Proceeds of crime qualifying condition met

The First-tier Tribunal (FTT) upheld assessments issued to a taxpayer by the National Crime Agency (NCA), finding that the condition that the behaviour was criminal had been met.

Following a criminal investigation into allegations of drug trafficking and money laundering, which included the arrest of one of the taxpayers, the NCA issued the taxpayers with a notice that it suspected that “income arising or a gain accruing to a person in respect of a chargeable period is chargeable to income tax or is a chargeable gain (as the case may be) and arises or accrues as a result of the person’s or another’s criminal conduct”. This notice was followed by tax assessments and penalty determinations dating back many years, as is possible in a case of deliberate behaviour. These assessments could only be upheld if the initial notice was correct, but the taxpayers contended that the income and gains were lawfully obtained from business.

The FTT found that the qualifying condition in the notice, that the behaviour was criminal, was established. It considered the investigation into the activities, as well as the validity of the various notices. The behaviour was deliberate, so all notices were valid, and it considered that the quantum was correct.

Begum & Butt v HMRC [2023] UKFTT 785 (TC)

From Tax Update October 2023, published by Evelyn Partners LLP

CIS determinations

Occasionally, tax law means what it appears to say. So it did in the Judicial Review case of Beech Developments (Manchester) Ltd and others [2023] EWHC 977 (Admin).

Where the construction industry scheme (CIS) applies, a contractor may be obliged to deduct tax from payments made to a subcontractor and pay it over to HMRC. The precise circumstances in which, and the rate at which, tax must be deducted are not relevant to the Beech case.

The case revolved around two of the regulations which govern the CIS. 

One (reg 13) gives HMRC the power to make what the High Court called a ‘liability determination’. That is, broadly, a determination stating the amount that HMRC believes the contractor should have paid over: effectively an estimated assessment. The contractor has the usual appeal rights if he believes the determination overcharges him.

The other (reg 9) gives HMRC the power to absolve the contractor of the obligation to account for the tax which should have been deducted and paid over under the CIS. This may be on either of two bases.

1. If the contractor persuades HMRC that he took reasonable care to comply with the rules of the CIS and made an error in good faith or because he genuinely believed that the CIS didn’t apply to the payment.
2. If HMRC is satisfied (following a request from the contractor) that the subcontractor has paid all the tax due on the amount in question or wasn’t liable for tax in the first place.

If HMRC declines to make a direction on the ‘reasonable care’ basis, the contractor can appeal. If HMRC declines to make a direction on the ‘tax has been paid’ basis, there’s no appeal: any challenge can be only by judicial review.

HMRC has always contended that the effect of reg 13(3) is that the two regulations are mutually exclusive. That is certainly what the regulation appears to mean: and the High Court has confirmed that it agrees with HMRC. 

In particular, the Court agreed that once HMRC has made a liability determination under reg 13, it is not possible for HMRC to make a ‘non-liability determination’ under reg 9: and therefore, no scope for challenging its refusal to do so by appeal or by judicial review.

What this means is that the position on a CIS liability determination is as HMRC has always said it is. Once a liability determination has been issued, it is too late to dispute it on the grounds that you took reasonable care, or that the subcontractor has paid (or wasn’t liable for) the tax. That doesn’t mean you can’t dispute it at all: but you can’t dispute it on those grounds (which in many cases will be the best or only grounds for dispute).

It’s for this reason that, before issuing a CIS ‘liability determination’, HMRC will always issue a warning letter giving the contractor at least 30 days to make representations to the effect that a ‘non-liability determination’ should be issued. It may be tempting to ignore the warning on the basis that you can always appeal. Don’t: the warning is there for a reason.

Contributed by David Whiscombe writing for BrassTax, published by BKL

Challenging information notices

Schedule 36, Finance Act 2008 gives HMRC powers to (among other things) obtain information and documents if they are ‘reasonably required’ for the purpose of ‘checking the tax position’ of someone.

In an anonymised decision [2023] UKFTT 475 (TC) a Foreign National (FN) who was neither resident nor domiciled in the UK sought before the First-tier Tribunal (FTT) to challenge the validity of a notice issued under Sch 36. The outcome reminds us of how difficult it usually is, in practice, to overturn such a notice.

FN had since 2009 owned residential properties in the UK, some of them jointly with family members. When in January 2018 an application was made under the ‘non-resident landlord’ scheme for permission to receive rent without deduction of tax, HMRC responded by requiring tax returns to be made for 2014/15, 2015/16 and 2016/17. One infers that this may have been because HMRC was aware of property disposals that had occurred in May 2014 and May 2015.

The returns did not disclose the 2014 gain (on the basis that non-residents were not liable to tax on such gains until the rules changed from 6 April 2015) but also failed to disclose the 2015 disposal (albeit that since FN was liable to UK capital gains tax only on any increase in value from April 2015, it was vanishingly unlikely that there would be any gain to report). HMRC also took exception to the fact that FN had not declared his UK interest income – despite the fact that, as HMRC agreed, in the hands of a non-resident such as FN this was ‘disregarded income’, which could never give rise to a charge to tax.

HMRC purported to be concerned that FN might be carrying out a trade of property dealing in the UK. This was apparently on the basis that, although the property sold in 2014 had been owned for five years, the property sold in 2015 had been refurbished and sold at a profit within seven months of purchase. Interesting but little-known technical point here: most double taxation treaties have the effect that a non-resident carrying on a trade in the UK is liable to UK tax only if there is a ‘permanent establishment’ in the UK. However, FN was resident in a country with which the UK has no double tax treaty so – under UK domestic law unmodified by the terms of any treaty – would be liable to UK tax on any trade carried on in the UK, even if there was no ‘permanent establishment’. Moving on…

In pursuance of its enquiries, HMRC issued a Sch 36 notice in July 2019 demanding to see, among other things, a schedule of all UK bank accounts and credit cards operated by FN during 2015/16 and copies of the relevant statements, cheque books and paying-in book counterfoils. The FTT noted that HMRC accepted that there was “no suggestion that [FN] has UK income or gains other than from UK real estate” and considered carefully whether this information was “reasonably required” to check FN’s tax position. It concluded, perhaps surprisingly, that it was, noting that “because of the inconsistencies in previous accounts given by the Agent and FN, we accept that [the HMRC officer] has cause to approach FN’s statements with a degree of circumspection”.

An unusual feature of the case is the presence of a ‘jeopardy amendment’ to FN’s tax return. HMRC is permitted to make such an amendment to a self assessment return in the course of any enquiry (and so bring additional tax into charge) if it has reason to believe that unless the self assessment is immediately amended, there is likely to be a loss of tax. It’s seldom used and is normally reserved for cases where there is evidence that a taxpayer intends to do a moonlight flit, declare bankruptcy, dispose of significant assets or otherwise take steps to pre-empt collection of any tax which may be found to be due on closure of the enquiry. All the more curious, then, that having issued the jeopardy amendment, HMRC subsequently agreed to postpone the tax payable under it – which rather defeats the object of making the amendment. 

Such an amendment may be made only if an officer of HMRC ‘forms the opinion’ that the self assessment is insufficient. There was a hint in the case of an argument on the part of FN that if HMRC had already formed its opinion, it could not logically be the case that further information was required: information-gathering should come before making assessments (or amendments), not after. The FTT was unpersuaded.

Contributed by David Whiscombe writing for BrassTax, published by BKL

Security for tax

This may seem to be a subject of limited interest – but like any potential disaster, it is really serious when it hits. The reason why it is so important is because of the almost unbelievable penalties which can arise as a result of security for tax being demanded by HMRC.

I have referred to these issues before – but need to do so again having regard to the recent Upper Tribunal case of Horder v HMRC [2023] UKUT 00106 (TCC). But first, a brief recap.

HMRC is entitled to seek security from a taxpayer if it considers that it is necessary for the protection of the public revenue. This power arises under para 4, Sch 11, VAT Act 1994 and reg 97N of the PAYE Regulations. It is likely to arise where the taxpayer has failed to comply with their tax obligations in the past or there is reason to believe that they might fail to do so in the future. 

As far as VAT is concerned, it is a criminal offence to continue to make taxable supplies if you have not provided the security demanded by HMRC. This means that you must cease to trade if you want to avoid committing a criminal offence. 

Of course, if a person is unable to pay their current VAT bill, they are hardly going to be able to provide security representing a few months' VAT in advance. So to avoid criminal liability the person must cease to trade. 

However draconian this may seem, it is generous compared with the rules for PAYE and NIC. Regulations 97M – 97X provide that where an officer of HMRC considers it necessary for the protection of the public revenue, they may require the company to provide security for payment of PAYE in the future. The failure to provide the security demanded by HMRC is a strict liability criminal offence.

You don’t get out of this penalty by ceasing to trade. Failing to pay the amount of security demanded by HMRC is an offence and carries an unlimited fine.

This is very serious indeed for the directors of a company which finds itself in financial difficulty because the demand for security can be made to the directors personally – and they will be criminally liable if they fail to pay up.

Unlike the position for VAT, there is a right of appeal against a security notice for PAYE and NIC. This is provided by reg 97G and on appeal the Tribunal may uphold, set aside, or vary a security notice.

The case of Horder shows how brutal these provisions can be. Mr Horder was an accountant who acted as a director (unpaid) of a company of one of his clients. He accepted that he was a patsy; the client was a shadow director and took all the relevant decisions which unfortunately did not include paying the PAYE in respect of the employees. 

In due course, HMRC sought security from Mr Horder, and following various warnings that failure to pay was a criminal offence, the Crown Prosecution Service have commenced criminal proceedings against him in the magistrates court. 

(He did appeal to the First-tier Tribunal against the notice to provide the security, but there was a problem with the timing and his permission to appeal was refused.) 

Obviously this is catastrophic for Mr Horder as a professional accountant, and obviously one can only hope that some resolution is found.

Contributed by Peter Vaines, Field Court Tax Chambers

Application to make late appeal not allowed

An unrepresented taxpayer was refused permission to make late appeals against assessments and penalties totalling over £360,000. HMRC had reminded him repeatedly of the deadline, but there was a limit to the resources it could devote to one taxpayer.

The taxpayer was the only director and owner of an estate agent company. HMRC investigated him and the company for fraud under COP9, and issued VAT assessments, surcharges, and penalties, as well as income tax-related penalties and assessments. Some of these were withdrawn by HMRC.

The First-tier Tribunal refused to allow him to enter late appeals. Some of them were entered more than four years after the deadline, and all the delays were serious and significant. His reasons, including mental ill health and a claim that the HMRC investigation and appeal process were unclear, were not reasonable excuses. HMRC had explained the appeal process and more than once had reminded him of the need to appeal, including by phone, and then explained how to make a late appeal. The judge agreed that HMRC was entitled to say that there was a limit to the resources it could devote to one taxpayer. The investigation had faced various difficulties, with the taxpayer remaining unrepresented throughout.

Tolla v HMRC [2023] UKFTT 00400 (TC)

From Tax Update May 2023, published by Evelyn Partners LLP

Partial win for taxpayer on child benefit

A taxpayer was found not to have a protected case under the new retrospective legislation for his high income child benefit charge (HICBC) appeal, as his appeal had been made on different grounds.

The taxpayer was issued with HICBC assessments for four years. He had appealed them before the deadline for cases to use the same argument as Wilkes, but on the grounds of fairness, and issues with the HMRC investigation including lack of clarity.

The First-tier Tribunal (FTT) found that his appeals were not protected against the retrospective legislation brought in to counteract the Wilkes argument. In order to win a case using the Wilkes precedent, a taxpayer must have appealed their HICBC assessment by 30 June 2021, as he had. They must also, however, have raised the argument in their appeal that child benefit was not income so could not be assessed under the income tax provisions.

This meant that two of the assessments were valid, as raised within the normal enquiry window. The FTT allowed his appeal against the other two assessments, as HMRC needed to prove carelessness to issue a valid assessment later. His income had only risen above the threshold after the birth of his child, so he had not failed to take reasonable care.

Hextall v HMRC [2023] UKFTT 390 (TC)

Wilkes v HMRC [2022] EWCA Civ 1612

From Tax Update May 2023, published by Evelyn Partners LLP

Taxpayer wins time limit appeal

The Upper Tribunal (UT) has found that there was insufficient evidence that a taxpayer, or someone acting on his behalf, had acted carelessly or deliberately, so the extended time limits did not apply and the discovery assessments, which had been upheld by the First-tier Tribunal (FTT), were invalid.

In 2016, HMRC issued the taxpayer with three discovery assessments, one more than four years old and two more than six. The FTT held that they had been issued in time, as the taxpayer or his agent had acted carelessly in one case, and deliberately in the other two so the extended time limits applied. The issues related to understatement of profits in a successful business.

The UT overturned the FTT judgement, finding for the taxpayer on the basis of a lack of evidence. The FTT had not given adequate reasons for its finding that the accountants had acted carelessly, particularly as HMRC’s case had been that it was the taxpayer who acted carelessly. The firm had given no evidence and was not cross-examined, so in the absence of knowing how it had reached its conclusions a finding could not be made against it. Similar arguments applied to the FTT’s reasoning for deliberate behaviour.

Danapal v HMRC [2023] UKUT 86 (TCC)

From the weekly Tax Update dated 19 April 2023, published by Evelyn Partners LLP

Court of Appeal judgement on ability of HMRC to disclose taxpayer documents

HMRC assessed Universal Payroll Services Ltd and Universal Project Services Ltd for input VAT, as the companies could not demonstrate that they had paid for, or indeed ever received, certain supplies. The companies went into liquidation, and so HMRC issued personal liability notices for £6m each against Paul Bell and Mark Mitchell, based on HMRC’s view that they were shadow directors. The First-tier Tribunal (FTT) directed that Bell and Mitchell’s appeals against the notices should be heard together, but the fact that Mitchell and Bell’s interests were ‘not aligned’ created difficulties for HMRC in deciding what evidence to disclose, as it had obtained documents in the course of an investigation into Mr Mitchell’s tax affairs, but Mr Mitchell challenged their relevance to the appeals. The Upper Tribunal (UT) endorsed the FTT’s decision about disclosure: that certain documents referring to interactions between Mitchell and Bell could be disclosed by HMRC, whereas certain other documents should not be disclosed. Mr Bell, supported by HMRC, appealed the matter to the Court of Appeal on the basis that the UT was wrong to refuse him sight of the disputed documents.

In a complex judgement considering HMRC’s statutory powers under the Commissioners for Revenue and Customs Act 2005 (CRCA), and the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the FTT Rules), the Court of Appeal has allowed the appeal. In summary, it has concluded that exceptions within the CRCA’s rules on taxpayer confidentiality were applicable to the facts of the case, with the result that HMRC could have relied from the outset (and can in principle rely now) on the CRCA to disclose the disputed documents to Mr Bell. The FTT lacked jurisdiction to adjudicate on HMRC’s exercises of its powers under the CRCA, and any challenge would have to be by way of judicial review. A majority of the Court found that the FTT did have jurisdiction to determine issues of case management under the FTT Rules, but the FTT had made some material errors and parts of the FTT and UT decisions must be set aside.

From the weekly Business Tax Briefing dated 17 March 2023, published by Deloitte 

Discovery assessments not valid as taxpayer defrauded by agent

The First-tier Tribunal (FTT) found that returns submitted with false enterprise investment scheme (EIS) claims were filed by an agent without the ‘knowledge or connivance’ of the taxpayer, so the discovery assessments into them were invalid.

A colleague of the taxpayer suggested that he might be entitled to a rebate for working offshore, and recommended an agent to him. The taxpayer received refunds for two years in a row before finding that he owed money to HMRC. The agent, who has been reported to the Serious Fraud Office, had filed tax returns on his behalf including claims for EIS relief, although it was aware that the taxpayer had never made EIS investments. The majority of the refunds obtained in this way were kept by the agent.

HMRC argued that the taxpayer was liable to pay back the refunds in full as specified by the discovery assessments. He had authorised the agent online by giving them a code. The taxpayer argued that he had not authorised the agent to file returns on his behalf, and had never authorised the EIS claims to be made.

The FTT found for the taxpayer. It believed his statement that the claims had been made without his knowledge and that he had not known that tax returns would be submitted, despite references to investments in email correspondence. As the returns had therefore not been submitted on behalf of the taxpayer, the FTT found that the discovery assessments were not valid. It will be interesting to see if this is appealed as the technical basis for the decision was not set out as clearly as it could have been, although the outcome seems fair for an individual who had been unknowingly defrauded.

Robson v HMRC [2023] UKFTT 226 (TC)

From the weekly Tax Update dated 14 March 2023, published by Evelyn Partners LLP 

HMRC directed to issue closure notices

The First-tier Tribunal (FTT) found that HMRC had enough information to issue closure notices for enquiries relating to the transfer of assets abroad (TOAA) rules. The additional information requested by HMRC was unnecessary.

The taxpayers, three members of the same family, were subject to long-standing enquiries. One had been under investigation for eight years, and had in fact died; the underlying events went back 20 years, and there had been previous enquiries. The enquiries opened when the case came to tribunal related to transactions that might come under the TOAA rules in relation to two offshore structures.

The taxpayers applied for closure notices. HMRC argued that it required further information before it could issue these, as it was as yet unable to set out how the TOAA charge would arise. It asked for the application to be dismissed, and the taxpayers to comply with information notices asking for extensive details of financial transactions to do with the offshore entities.

The FTT directed HMRC to issue closure notices. It considered the transactions that HMRC was currently suggesting the TOAA rules applied to, and found that none of the taxpayers were the ultimate recipients of and did not benefit from a £40m distribution. This meant they did not have to provide further details to HMRC. Although not every line of enquiry had been pursued to the end, the outstanding questions on the £40m transaction were described as a ‘fishing expedition’ rather than reasonably required. HMRC had enough data to make an informed judgement and should do so without further delay. HMRC was given six weeks from the date of the decision to issue the closure notices.

A useful reminder that in the right case, a closure notice application can be a very valuable mechanism to help move forward a long-standing enquiry,

Hitchens & Anor v HMRC [2023] UKFTT 127 (TC)

From the weekly Tax Update dated 9 March 2023, published by Evelyn Partners LLP

EIS relief claims made without certificates found to be careless

The First-tier Tribunal (FTT) has found that a taxpayer, whose returns included claims for enterprise investment scheme (EIS) relief without receiving the necessary certificates, was not careless. His adviser, however, had been careless in not checking that he had received the certificates. The discovery assessments raised by HMRC were therefore in time and upheld.

The taxpayer subscribed for shares in five companies and claimed EIS relief without waiting to receive the certificates. The companies were ultimately not issued with EIS clearance certificates by HMRC. He accepted at tribunal that he was not entitled to the relief, but argued that the discovery assessments were invalid as they were made out of time. HMRC issued them outside the time period for normal mistakes, but within the allotted time for careless errors.

He argued that he had relied on his agent, so had not been careless. The firm had been completing his returns since 1993, always on time, and he had been very careful with his paperwork. He felt that HMRC should have raised any issue with his returns in good time.

The FTT found that the taxpayer had not been careless in relying on a well-qualified adviser with whom he had a long-standing relationship. It was not careless to assume that the accountants preparing his tax return would deal with mechanical, administrative tasks such as making sure that any required paperwork had been obtained. It dismissed his appeal, however, as a person acting on his behalf – his tax adviser – had been careless in not checking that the correct certificates had been obtained, which is a relatively mechanical, undemanding exercise. The judge noted: “To allow a client to make a claim for EIS relief without making sure that the client held a valid EIS3 is carelessness of a high order.” The assessments for almost £255,000 were upheld.

Rizvi v HMRC [2023] UKFTT 124 (TC)

From the weekly Tax Update dated 1 March 2023, published by Evelyn Partners LLP

New HMRC Litigation and Settlement Strategy manual published

HMRC has published a new Litigation and Settlement Strategy (LSS) manual. The manual describes HMRC’s duty to apply tax law correctly and the framework within which HMRC resolves tax disputes, whether by agreement with the taxpayer or through litigation. The manual summarises the key elements of the LSS, referring readers to its full text for more information, and discusses how HMRC handles and resolves tax disputes under it.

From the weekly Business Tax Briefing dated 17 February 2023, published by Deloitte 

Personal liability notices upheld

The First-tier Tribunal (FTT) has upheld personal liability notices (PLNs) served on a director in a case where it found there had been deliberate VAT and corporation tax (CT) inaccuracies in his company’s declarations.

The taxpayer, sole shareholder and director of a company that he had incorporated from his sole trade, was issued with PLNs for VAT and CT inaccuracies. HMRC officers had visited the business, a diner, on two occasions, and their observations of takings did not match those declared. Following interviews with the taxpayer, the business was issued with estimated CT and VAT assessments for undeclared income, as well as penalties. The business was likely to become insolvent, and in fact later applied to be struck off, so HMRC issued the taxpayer with PLNs. The taxpayer argued that these were invalid, as the inaccuracies were not deliberate. On assessment of the evidence of the operation of the business, and how the returns were prepared, the FTT found that there had been deliberate inaccuracies attributable to the taxpayer, so upheld the PLNs.

This can be contrasted to the recent Bachra case, where the FTT cancelled PLNs for VAT liabilities. The FTT found that, although the company should have known about the inaccuracy in the submitted VAT returns, this was not the same as actual knowledge. The errors were therefore not deliberate inaccuracies, so a PLN could not be levied on the sole director.

Malone v HMRC [2023] UKFTT 98 (TC)

Bachra v HMRC [2023] UKFTT 91 (TC)

From the weekly Tax Update dated 15 February 2023, published by Evelyn Partners LLP

HMRC publishes manual on alternative dispute resolution (ADR)

HMRC has published a new Alternative Dispute Resolution Guidance (ADRG) manual, containing guidance on the operation of the ADR process in respect of tax disputes. The manual’s introduction highlights ADR as a flexible process in which an impartial and neutral HMRC mediator actively assists parties in working towards resolving a tax dispute without the need for formal proceedings if possible. The manual goes on to describe how a typical ADR process works in practice and the rules and guidelines applicable to taxpayers, HMRC case teams and mediators.

From the weekly Business Tax Briefing dated 10 February 2023, published by Deloitte 

Discovery assessment ‘staleness’ appeal dismissed

The Upper Tribunal (UT) – Judges Thomas Scott and Ashley Greenbank – has dismissed a taxpayer’s appeal in the income tax discovery assessment case Paul Harrison v HMRC. In 2015, HMRC raised a discovery assessment on Mr Harrison, assessing him to income tax for the tax year 2007/08, following a discovery of insufficient tax paid for the year. The taxpayer sought to challenge the assessment based on the concept of ‘staleness’ – ie, that an underlying discovery can lose its character as a ‘discovery’ where HMRC unduly delays between making the discovery and issuing the necessary assessment.

The Supreme Court, in its 2021 judgement Raymond Tooth, had dealt with the issue of staleness at length and had “decisively rejected the existence and application of such a concept”. Taxpayer’s counsel however noted that the Supreme Court’s statements on staleness were obiter dicta (ie, did not form part of the formal reasons why the Court dismissed the appeal) and therefore were not strictly binding on lower courts. Counsel argued that the UT was instead bound by the earlier analysis of the Court of Appeal. The UT considered that this was a case where it would be appropriate and justified to modify the conventional common law approach to binding precedent and obiter dicta. The UT found that the terms and nature of the Tooth Supreme Court decision led to the conclusion that the result it reached on staleness was considered to be definitive. 

The UT concluded that there was no need to consider whether the discovery in the present case was ‘stale’, as the doctrine of staleness is “deceased”. The judges did “not accept that [...] the doctrine of staleness is, like Monty Python’s parrot, ‘not dead, only sleeping’”. Two other grounds of appeal, concerning whether the burden of proof for establishing a discovery had been discharged and the quantum of the assessment, were also dismissed.

From the weekly Business Tax Briefing dated 10 February 2023, published by Deloitte

Application to postpone tax refused

The First-tier Tribunal (FTT) found that, in a case where the taxpayer had disclosed a large amount of untaxed remittances, postponement of the tax payment was not reasonable.

In the course of an HMRC enquiry, the taxpayer disclosed that he had made large remittances to the UK. He had only sought tax advice when the enquiry was opened and had been unaware of the tax implications at the time. On investigation, HMRC assessed a much larger amount. The taxpayer requested postponement of payment of all the tax until he had finished disputing it with HMRC. HMRC refused to postpone the tax on the original amount of remittances he had declared and the FTT agreed. There were no reasonable grounds for believing that he had been overcharged to tax.

Ravicher v HMRC [2022] UKFTT 454 (TC)

From the weekly Tax Update dated 20 December 2022, published by Evelyn Partners LLP 

FTT had no jurisdiction on loan charge point

The taxpayer appealed HMRC’s decision not to make a refund of tax under the disguised remuneration voluntary repayment scheme 2020, but this was struck out as the First-tier Tribunal (FTT) had no jurisdiction.

The taxpayer paid HMRC £6,500 in respect of a loan charge under a settlement agreement he entered into in 2019 for a 2004/05 loan. One of the recommendations of the recent loan charge review was that HMRC should set up a refund scheme for individuals who had made voluntary payments of liabilities relating to loans made before 2010. HMRC refused the taxpayer’s claim for a refund under the scheme. Its reasoning was that it would only make refunds where it could recover the tax elsewhere. This taxpayer had voluntarily paid the PAYE and national insurance contributions liability for a company, which he had no obligation to do. No funds were available in the company to pay the tax, as it was insolvent, so HMRC would not refund the individual.

The FTT reluctantly struck out the appeal, as it has no jurisdiction to hear appeals about this refund scheme.

Lambourne v HMRC [2022] UKFTT 466 (TC)

From the weekly Tax Update dated 20 December 2022, published by Evelyn Partners LLP

Child benefit charge discovery was invalid

The Court of Appeal (CA) has confirmed that discovery assessments made by HMRC, relating to unpaid high income child benefit charges (HICBCs) on a taxpayer who was not submitting tax returns, were not valid. The law allowed HMRC to assess amounts to income tax, which is not the same as directly assessing income tax.

The taxpayer was subject to the HICBC, which he had not paid. He also had not submitted a tax return because his income was fully taxed under PAYE. HMRC raised discovery assessments relating to non-payment of the HICBC over three years. The First-tier Tribunal (FTT) and Upper Tribunal (UT) had found that the discovery assessments were invalid. The FTT has made conflicting rulings regarding similar HICBC assessments in other cases.

The CA has upheld this judgement. As found by the UT, legislation allows HMRC to assess income that ought to have been so assessed. In this case, HMRC was seeking directly to assess income tax; the unpaid HICBC was an unpaid tax charge rather than untaxed income. Even on a purposive interpretation of the law, it was not open to HMRC to make the discovery assessments. The taxpayer was taxed correctly under PAYE, so no additional assessment of his income was due. The CA rejected HMRC’s request for it to “rectify” the legislation, as it could not be sure that the wording differed from the intentions of Parliament, though this may well have been an unintended outcome.

The legislation was amended in 2022, with retrospective effect, to allow HMRC to use discovery assessments to recover the HICBC. The new legislation does not, however, apply in relation to appeals against discovery assessments where notice had been given to HMRC by 30 June 2021.

HMRC v Wilkes [2022] EWCA Civ 1612

From the weekly Tax Update dated 14 December 2022 published by Evelyn Partners LLP

Appeal against £2m assessment made too late

The First-tier Tribunal (FTT) has refused to allow a taxpayer to enter an appeal four months late against a discovery assessment for £2m, for income he believed was taxable on his personal service company instead. His agent had advised him that it would be possible to make a late appeal, but the fact that he had relied on this to his detriment did not justify the disadvantage to HMRC of allowing him to make a late appeal.

The taxpayer had entered into a contract to develop a product in 2006, which included an entitlement to future royalties. He transferred his consultancy business into a personal service company in 2006. The point at which the company became entitled to the royalties was subject to debate, including how the relevant law of the American state concerned applied, and HMRC believed that he should have been taxed on the royalties for some additional years. It issued him with two alternative discovery assessments, one for 2011/12 and one for 2014/15.

The 2014/15 assessment was issued on 22 March 2019, for the sum of more than £2m. HMRC’s internal review upheld this on 31 March 2021, but the taxpayer’s agent, a large law firm, failed to notify an appeal to the FTT within the time limit.

The taxpayer applied to make a late appeal, contending that the tenor of his agent’s advice was that the dispute would be resolved by correspondence, not tribunal, that the agent would deal solely with HMRC communications, that there would be no issue with making a late appeal and that the best course tactically was to “delay as much as possible”. The appeal was finally submitted four months and seven days late, so 38 days after the three-month period in which HMRC had said it would not object to late appeals.

The FTT found for HMRC and refused to admit the late appeal. Although he had relied on his agent’s poor advice, this is not generally an excuse and though he had not appreciated the seriousness of the position, he had been copied into the correspondence containing the time limits and allowed his agent to ignore them. Allowing him to be exempt from the statutory time limit would have cost and resource implications for HMRC and would not help with the management of his litigation against the other discovery notice.

Barrett v HMRC [2022] UKFTT 423 (TC)

From the weekly Tax Update dated 30 November 2022 published by Evelyn Partners LLP

HMRC directed to issue closure notice

The appellant, a charity, applied to the tribunal for HMRC to issue a closure notice for an enquiry. The charity had submitted that it could not comply with HMRC’s information requests further due to a lack of records. The First-tier Tribunal (FTT) agreed that the charity should be issued with the closure notice and that HMRC should decide the outcome on the data it had already.

The charity had made payments in relation to an historic debt that did not have a clear, documented record. It claimed tax relief on the payments as they were made for the purposes of the charity. HMRC was concerned about whether or not the debt payments were legal obligations of the charity or illegitimate payments, and the accuracy of the debt balance.

The charity argued that due to the nature of the arrangements some documentation had never existed and some had been lost over the years as the debt originated in 1988. The FTT agreed that there were no reasonable grounds to maintain the enquiry and directed HMRC to issue a closure notice based on the documentation it had already. The taxpayer will be able to appeal the closure notice and progress the dispute from there.

Newpier Charity Ltd v HMRC [2022] UKFTT 373 (TC)

From the weekly Tax Update dated 2 November 2022, published by Evelyn Partners LLP

Appeal dismissed on £1.4m late payment surcharge

The Court of Appeal (CA) has found that a taxpayer who waited until well after his appeals against assessments were dismissed before paying the tax in dispute was liable to late payment surcharges. Some delay was reasonable while the judicial review was started, but by the time the CA had dismissed it, at the latest, he should have made the payments.

The taxpayer had entered into marketed tax avoidance schemes later found to be ineffective by the CA. This case was that of another taxpayer in the scheme, so this taxpayer was issued with follower notices. He applied for judicial review of HMRC’s decision to commence bankruptcy proceedings. At first, HMRC agreed not to enforce payment, but later issued advance payment notices (APN), which he did not comply with. Once his proceedings were dismissed, he paid the tax and interest due. HMRC issued surcharge notices calculated as percentages of the outstanding tax due to the late payment.

The taxpayer argued that he had a reasonable excuse for non-payment, as he believed no payment to be due, as the closure notices did not amend his self assessments, or that he had a real prospect of success on appeal, or that in fairness he should not have been expected to pay the tax before the judicial review proceedings concluded.

The CA found for HMRC, though did not accept all its arguments, including that an APN should always be complied with even if there are open proceedings. It found that the very latest the taxpayer should have paid the tax by was when the CA first found against him. His appeal to the SC was refused in those proceedings. Not paying initially was reasonable, but the length of delay in the latter part of his appeals process meant that the surcharges were valid.

Archer v HMRC [2023] EWCA Civ 626

From Tax Update June 2023, published by Evelyn Partners LLP

Failure of loan contractor scheme

A taxpayer who entered into a loan contractor scheme has lost his appeal to have it treated not as employment income. His initial disclosure was not clear enough to prevent a discovery assessment being raised.

The taxpayer entered into schemes where instead of a salary he received loans from offshore employee benefit trusts. The promoters had made disclosures under the disclosure of tax avoidance schemes (DOTAS) rules. HMRC assessed the amounts received as employment income in line with the decision in Rangers. The First-tier Tribunal (FTT) agreed, finding that the Supreme Court decision on redirected employment income applied here, so dismissed the appeal.

The taxpayer had sought to distinguish his case, as he had repaid some of the loans so argued that this showed they were real loans. The FTT dismissed this argument, as it is not the receipt of the loan that gives rise to the tax charge, but the entry of the funds into the scheme structure, as that is effectively the salary payment.

An important point raised in this case was around the taxpayer’s white space disclosure, which the FTT found was also not clear enough to prevent HMRC raising a discovery assessment.

Sheth v HMRC [2023] UKFTT 368 (TC)

RFC 2012 Plc (formerly The Rangers Football Club Plc) v Advocate General for Scotland [2017] UKSC 45

From Tax Update May 2023, published by Evelyn Partners LLP

Pensions scheme made unauthorised payments

A scheme designed to allow members to access pension scheme benefits without tax consequences has been defeated at the First-tier Tribunal (FTT).

A group of pension schemes were involved in an arrangement. Two individuals would each transfer their pensions into separate new schemes. One scheme then made a loan to the individual whose pension it was not, and the other scheme would reciprocate. The taxpayers argued that there were no tax consequences, as the loans were not made from an individual’s own pension.

The FTT agreed with HMRC in finding that this arrangement gave rise to tax consequences. The loans were unauthorised payments made by the pension schemes, which caused charges on the member whose pension it was. The scheme sanction charges were also upheld.

Dalriada Trustees Ltd & Ors v HMRC [2023] UKFTT 314 (TC)

From the weekly Tax Update dated 19 April 2023, published by Evelyn Partners LLP

Appeal on SDLT avoidance scheme dismissed

The Court of Appeal (CA) has upheld a Upper Tribunal (UT) decision that a stamp duty land tax (SDLT) avoidance scheme designed to allow a taxpayer to obtain sub-sale relief by granting an option did not work. As the option was never taken up then the second transaction was not substantially completed. This was a test case with 41 other appeals affected by the outcome.

The taxpayer entered into an SDLT avoidance scheme designed to allow him to purchase a residential property without paying SDLT. At the same time as the purchase, he granted an option to a company, of which he was the CEO, to allow the company to purchase the property. Although the option was not exercised he argued that sub-sale relief applied. The case had also considered the impact of Project Blue and the anti avoidance provisions.

The UT had found for HMRC, on the grounds that the secondary transaction had not been substantially completed, as although the option had been granted it had not been used. The UT had agreed, rejecting the taxpayer’s argument that the contract for the property sale and the grant of the option were part of one transaction, which had been substantially performed.

The CA also dismissed the taxpayer’s appeal. The scheme did not fall within the definition of ‘other transaction’ needed to gain the exemption in the legislation. In this case, the grant of the option was not an adequate transfer of rights.

There were other cases standing behind this one with approximately £4m of tax at stake.

There is a clear analysis of the application of the subsale legislation set out in the decision.

Fanning v HMRC [2023] EWCA Civ 263

Project Blue Ltd v HMRC [2018] UKSC 30 

From the weekly Tax Update dated 29 March 2023, published by Evelyn Partners LLP

SDLT sub-sale scheme appeal dismissed

Arrangements on a standard stamp duty land tax (SDLT) sub-sale scheme were found to be invalid. SDLT was charged on the purchase of the house.

The taxpayer bought a house for £325,000. He then sold it to a trust for £10,000, with exchange on the day of purchase, and completion scheduled for 124 years’ time. On the same day as purchase and exchange, the trust entered into a contract to sell the property to a third party. The trust had been settled by him for the benefit of him, his spouse, and family. These were pre-planned arrangements with the aim, the First-tier Tribunal (FTT) found, of avoiding an SDLT charge of £9,750 on the initial purchase, which was the taxpayer’s new home. The idea behind the scheme was that by selling the property on the same day as substantially completing the sub-sale contract to the trust, the initial purchase for £325,000 was ignored.

HMRC held that the SDLT was due, as the transfer to the trust was not strictly a secondary transaction nor transfer of rights. The limited right to call for conveyance, after 124 years, was too different from the first transaction, where completion was three days after exchange, to fall within the SDLT exemption for sub-sales. In addition, both the lack of simultaneous completion, and the artificial arrangements, meant that the scheme failed.

The taxpayer argued that the arrangements met the exemption in the legislation, that he did not have the technical skills to know whether or not HMRC’s assessment was correct, but that assessment 10 years after the transaction was unfair.

The FTT dismissed the appeal. Realistically, the second contract had no prospect of completion, so the trust had no entitlement, and the scheme failed. The taxpayer’s argument that SDLT payment should be postponed, as the second contract had not been substantially performed, was dismissed, as the payment of £10,000 was held to be substantial performance. Despite resolution taking 10 years, the FTT had no jurisdiction to cancel the interest charges, and HMRC had chosen not to levy penalties. The discovery assessment and closure notice were valid.

Olufote v HMRC [2023] UKFTT 130 (TC)

From the weekly Tax Update dated 1 March 2023, published by Evelyn Partners LLP

Taxpayer loses film scheme appeal 

The Court of Appeal (CA) has upheld a Upper Tribunal (UT) decision that a taxpayer was taxable on monies from a film scheme. Although they were not paid directly to him but used to offset interest costs, he was entitled to them and benefited from them.

The taxpayer entered into a Scion tax avoidance scheme under which he purchased and sold film distribution rights. As part of the proceeds, he was paid a share in the film profits annually, which had a fixed minimum level. The scheme generated a loss, which he claimed to set against his other income although this claim was denied by HMRC and the First-tier Tribunal (FTT) and UT. The UT and FTT also found that he was taxable on the annual payments, and it was on this point that he appealed to the CA.

The CA dismissed his appeal and found that he was entitled to the income. The income was not paid directly to the taxpayer, but was used to offset his interest costs. This was held to be an ‘enduring and real benefit’ to him, and it was found that he had rights to these payments under the terms of the contracts. Although he did not control the payment, he was entitled to it, so taxable on it.

The CA acknowledged that this decision would be very bitter for the taxpayer, who not only had lost his initial investment in the scheme, but was also taxable for income tax on income he never received. Financially, the taxpayer's investment in the scheme has been disastrous but that cannot affect the interpretation and application of the statute.

Good v HMRC [2023] EWCA Civ 114

From the weekly Tax Update dated 22 February 2023, published by Evelyn Partners LLP

IHT avoidance scheme fails

The First-tier Tribunal (FTT) found that the assignment of a reversionary interest was a transfer of value for inheritance tax (IHT). A previous FTT ruling on very similar tax planning arrangements found that there had been no transfer of value. Neither ruling is binding.

The late taxpayer was assigned a reversionary interest in an Isle of Man Trust. He was then granted the option to become the income beneficiary. He transferred his reversionary interest to a different trust, then exercised the option. Under the legislation applying from June 2012 – brought in to prevent this type of arrangement – this would have been a transfer of value by him chargeable to IHT, but this occurred in 2010. The aim of the arrangements was to transfer £1m to his family free of IHT.

His executors contended that the reversionary interest had not been acquired for money or money’s worth, so as it was held in a trust settled by a non-dom it was excluded property. The FTT disagreed, finding that the taxpayer had acquired the interest at the same time as he paid the fee for the scheme, which covered “the full package of rights and interests…included the granting of the option”. The FTT concluded that it was not excluded property. It also found that the transfer of the reversionary interest to the second trust was a transfer of value. The value of the option to purchase the income interest at the point the reversionary interest was transferred was nil. The consequence of this was that the transfer of the reversionary interest, although itself also commercially unsaleable and valued at nil, diminished the taxpayer’s estate by the value of the combined interest, being the reversionary interest combined with the option. The executors’ appeal was dismissed.

A case on the same arrangements, Salinger, was previously decided by the FTT for the taxpayer, because it was found, as here, that the interest was not excluded property, but that tribunal found there was no transfer of value.

Linington, The Executors of the Estate Of v HMRC [2023] UKFTT 89 (TC)

Salinger & Anor v HMRC [2016] UKFTT 677 (TC)

From the weekly Tax Update dated 22 February 2023, published by Evelyn Partners LLP

Time limit for transactions in securities counteraction assessments

There are a large number of cases where HMRC has issued counteraction assessments under the transactions in securities rules (Chapter 1, Pt 13, Income Tax Act 2007 (ITA 2007)) for the year 2015/16. In all of the cases that I am aware of, the assessments were issued during the tax year 2021/22, mostly in the first three months of calendar year 2022. I am also aware of several other advisers working similar cases with similar timing issues.

This is important because, under the rules that applied until 5 April 2016, we believe that the assessments had to be issued within four years of the end of the tax year in which the tax advantage arose – on the basis of the time limit in s34, Taxes Management Act 1970 – ie, by 5 April 2020, so that assessments raised by 5 April 2022 were two years too late. HMRC’s view is that it has a six-year time limit, by virtue of s698(5), ITA 2007, as it read before Finance Act 2016. 

Given the number of cases that rely, in whole or in part, on whether HMRC has raised assessments in time, a sensible approach, saving work for all parties, would be to arrange for a lead case on this issue to be considered by the tribunals and the courts, specifically. If the final outcome is that HMRC's assessments were issued too late, all the cases fall away. On the other hand, if HMRC wins on the timing issue, a number of cases will probably concede, on the basis that the income tax advantage was the main or one of the main reasons for entering into the transactions in securities. Either way, this approach means considerably less work for all parties, which is why we are advocating it as a sensible way forward.

The reason for this note, is therefore to ask if any readers are aware of cases from 2015/16 where HMRC has issued assessments after 5 April 2020. If you are aware of any such cases, it would be very helpful if you could pass details either to me, Pete Miller, or to Philip Ridgway at Temple Tax Chambers.

Contributed by Pete Miller CTA (Fellow), Head of Corporate Tax, Jerroms Miller

FTT dismisses scheme involving gold bullion

The First-tier Tribunal (FTT) has agreed with HMRC that PAYE was due on monies received by directors.

The taxpayer company set up an employee benefit trust (EBT) with plans to contribute £300,000 over 10 years. It agreed to purchase £300,000 of gold bullion from another company for its own directors (the other appellants in the case, who were also shareholders and employees). The gold was paid for by its immediate sale by the directors. This created a credit on the directors’ loan accounts, which they drew out as cash payments, and they agreed to assume the company’s obligation to fund the EBT in 10 years. HMRC alleged that the intention was to avoid the ‘disguised remuneration’ rules.

HMRC contended that the directors were taxable on the cash payments as earnings, despite their obligation to fund the EBT. This meant that they were also liable for tax on a benefit as they had not made good the PAYE that should have been withheld to the company, which was liable to account for the PAYE and national insurance contributions. Alternatively, the company is liable to tax on the value of the benefit (gold) provided to directors. HMRC also argued that the company was not entitled to a corporation tax (CT) deduction as the expenses were not wholly and exclusively for the purposes of the company’s trade, and were not recognised in accordance with generally accepted accounting practice.

The FTT agreed that the scheme did not work, for the reasons given by HMRC. The provision of gold was the provision of money or money’s worth. This was a clear payment and the fact that a future obligation to fund the EBT was in play did not mean that the payment was a loan. It upheld the PAYE determinations on the company as well as the loan benefit charges on the directors, rather than taxing the company on the value of the benefit. It agreed that no CT deductions were available, as the cash paid for gold was being recycled to the directors.

The decision shows that avoidance schemes concerning EBTs will continue to be challenged by HMRC and the courts are likely to take HMRC’s side.

Wired Orthodontics Limited & Ors v HMRC [2023] UKFTT 17 (TC)

From the weekly Tax Update dated 25 January 2023, published by Evelyn Partners LLP

Arrangements to create tax-free dividend defeated

The Upper Tribunal (UT) has upheld a First-tier Tribunal (FTT) judgement that arrangements designed to avoid a tax charge on a dividend were ineffective. Diverting the distribution through a settlor-interested trust did not leave the liability with the settlor company, as the company shareholders retained ultimate control and on a purposive interpretation they received the distribution.

The taxpayers entered into arrangements whereby funds left a company (A) of which they were the sole shareholders and directors, and reached their hands indirectly. A subscribed for shares in a new subsidiary (B), and settled them on trust for the shareholders, although the company was to receive a portion of any trust income and the trust property was to revert to it. B reduced its share capital and declared a dividend, which was paid to the trust beneficiaries. This was the lead case for several appeals on similar arrangements.

The taxpayers contended that under the settlements legislation, as B retained an interest in the trust it settled, the income of said trust was taxable solely on B. HMRC argued that under a purposive construction of the legislation the income was simply a distribution from A to the taxpayers. The UT agreed with HMRC and the FTT and dismissed the appeal. Before the year in which this marketed tax arrangement was used, A had made yearly distributions to the taxpayers in the normal way. The taxpayers did not dispute that the main purpose of the arrangements was to negate tax on the dividend. Under the Ramsay principle, the income was a direct distribution rather than income from a settlement.

HMRC also suggested that the taxpayers were the true settlors, so taxable on the income, as they had retained full control over A. The FTT concluded that the directors were not settlors on analysis of the settlements legislation, as they had not provided an element of bounty to the trust. The UT disagreed and remade the decision on this point to find that they were settlors, but this did not affect the outcome of the appeal overall.

Clipperton & Anor v HMRC [2022] UKUT 351 (TCC)

From the weekly Tax Update dated 10 January 2023, published by Evelyn Partners LLP

SDLT saving scheme for house purchase defeated

The Upper Tribunal (UT) has upheld a First-tier Tribunal (FTT) judgement that taxpayers who purchased a house in a company, which was then distributed to them due to a reduction in share capital, were personally liable for stamp duty land tax (SDLT) on the purchase. The arrangements made meant that they had the power to call for conveyance, as well as the company.

The taxpayers, a married couple, subscribed for all the shares in a newly incorporated company. It used the funds to place a deposit on a house; then, on completion of the purchase, it reduced its share capital to £2, making a distribution in specie of the house to the taxpayers. The original subscription to the company was made by the taxpayers giving promissory notes payable on the day of completion of the house purchase. No SDLT returns were made, on the basis that there was no consideration paid for the transfer of the house to the taxpayers. HMRC assessed the taxpayers for SDLT as though they had purchased the house personally.

The FTT found that the arrangement constituted a transaction under which a person other than the purchaser (the company) was entitled to call for conveyance. The distribution was contingent on the house purchase being completed. The consideration was the subscription to the company, slightly more than the amount the company paid for the house due to conveyancing costs.

The UT mostly agreed, holding that the taxpayers were liable to pay SDLT as per the FTT decision, but on a consideration £5,000 less, as this was the amount of the deposit paid by the company (£955,000), rather than the amount paid for the subscription of shares (£960,002)

Brown v HMRC [2022] UKUT 298 (TCC)

From the weekly Tax Update dated 14 December 2022 published by Evelyn Partners LLP

Tax avoidance scheme mostly fails

The First-tier Tribunal (FTT) found that a tax avoidance scheme did not work, but allowed incidental costs of transfer. The details of the scheme are of historic interest only, having since been legislated against.

The taxpayer entered into an avoidance scheme involving gilt strips. He bought some, then granted the option to purchase them to a trust of which he was both settlor and beneficiary. The option was granted for 90% value and on exercise the trustees acquired them for 10% of the value. The taxpayer claimed an income tax loss of the difference between purchase price and exercise price.

The FTT found for HMRC that this loss was not allowable. The amount allowed as ‘payable on the transfer’ was a commercial concept that should be given a wide practical meaning. The transfer consisted of both grant and exercise, so there was no real loss to the taxpayer, other than the incidental costs of disposal. The loss allowed was revised from £1,349,600 to £6,300.

Watts v HMRC [2022] UKFTT 408 (TC)

From the weekly Tax Update dated 22 November 2022, published by Evelyn Partners LLP

‘Special circumstances’ in penalty cases

There are many ways to incur a penalty under UK tax law. These include failing to notify chargeability, filing an incorrect tax return, filing a return late or paying tax late. The level of the penalty is set by reference to (broadly) the degree of culpability, whether there is an overseas element and the extent to which matters are disclosed to HMRC. But after taking all those factors into account, HMRC must also consider whether there are any ‘special circumstances’ that warrant a further reduction. HMRC caseworkers are not authorised to make a ‘special circumstances’ reduction: only ‘Head Office’ can do that.

The law provides that neither the ability to pay, nor the fact that a potential loss of revenue from one person is balanced out by a potential overpayment by another, can count as a ‘special circumstance’. And the examples given in HMRC’s published guidance of cases in which it might consider a special reduction are not only highly fact-specific, but describe scenarios in which many people would consider the charging of a penalty outrageous. It’s fair to say that HMRC doesn’t fall over itself in its enthusiasm to find opportunities to apply the ‘special circumstance’ reduction.

HMRC’s decision on what reduction (if any) to apply can be reviewed on appeal – but only if the decision or the decision-making process can be shown to be flawed in a judicial review sense: that is, if the decision is tainted by HMRC having taken into account irrelevant factors or having failed to take into account (or having given insufficient weight to) relevant ones. So Tribunal appeals on ‘special circumstances’ are relatively uncommon, and those reaching the Upper Tribunal more so.

One such recent appeal was by Peter Marano in [2023] UKUT 113 (TCC). He didn’t file his 2012/13 tax return until 2017, and as result incurred late filing penalties of nearly £600,000. HMRC had not considered that there were any ‘special circumstances’ justifying reduction. The First-tier Tribunal (FTT) had found HMRC’s decision-making process to be procedurally flawed, but nonetheless could find no ‘special circumstances’.

The Upper Tribunal (UT) held that the FTT had itself got it wrong by declining to take into account three factors.

• Mr Marano had notified HMRC of the gain in December 2012. HMRC was thus aware of the gain long before the tax return in question was due to be filed.

• Mr Marano had paid the tax in December 2012. The fact that he had done this for reasons connected with obtaining double taxation relief against US tax (Mr Marano was a US citizen) was irrelevant and the FTT had been wrong to dismiss it.

• The size of the penalty and whether it was proportionate to the offence. Here, the UT observed that although “proportionality cannot be a special circumstance in cases where there is no liability and a minimum penalty is levied’, it remained a possibility that “proportionality might, where a tax-geared penalty is levied, be a special circumstance depending on the particular facts of that case”.

It’s important to be aware that the UT did not rule that there were ‘special circumstances’ and remake the decision: it merely ruled that these factors should have been taken into account by the FTT (and, before that, by HMRC) in deciding the issue. It therefore remitted the case to the FTT to have another go (but specifying that it must be a different panel, lest a dispassionate observer might consider the panel to be subconsciously influenced by its earlier decision).

Getting a ‘special circumstances’ reduction might still be almost as challenging as getting a camel through the eye of a needle: but the Marano decision does, perhaps, make it just a little bit less grim.

Contributed by David Whiscombe writing for BrassTax, published by BKL

Penalty of £280,000 upheld as notices sent to taxpayer

The First-tier Tribunal (FTT) found that HMRC had proved penalty notices were sent to a taxpayer, and that the taxpayer had not rebutted the presumption that he had then received them.

The taxpayer appealed against 12 penalties for late payment and late filing amounting to over £280,000. He argued that these were invalid as he had never received penalty notices. Penalty assessments must be notified to the taxpayer.

The FTT upheld the assessments, finding that HMRC had proved that the notices were sent. HMRC produced evidence from its systems that the notices had been generated, and the address to which they were sent. The taxpayer gave evidence about the arrangements for dealing with post at his home, but as he had received other HMRC correspondence it was found that it was not credible that the only post from HMRC he had not received was the penalty notices.

Burley v HMRC [2023] UKFTT 59 (TC)

From the weekly Tax Update dated 2 February 2023, published by Evelyn Partners LLP

Child benefit charge: failure to notify penalty cancelled

The First-tier Tribunal (FTT) has cancelled a failure to notify penalty for the high income child benefit charge (HICBC), as the taxpayer had not been notified by HMRC to stop claiming.

The taxpayer’s wife had been claiming child benefit since 2005. From 2012, HMRC ran press campaigns about the introduction of the HICBC, and included information on the HMRC website. The taxpayer was ineligible for child benefit in 2018/19, by £1,000, and only partially entitled in 2019/20, but the claim was not stopped until 2021 when HMRC wrote to the taxpayer for the second time. The taxpayer stated that he had not received a nudge letter in 2019, despite HMRC records showing this as sent.

The taxpayer paid the HICBC incurred, and penalties, then appealed the penalties. HMRC cancelled the 2018/19 penalty before the hearing. The FTT cancelled the 2019/20 penalty as the taxpayer had a reasonable excuse for his error. He was not in the self assessment regime, had no reason to seek out the information on the HMRC website and HMRC had not proved that he had received the purported 2019 nudge letter. The judge believed his statement that he had not done so, for reasons including that he rushed to pay the charge when made aware by the second letter, borrowing money to do so.

Goodall v HMRC [2023] UKFTT 18 (TC)

From the weekly Tax Update dated 19 January 2023, published by Evelyn Partners LLP 

Child benefit penalties cancelled, but charges upheld

The First-tier Tribunal (FTT) cancelled failure to notify penalties for the high income child benefit charge (HICBC), but upheld the assessments. It did, however, ask HMRC to consider cancelling the assessments voluntarily, as HMRC’s incorrect initial advice that the penalties could not be appealed had caused the taxpayer to lose the chance of making specific technical arguments used in other cases.

HMRC issued HICBC assessments and penalties for three tax years. The FTT allowed the taxpayer to make a late appeal, which HMRC did not object to, as HMRC had incorrectly told him that he could not appeal the assessments at tribunal. The delay to his appeal did however mean that he had not made an appeal against the assessments by 30 June 2021, although he did appeal the penalties before that date. Taxpayers who made their HICBC assessment appeal before 30 June 2021, and had the case stayed behind Wilkes, as this case was, are allowed to use the same technical arguments as Mr Wilkes, and therefore generally win their case. As the taxpayer had not appealed the assessments before the 30 June date, the assessments were upheld. The FTT did, however, ask HMRC to consider using its care and management powers to cancel the assessments, and put the taxpayer in the position he would have been had he not followed the HMRC advice not to appeal at first.

The FTT cancelled the failure to notify penalties. The taxpayer had been on PAYE for more than 40 years, with his only communications from HMRC about PAYE coding notices. His partner had been claiming child benefit for more than a decade before the introduction of the HICBC. He stated that he was not aware of its introduction and that he had not received a 2013 letter from HMRC about it, nor a 2019 nudge letter. On receiving a second 2019 nudge letter he rang HMRC, but after being told how to check, and doing so, believed that he had no HICBC liability. The assessments were raised in 2021. The FTT accepted that he was an honest taxpayer who had done his best to comply, so had a reasonable excuse for failing to notify.

Kensall v HMRC [2023] UKFTT 11 (TC)

Wilkes v HMRC [2022] EWCA Civ 1612

From the weekly Tax Update dated 19 January 2023, published by Evelyn Partners LLP