Corporation tax

Taxpayers’ appeal on partnership and intangible fixed assets dismissed

The Upper Tribunal has dismissed the taxpayers’ appeal in the case of Muller UK & Ireland Group LLP and others. In 2013, three UK-resident companies incorporated a limited liability partnership (LLP) and transferred their trades and certain assets to it. HMRC disputed whether intangible assets and goodwill transferred to the LLP should, as the taxpayers contended, be treated as falling within the intangible fixed assets regime of Part 8, Corporation Tax Act 2009 for the purposes of calculating the taxable profits attributable to each member of the LLP. This required consideration of the general rules for calculating the taxable profits arising to corporate partners from a trade carried on by a partnership – which requires computation of the profits as if a notional company were carrying on the same trade – and how the notional company concept interacted with Part 8 and in particular its rules on assets acquired from related parties.

The Upper Tribunal (UT) agreed with the 2023 decision of the First-tier Tribunal (FTT), holding that the absence of specific words treating the notional company as having the ownership attributes of the relevant partnership did not mean that the key related party provisions in the intangible fixed asset rules were incapable of applying. The UT agreed that, in order to calculate taxable profits, it was necessary to attribute the partnership’s ownership characteristics to the ownership of the notional company. Applied to the facts in this case, this meant each corporate member was to be considered a ‘related party’ of the notional companies, and accordingly, the assets transferred remained outside of the scope of Part 8.

Amendments to Part 8 were made by Finance Act 2016 to clarify the rules in relation to transfers involving partnerships. As at the FTT, the UT also considered and dismissed separate taxpayer arguments that these amendments were either ineffectively drafted and/or did not affect debits arising in respect of assets transferred prior to the effective date of the change in the law.

Muller UK & Ireland Group LLP and others v HMRC

From the Business Tax Briefing dated 13 September 2024, published by Deloitte

Employment taxes

Supreme Court remits referee employment status case back to FTT

On 16 September 2024, the Supreme Court released its judgment in the case of Professional Game Match Officials Limited concerning the question of whether certain football referees were employees of the professional body that arranges referees for significant national football games. This would determine how fees paid to them should be treated for income tax and national insurance purposes. 

The Supreme Court held that the contracts in question contained a sufficient degree of ‘mutuality’ and ‘control’ and were thus not incompatible with being employment contracts. However, the Court did not come to a final conclusion on the status of the referees, and instead held that the third stage of the employment status test (‘overall evaluation of employment status’) was best considered by the First-tier Tribunal, with that evaluation to include a qualitative assessment of both ‘mutuality’ and ‘control’, as well as all other relevant matters.

HMRC v Professional Game Match Officials Ltd [2024] UKSC 29

From the Business Tax Briefing dated 20 September 2024, published by Deloitte

International taxes

CJEU allows appeal in UK CFC State aid case

The Court of Justice of the European Union (CJEU) has found in favour of the United Kingdom and taxpayer appellants, in the Controlled Foreign Company (CFC) State aid litigation. 

In a hearing in January 2024, the UK government, ITV plc, and two members of the London Stock Exchange group argued that the Court of Justice should set aside the EU General Court’s judgment of 2022, and annul the European Commission’s original decision of 2019, that held that the exemption for certain financing income within Chapter 9 of the UK’s CFC rules, as it stood between 2013 and 2018, resulted in selective tax advantages contrary to EU State aid rules. 

The CJEU considers that the General Court and the Commission both erred in law when concluding that the UK’s CFC rules were the correct reference framework for examining whether Chapter 9 granted a selective advantage. The CJEU instead considers that the UK’s CFC rules formed an integral part of the general corporation tax system of the UK. As a result of this error, the CJEU agreed with the April 2024 recommendations of CJEU Advocate General (AG) Laila Medina, and has set aside the General Court’s judgment and annulled the Commission’s State aid decision.

Controlled Foreign Company (CFC) State aid litigation ECLI:EU:C:2024:763

From the Business Tax Briefing dated 20 September 2024, published by Deloitte

VAT

VAT and prompt payment discounts

Between 1 January and 30 April 2014, TalkTalk Telecom Ltd offered its retail customers a 15% speedy payment discount (SPD) if their monthly bills were paid within 24 hours of receiving them. TalkTalk considered that under the VAT legislation for prompt payment discounts in place at the time, it should account for VAT on the basis that the consideration was reduced by the amount of the SPD, irrespective of whether it was taken up. The First-tier Tribunal (FTT) disagreed with TalkTalk’s interpretation, and the Upper Tribunal (UT) has now upheld the FTT’s decision. 

The provisions of the VAT legislation at the relevant time provided that where the terms of a supply allowed a discount for prompt payment, the consideration for the supply was reduced by the amount of the discount, whether or not payment was made on those terms. The UT found that there was no change to the terms and conditions of TalkTalk’s services (both those billed in advance and those billed in arrears); “they remained the same unless and until the SPD offer was accepted by the customer making the payment in accordance with the offer. For those customers who did not accept the offer of the SPD, the Ts&Cs did not change.” This meant that the supplies of services to customers that did not take up the SPD (the majority) were not supplied on terms allowing a discount for prompt payment. TalkTalk was therefore required to account for VAT on the full amount received from customers who did not accept the SPD offer. 

TalkTalk Telecom Limited v HMRC [2024] UKUT 284 (TCC)

From the Weekly VAT News dated 23 September 2024, published by Deloitte

VAT grouping

An application to include Barclays Services Corporation (BSC), a US entity with a UK branch, into an existing Barclays VAT group was rejected by HMRC on two grounds: BSC was not eligible to be treated as a member of the VAT group because it was not established, nor did it have a fixed establishment, in the UK; or, alternatively, if BSC did have a fixed establishment in the UK, it was necessary to refuse the application for the ‘protection of the revenue’. 

The First-tier Tribunal (FTT) has rejected Barclays’ appeal on the first ground. Considering the case law and the contractual position/element of control in relation to the BSC employees, the FTT found that at the time the application was made, the UK branch of BSC did not have the sufficient human and technical resources in the UK to make a meaningful commercial contribution. Therefore, as there was no activity, the UK branch could not, as a matter of fact, have been a fixed establishment of BSC. In respect of the UK’s ‘whole establishment construction’ of the VAT grouping provisions, whereby the entire eligible non-UK body corporate is allowed into a VAT group, the FTT held that any change to the UK’s approach could give rise to important practical repercussions, which the FTT was not in a position to evaluate. 

Finally, the FTT went on to consider the ‘protection of the revenue’ point. The FTT rejected HMRC’s ground of appeal, and held that VAT savings arising on BSC’s admission to the VAT group (had it been a UK fixed establishment) would be ‘those that fell within the normal consequences of VAT grouping’. 

Barclays Service Corporation & Anor v HMRC [2024] UKFTT 785 (TC)

From the Weekly VAT News dated 9 September 2024, published by Deloitte

VAT treatment of city passes

Go City Ltd (formerly the Leisure Pass Group Ltd) sold the London Pass and the London Explorer Pass (the Passes), which entitled the purchaser to enter various attractions and use certain transport in London without further payment. 

The First-tier Tribunal (FTT) has held that the Passes were multi-purpose vouchers and were therefore outside the scope of VAT, and were not tickets, as argued by HMRC. The Passes were also outside the scope of VAT because of the contractual arrangements whereby Go City acted as the supplier of entry to the attractions, meaning that the supplies took place when customers used the Passes and not when the Passes were purchased. 

The FTT also rejected HMRC’s contention that the entire purchase price should be allocated as consideration for Go City’s supplies: where a customer did not use all the credits, the unallocated part of the payment was not consideration for a supply. 

The FTT considered the validity of the first two of four assessments which were raised ‘to protect HMRC’s position’ in respect of the purported under-declaration of VAT. The FTT found that the assessments were invalid because at the time they were raised HMRC did not have a view that Go City’s VAT returns were incorrect, as a final decision had yet to be made. The FTT allowed Go City’s appeal. 

Go City Limited v HMRC [2024] UKFTT 745 (TC)

From the Weekly VAT News dated 2 September 2024, published by Deloitte