Donatas Labeikis and Others v The Commissioners for HM Revenue & Customs

JurisdictionEngland & Wales
JudgeMaster Dagnall
Judgment Date19 November 2021
Neutral Citation[2021] EWHC 3237 (QB)
Docket NumberClaim No: QB-2020-004697 & QB-2020-004698
CourtQueen's Bench Division

[2021] EWHC 3237 (QB)



The Royal Courts of Justice





Master Dagnall

Claim No: QB-2020-004697 & QB-2020-004698

Donatas Labeikis and Others


Eduardo Kang Kim and Others
The Commissioners for her Majesty's Revenue & Customs

Setu Kamal (of Tax Chambers, 15 Old Square, London, WC2A 3UE) appeared on behalf of the Claimants.

Sadiya Choudhury and Sam Chandler (Instructed by Solicitors Office and Legal Services, HMRC, 14 Westfield Avenue, Stratford, London E20 1HZ) appeared on behalf of the Defendant.


Daily Transcript by John Larking Verbatim Reporters

One Cow Lane, Church Farm, South Harting, West Sussex, GU31 5QG Phone: 01730 825 039

No of folios: 466

No of words: 33,498

(Friday, 19 November 2021)




This is my judgment in two linked claims on the defendant's (that is HMRC's) application brought by application notice dated 12 February 2021 to dispute the jurisdiction of this court and to seek to strike out for abuse of process. The claims are identical in practice and are brought by a substantial number of different claimants (“the taxpayers”) under claim forms issued in 2020 under QB numbers 04697 and 04698 on 31 December 2020. It is said that it was done on that date to avoid potential prejudice arising from the withdrawal arrangements regarding Brexit and their possible effect on potential damages claims.


Each of the claim forms were a Part 8 claim form and they each seek declarations set out in the Particulars of Claim and submit that something which I will come to call “the loan charge” as defined in the Particulars of Claim is both invalid and incompatible with European law and a disguised criminal charge for the purposes of Article 6 of the Human Rights Convention.


One of the declarations sought is a declaration that the claimant should be entitled to recover from the UK Government any actual loss arising by reason of those matters, although there is no specific claim for damages, a matter to which I will return in due course.


The defendants, HMRC, contend that, firstly, this is a matter for the First-Tier Tribunal (Tax Chamber) and not for the courts. It is common ground that for the taxpayer to be able to bring this dispute to the First-Tier Tribunal would involve the Revenue first having either raised an assessment or at least having started an inquiry and where it is again common ground that that has not yet occurred. The Revenue's primary case is that the claimant should wait for that to occur and then bring the matter, should they so choose, to the First-Tier Tribunal.


The Revenue's second position is that, if that first is wrong and the matter is for the courts to decide rather than the Tribunal, then the appropriate procedure is that of a claim for judicial review in accordance with Part 54 of the Civil Procedure Rules and not an ordinary claim, whether by Part 7 or Part 8. Their third position is that, if they are wrong on the first two and an ordinary claim is permissible, then it should be the Part 7 procedure which should be used and not the Part 8 procedure.


I have had a lengthy bundle of documents, although the main points are matters of law. I have substantial written submissions, including supplemental submissions from both sides and I heard substantial oral submissions on 7 July and 1 September of this year.


This judgment is also going to be of some length, but I have kept it short in some ways due to considerations of time and if there are particular points which the parties consider, following judgment, ought to be dealt with in more detail, then I will consider as to whether or not I will include more when approving any transcript of this judgment.


The claims were brought under the Part 8 procedure of the Civil Procedure Rules, but each claim form is accompanied by particulars of claim, albeit that particulars of claim are a matter for the Part 7 procedure. Notwithstanding that, in Part 8 claims voluntary particulars of claim are often provided and the court often directs that they be produced. In this particular case the claimants say that on the primary issues of compatibility with European law and the Human Rights Act claim, there are no great issues of fact. These are really simply matters of law and they say that the Part 8 procedure is appropriate in accordance with CPR 8.2.


The fee which is paid for each claim form is £528. That is on the basis that the claim forms are not seeking financial relief but are only seeking declarations. If financial relief was sought, then a percentage of the amount claimed would have to be paid as the court fee up to the statutory maximum figure of £10,000.

The Loan Charge


The Particulars of Claim identify what is said to be the loan charge, much of which is common ground. It arises in the following general circumstances.


There have been attempts by HMRC over the years to impose tax charges upon the situations where employers have made payments into pension schemes, trusts and other corporate or third party arrangements which the employer and employee contend are legitimate uses of such constructs and legitimate obtaining of related tax reliefs, but which HMRC say are effectively disguised remuneration of the employees and ought to be taxed as such. These arrangements have featured, amongst other things, what are called “loans” made to the employees or relevant bodies.


The result is that the Revenue has over the years introduced various tax avoidance legislation. Under Part 7A of the Income Tax (Earnings and Other Pensions) Act 2003 tax liabilities will arise if a relevant person has taken a relevant step under a relevant arrangement. By Schedule 11 of the Finance Act (No.2) Act 2017, there was introduced a new provision that a “relevant step” for these purposes will have been taken if a loan, which includes certain transactions which are said to be quasi-loans, had been made to a “relevant person” on or after 6 April 1999, although this was subsequently changed to 9 December 2010 in relation to various loans, and if the loan remains also outstanding on 5 April 2019 or possibly later agreed date.


That effectively meant that certain tax charges, which for these purposes are termed “the loan charge”, would arise if such a loan was in existence and was not repaid within a set period of time, which subsequently by provision of the Finance Act 2020 was extended to a date in September 2020. Related legislation extended these provisions to National Insurance as well as income tax.


There was a review carried out in 2019 which resulted in the provisions of the Finance Act 2020 which made changes to the dates and contained certain other provisions, somewhat (but only somewhat) ameliorating the basic provisions as far as the taxpayer was concerned. I note that HMRC may well say that other tax charges arise in any event on the taxpayer and the other bodies due to the underlying arrangements of which the loan is only one part or a related element, however I am concerned here with the loan charge.


The claimants say that the loan charge is incompatible with European Union law, which they say governed matters prior to Brexit and, they say, may well still govern the position. They say that the loan charge and its provisions are contrary to the European Union's fundamental principle of freedom of establishment and various articles of the treaty governing the European Union and lack sufficient justification for these purposes. They seek declarations accordingly. They also say that the loan charge is contrary to the Human Rights Convention, and by extension the Human Rights Act, in two ways. First, they say it is a disproportionate interference with property rights within Article 1 of the First Protocol; secondly, they say it is a disguised penalty such as to fall to be treated as criminal charges within Article 6 of the Convention and they seek declarations to such effect. I also note that they further claim a declaration they should be entitled to recover from the UK Government any actual loss arising.


As I said earlier, the Revenue have not started any process to seek to charge tax or National Insurance based on the loan charge provisions. There is no present inquiry let alone any assessment and it is common ground that the claimants cannot at this point bring a challenge within the Tribunal system.


As it happens, challenges to the loan charge made on somewhat similar grounds have been rejected by various courts. Firstly, challenges on human rights grounds were rejected by the High Court in R (on the application of Cartref) v HMRC [2020] STC 516 and R (on the application of Zeeman) v HMRC [2020] STC 828. There has also been a challenge on European Union provision grounds rejected by the Scottish Court of Sessions in Finucane v HMRC [2021] SLT 665. However, HMRC accept before me that the challenges remain arguable and do not seek to strike out or seek summary judgment on that ground before me but rather base the applications before me on jurisdictional grounds as to which tribunal or court should determine the challenges and under what procedure. I therefore have to proceed on the basis that it might ultimately be found that the loan charge provisions involve breaches of European Union law and/or human rights law.

The Remedies Claimed


The remedies, as I have said, sought are declarations and declarations only, notwithstanding that one of the paragraphs claims a declaration of entitlement to recover any actual loss which might be thought to refer to a possible damages claim. During the hearings I asked Mr Kamal, counsel for the claimants, as to whether any damages claim were actually being brought at this point in time. Mr Kamal produced a schedule of...

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