Introduction
So, 2023 has ground to a conclusion.
Like an expiring, wet and windy sunset clause.
But how was it for you tax fans?
Here’s my review of the tax year. Not THE tax year. The calendar year in tax.
Apes a-taxing?
Well, Kubrick’s titular masterpiece was a bold vision, charting the ascent of mankind from primitive apes (or out of work actors dressed as apes) to exploring the stars.
HMRC would like us to envision a future where tax is ‘made digital’ with real time tax payments.
Presumably, the grand plan being a kind of massive payroll company in the sky (contract given to favoured Government crony) deducting tax from most payments regardless of whether they are to employees / self employed / small companies. When coupled with a programmable central bank digital currency (CBDC) effectively restricting how funds can be used – we really are talking about a Treasury wet dream.
In reality, MTD is probably closer to them there apes banging bones together when it comes to MTD’s evolutionary journey.
2023: More Hal than Hector
HMRC has long since abandoned the be-bowler hatted Hector. Incidentally, it is rumoured that Jim Harra’s predecessor, Jon Thompson, only got the job cos he looked like the loveable cartoon city gent character.
However, HMRC and its approach to taxpayers now more resembles Hal 9000 from the Kubrick film.
Its poor performance has been well documented over the last year or two and it’s decision to close lines for taxpayers seems somewhat sadistic (though, surprise surprise ,lines for MPS were manned / womaned)
This seems likely to continue as long as HMRC continues to resemble a political organisation. It’s currently more focused on telling us how well it is doing – when the complete opposite is staring us, nay Barnsley-kissing us, in the face.
Even professional bodies, that have traditionally positioned themselves as ‘candid friends’ seem to have had enough.
End for the OTS
The Office for Tax Simplification (“OTS”) finally closed its doors this year having been one of only a few announcements to survive from the short-lived Trussonomic experiment.
Sadly, this leaves one less opportunity for Big 4 tax partners to seek absolution in retirement.
The OTS was born in 2010. Since that time, however, the tax system showed little sign of simplification. In fact, quite the opposite has occurred.
It was never going to be a success due to its backward facing remit of examining historic elements of the system with little to no input on new law.
Of course, this is like asking a handful of volunteers with fishing nets to clean a polluted river whilst, a few hundred metres upstream, a factory pumps tons of stinky new effluent into it.
Now HMRC has some kind of vague mandate for having ‘simplification at the heart’ of what they do.
I won’t be holding my breath.
10 year birthdays
We also celebrated 10 years of GAAR (another destination for the aforementioned retired tax partner).
We also marked 10 years of ATED. A pretty rubbish tax all in all.
Beneficial ownership registers… A high water mark?
As you will likely know, the UK has a public register of beneficial ownership of companies and overseas entities that hold interests in UK land.
This means that anyone with a bit too much time on their hands can search the registers to find out who the ultimate owners of these entities are.
Of course, the other view is that sunlight is the best disinfectant.
However, the legality of public access to beneficial ownership registers was challenged in the European Court of Justice (CJEU). In a judgment in November 2022, the CJEU ruled that general public access to registers of beneficial ownership of companies is invalid as it is a serious interference with the fundamental rights to privacy and protection of personal data.
So what has been the response?
The UK government has said that it will continue to permit unrestricted public access to the PSC register and the ROE.
However, it is possible that the UK could be forced to change its position if the CJEU’s judgment is upheld by the European Court of Human Rights (ECHR).
We have already seen some international jurisdictions using the ruling to either pause their direction of travel towards public access or, in some cases, to announce a reversal of such existing access.
I will watch these developments with interest in 2024 and beyond.
HMRC: “The UK: you’ll never leave”
Over 2024 and beyond, with HMRC under pressure to collect more and more tax from less obvious targets (for example, the marketed avoidance scheme cupboard is now bare) it will be looking at more ‘technical’ areas to do its fundraising.
One such area will be the likelihood that HMRC assumes a role operating as ‘border patrol’.
However, this won’t be to keep out small boats from getting to the UK and the like.
It will be trying to keep people’s fiscal activity IN the UK. For example, by ensuring the residence and domicile rules more tightly.
Indeed, there was evidence of this in some of the cases we saw in 2023.
Toodle-uma-luma-luma…
Umbrella businesses have been a thorn in the side of the government and HMRC for many years and have resulted in some unfortunate legislation over the years including
Wounded by the criticism it has faced over the years, HMRC has taken a more interventionist policy against umbrella companies.
This has included the recent powers given to it around name and shame and stop notices. Further criminal sanctions for those who do not comply with stop notices are also to be introduced.
In an article on the issue, I suggested a potential solution for government allowing HMRC to hold the keys to the kingdom. However, I suspect this will end up in the bin like the others!
How wude!
It seems like 2023 was the year that the Conservatives told us that they were going to scrap IHT…
… Over and over again.
But IHT prompts an odd reaction with people.
Most people like taxes paid by other people.
IHT is an exception.
Despite it being largely paid by others, the general population seems to hate it. Very odd.
So, I wrote an article called “Is IHT the JarJar Binks of the tax world” in response.
Obviously.
Worst avoidance scheme of all time… and the property chimera?
Back in September, we considered whether a property tax provider had undertaken the Worst avoidance scheme of all time….
However, a more reasonable view that it wasn’t tax avoidance at all.
However, the position was not helped by the adviser to the adviser’s inability to state a simple reason why it was not in the scope of DOTAS. Remarkable.
Almost immediately afterwards, a further property structure was also put under the microscope. A structure that seems unlikely to be a natural one for property investors was made far worse by some extremely bold claims around Business Property Relief (BPR) and Capital Gains Tax (“CGT”). I analysed the position in an article called property hybrid… or property chimera?
High profile tax avoidance defeat for HMRC: Part one – Fisher
As the grains of sand of 2023 slipped away, HMRC found itself on the wrong side of two high profile tax avoidance decisions.
General
Firstly, in the long running Fisher case, the Supreme Court rejected HMRC’s claims that the transfer of Assets Abroad rules applied to the establishment of one of the Stan James betting businesses in Gibraltar.
The Supreme Court broadly considered two issues:
Issue 1 – Defining the Transferor
The crux of this issue revolved around whether the provisions were exclusively applicable when the taxpayer directly executed the transfer of assets generating income.
The Fishers argued that case law supported a narrow interpretation, confining the charging provision solely to individuals directly effecting asset transfers.
In her delivery on behalf of the Supreme Court, Lady Rose conducted a comprehensive review of the existing case law (a usefule reference). Ultimately, she concurred with the taxpayers, affirming that the provisions targeted individuals residing in the UK who were directly involved in asset transfers.
Issue 2 – Shareholders’ Treatment in a Company Transfer
While the fact that the legal transferor was a Company was undisputed, HMRC argued that the Fishers, due to their controlling interest in SJA, should be considered as transferors.
Lady Rose rebutted this notion, asserting that shareholders, even if they concurrently serve as directors, cannot be deemed quasi-transferors procuring transfers made by the company.
She acknowledged potential legislative gaps but underscored separate provisions addressing non-transferors benefiting from such transactions.
A rebuke for HMRC
Moreover, she rebuked HMRC’s implication of deploying vague legalities as a means of intimidation, citing Vestey’s disapproval of such practices She dismissed HMRC’s argument, rejecting any notion of leveraging ambiguous legalities to instill fear among taxpayers, emphasising the need for clarity and constitutionality in enforcing provisions.
However, the fact that HMRC even advanced this as an argument is fairly chilling.
Another Hal move?
A high water mark?
Does this represent another high water mark?
This time in the highest court in the land’s approach to tax avoidance?
Time will tell.
High profile tax avoidance defeat for HMRC: Part two
For whom the bell Atholls
Secondly, HMRC were again defeated in the Kaye Adams IR35 case (Atholl Productions Limited v HMRC). Here, the case had been remitted back to the FTT by the Court of Appeal.
Aside from the legal issues, the case raised the issue of whether HMRC should be allowed to invest so much time and expense in taking a case with so little tax at stake. Indeed, as Adam’s said:
There is no jubilation for me in this result…Over the nine years of this investigation, the mental stress has been close to unbearable at times, and the legal costs I have incurred far outweigh the tax at stake”
Hal strikes again.
Hal v HMRC
One of the more bizarre cases was Harber v HMRC.
Here, Felicity Harber, an unrepresented taxpayer, lost her appeal at the First Tier Tribunal (FTT). However, this was after submitting nine fabricated tax rulings generated by Artificial Intelligence (AI) to support her case.
After the cases had failed to pass scrutiny, she somewhat optimistically argued that genuine cases supporting her position must exist!
The SNP are having a Laffer
Above, I pointed out that the OTS has been relatively ineffective when it came to simplifying the tax system.
However, they never went as far as the Scottish National Party (“SNP”) who appear to have gone out of their way to make Scotland as complicated as possible by introducing multiple new tax bands and rates.
Of course, the immediate point is whether this will discourage people from working and creating businesses in Scotland or, even worse, de-camping.
However, it perhaps represents an experiment that Arthur Laffer would be interested in seeing.
Yes, he of cocktail napkins and curve doodling fame.
Back in the mini-budget of 2022, the following was published:
“Despite the reduction in the additional rate from 50% to 45% in April 2013, the share of total Income Tax liabilities accounted for by the top 1% of taxpayers by income rose from 25.1% (£39bn of £157bn total) in 2012-13 to 28.3% (£71bn of £251bn total) in 2022-23.
This had echoes of George Osborne who said the following, back in March 2016:
“Figures published this morning by HMRC contain, for the first time, the income tax data for 2013-14, which was when the 50p rate was reduced to 45p…The data reveal that in that year there was an £8 billion increase in revenues from additional-rate taxpayers, which completely defies the predictions made by the Labour party at the time”.
Of course, Mr Osborne was talking about the reduction in the 50% tax rate to 45% in April 2013.
We are told that the total amount of tax collected from additional rate taxpayers rose from £38 billion (2012/13), to £46 billion (2013/14). This represented a rise of £8 billion despite the 5% reduction in tax rate.
But not so fast.
There is a problem with this conclusion. It did not take account of how this temporary raise in the tax rate changed behaviour including:
- Where possible (eg where a taxpayer could control / influence, say, dividends), payments of income were accelerated to take account of the rise to 50% – meaning the receipts for 2012/13 were artificially low; and
- Where possible, payments of income were also deferred until 2013/14 and the reduced 45% – meaning that 2013/14 receipts were artificially high
The Government continues to repeat this error. It does not take into account the distortion in the figures due to behavioural changes.
Will we perhaps see the reverse with the new proposals in Scotland? Or something different?
Laffer would be salivating at the prospect.
2023: A tax odyssey: Conclusion
Let’s leave the last words to Shakira (pursued by Spanish Hal) who finally settled her long running charges with the Spanish authority:
“You’re a good soldier, choosing your battles Pick yourself up and dust yourself off, get back in the saddle”
So all those customers taxpayers battle-worn by HMRC, or advisers similarly wearied, dust yourself off and get back on the horse.
You get to do it all again in 2024.
If you have any queries or comments about this article, then please get in touch.