Legal News

Waterside Escapes Ltd v HMRC [2020] What are the practical implications of this case? The judgment considers two strands of the SDLT code: the 15% charge in FA 2003, Sch 4A and the partnership rules in FA 2003, Sch 15, alongside a detailed review of the connected persons provisions in the CTA 2010. It confirms that, for FA 2003, Sch 4A, para 5(2), what matters is the company’s subjective intention about whether a non-qualifying individual may occupy a dwelling, and that intention can be shown by a clause in a shareholders’ agreement. The case reminds tax practitioners that the wording of shareholders’ agreements and other governing documents can be pivotal in determining whether relief applies (here, relief from the 15% SDLT rate was unavailable because of a permissive clause in the shareholders’ agreement). It further confirms that the concept of occupation for the 15% relief is...

AXA SA v Genworth Financial International Holdings, LLC and Genworth Financial, Inc (and named third parties) [2020] EWHC 2024 ( Comm) What are the practical implications of this case? In AXA v Genworth, the High Court examined a routine SPA clause requiring a gross-up for any tax arising in the recipient’s hands on a payment (here, a seller’s indemnity for 90% of liabilities tied to PPI mis-selling by the acquired entities). The court ruled that the expression ‘subject to taxation in the hands of the receiving party’ means ‘actually taxed in the hands of the receiving party’. It also decided that any extra sum to gross up for tax in hand is only payable once the recipient is under an enforceable duty to pay an actual sum of tax (at para [222]). That conclusion followed from construing the gross-up wording and the SPA in line with the...

Lowe and another (as joint administrators of Benedict Cole Ltd (in administration)) v Lloyds Bank Commercial Finance Ltd and another company [2020] EWHC 946 ( Ch) What are the practical implications of this case? The court examined the principles governing constructive trusts within an insolvency setting, providing a helpful overview of earlier guidance, and confirmed from para [44] onwards that, for those aiming to establish constructive trusts, the following propositions hold: The first place to look is the parties’ contracts. Do they show the usual indicators of a trust arrangement—e.g. a separate account, express statements of trust or duty, and similar features? If a trust arises, it must exist at the point of insolvency; otherwise, it would jeopardise the pari passu principle which, in this context, is of overriding importance. A mistaken payment, by itself, is insufficient to create a constructive trust; there is, at minimum, the further...

For much of the UK’s membership of the EU, the interaction between European law and the domestic system has sparked debate. To many observers, it operates as a limitation—practically, if not as a strict matter of doctrine—on the constitutional tenet that Parliament, acting with the Crown, is sovereign. In that context, the European Union ( Withdrawal Agreement) Bill ( WAB) sets out a number of measures with significant consequences for how sovereignty is to be understood in the United Kingdom. Current status of EU law At present, section 2(1) of the European Communities Act 1972 ( ECA 1972) stipulates that all rights, powers, liabilities, obligations and restrictions created by or under the Treaties, together with all remedies and procedures they provide, are to take legal effect in the United Kingdom without further legislation. Those rights must be recognised, available and enforced in UK law, and...

Currie v Thornley and another [2019] EWHC 172 ( Ch), [2019] All ER ( D) 19 ( Feb) What are the practical implications of this decision? Liquidators will typically insist on tightly drafted indemnity deeds when they are effecting distributions of a company’s assets to shareholders in an MVL, particularly where there remains any possibility of creditors bringing later claims in the liquidation. In Currie v Thornley and another, the company’s assets—real estate used in running a care home—were transferred to a limited liability partnership set up by the company’s former shareholders, at a point when contingent claims existed against the company. If those contingencies crystallised, the liquidator might face proceedings for failing to discharge his duties to the company by permitting assets to be transferred out before first settling sums owed to creditors. Although indemnity deeds are very common, especially in...

What changes to entrepreneurs’ relief were announced at the Budget 2018 and what was the motivation behind them? What is their likely impact? There will be three amendments to entrepreneurs’ relief in the Finance Act 2019. Diluted holdings The first reform permits a shareholder whose interest falls below the 5% qualifying threshold to elect to be treated as having disposed of, and immediately reacquired, their shares just before the dilution, effectively banking entrepreneurs’ relief for the qualifying holding period. The driver for this was a perceived obstacle to third-party investment in entrepreneurial businesses, where fundraising could push existing owners under the 5% line. In practice, the arrangement demands two distinct elections: one to crystallise the deemed sale and repurchase, and a separate one—on different deadlines—to defer the liability until an actual disposal, unless the person prefers to pay the capital gains tax upfront as a ‘dirty’ tax charge....

Clark Hill Ltd v HMRC [2018] UKFTT 111 ( TC) What are the practical implications of this case? The ruling features noteworthy judicial comments, expressed obiter, addressing the complex question of how VAT applies where a contract is novated. The dispute centred on the VAT time of supply (the tax point) for a property disposal in which the initial purchaser had paid a deposit, yet the agreement was later novated, with completion occurring between the original vendor and a different purchaser. In a scenario without novation, the operation of the time of supply provisions in section 6 of the Value Added Tax Act 1994 ( VATA 1994) is that a deposit paid to the seller or the seller’s agent establishes a tax point. That approach is troublesome when novation intervenes, because the deposit is made under one contract while completion proceeds under another. The...

R (on the application of UNISON) v Lord Chancellor [2017] UKSC 51 The Supreme Court upheld a trade union’s appeal, deciding that the Lord Chancellor’s scheme requiring fees from claimants in employment tribunals and appellants to the Employment Appeal Tribunal must be quashed because it obstructed access to justice. What was the background to the case? Employment tribunals were set up as an informal, low-cost and accessible forum for resolving workplace disputes. Their jurisdiction covers a broad array of matters, including enforcement of key rights that attract little or no financial compensation, such as the right to a statement of terms and conditions and the right to rest breaks. Many tribunal claims have their origins in EU law, although a substantial number are solely domestic. Claimants are often in a vulnerable situation—typically the weaker party in the contractual...

What is Australia’s approach towards international free trade agreements? Australia is a proactive participant in global trade. In recent years, its commercial ties have centred on Asia, having lately finalised free trade agreements ( FTAs) with China, Japan and South Korea. Shortly after the 2016 EU referendum, the Australian Government signalled its readiness to negotiate an FTA with the UK. To advance this, a trade working group was established with a remit to ‘scop[e] out the parameters of a future ambitious and comprehensive’ FTA. The group first met in late November 2016. However, talks may not start until the UK has left the EU. How does Australia’s market compare to the UK? UK– Australia trade has taken place within the EU framework. The EU is Australia’s third-largest trading partner. Australia’s sales to the EU are dominated by mineral commodities (fuels and mining products) and...

Original news Distinctive Care Limited v HMRC [2016] UKFTT 764 ( TC) John Hargreaves v HMRC [2016] UKFTT 772 ( TC) What are the practical implications of these cases? The lesson from Distinctive Care is that, when handling groups of disputes, advisers must be meticulous and open about the way costs have been incurred. With HMRC’s more recent follower notice and accelerated payment notice powers, this point matters now more than ever. The key takeaway from John Hargreaves was that there is no hard-and-fast sequence for proceedings; the FTT will exercise its case management powers to ensure matters are dealt with fairly and justly, including setting the order of proceedings. The ongoing narrative from Mr Hargreaves’ litigation suggests taxpayers are likely to find it difficult to keep back material from HMRC where that evidence supports an aspect of the taxpayer’s position but also...

Introduction Most observers consider that, on its own, Brexit is unlikely to materially alter the regulation of the UK oil and gas sector, including activities on the UK Continental Shelf ( UKCS). This stems largely from the UK government’s longstanding control of energy policy, encompassing the development of oil and gas reserves. Core policy areas—such as licensing and taxation of exploration, appraisal, development and production—have always been, and continue to be, determined by the UK government, though elements of the industry have been shaped by the EU. Nevertheless, the referendum has set in motion other significant shifts that may have a substantial effect on the UK’s oil and gas industry and the wider energy industry for the reasons set out below. Does European law still apply? Will the current legal and regulatory framework change once withdrawal from the EU is complete? The...

Original news R (on application of Ingenious Media Holdings plc and another) v Revenue and Customs Commissioners [2016] UKSC 54, [2016] All ER ( D) 118 ( Oct) The Supreme Court ruled that statements made about the appellants by HMRC’s then Permanent Secretary for Tax to journalists at an off-the-record briefing were not justified under section 18(2)(a)(i) of the Commissioners for Revenue and Customs Act 2005 ( CRCA 2005). The court concluded that CRCA 2005, s 18(1) was designed to mirror the general principle of taxpayer confidentiality and that, properly construed, CRCA 2005, s 18(2)(a)(i) — read strictly — operates only as a limited carve-out, allowing disclosure solely where it is reasonably required for HMRC to carry out its core function. What was the background to the case? The Permanent Secretary for Tax had provided an off-the-record interview to two reporters from The Times about the...

Original News Anderson v HMRC [2016] UKFTT 0565 ( TC) What was the case about? In his tax return, Mr Anderson sought £3m of relief under sections 64 and 72 ITA 2007, claiming losses from trading activities labelled ‘football development’. He had put funds into the Bafana soccer academy in South Africa, created to cultivate emerging football talent and generate income through the profitable transfer of successful players. HMRC issued a discovery assessment, asserting the losses did not stem from a trade conducted on a commercial basis with a view to profit, and that the predominant purpose of the activity was to secure a tax advantage. Why did the appellant dispute the validity of the discovery assessment? The appellant’s central challenge was that there had been no ‘discovery’. At the point the assessment was raised, HMRC, he said, lacked reasonable grounds to believe Mr Anderson had been...

Sword Services Ltd and others v Revenue and Customs Commissioners What was this case about? The taxpayers brought a judicial review to contest payment notices ( PPNs) issued by HMRC to members (ie partners) of several film production partnerships, seeking to have those notices quashed. PPNs are a form of accelerated payment notice ( APN) given to partnership members. As with an APN, a PPN requires tax to be paid upfront while HMRC’s enquiries into the relevant arrangements are concluded. For more on the accelerated payments regime, see Practice Note: Accelerated payment notices. The taxpayers argued that the PPNs were unlawful on two bases: They were issued to members of a limited liability partnership ( LLP), but schedule 32 to the FA 2014 (the PPN legislation) does not, in the taxpayers’ view, authorise HMRC to issue PPNs to LLP members; it applies only to other forms of...