Uppercut Films Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 April 2018 |
| Neutral Citation | [2018] UKFTT 232 (TC) |
| Date | 23 April 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0232 (TC)
Judge Victoria Nicholl
Conrad McDonnell, counsel, instructed by Reynolds Porter Chamberlain LLP, solicitors, appeared for the appellant
Paul Shea, HMRC officer, appeared for the respondents
Corporation tax – Appeal against Sch. 36, para. 1 information notice – Burden of proof – Whether reasonably required – ITTOIA 2005, s. 625 – ITTOIA 2005, s. 624 – ITEPA 2003, s. 716 – R v IR Commrs, ex parte TC Coombs & Co [1991] BTC 89 (Coombs) – R (on the application of Derrin Brother Properties Ltd) v R & C Commrs [2014] BTC 21 – Gold Nuts Ltd [2017] TC 05828 – Thompson [2013] TC 02521 – New Way Cleaning Ltd [2017] TC 05769 – Phillipou [2017] TC 05586 – Codexe Ltd [2017] TC 06014.
The First-tier Tribunal (FTT) confirmed that the information notice was reasonable and that HMRC had provided evidence to support the information request.
The appeal was against an information notice issued by HMRC on 12 August 2016 under para. 1 of Sch. 36 to the FA 2008. The appeal was designated as the lead appeal under r. 5(3)(b) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 on 14 August 2017. The information notice issued to Uppercut requires five documents to be provided (“limited list”). The appeal of Cliftonville Consultancy Ltd [2018] TC 06464 was similarly designated and they were joined to be heard together with this appeal.
The Appellant had used a tax avoidance scheme, which was disclosed by RSM Tenon Group plc on 15 August 2011. The scheme was as follows:
- A UK company wished to pay a dividend and either had a subsidiary or incorporated a new one;
- Shares in the subsidiary were settled into an interest in possession (IIP) trust for the benefit of the parent company's shareholders;
- The parent retained an interest under ITTOIA 2005, s. 625;
- If subsidiary had been incorporated, the parent would inject cash equal to the intended dividend;
- The dividend was paid by way of a new share subscription into mainly share premium;
- The share premium account was subsequently cancelled, and the reserves transferred to distributable reserves. If an existing subsidiary had sufficient reserves this step was unnecessary;
- A dividend paid by the subsidiary to the IIP trusts was passed to the shareholders under the terms of the trust;
- Section 624 ITTOIA 2005 treated the income as that of the parent company. The dividend was considered not to be taxed under any other provision due to the protection of ITEPA 2003, s. 716.
The Appellant's tax return and computation for the accounting period ended 31 May 2012 included a CT600J disclosure. An enquiry was opened on 28 February 2014 and made an informal request for the Appellant to provide five documents. An information notice under was issued on 12 February 2016, requesting:
- The Engagement Letter and completed confirmation of engagement section;
- Advice Letter including the completed confirmation section;
- Completed copy of the deed under which the interest in a share as nominee, was held;
- the Letter of Direction issued in respect of any dividends paid on the shares held, and
- Board minutes resolving to pay a dividend(s).
The condition for the issue of an information notice is that the officer reasonably requires the information or a document for the purpose of checking the tax position. The FTT considered the burden of proof and what is “reasonably required” for the purposes of checking the tax position.
The FTT confirmed with reference to previous cases that the onus of proof to an appeal against an information notice lies with HMRC. If the notice specifies statutory records within the taxpayer's possession or power the burden shifts to the taxpayer to demonstrate the reason that information or document cannot be produced.
A third-party notice may not be given without the agreement of the taxpayer or the approval of the tribunal. Where the tribunal's opinion is obtained for a third-party notice, the burden shifts to the appellant on an application for judicial review. Where approval is not sought, HMRC must establish what is reasonably required for the purpose of checking the tax position, the onus is then on the appellant on the grounds of its appeal.
The FTT found that:
- HMRC's suggestion that the scheme could give rise to remuneration, a loan or a dividend did not limit the checking to a consideration of these possibilities when determining whether the corporation tax position was correct.
- The engagement letter was reasonably required because the Appellant had claimed a corporation tax deduction for the fees incurred under its terms.
- It was noted that Parliament considered there could be circumstances where HMRC may reasonably require tax advice for the purpose of checking the tax position. Whilst HMRC may be aware of a generic scheme, the advice letter would refer to the specific needs and requirements of the business.
- The Nominee deed, Letter of direction (re dividends) and Minutes of board meeting to pay dividends assisted the understanding of nominee elements and the company's interest in the scheme.
- Completed board minutes relating to dividends were required to establish the amounts paid. The amounts actually paid were relevant to determine the fee payable and to consider its deductibility.
Whilst HMRC knew of the generic scheme, that knowledge did not prevent the specific advice being relevant and reasonably required to check the company's Corporation Tax position.
[1] This is an appeal against an information notice issued by the Respondents (“HMRC”) on 12 August 2016 under paragraph 1 of Schedule 36 to the Finance Act 2008 in the same terms to a number of companies, including the Appellant (“Uppercut”) that had used a tax avoidance scheme known as the dividend replacement strategy (“DRS”) or “Aikido”. Uppercut's appeal was designated as the lead appeal under rule 5(3)(b) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“Tribunal Rules”) on 14 August 2017. The information notice issued to Uppercut requires five documents to be provided (“limited list”).
[2] On 13 May 2016 HMRC issued an information notice under paragraph 1 of Schedule 36 to the Finance Act 2008 to a number of other companies that had used the DRS or Aikido, including Cliftonville Consultancy Limited (“Cliftonville”). This information notice requires full information and documents to be provided by the companies (“full documents”). Cliftonville's appeal against the notice requiring the full documents was also designated as the lead appeal under rule 5(3)(b) of the Tribunal Rules on 14 August 2017 and it was joined to be heard together with Uppercut's appeal.
[3] This decision relates to the limited list information notice issued to Uppercut. The parallel decision relating to the full documents information notice issued to Cliftonville is under reference TC/2017/00122. The common facts, law and conclusions that relate to both Uppercut and Cliftonville are reflected in both decisions, but certain issues are relevant and considered only in one or other decision.
[4] The DRS was disclosed under Disclosure of Tax Avoidance Schemes (“DOTAS”) by RSM Tenon Group plc on 15 August 2011 and was allocated the reference number SRN 19509036. The scheme was explained as follows:
A UK company (“Holdco”) looking to pay a dividend will either have an existing subsidiary company or will incorporate a new one (“Subco”). Shares in Subco will be settled into an IIP trust for the benefit of the Holdco shareholders. The terms of the IIP trust will be such as to ensure that Holdco retains an interest in the trust under s625 ITTOIA 2005. If Holdco has incorporated a new Subco, Holdco will inject cash equal to the dividend to be paid by way of a new share subscription into mainly share premium. The share premium account will then be cancelled and the reserves will be transferred to distributable reserves. If Holdco has an existing Subco with sufficient reserves then this step is unnecessary. A dividend is then paid by Subco. Any dividend paid to the IIP trusts will be passed onto the shareholders under the terms of the trust. However, under s624 ITTOIA 2005, the income is treated for tax purposes as that of Holdco. Accordingly, if the marginal rate of tax on income for Holdco is less than that of the shareholders then a tax advantage will arise. The dividend should not be taxed under any other provision due to the protection of s716 ITEPA 2003.
[5] At a meeting between HMRC and the promoters of the DRS in 2013 it was agreed that HMRC would pursue enquiries into, and make detailed requests for information and documents from, ten representative users of the scheme (“the first sample”). Information and documents equivalent to those requested in the full documents notice were provided following an informal request from HMRC. The enquiries into the tax returns of the individual shareholders of the first sample, which did not include the shareholders of Uppercut or Uppercut, have concluded and the appeals by Ms Clipperton and Mr Lloyd have been designated lead cases under a direction made under rule 18 of the Tribunal Rules on 24 August 2017 (the “lead cases”). The appeals are due to be heard by the First-tier Tribunal in December 2018. The enquiry in the holding company relevant to the lead cases, Winn & Co (Yorkshire) Ltd, was concluded on 16 March 2016. The closure notice stated that HMRC did not need to make any amendments to the company's tax return.
[6] On 8 December 2015 HMRC decided to open enquiries into 23 further users of the DRS (“the second sample”), and to seek full documents from some users and a limited list of documents from the other users of the scheme. As noted above, Uppercut is one of the cases where a limited list of documents has been requested and Cliftonville is an example of the cases where full documents have been sought.
[7] The first sample of ten cases and the second sample of twenty three cases...
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Cliftonville Consultancy Ltd
...notice issued to Cliftonville. The parallel decision relating to the limited list information notice issued to Uppercut is under [2018] TC 06465. The common facts, law and conclusions that relate to both Cliftonville and Uppercut are reflected in both decisions, but certain issues are relev......