Top 5 HMRC disputes of 2017

Top 5 HMRC disputes of 2017

As part of its aims to crack down on tax avoidance and evasion, HMRC has been involved in a number of high profile court cases and investigations in the past year. Here are the top 5 disputes involving the taxman in 2017

Top 5 HMRC disputes of 2017

1. Littlewoods VAT overpayment dispute

In the final culmination of a legal battle that spanned over a decade, the Supreme Court ruled this year that HMRC did not have to pay Littlewoods £1.25bn in relation to VAT overpayments.

The retail company overpaid millions in VAT to HMRC over the period 1973 – 2004, after which HMRC repaid the sum of £205m along with simple interest of £268m.

The Barclay brothers-owned company took further legal action seeking an extra £1.25bn in compound interest, which was ultimately rejected by the courts.

The Supreme Court ruling in November was precedent-setting, as an adverse ruling for HMRC would have encouraged other companies to seek similar compensation.

 2. Rangers football club tax avoidance case

In July the Supreme Court ruled in favour of HMRC in a landmark case against the Rangers football club, which related to the remuneration of employees through an employee benefit trust between the tax years 2001-02 and 2008-09.

Under a remuneration trust set up by the club, employees received loans that were not subject to income tax or Class 1 national insurance contributions (NICs), while HMRC argued they should have been.

The court concluded that the sums paid to employees constituted as earnings and therefore should be taxed as such.

The case was said to have to have ‘dramatic’ consequences for football and business.

 

3. Newcastle United tax probe

In an investigation called “Operation Loom”, HMRC began probing whether Newcastle United football club committed tax fraud by inflating VAT refunds and evading income tax and NICs in relation to “payments made to and via football agents”.

The taxman obtained search and seizure warrants as part of the investigation, seizing documents and electronics belonging to the club. In response the club contended that no tax fraud had occurred and the club’s properties should not have been raided.

A court order for interim relief prevented HMRC from examining the seized material, but in October the High Court ruled that the warrants were issued lawfully, and HMRC may continue its investigation by examining the seized material.

 

4. Tottenham Hotspur termination payments

The Upper Tribunal rejected an appeal from HMRC in November relating to the taxation of termination payments made to football players of Tottenham Hotspur Limited.

HMRC contended that “lump sum” termination payments made to Wilson Palacios and Peter Crouch should be treated as earnings from employment and taxed accordingly. The primary issue surrounded the details of the players’ contractual arrangements.

However, in 2016 the First-Tier Tribunal ruled that the termination payments were not taxable as earnings from their employment and should not be subject to NICs as the payments were linked to termination and therefore not “from” employment.

The Upper Tribunal upheld this decision.

 

 

5. Sports Direct EU VAT case

In August the Upper Tribunal Court upheld a ruling in favour of Sports Direct and against HMRC’s position that the retail company owed millions in EU VAT.

Sports Direct circumvented paying varying amounts of VAT across the EU by setting up a delivery company which operated outside its VAT group. The delivery company would purchase the good from Sports Direct, then make the delivery and charge the customer inclusive UK VAT.

While HMRC initially approved the structure, it requested guidance from the European Commission’s VAT Committee which found in 2015 that the arrangement was in violation of VAT rules.

Despite this finding, the First Tier Tribunal and Upper Tribunal Court ruled in Sports Direct’s favour.

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