The First De Sales Limited Partnership and Others v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Henry Carr,Judge Sinfield |
| Neutral Citation | [2018] UKUT 0396 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,27 November 2018 |
| Date | 27 November 2018 |
| Published date | 27 November 2018 |
[2018] UKUT 0396 (TCC)
Appeal number: UT/2018/0056
UT/2018/0057
UT/2018/0058
UT/2018/0059
PROCEDURE – application to strike out – whether appeals have a reasonable
prospect of success - construction of section 225 ITEPA 2003 - whether FTT wrong
to conclude that, on evidence available, appellants had no reasonable prospect of
success - appeal dismissed
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
BETWEEN:
(1) THE FIRST DE SALES LIMITED PARTNERSHIP
(2) TWOFOLD FIRST SERVICES LLP
(3) TRIDENT FIRST SERVICES LLP
(4) TRIDENT SECOND SERVICES LLP
Appellants
- and –
THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS
Respondents
Tribunal:
Mr Justice Henry Carr
Judge Greg Sinfield
Sitting in public in London on 12 and 13 November 2018
David Ewart QC and Zizhen Yang, counsel, instructed by Reynolds Porter
Chamberlain LLP, for the Appellants
Aparna Nathan, counsel, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2018
2
DECISION
Introduction
1. The Appellants are a limited partnership and three limited liability partnerships
(‘LLPs’) which implemented marketed tax avoidance schemes that were disclosed under
the DOTAS legislation. Each Appellant carried on a modest business for the purposes of
which it employed one or more individuals. In implementation of the schemes, each
Appellant entered into a Deed of Restrictive Undertakings with an employee and a third
party (defined in the Deeds as “the Recipient”). Under each Deed, the employee agreed
to be bound by certain restrictive undertakings as part of entering into a contract of
employment and the Appellant made payments to the third party pursuant to the Deed.
The schemes were intended to generate losses that could be utilised by individual partners
in the limited partnership and members of the LLPs to reduce their liability to UK income
tax.
2. The Respondents (‘HMRC’) opened enquiries into the Appellants’ tax returns and,
on conclusion of those enquiries, issued closure notices on the basis that the payments
were not deductible. The Appellants appealed to the First-tier Tribunal (Tax Chamber)
(‘FTT’). HMRC made an application to strike out the appeals under rule 8(3)(c) of the
Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273) (‘the
FTT Rules’) on the ground that there is no reasonable prospect of the Appellants’ case,
or part of it, succeeding. In a decision released on 28 February 2018; [2018] UKFTT 106
(TC) (‘the Decision’), the FTT (Judge Jonathan Richards) concluded that the Appellants’
appeals had no reasonable prospect of success and struck out the appeals.
3. The Appellants now appeal to the Upper Tribunal (‘UT’) against the Decision.
Legislative framework
4. The relevant legislative provision applicable to all the appeals is section 225 of the
Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA 2003’). It provides as follows:
“225 Payments for restrictive undertakings
(1) This section applies where—
(a) an individual gives a restrictive undertaking in connection with the individual’s
current, future or past employment, and
(b) a payment is made in respect of—
(i) the giving of the undertaking, or
(ii) the total or partial fulfilment of the undertaking.
(2) It does not matter to whom the payment is made.
(3) The payment is to be treated as earnings from the employment for the tax year in
which it is made.
(4) Subsection (3) does not apply if the payment constitutes earnings from the
employment by virtue of any other provision.
(5) A payment made after the death of the individual who gave the undertaking is
treated for the purposes of this section as having been made immediately before the
death.
(6) This section applies only where—
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