As the saying goes, it was "déjà vu all over again" as 2024 drew to a close, with Trump about to enter the White House in the US and a Labour government promising that things can only get better (although acknowledging that they might get somewhat worse first).

A lot of the tax issues also had a familiar feel to them, with tax avoidance, international tax and old favourites such as the use of remuneration trusts receiving significant attention. It feels like we’ve been here before. That feeling may well be shared by the First-tier Tax Tribunal (FTT) following the recent decision in the BlueCrest salaried members rules case (about whether certain LLP members have “significant influence”). Just a few days ago, the Court of Appeal overturned the decision of the Upper Tribunal (along with the established practice of HMRC in this area) and remitted the long-running case back to the FTT. 

With the good intentions that we all feel come January, HMRC’s resolutions for the year ahead emphasise improving customer service, continuing efforts to close the tax gap and a move towards modernising HMRC’s services. Again, however, none of this is new, having featured heavily in Labour’s manifesto last year, as well as the October 2024 Budget, but taxpayers can expect these plans to be put into action over the coming months, with the first tranche of HMRC’s 5000 additional compliance officers already in place.

As the saying also goes, “predictions are hard, especially about the future”- but it is a safe bet that, while greater efficiency in dealing with HMRC will be welcome, it will likely come with increased scrutiny concerning the type of issues we discuss below.

We provide a round-up of our commentary on a number of recent topics, as well as a look at some recent developments in the case law.

Trump presidency international tax impacts

Trump has stated that cutting taxes for US individuals and businesses is a priority, and that he intends to fund these tax cuts by imposing high tariffs on foreign imports.

This is likely to affect international tax policy as jurisdictions face pressure to protect their own economies from the threat of US tariffs. In the UK, the impact of tariffs would likely put increased pressure on the Government to bring in revenue from tax rises and compliance activity.

Greg Price and Lawrence Parkin consider the potential impact of Trump’s second term on the international tax landscape

Careless mistakes and the Tax Gap

The Government’s continued focus on closing the tax gap (the difference between the tax owed and the tax actually collected) was evident in the proposed and confirmed measures announced in the October 2024 Budget, self-described as Labour’s “most ambitious ever package to close the tax gap” and estimated to raise a further £6.5bn a year by 2029-30.

In particular, the data shows that careless mistakes (particularly from individuals and small businesses) make up the bulk of the gap, and these small mistakes add up collectively to large numbers. It is clear that identifying and correcting these careless errors will be a priority for HMRC in the coming year.

A consultation closing this month specifically targets this problem by proposing measures such as the introduction of a partial enquiry to address an isolated issue in a taxpayer’s return and a requirement for a taxpayer to self-correct errors identified by HMRC. HMRC expect these measures to bring about greater efficiency in processing returns, but by introducing additional processes, there is a risk that taxpayers will face extra hurdles in confirming their tax position. Jackelyn West considers the proposed measures and the potential complexity they may bring for taxpayers.

Whatever the outcome of the consultation, it is sensible to expect HMRC to have an increased focus on tackling carelessness in tax returns, and to use their powers widely to lengthen their time limit for issuing discovery assessments to taxpayers where they can show that the taxpayer “failed to take reasonable care”. However, HMRC have in recent cases sought to argue that there need not be any causal link between a taxpayer’s carelessness and the tax loss, so that an error in a return could allow HMRC to extend the deadline even if the result would not have been different had reasonable care been taken. The case law has taken conflicting approaches to this question, but the uncertainty seems to have finally been resolved in clear guidance recently issued by the Upper Tribunal in Mainpay Ltd v HMRC [2024] UKUT 233 (TCC). 

In an article for the Tax Journal, Sophie Rhind and Victoria Braid consider the UT’s decision and the implications for taxpayers going forward.

Liquidation loophole

HMRC target potential tax avoidance in LLPs

In the recent FTT case of GCH Corporation Ltd and others v HMRC [2024] UKFTT 922 (TC), a taxpayer successfully argued that transferring assets standing at a gain to an LLP, and subsequently liquidating the LLP, meant that no tax was owed by the members on the pre-transfer gain. The Government announced measures to specifically counter this type of arrangement in the October 2024 Budget.

Gideon Sanitt and Victoria Braid consider this new piece of anti-avoidance legislation and HMRC’s focus on the taxation of LLPs more generally in an article for Tax Journal.

Transfer pricing guidance

We are seeing growing interest from HMRC in transfer pricing compliance and, although litigation in this area is rare, it is an increasing risk so we may start to see transfer pricing appeals emerging in 2025. Transfer pricing is a complex area of tax law for businesses to navigate and the enquiry process can be onerous. Last year, HMRC issued a set of guidelines on how to avoid common pitfalls and follow what HMRC considers to be best practice in transfer pricing compliance. Our tax team consider the guidelines and what they mean for businesses.

Case law update on Remuneration Trusts

Rangers rearranged

The Upper Tribunal (UT) in M R Currell Ltd v HMRC [2024] UKUT 404 (TCC) (Currell) has found that a contribution made by the Appellant company to an employee benefit trust, which then loaned the same amount to a director to enable him to purchase shares in the Appellant company, did not constitute taxable earnings. Re-making the FTT’s decision, the UT held that the connection between the company’s contribution and the individual’s status as director was not sufficient to say that the payment was earnings. Rather, it is necessary to consider what the payment was for. Based on the facts found by the FTT, the director had no entitlement to remuneration in the amount of the loan and had a genuine obligation to repay the loan. It therefore did not form part of the director’s earnings for tax purposes.

Notably, the UT rejected HMRC’s argument that the case involved a straightforward application of the principles established in Rangers Football Club [2017] UKSC 45 (Rangers). In Rangers it was accepted that payments to the trusts were remuneration, and there was no genuine expectation that the loans would be repaid during the employee’s lifetimes. This case could be distinguished as the director was not entitled to a remuneration amount equivalent to the payment and would not have been paid such an amount in absence of the loan arrangements to purchase the shares.

The Currell case demonstrates that it is still possible to argue that contributions made to an employee benefit trust do not amount to remuneration, having regard to the characterisation of the payment. Rangers is not as wide-ranging as HMRC may once have thought. Read The UT’s decision.

A happy mistake?

In JTC Employer Solutions Trustee Ltd and others v W Garnett and others [2024] EWHC 3128 (Ch) (JTC), the High Court permitted rescission in relation to employee benefit trust appointments to sub-trusts on the grounds of mistake. The mistake was the incorrect belief that the assets appointed to sub-trusts of the employee benefit trust would continue to benefit from an exemption to IHT. HMRC considered that the exemption did not apply.

HMRC objected to the rescission application on the grounds of public policy, namely that the trust arrangements involved a complex tax planning scheme. HMRC declined to become a party to the case but made written representations to the Court.

Applying the relevant case law on rescission, the Court held that there had been a mistaken belief in creating the trust instruments that the IHT exemption would continue to apply, and that this was a serious enough error that it would be unconscionable or unjust for the order to be refused. The question of unconscionability is to be assessed by reference to the beneficiaries under the trusts, not on public policy grounds. On this basis, the Court granted the rescission application.

This case is interesting as the Court has permitted rescission for mistake in circumstances where remuneration trusts were used as part of tax planning arrangements. The Court criticised HMRC for raising prejudice to taxpayers generally as a ground for refusal of relief by way of a letter (filed less than a week before the hearing) and considered that to run such arguments in the future, HMRC would need to become a party to the claim and file evidence to substantiate their position. Read The High Court’s decision.