Register of Overseas Entities and Third-Party Information Notices
Following the issue of a tax note in December, and the 31 January deadline for initial registrations on the Register of Overseas Entities, HMRC is set to investigate cases of suspected unreported tax from 1 March 2023.
A recent first-tier Tribunal case - Third party & taxpayer v HMRC [2023] UKFTT 71 (TC) - gives an insight into the use of third-party information notices (FA 2008 Schedule 36) in this context.
HMRC was investigating the worldwide wealth of a taxpayer, and assets held through offshore trusts, and sought an information notice requiring details of property purchasers from a third-party solicitor.
With some limited restrictions, the HMRC request was approved. In particular, it was noted that information relating to conveyancing will not generally be subject to legal professional privilege.
Discovery Assessments Revisited – Staleness
The discovery assessment provisions of section 29 TMA 1970 have been the subject of many tribunal hearings in recent years. Although that section says nothing about how soon an assessment must be raised after an insufficiency of tax has been discovered, a number of tribunal decisions have held that a discovery may become ‘stale’ if not acted on, which would then prevent a discovery assessment from being raised.
However, the concept of staleness has always been controversial, and it was rejected by the Supreme Court in HMRC v Tooth [2021] UKSC 17; the legislation includes time limits for the raising of assessments, and a discovery assessment can be validly raised within these time limits, the Court said.
Staleness was raised again in Harrison [2023] UKUT 38 (TCC). HMRC were investigating the tax affairs of Mr Harrison’s son, and then became aware of information indicating that a tax assessment should be raised on the father. On behalf of Mr Harrison senior, it was argued in the Upper Tribunal that the comments in the Tooth Supreme Court decision were not part of the reasoning on which the decision was based; they were obiter dicta, rather than ratio decidendi. Hence, it was argued, the concept of staleness should still apply.
After a detailed analysis of the law of precedents, the Upper Tribunal in Harrison noted that, as a matter of general principle, obiter dicta are not binding. However, the tribunal considered that a modified approach should apply here; a unanimous decision of the Supreme Court can be binding on lower courts, even if obiter dicta. Hence the concept of staleness no longer exists, and Mr Harrison lost his appeal.
HMRC Service Standards
In a pre-Budget representation to the government, the ICAEW has called for an emergency task force to tackle a correspondence backlog at HMRC. The ICAEW reports that taxpayers are having to wait up to a year for HMRC to respond to queries made by telephone or post, and callers say they have waited for more than an hour before being cut off. The Spring Budget will be delivered on 15 March 2023.
ICAEW Call for Emergency Taskforce
Damages Claim for 2009 IHT Advice Was Not Too Late
The claim arose in relation to advice given in September 2009, for an excluded property trust created in 2002 by a foreign domiciled individual. The settlor and his wife had initial interests in possession; a transfer to a discretionary trust was proposed, to avoid the possibility of the settlement becoming a relevant property trust after the deaths of the settlor and his wife, under section 80 IHTA 1984.
The transfer was subsequently made, but the issue was that there were UK situs assets, which created IHT liabilities.
Section 14A of the Limitation Act 1980 provides for a six-year time limit bringing a negligence action or, if later, three years from the date the claimant had the required knowledge and the right to bring an action.
It was held that, in this case, the claimant did not have sufficient knowledge until September 2018, when his accountant gave firm and definitive advice. This was so despite the fact that there had been indications a year earlier that there were undisclosed IHT ten-year charges. Accordingly, the claim was not time-barred.
Etroy and another v Speechly Bircham LLP
Mandatory Disclosure Rules Replace DAC6
HMRC has published guidance in advance of the commencement of the Mandatory Disclosure Rules (MDR) regime on 28 March 2023. The MDR will replace the EU DAC 6 rules. From January 2021, the original DAC six reporting requirements containing Hallmarks A to E were modified by SI 2020/25, with the result that only the requirement to report on Hallmark D remained.
Hallmark D relates to arrangements to circumvent Common Reporting Standards legislation. Generally, the reportable circumstances under MDR are equivalent to those in Hallmark D of DAC 6.
Ethical Standards in Tax Planning
The International Ethics Standards Board for Accountants (IESBA) has published an exposure draft for consultation, setting out a revised code for ethics in tax planning and related services. The ethical code produced by IESBA is adopted by the UK professional bodies which are members of the International Federation of Accountants (IFAC).
At present the main ethics code of IESBA does not include detailed comments on ethical requirements in relation to tax planning. UK professional bodies have instead adopted the Professional Conduct in Relation to Taxation guidance, which goes beyond the existing IESBA code.
Consultation on the IESBA exposure draft closes on 18 May 2023.
Proposed revisions to ethical standards for tax planning
Profession Conduct in Relation to Taxation
UK Land Disposal Planning Point
Property disposals late in the tax year may not need to be reported on a UK land disposal return, the ICAEW reminds. If the self-assessment return is filed within 60 days of completion, a separate CGT return is not needed, and the payment date is extended from 60 days to 31 January 2024.
Opportunity to report UK property disposals on SA return only