The King (on the application of Easyway Umbrella Ltd) v HM Commisioners for Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Kerr |
| Judgment Date | 21 December 2023 |
| Neutral Citation | [2023] EWHC 3368 (Admin) |
| Court | King's Bench Division (Administrative Court) |
| Docket Number | No. AC-2023-LON-002973 |
[2023] EWHC 3368 (Admin)
Mr Justice Kerr
No. AC-2023-LON-002973
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Mr Richard Clayton KC (instructed by Jurit LLP) appeared on behalf of the Claimant.
Mr Joshua Carey and Mr Sam Way (instructed by HMRC) appeared on behalf of the Respondent.
( via Microsoft Teams)
Introduction
This application for permission to bring a judicial review claim has a rather unorthodox procedural history. I need not set all of it out. The challenge is what the claimant graphically calls a decision by the defendant: “to name and shame Easyway in accordance with section 86 of the Finance Act 2022.” The defendant, HMRC, published on its website a notice citing the claimant under that provision on 27 July 2023. I shall call it, more prosaically, the section 86 notice. The present challenge was brought on 9 October 2023, accompanied by an application for urgent consideration.
That was addressed in a preliminary procedural order of Cheema-Grubb J the next day. The matter was argued before me orally yesterday at court. There were procedural applications for permission to rely on response documents in the nature of pleadings, two such on the claimant's side and one on the defendant's. It was agreed at the hearing that all three would be allowed. It was also agreed that I would decide the issue of permission and the issue of interim relief sought by the claimant to remove the section 86 notice pending a full substantive hearing.
Facts
The story starts with the claimant's business model. It is described in detail in the statement of Mr George Zambartas, director and sole shareholder of the claimant. For present purposes I set out the summary at paragraph 4 of the claimant's statement of facts and grounds:
“Easyway is an umbrella provider. An umbrella provider is the name commonly given to companies which engage employees and provide them to clients. This is attractive to clients who do not regard themselves as the employer. The umbrella company will receive funds from the client, usually via a recruitment agency and pay the worker, after deducting its fees. A practice has grown up of umbrella companies paying a minimal salary to its employees and topping up the salary with loans which HRMC regard as being earnings attracting PAYE and, therefore, regards tax avoidance. By contrast, Easyway has deliberately chosen to differentiate itself from this practice by paying more than minimal salaries and operating a bonus scheme which results in fully taxable payments. Easyway's business began in January 2022 as a result of an increased demand in the market for umbrella providers following the changes to the IR35 legislation (that placed the obligation for determining employment status onto private sector employers in certain circumstances). … .”
The defendant clearly got wind of the claimant's business method and decided that it could attract a section 86 notice. Such a notice may be published where an authorised officer of the defendant “suspects that a proposal or arrangements are a relevant proposal or relevant arrangements” (section 86(1) of the Finance Act 2022). The notice may name a promoter or person connected with the proposal or arrangements. A relevant proposal for such arrangements, and the arrangements themselves are defined in section 234. I will not set out the definition in full here. “Relevant arrangements” are such if they enable or might be expected to enable any person to obtain a tax advantage.
By section 234(3) a tax advantage includes:
“(a) relief or increased relief from tax,
(b) repayment or increased repayment of tax,
(c) avoidance or reduction of a charge to tax or an assessment to tax,
(d) avoidance of a possible assessment to tax,
(e) deferral of a payment of tax or advancement of a repayment of tax, and
(f) avoidance of an obligation to deduct or account for tax.”
The defendant has not filed evidence but I was told at the hearing, on instructions, that the defendant became suspicious because the PAYE records of the claimant's employees included employees only paid the minimum wage, yet in professional occupations such as nursing or other occupations that would normally command more than the minimum wage.
An information pack provided to employees by the claimant explained the payment system, including the “discretionary bonus pot”. It included a statement that: “[n]o income tax or National Insurance is payable on the bonus pot until it is paid out”. An employee could receive “advances on this bonus pot in the form of loans up to … 85% of the on target future bonus payment”, with the interest rate varying in accordance with HMRC guidance.
On 13 April 2023 the defendant wrote to the claimant warning that it was considering publishing a section 86 notice. The letter stated:
“Description of the proposal or arrangements:
Individuals provide services to end clients as employees of Easyway Umbrella Limited.(EUL)
Employees receive part of their EUL remuneration at a rate close to the National Minimum Wage or National Living Wage which is subject to Income Tax and National Insurance.
Employees receive the balance of their remuneration without the deduction of Income Tax or National Insurance on the basis it does not count as income as it's a loan, credit, or something else.
The authorised officer suspects the proposal or arrangements shown above are a relevant proposal or relevant arrangements. This is because the arrangements enable or might be expected to enable any person to obtain a tax advantage. An equivalent individual who did not enter the arrangements, working for the same end clients, would have the right to receive 100% of the gross contract value relating to the services they have provided net of income tax and National Insurance Contribution. By entering into the arrangements, users receive a portion of their remuneration without the deduction of Income Tax or National Insurance Contributions. The aggregate amounts received are significantly higher than the income they would have received as employees, had they not participated in the arrangements. It is therefore evident that the scheme puts the user in an economically similar position but with less tax to pay.
Secondly, the obtaining of the tax advantage is the main benefit, or one of the main benefits that arises from the arrangements. There are no non tax related benefits of participating in these arrangements that are comparable with the tax advantage. In the absence of any evidence of any other commercial benefits of using the arrangements it is reasonable to suspect that the obtaining of a tax advantage is at least one of the main benefits that might be expected to arise from the arrangements.”
The letter went on to explain that the claimant had 30 days to make representations and that this was its opportunity to make known its views on whether the defendant should publish a section 86 notice. However, Mr Zambartas did not receive the letter, as he says in his witness statement at paragraph 22. He says that: “neither I, nor anyone else involved in the claimant's business received the letter dated 13 April 2023”.
The defendant accepts Mr Zambartas' assertion that he personally did not receive the letter but does not concede that it did not reach the claimant as a company. It was not addressed to Mr Zambartas personally, but to the claimant as a company and Mr Zambartas does not go into detail concerning post handling methods and procedures within the claimant.
The parties agree that section 86(5) of the Finance Act 2022 provides:
“If an authorised officer intends to publish information under this section that identifies a person, an officer of Revenue and Customs must—
(a) notify the person, and
(b) give the person 30 days from that notification in which to make representations about whether or not the information should be published.”
The parties further agree that the combined effect of section 86(5) of the Finance Act 2022, section 115 of the Taxes Management Act 1970 and section 7 of the Interpretation Act 1978, is that the letter of 13 April 2023 is deemed served on the claimant on the date, i.e. about 14 or 15 April 2023 when it would be delivered in the ordinary course of post, “unless the contrary is proved” (see section 7 of the Interpretation Act 1978).
The parties disagree about whether the contrary has been proved here. The claimant says Mr Zambartas' assertion is uncontradicted. The defendant says his statement does not suffice to prove non-receipt because he has not addressed methods and practices for mail handling in the claimant's business operations.
By 19 July 2023 the 30 day period had expired. The defendant wrote to the claimant that day saying that the claimant did not...
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