Aemyrie Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 March 2024 |
| Neutral Citation | [2024] UKFTT 247 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2024] UKFTT 247 (TC)
Tribunal Judge Amanda Brown KC, Duncan McBride
First-Tier Tribunal (Tax Chamber)
Coronavirus job retention scheme – Whether employees were fixed or variable rate employees – Variable – Whether certain payments were contrary to the exceptional purpose of the scheme – Yes – Whether we should exercise our powers to increase the assessments – Yes.
In Aemyrie Ltd & Ors [2024] TC 09116, the First-tier Tribunal (FTT) found that employees were variable rate employees and that, not only were coronavirus job retention scheme (CJRS) claims incorrectly calculated, some of the claims were contrary to the purpose of the CJRS and there was no entitlement at all. The FTT therefore exercised its power to increase HMRC’s original assessments.
Aemyrie Ltd was one of three companies wholly owned by Peter Walsh (PW) which had each been created to operate different aspects of his business idea to produce and sell luxury barbecue and outdoor cooking equipment. Aemyrie Ltd was the principal company which would supply the core products. Aemyrie Holdings Ltd was created to supply services and accessories and True Wood Grills Ltd to exploit the knowhow and brand in other jurisdictions. Both of these other companies relied entirely upon Aemyrie Ltd for their future potential turnover. At the relevant time, there were design problems and the business had not yet launched and there was no certain date for doing so, though preliminary marketing had been carried out and interest had been expressed.
Aemyrie Ltd claimed under the CJRS from 1 March 2020 and the two other companies made claims under the extended CJRS from 1 November 2020. All claims were on the basis that both PW and Claire Hallett-Walsh (CHW) were “fixed rate” employees and were calculated using their contractual salaries.
HMRC initially issued assessments in respect of overpaid CJRS in respect of PW and CHW on the basis that they were “variable rate” employees and thus any CJRS claims should have been calculated using the amounts actually paid, rather than the purported contractual entitlements. However, in its statement of case HMRC invited the FTT to use its power, given by TMA 1970, s. 50(7), to increase the assessments on the basis that the claims made from 1 November 2020 were contrary to the “exceptional purpose” of the CJRS and thus there was no entitlement.
There were therefore two issues to be decided:
- Were PW and CHW fixed or variable rate employees?
- Were any of the claims contrary to the exceptional purpose of the CJRS?
PW had a contract of employment from 1 January 2018 stating an annual salary of £37,500 but as the company had insufficient turnover to pay the full amount, after initially taking two nominal sums, no salary was taken until April 2019. Between May 2019 and February 2020 he took a total of only £2,700 and this was accepted to have been because of a binding waiver. No unpaid amounts were credited to a loan account or reported under RTI or shown in the company accounts as owing to him. Furthermore, given that the company had not yet launched its products due to the design problems and had no foreseeable date for when it might do so, there was no expectation for any specific amounts to be paid. The FTT found it inconceivable that the decision to pay amounts of £3,125 in March and April 2020 was driven by anything other than the desire to claim CJRS.
CHW also had a contract of employment with Aemyrie Ltd which commenced from 1 January 2020 and with the two other companies, commencing 1 March 2020, each with a stated salary of £37,500. In fact, she took only one payment of £3,125 in March 2020, followed by just £100 in April and £10 in May and June 2020. This was also said to have been because of her decision to waive the majority of her salaries. Again, the FTT found that the pattern of payments supported the conclusion that the full monthly salary had only been taken to support a CJRS claim.
As the amounts actually paid had varied and, the FTT found, the salary waivers had been binding (so that there was no entitlement to back pay should the business turnover later increase to the point where the full salaries could be afforded), the FTT held that both PW and CHW were variable rate employees.
PW and CHW were both formally furloughed from 22 March and made redundant from 31 October, but immediately reinstated on the same terms from 1 November and put back onto furlough. The reason for redundancy was because it was necessary in order for them to be able to claim Jobseeker’s Allowance, and it was contended by HMRC that the reinstatements were made only because they realised that the extended CJRS (announced 31 October 2020) might prove more financially beneficial.
The FTT considered whether claims had been made contrary to the purpose of the CJRS and found that they had. The Tribunal decided that payments to PW and CHW had only been made with the intention of establishing a CJRS claim. Given the lack of turnover, there was no justifiable business reason for the salaries purported to be due under the contracts of employment. Redundancies had been made for purely personal reasons and reinstatement similarly. CJRS was intended to help companies which had incurred genuine costs of employment in respect of employees who were unable to work due to coronavirus. That did not apply in respect of Aemyrie Holdings Ltd and True Wood Grills Ltd, neither of which had any activities or reasonable prospect of activities and that this was unrelated to the pandemic.
The appeal was dismissed and the FTT increased the assessments.
A number of other problems were discussed. HMRC ran the alternative argument that the contracts of employment had been a sham and whilst the FTT declined to agree, it was nevertheless “deeply uncomfortable” with certain coincidences identified. There were also several conflicts in the evidence: all the contracts were purported to be full time (35 hours per week) which would have necessitated a total working week of 105 hours, which was plainly impossible. PW simultaneously maintained that the waiver of salary was binding but that he would have been entitled to back pay. He was also unable to explain why, having apparently set the level of his salary by reference to the household income required to maintain family finances, he immediately decided to take less than a third of the amount he said he needed. The accountant was unable to explain discrepancies in the staff costs shown in the accounts and the FTT found his evidence to be of no assistance at all, considering that his statement “materially overstated his involvement”.
Comment by Martin Jackson, Lead Tax Writer, Croner-i Ltd.
Mr S Brodsky of Counsel instructed through direct access and appeared for the appellant
Ms Ameerelly litigator of HM Revenue and Customs' Solicitor's Office appeared for the respondents
[1] This appeal concerns assessments (Assessments) raised by HM Revenue & Customs (HMRC) pursuant to paragraph 9 Schedule 16 Finance Act 2020 (FA20) issued to each of Aemyrie Limited (AL), Aemyrie Holdings Limited (AH) and True Wood Grills Limited (TWG) (collectively Appellants) in respect of payments concluded by HMRC to have been incorrectly made to those Appellants under the coronavirus job retention scheme (CJRS).
[2] The Assessments under appeal were initially made and subsequently revised by HMRC such that we were invited to consider the Assessments in the sums set out in the table attached as Appendix A. The Assessments are made on the basis that Peter Walsh (PW) and Claire Hallett-Walsh (CHW) were variable rate employees under the terms of the various Treasury Directives issued pursuant to section 76 Coronavirus Act 2020 (CA20) and by which entitlement to CJRS was determined.
[3] There is no dispute between the parties as to the quantum or calculation of the Assessments at Appendix A if we are satisfied that PW and CHW were variable rate employees.
[4] However, and by their statement of case and subsequent skeleton argument, HMRC invite us to increase the amounts assessed against AH and TWG. They do so on the basis that those companies were not entitled to claim CJRS at all predominantly on the basis that payment of CJRS claims to those companies are contrary to the exceptional purposes of the CJRS. HMRC also make certain allegations that the contracts of employment with those companies have been fabricated. It was not entirely clear to us, but we interpret the allegation of fabrication as having been pleaded as evidence that payments were contrary to purpose. The amounts we are invited to increase these assessments to are shown in Appendix B.
[5] For the reasons given below we dismiss the appeal and increase the assessments determining the amounts in respect of which the Appellants received payments under CJRS which they were not entitled to. These amounts are shown in Appendix B.
[6] AL, AH and TWG are related companies under common control. PW is the sole director and shareholder of each company.
[7] AL claimed CJRS payments for PW for CJRS claim periods running from 1 March 2020 to 31 October 2020 and for both PW and CHW for the claim periods running from 1 November 2020 to 31 March 2021. AH and TWG claimed CJRS payments for both PW and CHW for the period 1 November 2020–31 March 2021. Each of the claims was made on the basis that PW and CHW were paid £3,125 for the months in which the claims were made i.e. one twelf of an annual salary of £37,500 by each of the Appellant companies.
[8] On 11 November 2020 HMRC opened an enquiry into the CJRS claims made by AL. AL cooperated with the enquiry providing the information requested by HMRC. On the basis of that information HMRC concluded that in the period prior to 19 March 2020 in the case of PW and in the period prior to 1 November 2020 in the case of CHW each had been remunerated at a variable rate such that the...
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