HMRC have released a list of the 10 worst excuses for missing the 31 January tax return deadline, however there are a number of cases where HMRC’s limited definition for what constitutes a reasonable excuse has been exposed.
 
The list of excuses published by HMRC is as follows:
 

  • My pet dog ate my tax return…and all the reminders.
  • I was up a mountain in Wales, and couldn’t find a postbox or get an internet signal.
  • I fell in with the wrong crowd.
  • I’ve been travelling the world, trying to escape from a foreign intelligence agency.
  • Barack Obama is in charge of my finances.
  • I’ve been busy looking after a flock of escaped parrots and some fox cubs.
  • A work colleague borrowed my tax return, to photocopy it, and didn’t give it back.
  • I live in a camper van in a supermarket car park.
  • My girlfriend’s pregnant.
  • I was in Australia.

 
Whilst these excuses are clearly unreasonable, recent cases have shown that HMRC continue to pursue their internal line that only ‘death, disease or disaster’ would constitute a reasonable excuse.  However, the legislation itself simply states that the excuse must be reasonable.  Recent cases have included excuses such as inability to pay (T James V HMRC), HMRC communication failure (M Styles v HMRC), HMRC system failures (Eclipse Generic Ltd v HMRC) and in the case of Spink v HMRC (2014), it was found that it was reasonable for a taxpayer to assume that tax was not payable until the actual tax status had been established.
 
Each case should be determined on its own facts and we believe HMRC are continuing to refuse reasonable excuse claims in circumstances that are “reasonable” under case law.

Under current legislation a corporate tax deduction is given on shares acquired through employee shares schemes. The amount of the deduction available is the amount that is chargeable to income tax when the shares are acquired by the employee or the amount that would be chargeable if the employee was a UK resident and other reliefs were unavailable.
The legislation introduced under Finance Bill 2013 clarifies that if relief is given under Part 12 CTA 2009 it is not possible to claim any other deduction for Corporation Tax in relation to those employee shares or options.
The legislation also highlights that no Corporation Tax deductions are available to a company in relation to employee share options unless shares are actually acquired by an employee in accordance with the option.
It appears these provisions are largely to prevent avoidance and should not affect genuine planning using tax efficient options such as EMI schemes.

There has been much publicity in the media in recent months over tax avoidance, and whether certain parties are paying the “right” amount of tax.  Whilst such discussions have often focused on big businesses trying to pay less tax, fairness in the tax system can swing both ways with unexpected bills being incurred.  The theme of fairness ran through three recent tax cases heard by the courts.
In the First-tier Tribunal case of Joost Lobler v HMRC (TC2539) the taxpayer was hit with a huge tax bill on partial surrenders of life insurance policies, despite having made a loss.  If he had made full surrenders, then he would have had no tax to pay.  The tribunal suggested that the taxpayer’s situation was “outrageously unfair” as he had made no profit or gain, but had become liable to tax, under the letter of the law, which could potentially bankrupt him.
In the recent case of T James V HMRC, the taxpayer persuaded the Tribunal that he had a ‘reasonable excuse’ for late payment because he chose (out of limited resources) to provide his corporate business with funds to pay their PAYE, VAT and corporation tax, rather than keep up with his previously agreed ‘time to pay’ arrangements on his personal account with HMRC.  This enabled the business to continue and increase the total tax take to HMRC.  Despite this, HMRC still took the case to tribunal rather than consider the fairness of the case internally.
Finally, in the case of J Jackson v HMRC (TC2448), the taxpayer had received termination payments from his employer when he retired, on which tax had been deducted at basic rate.  The payment was included on Mr Jackson’s tax return, which was filed on time. He believed that his employer would have deducted any tax due, having always been taxed through PAYE and therefore made no payment of tax at the higher rate.
He received a tax demand from HMRC.  On receiving written confirmation of what the additional tax related to, he paid the tax but was then issued with a late payment penalty.  The Tribunal found that the taxpayer had acted reasonably and had a genuine belief that his taxes were up-to-date.  The tribunal overturned the penalty and noted that the taxpayer clearly felt aggrieved and unfairly treated.
As can be seen from these cases, HMRC’s view on fairness appears to be at odds with that of the general population and the concept of “paying the right amount tax” is not as clear cut as the media portrayal.  Tax is complicated, and taking professional advice is therefore essential.

The recent tribunal case of Goldsmith (TC2197) dealt with availability of loan loss relief for capital gains tax purposes and its subsequent conversion as an Income Tax loss.

Mr Goldsmith was the Director of a property trading company. The company took out loans from a bank in order to purchase two flats, which Mr Goldsmith personally guaranteed.

One flat was sold and the other was let out, however the rent received from the flat was less than the interest payments on the loan. As a result Mr Goldsmith made payments directly to the bank to make up the shortfall.

As a result of the situation the bank demanded full repayment of the loan, with the second flat sold at a loss and the company dissolved.

The taxpayer claimed loan loss relief under TCGA 1992 s.253 (loans to traders) and for the loss to be offset against his other income under ICTA 1998 s.574.

HMRC denied the loan loss relief claim as they argued that the loan was irrecoverable at the outset and therefore did not become irrecoverable. Furthermore HMRC felt that there was no evidence that the repayment was required through the bank guarantee and therefore did not meet the statutory conditions.

The tribunal ruled in favour of the taxpayer in relation to the loan loss relief claim. They said because the bank had decided to lend money to the taxpayer’s company this meant that the loan cannot have been irrecoverable at the outset as a bank would not make such a loan.

It was also found that lack of evidence of a demand to the guarantor was not on its own sufficient to deny the loan loss relief claim.

The borrowed money was used for the purposes of the company’s trade and the money was paid by the taxpayer as interest on the loan. As a result the tribunal ruled he was entitled to claim loan loss relief under s.253 for the difference between the rent received and the interest payments made.

HMRC argued additionally that even if loan capital loss relief was allowed there was no basis for setting the amount against general income. The tribunal agreed and so the taxpayer’s appeal was only allowed in part.