Cyclops Electronics Limited & Graceland Fixing Limited v HMRC [2016] UKFTT 0487 (TC)

This case concerns the tax treatment of issuing third party loan notes to company directors in return for their services.  Justice Richards noted that there are several hundred similar cases awaiting appeal, indicating this is part of a wider HMRC project.

HMRC vs DV3 RS Limited Partnership [2013] EWCA Civ 907

This Court of Appeal case heard in 2013 is a key Stamp Duty Land Tax (SDLT) case addressing a particular method of SDLT tax planning attempted in the 2000s.

The Purchase

On 24 October 2006 DV3 Regent Street Ltd ('the company') purchased a property on Regent St for £65m, agreeing to settle on 5 December 2006.

Prior to settlement of that sale, the company agreed to sell the same property, at the same price and on the same date to the DV3 RS Limited Partnership ('the partnership').

The Legislation

SDLT is charged on the acquisition of 'chargable interests', as per s.43(1) of the Finance Act 2003.  A chargable interest is defined as any estate, interest, right or power in or over land in the United Kingdom (s.48(1)).

HMRC v Leekes Limited [2016] UKUT 320 (TCC)

This case concerns tax losses acquired by Leekes Limited in an acquisition made in 2009 of a competitor.

Leekes Limited carried on a retail trade through four stores located in England and Wales.  In 2009 it acquired a struggling competitor in England for £1, taking on its four loss making stores.  The acquired enterprise had accumulated tax losses of £3m which Leekes believed would be claimable in future income years under s.45(4)(a) of the Corporation Tax Act 2010:

"The unrelieved loss is carried forward to subsequent accounting periods (so long as the company continues to carry on the trade."

Leekes was of the view that it carried on the same trade as the acquired firm, thus, the tax losses it acquired could be offset against total group profits in the following year.

Wellstead v HMRC [2016] UKFTT 0492 (TC)

Prior to 2011 industrial building allowances (IBAs) provided a 100% immediate tax deduction of construction costs incurred developing industrial buildings inside qualifying 'enterprise zones'¹.  While IBAs have since been abolished ², litigation relating to IBA claims made in earlier income years is still filtering its way through the ever prudent judicial system.

This case concerns Mr Wellstead who acquired a 122 year sublease in an industrial property from Hillford Construction Limited (HCL) in the 2004 income year.  The 122 year sublease was a revisionary lease that lasted until 5 days before the end of HCLs lease, meaning that possession would fall back to HCL for just five days before the original lease in question actually ended.

ING Intermediate Holdings Ltd v HMRC [2016] UKUT 298 (TCC)

ING Intermediate Holdings Pty Ltd are an associate of ING Direct (ING) - a company that operated a term deposit service in the UK during the 2000s.  The two companies were part of the same VAT group meaning that input tax arising from purchases within the group which were attributable to taxable supplies or specified supplies were refundable from the HMRC.  This case concerns the economic activities of ING Direct, whose business model was made up of the following:

1. Receiving money from depositors (their customers).
2. Investing that money in government bonds.
3. Returning the interest to their creditors at a lower rate.  This interest rate spread covered INGs expenses and profit margin.

Telefonica Europe PLC v HMRC [2016] UKUT 173 (TCC)

Telefonica Europe PLC (trading as O2) issues a monthly 'network access charge' to EU customers in exchange for access to its network globally.  This case concerns 'pay as you go' (PAYG) customers of O2 who are not subscribed to an ongoing contract.  The customers on a PAYG arrangement pay a monthly fee which can be broken down into two parts:

1. A call bundle charge for an agreed number of calls.
2. A network access charge.

In addition to providing basic access to O2s EU network, the 'network access charge' allows O2 customers access to telephone networks in non-EU countries without extra charge.  However, any calls made on that international network will be charged for at additional 'roaming' rates.

Airtours Holidays Transport Limited v HMRC [2016] UKSC 21

Airtours are a large UK based company that provide travel agent services on the internet.  The company suffered financial difficulties in the year 2002 which caused concerns for some of their 80 creditors in the lending sector.  Airtours engaged PwC to independently audit their financial statements on behalf of their creditors, a service which Airtours paid upwards of £200,000 for.

The question arising in this appeal to the Supreme Court is whether or not Airtours were entitled to claim input tax credits for the transaction (which would be deducted from their VAT bill).

Hammonds of Knutsford PLC v HMRC [2016] UKUT 195 (TCC)

Hammonds of Knutsford PLC ('HOK') is a UK based distributor of spirits throughout Europe.

Excise duty is payable on the production or importation of alcoholic beverages.  Presumably most inventory of HOK has been charged with excise duty either at the production or importation stage.

Article 7 of EU council directive 2008/118 provides that importing alcoholic products into any EU member state will give rise to excise duty in that importing state.  Excise duty is payable by the exporter rather than the consumer.¹  Thus if HOK distributes 100 bottles of wine to a German restaurant owner excise becomes payable in Germany by HOK.  In that scenario it would become apparent that excise has occurred at two stages in the supply chain:

• Firstly, on the invoice from HOKs supplier to itself, and;
• Secondly, on the invoice from HOK to its German customer.

There are 'drawback' provisions in article 33 of the EU council directive which allow for exporters like HOK to claim back excise duty on exported items provided that excise duty has been fully paid in the destination country.  This measure is aimed at eliminating double taxation.

Tottenham Hotspur Limited v HMRC [2016] UKFTT 389 (TC)

Football fans will remember the August 2011 transfer window in which Tottenham Hotspur transferred Peter Crouch and Wilson Palacios to Stoke City for a reported transfer fee of £15m.  At the time Tottenham were desperate to lower their wage bill and thus paid a 'sweetening' termination payment to each player as an encouragement for them to accept any offer made by Stoke for their services.

Payments stemming from the cessation of employment are made taxable by s.9 of the Income Tax (Earnings and Pensions) Act 2003.  There are two categories of payments relevant to the present case being:

• Income in relation to 'employment' (s.62).  For example an employer exercising a pre-existing contract clause to terminate the agreement.  This is made in accordance with an employment agreement and thus is income in relation to 'employment'.
• Income in relation to 'termination of employment' (s.401).  Such as what occurs when an employer breaches a contract and the employment is terminated by way of a final payout for damages to the employee.  In this case the employment contact is deemed to be terminated by 'mutual agreement' between the parties.

As both types of payments are taxable, whether or not tax is chargeable under s.63 or s.401 makes negligible difference to the total tax outcome for each player in the present case (and thus how much Tottenham would be required to withhold as PAYE tax to the HMRC).  However, when withholding tax for the National Insurance (NI) scheme (13.8% of income) there is a material difference between the two categories of payments which is apparent when considering the definition of 'earnings' in s.3(1)(a) of the Social Security Contributions and Benefits Act 1992: