Thursday, December 31, 2015

Claus vs HMRC

A while back Taxation magazine published a spoof judgment of a first tier tax tribunal case imagined by Robert Maas.

I have taken the liberty of extracting some of the key elements from the reported judgment:

In this case HMRC were represented by Mr Scrooge. 
The taxpayer did not appear and was not represented. Mr Scrooge explained to me that Mr Claus is reputedly very eccentric. He expects people to communicate with him by writing their message on a piece of paper, folding it and inserting it up a chimney. HMRC did this.

Mr Scrooge told me that HMRC’s letter certainly was not returned undelivered. I accordingly accept that Mr Claus was duly served with notice of this hearing and I decided to proceed with the case in his absence. HMRC told me that Mr Claus has some sort of facility overseas which either manufactures toys or stores toys procured from elsewhere (I am not clear which).

Mr Claus is known to visit the UK regularly and to distribute the aforementioned toys to children. For some reason that HMRC have been unable to explain to me, he apparently comes to the UK only once a year, always during the night of 24 December, and is seemingly unwilling to speak to HMRC or anyone else during normal business hours.

HMRC claim that Mr Claus is carrying on a business. He has imported a very large number of toys in the course of that business and has supplied them in the UK. The value of the toys far exceeded the VAT registration limit for each year, which means that Mr Claus should have registered for VAT and accounted for VAT to HMRC.

HMRC are seeking the VAT due for the 20 years to 25 December 2011 on the value of the toys supplied in this country, either as VAT due on import or VAT due on making taxable supplies here.

I asked Mr Scrooge why HMRC believe that Mr Claus is carrying on a business, as I was under the impression that he distributes his toys by way of gift. It is fundamental to VAT that the supplies must be made for a consideration.

Mr Scrooge explained that HMRC hold information to suggest that Mr Claus does not give toys to naughty children. Accordingly the toys are not distributed as gifts; they are supplied as consideration for a child having been good.

Mr Scrooge drew my attention to the tests summarised by Mr Justice Gibson in CCE v Lord Fisher [1981] STC 238 as to when activities constitute a business, namely: Whether the activity is a serious undertaking earnestly pursued: it clearly is so, as Mr Claus is reputed to employ a vast number of elves as “little helpers”.

A further point that concerns me in relation to the claim for VAT on importation is the EU concept of proportionality. Apparently Mr Claus delivers the toys in a sleigh powered by eight reindeer. However these are not ordinary reindeer. They appear to have magical powers, as they propel the sleigh in such a way that, however heavily it is loaded, it remains erect with the runners on a level with the hooves of the reindeer, so that it is not necessary for the vehicle to set down anywhere in the UK. It enters from the stratosphere and hovers above the country’s rooftops.

This may sound somewhat incredible, but HMRC have not questioned the practicality of this mode of delivery, so I assume it to be accepted as correct. The commissioners have promulgated a method for dealing with VAT on importation where goods come into the UK through a recognised border, but it is not apparent, at least to me, how a taxpayer is expected to account for VAT where his delivery vehicle comes from above and hovers over a rooftop while Mr Claus descends down the chimney below.

It may be that the Commissioners have made it exceptionally difficult, if not virtually impractical, for Mr Claus to account for import VAT. I am sceptical whether it can be proportionate to expect him to account for VAT in the absence of any machinery to enable him to do so. so. IHowever, the concept of proportionality is usually raised in the context of taxpayer’s rights; it is unclear to me whether it applies also to his obligations.

In passing, I would also say that I cannot see how HMRC will collect their tax. Mr Claus has no assets here and HMRC have been unable to determine precisely the location of Fairyland, or wherever else it is that Mr Claus comes from. The UK has clearly not entered into a treaty with Fairyland for the mutual enforcement of tax debts. I also cannot see how HMRC will be able to calculate the value of the taxable supplies.

Thankfully that is not my problem though. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Friday, December 25, 2015

What is Santa's tax status?

A few year's back Taxation magazine published this enquiry from a reader:
On a visit to the UK last year I picked up a copy of your magazine and wonder if readers can advise me. I am non-domiciled and non-resident (I think) in the UK – no permanent home here – but each year I work temporarily in the UK for a short period.

The work is unpaid, but I do receive benefits in kind; glasses of port, mince pies and the like. I am rather concerned that I have not declared these to HMRC in the past. Should I have done so and is there an annual tax liability to be paid on these gifts or benefits? And if there is, how is the tax calculated under self assessment?
The chosen pseudonym is "S. Claus".   I wonder........

Friday, December 11, 2015

A Christmas Carol for those with a PSC

Rudolph the red-nosed reindeer
Hated paying NIC
Went to a sharp adviser
Paid the man a hefty fee

He told the other reindeer
You should do the same as me
Go and see my adviser
Get yourself an PSC

Then one foggy Christmas eve, the taxman came to say:
"Your idea was not so bright
You owe tax, you're banged to rights"

So all the deer were bankrupt
Didn't have a bean they said
Now taxman's after Santa
He'll be really in the red.

Written by Chris Williams and first published in Taxation magazine 20 December 2007

Friday, December 04, 2015

If Santa was an accountant


If Santa was an accountant...
  • ...Christmas day would be referred to as "sign-off"
  • ...he should worry that Wikileaks would publish his list of presents
  • ...all of the kids clothes would be from "Baby GAAP"
  • ...his helpers would work in a small room cranking out toys during "present season" which gets longer every year.
  • ...letters to Santa would be carried forward from prior year
  • ...He'd take advantage of the North Pole's tax haven status
  • ...He'd probably moan about all the red tape he has to deal with
  • ...his family still wouldn't have a clue what he does at work
  • ...he would think about the mileage deduction for his reindeer drawn sleigh!
  • ...planning would be done after the gifts were delivered
This is just a small selection of the suggestions volunteered by users of twitter in response to an invitation to use the hashtag: #ifsantawasanaccountant