changes already implemented include the introduction of: the general anti-abuse rule (the GAAR), accelerated payment notices (APNs) and follower notices, as well as the expanded DOTAS regulations and the new promoters of tax avoidance schemes (POTAS) regime.

We have argued before that HMRC should have sufficient powers already so it interesting that they now feel the need to implement new rules, before the changes that have already been implemented have had time to settle in.  We’d be interested to hear your thoughts on the extensive powers that HMRC now have, and when we might say, “enough is enough”.

Liechtenstein Disclosure Facility (LDF) Rules Tightened But Still Attractive for Most Taxpayers

The Liechtenstein Disclosure Facility (LDF) has been running for a number of years and appears to have been a successful initiative to encourage taxpayers to come forward over unpaid taxes.

The LDF gave a number of beneficial terms such as:

  • A 10% fixed penalty on qualifying underpayments (for periods to 5 April 2009).
  • Reduced reporting window to accounting periods/tax years commencing on or after 1 April 1999 only (rather than the usual 20 years)
  • The option to choose whether to use a single composite rate of 40% rather than calculate actual liability on an annual basis
  • Protection against criminal prosecution
  • A single point of contact for disclosures

HMRC have recently announced a tightening of the rules, which is designed to prevent abuse of the scheme from users of Employee Benefit Trusts with liabilities linked to existing enquiries.  The new rules could potentially catch other taxpayers however.

In situations where the following apply, the terms of the LDF will be restricted so that the 10% penalty, reduced reporting window and option to use the composite rate will be unavailable:

  • where no new information has been offered;
  • the issue is already subject to an intervention that began more than three months before the LDF application; and
  • there is no substantial connection between the liabilities being disclosed and the offshore asset held by the taxpayer on 1 September 2009.

We believe that despite these changes the LDF scheme will remain attractive to most taxpayers and is therefore worth considering where taxes have been underpaid.  Eaves and Co have successfully completed a number of disclosures under the LDF and would be happy to help anyone who might be affected.

Late notification of UTR – A Goodall v HMRC

The Case

Mr A Goodall was late in submitting his tax return for 2010/11 and paying the tax due for that year. HMRC subsequently imposed penalties totalling £249 (£100 for late filing and £149 for late payment) under FA 2009, Sch. 55, para. 3 and FA 2009, Sch. 56, para. 3(2).

The Argument for Reasonable Excuse

The Appellant appealed against the penalties claiming that he had a reasonable excuse in failing to submit his return and pay his tax on time.

Mr Goodall had been filling his self-assessment return for several years, however having been made bankrupt, HMRC were required to issue him a new unique tax reference number (UTR).

The taxpayer’s advisor Mr P Ellis, of Nova Business Support LLP, claimed that Mr Goodall had been unable to submit his return earlier because he had not received the updated UTR until after the return deadline in June 2012, despite sending multiple requests to HMRC. However HMRC stated that they allocated Mr Goodall a new UTR on 24 January 2012.

There is no statutory definition of what constitutes a ‘reasonable excuse’ but HMRC do give guidance that “an unexpected or unusual event, either unforeseeable or beyond the customer’s control, which prevents him from complying with an obligation when he would otherwise have done” [SAM10090] would constitute a reasonable excuse.

HMRC cite examples of what might be accepted as a reasonable excuse which include life-threatening illnesses, the death of a partner or documents lost through theft, fire or flood which cannot be replaced in time. However case law has established that the validity of a reasonable excuse ‘is a matter to be considered in the light of all the circumstances of the particular case’ Rowland v R & C Commrs (2006) Sp C 548.

The Verdict

The Tribunal allowed the appeal against the penalties and agreed that there was a valid reasonable excuse for the late filed return and late paid tax. The judge did comment on how Mr Goodall’s advisors could have done more to obtain the UTR number, despite their attempts to request the number on three different occasions.

Important notes

The responsibility and liability of submitting your returns falls on the tax payer and not on any third parties, and the reliance on a third party is not grounds of a reasonable excuse.

“Where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy of the part of the person relied upon is a reasonable excuse” VATA 1994, s 71(1)(b)

It is also interesting to draw comparisons with other cases which were not deemed as a reasonable excuse. As discussed in one of our earlier blogs ‘Reasonable excuse – It depends upon the facts!’, EN Jones lost her appeal for not paying her tax on time because she argued that her advisers and HMRC had not told her how much tax was due.

The main difference here from the Goodall case is that the taxpayer did not seem to show any active and diligent signs in meeting their tax obligation, where it was deemed that Mr Goodall did.

An Update: HMRC’s Powers of Discovery

The case law surrounding the grounds on which HMRC can raise Discovery Assessments continues to develop. We have recently written on the Discovery Powers of HMRC and the evidence suggests that the future of HMRC’s powers of Discovery in favour or against the taxpayer is uncertain.   In Smith v HMRC the scope for discovery appeared to have been widened but the tribunal ruled that the conditions for a discovery to be raised were insufficient in a further recent case of Freeman v HMRC.

Smith v HMRC

In this case, Mr Smith had participated in a marketed tax avoidance scheme in 2000/01 with a purpose to create a tax deductible capital loss. The normal enquiry window on 31 January 2003 closed without any enquiries into the tax return being opened.

The taxpayer appealed against HMRC’s raising of a discovery assessment in 2006 saying that the failure to open an enquiry was HMRC’s mistake and the discovery assessment was invalid under TMA 1970 s.29. It was also found that HMRC had spotted the issue back in 2002, before the closure of the enquiry window but the reason why an enquiry wasn’t opened was due to the extended sick leave of the inspector and the fact that no-one was opening his post in his absence.

HMRC contended that a discovery had been made as there were chargeable gains which ought to have been assessed to capital gains tax. They also said that the discovery hurdle was a low one; it covered a mere change of mind as to either facts or law.  They also felt that the tribunal should consider what the notional officer could have been reasonably expected to be aware of at 31 January 2003 when the enquiry window closed.

The tribunal agreed with HMRC. They held that the discovery conditions of TMA 1970 s.29 (1) was not a strict one.  The discovery assessment raised and imposition of capital gains tax against Mr Smith was therefore upheld.

Freeman v HMRC

In 1997 Mr Freeman exchanged shares in a trading company for loan notes, with the company having received clearance from HMRC. In 2000 HMRC opened an enquiry into the return and in the course of the enquiry, the loan note documentation was provided to HMRC. In 2005, HMRC became aware that the loan notes were in fact QCBs. HMRC therefore raised a discovery assessment in 2007 in relation to Mr Freeman’s 2002/03 tax return as the enquiry window had closed.

The Tribunal found that whilst the disclosure in the 2002/03 return was not complete, the provision of the loan note instrument in 2000 did constitute information provided on behalf of the taxpayer. They also considered that the officer could reasonably have been expected to be aware of the insufficiency of tax if the loan notes had been considered fully.  The conditions for raising a discovery assessment were therefore not satisfied and the appeal against the Discovery Assessment was allowed.

The contrast between this case and the Smith case is interesting as the Tribunal did not appear to suggest that HMRC merely changing their mind was sufficient for a ‘discovery’ to have been made.  At present, taxpayers lack clarity on exactly what constitutes a discovery and the varying Tribunal cases appear to further muddy the waters.

Statutory Residence Test (SRT) – Beware the 16 day limit for UK Residence!

Until 6th April 2013, the UK did not have statutory rules to determine an individual’s residence status. However, the Finance Act of 2013 enacted the Statutory Residence Test (SRT) to take effect from 2013/14 UK tax year.  The new SRT is fairly complex which is ironic when considering the objective of the statutory rules was to ‘replace the current uncertain and complicated residence rules with a clear statutory test that was easy to use.’

What’s changed?

Essentially the old regulations and SRT are based on very similar foundations; in theory most of the taxpayers who found themselves to be resident in the UK under the old regulations should find themselves to be treated as UK resident under the new system.  However, it is best to seek advice to clarify whether this is the case if in any doubt.

The detailed provisions are fairly complex as noted previously, and we will not attempt to go into the full details here.   However, the ‘sufficient ties test’ has introduced new elements for those that are not automatically non-resident or resident as defined by the previous two tests.

This ‘sufficient ties’ test considers ties to the UK associated with family, accommodation, work, number of days in the UK and whether you spend more time in the UK than elsewhere in conjunction with the number of days you spent in the UK.  A key point to note is that due to the  ‘sufficient ties test’ those who have previously relied on the 90 days rule to remain non-resident may now be caught out, depending on the number of days spent in the UK and the number of ‘ties’ that connect the taxpayer to the UK. 

As an example, if a taxpayer has been resident at least one year in the past three tax years and have 4 or more ties to the UK then the test means that you one could become UK tax resident having been present for only 16 days.

The measurable quantification element of the SRT is important. In a recent case of Rumbelow and Rumbelow (TC3022) the couple were considered as UK resident because they had not ‘substantially loosened their social and family ties.’ Interestingly, if the SRT had been in place in this case, the question about whether they had sufficiently loosened their ties to the UK would have been quantified and their residence status would have been measurable and defined.

It’s best to seek advice….

Essentially, to avoid any unnecessary confusion, penalties and costly HMRC enquiries we recommend that it is best to seek advice on your tax residence to ensure that your tax affairs are concurrent with the latest regulations.  Bearing in mind the potentially restricted days allowed in the UK, it makes sense to do this in advance to plan days accordingly.

Another HMRC Campaign – My Tax Return Catch Up

White rabbits!  White rabbits! 1st of the month!


Following the late example of the White Rabbit in Alice in Wonderland, HMRC are offering a deal whereby dilatory taxpayers can ‘catch up’ with their Tax Returns, hopefully before the Red Queen says ‘Off With Their Heads’.

In other words HMRC have launched yet another campaign.  This time it is aimed at those who have failed to submit tax returns in the past.  They are now being given the chance to ‘catch up’, with the benefit of a 10% penalty in unpaid tax from prior years.  This could be considered harsh by those sinners caught earlier and subject to heavier penalties, but I suppose there is more joy in heaven at a sinner who repents…

The difficulty could prove to be the tight deadline of 15 October, although HMRC do indicate a Time to Pay arrangement may be allowed.  Analysing the figures and preparing the computations could prove problematic in a timescale where often the persons concerned may have poor or negligible records for earlier year events.

Setting individuals up to fail would always be an unhappy route!

Further, bearing in mind the fact that those who are dilatory are unlikely to look to those in authority first, it would perhaps be more effective to encourage the profession to help publicise the arrangements?  Experienced professionals are more likely to be able to produce the sort of quality material HMRC require.  Why do I feel like we are being treated as the ‘enemy’ when my whole professional life I have sought to help people to comply with their tax obligations and the law?

Still to stick to our knitting and make a living we should tell all those who regularly ignore us to comply and help them file tax returns – SOON!

Offshore employment intermediaries – New Consultation and Isle of Man Disclosure

We recently wrote about Payroll Schemes and the Isle of Man Disclosure Facility with regard to agency workers and related workers, who may have entered into arrangements to try to reduce their tax burdens through payroll schemes in the Isle of Man.

As we mentioned, HMRC have been cracking down on these schemes for a number of years and have recently released a consultation document dealing with offshore employment intermediaries.

The proposals would mean that, in addition to the existing rules (which HMRC acknowledges already place responsibilities on UK businesses for PAYE and NICs), new rules would be created to try to counteract such avoidance.

The current proposals suggest that the tax would be met by the intermediary directly providing the services, or failing that from the end client.  Such proposals would mean that the worker would not have to suffer the liability themselves, however it remains to be seen if the proposals will remain as they are.  Lobbying from bigger businesses could see provisions more in line with IR35, which taxes the personal service company and therefore the worker, so clients should continue to monitor these developments.

Individuals concerned about their potential liabilities should consider coming forward under the Isle of Man Disclosure Facility if applicable, as this can provide big reductions on penalties, as well as providing peace of mind.  Please get in contact with us if you are concerned that you could be caught by the existing or proposed rules.

Taxpayer wins on Property Trading – Albermarle 4 LLP v HMRC

A recent case on ‘property trading’ has been won by taxpayers, but longer term, HMRC may be secretly cheering their own defeat because of the possible arguments it may give them on other future cases.


The case of Albermarle 4 relates to the classic dilemma of property dealing.  Is it a trading transaction, taxable as income?  Or is it a deal on capital/investment account to be dealt with under the capital gains tax regime?  In many cases the facts point clearly one way or the other, but often, particularly where people have interests in a number of properties it can be unclear whether they are buying to hold, or buying to sell – especially as, for the right offer, virtually all commercial assets are for sale anyway.


The judgement in Albermarle 4 suggests that the decision was very finely balanced, with the taxpayer just about convincing the First Tier Tribunal that they intended to sell the properties on and trade them, rather than hold them long term.  This meant that the resulting losses could be set against other income, producing a significant tax saving.  This was despite the fact that the properties were shown as fixed assets on the balance sheet, rather than trading stock for resale which would have been a more conventional accounting treatment.


HMRC also lost on a subsidiary technical point on their powers which held that making an amendment to a partnership return to cancel a loss (which they purported to do) was not the same as making a ‘discovery assessment’ so they were ‘out of time’ in any event in terms of adjusting the earliest year of the enquiry into the taxpayers losses.  Again this shows the importance of understanding properly which powers HMRC are purporting to use when they seek to make adjustments to a taxpayers self assessment.  The rules are complex but do not give HMRC carte blanche to make amendments, especially outside the normal enquiry window.  This is likely to be an important taxpayer defence in future, where stretched HMRC resources attempt to widen enquiries into more than 1 year.  So far the courts seem to be willing to try to strike a balance between allowing HMRC powers to investigate whilst also protecting taxpayers by giving them the certainty regarding earlier years they were promised when self assessment was first introduced.