Tax

Tim Healy v The Commissioners for Her Majesty’s Revenue & Customs, [2012] UKFTT 246 (TC), 15 March 2012

Tue, 08 May 2012 21:38:38 GMT

This case concerend an actor working away from home and whether his accommodation, subsistence and travel expenses were “wholly and exclusively” incurred for the purpose of his profession.

Healy who is based in Cheshire was contracted to appear in the West End of London in the musical, Billy Elliot. Healy claimed tax relief on the costs of his accommodation, subsistence and travel to and from the theatre.

The First-tier Tribunal held that the cost of his accoomodation was allowable but that his subsistence expenses and taxi fares were not. The accommodation was allowable primarily because the actor had not moved to London. He was only there during the week for the purposes of performing on stage. That therefore met the “wholly and exclusively” test.

Healy’s subsistence expenses and taxi fares were disallowed on the basis that there was insufficient evidence to show the nature of the expense.

Joseph Nicholas Hanson as Trustee of the William Hanson 1957 Settlement v Revenue & Customs [2012] UKFTT 95 (TC), 31 January 2012

Tue, 28 Feb 2012 10:46:00 GMT

The First-tier tax Tribunal has held that when determining whether a farmhouse qualifies for agricultural property relief (APR) from inheritance tax, the farmhouse and the land to which it is of a “character appropriate” must be in the same occupation, but need not be in the same ownership.

A reminder of where “character appropriate” comes from:

Agricultural property” is defined for APR purposes in section 115(2) of IHTA 1984 as meaning:

Agricultural land or pasture.
Woodlands occupied with (but ancillary to) agricultural land or pasture.
Buildings used in connection with the intensive rearing of livestock or fish, provided the buildings are occupied with (but ancillary to) agricultural land or pasture.
Farmhouses, cottages and farm buildings, and the land occupied with them (such as garden or grounds), that are of a character appropriate to the property described above.

Some background

Immediately before his death in December 2002 Joseph Charles Hanson was the life tenant of a trust created by his father in 1957. The trust held a property that both parties in this matter agreed was a “farmhouse” for APR purposes and had an open market value in December 2002 of £450,000.

Mr Hanson’s son lived in the farmhouse which he had occupied since 1978 under a rent free licence. From there the son farmed 215 acres of land of which 128 acres was owned by the son and 25 acres was part owned by Mr Hanson. The remainder of the 215 acres comprised 20 acres rented by the son from a third party and a further 42 acres whose ownership was unspecified.

The only land in common ownership and common occupation with the farmhouse was the 25 acres part owned by Mr Hanson and farmed by the son.

Following Mr Hanson’s death his executors claimed APR on the value of his interest in the farmhouse. HMRC denied the relief on the basis that there was insufficient agricultural land in both common ownership and common occupation with the farmhouse for the farmhouse to pass the “character appropriate” test.

The son appealed the decision in his capacity as sole trustee of the trust arguing that common occupation was the only connecting factor required between the farmhouse and the agricultural land to which it was of a character appropriate. The Tribunal agreed with the son.

This decision may be of significance in situations where a downsizing farmer has moved out of the farmhouse and gives away much of the agricultural land.

This decision is likely to be appealed by HMRC.

Nicolette Vivian Pawson (deceased) v The Commissioners for Her Majesty's Revenue & Customs, TC 01748, 14 December 2011

Wed, 15 Feb 2012 22:08:00 GMT

The First Tier Tax Tribunal has ruled that a property used as a holiday cottage qualifies for inheritance tax business property relief (BPR).

This case has generated a lot of interest as HMRC has delayed a number of similar cases pending the outcome of this one. It will be interesting to see if HMRC decide to appeal this decision.

For those interested in how the legal teams interacted prior to the hearing I refer you to paragraphs 3 to 9 of the decision. Fascinating.

HMRC questioned:

(1) whether the property in question qualified to be treated as ”relevant business property” and (2) was it used in the operation of a business for “gain”. Section 105 IHTA 1984.

HMRC also argued that:

Even if the use to which the property had been put amounted to the operation of a business in principle, and for gain, it was to be excluded from the term “relevant business property” by reason of section 105(3) IHTA 1984 on the basis that the business consisted wholly or mainly of “holding investments”.

The main findings of the Tribunal were:

The exploitation of the property in question as a holiday cottage amounted to the operation of business.
The business was conducted with a view to gain even though it was not always profitable.
An intelligent businessman would not regard the ownership of a holiday letting property as an investment due to the need to constantly find new occupants and to provide servcies unconnected with and over above those needed for the bare upkeep of the property.

Tax law - R (Davies and another) v The Commissioners for Her Majesty's Revenue and Customs, R (Gaines-Cooper) v Same [2011] UKSC 47, 19 October 2011

Thu, 05 Jan 2012 20:41:37 GMT

A reminder that judicial review can sometimes involve significant sums of money. This turned on the 1999 booklet IR20 "Residents and Non-Residents - Liability to tax in the United Kingdom". This offered general guidance on what amounted to "residence" and "ordinary residence" for the purposes of UK income and capital gains tax. The question was whether this guidance was less strict than the true interpretation of the law, such that the Revenue should be prevented from collecting tax save on the basis set out in IR20 in the basis that it had created a legitimate expectation. The correct test in law is whether an individual ceases to have a settled or usual abode in the UK: but IR20 apparently set a test of taking up employment abroad or going abroad for a settled purpose and spending less than six months a year and averaging less than 91 days a year in the UK over 3 years. The Supreme Court decision was a largely factual one that IR20, when read as a whole, did not support the taxpayers' contentions, becaus e it indicated that the times spent abroad had to be assessed as a matter of their context: and that was the quality of the absence and so whether it involved an indefinite leaving of the country. It was also noted as an alternative that IR20 was so unclear that it could not give rise to a legally-binding obligation.

Dundee City Council v Dundee Valuation Committee and Flemming Hansen, [2011] CSIH 73, 23 November 2011

Thu, 08 Dec 2011 10:28:18 GMT

Appeal by Dundee City Council against a decision of Dundee Valuation Committee. The question in dispute was whether Mr Hanson, the landlord of a number of (apparently unoccupied) flats in Dundee was liable for council tax on those flats.

The council had determined that Mr Hanson was liable for council tax. However, the Valuation Committee allowed an appeal by Mr Hanson on the basis that, as a valid lease existed over each of the flats, the tenants and not Mr Hansen were liable for the council tax.

The committee found that the leases had been continued by tacit relocation and, although the flats were unoccupied, there was no rule of law requiring the landlord to serve a notice to quit or seek to recover the property where the tenant is not paying rent or appears to have abandoned the property. On the basis there were tenants with leases, the tenants were responsible for the council tax in terms of s75 of the Local Government Finance Act 1992.

The Second Division of the Inner House allowed the council’s appeal finding that the committee had erred in the procedure it had adopted meaning it had reached a decision which was “illogical, erroneous in law and based on inadequate findings in fact”.

Procedure

At the root of the procedural failings was the Committee’s failure to make findings in fact before making its decision. In particular it had failed to consider whether the properties were unoccupied because they had been abandoned by the tenants or whether the tenants were merely absent temporarily from the property.

Legal error

The committee’s understanding was that when the term of a lease expired, the lease was automatically renewed by tacit relocation and continued so to be renewed until either party served notice of termination or the landlord obtained a court order for eviction. Therefore, in the view of the committee, since none of these events had occurred, the tenancies continued by operation of law.

However the Inner House found that interpretation to be unsound:

“In leases of heritable property, the broad general principle is straightforward. If at the expiry of the contractual endurance of the lease neither party indicates to the other that he does not consent to the renewal of the lease, the lease is held to be renewed on the basis that the mutual consent of the parties is to be presumed from their silence. At common law, any overt indication by either party that he does not consent to the prolongation of the lease is sufficient to exclude tacit relocation.”

In considering whether the leases have been terminated by notice of termination or by a decree of removal, the Committee has overlooked the rule that the operation of tacit relocation is excluded where the tenant does not retain possession after the contractual ish”

It was noted that, where a flat let under a short assured tenancy appears to be vacant at the end of the lease, the question of whether the tenant has abandoned it will be particularly fact-sensitive.

A special problem in this case was that the landlord’s typical tenant would not be minded to give notice to the landlord and would simply vacate the flat and cease to pay rent. At first sight, that would be evidence of abandonment. It may be supposed that those facts will come to the notice of the landlord. However, in view of the many diverse circumstances which can prevent the operation of tacit relocation, it was essential that the Committee should hear evidence in respect of each flat and make a decision based on the special facts applying.

Decision

The Inner House allowed the appeal, recalled the committee’s decision and returned the cases to the committee with a direction that it should hear evidence in respect of each flat and to make findings in fact and law in order to decide whether the tenancies remained in force.

The Commissioners for her Majesty's Revenue and Customs v (1) Colin Atkinson (2) Paul Smith (executors of William Mashier Atkinson deceased), FTC/61/2010

Mon, 21 Nov 2011 22:38:00 GMT

The Upper Tax Tribunal has allowed HM Revenue & Customs’ appeal in the case HMRC v Executors of Atkinson.

The decision allows HMRC to refuse agricultural property relief on a farmhouse because the farmer had gone into in a care home just before his death. The executors were unrepresented at the appeal because they could not afford to pay HMRC’s costs if they lost.

The farm was owned by the deceased and let to a farming partnership. The deceased was a partner in the farming partnership and lived in a bungalow situated on the farm until ill-health meant he had to move into a care home. The deceased still made occasional visits to the bungalow and his possessions remained in it until his death.

HMRC had refused the Executors’ claim for agricultural property relief because they were of the view that the bungalow was not occupied for the purpose of agriculture for the relevant period required by section 117 of IHTA (“Inheritance Tax Act 1984”). The First Tier Tribunal allowed the Executors’ appeal.

On the basis of the findings of fact the First Tier Tribunal concluded that, for the purposes of the IHTA, the partnership was in occupation of the bungalow up to the date of Mr Atkinson’s death and that such occupation “was for the purposes of agriculture in the relevant sense because the bungalow was still used to accommodate the diminishing requirements of the senior partner”.

Section 117 (b): “… section 116 above does not apply to any agricultural property unless –

(a) It was occupied by the transferor for the purposes of agriculture throughout the period of two years with the death of the transferor, or

(b) It was owned by him throughout the period of seven years ending with that date and was throughout that period occupied (by him or another) for the purposes of agriculture.”

Section 116 grants relief for agricultural property.

Note. There is no definition of the word “occupied” nor is any special given to the words “for the purposes of agriculture”.

The question for the Upper Tribunal was whether the First Tier Tribunal made an error of law when they arrived at a decision of fact which no tribunal properly directed could properly have reached.

The Upper Tribunal found that the First Tier Tribunal did make an error in law.

“Were the matter for us, we would have no hesitation in concluding that the partnership ceased to occupy the bungalow for the purposes of agriculture when Mr Atkinson moved to the care home with no reasonable prospect of ever returning home.”

“In our judgment, the [First Tier] Tribunal failed to apply the correct approach and ask the correct questions. The correct approach is to identify what does and what does not amount to a sufficient connection between the use and occupation of the property in questions (the bungalow in the present case) and the agricultural activities being carried on on the agricultural property (the farm in the present case); and to ask whether the facts give rise to a sufficient connection.”

“If the [First Tier] Tribunal had adopted such an approach it could not, in our judgment, have come to only one conclusion, namely that the bungalow was not immediately before Mr Atkinson’s death, occupied for the purposes of agriculture and had not been since, at latest, it had become apparent that he would never be able to return there to live. In particular neither the occasional attendance of Margaret [his daughter-in-law] and Gary [his grandson] at the bungalow to deal with post or frost, nor the fact that some of Mr Atkinson’s belongings and furniture remained at the bungalow, can be said to constitute occupation for the purposes of agriculture throughout the seven years prior to Mr Atkinson’s death.”

John Scofield v HM Revenue & Customs, FTT, 24/Mar/11

Thu, 13 Oct 2011 09:32:30 GMT

The First Tier Tax Tribunal ("FTT") allowed the taxpayer's appeal against the Revenue's decision to cancel his registration for gross payment under the Construction Industry Scheme ("CIS"). The Tribunal found the Revenue had wholly failed to exercise their statutory discretion under s.66 Finance Act 2004, the decision-making was hence flawed and the decision void. Case of wider significance as the Revenue wrongly claimed that there "were no Hansard entries" helping to explain the key clause. In fact, as the Tribunal itself pointed out, there was a highly relevant ministerial statement made to Parliament in 2004 about what is now s.66.

Comment - The misleading Revenue assertion about Hansard might have been believed, could even have wrongly influenced the case, had the Tribunal not happened to have checked for itself.

R (Shiner & Antr ) v HM Revenue & Customs and R (Huitson) v HMRC, CA (Mummery, Sullivan, Tomlinson LJJ) 25/July/11

Thu, 13 Oct 2011 09:30:30 GMT

In Shiner an application for judicial review over a marketed tax scheme was dismissed. The Isle of Man scheme involved trying to use the 1995 double tax agreement between the UK and IoM to claim UK relief on payments from a partnership of IoM trusts. The Court rejected the claimants contention that the retrospective s.58 Finance Act 2008, treating the UK residents as chargeable, was incompatible with art.56 EU Treaty and protocol 1 ECHR. It held that the transfer of money into the IOM was not a movement of capital and, as found in Huitson, s.58 was compatible with European law.

Golding and another v HMRC, [2011] UKFTT 351 (TC)

Tue, 12 Jul 2011 18:07:10 GMT

The First-Tier Tax Tribunal recently ruled that a farmhouse is entitled to full agricultural property relief (APR) from inheritance tax even though the aged occupant only sold a few eggs to a handful of customers.

HMRC accepted the claim for APR on the land and other buildings but they did not accept that the 3 bedroom farmhouse, which was in a poor state of repair, was eligible for the relief. The deceased had farmed a 16-acre smallholding in Staffordshire since 1965.

HMRC argued that the three-bedroom farmhouse was not eligible for APR because it was not of a “character appropriate” for APR purposes. A Notice of Determination that the farmhouse did not qualify for APR was subsequently issued by HMRC.

The Tribunal heard that the level of activity on the smallholding had decreased over the years and, in the period leading up to his death, Mr Golding had grown vegetables mainly for his own consumption and sold a few eggs to some 15-20 customers. Whilst the level of profits was below the National Minimum Wage, it was concluded that the deceased was still working his holding, as a farm, when he died.

On the main issue of whether the farmhouse was or was not of a “character appropriate” for APR the Tribunal concluded that on the basis of the historical facts of the holding, the type of property, as well as the taxpayers’ intentions and actions, the house should qualify for APR.

The Tribunal also stated that it would be unreasonable to expect the activities of an 80-year old to be extensive in nature. It was also clear from the taxpayer’s actions that he intended to carry on farming. This was shown by the purchase of new equipment by Mr Golding shortly before his death.

HMRC have until mid-July to appeal this decision.

Gateshead Talmudical College v HMRC [2011] UKUT 131 (TCC)

Tue, 21 Jun 2011 17:29:00 GMT

This is an appeal by Gateshead College against the decision of the First-tier Tribunal.

The Upper Tribunal concluded that Capital Goods Scheme (CGS) adjustments were required when rental payments and VAT accounting stopped less than two years into a lease and leaseback arrangement.

CGS is a mechanism for regulating deductibility over the “VAT-life” of a capital good. For VATpurposes a capital good is a developed property. The scheme operates by ensuring that the deductibility for a property reflects the use to which the property is put over the VAT-life (adjustment period) of the property.

Facts

The main activity of Gateshead College is the provision of education. The background to this matter is the building of an extension by Gateshead College. Gateshead College leased these premises to a property company called Starburst Properties Ltd. Starburst on the same day granted a sublease over the same premises to Gateshead College. Gateshead College had registered for VAT two months earlier and had described its business as that of “property letting”. Both Gateshead College and Starburst elected to waive the VAT exemption over these premises.

Gateshead College then took credit for the input tax on its construction costs relating to these premises and this led to a VAT repayment for Gateshead College. However, after an initial period of less than two years the lease payments and the VAT accounting stopped. In addition, Starburst was dissolved and struck off the company register. Gateshead College took no action to forfeit the lease the benefit of which became vested in the Crown as bona vacantia.

HMRC assessed Gateshead College for failure to make adjustments under the CGS and Gateshead College appealed to the First-tier tax Tribunal.

At the First-tier Tribunal HMRC successfully argued that the making of taxable supplies had been reduced to nil once Starburst had been dissolved (as it could not be the recipient of any supplies). In addition the ceasing in the making of taxable supplies had given rise to the requirement to make a CGS adjustment. Gateshead College unsuccessfully argued that the continued existence in law of the lease meant that taxable supplies continued to be made after the initial period.

The arguments

Gateshead College appealed to the Upper Tribunal on the basis that the First-tier Tribunal had erred in law.

Gateshead College made two arguments. Firstly, it argued that the First-tier Tribunal had been wrong to include that no supplies were being made under the lease because the parties has stopped abiding by its terms and one of the parties had ceased to exist. Gateshead College contended that it had continued to make supplies despite its failure to seek payment of rent.

Gateshead College also argued that that the First-tier Tribunal had wrongly concluded that an adjustment under the CGS should have been made because of a decrease in the making of taxable supplies. Gateshead College argued that CGS adjustments are triggered not by the reduction in the value of taxable supplies but by a change in the extent of the use of the capital item for making taxable, as distinct from exempt supplies.

The decision

The Upper Tribunal dismissed Gateshead College’s first argument. The Upper Tribunal accepted the lease existed as an item bona vacantia but that did not alter the fact that no rent was paid and accounted for after a period of less than two years. A supply, i.e. rent, was therefore not being made once Starburst was struck off.

With regard to the “change of use” argument. The Upper Tribunal stated, as had the First-tier Tribunal, that it was “completely untenable” to maintain this argument. The parties had stopped abiding by the lease and the payment of rent had been abandoned completely. Gateshead College’s argument that the premises were used exclusively for leasing supplies, despite there being no actual rental charges or payment nor any intention of any being made, could not be sustained.

Commissioners for Her Majesty's Revenue and Customs v Tower MCashback LLP 1 and another [2011] UKSC 19 (11/05/2011)

Fri, 13 May 2011 09:39:01 GMT

This appeal raises two issues of tax law. The first (“the procedural issue”), of general importance to the self-assessment regime, concerns the scope of arguments which may be advanced by HMRC in a taxpayer’s appeal against a closure notice which the HMRC issues to conclude its enquiry into a tax return. The second issue (“the expenditure issue”) concerns the proper approach to determining whether expenditure has been “incurred” for the purposes of the Capital Allowances Act 2001.

The case concerns the tax consequences of the scheme used by MCashback Limited (“MCashback”) to raise finance to enable it to “roll-out” M Rewards, a software package which it had developed and which enabled manufacturers to promote products to customers by offering free mobile phone airtime. On the advice of Tower Group plc (Tower), it was decided to raise funds by selling rights to the software, via software licence agreements (SLAs), to four Limited Liability Partnerships to be set up as part of the financing scheme. Tower personnel were founder members of the LLPs and negotiated the SLAs with MCashback. The SLAs provided for each LLP to receive a proportion of the clearing fees which manufacturers would pay in respect of each transaction via the M Rewards system. For the purposes of this litigation, the situation of Tower MCashback 2 LLP (LLP2) has been taken as representative of the other LLPs. LLP 2 entered an SLA with MCashback, under which it was to pay £27.5m for a licence of part of the M Rewards system. LLP2 was entitled to 2.5% of the gross clearance fees received from exploitation of M Rewards. LLP2 obtained the funds required to pay the consideration under the SLA (and the associated professional fees) from investors, who became investor members of LLP2. They contributed 25% from their own funds and obtained the remaining 75% from bank borrowing, on uncommercial terms. Janus Holdings Ltd (Janus) lent the required sum to a special purpose vehicle set up by Tower, which made interest-free, non-recourse loans to the investor members. MCashback was obliged to deposit approximately 82% of the consideration due to it in terms of the SLA as indirect security for the investor members’ borrowing from Janus. These sums were placed on security deposit with R&D Investments Ltd (R&D), which R&D in turn deposited with Janus as security for Janus’s loan to the SPV.

LLP2 claimed £27.5m first year capital allowances for the 2004/05 tax year, the amount of consideration set out in the SLA. Because of the way LLPs are taxed, the investor members would take the benefit of these allowances if the claim is successful. One of the conditions for entitlement to capital allowances is that a person “incurs qualifying expenditure”: section 11 Capital Allowances Act 2001. Expenditure is qualifying expenditure if, amongst other things, it is capital expenditure on the provision of plant or machinery, which includes software or rights to software. On 30 June 2005 HMRC issued a notice of enquiry into LLP 2’s partnership return. Attention initially focused on section 45(4) CAA 2001, which withholds first year allowances for expenditure on software rights in certain circumstances. After a lengthy period of enquiry, during which correspondence was exchanged about the application of section 45(4), HMRC issued closure notices (under s28B Taxes Management Act 1970) which stated that, “as previously indicated … the claim for relief under section 45 CAA 2001 is excessive” and amended the partnership return so that the capital allowances claimed, and allowable loss, were “nil”.

The LLPs appealed against the closure notices. Before the Special Commissioner, HMRC abandoned the argument that the claims were disallowed by section 45(4) CAA and sought instead to argue that the full extent of the consideration under the SLAs was not expenditure incurred on software. The Special Commissioner decided the procedural point in favour of the HMRC, allowing them to advance this argument, and, on the expenditure issue, disallowed 75% of LLP2’s claims. On appeal, the High Court allowed the LLPs’ appeals on the procedural issue. It would also have allowed the LLPs’ appeals on the expenditure issue, had the point arisen for decision. The Court of Appeal, by majority, reversed the High Court on the procedural issue (Arden LJ dissenting), but agreed with the High Court on the expenditure issue. HMRC appeals against the determination of the expenditure issue and the LLPs cross-appeal against the determination of the procedural issue.

The Supreme Court unanimously allows the HMRC’s appeal and dismisses the LLPs’ cross-appeal. Lord Walker issues the leading judgment and Lord Hope a short, concurring judgment. The other members of the Court agree with both. It therefore holds that the HMRC could advance alternative arguments on the expenditure issue, and that all of the consideration provided for in the SLA was not expenditure incurred on the provision of software. The Court directs that the closure notices be amended to allow only 25% of the first year allowances claimed.

Commissioners for Her Majesty's Revenue and Customs (Respondent) v DCC Holdings (UK) Limited (Appellant) [2010] UKSC 58 15/12/2010

Fri, 24 Dec 2010 01:29:46 GMT

This appeal concerns complex statutory provisions relating to corporation tax on financial transactions known as repos. These provisions have now been replaced. The general interest of the appeal lies in the approach to be taken to ‘deeming’ provisions in statutes, namely those which create statutory hypotheses.

A repo is a financial transaction under which shares or securities are sold at one price and are later repurchased by the seller at a different price, fixed in advance. Although in legal theory a sale and repurchase, in economic substance a repo is a secured loan by the buyer to the seller. The payment of the purchase price by buyer to seller is the advance of the loan; the shares or securities act as security for the loan; and the repurchase price is the repayment of the loan. A dividend or instalment of interest may become payable during the period of the repo. In a gross-paying repo, the contract will provide for the interim holder (i.e. the buyer under the repo) to pay that dividend or interest over to the seller. Such a payment is, for tax purposes, called ‘manufactured interest’. In a net-paying repo, the dividend or interest is retained by the interim holder, and the repurchase price adjusted to take account of the receipt. The Appellant (DCC) and a Bank entered into five consecutive net-paying repo transactions in respect of UK government gilts. For the purposes of this case, these were treated as one composite transaction. The Bank sold gilts to DCC for £812m. During the 18½ day period when DCC held the gilts, interest of £28.8m (payable half-yearly) was received. The Bank repurchased the gilts for £785m.

The Supreme Court unanimously dismisses the appeal, but adopts different reasoning to the Court of Appeal. It holds that the credit in respect of the interest on the gilts is £2.9m. The purpose of the deemed payment of manufactured interest by DCC being to cancel out that receipt and to allow it to be taxed as income in the hands of the Bank, the debit for that payment was also £2.9m. Lord Walker gives the judgment of the Court.

The Advocate General for Scotland v. for an order in terms of Section 653 of the Companies Act 1985 for the name Spring Salmon & Seafood Limited to be restored to the Register of Companies [2010] CSOH 82

Thu, 12 Aug 2010 16:06:04 GMT

Petition brought by the Advocate General of Scotland, on behalf of the Commissions of Her Majesty’s Revenue and Customs, seeking to restore Spring Salmon and Seafood Limited to the Register of Companies, in terms of s653 of the Companies Act 1985; the company was struck off from the Register in August 2007.

The petitioner averred the company was liable to pay in excess of £640,000 in corporation tax. Having being struck off the Register, the petitioner averred it had been prevented from properly pursuing the company and was prevented from properly concluding other taxation enquiries in relation to the company’s affairs.

Two brothers, being directors of the former company, sought to lodge answers to oppose the company’s restoration under s653; the petitioner averred they had no title and interest to do so. Subsequently, other interested parties, including the former directors’ wives, lodged answers also opposing restoration. These answers were lodged very late in proceedings. These answers were again opposed by the petitioner on both grounds of lack of title and interest, and their lateness.

The respondents averred that they would be prejudiced by restoration, which would deprive them the benefit of realised capital loss, and make any claim for value relief unlikely to succeed.

On the matter of title and interest, the court noted that while the parties opposing the petition had been called as respondents, and the petitioner had obtained an order from the court allowing them to lodge answers, these factors did not conclusively grant them title and interest. It merely meant that they were parties who may have an interest. The court noted that in this instance, the question of title and interest and relevancy were bound together, with the court considering whether the respondents’ averments amounted to a relevant ground of opposition, which the court was bound to consider in exercising its discretion on a petition under s653 of the 1985 Act.

The court noted that for a person to be directly affected by the restoration, so as to be justified in opposing it, it must result in a change to his position on the strength of the company having been struck off, and that he will suffer some loss or damage if the company is restored, which he would not otherwise have suffered. However, the court noted that a party is not directly affected by the restoration if all that results is that the opposing party is restored to the position he was, or would have been in, had the company not been struck off in the first place. This was clearly the case with the respondents to this petition. The striking off had merely granted them an advantage; the absence of such an advantage on restoration did not directly affect them. Respondents’ motion to oppose restoration refused.

The Marquess of Linlithgow and the Earl of Hopetoun v. The Commissioners for Her Majesty’s Revenue and Customs under section 222 of the Inheritance Tax Act1984 [2010] CSIH 19

Thu, 25 Mar 2010 18:38:28 GMT

On 15 March 2006 the first appellant executed two gratuitous dispositions of land in favour of himself and the second appellant as the trustees of an accumulation and maintenance trust. The two dispositions were delivered to the trustees on the same date, which was also the date of entry. One of the dispositions was recorded in the Register of Sasines on 10 October 2006, the other on 16 November 2006. On 4 September 2008 the respondents issued notices to the appellants informing them that the first appellant had made a transfer of value of the land in question on the date when each disposition was recorded and that, since the transfers were accordingly not potentially exempt, the first appellant was liable for the inheritance tax due in respect of those transfers. An amendment made to the Inheritance Tax Act 1984 by the Finance Act 2006 made a transfer of value by an individual which constituted a gift into an accumulation and maintenance trust as a potentially exempt transfer only if it was made before 22 March 2006. Here the appellants appealed against the determinations of the respondents on the ground that the transfers of value had been effected by the delivery of the dispositions and were potentially exempt, having occurred before 22 March 2006. Here the court considered whether a transfer of value occurs for inheritance tax purposes when a gratuitous disposition of heritable subjects in Scotland is delivered or when it is recorded.

Marks and Spencer plc (Appellants) v Her Majesty’s Commissioners of Customs and Excise (Respondents), [2009] UKHL 8

Wed, 04 Feb 2009 12:13:00 GMT

M&S had two basic claims against the Customs and Excise Commissioners concerning the correct tax treatment for (1) their chocolate-covered teacakes and (2) their gift vouchers sold at a discount to their face value.

M&S challenged retrospective legislation in relation to the Value Added Tax Act 1994 as infringing EU law and discussions took place in relation to the reliance upon general principles of Community law in the absence of a directly enforceable right. Discussions were also had as to whether individuals had rights under Community law where a Directive had in itself been correctly transposed into national law but that law was applied in a manner clearly inconsistent with the scope of the Directive.

Ina answer to the second reference in the case, the Court of Justice answered:-

(1) under art.28(2) of the Sixth Directive, zero-rating is permitted as a matter of derogation, but is not required. Therefore, M&S could get no assistance from art.12(1) of the Sixth Directive;
(2) the maintenance of exemptions or of reduced rates of VAT lower than the minimum rate laid down by the Sixth Directive is permissible only in so far as it complies with, inter alia, the principle of fiscal neutrality inherent in that system;
(3) disallowance of repayment claims on the ground of unjust enrichment is in principle compatible with Community law, but must be implemented in accordance with general principles such as that of equal treatment. The existence and degree of any unjust enrichment requires a full economic analysis, which is a matter for the national court. Further, the principle of fiscal neutrality precludes the prohibition of unjust enrichment from being applied only to taxable persons such as ‘payment traders’ and not to taxable persons such as ‘repayment traders’, insofar as those taxable persons have marketed similar goods. It will be for the national court to determine whether that is the position in the present case;
(4) the answer to (3) is not affected by evidence that the repayment trader in question has not suffered any financial loss or disadvantage;
(5) whether, if the repayment trader would be unjustly enriched, Community law required or permitted the national court to grant some other remedy in respect of an infringement of the principle of equal treatment - this was a task for the national court itself, but that the national court must comply with principles of Community law, and in particular the principle of equal treatment.

The Court of Justice’s answers to the third and fifth questions did therefore raise the possibility of further issues having to be decided by the national court. However, the Commissioners decided that they did not want to pursue these matters. The House therefore unanimously allowed the appeal.

Maco Door and Window Hardware (UK) Limited (Respondents) v Her Majesty’s Revenue and Customs (Appellants), [2008] UKHL 54

Wed, 30 Jul 2008 08:27:00 GMT

Maco claimed a writing-down allowance under s.3 of the Capital Allowances Act 1990 Act for its accounting period ending on 31 Dec 1999 and 31 Dec 2000. However, the Revenue amended Maco’s self-assessment so as to disallow the claims. This appeal raises a very short point of construction of s.18(2) of the Capital Allowances Act 1990. The issue is whether the warehouse in which the respondent, Maco, stores the stock that it purchases from its Austrian parent, Mayer, is an “industrial building or structure” as defined in s.18 of the 1990 Act.

s.18(1) states that an “industrial building or structure” means “a building or structure in use - “ for one or other of the purposes specified in the ten following paragraphs. Para (f)(i) is of use to Maco in that it specifies, “… the purposes of a trade which consists in the storage - of goods or materials which are to be used in the manufacture of other goods or materials”.

It is common ground that the goods which Maco purchases from Mayer and stores in its warehouse are, “goods … which are to be used in the manufacture of other goods or materials". However, it is also common ground that Maco does not carry on a, “trade which consists in the storage” of goods. Maco’s trade consists in the buying of goods and selling them on at a profit. Storage of the goods over the period between purchase and sale is an essential part of that trade but is not a trade on its own account.

In this regard, s.18(2) states that:-
“The provisions of subsection (1) above shall apply in relation to a part of a trade or undertaking as they apply in relation to a trade or undertaking except that where part only of a trade or undertaking complies with the conditions set out in subsection (1), a building or structure shall not by virtue of this subsection be an industrial building or structure unless it is in use for the purposes of that part of that trade or undertaking".

The Special Commissioner allowed Maco’s appeal. In the Chancery Division, the judge allowed the Revenue’s appeal. The Court of Appeal (by a majority) allowed Maco’s appeal and restored its claims. The Revenue appealed to the House of Lords.

Since storage is “a part of” Maco’s trade, subsection (2) requires the provisions of subsection (1)(f)(i) to be applied to that part of Maco’s trade. The disagreement between the majority and the minority on this appeal is a disagreement as to how that is to be done. Lord Scott of Foscote and Lord Mance, took the view that subsection (2) requires that paragraph (f)(i) of subsection (1) must be applied to the relevant part of Maco’s trade, i.e. the storage part, as if that part were a trade. The words in subsection (2) : “shall apply in relation to a part of a trade … as they apply in relation to a trade …” seemed to Lord Scott of Foscote to point clearly to that construction.

However, the majority view was that subsection (2) requires that paragraph (f)(i) be applied to Maco’s storage activity without any qualification. If that is right then, since Maco does not have “ a trade which consists in the storage” of goods, paragraph (f) cannot apply.

In light of the majority view, the appeal was allowed and the Chancery Division’s decision restored.

Angus Braidwood & Sons Limited v Commissioners of HM Revenue & Customs [2007] CSIH 63

Thu, 26 Jul 2007 00:00:00 GMT

Appeal

The Advocate General for Scotland v. Dennis Henry Montgomery [2007] CSOH 120

Tue, 10 Jul 2007 00:00:00 GMT

Motion for Summary Decree

Total Network SL v Customs & Excise [2007] EWCA Civ 39 (31 January 2007)

Wed, 31 Jan 2007 00:00:00 GMT

Customs considered the taxpayer to have been involved in carousel tax frauds and took action for damages for conspiracy to cheat the public revenue. The Court of Appeal held that it was bound by its judgment in Powell v Boldaz (1997) that the unlawful act relied on must be actionable was a necessary ingredient of conspiracy. Further any common law claim by Customs could be met by a claim that the statutory regime in the VAT Act to reclaim overpaid VAT was comprehensive.

Bikeworld Ltd v. The Director-General of the Mauritius Revenue Authority (Mauritius) [2007] UKPC 5 (23 January 2007)

Tue, 23 Jan 2007 00:00:00 GMT

The taxpayer company did not submit returns for two years and the Revenue assessed to “best judgment”. The company did not respond, the assessments became final and no tax was paid. The company appealed out of time. On appeal the Privy Council held that the local tax tribunal had no jurisdiction to entertain the appeal once the assessments had become final, except in limited circumstances which did not apply. The Board went on obiter to consider the meaning of “best judgment” citing with approval Bi-Flex (1990) and van Boeckel (1981.

Deutsche Morgan Grenfell Group Plc v. Inland Revenue & Anor [2006] UKHL 49 (25 October 2006)

Wed, 25 Oct 2006 00:00:00 GMT

The taxpayer is the UK subsidiary of a German parent company. It had been prevented under earlier UK law from paying dividends to it’s parent gross, without advance corporation tax, because both companies were not in the UK. In 2001 the ECJ held that the UK position was contrary to European law. The claimant started restitution proceedings in 2000 for dividends from 1993 onwards. On appeal the issue was when for Limitation Act 1980 purposes knowledge of the mistake of law arose so that some of the claims were time-barred. Their Lordships held that for limitation knowledge of the mistake of law was postponed until the ECJ judgment in 2001.

HM Revenue & Customs v Empowerment Enterprises Ltd [2006] ScotCS CSIH_46 (11 October 2006)

Wed, 11 Oct 2006 00:00:00 GMT

The taxpayer company provides training courses in Craniosacral Therapy through a director, Mr P. On appeal the issue was whether the Sixth VAT Directive art.13A.1(j) exempted the tuition provided. The Court held that the Directive did distinguish between tuition provided by bodies and by an individual. Appeal allowed.

The Commissioners for HM Revenue & Customs v. Empowerment Enterprises Ltd [2006] CSIH 46

Wed, 11 Oct 2006 00:00:00 GMT

Appeal under section 11 of the Tribunals and Inqui

The Commissioners for HM Revenue & Customs v. Empowerment Enterprises Ltd [2006] CSIH 46

Wed, 11 Oct 2006 00:00:00 GMT

Appeal under section 11 of the Tribunals and Inqui

Bournemouth Symphony Orchestra v HM Revenue & Customs [2006] EWCA Civ 1281 (09 October 2006)

Mon, 09 Oct 2006 00:00:00 GMT

The orchestra operates through a company which includes on its board a paid managing director. Sixth VAT Directive art.13A.1(n) and 2.(a) third indent and VATA sch.9 grp.13 note (2)(c) provide for the exemption of cultural bodies governed by public law managed essentially voluntarily. The Court of Appeal held that as the managing director was paid and made a significant contribution to running the orchestra then it was not essentially run voluntarily. Hence it was not exempt from VAT. Appeal dismissed.

Nadasdi (Taxation) [2006] EUECJ C-290/05 (05 October 2006)

Thu, 05 Oct 2006 00:00:00 GMT

The appeal concerned charges levied for registration in Hungary of used cars bought in Germany independent of the value of the car or technical characteristics such as engine size. The European Court held that this was not a customs duty but an environmental tax. But proportionately to value it bore more heavily on cars from another Member State than those already in Hungary. Hence EC art.90 precluded the tax not taking into account the depreciation of the vehicles. Comment – An early case on how Member States will have to tailor future environmental taxes which by their very nature may seek to tax items moving long distances such as imports.

The Advocate General for Scotland for and on behalf of the Commissioners for Her Majesty's Revenue and Customs v. Alexander Anderson [2006] CSOH 140

Fri, 08 Sep 2006 00:00:00 GMT

Motion for Recall of Decree in Absence

The Advocate General for Scotland for and on behalf of the Commissioners for Her Majesty's Revenue and Customs v. Alexander Anderson [2006] CSOH 140

Fri, 08 Sep 2006 00:00:00 GMT

Motion for Recall of Decree in Absence

Portman Escort Agency v HMRC , VAT Tribunal, 23rd August

Wed, 23 Aug 2006 00:00:00 GMT

The taxpayers run an escort introduction service. For a fee clients are introduced to escorts who then make their own arrangements with the client as to services and payment. The Tribunal rejected HMRC's reliance on a written agreement (to try to show an agency arrangement) as it did not realistically reflect the actual business structure in place. The Tribunal also allowed a female witness for the taxpayers to give evidence without her name being disclosed in order to protect her from publicity or allegations of criminal conduct (as it emerged there was no such suggestions). Appeal allowed.

HMRC V Barclays Bank, Trustees of Pension Fund, ChD, 11th August

Fri, 11 Aug 2006 00:00:00 GMT

Barclays Bank provided a tax return preparation services to its pensioners. It sold the group business doing this and compensated the pensioners for the loss of future benefit. The Court held that the Special Commissioner had erred in factually addressing a jurisdiction point not raised by the parties, because by concession the Trustees did not take the point of who were the employers. On whether the payments were "relevant benefits" under ICTA s.612(1) the Court held that they were. There was no need for them to be deferred rewards, it was enough the were made in connection with past service. Appeal allowed.

The Advocate General for Scotland v. Dennis Montgomery [2006] CSOH 123

Tue, 08 Aug 2006 00:00:00 GMT

Debate - Pursuer seeking decree de plano

Scottish Exhibition Centre Limited v. The Commissioners for Her Majesty's Revenue & Customs [2006] CSIH 42

Fri, 14 Jul 2006 00:00:00 GMT

Appeal under section 11 of the Tribunals and Inqui

HMRC v Loyalty Management UK Ltd, ChD, 22nd June

Thu, 22 Jun 2006 00:00:00 GMT

LM runs the “Nectar” card retail loyalty scheme under which customers can collect points on purchases from participating retailers to be redeemed against future puchases. The Court held that payments made by LM were part-payment to the retailer for the items supplied to the customer. Appeal allowed.

Sony Computer Entertainment Europe Ltd v Revenue and Customs [2006] EWCA Civ 772 (15 June 2006)

Thu, 15 Jun 2006 00:00:00 GMT

HMRC revoked a zero duty binding tariff information (BTI) classification for the “PlayStation2” computer games console which it issued shortly before an EU Regulations which classified it as taxable, later annulled on a technicality. The Court held that HMRC were entitled to revoke the BTI after reviewing it and decding that it was incorrect. Appeal dismissed.

HM Revenue & Customs v Compass Contract Services UK Ltd [2006] EWCA Civ 730 (09 June 2006)

Fri, 09 Jun 2006 00:00:00 GMT

The taxpayer supplies cold prepared food, such as sandwiches, at 6 retail outlets in the BBC Television Centre. The Court held these were zero-rated, rejecting contentions that the taxpasyer’s contract with the BBC or the premises used were determinative. Appeal dismissed.

Solleveld (Taxation) [2006] EUECJ C-444/04 (27 April 2006)

Thu, 27 Apr 2006 00:00:00 GMT

In Dutch cases concerning a physiotherapist and psychotherapist the question arose whether the exemption from VAT arose. The Member State did not respectively recognise the medical practices carried out as relating to the taxpayer's field nor recognise the particular medical profession for tax exemption. The ECJ held that the exclusion of a medical activity or profession by a Member State was not absolute and had to be justified on objective grounds.

HM Revenue & Customs v Enron Europe Ltd [2006] EWHC 824 (Ch) (12 April 2006)

Wed, 12 Apr 2006 00:00:00 GMT

Customs failed in their appeal over a VAT assessment arising out of a netting agreement or set-off arising out of the taxpayer going into liquidation. Although the Court found it unsatisfactory in the circumstances here the assessment was for the wrong period.

HM Revenue & Customs v Salaried Persons Postal Loans Ltd [2006] EWHC 763 (Ch) (07 April 2006)

Fri, 07 Apr 2006 00:00:00 GMT

The Revenue appeal was dismissed against a company being entitled to the small companies relief, which the Revenue had disallowed as an associated company had ceased trading but continued to let out its former trading premises. The associate was not in business and there was no an artificial arrangement.

Khan v Revenue and Customs [2006] EWCA Civ 89 (23 February 2006)

Thu, 23 Feb 2006 00:00:00 GMT

The taxpayer ran a dry cleaning business and was subject to a penalty for dishonest evasion under s.60 VAT Act 1994. It was contended that the codes of practice under Police and Criminal Evidence Act 1984 applied and there had been an unfair hearing at Tribunal because of the ineffectiveness of the taxpayers accountant representing them. The Court held that PACE did not apply and that there was nothing to have alerted the Tribunal to unfairness.

Halifax & BUPA & Univ. Huddersfield, C-255/02, 419/02, 223/02, ECJ, 21st February

Tue, 21 Feb 2006 00:00:00 GMT

In all three cases the taxpayer used various tax schemes which HMRC challenged as being an abuse of rights and so outside VAT. In landmark judgments the ECJ held in Halifax that all transactions counted for VAT, even those whose primary purpose was to get a tax advantage. A taxpayer had a right to plan their tax affairs and was not obliged to over-pay tax given a choice. The Court went on to hold that abusive practices for tax were those that both went against the purpose of the legislation and whose essential purpose was just to get a tax advantage, though this did not apply where there was some other explanation for what was done. Finally where there was tax abuse then those transactions were unpicked, both outputs and inputs, back to the situation that would have otherwise prevailed. In BUPA the Court held a large-scale prepayment was too vague and uncertain to change the tax point and so gain a tax advantage. In the Univ. Huddersfield case the tax-driven transactions counted for VAT under the Halifax doctrine above.

EC Commission v UK, C-305/03, ECJ,9th February

Thu, 09 Feb 2006 00:00:00 GMT

The UK failed to comply with its obligations under the Sixth Vat Directive by applying a reduced rate of VAT to auctioneers' services on temporarily imported works of art.

Pirelli v HMRC, HL, 8th February 2006

Wed, 08 Feb 2006 00:00:00 GMT

In another Hoechst/Metallgesellschaft advance corporation tax case there was a UK holding company owning a UK subsidiary plus three continental companies together owning the UK holding company. The case was remitted back to the Chancery Division to determine the unresolved factual question whether had group income election been available the UK companies would have elected to pay dividends free of ACT or instead outside of group income elections so that the oversees parents could receive convention tax credits.

NEC Semi-Conductors v HMRC, CA, 31st January

Tue, 31 Jan 2006 00:00:00 GMT

The appeal arose from group litigation concerning advance corporation tax (ACT) following the ECJ judgment in Hoeschst / Metallgesellschaft, claiming the Act provisions were inconsistent with the non-discrimination articles in the tax treaties with the US and Japan. The Court held that on its face Act was inconsistent with the non-discrimination articles but they were not part of UK law because not everything in the treaties was enacted into UK law.

HMRC v IDT Card Services Ireland, CA, 27th January

Fri, 27 Jan 2006 00:00:00 GMT

The issue of a phonecard was promise to supply telecommunications services and a supply for VAT under art.9(2)(e) of the Sixth VAT Directive and which sch.10A of the VAT Act 1994 would be interpreted to comply with that.

Ali v HMRC, ChD, 23rd January

Mon, 23 Jan 2006 00:00:00 GMT

A penalty for VAT can be levied within two years of the amount of tax upon which it was based being determined, which was itself not limited to an assessment of tax having been issued but did need some determination of tax due.

Jones v HM Inspector of Taxes [2005] EWCA Civ 1553 (15 December 2005)

Thu, 15 Dec 2005 00:00:00 GMT

The taxpayer is an It consultant who with his wife set up a company, Arctic Systems, through which to exploit his IT services with her acting as company secretary. The inspector assessed the husband to tax on the dividend paid to the wife on the basis that it was a settlement. The Court held there was no settlement as there was no bounty when the shares were allocated, though if wrong on that the settlement was not disapplied as there was no outright gift.

Centralan Property (Taxation) [2005] EUECJ C-63/04 (15 December 2005)

Thu, 15 Dec 2005 00:00:00 GMT

The taxpayer is a subsidiary of a university which used it and another company in grant of a long lease and sale of the freehold reversion of a building, the lease being exempt and the reversion taxable. The question was which transaction the capital goods scheme applied to. the Court held that both could constitute a supply as the right do dispose of property and taking both into account in proportion to their respective values produced the most appropriate apportionment.

Marks & Spencer (Taxation) [2005] EUECJ C-446/03 (13 December 2005)

Tue, 13 Dec 2005 00:00:00 GMT

The taxpayer claimed group relief from corporation tax for losses incurred by Continental subsidiaries which were disallowed under UK law, only allowing claims for UK subsidiaries. The European Court held that to be a restriction on movement but which was generally permissible for tax purposes, although a blanket restriction was not lawful.

Agassi v HM Inspector of Taxes [2005] EWCA Civ 1507 (02 December 2005)

Fri, 02 Dec 2005 00:00:00 GMT

Following the taxpayers’ successful appeal on the substantive issue a question arose as to the costs to be awarded to the taxpayer who had used a tax professional but a non-solicitor, a member of the Chartered Institute of Taxation, who in turn directly instructed counsel under the Bar licensed access or BarDirect rules. The Court held that the appellants was a litigant in person under CPR 48.6 and that there was still a fundamental distinction as to the work done and costs recoverable by a solicitor as against a non-solicitor. Therefore counsel’s fees were recoverable as a normal disbursement but not the costs of the tax professional providing general assistance to counsel, although most of the other costs were recoverable as a disbursement. Comment - The current Bar licensed access scheme is now effectively defunct.

Commissioners of Customes and Excise v. Robertsons Electrical Limited

Fri, 11 Nov 2005 00:00:00 GMT

Appeal Against Decision of VAT Tribunal:

Customs And Excise v. Robertsons Electrical Ltd [2005] ScotCS CSIH_75 (11 November 2005)

Fri, 11 Nov 2005 00:00:00 GMT

The taxpayer sells electrical goods online, customers paid when they placed an order and were then invoiced within 7 days of delivery of the goods. Under consumer protection regulations the customer could cancel within 7 days of receipt of the goods. The question was when the tax point arose. The Court held that properly construed the taxpayer’s online conditions of sale established an outright sale then, goods were not supplied on approval to shift the tax point later. Appeal allowed.

EC Commission v Germany, C-197/04, ECJ, 10th November

Thu, 10 Nov 2005 00:00:00 GMT

“West Single Packs”, a German tobacco product, consists of ready-formed rolls of tobacco which are made-up by the consumer into a cigarettes for smoking inserting them into a tube of paper. The question was whether they were liable to tobacco duty under Directive 95/99 at the lower rate for hand rolling tobacco or the higher rate for cigarettes, the latter also including rolls of tobacco capable of smoking with simple non-industrial handling. The European Court held that they were cigarettes due to the easy process by which the consumer made them up ready for smoking.

Customs v K&L Childcare Service Ltd. [2005] EWHC 2414 (Ch) (04 November 2005)

Fri, 04 Nov 2005 00:00:00 GMT

The taxpayer supplies staff, as its own employees, to nurseries and local education authorities. The issue was whether it was supplying standard-rated staff or exempt welfare services. On an unopposed appeal by Customs the Court held that the taxpayer supplied staff and was not a state-regulated body for exemption purposes. Appeal allowed.

Levob Verzekeringen & OV Bank (Taxation) [2005] EUECJ C-41/04 (27 October 2005)

Thu, 27 Oct 2005 00:00:00 GMT

Levob is a Dutch insurance company imported from the US a standard computer program for use in its insurance business, which was then customised for the Dutch market. The issue arose as to whether was a single supply or two. The Court held that where two or more elements of a transactions were closely economically linked that was a single supply. which was the case here. The supply was also one of services under art.9(2)(e) of the Sixth Directive.

College of Estate Management v. Customs and Excise [2005] UKHL 62 (20 October 2005)

Thu, 20 Oct 2005 00:00:00 GMT

Their Lordships allowed the Customs appeal that the College made a single supply of education, exempt from VAT, in providing its distance learning in specially prepared written materials and not supplies of both education and zero-rated course materials.

Overland Footwear (Customs union) [2005] EUECJ C-468/03 (20 October 2005)

Thu, 20 Oct 2005 00:00:00 GMT

Overland paid a buying commission to a Far East agent on importing shoes from outside the EC. The Court held that under the Community Customs Code a buying commission included in the declared customs value on import was part of the transaction value for art.29 and so dutiable. Where though after release of the goods the customs authorities were presented with a revision of the customs declaration then they had to address it and if the commission was wrongly included reimburse the duty paid on it.

MyTravel (Taxation) [2005] EUECJ C-291/03 (06 October 2005)

Thu, 06 Oct 2005 00:00:00 GMT

MyTravel sells holiday packages and also air tickets using its own airline, the VAT on which it recalculated following the Court decision in Madgett & Baldwin (1998). The Court held that a tour operator could recalculate its liability to tax. For in-house parts of the package the tour operator could not use market value at their own discretion though it could be used where market value could be established.

Antje Kohler, ECJ C-58/04, 15/Sep/05

Thu, 15 Sep 2005 00:00:00 GMT

Kohler operated a boutique on German cruise ships which sailed mainly within EU waters but also made short stops in third nations such as Norway or Russia. The question was whether art.8(1) of the Sixth VAT Directive meant sales of good were all taxed at the single point of EU departure or by reference to the third country stops. The Court held that “stops in a third territory” in art.8(1)(c) could not be ignored, otherwise there would be conflicts of jurisdiction with the tax systems of third countries. Hence the sales made during the stops in third countries were outside EU VAT law.

United Antwerp Maritime Agencies & Seaport Terminals (Customs union) [2005] EUECJ C-140/04 (15 September 2005)

Thu, 15 Sep 2005 00:00:00 GMT

United Antwerp are shippers and Seaport Terminals freight forwarders. United Antwerp lodged a summary customs declaration with Antwerp customs office for a container of cigarettes from Brazil. Later Seaport unloaded the container but the next day it was stolen. The issue arose as to which or both of them was liable for the resulting customs debt. The European Court held that under art.203(3) of the Customs Code art.184(2) of the Implementing Regulation the person liable was the one "holding" the goods after they had been unloaded.

Capital One Bank (Europe) Plc v Revenue and Customs [2005] UKVAT V19238 (9 September 2005)

Fri, 09 Sep 2005 00:00:00 GMT

A credit card business arranged for a securitisation of future sums to be received from its cardholders using a Jersey special purpose vehicle to reclaim £11.1 million as input tax. The Tribunal held the securitisation was not supply for VAT and that the taxpayer had been wrong to exclude the related exempt supplies from its partial exemption calculation. Appeal dismissed.

Blanckaert (Free movement of capital) [2005] EUECJ C-512/03 (08 September 2005)

Thu, 08 Sep 2005 00:00:00 GMT

Mr Blanckaert is Belgian and owns a property in the Netherlands. Under Dutch law he was taxed on the income derived form the property but under the Dutch-Belgian tax treaty was given credits for the income tax. But as he was not within the Dutch social insurance scheme he received no tax credit for that. The question arose whether under art. 56 and 58 EC such different treatment of a non-national was prohibited. The European Court held the difference was justified as insurance credits depended not on residence but on whether the taxpayer made social insurance contributions.

Marks and Spencer Plc v Customs and Excise [2005] UKHL 53 (28 July 2005)

Thu, 28 Jul 2005 00:00:00 GMT

The company paid output VAT on the sale of teacakes which should have been zero-rated but 90% of its reclaim was blocked by UK law. The company claimed it has a European law rights to the whole. Their Lordships made a reference (the second in this long-running case) to the ECJ as the position under European law was not clear.

HM Revenue & Customs v Jacobs [2005] EWCA Civ 930 (22 July 2005)

Fri, 22 Jul 2005 00:00:00 GMT

The taxpayer converted a residential school into a residence with three staff flats and claimed repayment of VAT on the conversion of the non-residential parts. The Court held that under VATA 1994 sch.8 grp.5 note 9 VAT was refundable if the end result of the works was more dwellings than there had been at the start, which was the case here.

Commission v United Kingdom (Taxation) [2005] EUECJ C-349/03 (21 July 2005)

Thu, 21 Jul 2005 00:00:00 GMT

In an action, supported by Spain, against the UK for not applying the VAT and excise parts of the mutual assistance Directive 77/799 to Gibraltar the Court interpreted art.28 of the Act of Accession, excluding turnover taxes from Gibraltar, strictly so that the Directive applied.

HM Revenue & Customs v Debenhams Retail Plc [2005] EWCA Civ 892 (18 July 2005)

Mon, 18 Jul 2005 00:00:00 GMT

Debenhams set up a captive credit card processing and presented customers with till slips showing 2.5% of the price went to the card company, exempt from VAT. The Court held that the taxpayer had to account for VAT on 100% of the sale price as there was no need for a second contract between the customer and the captive card processing company.

HM Inspector of Taxes v Dextra Accessories Ltd [2005] UKHL 47 (07 July 2005)

Thu, 07 Jul 2005 00:00:00 GMT

The company paid £2.75mil into an employee benefit trust in 1998, which paid benefits to employees in 1999. For company accounts purposes the deduction arose in 1998 but employees were only taxable in 1999. Their Lordships held the funds were potential emoluments under FA 1989 s.43(11)(a) and so only deductible by the company in 1999.

Cirdan Sailing Trust v Revenue & Customs - ChD, 9th June

Thu, 09 Jun 2005 00:00:00 GMT

The Trust owns a ship used for passenger transport which was found as a fact could accommodate 14 passengers on day trips but which had a transport operating licence to carry a maximum of 7 passengers, as overnight accommodation was needed. This issue arose whether supplies using the ship were zero-rated under VAT Act 1994 sch.8 grp.8 para.4(a) which applies to ships designed or adapted to carry 10 or more passengers. Whilst not upholding the VAT Tribunal reasoning, the High Court Dismissed the appeal on the new point that the licence for 7 passengers, although not determinative by itself, was a good factual indicator of the passenger carrying capacity to which the ship was actually put, rather than what it could be used for. A cross appeal by the Revenue on repairs to a qualifying ship under grp.8 para.1 was withdrawn immediately before hearing.

Waterschap Zeeuws Vlaanderen (Taxation) [2005] EUECJ C-378/02 (02 June 2005)

Thu, 02 Jun 2005 00:00:00 GMT

A public authority was not entitled to claim input tax on the construction of a sewage plant, which it built whilst acting as a public authority, even if the plant was subsequently sold and leased back as a taxable transaction.

Greenalls Management Ltd v. Customs and Excise [2005] UKHL 34(12 May 2005 )

Thu, 12 May 2005 00:00:00 GMT

A drinks manufacturer operating a warehouse was liable for the excise due, under the Excise Goods Regs SI 1992/2135, when goods were illegally diverted from their intended export after having left the warehouse, even though the taxpayer was innocent of any involvement in the diversion.

Sempra Metals Ltd v Inland Revenue & Anor [2005] EWCA Civ 389 (12 April 2005)

Tue, 12 Apr 2005 00:00:00 GMT

In the latest ACT group litigation case of Sempra (ex-Metallgesellschaft) the issue was whether interest should be awarded on a simple or compound basis. The Court of Appeal confirmed that the compound basis should be used. The role of the UK courts was to give effect to the European Court's judgment that full compensation had to be given. That required a conventional or market borrowing rate (as against one specific to the taxpayer's circumstances) which was based on compounding interest.

Halifax v Customs C-255/02 et al - ECJ AG, 7th April 2005

Thu, 07 Apr 2005 00:00:00 GMT

On 7th April the Advocate General (AG) gave their opinion in the joined UK VAT cases of Halifax, BUPA and the University of Huddersfield, cases C-255/02, 419/02 and 233/03 respectively. Although the Court’s judgment should be delivered in the next few months, the AG’s opinion gives a very good indication that the “Halifax principle”, as it has been called, developed by UK Customs is not legitimate. In summary, the Halifax principle as applied by Customs sought to deny any input VAT claims where Customs alleged there was tax avoidance. For this purpose Customs gave a wide meaning to avoidance including otherwise normal and perfectly legitimate tax planning. Applied aggressively by Customs the Halifax principle could amount to denying a taxpayer any right to pay anything except the maximum amount of tax that could possibly be due. This meant that tax planning which reduced a taxpayer’s burden from the maximum possible down to the appropriate or correct figure was tax avoidance, and so outside the scope of VAT. Hence Customs argued they could deny input VAT claims. The principle was though a one-way street, being confined to input tax and could not be used by a taxpayer so as not to pay output VAT to Customs. The AG’s opinion clarifies the position and restores the legal orthodoxy of VAT being a transaction based tax. First of all the AG has confirmed that each transaction at issue needs to be considered objectively and per se. The fact that a supply is made with the sole intention of obtaining a tax advantage is immaterial. Tax planning or avoidance dos not change the inherent and objective nature of each of the transactions. The AG also noted the danger in the UK proposals that an innocent bystander might be affected when making or receiving transactions from persons who were engaged in tax avoidance. Secondly, the AG considered the question of the abuse of rights of European law. Although they held it had a place the correct interpretation of the principle was not as UK Customs had been applying it. The AG considered that abuse of rights might apply where two points arose. The first was that the aims and results formally giving rise to the right to deduct input tax would be frustrated if the input claim were conferred. Secondly it had to be that the right invoked by the taxpayer derived from activities for which there was no other explanation than the creation of the right itself. The judgment of the European Court is awaited with interest and although the AG’s opinion is no guarantee of which way the Court will go it does give a strong indication. It seems that Customs will not be able to use their Halifax principle to deny taxpayers legitimate input claims, or maximise their tax obligations, merely because Customs might have got more money had events been structured, or taken place, differently.

Commission v United Kingdom - European Court of Justice, C-33/03, 10th March

Thu, 10 Mar 2005 00:00:00 GMT

The ECJ held that UK legislation in Order 1991/2306 enabling employers to reclaim input VAT on the cost of motor fuel reimbursed to employees contravened the Sixth VAT Directive and so invalid. This was because the UK Order did not ensure that only fuel used for taxable supplies could be reclaimed. Comment - A major set-back for Customs on behalf of the UK and one which could costs business many millions in lost VAT, especially smaller enterprises that cannot afford to issue employees with corporate fuel or credit cards.

Arnold v G-Con Ltd, Chancery Division, 4th March

Fri, 04 Mar 2005 00:00:00 GMT

A company had its application for a construction industry scheme (CIS) tax certificate refused due to its record of consistently late payment of PAYE and NIC. The High Court held that the failures were more than just "minor and technical" which would be excused. Appeal allowed. Comment - Although a wholly new CIS scheme is due to be introduced in April 2006 the Inland Revenue are still taking a firm line on any infringements under the existing scheme.

Sttatssecretaris van Financien v Arthur Anderson & Co European Court of Justice ECJ, C-472/03, 3rd March

Thu, 03 Mar 2005 00:00:00 GMT

A third party company undertaking back-office administrative functions for an insurance company could not benefit from the VAT exemption for insurance services. This was because it had no relationship with the insured customers but merely carried out a sub-contracted service for the insurer. Hence the out-sourcing service was taxable. Comment - A major theme underpinning the judgment was job protection to keep insurers on level terms. Hence an insurer which kept its administration in-house would be liable to employments taxes whilst one which out-sourced its administration would have to pay VAT on that service.

Teleos Plc & Ors, R (on the application of) v Customs and Excise [2005] EWCA Civ 200 (02 March 2005)

Wed, 02 Mar 2005 00:00:00 GMT

A taxpayer was refused an interim payment under CPR rule 25 for input tax held back by Customs. Taxpayers had an effective legal right to challenge such decisions by Customs so that there was no basis for extending the ambit of rule 25 to add a European law dimension to it. Appeal dismissed, Customs cross-appeal on costs allowed.

Customs v Elm Milk Ltd - 2005 EWHC 366 (ChD), 3rd Feb

Thu, 03 Feb 2005 00:00:00 GMT

A company could reclaim input tax under the VAT (Input Tax) Order SI1992/3222 for a car used exclusively for business purposes where that was the clear intention at the time the car was purchased, the fact that it might or could be used for private purposes was not relevant. Note: extempore judgement, delay in producing written version.