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 Spring Budget transforms pension saving limits

The Spring Budget on 15 March 2023 raised the main pension allowances and removed the lifetime allowance charge from 6 April 2023.

From 6 April 2023 the annual allowance rises from £40,000 to £60,000, the money purchase annual allowance rises from £4,000 to £10,000, and the tapered annual allowance now starts at adjusted income of £260,000 with a minimum allowance of £10,000. The lifetime allowance charge no longer applies from 2023/24, with the allowance itself due to be abolished from April 2024, although the tax-free lump sum is capped at £268,275 for most people. Anyone who had stopped contributing to protect against the lifetime allowance, or who is weighing up early retirement, should review their position with us before making changes.

1.2 More time to fill gaps in your National Insurance record

The deadline for paying voluntary National Insurance contributions to cover gaps back to April 2006 was extended from 5 April to 31 July 2023.

Following a surge in demand, the Government confirmed in March that people can make up missing years from 2006/07 onwards until 31 July 2023, and that payments in this window will be charged at the 2022/23 voluntary contribution rates. After that date the normal six-year limit applies again. Before paying, it is sensible to obtain a State Pension forecast to confirm that the extra years will actually increase your pension.

1.3 Returns filed by a fraudulent agent were not valid returns

The First-tier Tribunal set aside discovery assessments where a rogue agent had filed returns claiming EIS relief without the taxpayer’s knowledge.

Mr Robson approached a firm he believed would make a legitimate rebate claim and gave it his agent authorisation code; it then submitted returns containing false EIS claims and kept most of the repayment. The tribunal decided the firm had no authority to file on his behalf, so the documents were not his returns and HMRC could not raise discovery assessments on them; it also found that he had not been careless. The case is a reminder never to share HMRC codes or log-in details with anyone you have not properly checked, and to be wary of unsolicited offers of tax refunds.

Robson v HMRC [2023] UKFTT 226 (TC)

1.4 A house in need of renovation was still a dwelling for SDLT

The First-tier Tribunal held that a recently occupied house needing substantial repairs was still suitable for use as a dwelling, so residential SDLT rates applied.

The buyers argued that the property’s poor condition meant it should be taxed at the lower non-residential rates. The tribunal disagreed, finding that the works needed were ordinary repair and renovation rather than anything that took the building out of residential use. Buyers of run-down homes should not assume that disrepair alone will reduce SDLT, and should take advice before filing a return or making a refund claim on that basis.

Mudan v HMRC [2023] UKFTT 317 (TC)

2. PAYE and employment

2.1 IR35 did not apply to services provided through a partnership

The First-tier Tribunal rejected HMRC’s attempt to apply the IR35 rules to presenting work Gary Lineker supplied through a partnership with Danielle Bux.

HMRC had sought around £4.9 million in income tax and National Insurance on the basis that the partnership was an intermediary. The tribunal found that, because Mr Lineker signed the BBC and BT Sport contracts himself as a partner, he contracted directly with those clients, so the conditions for the intermediaries legislation were not met. The decision turns on its own facts and the structure of the contracts, so anyone working through a partnership or personal service company should still review their arrangements with us.

Lineker & Bux t/a Gary Lineker Media v HMRC [2023] UKFTT 340 (TC)

2.2 Official rate of interest rises to 2.25%

HMRC confirmed that the official rate of interest for beneficial loans will increase from 2% to 2.25% from 6 April 2023.

The official rate is used to work out the taxable benefit on cheap or interest-free loans to employees and directors, including overdrawn director’s loan accounts. The increase will raise the benefit in kind charge and the employer’s Class 1A National Insurance on such loans for 2023/24. Directors with loan balances may wish to consider repaying them or paying interest at the official rate.

2.3 Register before 6 April to payroll benefits in 2023/24

Employers wishing to tax benefits in kind through payroll for 2023/24 had to register with HMRC before the new tax year began.

Payrolling benefits removes the need to report those benefits on forms P11D, although a P11D(b) is still required for Class 1A National Insurance. Registration must be in place before the start of the tax year to which it applies, so employers that missed the window will need to report on P11Ds for 2023/24 and can register for the following year instead.

3. Business tax

3.1 Full expensing replaces the super-deduction

The Spring Budget introduced full expensing for companies on new plant and machinery bought from 1 April 2023 to 31 March 2026.

Companies can deduct 100% of qualifying spending on new and unused main rate plant and machinery in the year of purchase, with a 50% first-year allowance for special rate assets such as integral features. Cars and second-hand assets are excluded, and the relief is not available to sole traders or partnerships. The £1 million annual investment allowance has also been made permanent, so most smaller businesses already get full relief for their equipment spending; larger investors should plan the timing of purchases with these rules in mind.

3.2 Corporation tax rises and R&D relief changes from 1 April

The main rate of corporation tax increases to 25% from 1 April 2023, and the R&D reliefs change on the same date.

Companies with profits up to £50,000 continue to pay 19%, those above £250,000 pay 25%, and marginal relief applies in between, with the limits shared between associated companies. For R&D, the SME enhanced deduction falls from 130% to 86% and the payable credit from 14.5% to 10%, while the RDEC rate rises to 20%; the Budget added a higher 14.5% credit for loss-making SMEs whose qualifying R&D spending is at least 40% of total expenditure. Groups should check how many associated companies they have, and R&D claimants should review the new rules before their next claim.

3.3 LLP profit deferral arrangement taxed as income

The Upper Tribunal upheld a decision that sums released to individual LLP members from capital held by a corporate member were taxable as miscellaneous income.

Profits were allocated to a corporate member and later made available to the individual members under a deferral plan. The tribunal accepted that the plan had a genuine commercial purpose but agreed the amounts the individuals received were income in nature and so liable to income tax. Partnerships with corporate members should keep in mind that HMRC is actively challenging arrangements that route profits to individuals through a company.

HFFX LLP and others v HMRC [2023] UKUT 73 (TCC)

4. VAT and indirect taxes

4.1 Leaving a VAT group did not shelter later fees

The Upper Tribunal held that VAT was due on performance fees invoiced after the supplier had left the customer’s VAT group, even though the work began while both were members.

An investment manager earned performance fees from Prudential which it invoiced several years after leaving the group. The tribunal decided that the time of supply rules come first: the services were treated as supplied when the fees were invoiced, and by then the two companies were no longer grouped. Businesses joining or leaving a VAT group should look carefully at continuing contracts and deferred fees.

HMRC v The Prudential Assurance Company Ltd [2023] UKUT 54 (TCC)

4.2 Recklessness is not the same as a deliberate error

The Upper Tribunal reduced VAT penalties from deliberate to careless where the lower tribunal had treated recklessness as deliberate behaviour.

A dealer zero-rated sales of commercial vehicles to Irish customers without enough evidence that the vehicles had left the UK. The Upper Tribunal held that a deliberate inaccuracy requires the taxpayer to know the return is wrong, and recklessness falls short of that, so the lower careless penalty band applied. Keeping proper export evidence remains essential, but the decision is helpful when challenging HMRC’s choice of penalty behaviour.

CPR Commercials Ltd v HMRC [2023] UKUT 61 (TCC)

4.3 Council leisure services can be treated as non-business

Revenue and Customs Brief 3 (2023), published on 3 March, allows local authorities to treat in-house leisure services supplied to the public as non-business for VAT.

The change follows the Chelmsford City Council litigation, and HMRC accepts that non-business treatment will not significantly distort competition. Councils that have accounted for output VAT on these services may claim it back, but related sales such as catering, car parking and retail items are unaffected, and private leisure operators are not covered.

4.4 Fuel and alcohol duty measures in the Budget

The Spring Budget kept the 5p cut in fuel duty for a further 12 months and made draught relief more generous under the new alcohol duty system from 1 August 2023.

Fuel duty rates are frozen for another year from 23 March 2023. Under the reformed alcohol duty regime starting on 1 August, draught relief rises to 9.2% for beer and cider and 23% for other qualifying draught products such as wine and spirit-based drinks, which benefits pubs and other on-trade businesses. Hospitality clients should check how the new duty bands affect their pricing.

5. Key dates

These are the main tax deadlines and changes from March to May 2023.

6. And finally

6.1 Why the tax year ends on 5 April

The odd date of the UK tax year goes back to the calendar. The year used to start on Lady Day, 25 March, and when Britain adopted the Gregorian calendar in 1752 eleven days were dropped, so the Treasury moved the end of the tax year to 4 April to avoid losing revenue. When 1800 was not treated as a leap year under the new calendar, the year end shifted by another day, which is why the tax year has run from 6 April to 5 April ever since.

With a Spring Budget in mid-March, a new corporation tax rate on 1 April and the usual scramble to use allowances before 5 April, it is fitting that March is the month in which an eighteenth-century calendar reform still shapes so many of our clients’ deadlines.