Chapter 7 – Income Tax: Basic Concepts
7.1.3 Rate Structure for Income Tax. For the tax years 2023-24 to 2027-28, the
income tax rate structure in England and Northern Ireland is as follows:
Taxable Income (£) Rate0 - 37,700 (basic rate) 20%
37,701 - 125,140 (higher rate) 40%
Over 125,140 (additional rate) 45%
The UK government reduced the rates of income tax for Welsh taxpayers by 10% and
the Welsh Government has set the Welsh income tax rate at 10%; thus, the overall
income tax rates for Welsh taxpayers are at the same level as those in England and
Northern Ireland. However, different income tax rates and bands apply in Scotland:
see
https://www.gov.scot/publications/scottish-income-tax-2023-2024/.
Readers should also note that references in this section and at points elsewhere in the
textbook to the Health and Social Care Levy are no longer relevant. The planned
introduction of the levy on 6 April 2023 was cancelled by then Chancellor Kwarteng
in his 23 September 2022 statement, and this is one of the few tax cuts announced on
that day that was not reversed by his successor Chancellor Hunt.
Chapter 9 – Taxation and Social Security
Chapter 11 – Personal Reliefs and Tax Reductions
11.2 The Reliefs. The basic personal allowance for the tax years 2023-24 to 2027-28
is £12,570. The blind person’s relief for 2023-24 is £2,870.
Chapter 13 – Employment Income: Scope and PAYE
13.1.1 Scope. The word ‘profit’ in the Income Tax (Earnings and Pensions) Act 2003
s 62(2)(b) means gross profit rather than net profit: see Murphy v Revenue and
Customs Comrs [2022] EWCA Civ 1112 (overturning the Upper Tribunal on this
point). In E.ON UK plc v Revenue and Customs Comrs [2022] UKUT 196 (TCC), the
Upper Tribunal held that a payment to employees as part of an agreement under which
they would in future pay increased pension contributions was made in return for
diminution of expected future pension rights and therefore was not derived from
employment and not taxable as employment income.
13.2.2.1 Case Law Tests for Employment. At the time of writing this update, the
UKSC is due to hear the appeal in Professional Game Match Officials Limited v
HMRC.
13.2.3.2 Arrangements Made by Intermediaries: The IR35 legislation. Although
the IR35 rules apply to general partnerships, IR35 does not apply to direct contracts
between a partner providing services and the engager: see G Lineker and another t/a
Gary Lineker Media v HMRC [2023] UKFTT 340 (TC), and note at the time of
writing the case was under appeal to the Upper Tribunal. On the developing IR35 case
law, in HMRC v Kickabout Productions Ltd [2022] EWCA Civ 502, the Court of
Appeal upheld the Upper Tribunal’s decision. The Court of Appeal found that the
contracts contained an obligation to provide work and there were no grounds to
challenge the Upper Tribunal’s view on control or the application of the multi-factorial assessment.
In HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501, the Court of Appeal accepted
HMRC’s view that the Upper Tribunal’s conclusion that the hypothetical contracts in question
would not have been contracts of employment could not stand, and remitted the case to the
Upper Tribunal to apply the correct test. See also Red, White and Green Ltd v Revenue and Customs
Comrs [2023] UKUT 83 (TCC), in which the Upper Tribunal held that there was sufficient mutuality
of obligation and control in the services provided to apply IR35. Although these cases
are certainly advancing our understanding of the application of IR35, there is some
question as to the extent of the relevance of these media industry cases more widely.
13.4 PAYE. On HMRC's broad discretionary powers over the PAYE regime see Hoey
and others v HMRC [2022] EWCA Civ 656.
Chapter 17 – Employee Share Schemes
17.5.2. Acquisition of Option and Later Chargeable Events. The Upper Tribunal’s
holding that taxpayer acquired share options at the time of the grant was confirmed on
appeal: see J Charman v HMRC [2021] EWCA Civ 1804.
17.8 Company Share Option Plan Schemes. The limit on the value of CSOP shares
over which each participator may hold unexercised options was increased to £60,000
by Finance (No 2) Act 2023.
Chapter 21 – Business Income-Part III: Principles and Receipts
21.1.1.1 Law and Accounting. The relationship between law and accounting in the
computing of profit continues to develop. Interested readers should watch for a
forthcoming publication from the European Association of Tax Law Professors, which
involves a large comparative project on the role of accounting in tax law across
Europe. The UK chapter was written by Freedman and Loutzenhiser. Readers should
also note that the Supreme Court upheld the Court of Appeal’s decision in favour of
the taxpayer in HMRC v NCL Investments Ltd and another [2022] UKSC 9.
Chapter 24 – Capital Allowances
24.2 Plant and Machinery. Expenditure on plant and machinery incurred on or after
1 April 2023 but before 1 April 2026 generally will qualify for full expensing. Special
balancing charge rules will apply.
24.2.4 Plant or Setting. A drafting error introduced by the Tax Law Rewrite Project
had inadvertently narrowed the scope of List C; in order to remedy this error, the
Court of Appeal held that expenditure ‘on’ list C assets should be read as meaning
‘expenditure on the provision of’such assets: see Urenco Chemplants Ltd and others
v HMRC [2022] EWCA Civ 1587 (permission to appeal to the UKSC refused). The
decision in Cheshire Cavity Storage 1 Ltd and another v HMRC [2021] UKUT 50
(TCC) that underground storage cavities were not plant was upheld by the Court of
Appeal in Cheshire Cavity Storage 1 Ltd and another v HMRC [2022] EWCA Civ
305. The Supreme Court dismissed HMRC’s appeal in HMRC v SSE Generation Ltd
[2023] UKSC 17, holding that items constructed for the collection and transmission of
water to, through and from the hydro-electric power station were not a ‘tunnel’ or an
‘aqueduct’, which are exclusions in section 22 List B of Chapter 3, Part 2 of the
Capital Allowances Act 2001, and therefore the taxpayer was entitled to claim capital
allowances.
24.2.5 First Year Allowances and the Annual Investment Allowance. The
temporary Annual Investment Allowance £1,000,0000 limit was made permanent by
the Finance (No 2) Act 2023.
Chapter 29 – Trusts
29.1.7 The Principle (or Rule) in Re Hastings-Bass. The decision of the Court of
Appeal in Bhaur and others v Equity First Trustees (Nevis) Ltd and others [2023]
EWCA Civ 534 has clarified the principles to be applied when seeking to invoke the
equitable jurisdiction of mistake in respect of artificial tax avoidance schemes. The
CA held that the transfer of a property portfolio into a trust, as part of such a scheme,
could not be set aside due to mistake. The CA described such schemes as ‘a social
evil’ that put an unfair burden on the shoulders of those who did not adopt such
measures. The CA held that if entered into deliberately with knowledge of the risks
being run, the taxpayer could not look to the courts to set aside the transactions, no
matter how financially devastating the scheme failure. The CA also concluded that the
dishonesty of those advising on the avoidance scheme was not relevant to the issue of
mistake.
29.2.3 Rates. As with estates, a new £500 de minimis amount of income applies to
trustees of low income trusts, replacing the previous rules for trustees’ first slice of
trust rate income. The amount is shared among qualifying settlements of the same
settlor, with a minimum of £100 per trust.
29.3.3.2 ITA 2007, Section 494. In H Murphy and another v HMRC [2023] EWCA
Civ 497, the Court of Appeal agreed with the taxpayer, holding that the ‘ordinarily
sophisticated taxpayer’ had a legitimate expectation that HMRC concession ESC B18
(1999) applied without a six-year time limit in respect of credit for UK income tax
paid on trust income.
Chapter 30 – Death and Estates
30.2 Liability of the Personal Representatives. Following a consultation, a number
of technical amendments were introduced in the Finance (No 2) Act 2023 to ensure
the rules governing the taxation of estate income operate correctly. The changes take
effect for the income tax year 2023-24 onwards and for accounting periods beginning
on or after 1 April 2023. In addition, a £500 de minimis amount of income upon
which no tax is paid was introduced, and the application of the default basic rate and
dividend ordinary rate of tax to the first £1,000 slice of income of accumulation and
discretionary trusts was abolished; these changes are effective for the income tax year
2024-25 onwards, and for accounting periods beginning on or after 1 April 2023.
Chapter 31 – Income Splitting: Arrangements and Settlements
31.2.2 No Bounty, No Settlement. There is no authority suggesting a de minimis
threshold applied to bounty: see Clipperton v Revenue and Customs Comrs [2022]
UKUT 351 (TCC). The Upper Tribunal overturned the First-tier Tribunal in M
Dunsby v HMRC [2021] UKUT 289 (TCC), holding that the payments made to the
taxpayer were distributions and that he was subject to income tax on them.
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