Legal News

HMRC v Blue Crest Capital Management LP and others and Andrew Dodd and others v HMRC [2023] EWCA Civ 1481 Blue Crest Capital Management LP functioned as an investment manager through a limited partnership structure. To retain and motivate its partners, it introduced a partner incentivisation plan ( PIP) from 2008. In outline, the PIP operated as follows: a newly formed corporate partner was admitted to the partnership; that corporate member was allocated the profit shares that, absent the plan, would have been attributed to the participating partners; the corporate partner then reinvested those profits into the partnership as a capital contribution, described as ‘special capital’; in consideration of foregoing their immediate profit share, the participating partners received a deferred entitlement to an equivalent amount of that special capital; and any entitlement to the special capital was...

R& D expenditure claim extinguished by going concern condition ( MW High Tech Projects UK Ltd v HMRC) MW High Tech Projects UK Ltd v HMRC [2023] UKFTT 1040 ( TC). The company, operating in engineering and construction, had incurred substantial losses by the close of 2016 due to technological hurdles within its business. Its accounts for the year ended 30 December 2017 were prepared not on a going concern basis. On 4 April 2019, the company filed its corporation tax return for that period, claiming an RDEC in excess of £1.93m. HMRC then refused the claim. A condition of entitlement to the RDEC was that the company had to be a going concern at the time the claim was made. As one of the qualifying conditions demanded that a company be a going concern when the claim was lodged......

Campbell v HMRC [2023] UKUT 265 ( TCC) What are the practical implications of this case? It is relatively unusual for the UT to return matters to the FTT with such trenchant comment. Here, the UT not only identified several errors of law, but also delivered robust criticism of the FTT’s methodology and conclusions. The censure extended to both the approach adopted and the conclusions drawn by the FTT. Of the four grounds advanced by Mr Campbell, the UT agreed with three, quashing those determinations and sending them back for a fresh determination by a differently composed FTT tribunal. Of note, the UT did not also send back the trading issue, even though it considered the FTT had misread an important authority. Should Mr Campbell eventually prevail on every ground, he would have disposed of four properties within six years, realising profits of circa...

Revenue and Customs Commissioners v E. On UK plc [2023] EWCA Civ 1383, [2023] All ER ( D) 34 ( Dec) What are the practical implications of this case? The judgment offers a clear review of the authorities that may bear upon the sole statutory issue raised here: whether the sum in dispute amounts to earnings ‘from’ employment. In that setting, the Court of Appeal elucidated the ratio in Tilley v Wales [1943] AC 386 and marked out the limits of the ‘replacement principle’ from Mairs v Haughey [1994] 1 AC 303. With those propositions settled, and taking the First- Tier Tribunal’s findings about the nature of the payment and the circumstances in which it was made, the statutory question admitted of a straightforward resolution. What was the background? The respondent sought to lower the expenses tied to running its defined benefit scheme. It put forward several...

For the time being, this ruling chiefly confirms that the reach of the TOAA code is far narrower than HMRC asserted, and should, with luck, deliver long-awaited certainty for taxpayers and their advisers in comparable scenarios going forward, as well as substantially curtail the use of the TOAA provisions in like circumstances, both in current matters and future disputes. As Lady Rose observed at the outset of her judgment, the TOAA regime ranks among the most bewilderingly intricate parts of UK tax law—a striking, if somewhat questionable, accolade given the usual complexity of UK taxation. It is little wonder that the appeals in this matter produced a different result at each stage of the litigation. Further illustrating the tax law’s complex nature, more than ten years have passed before the Supreme Court finally resolved the Fisher dispute at long last, in the end. It was...

R (on the application of IAB and others) v Secretary of State for the Home Department and another [2023] EWHC 2930 ( Admin) What are the practical implications of this case? This important ruling (which may yet be appealed) appears to mark a shift in the Administrative Court’s approach to when it is acceptable to redact names in materials produced by the defendant on disclosure. It is delivered against a backdrop where, via social media and websites, documents used in litigation routinely become accessible to the public. Moreover, defendants at times feel compelled to carry out a comprehensive disclosure exercise (searching for documents) to convince claimants that they have fulfilled their duty of candour. Even so, Mr Justice Swift emphasised that the conduct of litigation should not be driven by fear of the baser instincts of a misguided minority (para [28]), and remarked that open debate about...

Harber v HMRC [2023] UKFTT 1007 ( TC) The taxpayer did not inform HMRC of a chargeable gain arising on the sale of a UK residential property. HMRC imposed a ‘failure to notify’ penalty, which the taxpayer challenged, claiming a reasonable excuse on two bases: ignorance of the law, and her mental health She submitted a written note referring to nine FTT authorities said to underpin both arguments, reportedly supplied by ‘a friend in a solicitor’s office’. HMRC’s advocate and the FTT attempted to locate those cited decisions on the FTT site and other standard legal resources but were unable to find them—they appeared not to exist. The FTT determined that the supposed authorities were not authentic tribunal decisions and had in fact been created by an artificial intelligence tool. The case summaries the taxpayer relied on were described as...

SKAT v Solo Capital Partners and others The Supreme Court has affirmed the Court of Appeal’s conclusion that Dicey rule 3 (the revenue rule) does not apply in this instance, as the Danish tax authority seeks to recover sums obtained by fraud rather than to enforce unpaid Danish tax or reclaim Danish tax. Consequently, SKAT’s claims against Solo Capital Partners and others can proceed to a trial in an English court. In addition to a summary of the ruling, this News Analysis also includes commentary from: Hugh Gunson, Partner, Charles Russell Speechlys LLP Jonathan Schwarz, Temple Tax Chambers ( Tax Counsel to SKAT) Background to the Appeal Skatteforvaltningen (‘ SKAT’), the Danish Customs and Tax Administration, has brought claims in England and Wales against a number of parties, including the appellants. SKAT alleges that these parties submitted fraudulent applications for tax refunds to which they were never...

What are the practical implications of this case? In Commissioners for His Majesty’s Revenue and Customs v Vermilion Holdings Ltd [2023] UKSC 37, the ruling carries notable, practical consequences for employers aiming to grant shares or share options to company officers or employees. Unless an officer or employee can rely on one of the exceptions in ITEPA 2003, s 471(3), any option issued while they hold office or employment will be classified as an employment-related security and, accordingly, taxed as employment-related income. The purpose behind offering the security option to the relevant officer or employee is immaterial. There is, however, an open question as to whether ITEPA 2003, s 471(3) will remain the central provision where options are granted to former employees or individuals yet to begin employment with the company. It appears, on balance, more likely that in those...

HMRC v Vermilion Holdings Ltd [2023] UKSC 37 Background This appeal revolved around the construction of ITEPA 2003, s 471. That provision identifies when an option to obtain securities (including company shares) is given ‘by reason of employment’ and so chargeable to income tax rather than capital gains tax. In 2006, Vermilion Holdings Ltd ( Vermilion) granted Quest Advantage Ltd ( Quest) an option to acquire shares in Vermilion (the 2006 Option). By late 2006, Vermilion’s performance had deteriorated. As part of a rescue funding arrangement, Vermilion and Quest agreed to vary the 2006 Option. In July 2007, they executed a fresh option agreement (the 2007 Option), under which Quest subscribed for a new class of Vermilion shares and the 2006 Option lapsed. In 2016, Quest assigned the 2007 Option to Mr Noble. Quest sought HMRC’s confirmation that the assignment fell within capital gains tax. HMRC...

Mullens v HMRC [2023] UKUT 244 ( TCC) The taxpayer, a practising solicitor, acted as an adviser to the Ecclestone family interests. Over a number of years, he received six payments amounting in total to £40m. He excluded these sums from his self-assessment tax returns, maintaining that they constituted gifts. HMRC issued discovery assessments in respect of payments one to five, respectively, relying on section 29(4) of the Taxes Management Act 1970 ( TMA 1970) on the basis that there was a loss of tax attributable to the taxpayer’s careless or deliberate conduct. In relation to payment 6, HMRC issued an enquiry closure notice in that enquiry. The assessment dealing with payment five was made within the normal relevant statutory time limits, whereas those for payments 1–4 instead depended upon the extended time limits provided by TMA 1970, s 36. HMRC also issued penalty...

Alpha Republic Ltd v HMRC [2023] UKFTT 750 ( TC) The substantive appeal in this matter centred on HMRC assigning a scheme reference number under the disclosure of tax avoidance scheme ( DOTAS) provisions in respect of arrangements promoted by the company. The company had likewise initiated judicial review proceedings to challenge HMRC’s decision to publish its name and related particulars, though those proceedings were withdrawn shortly before the scheduled hearing. The company then applied for a direction compelling HMRC to serve a fresh statement of case on a number of stated grounds. It contended that the dispute stemmed from legislation described as ‘penal’ and ‘contradictory to fundamental principles of English law’, and therefore should be construed restrictively, with the tribunal, in particular, ensuring that HMRC at all times observed rigorous compliance with the Tribunal......

R (oao London Fluid System Technologies Ltd and others) [2023] EWHC 2206 ( Admin) The claimant company had participated in a disguised remuneration scheme and later concluded a settlement with HMRC. Subsequent to the Morse review of the loan charge and the launch of the 2020 disguised remuneration repayment scheme, the company sought a repayment, which HMRC declined. The claimants therefore commenced judicial review proceedings challenging HMRC’s decision, utilising the email service that HMRC introduced during the coronavirus ( COVID–19) pandemic. The claimant’s solicitor sent the claim forms to the email address of the solicitor already appointed to handle the matter, rather than to the address specified in the press release announcing the email facility. In doing so, he relied in particular on prior experience in three other judicial review cases in which HMRC had accepted that......

Wilkinson and others v HMRC [2023] UKFTT 695 ( TC). Mr and Mrs Wilkinson jointly held around 58% of the ordinary share capital in P Ltd. A sale was agreed whereby the BCA group would acquire P Ltd via an acquisition vehicle, TF1 Ltd, for £130m (the transaction), with the price satisfied through a mix of cash and loan notes issued by TF1 Ltd (the exchange). In the days immediately before the deal, they transferred a substantial number of P Ltd ordinary shares to their daughters. On completion, shareholders other than the daughters received cash and loan notes; the daughters instead took a different class of loan notes together with B ordinary shares in TF1 Ltd, and no cash. The daughters were also appointed as non-executive (and unpaid) directors of a company that was a 100% subsidiary of P Ltd. These steps were...

Stephen John Hunt v Jagtar Singh [2023] EWHC 1784 ( Ch) What are the practical implications of this case? This ruling is valuable for liquidators, as it sets out a clearer pathway for certain claims alleging breach of the duty to consider creditors’ interests. While actions against directors where a company was nearing, or tottering on the brink of, insolvency remain somewhat unsettled after BTI 2014 LLC v Sequana SA [2022] UKSC 25, [2022] 3 WLR 709, a different position applies where the company was, in reality, significantly insolvent unless a liability could be successfully contested. In that circumstance, the liquidator can proceed with greater assurance. The emphasis is not on calculating the precise probability of insolvency; rather, if there was a real prospect that the challenge to the liability might fail, the duty is engaged. The decision also offers a clear warning to...

Raystra Healthcare Ltd v HMRC [2023] UKFTT 496 ( TC) HMRC issued an assessment to claw back amounts the taxpayer company had obtained under the Coronavirus Job Retention Scheme ( CJRS) for six employees who were not shown on an RTI submission before the 19 March 2020 deadline. A software upgrade to the company’s RTI system in November 2019 inadvertently left it in ‘test’ mode, with the result that RTI returns stopped being sent from that date until HMRC informed the company of the fault on 24 April 2020. On receiving that notification, the company filed the outstanding RTI information the same day, and later went on to apply for, and receive, payments under the CJRS. The central issue advanced in the company’s appeal was that, absent the software problem, payments of earnings to the six affected employees would have been included in......

Murphy v HMRC [2023] EWCA Civ 497 In this case, a non-resident trust distributed over £9m to beneficiaries resident in the UK. The trustees asked HMRC to confirm that, under ESC B18 (1999), those beneficiaries could claim credit for UK income tax previously paid on the trust’s income, whether that income arose within the preceding six years or over a longer span. HMRC accepted the claim for six years (and appears to have allowed one earlier year by mistake) but rejected the balance as it related to earlier periods. The beneficiaries therefore issued judicial review proceedings to seek recognition of their right to credit for tax the trust had paid in those earlier years. ESC B18 seeks to remedy a legislative anomaly (originally in sections 686–687, 809 of the Income and Corporation Taxes Act)......

David Mc Clean and others v Andrew Thornhill KC [2023] EWCA Civ 466 The appellants belonged to limited liability partnerships ( LLPs) established specifically to obtain and exploit distribution rights in films. Prospective investors were pitched the Scheme by the promoter, as presented on the footing that, as members of an LLP, they would qualify for tax relief on trading losses the LLP was expected to incur, which they could set off against their own personal income or capital gains, thereby reducing their tax liabilities. The Scheme’s promoter retained Mr Thornhill to produce a series of opinions addressing the tax consequences of the arrangements. HMRC disputed the supposed purported fiscal advantages of investing in or participating in the Scheme, contending the LLPs were not conducting trade on a commercial footing with an intention to make a profit. In 2017 the investors concluded a...

Mark Mitchell and Paul Bell v HMRC [2023] EWCA Civ 261 The case arose after HMRC assessed two companies for input tax because they were unable to show they had ever received the particular supplies on which the input tax had been claimed. The companies then went into liquidation, and HMRC issued personal liability notices of roughly £6m to the two directors, Paul Bell ( Bell) and Mark Mitchell ( Mitchell). A statutory review upheld HMRC’s assessment, and the First-tier Tax Tribunal ( FTT) subsequently directed that the two appeals lodged by Mitchell and Bell should be heard together. A complication was that evidence relied upon by HMRC had been provided by Mr Mitchell and was obtained by HMRC during an enquiry into Mr Mitchell’s own tax affairs. Contending that the documents were not relevant to the dispute, Mr Mitchell declined to share that...

Asset House Piccadilly Limited v HMRC [2023] UKFTT 279 ( TC) HMRC had served information notices in connection with enquiries into certain aspects of the taxpayer’s corporation tax returns, and additionally on the basis of HMRC’s suspicion that the company acted as an ‘enabler’ of arrangements said to be abusive. The company brought strike-out applications in two separate appeals against those notices. The HMRC case-handlers responsible for the appeals were not admitted solicitors, nor were they under a solicitor’s supervision at any material time. The strike-out bids contended that, as a result, they were effectively contravening LSA 2007, s 14(1) by undertaking a reserved legal activity, namely conducting litigation before the Tribunal in these appeals. In substance, the strike-out requests sought to exclude HMRC from the proceedings altogether. The FTT concluded that HMRC officers are part of HMRC......