9 May 2025
Court of Appeal dismisses appeal on distributions from overseas company’s share premium
The Court of Appeal has unanimously dismissed the appeal of the taxpayer in Beard v HMRC, concerning the tax treatment of distributions received by a UK-resident individual from a Jersey limited company derived from its share premium account. The case concerns section 402 Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) which brings dividends received from a non-UK resident company into the charge of income tax, subject to an exclusion for ‘dividends of a capital nature’. The taxpayer considered that the amounts received were capital in nature and should be subject to capital gains tax.
The Court of Appeal considered the meanings of ‘dividends’ and ‘dividends of a capital nature’ established under case law. These include several key pre-ITTOIA authorities, which the Court agreed continued to have relevance to section 402, as well as the more recent corporation tax decisions and judgment in First Nationwide. In line with this case law, the Court focussed on the foreign company law and company law mechanisms that governed the relevant payments. In this case, this was Part 17 of the Companies (Jersey) Law 1991, which since 2008 has provided for a mechanism to make share premium amounts more freely distributable. The Court agreed with the First-tier and Upper Tribunals that the cash dividends received by the taxpayer through this mechanism did not constitute ‘dividends of a capital nature’ and were therefore not excluded from UK income tax. The Court also agreed that a separate ‘in specie’ distribution of a non-cash asset, paid under the same Jersey company law mechanism, was also a dividend not of a capital nature and thus also correctly subject to income tax.
Upper Tribunal dismisses judicial review on HMRC’s discretion to allow late tax loss claims
The Upper Tribunal has dismissed a taxpayer’s judicial review in the case R (on the application of Rettig Heating Group UK Limited (in liquidation)) v HMRC. The decision concerns a refusal to exercise the discretion granted to HMRC by statute to extend the normal two-year time limit for a company to make a claim to set-off non-trading loan relationship deficits (i.e. a type of tax loss) against other taxable profits. In this case, the deficits and profits arose in the company’s accounting period ended 31 December 2002, but it was not until 2021 that it sought to make the late offset claim. The significant delay was attributed to the protracted litigation in the Franked Investment Income (FII) line of tax cases that eventually determined that, at the time, the dividend income in question was taxable and not, as the taxpayer had believed, exempt from corporation tax under EU law grounds.
In refusing to exercise their discretion, HMRC applied their general approach to late claims and procedures set out in Statement of Practice (5/01) (‘the Statement’). The Upper Tribunal dismissed the judicial review arguments that HMRC had incorrectly applied the Statement. The Tribunal held that a reference in the Statement to a scenario where a company was previously “unaware of profits against which the company could claim relief” did not extend to situations where the existence of profits was known and only the taxable nature of the profits was unclear. Similarly, it held that this was not an example of a situation where the amount of a loss or profit depended “upon discussions with an inspector” not complete at the time the two-year time limit expired. The Upper Tribunal held further that the taxpayer’s request had not been made “as soon as possible” as required by the Statement.
Company Tax Return taxonomies accepted by HMRC
For most corporation tax returns, HMRC require a valid submission to include an electronic version of the company’s financial accounts marked up in iXBRL in accordance with an appropriate taxonomy. On 2 May 2025, HMRC updated their guidance page Taxonomies accepted by HMRC. Two new taxonomies have been added to the page’s tables of acceptable iXBRL taxonomies (‘FRC 2025’ and ‘US GAAP 2024’). An end date of 31 March 2026 has also been added for acceptable use of the ‘FRC 2023’ taxonomy.
Changes to HMRC interest rates following Bank of England rate change
Yesterday, the Bank of England’s Monetary Policy Committee announced a decrease in the official Bank Rate by 0.25 percentage points from 4.5% to 4.25%. HMRC have issued a press release on the automatic 0.25 point decreases to interest rates for late tax payments and tax repayments as a result. The new rates take effect from 19 May 2025 for quarterly instalment payments of corporation tax, and from 28 May 2025 for most other tax payments. HMRC will shortly update their interest rate tables accordingly.
Generic Maths: Whether online maths product is a VAT exempt examination service
Generic Maths Limited (GM) considered that its ‘ConquerMaths’ product was a tool that provided assessments of a pupil’s maths ability, and as such was an ‘examination service’, and VAT exempt. HMRC considered that the product was an online revision/learning aid tool, and standard rated for VAT purposes since GM was not an eligible body, and assessed GM for the VAT on its supplies of the product. The First-tier Tribunal (FTT) has agreed with HMRC, and held that the product was not a supply of examination services. The FTT considered that the correct test for determining the nature of GM’s supplies was an objective test, based on how they would be characterised by the typical consumer. On that basis, ConquerMaths was a teaching product designed to improve maths understanding, not an examination service. Furthermore, if the correct test was, instead, a functional test, the result would be the same. Although ‘examination services’ is wider than formal public examinations, it is not wide enough to encompass a product such as ConquerMaths. The FTT also found that HMRC’s assessment had been made using best judgment, and HMRC’s decision was reasonable and not arbitrary. The FTT dismissed GM’s appeal. (Contact: Nick Comer)
EMEA Dbriefs webcasts
The next EMEA Dbriefs tax webcast is on Wednesday 14 May 2025 at 12.00 BST/13.00 CEST. In Cash pooling strategies in a changing UK tax landscape, hosted by Alice Kirkpatrick, our presenters will discuss best practices for managing UK tax risks associated with the use of centralised cash pools by businesses to optimise liquidity. The webcast will examine key UK transfer pricing matters arising in relation to common cash pooling structures, together with broader tax considerations such as withholding tax compliance.