November 2021 Tax Update

Key Points

This month we’re looking at:

As always, if you would like to discuss any of the items raised in this newsletter, or if you have any other tax concerns, please do not hesitate to contact us.

Crypto Assets

It’s been reported that HMRC are intending to send nudge letters to crypto currency investors. The letter will be sent later this month to encourage taxpayers to check they have declared and paid the correct amount of tax on their crypto asset holdings.

HMRC has been producing guidance on the taxation of crypto assets for a number of years, but its most substantial guidance was only published earlier this year with its stated aim to be helping people understand the tax implications that can arise from these transactions.

HMRC does not consider crypto assets to be money or currency but has stated that tax is payable on any profit received from their disposal i.e. when they are sold, exchanged, used to buy goods or services. The tax treatment is broadly based on whether the taxpayer is undertaking activities which could be considered trading, or if they are simply holding the assets as passive investments.

It should be noted that HMRC’s manual is only guidance and there is not yet specific legislation on crypto asset taxation.

Global Tax Agreement

More countries have agreed to sign a multilateral convention next year that will see the implementation of a global corporation tax minimum of 15%. The total number of countries who have joined the agreement is 136 and includes all OECD and G20 countries.

Under Pillar One, the most profitable multinationals will be required to pay tax in the countries in which they operate and not just where they have a permanent establishment. Under Pillar Two, the agreement is to implement a 15% global minimum corporation tax, aiming to become effective from 2023.

One of the recent countries to sign the agreement is Ireland who had previously been reticent to increase their corporation tax rate from 12.5%, although last month the Cabinet agreed a 15% tax rate for companies with turnover in excess of €750m.

Self-Supply for VAT

Following a recent ruling at the Supreme Court, HMRC have clarified the meaning of ‘entire interest’ for the purposes of the self-supply charge for VAT.

The rules apply where a business uses its own goods or services for private purposes. This could be where goods are taken from stock or where equipment is used by an employee for non-business purposes. Where this occurs, the business is treated as making a taxable supply and must account for VAT at the appropriate rate.

The rules may also apply to the disposal of a property where, within 10 years of purchase/construction, there has been a disposal of the entire interest, or a change in the usage, of a property used for relevant residential or relevant charitable purposes.

In Balhousie, the property in question had been sold by Balhousie and leased back, there was no interruption to the business services of the care home. The supreme court found that because Balhousie had continually retained an interest in the property, either as owner or lessee, that they had never disposed of the property.

Umbrella Companies and Tax Avoidance

HMRC has updated its guidance on the use of umbrella companies to highlight that business choosing to operate through them for the provision if short-term labour provision may be caught by the ‘enablers of tax avoidance’ legislation.

The legislation would apply where the umbrella company is operating a scheme that purports to save tax by paying a reduced salary to employees and topping up their income by making loans, salary advances, or providing credit facilities. Those loans are structured in a way which means they would not have to be paid back.

There has been extensive legislation enacted to deter taxpayers from entering such schemes, most notably the Loan Charge which treated outstanding loans as employment income on 5 April 2019. These schemes are still being should and HMRC have sought to clamp down on the enablers of tax avoidance which punitive penalties, publishing of personal details, and even imprisonment.

The update to the guidance on use of umbrella companies by stating that ‘if you enter into a contract with and make payments to an umbrella company operating an abusive tax avoidance scheme, you may have enabled the use of that arrangement.’

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