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HMRC backs down over tax relief on mining royalties

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24th Feb 2010
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HMRC was forced to back down on the issue of tax relief for mining royalties recently after an appeal by a South West accountancy firm.

Somerset based accountants Albert Goodman had appealed against HMRC’s decision to deny capital gains taper relief to landowners who earn royalties for allowing mining companies to extract gravel, limestone, slate, clay and other resources from their private property. The case was due to be heard by the first tier tax tribunal in Bristol on Friday 26 February, but HMRC took the decision to settle without prejudice out of court.

This unusual David-versus-Goliath victory could affect the cases of other landowners with open enquiries into claims regarding royalties earned before CGT taper relief was abolished in 2008.

“When they came up against Goliath a lot of people simply gave in and paid their tax – despite the fact that it may not have been due. Now a lot of people are trying to make refund claims for past years,” Dominic Crilly, tax partner at Albert Goodman told AccountingWEB this week.

“HMRC is currently resisting such claims on the basis that, as far as HMRC is concerned, although its view that the relief was not available may have been wrong, it was common practice at the time for people not to claim it and you can’t make a refund claim if your actions were in accordance with common practice – even if it turns out to be wrong”.

The question for many who might wish to appeal is whether it was paid under common practice or not. One AccountingWEB discussion thread on the topic suggests that it may not have been.

“This development is important for any landowner with an open enquiry into claims regarding mining royalties earned before tax relief was abolished in 2008. We would urge such landowners to strongly defend their claims,” added Crilly.

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By michaelblake
01st Mar 2010 15:34

Common Practice not to Claim

I think HMRC are being disingenuous here. My belief is that there had been very little consideration given to how taper relief might apply to a lump sum received from the disposal of minerals (and taxed as a capital gain under the "treasury Arrangement")- and the half of a mineral royalty that is taxed as a gain, until it was raised by me in correspondence with G Davenport a CGT specialist at Capital and Valuation Division Saphire House in September 2001. Tt was in that correspondence that Davenport told me that the IR view was that taper relief could not apply to the half of the mineral royalty taxed as a gain for the reasons I explained in the Accounting Web thread in 2003 and which are now stated at TSBM3196.

As far as I recall there was nothing on this point in the HMRC guidance in 2001 and the assumption among most CGT specialists I spoke to in 2001 was that taper relief should be due and they were surprised the IR took an opposing view. Certainly that is the view that Julie Bultler took in either a book or an article that she had written at about that time because I remember writing to her to advise her of the contrary view taken by Davenport.

I told other tax advisors specialising in farms and landed estates, including Adrian Baird at the CLA , of Davenport's view and thereafter the IR view was given wider publicity and prominence in articles, books and talks given by those specialists and others. I imagine that if someone was aware of the IR view then like me they may thereafter have said to clients:

 !. This is the IR view of the matter confirmed in writing by a CGT specialist,

2. Personaly I believe the IR view to be flawed, but if you want to make a return challenging the IR view you can expect the IR to open an enquiry into your return,

3. The enquiry into your SA Return may not be limited to that one matter.

4. You may have to take the IR to the High Court to challenge their view.

5. Do the amounts of tax involved merit this course of action.

The answer of course was always no. Whether a decision taken on that basis could be said to be " in accordance with comon practice" is I would have thought arguable. 

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By carnmores
01st Mar 2010 18:16

well done that man

it just goes to show

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