HFFX LLP, Christopher Shucksmith and others v The Commissioners for HM Revenue and Customs [2023] UKUT 00073 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Mellor,Judge Swami Raghavan |
| Subject Matter | 20 March 2023 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 21 March 2023 |
Neutral Citation: [2023] UKUT 00073 (TCC) Case Number: UT/2021/000114-124, 126-127,129
UPPER TRIBUNAL
(Tax and Chancery Chamber) Rolls Building, London
INCOME TAX – deferred remuneration tax whereby amounts reallocated pursuant to discretion
decision to individual LLP members via corporate LLP member – whether amounts were
partnership profits under s850 ITTOIA 2005 as HMRC argued – no (applying BlueCrest UT) -
whether amounts taxable as miscellaneous income under s687 ITTOIA 2005 - yes – whether
finding on discovery made – yes – FTT’s refusal of appellants’ application for redaction under Rule
14 UT Rules upheld –HMRC’s and appellants’ appeals dismissed
Heard on: 13 and 14 July 2022
Written submissions completed: 30 September 2022
Judgment date: 20 March 2023
Before
MR JUSTICE MELLOR
UPPER TRIBUNAL JUDGE SWAMI RAGHAVAN
Between
1. HFFX LLP
2. STEPHAN ATKINS
3. YURI BEDNY
4. PAUL BEREZA
5. ALEXANDER GERKO
6. PHILIP HOWSON
7. RENAT KHABIBULLIN
8. JOSHUA LEAHY
9. JACOB METCALFE
10. ALEX MIGITA
11. DMITRY SHAKIN
12. ANDONIS SAKATIS
13. CHRISTOPHER SHUCKSMITH
14. EVGENY TANHILEVICH
2
Appellants and
THE COMMISSIONERS FOR HIS MAJESTY’S
REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellants: Kevin Prosser KC and David Yates KC, instructed by Macfarlanes LLP
For the Respondents: Thomas Chacko and James Kirby, Counsel, instructed by the General Counsel
and Solicitor for His Majesty’s Revenue and Customs
3
DECISION
Introduction
This appeal, and cross-appeal by HMRC, against a decision of a First-tier Tribunal (Tax Chamber)
(“FTT”) decision concerns the tax treatment of a deferred remuneration arrangement for individuals
known as the Capital Allocation Plan (“CAP”). The individual appellants were involved with coding
and developing programming for automated FX (foreign exchange) trading. They became members
of the LLP appellant, HFFX LLP (“HFFX”), with the individual appellant, Alexander Gerko, as
managing member. The LLP went on to deploy the automated trading to make significant profits. A
proportion of profits was paid to the members upfront, the remainder was deferred using the CAP,
pursuant to which, profits were allocated to a corporate member of the LLP who then had discretion
to reallocate sums (“Special Capital”) over the subsequent three-year period to the individual
members (the individual appellants), taking account of Mr Gerko’s recommendations.
According to the appellants, the tax consequences are that the individual is only taxed on the share
allocated to them directly (instead of on a share of the partnership’s profits which HMRC maintain
represents their total reward). The share allocated to the corporate member is taxed at the lower
corporation tax rates. When the Special Capital is transferred from the corporate member to the
individual it is contended there is no income tax charge because it was a transfer of a capital asset.
1
HMRC’s case is that a charge to tax arises either on division of HFFX’s profits under s850 Income
Tax (Trading and Other Income) Act 2005 (“ITTOIA 2005”) on the basis the individual members,
not the corporate member, had the relevant and ultimate rights to share in the profits initially paid to
the corporate member or, on receipt of distributions from the corporate member as miscellaneous
income under s687 ITTOIA 2005, or else under the “sale of occupation income provisions” under
s776 Income Tax Act 2007 (“ITA 2007”).
The FTT rejected HMRC’s argument that the individuals were allocated the profits for the
purposes of s850 ITTOIA when the profits were divided. The FTT also rejected HMRC’s case that
the allocations must be treated as made to the individual members by reason of the members
acquiescing to profits (that would otherwise have gone to them) being allocated to the corporate
member applying the reasoning and conclusions of the Supreme Court in RFC 2012 plc (formerly the
Rangers Football Club) v Advocate General for Scotland [2017] 1 WLR 2767 and of the Privy
Council in Hadlee v CIR [1993] STC 294. HMRC appeals those conclusions (Issue 1- the s850 issue).
The FTT accepted HMRC’s alternative argument that the income from the corporate member,
was taxable as miscellaneous income under s687 ITA 2007, or else as sale of occupation income
under s776 ITTOIA. The individual appellants appeal those decisions (Issue 2a – the miscellaneous
income issue and Issue 2b – the sale of occupation income issue).
The appeals to the FTT took the form of appeals against a number of closure notices / discovery
assessments /discovery amendment. The global amount of tax at stake is approximately £22.5 million.
A further issue before us concerns one of the discovery assessments made in respect of Mr Gerko (for
2012/13) where he argues the FTT was wrong to consider the discovery assessment valid because
HMRC had not discharged the burden of showing a discovery had been made (Issue 3 – the discovery
assessment issue).
1
And no CGT liability (for the reasons explained in Statement of Practice D12) bec ause it was a transfer in the share of
the assets of a partnership.
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