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Monthly Tax Update - 11/08/2017

Corporation tax loss relief reform:  draft guidance
HMRC have published draft guidance in connection with the draft legislation to reform corporation tax loss relief to be included in the next Finance Bill, which is due to be published after the summer recess.  (For the latest version of the draft legislation see HMRC state that this is an initial tranche of guidance, focusing on the core rules and other aspects where guidance has been specifically requested. Comments are invited by 25 September 2017. See

Corporate interest restriction: updated draft guidance
HMRC have published an updated version of their draft guidance on the corporate interest restriction in connection with the draft legislation to be included in the next Finance Bill.  (For the latest version of the draft legislation see An initial tranche of draft guidance was published on 31 March 2017. This second tranche of draft guidance amends and updates that initial tranche. In particular, it reflects the updated legislation published on 13 July 2017, and includes additional material. Comments on the draft guidance are invited by 31 October 2017. See

Country-by-country reporting: UK notification deadline approaches
Our 4 August alert on the UK’s country-by-country reporting notification deadline can be found here

HMRC’s International Exchange of Information Manual was updated on 10 August to include additional guidance on country-by-country report filing and notification obligations in the UK. See
The guidance sets out that, where there are multiple entities within a group which would otherwise need to provide separate notifications HMRC will accept a notification submitted by one of the entities as long as it is clear it is sent on behalf of all the relevant entities.
HMRC’s manual also sets out that the G20/OECD guidance (the BEPS Action 13 final report published on 5 October 2015 and subsequent additional guidance) should be used in interpreting the UK regulations implementing country-by-country reporting.  Questions that are not covered by the existing guidance should be referred to a group’s Customer Relationship Manager, if there is one, or to a dedicated HMRC email address if not.  

First Senior Accounting Officer ‘main duty’ decision: greater clarity on ‘reasonable steps’
The First-tier Tribunal has allowed an appeal against a Senior Accounting Office (SAO) main duty penalty where the SAO was the finance director of a privately owned group. HMRC had imposed the penalties on the previous SAO of the group as a result of an error correction notice filed by its advisors in 2014 in relation to VAT returns estimating an overall net error of 1.36m. The Tribunal found that HMRC had not established that the SAO failed to meet his main duty, although did agree that there were not ‘appropriate tax accounting arrangements’ in place. HMRC had relied on the absence of selective or ‘thematic’ testing to conclude that there had been a main duty failure.
In coming to her decision, Judge Falk cited several activities undertaken by the SAO that in her view were part of taking ‘reasonable steps’. These included:
       A board approved tax policy;
       A tax risk register;
       Documentation of processes (although noted that formal documentation was desirable rather than always required);
       Appropriately qualified and trained team members;
       Assurance in the form of audits and advice from external advisors;
       Engagement with HMRC’s VAT specialist.

HMRC wins in the Court of Appeal in Hely Hutchinson (legitimate expectation)
The Court of Appeal has allowed HMRC's appeal in HMRC v Ralph Hely Hutchinson ('Hely Hutchinson'). The case concerns the extent to which HMRC could resile from guidance issued in 2003 in respect of losses arising from the case of Mansworth v Jelley. The taxpayer (Mr Hely Hutchinson) followed HMRC's guidance in 2003 and claimed capital losses in respect of shares that he had acquired via share options. By 2009, HMRC had changed their view on their interpretation of Mansworth v Jelley. As the taxpayer's return was still under enquiry (on an unrelated matter), HMRC sought to deny relief for the losses. The taxpayer argued that HMRC's representations gave rise to a legitimate expectation that relief would be available against the taxpayer's gains.
Lady Justice Arden said ‘Legitimate expectations are not unqualified…If HMRC finds that they need to resile from guidance, a taxpayer can only rely on the legitimate expectation that the guidance created where, having regard to the legitimate expectation, it would be so unfair as to amount to an abuse of power.’ The judge noted that HMRC did not have a duty to ensure every taxpayer was treated identically – but they needed to avoid conspicuous unfairness. ‘It is clear from the authorities that the unfairness has to reach a very high level…’ The court concluded that this level was not reached and so HMRC was entitled to refuse the loss claim submitted. See

Company residence: ‘central management and control’: First-tier Tribunal decision
The First-tier Tribunal has given a decision on company residence in a case involving arrangements set up with a view to enabling the taxpayer group to augment capital losses. The arrangements involved UK group members granting options to various Jersey-incorporated companies to acquire assets at prices above market value, and, in order to be effective, required that the Jersey companies were not UK tax resident on the date of acquisition of the assets. The Tribunal held that central management and control had in reality been exercised in the UK by the UK-resident parent company and thus the companies were UK resident throughout. A number of features distinguished the case from Wood v Holden, in which the Court of Appeal held that a company will ‘almost always’ be resident where the board of directors meet. The boards of the Jersey companies had been presented with a transaction which had no commercial merit from the Jersey companies’ perspective and therefore required instruction or approval from the parent for it to be lawful. In the circumstances, the line was crossed from the parent influencing and giving strategic or policy direction to the parent giving an instruction. Thus the Jersey companies were managed and controlled in the UK.  See

Oco Ltd: planning using EBTs fails on Ramsay grounds
The First-tier Tribunal has dismissed the taxpayers' appeals in Oco Ltd and Toughglaze (UK) Ltd, lead cases involving arrangements designed to provide benefits to key employees without incurring PAYE or National Insurance Contributions (NICs) liabilities. The scheme involved setting up an employee benefit trust (EBT), and the subsequent creation of sub-funds for the benefit of particular employees and their families. The Tribunal held that the planning failed on Ramsay grounds. It dismissed HMRC's redirection of income argument, holding that whether a redirection has occurred will depend on the facts of the case. The decision pre-dates the Supreme Court's judgment in Murray Group Holdings, in which it was held that there was no statutory requirement that the employee himself or herself should receive, or at least be entitled to receive, the remuneration for his or her work in order for that reward to amount to taxable emoluments (though it does discuss the decision of the Court of Session (Inner House)). There are some several hundred or so other appeals involving the same scheme standing behind these cases. See

GAAR Advisory Panel Opinions
The GAAR Advisory Panel has published its first redacted opinions. The opinions cover an arrangement which used gold bullion to reward employees. The opinion of the Panel was that the GAAR would apply. See:

VAT: insufficient evidence to support Fleming claim: First–tier Tribunal
The First-tier Tribunal has rejected NHS Lothian Health Board's appeal relating to a claim for input tax on laboratory services performed between 1974 and 1997. The Board assembled a considerable array of evidence in support of its claim, including witness statements from several members of staff who had worked there since the 1970s or 1980s. The First-tier Tribunal was happy to accept their evidence that taxable activities had taken place (for example, testing oysters, milk and cream, analysing sewage swabs, and drugs research work). However, there was insufficient evidence to quantify the associated input tax claims. The Tribunal suggests that the claim might require evidence of the level of taxable supplies at points every five years during the 23-year claim period, although it does not comment on the likelihood of such evidence ever being available. The decision is a further illustration of potential difficulties evidencing claims for historical periods, even where it is established that VAT has been overpaid or under-recovered. See To discuss the case, please contact Stuart Savage on 0113 292 1689.

This publication has been written in general terms and we recommend that you obtain professional advice before acting or refraining from action on any of the contents of this publication. Deloitte LLP accepts no liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

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