R & C Commissioners v Root2 Tax Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 December 2022 |
| Neutral Citation | [2022] UKUT 353 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 353 (TCC)
Honourable Mr Justice Zacaroli, Judge Jonathan Cannan
Upper Tribunal (Tax and Chancery Chamber)
Disclosure of tax avoidance schemes (DOTAS) provisions – Notifiable arrangements – Duties of promoter – Penalty application – Whether duty to notify arises on each implementation of notifiable arrangements or on awareness of the first transaction implementing the notifiable arrangements – Held to be the latter – HMRC appeal dismissed – TMA 1970, s. 98C, 100C and 103(4) and FA 2004, s. 308.
In R & C Commrs v Root2 Tax Ltd [2023] BTC 501, the Upper Tribunal (UT) upheld the decision of the First-tier Tribunal (FTT) in Root2 Tax Ltd, deciding that under the DOTAS provisions a promoter is only required to notify a scheme the first time it becomes aware of a transaction implementing the notifiable arrangements, not each time the notifiable arrangements are implemented.
In Root2 Tax Ltd, the FTT had held that arrangements known as the Alchemy scheme, in respect of which the respondent (Root2) was a promoter, were notifiable arrangements for the purposes of the DOTAS rules. Accordingly Root2 was required to notify the arrangements to HMRC within five days after first becoming aware of any transaction forming part of the notifiable arrangements.
HMRC did not accept that notifications made by Root2 had satisfied the ‘duty to notify’ requirements. HMRC applied to the FTT for a penalty to be imposed on Root2 under TMA 1970, s. 98C for failing to provide prescribed information in relation to the Alchemy scheme within the required time limit.
Root2 appealed against the penalty application, and in Root2 Tax Ltd, the FTT allowed the appeal. The FTT decided that HMRC’s application was out of time because under FA 2004, s. 308(3) Root2 were only required to provide HMRC with prescribed information within five days of the date of the first occasion on which it became aware of any transaction forming part of the Alchemy scheme. Not as HMRC submitted on each occasion on which it became aware of a transaction forming part of any implementation of the Alchemy scheme.
HMRC appealed against the FTT’s decision, contending that the FTT were wrong to construe FA 2004, s. 308(3) as requiring a promoter to provide information only on the first occasion on which it became aware of a transaction forming part of the notifiable arrangements.
The UT dismissed HMRC’s appeal, being satisfied that the FTT had correctly construed FA 2004, s. 308(3). The UT did not agree with all of the FTT’s reasoning, such as that Walapu v R & C Commrs had provided authority for the proposition that a tax avoidance scheme which is implemented on several occasions with only immaterial changes need only be notified once, but it was satisfied that the FTT had been right to dismiss HMRC’s penalty application.
The UT noted that where a promoter fails to provide information about the implementation of a scheme, it is liable to a penalty:
However, that liability to a penalty is not open ended. Parliament clearly intended the liability should cease after a period of time. On our reading of the provisions, liability ceases 6 years after the prescribed period. Namely, 6 years and 6 days after the promoter first became aware of a transaction implementing the notifiable arrangements.
Unlike the FTT, the UT considered that there had not been any previous cases providing authority on the particular point of construction of the DOTAS legislation. The UT therefore addressed the issue from first principles as a matter of statutory construction and taking a purposive approach.
Comment by Meg Wilson, Lead Direct Tax Writer, Croner-i Ltd.
Aparna Nathan KC and Georgia Hicks, counsel instructed by the General Counsel and Solicitor to His Majesty's Revenue and Customs appeared for the appellant
No appearance for the respondent
[1] This is an appeal by HM Revenue & Customs (“HMRC”) against a decision of the First-tier Tribunal dated 22 September 2021 (“the FTT Decision”). The FTT Decision has reference [2021] TC 08280. The appeal concerns the Disclosure of Tax Avoidance Schemes (“DOTAS”) provisions which are contained in Part 7 Finance Act 2004 (“FA 2004”). The DOTAS provisions require those who promote and use certain tax avoidance arrangements to provide information to HMRC about the arrangements.
[2] In a previous decision, the FTT had held that certain arrangements known as the “Alchemy Scheme” in respect of which the respondent (“Root2”) was a promoter, were “notifiable arrangements” for the purposes of DOTAS – see Root2 Tax Ltd & Anor[2017] TC 06115“the DOTAS Decision”). As such, Root2 was required to provide information in relation to the arrangements to HMRC.
[3] Section 98C Taxes Management Act 1970 (“TMA 1970”) makes provision for penalties where a promoter fails to comply with the information requirements in FA 2004. HMRC considered that Root2 had failed to provide information in relation to the arrangements as required by FA 2004. In the circumstances, HMRC applied to the FTT for the FTT to determine a penalty for non-compliance pursuant to section 100C TMA 1970 (“the Penalty Application”). Root2 opposed the Penalty Application on various grounds, including that the application was made out of time and should be dismissed.
[4] The FTT directed that the following issue be determined as a preliminary issue:
Whether the application made by the Applicants, under section 100C of the Taxes Management Act 1970 (“TMA”), for a penalty to be imposed by the Tribunal on the Respondent, which application was filed and served by the Applicants on 22 May 2019, was commenced in time, with the parties agreeing that the relevant time limit is that prescribed by section 103(4) TMA, namely “at any time within six years after the date on which the penalty was incurred or began to be incurred.”
[5] In determining the preliminary issue, the FTT had to identify the date on which the penalty for failing to provide information required by the DOTAS provisions was incurred or began to be incurred. The FTT helpfully provided an Appendix of relevant legislation to the FTT Decision and for convenience we gratefully adopt it as an Appendix to this decision with a few minor additions. The provisions are in the form at the time the penalty was said to be incurred, and do not take into account amendments in Finance Act 2021.
[6] The principal section with which this appeal is concerned is section 308 FA 2004 which in so far as relevant provides as follows:
308(1) A person who is a promoter in relation to a notifiable proposal must, within the prescribed period after the relevant date, provide the Board with prescribed information relating to the notifiable proposal.
(2) In subsection (1) the relevant date means the earliest of the following
- (za) the date on which the promoter first makes a firm approach to another person in relation to a notifiable proposal,
- (a) the date on which the promoter makes the notifiable proposal available for implementation by any other person, or
- (b) the date on which the promoter first becomes aware of any transaction forming part of notifiable arrangements implementing the notifiable proposal.
(3) A person who is a promoter in relation to notifiable arrangements must, within the prescribed period after the date on which he first becomes aware of any transaction forming part of the notifiable arrangements, provide the Board with prescribed information relating to those arrangements, unless those arrangements implement a proposal in respect of which notice has been given under subsection (1).
…
(5) Where a person is a promoter in relation to two or more notifiable proposals or sets of notifiable arrangements which are substantially the same (whether they relate to the same parties or different parties), he need not provide information under subsection (1) or (3) if he has already provided information under either of those subsections in relation to any of the other proposals or arrangements.
[7] For present purposes, the prescribed period referred to in section 308(3) is defined by regulation 5(4) Tax Avoidance Schemes (Information) Regulations 2012. It is a period of 5 days after the date on which a promoter “first becomes aware of any transaction forming part of the notifiable arrangements”. In the event of non-compliance, a penalty is incurred or begins to be incurred on the first day after the prescribed period. The penalty is a daily penalty not to exceed a certain amount, initially £600 per day whilst the failure continues.
[8] The FTT succinctly summarised the issues before it at [10] to [12] of the FTT Decision:
[10] The only issue in [the] preliminary hearing is whether Root2 was required by section 308(3) FA 2004 to provide HMRC with prescribed information within five days of the date of:
- the first occasion on which it became aware of any transaction forming part of the Alchemy scheme; or
- each occasion on which it became aware of a transaction forming part of any implementation of the Alchemy scheme.
[11] HMRC maintain that each time that a person implements the Alchemy scheme is a new instance of notifiable arrangements and that a new duty to notify arose each time that Root2 first became aware of a transaction which was part of that implementation.
[12] Root2 maintains that the notifiable arrangements for the purposes of section 308(3) are the Alchemy scheme and not each separate implementation of it and therefore the duty to notify arose only once.
[9] The FTT determined the preliminary issue in favour of Root2. It stated at [55]:
[55] For the reasons set out above, I have decided that Root2 was required by section 308(3) FA 2004 to provide HMRC with prescribed information on the first occasion on which it became aware of any transaction forming part of the Alchemy scheme. As that was before 16 May 2013, the Penalty Application was made out...
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The Commissioners of HM Revenue and Customs v Root2 Tax Limited [2022] UKUT 00353 (TCC)
...[2022] UKUT 00353 (TCC) Case Number: UT-2022-000003 UPPER TRIBUNAL (Tax and Chancery Chamber) Rolls Building Fetter Lane London EC4A 1NL Part 7 Finance Act 2004 – DOTAS provisions – notifiable arrangements – section 308 FA 2004 – duties of promoter – whether duty to notify arises on each im......