Six festive tax teasers

Santa holding money
By Anne-Marie Roberts, ICAS Head of Taxation – Scottish Taxes and Indirect Taxes

14 December 2015

For most tax practitioners, Christmas is the break that comes between the publication of the Finance Bill clauses  post-Autumn Statement and the January deadline to complete self-assessment returns and December tax provisions.

This year, some of us will also have the Scottish Budget on 16 December to keep us busy right up to the wire. So Christmas is a time to take a break from the rigours of the ever-changing tax landscape, relax and consider some of the bigger tax-related questions in life….

1: What would be the VAT liability of a partridge in a pear tree?

This would be a mixed supply for VAT as the pear tree would be zero-rated. Plants, bushes and trees that are normally used in the UK for the production of edible fruit are zero-rated – see VAT notice 701/38 paragraph 3.5 - and the partridge would be standard-rated as an ornamental bird – see paragraph 701/15 paragraph 2.3. A mixed supply is one which has two or more constituent parts, each one with its own purpose. The issue is how to value the elements of the supply and there is case law on this issue – see the Card Protection case and subsequent proceedings.

Of course, the difficulty would be overcome in this case if the partridge was intended to be eaten as this would change the liability to a zero-rated supply!

2: Is Santa caught by the Statutory Residence Test?

Santa crosses the world when delivering presents, but would his stopover in the UK cause him any tax issues under the Statutory Residence Test?  He should be automatically treated as an overseas resident as he works full-time overseas in the tax year, without any significant breaks during the tax year from overseas work, and:

  • Spends fewer than 91 days in the UK in the tax year,
  • The number of days in the tax year on which Santa works for more than three hours in the UK is less than 31.

Let’s hope he has taken the time to check all the guidance issued by HMRC and received appropriate advice before he sets off.

If he is not resident under the SRT, then he cannot be a Scottish Taxpayer and subject to the new Scottish Rate of Income Tax.

3: Is Rudolph a sub-contractor?

The next thorny issue for Santa is whether he can treat Rudolph as a sub-contractor rather than an employee, and does IR35 come into play.  There are many issues to consider but some of the key ones are:

  • Does Santa provide the sleigh?
  • Is Rudolph responsible for putting the team together or does Santa organise this and Rudolph just show up?
  • Can Rudolph offer a replacement if he is feeling under the weather?

These may be vital points to consider, but before we get carried away we probably need to bear in mind that Rudolph is a reindeer and may have trouble filling in the forms.

4: Can I file my return on Christmas Day?

You can if you wish but you may not want to admit it publicly.  On 25 December 2014, 1,773 taxpayers filed their tax returns online and, in total, 24,228 online returns were received between Christmas Eve and Boxing Day. There are reports of taxpayers using PlayStations to file returns – in many households these are monopolised for other uses over the Christmas Holidays.

5: Is it time for a snowball fight?

This debate may not be as weather dependent as you might think as there was a fight about the correct VAT liability of products of Tunnocks and Lees in a First-tier Tax Tribunal earlier this year. The Tribunal ruled that the snowball is a cake and is zero-rated and one of the key issues was whether a plate was required to eat the product.

6: Can I remember the Christmas party?

You need to try to remember at least some key facts to determine the tax position on the costs incurred.  Christmas parties which are open to all employees, or all those in a specific place where there is more than one office or other location, are tax-free on the staff – up to £150 per head average over the year is tax-free.

If the expenditure exceeds this limit then the whole lot is taxable as a benefit on the staff. VAT on the party is recoverable unless it is a partnership and you invite the partners. Note that their share cannot be deducted for VAT and an apportionment will be required.


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