News & Insights

The latest tax developments and VAT round-up for the month.

Silverthrone tax digest covers the developments most likely to affect individuals, trusts, estates and businesses. If you would like to discuss anything here in more detail, please get in touch with your usual contact.

1. Private client

1.1 Self Assessment deadline: a record number filed on time

HMRC reports that more than 11.7 million taxpayers filed their 2021/22 returns by 31 January 2023, but around 600,000 missed the deadline.

Unlike the two previous years, HMRC did not offer a penalty waiver this time, so anyone who filed late faces an automatic £100 penalty, with further penalties if the return remains outstanding for three months or more. Any 2021/22 tax still unpaid also attracts interest from 1 February, and a 5% late payment penalty follows if it is still outstanding after 30 days. If you have not yet filed, or cannot pay in full, please contact us straight away so we can file and, where needed, help you set up a Time to Pay arrangement with HMRC.

1.2 HMRC late payment interest rises to 6%

Following December’s Bank of England base rate increase, HMRC’s late payment interest rate rose to 6% from 6 January 2023, while repayment interest rose to 2.5%.

Late payment interest is set at base rate plus 2.5%, so it now applies at its highest level for many years to overdue income tax, capital gains tax, inheritance tax and most other taxes. Interest runs daily and cannot be appealed, so the cost of paying late is rising quickly. If you expect a large liability, it may be worth making a payment on account early rather than letting interest build up.

1.3 Trust Registration Service: HMRC sets out its penalty approach

New HMRC guidance published in January confirms that penalties for failing to register or update a trust on the Trust Registration Service will generally be reserved for deliberate failures.

HMRC says it will not usually charge a penalty where a failure to register or keep a trust’s details up to date was not deliberate, provided the trustees put matters right within the time HMRC allows. Where non-compliance is deliberate, a penalty of up to £5,000 can apply. Since September 2022 many more trusts, including some non-taxable trusts, must be registered, so trustees should check that their trusts are on the register and that the details are current. We can review this for you.

2. PAYE and employment

2.1 IR35: Sky rugby commentator wins at the First-tier Tribunal

The First-tier Tribunal decided that former rugby international Stuart Barnes, working through his personal service company, would not have been Sky’s employee under a hypothetical direct contract.

Around £695,000 of income tax and NICs was at stake across six tax years. Although Sky had a degree of control and Mr Barnes had to provide his services personally, the tribunal gave decisive weight to the wider picture: a substantial income from newspaper writing and other media work, a long-standing personal brand, and Sky’s acceptance of his work for others. The case shows how fact-specific IR35 is. Please note that HMRC later appealed and the Upper Tribunal reversed this decision in 2024, so contractors and the businesses that engage them should not treat the January 2023 result as settled law.

S & L Barnes Ltd v HMRC [2023] UKFTT 42 (TC)

2.2 Gifts to former employees treated as earnings

The First-tier Tribunal held that gifts used to repay former employees’ share-purchase loans were taxable earnings, even though the payments were made years after their employment ended.

Two former employees had borrowed to buy shares that fell sharply in value after the financial crisis. When the business was sold in 2014, they received gifts of nearly £6 million in total to clear those loans. The tribunal found the payments flowed from an earlier understanding that protected them from loss on their employee shareholdings, so they were earnings from the old employment. Employers should remember that calling a payment a gift does not take it outside PAYE if it is linked to a person’s employment, past or present.

Gain Capital Ltd v HMRC [2023] UKFTT 61 (TC)

2.3 Gold bullion remuneration scheme fails

A scheme that rewarded two directors with gold bullion, linked to an employee benefit trust, was held to give rise to £300,000 of taxable earnings.

The directors received gold that was sold immediately, with the value credited to their loan accounts and later drawn as cash. The tribunal looked at the arrangement as a whole and concluded it was simply a reward for their work, so income tax was due, and it also refused the company a corporation tax deduction. A later appeal to the Upper Tribunal failed in 2024. Directors who are approached with contrived remuneration arrangements should take independent advice before signing up.

Wired Orthodontics Ltd and others v HMRC [2023] UKFTT 17 (TC)

3. Business tax

3.1 Consultation on a single R&D tax relief scheme

The government is consulting until 13 March 2023 on merging the SME and RDEC research and development schemes into one relief.

The proposed single scheme would be based on the existing RDEC model and could apply to expenditure incurred from 1 April 2024, although the rate itself is not part of the consultation. This comes on top of changes already due from April 2023, including new advance notification and additional information requirements for claims. Companies that claim R&D relief, particularly loss-making SMEs that rely on payable credits, should consider how a merged scheme might affect them, and we would be happy to help you respond.

3.2 New mandatory disclosure rules replace DAC6

Regulations made in January introduce the OECD’s mandatory disclosure rules in the UK from 28 March 2023, replacing the remaining EU-derived DAC6 reporting.

The new rules require certain cross-border arrangements that could undermine international tax reporting or hide who ultimately owns assets to be reported to HMRC. They are narrower than DAC6 and will mainly concern advisers and businesses involved in international structures. If your group has cross-border arrangements, we can help you check whether anything needs to be reported.

The International Tax Enforcement (Disclosable Arrangements) Regulations 2023 (SI 2023/38)

4. VAT and indirect taxes

4.1 New VAT penalties and interest from 1 January 2023

For VAT periods starting on or after 1 January 2023, the old default surcharge has been replaced by a points-based regime for late returns and a new system of late payment penalties and interest.

Each late return earns a point, and a £200 penalty arises once a business reaches its threshold (four points for quarterly filers). Late payment penalties start if VAT is still unpaid after 15 days, increase after 30 days and then accrue daily, while interest now runs from the due date and repayment supplement is replaced by repayment interest. HMRC has said it will not charge the first late payment penalty during the first year if the VAT is paid within 30 days, but interest still applies. Please let us know early if you might struggle to pay, as agreeing a Time to Pay arrangement in time can stop penalties building up.

4.2 No VAT recovery on acquisition and fundraising fees

The First-tier Tribunal refused input VAT recovery on advisory fees incurred on a share acquisition and fundraising, despite the companies being in the same VAT group.

The tribunal found that the costs were not linked closely enough to taxable supplies made by the group, so the VAT on them could not be reclaimed. The case is a reminder that holding companies and acquisition vehicles need to plan carefully, ideally before costs are incurred, if they want to recover VAT on transaction fees. We can review proposed deal structures and engagement terms with this in mind.

Ince Gordon Dadds LLP v HMRC [2023] UKFTT 44 (TC)

4.3 Option to tax: HMRC stops sending receipt letters

Revenue and Customs Brief 1 (2023) confirms that from 1 February 2023 HMRC will no longer issue letters acknowledging option to tax notifications.

Notifications sent by email will receive an automated reply showing the date of receipt, which should be kept as evidence, and HMRC will only confirm that an option exists in limited cases, for example where it is likely to be more than six years old. The responsibility for keeping proof that a property has been opted falls firmly on the owner. If you own or are buying commercial property, please make sure your option to tax records are complete and stored safely.

5. Key dates

The main deadlines and events for January to March 2023 are set out below.

6. And finally

6.1 A January birthday for income tax

Income tax first arrived in Britain in January 1799, when William Pitt the Younger needed to pay for the war with revolutionary France. Incomes below £60 a year were exempt, a graduated rate applied between £60 and £200, and anything above £200 was taxed at 10%. It was unpopular from the start and was presented as a temporary wartime measure.

More than two centuries later, January remains income tax’s busiest month, with millions of returns landing at HMRC in the final days before the 31 January deadline. Pitt might be surprised to see his temporary tax still going strong, though perhaps less surprised that so many people leave it to the last minute.