We’re the first to admit that the business of tax and accounting isn’t the most fascinating subject for non-accountants. But the lengths people go to in order to avoid tax and the resulting disputes always make for interesting reading. We look at some recent tax cases, some serious, some downright strange:
- Not too clever! – An unemployed man who pretended to be a solicitor to get a tax debt quashed has been jailed for 22 months. The man, acting as a solicitor, represented his “client” at County Court where a judgement for an outstanding debt was awarded to HMRC. HMRC then received a letter and a forged judgement from his “client’s” accountant. The man then sent a further letter to the accountant but addressed to HMRC demanding that tax repayment be made to his client. He was arrested and charged with forgery and acting as a solicitor contrary to the Solicitors Act.
- Tax avoidance ineffective – Vocalspruce Ltd v R & C Commrs – Court of Appeal – The Court of Appeal has upheld the decision of the Upper Tax Tribunal relating to a marketed taxavoidance scheme exploiting provisions in the loan relationships legislation and involving the capitalisation of the premium arising on the redemption of zero coupon loan notes in share premium account. They have confirmed that the scheme is ineffective. Unless there is a further round of appeal, companies that have undertaken this planning will now be required to pay outstanding tax and interest.
- VAT bad debt or overpayment – Barlin associates – First Tier Tribunal – The taxpayer was a trademark attorney. It issued invoices including VAT, to Autonomy Corporation, which disputed the amounts. The matter was settled in November 2012. Autonomy agreed to pay £260,000 to the taxpayer, of which £45,000 was VAT. The taxpayer issued a credit note for the balance of the invoiced amount that included VAT of £82,000, and then reclaimed the VAT from HMRC. The Revenue refused the claim, saying the reduction in the invoice was a bad debt that became time-barred in 2012. The Tribunal said the tax department were wrong to say there was a bad debt, because Autonomy did not owe the taxpayer anything. The tribunal also rejected HMRC’s assertion that the taxpayer could not reduce its output tax with a refund because the business had deregistered by the time the credit note was issued. The Revenue had no legal authority. The intention of the principle VAT directive was that tax charged should be proportional to the price. There was no reason why a person should not be able to recover VAT overpaid on a supply when the price is reduced after the person has deregistered.
- It is irrelevant that tax law is confusing – CV Lott – First Tier Tribunal – The taxpayer put £30,000 in to a self-invested personal pension in January 2011 and included the sum in her taxreturn. HMRC carried out an enquiry and ruled that the payment brought the taxpayer within the special annual allowance charge. She accepted that the charge applied but insisted the rules were confusing and that nothing on the return indicated how the amount should be treated. The Tribunal said the taxpayer’s belief and the advice she received “did not coincide” with the law. The Revenue made no allegations that she had behaved in an underhand way. The matter was simply whether the charge was correct. It was irrelevant that tax officials had agreed that the law is confusing. The charge was correct.
- Trade must be commercial – J Thorne – First Tier Tribunal – The taxpayer set up an equestrian business with two horses. 4 years later she set up an asparagus farm, which would be loss making for three years but would eventually bear profits. She claimed loss relief against other income for the losses made on both activities, which she had treated as a single venture for the purposes of the claim. HMRC denied the claim on the grounds that the equestrian business was not run on a commercial basis with a view to making profit, it was run by a horse lover and, even though most of the losses claimed came from the asparagus business, as the loss claim was a composite one no losses could be relieved. The Tribunal found in favour of HMRC
- Construction industry scheme penalties – G Laithwaite – First Tier Tribunal – The taxpayer was advised to register for the construction industry scheme. He then employed subcontractors all of whom were entitled to be paid gross. He therefore did not complete the monthly returns required in the regime as he had nothing to return and did not believe he was required to do so. HMRC tried to levy penalties of £41, £140 and £7,200 (on a turnover of £25,000). The Tribunal set aside the penalties on the grounds that the taxpayer had relied on the advice of his accountant, the penalties were miscalculated and were disproportionate. This judgement is quite unusual as historically the Tribunal has found in favour of HMRC despite how onerous this regime can be.
- Amazon – The European Commission – On 11 June this year the European Commission announced investigating potential breaches of the State Aid rules (beneficial tax rulings by governments) by Ireland with regard to Apple, the Netherlands and Starbucks and Luxembourg and Fiat. On 7 October a further Press Release was issued in relation to Luxembourg and Amazon. The Press Release states that: ‘The tax ruling in favour of Amazon under investigation dates back to 2003 and is still in force. It applies to Amazon’s subsidiary Amazon EU Sarl, which is based in Luxembourg and records most of Amazon’s European profits. Based on a methodology set by the tax ruling, Amazon EU Sarl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation in Luxembourg. As a result, most European profits of Amazon are recorded in Luxembourg but are not taxed in Luxembourg. At this stage the Commission considers that the amount of this royalty, which lowers the taxable profits of Amazon EU Sarl each year, might not be in line with market conditions. The Commission has concerns that the ruling could underestimate the taxable profits of Amazon EU Sarl, and thereby grant an economic advantage to Amazon by allowing the group to pay less tax than other companies whose profits are allocated in line with market terms. The Commission will now continue investigating to determine whether its concerns are confirmed.’ For information on the subject read this post on tax avoidance.