Kondrat-Wilk
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 September 2022 |
| Neutral Citation | [2022] UKFTT 342 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 342 (TC)
Judge Anne Scott
First-Tier Tribunal (Tax Chamber)
Procedure – Strike out application – Whether the appeal has a reasonable prospect of success – First De Sales – Followed – No – Application granted.
[1] This hearing was listed to hear the respondents' (“HMRC's”) application for a Direction in terms of rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (as amended) (“the Rules”) striking out the appeal on the basis that there is no reasonable prospect of the appellant's case succeeding.
[2] In the alternative, HMRC sought Directions that the appellant provides Further and Better Particulars and information.
[3] That application was opposed by Mr Kamal on the basis that “the strikeout (sic) application is premature”.
[4] The application was heard with applications, which were also opposed on the same grounds by Mr Kamal, in the appeals of two other appellants.
[5] The appellants' accountants had asked for all three strike out applications to be considered together and HMRC had agreed to that on the basis that the arguments of the appellants overlapped to a significant extent.
[6] The three appeals are TC/2020/02854 for Dr Jaraslaw Krason (“the first appellant”), TC/2021/00534 for Dr Marcin Daniel Cajdler (“the second appellant”), and TC 2020/01315 for Dr Katarzyna Kondrat-Wilk (“the third appellant”). The facts are slightly different so each appeal has its own decision and in the decisions, where referring to matters in common, I use these designations.
[7] I heard no evidence.
[8] With the consent of the parties, the hearing was conducted by video link using the Tribunal's video hearing system. A face-to face hearing was not held because of the difficulty of ensuring the safety of all participants.
[9] Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.
[10] I had a hearing bundle extending to 997 pages, an authorities bundle extending to 46 pages, HMRC's application dated 11 January 2022 and the (undated) Response to the application by Mr Kamal. I had Skeleton Arguments for both parties which both encompassed this appeal and the appeals for the other two appellants.
[11] An apparent issue was the grounds of appeal for each of the appellants. In the first appellant's case his grounds of appeal had been changed four times and Moor Green & Co Ltd (“Moor Green”) had confirmed that the third version superseded all previous versions.
[12] In the second appellant's case despite numerous attempts by HMRC, it appeared that it had not been possible to locate a full copy of the grounds of appeal as originally lodged. The amended grounds of appeal were identical to the second grounds of appeal for the first appellant. In correspondence it seemed that it had been Mr Kamal's intention to replace those with amended grounds, as in the case of the first appellant, but, for whatever reason, that did not happen. Mr Kamal lodged amended grounds of appeal for the third appellant.
[13] However, in his Skeleton Argument, Mr Kamal stated that:
- The arguments of the three appellants overlap to a significant extent.
- In simple terms, the three appellants each maintain that:–Contributions were made by them to remuneration trusts in the years assessed.The wholly and exclusively rule governing deductibility as contained in section 34 Income Tax (Trading and Other Income) Act 2005 (ITTOIA) ought to be construed in accordance with the laws of the European Union (EU).The contributions were a deductible expense for the purposes of the trade carried out by them and ought therefore to be deductible in computing their profits, how so ever the rule is construed.
[14] Although there is doubt about the status of the second appellant's amended grounds of appeal (ie the second version of the first appellant's grounds of appeal,) as far as the first sub-paragraph above is concerned it was stated that:–
The Appellant appeals each of the assessments raised by HMRC. The Appellant made contributions (“the Contributions”) to a trust (“the Trust”). Under the terms of the arrangement with the Trust, the contributed funds were held in a Personal Management Company (or “PMC”). The PMC held the funds in a fiduciary capacity on behalf of the Trust. A certain fraction of the contributions were applied in meeting the ongoing legal fees (“Legal Fees”) of the providers of the trust services.
[15] In the amended Grounds of Appeal for the third appellant it stated:–
The Appellant made contributions to a trust (“the Contributions”). This was done through funds becoming held on behalf of the trust by the Appellant/in a PMC
[16] As far as sub-paragraph (2) above is concerned, the Skeleton Argument articulates the very extensive arguments by Mr Kamal somewhat differently to how they are articulated, differently in each case, in the various Grounds of Appeal.
[17] The key point is that Mr Kamal argues that the test regarding “wholly and exclusively” should be one which is consistent with EU law so there should be a new test “The Proposed Test” applied. Mr Kamal articulated that as being “An expense is deductible to the extent that it is made for the purposes of the trade (and irrespective of whether it is for any other purpose).”
[18] He has referenced in excess of 80 EU cases.
[19] Mr Kamal argues that what he called the Scheme was widely used and that gives it credibility.
[20] HMRC argue that there was a loss of tax and the appellants have not provided any evidence to demonstrate that payments to trusts were made. In fact, Moor Green have made it clear on several occasions that there is no evidence. The appellants have advanced evolving and contradictory explanations. In those circumstances, the Tribunal cannot reasonably expect any evidence to be available at trial to satisfy the appellants' burden of proof.
[21] HMRC argue that EU law is of no application in those circumstances.
[22] The appellant's response (“the Response”) to HMRC's applications filed by Mr Kamal is not helpful. Apart from the second paragraph, it is identical for all three appellants which is why I refer to it here. In the second paragraph, it accurately refers to the decisions under appeal for each appellant.
[23] It refers to the appellant in each case as her and, of course, only the third appellant is female. At paragraph 19 it refers to Judge Aleksander's Directions and to three paragraphs in HMRC's application. Judge Aleksander issued Directions in only the third appellant's appeal. The application in respect of the second appellant was contained in the Statement of Case and there was no separate application and therefore all of the references in paragraphs 19 to 29 of the appellant's response do not relate directly to HMRC's application in the second appellant's case. Although there was a freestanding application for the first appellant, the references do not directly relate to that either.
[24] The Response, and indeed the Skeleton Argument for the appellants, focussed almost entirely on EU law and the concept of “wholly and exclusively”. They do not address the question of evidencing payment of contributions to any material extent.
[25] The appellants are all self-employed dentists. They provided dentistry services for Nationwide Healthcare Providers Limited (“NHP”) and the nature of the business is described as “Dental Practice Activities”. NHP describes itself as the “Practice Owner” and the third appellant's Agreement with them (which also included her husband) dated 12 June 2019, which is the only contract that has been provided and is after the period with which I am concerned, shows that at that stage they owned 17 dental practices.
[26] NHP and the individual partnerships operating those dental practices contracted with self-employed dentists and NHP paid the dentists on a monthly basis.
[27] NHP provide premises, staff, patients, equipment and supplies. The monthly payment statements furnished by NHP are net of costs but with no tax deducted. No contract has been provided for any of the appellants covering the periods of enquiry notwithstanding the issue by HMRC of Information Notices.
[28] The appellants have been filing self-assessment tax returns (“SATRs”) for many years. No other substantial income sources of income have been declared. From 2011/12 in the case of the first and second appellants and 2013/14 for the third appellant, all three appellants suddenly began to claim dramatically increased “Other Business Expenses” in Box 30 in their SATRs which reduced their tax liability either to nil or to a relatively modest three figure sum.
[29] All of the appellants have been represented by Moor Green and now by counsel, Mr Kamal, although it appears that Moor Green may still be involved. That was the impression given at the hearing.
[30] Moor Green lodged the Notices of Appeal for all of the appellants but Mr Kamal lodged the amended Grounds of Appeal (which he described as Statements of Case).
[31] On 10 January 2018, different HMRC officers wrote to all three appellants and to Moor Green explaining that the appellants were suspected of having committed tax fraud. Investigations were commenced under the parameters of Code of Practice 9 (“COP9”), which afforded the appellants an opportunity to enter into the Contractual Disclosure Facility (“CDF”). No response was received within the permitted 60 day period. That offer was not accepted by any of them.
[32] On 6, 13 and 26 March 2018, each of the three appellants, respectively, issued a letter that had clearly been provided by Moor Green, denying tax fraud, confirming that all SATRs were complete and correct and...
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