Moore [2024] UKFTT 518 (TC);
Jurisdiction | UK Non-devolved |
Judgment Date | 13 June 2024 |
Neutral Citation | [2024] UKFTT 518 (TC) |
Court | First-tier Tribunal (Tax Chamber) |
[2024] UKFTT 518 (TC)
Tribunal Judge Anne Scott, Member Celine Corrigan
First-Tier Tribunal (Tax Chamber)
Income tax – Follower Notice – Penalty – FA 2014, s. 204–214 – Necessary corrective action not taken – Whether reasonable in all the circumstances.
[1] The appellant appeals against the respondents' (“HMRC's”) decision that penalties are payable by him under section 208 Finance Act 2014 (“FA 2014”) in respect of Follower Notices (“FNs”) issued under Chapter 2 of Part 4 FA 2014.
[2] The appellant contends that either the penalties, totalling £19,516.10 should be vacated as the circumstances are either identical, or similar, to those in the First-tier Tribunal (“FTT”) appeal Andreae[2022] TC 08473 (“Andreae”) or the penalties should be further reduced as they are disproportionate. HMRC do not agree.
[3] With the consent of the parties, the hearing was conducted by video link using the Tribunal's video hearing system. 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.
[4] The documents to which we were referred comprised three Bundles including the hearing Bundle produced by HMRC extending to 992 pages. HMRC's Statement of Reasons had not been included and that was subsequently produced. That extended to 15 pages. The appellant had produced his own Bundle extending to 514 pages and a Supplementary Bundle extending to 15 pages.
[5] By Directions issued on 16 January 2024, and of consent, the parties were directed to lodge Written Submissions relating to the Supplementary Bundle. Those were received on 26 January and 10 February 2024.
[6] The appellant is currently retired but previously worked as a contractor in the IT industry. Prior to that he had been an employee of a limited company.
[7] In approximately 2005, there was widespread concern in the appellant's industry about the impact of IR35. He and a number of colleagues researched alternatives to the use of a limited company and, in particular, the services of what he described as a tax consultancy called Montpelier. He was aware that there was a Montpelier group but he did not distinguish between the various entities in that group. As far as he was concerned they were all Montpelier and he was only interested in the content of what they could provide. He was aware that he was primarily dealing with entities based in the Isle of Man.
[8] Amongst the companies with which he had dealings were MTM (Consultants) Limited, Montpelier Tax Planning (Isle of Man) Limited trading as Montpelier Tax Consultants, Rathowen Limited and Hazelmere Limited and we will refer to all of them as “Montpelier” regardless of the entity which was involved.
[9] A colleague gave him a contact telephone number and he had a discussion with them and decided to engage them. The appellant had made checks about Montpelier on the internet and they appeared to him to be a big worldwide organisation with offices not only in the UK but worldwide. They employed qualified accountants and retained both an English and Irish barrister. He believed that they had a good reputation and track record.
[10] Montpelier also offered free tax and accounting advice which he found attractive and they confirmed that they would “look after all of his tax obligations”. He understood that he could utilise their tax planning services and they undertook to answer his queries in a timely manner. He was aware that Montpelier promoted a tax scheme involving an Isle of Man Trust and an Isle of Man Partnership (“the Scheme”).
[11] The Scheme sought to exploit the double taxation arrangements between the UK and the Isle of Man by routing the earnings of the contractors through two Isle of Man Partnerships and an Isle of Man Trust. In the self-assessment tax returns (“SATRs”) for the years in question, the contractors returned income from the offshore trust and claimed an equivalent amount of double taxation relief.
[12] The appellant was not aware of the extent of Montpelier's vested interest in the Scheme but was aware that it had been disclosed to HMRC. He knew that the tax law could change.
[13] On 30 March 2007, Montpelier wrote to the appellant confirming that “our Tax Company invented this tax planning arrangement many years ago and have been running it ever since … and they will defend you from any Revenue attack up to and including the House of Lords at their cost. That is a measure of their commitment to you and the arrangement”.
[14] Montpelier offered to prepare and submit his annual SATRs and he instructed them to do so for 2006/07 and 2007/08. He was in regular correspondence with Montpelier. An example is an email to Montpelier on 2 August 2007 from the appellant enclosing what he described as a “rather worrying email”. That email implied that the Scheme would not work and suggested that the appellant should ask Montpelier (a) what arguments would be advanced to the Revenue, (b) what would happen if the Revenue won any litigation, and (c) in that event, who would be responsible for any tax bills. The appellant was reassured by Montpelier and took the view that that was simply a competitor trying to sell their own services.
[15] Montpelier provided regular updates on HMRC's attitude to the Scheme. In particular, on 1 August 2008 they provided a Note of Advice intimating that their clients would be receiving letters from HMRC following the passing of the Finance Act and that those letters would in due course be followed by Closure Notices and they gave a summary of their advice which included:–
- Clients should reply to the Notices of Enquiry stating that professional advice was being taken.
- Montpelier would advise HMRC that there was an application for judicial review.
- Clients should refer Closure Notices to Montpelier for appeal.
- Clients may, if they wish, settle the tax and NIC demanded or purchase tax certificates and await the outcome of the judicial review challenge.
- Correspondence should be copied to Montpelier.
[16] On 12 December 2008, the appellant's SATR for the tax year ending 5 April 2007 having been filed on 30 January 2008, HMRC opened an enquiry under section 9 Taxes Management Act 1970 (“TMA”) into that return. (It was added to what was described as an “overall enquiry” into previous SATRs.) That letter suggested that a payment on account would reduce the interest charge and that the return should be amended. It also recommended that the SATR for 2008 should not make any claim to exemption under the double taxation agreement.
[17] On 30 January 2009, the SATR for the tax year ending 5 April 2008 was lodged with HMRC and it did include such a claim.
[18] In the interim, on 5 January 2009, the appellant had contacted Montpelier in relation to the letter of 12 December 2008 and Montpelier confirmed that they would reply on his behalf after tax returns were lodged which would be after 5 January 2009. The appellant had had difficulty in getting in contact with Montpelier.
[19] On 30 January 2009, Montpelier advised that the High Court had refused the application for judicial review but that tax appeals would proceed before the Special Commissioners and that would probably be at the end of 2009. (In fact the Special Commissioners ceased to exist with effect from 1 April 2009 when the Tribunals became operational.)
[20] On 19 March 2009, HMRC wrote to the appellant with a Closure Notice under section 28A(1) and (2) TMA. They confirmed that they had completed their enquiry into the SATR for the year ended 5 April 2007 and had concluded that he had received income from the Scheme of £63,100. HMRC amended the tax return resulting in an increase in tax and Class 4 National Insurance Contributions (“NICs”) due of £23,915.93. The appellant forwarded that to Montpelier. Again he had difficulty in being able to make contact and finally on 2 April 2009, having telephoned Montpelier, they confirmed that they would appeal it on his behalf.
[21] At some stage in 2008/09, the appellant decided that, not least because of the difficulties in making contact, he would no longer use the Scheme. He continued to retain Montpelier only for what he described as accountancy, ie tax advice. With the exception of issues arising out of the SATRs for 2006/07 and 2007/08, from approximately 2012, he used an online accountancy adviser called JSA Services Limited (“JSA”); they were not connected with Montpelier.
[22] In the course of 2009, Montpelier wrote to the appellant on at least three occasions with updates on the position in relation to the proposed judicial review.
[23] On 3 December 2009, HMRC wrote to the appellant opening an enquiry into the tax return for the year ended 5 April 2008 in which the appellant had again claimed relief for 2007/08. The appellant was invited to make payment of the tax that was likely to be due.
[24] In the course of 2010 and 2011, Montpelier wrote to the appellant on at least eight occasions, the last of which was on 16 September 2011 with updates on the position in relation to the proposed judicial review.
[25] On 28 November 2011, HMRC wrote a generic letter to the appellant headed “Tax avoidance schemes using Isle of Man & Guernsey Double Taxation arrangements”. It was described as a newsletter which was being sent to the users of certain tax avoidance schemes. It referenced the various decisions by the Court of Appeal. It then stated that following the Court of Appeal decisions, the appellant was invited to make a payment on account of tax, NICs and interest. It also invited settlement either by withdrawing appeals where there were Closure Notices or contacting HMRC if no Closure Notice had been issued. In summary it was, as the appellant agreed in oral evidence, a very clear...
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