Wednesday, September 16, 2015


BLOG 165


I have been away for the best part of the month on an extended holiday.  May marked my first 50 years as a Chartered Accountant.  To celebrate I took a few friends on a cruise from Vancouver to Alaska as a prelude to our annual visit to Chicago.  Alaska was very beautiful but my hunt for bears (to photograph of course) was wholly unsuccessful and panning for gold in the Yukon completely unremunerative.  I have said before that I go to Chicago for the Midwest Accounting and Finance Showcase, a sort of a cross between a conference and an exhibition, which gives me my annual update on US tax – and leaves me grateful that, whatever the faults of HMRC, they seem a lot easier to deal with than the IRS!

There is one respect in which I envy US colleagues.  Because of the stand-off between Democratic President Obama and a Republican controlled Congress, very little new tax legislation was enacted last year and that pattern is likely to continue for the remainder of the Presidency.  This contrasts with our pre-election 340-page Finance Act, nodded through parliament almost wholly without debate on the wording of the legislation, and a second 206-page post-election Finance Bill which doesn’t look like getting much fuller scrutiny.

Erskine May, whose “Parliamentary Practice” codified the rules of parliamentary procedure (written in 1844, but updated 23 times, the last being in 2011) defines the role of a parliamentary Committee – such as the Finance Bill Committee, whose role is supposedly to consider the clauses of the Finance Bill in detail – as being to scrutinise and improve the draft legislation.  However the Labour party seem to see its role today as to provide a forum for generalised debate on the topic to which the clause relates, as their attempts at improvement seem limited to asking the government to spend large amounts of taxpayer’s money to produce a report on the effect of the legislation.  In most cases, they want these reports published six months after the Bill is passed, which in many cases is before the legislation even starts to apply.

But I digress.  I also stay over in Chicago for the Chicago Jazz Festival and try to take in at least one Chicago Cubs baseball game in between time.  This year I saw two games, both of which the Cubbies lost decisively – albeit that they are having the best season for years, so I can’t moan too much.

Now that I am back in the UK, I am grappling with a number of HMRC/Treasury consultation documents that propose further wide-ranging powers to HMRC to combat offshore tax evasion – and sadly in the process to criminalise many people who are not seeking to evade tax but either overlook overseas income, do not realise that such income received by someone else is taxable on them or do not properly understand the scope of the UK tax laws.

However that is not what I want to write about.  There is also a consultation in progress (actually the consultation period has just closed) on the Tax Treatment of income from Sporting Testimonials.  There is currently no specific legislation governing testimonials.  The tax treatment relies on court decisions.  Broadly speaking, if a sportsman is contractually entitled to a testimonial or it is normal for a club to provide a testimonial, the proceeds of the testimonial are income.  If it is in the nature of a “personal gift”, it is not income.  In between it is a question of fact whether or not the payment meets the test of earnings.  HMRC have long taken the view that where the testimonial is organised by the club the proceeds are income, but where it is organised by an independent testimonial committee, it is normally not.  There is a House of Lords decision, Reed v Seymour, that says that payments by individual contributors are not income of the sportsman.

A government scraping around for even the tiniest amounts of cash can be relied upon to think that, where treatment of an item depends on the facts, this can give rise to arguments, so why not make everything taxable.  In that way, there are no arguments and the government gets a bit more cash.  However in this case, instead of stating baldly, “We need the money and most sportsmen can afford to pay”, the consultation dresses it up on the lines of “Reed v Seymour was decided in 1927.  The wording of the legislation has changed a lot since then so no one knows if the Supreme Court would decide the same today and HMRC think that it would say everything is taxable.  Accordingly to avoid their having to take another case to the Supreme Court, we will change the legislation to say the HMRC view is correct”.

A lot of practitioners think that the HMRC view is wrong and the law is clear, particularly following two later House of Lords decisions (not involving testimonials, but relating to income from third parties),  Hochstrasser v Mayes (1959) and Wicks v Firth (1982).  However if the government want to change the law they are obviously entitled to do so, albeit that there is no need to pretend that they are simply clarifying the law, when that is clearly not the case.

What caught my eye was a statement in the consultation document that HMRC consider that its published guidance has departed from the current statutory position and it would fall outside the Commissioners’ powers to leave that guidance unchanged.

There is quite a lot of HMRC guidance that is out of date and it is not unknown for guidance in one place to contradict that in another.  If it is outside HMRC’s powers to leave incorrect guidance unchanged, are they breaking the law in those other instances?  And if the HMRC guidance is wrong, why not correct it?  If they simply inserted the word “sometimes” in the current guidance, it would accurately reflect what HMRC now say is their current view.

My understanding is that the reference to HMRC’s powers is a reference to another House of Lords decision, R (on the application of Wilkinson) v HMRC, in 2005.  There Lord Hoffman said that the HMRC Commissioners have a “wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge, the highest net return that is practicable having regard to the staff available to them and the cost of collection.  This discretion enables the Commissioners to formulate policy in the interstices of the tax legislation, dealing pragmatically with minor or transitory anomalies, cases of hardship at the margins or cases in which a statutory rule is difficult to formulate or its enactment would take up a disproportionate amount of Parliamentary time”.  He went on to say that TMA 1970, s 1 “does not justify construing the power so widely as to enable the Commissioners to concede, by extra-statutory concession, an allowance which Parliament could have granted but did not grant, and on grounds not of pragmatism in the collection of tax but of general equity”.

It is hard to see anything in this that renders incorrect HMRC guidance being outside HMRC powers, even if that guidance is incorrect or misleading.  HMRC are far too ready to use Wilkinson as an excuse to impose extra taxation where the application of the law is nuanced depending on the facts.



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