Swallow v HM Revenue and Customs

JurisdictionUK Non-devolved
CourtFirst Tier Tribunal (Tax Chamber)
Judgment Date07 October 2010
Neutral Citation[2010] UKFTT 481 (TC)
Date07 October 2010

[2010] UKFTT 481 (TC)

John Walters QC (Chairman)

Swallow

Jonathan Bremner, Counsel, for the Appellant

Dennis Dixon, HMRC Solicitor's Office, for the Respondents

Income tax - applications by R & C Commrs for a stay in the appeal proceedings, initially for six months, and an extension of time to serve their statement of case - both applications opposed by the appellant - criminal investigation being undertaken into whether offences had been committed in relation to the submission of tax returns to R & C Commrs by persons (such as the appellant) who set up trades pursuant to a marketed tax avoidance scheme involving environmental research - the appellant not suspected by R & C Commrs of having committed any criminal offence - the investigation focusing on "the architects, facilitators and advisers to the arrangements" - held a stay of the appeal proceedings for a period of 6 months and also an extension of time for the service of the statement of case would be directed - balancing exercise undertaken - reason for directing the stay and the extension of time was to give time for the officers of R & C Commrs having conduct of the appeal to be provided with further relevant evidence (if any) gathered or to be gathered in the criminal investigation - held however that R & C Commrs had failed to discharge the burden on them of showing that the conduct of the appeal up to and including the hearing and the subsequent release of the tribunal's decision would necessarily give rise to a real risk of prejudice which may lead to injustice to a defendant or the prosecution in criminal proceedings - appeal re-allocated to the category of complex cases under rule 23(3) of the 2009 Rules

DIRECTIONS

These Directions and Reasons have been anonymised at the request of the parties to protect the identities of the Appellant and his advisers and certain other persons and organisations. The parties have agreed the anonymisation adopted.

I heard Mr Dixon on behalf of the Respondents Commissioners ("HMRC") and Mr Bremner on behalf of Mr Swallow ("the Appellant") and I reserved my decision on the applications made by HMRC at the hearing. After consideration, I make the following Directions for the Reasons which appear below.

1. HMRC's application for a direction that the appeal proceedings be stayed for a period of 6 months from the date of release of this Decision is ALLOWED;

2. The matter must be listed (if practicable, again before me) for a further case management directions hearing towards the end of that period - it is the responsibility of both parties to ensure that this is done;

3. HMRC's application to extend the time for the service of their Statement of Case in the appeal is ALLOWED. The extension will be to a date 28 days after the expiry of the period of 6 months for which I have stayed the appeal proceedings.

4. The appeal (with effect from the date of release of these Directions for general publication) is re-allocated to the category of Complex cases pursuant to rule 23(3) of the 2009 Rules

REASONS

1. This was the hearing of an application by the Respondents ("HMRC"), for the appeal to be stayed, initially for six months. HMRC have made the application because they wish an ongoing criminal investigation being conducted by them into circumstances surrounding the marketing of the scheme which features in the appeal (known, apparently, as "the Environmental Research and Trading Scheme") to proceed without the alleged prejudicial effects which the continuing conduct of the appeal would have on the criminal investigation. HMRC also apply for an extension of time to serve their Statement of Case. The Appellant opposes both applications.

2. I heard Mr Dixon of HMRC Solicitor's Office for HMRC and Mr Bremner of Counsel for the Appellant. Two witnesses gave evidence for HMRC both orally and in the form of Witness Statements. They were Christopher Hyland, an Officer of HMRC in charge of the criminal investigation, and Michael Old, another Officer of HMRC who had had the conduct of HMRC's case in the appeal. Both Officers were cross-examined by Mr Bremner. I also received a Witness Statement from a Tax Partner of the Appellant's current professional advisers, on behalf of the Appellant. This Tax Partner was not available to be cross-examined at the hearing.

The facts

3. The Tribunal was shown a "Suitability Letter" issued by Finance Co., tax planners and portfolio managers, and dated 8 March 2007, which contained the recommendation that the Appellant should consider an investment into "the Environmental Project". The Appellant did make an investment and his Self-assessment return for 2006/07 showed two new sole trades commencing on 26 March 2007, in bio fuels research and paper pulp research respectively, both of which generated substantial losses. The Appellant apparently contributed approximately 100,000 from his own funds, paid to an accountancy firm's client account, and invested an additional amount of approximately 350,000 advanced to him as part of the arrangements (but paid under a power of attorney to a Relevant Overseas Research Company ("RORC"), a company apparently domiciled in an African country), making a total investment of some 450,000, on which tax relief amounting to some 170,000 was claimed. The Appellant claimed a repayment of tax of about 125,000 in his return by way of "sideways" loss relief under Income and Corporation Taxes Act 1988 section 380section 380 or Income and Corporation Taxes Act 1988 section 381section 381Income and Corporation Taxes Act 1988 ("ICTA") against his income from employment. His tax return was received by HMRC on 10 July 2007.

4. I understand that, under the scheme arrangements, the Appellant is, or can be, protected (completely or substantially) from the burden of repaying the funds advanced, otherwise than out of the profits (if any) of the arrangements.

5. HMRC opened an enquiry into the claim for loss relief under Taxes Management Act 1970 section 9Asection 9ATaxes Management Act 1970 ("TMA") on 25 July 2007. They withheld repayment of tax, citing Taxes Management Act 1970 section 59B subsec-or-para 4Asection 59B(4A) TMA. HMRC could have opened an enquiry at any time between the receipt of the return on 10 July 2007 and 31 January 2009.

6. A disclosure of information was made to HMRC by the Appellant's previous professional; advisers on the Appellant's behalf under cover of a letter sent late in 2007. Mr Old in evidence described this disclosure as reasonable in the circumstances. It was contained in an A4 ring folder and included documents signed by the Appellant. Amongst these documents were an agreement dated 4 April 2007 entered into by the Appellant with RORC, whereby the Appellant appointed RORC as his agent in relation to the research and development of environmental crops, and RORC undertook to commission the contemplated research and development and provide its expertise and know-how with respect thereto. The document outlined the nature of the "Project" which the Appellant "wishes to undertake and [RORC] has agreed to commission" for the Appellant. A further document dated 4 April 2007 (the "Land Agreement") between the Appellant and RORC set out the basis on which RORC would provide land on which the research would be carried out and would provide "second phase financing for developing that land on the successful conclusion of the research phase". A further document, also dated 4 April 2007, was entered into by the Appellant with Relevant Overseas Trading Company ("ROTC"), also a company apparently domiciled in the same African country as RORC, relating to paper pulp and arranging for ROTC to purchase and sell, on behalf of the Appellant, carbon and environmental rights. The Appellant entered into further agreements with RORC and ROTC in relation to research and development connected with bio fuels. The Appellant also paid fees and commission to Relevant Overseas Marketing Company ("ROMC"). Early in 2008, HMRC wrote to the Appellant's previous professional advisers requesting the provision of further documentation.

7. Following inconclusive discussions between HMRC and the Appellant's agents, on 15 August 2008 HMRC sent to the Appellant a Taxes Management Act 1970 section 20B subsec-or-para 1section 20B(1) TMA "precursor letter" giving a reasonable opportunity to deliver or make available further documents and particulars which were specified in a schedule to the letter.

8. On 12 September 2008, the Appellant's current professional advisers responded enclosing certain documents and information. This prompted a further informal request for documents and information from Mr Old, dated 10 October 2008.

9. Included in this request were requests for details of how the trading in bio fuels and paper pulp was carried out together with copies of any feasibility study undertaken in these areas and information relating to the activities of RORC and ROTC, in connection with their activities in trading on the Appellant's behalf or managing the Appellant's trades.

10. The Appellant's current professional advisers replied on 20 November 2008 stating in effect that much of this information could not be supplied.

11. A hearing before General Commissioners took place on 21 November 2008. At that hearing a number of matters were raised, including HMRC's concerns about the commerciality of the trade and the actual work undertaken by RORC. The General Commissioners refused HMRC's application to transfer jurisdiction to the Special Commissioners.

12. On 8 December 2008, Mr Old, for HMRC, wrote to the Appellant's current professional advisers, asking for further documentation and information, including progress reports on the trading activity to which the Appellant appeared, from the documentation already submitted, to be entitled.

13. On 12 March 2009, the Appellant's current professional advisers responded. They provided further information. They stated that the Appellant had no reason...

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