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 New tax year brings smaller allowances

From 6 April 2023 the dividend allowance, the capital gains tax annual exempt amount and the additional rate threshold have all been cut.

The tax-free dividend allowance has halved from £2,000 to £1,000, and the capital gains tax annual exempt amount has fallen from £12,300 to £6,000 for individuals (and to £3,000 for most trusts). The 45% additional rate now starts at £125,140 rather than £150,000, while the personal allowance and basic rate band remain frozen. Shareholders in family companies and anyone with investments held outside ISAs and pensions should review dividend timing, use of spouse or civil partner allowances and when gains are realised.

1.2 Pension limits raised and lifetime allowance charge removed

The pension changes announced in the Spring Budget took effect on 6 April 2023.

The annual allowance has risen from £40,000 to £60,000, the money purchase annual allowance has risen from £4,000 to £10,000, and the lifetime allowance charge no longer applies, ahead of the government’s plan to abolish the allowance altogether from April 2024. The minimum tapered annual allowance has also increased to £10,000. Higher earners and those who had stopped contributing because of the lifetime allowance may wish to revisit their pension funding, ideally alongside their financial adviser.

1.3 HMRC must prove carelessness to reach back further

The Upper Tribunal discharged discovery assessments on a consultant because HMRC had not properly shown careless or deliberate behaviour.

Dr Danapal, an NHS consultant with a private clinic, faced assessments going back several years that were only in time if his inaccuracies were careless or deliberate. The Upper Tribunal found the lower tribunal had given inadequate reasons for finding his accountants careless, had found dishonesty without it being properly put to anyone, and had wrongly expected the taxpayer to disprove deliberate behaviour. The case is a useful reminder that the burden sits with HMRC when it relies on the extended time limits, so older assessments should always be checked for timing before the figures are argued.

Ramasamy Danapal v HMRC [2023] UKUT 00086 (TCC)

1.4 Reasonable excuse defeats older child benefit charge assessments

A parent who claimed child benefit while below the income threshold had a reasonable excuse for not later notifying the high income child benefit charge.

Mr Hextall’s income rose above £50,000 after the family began claiming, and HMRC did not contact him until a letter in 2019. The tribunal accepted that he had a reasonable excuse for 2015-16 and 2016-17, so assessments for those years were out of time, but the 2017-18 assessment was within the normal four-year limit and stood. Anyone receiving child benefit whose household income has increased should check whether the charge applies and tell HMRC promptly.

Toby Hextall v HMRC [2023] UKFTT 390 (TC)

2. PAYE and employment

2.1 National Living Wage rises to £10.42

The statutory minimum hourly rate for workers aged 23 and over increased to £10.42 from 1 April 2023.

The National Minimum Wage rates for younger workers and apprentices also increased from the same date. Employers should make sure payroll reflects the new rates from the first pay reference period starting on or after 1 April, and remember that deductions for uniforms, equipment or accommodation can push pay below the minimum. HMRC enforces these rules actively and underpayments must be repaid at current rates, with penalties on top.

2.2 Subsistence payments under a dispensation upheld

An employer successfully defended its benchmark-rate subsistence payments against HMRC’s claim that they were taxable round sums.

NWM Solutions paid employees HMRC’s benchmark subsistence rates under a dispensation, and HMRC argued the payments were round sum allowances because receipts were not routinely checked. The tribunal disagreed, finding that signed claims and the company’s other checks matched payments to real expenses and that an unrevoked dispensation took the payments out of charge. Dispensations were replaced in 2016 by a statutory exemption, but employers using scale rates still need a sound checking system, and this case shows HMRC cannot insist on more than the rules require.

NWM Solutions Ltd v HMRC [2023] UKFTT 364 (TC)

2.3 Social media posts were work while on furlough

A furloughed director’s Facebook activity for her company meant the furlough grant had to be repaid.

Glo-Ball Group ran children’s parties and classes and relied heavily on social media for bookings. During lockdown a furloughed director continued posting about the business, including promoting online events and surveying customers, and the tribunal held that activity aimed at generating income or goodwill for the employer counted as work. HMRC continues to review furlough claims, so employers should keep records showing that furloughed staff genuinely stopped working and should consider correcting any claims they are unsure about.

Glo-Ball Group Ltd v HMRC [2023] UKFTT 435 (TC)

3. Business tax

3.1 Corporation tax main rate rises to 25%

From 1 April 2023 companies with profits over £250,000 pay corporation tax at 25%, with a 19% small profits rate and marginal relief in between.

Companies with profits of £50,000 or less continue to pay 19%, while those between £50,000 and £250,000 pay an effective rate between the two. Both limits are reduced where there are associated companies and for short accounting periods, and periods straddling 1 April 2023 are split between the old and new rates. The annual investment allowance has also been set permanently at £1 million. Owner-managers should revisit profit extraction, group structures and the timing of expenditure in light of the new rates.

3.2 Full expensing replaces the super-deduction

Companies can claim full expensing on qualifying new plant and machinery bought from 1 April 2023 to 31 March 2026.

Announced in the Spring Budget, full expensing gives a 100% first-year allowance for new main pool plant and machinery, with a 50% first-year allowance for special rate assets such as integral features. It is available only to companies, and second-hand assets and cars do not qualify. Because a disposal of an asset on which full expensing was claimed creates a balancing charge, companies should keep good asset records from the outset.

3.3 Research and development relief changes take effect

New R&D rates and claim procedures apply to expenditure and accounting periods from 1 April 2023.

For expenditure from 1 April 2023, the SME additional deduction falls from 130% to 86% and the payable credit rate for loss-makers from 14.5% to 10%, while the large company RDEC rate rises from 13% to 20%. A higher credit rate is available for loss-making SMEs that are R&D intensive. New claim notification and additional information requirements also apply, so companies that have not claimed recently may need to tell HMRC in advance that they intend to claim. Please speak to us early about any planned claim so that no deadline is missed.

3.4 Information notice to suspected enabler upheld

The First-tier Tribunal upheld an HMRC information notice issued to a company suspected of enabling remuneration trust arrangements.

HMRC was investigating whether Asset House Piccadilly might be liable to a penalty for enabling abusive tax arrangements involving remuneration trusts. The tribunal found HMRC had reasonable grounds for suspicion and that the information was reasonably required, and it rejected arguments based on abuse of process and the right to a fair trial. Businesses that promote, design or facilitate tax arrangements for others should be aware that HMRC is using its enabler powers, and anyone offered a remuneration trust or similar scheme should take independent advice.

Asset House Piccadilly Ltd v HMRC [2023] UKFTT 385 (TC)

4. VAT and indirect taxes

4.1 Old VAT online returns closed to all businesses

HMRC confirmed that from 15 May 2023 all VAT returns must be filed through Making Tax Digital compatible software.

Annual accounting scheme users, who were the last group able to use the VAT online account, must now also file through software, and HMRC has said penalties may apply for returns not filed this way. Businesses that are digitally excluded, for example because of age, disability or location, can apply for an exemption. If you still file your own VAT returns, please check that your software is connected to HMRC well before your next deadline.

4.2 Agricultural show qualified as a charity fundraising event

Admission fees to the Great Yorkshire Show were exempt from VAT under the charity fundraising events exemption.

HMRC argued the show was a commercial and educational event rather than a fundraiser. The tribunal held that fundraising need only be one of the main purposes, not the single foremost one, and that the show’s own publicity made the fundraising purpose clear; it also found HMRC’s assessment was out of time. Charities running events should make sure their fundraising purpose is stated openly in promotional material and keep records showing how the event fits the exemption.

Yorkshire Agricultural Society v HMRC [2023] UKFTT 389 (TC)

4.3 Football agent’s fee was for services to the club

A UK agent’s fee from an Italian club for a player transfer was outside the scope of UK VAT.

HMRC said much of the €4 million fee was really paid for services to the player and so was subject to UK VAT. The tribunal looked closely at the contracts and the work actually done and concluded the services were supplied to the club, a business customer in Italy, so the place of supply was Italy. Where a business is paid by one party for work that benefits another, the contracts should clearly identify who the customer is, as this decides where and whether VAT is due.

Sports Invest UK Ltd v HMRC [2023] UKFTT 376 (TC)

4.4 Flawed option to tax treated as valid

A property company could not escape VAT on a sale by arguing that its own option to tax had never been valid.

Rolldeen Estates had opted to tax a property in 2008 without first getting HMRC’s permission, which was needed because it had already made exempt lettings. After selling the property without charging VAT, it argued the option was invalid, but HMRC used its power to treat the option as validly made and the tribunal found there was no right of appeal against that decision. Property owners should keep copies of option to tax notifications and any permissions, and take advice before any sale where the VAT position is uncertain.

Rolldeen Estates Ltd v HMRC [2023] UKFTT 359 (TC)

5. Key dates

The main tax deadlines and changes for April to June 2023 are set out below.

6. And finally

6.1 Why the tax year ends on 5 April

The tax year once began on 25 March, Lady Day, a traditional quarter day. When Britain moved from the Julian to the Gregorian calendar in 1752, eleven days were dropped from September, and the Treasury shifted its year by the same eleven days, to start on 5 April, so that a full year’s tax could still be collected. A further day was added in 1800, a year that would have been a leap year under the old calendar but was not under the new one, giving us the 5 April year end still used for income tax today.

So when the allowance cuts in this month’s update took effect on 6 April, they were following a calendar quirk that is more than 250 years old. Companies, by contrast, have worked on a 1 April financial year for corporation tax, which is why the new 25% rate started a few days earlier.