Avonside Roofing Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 May 2021 |
| Neutral Citation | [2021] UKFTT 158 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 158 (TC)
Victoria Nicholl
Ms Ximena Montes Manzano, counsel, instructed by PwC LLP, appeared for the appellant
Ms Glynis Millward, litigator of HM Revenue and Customs' Solicitor's Office, appeared for the respondents
Corporation tax – PAYE – Whether information required by information notice reasonably required – No – Appeal allowed – FA 2008, Sch. 36, para. 1, 32, 64.
The First-tier Tribunal (FTT) allowed a taxpayer company's appeal against an information notice, finding that the information and documents required by the notice were not reasonably required for checking whether the inaccuracy in the taxpayer's return was due to carelessness such that an inaccuracy penalty could be charged, but instead related to whether the taxpayer had been careless in its implementation of the tax planning scheme which had led to the inaccuracy.
The appellant (Avonside) had participated in a remuneration planning scheme in 2009–10 which had later been found to be ineffective as a result of “the Rangers litigation”. HMRC claimed to have issued Avonside with a reg. 80 determination under the Income Tax (Pay as You Earn) Regulations 2003 (SI 2003/2682), reg. 80 in respect of the scheme. Avonside disputed receiving the determination and their appeal against it was ongoing. After the determination was issued HMRC opened an investigation into Avonside's tax return for the accounting period ending 31 December 2009 and later issued a follower notice.
HMRC issued an information notice under FA 2008, Sch. 36, para. 1, requiring information about the scheme, including communications with, and advice received from, the scheme promoter and various advisers. Avonside appealed against the notice.
HMRC submitted that they required the information because Avonside had filed an inaccurate return and they needed to consider if Avonside had acted carelessly or deliberately which if they had would allow penalties to be charged under FA 2007, Sch. 24.
Avonside submitted that the company's tax position in relation to the arrangements was the subject of a follower notice and a reg. 80 determination, and so HMRC's request for further information following their issue was inconsistent with the conclusions that they must have reached. Instead Avonside submitted that HMRC had issued the reg. 80 determination outside the normal time limits without evidence of carelessness, and that the chronology of events suggested that checking the penalty position was an ulterior motive for gathering evidence to support their position that the reg. 80 determination was validly issued.
The FTT accepted that as HMRC had yet to make a decision on the PAYE penalty issue, they were not precluded from issuing a notice if the information could be shown to be “reasonably required”. This was on the reliance of Condition D in FA 2008, Sch. 36, para. 21, which provided that where a return had been submitted a notice could be given for the purpose of obtaining any information or document required for checking the person's position as regards PAYE etc, which in this case was for checking Avonside's position as regards an inaccuracy penalty under FA 2007, Sch. 24.
The FTT went on to consider whether the information and documents listed in the notice were “reasonably required” to check whether the inaccuracy in the return was due to a failure on Avonside's part to take reasonable care, such that under Sch. 24, para. 3 a penalty could be charged. In each case the FTT found that HMRC had not established that the information was so reasonably required. In most cases the HMRC Officer's explanation for requiring the information related to whether Avonside had been careless in its implementation of the arrangements as opposed to whether the inaccuracy in Avonside's return was due to a failure to take reasonable care.
HMRC had the burden of proof to show that the information notice met the conditions in FA 2008, Sch. 36. While they were able to show that the notice was issued for the valid reason of checking the taxpayer's tax position, they were unable to show that the information and documents were reasonably required for that purpose.
[1] This is an appeal against an information notice issued by the Respondents (“HMRC”) to the Appellant (“Avonside”) on 9 November 2018 pursuant to Schedule 36 to the Finance Act 2008 (“Schedule 36”) as varied on 29 November 2019 (“the Notice”).
[2] Avonside implemented tax planning arrangements with the assistance of Clavis Tax Solutions Limited (“Clavis”) and a remuneration consultant, Herald Employment Services (“Herald”), in the tax year 2009/10. These types of arrangements are known as Clavis Herald arrangements and this type of arrangement, involving an employer contribution to establish an employee benefit trust, was the subject of the decision in RFC 2012 plc (in liquidation) (formerly Rangers Football Club plc) v Advocate General for Scotland [2017] BTC 22 and the earlier decisions in that case (“the Rangers litigation”).
[3] HMRC claim that they issued a determination under regulation 80 of the Income Tax (Pay as You Earn) Regulations 2003 on 5 April 2016 (“the Regulation 80 determination”) in respect of the implementation of Clavis Herald arrangements by Avonside in 2009/10. Avonside dispute receipt of the regulation 80 determination, and the appeal against it is ongoing.
[4] Avonside claim that the information and documents requested by HMRC's Notice are not reasonably required for the purpose of checking Avonside's tax position on the basis that there is no realistic prospect of a penalty, as no one could have known the consequences in 2010. This decision considers whether HMRC have established that the Notice meets the required conditions set out in Schedule 36.
[5] I am grateful to the parties for producing skeleton arguments notwithstanding that this appeal was categorised as a basic case, and for their submissions on the draft decision.
[6] There is no dispute about the fact that Avonside entered into Clavis Herald arrangements and that some £1.3m of the company's funds were paid to a remuneration consultant which settled funds into an employee benefit trust. The trustees allocated funds to sub trusts for the benefit of certain employees of the company. The sub trusts used the funds to acquire shares in Avonside's holding company.
[7] Avonside's accountants, Champion Accountants, had told them that there was an opportunity to plan their tax affairs, and the promoter of the scheme, Clavis, presented to four directors of Avonside and the accountant from Champion. The accountant concerned became part of the Afortis group who advised Avonside in relation to the arrangements.
[8] HMRC became aware that Avonside had participated in Clavis Herald arrangements as a result of information obtained from a third party. HMRC's position is that the amounts paid to the settlor of the employee benefit trust (EBT) should have been included in the company's PAYE return. HMRC issued a warning letter to the company on 29 March 2016 to indicate that a regulation 80 determination may be issued, but it issued the determination in respect of the PAYE tax due for 2009/10 on 5 April 2016 before receiving a response or information from the company.
[9] Officer Hoare opened his investigation into Avonside's tax return for the accounting period ended 31 December 2009 by letter dated 12 September 2017. The letter advises Avonside that Officer Hoare believes that the company's tax return is inaccurate due to its participation in Clavis Herald arrangements. The letter acknowledges that the company's agent had contacted HMRC with a view to reaching a settlement of this matter, but the letter closes with a statement that if they are unable to agree the amount of additional tax the company owes, Officer Hoare may issue a discovery assessment. The letter confirms that the enquiries would be conducted under Code of Practice 8 enquiry and that, in order to progress matters, Officer Hoare required the documents listed in the schedule to the letter. Officer Hoare told the Tribunal that he was aware that the regulation 80 determination had been issued by this stage and that his reference to a discovery assessment was in respect of corporation tax.
[10] Following a call with Avonside's agent, Mr Roseff of PricewaterhouseCoopers LLP (“PwC”), Officer Hoare wrote to update the company on 22 September 2017. This letter advised that HMRC had received an appeal in respect of a determination raised under regulation 80 and that the documents that had been requested on 12 September were no longer required.
[11] In 2017 HMRC introduced settlement opportunities for what they described as disguised remuneration schemes, and in November 2017 HMRC published “disguised remuneration settlement terms” which were used up to 30 September 2020.
[12] On 20 June 2018 Officer Hoare sent an email to PwC stating that he held “restricted” information that gave him reason to suspect careless or deliberate behaviour on Avonside's part. This email exchange was followed by a call on 22 June 2018 in which Officer Hoare suggested that HMRC's view was that the way in which the scheme had been implemented showed a degree of predetermination which may mean that the company is liable for a penalty.
[13] On 26 July 2018 Officer Hoare issued an informal request for 50 items of information and documents.
[14] On 26 October 2018 HMRC issued a follower notice in respect of the remuneration scheme by reference to the decision in Landid Property Ltd [2017] TC 06111. The notice states that remuneration consultant, as settlor, “was the person in receipt of the amount paid in respect of the employee's or employees' work, and the payment to it should have been subject to deduction of income tax under the PAYE Regulations”. Avonside is “liable to account for the income tax that you should have deducted from the payment to...
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