WTT’s Cases Round-up

WTT’s Cases Round-up

We have reviewed and analysed HMRC tax cases that have gone to tribunal in recent months. The four cases featured here highlight the complexities of each dispute along with the key points to note.

Odey Asset Management LLP v HMRC https://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08018.html

An interesting case in advance of Tooth, due to be released this Friday by the Supreme Court. Here the First Tier Tribunal found that an LLP) designed to reallocate profits via a corporate vehicle using allocations of Special Capital was ineffective and that income tax was chargeable on the individual directors.  

Odey Asset Management LLP (Odey) adopted a Remuneration Policy under which a proportion of profits were allocated to a corporate member of Odey and then made recommendations to PSCL that it should exercise discretionary powers to contribute Special Capital to Odey and allow the individual members to withdraw that Special Capital on specified dates.

HMRC claimed that the receipt of special capital was under miscellaneous income provisions or should be profits of the partners, via discovery assessments.

Key Takeaways;

1. No onus on HMRC to rebut the argument that a discovery was made earlier by another officer.
2. Insufficiency of Tax is not assumed by awareness of a scheme.
3. Request for further information by HMRC does not constitute awareness of an insufficiency of Tax
4. A discovery is not made if an officer thinks an amount should be taxed but doesn’t know under what provisions.
5. If HMRC are seeking settlement and so don’t issue discovery assessments, it does not assume that a discovery has not taken place.
6. Discovery doesn’t require a detailed explanation of the Tax at stake

Gareth Phillips v HMRC https://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08074.html

An odd case here, but one which is worth taking some time to dissecting for those interested in ongoing litigious action in the contractor loan arrangements world.

Mr Phillips was a self-employed “insurance consultant” supplying his services to a broker who was looking to bring a medical negligence product to market.  In the context of what seems to be a business dispute (an employment tribunal claim is mentioned which was dismissed), he asked HMRC to review if he was employed rather than self-employed.

Key Takeaways;

1. Phillips made a self-referral to HMRC, as he approached them rather than the other way around. From this he was able to receive a formal review from HMRC which could then be appealed.
2. That formal view is somewhat unclear as there is no assessment from HMRC that any additional tax is due here, so what exactly was the appealable decision?
3. s8(1) Social Security Contributions (Transfer of Functions) Act 1999 is mentioned so presumably that but no NI is claimed by HMRC.

THE QUEEN (on the application of M SPORT LIMITED) v HMRC https://www.bailii.org/ew/cases/EWCA/Civ/2021/561.html

Here the taxpayer received an FN and APN in respect of a scheme (it’s not mentioned which one). They lodged representations against the FN but before HMRC could respond to them they also launched JR proceedings.

The representations were later accepted, and the FN (and associated APN) were withdrawn. Therefore the Judicial review was regarded premature and superfluous.

The Taxpayer claimed costs of £129k+ as a result of the JR action.

The Court of Appeal held that no costs should be awarded due to the premature nature of the action, such that the representation process had not been exhausted.

It is worth remembering here that a JR needs to be brought within time, from the date where the decision being appealed is made. Here, not decision from HMRC has been made due to no response from the representation. Consequently, the JR was made too early and costs were not awarded.

HMRC v Premier Pictures Ltd https://www.bailii.org/uk/cases/UKFTT/TC/2021/TC08043.html

Premier Pictures, a well-known film scheme, the workings of which is set out in Appendix A of the judgement.

The issues covered in the judgement included;

1. “Did the arrangements amount to “arrangements” (as defined in Section 308(1))? (‘Issue 1”)
2. If so, did those arrangements fall within any description in the Arrangements Regulations (see Section 306(1)(a))?  (Issue 2”)
3. Iif so, did those arrangements enable, or might they have been expected to enable, any person to obtain an advantage in relation to any tax (as defined in Section 318(1)) that is so prescribed in relation to arrangements of that description (see Section 306(1)(b))? (“Issue 3”)
4. If so, were the arrangements such that the main benefit, or one of the main benefits, that might have been expected to arise from the arrangements was the obtaining of that advantage (see Section 306(1)(c))? (“Issue 4”) and
5. If so, does the language used in Section 314A(3) mean that I nevertheless have a discretion not to make the order under Section 314A which has been requested by the Applicants or am I bound to make that order once all the conditions in Section 306(1) are met and, if the former is the case, should I exercise my discretion not to make the order in relation to the arrangements? (“Issue 5”)”

The judge held that in consideration of all the above, the arrangements were indeed notifiable under DOTAS.

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