What’s new in our plethora of tax online services? Steve Savory summarises the highlights.
- Although it seems like only five minutes ago that the new 2018/19 editions of the tax annuals appeared, they are already receiving their first round of online updates. Each of the annuals has a page summarising all the most recent changes and updates made to the text – there’s a lot of them! Here are some examples taken from the October updates, starting with the Capital Gains Tax annual and some analysis of the recent HMRC v D Higgins case:
‘When the property is purchased before it is fit for occupation, either as an ‘off-plan’ purchase before construction, or because it needs renovating before occupation is possible, the period of ownership will start before the owner can take up occupation.
The case of HMRC v D Higgins  UKUT 0280 (TCC) has created an unwelcome precedent for off-plan purchases. This Upper Tribunal case has established that the period between the date of exchange of contracts, and the date of completion of the contract – which is normally the date the owner takes possession of the property and can move in, is counted as part of the period of ownership. Thus, although the property may not exist, and the buyer has no right to enter the site while it is under construction, the gain accruing during that initial period of ownership (between exchange and completion of contracts to buy) is taxable, and it cannot be covered by main residence relief as the property is not occupied.’
- Meanwhile, in the Income Tax annual, discussion of a new tribunal case – Higginbottom – adds to our understanding of that oldest of old chestnuts, the ‘wholly, exclusively and necessarily’ rule for employee expenditure.
‘Employees can generally claim relief for expenses incurred ‘wholly, exclusively and necessarily’ in the performance of their duties and for travel expenses necessarily incurred by employees in performing those duties.
The ‘wholly, exclusively and necessarily’ test is a very broad one in comparison with expenses allowed as trading income which simply must be incurred ‘wholly and exclusively’ for business purposes. Numerous cases have decided that relief is not available for such expenses as:
– clothing worn for work which is suitable for use by the employee when not at work (thus failing the ‘exclusively’ test) (Hillyer v Leeke (1976) 51 TC 90);
– costs of cleaning protective clothing (Higginbottom  TC 06521);
– newspapers considered necessary reading for journalists (held as not being in the ‘performance of their duties’ but helping to carry out their duties more efficiently) (Fitzpatrick v CIR 66 TC 407);
– travel between home and work (not being in the performance of the employee’s duties, if performance does not start until the employee reaches the place of work) (Kirkwood v Evans 74 TC 481); and
– rental of a telephone installed in an employee’s home (this being a requirement for the particular employee who did not previously have a phone, but not a ‘necessary’ requirement for the office holder) (Lucas v Cattell (1972) 48 TC 353).’
- In the VAT Annual, an extensive discussion of the News Corp UK & Ireland case is supplied:
In the case of News Corp UK & Ireland Limited v HMRC  UKFTT 129 (TC), the appellant was the representative member of a VAT group and appealed against decisions of HMRC that digital versions of The Times, The Sunday Times, The Sun and The Sun on Sunday could not be zero-rated under VATA 1994, Sch 8, Group 3, Item 2 and were therefore standard rated for VAT purposes.
The appellant argued that there was essentially no difference in the journalistic content or news teams for the newsprint and digital editions. The appellant submitted that VATA 1994, Sch 8, Group 3, Item 2 should be interpreted purposively. The purpose of the provision was to promote literacy, the dissemination of information and democratic accountability.
There was, however, a further principle of statutory interpretation which formed an important part of the appellant’s case. This principle was that legislation once enacted had to be kept up-to-date with, inter alia, technological advances so that, in other words, a statutory provision is ‘always speaking’. This was important in the present case because digital editions of newspapers did not exist in 1973.
The appellant submitted that it was necessary to identify the purpose of the relevant provision and then consider whether that new item, new technology or new state of affairs shared the same inherent characteristics as those supplies which were admitted to be covered by the wording.
HMRC submitted that all the items in Group 3 of Sch 8 to VATA 1984 consisted of goods, not services. In other words, Item 2 applied only to newsprint newspapers. The supply of the digital editions of the titles constituted a supply of services. Group 3 of Sch 8 did not apply to the supply of services. Treating these digital editions as zero rated ‘newspapers’ was contrary to the applicable UK legislation and would be an impermissible extension of zero rating contrary to the derogation requirements of Art 110 of the PVD. The newsprint and digital editions were not comparable and, even if they were, the principle of fiscal neutrality was not breached.
It was common ground that the digital editions of the titles when supplied to readers constituted a supply of services. The Tribunal considered that this point was fatal to the appellant’s argument because VATA 1994, Sch 8, Group 3, Item 2 deals only with supplies of goods, ie ‘newspapers, journals and periodicals’ in physical form and therefore the appeal had to be dismissed.
- A new title added to UK Tax during the month was the eagerly awaited fifth edition of Julie Butler’s Tax Planning for Farm and Land Diversification. Here’s an illustration of the indispensable, practical guidance on offer for practitioners who are active in this area extracted from the discussion of “hobby farming”:
‘Outsiders looking at the tax position of a farm or estate held as a pleasure activity, rather than as a genuine working farm, would say that all that has to be achieved is a profit every six years and there is great scope for claiming what could only be termed as ‘quasi-business expenses’, to subsidise an enjoyable country life. However, anybody contemplating undertaking the purchase of a country estate or following in the steps of the TV comedy The Good Life must embrace the hobby farming rules with their eyes wide open. With the move to diversification they must also look at standard commerciality rules. Diversified activities do not benefit from the hobby farming rules.
Tax planners must be aware of what would happen if a farm, or holding, were deemed to be trading as a hobby. Not only would income tax losses no longer be available under ITA 2007 s 64 but it could lead to a large potential denial of other tax reliefs. If the farm is deemed to be a hobby then the assets used therein would not have business status, which could put in jeopardy previous rollover claims for CGT, and future claims for CGT and IHT relief. The loss of BPR for IHT, where income tax loss relief has been denied under the hobby farming rules, is a matter on which opinions differ. The basic principle is that in order to claim BPR the trade must be carried on for gain (Inheritance Tax Act 1984 (IHTA 1984) s 103(3)). The CGT reliefs and IHT reliefs are a separate regime to income tax and tax arguments can protect these reliefs but in marginal cases the tax argument of profitability and commerciality are strong support for the claim of these reliefs.
A large number of farming enterprises have had to look seriously at diversification in order to ensure that there is a profit. Some of these diversification activities do not come under the farming definition. As a result, HMRC have a right to apply to some or the whole of the trade not just the hobby farming rules but the normal commerciality rules. In the current climate, those involved with the farming industry are painfully aware that it can be difficult to make a profit from pure farming and it has been difficult for a number of years.’
- Finally, for our international tax users, International Succession Laws was updated during the month with the coverage of the jurisdictions in the Cayman Islands, Greece, Israel and South Africa receiving a general update. Here’s some notes from the Greek chapter on the local recognition of foreign court orders:
Foreign court orders are recognized in Greece, subject to a public hearing in the court of first instance, provided that the following conditions have been met (GCCP, art 323):
– the court order applied the proper law, according to Greek law;
– according to Greek law, the case comes under the jurisdiction of the court of the foreign country;
– the court order is res judicata according to the law of the country that has issued it;
– the person who lost the case had not been deprived of rights to make a defence;
– the court order does not conflict with an order issued by a Greek court in the same case; and
– it is not illegal under Greek law and is not in breach of the public interest, ie it is not immoral or unethical.