Afzal Alimahomed was UK resident but non-UK domiciled. He claimed the remittance basis of taxation in 2016/17 and during that year entered into various transactions, including transfers from his offshore bank account to various UK bank accounts of people who were not 'relevant persons' (NRPs), as defined in section 809M, Income Tax Act 2007 (ITA).  Additionally, goods and services were purchased in the UK using Mr Alimahomed's credit card.

As the money, goods and services were received by NRPs, the transactions could only be remittances if they involved money, or property, brought into the UK by Mr Alimahomed.

HMRC issued a closure notice to Mr Alimahomed for 2016/17, in the amount of £133,681.90, on the basis that the transfers and payments were remittances under section 809L, ITA. Mr Alimahomed appealed to the FTT.  

FTT decision 

The appeal was dismissed. 

The FTT held that:

1) Transfers from Mr Alimahomed's offshore bank account to the UK accounts of NRPs (including his adult son and service providers) constituted remittances under section 809L(2)(a), ITA, having met both conditions A and B referred to in the legislation. In particular, the FTT considered that, initiating a transfer or authorising a payment, was sufficient to demonstrate that money, or other property, was brought to the UK by, or for the benefit of, a relevant person. 

2) Payments made using an offshore credit card for goods and services in the UK also constituted remittances creating a 'relevant debt', under section 809L(7), ITA. The FTT agreed with HMRC that a purchase via a credit card is equivalent to the cardholder authorising the credit card company to pay the bill for the goods or service, on their behalf. 

3) Jewellery which had been purchased in the UK for Mr Alimahomed and his wife was not exempt property under section 809Z2, ITA, because it was purchased in the UK using Mr Alimahomed's offshore credit card and the FTT considered that by using that card Mr Alimahomed had made a remittance to the UK. 

Mr Alimahomed appealed to the UT. 

UT decision 

The appeal was allowed in part.

In relation to the first issue, the UT agreed with the FTT that transfers from Mr Alimahomed's offshore bank account to UK accounts of NRPs constituted remittances. The UT rejected Mr Alimahomed's arguments that electronic bank transfers did not involve property being 'brought to' the UK, finding that 'money', in condition A of section 809L(2), included 'bank money' and that term did not require physical accompaniment of the property. The UT also noted that section 809V, ITA, which exempts direct payments to HMRC from being treated as remittances, clearly contemplated that direct bank transfers would otherwise be remittances.

With regard to the second and third issues, the UT concluded that the FTT had erred in law by failing to properly analyse what property was brought to the UK, for the purposes of condition A in section 809L. The UT was of the view that there could only ever be a relevant debt that gave rise to remittance if there was something the debt could relate to that fell within condition A, and it had not been explained what that was. Accordingly, the UT set aside the FTT's decision on the second and third issues and remitted those issues back to the FTT for a rehearing with additional evidence. 

Comment

This case provides helpful analysis on the meaning of 'money' and confirms that a bank transfer by a UK‑resident non‑domicile from their offshore account to a UK bank account of a NRP constitutes 'money… brought to the United Kingdom', under section 809L, ITA, and can be a taxable remittance.

The UT's decision also confirms that offshore credit card spending and 'relevant debts', under the remittance rules, is fact‑sensitive and this led the UT to set aside and remit those aspects of the appeal for reconsideration by the FTT.

The decision can be viewed here.

Introduction

The stated aim of the SRS is to harness credible third-party information to uncover hidden non-compliance, reduce the tax gap, and strengthen HMRC’s enforcement capabilities. However, while the promise of increased compliance and deeper investigative reach is compelling, the introduction of a formal and generous reward system raises a host of operational, ethical, and resource challenges.

These include the potential for a dramatic increase in vexatious or opportunistic reports, the demands on HMRC’s capacity to effectively vet and act on information received, and the broader implications for enforcement culture in the UK.

This blog explores the likely impact of the SRS, both intended and unintended, and considers it within a broader global trend for incentivised enforcement.

The structure of the SRS

Under the SRS, individuals who supply information that enables HMRC to collect significant unpaid tax may receive a share of the revenue recovered. HMRC's official guidance states that a reward may be payable where information leads to the collection of at least £1.5 million in additional tax, with awards ranging from 15% to 30% of the amount collected (excluding penalties and interest). The SRS applies primarily to serious tax avoidance and evasion involving large corporations, wealthy individuals, or offshore structures. 

This represents a departure from HMRC’s historical approach, which was a discretionary and modest informant reward system. Prior to the 2025 reforms, HMRC paid out rewards for credible information relating to suspected fraud, but the amounts were limited and did not involve a percentage-based structure. 

In contrast, the US Internal Revenue Service (IRS) Whistleblower Program has paid out substantial awards (often between 15–30% of the recovered tax) and generated billions of dollars in additional revenue collections. Similarly, Canada’s Offshore Tax Information Program has shown the potential benefit of a structured incentive reward scheme. The SRS explicitly draws inspiration from these models.

Increasing credible disclosures 

One of the SRS’s principal aims is to increase the volume of credible disclosures made to HMRC. By aligning economic incentives with compliance objectives, the policy seeks to encourage insiders and other knowledgeable parties will relevant information, who might otherwise remain silent.

Confidential sources, such as employees of large businesses, tax professionals, or intermediaries with insight into avoidance schemes or tax evasion, now have a financial incentive to come forward. This could help HMRC penetrate opaque structures, uncover orchestrated avoidance strategies, and initiate enforcement actions that might not otherwise take place.

Moreover, linking rewards to the actual amount of tax recovered, provides a transparent and proportional incentive. Systems, such as the IRS's programme, have encouraged a steady flow of high-value reports and have generated billions in additional revenue. 

The rise of vexatious and opportunistic reports

Any system that offers potentially substantial financial rewards is likely to attract attention beyond the sphere of legitimate informants. Generous rewards may encourage vexatious, speculative, or opportunistic reports that allege wrongdoing but lack credibility or actionable evidence. 

Even before the SRS was introduced, the volume of HMRC tip-offs had increased substantially in recent years, with a record number of reports in 2024/25 but a decline in the average amount paid to informants, which suggests that many submissions lacked the substance necessary for further action to be taken by HMRC. 

A flood of low-quality reports risks diverting HMRC’s scarce investigative resources away from genuine cases, as investigators will have to sift through reports to identify actionable intelligence. It also raises the possibility of malicious reporting, where individuals lodge unfounded claims with the aim of simply causing upset for the person concerned.

Resource and operational challenges for HMRC

To maintain confidence and effectiveness, HMRC must allocate substantial resources to manage the anticipated volume of information it will receive from informants. This includes initial vetting, risk assessment, prioritisation and, where appropriate, referring matters to compliance divisions or criminal investigation teams within HMRC.

Unlike traditional enforcement investigations initiated by HMRC, third-party disclosures can arrive in a wide variety of formats, levels of detail, and evidentiary rigor. Establishing robust mechanisms to distinguish between genuinely valuable leads and spurious information, will be essential. HMRC’s enforcement teams may also need to enhance their expertise in data analysis, pattern recognition, and financial forensics, in order to handle this demand effectively.

Without adequate resource allocation, there is a risk of delays, which could erode confidence in the SRS. Those contemplating disclosure are more likely to participate in the SRS if they believe their information will be taken seriously and acted upon. Delays or opaque decision-making is likely to reduce participation in the SRS.

Balancing transparency and confidentiality

Another operational consideration for HMRC is how it balances the need for confidentiality with accountability. Safeguarding the identity of informants is often very important. At the same time, the system requires transparency in its reward decision-making process in order to foster confidence. This balancing act adds complexity to HMRC’s administrative workload and requires careful policy considerations.

Broader trends in enforcement: UK, US, Canada and beyond

The introduction of financial rewards for whistleblowers in tax matters aligns with a broader global trend across various enforcement bodies. In financial regulation and economic crime, agencies such as the Serious Fraud Office (SFO) and the Financial Conduct Authority (FCA) have expressed interest or taken preliminary steps toward incentivising whistleblowers. For example, in its annual business plan for 2025/6, the SFO has advocated financial incentives similar to those in the US, and FCA reports reflect ongoing engagement with the topic.

This trend mirrors the longstanding practice in the US under programmes like the IRS whistleblower scheme and the Securities and Exchange Commission whistleblower reward programme, which have demonstrated the potential of third-party intelligence to supplement traditional enforcement action. Canadian programmes, although operating on a smaller scale, with different eligibility criteria and payout bands than those in the US, similarly demonstrate how incentivised disclosure can contribute significantly to revenue collection and enforcement reach. 

The UK’s adoption of a percentage-based reward model reflects an acknowledgement that traditional investigation methods may no longer suffice in an era of complex international tax avoidance and digitalised economic activity.

Maintaining confidence 

To ensure confidence in the SRS, HMRC must ensure it operates with credibility, fairness, and accountability. Criteria for determining eligibility, reward quantum, and deciding borderline cases, must be clear and well-communicated. Discretionary decision-making should be informed by objective criteria.

Crucially, mechanisms for appeal or review, such as those available under the IRS whistleblower programme, would enhance trust among potential participants. Without appropriate avenues for redress, confidence in the SRS will be undermined.

Conclusion

The SRS is a bold and potentially game changing addition to the UK’s tax enforcement toolkit. By aligning financial incentives with compliance objectives, the SRS seeks to elevate the role of third-party disclosures in detecting serious tax avoidance and evasion. In doing so, it draws on established international models that have delivered significant results in other jurisdictions.

BTR Core Fund JPUT (BTR) acquired the leasehold interest in a property in Manchester known as West Tower, for approximately £98 million. The property comprised around 350 residential dwellings, together with unlet commercial premises.

BTR filed with HMRC a SDLT return claiming MDR. In calculating the SDLT due, BTR applied the higher rates for additional dwellings, in line with HMRC’s guidance at the time. This resulted in BTR paying approximately £4.7 million of SDLT.

HMRC later revised its guidance and accepted that the acquisition was not a higher-rates transaction. As a result, BTR had overpaid SDLT by approximately £3.06 million.
Because the time limit for amending the SDLT return had expired, BTR submitted a claim for overpayment relief under paragraph 34, Schedule 10, Finance Act 2003 (FA 2003). HMRC initially gave effect to the claim and repaid the SDLT with interest. 

However, HMRC subsequently opened a compliance check and issued a closure notice concluding that it was not liable to give effect to the claim because the overpayment arose “by reason of a mistake in a claim”, which is an exclusion within paragraph 34A(2), Schedule 10, FA 2003.

BTR appealed to the First-tier Tribunal (FTT), which dismissed its appeal. BTR then appealed to the UT.

UT decision

The appeal was allowed.

Mistake in a claim

The key issue before the UT was whether the excessive SDLT arose “by reason of a mistake in a claim”, within the meaning of paragraph 34A(2), Schedule 10, FA 2003.

The UT held that BTR had correctly made a claim for MDR in its SDLT return. The mistake occurred in the calculation of the SDLT liability, when BTR applied the higher residential rates based on HMRC’s guidance at the time.

The UT emphasised that there was no statutory requirement to quantify the relief or provide calculations as part of the claim itself.

The error was not "a mistake in a claim", but rather, a mistake in the self-assessment of the SDLT due.

Purposive approach

In reaching its decision, the UT applied a purposive approach when construing the relevant statutory language, concluding that the purpose of the “mistake in a claim” exclusion is to prevent taxpayers from circumventing statutory time limits and procedural requirements for making a claim. Where a mistake consists of a failure to make a claim, for whatever reason, relief is not available.

That concern did not arise in the present case because BTR had validly claimed MDR within the SDLT return itself. The overpayment resulted from a computational error in applying the tax rates, rather than any defect in the claim itself. Accordingly, the exclusion did not apply and HMRC was required to give effect to the claim.

Comment

As MDR has been abolished, the significance of this decision is limited to those who have already claimed MDR and miscalculated their liability and are still in time to make an overpayment relief claim.

It is interesting to note that the FTT member, Julian Sims, issued a rare dissenting decision in this case (Judge Gauke had the casting vote) in which he agreed with BTR that the relevant mistake was in the calculation of liability to tax rather than the claim itself, and the UT ultimately agreed with him. 

The decision can be viewed here.

HMRC has identified that organised criminal gangs are using CIS deductions to conduct large-scale tax evasion. This can occur where a contractor fails to deduct or account to HMRC for tax on payments made to subcontractors, or where a subcontractor falsely reclaims deductions that were not made. CIS has always demanded careful compliance, but these changes materially raise the stakes, particularly for businesses working with subcontractors and labour suppliers.

The Changes

Under the new CIS regime, contractors will be liable for any lost tax, in addition to a penalty of up to 30% of the lost tax, if it is established that they "knew or should have known" that a transaction in their supply chain was connected to fraudulent tax evasion. The changes will also be relevant to individual directors and persons connected with the business, because they could also be liable to a penalty of up to 30% of any lost tax.

Additionally, HMRC will gain the power to immediately revoke a business's gross payment status if fraud is detected, with the waiting period for reapplying for this status extended from one year to five years.

In relation to the administration of CIS, from 6 April 2026, mainstream contractors will be required to file a nil return when they have not paid any subcontractors that month, and payments to local authorities and specified public bodies will fall outside the CIS. The intention of these changes is to simplify the CIS, although the requirement to file a nil return will again increase the administrative burden for mainstream contractors.

These measures have been modelled on those introduced to counteract VAT fraud. In that context, the introduction of a constructive knowledge test gave rise to a significant number of factual disputes with HMRC, where companies are put in the difficult position of proving an absence of knowledge of fraud.

The measures follow broader government efforts to tighten compliance across labour supply chains, including closer scrutiny of umbrella companies and PAYE responsibilities. The direction of travel is clear: accountability is shifting onto everyone in the chain, not just those directly perpetrating the fraud.

What you need to do

Now is the time for businesses to:

• review CIS policies, procedures and contracts (including supply chain clauses and onboarding processes)

• assess whether their current level of due diligence would withstand HMRC scrutiny under a “knew or should have known” test

• strengthen record-keeping so that checks carried out on counterparties and payments can be evidenced.

If you would like to discuss the coming changes or if you, or a company in your supply chain, are contacted by HMRC and require expert legal advice and assistance please contact Michelle Sloane or Daniel Williams.

UK LLP is part of a privately-owned corporate group headed by The Boston Consulting Group Inc (BCG Inc) (together referred to as BCG). The case concerned on BCG's global long-term incentive scheme (LTCV) which was designed to give the MDPs a stake in the firm's future growth.

It was decided that UK LLP would be the vehicle for the BCG business in the UK. The rights attaching to the LTCV and relating to the MDPs, were set out under three Limited Liability Partnership Agreements (LLPAs), the key terms of which were:

• the MDPs were allocated LTCV units which were described as Capital Interests and allocated initially upon appointment and subsequently based on seniority and length of service;
• the MDPs were entitled or required to sell their LTCV interests to a BCG entity;
• the LTCV was funded by UK LLP making a retention of 18% of its profits in each period, which was allocated to BCG Inc for accounting purposes but to BCG Ltd for tax purposes, as a corporate member of the UK LLP; and
• when an MDP sold their Capital Interest to BCG Ltd, it would use funds it had or receive a capital injection from BCG Inc or an intragroup loan, to pay the MDP for the Capital Interest.

MDPs accounted for tax on their Capital Interest in the years that they received payments from a sale of their Capital Interest, on the basis that the payments were not profits received from UK LLP, but rather capital receipts. The Capital Interests were also treated by the MDPs as shares in the capital of UK LLP and they claimed Entrepreneurs' Relief (now Business Asset Disposal Relief) in respect of them.

HMRC disagreed with this treatment and amended UK LLP's Partnership Statement for the relevant years and issued certain MDPs with discovery assessments under section 29, Taxes Management Act 1970 (TMA).

UK LLP and 63 MDPs appealed to the First-tier Tribunal (FTT). The case proceeded with UK LLP and five MDPs as lead appellants.

FTT decision

The effect of the FTT's decision was that the UK LLP succeeded in its appeal on the substantive issues concerning the treatment of payments made in respect of the Capital Interests. With regard to the MDPs, although the FTT found that the payments were taxable as miscellaneous income in the hands of the MDPs, all lead appellants, other than Mr Holden, succeeded on their procedural challenges.

The FTT determined that:

1. The Capital Interests were not interests in the capital of UK LLP or a share of its assets.
2. The MMRs in section 850, Income Tax (Trading and Other Income) Act 2005 (ITTOIA), did not apply.
3. No amounts were to be reallocated to the MDPs under section 850, ITTOIA.
4. The sums paid to the MDPs in respect of their Capital Interests were subject to income tax as miscellaneous income under section 687, ITTOIA.
5. If, contrary to its other findings, the sums paid to the MDPs in respect of their Capital Interests were capital in nature, those sums were taxable as the sale of occupational income under Chapter 3, Part 13, Income Tax Act 2007.
6. A number of appeals made on the basis that HMRC's assessments were procedurally defective and invalid were allowed, and others were dismissed. 

Both HMRC and Mr Holden appealed to the UT.

UT decision 

Although, the UT upheld the FTT's decision in part, the effect of its decision was that UK LLP failed in its appeal on the substantive issues concerning the tax treatment of the Capital Interests. 

The main issues considered by the UT were:

1. Whether the FTT was wrong to hold that the Capital Interests were not interests in the capital of the UK LLP (the Capital Issue).
2. Whether the FTT was wrong to decide that the MMRs did not apply, and if it was, what was a 'just and reasonable' re-allocation to the MDP (the MMR Issue).
3. If the MMRs did not apply, whether the sums paid to the MDPs were taxable as miscellaneous income (the Miscellaneous Income Issue) or as proceeds from the sale of occupational income (the Occupational Income Issue).
4. In relation to certain assessments on the MDPs and the 2016/17 partnership return filed by the UK LLP, whether HMRC had shown that there had been carelessness within the meaning of the relevant statutory provisions and whether HMRC had shown, in relation to the 2015/16 partnership return filed by the UK LLP, that the hypothetical officer requirement under section 30B(6)(a), TMA, was satisfied (the Procedural Issues). 

The Capital Issue

The UT agreed with the FTT that the payments made under the relevant provisions of the LLPAs were not payments for an interest in capital or in goodwill and they were also not a payment to buy-out a right created under the relevant provisions of the LLPA, because the price paid bore no relationship to the value of that right. Accordingly, there was no sale of a capital interest under the LLPAs.  

The MMR Issue

The UT disagreed with the FTT on this issue and held that the MMRs did apply for the years 2014/15 through to 2016/17.

In reaching its conclusion, the UT held that the LCTV payouts qualified as 'deferred profit'. The UT considered that because the financial benefit was received by MDPs only on sale of the Capital Interests, it was inherently deferred even if not tied to a specific earlier-year entitlement. Deferred profits were included in the corporate member's profit share. The UT commented that the statutory test relied on broad assumptions based on a relatively high-level analysis and that, in this case, it was reasonable to assume that if profits had been allocated to BCG Ltd for tax purposes and BCG Ltd was expected to pay for the MDPs' Capital Interests, then the MDPs' deferred profits had been included in BCG Ltd's profit shares.

The MDPs had the power to enjoy BCG Ltd's profit share. In the view of the UT, as the retained profits were allocated to BCG Ltd for tax purposes to fund the future cost of buying back these interests (and because the MDPs did in fact receive their payments from BCG Ltd) it was clear that the MDPs were able to benefit from BCG's share of the profits. The UT agreed with the FTT that it was reasonable to conclude that BCG Ltd's profit share was linked to the MDPs’ ability to benefit from it. 

The counterfactual test, applicable to both Conditions X and Y for the purposes of the standard profit-allocation rules in sections 848 to 850, ITTOIA, supported HMRC. The UT held that, absent the arrangements under the LTCV, it was reasonable to suppose that the MDPs’ profit shares would have been higher.

The Miscellaneous Income Issue and Occupational Income Issue

For the years 2012/13 and 2013/14, the UT agreed with the FTT that the payments received were taxable as miscellaneous income under section 687, ITTOIA. The position was different for the later years because the MDPs were taxable under the MMRs (as explained above in relation to the MMR Issue). 

In the view of the UT, the Occupational Income Issue was not relevant as it only needed to be considered if the UT found that the Capital Interests were capital in nature. However, the UT went on to consider the issue and concluded that if it was wrong in relation to its findings relating to the MMRs and/or the miscellaneous income provisions, the sale of occupation income provisions would have applied.  

The Procedural Issues

The UT considered various assessments relating to UK LLP and specific MDPs across different tax years. The below summary does not set these out in full and focuses on the key Procedural Issues only. In this regard, the UT:

(1)  Upheld the FTT's finding that UK LLP was careless when it decided that payments made on the sale of the Capital Interests were capital in nature because it had failed to take adequate professional advice. 

(2)  Agreed with HMRC, that in taking advice from PwC about the arrangements, including in particular, the Capital Interests, UK LLP was acting on its own behalf and on behalf of the MDPs. 

(3)  Concluded that there was a tax loss because the MDPs treated payments in their self-assessment returns as capital when it should have been treated as income and the UK LLP's carelessness caused the loss of tax. 

(4)  Concluded that, with regard to UK LLP, the hypothetical officer test was met for the tax year 2016/17, so that HMRC's assessment, even though outside of the 'enquiry window', was valid. Accordingly, for the purposes of section 29, TMA, the hypothetical officer could not have been reasonably expected, on the basis of the information made available to them before that time, to be aware that there were profits that had not been included in the return or that insufficient profits had been included in the return.  

Comment

This decision is significant for professional service firms, particularly those using corporate members in partnership structures. Such firms should review their remuneration arrangements and consider the potential application of the MMRs in light of the interpretation of the relevant legislation adopted by the UT in this case.  

The UT's conclusions on the Procedural Issues are also worthy of note, highlighting that taking independent tax advice on its own is not always sufficient to avoid a finding of carelessness for the purposes of extended time limit assessments, if the written advice received is inadequate. 

Given the importance of the legislation considered in this case and the wider implications for other taxpayers, it will be interesting to see if the decision is appealed to the Court of Appeal. 

The decision can be viewed here.

Background

HMRC opened enquiries in 2019 and issued the taxpayers with a series of assessments, penalties and personal liability notices (the Decisions), in relation to VAT. The taxpayers appealed the Decisions to the FTT, but three of the appeals were notified after the 30-day deadline set out in section 83G, Value Added Tax Act 1994 (VATA). 

While the decision of the FTT was, unusually, not published, the FTT refused permission, under section 83G(6), VATA, for three appeals to be brought out of time, applying the guidance given by the UT at [45]-[46] in Martland v HMRC [2018] UKUT 178 (TCC) and subsequently endorsed in HMRC v Katib [2019] UKUT 189 (TCC). That guidance provides that, when considering an application for a late appeal, the FTT could follow the following three-stage test applied by the civil courts:

1. Establish the length of the delay, and whether it was serious or significant.
2. Establish the reason(s) why the default occurred.
3. Evaluate “all the circumstances of the case”. This involves a balancing exercise that essentially assesses the merits of the reason(s) given for the delay and the prejudice that would be caused to both parties by granting or refusing permission. In undertaking that assessment, the FTT must take into account the factors set out at Rule 3.9 of the CPR, namely, the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected. 

The UT decision

The taxpayers applied to the UT for permission to appeal the FTT's decision refusing them permission to appeal to that tribunal out of time. Before the UT, the taxpayers argued, amongst other things, that the decision in Martland was incorrect, as was the FTT's reliance on it when refusing them permission. In particular, the taxpayers contended that Martland had improperly embedded within the discretionary power contained in section 83G(6), VATA, the ex ante additional weight to be attached to the two factors set out at Rule 3.9 of the CPR. The taxpayers argued that as a result, the Martland approach obliged the FTT to attach greater weight to those two factors than might otherwise be the case, which was impermissible. 

While the UT was of the view that the three-stage structure of the discretion at [44] in Martland was "unimpeachable", the UT panel (Marcus Smith J and Judge Cannan) was unable to reach consensus on the question of whether the elevation of the factors in Rule 3.9 of the CPR was permitted as a matter of the statutory construction of section 83G(6), VATA. Instead, by way of casting vote, Marcus Smith J allowed the taxpayers' appeal on this point, finding that Martland had placed a fetter on the discretion of the FTT that was not justified by the terms of section 83G(6). In that regard, Marcus Smith J noted that the UT could not, by way of binding guidance, direct the FTT as to what weight to place on particular factors when it is considering, in all the circumstances, whether to extend time for appealing.

In contrast, Judge Cannan was not convinced that Martland (or Katib) was incorrect, and indicated that, as a matter of judicial comity, he would have dismissed the taxpayers' appeals on this issue. Further, he noted that Martland could be justified on the basis that Parliament, in giving discretion to the FTT in section 83G(6), anticipated and intended that the UT would provide binding guidance on the exercise of that discretion, in so far as such guidance was considered desirable.

Given HMRC’s consistently strict approach to late appeals, and its general resistance to them, it was perhaps inevitable that the UT’s decision would be appealed by HMRC to the CoA.  

The CoA judgment

The CoA unanimously allowed HMRC's appeal.

The CoA noted that the issue raised in the appeal was not whether the guidance in Martland was flawed, but rather, whether it was permissible for the UT to formulate guidelines for the exercise of the FTT's discretion to permit late appeals, attaching particular significance to certain factors. In considering that question, the CoA had no difficulty in concluding that the UT was entitled to give guidance to the FTT. The CoA considered several authorities, including R (Jones) v First-tier Tribunal [2013] UKSC 19, BPP Holdings Ltd v HMRC [2017] UKSC 55, and BPP Holdings Ltd v HMRC [2016] EWCA Civ 121, and noted that a number of important points emerged from these decisions, including:

1. The UT is entitled to give guidance to the FTT as to the proper approach to the lifting or imposing of sanctions for failure to comply with a time limit. On the face of it, that would include a failure to comply with a time limit for filing an appeal.
2. It is an important function of the UT to provide guidance so as to achieve consistency in the FTT.
3. Although the cases on time limits in the CPR do not apply directly, tribunals should generally follow a similar approach. The phrase “time limits” is not itself limited to any particular form of time limit.

The CoA then considered whether, as Marcus Smith J had found, the fact that the FTT's power was a discretion conferred by statute made a difference. In that regard, the CoA noted the tension between his view that, on the one hand, the guidance in Martland was appropriate, but on the other that the UT was not entitled to provide such guidance. Moreover, the CoA observed that in BPP, both the CoA and the Supreme Court approved guidance that did attach particular weight to the factors referred to in Rule 3.9 of the CPR, even though the relevant tribunal rules were silent on the matter.

Instead, the CoA considered that a useful analogy could be drawn with two cases concerning the statutory discretion given to magistrates to make awards of costs: R (Perinpanathan) v City of Westminster Magistrates’ Court [2010] EWCA Civ 40 and Competition and Market Authority v Flynn Pharma Ltd [2022] UKSC 14. The CoA noted that neither of those cases had been drawn to the attention of the UT, but both clearly stated that even where a statutory power was apparently unfettered, a superior court of record could lay down guidance, or even rules, which apply in the absence of special circumstances. 

The CoA next considered the taxpayers' argument that, while it was open to the UT to lay down guidance for the FTT in the exercise of its procedural powers under the tribunal rules, such guidance could not be used so as to inform the exercise of a substantive right to begin proceedings. Accordingly, the taxpayers asserted the UT was mistaken to equate an application for an extension of time to appeal, with a failure to comply with tribunal rules once a case had been commenced before the FTT. The CoA rejected this argument, noting the distinction the taxpayers sought to make was "extremely hard to follow" and that, amongst other things, the purpose (or at least one of the purposes) of section 83G, VATA, was to prescribe part of the procedure for appealing against a decision by HMRC and had little, if anything, to do with the substantive question of whether HMRC’s decision was in fact correct.

Finally, the CoA considered the issue of weighting, and the concern of Marcus Smith J that the Martland guidance attached significant weight to factors that were not expressly referred to in section 83G(6), without any change in the FTT rules. In rejecting that concern, the CoA noted that its decision in BPP made it clear that there would be a change of culture in the tax tribunals and that the approach in Denton v TH White Ltd [2014] EWCA Civ 906 (which gave guidance on the weighting to be attributed to the various factors listed in Rule 3.9 of the CPR), should be followed notwithstanding that the tribunal rules were silent on the weight to be attributed to the various factors to be considered. The CoA also rejected Marcus Smith J’s characterisation of the Martland guidance as amounting to a fetter on discretion as "overblown", noting that the guidance expressly recognises that there is a judicial discretion to be exercised.

Comment

The UT’s decision in Medpro generated a certain amount of optimism amongst taxpayers and practitioners that the FTT might be prepared to adopt a broader and more fact-sensitive approach when undertaking the Martland balancing exercise. In particular, it suggested there was greater scope for undertaking a more comprehensive evaluation of all relevant circumstances, such that the merits of a particular case would not be unduly obscured by the length of the delay in bringing an appeal, and with reduced emphasis on the importance traditionally attached to strict adherence to statutory time limits. Indeed, the UT’s decision guided the FTT towards a more nuanced assessment of fairness. 

However, that optimism has, at least for now, been firmly dashed. The CoA’s judgment makes clear that the orthodox approach remains firmly in place. In practice, subsequent decisions of the FTT, applying the guidance of the UT in Medpro, had already suggested that the practical impact of the UT’s decision would be limited and the hurdle facing a taxpayer seeking permission to appeal out of time remained high. The FTT's recent decision in Lands Luo Ltd v HMRC [2025] UKFTT 1207 (TC), affirmed the correctness of Martland, while decisions like Ian Smicle-Thompson v HMRC [2025] UKFTT 1063 (TC), demonstrate how difficult the test is to satisfy in anything other than truly exceptional cases. 

It is important to note that late appeals do not only arise through carelessness or indifference on the part of taxpayers. Taxpayers can, and do, find themselves out of time due to circumstances beyond their control, including ill-health or professional failings, and yet can still face an uphill struggle when seeking relief from the FTT. The advice to taxpayers and their advisers therefore remains unchanged: compliance with statutory appeal deadlines remains critical, and reliance on the FTT’s discretion is a poor substitute for timely action. 

In May 2007, Mr Robert Glazer and Mrs Pratima Glazer ceased to be partners in Glazers Chartered Accountants (Glazers CA), a general partnership. The terms of Mr Glazer's exit from Glazers CA became a source of dispute with the other partners in Glazers CA.

Following arbitration concerning a non-compete clause in the partnership agreement relating to Glazers CA, Mr Glazer was permitted to acquire a licence to use the firm's client list for consideration of £555,271 (the Licence).

On 19 April 2007, Mr and Mrs Glazer incorporated Ripe Limited Liability Partnership (Ripe LLP) with themselves as the only members to operate the new accountancy business and on 24 April 2007 Ripe Limited (Ripe) was incorporated. Ripe is owned by Mr and Mrs Glazer, who are its only directors.

Mr Glazer transferred the Licence to Ripe and Ripe LLP paid Ripe a fee to use the client list.

Ripe recorded the Licence in its accounts as 'goodwill' and claimed annual amortisation deductions of £50,000, under the IFA regime (now in parts 8 and 9, CTA 2009).

HMRC contended that no IFA had been acquired and considered Ripe had been 'careless', for the purposes of the extended six year time limit. Accordingly, HMRC issued discovery assessments and closure notices to Ripe, disallowing the amortisation deductions for six different accounting periods. Ripe appealed to the FTT.

FTT's decision

The appeal was allowed.

In reaching its decision, the FTT found that the Licence was acquired by Ripe for continuing use in the course of its business and Ripe maintained necessary control over its expected future benefits – the licence therefore constituted an IFA and qualified for amortisation relief.

Although the Licence was not documented and was incorrectly described as 'goodwill' in the company's accounts, this did not alter the fact that it was, in substance, an IFA for corporation tax purposes. 

The FTT also found that no loss of corporation tax had been brought about by careless conduct by the company and therefore the extended six year time limit relied upon by HMRC did not apply (paragraph 46(2), Schedule 18, Finance Act 1998). Two of the four discovery assessments had been issued outside the four year time limit and were therefore invalid in any event (paragraph 46(1), Schedule 18, Finance Act 1998).

Comment

This decision provides a helpful reminder that the tax treatment of an asset will often depend on its substance rather than its form. The fact that the Licence was not documented and was incorrectly described as 'goodwill' in the accounts of the company was not determinative.

It would no doubt have saved a great deal of time and expense if the Licence had been carefully documented at the time it was granted, but the FTT was nevertheless satisfied that both the Licence and its assignment existed, based on the witness evidence relied upon by Ripe. 

Finally, although this decision is a helpful illustration of some of the basic principles applicable to the taxation of IFAs, it should be noted that the rules for taxing goodwill and customer-related IFAs have changed significantly since the events considered by the FTT in this case.

The decision can be viewed here.

Sintra Global Inc (Global), Sintra SA (SA) and Mr Parul Malde, were involved in the alcohol trade. 

HMRC argued that Global, SA and Mr Malde, were involved in the fraudulent diversion of alcohol into the UK from the EU between 2004 and 2014, making use of a process known as 'inward diversion fraud'. 

Following its enquiry, HMRC issued various decisions and penalties to Global, SA and Mr Malde, some of which did not proceed before the First-tier Tribunal (FTT) for determination. The appeals which proceeded before the FTT, and later the Upper Tribunal (UT) and CofA were the following:

a. A decision that Global was liable to be registered for VAT between 1 April 2012 and 30 June 2015 (the Decision). 

b. A registration penalty assessment issued to Global in the sum of approximately £8.7 million (the Penalty). 

c. Three personal liability notices issued to Mr Malde making him personally liable for penalties levied on Global, being the registration penalty, an inaccuracy penalty and an excise duty penalty (the PLNs).

d. A director's liability notice to Mr Malde for 100% of the civil evasion penalty in the sum of approximately £11.1 million, as a result of SA's dishonest failure to register for VAT and to submit VAT returns (the DLN).  

Global appealed the Decision and the Penalty and Mr Malde appealed the PLNs and the DLN, to the FTT. The FTT allowed the appeals of Global and Mr Malde. HMRC appealed to the UT. The UT dismissed HMRC's appeal and HMRC then appealed to the CofA. 

CofA judgment

The appeal was allowed.

The CofA remitted all of the open appeals to the FTT for rehearing in light of the principles established by its judgment.

The key issue before the CofA was whether the burden of proof fell on the taxpayers or HMRC, in a penalty appeal where the taxpayers were seeking to challenge the penalty on the basis that the underlying tax liability was wrong. 

The CofA held that in penalty proceedings the burden of proof is normally on HMRC to establish the primary facts needed to justify imposing the penalty in issue, but if the taxpayer wishes to contend that an underlying liability to tax is wrong, a separate legal burden rests on the taxpayer to prove it, in the same way as they would on appeal against an assessment or decision. In reaching this conclusion, the CofA relied on the following reasoning:

• The taxpayers admitted that the burden of proof on the issue of liability to tax would rest with them if the question was determined in separate appeal proceedings. Therefore, if they did not bear the burden of proof on that issue in a penalty appeal, this would lead to arbitrary and anomalous results.
• If the taxpayers did not bear the burden of proof on the issue of liability to tax in the current circumstances, it would subvert the long-established rule that the legal burden of proof normally lies on the taxpayer to displace an assessment to tax.
• Shifting the burden of proof to HMRC in the circumstances of the instant appeal would be inconsistent with the principles which justify the normal rule, the most important of which is that taxpayers will normally have access to all the information relevant to their tax affairs, and it would give rise to the risk of inconsistent decisions if the same question of underlying liability were determined differently depending on the stage at which it arises. 

The CofA also considered whether the fact that civil tax penalty proceedings in the UK are treated as giving rise to 'criminal charges' within the meaning of Article 6(1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms, requires the legal burden to fall on HMRC to establish the correctness of the underlying liability to tax if it is put in issue by the taxpayer in the penalty proceedings. The CofA decided that it did not and noted that it was common ground that Article 6 did not apply to the underlying assessments and that the burden of proof lay on the taxpayers to displace those assessments. This remained the case even though HMRC had pleaded fraud.

Comment

This judgment is notable, not only because it overturned the conclusions reached by both the FTT and the UT, but because it has confirmed that when a taxpayer challenges a civil evasion penalty on the basis that the underlying tax liability underpinning the penalty is incorrect, the taxpayer bears the legal burden of proving that they are not liable for the underlying tax. 

It is understood that the taxpayers are seeking permission to appeal to the Supreme Court.

The judgment can be viewed here.

Raj and Varsha Sehgal (the Purchasers) acquired a fourth-floor apartment in 20 Grosvenor Square, London, together with a car parking space and a basement storage unit, under a single contract for a single premium of £18.25m. The apartment and parking space were acquired via the assignment of long leases (each exceeding 900 years), while the storage unit was acquired under a separate 20-year lease, granted on the same day and registered under a separate Land Registry title.

A single SDLT return was filed on the basis that the acquisition was wholly residential and subject to the higher rates of SDLT. The Purchasers later sent a letter to HMRC amending the SDLT return and requesting a refund of £1.75m, contending that the transaction attracted non-residential (mixed-use) rates because there was a right to use shared amenities, such as a communal garden, gym, spa and children's play area (the Refund Claim). 

HMRC issued a closure notice refusing the Refund Claim, and the Purchasers appealed the closure notice.

At HMRC's internal review stage, the Purchasers raised an additional argument that non-residential rates applied because the transactions included the storage unit lease, which was not residential. 

HMRC rejected the claim on the basis that the transaction was wholly residential, asserting that the storage unit was not a separate non-residential interest, but was appurtenant to, or subsisted for the benefit of, the apartment.

The Purchasers appealed to the FTT.

FTT's decision

The appeal was allowed.

Nature of the transaction

The FTT found that the acquisition of the apartment and the acquisition of the storage unit were separate land transactions, albeit linked. Each involved a distinct legal interest in separate land which could, in principle, have been acquired by different people. The fact that they were acquired under a single contract for a single price, was not determinative for SDLT purposes.

In any event, even if there had been a single transaction, the storage unit lease was not “an interest or right appurtenant or pertaining” to the apartment, for the purposes of section 43(6), Finance Act 2003. Unlike easements over communal areas considered in earlier cases, the storage unit lease had an independent legal existence. It was granted under a separate lease, could be assigned or underlet independently (subject to restrictions), and did not automatically pass with the apartment.

Residential property

The FTT also rejected HMRC’s argument that the storage unit constituted residential property for the purposes of section 116(1)(c), Finance Act 2003. Although its use was restricted to private residential storage, the lease did not subsist for the benefit of the apartment itself, but for the benefit of whoever held the storage unit lease from time to time. The storage unit could benefit different apartments, or none at all, and therefore lacked the necessary identification with the dwelling.

Accordingly, as the relevant land included non-residential property, the lower non-residential SDLT rates applied and the Purchasers were entitled to a refund of £1.75m.

Comment

The FTT commented, at paragraph 167 of its decision, that this appeared to be a surprising result given the relatively small value of the storage unit. However, the SDLT legislation unambiguously provides that residential rates only apply if the relevant land consists entirely of residential property, the FTT considered that Parliament would not have used this word unless this was the intended outcome.

This decision is significant and will be of wider interest due to the significant difference between residential and non-residential rates of SDLT. Given the number of properties which are sold (or could be sold) with storage units, it would not be surprising if HMRC seek to appeal this decision to the Upper Tribunal.

The decision can be viewed here.

UK publishes draft Carbon Border Adjustment Mechanism Regulations

The Government has published draft secondary legislation for the Carbon Border Adjustment Mechanism (CBAM), ahead of its planned introduction on 1 January 2027.

The draft legislation sets out key administrative requirements, including registration, return submissions, record-keeping, calculation of the CBAM rate, and treatment of overseas carbon pricing (Carbon Price Relief). HMRC has also issued supporting notices and an updated policy summary explaining how the regime will operate.

The draft regulations are subject to a six-week technical consultation.  Any responses or queries regarding the consultation should be submitted by email to cbampolicyteam@hmrc.gov.uk no later than 24 March 2026.

Businesses affected by CBAM should review the potential compliance and supply-chain implications ahead of implementation.

The draft regulations and technical consultation can be viewed here.

New Vaping Product Duty to apply from 1 October 2026

The Government has confirmed that Vaping Product Duty and a related Vaping Duty Stamps regime, will take effect from 1 October 2026, with duty charged at £2.20 per 10ml of vaping liquid.

The new excise duty will introduce a regulatory framework similar in structure to that applying to tobacco products, bringing enhanced compliance, approval and record-keeping obligations, alongside increased costs, for the sector.

Manufacturers, importers and excise warehousekeepers will be required to obtain HMRC approval from 1 April 2026, in advance of the regime going live.

HMRC's Guidance can be viewed here.

EU further delays Deforestation Regulation until December 2026

The EU has confirmed a further postponement of the EU Deforestation Regulation (EUDR), delaying its application for all operators until 30 December 2026, with an additional six-month grace period for micro and small operators.

EUDR prohibits the placing on, or export from, the EU market of specified commodities and derived products unless they can be demonstrated to be “deforestation-free”. The regime imposes enhanced due diligence, traceability and record-keeping requirements across supply chains, with scope driven by customs classification codes and country of production.

The revision also streamlines certain due diligence requirements to reduce administrative burden ahead of implementation.

The EU’s announcement and supporting materials can be viewed here.

Case reports

Juno Sourcing Ltd v HMRC [2025] UKFTT 1447 (TC)

Juno Sourcing Ltd (Juno) appealed to the First-tier Tribunal (FTT) against HMRC's post‑clearance demand (C18) in the sum of £1,373,884.73, comprising £490,523.81 of customs duty and £883,360.92 of import VAT. The C18 related to 52 consignments of personal protective equipment (PPE) imported between 14 April 2020 and 4 November 2020, where Juno acted as the importer of record (IoR). The goods included face masks, face shields, and aprons.

The main issue in the appeal was whether the PPE qualified for disaster relief from customs duty and import VAT under Article 1 of Commission Decision (EU) 2020/491 (the Commission Decision) and whether Juno’s claim for remission under Articles 117–120 of the Union Customs Code (UCC), was valid. Relief was available only if, on the balance of probabilities, the goods were imported by or for an approved organisation, including the NHS, or otherwise met the UCC remission criteria.

FTT's decision

The appeal was dismissed.

The FTT held that relief under the Commission Decision was conditional on the goods being imported by, or actually ending up with, an approved organisation, such as the NHS. In this case, the goods were not imported by the NHS or another approved organisation and the PPE consignments had not reached the NHS or other approved organisations. The mere fact that it was Juno's expectation that the goods would end up with the NHS, was not sufficient. Accordingly, the disaster relief claim failed.

With regard to the remission claim under Articles 117–120 UCC, the FTT concluded that none of the conditions for remission applied to the goods in question. The remission claim was therefore also unsuccessful.

Why it matters

This decision highlights that claims for disaster relief are strictly conditional. Relief is not granted based on intended or expected use alone; the actual delivery to an approved organisation must be demonstrable. Importers acting as IoR bear significant evidential burdens to substantiate both eligibility for relief and proper end‑use of goods. For PPE and similar emergency-related imports, documentation and tracking of delivery to approved recipients is critical to avoid post‑clearance demands.

The decision can be viewed here.

Stark Building Materials (UK) Ltd v HMRC [2026] UKFTT 123 (TC)

Stark Building Materials (UK) Ltd (Stark) appealed to the FTT against HMRC’s refusal to repay excise duty of £931,152.73, paid on hydrocarbon oil imported between 1 January and 17 May 2021, under section 9(4), Hydrocarbon Oil Duties Act 1979 (HODA).

The main issue in the appeal was whether Stark needed to be an “approved person” at the time of importation in order to qualify for repayment under section 9(4), or whether approval obtained before submitting the repayment claim would suffice.

Stark had imported hydrocarbon oil and subsequently used it for qualifying industrial purposes. HMRC argued that repayment relief under section 9(4) required the importer to have been an approved person at or before importation, and that Stark’s later approval was insufficient. Stark contended that its approved person status at the time of claiming repayment satisfied the statutory conditions.

FTT's decision

The appeal was dismissed.

The FTT held that in order to qualify for repayment under section 9(4), the claimant must have been an "approved person" at, or before, the time the oil in respect of which excise duty has been paid is imported. Approval obtained after importation did not meet the statutory requirement. The FTT emphasised that section 9(4) operates as a repayment mechanism only where the statutory conditions for relief under s 9(1) are met at the time of importation. Stark’s later approval could not cure the fact that the conditions were not satisfied when the duty was initially payable.

Why it matters

This decision is significant for importers of excise‑duty goods. It confirms that approved person status must exist at, or before, importation in order to claim repayment under section 9(4) HODA. Businesses should ensure that approval from HMRC is obtained in advance, as retrospective relief will not be available if the statutory conditions are not met at the time of importation. From a practical perspective, importers must carefully manage the timing of approvals and maintain clear records to preserve repayment rights.

The FTT's decision can be viewed here.

Yourway Transport Ltd v HMRC [2026] UKFTT 94 (TC)

Yourway Transport Ltd (Yourway) appealed to the FTT against HMRC’s decisions reducing its claimed import VAT credits and issuing associated VAT assessments relating to its importation of clinical trial drugs (trial drugs). The total sum in dispute was £4,329,955.

The main issue in the appeal was whether Yourway was entitled to a credit for import VAT it incurred on importing trial drugs on behalf of its (mostly US‑based) biopharma clients. The key question was whether Yourway, which did not own the goods before delivery, could nonetheless treat the import VAT as deductible input tax because it acted as agent for the biopharma companies and made supplies (transfers) to clinics and hospitals in EU countries in its own name, under section 47(1), Value Added Tax Act 1994 (VATA).

Yourway contracted with biopharma companies to import trial drugs into the UK, store them under regulated conditions, and deliver them to clinics and hospitals (mostly outside the UK) when ordered. The goods were owned by the biopharma clients until delivery, and Yourway was paid for its services. The trial drugs themselves were provided free of charge to clinics for clinical trials. HMRC reduced Yourway’s claimed VAT credits on the basis that, as agent and non‑owner of the goods, it lacked entitlement to recovered import VAT.

 FTT's decision

The appeal was allowed in part.

The FTT found that, although Yourway never owned the drugs, it acted as agent for its clients in its own name. Under the pre-Brexit version of section 47(1)(b), VATA, which applied at the time, this meant Yourway was treated as both importing and supplying the goods as principal, for VAT purposes. When combined with paragraph 6, Schedule 4, VATA, which treats the removal of business assets from the UK to another Member State as a supply of goods even without consideration, a deemed taxable supply arose. This created the necessary direct and immediate link between the import VAT and Yourway’s deemed taxable supplies, allowing the VAT on EU-destined drugs to be recovered as input tax.

In contrast, for trial drugs that remained in the UK, or were exported to non-EU countries, there was no equivalent legislation that treated the free trial drugs as a deemed supply, and therefore the import VAT could not be linked to any taxable output. As a result, input tax recovery was not available on those imports.

The FTT also rejected a public-law argument based on legitimate expectation. The precise amount of recoverable VAT is to be agreed between the parties.

Why it matters

This decision is significant for businesses acting as agents in international logistics and supply chains, particularly where they import goods they do not own and arrange onward delivery for clients. For importers and logistics providers acting on behalf of third parties, careful analysis is necessary to determine when import VAT credits can be recovered under the agent provisions and the associated direct and immediate link test for deductible input tax. From a practical perspective, businesses should ensure that contractual arrangements, documentation, and VAT treatment reflect the agency relationships.

The FTT’s decision can be viewed here.

Mainpay Ltd (Mainpay) was an umbrella company employing temporary workers that were supplied to agency companies specialising in the education, health and social care sectors. 

Mainpay reimbursed its workers under section 338, Income Tax (Earnings and Pensions) Act 2003, for travel and subsistence expenses free of income tax and claimed that the workers were employed under a single overarching continuous contract of employment, with each separate assignment being a temporary workplace.

HMRC was of the view that each work assignment was a separate employment at a permanent workplace and therefore the travel and subsistence expenses were not deductible for income tax and national insurance purposes and issued determinations and notices accordingly. 

HMRC also sought to argue, in respect of two tax years, that Mainpay had brought about the relevant loss of tax carelessly.

Mainpay had been unsuccessful in its appeals before the First-tier Tribunal (FTT) and the Upper Tribunal (UT), and appealed to the CofA. 

CofA judgment 

The CofA dismissed the appeal. 

With regard to the travel and subsistence expenses, the Court found that Mainpay did not have single, overarching employment contracts with its workers, and therefore the reimbursed travel and subsistence expenses were taxable.

In reaching its decision, the Court concluded that the correct analysis was that there was intermittent employment under a contract of employment when a worker was on an assignment followed by periods when there was no contract of employment and therefore no employment in the gaps between assignments. There was therefore no single overarching employment but rather successive employments. 

The Court also found that each assignment represented a permanent workplace and it did not therefore need to consider whether the travel and subsistence expenses were payable tax-free.

Accordingly, HMRC was entitled to recover PAYE on the travel and subsistence payments that had been made free of income tax. 

With regard to the second issue, the Court found that Mainpay had acted carelessly by failing to take appropriate advice. Mainpay had relied on assurances provided by lawyers rather than seeking advice from tax specialists. The Court agreed with the FTT, which had applied a causal test and concluded that Mainpay's failure to take reasonable care had led directly to the loss of tax arising from treating the expenses as deductible. As a result, the 6 year extended time limit applied in relation to the loss of tax which had been brought about carelessly. 

Comment

The Court of Appeal has confirmed that for HMRC to benefit from the 6 year extended time limit for making a discovery assessment based on a taxpayer's careless conduct, it must establish a causal link between the taxpayer's carelessness and the loss of tax. 

This case also illustrates the high level of care that must be taken by advisors and their clients to ensure that they adopt the correct approach when seeking to make payments to employees tax-free. 

Professional advisors should always give careful consideration to whether they have the necessary expertise to provide specialist tax advice. 

The judgment can be viewed here.

New demands from third parties

Some former participants in these arrangements have been contacted by a company claiming that the “loan debt” has been assigned to it by the original trustees. This company initially sought payment in exchange for extending the loan period. However, more recently, individuals have received a statutory demand seeking repayment of the alleged loans. HMRC has issued Guidance for taxpayers who receive such correspondence.

Take action

A statutory demand is an important legal document which requires action to be taken within strict time periods. Failing to act promptly can lead to significant consequences for the recipient of such a demand, including potential bankruptcy proceedings.
If you have participated in disguised remuneration or similar arrangements and:

• received correspondence from an unfamiliar company seeking payment in return for extending the loan period, or
• been served with a statutory demand in relation to such arrangements

you should seek specialist legal advice immediately in order to protect your position and understand the options available to you. In many cases, it will be possible to successfully challenge the statutory demand, but it is important that you take action and do not ignore the demand.

HMRC alleged that Ducas Ltd (Ducas) facilitated the fraudulent evasion of more than £171 million in national insurance contributions (NICs). It was also alleged that Ducas supplied its customers (employment agencies) with fraudulent documents suggesting that income tax and NICs had been properly deducted and paid when, according to HMRC, this was not the case. HMRC argued that such activity made Ducas liable for the unpaid NICs as a deemed secondary contributor under the Social Security (Categorisation of Earners) Regulations 1978/1689. Ducas appealed to the First-tier Tribunal (FTT). 

HMRC’s evidence was obtained from investigations into Ducas’ customers, rather than from Ducas itself. The result was a significant imbalance in the parties’ access to potentially relevant material. Matters escalated in December 2024, when the High Court granted HMRC freezing orders against Ducas and several connected companies. 

The FTT held a case-management hearing in March 2025, setting out the procedural steps leading to a 20-day substantive hearing listed for April 2026. 

With regard to disclosure, the FTT adopted a tailored approach. Although standard disclosure, under rule 27 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, only requires a party to disclose those documents which it intends to rely on, the FTT directed HMRC to provide a wider, CPR-style form of extended disclosure. HMRC was required to disclose not only the documents it intended to rely on at the appeal hearing, but also any material in its possession that supported Ducas’ case or undermined HMRC’s own case. 

The FTT explained that HMRC, as the party bearing the burden of proving fraud, was in a very different position from the taxpayer. Most of the key documents were held by HMRC because they had been obtained from third-party agencies. Ducas, on the other hand, might have no knowledge of certain documents that were potentially relevant to its defence. Against that backdrop, the FTT considered it appropriate to require HMRC to disclose a wider range of material.

In contrast, the FTT required Ducas to provide only standard disclosure. Ducas was not required to conduct broad searches for documents that might be harmful to its case or to match HMRC’s extended disclosure obligations. This was because the FTT regarded HMRC's position as fundamentally different in light of its evidential third party sources and the nature of the allegations it was pursuing. The FTT also rejected HMRC’s argument that fairness demanded reciprocal disclosure obligations. 

The disclosure direction given by the FTT became the centre of HMRC’s appeal to the UT.

The FTT's decision can be viewed here. 

UT decision 

HMRC's appeal was dismissed.

The UT confirmed that no general principle of reciprocal disclosure exists in tax tribunal proceedings. It accepted that extended disclosure can sometimes promote equality of arms but that did not mean that extended disclosure had to be imposed on all parties whenever it was imposed on one. The procedural rules are inherently flexible and disclosure must depend on the needs and circumstances of each case.

The UT emphasised that disclosure orders must be party-specific and issue-specific, rather than driven by symmetry for its own sake. An order for disclosure must be informed by the circumstances of a particular party and the primary issues in dispute, rather than by what has been ordered for the opposing party. In this case, the FTT had been entitled to consider the fact that HMRC bore the burden of proving serious allegations of fraud and that it held a substantial body of documents, sourced from third parties, which Ducas did not have. Those factors justified the FTT imposing extended disclosure on HMRC alone. 

HMRC also advanced a rationality challenge, arguing that even if no reciprocity principle existed, the FTT’s decision could not be justified because fairness required Ducas to also make extended disclosure. The UT disagreed. It acknowledged that there were reasons why the FTT could have imposed extended disclosure on Ducas, but reiterated that appellate tribunals must show significant restraint when reviewing case-management decisions. The question was not whether the UT would have reached the same view, but whether the FTT’s decision fell outside the “generous ambit” of its case-management discretion. In this instance, it did not. The FTT had considered the relevant factors, exercised judgement and reached a conclusion that was plainly open to it. HMRC's rationality challenge therefore failed.

Comment

Although the UT’s decision may not be surprising given the high threshold for interfering with case-management decisions of the FTT, it is nevertheless significant in confirming that there is no general principle of reciprocity in the disclosure regime before the FTT.  

The UT's decision also serves as a reminder that disclosure applications must be determined on the specific facts and circumstances of the case. HMRC had based its disclosure application almost exclusively on the basis of reciprocity. It had not advanced a broader, fact-specific argument, for why extended disclosure from Ducas was necessary. If it had done so, it might have been more successful.

The UT's decision can be viewed here. 

Investment and Securities Trust Ltd (IST) was a property development company controlled indirectly by Ms Voice, who also owned and occupied a high-value residential property in St John’s Wood, London. In March 2014, IST entered into an option agreement with Ms Voice, granting it the right to acquire the property for £9.3m. The option premium was £4.65m, nearly 50% of the property’s value, and was structured so that the price paid for the option would form part of the purchase price if the option was exercised. 

IST intended to redevelop the property and carried on a property development trade throughout the relevant period. However, market conditions deteriorated and, after exercising the option in 2019, IST sold the property without having carried out the intended redevelopment work.

IST filed its SDLT return on the basis that the higher 15% rate did not apply and claimed relief from ATED on the basis that the option was acquired and held exclusively for the purposes of a property development trade. HMRC disagreed with IST and assessed it to SDLT at the higher rate and charged ATED.

IST appealed the assessments to the First-tier Tribunal (FTT). While the FTT accepted that IST carried on a genuine property development trade and intended to redevelop the property, it concluded that the option was not acquired exclusively for qualifying purposes. In particular, it found that the option also served to address Ms Voice’s pressing need for funds and to prevent the sale of the property to third parties. On that basis, relief from both the higher rate of SDLT and ATED, was denied.

IST appealed to the UT.

UT's decision

The appeal was allowed in part.

The UT considered separately the availability of relief from SDLT and ATED, emphasising the different statutory tests.

The UT dismissed IST’s appeal in relation to the SDLT assessment. Paragraph 5(1)(b), Schedule 4A, Finance Act 2003, requires the chargeable interest itself (in this case, the option) to be acquired exclusively for qualifying purposes. The UT confirmed that this is not a 'main purpose' test and that the wider commercial context, including the structure and pricing of the option, may properly be considered when identifying purpose.

Although the UT accepted that some of the additional purposes identified by the FTT (such as preventing a third-party sale and allowing time to raise funds) fell within the scope of a property development trade, the FTT was entitled to find that one purpose of acquiring the option was to address Ms Voice’s personal need for liquidity. That non-qualifying purpose was sufficient to defeat the exclusive purpose requirement. 

The UT allowed IST’s appeal in relation to the ATED assessments. It held that the FTT had erred in law by treating the purpose of acquiring the option as determinative of the purpose for which it was held. Section 138, Finance Act 2013, requires a day-by-day assessment of the purpose for which the interest is held during the relevant chargeable periods.

On the facts, the UT concluded that Ms Voice’s pressing need for funds was a purpose of acquiring the option, but that purpose had been exhausted once the option was granted. There was no evidence that it remained a purpose of holding the option thereafter. The remaining purposes fell squarely within IST’s property development trade. Accordingly, the statutory conditions for ATED relief were satisfied, and the ATED assessments were set aside.

Comment

This decision highlights an important distinction between acquisition purpose (for SDLT) and holding purpose (for ATED). It confirms that non-commercial, or shareholder-driven motives at the point of acquisition, can defeat SDLT relief even where the underlying land is intended for development.

By contrast, the UT’s approach to ATED recognises that purposes may change over time and that relief can become available once any non-qualifying acquisition purpose has fallen away. The decision therefore reinforces the need for a temporal and fact-sensitive analysis when advising on ATED liability.

The decision will be of particular interest to property developers using options or other non-standard acquisition structures, especially where connected parties are involved. While such arrangements may be commercially expedient, they may prevent SDLT relief if they serve mixed purposes at acquisition.

The decision can be viewed here.

Crypto-assets: developments in 2025

Once dismissed as a passing fad, crypto-assets are now an established part of the UK's financial landscape, and 2025 saw an increasing amount of regulation in this area — from increased compliance interventions to new policy developments and targeted 'nudge' campaigns by HMRC. 

In April last year, HM Treasury published the draft Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025, which aims to create new regulated activities for crypto-assets. If implemented, the order will bring a number of crypto-asset activities within the remit of the FCA, and will mean that firms and individuals conducting certain activities will need to apply for FCA authorisation before carrying out any of them by way of business in the UK To that end, in September 2025, the FCA published a consultation paper on the proposed changes and is seeking feedback from affected parties.

Also in 2025, the FCA announced that the ban on offering crypto exchange-traded notes to retail investors would be lifted from 8 October 2025, signaling a further step toward integrating crypto-assets into mainstream financial markets.

Research published in March 2025, commissioned by the FCA, highlighted the scale of this shift. As of August 2024, 12% of UK adults (around 7 million people) reported owning crypto-assets, up from 10% in 2022 and just 4.4% in 2021. Crypto-asset ownership remains concentrated among younger, predominantly male investors, with Bitcoin and Ethereum the most commonly held crypto-assets. While one-third of investors held crypto-assets worth £100 ($133) or less, a small, but statistically significant increase, was observed among those holding crypto-assets worth between £1,001 and £5,000, suggesting a gradual deepening of engagement within the retail market.

The growing use of crypto-assets presents UK regulators with a range of novel and complex challenges, heightened by both the relatively young investor base and the fast-evolving nature of the sector itself. When it comes to taxation, those challenges are explicitly acknowledged in HMRC's published guidance, which recognises that the tax treatment of crypto-assets continues to develop due to the evolving nature of the underlying technology and the areas in which crypto-assets are used, and that HMRC's views may also evolve accordingly. HMRC's guidance sets a clear tone for taxpayers holding crypto-assets: uncertainty remains high and with it the risk, for both individuals and businesses, of inadvertently falling foul of the UK's tax rules is significant.

Crypto-asset reporting framework implementation

A persistent challenge for regulators in the crypto-asset space is simply identifying those who hold or transact in crypto-assets. The Cryptoasset Reporting Framework (CARF), is designed to address that gap and strengthen global tax transparency by facilitating the automatic exchange of tax-relevant information relating to crypto-asset activity.

The UK has implemented CARF, through the Reporting Cryptoasset Service Providers (Due Diligence and Reporting Requirements) Regulations 2025, which imposed new obligations on crypto-asset service providers and their customers from 1 January 2026. HMRC estimates that these measures will raise an additional £80 million in tax revenue by 2029-2030.

Under CARF, UK businesses that enable crypto-assets to be bought, sold, transferred or exchanged, called reporting crypto-asset service providers, will be obliged to undertake due diligence to identify crypto-assets users. This will require reporting crypto-asset service providers, to collect self-certificates from crypto-asset users, validate the content of those certificates and maintain clear audit trails of the due diligence process. Reporting crypto-asset service providers will also be required to collect aggregate transaction data on their customers' crypto-asset activities.

Similarly, users will be required to provide self-certification information to reporting crypto-asset service providers. For individuals, this will include a name, date of birth, address and national insurance number or unique taxpayer reference number, whilst for entities it will include the business address and company registration number.

Self-certification information must be reported to HMRC by reporting crypto-asset service providers where the user is tax resident in the UK, or another jurisdiction that applies CARF. HMRC will then exchange the information with other CARF jurisdictions. Penalties for noncompliance apply to both reporting crypto-asset service providers and users and range from £100 to £5,000, depending on the nature of the failure.

In recent years, the sources of information available to HMRC have given it an unprecedented insight into the financial affairs of UK taxpayers. However, HMRC's guidance acknowledges that the rapidly expanding and developing nature of crypto-assets means that tax authorities have historically had limited means to gather data on crypto-asset users, creating a notable gap in their information gathering processes.

The implementation of CARF will significantly improve HMRC's visibility in this area, enabling it to identify taxpayers with potential crypto-asset holdings more readily and to target its compliance interventions and 'nudge' campaigns with far greater precision.

HMRC 'nudge' campaigns

HMRC uses nudge campaigns as part of its compliance strategy to encourage taxpayers to voluntarily disclose information relevant to their tax affairs. These campaigns involve targeted letters, emails or messages prompting individuals or businesses to review or correct their tax affairs. The aim of such campaigns is to promote voluntary compliance and resolve potential issues without resorting to formal tax inquiries or investigations.

HMRC's deployment of nudge campaigns has increased significantly in recent years, including in relation to crypto-assets. There was a 134% increase in the number of nudge letters sent to individuals suspected of owing tax in respect of their crypto-asset dealings in the 2024/25 tax year (HMRC sent 67,000 such letters in that period).

This rise in activity likely reflects both the growth in crypto-asset ownership, and a broader and more pressing issue: many taxpayers appear to be struggling to understand and meet their tax obligations in relation to crypto-assets. Given the demographics of typical crypto-asset owners and the rapid evolution of the sector, this is perhaps not surprising, but it also suggests a need for greater information and education about the tax implications of owning and dealing in crypto-assets.

HMRC's increased reliance on nudge campaigns targeted at crypto-asset owners can be taken as a tacit acknowledgment that compliance in this area is challenging. Indeed, we have identified two recurring issues in this area:

• many existing tax provisions are not well suited to the unique and sophisticated nature of crypto-assets, making their application difficult; and
• HMRC itself is still developing its understanding of how crypto-assets and their underlying technologies operate, which can hamper the efficient resolution of crypto- asset based enquiries.

For now, the soft-touch approach of alerting taxpayers to potential issues and giving them an opportunity to put things right in a relatively non-confrontational way, including through the use of HMRC's Cryptoasset Disclosure Service, appears to be HMRC's preferred strategy. However, this stance is unlikely to persist indefinitely, particularly in the current economic climate, where HMRC finds itself facing ever-growing pressure to increase the tax yield. It is therefore likely that if compliance rates do not improve, HMRC will shift from the current gentle nudge-based approach to a more assertive and less forgiving enforcement strategy.

Information and education

HMRC appears to have recognised the need for clearer and more accessible information to help taxpayers understand their tax responsibilities regarding crypto-assets.

From the 2024/25 tax year onward, the self-assessment tax return has been updated to include a dedicated crypto-assets section. In addition, HMRC has, over the past year, issued a series of updates to its crypto-asset guidance and manuals. These include, for example, revised guidance on calculating gains on the disposal of crypto-assets and information on the forthcoming changes introduced by CARF.

2026 and beyond

Taxpayers can expect a marked increase in HMRC's compliance activity in relation to crypto-assets space in the year ahead and beyond. Individuals who own or trade crypto-assets, especially in significant volumes, are increasingly likely to find themselves the focus of attention from HMRC.

In particular, we anticipate a rise in data-driven compliance following the implementation of CARF at the start of 2026. With access to substantial new data relating to crypto-asset ownership and transactions, HMRC will be able to identify risks and target its compliance activities more effectively than it has been able to do in the past.

As well as the crypto-asset-specific implications, taxpayers should not underestimate the extent to which this new information may broaden the scope of HMRC enquiries into their wider tax affairs, especially where transactions have occurred offshore in another CARF jurisdiction. Those with significant offshore assets will already recognise the parallels with the impact that the Common Reporting Standard has had on HMRC's compliance activity.

The introduction of CARF will almost certainly create transitional issues for both reporting crypto-asset service providers and their customers, which means that there are also likely to be practical challenges for reporting crypto-asset service providers and users as the CARF regime beds in.

Conclusion

Reporting crypto-asset service providers, in particular, must ensure that they fully understand and are able to comply with their new regulatory obligations (from 1 January 2026), to avoid finding themselves at the sharp end of HMRC compliance interventions.

In light of the anticipated increase in HMRC's compliance activities, taxpayers holding crypto-assets should also review transactions from prior years to ensure that there are no gaps in their tax compliance. Where issues are identified, they should take steps to correct the position promptly, and before HMRC contacts them.

Finally, the growth in both the number of taxpayers holding crypto-assets and HMRC's increased activity in this area, means that crypto-asset-related tax issues will become an ever more significant part of the tax landscape. Practitioners must therefore develop a solid understanding of crypto-assets and the underlying technology if they are to be in a position to properly support and advise their clients. This is no small task, but an increasingly essential one.

John Boulting was the majority shareholder and a director of PSC Training and Development Group Ltd (PSC), having built the business from the 1990s. By 2013/14, serious management tensions had developed within PSC, which created instability, contributed to resignations at a senior level, and prevented the other directors from running the business effectively. It was  decided that Mr Boulting would retire from the business.

A planned exit was negotiated whereby PSC would buy eight of Mr Boulting’s shares for £4.8m, with most of his remaining shares gifted to his son to facilitate succession. PSC applied for, and received, HMRC clearance under section 1033, CTA 2010, that the purchase of own shares would be treated as a capital gain, rather than a distribution. The purchase was completed in January 2015 and duly included in Mr Boulting's 2014/15 tax return (the Return) as giving rise to a capital gain eligible for Entrepreneurs’ Relief (as it then was).

HMRC subsequently opened an enquiry into the Return. As a result of its enquiry, HMRC determined that the sale of the shares constituted a distribution to Mr Boulting that was subject to income tax. HMRC claimed that the purpose of the payment was mainly to reward Mr Boulting for his past investment and activity and to extract cash from the business, rather than being wholly or mainly for the benefit of the trade, such that the conditions in section 1033 were not satisfied. HMRC also said that the clearance it had previously given was void because the share value used was materially greater than market value and this had not been disclosed to it in the clearance application.  HMRC issued a closure notice on this basis amending the Return and increasing Mr Boulting's tax liability by £1,008,621.39. 

Mr Boulting appealed the closure notice to the FTT.

FTT's decision

The appeal was allowed. 

The central issue before the FTT was whether the purchase was made 'wholly or mainly for the purpose of benefiting the company’s trade' such that the conditions in section 1033 were satisfied. HMRC's position was that the purchase of Mr Boulting's shares was not necessary to benefit the trade because the business was already profitable and growing and there was no clear evidence that the purchase was essential to unlock investment, or resolve any deadlock. HMRC also argued that because (in its view) the price paid was excessive, it followed that it could not be regarded as a payment whose whole or main purpose was to benefit PSC’s trade. HMRC contended that the purchase was simply a mechanism to remunerate Mr Boulting.

Mr Boulting argued that the price paid was not excessive and that the purchase was wholly or mainly for the purposes of benefitting the trade, as it removed a majority shareholder who had been blocking investment and who would not relinquish key decision-making responsibility.

In rejecting HMRC's arguments, the FTT found that the share purchase was a necessary part of resolving serious management deadlock within PSC. Although the group was profitable, the FTT accepted the evidence advanced by Mr Boulting that this position was not sustainable without further investment, which Mr Boulting consistently blocked. The FTT found that Mr Boulting's continued control was hindering the business and the company regarded his exit as essential to protect and advance its trade. The sale purchase was therefore undertaken to facilitate that exit, without which the wider succession plan could not proceed.

In reaching its conclusion, the FTT stressed that the statutory test focuses on the company’s purpose, not the seller’s motives. PSC’s purpose was to remove a blocking shareholder, not to reward past involvement or extract cash from the business. 

The FTT also rejected HMRC’s criticisms of the valuation of the shares, concluding that the valuation was a genuine commercial exercise and that the negotiated price did not indicate a non-trade motive. In the view of the FTT, the dominant purpose of the purchase was to benefit PSC’s trade by enabling effective management and necessary investment and that any extraction of cash was simply an effect, rather than the purpose, of the transaction.

The FTT therefore concluded that the purchase was made wholly or mainly for the purpose of benefiting PSC’s trade and that Condition A in section 1033 was satisfied. Accordingly, the purchase consideration was correctly subject to capital gains tax and not income tax.

Comment

This decision confirms that the 'trade benefit' test in section 1033, requires a purposive enquiry focused on the company’s commercial objectives, rather than on valuation issues, or the seller’s personal motivation.

The FTT has demonstrated in this decision that where a share buy-back is part of a genuine and commercially necessary exit to resolve management dysfunction, it is prepared to recognise a trade benefit even if the business appears profitable at the time, or if valuation is imperfect.

The decision also strengthens the position of family companies and owner-managed businesses undertaking purchase of own share transactions for succession or governance reasons, especially where management conflict threatens commercial performance.

The decision can be viewed here.

Introduction 

As anticipated, the significant injection of funding for HMRC in Budget 2024 has translated into a marked increase in compliance activity in 2025. Both practitioners and taxpayers alike have noted a more assertive HMRC, keen to make full use of its expanded powers and resources. While the effect of the Chancellor’s announcements in Budget 2025 are still being considered, the trajectory is clear: Finance Bill 2025/26 is set to confer yet further powers and operational capacity on HMRC, helping to shape an even more active and contested tax landscape in 2026.

As for how busy the past year has been, the published quarterly figures provide a useful indication. Although full-year statistics are still awaited, the First-tier Tribunal (FTT) received 1,732 appeals in the first three months of 2025, around 1.5% fewer than in the same period in 2024. This slight decline might be due to greater use of alternative dispute resolution (ADR). Disposals, however, fell more sharply: the FTT concluded 1,704 cases in the first quarter of 2025, a drop of roughly 25% year-on-year. As at 31 March 2025, the FTT’s open caseload remained substantial at 48,818 cases, representing a decrease of about 4.6% (2,371 cases) compared with the previous year. Given that appeal volumes have been trending upwards for over a decade, these clearance rates are unlikely to make a meaningful dent in the backlog any time soon. Taxpayers should therefore expect FTT timelines to remain prolonged for the foreseeable future. 

Case volumes in the Upper Tribunal (UT) are, understandably, far smaller, but the available figures are nonetheless noteworthy. In the first three months of 2025, the UT received 400 appeals – an increase of almost 22% compared with the same period in 2024. Disposals, by contrast, remained static: the UT concluded 37 cases in the first quarter of both 2024 and 2025. As at 31 March 2025, the UT’s open caseload had risen to 171, representing a 12.5% increase year-on-year.

Data on tax-related litigation in the superior courts remains difficult to ascertain. Nevertheless, the publicly available figures indicate that 31 applications for judicial review were lodged against HMRC in the first and second quarters of 2025. Although the full-year statistics will be needed before a definitive assessment can be carried out, this compares with 181 applications for the whole of 2024 and points towards a material decline in judicial review activity in 2025. Whilst judicial review continues to play a crucial role in scrutinising HMRC decision-making, it has become an increasingly challenging route for taxpayers to pursue – something that may well be reflected in the relatively low number of applications reported in 2025.

Against this backdrop, we highlight below some notable developments during 2025 that are likely to be of interest to taxpayers and their advisers. 

Case developments

While many of the judgments and decisions issued by the courts and tax tribunals during 2025 were routine, several stand-out decisions address core procedural and evidential issues with the potential to shape the conduct of tax litigation in 2026. A number of these rulings merit particular attention.

Late appeals 

Medpro Healthcare Limited & Another v HMRC [2025] UKUT 255 (TCC)

The UT’s decision in Medpro is widely viewed as one of last year’s more significant procedural decisions. In Medpro, the UT held that its earlier decision in Martland v HMRC [2018] UKUT 178 (TCC), had fettered the FTT’s discretion by elevating efficiency, proportionality and compliance, above other relevant factors in the balancing exercise required when considering late appeal applications. As Martland has, for nearly a decade, provided the touchstone for assessing whether a late appeal should be admitted, Medpro was initially welcomed as an important recalibration in the taxpayer's favour.

However, the picture has proven to be more complex. Subsequent decisions of the FTT indicate that the threshold for late appeals remains extremely high, as the FTT seeks to reconcile two competing strands of UT authority. For example, in Lands Luo Ltd v HMRC [2025] UKFTT 1207 (TC), the panel, including the Senior President of Tribunals, Lord Justice Dingemans, applied Martland as being consistent with Court of Appeal authority, though on the facts, the taxpayer was permitted to appeal out of time.

With Martland and Medpro now pulling in different directions, the issue appears destined for clarification by the Court of Appeal. Until then, taxpayers should proceed on the basis that late appeals will continue to be admitted only in exceptional circumstances.

Burden of proof 

Universal Cycles Ltd & Others v HMRC [2025] UKFTT 01208 (TC)

One of the perennial difficulties facing taxpayers when challenging HMRC decisions is that the burden of proof often rests on them. Where enquiries have lasted many years and the underlying events are historic, the evidential disadvantage for taxpayers can be acute, particularly when documentary records are no longer available or incomplete, due to the passage of time.

The FTT’s decision in Universal Cycles offers a helpful reassertion of first principles, albeit in a limited area of direct tax. The FTT held in that case that where HMRC seeks to rely on the commission of a criminal act in order to invoke the extended time limits for issuing a Post Clearance Demand Note, the burden of proof lies with HMRC. HMRC cannot simply default to the general position under section 16(6), Finance Act 1994, that the taxpayer must disprove HMRC’s case. Because HMRC alleged a criminal act, the FTT confirmed that it was required to prove that act, consistent with the basic principle that 'he who alleges, must prove'.

The decision provides a welcome reminder that serious allegations demand cogent evidence, and taxpayers should not be required to disprove unparticularised HMRC suspicions, especially in cases involving long running and/or complex enquiries. 

Lists of documents

Burton Skip Hire Ltd v HMRC [2025] UKFTT 1113 (TC)

The FTT’s decision in Burton, that a party is not entitled to rely on a document omitted from its List of Documents, even if that document is later exhibited to a witness statement, came as a surprise to many practitioners. Because Lists of Documents are prepared and exchanged at a very early stage in an appeal, often long before witness evidence is prepared, it has long been common practice (and seemingly accepted by the FTT) that documents exhibited to witness statements could be relied on whether or not they appeared on the party's original List of Documents. Burton suggests that this is no longer permissible and a party must now apply to the FTT for permission to rely on any document not included in its original List of Documents.

On its face, Burton introduces an unnecessary layer of administration that is only likely to lead to delay and increase costs for the parties and generate avoidable work for a tribunal whose resources are limited and already under considerable strain. Given that evidence is exchanged well in advance of any hearing, it is difficult to see how reliance on a document exhibited to a statement, but not included in the party's List of Documents, would cause any prejudice to the other party. This is an area where further clarification, potentially through a Practice Statement, would be welcome to ensure consistency and avoid unnecessary procedural skirmishes.

HMRC Data Subject Access Requests

Michael Ashley v HMRC [2025] EWHC 134 (KB)

Access to information held by HMRC is often critical to a taxpayer’s ability to understand how decisions about them have been reached and to assess whether those decisions are lawful. Although Article 15 of the UK GDPR gives taxpayers a clear right to obtain such information, HMRC’s processing of Data Subject Access Requests (DSARs) has long been fraught with difficulty – securing even the most basic material from HMRC can often feel like getting blood from a stone.

In Ashley, the High Court considered these practices and the Court found HMRC’s approach to be unduly restrictive and procedurally flawed. The Court provided helpful guidance on the proper application of the exemptions frequently invoked by HMRC in justifying the withholding of information from taxpayers and clarified the proper test for assessing what constitutes “personal data” for DSAR purposes. The judgment serves as an important reminder that DSARs are legitimate and can be a helpful means by which taxpayers can ascertain how decisions about them have been arrived at by HMRC. Ashley also confirms that HMRC is under a duty to engage with them fully and transparently.

Procedural changes

The appointment of a new FTT Chamber President on 1 May 2025, has been accompanied by a number of welcome procedural developments. 

A new Practice Statement has updated the FTT’s approach to ADR in tax appeals,¹ reinforcing the FTT’s duty, under Rule 3(1)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the FTT Rules), to bring to the attention of the parties the availability of any appropriate alternative procedure for the resolution of disputes.

Among other things, the Practice Statement confirms that the FTT will ordinarily grant a stay of 150 days where an appeal has been accepted into ADR. It also places renewed emphasis on the consequences of an unreasonable refusal to engage in ADR noting that, in appropriate cases, such conduct may lead to adverse costs orders or a reduced recovery of costs, and may constitute 'unreasonable conduct', for the purposes of Rule 10(1)(b) of the FTT Rules (order for costs).

ADR remains an important mechanism for avoiding protracted and costly litigation with HMRC. Indeed, the Government is currently exploring ways to modernise and improve HMRC’s dispute resolution processes, including ADR. Against that backdrop, the FTT’s renewed focus on ADR is to be welcomed, particularly given the scale of the FTT’s existing caseload. With litigation timetables continuing to stretch, ADR is likely to play an increasingly prominent role in the resolution of tax disputes, and more taxpayers may be encouraged to take advantage of the process in 2026.

In November, the FTT also published a new Practice Statement on Applications for Extension of Time,² formalising its approach and offering welcome clarity for practitioners and taxpayers. Under the new framework, in-time, agreed applications are granted automatically: one extension of up to 60 days for the filing of HMRC’s Statement of Case, and two extensions of up to 28 days each for compliance with any other directions. In-time applications, without agreement, will be determined by a judge on the papers or listed for a hearing where appropriate.

Out-of-time applications must be made as soon as possible and only at a point when the party is able to comply with the direction. Such applications must include submissions explaining why, in all the circumstances, the non-compliance should be excused, together with the other party’s position on those circumstances.

The new Practice Statement is a pragmatic and sensible development. It provides parties with greater certainty, streamlines case management, and conserves tribunal resources. In any litigation, there may be times when a deadline cannot be met for legitimate reasons, and the revised approach ensures that routine extensions can be dealt with efficiently. Historically, parties have struggled to obtain a judicial determination on extension requests before the new deadline had passed, resulting in de facto extensions being obtained by default. In many respects, the new Practice Statement simply codifies and regularises what was already happening in practice, while improving transparency and certainty for all involved.

Avoidance firmly in the spotlight

Tax avoidance remained a central focus for HMRC during 2025, and all indications – from enforcement activity to new measures announced in Budget 2025 – suggest that this will continue to be a priority for HMRC during 2026. 

HMRC’s latest Annual Report, underlines the scale of its compliance operation. In the period 1 April 2024 to 31 March 2025, HMRC secured a record £48 billion in compliance yield, surpassing its annual target of £45.4 billion and equating to a return of £23 for every £1 invested in its compliance workforce. This heightened activity is underpinned by continuing expansion: HMRC has already recruited an additional 500 compliance officers, with plans to add a further 5,000 by 2029/30, a move expected to generate £6.8 billion of additional revenue over the next five years.

Much of this yield continues to arise from relatively routine behavioural issues: error and failure to take reasonable care, remain the most common reasons for taxpayers not paying the correct amount of tax. In that regard, HMRC’s behavioural interventions have continued a pace, with its 'nudge' and targeted tax-education campaigns reaching more than six million taxpayers last year and resulting in £448 million of additional tax for the Exchequer. Alongside this, HMRC completed 316,000 compliance checks, reflecting the breadth of enquiries opened by HMRC.

Looking ahead to 2026, taxpayers should expect this compliance environment to become even more acute. Budget 2025’s package of measures, from enhanced powers against avoidance facilitators to new sanctions, potential criminal offences, and an expanded debt-recovery framework, points towards a year in which avoidance-related activity will feature prominently in the compliance landscape. As more disputes move from enquiry to appeal, the FTT is likely to see a rise in avoidance-related appeals, including penalty disputes, information notice appeals, and challenges to HMRC’s characterisation of taxpayer behaviour. Against the backdrop of already strained FTT capacity, HMRC's increased activity in this area may well contribute to longer delays and increased pressure on case-management administration processes.

For taxpayers and advisers, the message is clear, HMRC’s scrutiny of avoidance is set to remain vigorous for the foreseeable future. Proactive compliance, careful documentation, and early engagement in dispute resolution (including ADR) will be more important than ever as the contentious tax landscape becomes increasingly congested and more complex during 2026.

Criminal enforcement goes up a gear

Criminal attacks and evasion remain a significant concern for HMRC, together accounting for 23% of the 2023/24 tax gap (9% from criminal attacks and 14% from evasion) of approximately £46.87 billion. Against a difficult fiscal backdrop, the pressure on HMRC to increase its activity in the criminal sphere is only set to grow, particularly given the comparatively modest level of prosecutions achieved in 2025.

The latest enforcement statistics illustrate both the scale of HMRC’s intelligence-led activity and the Government’s expectations for stronger performance in the years ahead. In 2024/25, HMRC received 164,670 reports of alleged fraud through its Fraud Reporting Gateway and paid £852,438 in rewards to individuals providing HMRC with valuable information. HMRC's Fraud Investigation Service (FIS) opened more than 11,000 new civil investigations into suspected fraud and commenced 446 new criminal investigations – a 3.7% increase on the previous year. Those investigations resulted in 557 positive charging decisions, 310 prosecutions, and 281 convictions, with an overall success rate of 91%. HMRC have also increasingly targeted wealthy tax evaders, with 275 individuals currently under investigation.

The financial impact of these activities is significant. HMRC reports that it protected £2.43 billion through civil fraud work and a further £1.5 billion through criminal investigations. In addition, it recovered £191 million from proceeds of crime and COP9 activity. The Autumn Budget 2024 signalled a further escalation, announcing new investment to expand the size and capability of FIS, alongside enhanced counter-fraud technology, including digital analytics and automation, designed to keep pace with increasingly sophisticated criminal operations.

Offshore non-compliance also remains high on HMRC’s agenda. The UK received Common Reporting Standard data relating to more than 10 million financial accounts from 106 jurisdictions, during the 2023 calendar year. HMRC’s analysis of that information resulted in 20,000 letters to taxpayers who had potentially under-declared offshore income in 2024/25 and generated £80.1 million in additional yield through the Worldwide Disclosure Facility.

Budget 2025 reinforces HMRC's current trajectory on the criminal front. The reward scheme for informants is being significantly strengthened, with immediate effect: where recoveries exceed £1.5 million, HMRC will now be able to pay informants up to 30% of the additional tax secured. 

Conclusion

Last year saw significant developments across the contentious tax landscape: tighter procedural frameworks in some areas of FTT practice; a run of decisions clarifying (and at times upending!) important procedural issues; an ever-sharper focus on avoidance; and a markedly more assertive approach to criminal compliance. Budget 2025 adds further momentum, providing HMRC with new powers, resources and technological capability, that will shape the disputes environment in 2026 . As these strands converge, taxpayers and advisers alike, should brace themselves for a more interventionist, data-driven and fast-moving enforcement climate, which means that procedural discipline, proactive compliance and strategic dispute resolution, will be more critical than ever in the year ahead and beyond.

 ¹Practice Statement: Alternative Dispute Resolution In Tax Disputes. 

 ²Practice Statement: Applications for Extension of Time. 

The appeal concerned the availability of MDR for Stamp Duty Land Tax (SDLT) purposes on the purchase of a property consisting of a house and an annexe.

On 15 December 2021, Michelle Jacqueline Berrell and Rory James Thomas (the Taxpayers) completed the purchase of a residential property in Aylesbury for £492,000 (the Property). The Taxpayers filed an SDLT return in respect of the purchase without claiming MDR and paid SDLT of £14,600. On 12 July 2022, the Taxpayers filed an amendment to the original SDLT return reclaiming SDLT of £9,680, on the basis that MDR applied. 

The Property consisted of a modern detached red-brick three-bedroom house (the Main House) plus an attached single-storey annexe (formerly a garage) which included a studio room (living/bedroom), toilet and shower room, and a utility room with a sink and high voltage cook connection (the Annexe). The Main House and the Annexe had independent access via a front porch. The porch door from the front led to two internal doors, one into the Main House and one into the Annexe. At the time of purchase, the Annexe relied on the Main House’s boiler for hot water. The two parts did not have separate utility meters, separate council tax registration, or separate Land Registry titles. They did share a driveway and front porch. A narrow rear hallway situated between the Main House kitchen and the Annexe utility provided access to the garden.  

On 22 March 2023, HMRC opened an enquiry into the SDLT reclaim and on 13 October 2023, issued a closure notice rejecting the MDR claim. On 21 February 2024, following the outcome of an internal review upholding the closure notice, the Taxpayers appealed to the FTT.

The dispute centred on the correct interpretation of Schedule 6B, Finance Act 2003 (FA 2003), which provides for MDR, and specifically paragraph 7(2)(a), which defines a “dwelling” as a building or part of a building that is “used or suitable for use as a single dwelling”. The test for “suitable for use as a single dwelling” has been discussed in cases such as Fiander and Brower v HMRC [2021] UKUT 0156 (TCC) and requires assessment of the physical attributes of the property under consideration at the effective date (i.e. completion). It is also necessary to consider whether the unit affords facilities for the occupant’s basic domestic needs (sleeping, hygiene, and cooking) and has a degree of privacy, self-sufficiency and security. 

HMRC contended that the Annexe lacked sufficient independence (due to shared access, lack of separate meters, reliance on the main boiler, lack of separate title and apparent marketing as a single dwelling) and that the hallway arrangement undermined privacy and security. 

The Taxpayers argued that the Annexe was clearly capable of independent occupation and that the shared elements did not preclude the unit being a separate dwelling for the purposes of MDR.

The appeal required the FTT to determine whether the transaction’s “main subject-matter” consisted of “at least two dwellings” within Schedule 6B, and in turn whether the property comprised two units, each suitable for use as a single dwelling at the effective date. 

FTT decision

The appeal was allowed.

The FTT accepted the agreed facts, including Ms Berrell’s evidence, and took the effective date as being15 December 2021.

In reaching its decision, the FTT applied the multifactorial test to be applied in determining whether MDR applies, as set out in Fiander and considered all relevant physical attributes of the Property and the context, as at the effective date. In so doing, it identified a set of features pointing in favour of the Main House and the Annexe being separate dwellings. The Annexe had a studio living/bedroom room, its own shower and toilet, a utility room with a sink and a high-voltage cooker connection (so capable of cooking without physical alteration) and separate access via a lockable front door (albeit through a shared porch). There was independent electrical heating, a separate fuse box, separate stop tap, running water and mains electricity, for the Annexe. In the view of the FTT, these features were “strong” indicators of suitability for separate occupation. 

However, a number of factors did point against separate dwellings. The shared driveway and front porch, lack of separate utility meters, shared boiler hot water supply, no separate council tax registration or separate Land Registry title and, significantly, the configuration of the rear hallway and the doors to the garden, raised difficult issues of privacy and security. 

With regard to the question of terms of occupation, HMRC argued that the FTT should not envisage hypothetical terms of tenancy or occupation. The FTT rejected such a rigid approach. In the view of the FTT, whilst the physical attributes at completion must be the starting point, the test does not exclude consideration of “realistic legal terms on which such occupancy could be granted”, as part of the multifactorial assessment. The FTT considered three potential models for the hallway arrangement: 

(i) hallway being part of the Main House; 

(ii) hallway being communal; 

(iii) hallway being part of the Annexe. 

It concluded that the “most practical” model was the hallway being communal and the Main House having exclusive use of the garden, with the Annexe not having independent garden access. While acknowledging practical difficulties (including the one-way bolt door in the Annexe and garden access restrictions), the FTT concluded that a reasonable objective observer could envisage terms of occupation that addressed the privacy/security issues. 

Weighing all the factors, the FTT found that despite the shared hallway and some limitations, the Annexe was suitable for use as a separate dwelling, within the meaning of paragraph 7(2)(a), Schedule 6B, FA 2003 and MDR therefore applied.

Comment

This decision reinforces that the test for “dwelling”, under Schedule 6B, is fact-specific and multi-factorial. Shared access or utilities will not automatically disqualify a unit from being a “dwelling”. The FTT's willingness to envisage realistic occupancy terms, including shared common areas and garden access restrictions, provides a more nuanced approach than a rigid 'fully self-contained' test.

For property purchasers considering MDR when acquiring a property with an annexe (or sub-unit), this case highlights the importance of establishing as many self-contained features as possible at completion, such as: independent entrance, bathroom, kitchen capability, heating, and stop-tap/fuse box. Equally, it demonstrates that some shared elements, such as driveway, utility meters and garden access, will not necessarily prevent MDR if, overall, the sub-unit is suitable for separate occupation and privacy/security can be managed under realistic terms.

The decision also serves as a reminder that planning permission wording (e.g. labelling an annexe as 'ancillary') and marketing a property as a single dwelling, whilst factors to be taken into consideration, are not determinative.

The decision can be viewed here.

Judicial review remains a vital mechanism through which taxpayers can hold HMRC to account in the exercise of its powers. In recent years, success in such claims has become increasingly difficult, with the courts tending to afford HMRC a broad margin of discretion when it makes decisions affecting taxpayers. Against that backdrop, the High Court’s recent decision in Aubrey Weis v HMRC [2025] EWHC 2479 (Admin), is noteworthy because, despite the claim being significantly out of time, the Court allowed the taxpayer’s claim to proceed. 

Background

Mr Weis challenged certain closure notices issued by HMRC (presumably pursuant to section 28A TMA 1970, although the published decisions do not refer to the relevant statutory provision) in May 2019, in respect of a number of tax years between 2005 and 2013 (the Notices). HMRC had concluded that the taxpayer was domiciled in the UK during the period in question and was therefore not entitled to claim the remittance basis of taxation. As a result, the taxpayer's worldwide income was brought within the charge to UK tax, and the Notices sought additional tax of more than £6.3m. Mr Weis requested an internal review, following which the Notices were upheld in November 2021. Mr Weis appealed the Notices to the First-tier Tribunal (Tax Chamber) (FTT) in December 2021. 

The FTT dismissed Mr Weis' appeal, finding that he had obtained a domicile of choice in the UK prior to the tax years in question (see Aubrey Weis v HMRC [2025] UKFTT 348 (TC)).

Mr Weis also challenged the Notices by way of an application for judicial review, on the basis that he had a substantive legitimate expectation that HMRC would treat him as domiciled outside the UK and would not charge him tax retrospectively on a different domicile basis. That expectation was said to arise, inter alia, from correspondence with HMRC in 2000, in which HMRC had accepted Mr Weis' claim to be domiciled in Israel. Actions taken by HMRC in subsequent tax years were said to confirm that HMRC's decision regarding Mr Weis' domicile status in 2000 was being abided by. Mr Weis contended that, in reliance on HMRC's assurances, he filed his subsequent tax returns on the basis that he was not domiciled in the UK and planned his financial affairs accordingly, in particular, by making offshore investments that would not be taxable on the remittance basis.

However, in February 2013, HMRC advised Mr Weis that it would no longer abide by its decision in 2000, and that it intended to challenge Mr Weis' domicile retrospectively. That ultimately led to the issue of the Notices and subsequent appeal to the FTT. At the same time, Mr Weis also made a formal complaint to HMRC under Tier 1 of HMRC’s internal complaints process and raised the legitimate expectation issue. In October 2021, HMRC rejected the complaint and stated that no legitimate expectation had been created. In December 2021, Mr Weis requested that his complaint be considered under Tier 2 of HMRC's complaints process and provided a legal opinion from tax counsel that supported his claim of legitimate expectation. In May 2022, the Tier 2 complaint was rejected by HMRC. 

In August 2022, Mr Weis' agent made a complaint to the Adjudicator’s Office (the AO). The AO subsequently requested that the agent provide proof of authorisation to act. The agent claimed that they never received this letter. In any event, in the absence of any response to its letter, and unbeknownst to Mr Weis or his agent, the AO closed the complaint. At some subsequent point, Mr Weis and HMRC entered into HMRC's Alternative Dispute Resolution (ADR) process, and a deliberate decision was made by Mr Weis not to pursue the AO for a response to his complaint while he was actively pursuing ADR. Indeed, it was not until March 2024, that Mr Weis instructed solicitors to follow up on the complaint he had made to the AO. In May 2024, the AO advised that it would not review the complaint because the file had been closed.

The judicial review claim 

Mr Weis filed his judicial review claim in the High Court in June 2024 (within one month of being informed by the AO that it would not review his complaint), challenging HMRC's decision to issue the Notices. Permission to bring the judicial review was refused on the papers by the High Court on the basis that the claim was brought substantially out of time, there was no good reason to extend time, and because the claim was unarguable. Mr Weis then renewed his application to an oral hearing, arguing that there was a good reason for the Court to extend time to pursue the claim and that permission should be granted. In particular, Mr Weis asserted that, throughout the period in question, he had been pursuing an alternative remedy, namely, his complaints and ADR and, while he had not explicitly indicated an intention to bring judicial review proceedings during those processes, he asserted that HMRC was on notice at all times that he was relying upon a legitimate expectation argument. Accordingly, there was no prejudice to HMRC, nor was there any detriment to good administration because HMRC was always aware of the legitimate expectation point, and the judicial review proceedings would always have been stayed behind the appeal to the FTT in any event. Mr Weis further asserted that he had suffered detriment because he had, based on HMRC’s assurance and subsequent conduct, chosen to hold funds offshore and, had he understood that his domicile was being questioned, he would have been able to bring the funds onshore and generate higher returns, avoid fees incurred in keeping his funds offshore and he would have had the opportunity to make charitable contributions to offset his tax liabilities.

In contrast, HMRC argued that there was no good reason to extend time, and no arguable case to justify permission being granted in any event. HMRC asserted that it was prejudiced as a result of the very long delay in bringing the claim, and that no satisfactory explanation had been provided for the significant delay, noting there were substantial periods of time when no alternative remedy was being pursued by Mr Weis, with no explanation for that inactivity. HMRC also submitted that the referral to the AO was not a suitable alternative remedy for Mr Weis to pursue as the AO could not consider a complaint concerning legitimate expectation. Finally, HMRC asserted that the issues raised in the claim were not of importance for the public at large, did not require consideration of fundamental rights, and Mr Weis' legitimate expectation claim was weak.

The High Court's decision 

In considering the parties' competing arguments, the Court determined that the date from which time began to run for the judicial review claim was the date of the Notices in May 2019. However, the Court accepted that it was entirely reasonable for Mr Weis to have sought a statutory review before filing judicial review proceedings and therefore examined the 30 month period after the conclusion of the statutory review until the issue of the claim form, in order to ascertain whether the further period of delay was excusable or not.

The Court commented that the further period of delay of 14 months was not “wholly lacking in excuse”, noting that Mr Weis had pursued an internal review. However, in its view, the referral to the AO was not a suitable alternative remedy because the AO could not consider whether Mr Weis had a legitimate expectation, and it was not realistic to expect that that issue would, or could, have been resolved by the AO. Legitimate expectation was a matter that could only be addressed by the Administrative Court. Nevertheless, the Court accepted that the complaint to the AO demonstrated that Mr Weis did not simply sit on his hands and he was continuing to assert his reliance on the legitimate expectation throughout. Furthermore, although the Court did not have a great deal of information concerning the ADR process the parties engaged in, it considered it likely that it would have embraced the years covered by the asserted legitimate expectation.

However, the Court determined that there was an unjustified period of delay of 14 months between the end of the ADR and the filing of the judicial review claim. Nevertheless, the Court observed that the question was not whether there was a good reason for the delay, but whether there is a good reason to extend time. That question involved consideration of the importance of the issues, the prospect of success, the presence or absence of prejudice or detriment to good administration, and the public interest. In deciding that there was, in this instance, a good reason to extend time, the Court noted the following factors:

• The issues raised by Mr Weis were important because, while they were not issues of significant public interest, as they essentially turned on the specific treatment of Mr Weis and did not involve wider policy issues, they were not trivial because they involved an obligation to pay tax of around £3.6m, which was a substantial sum.
• The issues were clearly arguable, and there was a realistic prospect of success. In particular, HMRC's statements and conduct were arguably clear, unambiguous and devoid of relevant qualification. The Court did, however, observe that the merits of the case were not clear-cut for either party.
• There was no real prejudice or detriment to good administration caused by the delay because, at all material times, HMRC was aware of the legitimate expectation point being raised by Mr Weis. It had therefore not come as a surprise to HMRC, and there was no suggestion that, for instance, the delay in bringing the proceedings affected the evidence that was available to deal with the claim.
• It is highly unlikely that the judicial review proceedings would have progressed in any significant way until the FTT had reached its decision on the underlying question of domicile. Accordingly, even if Mr Weis had commenced judicial proceedings sooner than he did, the substantive hearing would not have been heard until after the FTT appeal had concluded. HMRC was therefore not in a materially worse position in having to deal with the judicial review claim now, than it would have been in had the claim being issued promptly.

The Court therefore extended time to bring the judicial review proceedings and granted permission.

Comment

Rule 54.5 of the Civil Procedure Rules (CPR) imposes strict time limits on the bringing of judicial review claims, requiring a judicial review claim form to be filed "promptly and, in any event, not later than three months after the grounds to make the claim first arose". Those time limits are normally rigorously enforced by the High Court, and many taxpayers who have fallen foul of them, even by a matter of days, have had their applications for permission to bring a judicial review refused. Indeed, in recent years, the High Court has placed increasing emphasis on the requirement for "promptness", often treating the three-month longstop period as a secondary consideration when determining whether a claim for judicial review has been brought in time. It is also not uncommon for HMRC to raise a timing point in circumstances where a claim form has been filed close to the three-month time limit. The decision in Weis is therefore of particular note given the Court was willing to extend time despite what was, by any measure, a very significant delay.

Taxpayers seeking to bring a judicial review claim will take some comfort from the Weis decision and the fact that even a substantial delay will not necessarily mean the end of the road for their claim. Indeed, in the more recent decision in R (oao Robin Houldsworth) v HMRC [2025] EWHC 2848 (Admin), the High Court again extended time for a judicial review claim that was made late, citing the decision in Weis and taking a similar approach to weighing up the relevant factors when determining whether there was a good reason to extend time. In that regard, Weis emphasises that the court will weigh up all relevant factors and crucially, reaffirms that the focus is on whether there is good reason to extend time, rather than whether there was good reason for the delay, although the latter will inevitably be relevant to the court's decision. That approach necessarily invites a broader, more holistic assessment of the circumstances, than a narrow inquiry into the causes of the delay. As in Weis, those considerations may also include the magnitude of the tax liability at stake. This is a sensible approach and one that recognises that judicial review is a remedy of last resort and procedural failures can therefore have serious consequences for taxpayers, particularly where, as in Weis, the underlying claim has a real prospect of success and an alternative remedy had been pursued during the intervening period.   

That said, Weis carries a cautionary note. It is imperative that taxpayers should, whenever possible, strive to avoid having to rely on the court's discretion to extend time for bringing a judicial review claim. The Weis judgment is clear that claimants must pursue available alternative remedies promptly, but those alternative remedies must be realistically capable of resolving the dispute between the parties without recourse to judicial review. If not, a taxpayer who pursues such remedies and does not take steps to protect their position in relation to judicial review, may find that any claim falls outside the time limits contained in CPR 54.5 and the High Court may not be willing to exercise its discretion and extend the time period. It therefore remains the case that, in circumstances where it is considered that an appeal should be pursued before the FTT before commencing judicial review proceedings, it would be prudent to make a 'protective' application for judicial review within the proscribed time limits referred to in CPR 54.5. If appropriate, the judicial review proceedings can then be stayed pending the outcome of the appeal proceedings before the FTT.

As for HMRC, while the substantive arguments in Weis remain to be tested, the Court’s observations may give the department pause for thought. Domicile remains a high-profile and important issue, and HMRC will be acutely aware of the implications of a published judgment recognising a taxpayer’s legitimate expectation in this area, particularly one that could constrain HMRC's position in other cases. In that context, the circumstances in Weis may provide HMRC with sufficient cover to resolve the dispute by agreement rather than risk an adverse ruling, and it will be interesting to see whether a substantive judgment ultimately emerges in the next 12–18 months.

The judgment can be viewed here.

The underlying appeals challenged Capital Gains Tax (CGT) liabilities of approximately £15m, relating to tax planning arrangements involving offshore trusts and the application of double taxation conventions between the UK and New Zealand, and the UK and Mauritius.  
The specific decision in question was a case management decision concerning a disclosure application by the appellants seeking disclosure of specific documents from HMRC.

The appellants sought the requested documents on the basis that they were necessary for the appellants to establish the factual basis of claims, to assess whether estoppel applied (to prevent HMRC from denying their claims for relief) and to understand HMRC's historical position. 

FTT decision 

The application was granted, other than in relation to confidential correspondence between HMRC and the New Zealand and Mauritian tax authorities. 
With regard to those documents to be disclosed, the FTT directed HMRC to undertake a further search to locate any outstanding documents and to make disclosure by way of an amended List of Documents, commenting that it had doubts as to the overall integrity of the original exercise which HMRC had conducted. The FTT said that the appellants should be provided with the documents, even if HMRC did not intend to rely on them and/or regarded them as adverse to its case. 

The FTT did not consider the appellants request to be unfocussed or disproportionate and it did not amount to a 'fishing exercise', as had been argued by HMRC. In the view of the FTT, HMRC's original efforts had been inadequate. 

With regard to the confidential correspondence between HMRC and the New Zealand and Mauritian tax authorities, the FTT decided, on balance, that this correspondence should not be disclosed to the appellants. The FTT considered that it was not clear that this category of documentation would be relevant to the case and HMRC's concerns about publishing its confidential communications with other states concerning tax treaty negotiations, were legitimate. 

Comment 

In appeals before the FTT, the standard disclosure position is that a party only has to disclose documents they intend to rely upon. However, this decision illustrates that, in appropriate circumstances, the FTT will order HMRC to disclose relevant documents to appellant taxpayers, even where HMRC does not intend to rely on those documents and/or they are prejudicial to HMRC's case.

The issue of disclosure is topical at the moment, and another notable recent case is United Wholesale Grocers Ltd v HMRC [2025] UKFTT 1066 (TC), in which the FTT allowed the appellant's application for specific disclosure requiring HMRC to disclose documents concerning supply chains and related matters, mirroring the higher standard of disclosure provided for in the High Court under the Civil Procedure Rules.

The judge's comments in Evans on his use of AI in producing his decision are also worthy of note (see [42]-[49]). There can be little doubt that the use of AI by tax tribunal judges is likely to increase substantially as the technology develops.

The decision can be viewed here.

Introduction

The guidance, which replaces guidance on corporate cooperation issued in 2019, sets out clearer expectations for companies seeking to resolve allegations of criminal misconduct through cooperation. This includes timelines for engagement, a stronger presumption in favour of DPAs where corporates self-report and a more detailed framework for what constitutes “genuine” cooperation.

The SFO’s approach now goes further than the DPA Code of Practice (published in 2013) by offering what appears to be a de facto guarantee: if a corporate promptly self-reports suspected criminal conduct and provides full cooperation, the SFO will invite it to negotiate a DPA rather than prosecute, unless "exceptional circumstances" apply. 

The guidance coincides with broader efforts to increase case intake for the agency, including a government review of whistleblower compensation and the introduction of the “failure to prevent fraud” offence under the Economic Crime and Corporate Transparency Act 2023. Self-reporting though remains a key source of cases for the SFO. The agency's Director, Nick Ephgrave QPM, has previously stated that one of the main aims of this guidance is to counteract a decline in recent years in the number of companies self-reporting.

Potential impact of the guidance

For companies at risk of prosecution in bribery and fraud cases, DPAs generally offer an appealing route to resolution. They are negotiated agreements between the company and enforcement agencies, such as the SFO and Crown Prosecution Service in which, broadly, the company agrees to various terms, normally including payment of a financial penalty and obligations to cooperate in connected prosecutions and to make necessary enhancement to its financial crime compliance framework. In exchange, the SFO agrees to suspend its prosecution of the company and discontinue its case if the company satisfies all the DPA terms. Specifically, they offer companies certainty, reduced financial penalties and, importantly, no criminal conviction. 

The SFO's latest guidance provides greater clarity to companies on what they will need to do to be eligible for a DPA along with a more structured framework for self-reporting. It also provides statements from the SFO as to the process it will observe following a self-report and the speed with which it will respond and investigate. 

This clarity is welcome, and the timelines the SFO has said it will seek to follow offer some encouragement to companies that cases will not become protracted. However, there remain some open questions, including around what is meant by "exceptional circumstances" where self-reporting and cooperation will not be enough to secure a DPA and how cases that have previously resulted in a DPA, such as the Rolls-Royce case, which were not considered to be self-reports by the SFO, would now be treated. 

It remains to be seen if the greater clarity around outcome and speed of investigation offered by the SFO in this latest guidance will be sufficient to encourage more companies to self-report potential criminal wrongdoing. Also, the guidance does not include any detail on other means by which the SFO will increase its efforts to identify new cases involving potential wrongdoing by corporates. Therefore, companies will still need to weigh up the risks and benefits of making, or not making, an early disclosure to the SFO. In carrying out this balancing exercise corporates will need to consider not just the SFO's guidance but also the wider context of developments concerning financial crime enforcement, such as the coming into effect of the offence of failure to prevent fraud (pursuant to section 199 of the Economic Crime and Corporate Transparency Act 2023 (ECCTA)), and the recent broadening of the test for establishing corporate criminal liability (set out in section 196, ECCTA). 

What are the key provisions in the guidance?

• Clearer expectations of cooperation: The guidance outlines proactive steps companies must take to demonstrate adequate levels of cooperation in order to be eligible for a DPA, including preservation and provision of relevant material (including overseas documents) and early consultation before internal investigative steps are taken. With respect to legal professional privilege, the SFO states that companies will not be penalised for asserting it, but emphasises that voluntary waiver will be treated as a “significant cooperative act” and will "weight strongly in favour of cooperation".
• Importance of self-reporting: Prompt voluntary disclosure to the SFO of potential criminal wrongdoing by a company disclosure is now framed as a “key consideration” when determining whether a DPA is appropriate, though no guarantee is provided. However, the guidance significantly narrows the gap between “key consideration” and effective assurance. If companies self-report and cooperate fully, an invitation to a DPA negotiation is now all but guaranteed. Notably, the SFO has also accepted that DPAs may be appropriate even for companies that did not self-report, provided their cooperation is “exemplary” (a nod to past cases such as Rolls-Royce and Airbus). The guidance provides a non-exhaustive list of conduct that it may consider "exemplary", including providing to the SFO: (i) facts of the relevant criminal conduct, including identifying the individuals involved; (ii) information regarding any previous corporate criminal conduct and how it was resolved; and (iii) a thorough analysis of the company's compliance procedures at the time of the alleged offending, including any deficiencies at that time.
• Discouragement of forum shopping and limits on what will be considered a self-report: The SFO will not treat a report to another authority (such as a disclosure to a business's regulator, such as HMRC or the Financial Conduct Authority) as a self-report unless the SFO is notified “simultaneously or immediately thereafter”. Equally, the SFO may not accept that a company has self-reported if it has disclosed the conduct to an overseas agency whose enforcement action may be seen as a more lenient avenue for the company.
• Timely engagement: The SFO has provided indications as to its own processes and speed of response. These are intended to offer certainty to companies and to demonstrate that a self-report will not cause the company to face significant delays in waiting for final resolution of the matter. The SFO will respond to self-reports within 48 hours and decide within six months whether to open an investigation. If DPA negotiations are initiated, they are generally to be concluded within a further six months. The SFO says it will aim to conclude its investigation within a "reasonably prompt time frame". The SFO also states that it will provide regular updates throughout the process to the company. These timelines reflect a wider organisational shift aimed at reducing delay and uncertainty which have been longstanding barriers to cooperation cited by corporates and their advisers.

Conclusion

The SFO's guidance offers welcome clarity to companies when considering whether they should self-report potential wrongdoing to the SFO, or, if already under investigation, whether they should adopt a cooperative approach to their dealings with the agency. The language of the guidance, particularly when compared to the previous 2019 version, suggests the SFO may take a somewhat more corporate-friendly approach when assessing whether matters are suitable for DPAs.

However, to achieve its aim of encouraging more companies to self-report, this guidance will likely need to be coupled with increased enforcement activity from the SFO, including the agency identifying and pursuing suitable cases through other means. The increased threat of the "stick" of the SFO identifying and prosecuting a company's wrongdoing, will make the "carrot" offered by the guidance more appealing.

When will the SFO assess compliance programmes?

The guidance sets out six scenarios in which the SFO may be expected to scrutinise a company’s compliance framework. Those scenarios are:

• when deciding whether to prosecute – an assessment of the compliance programme will form a key part of the application of the Full Code Test, with an ineffective compliance programme being a factor in favour of prosecuting
• when negotiating and approving deferred prosecution agreements (DPAs) – an assessment will be made on the effectiveness of the compliance programme at the time of the offending, the time of the self-reporting and the time of the DPA. This will be a relevant factor in both the appropriateness of the case for a DPA and whether the imposition of a monitor may be required. Generally, only companies with an effective compliance programme in place at the time of negotiations will be considered for a DPA
• when monitoring compliance with DPA terms and overseeing monitorships
• when assessing the “adequate procedures” defence under the Bribery Act 2010
• when assessing the “reasonable procedures” defence under the Economic Crime and Corporate Transparency Act 2023 (ECCTA)
• during sentencing.

What makes compliance “effective”?

A central element of the guidance is the SFO’s position that compliance must be effective and not just a "paper exercise". Prosecutors will assess how policies and procedures operate in practice ie whether they are proportionate, risk-based, properly resourced and genuinely embedded across the organisation.

The SFO signals that it will go beyond high-level assertions and examine real world outcomes ie looking at how risks are identified, how issues are escalated, and whether policies actually influence conduct. It also reiterates that an ineffective compliance programme, at the time of the offence, is a public-interest factor in favour of prosecution.

Bribery Act and ECCTA defences

The guidance also restates the different standards for the “failure to prevent” offences that it will consider when assessing compliance procedures.

Bribery Act 2010: Adequate procedures

Organisations must show they had adequate procedures in place at the time of the bribe. 

An assessment will be made against the Ministry of Justice’s well-known six principles: proportionate procedures, top-level commitment, risk assessment, due diligence, communication and monitoring/review.

ECCTA 2023: Reasonable procedures

The ECCTA defence requires reasonable procedures to prevent fraud, or evidence that it was not reasonable to have such procedures. The Home Office principles mirror the Bribery Act 2010 framework but include additional focus on factors including:

• dynamic and frequently updated risk assessment; and
• learning from internal investigations, whistleblowing and near-misses.

How does the SFO assess compliance programmes?

The guidance states that the SFO will use a full range of investigative tools to evaluate corporate compliance, including:

• voluntary disclosures;
• compelled disclosure of documents; and
• interviews with witnesses and suspects.

This reinforces the need for companies to maintain clear, contemporaneous records showing how policies operate in practice and supporting key decisions made by the business around financial crime controls. 

Part of the SFO's wider enforcement approach

This new guidance reinforces guidance issued by the SFO in April 2025, relating to self-reporting, cooperation and DPAs. Read together, these two guidance documents underline the increasing importance of financial crime compliance programmes and the level of scrutiny that prosecuting agencies may apply to them. From an enforcement perspective, the two guidance documents make it clear that to avoid prosecution, or to obtain a DPA at the end of an investigation, the SFO will expect a company to have in place compliance procedures that are effective in practice, are supported by clear records and that demonstrate that the risks faced by the business have been properly considered. 

Practical steps for companies

In light of the updated guidance, organisations should consider taking active steps, including:

• reviewing their anti-bribery and anti-fraud frameworks to ensure that they meet the levels set out in the respective statutory guidance issued in connection with the Bribery Act 2010 and ECCTA
• when reviewing their financial crime compliance procedures, considering their operational effectiveness, not merely the presence of a set of policies
• ensuring financial crime risk assessments are dynamic and updated periodically and when new information emerges
• clearly documenting key decisions taken around financial crime compliance, whistleblowing and internal investigations.

 Medpro Healthcare Ltd (Medpro) and its director, Mr Kalvinder Ruprai, sought to bring late appeals to the FTT against VAT penalties and personal liability notices issued by HMRC. The penalties imposed were in excess of £1 million.

The first notice of appeal was filed 70 days late and the second and third notices were each 5 months and 17 days late. The delays were attributed to Mr Ruprai's serious ill-health and the failures of his professional adviser, who had overlooked the appeal deadlines.

Permission to bring the appeals out of time was sought from the FTT under section 83G(6), Value Added Tax Act 1994 (VATA 1994), which grants the FTT unfettered discretion to permit late appeals. The exercise of that discretion is guided by the decision in Martland v HMRC [2018] UKUT 178 (TCC), which established the following three-stage analysis.

1. establish the length of the delay;
2. identify the reasons for that delay; and
3. consider all the circumstances in the round,  balancing them while giving particular emphasis to the importance of efficient, proportionate litigation and the prejudice that would be caused to both parties by granting or refusing permission.

The FTT refused all three late-appeal applications. The FTT said that that it was unacceptable for the professional adviser to overlook the possibility of an appeal. This failure was treated as the failure of the taxpayers in accordance with the general rule in HMRC v Katib [2019] UKUT 189 (TCC).

Medpro and Mr Ruprai appealed to the UT.

UT's decision

By the casting vote of Mr Justice Marcus Smith, the appeals were allowed.

In allowing the appeals, the UT considered that the FTT's decision contained the following material errors of law:

• The FTT failed to correctly apply the Marland test because it made no reference to Stage 3  (Ground 1).
• The FTT relied on the general rule in Katib, that failures of an adviser are treated as failures of the taxpayer, but failed to consider whether any exceptional circumstances existed that justified departing from that rule (Ground 2).
• The FTT copied from the parties' skeleton arguments but it failed to demonstrate that it had considered the applicants' submissions or exercised its own independent judgement. This breached the duty of a court or tribunal to provide adequate reasons for its decision (Ground 3).
• The rules in Martland and Katib improperly constrain the FTT's discretion and are therefore  wrong in law and the FTT erred by applying those rules (Ground 4).

Comment

The most important feature of this decision is the significant attack on the correctness of the previous UT decisions in Martland and Katib.

The taxpayers argued that the discretion accorded to the FTT to allow late appeals was different to the discretion given to the court in the context of relief from sanctions and therefore the UT was wrong to adopt, wholesale, the test in Denton v TH White Ltd [2014] 1 WLR 3926.

The test in Denton specifies that two specific factors should be given particular weight when carrying out the balancing exercise: (1) the need for litigation to be conducted efficiently and at proportionate cost; and (2) the need to enforce compliance with rules, practice directions and orders. This reflects the wording of CPR3.9, but not the wording of section 83G(6), VATA 1994, which does not attach particular weight to any specific factors.

The UT was divided on this issue. Judge Cannan's view was that Parliament, in giving discretion to the FTT, anticipated and intended that the UT would provide binding guidance on the exercise of that discretion. However, Mr Justice Marcus Smith was of the view that CPR3.9 had been specifically amended to add weight to certain factors whereas section 83G(6), VATA 1994, had not, accordingly, the UT in Martland and Katib had unjustifiably fettered the discretion of the FTT. Mr Justice Marcus Smith had the casting vote and therefore the appeal was allowed on that ground.

The approach taken by the FTT and UT to late appeals has varied since the Medpro decision. In Tajinder Pawar v The Commissioners for HMRC [2025] UKUT 00309 (TCC), the UT held that the Medpro test should now be followed as it is the more recent decision.

However, in Lands Luo Ltd v HMRC [2025] UKFTT 1207 (TC), the FTT expressly preferred the Martland test. The FTT referred back to the Court of Appeal's decision in BPP Holdings Ltd v HMRC (BPP Holdings) [2016] EWCA Civ 121, which held that there was nothing in the wording of the overriding objective of the FTT rules that is inconsistent with the general legal policy in Denton, as reflected in the Martland test.

In both of these recent decisions it was held that applying either test would produce the same result.

We may not get clarity on this issue until there is a case where each test produces a different result – watch this space.

The decision can be viewed here.

Freeport reliefs clarified in new HMRC guide

HMRC has published updated Help with Freeports – GfC14 guidelines, explaining the full suite of tax and customs-duty benefits available to businesses operating in UK Freeports.

Inside Freeport customs sites, firms can store or process goods under the Freeport special procedure, with import duty, import VAT, and even excise duty suspended while goods remain in the zone.

Meanwhile, in special tax sites, companies may access tax reductions such as zero-rate secondary Class 1 National Insurance, enhanced capital allowances on plant and machinery, and relief on business rates and property taxes.

The guidance highlights how to qualify, key record-keeping obligations, common pitfalls, and the process to correct errors.

Developing Countries Trading Scheme (DCTS): Goods Graduation from 1 January 2026

From 1 January 2026 until 31 December 2028, under the DCTS, the UK will suspend preferential customs duty rates on a range of goods imported from the “Standard Preferences” tier countries currently India and Indonesia. The graduated goods include, for India: products of milling, fats and oils, inorganic/organic chemicals, textiles (cotton, man-made fibres), apparel, carpets, iron/steel and precious metal articles. For Indonesia: selected chapters such as edible fats and oils, wicker manufactures, footwear and musical instruments. The change applies to UK importers and exporters to these countries who should review the impact this will have on duty costs and supply chains.

HMRC's Notice can be viewed here.

Import Control System 2 now live

HMRC has announced the transition from the Import Control System 2 Northern Ireland (ICSNI) to Import Control System 2 (ICS2) for entry summary declarations on goods moving from Great Britain to Northern Ireland. While businesses were expected to migrate by 1 September 2025, HMRC is allowing continued use of ICSNI until 31 December 2025. Traders using the Trader Support Service will be automatically registered for ICS2, while others must register via the EU Shared Trader Interface.

HMRC’s Guidance can be viewed here.

Case reports

Drinks and Food UK Ltd v HMRC [2025] UKUT 315 (TCC)

Drinks and Food UK Ltd (DFUK) appealed to the Upper Tribunal (UT) against the First-tier Tribunal’s (FTT) decision to uphold HMRC’s refusal of its claim for excise duty drawback under the Excise Goods (Drawback) Regulations 1995 (EGDR).

The dispute centred on whether:

(1)  the company’s claim was made within the statutory three-year time limit;

(2) HMRC had waived that limit; and

(3)  the company had complied with other procedural requirements, including those concerning duty-stamp obliteration and export documentation.

DFUK had paid excise duty on alcoholic goods in 2014 and sought to reclaim that duty after exporting the goods between December 2020 and April 2021 and submitted to HMRC a notice of intention to claim drawback in November 2020, and a formal claim in April 2021. HMRC refused the claim on three main grounds: (1)  it was out of time under regulation 7(6) of the EGDR; (2) it had not properly obliterated duty stamps under the Duty Stamp Regulations 2006 (DSR); and (3) it had failed to produce the required export evidence, such as CHIEF system S8 print-outs showing a “departed” status.

A subsequent review upheld HMRC’s refusal, leading the company to appeal to the FTT. The FTT dismissed the appeal, except for a small portion of the claim amounting to around £9,700.

The FTT's decision can be viewed here. 

DFUK appealed to the UT, arguing that HMRC’s refusal was unreasonable, that its 2019 correspondence with HMRC amounted to a waiver of the time limit, and that the FTT had misunderstood the scope of its jurisdiction. HMRC cross-appealed, arguing that the FTT had exceeded its powers in reviewing certain aspects of HMRC’s discretion.

UT's decision

The UT upheld the FTT’s decision. It confirmed that the FTT had jurisdiction under section 16(5), Finance Act 1994, to consider whether HMRC’s discretionary decision was reasonable, but it agreed with HMRC that it had acted lawfully in refusing the bulk of the claim. The UT accepted that a 2019 email from HMRC’s drawback team could be interpreted as an assurance that a late claim would be considered, meaning the time limit was not itself determinative. Nevertheless, DFUK still failed to meet the substantive conditions for drawback.

In the view of the UT, the requirement in Excise Notice 207 to obliterate duty stamps in accordance with the DSR, was clear and proportionate, and DFUK's agent had failed to comply with this requirement by not providing the necessary notice or record of stamp obliteration. It was also of the view that HMRC was entitled to reject parts of the claim for which no valid export documentation had been produced.

The UT's decision can be viewed here.

Why it matters

This decision provides important guidance on the scope of the FTT's jurisdiction under section 16(5), Finance Act 1994, and highlights the strict nature of compliance required under the drawback regime. While the UT accepted that HMRC’s communications could amount to a waiver of procedural time limits, it confirmed that such assurances do not excuse failure to meet other statutory conditions. The case highlights the need for exporters to maintain meticulous procedural compliance documentation, especially with regard to duty-stamp management and export evidence, if they wish to recover excise duty lawfully paid.

Kerrie Brennan v HMRC [2025] UKUT 00310 (TCC)

Ms Brennan appealed the FTT's decision, which upheld an excise duty assessment and a related wrongdoing penalty to the UT.

The case concerned a shipment of large “Euro bins” which were transported from Germany to Northern Ireland in containers which were described as wheelie bins but which were found to contain thousands of kilograms of duty-unpaid tobacco.

Before the FTT, Ms Brennan argued that she had arranged transport of the bins unaware of the illicit tobacco contained within them, and that she was not “holding” possession of excise goods for the purposes of Regulation 13 of The Excise Goods (Holding, Movement and Duty Point) Regulations 2010) (HMDP). She also contended that she had a reasonable excuse, for the purposes of paragraph 20, Schedule 41 to the Finance Act 2008, in relation to the wrongdoing penalty which HMRC had imposed.

The FTT dismissed Ms Brennan's appeal, holding that she was “concerned in carrying, removing, depositing, keeping or otherwise dealing with” the goods and that she did not establish a reasonable excuse.

Ms Brennan appealed to the UT, where she argued that the FTT erred in its analysis of “holding” and relied on the principle from R v Taylor and another [2013] EWCA Crim 1151 that an “innocent agent” not physically in possession of goods cannot be treated as "holding".

The FTT's decision can be viewed here.

UT's decision

The UT rejected Ms Brennan's appeal. It held that in excise duty law the concept of “holding” may include arrangements where the person arranges transport and the paperwork is in their name even if they do not physically hold the goods. Ms Brennan’s role in arranging transport, with the documentation in her name, meant the FTT was entitled to conclude that she was “holding” the goods for the purposes of Regulation 13, HMDP. The UT also held that Ms Brennan did not have a reasonable excuse. The factual findings of the FTT were not perverse or legally wrong, and Ms Brennan did not therefore satisfy the threshold for a reasonable excuse, under Schedule 41, Finance Act 2008.

The UT's decision can be viewed here.

Why it matters

This decision confirms that in the context of excise duty, “holding” goods can extend beyond physical possession to include situations where the taxpayer arranges transport and the consignment documentation names them. It also serves as a stark reminder of the high threshold that has to be met in order to establish a “reasonable excuse” in excise wrongdoing penalty cases. Taxpayers and businesses involved in logistics or goods transport, should remain alert to the risk of being caught out by excise‐duty obligations and the potential serious consequences for them if illicit cargoes have unwittingly been transported.

WM Morrison Supermarket Ltd v HMRC [2025] UKFTT 1145 (TC)

WM Morrison Supermarket Ltd (Morrisons) appealed to the FTT against a post‑clearance demand in the sum of £5,073,187.80, issued by HMRC for anti‑dumping duty (ADD) and import VAT, in respect of household aluminium foil imported between 22 March 2018 and 19 November 2020, and declared as originating from Thailand.

The main issue in the appeal was whether a factory in Thailand, operated by the exporter, which undertook certain final‑stage processing of the foil, had carried out the “last, substantial, economically‑justified processing or working” in the UK customs origin sense (under Article 60 of the Union Customs Code (UCC)), which would mean the goods were of Thai origin and would avoid ADD, or whether the processing was not economically justified (Article 33 UCC Delegated Regulation) and therefore the goods would remain of Chinese origin and subject to ADD.

Morrisons had bought aluminium foil manufactured entirely in China until May 2017, after which time the exporter group moved certain final operations to Thailand. The Thai operations accounted for about 5% of total production cost.

HMRC argued that the Thai factory was established with the dominant purpose of avoiding ADD and that the Thai processing was minimal and did not amount to the requisite “substantial processing”.

The FTT heard evidence from the Thai factory’s general manager, expert metallurgical witnesses, and reviewed corporate website/social media content of the exporter, that explicitly referenced to elimination of ADD.

FTT's decision

The appeal was dismissed.

Morrisons bore the burden of proof and the FTT applied the two‑stage statutory test: first, was the processing economically justified or was it principally aimed at avoiding ADD (Article 33 UCC‑DA); and second, if it was economically justified, did the Thai processing constitute the last substantial processing (Article 60 UCC).

On the first issue, the FTT found that the contemporaneous online material, for example, the maker’s website and buyer‑to‑buyer postings, contained clear statements that the Thai facility was opened to “eliminate anti‑dumping rate” and therefore provided objective evidence that avoidance of ADD was the principal or dominant purpose. Morrisons’ evidence of local‑market demand and export volumes was found to be insufficient and of reduced weight (partly because of deficiencies in its witness evidence). Accordingly, the processing was not economically justified.

With regard to the "substantial processing" question, the FTT concluded that even if the processing had been economically justified, the Thai processing effected only microscopic metallurgical changes and did not meet the qualifying threshold. The product before and after the processing appeared to be essentially the same, both met the British standard for household foil, and the cost share and extent of change were insufficient to amount to a new product or important stage of manufacture.

The FTT's decision can be viewed here.

Why it matters

This decision is significant for importers because it illustrates how the rules on non‑preferential origin are being rigorously applied by HMRC. It confirms that statements by exporters (including on websites/social media) can be persuasive evidence of intent. It also underscores that relatively modest finishing or packaging operations abroad may not satisfy the “last substantial processing” test under Article 60 UCC, especially where core manufacturing remains elsewhere. There is a heavy evidential burden on importers to show genuine commercial reasons for relocation of production and meaningful processing abroad. From a practical perspective, companies declaring origin overseas must ensure that communications and documentation support the commercial logic, and that the overseas operations are substantial, and not merely final packaging or minor finishing.

Mr Masters, a former Tesco executive, accrued a defined benefit pension entitlement under Tesco’s pension scheme from 1983 to 2015 (the DB scheme). In 2016, he transferred his defined benefit pension to a UK-registered SIPP. Mr Masters subsequently became resident in Portugal under the favourable non-habitual resident (NHR) regime. In the 2019/20 tax year, Mr Masters withdrew c.£3.5m from the SIPP, on which UK income tax of c.£1.5m was withheld at source. 

Mr Masters claimed that the withdrawals were “pensions paid in consideration of past employment”, within the meaning of Article 17(1)(a) of the UK-Portugal DTC and therefore taxable only in Portugal. Accordingly, Mr Masters applied to HMRC for a no tax (NT) code to prevent UK tax being deducted. This application was rejected. In his 2019/20 tax return, Mr Masters claimed relief in respect of the tax that had been withheld in relation to the SIPP withdrawals.

HMRC subsequently enquired into Mr Masters' 2019/20 tax return and rejected his claim for relief. In particular, HMRC concluded that the transfer of benefits from the DB scheme to the SIPP, severed the required causal link between the pension and Mr Masters’ past employment. In HMRC’s view, once the funds were transferred to the SIPP, they ceased to be “pensions paid in consideration of past employment” and instead became payments under a separate pension arrangement, falling outside Article 17(1)(a) of the UK-Portugal DTC. As the withdrawals were therefore taxable in the UK, because they were not "subject to tax" in Portugal, they were taxable in the UK. 

HMRC issued a closure notice on that basis. Mr Masters appealed the closure notice and HMRC's refusal of his claim for an NT code, to the FTT.

FTT's decision

The appeals were allowed.

The key issue before the FTT was whether the SIPP withdrawals were paid "in consideration of past employment". The parties were in agreement that a sufficient causal connection between past employment and the SIPP withdrawals was required in order for that condition to be met.  

Mr Masters' position was that the relevant causal connection had not been broken and was sufficient to meet the condition because, amongst other things: his entitlement under the DB Scheme was funded directly by, and as a result of, his employment with Tesco; the funds remained within a UK pension scheme at all times (and Mr Masters did not obtain any form of legal ownership of those funds before his receipt of the SIPP withdrawals); and Mr Masters did not contribute any further funds to the SIPP and the only subsequent increase in the SIPP funds was due to investment returns.

HMRC argued that the causal connection had been broken between the SIPP withdrawals and Mr Masters' employment with Tesco because, amongst other things: Mr Masters’ employment was not a condition of the SIPP; the funds were voluntarily taken from the DB scheme whilst the employment was ongoing and placed into the SIPP; the SIPP was fundamentally an investment product; and there was not merely a transfer of capital but also the opening of a new pension product, unconnected with Mr Masters' employment.   

The FTT noted that the degree of relevant causal connection was clearly sufficient and unbroken where an employer and employee (through salary sacrifice) contribute to an occupational pension scheme, which then pays a pension or similar remuneration. Equally, the relevant causal connection was clearly broken where an employee receives a salary from their employer and then pays some of that salary into a SIPP, which subsequently pays a pension or similar remuneration. 

While noting that Mr Masters' facts fell somewhere between the two extremes, the FTT concluded that, if paid direct to Mr Masters, the Tesco funds would be "paid in consideration of past employment" and the mere fact that the funds were transferred from the DB scheme to the SIPP, did not break the relevant causal connection between Mr Masters’ employment with Tesco and the subsequent SIPP withdrawals paid to Mr Masters. The FTT also confirmed that a payment from a SIPP could, in principle, be "paid in consideration of past employment". 

The FTT then considered whether there were any other facts that reduced the degree of relevant causal connection between Mr Masters’ employment with Tesco and the SIPP withdrawals to such an extent that the SIPP withdrawals were not in fact “paid in consideration of past employment”. In finding that there were no such facts, the FTT noted that Mr Masters had built up his entitlement in the DB scheme over a period of 32 years and 8 months of his employment with Tesco; the funds were the only contribution made to the SIPP; Mr Masters did not make any subsequent contributions to the SIPP; and the funds had been in the SIPP for only four years before the SIPP withdrawals were made, which was a proportionately short period of time compared to Mr Masters’ period of pensionable service with Tesco. The FTT concluded  that all of these facts maintained the necessary degree of relevant causal connection between the SIPP withdrawals and Mr Masters’ past employment with Tesco, so that the SIPP withdrawals were “paid in consideration of past employment”

The FTT therefore held that the SIPP withdrawals were within Article 17 of the DTC and, as Mr Masters was resident in Portugal at the time of the SIPP withdrawals, the DTC allocated the taxation rights over those withdrawals to Portugal. 

Comment

This decision provides some important guidance on the application of double tax treaties to pension transfers and withdrawals. The case confirms that a transfer to a SIPP will not necessarily break the employment link for treaty purposes and provides a degree of clarity for expatriate taxpayers and their advisers on the interaction between UK pension rules and DTCs. Pensioners relocating abroad may be able to rely on treaty protection if the funds remain clearly traceable to past employment.

The case is also a reminder of the complexities and potential pitfalls that can arise when transferring or consolidating pension arrangements, particularly where a change in tax residence is involved. Small differences in structure, timing, or contribution history, can have significant tax implications in both jurisdictions. Individuals should seek specialist advice before transferring pensions or drawing benefits overseas, as missteps can inadvertently forfeit treaty relief, or trigger unexpected UK tax liabilities.

The decision can be viewed here.

Recent procedural decisions

There have been a number of recent procedural decisions that are worthy of note.

Hardship

Clear Pay Payroll Ltd v HMRC [2025] UKFTT 916 (TC), concerned an application by the taxpayer that the First-tier Tribunal (FTT) should entertain its appeal against an assessment to VAT without the taxpayer having to pay the disputed VAT in advance. 

HMRC brought a winding-up against the taxpayer in respect of the unpaid assessment. The taxpayer subsequently advised HMRC that it wished to appeal the assessment and claimed hardship. HMRC requested that the taxpayer provide extensive documents and information in support of its claim of hardship. The taxpayer did not provide the requested documents and information. Instead, it argued that, as HMRC had sought a winding-up petition on the basis that it believed the taxpayer was unable to pay its debts as they fell due, it would be contradictory for HMRC not to accept that payment of the amount subject to the appeal could be made without the taxpayer suffering hardship. Following further correspondence between the parties, and in the absence of the information and documents requested being provided, HMRC ultimately refused the taxpayer's request for hardship.

Before the FTT, the taxpayer challenged the FTT's jurisdiction on the basis that the winding-up petition amounted to confirmation by HMRC that hardship was satisfied and effectively meant there was no hardship issue for the FTT to determine. Accordingly, the taxpayer argued that the right course was for the FTT to decline jurisdiction and make a finding of fact that HMRC was satisfied that the test for hardship was met. The FTT disagreed, finding that it was clear that HMRC did not agree that hardship had been made out. To that end, the FTT noted that the test for hardship, in section 84(3B), the Value Added Tax Act 1994 (VATA), was very different from the grounds for which a company may be wound up by the court under the Insolvency Act 1986. The FTT noted, for example, winding-up focuses on the position of the company alone in determining whether it is unable to pay its debts, whereas the test for hardship in VATA requires a broader review and, in appropriate circumstances, can encompass a review of the resources available to other connected persons. Accordingly, the FTT determined that it was not, at least in theory, inconsistent for HMRC to pursue its petition in the High Court for winding up of the company and, at the same time, oppose an application to the FTT that the company would suffer hardship if it were required to pay the amount of the disputed VAT.

As to the substantive point, the FTT was satisfied that the taxpayer would suffer hardship if required to pay the VAT in dispute, having regard to the principles set out in HMRC v Elbrook (Cash & Carry) Ltd [2017] UKUT 181 (TCC). In particular, the FTT held, amongst other things, that: the taxpayer was in no position to pay the disputed VAT; the test for hardship was 'all or nothing', such that the fact the taxpayer might have some limited funds to make part payment was irrelevant; the test for hardship was applied at the date of the hearing, and it was irrelevant that the taxpayer had not responded to HMRC’s requests for hardship information; and if the requirement to pay the disputed VAT was maintained, the taxpayer would be denied its right to appeal. 

The requirement to pay disputed VAT before pursuing an indirect tax appeal has long been viewed as an onerous condition, undermining taxpayers’ rights to appeal and the principles of natural justice. In today’s challenging economic climate, where many businesses face significant financial pressures, the unfairness of this rule is thrown into even sharper focus. Against that backdrop, the decision in Clear Pay offers valuable guidance on both the hardship process and the application of the relevant legal principles.

Reinstatement

In Parwinder Gill v HMRC [2025] UKFTT 930 (TC), the FTT considered an application by the taxpayer for the reinstatement of an appeal against a personal liability notice (PLN) issued to him for alleged deliberate inaccuracies contained in his VAT returns. The appeal had been automatically struck out by the FTT following the taxpayer's failure to file witness evidence in accordance with an 'unless order' issued by the FTT. The taxpayer, who had been represented by an agent, was unaware that his appeal had been struck out until he received a demand from HMRC for c.£1.8m.  

The taxpayer's appeal to the FTT was filed in December 2022. The taxpayer had suffered from ill-health for a number of years. He had been diagnosed with anxiety and depression, Type 2 diabetes, had had a transient ischemic attack, and had also been diagnosed with autistic spectrum disorder. In February 2023, the taxpayer's mother, who had lived with him for 62 years, also died. In the months that followed the filing of the taxpayer's appeal, HMRC's correspondence to the taxpayer's agent seeking to agree directions for the conduct of the appeal went unanswered. The FTT ultimately issued directions for the progress of the appeal to both HMRC and the agent, which included a requirement for the taxpayer to file witness evidence. The directions were not provided to the taxpayer by his agent, and the deadlines passed without the taxpayer providing any witness evidence. In addition, HMRC's correspondence to the agent continued to go unanswered. 

Accordingly, in October 2023, the FTT wrote to the agent to remind them of the directions and indicated that, in the absence of a response within 14 days, the FTT may issue a direction which might lead to the striking out of the appeal. Four days before the FTT's letter, the taxpayer was taken to hospital by emergency ambulance and diagnosed with end stage renal failure and Covid, receiving treatment over the following month. During that period, the taxpayer's wife was also seriously hurt in a car accident.   

In the absence of any response from the agent to the FTT's letter, the FTT issued the 'unless order' and the appeal was subsequently struck out. Around the same time, the taxpayer was diagnosed with heart failure. Upon learning that his appeal had been struck out, the taxpayer applied for reinstatement, noting there had been a breakdown in communication with his agent and that the taxpayer had assumed that there was a backlog in arranging the hearing due to Covid. HMRC objected to the appeal being reinstated. 

In considering the taxpayer's application, the FTT applied the three stage test in Martland v HMRC [2018] UKUT 178 (TCC). In that regard, the FTT found that the length of the taxpayer's delay in complying with the FTT's directions was both significant and serious. Further, the FTT did not accept that the reason for the delay was because of the taxpayer's ill-health, but rather because of the agent's failure to tell the taxpayer about the requirement to file evidence, the FTT's letter, and the unless order. The FTT noted that the case law established that it should not normally find that a person’s reliance on their adviser provides a good reason for delay and that the usual position was that the reasonable taxpayer would check with their adviser, which the taxpayer had failed to do. However, the FTT determined that the reasonable taxpayer in the specific taxpayer’s position would not be closely monitoring their adviser to make sure the appeal was on track. Instead, they would be focused on their life-threatening health conditions and the consequences of their wife’s car accident. Accordingly, the FTT found that it was reasonable for the taxpayer not to contact his agent during the relevant periods. 

Finally, balancing all of the circumstances of the case, and placing particular weight on the need to enforce compliance with statutory time limits and to conduct litigation efficiently and at a proportionate cost, the FTT concluded that the factors favoured allowing the application.

It is well established that taxpayers face significant difficulty in securing the reinstatement of appeals once they have been struck out. The decision in Gill exemplifies the high threshold that must be satisfied: only where non-compliance with FTT directions can be justified by particularly strong reasons will reinstatement be permitted. Notably, however, Gill was determined by reference to the Martland test prior to the Medpro modifications, discussed below. In any event, Gill serves as a reminder of the critical importance of adherence to FTT directions and of the obligation on practitioners to implement robust systems to ensure timely compliance.

Inadequate reasons

In Medpro Healthcare Ltd & Another v HMRC [2025] UKUT 255 (TCC), the Upper Tribunal (UT) considered an appeal against the FTT’s refusal to admit late appeals against PLNs and VAT penalties under section 83G, VATA. Although the FTT’s decision was, somewhat unusually, not published, it appears that the taxpayers had relied on ill-health as the reason for their delay. The FTT nevertheless concluded that the taxpayers had failed to satisfy the criteria for permitting late appeals, applying the three stage test in Martland.

Before the UT, the taxpayers contended, amongst other things, that: 

• the FTT had provided insufficient reasons for its decision;
• the FTT had failed to consider the third stage of the Martland test (namely, the overall balancing exercise); and
• Martland had improperly embedded within the discretionary power under section 83G(6), VATA, the ex ante additional weight to be attached to the two factors under CPR 3.9(1), namely, the need for litigation to be conducted efficiently and at a proportionate cost, and the need to enforce compliance with rules, practice directions and orders.

The UT upheld the taxpayers' appeal on all grounds. In terms of the FTT's approach, the UT observed that there were a number of problems with the FTT's written decision, including:

• Much of the first 109 paragraphs of the decision were cut and pasted from the parties' written submissions without any acknowledgement that most of the decision was not in the FTT’s own words or its own consideration of the evidence and the authorities.
• There was an asymmetric use of the written submissions, with the losing side's submissions not set out or dealt with in the decision.
• There were occasional, but only very brief, references to the oral evidence, such that the UT could not be sure that the oral evidence was properly taken into account by the FTT.
• The FTT included what purported to be a quotation from a Court of Appeal decision, when in fact it came from a decision of the UT. 

In assessing the parties' arguments on sufficiency of reasons, the UT noted that the requirement for a tribunal or court to give reasons for its decision was a function of due process, and therefore of justice. The UT noted the rationale for the duty had a number of aspects, including fairness, allowing the losing party to understand whether there had been an appealable error of law, and acting as a constraint on the judiciary's exercise of power. A failure to give reasons was therefore a free-standing ground of appeal, and a failure to give reasons for a decision, or material part of a decision, itself constitutes a good ground of appeal. In concluding that the FTT's decision did not contain adequate reasons, the UT found that the dispositive parts of the decision were not reasoned, and did not identify the route by which the FTT determined that the taxpayers' applications to bring late appeals were refused. 

In light of the UT's finding that the FTT's reasons were inadequate, the UT could not be satisfied that the FTT had carried out the balancing exercise required by Martland, largely because the FTT had not explained its reasoning. The UT noted that the dispositive section of the FTT's decision did not specifically refer to stage 3 of the Martland test, there was no reference to the balancing exercise at stage 3, or to taking into account all the circumstances of the case. Further, and although not a ground of appeal raised by the taxpayers, the UT observed that it was also in some doubt as to what consideration the FTT gave to stage 2 of the Martland test (establishing the reason, or reasons, why the default occurred), noting that a failure properly to consider stage 2 was a strong indicator that the FTT did not properly consider stage 3 of the Martland test. Overall, the UT determined that the FTT’s approach meant that it disabled itself from conducting a meaningful stage 3 assessment.

The UT was, however, divided on the wider challenge to Martland itself. By casting vote, it accepted the taxpayers’ argument that paragraph [45] of Martland had wrongly fettered the FTT’s discretion by elevating efficiency, proportionality and compliance, above other factors in the balancing exercise to be carried out by the FTT, when considering an application for a late appeal. In that regard, the UT observed that it could not, by way of binding guidance, direct the FTT as to what weight to place on particular factors when it is considering whether to extend time for appealing. Given the force of the point as advanced by the taxpayers, and the frequency with which the FTT is required to apply the Martland test, the UT considered it was vital that this area of the law was clearly stated. To that end, the UT concluded that the practice adopted in the FTT with regard to Martland and the power in section 83G(6), VATA, was clearly wrong. 

The decision in Medpro is significant in two respects. First, it reinforces the need for FTT decisions to be clear, reasoned and complete. Given the time and costs involved in FTT proceedings, and the fact that appeals therefrom may only be brought on points of law, parties must be left in no doubt about the FTT’s findings and the reasoning behind them. Medpro therefore sets a clear benchmark for the standard of decision-making expected of FTT judges. But perhaps of more importance, is the UT's departure from a key aspect of the Martland test. Martland has imposed an exceptionally high bar for late appeals. As we have noted in previous Reviews, the application of Martland has led the FTT to refuse applications even in what appear to be compelling circumstances. Medpro clarifies that the discretion under section 83G(6) is a genuinely holistic one: the FTT must weigh all the circumstances, without according predetermined priority to particular factors such as efficiency or compliance. 

While the threshold for a late appeal is likely to remain high, taxpayers will view Medpro as a welcome recalibration that restores some level of balance and fairness to FTT procedure.

Late appeals after Medpro

In Remiglio di Lellio v HMRC [2025] UKFTT 1071 (TC), the taxpayer sought permission to appeal assessments, penalties and PLNs between six and seven years late. The taxpayer contended that the reason for the delay was that he and his agent believed that appeals had been made, and that he had been diagnosed with cancer around the time some of the assessments had been issued and he had requested HMRC liaise with his agent because of the time and energy required to deal with his medical treatment. 

The FTT refused the taxpayer's application. Applying stage 1 of the Martland test, the FTT found that the taxpayer's delay was serious and significant. In considering the reasons for the taxpayer's delay under stage 2 of the Martland test, the FTT concluded that the taxpayer's belief that appeals had been made was both wrong and unreasonable, given HMRC had repeatedly told him that there were no open appeals. Rather, the FTT determined that, in the face of HMRC's assertions, a reasonable taxpayer would have asked their agent to show them a copy of the appeals as well as copies of the related correspondence from HMRC. The FTT did not accept that the taxpayer's particular circumstances, namely, his serious illness, prevented him from asking his agent for that information. In particular, the FTT noted that, notwithstanding his medical treatment, the taxpayer continued to work in his restaurant and corresponded with HMRC on a number of occasions. Finally, in applying the balancing exercise in stage 3 of the Martland test, the FTT noted that, in light of Medpro, it should not give any special weight to the need for litigation to be conducted efficiently and at proportionate cost, or to the need to enforce compliance with rules, practice directions and orders. The result of that balancing exercise was that, in the FTT's view, the range of factors against allowing late appeals significantly outweighed those in favour, and the application was therefore refused.     

The extent to which Medpro will affect taxpayers’ prospects of success in late appeal applications remains uncertain. In Remiglio, the taxpayer faced particularly unfavourable facts, compounded by a substantial delay, making the case especially difficult to advance. While the decision may reinforce the perception that taxpayers continue to face significant obstacles in persuading the FTT to admit late appeals, the FTT is bound by Medpro and the guidance provided by the UT and if it is ignored or misapplied by the FTT, a taxpayer is likely to receive a favourable reception on appeal to the UT.

Mark Campbell was living at his parents’ home, under an employment contract to provide care for his father, when he bought and sold four residential properties in quick succession between 2010 and 2016. He did not notify HMRC of any tax liability. 

HMRC became aware of the final disposal in the 2015/16 tax year and requested that Mr Campbell file a tax return. 

In response to this request, Mr Campbell submitted a return claiming PPR relief under section 222, Taxation of Chargeable Gains Act 1992 (TCGA), on the basis he was residing in job-related accommodation and the job-related accommodation exemption in section 222(8), TCGA, applied. 

HMRC opened an enquiry into the return and later issued a closure notice under section 28A, Taxes Management Act 1970 (TMA), rejecting the PPR relief claim. 

HMRC also issued discovery assessments to Mr Campbell, under sections 29, TMA, for the earlier disposals made in the 2012/13 and 2014/15 tax years. 

The closure notice and discovery assessments were issued on the basis that Mr Campbell was either carrying on a trade and liable to income tax on the profits or, alternatively, liable to capital gains tax (CGT) with no entitlement to PPR relief. 

Penalties for deliberate failure to notify were also imposed under Schedule 41, Finance Act 2008. 

Mr Campbell appealed to the FTT.

FTT decision

The appeals were dismissed. 

The FTT found that Mr Campbell’s activities did not amount to trading, so he was not liable to income tax in relation to the property disposals. However, the FTT held that PPR relief was not available, as none of the properties had been Mr Campbell's only or main residence, and his parents’ home did not qualify as job-related accommodation. The FTT also upheld the validity of the discovery assessments and closure notice, and concluded that the penalties that had been issued for failure to notify were appropriate, based on deliberate behaviour.

A copy of the FTT's decision can be viewed here.

Mr Campbell appealed to the Upper Tribunal (UT).

UT decision

The appeals were allowed in part.

Mr Campbell argued that the FTT had erred in law in its treatment of PPR relief, the validity of the discovery assessments, and the finding of deliberate behaviour. 

The UT held that the FTT had wrongly applied the job-related accommodation test, failed to consider Mr Campbell’s intentions at the time of acquiring the properties, and improperly transposed findings across the disposals. These were material errors of law, and the FTT’s decision on PPR relief was set aside. 

The UT also concluded that the FTT had made a material error of law in relation to the penalties, both in finding that Mr Campbell's behaviour was deliberate and in failing to consider whether HMRC’s penalty decisions were correct or should be mitigated. The penalties decision was therefore set aside.

However, the UT upheld the FTT’s conclusion that the discovery assessments were valid. 

The case was remitted to a differently constituted FTT to reconsider the outstanding issues.

A copy of the UT's decision can be viewed here.

Differently constituted FTT decision

The FTT found that Mr Campbell was entitled to full PPR relief on three of the four properties, based on his intention at acquisition to occupy each as his only or main residence. With regard to the fourth property, PPR relief was allowed for 19 out of 27 months of ownership - one month based on intention to occupy, and 18 months under the statutory deemed occupation rule in section 223(2), TCGA. The remaining gain was fully covered by Mr Campbell’s annual exemption, so no CGT was payable. 

Mr Campbell's appeal against HMRC's closure notice, discovery assessments, and penalties was therefore ultimately allowed.

A copy of the FTT's final decision can be viewed here. 

Comment

This case provides some important practical lessons for taxpayers and their advisers in relation to PPR relief claims, particularly, where a taxpayer has multiple properties or unusual living arrangements, such as living with family members due to caregiving responsibilities. 

The UT confirmed that a taxpayer’s intention at the time of acquisition is critical in establishing whether a property was their only or main residence. Taxpayers should ensure they retain contemporaneous evidence, such as correspondence, property searches or personal notes, to support their intentions.

The FTT also clarified the correct application of the job-related accommodation rules. Accommodation must be occupied by reason of employment, not simply due to convenience or family ties. Taxpayers should assess the necessity of the living arrangement and its connection to the taxpayer’s duties, rather than simply relying on general assumptions.

Finally, with regard to penalties, the UT made it clear that findings of deliberate behaviour must be supported by clear and specific reasoning from HMRC. A generic conclusion will not suffice.

Mr Candy initially incurred a SDLT liability of £1.92m, arising from the substantial performance of a contracted-out lease in relation to a property known as Gordon House (a substantial house with associated buildings and a garden). This liability was declared in a land transaction return and paid. Subsequently, the contract was extinguished through novation and was not carried into effect. This occurred after the expiry of the standard 12-month period allowed for amending a return.

Mr Candy then made two alternative claims for SDLT relief. One under section 44(9), Finance Act 2003 (the section 44 claim) and another for overpayment relief under paragraph 34, Schedule 10, Finance Act 2003 (the overpayment relief claim). 

Different statutory time limits apply to each claim. A claim under section 44 must be made by amending the land transaction return within 12 months of its filing date, whereas a claim under paragraph 34 must be submitted within four years of the transaction date and must not be made by way of a land transaction return.

The section 44 claim was submitted to HMRC outside the 12-month amendment window and the overpayment relief claim was made within the four-year time limit. It was common ground between the parties that had the section 44 claim been made within time, SDLT relief would have been available to Mr Candy.

In earlier proceedings concerning the section 44 claim, the Court of Appeal had held that the claim was invalid due to it being time-barred (Christian Peter Candy v HMRC [2022] EWCA Civ 144). Following that decision, the stay which had been in place in relation to the alternative overpayment relief claim was lifted, and it was that claim which was considered by the FTT in this decision.

FTT decision 

The appeal was allowed. 

The question for determination by the FTT was whether overpayment relief under paragraph 34 was available in circumstances where SDLT would have been repayable under section 44(9), if a claim under that provision had been brought in time.

HMRC argued that the overpayment relief claim should fail because section 44(9) provides an alternative statutory remedy which prevents paragraph 34 from applying. In effect, HMRC argued that section 44 constitutes an exclusive remedy, and allowing a claim under paragraph 34 would undermine the statutory time limit imposed by section 44(9).

Mr Candy contended that paragraph 34 operates as an independent provision, intended as a 'backstop' remedy where relief is not available under any other statutory provision.

In the view of the FTT, Mr Candy was entitled to bring the overpayment relief claim and was not prevented in doing so by the operation of section 44(9). 

In reaching its conclusion, the FTT considered the legislation and the Explanatory Notes which introduced paragraph 34 as well as HMRC's Technical Note which, although not having the same weight, helped put the provision in context. 

The FTT concluded that the purpose of paragraph 34 is to provide a final statutory remedy when no other remedy exists and is a last resort or back-stop, where all other statutory relief provisions have been exhausted. The FTT noted that paragraph 34 had undergone legislative change which widened its application from covering overpayments in cases of mistake to covering, subject to certain limitations, any situation in which a person overpays or is over-assessed an amount in respect of SDLT.  In its view, section 44(9) does not prevent SDLT relief being claimed under paragraph 34, if the claimant satisfies the conditions referred to in that paragraph. The FTT considered that such an interpretation did not undermine the operation of section 44(9) because such an interpretation did not require a divergence from the natural meaning of the statutory language and was consistent with the architecture of the SDLT framework and the purpose of the legislation, as indicated in the Explanatory Notes and Technical Note. 

Comment

The FTT's interpretation of paragraph 34 will be welcomed by taxpayers who are in a similar position to Mr Candy and who are seeking to claim SDLT relief outside the 12-month amendment window.

The FTT's analysis of paragraph 34 may also have broader application to taxpayers who are seeking overpayment relief in relation to other taxes.

The decision can be viewed here.

Ms Annette Tonkin was the sole director of, and shareholder in, Resource (Marketing Research) Ltd (RMS), a market research company. In 2012, Ms Tonkin was advised to enter into a tax avoidance arrangement that was intended to enable her to receive a bonus free from income tax and national insurance contributions (NICs).

At a high level, the arrangement involved the following steps:

1. A Guernsey-resident trust was set up, with RMS as settlor and its employees as beneficiaries.
2. RMS made an initial contribution to the trust of £100.
3. RMS then borrowed £740,000 from a separate company called Havelet Finance Ltd (HFL).
4. RMS transferred the £740,000, and the trust transferred the £100, to a separate company called International Employment Services Ltd (IES).
5. IES used the money it received to buy gold which it held as nominee for Ms Tonkin.
6. IES immediately sold the gold and transferred the £740,000 to HFL and the £100 to Ms Tonkin.
7. Ms Tonkin promised to pay £740,100 to the trust within 10 years.

The purported result of this arrangement was that Ms Tonkin had repaid RMS's debt to HFL and, as such, RMS now owed Ms Tonkin £740,000. This amount was credited to her director's loan account, and she was able to draw down from it free from income tax and NICs. 

HMRC opened an enquiry into RMS's tax return and subsequently issued closure notices on the basis that the arrangement should properly be construed as the payment of earnings to Ms Tonkin in the form of gold (i.e. money's worth), such that income tax and NICs were due.

HMRC also determined that the arrangement created an IHT liability under section 94, IHTA 1984.

The effect of section 94 is that where a close company makes a transfer of value, IHT is charged as if that transfer of value was made by the participators in the close company. For these purposes, the value transferred is apportioned between the participators according to their respective rights and interests in the company. As a result of section 3A(6), IHTA 1984, this deemed transfer of value is not a potentially exempt transfer and gives rise to an immediate charge to IHT.

Ms Tonkin accepted the income tax and NICs liability but appealed the IHT determination. 

FTT's decision

The appeal was allowed.

The FTT considered two issues:

1. Whether the transfer of value was "attributable to a payment or transfer of assets to any person which falls to be taken into account in computing that person’s profits or gains or losses for the purposes of income tax or corporation tax” (section 94(2)(a), IHTA 1984). If it was, then the transfer of value would not be apportioned to Ms Tonkin.
2. Whether the recipient of the transfer of value was Ms Tonkin (as she contended) or the trust (as HMRC contended).

On the first issue, the FTT held that the term "profits or gains" should include a payment of employment income. By virtue of the transfer being deemed employment income, for the purpose of the income tax charge, it should not also give rise to an IHT charge.

With regard to the second issue, the FTT again agreed with Ms Tonkin and highlighted the inconsistency in HMRC's position, which appeared to view the transfer as a payment of earnings to an employee for income tax purposes, but as a transfer to the trust for IHT purposes.

Comment

This is a significant victory for the taxpayer. The decision considers fundamental issues of double taxation and the ability of HMRC to take different approaches in the context of different taxes. The decision is likely to be welcomed by the large number of taxpayers who implemented EBT arrangements and in respect of which HMRC wish to impose an IHT liability. 

The decision can be viewed here.

The Ingenious litigation is one of the most high value and protracted tax disputes in recent years. It centred on film investment partnerships and the availability of sideways loss relief and the tax treatment of certain film rights. The litigation encompassed appeal hearings before the FTT, the Upper Tribunal and the Court of Appeal.

In Ingenious Games LLP & Others v HMRC [2021] EWCA Civ 1180, the Court of Appeal settled many of the main issues in dispute, ruling in favour of the taxpayers on issues such as whether the LLPs were carrying on a trade and whether that trade was with a view to profit.

Following the Court of Appeal's judgment, the parties engaged in detailed negotiations in respect of the tax consequences of the ruling for Inside Track 3 LLP and Ingenious Film Partners 2 LLP (the LLPs). One outstanding question was the classification of the film rights acquired by the LLPs: were they intangible fixed assets for the purposes of Part 8 of the CTA? That classification is material for the availability of amortisation / depreciation, impairment, and related reliefs for the corporate partners.

The LLPs contended that the FTT's earlier decision had already decided that the rights were intangible fixed assets, and because HMRC did not appeal that aspect of the FTT's decision, the issue was res judicata (or at least final) and should not be reopened. HMRC argued that the FTT's earlier decision did not decide the point, and that it remained open to be argued. 

As the parties were unable to reach agreement, this discrete issue came before the FTT for determination.  

FTT's decision

The FTT concluded that its earlier decision had decided that the relevant rights were intangible fixed assets. 

In the view of the FTT, the language, structure and reasoning of its earlier decision demonstrated that classification was addressed and resolved in that appeal. As HMRC did not appeal that issue at the relevant time, HMRC was precluded from arguing it now. The failure to appeal meant HMRC could not treat the earlier decision on this issue as tentative or unfinished.

Further, the FTT concluded that interpretation of its earlier decision must rely on its textual content, it was not permissible for a party to refer to external materials such as transcripts, expert reports, or pleadings. Barring ambiguity, auxiliary material should not be used to undermine what the earlier decision said on its face. The FTT should not reopen the factual or expert evidence and arguments that were before the FTT when arriving at its earlier decision. The FTT said that what was necessary was to ascertain what was decided previously, not to re-decide it.

Comment

For HMRC and taxpayers alike, this decision reinforces the importance of paying attention at every stay of the appeal process, especially with regard to appeal deadlines in complex and multi-faceted tax litigation. Points left unappealed cannot be revisited. When appealing a decision of the tax tribunals, it is important to ensure that all issues are carefully considered and taken on appeal if necessary, in order to avoid any later ambiguity arising. In complex multi-stage disputes, tax advisers need to be alert to which points have been expressly, or implicitly, decided and which issues remain to be determined. 

This decision enhances the principle of finality and certainty in tax litigation. Once an issue is decided and unchallenged on appeal, it should no longer be vulnerable to fresh attack.

The FTT's decision can be viewed here.

Setting the table: a recipe for dispute  

For many years, HMRC accepted that alcoholic products intended exclusively for culinary use – such as cooking wines and fortified stocks – could be classified as 'foodstuffs' for the purposes of the alcohol duty exemptions under the relevant Finance Acts and EU directives, namely, Article 27(1)(f) of Council Directive 92/83/EEC of 19 October 1992 on the harmonization of the structures of excise duties on alcohol and alcoholic beverages (the Directive), which was transposed into UK law under section 4(2)(c), Finance Act 1995 (FA 1995) (repealed and now found in section 75(3), Finance (No 2) Act 2023). Specifically, under HMRC's Excise Notice 41, manufacturers could rely on Alcoholic Ingredients Relief (AIR). Under AIR, excise duty would not apply to products that met the definition of 'eligible article'. The definition of eligible article was based on the wording in section 4(2)(c), FA 1995, and included 'other foods for human consumption (excluding beverages) containing no more than 5 litres of alcohol per 100kg of the final product'. As such, excise duty charged on cooking wine (as well as spirits, beer, cider, etc) could be reclaimed.

At the start of its business in 1998, GCL liaised with HMRC to get clarity and certainty on its excise duty position and reached an agreement with HMRC which allowed it to follow a simpler approach by not having to pay excise duty on its cooking alcohol products and thereby avoided the need to have to reclaim the duty at a later date, provided the products were clearly labelled, denatured where required, and supplied for use in food production.

However, in 2017, HMRC initiated a significant policy reassessment. It   took the view that cooking wines – despite being intended solely for use in food preparation – did not automatically qualify as 'foodstuffs' and insisted that there had to be clear evidence that they had been used as an ingredient in a prepared food. In practical terms, under this interpretation, AIR could only be claimed by the person using the cooking alcohol in their food product. This marked a significant departure from HMRC's previous practice and reflected a narrow interpretation of the exemption under Article 27(1)(f) of the Directive.

On the back of this reinterpretation, HMRC raised assessments against GCL between 2019 and 2022, in the amount of £9,236,153. The basis of the assessments was that GCL had not paid excise duty on cooking alcohols that, in HMRC’s view, were not eligible for AIR or, alternatively, remained dutiable unless and until proof could be provided that they had been used in food manufacturing. HMRC argued that cooking alcohols were not 'foodstuffs' and, if they were, the exemption did not apply at the point of production or distribution, but only after the final use had been verified.

This approach created a significant administrative burden and legal uncertainty for GCL and similar food sector businesses. If HMRC's position was accepted, cooking alcohol manufacturers would have to consider either absorbing the excise duty cost or implement a new,  complex system for verifying and evidencing customer end-use. This change in position also raised broader questions about the consistency and fairness of HMRC’s policy-making, particularly when compared with long-standing interpretations of both EU and domestic law. These issues and GCL's interpretation that it was rightfully exempt from excise duty, led to it appealing the assessments to the FTT.

The main course: FTT decision and the meaning of 'foodstuff'

In the appeal before the FTT, the legal issues centred on Article 27(1)(f) of the Directive, which provides a mandatory exemption from excise duty for products 'used directly or as a constituent of semi-finished products for the production of foodstuffs provided that the alcoholic content does not exceed 5 litres per 100kg' for products other than chocolate, and the UK's version of this in section 4(2)(c), FA 1995.

HMRC argued that the exemption from excise duty under the section 4(2)(c) did not apply. In its view, cooking alcohol was not a food and the word 'foodstuffs' in Article 27(1)(f), excluded products that are liquid, and only included solid or semi-solid foodstuffs. HMRC also argued that if the cooking alcohols met the conditions for the exemption, they would only become exempt when actually used in the cooking of food.

GCL argued that the cooking alcohol products were exempt from excise duty and met the conditions in section 4(2)(c). GCL argued its products, which were rendered unfit for drinking and classified under Combined Nomenclature (CN) code 2103, were 'foodstuffs' and were exempt at the point of manufacture. In GCL's view, the word 'foodstuffs', in Article 27(1)(f), excluded beverages, but not liquid foodstuffs.

The FTT allowed GCL's appeal and quashed the assessments. The FTT found that the cooking alcohol products were 'foodstuffs' and 'food for human consumption', and that they were therefore exempt from excise duty at the time of their manufacture.

In reaching its decision, the FTT considered that the Directive did not define 'foodstuffs', nor did it refer in this respect to the national law of the Member States. In the circumstances, the term 'foodstuffs' was to be interpreted in accordance with the usual meaning of the word in everyday language, taking into account the legislative context in which it occurs and the purposes of the rules of which it is part.

In its analysis of the meaning of 'foodstuffs', the FTT considered the object and purpose of the Directive. Notably, it commented that the overall purpose of the Directive was not to combat evasion or abuse, as was suggested by HMRC, but rather to achieve harmonisation by having common definitions for all products concerned, to achieve the free movement of goods and to neutralise the impact of excise duties on alcohol used as an intermediate product in other commercial or industrial products. The FTT also considered the text of the Directive as a whole and the evidence of the legislative history of the Directive and found no support for HMRC's interpretation. Further, HMRC's interpretation was not supported by the UK's own domestic legislation and the FTT pointed out that there is no reference to 'liquids' or 'solids' in the relevant provisions of the FA 1995 while, on the other hand, there is wording in section 4(8), FA 1995, which supported GCL because it stated that 'references in this section to chocolates or food do not include references to any beverages', suggesting that the relevant exclusion was in relation to beverages. Crucially, the FTT found that GCL's interpretation of 'foodstuffs' was supported by the Directive and rejected HMRC's argument that the word 'foodstuffs' in Article 27(1)(f), excluded products that are liquid and only included solid or semi-solid foodstuffs.

In allowing the appeal, the FTT also considered the case law of the Court of Justice of the European Union (CJEU) applying Article 27(1)(f) of the Directive, the relevant UK domestic case law, and Skatteverket v Gourmet Classic Ltd (Case C‑458/06), a decision of the Swedish Supreme Administrative Court, relevant to the appeal.

In Skatteverket, the issue was whether the alcohol contained in cooking wine was to be classified as ethyl alcohol, as referred to in Article 20 of the relevant Directive (92/83). The CJEU said that the answer to the question that had been referred to it was that 'the alcohol contained in cooking wine is, if it has an alcoholic strength exceeding 1.2% by volume, to be classified as ethyl alcohol …'. While this was not directly relevant in determining the issue in GCL's appeal, the FTT considered that the case and the Advocate General's (AG) opinion provided helpful analysis. The AG recorded that the alcoholic strength of the appellant’s cooking wine in issue in that case was 4.5 litres of pure alcohol per 100 kilograms of finished product, that is to say, within the range to qualify for the exemption under Article 27(1)(f) and that the position of the Swedish tax administration was that no excise duty was to be levied on the cooking wine because it fell within the exemption in the provision of the Swedish legislation transposing Article 27(1)(f). Additionally, it was clearly recorded in the judgment itself that the 'Skatterättsnämnden came to the conclusion that although cooking wine is, in principle, subject to excise duty, since it is a foodstuff it is exempt from such duty under Article 27(1)(f) of Directive 92/83'.

Turning to the domestic case law, the FTT considered the Répertoire Culinaire Ltd v Revenue & Customs line of cases and the related preliminary reference to the CJEU. While the cases dealt with matters that were not directly relevant to GCL, they provided helpful observations. The cases illustrated HMRC's previous approach was that it accepted that cooking wines with a strength of 5% abv or less fell within the exemption in Article 27(1)(f) of the Directive. The FTT observed that the line of cases also did not assist HMRC in its interpretation because it was unlikely that the cases sought to address the situation of cooking wines with a strength of 5% abv or less, which was relevant to GCL, as these cases concerned cooking alcohols with a strength greater than 5%. Further, according to the FTT, if it were possible to infer any opinion on the issues concerning GCL, it would be that cooking wines are 'foodstuffs' for the purposes of Article 27(1)(f). The FTT also dismissed HMRC's reliance on Revenue & Customs v Asiana Ltd [2014] UKUT 489 (TCC), on the basis that it dealt with cooking wine with an alcoholic content in excess of 5 litres per 100 kilograms, which was not relevant to GCL's appeal.

The FTT held that the cooking alcohol products in issue were foodstuffs because they are not beverages - they are unsuitable for consumption as beverages – and are not intended for such consumption. Further, they contain nutrients and are used as an ingredient in the preparation of final food items, which are consumed by humans for the purpose of obtaining the nutrients in the final food item, including the nutrients in the cooking alcohol products.

HMRC has chosen not to appeal the FTT's decision. 

Sweet dessert: HMRC's policy response

In the wake of the FTT's decision, HMRC published, on 30 June 2025, a new Brief and revised Excise Notice 41. The updated guidance now explicitly recognises that cooking alcohols, provided they do not exceed 5% abv, are 'food' and qualify for exemption at the point of manufacture and import.

Excise Notice 41, concerning AIR, makes it clear that cooking alcohols fall within the definition of 'eligible article' benefitting from relief from excise duty and states that:

'Cooking alcohols are treated as food and will therefore qualify as an eligible article if their strength does not exceed 5% ABV. These alcohols are produced for use in cooking and consist of an alcoholic product to which salt, or a combination of several seasonings has been added, rendering the product unsuitable for consumption as a beverage. These products generally contain at least 5 grams of salt per litre of product and are labelled for use in cooking.'

This provides clarity and reflects the concept of foodstuffs, in the context of excise duty, which is consistent with the Directive and its intended object and purpose. In addition to cooking alcohol manufacturers, this guidance may be relevant to other businesses in the food industry that need to consider the meaning of 'foodstuffs'.   

Comment

The case highlights the importance of scrutinising, and where appropriate, challenging HMRC's interpretation of the law, especially in circumstances where HMRC has changed its position without a sound legal basis. The FTT's decision highlights the flaws with HMRC's narrow interpretation of the word foodstuffs, which excluded liquid products, and the legal uncertainty its interpretation would create for businesses in applying the Directive. A key takeaway for taxpayers is to closely analyse the relevant legislation in classification cases, including the potential application of any reliefs or exemptions. 

The decision can be viewed here.

CIS-Pay Ltd's (the Appellant) disclosure application related to HMRC's decision to deny input tax totalling £8,192,686, in relation to supplies connected with a mini-umbrella company arrangement (the VAT Issue) and a related penalty of £2,457,805, issued under section 69C, Value Added Tax Act 1994 (VATA) (the Penalty Issue). 

HMRC relied on Axel Kittel v Belgian State and Belgian State v Recolta Recyling SPRL (C-439/04 and C440/04), in which the court confirmed that where a taxable person knew, or should have known, that it was participating in a transaction connected with fraudulent evasion of VAT, that taxable person's right to deduct input tax should be refused. 

The Appellant applied to the FTT, seeking disclosure of all material within HMRC's possession that might assist the Appellant's case or undermine HMRC's case, rather than the ordinary disclosure applicable in FTT proceedings (i.e. a party is normally only required to disclose documents that it intends to rely upon in accordance with Rule 27 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009).  

FTT decision 

The application was granted.  

In determining the application, the FTT noted that it was common ground between the parties that the Penalty Issue related to a criminal charge, within the meaning of Article 6 of the European Convention on Human Rights (Article 6). Article 6 provides for the right to a fair trial, of which disclosure of evidence is an integral part. 

The FTT confirmed that Article 6 rights are fundamental rights to be enjoyed by all those who are the subject of a criminal charge and that such rights cannot be removed or diminished simply because another matter, in this case the VAT Issue, does not have Article 6 protection and is being heard concurrently. The FTT also rejected HMRC's suggestion that where there is overlap between criminal charges and other matters, Article 6 does not apply to the areas of overlap. 

With regard to the fairness between the parties, the FTT considered whether the disclosure would give the Appellant an advantage in relation to the VAT Issue. The FTT agreed with the Appellant that if there was such a collateral benefit, then so be it.  

The FTT also considered whether granting the application would cause prejudice to HMRC in other ways such as the time and expense that might be involved with the additional level of disclosure as well as whether the ordinary FTT procedure and disclosure under Rule 27 was sufficient. Overall, the FTT concluded that it would be in the interests of justice to grant the application.   

Comment 

This decision highlights the importance that the FTT attaches to protecting procedural fairness in hearings involving penalties that are considered criminal charges due to their severity and punitive nature.

The FTT recognised that although the underlying tax appeal (the VAT Issue) fell outside Article 6 protections, the Penalty Issue constituted a criminal charge engaging Article 6 rights, including disclosure obligations. It rejected HMRC's argument that Article 6 rights are limited only to penalty specific conditions and do not extend to overlapping issues with the substantive appeal.   

The decision can be viewed here.

Roger Joye and David Sumners filed self assessment tax returns (SATRs) for tax years 2016/17 and 2017/18, respectively, each claiming TSR, which applies when an individual realises the benefit of a life assurance policy. It recognises that the accumulated growth of the policy has taken place over several years and it would be unfair to tax the whole gain in one year because it may push the individual into the higher rate or additional rate tax bands for that year. The amount of TSR is broadly the difference between the tax payable on the full gain and the grossed-up tax payable on annualised 'slices' of the gain.

Mr Joye and Mr Sumners had used HMRC's tax calculator program to calculate the available TSR, but subsequently realised that the calculations were incorrect. They made overpayment relief claims in the amounts of £55,201.63, for Mr Joyce, and £40,758, for Mr Sumners.

HMRC opened enquiries into the overpayment relief claims and subsequently issued closure notices to Mr Joyce and Mr Sumners, denying entitlement to the increased relief. The closure notices were appealed to the FTT.

FTT's decision

The appeals were allowed.

HMRC accepted that its tax calculator program was incorrect. In fact, it had been determined by the FTT in Marina Silver v HMRC [2019] UKFTT 0263 (TC), that HMRC's calculations were not in accordance with the legislation due to the use of a shortcut which, in some instances, did not take into account the taxpayer's personal allowance. Rather than apply the personal allowance to each annualised slice of the gain, HMRC's calculator assumed that, if the taxpayer's income in the year the gain was realised meant the personal allowance was reduced or removed, that should follow for every year the TSR applied.

HMRC sought to argue that, even if its calculation methodology was incorrect, it was the "practice generally prevailing" (PGP) at the time the taxpayers' SATRs were filed and therefore HMRC was not liable to give effect to the overpayment relief claims. The FTT confirmed that, as HMRC was seeking to rely on a PGP argument, the burden of proof was on it to establish that a PGP existed.

In HMRC v Household Estate Agents Ltd [2007] EWHC 1684 (CH), Henderson J summarised PGP as a practice that is: "relatively long-established, readily ascertainable by interested parties, and accepted by HMRC and taxpayers' advisers alike".

Mr Joyce and Mr Sumners were able to provide a significant amount of evidence which showed that HMRC's methodology was not accepted by taxpayers' advisers and the FTT therefore rejected HMRC's PGP argument.

Comment

This decision provides helpful guidance as to how the FTT is likely to approach the concept of PGP, a concept which is referred to in several places in the tax legislation. 

The taxpayers were successful on this occasion because they were able to provide the FTT with both publicly available articles criticising HMRC's practice, and contemporary correspondence, to demonstrate that this criticism was widespread among professional advisers.

The decision can be viewed here.

Hugh Edward Mark Osmond and Matthew Charles Allen (the Appellants) were entrepreneurs who had made various investments over a number of years. In particular, they had subscribed for shares in  Xercise Ltd (XL), in 1996 and 1998 under the EIS (which enables investors to sell their EIS shares free of Capital Gains Tax (CGT) provided certain conditions are met, including that the shares have been held for at least three years).

The business of XL was unsuccessful and was sold in 2002, but XL itself was retained by the Appellants because the shares they held in the company qualified for EIS relief. The company was then subsequently used to invest in another business, the Pearl Life Assurance and Pension Group. All of these transactions were carefully structured because the Appellants wanted to retain the CGT relief that attached to their shares in XL. The Pearl business was successful and  by the mid-2010s, the Appellants were holding CGT-exempt shares that had increased substantially in value.

The Appellants became concerned that the benefit of EIS relief might be removed and they would not then be able to obtain relief on their gains. Accordingly, in order to crystallise their gains, the Appellants entered into a share buyback transaction, for consideration no greater than a return of capital, in order to crystallise the EIS disposal relief on their shares. As a result, no income tax was payable, and no CGT was payable owing to the EIS disposal relief. The disposals were included on their 2014/15 tax returns, and EIS disposal relief claimed.

HMRC opened enquiries into the Appellants' tax returns in January 2017 and closed them without amendment in September 2017.

On 31 March 2021, HMRC issued counteraction notices and assessments under the Transactions in Securities (TiS) legislation, contained in Income Tax Act 2007 (ITA 2007).

The Appellants appealed to the FTT. 

FTT's decision

The appeals were dismissed

Central to the case was the determination that one of the main purposes of the Appellants being party to TiS, was to obtain an income tax advantage. The reasoning of the FTT was surprising to most observers, as it applied the main purpose test in a way that effectively ignored the subjective intentions of the parties. 

The FTT concluded that although the transaction was not driven by a desire to avoid income tax, the primary purpose was to crystallise the EIS relief, which, under the legislation, amounted to a main purpose of obtaining an income tax advantage. Therefore, the TiS provisions applied, and the amounts received were taxable as income.

In light of these findings, the FTT dismissed the Appellants' appeals, upholding HMRC’s position that the TiS legislation applied and that the amounts received should be taxed as income rather than exempt capital gains. The Appellants appealed to the UT. 

The FTT's decision can be viewed here. 

UT's decision 

The appeal was allowed.

The unallowable purpose element of the FTT's decision was the only point for determination before the UT.

In the view of the UT, the FTT had erred in law by treating the Appellants' intention to crystallise EIS relief as equivalent to having a main purpose of obtaining an income tax advantage under the TiS rules.

The UT confirmed that there is a critical legal distinction between a purpose and an effect. While the share buyback in question clearly resulted in an income tax advantage (as the gain was exempt from CGT), this did not mean that securing that advantage was a main purpose of the transaction. The UT relied on the principles established by the Court of Appeal in BlackRock HoldCo 5 v HMRC [2024] STC 740, which explicitly recognised that purpose should be distinguished from effect, emphasising that even when a tax outcome is inevitable, it does not follow that it was deliberately sought. In the instant case, the Appellants' aim was to "bank" the CGT relief available under EIS, not to extract profits in a tax-efficient way.

Importantly, the UT rejected HMRC’s argument that the TiS rules should treat any CGT exemption as a proxy for an income tax motive. The UT highlighted that section 687, ITA 2007, does not create a deeming provision that would automatically treat a capital-focused transaction as one with an income tax avoidance purpose. The UT noted that HMRC’s own consultation documents during the 2010 legislative changes, suggested that the TiS rules were not intended to apply where only capital gains reliefs were involved.

The UT also agreed with the FTT that the Appellants were motivated solely by a desire to crystallise EIS relief before any potential legislative changes. The UT agreed that the evidence pointed to a capital motive, not an income extraction strategy.

In conclusion, the UT found that the TiS rules did not apply because the Appellants’ main purpose was to secure a CGT relief, not to obtain an income tax advantage. 

Comment

This decision has prevented HMRC from extending the scope of the TiS regime beyond its intended purpose and reinforces the importance of examining a taxpayer's actual subjective intention - something the UT noted aligns with how practitioners have long understood the rules to operate.

The decision also serves as a reminder that taxpayers should clearly document their commercial intentions at the time the relevant transaction is entered into.

It will be interesting to see if HMRC seek to appeal this decision to the Court of Appeal. 

The UT's decision can be viewed here.

Who can use the voluntary repayment scheme?

The scheme can be used by anyone who received financial support during the pandemic, including through the Coronavirus Job Retention Scheme, Bounce Back Loan Scheme, Self-Employment Income Support Scheme, Coronavirus Business Interruption Loan Scheme or sector-specific funding. It is particularly relevant for individuals or businesses that may have misunderstood the eligibility criteria at the time, or who now believe that some of the support was wrongly claimed or retained. Company directors should also take note, especially where support was accessed on behalf of their business.

Why this matters 

This window offers a critical opportunity to proactively manage and reduce risk. Failure to act before the December 2025 deadline could result in serious consequences. From 2026 onwards, HMRC and other government bodies are expected to intensify scrutiny and enforcement efforts across all COVID-related support schemes.

Those businesses and individuals found to have made improper claims may face civil or criminal investigations, recovery actions, director disqualification and potential personal liability for directors. Beyond the legal implications, there is also a significant risk of reputational harm, particularly if enforcement actions become public.

What you should do now

• Review all COVID-related support received - consider the full range of schemes accessed by your business or personally.
• Revisit the eligibility criteria - assess whether claims were validly made at the time based on the original criteria.
• Quantify any potential exposure – calculate how much might need to be repaid, and what the cost of inaction could be.
• Seek early legal and tax advice - if you are unsure, professional input can help frame your options and prepare your position.
• Prepare for disclosure - if repayment is appropriate, ensure full disclosure is made and the process is handled correctly and documented clearly.

How we can help

This window is likely to be the final opportunity to come forward on your own terms, without sanction. In our experience, early action and voluntary engagement tend to result in significantly better outcomes, both financially and reputationally.

If you are concerned about any COVID-related claims made by you or your business, please get in touch with our team.

We can assist by reviewing the eligibility of claims made under COVID support schemes to help determine whether they were appropriate based on the original criteria. If repayment is necessary, we can prepare and submit voluntary disclosures on your behalf and manage all communications with the relevant authorities to ensure the process is handled correctly and efficiently. If you are already facing investigation or enforcement action, we can advise and represent you throughout the process.  

HMRC wrote to BGC Services Holdings LLP (BGC) in July 2016, setting out the effects of the provisions introduced by Finance Act 2014, relating to salaried members of limited liability partnerships, known as the Salaried Member Rules (SMR), and requesting details of the work undertaken to determine the application of SMR to its members. BGC co-operated with HMRC, responding to many questions and providing over 1,000 pages of documentary evidence.  

In March 2024, HMRC issued determinations to BGC totalling some £96 million for the tax years 2017/18 to 2019/20, inclusive, without any reasons being provided in the determinations themselves or covering correspondence (the Determinations). The Determinations were based on the application of the SMR. BGC appealed the Determinations to the FTT. 

HMRC made an application to the FTT for BGC to provide further and better particulars of its grounds of appeal which the FTT refused on 5 March 2025 (the First Decision). The FTT concluded that HMRC was required to provide reasons for its decisions, as a matter of public law, and it was not sufficient for HMRC to simply argue that once it had made an assessment, the burden rests on the appellant taxpayer. The FTT referred to Rule 25 of the Tribunal Procedure (First-tier Tribunal) (Tax Chambers) Rules 2009 (the Tribunal Rules), which requires HMRC to provide a Statement of Case (SoC), and confirmed that it was for HMRC to set out its position in compliance with Rule 25(2)(b). 

After HMRC issued its SoC, BGC made an application to the FTT for HMRC to properly particularise its SoC, which the FTT granted on 17 April 2025 (the Second Decision). The FTT concluded that HMRC had failed to set out key parts of its legal and factual case in its SoC and further particularisation was therefore necessary.  

HMRC made an application to the FTT for permission to appeal against both the First Decision and the Second Decision. 

FTT decision 

The application for permission to appeal was refused.  

In refusing HMRC's application, the FTT said that it was satisfied that both the First Decision and the Second Decision did not contain any errors of law and, significantly, none of HMRC's grounds of appeal had a reasonable prospect of success. 

The FTT said that it was clear that, neither BGC, nor the FTT could move forward to a hearing until HMRC explained the basis on which it had decided that BGC was liable to pay £96 million. 

Comment 

Given HMRC's failure to provide reasons in the Determinations themselves or the covering correspondence, it is surprising that HMRC sought further and better particulars from BGC and maintained this position in its application to the FTT for permission to appeal.

HMRC are expected to make an application to the Upper Tribunal, which was acknowledged by the FTT, for permission to appeal to the Upper Tribunal. It will be interesting to see whether HMRC proceed with such an application and if it does, whether it will receive a more sympathetic hearing before the Upper Tribunal. Given the circumstances, one would hope not.

The decision can be viewed here.

In September 2010, Mr Raymond Charles Eyre and his wife, Mrs Diana Eyre, purchased a property on Burnsall Street, Chelsea, for £9.75 million. The existing building was demolished and replaced with a new residential dwelling, which was completed in July 2013. Mr and Mrs Eyre moved into the property that month and sold it, in February 2014, for £27.15 million.

Mr and Mrs Eyre claimed full PPR relief on the basis that Burnsall Street was their only or main residence during their period of ownership. HMRC issued income tax assessments totalling over £3 million, contending that:

1. the purchase, redevelopment, and sale of the property constituted an adventure in the nature of trade; or
2. alternatively, the property did not qualify for PPR relief as it was never genuinely occupied as a main residence.

Mr and Mrs Eyre appealed the assessments to the FTT.

FTT’s decision

Their appeals were allowed.

Adventure in the nature of trade

With regard to HMRC's first argument, the FTT concluded that the Mr and Mrs Eyre were not engaged in a trading activity. Applying the well-established 'badges of trade' principles set out in Marson v Morton [1986] STC 463, the FTT was satisfied that the property was acquired and redeveloped with the intention of creating a family home, not for resale at a profit. In reaching this conclusion, the FTT noted that:

• there was no pattern of similar transactions which would indicate an on-going trade or business;
• the property transaction was unrelated to the appellants' business of aircraft leasing;
• the financing of the property involved considerable use of personal funds; although it did involve an element of borrowed money, such was common with the majority of property transactions, so this provided no weight to the argument that it indicated the purchase was an 'adventure in the nature of trade';
• the length of ownership and time and energy spent on redevelopment and personalisation of the house was consistent with long-term residential use.

PPR relief

Having weighed up all of the evidence before it, the FTT concluded that Mr and Mrs Eyre occupied Burnsall Street as their main residence from July 2013 until its sale in February 2014, having been able to evidence a "degree of permanence and continuity sufficient to turn mere occupation to residence". Although the period of occupation was relatively short, the FTT accepted the appellants' evidence that they had intended to reside in the property permanently, and that their occupation was both genuine and substantial.

In rejecting HMRC’s challenge to PPR relief, the FTT was persuaded by evidence of domestic living arrangements, including the presence of personal possessions, family use of the property, and integration into local life, as well as evidence that a previous residence owned by Mr and Mrs Eyre was on the market for sale. 

Notably, HMRC did not rely on section 224(3), Taxation of Chargeable Gains Act 1992, which allows it to deny tax relief in circumstances where a property is purchased in order to realise a gain. 

Comment

This decision provides useful guidance on two recurring issues in property tax cases, namely, whether a transaction amounts to trading and whether short-term occupation can attract PPR relief.

The decision reinforces the principle that:

• PPR relief is available where a property is genuinely occupied as a main residence, even for a relatively short period of time; and
• the redevelopment and resale of a property, even at a substantial gain, does not necessarily imply the existence of a trade.

This case also highlights the importance of contemporaneous evidence demonstrating residential intention and use. It illustrates the challenges HMRC can face when attempting to re-characterise property transactions as income-generating trades.

Taxpayers engaged in high-value property development or refurbishment should ensure that the nature of their use and intentions are well documented and consistent with their tax position.

The decision can be viewed here. 

Care homes should be particularly wary of the issues raised in HMRC's Spotlight 70. It is clear that HMRC is actively targeting VAT group structures designed to convert VAT exempt welfare services into taxable supplies in order to reclaim input VAT - especially on high-cost items like catering or property. These arrangements typically involve shifting contracts to an unregulated entity within a VAT group, which then subcontracts the welfare services back to the regulated provider.

While this may appear to unlock VAT recovery, HMRC considers such an arrangement to constitute tax avoidance and is using its powers to refuse or dismantle such arrangements. Care providers engaging in or considering these arrangements risk VAT assessments and financial penalties and as well as reputational damage and future restrictions on VAT group participation.

Key VAT considerations

1. Exempt supplies: care services provided in registered care homes are typically VAT exempt under Schedule 9, Group 7 of the Value Added Tax Act 1994. While this benefits residents, it restricts the ability to recover input VAT on related purchases and services.
   
   
2. Partial exemption complexity: care homes often engage in some taxable activities (eg letting rooms to staff, catering for visitors, or providing hairdressing services). This results in partial exemption status, requiring detailed input VAT apportionment and regular calculations to ensure compliance.
   
   
3. Capital expenditure: construction and refurbishment projects are major VAT risk areas. New builds may be zero-rated if they qualify as dwellings, but most care home facilities do not meet the required tests. Irrecoverable VAT on construction or fit-out costs can be significant without careful planning.
   
   
4. Third-party services: outsourcing functions such as catering, housekeeping, or agency staffing can lead to additional VAT costs, especially when the care home cannot recover input VAT on these standard-rated services.
   
   
5. Incorrect VAT treatment: misclassifying income or failing to recognise mixed supplies can result in VAT liabilities, penalties, or lost recovery opportunities. Examples include charging VAT on exempt care fees or failing to apply VAT where required on ancillary services.

Top tips for managing VAT in care homes

• Plan early for capital projects: engage VAT specialists during the design and procurement phase of building works to assess potential zero-rating and avoid costly errors.

• Review all income streams: assess whether any services are taxable (eg beauty treatments and staff accommodation) and ensure correct VAT treatment.

• Maintain robust records: good documentation supports input VAT recovery and protects against HMRC challenges, especially under partial exemption rules.

• Conduct partial exemption reviews: monitor and adjust apportionment methods annually to maximise VAT recovery and comply with HMRC requirements.

• Train staff on VAT basics: ensure finance and operational teams understand the VAT implications of the services provided and purchased.

How we can help

Effective VAT management in the care home sector requires a proactive and informed approach. Seeking specialist advice where needed can reduce costs, enhance compliance, and safeguard the financial health of your organisation.

Whether you are facing a routine query or require assistance with a complex dispute, we have extensive experience of managing and resolving compliance issues and can provide the strategic support you need. Our team consists of experienced experts, some of whom have worked for HMRC, who can assist you to achieve a swift and effective outcome.

If you would like to discuss anything, please contact Michelle Sloane or Jasprit Singh. 

UK Government announces new trade strategy to protect and boost British business

The UK Government has launched its first post-Brexit Trade Strategy, aimed at strengthening the UK’s global trade presence and supporting British exporters. The strategy sets out a goal to make the UK the “most connected trading nation in the world,” through a combination of market access initiatives, export support, and defensive trade measures.

The strategy acknowledges that free trade agreements are not the only means of boosting international trade. Key features include the creation of a new "Ricardo Fund" to remove regulatory barriers and shape global standards, and a £20bn expansion of UK Export Finance, alongside a new Small Export Builder scheme targeted at SMEs. The UK will also strengthen its trade defence tools to protect domestic industries from unfair practices and invest in services exports.

The strategy commits to supporting green growth through clean energy trade partnerships and confirms the UK’s participation in the Multi-Party Interim Appeal Arbitration Arrangement as an alternative to the WTO’s stalled appellate body.

You can view the official press release here.

Department for Business and Trade announce Improved Trade Rules

On 15 July 2025, the Department for Business and Trade introduced reforms to the UK Internal Market Act, aimed at smoothing trade across England, Scotland, Wales, and Northern Ireland. These changes reflect business feedback and are part of the government’s Plan for Change, designed to stimulate investment, job creation, and economic growth.

Key measures

• Greater clarity and consistency: trade rules between the nations will become more transparent and streamlined, reducing risk of friction and unexpected costs.

• Enhanced devolved flexibility: devolved administrations can now set locally tailored rules, provided these respect the integrity of the internal market.

• Simplified process for low-impact rules: proposed regulatory exclusions with limited economic effect can be approved via a faster, streamlined mechanism.

• Improved collaboration: the reforms foster better coordination between UK and devolved governments, particularly in areas like chemicals and pesticides.

You can view the full press release here.

HMRC releases overseas trade statistics for May 2025

Data published by HMRC for May 2025 shows £30.4bn total exports of goods, down £1.8bn or 5% from same time last year. The number of total goods imports for the month stand at £57.4bn, up 14% from May 2024. The statistics also include a breakdown of data across the UK's trade in goods at both country and product level, covering over 9,000 commodities and 200 partner countries.

The full report can be found here.

Case reports

DHL Air (UK) Ltd v Revenue and Customs Commissioners [2025] UKUT 176 (TCC)

DHL Air (UK) Ltd (DHL) was unsuccessful in its appeal to the Upper Tribunal against a part of the First-tier Tribunal's (FTT) decision concerning the retroactive authorisation of end-use relief for seven civil aircraft imported between June 2016 and February 2017.

DHL imported seven civil aircraft between June 2016 and February 2017 under an expired end-use authorisation. DHL applied in April 2017 for a retrospective end-use authorisation under the Union Customs Code (UCC) (the 2017 Application). HMRC refused and issued a post-clearance demand note for approximately £3m in customs duty. DHL appealed to the FTT, which directed HMRC to conduct a further review. The matter proceeded to the Upper Tribunal (UT). DHL argued that its 2017 Application should have been considered as a renewal of its previous authorisation, which would mean that it could be made retroactive.

UT decision

The UT upheld the FTT’s conclusion that the 2017 Application did not qualify as a renewal of the earlier end-use authorisation, because the earlier authorisation was made under the old Community Customs Code, and the 2017 Application was made under the UCC and had a materially different geographic scope. Therefore, the 2017 Application could not benefit from retroactive effect.

The UT also upheld the FTT’s findings regarding what could potentially constitute "exceptional circumstances" under Article 172 of the UCC Delegated Regulation justifying retroactive authorisation.

Finally, the UT found no error in the FTT’s refusal to require HMRC to treat DHL’s application in the same way as other operators, noting a lack of evidence of discriminatory treatment.

As a result, DHL’s appeal was dismissed, maintaining that the FTT’s decision and directions were correct in law.

Why it matters

This case is significant as it clarifies the legal boundaries and practical limitations surrounding retroactive end-use relief authorisations under the transition from the CCC to the UCC. The UT's decision also provides important guidance on what may constitute "exceptional circumstances" for granting retroactive relief, while affirming that fairness arguments based on the treatment of other operators will require clear, substantiated evidence. The case underscores the importance of maintaining up-to-date authorisations and ensuring strict compliance with procedural requirements.

A copy of the decision can be found here.

FTU Pod Trans v Revenue and Customs Commissioners [2025] UKFTT 753 (TC)

FTU Pod Trans (FTU), a Polish haulage company, was unsuccessful in its appeal to the First-tier Tribunal (FTT) in respect of HMRC's excise duty and penalty assessments.

On 20 January 2020, FTU's vehicle was intercepted by UK Border Force at Coquelles, France. The vehicle was found to be carrying 1,583,500 of cigarettes concealed within cable reels. The load's paperwork falsely identified the consignor and the consignee, both legitimate companies whose details had been hijacked without their involvement. The driver, an employee of FTU, had received anti-smuggling training and had checked the load and documents prior to departure, but was not permitted under Polish law to open the cable reels.

HMRC subsequently issued an excise duty assessment for £472,378 and a wrongdoing penalty of £307,045, alleging that FTU had acted deliberately and concealed its involvement. FTU appealed to the FTT.

FTU had accepted the transportation job via an online portal, dealing with an individual whose identity and credentials were not fully verified.

The FTT was asked to determine several key issues including:

• whether FTU was “holding” excise goods for the purposes of Regulation 13 of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010 (HMDP)

• whether FTU was liable for a wrongdoing penalty under Schedule 41 of the Finance Act 2008

• whether FTU had a reasonable excuse for its conduct

• whether the penalty should be reduced for the quality of disclosure or for special circumstances.

FTT decision

The FTT upheld the excise duty assessment. In reaching its decision, the FTT applied the Court of Justice of the European Union's ruling in HMRC v WR (C-279/19) and the Upper Tribunal’s decision in Agniezska Hartleb v HMRC [2024] UKUT 034 (TCC), both of which establish that “holding” excise goods can encompass de facto or legal control, not merely physical possession. The FTT found that FTU, as the employer and owner of the vehicle, exercised de facto control over the goods by directing its employee, the driver, and was therefore liable for the duty.

In relation to the wrongdoing penalty, the FTT affirmed the penalty but varied its quantum. The FTT concluded that FTU's behaviour was “prompted but not deliberate”. There was no evidence that FTU had actual or blind-eye knowledge of the smuggling, but it had failed to conduct sufficient due diligence given the unusual and suspicious circumstances. The FTT rejected the argument that FTU was an “innocent agent” with a reasonable excuse, noting that, objectively, it should have made further enquiries about the intermediary that placed the transport order and the nature of the arrangements.

The FTT also considered the quality of disclosure made by FTU. It found that it had partially “told” HMRC about its version of events in correspondence, and accordingly applied an 85% reduction to the penalty. No special circumstances were identified to warrant any further reduction.

Why it matters

This decision reinforces the broad interpretation of “holding” excise goods under both UK and EU law, confirming that logistics companies may be liable for excise duty even when physical possession rests with an employee, provided they exercise de facto or legal control. The FTT’s approach to penalties and reasonable excuse highlights the expectation that businesses must undertake robust due diligence, particularly where arrangements are unusual, or parties are not known to them. The decision also demonstrates the FTT’s willingness to scrutinise the quality of disclosure and adjust penalties accordingly.

A copy of the decision can be found here.

Canmi Limited v HMRC [2025] UKFTT 890 (TC)

Canmi Limited, a customs clearance broker, was unsuccessful in its appeal to the First-tier Tribunal (FTT) in respect of a notice of joint and several liability issued by HMRC in the sum of £13,972 in unpaid excise duty. The notice related to an assessment made against Miss Miram Bumah on the same date.

The case concerned beer imported from Nigeria using tax code 443 (reduced duty rate for small breweries), which HMRC later determined was inapplicable. The correct code - 473 - would have triggered a higher rate of duty. The goods were declared by Miss Bumah, with Canmi acting as her direct representative in the customs process.

The central issue between the parties concerns the level of involvement required for Canmi to be jointly and severally liable for Miss Bumah’s irregular imports of beer. HMRC's position is that any involvement in the importation is sufficient to establish liability under excise duty rules, and that customs duty rules are irrelevant in this context. In contrast, Canmi argues that a direct representative cannot be held liable, and even if that is incorrect, liability would still require knowledge of the irregularity.

FTT decision
The FTT upheld HMRC’s assessment.

The FTT considered whether Canmi was “a person involved in the importation” under Regulation 12(2) of the Excise Goods (Holding, Movement and Duty Point) Regulations 2010. It found that Canmi was indeed involved in the importation, irrespective of whether it acted as a direct representative or whether it had knowledge of the irregularity, and was therefore liable for the duty.

The FTT rejected Canmi’s attempt to distinguish between excise and customs liability and dismissed its late request to amend grounds to argue that HMRC should first pursue Miss Bumah.

The FTT also rejected arguments from Canmi that a higher burden of proof (such as the criminal standard) apply, confirming that the burden is upon Canmi and the standard of proof is only the balance of probabilities.

Why it matters
This decision clarifies that under excise law, any party involved in an irregular importation - regardless of their role or intent - may be held liable for unpaid duty. The FTT confirmed that liability is not restricted to those acting knowingly or fraudulently. For customs agents and customs representatives, this underscores the importance of due diligence when handling imports, as the use of incorrect codes or assumptions about reliefs can result in significant financial exposure.

A copy of the decision can be found here.

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Navigating customs and excise compliance in the logistics sector

Logistics companies and customs agents operate in a fast-moving, high-volume and significant value industry. They are heavily regulated by UK authorities, such as HMRC and Border Force, who remain determined in their scrutiny of this area, and businesses therefore must ensure they operate lawfully and in compliance with UK laws.

Non‑compliance can lead to serious consequences such as a substantial tax liability, forfeiture, significant penalties, shipment delays, or even criminal sanctions.

Stay ahead by understanding the most pressing tax and customs compliance challenges that your business could face and take steps to mitigate against these risks. Some common issues you might face and key considerations for your business are summarised here.

HMRC initially declined to confirm or deny the usage of AI, arguing that disclosure could aid fraudulent claimants. The Information Commissioner’s Office (ICO) supported that refusal. However, the tribunal overturned this decision, concluding that the public interest in transparency outweighed HMRC’s objections. Judge Alexandra Marks found Mr Elsbury’s arguments “compelling” and set a compliance deadline of 18 September 2025 for HMRC to confirm its position in respect of the usage of AI in rejecting the relevant R&D tax credit claims. The ICO has confirmed that it will not be appealing the decision, while HMRC said it is reviewing the tribunal's decision and considering its position.

The tribunal's decision arrives amid increased scrutiny of HMRC’s R&D tax relief regime, including concerns over perceived overzealous compliance on the part of HMRC leading to the dismissal of legitimate R&D claims. The decision also comes just weeks after HMRC published its Transformation Roadmap, which commits HMRC to deploying AI-powered tools in its compliance work. The roadmap sets a target for 90% of customer interactions to be digital by 2030, and highlights expanded use of “intelligent nudges” and pre-populated forms to help close the £46.8 bn tax gap. Against that backdrop, questions over the extent and oversight of AI in HMRC's decision-making are likely to grow ever more acute.

Implications for tax disputes strategy

1. Enhanced scrutiny of AI use and transparency: If HMRC discloses AI deployment, taxpayers' focus will likely shift to the fairness, accuracy, and validation of such AI systems - especially in high-value or technologically sensitive claims.
2. Rebuilding trust in the R&D regime: The tribunal underscored that HMRC’s “failure either to confirm or deny” reinforces taxpayer distrust, potentially deterring legitimate R&D claims. Greater transparency will improve the legitimacy and credibility of HMRC’s decision-making process, offering a foundation for more constructive engagement between taxpayers, their advisers, and the tax authority.
3. Defensive litigation and risk management: Should AI tools have contributed to rejections or imposed penalties, practitioners may challenge decisions based on lack of explanation, inadequate human oversight, or data protection concerns. The roadmap’s stated expansion of AI-driven case management systems makes it easier to frame such challenges as part of a broader systemic practice rather than isolated cases.

Top tips for R&D claimants and their advisers:

• Request disclosure: where claims are rejected, ask whether AI was used in the decision-making process.
• Scrutinise decision quality: look for signs of templated or generic reasoning, which might indicate an automated determination.
• Preserve evidence: keep all correspondence, timestamps, and metadata from HMRC correspondence, which might assist in an AI-related challenge.
• Challenge procedural fairness: if AI use is confirmed, assess whether sufficient human oversight was in place.
• Factor in the roadmap: HMRC’s stated intent to expand AI in compliance, suggests these issues will become more common place – it might be appropriate to build AI-related enquiries into your dispute strategy.

Future impact 

This decision is more than an R&D tax credit story - it highlights the importance of transparency in AI-driven tax administration and more generally in relation to HMRC decision making. For tax dispute resolution advisors, it opens a fresh line of attack where decisions appear formulaic, automated or unreasoned. HMRC’s Transformation Roadmap suggests the AI debate is only just beginning.

The tribunal's decision can be read in here.

By 2029/30, HMRC wants 90% of interactions to be fully digital. Its online accounts, mobile app and AI-driven assistants will become the default gateway for most taxpayers. Tools for PAYE taxpayers, NIC refunds, and self-assessment registration are among the near-term changes.

For many, this shift may feel like progress. But it also means, the potential for:

• increased risk of automated error or action, especially in complex compliance scenarios
• a reduction in face-to-face engagement, which historically helped resolve nuance in grey areas
• more system-driven assumptions and notices, which may be harder to challenge early without proactive intervention.

Disclosure and correction: a new landscape?

HMRC’s proposed digital disclosure service (expected before 2029) is designed to allow taxpayers to correct errors and pay liabilities voluntarily - without triggering formal enquiries. At the same time, it is:

• likely to standardise the disclosure process, with limited room for tailoring or negotiation
• set to integrate with AI and third-party data sources, increasing the chances of detection before voluntary disclosure
• expected to automate penalty calculations, raising questions about proportionality and exercise of discretion to ensure a fair outcome.

The voluntary disclosure space may soon become less flexible - requiring advisers to act more swiftly and with greater precision when engaging with HMRC.

Legal interpretation: new approaches to guidance and legislation

 HMRC's roadmap hints at a firmer stance on disputes relating to the correct interpretation of the law, with HMRC pledging “clearer expectations” in guidance and signalling a willingness to pursue legislative changes in contentious areas.

This shift raises the following potential risks:

• administrative guidance may be used more aggressively, potentially cutting across judicial decisions or settled practice
• advisers may need to engage earlier in the dispute resolution process, to avoid retrospective enforcement
• disputes over interpretation may escalate more quickly, particularly where HMRC officers feels emboldened by policy support.

What it means for tax advisers

Tax advisers, particularly those involved in contentious or high-risk tax matters, will need to adapt quickly to the evolving digital enforcement environment.

Some key themes

• Digital engagement will be unavoidable: the adviser interface is due for overhaul in 2026/27. Logging in, accessing client data, and submitting documents will all happen through redesigned digital portals.
• Faster timelines and less discretion: with more automated systems and set workflows, there may be less room to negotiate deadlines, extend response times, or explore informal resolution with HMRC before formal challenge.
• Increased compliance support burden: as more clients interact digitally (or fail to), advisers will become the de facto translators of HMRC’s evolving systems - especially for digitally excluded taxpayers or those taxpayers whose affairs are complex.
• New areas of risk management: advisers will need to monitor how AI and third-party data use impact risk profiling, disclosure, and information gathering, particularly in relation to taxpayers whose affairs are complex or involve an offshore element.

In short, the tax adviser role will become more digital, more proactive, and potentially more defensive, as HMRC’s compliance model develops and accelerates.

Tax Tribunal and disputes process modernisation

HMRC’s ambition to integrate its case management systems with the First-tier Tribunal raises questions about the structure and flow of disputes. If delivered well, it could reduce delays and increase consistency, but:

• the proximity of HMRC systems to Tribunal processes may blur separation of functionality lines, especially if data flows are poorly managed;
• there may be new challenges around procedural fairness, particularly where automated decisions form the basis of appeals;
• the Tribunal may need to adapt to more digitally produced evidence - from AI risk assessments to machine-led disclosures.

Closing the tax gap: a more assertive HMRC?

Alongside the roadmap sits a renewed emphasis on enforcement. HMRC is:

• investing heavily in offshore avoidance and evasion detection
• increasing its use of real-time third-party data
• preparing to publish a tax debt strategy by 2026
• committing to standardised identity verification before 2031.

Combined, these measures suggest a more assertive (and some might say, aggressive) HMRC, equipped with more effective tools and enhanced detection of non-compliance - with less reliance on traditional enquiry pathways.

A new era for tax disputes and adviser strategy?

HMRC’s transformation roadmap is not just about technology - it is about shifting how tax compliance, correction, and enforcement are approached. For tax disputes lawyers and advisers, the key is to anticipate and manage the procedural, interpretative, and strategic consequences of a more automated, less negotiable system.

Taxpayers will increasingly look to their advisers, not just for technical tax advice, but also for guidance on navigating a rapidly digitalising enforcement authority, ensuring their rights are protected, and pushing back where automation meets ambiguity.

The Transformation Roadmap can be viewed here. 

Recent procedural decisions

There have been a number of recent procedural decisions that are worthy of note.

Costs 

In Advanced Hair Technology Ltd v HMRC [2025] UKFTT 599 (TC), the taxpayer applied for a costs order on the basis that HMRC had acted unreasonably in the course of conducting an appeal. The application was unusual in that it had been made at the invitation of the First-tier Tribunal (FTT) itself. The taxpayer had appealed against HMRC's decision that the majority of its supplies of hair transplant services were standard rated for VAT and not exempt supplies of medical care, and a penalty for failing to register for VAT at the correct time. 

The substantive appeal was heard by the FTT over four days, and HMRC was ultimately successful on the substantive issue. However, HMRC abandoned its pursuit of the penalty during the course of the hearing. On the first day of the hearing it became apparent, during cross-examination of the taxpayer's witness, that the taxpayer had received professional advice that its services were exempt from VAT, such that it had a reasonable excuse for its failure to register for VAT. Accordingly, on the second day of the hearing, the FTT asked HMRC to consider whether it still wished to pursue the penalty. HMRC's counsel was unable to obtain instructions, which required the FTT to reconvene on day four to hear evidence on the penalty appeal. However, and following the late arrival of HMRC's witness, HMRC confirmed that it would no longer pursue the penalty. The FTT was clearly irritated by HMRC's conduct and invited the taxpayer to consider whether it wished to make an application for costs incurred in consequence of the failure of HMRC to notify its intention to withdraw the penalty assessment until day four of the hearing. The taxpayer duly made an application for costs, arguing that it was unreasonable for HMRC to fail to provide instructions to its representatives to withdraw the penalty assessment until the late arrival of its witness at the hearing, immediately before he was due to give his evidence. 

Perhaps not surprisingly, the FTT granted the application. The FTT observed that once the cross-examination of the taxpayer's witness had concluded, it was very clear that the taxpayer had been neither careless nor negligent in its decision to treat its supplies as exempt, and that it had a reasonable excuse for its actions. Accordingly, the FTT found that, from the conclusion of the cross-examination, it was obvious that the taxpayer had a reasonable excuse and, while HMRC was entitled to a reasonable period of time after the conclusion of the cross-examination to consider whether to continue to pursue the penalty, after the expiry of that reasonable period, it was unreasonable for HMRC to continue to pursue the penalty assessment. The FTT determined that the reasonable period expired after the lunch adjournment on day three of the hearing, which allowed HMRC sufficient time to consider its position in light of the evidence.

Securing a costs award against HMRC remains a persistent challenge for taxpayers, with a high bar for establishing unreasonable conduct. The decision in Advanced Hair Technology highlights a particularly egregious example of such conduct which the FTT rightly criticised and penalised through a costs award in favour of the taxpayer. Whilst this was clearly the right outcome in this case, many practitioners will recognise the frustration of dealing with HMRC behaviour that, while falling short of the "unreasonable" threshold, still imposes unnecessary costs on taxpayers. 

Hardship

In Kearney Transport Ltd v HMRC [2025] UKFTT 593 (TC), the FTT considered whether the taxpayer’s appeal, which was in respect of excise duties, was entitled to proceed to a hearing without first paying the assessed duty on the grounds that to do so would cause the taxpayer hardship. The taxpayer had appealed an assessment of c.£70k and applied to HMRC for hardship. HMRC had requested extensive information to support the hardship application, including information relating to the taxpayer's financial position, following provision of its latest accounts, cash flow forecasts, bank account statements and information on debtors and creditors. In response, the taxpayer provided its accounts and explained that payment of the tax in advance of the appeal would mean that the potential for drawings to be taken from the business by the directors and shareholders would effectively be reduced by more than 50%, which would create a situation where the directors and shareholders would not be in position to meet their own personal living expenses and would impact the financial viability of the company. Following a request for further information from HMRC, the taxpayer advised that its financial status had been fully proven by its accounts and the other information provided to HMRC. HMRC refused the application for hardship, and the taxpayer appealed. 

In rejecting the taxpayer's application, the FTT noted that arguments about the level of profits available for distribution to shareholders was an argument about their hardship rather than the taxpayer's hardship. More importantly, and while accepting that the amount of disputed tax was significant, the FTT observed that the taxpayer's financial position was unclear given the only evidence it had been presented with was the company accounts and oral evidence from one of the company's directors. In that regard, the FTT observed that it may have had a better understanding of the position had the taxpayer's accountant given evidence. Accordingly, although the FTT accepted that there may well be hardship, the accounts and oral evidence did not, on a balance of probabilities, demonstrate that was the case.

As readers will be aware, taxpayers seeking to challenge HMRC decisions in respect of indirect taxes must pay the disputed tax before they can exercise their rights to appeal to the FTT - a requirement many view as inherently unfair. In today’s economic climate, such an up-front payment can be prohibitive. As a result, an increasing number of businesses are seeking to rely on 'hardship', which waives the payment requirement where it would cause serious financial difficulty to the business. However, pursuing hardship can be challenging as HMRC typically demands extensive financial evidence and the process can be both time-consuming and onerous. The decision in Kearney emphasises that: (1) the taxpayer bears the burden of proving hardship; and (2) meeting that burden typically demands a comprehensive and well-supported body of evidence, that goes beyond providing a minimal set of documents.

Late appeals and reasonable excuse

In Denise Howarth v HMRC [2025] UKFTT 499 (TC), the FTT considered an application by the taxpayer to bring a late appeal against penalties of £1,600 issued by HMRC for the late submission of her 2020/21 tax return. 

The taxpayer had been within self-assessment since 2004 and had filed her tax returns online for a number of years. The taxpayer's tax affairs were straightforward, and she had filed all of her previous tax returns on time. For the 2019/20 and 2020/21 tax years, the due dates for filing tax returns were effectively extended by 28 days due to the Covid-19 pandemic, and HMRC confirmed that no penalties would be charged for any return received by midnight on 28 February in the relevant year. 

HMRC’s computer records indicated that on 1 March 2021 the taxpayer opted-in to receive communications from HMRC electronically. The effect of this opt-in was that statutory notices would be sent by HMRC to the taxpayer’s electronic Personal Tax Account (PTA). When a notice was issued, HMRC would send the taxpayer a generic email advising her that a message was waiting on her PTA, which she could then access to view it. The FTT found that the taxpayer's opt-in was inadvertent and that the box for opting in was ticked (or not unticked) by the taxpayer in the course of the submission of her 2019/20 tax return and without her understanding the importance of her actions. She did not therefore consciously consent to it. 

It was common ground that the taxpayer and her husband sat down to complete their 2020/21 returns on 28 February 2022 and that, in the course of the evening, the taxpayer had filled in her return and accessed her computation showing that she had no tax to pay. HMRC’s computerised records showed that the taxpayer had reached the final stages of the submission process, but HMRC's case was that the taxpayer needed to take one further step to actually submit her return. Had she done so, the taxpayer would have received a 16-digit confirmation code. The taxpayer's position was that she had reached the end of the process as the screen gave no indication of there being a further step which needed to be carried out. Although she had received confirmation codes in earlier years, the taxpayer was not unduly surprised by the lack of a confirmation code as she had no reason to assume that the process would be identical to previous years. She had no tax to pay, and the images on her screen indicated to her that no further steps were required. As a precaution, the taxpayer took a screenshot to record what she believed to be confirmation that she had completed the process. The FTT accepted that the taxpayer reasonably believed that she had submitted her return on time and that her obligations in relation to her return were complete. However, the absence of a complete return on HMRC’s system led to a series of notifications being sent to the taxpayer’s PTA, each with a corresponding generic email to her email address. The first indication the taxpayer had that anything was amiss was a letter from HMRC's debt management team which was sent to her home address in March 2023, advising her that she owed £1,000. The taxpayer subsequently called HMRC, immediately submitted her return, and appealed the penalties that had been issued to her. The appeal was substantially out of time.

The FTT allowed the taxpayer's application to bring a late appeal and the substantive appeal itself. The FTT observed that the taxpayer's delay was serious and that she had, to some extent, been the author of her own misfortune by signing up to receive electronic communications from HMRC and then deleting genuine emails from HMRC that alerted her to check her PTA. However, the FTT also noted that, amongst other things, the taxpayer had conducted herself as someone who intended to comply with her tax obligations. Signing up to the electronic notification process was unintentional on her part and more likely to have been as a result of confusion in the course of the submission process and she reasonably believed that she had completed the process for submitting her return on time. In the circumstances, the FTT was satisfied that the taxpayer had a reasonable excuse for her failure. 

The FTT tends to adopt a strict approach to enforcing appeal deadlines and taxpayers face a high bar when seeking permission to appeal out of time. The decision in Howarth is therefore notable, not only because the taxpayer succeeded, but also because she succeeded in the face of what was a considerable delay.

Reallocation of appeals

Alexander Langsam v HMRC [2025] UKFTT 00404 (TC), concerned an application by the taxpayer for his appeal to be reallocated from a Basic to a Standard case. The taxpayer had appealed against an information notice issued by HMRC seeking information it asserted was reasonably necessary to check his tax position. The FTT allocated the appeal to the Basic category and advised the parties that it would be listed as a video hearing. The taxpayer applied for the appeal to be re-allocated as a Standard category case on the grounds that, because of complex legal issues (including matters of public law) and the need for “detailed and nuanced” witness evidence, it would be more appropriate for the case to be allocated to the Standard category. HMRC opposed the application on the basis the appeal was suitable for determination by way of a video hearing. 

In dismissing the application, the FTT noted that the allocation of an appeal against an information notice to the Basic category was consistent with Rule 23 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the FTT Rules) as well as the FTT's Practice Direction for the Allocation of Cases to Categories in the Tax Chamber. Accordingly, the FTT determined that it was not appropriate to allocate the appeal to a different category. In that regard, the FTT observed that there did not appear to be any material dispute of fact between the parties and the issues were clearly issues of law. As such, the FTT considered that a relatively short hearing would be sufficient to dispose of the appeal, and that a video hearing would be suitable. Accordingly, the FTT concluded that there was no reason to depart from the Practice Direction with regard to the category or format of the appeal.

The categorisation of cases plays a crucial role in enabling the FTT to allocate its resources efficiently, and ensuring that the level of judicial and administrative attention given to a case reflects the complexity of the issues in dispute. Although there are circumstances in which reallocation may be justified (judicial guidance on when a case should be categorised as Complex was provided by the FTT in Capital Air Services Ltd v HMRC [2010] UKFTT), the decision in Langsam illustrates the significant challenges taxpayers may face in seeking to have a case reclassified. 

Changes to Tribunal Procedure

Tribunal Procedure (Amendment) Rules 2025

The Tribunal Procedure (Amendment) Rules 2025, which came into force on 30 May 2025, introduce important changes to Rule 38 of the FTT Rules and Rule 43 of The Tribunal Procedure (Upper Tribunal) Rules 2008. Under the amended provisions, both the FTT and the Upper Tribunal now have the power to set aside a decision that disposes of proceedings on their own initiative. Previously, such decisions could only be set aside upon application by a party to the proceedings. Although not likely to be utilised on a regular basis, this is a practical and sensible amendment. 

Practice Statement on Alternative Dispute Resolution in Tax Disputes

The FTT has also published a new Practice Statement on Alternative Dispute Resolution (ADR). The purpose of the Practice Statement is to further the FTT's obligation, under Rule 3(1)(a) of the FTT Rules, to facilitate the use of ADR and provides general information on ADR and the process for applying to HMRC for ADR. The Practice Statement provides that the FTT will usually be willing to stay proceedings (for up to 150 days) in order to facilitate the use of ADR at any stage of the proceedings, including after HMRC has served its Statement of Case, or the parties have exchanged lists of documents, or witness statements. Where parties wish to use ADR, after a hearing date has been set, the FTT will only be willing to stay proceedings if satisfied that the hearing will be able to go ahead on the date set if ADR does not resolve the dispute. Importantly, the Practice Statement notes that an unreasonable failure to consider, or enter into, ADR may, in appropriate cases, result in costs being awarded against a party, or in a party recovering a lower proportion of their costs. Where an appeal has been allocated to the Complex category and is within the costs regime, the costs of ADR may be recoverable.

Updated Guidance on Taking Oral Evidence from Abroad

The FTT has also updated its guidance on the procedure to be followed when a party wishes to rely on oral evidence of a person (including the party themselves) given by video or telephone from a country other than the UK. The guidance provides that, subject to limited exceptions, oral evidence may only be taken from witnesses (including litigants in person presenting their own cases) who are physically in the UK to give that evidence. Where a party wishes to rely on live oral evidence by video from abroad, the person seeking to rely on that evidence will, in all cases, need permission from the FTT, and the guidance sets out the process for seeking such permission.

The growing complexity of tax appeals, especially those involving large corporates and high-net-worth individuals, means that evidence from individuals outside the UK, including expert witnesses, is increasingly common. Taxpayers should review the new guidance carefully, identify early on whether overseas evidence will be needed and make any necessary application to the FTT as soon as possible to facilitate its use.

Realbuzz Group Ltd was established in 2000. It focusses on the fitness, sports and running industries, providing online content, social networking and online entry systems for events such as the London Marathon and related charity fundraising programmes. It also enables participation in “virtual events” where the participants take part in, for example, a marathon or half marathon, running on their own in their own area rather than joining an organised mass participation event. 

Realbuzz filed its corporation tax return for the accounting period ending (APE) 30 April 2020 on 22 December 2020, submitting two subsequent amendments,  the final one on 31 March 2021. This final amendment included a claim for £335,452.57 R&D tax relief, supported by an R&D report prepared by the company’s accountants. The report was compiled by the accountants' R&D team in consultation with Realbuzz’s technical team and assessed each project’s eligibility based on the relevant tax legislation, the BIS Guidelines, and HMRC’s published guidance.

On 13 July 2021, Realbuzz filed its return for APE 30 April 2021, which also included an R&D claim. HMRC opened an enquiry into this return on 17 September 2021. The accountants responded to HMRC’s enquiries on 15 November 2021, providing a second R&D report that covered many of the same projects from the 2020 claim, some of which had commenced in 2019.

On 13 April 2022, the HMRC officer dealing with the enquiry, Mr Patel, advised that most of the claimed projects did not qualify as R&D for tax purposes, although he considered a few sub-projects might. He invited the accountants to provide further explanations and issued a questionnaire for specific projects, noting he would seek input from HMRC’s software specialists.

The last date on which HMRC could open an enquiry into Realbuzz’s 2020 return was 30 April 2022. In September 2022, Ms Martin took over the case from Mr Patel and on 8 March 2023, she issued a closure notice denying the APE 2021 R&D claim in full. She also indicated her intention to raise a discovery assessment for APE 2020. This was based on her view that similar inaccuracies existed in the earlier period, given that some projects spanned both accounting periods.

On 1 June 2023, HMRC issued a discovery assessment for APE 2020, pursuant to paragraph 41, Schedule 18, Finance Act 1998. Realbuzz appealed the assessment to the FTT.

FTT's decision

The appeal was allowed. 

Realbuzz argued that, for the purposes of paragraph 44(1), Schedule 18, Finance Act 1998, HMRC could have been reasonably expected, on the basis of "information made available" to it, to be aware of the situation referred to in paragraph 41. It also argued that additional information — specifically the 2021 R&D report — also amounted to "information made available" to HMRC, which further supported HMRC's awareness of the tax loss.

The FTT agreed with Realbuz. It held that a hypothetical HMRC officer, reviewing the 2020 return and accompanying report at the time, would have been reasonably expected to realise that the R&D claim was, at least in part, excessive. Importantly, the FTT rejected HMRC’s argument that the officer must be able to quantify the insufficiency in tax before a discovery could be valid. It confirmed that an awareness of an insufficiency is sufficient, even if the precise amount cannot be determined at that point.

Moreover, the FTT confirmed that the hypothetical officer is not assumed to have specialist technical knowledge (such as software development expertise). In this case, the FTT concluded that the 2020 report was sufficient to raise awareness of the likely over-claim, even without the benefit of expert analysis.

With regard to the 2021 report, the FTT made clear, in obiter comments, that it did not constitute "information made available" for the purposes of the 2020 period. The report related to a different accounting period and could not be inferred from the earlier return. While it may have supported HMRC’s suspicions, it did not provide a clear basis for awareness of an insufficiency in the 2020 return.

Comment

This case reinforces the importance of proper disclosure by taxpayers to HMRC and a timely response by HMRC. Where sufficient information has been provided within the enquiry window to alert a hypothetical officer to a potential tax loss, HMRC cannot rely on its discovery powers contained in paragraph 41, Schedule 18, Finance Act 1998, as a fallback. For advisers and taxpayers, the decision also highlights the value of well-structured R&D reports that demonstrate good faith engagement with the R&D qualifying criteria.

The decision can be viewed here. 

A settlement known as the Tiodab Trust (the Settlement) was established in Switzerland in September 1992, by a settlor who was not domiciled in the UK. On the 6 April 2005, the settlor became deemed domiciled in the UK and, subsequent to this event, added a substantial amount of cash to the Settlement.

In 2012, Accuro Trust (Switzerland) SA (the Trustee) reviewed the trust's 'property' to pay a ten-year anniversary charge. Cash added to the Settlement after the Settlor became deemed UK domiciled, was considered 'relevant property' and not 'excluded property', due to section 48(3) (as it then was), Inheritance Tax Act 1984 (IHTA). A ten-year anniversary charge of £1.7m was paid to HMRC.

Two years later, after reviewing the payment, the Trustee changed its view and requested a repayment of the anniversary charge from HMRC, under section 241, IHTA, on the ground that the classification of the Settlement's funds as 'relevant property' was a mistake. HMRC relied on section 255, IHTA, to refuse the Trustee a repayment on the basis the Trustee had paid the tax 'on a view of the law then generally received or adopted in practice'. The Trustee appealed to the FTT.

FTT decision 

The appeal was allowed. 

In determining the appeal, the FTT considered the meaning of section 48(3), IHTA, and the interpretation of 'at the time the settlement was made'. If the property in question was part of the Settlement at the time it was made, then it would be subject to IHT. 

HMRC argued that 'at the time the settlement was made', includes both the time when a settlement is originally constituted and the time when it is further constituted when any further property is transferred to it i.e. in March and April of 2006, a year after the Settlor became deemed UK domiciled. 

The Trustee argued that the time the Settlement was made was the date when the Settlement was first created as a matter of trust law i.e. September 1992, 13 years before the Settlor became domiciled in the UK. 

In the view of the FTT, the words 'at the time the settlement was made' could not be understood to mean each and every time a settlor deposits property into a settlement.

The FTT also rejected HMRC's argument that the property should not qualify as excluded property on the basis that it was made and accepted on a view of the law then 'generally received or adopted in practice'. The FTT concluded that, taking into account practitioner evidence, HMRC's view of the law was not 'generally received or adopted in practice'. 

Comment 

Although the law was  changed in July 2020 (by Finance Act amending section 48(3), IHTA), to provide that the excluded property test is the domicile of the settlor at the time the property became comprised in the settlement, this decision provides some clarity for trustees considering pre-July 2020 cases. It is surprising that HMRC chose to fight this case and will be interesting to see if HMRC seek permission to appeal the FTT's decision to the Upper Tribunal. 

The decision can be viewed here.

Background

Given the current economic climate and the government's drive to find more cash, reducing the tax gap, which is currently £46.8bn, is an obvious target, and incentivising individuals to report non-compliance wish financial rewards is an approach that has been successfully deployed in other jurisdictions.   Against this backdrop, it is perhaps not surprising that the government has recently announced that a new reward scheme will be established later this year to encourage informants to report tax fraud to HMRC.  

HMRC currently offers discretionary rewards to informants, but publicly available information on the criteria used to determine eligibility and calculate payments is limited. However, available data suggests that total payments of around £1m were made in the 2023/24 tax year. This is a relatively modest sum when contrasted with the US and Canadian schemes, which are significantly more generous and underpinned by clearly defined eligibility criteria and transparent operational policies. 

The US and Canadian schemes offer fixed-percentage rewards based on the amount of additional tax recovered as a result of information provided by the whistleblower. As a result, the financial incentives can be substantial. For example, in 2024, three US whistleblowers shared an award of $74m after their disclosures led to the recovery of $263m in unpaid tax. Whether the new UK scheme will be as generous remains to be seen, but the government has confirmed that rewards will be “significant”.       

While the proposed scheme promises to enhance compliance, such a scheme also introduces serious new risks for corporates and wealthy individuals, who may see a sharp uptick in HMRC scrutiny triggered by both external sources and insiders 'tipping-off' HMRC.

Whistleblowing policies

Even legitimate tax planning might be identified by would-be whistleblowers, diverting significant time and resources to managing HMRC investigations and responding to compliance checks.

To mitigate such risks, corporates and wealthy individuals will need to carefully consider their historical and future tax compliance, and ensure that they have robust policies and procedures in place to ensure that they comply with their tax obligations and, importantly, limit any public perception of non-compliance.

Tax planning, offshore structures and cross-border transactions may require particular attention given their complexity and the fact that they have become priority areas for HMRC scrutiny in recent years.

Taxpayers should ensure that their tax affairs in these areas are underpinned by robust professional advice and comprehensive contemporaneous documentation that evidences the commercial rationale for any transaction, or arrangement.

Careful consideration should also be given to disclosure strategies, recognising that HMRC may take a more lenient approach where a potential tax risk has been identified and voluntarily disclosed to HMRC. 

Finally, corporates should ensure that robust whistleblowing policies are in place and are fully up to date with all applicable legislation. Such policies should provide clear and confidential channels for staff to raise genuine concerns. They should also make explicit that such concerns will be taken seriously by senior leadership, with transparent processes for further investigation and resolution.

Fostering a culture in which issues are addressed internally rather than escalated directly to HMRC will be critical in managing reputational, financial, and regulatory risk.

Given the volume of sensitive information shared with external third-party advisers, it is equally important to understand the whistleblowing policies those firms have in place, to ensure their staff are also encouraged to report concerns they may have through a rigorous internal process.

While it may not be possible to prevent individuals from making a disclosure to HMRC, especially when a substantial financial reward is on offer, a well-designed whistleblowing policy should encourage individuals in the first instance to raise any concerns they may have internally  rather than contact HMRC directly. Such a policy will also demonstrate that the organisation takes its tax compliance obligations seriously.

The tax affairs of corporates and wealthy individuals are already subject to unprecedented levels of scrutiny by HMRC, which demand the commitment of substantial time and resources, and the introduction of the new whistleblower scheme is likely to result in increased scrutiny from HMRC. Staying informed, understanding the implications for complex tax transactions/arrangements, and taking proactive steps to mitigate risk, are more important than ever.

New legislation, outlined in the Draft Finance Bill 2026, which is intended to reduce non-compliance, will introduce far-reaching changes to the umbrella sector.

The existing legislation for agency workers (Part 2, Income Tax (Earnings and Pensions) Act 2003) provides for recruitment agencies to be responsible for the operation of PAYE in respect of payments to agency workers. However, if the recruitment agency uses an umbrella company to employ the worker and provide payroll services, this obligation is transferred to the umbrella company.

Whilst many umbrella companies comply with their tax obligations and provide valuable services to recruitment agencies, HMRC considers that some are used to facilitate tax avoidance and fraud. In 2022/23, HMRC data suggested that £500m was lost to the government due to disguised remuneration tax avoidance schemes, almost all of which was facilitated by umbrella companies. In addition, hundreds of millions of pounds were purportedly lost due to "mini umbrella company" fraud - the use of multiple small limited companies to exploit tax thresholds intended for small businesses. HMRC have struggled to use their existing enforcement powers because it is claimed that once HMRC start to investigate an umbrella company it is relatively easy for the individuals involved to establish a new company.

The new legislation

To address this issue, new legislation is to be introduced which will make recruitment agencies jointly and severally liable for PAYE and National Insurance Contribution (NIC) in respect of payments to agency workers, even when an umbrella company is used. This will allow HMRC to pursue a recruitment agency in the first instance for any PAYE and NIC that a non-compliant umbrella company fails to remit to HMRC.

In circumstances where the end client is in a direct relationship with an umbrella company, the end client can be held jointly and severally liable in the same way.

This legislation will be introduced in Finance Bill 2025-26 and will have effect from 6 April 2026.

In light of these changes, some agencies and end clients may decide to operate their own payroll which will increase costs and disproportionately affect smaller businesses.

In any event, companies and individuals operating in the temporary recruitment industry should familiarise themselves with the new legislation before it comes into effect. The draft legislation and background documents can be found here.

What can you do to prepare?

Recruitment agencies should:

1. carry out due diligence: conduct a detailed review on all umbrella companies with whom they have a business relationship. Carefully check the details provided by umbrella companies concerning their products. Ensure all umbrella companies used are PAYE-compliant and maintain clear, auditable, payroll records
2. review contracts: update and regularly review agreements with umbrella companies and ensure they include provisions that protect your business against non-compliance risks
3. verify credentials: request compliance certifications from umbrella companies to confirm compliance with all relevant UK tax legislation. Be cautious of working with umbrella companies that are offshore or offer financial incentives to the recruitment agency or the employees themselves
4. take independent advice: take independent professional advice if you are unsure as to whether or not an umbrella company you are utilising, or intend to engage with, is compliant
5. plan for cost increases: with rising employer NICs, reassess existing pay structures to avoid reduced take-home pay for workers
6. stay engaged: monitor government updates, including consultations, guidance and draft legislation, to ensure you are fully prepared when the new rules take effect.

By taking these steps now, businesses can safeguard their operations and ensure a smooth transition when these changes come into effect in April 2026. If you would like to discuss the coming changes or if you, or a company in your labour supply chain, are contacted by HMRC and require expert advice and assistance please contact Adam Craggs, Michelle Sloane or Daniel Williams.

Gary Quillan was the sole director of BOH Investments Ltd (BOH). On 16 January 2017, BOH passed a resolution for the voluntary winding up of the company and a liquidator was appointed. At that time, Mr Quillan had an outstanding director's loan account balance of £439,954.

The liquidator demanded payment of the outstanding balance. Mr Quillan provided a statement of means to show that he had insufficient assets and income to meet the demand. He offered to pay £57,500 to settle the claim and the liquidator accepted this offer but, importantly, reserved the right to continue making enquiries into Mr Quillan's financial position so that the outstanding balance could be recovered if Mr Quillan received a windfall.

The liquidator's final report noted "no further funds are expected into the Liquidation in this respect" but they confirmed in a letter to HMRC that the matter remained unresolved and the loan was not formally written off.

Despite this confirmation, HMRC considered that the loan should be treated as written off for the purposes of section 415, ITTOIA. That section provides for income tax to be charged on an outstanding loan to a participator when "the company releases or writes off the whole or part of the debt in respect of the loan". HMRC issued a closure notice on that basis, pursuant to section 28A, TMA.

Mr Quillan appealed the closure notice to the FTT, arguing that the loan had not been written off or released. 

FTT's decision

The appeal was allowed.

HMRC sought to convince the FTT that since "written off" is not given a statutory meaning, it should be interpreted in accordance with the Cambridge English dictionary definition of the phrase: "to accept that an amount of money has been lost or that a debt will not be paid". 

HMRC also relied on Collins v Addies (HM Inspector of Taxes) [1991] BTC 244, in which it was contemplated that "a debt which is written off may yet be recovered by a company if it discovers that the debtor’s circumstances have changed so that it is no longer unable to repay the creditor company".

The FTT was not persuaded by these arguments, primarily because there was a formal process available to the liquidator to write off or release the loan and they deliberately chose not to follow that process. The liquidator had expressly stated that the loan had not been written off and that Mr Quillan could be pursued at a later date. 

Comment

This decision confirms that a loan to a participator that is unlikely to be repaid at the time of liquidation is not necessarily written off, and attention must be paid to the formal processes available to the liquidator. 

The decision runs contrary to HMRC's guidance (CTM61560), which currently states:

"Equally, where the liquidator does not write off or release the loan balance, but, on a balanced view of the facts, it is clear that the company and/or liquidator are not intending to pursue the outstanding loan, e.g. where they are not making any attempts to collect it or have given up any attempts to do so, then we should argue that the loan has been written off and that S415 ITTOIA05 should apply to the relevant amount..

It will be interesting to see whether HMRC will revise its guidance, or perhaps more likely seek to appeal the FTT's decision to the Upper Tribunal. 

The decision can be viewed here. 

HMRC is targeting taxpayers who have claimed tax relief for interest paid, or other debits relating to loans, where they suspect that one of the taxpayer's "main purposes" for entering into the loan relationship was to avoid tax.

Unallowable purpose

The "unallowable purpose" rule prevents companies deducting interest and other debits for UK corporation tax purposes if one of the main purposes of entering into the underlying loan relationship is to reduce its corporation tax liability. The application of the rule has been the subject of substantial litigation and uncertainty because it is unclear to what extent it is acceptable to factor tax consequences into the design of financing arrangements.

The Court of Appeal recently considered the application of the unallowable purpose rule in three separate appeals: BlackRock Holdco 5 LLC v HMRC [2024] EWCA Civ 330; Kwik-Fit Group Ltd and other companies v HMRC [2024] EWCA Civ 434; and JTI Acquisitions Company (2011) Ltd v HMRC [2024] EWCA Civ 652. All three decisions emphasised the importance of reviewing contemporary documentary evidence to ascertain the subjective purpose of the company in entering into the loan relationship.

HMRC's latest nudge letters

HMRC has recently written to taxpayers with open enquiries into the application of the unallowable purpose rule. The letters request the recipient taxpayers to reconsider their position in light of the Court of Appeal's decisions in the above cases and try to resolve the matter through without prejudice discussions with HMRC.

The letter also indicates that HMRC are continuing to challenge cases where they believe the "facts, circumstances and evidence" show that a company has entered into a loan relationship and one of the main purposes for doing so was avoiding tax.

A copy of HMRC's letter has been published by the ICAEW and can be found here.

Further action

If you are contacted by HMRC in relation to the above (whether you have an open enquiry or not) and require expert advice and assistance in this complex area of the law, please contact Adam Craggs or Michelle Sloane.

This case concerned the tax treatment of guaranteed licence fees received by the Vaccine Research Ltd Partnership (the Partnership), as part of a complex, circular financing arrangement (the Scheme). Patrick Lionel Vaughan, an individual partner in the Partnership, and the Partnership, were the appellants (the Appellants).

The Scheme was designed to generate trading losses for income tax purposes through claimed research and development expenditure and associated capital allowances. While some qualifying expenditure was accepted (approximately £14 million out of £193 million claimed), the majority of the activity was found by the Upper Tribunal, in Vaccine Research Ltd Partnership and Anor v HMRC [2014] UKUT 359 (TC), to lack genuine trading substance and involved a circular flow of funds.

The earlier decisions dealt primarily with the partners' entitlement to loss relief and did not address whether the incoming licence fees were taxable (one feature of the Scheme was the guaranteed receipt of licence fees by the partners to fund the cost of repaying the loans taken out to fund the Scheme). This issue was considered in the present appeal, with HMRC contending that the fees were taxable under either section 683 (annual payments) or section 687 (income not otherwise charged), ITTOIA 2005.

FTT's decision

The appeals were allowed.

HMRC argued that the licence fees were taxable under sections 683 or 687, as they were payments made for the use of intellectual property and therefore should be treated as income.

The Appellants contended that the licence fees were not taxable for two primary reasons. Firstly, they argued that the funds borrowed to finance the Scheme were not used to acquire the licence fees. Instead, the money was returned to the bank as part of a circular arrangement, and thus no income had been generated in the transaction. This circular flow of funds meant that the licence fees should not be considered taxable income.

The FTT rejected this argument. Despite the circular nature of the arrangement, the FTT noted that the legal rights and obligations set out in the relevant documentation were clear and the original decision of the FTT had accepted these terms. Disregarding the rights and obligations outlined in the documents would be inconsistent with the factual findings of the FTT and so this ground of appeal was rejected.

The Appellants' second argument was that, applying the Ramsay principle of statutory interpretation, the Scheme should be treated as a single composite self-contained transaction. Accordingly, the circular flow of funds did not create any income for tax purposes and therefore the licence fees were not taxable under sections 683 or 687, ITTOIA 2005.

The FTT agreed that it was bound to apply the Ramsay principle of statutory interpretation and it therefore adopted the requisite two two-step process of: (1) identifying the class of facts intended to be affected by the legislation interpreted purposively; and (2) determining whether the facts of the case fell within that class, namely, whether the licence fees were income.

The FTT noted that, in economic reality, the licence fee payments were simply part of a circular flow of funds. The borrowed money was returned to the lender to service the debt and nothing substantive had occurred to generate income in the traditional sense. Accordingly, the FTT concluded that the licence fees did not meet the definition of income and were not subject to tax under sections 683 or 687, ITTOIA 2005.

Comment

This case is noteworthy because it was the taxpayers, rather than HMRC, who successfully relied on the Ramsay principle of statutory interpretation by persuading the FTT that the Scheme should be viewed as a composite transaction. The FTT's decision confirms that the Ramsay principle is not the exclusive preserve of HMRC. The key issue in this case was the economic reality of the transactions under consideration. Despite the appearance of licence fee payments, the circular flow of funds meant that no income had been generated.

The FTT’s approach in this case can be contrasted with its recent decision in Lynch v HMRC [2025] UKFTT 300 (TC) (which was heard after The Vaccine Research case had been heard but in which the FTT delivered its decision before the FTT delivered its decision in the The Vaccine Research case), where the FTT found that part of a composite transaction could be taxed notwithstanding that the scheme, as a whole, was ineffective. While both decisions involve the application of the Ramsay principle, there are slight differences in the legal reasoning of the FTT and the application of the principle, in each case. Any taxpayer seeking to invoke the Ramsay principle as an aid to statutory interpretation, will no doubt wish to consider both decisions carefully.

The decision can be viewed here. 

The APA entities brought a JR claim against HMRC challenging HMRC's approach to the APA for 2018 (the JR claim). The JR claim was dismissed by the Upper Tribunal and the Court of Appeal, but an application was made for permission to appeal to the Supreme Court. 

HMRC kept its 2018 corporation tax enquiries into the Applicants open whilst this application for permission remained undecided. The Applicants wished for HMRC to close its enquiries and applied to the FTT, pursuant to paragraph 33, Schedule 18, Finance Act 1998, for a direction requiring HMRC to close its enquiries and issue closure notices (the Application). 

HMRC accepted that it had "no reasonable" grounds for not closing the enquiries in respect of the four non-APA entities. The Applicants argued that HMRC was in receipt of all relevant information and had come to an "informed judgment" in respect of the APA Entities, and that the enquiries had continued unnecessarily. HMRC resisted the Application, claiming the outcome of the pending application for permission to appeal before the Supreme Court in the JR claim could affect its enquiries.

FTT decision 

The Application was granted

The FTT found that HMRC had failed to meet the burden which was on it to show that there were reasonable grounds for it not issuing the closure notices sought and directed HMRC to issue closure notices to each of the Applicants for 2018, within specific timeframes.

Whilst the FTT acknowledged it could be considered reasonable for HMRC to want to know the outcome of the JR claim and its impact on the relevant APA and transfer pricing dispute, in its view, ongoing JR proceedings do not justify or present reasonable grounds for keeping enquiries open. The basis for this was that HMRC had sufficient information to issue closure notices wide enough to capture any changes that might arise following the Supreme Court's decision in the JR claim. In addition, the FTT had the power to make any consequential adjustments to the quantum referred to in closure notices.

The FTT also noted that:

• HMRC had no outstanding information requests, and the Applicants had been fully cooperative and compliant with HMRC's requests for information for over 10 years;

• further delay would risk evidence deteriorating and/or witnesses being unavailable; and

• HMRC was holding over £300m of the Applicants’ money which could not be repaid unless and until the FTT ruled in their favour. 

Comment 

One of the keenest areas of contention between HMRC and taxpayers is the length of time that enquiries can take before they are concluded. 

Unfortunately, there is no time limit by which HMRC is required to conclude an enquiry and, sadly, it is not uncommon for enquiries to go on for many years, as was the position in this case. Increasingly, taxpayers are seeking an appropriate direction from the FTT requiring HMRC to issue a closure notice within a specified period of time and in appropriate cases the FTT has shown itself to be sympathetic to such applications, as in this instance. 

The decision can be viewed here. 

George Mantides Ltd (GML) received income in connection with locum services provided by Mr George Mantides, a doctor specialising in urology and also sole director and shareholder of GML, to the Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH). 

HMRC determined that the income was liable to income tax and national insurance contributions on the basis of the application of the "intermediaries legislation" in sections 48-61, Income Tax (Earnings and Pensions) Act 2003 and equivalent provisions in the Social Security Contributions (Intermediaries) Regulations 2000, commonly known as IR35. 

GML appealed to the FTT against HMRC's determinations regarding income tax and national insurance contributions. 

The FTT allowed the appeal in relation to the services provided by Mr Mantides to MMH but not in relation to the services he provided to RBH. 

The FTT applied the well-known legal test set out in Ready Mixed Concrete v Minister of Pensions and National Insurance [1967] 2 QB 497, in relation to the necessary conditions for a contract of service and considered associated authorities. Under this test, the FTT considered the following:

1. The mutuality test – the servant agrees that in consideration of a wage or other remuneration, he will provide his own work in the performance of some service for his master.
2. The control test – the servant agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master.
3. The inconsistency test – the other provisions of the contract are consistent with it being a contract of service. 

The FTT reached different conclusions in relation to materially similar arrangements. With regard to RBH, the FTT held that the circumstances were such that if Mr Mantides' services had been provided under a contract directly between RBH and Mr Mantides, then he would be regarded, for income tax purposes, as an employee of RBH. In relation to the services provided to MMH, the FTT held that the circumstances were such that if the services of Mr Mantides had been provided under a contract directly between MMH and Mr Mantides, then he would not be regarded, for income tax purposes, as an employee of MMH. 

GML appealed the FTT's decision in relation to RBH to the UT, on the following grounds:

1. the FTT made an error of law in finding that the hypothetical contract between RBH and Mr Mantides would have contained a provision that RBH would have to give at least a week's notice to terminate early (the First Ground);
2. the FTT made an error of law in finding that in the hypothetical contract RBH would have been under an obligation to use reasonable endeavours to provide 10 half day sessions in a week (the Second Ground); and
3. as a result of these errors, the FTT erroneously concluded that the notional contract would be one of employment (the Third Ground). 

UT decision

The appeal was heard, in part, by the UT in July 2021 and its decision released in August 2021. The UT concluding that GML had established the errors of law set out in the First Ground and Second Ground. However, the UT deferred consideration of the Third Ground until after the final determination of HMRC v Professional Game Match Officials Ltd [2020] UKUT 147 (TCC) (PGMOL).

In April 2025, following the final determination of PGMOL and further submissions from the parties, the UT dismissed GML's appeal. This was even though the UT accepted that the FTT had made material errors of law as argued by GML in relation to the First Ground and Second Ground. 

The UT was satisfied that, on balance, having considered all the terms of the RBH hypothetical contract, all the circumstances, the errors made by the FTT and the FTT's other findings which were not challenged, the RBH hypothetical contract was a contract of employment. Accordingly, the FTT came to the right conclusion.

Significantly, in reaching its decision on the Third Ground, the UT found that even though GML argued that the MMH contract was indistinguishable from the RBH contract, it was not appropriate to simply compare the position in relation to the MMH hypothetical contract. 

Comment 

The UT’s decision confirms that the Supreme Court’s guidance in PGMOL, on what constitutes an employment relationship, is pertinent to the application of IR35 and it demonstrates the way that the tax tribunals are likely to direct themselves following PGMOL.

Contractors and engagers should ensure that they have reviewed and updated, where necessary, their contracts following the PGMOL decision. What may have been reliable in terms of mutuality of obligations and control, may no longer provide a robust defence to a challenge by HMRC.

The decision can be viewed here. 

Background

The government has recently announced a consultation on modernising and improving HMRC’s approach to dispute resolution. The consultation follows an HMRC call for evidence in February 2024, that sought views on aspects of the tax administration framework relating to tax compliance, including dispute resolution. A summary of responses to the call for evidence was published at the 2024 Autumn Budget, and the government committed to consulting on how to raise awareness of the dispute resolution processes, improve access to alternative dispute resolution (ADR) and statutory review, and improve taxpayers’ knowledge to help them make the right choices for their circumstances.

The consultation is open until 7 July 2025, and seeks views on options for simplifying, modernising and reforming HMRC’s approach to dispute resolution, focussing on the ease of access and use of HMRC’s ADR and statutory review processes.

The consultation

The consultation explains that, wherever possible, HMRC will look to resolve disagreements without it being necessary to use formal dispute resolution mechanisms and observes that the vast majority of tax compliance interventions conclude without dispute. 

Respondents to the 2024 call for evidence widely agreed that improving access to ADR and statutory review is essential. Those mechanisms are currently underutilised, largely due to limited public awareness and concerns about their independence. As a result, many taxpayers opt to escalate disputes to the First-tier Tribunal (FTT), which is a more costly and time-consuming route for both parties. External research, referred to in the consultation document, also highlighted key barriers to the uptake of statutory review, including a lack of understanding of the process and its advantages, as well as a perception that it is not impartial.

A majority of respondents to the 2024 call for evidence, also supported aligning appeal processes across direct and indirect taxes. In that regard, respondents favoured the approach used in direct taxes, including the ability to apply to HMRC to postpone the payment of the tax owed (as opposed to the indirect tax approach, which requires upfront payment in order to appeal to the FTT, unless hardship can be established).

In light of the above, the consultation highlights two key objectives:

1. to make it easier to resolve disagreements before the end of a compliance intervention, supporting taxpayers to pay the right tax, through simplification and alignment of processes across different taxes; and
2. to make it easier for taxpayers to understand their options once an enquiry has concluded so that, if a dispute does remain, taxpayers can identify and access the quickest and most appropriate method of dispute resolution for their circumstances.

To that end, the consultation is focussed on opportunities for improvement at various points in the "taxpayer journey", both during and after a compliance intervention has closed. 

Potential reforms

The consultation proposes, and seeks stakeholder views on potential reforms to HMRC's dispute resolution process in the following areas. 

Improving support and guidance

HMRC is considering a number of improvements to the support and guidance for taxpayers during a compliance intervention, noting that taxpayers may not have prior knowledge of their rights and obligations, especially where they do not have access to professional representation. To that end, in 2023 HMRC published the Compliance Professional Standards, which set out how HMRC should apply its Charter and the Civil Service Code in its compliance activity and which the consultation notes will be a key component of HMRC’s approach to improving dispute resolution.

As part of the consultation, HMRC is exploring the scope for streamlining the online process for applying for dispute resolution, such as ADR or statutory review, to make it more accessible. The consultation notes that streamlining the online application process and integrating it with digital systems, such as customer tax accounts, could improve taxpayer trust, increase transparency in the system, and lead to better user engagement.

Simplifying and aligning processes

The consultation is also exploring the benefits of a more simplified and aligned approach for appeals that would combine the benefits of both indirect and direct taxes approaches. At present, the direct tax process generally requires the taxpayer to have appealed an appealable decision to HMRC, before the statutory review process can be engaged. For indirect taxes, HMRC can provide an initial "pre-decision" letter to explain its position before issuing a formal decision which can then be appealed.  

The majority of respondents to the 2024 call for evidence supported aligning the direct and indirect appeals processes, specifically favouring the approach used in direct taxes, as it allowed for more opportunities to use ADR before and after an appealable decision was issued. Accordingly, the consultation suggests that the direct and indirect tax processes could be aligned into a single model as follows:

• If appropriate, HMRC issues a pre-decision letter prior to the formal decision letter. This would allow a taxpayer to query or clarify any details prior to a formal decision being issued, and provide an opportunity to reach a settlement that is compliant with HMRC's Litigation and Settlement Strategy (LSS). ADR could be used at this stage, if appropriate.
• If an early settlement is not reached, HMRC would issue its formal decision and make an offer of statutory review.
• The taxpayer could accept the formal decision. Alternatively, the taxpayer would have 30 days to accept or decline the offer of a statutory review, in line with current statutory time limits, or they could choose to appeal to the FTT instead.
• ADR would continue to be available after receiving an appealable decision.
• After the statutory review or ADR is concluded, the right to appeal to the FTT would remain in line with current statutory time limits.
• Currently, a taxpayer can appeal to the FTT without considering ADR. However, the consultation notes that HMRC could implement a requirement for the taxpayer to consider ADR for suitable cases, prior to an FTT appeal.

A number of legislative changes would be required to implement the above model, most notably the removal of the requirement for an initial appeal to HMRC in direct tax cases. The consultation notes that a simplified and aligned model of this nature could be helpful in improving understanding of the appeals process and reduce the possibility for error, with a focus on suitable resolutions that provide taxpayers with certainty.

However, the consultation also recognises that there are a number of challenges in aligning the appeals processes. In particular:

• A risk of oversimplification.
• Potential impacts on the ability to access appropriate resource and level of technical input within HMRC noting, for example, that pre-decision letters can require the input of technical leads with s sufficient level of expertise.
• For automated decisions, there would continue to be no opportunity for early dispute resolution prior to statutory review. However, HMRC is interested in views on whether a more informal consideration stage might be appropriate in these circumstances to allow for a taxpayer to provide additional information or ask questions.

Improving access to ADR

The consultation recognises that ADR can be of significant benefit in resolving disputes with HMRC (noting that 84% of cases entering ADR in 2023-2024 were resolved) but acknowledges that a significant number of applications for ADR are rejected (approximately 61% of applications in 2023-2024). Part of the reason ADR applications can be rejected is the requirement for appeals to the FTT to be acknowledged and categorised before they can be accepted into the ADR process, and the exclusion of "paper" and "basic" appeals from ADR.

The consultation states that feedback from a recent HMRC review of its ADR exclusion list has highlighted that the current list is too restrictive and creates barriers in accessing ADR. As a result, HMRC is developing a "principle-based approach" for cases entering the ADR process to widen the scope of cases accepted into ADR and help resolve more disputes at the appropriate stage. The consultation proposes the following reforms:

• More active promotion of ADR by HMRC during a compliance intervention.
• Potentially making it a requirement for both taxpayers and HMRC to have considered ADR prior to appealing to the FTT. This would not be a requirement to have participated in ADR where it was not suitable, but rather a requirement for both parties to have given it due consideration prior to an appeal.

Next Steps

The consultation is being conducted in accordance with the Tax Consultation Framework and is open until 7 July 2027. A list of the specific questions being considered by the consultation can be found here and interested stakeholders can submit their views by way of email to tafrcompliance@hmrc.gov.uk. 

While there are no timeframes given beyond the consultation, in accordance with the Tax Consultation Framework, the next steps will be:

• Stage 2: Determining the best option and developing a framework for implementation, including detailed policy design.
• Stage 3: Drafting legislation to effect the proposed change.
• Stage 4: Implementing and monitoring the change.
• Stage 5: Reviewing and evaluating the change.

Comment

Tax practitioners will be familiar with the challenges of resolving disputes with HMRC and the considerable strain the current process places on their clients. Long delays, difficulty in reaching suitably skilled HMRC personnel, a lack of transparency in explaining decisions, frequent personnel changes, and the growing scope and complexity of tax legislation and policy, all create major obstacles to resolving even the most straightforward disputes in a timely and cost-effective way. These issues not only frustrate taxpayers but also lead to significant financial and emotional cost. While the consultation falls short of addressing all of these problems, any steps to improve the dispute resolution process are to be welcomed.

In terms of the specific proposals, efforts to streamline processes and increase the availability of information for taxpayers are undoubtedly positive. While the ADR application process is relatively straightforward and not overly burdensome, our experience suggests that many taxpayers are unaware of its existence, or are sceptical of its effectiveness. Providing clearer, more accessible information about taxpayer rights and the available options, is likely to enhance both awareness and participation in the ADR process as a means of resolving disputes with HMRC.

Similarly, aligning the appeal processes for direct and indirect taxes is also a logical and long overdue step. Taxpayers are often tripped up by unnecessary differences between the two processes, despite there being no sound policy rationale for treating direct and indirect taxes differently. One of the most significant and long-standing concerns is the requirement to pay disputed tax upfront in indirect tax cases – which can act as a barrier to access to justice. It is difficult to justify a system where, for example, a billionaire contesting an income tax assessment can appeal to the FTT without paying a penny of the tax claimed in advance of their appeal, while a small business owner disputing a VAT demand must pay the disputed VAT first in order to be able to exercise their right to have their appeal determined by an independent tribunal. This disparity is not only unfair, it undermines confidence in the accessibility and equality of the tax system.

The proposal to introduce pre-decision letters is also potentially a step in the right direction. While HMRC enquiries can drag on for substantial periods of time, decisions, once made, often trigger a rapid escalation that can force taxpayers into premature litigation simply in order to preserve their position. Allowing for a pause to consider HMRC's position, free from the pressure of litigation deadlines, is a sensible step that could lead to more disputes being resolved without recourse to the FTT. However, in order for the pre-decision process to be effective, HMRC must commit to greater transparency. Taxpayers need sufficient detail to understand the case against them and the underlying legal analysis before they can make informed decisions about their position. This would mark a significant shift in HMRC’s usual approach, and practitioners will recognise HMRC’s general reluctance to fully disclose its reasoning, which can impede constructive dialogue and early resolution of a dispute. In this context, the consultation is also correct to emphasise the importance of involving technical leads with the appropriate specialist expertise early in the process. Their input will be essential in ensuring that HMRC’s position is clearly and accurately set out in pre-decision letters. Given the variable quality of HMRC correspondence in recent years, there may be understandable scepticism about whether HMRC can meet this challenge in practice.

However, while proposals to enhance taxpayer information and streamline the appeals processes are commendable, the expansion of access to ADR is likely to attract the most attention from tax practitioners. With litigation becoming increasingly costly and time-consuming – further compounded by mounting pressure on tribunal and court resources – there is a pressing need for more effective and accessible alternatives for resolving tax disputes. In that regard, the revised Practice Statement on Alternative Dispute Resolution in Tax Disputes, recently issued by the FTT, confirms the judiciary’s recognition of ADR as an effective tool for resolving tax disputes.   

The consultation rightly recognises that while taxpayers generally welcome the option of engaging in ADR with HMRC, the current system has too often limited access to ADR rather than promote it. This has been to the detriment of both taxpayers and HMRC, frequently leading to avoidable and time-consuming litigation. Proposals to expand access to ADR are therefore positive and a much-needed development.

A central concern for both taxpayers and practitioners alike, and one acknowledged by the consultation, is the perceived lack of independence in HMRC’s current ADR process. Beyond the initial decision to engage in ADR, the process remains entirely within HMRC’s control. HMRC determines which cases qualify, who gains access, how the process is conducted, and even appoints the mediator, who will be an HMRC employee. In effect, HMRC acts as both gatekeeper and judge, setting the rules and overseeing disputes relating to its own decisions. This arrangement undermines confidence in the process and raises serious concerns about impartiality and fairness. Crucially, the consultation’s failure to explore how greater independence could be introduced into the ADR process, including by the use of independent external mediators, represents a missed opportunity to enhance confidence in the system and ensure a more balanced approach to tax dispute resolution.

Overall, the consultation offers a valuable opportunity for practitioners, taxpayers, and other stakeholders to influence how HMRC might approach dispute resolution in the future and to help shape a fairer and more effective system. Practitioners, in particular, are well positioned to contribute meaningful insights, drawing on their day-to-day experience and deep understanding of the current system’s strengths and weaknesses. Their contribution is likely to be critical in ensuring that any reforms address the real-world challenges faced by many taxpayers when a dispute arises with HMRC. It is therefore important that there is meaningful engagement in this consultation process, especially by those on the front line who deal with tax disputes on a regular basis.

Copyright 2025 Bloomberg Industry Group, Inc. (800-372-1033) www.bloombergindustry.com. Reproduced with permission.

Introduction

The Trump administration's flood-the-zone strategy has shaken the foundations of the global economy. 'Liberation Day' tariffs recently imposed - and then paused - signalled an uncompromising stance on trade, and the so-called special relationship between the US and the UK seemed to offer the UK little protection.

Against that backdrop, and with the UK government eager to avoid the fallout of a trade war while chasing the prize of a lucrative trade deal, speculation that Downing Street might be rethinking the Digital Services Tax (DST) to keep Washington onside felt less like rumour and more like realpolitik. But that speculation was short-lived.

DST

DST was introduced to address what the UK government viewed as a fundamental misalignment in the international tax system - the disconnect between where profits are taxed and where value is actually created in the digital economy. Policymakers argued that the existing global framework allowed major multinational tech companies to avoid contributing their 'fair share' in markets where their users played a key role in generating value.

The DST was designed to close this perceived gap, ensuring such companies paid taxes that better reflected their economic footprint in each country. Crucially, the tax was positioned as a temporary measure - a bridge to more comprehensive, long-term international tax reform.

Businesses that operate social media platforms, search engines, or online marketplaces for UK users become liable for DST if their group's global revenues from those activities exceed £500 million ($637.3 million), with more than £25 million generated from UK users. Once those thresholds are met, DST applies a 2% tax on revenues attributable to UK users, with an exemption for the first £25 million.

DST is reportable and payable annually, and liability is assessed at the group level, although DST itself is levied on the specific entities within the group that earn the relevant revenues. For DST purposes, the group includes all entities consolidated in the group's financial accounts, which means that even entities with no UK corporate tax presence may contribute to DST thresholds.

DST and US trade negotiations

It is not difficult to see how DST, and the financial burden it imposes on US tech companies, might be seen as being incompatible with President Trump's America-first agenda, making it a potential sticking point in US-UK trade relations. Commentators were therefore extremely interested in how the UK government would negotiate that tension. Indeed, reports suggested the UK might be prepared to reduce the headline rate while broadening DST, to bring more companies within its ambit. That would have delivered a tax break to large, primarily US, tech companies, while ensuring that overall DST revenues did not decline.

As with all things Trump-related, opinion was sharply divided. In principle, there would be nothing objectionable with the government adjusting  DST in pursuit of broader, more economically significant gains. In an era of increasingly complex trade dynamics, pragmatism is important and a prudent government, acting in the national interest, would be wise to keep all options on the table.

In that context, changing DST was considered by some to be a price worth paying in order to secure an attractive trade deal for the UK - particularly one that delivered long-term benefits for the UK economy. Few would criticise a government that adopted a commercially pragmatic approach that prioritised economic stability, particularly when the UK economy, while showing signs of growth, faces some serious challenges, including persistent inflation and a recent contraction in gross domestic product.

However, such a decision would still risk controversy. For those advocating greater corporate accountability and tax transparency, especially for powerful multinational enterprises, reducing or scrapping DST altogether risked being seen as a retrograde step that would raise difficult questions on the influence of geopolitics over tax policy and compliance. In that regard, a deal involving DST could have been seen as an indication that UK tax policy can be bought and traded, which would run counter to HMRC's campaign in recent years for more taxpayers to pay their 'fair share' of tax and for greater corporate transparency in the tax system.

Given that DST generates over £800 million a year for the UK Treasury, and with public finances under considerable strain, it was always unlikely that the government would relinquish such revenue lightly. Indeed, clearly alive to those sensitivities, following the Spring Statement, the Chancellor was at pains to reiterate that the integrity of the tax system depended on multinational enterprises paying tax where they operate. She also made clear that the UK would retain full control over its tax policy, including decisions relating to DST.

On 8 May 2025, the US and UK announced the general terms for a bilateral trade agreement known as the Economic Prosperity Deal (EPD). Under the EPD, tariffs on UK-manufactured cars were immediately reduced to 10%, while tariffs on UK steel and aluminium were removed entirely. The US and the UK also agreed to immediately begin the corresponding negotiations concerning the initial proposals of EPD which, in the future, may be extended to other areas. Notably, the EPD made no mention of DST, suggesting that the UK has resisted pressure to compromise on its tax policy, at least for now.

The future of DST

The Trump administration has made no secret of its intention to prioritise the interests of US industry and business in both domestic and international policymaking. That approach, combined with the administration's deal-making style, has disrupted the longstanding norms of international trade and the established rules of diplomacy, forcing other governments to adopt more flexible, and at times unconventional, strategies in their dealings with the US. The UK is no exception.

While tax policy has traditionally been considered independently of trade negotiations, tax and trade now appear to be increasingly intertwined, even if they remain uneasy partners at times. The challenge for the UK government lies in identifying which adjustments to its tax policies, if any, would satisfy US demands without alienating UK and non-US foreign businesses, or undermining the integrity of the UK tax system.

Although DST has survived for now, it is clear that Washington still views it as incompatible with its America first policy. Pressure on the UK government to make concessions may well resurface in the not too distant future. Balancing the UK’s established tax policy principles with the volatile dynamics of Trump-era economic diplomacy, will be no easy task. The UK is not alone in facing this dilemma, it is a challenge facing many governments around the globe.

Orsted West of Duddon Sands (UK) Ltd, Gunfleet Sands II Ltd, Gunfleet Sands Ltd and Walney (UK) Offshore Windfarms Ltd (the Appellants) owned and operated windfarms for the generation and sale of electricity. In 2000 and 2003 the Crown Estate invited tenders to develop certain areas of sea bed as windfarms. The Appellants made successful bids and secured the contracts.

The Appellants claimed capital allowances for expenditure incurred in the construction of the wind farms. HMRC disputed the capital allowances claims arguing that certain pre-construction development expenditure on preliminary studies, such as environmental impact studies, water level studies and geophysical studies, did not qualify for capital allowances under section 11, Capital Allowances Act 2001 (CAA 2001).

Section 11, CAA 2001, provides that expenditure is qualifying expenditure if: "it is capital expenditure on the provision of plant or machinery … ". HMRC argued that section 11 should be construed narrowly and only apply to the acquisition, transportation and installation of plant or machinery, as opposed to design and preliminary studies.

HMRC therefore issued closure notices denying the capital allowances in respect of expenditure on the various studies. The Appellants appealed to the First-tier Tribunal (FTT).

The FTT held that some of the expenditure qualified for capital allowances, but not all. Both parties appealed to the Upper Tribunal (UT). The UT considered that the FTT had erred in its interpretation of the phrase "on the provision of". It agreed with HMRC that it should be construed narrowly and concluded that none of the studies qualified for capital allowances.

The Appellants appealed to the CoA, primarily on the issue of the meaning of the phrase "on the provision of".

 CoA's judgment

The CoA disagreed with the UT's narrow interpretation and held that where the relevant plant and machinery was bespoke, expenditure on design costs and costs of studies informing the design, should qualify for capital allowances. 

The CoA concluded that capital allowances can be claimed where: 

(a) the taxpayer can demonstrate that, looking at matters objectively and with the benefit of hindsight, expenditure informed the design of plant or machinery, or how it was to be installed; 

(b) the expenditure related to plant or machinery which was in fact acquired or constructed; and 

(c) the expenditure did not arise from characteristics or circumstances particular to the specific taxpayer.

Comment

Questions such as were raised in this appeal are becoming more acute as very large infrastructure projects require extensive and costly preparatory work and this decision provides much needed clarification and guidance on the types of preparatory work that can qualify for capital allowances. Large infrastructure projects often involve many years of planning and investigation and this decision is likely to be closely scrutinised by businesses involved in such projects. 

Unsurprisingly given the amount of tax at stake, HMRC has applied to the Supreme Court for permission to appeal. 

The judgment can be viewed here. 

Introduction

On 11 March 2025, the government issued a press release which included details of a number of initiatives, including plans for a new reward scheme to be launched later this year which is intended to encourage ‘whistleblowers’ to provide HMRC with details of suspected tax fraud. The stated aim is to "target serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes".

The government has said that this initiative will complement the existing HMRC rewards scheme. Informants who tip-off HMRC could receive a significant amount of "compensation", which will be calculated as a portion of any sum HMRC is able to collect as a consequence of acting on that information. The government has said the new reward scheme will take inspiration from the US and Canadian whistleblower models and it is therefore helpful for us to consider those models.

The US model

The US tax fraud whistleblower programme was introduced in 2006 and is run by the Whistleblower Office, a separate office within the US Internal Revenue Service (IRS). It provides for mandatory percentage awards and an appeal system under which whistleblowers can appeal decisions against final determinations by the Whistleblower Office to the US Tax Court. Such appeals can be against the amount awarded, or denial of a claim, but there is no right of appeal against a decision by the Whistleblower Office not to pursue enforcement. The programme primarily targets tax evasion, but can also apply to tax avoidance where, in the view of the IRS, aggressive or abusive strategies have been implemented.

The programme uses specific, detailed forms (a single submission to the Whistleblower Office can be used to report multiple taxpayers) and there are a number of formal procedural rules which must be followed (governed by statute, regulations and internal procedural rules) which, for example, provide eligibility criteria, how awards are to be determined, and appeal rights and processes. Notably, non-US citizens are eligible to submit information, participate and receive awards. The Whistleblower Office will only determine quantum and make a payment to the whistleblower once a case has been finally resolved and the proceeds collected. Given the complexity involved in tax investigations and the possibility of litigation, this process can typically take between five and ten years before being concluded. The Whistleblower Office makes every effort to protect the identity of whistleblowers, but it does not guarantee full anonymity, especially in cases that proceed to litigation, or involve criminal proceedings.

The programme is available in cases where an individual taxpayer has a gross minimum income of at least $200,000 for the taxable year in question, or the proceeds in dispute exceed $2m. The IRS will pay whistleblowers 15% to 30% of any additional tax collected through investigations instigated as a consequence of information received from whistleblowers, with no cap on the total amount it will pay provided it is within the appropriate percentage. Accordingly, the financial payments made by the IRS can be, and often are, substantial. The percentage an individual will receive will depend on the extent to which they have "substantially contributed" to the additional tax recovered by the IRS and is dependent on a series of positive and negative factors which are set out in IRS manuals and guidance. Positive factors that may increase the award percentage include:

• the provision of original information;
• the degree of assistance provided to the IRS;
• the extent of any professional or personal risk taken;
• specificity and credibility;
• promptness; and
• the impact of the information.

Conversely, negative factors which may decrease the percentage include:

• the whistleblower’s own involvement in the wrongdoing;
• delayed reporting;
• any lack of co-operation with the IRS;
• the provision of information already known to the IRS; and
• vagueness or violation of the law in obtaining information.

There also exists a separate discretionary reward system operated by the IRS, under which a maximum of 10% of any additional tax can be paid to persons who have provided less substantial information which, for example, may have originated from a judicial or administrative hearing, a government report or the media. No appeal rights exist against decisions made by the IRS in respect of such discretionary awards.

The IRS’s Whistleblower Office’s 2023 annual report – its most recent – was released on 24 June 2024 and covers the 2022-23 fiscal year. The report provides details and analysis of the $88.8m of payments made, based on a collection of additional tax of $338m, as a consequence of the information and reports it received from whistleblowers. In this period, 6,455 submissions were received, 16,932 award claims were established (up 44% on the average number in the prior four years) and 121 awards were paid. The average percentage of tax recovered awarded to whistleblowers was 26.3%, a substantial increase from the 14.7% and 21.9% awarded in 2021 and 2022, respectively. The payment of $88.8m was more than double the amount paid in 2022, and is indicative of the ever-increasing popularity of this programme and the financial returns it provides to both whistleblowers and the IRS. In one settlement last year, an individual was obliged to pay $263m to the IRS and this enabled three anonymous whistleblowers to share $79m.

Since its first award to a whistleblower in 2007, the IRS has paid over $1.2bn to whistleblowers and collected an additional $7bn in tax as a consequence of the information it has received from whistleblowers.

The Canadian model

Canada has two whistleblower programmes.

The Leads Program

The Canada Revenue Agency (CRA) operates a Leads Program (the Program) for reporting suspected tax or benefit cheating. However, financial rewards are not offered for information submitted through the Program.

The Program is non-legislative and complements other CRA compliance activities such as audits and criminal investigations. Anonymity and the protection of personal information is central to the Program, but this cannot be guaranteed, especially if the person concerned is a key witness in litigation or criminal proceedings. Unlike the US model, the CRA does not keep an informant updated as to the status or outcome of any investigation conducted under the Program.

There is no officially stated minimum amount that must be at risk in order to make a submission under the Program, however the amount is important in forming the CRA’s approach in terms of prioritisation and investigative activity.

Details of the number of leads received, investigations initiated or outcomes resulting from the Program are not publicly disclosed by the CRA. However, the CRA has acknowledged that the Program plays a crucial role in identifying and addressing non-compliance within Canada’s tax system.

The Offshore Tax Information Program

For those who suspect Canadian taxpayers of tax fraud and/or aggressive tax avoidance facilitated by the use of offshore structures, a separate scheme, introduced in 2014, is available called the Offshore Tax Information Program (OTIP).

Through the OTIP, both Canadian and non-Canadian nationals can be paid between 5% and 15% of the amount collected by the CRA as a consequence of information they provide to the CRA that relates to tax evasion and/or aggressive tax avoidance. Such information is required to be sufficient, specific and credible, as well as related to international non-compliance and the federal tax evaded or avoided has to have been over $100,000 Canadian dollars (excluding interest and penalties). In order to be eligible to use the OTIP, informants must not have a conviction for tax evasion; be an employee of the CRA; be a government employee who has obtained the information through their position; or be reporting on their own non-compliance.

As with the IRS model, the CRA does not pay informants on receipt of information. Informants must wait until any appeal process has been exhausted, which means that informants may have to wait a considerable period of time before they receive payment from the CRA. Under the OTIP, the name of an informant will normally remain confidential although, as with the US model discussed above, it is possible that an informant’s identity may have to be disclosed where they are required as an essential witness in court proceedings.

With regard to quantum of reward, the quality, timeliness, relevance of information, level of cooperation and the informant’s role in any wrongdoing, are key considerations for the CRA when determining the amount to be paid to an informant.

The CRA has previously confirmed that since the inception of the OTIP in 2014 and as at 31 December 2019, it had received 5,500 calls (of which over 1,600 have been from potential informants); over 750 written submissions; and had entered into nearly 50 contracts with informants. As a consequence of information received, the CRA has completed in excess of 150 audits into taxpayers, and assessed almost $60m Canadian dollars in additional tax. The OTIP appears to have gained momentum as, interestingly, for the first two years following its introduction, no rewards had been paid to informants under the OTIP. Unfortunately, more up-to-date data is not publicly available, but the OTIP continues to offer financial rewards ranging from 5% to 15% of the additional federal tax assessed and collected as a result of information received from informants.

The current UK scheme

The current scheme operated by HMRC rewards informants who provide credible evidence of tax fraud to HMRC. This scheme is operated on a discretionary basis and with little formal structure or public transparency. Details of amounts paid by HMRC to informants are not readily available and historically have had to be obtained by means of requests made of HMRC under section 1 of the Freedom of Information Act 2000.

The scheme provides for limited financial rewards, especially when compared with the US model. Research carried out by RPC (see ‘Payments to whistleblowers increase in the past year’ published in Taxation, 23 August 2023), revealed that HMRC paid £509,000 to informants between March 2022 and March 2023, a small increase on the £495,000 it paid in 2021-22 and a further increase on the £400,000 it paid in 2020-21.

More recently, it has been reported by LexisNexis (see Law360, 12 March 2025) that HMRC received in excess of 150,000 reports of tax evasion in 2023-24 and paid out a record, but still relatively modest, £978,256 to informants. It would appear that as public awareness of the reward scheme operated by HMRC has grown, more people are offering information to HMRC regarding tax non-compliance.

The pressure on HMRC to increase the tax yield and close the tax gap is not likely to decrease in the near future, and the number of informants contacting HMRC is likely to increase substantially once the new whistleblower scheme is introduced later this year.

What can we expect from the new scheme?

Details of the new reward scheme are not currently available and are to be provided in due course, but the well-established schemes in the US and Canada provide an indication of the system the government is likely to introduce in the UK, especially as the press release confirms that the new reward scheme will take "inspiration" from the successful US and Canadian whistleblower models.

We do know that under the proposed scheme, informants will be paid a specific proportion of the tax recovered by HMRC as a result of the information provided to it by the whistleblower. Exactly what this percentage figure will be is still to be decided. HMRC has stated that the new scheme could potentially result in "significant" amounts being paid to informants and it has been reported in the general press (including The Times, 11 March 2025) that ministers are considering making payments to informants of between 10% and 25% of any additional tax collected.

Conclusion

In our view, the reporting systems by which information relating to suspected tax fraud can be conveyed to HMRC do need to be improved to make them more accessible and transparent. A formal system, providing greater financial rewards, similar to that operated in the US, would go some way to achieving that. Such a system is likely to encourage more people to contact HMRC with information relating to suspected tax fraud. HMRC has been making payments for information on an ad hoc basis for many years and the Exchequer is likely to benefit from a more generous and formal system. Under the proposed new scheme, HMRC can expect a significant increase in instances of whistleblowing, especially where the amount of additional tax recovered is substantial and the payments made to the whistleblower concerned is correspondingly greater than under the present system.

That said, although a more formal and certain system, along the lines of the US model, would be welcomed by many, the new scheme will need to have in place appropriate and robust safeguards to ensure quality and reliability assurance in relation to the information provided to HMRC. There is a risk, as with any system which provides potentially substantial financial rewards in return for the provision of information, that it will produce vexatious and opportunistic whistleblowing. The government wishes to encourage people to provide HMRC with credible and robust information on which it can then act to increase the tax yield and close the tax gap and the proposed new system, if properly implemented and monitored, can achieve that aim.

Finally, it is notable that, prior to the recent press release, the Serious Fraud Office had called for a similar system under which it would reward whistleblowers for information that assists it with its functions and the Financial Conduct Authority is also considering its position on incentivising whistleblowers. The direction of travel in this important area is clear.

Recent procedural decisions

There have been a number of recent procedural decisions that are worthy of note.

Correct forum

In Local Fuel Ltd v HMRC [2025] EWHC 390 (Ch) (in which RPC was instructed on behalf of Local Fuel Ltd), the High Court considered an application by HMRC to strike out Local Fuel's Part 8 claim as an abuse of process. The claimant had sought a declaration that it did not owe an enforceable debt of c.£2m, representing allegedly unpaid fuel duty. HMRC presented a winding up petition based on the alleged debt, but subsequently agreed to withdraw the petition on terms that included that the claimant would bring the underlying issue before the court in a Part 7 or Part 8 claim. HMRC's position was that the claim raised an issue of public law that should have been pursued by way of judicial review relying on, amongst other things, the Court of Appeal's decision in Knibbs v HMRC [2019] EWCA Civ 1719.

In dismissing HMRC's application, the High Court observed that the claimant's claim was materially different to that in Knibbs because it was not seeking to have determined as unlawful, or ineffective, a decision or act of HMRC that created or altered any liability of the claimant or affected its rights. That was because no decision or action by HMRC gave rise to the debt disputed by the claimant, and there was no other decision or act of HMRC that could relevantly be challenged on grounds of unlawfulness.

Whether a claim has been filed in the appropriate forum is an important procedural consideration but one that taxpayers have often got wrong. The choice of forum can be critical,  sometimes proving fatal to a claim’s progress, and HMRC has demonstrated on numerous occasions that it is not averse to taking such procedural points. The Local Fuel decision is the latest example of a taxpayer successfully resisting HMRC’s attempt to strike out their claim on the grounds of incorrect forum. 

'Minded to transfer' Orders

In R (oao Aubrey Weis) v HMRC [2025] EWHC 249 (Admin), the High Court made a judicial determination on the papers as to where the taxpayer's judicial review claim should be administered and heard. The decision was unusual in that the court decided to give written reasons by way of a short judgment, which provides practitioners with some useful guidance on how the court will apply CPR PD 54C, which is intended to facilitate access to justice by enabling cases to be administered and determined in the most appropriate location.

The taxpayer sought judicial review of HMRC's decision to issue closure notices which concluded the taxpayer was domiciled in the UK and amended his self-assessment returns to impose income tax on income arising from a non-UK bank account. The taxpayer filed his claim in London, on the basis that it was the region with which he had the closest connection because he had significant business interests there, and both his and HMRC's legal representatives were London based. Following the issuing of a 'minded to transfer' order by a court lawyer indicating they were minded to transfer the claim to Manchester given the taxpayer resided in Salford, both parties made submissions to the court that the claim should remain in London. The taxpayer reiterated the presence of his substantial business interests in London, while HMRC's preference was for the case to remain in London for the convenience of the parties and their legal representatives, who were based in London. 

The court observed that the region with which the claim was “most closely connected” was the Northern region, being the region in which the taxpayer resided, noting that HMRC also had an office in Manchester. The court was also not persuaded by the parties’ desire for the claim to remain in London because they chose to instruct lawyers who were based in London. In that regard, the court noted that such choices could not drive the conclusion as to the appropriate venue, and that travel between London and Manchester could be conducted with ease and without requiring an overnight stay for a one-day hearing. Video hearing facilities were also available. The court commented that all of those factors, taken together, pointed in favour of the claim being administered and determined in the Northern region. However, on balance, the court considered it would be more appropriate for the claim to remain in London. That was mainly because, amongst other things, the taxpayer had applied for an order transferring his claim to the Upper Tribunal (UT) and the UT did not generally sit outside of London. In addition,  administrative oversight had meant that a decision on venue had been delayed for several months and transferring the claim to Manchester would cause further delay.

In the context of the resource pressures facing the courts, it will come as no surprise to practitioners that the courts are increasingly proactive in reallocating cases to regions outside of London. Taxpayers and their advisors cannot assume that proceedings will be heard in London simply because London-based counsel and solicitors have been instructed. To avoid delays and unnecessary costs, it will be necessary to assess, at the outset, whether a case is likely to be transferred and to prepare accordingly. 

Disclosure in judicial review proceedings

In Airedale Chemical Company Ltd v HMRC [2025] UKUT 00065 (TCC), the UT considered the taxpayer's application for specific disclosure against HMRC for the purposes of its judicial review claim. That claim challenged the lawfulness of HMRC’s decision to refuse the claimant’s requests for repayment under the Disguised Remuneration Repayment Scheme (the Scheme), on the basis of irrationality, unreasonableness and error of law. The repayments sought by the taxpayer related to sums previously settled by agreement with HMRC to avoid the application of the Loan Charge legislation in the Finance (No. 2) Act 2017.

The claimant contended that HMRC had failed to comply with its duty of candour, such that further disclosure was required for the fair and just resolution of the issues in dispute. In particular, the claimant sought disclosure of documents relating to the drafting and formulation of HMRC's guidance on the Scheme, HMRC's policy and internal communications in respect of issuing determinations and decisions in circumstances where the use of Employer Financed Retirement Benefit Schemes was suspected and how the decision was made to issue such determinations, decisions and county court recovery proceedings.

In dismissing the taxpayer's application, the UT determined that the documents sought by the taxpayer were irrelevant given there was nothing in HMRC's witness evidence indicating those extraneous materials had had any impact on its decision. Nor was such material relevant to establishing whether HMRC had misdirected itself in law because it was not relevant to the determination of what that correct legal test was. Accordingly, the UT concluded that HMRC had not breached its duty of candour. 

Given that orders for disclosure are rare in judicial review proceedings, it is perhaps unsurprising that the taxpayer's application was unsuccessful. However, while the duty of candour should generally be sufficient in ensuring that taxpayers challenging HMRC decisions are in possession of all information necessary for the fair and just determination of their claims, it is worth remembering that an application for disclosure remains an option and, in appropriate circumstances, should be considered as a means of ensuring that proper disclosure has been made by HMRC in accordance with its duty of candour. 

Third party access to documents filed with the First-tier Tribunal (FTT)

In Bolt Services UK Ltd v HMRC [2025] UKFTT 302 (TC), the FTT considered an application by a third party, Transopco UK Ltd, for the disclosure of documents relating to Bolt's tax appeal. The request included the grounds of appeal, HMRC's statement of case, the parties' skeleton arguments, and hearing transcripts. Transopco sought disclosure on the basis that its own tax appeal raised issues of law that were essentially the same as those raised by Bolt, but there were also some important differences that Transopco wanted to identify. While HMRC took a neutral position on Transopco's application, with the exception of the disclosure of the transcripts, Bolt opposed the application on the basis that the FTT had produced a well-reasoned decision setting out all of the relevant facts, disclosure of the documents was not necessary to advance the principle of open justice, all the relevant information about the parties’ submissions could be obtained from the transcripts, and disclosure of some of the documents would risk significant harm because they contained confidential and commercially sensitive information. 

Applying the principles identified by the Court of Appeal in Moss v The Upper Tribunal [2024] EWCA Civ 1414, the FTT observed that it was required to approach the application by first considering why access was sought and whether disclosure would advance the open justice principle, noting it was for the person making the application to show a good reason for seeking access and that there was no presumption in favour of disclosure. If there was a good reason for the documents to be disclosed, the tribunal was then required to consider whether there were any countervailing factors, such as a risk of any harm or prejudice that might be caused by the disclosure and the practicalities and proportionality of granting the request. 

As to the specific documents Transopco sought, the FTT determined that the hearing transcripts, pleadings, Bolt's witness statement (without exhibits), statement of agreed facts, and the parties' skeleton arguments should be disclosed. The FTT noted that the threshold to establish that there is a good reason why such documents should be disclosed was low, and that Transopco had demonstrated a good reason, namely, in order to understand more fully the way Bolt's case was put to the FTT and why it decided the case as it did. 

In contrast, the FTT refused Transopco's request for a copy of the exhibits to Bolt's witness statement, Bolt's expedition application and related documents, the hearing bundle, and Bolt's application for permission to appeal to the UT. This was because the FTT did not consider such documents to be central to understanding Bolt's case, such that Transopco had not shown a good reason for their disclosure and/or because disclosure of the documents would not advance the principle of open justice. With regard to the witness statement exhibits and the hearing bundle, the FTT noted that the documents were voluminous and that to direct disclosure would impose a disproportionate administrative burden on Bolt. However, the FTT said that if, having read Bolt's witness statement and the hearing transcript, Transopco considered that a more limited disclosure of specific exhibits and documents would advance the principle of open justice, it could make a further application to the FTT.

Given the significant number of tax appeals being heard by the tax tribunals, it is inevitable that, on occasion, the question of whether there is a common issue of fact and/or law between cases, will arise. Understanding the arguments advanced by other taxpayers and HMRC and the tax tribunals' reasoning in such cases can assist in formulating legal strategy and the appropriate action to be taken in an appeal. This decision provides valuable guidance on the circumstances in which access to documents filed with the FTT will be granted to third parties.

Late appeals

The FTT has released a number of decisions that emphasise that the test in Martland v HMRC [2018] UKUT 0178 (TCC), is a high hurdle that taxpayers must overcome if they wish to bring late appeals. 

The applications to bring a late appeal in Benjamin Hammant v HMRC [2025] UKFTT 244 (TC), Tenzing Wangel Lama v HMRC [2025] UKFTT 243 (TC), Brett Von Buddenbrock v HMRC [2025] UKFTT 211 (TC), PBS Wholesale Ltd v HMRC [2025] UKFTT 210 (TC), Jordan Lyden v HMRC [2025] UKFTT 204 (TC), and Xcel Consult Ltd v HMRC [2025] UKFTT 96 (TC), were all refused by the FTT after applying the Martland test. The range of circumstances in issue in these appeals were:

• A taxpayer failing to log into his personal tax account and view communications sent to him by HMRC notifying him of late filing fees, despite also receiving email alerts that HMRC had sent him communications.
• A taxpayer's near 5-year delay in bringing his appeal due to a mistaken belief that the loss of his business due to a fire meant that assessments and penalties he had been issued in respect of VAT and corporation tax, had fallen away.
• A South Africa based taxpayer who contended, amongst other things, that he did not know what was required to submit a formal appeal and that the postal system in South Africa could cause delays of 12-24 months.
• The alleged failure by the taxpayers' adviser to file appeals on their behalf. 
• A taxpayer's agent being ill with COVID, while the taxpayer was absent from the UK and not in a fit mental state to deal with his tax affairs. 
• A taxpayer's failure to appeal in time against default surcharges in respect of VAT, which had been caused by the actions of a previous accountant acting for the taxpayer and because the taxpayer had suffered a bereavement and health issues.

While every application to bring a late appeal will be determined on its own particular facts, the above cases provide a useful overview of the range of circumstances the FTT has recently considered and rejected. These cases emphasise that the test for allowing a late appeal is not easily satisfied and a taxpayer will have to have compelling reasons and supporting evidence for the delay, if their application is to be successful. 

HMRC's approach to DSARs

The recent High Court decision in Michael Ashley v HMRC [2025] EWHC 134 (KB) (in which RPC was instructed on behalf of Mr Ashley), has attracted a considerable amount of commentary and for good reason - practitioners will be only too familiar with the difficulties taxpayers face when seeking a copy of their personal information held by HMRC and HMRC's general  reluctance to provide such information. Mr Ashley's success in challenging HMRC's approach to his data subject access request (DSAR) will therefore be welcomed by many taxpayers. 

Between February 2014 and October 2016, HMRC enquired into Mr Ashley's 2011/12 tax return. HMRC subsequently issued a closure notice concluding that various properties had been sold by Mr Ashley at an overvalue, giving rise to a tax liability of c.£13.6m. Mr Ashley appealed and following discussions between the parties, the closure notice was withdrawn. Mr Ashley subsequently made a DSAR, requesting all information HMRC held in relation to him since the inception of its enquiry. HMRC refused to disclose any copies of Mr Ashley’s personal data that it held, save that it offered to provide him with a copy of inter-partes correspondence between his representatives and HMRC. With respect to the personal data it had withheld, HMRC claimed that it was lawfully entitled to withhold the data by virtue of the exemptions provided for in paragraphs 2 and 3, Schedule 2, Data Protection Act 2018 (DPA). 

Mr Ashley challenged HMRC's processing of his DSAR by way of a Part 8 Claim in the High Court. By the time the claim came before the court, HMRC had provided Mr Ashley with some of his personal data in a number of tranches throughout 2024, accepted that it had breached its obligations under Article 15(3) of the UK GDPR in its handling of the DSAR, and only relied on the tax exemption in paragraph 2, Schedule 2, DPA, to withhold some of Mr Ashley's personal data. However, a number of matters remained in dispute between the parties, including the application of the tax exemption relied on by HMRC to withhold Mr Ashley's personal data. The court therefore undertook a comprehensive review of the relevant case law, and identified the following principles as being relevant when construing the tax exemption:

• The relevant controller (in this case HMRC) bears the burden of proving the applicability of the exemption and thus its entitlement to refuse access. The ordinary civil standard of proof applies. 
• The starting point is that the data subject is entitled to the data unless the exemption is established and the presumption in favour of disclosure should be viewed as a strong and weighty factor. 
• The statutory wording requires the court to be satisfied of two things: (i) that the personal data in question was being processed for one of the specified purposes; and (ii) that the application of the subject access provisions would be “likely to prejudice one or more of those specified matters”. 
• “Likely”, in this context, does not mean more probable than not, but it connotes a significantly greater degree of probability than merely more than fanciful. Likely connotes that there is a very significant and weighty chance of prejudice to the identified public interests, the degree of risk must be such that there “may very well” be prejudice to those interests. 
• The question of whether disclosure is likely to prejudice the specified purpose(s) may include consideration of the consequential impact that disclosure in this particular case may have upon other cases and/or prejudice that would be caused to the activities and aims set out in the statutory provision more generally. 
• A structured and fact-specific approach is required; it is necessary to identify the prejudice, show how disclosure would cause the prejudice and show that a failure to apply the exemption would likely cause that prejudice. 
• Restrictions upon a data subject’s right of access may only be imposed where this is a necessary measure to safeguard the specified purpose. This is a strict test and those seeking to rely on the exemption must do so convincingly by relying on evidence that establishes this, not by mere assertion. 
• The necessity test requires that any interference with the subject’s rights is proportionate to the gravity of the threat to the public interest; and in making the proportionality assessment the court will take into account the value of the access right. The proportionality assessment must be applied to each item of personal data that is in issue. 

Applying the applicable principles, the court determined that HMRC had failed to establish that it was entitled to rely on the tax exemption because it had not discharged the burden of proving that the disclosure of Mr Ashley's personal data would be "likely" to prejudice the assessment or collection of tax. In arriving at that conclusion, the court found that “likely” connoted there being a very significant chance of prejudice to the public interest, which had to be established convincingly by evidence, rather than through mere assertion. Having determined the claim in his favour, the court also awarded Mr Ashley his costs.  

The High Court's judgment in Ashley is a significant rebuke to HMRC and its default position of withholding personal data when responding to a DSAR. Many taxpayers will have experienced HMRC’s reluctance to disclose their personal information, and often on the basis of flimsy and/or generic reasoning. The Ashley decision makes it clear that HMRC’s approach to DSARs is unlawful. It is a high threshold which HMRC must overcome if it wishes to rely on the tax exemption to withhold personal information sought by taxpayers under a DSAR.

Bryan Robson is a former professional footballer and manager, perhaps best known for captaining both Manchester United and the England national team during the 1980s and early 1990s.

Following his retirement, Mr Robson acted as an ambassador for MUFC under a series of agreements entered into both personally and (from late 2019) through his personal service company, Bryan Robson Ltd (BRL).

The contract provided for an annual fee of £300,000, of which £150,000 was attributed to ambassadorial duties. The remainder was not formally broken down between services and image rights, and no valuation exercise had been carried out. HMRC sought to treat the full amount as consideration for personal services, while BRL contended that a significant proportion related to the club’s commercial use of Mr Robson’s image. 

HMRC issued:

1. determinations to income tax under Regulation 80 of The Income Tax (Pay As You Earn) Regulations 2003, for the tax years 2015/16, 2017/18, 2018/19, 2019/20 and 2020,21 (the Reg 80 Determinations); and
2. decisions under section 8 of the Social Security Contributions (Transfer of Functions etc) Act 1999, in respect of class 1 NICs for tax years 2015/16 to 2020/21, inclusive (the NICs Decisions). 

The Reg 80 Determinations and the NICs Decisions were made by HMRC on the basis that income tax and NICs should have been payable pursuant to the intermediaries legislation contained in Chapter 8, Part 2, Income Tax (Earnings and Pensions) Act 2003 (IR35), in respect of the monies paid to BRL pursuant to the ambassadorial agreements.

HMRC accepted that IR35 could not apply to earlier agreements entered into by Mr Robson personally, as there was no intermediary in place at that time. 

The Reg 80 Determinations and the NICs Decisions were appealed to the FTT.

FTT's decision

The two issues for the FTT to determine were:

1. whether, from December 2019 onwards, the nature of the work was such that the hypothetical contract between Mr Robson and MUFC would have been one of employment; and
2. whether the consideration for the exploitation of Mr Robson’s image rights was not attributable to personal service, and therefore outside the scope of IR35.

Issue 1

The FTT found in favour of HMRC on the first issue. 

In considering whether the hypothetical contract amounted to employment, the FTT applied the established test formulated in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, looking at mutuality of obligations, control, and other factors indicative of employment.

Mr Robson was contractually required to personally perform ambassadorial duties for at least 35 days in each six-month period, for a fixed fee of £150,000. That fee remained payable even if no work was provided, demonstrating strong mutuality of obligations. Although he had some flexibility over when he performed the work, he could not defer it indefinitely or refuse assignments altogether.

The FTT also found that MUFC exercised sufficient control, including dictating the types of events Mr Robson would attend and requiring him to wear branded clothing. The FTT noted that this degree of control, while not especially hands-on, was enough to meet the relevant legal threshold.

Additional employment-like features included the indefinite nature of the engagement, the lack of financial risk on Mr Robson’s part, and his close integration into the club’s brand. While some features, such as the flexibility around scheduling and the absence of exclusivity, pointed to self-employment, in the view of the FTT, these were outweighed by the broader context.

On this basis, the FTT concluded that the hypothetical contract was one of employment, and that IR35 applied to payments for the ambassadorial services provided by Mr Robson. This aspect of BRL's appeal was therefore dismissed by the FTT.

Issue 2

The FTT found in favour of BRL on the second issue.

The contract between BRL and MUFC included a distinct provision for the club’s exploitation of Mr Robson’s image rights. The FTT accepted that these rights had genuine commercial value and were not simply a mechanism for funnelling additional remuneration to Mr Robson for the services he provided.

Critically, the FTT held that the image rights payments were not made in respect of services personally performed by Mr Robson. They were instead, consideration for a separate and assignable intellectual property right, namely, his image. MUFC had a genuine commercial interest in using Mr Robson's image and had in fact done so in practice.

Accordingly, the FTT held that such payments were not caught by the IR35 legislation. That element of the appeal was therefore allowed.

The FTT left the parties to resolve the question of apportionment between ambassadorial fees and image rights. No valuation had been carried out, and the relevant agreements did not specify how payments were to be split.

Comment

This case adds to the growing body of IR35 case law, which has seen a sharp increase in disputes in recent years over whether individuals working through intermediaries, such as personal service companies, should be treated as employees for tax purposes. The key issue in these cases is whether the working arrangement has the characteristics of employment, even if the individual is technically engaged through a company. In short, it revolves around whether the individual would be considered an employee if they were directly engaged by the client, rather than through the intermediary and the answer to that question very much depends on the facts of the case under consideration.

This decision represents a classic case of “a game of two halves.” HMRC succeeded in arguing that the ambassadorial work was subject to IR35, a reminder that even high-profile, non-executive roles, can fall within the scope of the legislation where mutual obligations and sufficient control are present.

However, BRL scored an equaliser by successfully arguing that the image rights payments were not caught by IR35. The FTT’s endorsement of this distinction provides some reassurance for other professional sports people and entertainers with similar arrangements in place, provided the image rights are genuinely commercial and not simply a disguise for employment income.

The decision can be viewed here. 

In Local Fuel Ltd v HMRC [2025] EWHC 390 (Ch), the High Court considered an application by HMRC to strike out Local Fuel Ltd's (LFL) Part 8, Civil Procedure Rules (CPR) claim, as an abuse of process, on the basis that HMRC's decision to enforce a debt constituted a public law decision which could only be challenged by way of judicial review proceedings, with the restrictive time limits and permission requirements that apply in such proceedings. The High Court dismissed HMRC's application and confirmed that a decision taken by a public body is only amenable to judicial review if it creates a liability, or alters a pre-existing liability. In the circumstances, there was no decision which LFL could have challenged by way of judicial review proceedings, and it was therefore entitled to bring a claim under Part 8, CPR, for a declaration that the debt claimed by HMRC was unenforceable. 

The exclusivity principle

In determining HMRC's application, the High Court considered the "exclusivity principle", which was established by Lord Diplock in O'Reilly v Mackman [1983] 2 AC 237. At paragraph 285 of that judgment, Lord Diplock said: "it would in my view as a general rule be contrary to public policy, and as such an abuse of the process of the court, to permit a person seeking to establish that a decision of a public authority infringed rights to which he was entitled to protection under public law to proceed by way of an ordinary action".

The exclusivity principle is justified because of the need to protect hard-pressed public authorities and to resolve questions regarding the legal validity of public law acts quickly. A claim for judicial review must be made within three months, as opposed to six years for most civil claims, and a judicial review claim must first pass a permission stage which acts as a filter to prevent frivolous claims.

In the LFL case, HMRC relied on three decisions which applied the exclusivity principle in a tax context: Knibbs v HMRC [2019] EWCA Civ 1719; Barklem v HMRC [2024] EWHC 651 (Ch); and Austick v HMRC [2024] EWHC 2175 (Ch).

In Knibbs, the taxpayers brought proceedings under Part 7, CPR, to challenge the lawfulness of a notice served by HMRC on the partners of a partnership, pursuant to section 28B(4), Taxes Management Act 1970 (TMA). HMRC had reduced the allowable losses of the partnership and so served a notice on the partners reducing the amounts of allowable losses that they could carry back to previous years in their individual tax returns. The central issue in the case was the lawfulness of enquiries that HMRC had commenced. The Court of Appeal affirmed the High Court's decision to strike out the claimant's claim as an abuse of process, on the basis that it should have been brought by way of judicial review.

In Barklem, the taxpayer had been a member of a partnership which claimed to have realised substantial losses, some of which were attributable to the claimant. HMRC issued closure notices disallowing the losses and the dispute was settled by agreement after the partnership appealed to the First-tier Tribunal. HMRC then issued a notice under 28B(4), TMA, amending the claimant's return. The claimant brought proceedings under Part 7, CPR, challenging the notice, but again the claim was struck out by the High Court as an abuse of process, on the basis that it should have been brought by way of judicial review.

Finally, in Austick, the taxpayer issued a Part 8 claim seeking declarations that he had no tax liabilities for certain tax years beyond what was shown in his own self-assessment tax returns. HMRC claimed to have given Mr Austick a notice under section 28B(4), TMA, on 4 November 2011, amending his tax returns, but it could not provide a copy or prove service of that notice. The central issue in the case was whether the section 28B(4) notice was effective to create an enforceable tax liability. Once again, the High Court agreed with HMRC that the claim should be struck out as an abuse of process, on the basis that it should have been brought by way of judicial review.

What made LFL's case different?

Considering the recent case law outlined above, what was it about LFL and its dispute with HMRC that led the High Court to conclude that a claim under Part 8, CPR, was the correct forum?

Background

LFL imported heating fuels which it stored in warehouses before onward distribution. These fuels were subject to excise duty and LFL paid this duty monthly by first submitting Form HO10, as prescribed by HMRC, setting out the quantity of oil removed from the warehouse and the total duty due or claimed in respect of that oil. In the ordinary course, HMRC would collect the total amount of duty by direct debit on the last business day of the month in which the Form HO10 was filed.

On 26 July 2021, LFL submitted a Form HO10 and the total duty shown for the previous month was £1,912,079.19 (the Road Fuel Duty). For reasons still unknown to the parties, despite a direct debit being in place, the Road Fuel Duty was not collected. 

HMRC did not take any steps to recover the Road Fuel Duty until 14 August 2023, over two years later. At that point, HMRC began sending letters notifying LFL of an overdue payment and threatening legal action. 

LFL challenged HMRC's attempts to collect the Road Fuel Duty, arguing that filing Form HO10 does not, of itself, give rise to an enforceable debt owed to HMRC. In circumstances where the duty identified in Form HO10 is not paid, HMRC must raise an assessment of liability in order to enforce payment.

HMRC did not accept this position and, on 21 March 2024, presented a winding-up petition to recover the debt. LFL wrote to HMRC to explain that, even if HMRC did not accept LFL's position, the debt was disputed on substantive grounds and it was therefore inappropriate to commence winding up proceedings (in accordance with the well-established principle in Re a Company [1991] BCLC 737). On 10 April 2024, HMRC agreed to withdraw its petition on condition that LFL issued proceedings to challenge the debt within a certain time period. 

On 31 May 2024, LFL issued its Part 8 claim seeking a declaration from the High Court that it did not owe an enforceable debt to HMRC. On 9 July 2024, HMRC applied to strike-out the claim as an abuse of process.

Distinguishing LFL from Knibbs, Barklem and Austick

The key difference between LFL's position and the position of the taxpayers in Knibbs, Barklem and Austick, is that in LFL's case there was no public law decision capable of being challenged by way of judicial review. 

Judicial review is a procedure for 'reviewing' decisions/actions. CPR Part 54.1 explains what it applies to:

"(2) In this Section – 
(a) a 'claim for judicial review' means a claim to review the lawfulness of – 
(i) an enactment; or
(ii) a decision, action or failure to act in relation to the exercise of a public function."

LFL's claim was not a claim to review the lawfulness of an HMRC decision, action or failure to act. On the contrary, LFL's claim sought a declaration as to the consequences of LFL's own action in filing a Form HO10. Other than acknowledging receipt of the form, HMRC took no steps in relation to the Road Fuel Duty other than enforcement action in respect of the debt it claimed was due from LFL.

HMRC contended that its decision to enforce the claimed debt was a public law decision and therefore the first demand letter, which explicitly identified the Road Fuel Duty on 29 November 2023, started time running for the purposes of bringing a judicial review claim.

The High Court's decision

Mr Justice Fancourt rejected HMRC's argument. At paragraphs 28-30 of his judgment, the judge explains that HMRC's decision to enforce the claimed debt by sending demand letters was not a relevant decision that could be impugned on public law grounds because it did not alter, or infringe, LFL's rights or affect its legitimate interest. The letters simply informed LFL of what HMRC considered the position to be. He noted that, if the law were otherwise, the Administrative Court would be at risk of being inundated with applicants believing they need to challenge promptly letters from HMRC claiming that they were liable to tax. By contrast, the actions taken by HMRC in, for example, Knibbs, materially altered the taxpayers' rights – HMRC issued a notice which reduced the allowable losses the taxpayers were able to carry back.

HMRC's decision to issue a winding-up petition could be seen in a different light as it threatened LFL's reputation and the viability of its business. However, in the view of the judge, judicial review would also have been inappropriate to challenge that decision because an alternative remedy existed. Somewhat ironically, it was open to LFL, at that time, to apply to strike out HMRC's petition as an abuse of process as the debt was known to be disputed on substantive grounds. In any event, the winding-up petition had been withdrawn by the time LFL issued its Part 8 claim. 

It is important to note that Mr Justice Fancourt saw no inconsistency between his decision and the approach taken in Knibbs, Barklem and Austick. In those cases, it was the step taken by HMRC that created a liability, or loss of tax relief, that was under attack and in such circumstances the exclusivity principle applied.

Significantly, Mr Justice Fancourt ordered HMRC to pay over 90% of LFL's costs incurred as a result of HMRC's strike-out application.

Why this case matters 

The key takeaway from this decision is that choosing the correct forum is an essential procedural step that should be carefully considered by taxpayers at the outset of proceedings.  HMRC has demonstrated that it is not averse to taking procedural challenges which, in the case of Knibbs, Barklem and Austick, proved fatal to the taxpayers' claims. It should not be assumed  that disputes involving HMRC are limited to statutory appeals and/or judicial review claims. Where there is no statutory right of appeal and no public law decision which alters or infringes on a person's rights, alternative forums should be considered. 

Finally, it will come as no surprise to many readers to learn that HMRC's Debt Management team adopted an overly aggressive approach during the course of this dispute.   At the outset, despite there being no contact for over two years, HMRC's Debt Management team sought to enforce a significant debt without providing sufficient detail regarding what the debt related to. Once the debt was disputed on substantive grounds, HMRC continued to refuse to engage with LFL and presented a winding-up petition in the High Court. Even though HMRC agreed to withdraw the petition on the condition that LFL issued a Part 7 or Part 8 claim, HMRC then proceeded to apply to strike out LFL's Part 8 claim.  Given government pressure on HMRC's Debt Management team to increase the amount it collects, particularly in relation to older debts, this type of overly exuberant approach is likely to continue.

In respect of LFL's Part 8 claim, a substantive hearing to determine whether an enforceable debt exists is listed for hearing in the High Court later this year.

The authors were instructed by LFL in its Part 8 claim.

The Mersey Docks and Harbour Company Ltd (Mersey Docks) was the operator of the Port of Liverpool. It developed a new deep-water container terminal at the port between 2013 and 2017.

Mersey Docks and HMRC agreed the tax treatment of all expenditure except expenditure incurred in respect of a quay wall. In relation to this expenditure, Mersey Docks submitted claims for capital allowances in the periods ending 31 March 2015 to 31 March 2018, on the construction expenditure of £57,134,538. Mersey Docks argued that the quay wall served a functional purpose integral to its trade and therefore qualified as 'plant' under the Capital Allowances Act 2001 (CAA).

HMRC, considered that the quay wall was a building or structure and therefore excluded from capital allowances under sections 21 and 22, CAA, and issued closure notices and consequential amendments accordingly.

Mersey Docks appealed to the FTT.  

The parties agreed that in order to determine the appeal the following issues had to be decided by the FTT:

(1) does the quay wall constitute a distinct asset for the purposes of the relevant provisions of the CAA, or does it form part of a larger whole. 

(2) assuming the quay wall should be regarded as a distinct asset, was the relevant expenditure, in principle, on the provision of plant or machinery, within the meaning of section 11(4)(a), CAA; and 

(3) if so, is the relevant expenditure saved by item 1 (machinery not within any other item in the list); item 22 (the alteration of land for the purpose only of installing plant or machinery); and item 24 (the provision of any jetty or similar structure provided mainly to carry plant or machinery), in List C in section 23, CAA, it being common ground that the expenditure on the quay wall was, on its face, excluded from the scope of capital allowances (item 5 in List B in section 22, CAA).  

FTT decision 

The appeal was allowed. 

On issue (1), the FTT held that, having considered the evidence, relevant legal principles and the specific circumstances and facts, the quay wall was a separate item and therefore it constituted a distinct asset for the purposes of the relevant provisions of the CAA. The  functions of the quay wall are to allow the berthing and mooring of vessels and to support the cranes that load and offload containers.

With regard to issue (2), the FTT held that the quay wall expenditure was on the provision of plant and machinery, within the meaning of section 11(4)(a), CAA, as it fell on the 'plant' side of the line dividing the two. This took into account the FTT's finding that, in the circumstances, it was appropriate to describe the quay wall as apparatus rather than premises. Every part of the quay wall played an essential role in manoeuvring large vessels into a position where loading and unloading could take place.

On issue (3), the FTT considered whether the expenditure on the quay wall fell within the relevant items in List C in section 23, CAA, which would enable Mersey Docks to claim capital allowances. 

The FTT held that item 1 applied and concluded that the expenditure on the quay wall was expenditure on the installation of machinery, being the cranes. Without installation on the quay wall, the machinery could not be said to have been provided for the purposes of the trade. 

Although it was not necessary, the FTT said that items 22 and 24 did not apply. Item 22 did not apply because the installation of machinery was not the only purpose of the alteration of the land as the quay wall was also to provide mooring for ships. Item 24 did not apply because the wall was not a jetty, or similar structure. 

Comment 

Although this decision is fact specific, it does provide some helpful guidance on how the FTT is likely to approach the analysis of claims for capital allowances and, in particular, the meaning of plant and machinery. It also demonstrates how capital allowances can be successfully claimed on expenditure that does not obviously qualify for such allowances. Given the sums involved, HMRC may seek permission to appeal to the Upper Tribunal.

As an aside, during the hearing, HMRC made an application to withdraw its agreement to paragraph 6 of the Statement of Agreed Facts (paragraph 6 stated that there was no dispute between the parties as to the relevant tax treatment of certain cranes). The FTT refused HMRC's application as it would, in its view, be prejudicial to the proceedings and unfair to Mersey Docks to allow HMRC to withdraw its agreement to this fact. 

The decision can be viewed here.

Unlike tax avoidance, which is legal, tax evasion (also known as tax fraud), is unlawful and will constitute a criminal offence under UK law. The key ingredient in any criminal offence relating to tax, unless it is a strict liability offence, is ‘dishonesty’. The issue of what constitutes dishonesty was considered by the Supreme Court in Ivey v Genting Casinos [2017] UKSC 67. In deciding whether a defendant had acted dishonestly, the Supreme Court held that a court must:

1. ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts; and
2. determine whether the individual's conduct was dishonest by applying the objective standards of ordinary decent people (it is not necessary for the individual to appreciate that what he has done is, by those standards, dishonest).

In a criminal trial, unlike in a civil tax appeal, the Crown bears the legal burden of proof, which means that it must prove that the accused person has committed the offence, and the standard of proof in a criminal matter is beyond reasonable doubt.

Tax fraud offences

Tax offences carry potentially lengthy custodial sentences and/or unlimited fines. In addition, the courts can order the confiscation of the benefit obtained from the criminal activity.

There are a variety of tax fraud offences, including:

• Cheating the public revenue (common law): triable on indictment only, with a maximum custodial sentence of life imprisonment. This is the principal offence relied upon by HMRC and comprises making a false statement tending to prejudice the King and the Public Revenue with the intent to defraud the King.
• Conspiracy to defraud (common law): triable on indictment only, with a maximum custodial sentence of ten years.
• Fraud contrary to section 1 of the Fraud Act 2006: triable either way, with a maximum custodial sentence of ten years
• False accounting contrary to section 17 of the Theft Act 1968: triable either way, with a maximum custodial sentence of seven years.
• Fraudulent evasion of income tax/VAT contrary to section 106A of the Taxes Management Act 1970/section 72(1) of the Value Added Tax Act 1994: triable either way, with a maximum custodial sentence of seven years.

Failure to prevent criminal facilitation of tax evasion

Sections 45 and 46 of the Criminal Finances Act 2017, introduced two strict liability corporate criminal offences of failure to prevent criminal facilitation of tax evasion. The legislation came into force on 30 September 2017. The aim of the legislation is to require corporates and partnerships to put in place reasonable procedures to prevent those providing services for them, or on their behalf, from dishonestly and deliberately facilitating tax evasion. The corporate offences aim to overcome the difficulty often encountered by prosecuting authorities in attributing criminal liability to relevant bodies for the criminal acts of employees, agents or those that provide services for them, or on their behalf.

Although strict liability offences, there is a complete statutory defence if:

1. the corporate or partnership has in place such reasonable preventative procedures as it was reasonable in all circumstances to expect it to have; or
2. it was not reasonable, in all the circumstances, to expect it to have any preventative procedures in place.

HMRC's prosecution policy

HMRC does not have the resources to prosecute every suspected tax crime. Instead, it follows a selective policy. The following are examples of the circumstances which might lead HMRC to consider a prosecution:

• cases of organised criminal gangs attacking the tax system or systematic frauds where losses represent a serious threat to the tax base;
• where materially false statements are made or false documents provided in the course of a civil investigation;
• where, in pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme;
• where deliberate concealment, deception, conspiracy or corruption is suspected;
• where the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action; and
• where there is a link to suspected wider criminality, whether domestic or international, involving offences not under the administration of HMRC.

Deferred prosecution agreements

Deferred prosecution agreements (DPAs) were introduced on 24 February 2014, by Schedule 17 to the Crime and Courts Act 2013 (CCA 2013). A DPA may be entered into for the offence of cheating the public revenue (paragraph 16, Schedule 17, CCA 2013) as well as other specific statutory offences such as offences under the Customs and Excise Management Act 1979 (paragraph 18, Schedule 17, CCA 2013) and the Value Added Tax Act 1994 (paragraph 21, Schedule 17, CCA 2013).

A DPA is an agreement reached between a prosecutor and a corporate body under the supervision of a judge. A DPA allows a prosecution against a corporate body to be suspended for a defined period of time provided the corporate body meets certain specified conditions such as paying a financial penalty and co-operating with future prosecutions of any individuals. If the conditions are not fulfilled, the prosecution will resume. A company will only be invited to enter DPA negotiations if it has co-operated with the criminal investigation.

Commencement of a criminal investigation

HMRC's Fraud Investigation Service (FIS) is responsible for all of HMRC's criminal investigations.

A criminal investigation will sometimes arise out of a pre-existing HMRC civil tax enquiry where factual circumstances examined during the civil enquiry identify a potential criminal offence. It may also arise from information supplied by an informant, such as a disgruntled former business partner or a former employee, or other sources of information available to HMRC, such as Suspicious Activity Reports filed by persons working in the regulated sector (see Part 7 of the Proceeds of Crime Act 2002 (POCA 2002)).

A typical investigation will involve FIS officers undertaking a review and evaluation of documents and other information that has already been obtained, including working with specialists (such as accountants and lawyers) to understand the particular issues involved. As part of its review, FIS will decide whether it is necessary to undertake a search of premises or interview witnesses for the purpose of gathering information to assist their investigation, and whether there is sufficient material to justify interviewing the suspect under caution. FIS will also consider obtaining information from third parties who are not suspects.

Information powers

Under the Serious Organised Crime and Police Act 2005, HMRC has the power to issue a ‘disclosure notice’ where it believes that:

• there are reasonable grounds to suspect that a prescribed offence has been committed;
• any person has information, in whatever form, which is relevant to the investigation of that offence; and
• there are reasonable grounds that such information is likely to be of substantial value to that investigation.

A person served with a disclosure notice may be required to answer questions or produce relevant documentation. However, legally privileged material need not be disclosed.

Search and arrest

The Police and Criminal Evidence Act 1984 (PACE 1984) and its accompanying Codes of Practice, establish the powers of investigating officers, including those from HMRC, to combat crimes whilst protecting the rights of the public. PACE 1984 and the codes impose specific obligations on an investigating officer in relation to the powers of search and arrest. For example, where premises are searched, some forms of material are protected (such as that covered by legal professional privilege or medical records). Failure to meet the requirements of PACE 1984 may result in the contents of a suspect's statement being ruled inadmissible at trial (see section 78 of PACE 1984).

Disclosure by the Crown

Following charge, if it is demonstrated that the taxpayer has a case to answer,  the Crown will serve bundles on the defendant incorporating documentary evidence upon which the prosecution intends to rely, including statements from witnesses. A rigorous regime applies to the disclosure of documents to the defendant which are relied upon by the Crown for the purposes of its prosecution. 

Additionally, under the Criminal Procedure and Investigations Act 1996, the Crown must provide the defence with copies of, or access to, any material which might reasonably be considered capable of undermining the case for the prosecution against the accused, or of assisting the case for the accused, and which has not previously been disclosed.

The defence statement

It is also necessary for the defence team to serve a defence statement, which must be provided within 14 days (in the Magistrates' Court) or 28 days (in the Crown Court) after the initial prosecution disclosure (or notice from the prosecutor that there is no material to disclose). The content of the defence statement is governed by section 6A of the Criminal Procedure and Investigations Act 1996, so that it must, for example, set out the nature of the defence, including any particular defences and indicate the matters of fact in respect of which the defence takes issue, and why it takes issue.

Witnesses for the defence

The defence team should identify any potential witnesses who will be able to support the defendant at trial. This task can only properly be undertaken by a suitably experienced solicitor, who will need to meet with any prospective witness and take a witness statement of their proof of evidence (which will be signed by the witness). Such witness statements that will be relied upon by the defendant will be disclosed to the prosecution in accordance with a trial timetable that will have been imposed by the court. If necessary, the defence team may also have to consider whether it is necessary to compel a prospective witness to attend court by the issue of a court summons under the Criminal Procedure (Attendance of Witnesses) Act 1965. It is also possible for the court to compel an individual to produce documents for the purposes of the trial.

The judge and jury

In a criminal trial the judge will determine issues of law (i.e. rule on the nature of the legal offence and the requirements that must be met as a matter of law in order for the defendant to be found guilty of the offence with which they are charged). In the Crown Court, the jury is responsible for determining whether the defendant is guilty of the offence with which they have been charged.

Sentencing

If the accused pleads guilty or is convicted, it will then be necessary for the judge to determine the appropriate sentence after hearing submissions on any mitigation by the defence and consideration of the relevant sentencing guidelines. 

Confiscation

The conclusion of the trial is not the end of the matter. HMRC will seek to recover any tax lost as a result of the fraud. On conviction, the prosecution will normally seek to obtain a confiscation order in respect of the proceeds of crime.

Under section 6 of POCA 2002, the Crown Court is, in certain circumstances, required to make a confiscation order. The court will make an order if two conditions are satisfied:

1. the defendant has been convicted of an offence in proceedings before the Crown Court, or has been committed to the Crown Court; and
2. either the prosecutor is seeking a confiscation order or the court is of the view that it is appropriate to proceed under section 6.

If both of the above conditions are satisfied, a confiscation order may then be made if the defendant is found to have a ‘criminal lifestyle’ and if they have, to have benefited from their ‘general criminal conduct’ (or, if they do not have a criminal lifestyle, they have nonetheless benefitted from their ‘particular criminal conduct’).

Any question arising in connection with whether the defendant has a criminal lifestyle, or has benefited from their criminal conduct, is decided on the balance of probabilities.

In broad terms, a person has a ‘criminal lifestyle’ if they are either convicted of one of a number of prescribed offences, including money laundering, or the offence constitutes conduct forming part of a course of criminal activity, or was committed over a period of at least six months. ‘General criminal conduct’, is all the defendant's criminal conduct, whenever it occurred.

The recoverable amount is broadly equal to the defendant's benefit from the conduct concerned. The amount may be reduced if the defendant can demonstrate that the realisable value of his assets is less than the recoverable amount.

Unexplained wealth orders

An unexplained wealth order (UWO) is designed to confiscate the proceeds of crime by using civil powers instead of criminal powers. The power was introduced by section 1 of the CFA 2017 and HMRC is one of the enforcement bodies who can obtain an UWO. In order to apply to the court to order an UWO, the following conditions must be satisfied: 

1. the respondent must hold the asset;
2. the value of that asset must be greater than £50,000;
3. there must be reasonable grounds for suspecting the known source of the respondent's lawfully obtained income would have been insufficient for the purposes of enabling the respondent to obtain the asset; and
4. the respondent is a politically exposed person, or there are reasonable grounds for suspecting that:

(i) the respondent is, or has been involved in serious crime in the UK or elsewhere; or

(ii) a person connected with the respondent is, or has been, so involved.

Conclusion

In late 2024, the government estimated that the tax gap (the difference between the annual amount of tax HMRC collects and the amount it believes is payable) stood at £39.8bn. To reduce this figure, it was announced that it will be investing £1.6bn over five years to fund the recruitment of 5,000 additional HMRC compliance officers. With that level of commitment and investment from the government, an increase in the number of HMRC prosecutions for tax fraud is likely to increase significantly.

 ScottishPower (SCPL) Ltd (SPL) is a well-known energy supplier who, between 2013 and 2016, was investigated by Ofgem in relation to various alleged breaches of consumer protection regulations. To settle the dispute and dispense of the investigations, SPL agreed to make redress payments of £28 million to consumers and various charities in lieu of penalties. Once the payments were made, SPL included them in its tax returns as a deductible trading expense. 

HMRC disagreed that the payments could be deducted for corporation tax purposes because, in its view, they were in effect penalties which are non-deductible in accordance with the principle in Commissioners of Inland Revenue v Alexander von Glehn & Co Ltd [1920] 2 KB 553. HMRC amended SPL's returns accordingly and SPL appealed to the First-tier Tribunal (FTT).

The FTT agreed with HMRC's analysis in relation to all payments except one payment of £554,013, which it considered to be compensation and was therefore a deductible expense. SPL appealed the decision to the Upper Tribunal (UT). Its appeal was dismissed and the UT held that the one payment excepted by the FTT was also a penalty.

SPL appealed to the CoA.

CoA's judgment

The appeal was allowed.

In the CoA's view, the payments were compensatory payments made to settle regulatory investigations and were not, therefore, penalties. In reaching its decision, the CofA focused on the substance of the payments rather than their label, concluding that they were intended to remedy a contractual failure rather than to punish SPL. On this basis, all of the payments were held to be deductible for tax purposes.

Comment

This decision provides some important clarification on the correct tax treatment of payments regulators require taxpayers to make and will be welcomed by businesses which make payments in a regulatory context, particularly those in highly regulated sectors where breaches can result in significant financial obligations. The CoA found that a long-standing principle denying tax deductions applies only to penalties, and not to redress or other payments, even if made in lieu of a penalty.

The judgment reinforces the principle that nature of a payment needs to be carefully examined and if it serves a compensatory function, rather than a penal function, it may be deductible as a trading expense.

The judgment can be viewed here.

What is the US tariff?

Tariffs will vary depending on the country of origin.

A baseline 10% tariff will apply to all goods imported into the US originating from the UK, on top of existing US duties, fees and taxes on such imports. Goods originating from the EU will be subject to a 20% tariff. The tariffs will not apply to:

• copper, pharmaceuticals, semiconductors and lumber
• energy, energy products and other minerals not available in the US

In addition, a separate 25% tariff has been imposed on all foreign-manufactured automobiles entering the US market, regardless of origin.

When will the tariff come into force?

The 25% tariff on foreign-made automobiles is already in effect.

All other tariffs, including those on UK and EU goods, will come into force on 5 April 2025.

What are the UK and the EU doing in response?

The new tariffs have raised concerns about a prolonged trade war, as key trading partners consider retaliatory measures.

Canada responded to earlier US tariffs with swift reciprocal action, and the EU is reportedly preparing its own response. Having already imposed duties on American goods following US steel and aluminium tariffs earlier this year, the EU is expected to adopt a firm but targeted approach, focusing on politically and economically significant US exports.

In contrast, the UK's initial response has been more restrained, with the government signalling a preference for a diplomatic resolution to protect the broader US-UK relationship. However, signs of potential retaliation remain. The government has invited UK businesses to submit their views by 2 May 2025 on how the UK should respond, and has published an indicative list of US imports that could be subject to future tariffs, indicating that retaliatory action remains under active consideration. 

What are the implications for UK businesses?

There is little doubt that these tariffs will be disruptive for UK businesses, with the potential to inflict significant economic damage.

In the short term, goods originating in the UK will become more expensive for US consumers, likely dampening demand and squeezing profit margins. UK firms with operations or supply chains in the EU face an even steeper challenge, given the higher tariffs imposed on goods originating in the EU.

More broadly, the measures risk unsettling global trade, fuelling inflation and increasing the likelihood of economic slowdown or recession. For UK businesses already navigating fragile domestic conditions and tightening financial pressures, the added uncertainty and cost burden come at a particularly difficult time.   UK businesses will need to strategically consider pricing, sourcing and market diversification to navigate the complexities of the tariff changes.

How RPC can help

In these uncertain times, we’re here to help your business navigate whatever challenges come your way.

With deep expertise across the commercial, retail, tax and regulatory landscape, we provide clear, practical guidance—no matter the scale or complexity of the issue. You can count on us to be a safe pair of hands. Please contact Michelle Sloane or Liam McKay if you would like to discuss. 

M R Currell Ltd (MRCL), a painting and decorating company, established an EBT in 2010 to facilitate employee incentive arrangements. MRCL then made an £800,000 contribution to the EBT (the Contribution).  

The EBT subsequently loaned that amount to Mr Mark Currell, a director and shareholder of MRCL. This interest free loan was repayable on its fifth anniversary and secured against shares in MRCL. Mr Currell purchased these shares, from his wife Mrs Currell, using the loan funds. Mrs Currell paid the £800,000 to MRCL and treated this as a loan which could be repaid to her when she wished.

HMRC was of the view that the Contribution was taxable earnings and issued to MRCL: 

(1)  a determination under regulation 80, Income Tax (Pay as You Earn) Regulations 2003, in the sum of £320,000; and 

(2) a decision under section 8, Social Security Contributions (Transfer of Functions, etc) Act 1999, in the sum of £113,427.33  

(the Determinations)

MRCL appealed the Determinations to the First-tier Tribunal (FTT). 

FTT decision 

The appeal was dismissed.

HMRC contended that the Contribution constituted taxable earnings under section 62, Income Tax (Earnings and Pensions) Act 2003.

The FTT agreed, and confirmed that the Contribution constituted earnings of Mr Currell which were subject to income tax and National Insurance contributions. In its view, the payment from MRCL to the EBT was a reward, or benefit, to Mr Currell, in return for his services, and the "prewired" arrangements enabled Mr Currell to divert his income via the EBT. 

MRCL appealed to the UT. 

UT decision

The appeal was allowed.

The FTT concluded that the transactions did not give rise to taxable earnings and set aside the FTT's decision. It held that the mere existence of a link or connection between the contribution by MRCL to the EBT and Mr Currell's status as a director of MRCL, was not sufficient for the payment to constitute his earnings. In its view, the FTT had failed to take account of the character of what Mr Currell received as a director i.e. a loan with a resulting obligation to repay that loan. In the view of the UT, the facts of this case were distinguishable from those in RFC 2012 plc (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 (Rangers), because in that case the parties had specifically agreed that payments into the relevant trusts constituted earnings. Conversely, in the present case, the loan from the EBT to Mr Currell was genuine, with a clear obligation for it to be repaid.

Moreover, the UT said that the FTT had erred in law in holding that a loan will "in the vast majority of cases" provide a "benefit" to the borrower, for employment tax purposes. In the view of the UT, Parliament could not have intended to treat repayable loans as earnings in such way.  

Comment 

This is a significant decision and confirms that not all contributions made by a company to an EBT, which are subsequently used to make a loan to a director of the company, will constitute earnings. Genuine loans from such trusts, with clear repayment obligations, do not automatically constitute taxable earnings. There has been a propensity on the part of HMRC to rely on Rangers when challenging EBT arrangements. This decision confirms (what has always been the case) that Rangers does not mean that all loans made by an EBT constitute earnings. Each individual case must be determined on its own particular facts when considering that question.

The decision can be viewed here.

What is judicial review?

Judicial review is the main way the courts supervise bodies exercising public functions to ensure that they have acted lawfully and fairly. HMRC is a public body and its decisions are therefore subject to judicial review.

If a taxpayer is dissatisfied with HMRC's exercise of an administrative power or discretion, they may seek a judicial review of such a decision by the High Court or by the Upper Tribunal. The First-tier Tribunal (FTT) has no judicial review jurisdiction.

It is important to appreciate that the role of the court in judicial review proceedings is not to remake the decision being challenged, or necessarily to inquire into the merits or correctness of that decision. Fundamentally, the court's role is to conduct a review of the process by which the decision was reached in order to determine whether that decision was properly arrived at.

Both claimants and public bodies are expected to assist the court as far as possible and to be open and candid. In R (on the application of Shoesmith) v Ofsted [2009] EWHC B35 (Admin), the court confirmed that defendants have a duty to make full and fair disclosure of all relevant materials, even if they might undermine the defendant's position. It is partly for this reason that there is generally no specific disclosure regime in judicial review proceedings.

The judicial review jurisdiction of the High Court

The judicial review process in the High Court is dealt with in Part 54 of the Civil Procedure Rules (CPR) and the Administrative Court Judicial Review Guide 2024. 

Judicial review is often described as a remedy of last resort. Although the number of judicial review claims have increased in recent years, judicial review remains a discretionary remedy and the court is likely to refuse permission to commence judicial review proceedings if there is an adequate alternative remedy. A taxpayer should therefore consider whether they can, and should, pursue an appeal before the FTT, before applying for permission to commence judicial review proceedings against HMRC.

Of course, in some cases, a taxpayer will have an issue that falls within the jurisdiction of the FTT, such as their liability to tax, and another issue that should properly be determined by way of judicial review, such as whether they have a legitimate expectation that HMRC will follow its published guidance. It will depend upon the facts and circumstances of the case which issue should be decided first. In general, an appeal must be pursued before the FTT if there is a statutory basis for the appeal.

In circumstances where it is considered that an appeal should be pursued before the FTT before commencing judicial review proceedings, it might be appropriate to make a ‘protective’ application for judicial review at the outset as the claim form must be filed with the court ‘promptly’ and ‘in any event within three months after the grounds to make the claim first arose’ (CPR, r 54.5). The parties may not extend this time period by agreement, but the court may extend the time limit under its general powers of management where there is good reason for doing so. If appropriate, the judicial review proceedings can then be stayed pending the outcome of the appeal proceedings before the FTT.

Who can apply for judicial review?

An application for judicial review can only be made by someone who has sufficient interest in the matter to which the application relates. Although the courts have avoided defining this phrase, the general trend in recent years has been to give this phrase a broad interpretation.

The courts have identified a number of factors that are relevant in determining whether a claimant has sufficient interest in the matter to commence judicial review proceedings, such as the importance of maintaining the rule of law, the nature of the breach of duty and the extent of the claimant's interest in the issue. Pressure groups or individuals with no private interest, who raise an issue of public importance that would not otherwise be raised, are also generally considered to have sufficient standing.

The question of whether the claimant has sufficient interest should not be treated as a preliminary issue at the permission stage, unless it is clear that they are no more than a ‘meddlesome busybody’. If permission is granted, the court can then consider this issue at the substantive hearing of the application for judicial review.

Grounds for judicial review

Although the grounds for judicial review are constantly evolving, they have traditionally been categorised under the following three main heads:

(a) illegality;

(b) irrationality; and

(c) procedural impropriety.

Illegality

HMRC will act illegally, for the purposes of judicial review, when it has misunderstood the nature of a power which it has been granted by Parliament or misdirected itself when exercising that power. 

A claim based on illegality arises where the decision-maker has misconstrued a statutory provision or failed to take account of a consideration that they are expressly, or implicitly, required to take into account, or taken account of considerations that are irrelevant. A claim of illegality against HMRC may also be valid where it has abused its powers. For example, HMRC must act fairly when exercising its powers and if it makes representations to a taxpayer as to how they will be taxed following full disclosure of all relevant facts and circumstances by the taxpayer, it may constitute an abuse of power by HMRC if it seeks to resile from the representations it has made.

Irrationality

A decision may be challenged as being irrational if it is so unreasonable that no reasonable authority could have come to that decision. This is often called ‘Wednesbury unreasonableness’, after the decision in Associated Provincial Picture Houses Limited v Wednesbury Corporation [1947] EWCA Civ 1.

It should be noted that the courts are reluctant to find that a decision is Wednesbury unreasonable, particularly where the decision-maker is an expert. However, in R v Inland Revenue Comrs, ex parte Unilever plc [1996] STC 681, the Court of Appeal held that the Revenue's decision to resile from a previous arrangement with Unilever was, in addition to being an abuse of power, irrational. 

Procedural impropriety

This ground may arise if the decision-maker has not properly observed a relevant statutory procedure, such as a failure to give reasons or consider representations, or there has been a failure to observe the principles of natural justice in the decision-making process, such as a failure to hear an affected party.

In essence, procedural impropriety involves a breach of natural justice by HMRC seeking to exercise discretionary powers without first giving the taxpayer an opportunity to make representations in respect of a matter that will adversely affect them.

Legitimate expectation is a particular ground of judicial review that comes under the procedural impropriety umbrella. A legitimate expectation can be enforced against HMRC where it has resiled from a representation or promise made to the taxpayer that is clear, unambiguous and devoid of relevant qualification (R v Inland Revenue Comrs, ex parte MFK Underwriting Agencies Ltd [1989] STC 873). To determine whether there is a basis of challenging a decision for breach of legitimate expectation it is necessary to ask:

(1) Is there a representation by HMRC that can be enforced?

(2) Has HMRC made an unambiguous statement to an individual or group?

(3) Has the taxpayer relied on the representation to their detriment?

(4) Are there any public interest issues that must be taken into account to determine whether the legitimate expectation should be enforced?

Remedies

The question of remedies can be of paramount importance in judicial review proceedings as it will often determine whether it is worthwhile bringing a claim in the first place and whether permission will be granted by the court to bring the proceedings.

The remedies available in judicial review proceedings in the High Court are set out in CPR, r 54.2 and r 54.3 and are as follows:

(a) A mandatory order, which is an order requiring an inferior court, tribunal or public body (for example, HMRC) to carry out a judicial or other public duty.

(b) A prohibiting order, which is an order restraining an inferior court, tribunal or public body (for example, HMRC) from doing something which it does not have the power or jurisdiction to do.

(c) A quashing order, which is an order setting aside the decision in question.

(d) A declaration, which is a binding declaration as to the rights of the parties or as to a principle of law.

(e) An injunction, which restrains a person from acting in any office in which he is not entitled to act.

(f) Damages, but only where another established cause of action is available for which damages may be sought, such as for breach of the Human Rights Act 1998.

Application to the High Court to bring judicial review proceedings

Before making an application to the High Court for judicial review, the claimant should follow the Pre-Action Protocol for judicial review (which requires a letter before action and consideration of alternative dispute resolution). The objective of the Protocol is to avoid litigation and failure to comply with it without good reason may lead to an additional costs liability.

An application for judicial review involves a two-stage process:

1. there has to be an application to the court for permission to bring the judicial review claim; and

2. if permission is granted, the application will then proceed to a full substantive hearing, usually before a single judge of the Administrative Court.

The duty of candour

The duty of candour is a special duty that applies to parties (both claimants and defendants) in judicial review proceedings. The Administrative Court Judicial Review Guide describes the duty of candour in the following terms:

"This requires the parties to assist the Court by ensuring that information relevant to the issues in the claim is drawn to the Court’s attention, whether it supports or undermines their case. Where a party relies on a document, and the document is significant to the decision under challenge, it will be good practice to disclose the document rather than merely summarise it, because the document is the best evidence of what it says. The same may be true in other situations, for example where the precise terms of a document are relevant to an issue in the case. In such situations, it may in practice be difficult to comply with the duty of candour without disclosing the document. However, this may not be enough. The duty of candour may also require the party in its statements of case to identify and explain the significance of information and/or documents adverse to that party’s case."

For claimants, the duty of candour imposes an obligation to disclose in the claim form and the supporting written evidence all material facts of which they are aware or which they should have made reasonable inquiries about prior to the application. It should be noted that the court takes a firm approach to duty of candour responsibilities and non-compliance with those responsibilities, and a failure to comply with the duty of candour may result in permission to bring a judicial review claim being refused, refusal of the remedy sought, and practitioners being required to explain to the court the reasons for non-compliance (see, for example, R (Babbage) v Secretary of State for the Home Department [2016] EWHC 148 (Admin)).

Decision on permission

A decision on permission will normally be made on the papers without an oral hearing within four to five months of the application being submitted to the court. The purpose of the permission stage is to prevent claims that are hopeless or vexatious from proceeding.

The order granting or refusing permission will be served by the court on the parties. If permission is refused, a claimant is entitled to request an oral hearing. 

If permission is granted, the defendant must file and serve a detailed response to the claim and accompanying evidence within 35 days of service of the order granting permission. 

The substantive hearing

The substantive hearing is likely to take place within 10 to 15 months of permission being granted.

Once a case is listed for a substantive hearing, the claimant must file and serve a skeleton argument and a paginated and indexed bundle of documents 21 days before the hearing. The defendant and any interested party must file and serve a skeleton argument 14 days prior to the hearing.

The substantive hearing will usually take place in public before a single judge nominated to hear cases in the Administrative Court. Evidence is by witness statement and it is rare for there to be oral evidence, although the court does have the power to order a witness to attend and to be cross-examined (see Fluid Systems Technologies (Scotland) Limited & Others v HMRC [2024] UKUT 322 (TCC), for a recent example of the Upper Tribunal ordering limited cross-examination of an HMRC witness in judicial review proceedings).

Appeals

Following a substantive decision, either party may apply to the Administrative Court, or to the Court of Appeal, for permission to appeal in accordance with CPR, r 52. If permission is granted, following the Court of Appeal decision, a further appeal will lie (with permission) to the Supreme Court.

Conclusion

Judicial review remains a powerful tool for taxpayers seeking to challenge HMRC's decisions on public law grounds. It is therefore essential that tax practitioners have a firm understanding of the general principles of judicial review and the practical aspects of advancing a judicial review claim.

The taxpayer moved to Ireland in April 2015. In the 2015/16 tax year, she received £8 million in dividends paid on shares in a UK company that her husband had transferred to her during the 2014/15 tax year, on which over £3m of income tax would have been due had she remained UK resident. 

Under the SRT rules, in the 2015/16 tax year, the taxpayer had to spend 45 or less days in the UK, in order to be non-UK resident, but she spent 50 days in the UK. The taxpayer argued that 6 of those days should be discounted under the "exceptional circumstances" exemption, contained in paragraph 22(4), Schedule 45, Finance Act 2013, as she had visited the UK in December and February of that tax year in order to support her twin sister (who was a suicidal alcoholic) and her sister's two young children. 

HMRC's position was that the additional days spent in the UK by the taxpayer did not satisfy the requirements of the "exceptional circumstances" test and she was therefore UK resident under the SRT rules. HMRC amended the taxpayer's self-assessment tax return for the 2015/16 tax year to show additional tax due of £3,142,550.58. 

The taxpayer appealed to the FTT.

FTT's decision 

The appeal was allowed.

The FTT noted that the exemption contains the following four conditions, all of which have to be satisfied: 

(1) the circumstances were exceptional; 

(2) the circumstances were beyond the taxpayer's control; 

(3) the taxpayer would not have been present in the UK at the end of each of the days concerned, but for those circumstances; and 

(4) the taxpayer intended to leave the UK as soon as those circumstances permitted. 

The FTT concluded that the combination of the need for the taxpayer to care for her twin sister and, particularly, for her sister's two young children at a time of crisis caused by the twin sister’s alcoholism, did constitute exceptional circumstances, for the purposes of paragraph 22(4). The FTT accepted the taxpayer’s evidence that she was the only person able to assist her twin sister and young nieces at the time and was under a moral obligation to travel to the UK to do so. 

The FTT agreed with the taxpayer that HMRC’s submission that she could have left the UK at the end of each day, then returned the next day, was impractical. HMRC’s argument that a foreseeable circumstance could not be an exceptional circumstance, was also rejected by the FTT as foreseeability was just one factor to consider. HMRC contended that a moral obligation could not "prevent" (as required by the test for exceptional circumstances) an individual from leaving the UK and that the test could apply only where the person was physically unable to leave the UK, or remained in the UK due to a legal obligation. The FTT rejected this argument and confirmed that the word prevent includes physical, moral, conscientious or legal restrictions. HMRC also argued that exceptional circumstances can apply only if they arise after a taxpayer is already in the UK, but this argument was dismissed by the FTT as there was no statutory justification for such an argument which was also inconsistent with HMRC’s published practice at the relevant time.

The FTT's decision can be viewed here.  

HMRC appealed the FTT's decision to the Upper Tribunal (UT). 

UT's decision 

The appeal was allowed.  

The UT criticised what, in its view, was vague evidence presented by the taxpayer before the FTT, who it considered was unsure about the details of her visits and the care she provided to her sister’s family. The UT also questioned why the taxpayer's involvement was deemed critical, given that her brother lived nearby and was actively involved in caregiving.

The UT said that the "exceptional circumstances" test is objective and the individual concerned must be prevented (not merely hindered) from leaving the UK. It disagreed with the FTT's view that serious illness or death of a relative could constitute exceptional circumstances. 

The UT concluded that the FTT had erred in law and ruled that the taxpayer was not entitled to exclude the six days under the exceptional circumstances rule. The taxpayer was therefore a UK resident for the 2015/16 tax year and the additional tax claimed by HMRC was due and payable. 

The UT's decision can be viewed here. 

The taxpayer appealed the UT's decision to the Court of Appeal (CoA). 

CoA's judgment 

The appeal was allowed.

The CoA agreed that the FTT had sufficient evidence before it to support its conclusions, including the taxpayer's sister's severe alcoholism and the need to care for her children. The CoA concluded that "prevent", in paragraph 22(4), was not limited to legal or physical constraints, it includes moral or conscience-driven reasons. It agreed with the FTT’s assessment that moral obligations could prevent someone from leaving the UK, especially where a close family member was seriously ill. The CoA disagreed with the UT’s narrow view that serious illness and death are not exceptional circumstances.

Comment

This is an important decision for any individuals who find themselves in a similar position to the taxpayer in this case and wish to rely on the "exceptional circumstances" exemption in paragraph 22(4), Schedule 45, Finance Act 2013. The CoA did not endorse the UT's guidance on how the FTT should decide appeals concerning paragraph 22(4), and suggested instead that the FTT should use 'common sense' in deciding what circumstances to consider and whether they amount to exceptional circumstances, for the purposes of paragraph 22(4). 

The CoA's judgment can be viewed here.

JTC Employer Solutions Trustee Ltd acted as trustee for the 2005 Henderson Family Benefit Trust (HFBT) and the Henderson Group plc Employer Financed Retirement Scheme (EFRBS). The trusts were created to provide benefits to employees, former employees (and their families) of Janus Henderson (formerly the Henderson Group).  

The claimants sought recission of various deeds of appointment, executed pursuant to the HFBT and the EFRBS, which had created sub-trusts for the benefit of individual beneficiaries and their families.

The defendants, Mr Garnett and Mr Sekhon, were representative beneficiaries of the trusts, and did not oppose the relief sought by the claimants.

Under section 86(1), Inheritance Tax Act 1984 (IHTA), trusts for the benefit of employees fall outside the relevant property regime only if the class of beneficiaries represents ‘all or most’ of the employees or office holders (section 86(3)(a), IHTA).  HMRC was of the view that the exemption did not apply.  The claimants therefore applied to the High Court seeking recission of the deeds of appointment on the basis that they had mistakenly believed that: (1) the trusts did not fall within the relevant property regime; and (2) the tax consequences of being within the relevant property regime did not apply. 

HMRC, although not a party to the case, submitted written representations to the Court and objected to the claim. 

High Court judgment 

The Court held that the various deeds of appointment made under the HFBT and the EFRBS should be set aside and allowed the claim. 

In reaching its conclusion, the Court considered the test for recission, as confirmed by the Supreme Court in Pitt v Holt [2013] 2 AC 108 and restated in Kennedy v Kennedy [2014] EWHC 4129, that:

(i)   there must be a distinct mistake as distinguished from mere ignorance or inadvertence; and the court should be open to infer conscious belief or tacit assumption when there is evidence to support such an inference; 

(ii)  a mistake may be a relevant mistake even if it was due to carelessness on the part of the person making the voluntary disposition;

(iii) the causative mistake must be sufficiently grave as to make it unconscionable on the part of the donee to retain the property; and 

(iv) the injustice of leaving a mistaken disposition uncorrected must be evaluated objectively but with an appreciation of the facts of the particular case. 

In terms of the technical tax position, HMRC's position that the sub-trusts did not attract relief as they were not for the benefit of a class of employees and were held for individual employees, was accepted by the Court as being correct.

The Court also accepted that the deeds of appointment were entered into on the basis of an operative mistake as to the fiscal effect of those deeds. That mistake was an incorrect conscious belief, or an incorrect tacit assumption, that the assets appointed under the deeds of appointment, relating to either the HFBT or the EFRBS, would continue to benefit from the treatment in section 86, IHTA, once sub-trust appointments were made. 

In the view of the Court, the evidence suggested that the EBTs in question were not seen as aggressive tax planning and therefore the claimants were not doing anything deliberately risky from a tax planning perspective.

The causative mistake was sufficiently grave to make it unconscionable on the part of the donee to retain the property as there was a significant potential IHT liability of around £7m which may not be met by the claimants and this would create considerable uncertainty, in the absence of a recission order, of where the IHT liability would be borne.

The Court also commented that HMRC could not raise objections on public policy grounds based on prejudice to taxpayers generally, unless it was joined to the claim and provided proper evidence in support of its objections. 

Comment 

The High Court's criticism of HMRC's approach is notable and highlights that HMRC should ensure that it is joined to any similar proceedings if it wishes to make legal submissions to the Court as to why the Court should not order recession. 

The Court's decision also illustrates that, in appropriate circumstances, those who have entered into complex EBT tax planning arrangements on the basis of an operative mistake as to the fiscal effect of those arrangements, should consider bringing a similar claim in the High Court.

The judgment can be viewed here. 

Stage One Creative Services Ltd (SOCS) provides bespoke engineering, construction and automation solutions for live events and installations. Clients contact SOCS with an idea of what they want to achieve creatively, and SOCS provides a technical solution that allows them to achieve that objective. Many of the projects are novel and therefore R&D will often form part of that process.

As an illustrative example, SOCS was approached by a theatre company (Franco) that asked it to produce a "Pearl & Straw Platform with Automation". Franco were not concerned with how the solution was developed and created as long as it met its aesthetic expectations. SOCS was tasked with designing, manufacturing and installing a scenic design comprising an automated pearl that was flown through the theatre and opened on a straw platform to reveal a performer within it.

SOCS often claimed relief for expenditure on R&D under the SME relief scheme (R&D relief) pursuant to Chapter 2, Part 13, Corporation Tax Act 2009 (CTA 2009). These claims were both in the context of specific contracts but also for purely internal purposes aimed at improving aspects of its own systems to improve its client offering.

SOCS made claims for R&D relief in accounting periods ending 31 December 2017, 2018, and 2019. HMRC challenged those claims and issued discovery assessments in relation to 2017 and 2018, and a closure notice in relation to 2019.

There were three main issues to be determined:

1. Was the relevant expenditure "subsidised"?

HMRC argued that the expenditure did not qualify for R&D relief because it was "subsidised", for the purposes of section 1138(1), CTA 2009. HMRC's position was that SOCS was not entitled to relief because the expenditure was actually met by the client's payments under the relevant contract.

SOCS contended that the R&D was not subsidised by its clients because there was no "clear and direct" link between the payments received from its clients and the expenditure. Its clients were not paying for the R&D and SOCS retained the intellectual property generated while working on the relevant projects.

2. Was the relevant expenditure "contracted out"?

HMRC argued that the expenditure did not qualify for R&D relief because it was "contracted out" to SOCS by its clients within the meaning of section 1052(5), CTA 2009 (the intention of this provision is to prevent two companies claiming relief for the same expenditure).

SOCS contended that the R&D activity was not what was contracted out. Its clients were not required to reimburse SOCS for R&D expenditure and R&D was not even mentioned in the contracts. Since SOCS retained the intellectual property, it would not have been possible for the clients to claim R&D relief and therefore the threat of double relief did not arise. 

3. Were HMRC's discovery assessments valid?

SOCS argued, amongst other things, that HMRC's discovery assessments were invalid because its returns were prepared in accordance with the practice generally prevailing at the time.

HMRC's Corporate Intangibles Research and Development Manual (CIRD) changed on 30 November 2021. Before the change, the CIRD simply stated that whether a payment "subsidised" relevant expenditure was to be determined by the "underlying facts". After the change, the CIRD specified that there will automatically be a clear and direct link between a payment received under a contract and expenditure incurred in undertaking that contract.

HMRC argued that this was simply a clarification of its previous position, but SOCS argued that HMRC had changed its position, and its returns had been prepared in accordance with the practice generally prevailing before 30 November 2021.

FTT decision

The appeals were allowed.

The FTT found in favour of SOCS on all three issues.

In relation to the first issue, the FTT said that HMRC's approach would result in no R&D relief being available for expenditure incurred in the course of undertaking a contract, which cannot have been the intention of Parliament.

In relation to the second issue, the FTT agreed with SOCS that the R&D was an incidental part of the project and could not be considered to be contracted out.

With regard to the third issue, the FTT found that it was understood by both HMRC and taxpayers before 30 November 2021 that there needed to be a "clear and direct" link between the payment and the relevant expenditure, in order for it to be considered "subsidised". HMRC was incorrect to claim that payments under a contract would automatically be linked to expenditure incurred pursuant to that contract, and SOCS prepared its returns in accordance with the practice generally prevailing.

Comment

The FTT's decision provides helpful clarification to taxpayers who undertake R&D as part of the process of meeting their contractual obligations. The decision is also a reminder that HMRC's guidance simply reflects HMRC's own interpretation of the relevant legislation and will not necessarily represent the correct interpretation of the legislation under consideration.

The decision can be viewed here. 

This case concerned the eligibility of capital allowances under the Enterprise Zone Allowances (EZA) regime. The key issue was whether expenditure incurred more than ten years after the enterprise zone designation, but under a pre-existing contract, qualified for EZA relief.

In 1996, an Order was made (by statutory instrument) to include the Cobalt Business Park within an enterprise zone in North Tyneside during the period 19 February 1996 to 18 February 2006 (the Site). The Site was acquired by Atmel group in 2006 and, realising that the enterprise zone would soon be coming to an end, it took steps to preserve the ability to claim EZAs in respect of future construction work at the Site. It incorporated Highbridge North Tyneside Developer One Ltd (the Developer) and Highbridge North Tyneside Contractor One Ltd (the Contractor) as special purpose vehicles, with a view to achieving this. 

On 17 February 2006, two days before the expiry of the Order, the Developer and the Contractor entered into a contract for the construction of a building at the Site (the Golden Contract). This was done with the intention of ensuring that the Developer would be able to  claim EZAs in relation to the construction costs, pursuant to section 298(1)(b), Capital Allowances Act 2001 (CAA).

The Golden Contract gave the Developer the right of selection of one out of six specified projects. It also gave the Developer a right to change the design, quality or quantity of the projects subject to a requirement that the Contractor consent to any such change. At various times, the Developer purported to exercise both the right to select and the right to change. The Developer and the Contractor also purported to vary the Golden Contract so as, inter alia, to enable the Developer to select more than one of the specified projects. Thereafter, the Contractor built and the Developer and Cobalt Data Centre 2 LLP and Cobalt Data Centre 3 LLP (the Appellants) paid for three buildings. 

The Appellants acquired, among other assets, an assignment of rights under the Golden Contract and subsequently claimed EZAs. HMRC refused their claim and issued closure notices accordingly. 

The Appellants' position was that EZAs were available on the basis that the relevant expenditure was all incurred under the Golden Contract and hence fell within the scope of section 298, CAA, because it was commissioned by the unilateral exercise by the Developer of the right to select, and the right to change, conferred by the Golden Contract in its original form. In the alternative, they argued that if the relevant expenditure was incurred as the result of a new agreement, it was one that varied, rather than replaced, the Golden Contract, so that it was still incurred 'under' the Golden Contract. 

HMRC argued that on the true construction of the Golden Contract, the rights it conferred were insufficiently wide to enable the Developer to require the Contractor to build all three projects, which could only be contracted for by a new agreement made after the expiry of the Order and therefore outside the time limit in section 298. Further, HMRC contended that, on its true construction, section 298 did not permit expenditure required or allowed by the variation to be treated as expenditure incurred 'under' the earlier contract and that the contractual alterations amounted to a replacement of the Golden Contract, rather than a variation of it.

The Appellants appealed to the First-tier Tribunal against HMRC’s closure notices. The Appellants also considered that, in denying the allowances that had been claimed, HMRC was acting contrary to its published practice which gave them a legitimate expectation that EZAs would be available and they therefore also instituted judicial review proceedings.

The substantive appeals against HMRC’s closure notices and the judicial review claim were transferred to the Upper Tribunal (UT) and the UT directed that the appeal and the judicial review claim be heard together. 

The UT allowed the appeals and judicial review in part.

HMRC appealed to the Court of Appeal and the Appellants cross-appealed. The Court of Appeal allowed HMRC's appeal and adjourned the Appellants' cross-appeal.

The Appellants appealed to the Supreme Court (SC).

SC judgment

The appeals were dismissed.

The SC unanimously dismissed the appeals, finding that section 298(1)(b), CAA, only permits capital allowances under the EZA regime to be claimed for expenditure where, on the tenth anniversary of the site being included in the enterprise zone, there was a contractual relationship under which the expenditure had either been agreed upon in terms, or where it arose from building work on that site which the developer had, at that time, a contractual right to require. 

The SC noted that the construction of statutes, and taxing statutes in particular, requires close attention to the purpose of the provision in issue, and a realistic view of the transaction or other matter to which it is claimed to apply. In terms of EZAs, the SC observed that the time limits imposed by section 298(1) represent a central part of the whole regime, and the Appellants' construction of section 298(1) failed to recognise the statutory purpose of the 10-year time limit set out therein.

The SC concluded that the right of change under the Golden Contract did not extend to changing from one already selected project to another, such that the change orders between the Developer and the Contractor were not validly issued under the Golden Contract. Rather, the basic structure of the Golden Contract was to give the Developer a right to select one of six different projects. Once selected, the Golden Contract then became a much more standard type of building contract for the construction of the particular project, but with the usual right of the Developer to require changes in design, quality and quantity, attributable to that project.

Comment

Although the same point is unlikely to arise in other cases, this is an important decision as the SC has confirmed the importance of a purposive construction to tax legislation. Although EZAs are now an historic allowance, the decision may still be relevant for other taxpayers in relation to similar reliefs.  

The judgment can be viewed here.

A recent report, published on 12 February 2025, by the House of Commons Public Accounts Committee (PAC), has cast a critical light on His Majesty’s Revenue & Customs (HMRC), highlighting significant shortcomings in addressing tax evasion within the UK’s retail sector. The report underscores concerns regarding HMRC’s underestimation of tax evasion in online marketplaces, the lack of a targeted strategy, and insufficient inter-agency collaboration with Companies House (responsible for company registrations) and the Insolvency Service (responsible for enforcement relating to director disqualifications). 

Underestimation of tax evasion

HMRC estimates that tax evasion (where there is a dishonest and deliberate attempt not to pay tax that is lawfully due), which is illegal, resulted in a £5.5 billion loss in revenue for the 2022/23 year, accounting for approximately 0.7% of all taxes owed. Notably, small businesses are increasingly implicated, with their share of the evasion tax gap rising from 66% in 2019/20 to 81% in 2022/23. The PAC expressed serious concern that HMRC might be significantly underestimating the true scale of tax evasion and the corresponding loss of revenue to the Exchequer. A case in point is the 2021 legislation making online marketplaces liable for VAT from overseas sellers, which generates £1.5 billion annually, five times HMRC’s initial estimate, which suggests a substantial underestimation of evasion in this area. The level of this under estimation is surprising and an explanation from HMRC would be welcome, as suggested by the PAC.

The absence of a targeted strategy

Despite the significant revenue losses, the PAC found that HMRC lacks a specific strategy to combat tax evasion. Instead, HMRC focuses on reducing the overall tax gap without setting explicit objectives or targets for curbing evasion. This approach has been criticised for not adequately addressing the deliberate underpayment of taxes, thereby potentially allowing evasion to persist unchecked, or even encouraging it. A specific and defined strategy with measurable objectives would clearly assist HMRC with its stated goal of targeting tax evasion in the retail sector and in evaluating the effectiveness of any actions taken by it. HMRC may wish to give the PAC’s comments careful consideration. 

The decline in criminal prosecutions

The report also highlights a worrying decline in the amount of criminal prosecutions for tax evasion by HMRC, which has decreased by more than 50% from 749 cases in 2018/19, to only 344 in 2023/24. This reduction raises serious concerns about the diminishing deterrent effect of HMRC’s enforcement actions. While HMRC has increased its fraud investigation staff and initiated numerous civil and criminal investigations, the significant drop in prosecutions suggests that resources have been diverted elsewhere within HMRC or a policy decision has been taken to bring less prosecutions. Current efforts may be insufficient to deter potential evaders, who may well be emboldened by this decrease in HMRC prosecutions for tax evasion. HMRC should, therefore, review this area as a matter of priority and consider whether, and how, it can take greater enforcement action to target evasion in specific areas where it is particularly prevalent and, thereby, increase the deterrent effect amongst potential tax evaders. 

The challenges related to ‘phoenixism’

The practice of phoenixism (where companies are dissolved in order to avoid paying their tax liabilities and then the business is re-established under a new company identity), poses a significant challenge for HMRC. Contrived insolvencies cost the Exchequer at least £500 million in 2022/23, according to HMRC figures. However, during the period 2018/19 to 2023/24, only seven directors were disqualified specifically for phoenixism by the Insolvency Service, suggesting a significant failing in regard to enforcement. The PAC emphasised in its report the need for HMRC to work more closely with Companies House and the Insolvency Service to address this issue more effectively. 

Recommendations for improvement

The PAC report makes a number of important recommendations to HMRC, Companies House and the Insolvency Service, and it has requested a response from those agencies within six months in order to speed up progress and address tax evasion more effectively. 

The PAC calls for HMRC to develop a clear strategy to tackle tax evasion, including setting specific objectives and measurable targets. It also recommends enhanced collaboration between HMRC, Companies House and the Insolvency Service, to close loopholes that facilitate evasion. The current timeframes given for such collaboration are too long and the PAC recommends a more ambitious timeframe in relation to a joint registration service between HMRC, Companies House and the Insolvency Service, which has been estimated by the agencies to be five to ten years away. 

Additionally, the report suggests that HMRC should reassess its estimates of tax lost through evasion, particularly in light of discrepancies highlighted by recent legislation. Notably, legislation introduced in January 2021, made online marketplaces liable for VAT from overseas sellers, which has resulted in £1.5 billion of additional VAT annually. The report emphasises the PAC’s concerns regarding HMRC’s underestimation of tax evasion in online market places and suggests that it would be helpful to understand how much of the tax which is now collected from online marketplaces is due to HMRC initially underestimating the scale of evasion, or due to other factors, such as increased online sales.

The PAC’s report emphasises the need for a more proactive and targeted approach by HMRC to combat tax evasion in the retail sector. It is to be hoped that its comments and recommendations will be given proper consideration by HMRC and appropriate action taken.

Collins Constructions Ltd (CCL) is a specialist contractor engaged in refurbishment and fit-out projects, primarily focused on high-end commercial fit-outs, leisure developments and medical refurbishments. Its core service involves providing specified works for a pre-agreed price, with detailed terms and conditions set out in construction contracts entered into with its clients.

CCL frequently works with clients who present concept designs, which CCL then prices, offering cost certainty before the project begins. CCL assumes the financial and development risk in delivering these projects. Often, the delivery process reveals the need for new solutions to realise the original concept design, which CCL is responsible for developing and implementing, without client involvement in the technicalities.

While the contracts do not explicitly require R&D activities, CCL retains any intellectual property rights to innovations made during a project and takes on the economic risk of producing such solutions. The terms of agreement with its clients are typically outlined in a letter of intent and formalised in a contract.

CCL claimed R&D tax relief on certain construction project expenses. HMRC rejected the claims and issued closure notices to CCL in respect of its accounting periods ending 30 June 2018 and 2019. The 2018 closure notice rejected a claim for repayment of £573,056.72 and imposed additional tax of £471.99, while the 2019 notice rejected a claim for payment of R&D tax credit of £2,670,972.94. HMRC was of the view that the expenditure was subsidised and the R&D activities were contracted out. CCL was therefore not entitled to the reliefs sought. CCL appealed the closure notices to the FTT.

FTT decision 

The appeal was allowed.

The key issues before the FTT for determination were whether the R&D expenditure was:

1. "subsidised", under section 1138, Corporation Tax Act 2009 (CTA); and
2. incurred in "carrying on activities which are contracted out", under sections 1052 and 1053, CTA.

1. Was the expenditure "subsidised expenditure"?

This issue turned on whether the expenditure was "met directly or indirectly" by another person within the meaning of section 1138(1)(c), CTA.

HMRC argued that CCL's client payments for completed projects indirectly covered the R&D expenditure, which disqualified it from tax relief.

CCL argued that these payments were for specific deliverables, not reimbursement of R&D costs and were based on fixed prices and project scopes, separate from any R&D expenditure.

In the view of the FTT, the expenditure was not subsidised. The contracts were for specified works at an agreed price and not reimbursement for any R&D costs. The contract price did not cover R&D expenses; there was no clear link between client payments and R&D costs. CCL did not expect to be paid for R&D, nor did the client agree to reimburse it for any such expenditure. 

2. Was the expenditure "contracted out"?

If the R&D expenditure qualified as "contracted out", under sections 1052 and 1053, CTA, R&D relief would not be available to CCL. 

HMRC argued that CCL was contractually bound to deliver specific results, including R&D activities, which meant the R&D was effectively contracted out to them as part of fulfilling the client’s requirements. Put simply, had the contract not been in place, CCL would not have incurred the R&D expenditure.

CCL argued that in order for expenditure to be "contracted out" the R&D activities would have to have been required by the terms of the contract, or be within the parties’ reasonable contemplation at the time the contract was entered into and there were no terms within the contract requiring it to undertake R&D activities, nor were R&D activities within the parties’ reasonable contemplation at the time the contract was entered into. The expenses were unplanned, arising from unexpected challenges during projects.

The FTT concluded that the activities were not contracted out. The contracts were for specific works for an agreed price, with no requirement for R&D. The R&D was incidental to the main tasks and carried out at CCL's own risk. There was no provision for reimbursing any R&D costs and CCL retained ownership of the intellectual property created as a result of the R&D it carried out.

Comment

The two issues considered by the FTT in this decision are often raised by HMRC in R&D enquiries and it regularly adopts the positions which it unsuccessfully adopted in this case. The rejection of its arguments in this case by the FTT should cause HMRC to reconsider its approach on both the "subsidised expenditure" and "contracted out" issues. However, given the position HMRC has adopted to date, it may well seek to appeal this decision to the Upper Tribunal.

The decision can be viewed here.

2024 was a busy year in the tax world driven, in part, by a new government and a number of significant and some would argue controversial changes introduced in the Autumn Budget, in particular, in relation to IHT. Those changes have already generated a substantial amount of dissatisfaction and protest amongst different sections of the taxpaying community, some of which will inevitably play out in disputes that come before the tax tribunals and courts in due course. Coupled with a significant funding boost for HMRC, an intention to recruit five thousand additional compliance and debt management staff, the modernisation of HMRC's IT and data systems to improve productivity, and a renewed focus on closing the so-called 'tax gap', this suite of changes is likely to foreshadow increased pressure on limited judicial resources during the course of 2025 and beyond.

As to those pressures, and while it remains to be seen what the final figures for 2024/25 will reveal, the latest statistics¹ show that in the first quarter of 2024/25 (i.e. April to June 2024), the First-tier Tribunal (FTT) had 3,825 receipts, an increase of around 30% on the first quarter of 2023/24. In contrast, the FTT made 4,304 disposals in the first quarter of 2024/25, a decrease of roughly 17% on the first quarter of 2023/24. As at 31 March 2024, the FTT's open caseload stood at a staggering 51,189 cases!

A similar picture is found in the Upper Tribunal (UT), although, as one would expect in relation to an appellate jurisdiction, the numbers are less significant. Nonetheless, in the first quarter of 2024/25, the UT had 113 receipts, an increase of more than 230% on the first quarter of 2023/24. In contrast, the UT made 46 disposals in the first quarter of 2024/25, a decrease of around 41% on the first quarter of 2023/24. As at 31 March 2024, the UT's open caseload stood at 152.

Information for the general courts is not as readily accessible. However, publicly available data indicates that 150 judicial review claims involving HMRC were lodged during the course of last year,² which suggests that judicial review remains an important legal remedy for taxpayers in dispute with HMRC. 

Against this backdrop, we discuss below a selection of interesting decisions that caught our eye, in which various procedural issues were considered that may be of interest to taxpayers and their advisers alike.  

Decisions of the tax tribunals

Costs 

Litigation costs are a perennial concern for taxpayers, and a number of important decisions in recent years have clarified different aspects of the costs regime for tax appeals. In March 2024, the UT added to that body of case law with its decision in The Executors of the Estate of Peter John Linington and The Trustees of the Kent Trust v HMRC [2024] UKUT 00070 (TCC), which considered the circumstances in which the UT should grant a protective costs order (PCO). The appellants in that case were given permission to appeal a decision of the FTT concerning arrangements entered into by Mr Linington which were intended to reduce the amount of IHT that would be payable on his death.

Before the UT, the appellants applied for a PCO so that they would not be liable for HMRC’s costs if the appeals were dismissed. In refusing the application, the UT considered the criteria set out in R (Corner House Research) v Secretary of State for Trade & Industry [2005] EWCA Civ 192, finding that the appeal did not raise issues that were of general public importance or that the public interest required to be resolved, and that, in reality, it was of no concern to the appellants that the issues being determined might assist in providing clarity to other taxpayers who entered into similar arrangements. The appellants therefore had no real interest in the outcome of the appeal apart from a substantial private interest as the beneficiaries of the estate. In such circumstances, the UT agreed with HMRC that the general body of taxpayers should not be exposed to irrecoverable costs in HMRC defending the appeal if the appeal was unsuccessful, noting the general tax paying public would baulk at such a suggestion. 

Although PCOs are rare in tax appeals, in the right circumstances, they can provide a useful mechanism whereby a person of limited means is able to pursue a public interest tax appeal without running the risk of having to pay HMRC's unaffordable costs should they be unsuccessful. The decision in Linington provides some helpful guidance on what the right case might look like.  A PCO might also be appropriate in judicial review proceedings against HMRC where a point of general public interest is to be determined. 

Compliance with case management directions

In June 2024, the FTT issued its decision in HMRC v Elite Management Consultancy Ltd and Another [2024] UKFTT 00567 (TC), in which HMRC's application was struck out because of its failure to comply with case management directions. 

HMRC had applied for an order that certain arrangements known as the “enhanced umbrella scheme” were “notifiable arrangements”, within the meaning of section 306(1), Finance Act 2004. HMRC contended that the arrangements were notifiable as a tax avoidance scheme under the disclosure of tax avoidance schemes regime.

The case management directions required HMRC to provide an authorities bundle to both the respondent taxpayers and the FTT not later than seven days before the hearing. The direction was made on an 'unless' basis, noting that a failure to comply would, amongst other things, result in the proceedings being struck out. HMRC filed and served the authorities bundle just after 7pm on the due date, and the respondents subsequently made an application to the FTT that HMRC's application should be automatically struck out due to HMRC's failure to comply with the deadline stipulated in the directions. In opposing the application, HMRC contended, amongst other things, that the proceedings had not been automatically struck out as HMRC had not been in substantive breach of the directions, there had been no prejudice to the respondents, and the overriding objective applied such that a strike out for missing a deadline by two hours would be disproportionate. 

In rejecting HMRC's arguments, the FTT noted that Rule 12 of the FTT Rules required the authorities bundle to have been served by 5pm, such that the automatic strike out provisions in Rule 8(1) were engaged. In the view of the FTT, the mandatory strike out left no room for the application of the overriding objective which, while of crucial importance when exercising any form of judicial discretion, did not impinge upon Rule 8(1) because there was a clear distinction between the situation of an automatic strike out (where the FTT loses jurisdiction pending a successful application for reinstatement) and the situation where the FTT has jurisdiction and is considering relief from sanctions. Accordingly, the FTT concluded that HMRC's application was automatically struck out at 5.01pm on the compliance date stipulated in the relevant direction. 

While the outcome in this case might appear harsh, given the relatively minor nature of HMRC's breach, it serves as an important reminder that cases can be won or lost on procedural points as well as substantive arguments and reinforces the importance of strict compliance with case management directions, especially those that have been issued on an 'unless' basis.

Witness evidence

Perhaps not unexpectantly, HMRC applied for reinstatement in Elite Management, and a decision issued by the FTT in the context of those proceedings has itself provided some useful guidance on an interesting procedural point. HMRC had requested that its application for reinstatement be determined on the papers without an oral hearing. However, the application was accompanied by a witness statement from a solicitor in HMRC’s Solicitor's Office, and the respondents argued, not unreasonably, that it was therefore appropriate that the application be determined at an oral hearing so that HMRC's witness evidence could be tested in cross-examination.

In its decision in HMRC v Elite Management Consultancy Ltd and Another [2024] UKFTT 00905 (TC), the FTT noted that, in the absence of the tendering of the witness statement, it would have had no hesitation in ordering that the reinstatement application should be dealt with on the papers having regard to considerations such as cost, speed, proportionality, and the fact that the legal principles were well known and did not require oral submissions. However, the FTT noted that it was clear that HMRC considered the witness statement to be relevant to the reinstatement application and that, having offered the statement, it was only right that HMRC's witness was available to be cross-examined on their evidence. In that regard, the FTT was of the view that it would not be in the interests of justice or fair to the witness, for it to infer anything from the statement in the absence of any such cross-examination. Accordingly, the FTT concluded that if HMRC wished to rely upon the witness statement, the witness would have to provide oral evidence and be prepared to be cross-examined on their evidence, which could not be undertaken by a paper hearing. The FTT therefore directed that an oral hearing should be held. 

The FTT's decision reinforces the important principle that a party is entitled to test the evidence of their opponent, including by way of cross-examination of their witnesses. The maintenance of that fundamental principle is no less important in the context of procedural hearings as it is in relation to substantive hearings. 

Anonymity

In November of last year, the UT released its decision in HMRC v The Taxpayer [2024] UKUT 00364 (TCC), which concerned an application by the taxpayer for anonymity. The UT had previously allowed an appeal by HMRC against a case management direction issued by the FTT that preliminary proceedings in the taxpayer's substantive appeal should be heard in private. The direction sought by the taxpayer was that the proceedings and the UT's earlier decision remain anonymised, noting the taxpayer had decided to withdraw his substantive appeal to the FTT and ought to be permitted to retain the existing anonymity. HMRC opposed the anonymity application, as did a number of news outlets as third parties to the litigation. 

The taxpayer contended that, where an individual wished to avoid a loss of privacy in relation to litigation and made an application to ascertain whether they would be entitled to privacy in those proceedings, the very process or procedure of applying for privacy should not cause the privacy to be lost. The taxpayer argued that was the correct approach on the basis it was necessary for the maintenance of the administration of justice and also to ensure the effectiveness of the right to privacy under Article 8 of the Human Rights Act 1998. 

In dismissing the application, the UT referred to the principles set out recently by the High Court in Farley v Paymaster Ltd (1836) t/a Equiniti [2024] EWHC 3883, noting the taxpayer's acceptance that the application for permanent anonymity must be justified as being a “necessary” derogation from the principle of open justice. The FTT observed that the taxpayer had not produced any evidence of potential harm to justify anonymity and confirmed that an application for anonymity was to be determined by a granular assessment of the specific facts of the case under consideration. The FTT also dismissed the taxpayer's argument that rejecting the application would have an undue deterrent effect on all privacy and anonymity applications. 

Given the nature of disputes with HMRC, the cases that come before the courts often involve highly sensitive information concerning a taxpayer's personal and financial affairs that most individuals would not wish to be aired in public. However, it is clear from this decision that the tax tribunals will require clear and cogent evidence justifying exclusion of the principles of open justice and transparency in judicial proceedings. In order to persuade the tax tribunals to grant anonymity, a taxpayer must be able to demonstrate sufficient harm or detriment to themselves, or a third party.      

High Court decisions

Correct forum

There were a number of decisions released in 2024 in which taxpayers found themselves in difficulty for having pursued their challenges in the wrong forum. In August, the High Court released its judgment in Austick v HMRC [2024] EWHC 2175 (Ch), which concerned a Part 8 claim brought by the taxpayer seeking declarations that he had no tax liabilities beyond those shown in his self- assessment tax returns for the relevant tax years. The purpose of the claim was to prevent HMRC from recovering a significant proportion of a tax repayment previously made to him that related to losses he claimed to have incurred as a partner in a film scheme partnership. HMRC had enquired into the partnership’s tax return and determined that the losses were significantly less than the amount originally claimed. The taxpayer argued the procedure adopted by HMRC did not give rise to any enforceable liability. HMRC subsequently applied to strike out the taxpayer's claim on the ground that it was an abuse of process because it should have been brought by way of judicial review proceedings. The High Court agreed with HMRC. It was of the view that the taxpayer's challenge to the procedural route followed by HMRC raised an issue of public law that ought to have been pursued by way of judicial review and accordingly struck out the claim. 

Similarly, in HMRC v Labeikis [2024] EWHC 2009 (KB), the High Court considered an appeal by HMRC against a Master's decision refusing its application to strike out a number of Part 8 claims as an abuse of process. The claims challenged the lawfulness of the Loan Charge regime under EU law, and sought declaratory relief to that effect. The Master rejected HMRC's primary argument, finding that, notwithstanding the Autologic principle (that the FTT has exclusive jurisdiction to determine certain types of disputes arising in the administration of the tax system), the subject matter of the claims did not fall within the exclusive jurisdiction of the FTT. The Master accepted HMRC's secondary argument that the claims should have been brought by way of judicial review proceedings, but stayed the claims rather than strike them out. In doing so, the Master was concerned that, as the claimants were outside the 3-month limit for bringing an application for judicial review, the Administrative Court might refuse to extend the time limit for the claims and, in such circumstances, the claimants would be faced with the prospect of bringing fresh Part 7 or Part 8 claims after the date of the UK’s withdrawal from the EU and so be disadvantaged in their ability to seek Francovich damages. HMRC appealed.

The High Court agreed with HMRC. The Master's reasoning and conclusions led inexorably to the overall conclusion that, applying the exclusivity principle in O’Reilly and Mackman [1983] 2 AC 237, the claims should have been struck out as an abuse of process. The Court noted that both the existence of the 3-month time limit in CPR Part 54 and the possibility that the Administrative Court might enforce it, were essential to the operation of the exclusivity principle, and provided no proper basis for departing from the general rule. The Court also observed that there was an inescapable inconsistency between the conclusion, correctly drawn, that the Part 54 procedure and the CPR enabled claims for judicial review to be managed and determined in accordance with EU law and the decision to stay the claims in order to “see what happens in the Administrative Court”. Finally, the Court found that the mere fact the challenge to the Loan Charge was founded upon EU law principles was no justification for disapplying the Autologic principle. The Master was therefore wrong to conclude that to require the claimants to wait and to raise the issues advanced in the Part 8 claims before the FTT, in accordance with the Autologic principle, would fail to give an effective remedy and so conflict with EU law.  

It is important to remember that not all tax disputes have to be determined by the tax tribunals, but the way in which any claim is brought should be carefully considered. The decisions in Austick and Labeikis are two recent examples of the importance of ensuring that such challenges are brought in the correct forum and the consequences for taxpayers when the incorrect forum is chosen can be fatal to their claim.  

Cross-examination in judicial review

In Fluid Systems Technologies (Scotland) Ltd v HMRC [2024] UKUT 00322 (TCC), the UT granted the taxpayer's application to cross-examine an HMRC witness in judicial review proceedings. The claim concerned the lawfulness of HMRC’s decision refusing the taxpayer’s requests for repayment under the Disguised Remuneration Repayment Scheme. One of the challenges raised by the claimants was that the HMRC decision maker had misapplied the requirements of the Scheme, in response to which HMRC tendered a witness statement from the decision maker. The claimants argued that cross-examination was necessary to assist the UT in determining whether or not the decision maker had applied the correct test, pointing out that the documentary evidence contradicted their witness statement. 

The UT noted the general principle that cross-examination is exceptional in judicial review proceedings but that the court retained a discretion to order or permit cross-examination where it was necessary for the fair and just determination of the claim. The UT determined that limited cross-examination was necessary to dispose of the claim fairly and justly because the test the decision maker applied was clearly a material fact on which a finding needed to be reached in order to resolve the claim and because there was an apparent conflict between the documentary evidence and the witness evidence. In the circumstances, the UT held that it was not sufficient for the claimants to be allowed only to make submissions on the relevance and weight of the witness statement and it therefore gave permission for limited cross-examination of HMRC's witness of fact.

 ¹https://www.gov.uk/government/statistics/tribunals-statistics-quarterly-april-to-june-2024/tribunal-statistics-quarterly-april-to-june-2024. 

 ²https://judicial-reviews-app.apps.live.cloud-platform.service.justice.gov.uk/. 

The appellants were GCH Corporation Ltd (the Company), the LLP and three settlements created by Mr Gregory Hutchings, for the benefit of his family (the Trusts). The appellants participated in a tax mitigation arrangement. As part of that arrangement, loan notes were transferred to LLP by its members, some of whom acted through a nominee, HK Timbers (Holdings) Ltd (HKT). In addition to participating in the arrangement, HKT intended that the LLP would trade shares for a profit. The LLP's business was defined as "acquiring, holding and selling shares, securities and other assets with a view to profit". Before the transfers, using money lent by HKT, the LLP had bought five shareholdings, sold two shareholdings at a profit and received dividends. HKT had undertaken research on potential share acquisitions, but it had not made further acquisitions before the LLP was liquidated. 

HMRC issued the following closure notices and assessments, on the basis that the transfer of the loan notes to the LLP gave rise to a disposal for capital gains tax purposes:

(i)   A closure notice to the LLP amending the LLP's tax return to reflect that it was tax opaque and so should have submitted a corporation tax return and not a self-assessment return, and reducing the tax returned to nil.

(ii)  A closure notice to the Company amending the Company's tax return to reflect the fact that a transfer by the Company to the LLP of loan notes was, in consequence of the LLP's tax opacity, a disposal, and amending the Company's return to reflect tax due of £399,114.82.

(iii) Assessments issued under section 29, Taxes Management Act 1970 (TMA), to each of the Trusts assessing them to tax in respect of their transfers of loan notes to the LLP amounting to disposals of those loan notes. 

The appellants appealed the above to the FTT. 

The primary issue for determination by the FTT was whether, at the time the loan notes were transferred to the LPP, it was "carrying on a trade or business with a view to profit", for the purposes of section 59A, TCGA (the Primary issue). 

The FTT also considered whether HMRC had made a valid discovery, for the purposes of section 29, TMA (the Secondary issue). 

FTT decision

The appeals were allowed.

As the FTT allowed the appeals on the Primary issue, the Secondary issue did not need to be determined but, for completeness, the FTT also considered that issue and determined it in favour of HMRC. 

The Primary issue

In relation to the Primary issue, it was common ground that if the requirements of section 59A(1), TCGA, were satisfied by the LLP, so that it was tax transparent at the time the loan notes were transferred to it, no additional tax would be due from the appellants. It was also accepted that the burden of proof was on the appellants to establish that the provisions of section 59A(1) were satisfied. 

The FTT considered the following three questions:

1. whether the LLP was carrying on a trade;

2. whether the LLP was carrying on a business; and 

3. whether, if the LLP was carrying on trade or business, it was carried on with a view to profit.

With regard to the first question, the FTT considered the 'badges of trade' and concluded that the LLP's activities were not sufficient to amount to a trade.

On the second question, the FTT concluded that the LLP was carrying on a business for the purposes of section 59A. The FTT referred to certain facts which supported this conclusion, such as the fact that the LLP was established for the purpose of making a return from dealings in high yielding public company shares, its  activities were consistent with that business purpose, and the meaning of 'business' is broader than the meaning of 'trade' and does not exclude investment business which, by its nature, can be relatively passive. The fact that the LLP was set up, in part, to facilitate the loan note tax mitigation arrangement was not sufficient to alter the fact that the LLP was carrying on a business. 

With regard to the third question, the FTT concluded that the LLP was carrying on business with a view to profit. The FTT noted that here the business purpose of the LLP included the intention to make a profit and it did in fact make a profit. 

The Secondary issue

The burden of proof was on HMRC to prove that the discovery assessments were validly made. 

The appellants argued that there had not been a 'discovery' by HMRC for the purposes of section 29, TMA. Specifically, the appellants argued that the HMRC officer concerned did not reach her own conclusion as to the tax liability that she sought to assess, but rather had simply adopted HMRC's internal view of the technical position. 

The FTT disagreed with the appellants and concluded that the officer clearly explained both how she arrived at her conclusions and why she did not consider it necessary to amend the precise wording used by her predecessor to set out the technical position. Accordingly, the FTT was satisfied that there had been a 'discovery, for the purposes of section 29. 

Comment 

This decision provides some reassurance and clarity to LLPs that actively manage share investments, that they are likely to be carrying on a 'business'.  The FTT's analysis of the meaning of 'business', which the FTT confirmed does not exclude investment business in the context of section 59A(1), TCGA, may have broader implications for other taxpayers engaged in managing share investments. 

The FTT should also be applauded for carrying out an objective analysis of the relevant facts and law. It did not allow itself to be unduly influenced by the fact that the appellants had participated in a tax mitigation arrangement. 

The decision can be viewed here. 

A key consultation on proposed reforms to HMRC’s enquiry and correction powers closed yesterday. Dubbed the "Tax Administration Framework Review – New Ways to Tackle Compliance", this consultation is the latest in a series aimed at streamlining the UK’s tax system. The goal? To make it easier for taxpayers while enabling HMRC to allocate resources more effectively.

Why reform?

The Government's main priority remains closing the “tax gap” – the difference between  taxes owed and taxes collected. Perhaps surprisingly, most of this gap comes not from deliberate tax evasion, but from small, unintentional mistakes by individuals and small businesses. These errors, while often minor in themselves, add up to significant sums, prompting the need for reform.

The growing challenge

The number of taxpayers is rising, as is the complexity of the tax code. The self- assessment population has grown over the last 10 years by 25%, from 9.2m to 11.5m. This, coupled with the ease and speed of making repayment claims, has led to an increase in claims, many of which contain small inaccuracies. The current system of tackling these errors is slow and resource-intensive, requiring detailed engagement with HMRC, which may not be proportionate given the small amounts involved. HMRC hopes to remedy this by simplifying the process for correcting such minor errors.

HMRC's existing powers

HMRC uses various powers and processes to promote compliance and address non-compliance based on risk. These include:

• HMRC prompts: Communications and education to guide taxpayers before self-assessment returns are submitted.
• customer amendments: Taxpayers can correct errors within a set time.
• HMRC "Nudge letters" and/or "One to Many" campaigns: Targeted letters sent to individual taxpayers and/or groups of taxpayers with the intention of encouraging compliance or the correction of an identified mistake.
• revenue correction powers: HMRC can correct returns without an enquiry if errors are discovered.
• enquiry powers: HMRC can open enquiries into returns or claims
• assessment powers: "Discovery" assessments can be raised if the enquiry window has closed.
• information and inspection powers: HMRC can request information from taxpayers or third parties to verify tax positions.

In recent years, HMRC has introduced a broad range of processes to prevent inaccurate claims for tax relief and promote better compliance, including:

• changes to policies and processes, for example, a new evidence requirement for Payment Protection Insurance (PPI) tax relief claims introduced in December 2023.
• applying automated and manual credibility checks to claims submitted pre-payment increases in agent control processes.
• helping to prevent taxpayers being misled by inaccurate advertisements by working in partnership with the Advertising Standards Authority.

The proposed reforms

Notwithstanding the above, there remains room for improvement. Several key changes have been suggested in the consultation to modernise HMRC’s approach in this area:

• increased information requirements for claims: Currently, many claims can be made  within a tax return with minimal supporting details. The proposal is to require more information upfront, especially for areas prone to errors (such as R&D relief). This would allow HMRC to quickly identify issues and process legitimate claims faster.
• aligning revenue correction notices across tax regimes: At present, the conditions for issuing a Revenue Correction Notice vary across different tax types. Standardising the process would make it clearer for both taxpayers and HMRC. This alignment would mean that both parties must provide reasons when a correction notice is issued or rejected.
• introduction of a partial enquiry: A partial enquiry would allow HMRC to investigate a specific issue or section of a tax return, rather than reviewing the entire return. This targeted approach would help resolve issues more quickly while still leaving room for full enquiries to be opened, if necessary.
• the self-correction power: A new proposal suggests that HMRC could require taxpayers to self-correct their tax returns if a widespread error is identified. HMRC would issue a notice to taxpayers, giving them a chance to amend their return or explain why their return is correct. Failure to comply would result in penalties being imposed, although taxpayers would have the option to dispute such a notice.

What this means for taxpayers

Currently, when HMRC opens an enquiry, virtually any aspect of the return can be questioned, with no set time limit to conclude the enquiry. If implemented properly, partial enquiries and self-correction notices could speed up the process and reduce the burden on taxpayers, particularly for those cases involving minor errors. The requirement to provide more detailed claims upfront also seems reasonable, as it could lead to faster  resolutions.

However, there is a risk. If these new powers are applied broadly or without precision, taxpayers could be required to navigate additional bureaucracy and face prolonged investigations. This would undermine the stated aim of simplifying the system and could make the process more cumbersome and time consuming.

What this means for advisers

The proposed changes considered under the consultation will be of great importance to advisers and their clients alike. Advisers will need to keep up to date as to the reforms and their implementation, to provide appropriate advice and ensure their clients are aware of new requirements. The requirements as to self-correction and partial enquiries are likely to be key factors for consideration, which in turn may also increase the pressure on adviser turnaround times. Further, advisers should be alive to the fact that whilst a partial enquiry is intended to consider a specific point, this would not prevent future partial enquiries being made, or HMRC subsequently opening a full enquiry into a return extending the process.

R&D claims are likely to remain a "hot topic", especially given the proposed requirement for full information to be provided when submitting claims in this somewhat challenging area.

Top Tips for taxpayers and their advisers

• Be thorough: Always ensure claims are as detailed and accurate as possible to avoid delays or the need for corrections at a later date. Extra information upfront may save time in the long run.
• Stay informed on changes: Keep an eye on any updates from HMRC regarding these reforms. Understanding the new requirements, especially around self-correction and partial enquiries, will help you/your client stay ahead.
• Document everything: When making claims or submitting returns to HMRC, maintain clear records and supporting documentary evidence. This will help in the event additional information is required or an enquiry is opened.
• Monitor the tax position: Regularly check your tax returns for any potential errors or areas that could trigger scrutiny. The sooner mistakes are identified, the easier it will be to take corrective action. Advisers be ware – this applies to you as well!
• Know your rights: Understand the appeals process should you disagree with a correction notice. HMRC’s view can be challenged, and being proactive in addressing discrepancies can help avoid penalties being issued. This is equally relevant to both individuals and advisers.

In short, while these reforms aim to streamline the tax process, staying informed and prepared will be key to navigating the new system successfully.

Please contact Alexis Armitage or Sarah Dowding if you have any queries or wish to discuss anything further.

Peter Gould, and his brother Nicholas Gould, were the principal shareholders in Regis Group (Holdings) Ltd (Regis), each holding 28.3% of the voting A shares and 50% of the non-voting B shares. The remaining 43.4% of the A shares were held by a family trust of which they were the joint life tenants (the Settlement). 

In 2015, Regis had surplus cash from property disposals and its Chief Financial Officer recommended that it should distribute the surplus cash by way of dividend. On 31 March 2016, the board of directors of Regis resolved to pay an interim dividend of £40m.

Prior to the payment of the interim dividend, the trustees of the Settlement directed Regis to pay its share directly to Peter and Nicholas. An interim dividend of £20m was paid to Nicholas on 5 April 2016. However, the interim dividend of £20m to Peter, was not paid until 16 December 2016.

The issue

The timing of the two dividend payments meant that, prima facie, each payment arose in a different tax year. The payment to Nicholas took place in tax year 2015/16, whereas the payment to Peter took place in tax year 2016/17.

This was important because Peter was non-resident in the UK for tax year 2016/17 and therefore no income tax was payable by him on the dividend.

HMRC argued that the relevant date, for income tax purposes, was not the date of the dividend payment but the date the dividend became 'due and payable'. HMRC relied on section 1168(1), Corporation Tax Act 2010 (CTA 2010), which provides that "[f]or the purposes of the Corporation Tax Acts dividends are to be treated as paid on the date when they become due and payable".

It was HMRC's position that the dividend became 'due and payable' at the time payment was made to Nicholas on 5 April 2016, because Nicholas and Peter were both shareholders of the same class and must be treated equally. HMRC argued that once payment had been made to Nicholas, Regis became indebted to pay Peter and he could have enforced that debt immediately. 

HMRC issued closure notices on the basis that the dividend paid to Peter was taxable in 2015/16. Peter appealed the closure notices to the First-tier Tribunal (FTT).

FTT decision

The appeal was allowed.

FTT agreed that a dividend became due and payable for the purposes of section 1168(1), CTA 2010, when the shareholder entitled to the dividend has a right to enforce payment.

It also accepted the principle that shareholders of the same class must be treated equally.

However, the FTT ultimately allowed the appeal because it did not accept that the payment of a dividend to Nicholas gave rise to an enforceable debt for Peter. 

HMRC appealed to the UT.

UT decision

The appeal was dismissed.

The UT disagreed with the FTT on the core issue of whether an enforceable debt arose. When a company declares a final dividend at a general meeting it gives rise to an enforceable debt, and the UT saw no reason why the circumstances of the present case would result in a different outcome.

However, the UT then went on to consider the following two alternative arguments that had been put forward by Peter and considered by the FTT:

1. The principle in re Duomatic Ltd [1969] 2 Ch 365, was engaged. All the shareholders had agreed to vary the articles of association so that the directors were permitted to pay dividends at different times without creating a debt.

2. Prior to the directors resolving to pay the interim dividend, Peter waived his right to enforce payment of the dividend when the dividend was paid to Nicholas. That waiver was supported by consideration and was therefore binding on Peter and Regis.

The UT agreed with the FTT that both of these arguments should succeed and HMRC's appeal was therefore dismissed.

Comment

The key takeaway from this decision is that the first payment of an interim dividend to a shareholder will create an enforceable debt in favour of all other shareholders of the same class.

The date of that first payment will therefore be treated as the date subsequent dividends are paid for tax purposes, unless the articles are varied or there is a binding agreement to the contrary, as was the case here.

This should be factored in when companies are considering dividend payments which they wish to make in a tax-efficient manner.

The decision can be viewed here. 

How does the platform work?

The new platform allows companies or their agents to disclose innocent or careless inaccuracies in R&D tax relief claims that are now out of time for amendment in tax returns. The disclosure is made by submitting an online form and supporting computations. Deliberate inaccuracies, where companies knowingly submitted false claims, must be disclosed through the Contract Disclosure Facility (CDF) procedure and not the platform. Once full disclosure has been made, HMRC will typically resolve the matter through a contract settlement, requiring repayment of the tax owed alongside interest and penalties.

Who can use it?

The platform is available to businesses that satisfy the following criteria:

• They claimed too much R&D tax relief.
• The time limit to amend the Company Tax Return has expired.
• They need to repay Corporation Tax or tax credits overpaid due to the incorrect claim.

This service can be used by business representatives (such as directors or company secretaries) or tax advisers acting on behalf of their clients.

What are the benefits?

By acting early and unprompted, businesses can significantly reduce potential penalties for careless errors, which can otherwise be up to 30% of the tax owed. In some cases, penalties may be completely waived for those who cooperate fully and help HMRC resolve the issue efficiently.

How quickly will HMRC respond?

HMRC will issue a payment reference within 15 days of the disclosure being made and respond within 30 days, either accepting the disclosure, requesting more information, or rejecting it. Companies must pay any tax due within 30 days or if they are unable to pay in full, they can request a time-to-pay arrangement, with terms depending on their personal circumstances. If the disclosure is rejected, they may need to provide more information to HMRC.

Top Tips and Things to Consider

• Act quickly: Use the voluntary disclosure platform as soon as possible to mitigate potential penalties and interest.  Unlike other HMRC disclosure facilities, you cannot notify HMRC of the intent to make a disclosure before submitting the detailed disclosure. 
  
  
• Verify your claims: Ensure that everything that is incorrect with your past R&D claim is disclosed. An incorrect disclosure could lead to further scrutiny from HMRC.
  
  
• Seek professional guidance: Engage tax specialists with the necessary expertise to assist with calculations and ensure compliance with all of HMRC’s requirements.
  
  
• Pursue redress: If you suspect you were mis-sold services or given negligent advice, seek expert legal advice immediately, as time limits are likely to apply.
  
  
• Stay informed: Monitor HMRC’s enforcement actions and evolving guidelines to reduce risk and maintain compliance.

How we can help

We are a market leading tax dispute resolution team with significant experience of successfully managing HMRC R&D compliance checks. Please contact Adam Craggs or Michelle Sloane if you have any queries or wish to discuss anything further.

The taxpayers had all brought claims in the High Court, under CPR Part 8, challenging the lawfulness of the Loan Charge regime on the basis that it was incompatible with European Union law, the Human Rights Convention, and the Human Rights Act (the Claims).

HMRC applied to strike out the Claims, contending that they constituted an abuse of process on two bases. Firstly, because the Claims comprised challenges to prospective decisions by HMRC that would be subject to the exclusive jurisdiction of the First-tier Tribunal (FTT) in due course and were therefore inconsistent with the principle in Autologic Holdings plc v Inland Revenue Commissioners [2006] 1 AC 118 (the Autologic principle). Secondly, because the Claims comprised public law challenges to the lawfulness of primary tax legislation, they should have been brought by way of a judicial review claim in accordance with CPR Part 54.

HMRC's application was refused by a Master. On the first ground, the Master determined that the Autologic principle did not mean that a taxpayer has to wait and in due course seek redress before the FTT, but can instead seek to resolve the matter through the courts. In circumstances where HMRC had not initiated any enquiry, there was no possibility of a closure notice being obtained, and there was no assessment. The Master concluded that requiring the taxpayers to wait and then progress their appeals before the FTT would result in the absence of an effective remedy and therefore breach the principle of effectiveness under EU law.

On the second ground, the Master concluded that the Claims plainly fell within the scope of CPR Part 54 and were subject to the exclusivity principle established in O’Reilly v Mackman [1983] 2 AC 237, such that "at first sight" the Claims were an abuse. However, and having regard to the fact that a claim for judicial review would be out of time and require the Administrative Court to exercise its discretion to extend time, the Master declined to strike out the Claims, finding it was appropriate to stay the Claims "in order to see what happens in the Administrative Court".

HMRC appealed to a High Court judge.   

High Court decision

The High Court judge found against the taxpayers and struck out the Claims. 

The judge held that, having decided on the application of the exclusivity principle in O’Reilly v Mackman that the Claims raised only issues of public law which should have been pursued by way of claims for judicial review in accordance with CPR Part 54, and were therefore an abuse of process, the Master should have struck out the Claims. His reasons for not doing so and preferring to stay them were wrong in principle. The judge noted that the Master's decision ran contrary to the exclusivity principle and interfered with the undoubted powers of the Administrative Court to manage justly any claims for judicial review in accordance with the CPR, the principle of effectiveness and the exclusivity principle itself. In particular, the judge determined that both the existence of the 3-month time limit in CPR Part 54 and the possibility that the Administrative Court might enforce it, were essential to the operation of the exclusivity principle.

While that was sufficient to determine HMRC's appeal, the judge also went on to consider the Master's application of the Autologic principle. In that regard, the judge found that the fact that the Claims were constructed on EU law principles was not justification for disapplying the Autologic principle. This was because there was sufficient scope for the taxpayers to appeal according to established statutory tax appeal processes under the Taxes Management Act 1970 and the Income Tax (Pay As You Earn) Regulations 2003. As a result, the judge determined that the Claims should also have been struck out on the basis of the Autologic principle.

Commentary

This decision reaffirms the longstanding principle of exclusivity, both under the Autologic Principle in respect of tax appeals and for judicial review in respect of claims founded on public law grounds. The decision also emphasises the importance of ensuring that claims are pursued in the correct forum, and the adverse consequences that can follow for taxpayers where an incorrect forum is chosen.

The judgment can be viewed here.

Anthony Outram and Ross Outram (the Appellants) are brothers who participated in a tax avoidance arrangement (the Scheme).

Initially, HMRC opened a COP 9 enquiry on the grounds of suspected fraud arising from the submission of incorrect tax returns containing loss claims believed to be knowingly incorrect. The Appellants declined the opportunity to make a contractual disclosure to HMRC under the COP 9 regime. 

In February 2015, HMRC issued discovery assessments to the Appellants pursuant to section 29, Taxes Management Act 1970 (TMA), in relation to their 2005/06 tax returns (the time limit for HMRC to enquire into the returns had expired), which included trading losses they claimed had been generated as a consequence of their participation in the Scheme. The Appellants appealed the discovery assessments to the FTT.  

Prior to the FTT hearing, the Appellants had conceded that the losses claimed were not allowable and that the Scheme was ineffective. The only issue to be determined at the hearing was the validity of the discovery assessments. 

In order for the assessments to be within the extended time limit of 20 years for deliberate conduct, HMRC had to show that the Appellants, or a person "acting on [their] behalf", had deliberately brought about a loss to tax.

FTT decision

The appeals were dismissed. 

The FTT concluded that the Appellants had knowingly entered into the Scheme with the sole aim of creating a significant loss in order to then claim substantial repayments of tax. 

In the view of the FTT, the Appellants were not carrying on a trade on a commercial basis with a view to a profit and few of the badges of trade were present. The Appellants did not use a trading platform which would have been the logical thing to do if they intended to make a profit. 

The FTT concluded that the Appellants knew, when they filed their SA returns, that they were not carrying on a trade that entitled them to make a claim for loss relief. In claiming non-existent losses they had acted deliberately, the extended time limits for discovery applied and the discovery assessments were therefore validly issued under section 29(4), TMA. 

The FTT's decision was released on 27 April 2021 (the Original Decision). The Original Decision was subsequently amended by the FTT and an amended decision was released on 25 September 2023 (the Revised Decision). The Revised Decision was not published but a copy can be found as an appendix to the UT's decision (see link below). 

The Appellants appealed to the UT in relation to the issue of deliberate behaviour and against the Revised Decision. 

UT decision 

The appeals were allowed and the case remitted to a differently constituted FTT for determination.   

The Appellants' main arguments were that the FTT's decision in respect of deliberate behaviour constituted an error of law, and was unreasonable on the evidence before it. The Appellants also argued that the changes made to the Original Decision were too extensive and significant to be justified under Rule 37 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules, SI 2009/273 (the Tribunal Rules) and were beyond the scope of review under Rule 41 of the Tribunal Rules.

Whilst the UT accepted that the FTT had set out the correct test when determining what constitutes deliberate conduct, it considered that the FTT had erred in applying that test to the facts of the case. In particular, the FTT applied its own assessment that there was no trade without considering why the Appellants appreciated that there was no trade. The FTT had failed to consider or take into account the subjective knowledge of the actual taxpayers concerned. 

With regard to the issue of the Revised Decision, the UT found that there is no restriction on the substance of the amendments which may be made by the FTT following a review under Rule 41 of the Tribunal Rules. In doing so, the UT did not follow the UT's decisions in Vital Nut Co Ltd v HMRC [2017] UKUT 192 (TCC) and JS v Secretary of State for Work and Pensions [2013] UKUT 100 (AAC), as it considered those decisions to have been wrongly decided.

Comment

This decision will be welcomed by taxpayers as it confirms that it is necessary for the FTT to take into account the subjective knowledge and intention of the taxpayers concerned, when determining deliberate conduct. 

It is also worthy of note that the UT did not follow the UT's earlier decisions in Vital Nut and JS, notwithstanding the approval of the guidance provided in those cases by the Court of Appeal in Point West GR Ltd v Bassi [2020] EWCA Civ 795 (at paragraphs 48-49). 

A copy of the UT's decision can be viewed here. 

At the Spring Budget 2023, the government announced additional measures, building on existing measures, to further target promoters of tax avoidance schemes and tackle tax fraud. Promoters of tax avoidance schemes are defined as persons who carry on a business as a promoter in relation to arrangements, or proposals for arrangements that enable, or might be expected to enable, any person to obtain a tax advantage, and the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage.¹ The government consulted on the new measures and published draft legislation on 18 July 2023.² The measures, contained within sections 32 to 34 of the Finance Act 2024 (FA 2024), received Royal Assent on 22 February 2024. They create a new, strict liability criminal offence, provide additional powers for His Majesty’s Revenue and Customs (HMRC) and introduce an increased maximum custodial sentence for those convicted of tax fraud.

The success, or otherwise, of these measures can of course only be determined after sufficient time has elapsed to allow an in-depth analysis of the practical effects of the measures. However, there is reason to consider that these measures may not achieve their aim. This article will review the potential effectiveness of the new measures against the backdrop of concerns raised by various professional bodies such as the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT).

What do these measures seek to achieve?

At their heart, these measures seek to target promoters of tax avoidance schemes to deter individuals from devising, selling or promoting such schemes as well as deter taxpayers from participating in tax avoidance schemes. The new measures are intended to build on and complement existing measures aimed at dealing with promoters of tax avoidance schemes.³ For example, it is recognised that HMRC have experienced some difficulty in dealing with a hard-core sub-group of promoters who have not been deterred from their activities and have sought ways to circumvent the existing measures.⁴ This latest set of measures represents an attempt by the government to strengthen its approach to dealing with promoters of tax avoidance schemes.

There appears to be general support for these measures amongst professional bodies. Both the ATT and CIOT have confirmed their support for government measures aimed at those who continue to devise, promote or sell tax avoidance schemes.⁵ However, both organisations have cautioned against the manner of implementation of these measures and suggested various changes to improve their effectiveness. The ATT and CIOT have expressed concerns that there should be more safeguarding of individuals that could now be exposed to a criminal record as a result of the “strict liability” criminal offence.⁶ These measures formed part of an enquiry undertaken by the House of Lords during the Bill stage and the House of Lords, Economic Affairs Committee (HLEAC) published its report on the draft Finance Bill 2023–24 (which included the measures relating to promoters of tax avoidance and sentencing for tax fraud) on 1 February 2024.⁷ In its report, the HLEAC agreed with many of the concerns expressed by professional bodies such as the CIOT and ATT and other witnesses (including the writer), who had given evidence before it on the practical implementation of the measures and their overall effectiveness. The government acknowledged and accepted many of the recommendations made by the HLEAC in its report, but rejected others, such as recommendations intended to provide greater clarity on the practical implementation of the measures including, for example, the suggestion to provide protection to “stooge directors”.⁸ This is discussed further below.

New criminal offence for failing to comply with a stop notice

Section 34 FA 2024, inserted a new section 277A into the Finance Act 2014 (FA 2014), which deals with promoters of tax avoidance schemes — referred to as the Promoters of Tax Avoidance Schemes (POTAS) rules. Under section 277A FA 2014, promoters that fail to comply with a prescribed stop notice obligation may be guilty of a criminal offence.

Stop notices were introduced in the Finance Act 2021 (FA 2021) and took effect from 10 June 2021.⁹ Under those measures, an authorised officer of HMRC can issue a stop notice where they suspect that the recipient (R) promotes, or has promoted, arrangements of a description specified in the notice or proposals for such arrangements.10 A stop notice immediately prohibits R, and the entities to whom R must give the notice, from promoting the tax avoidance scheme specified in the notice (or schemes with similar form or effect).¹¹ Further, R must provide HMRC with regular returns of information.¹² HMRC can publish details of the promoter and the scheme in order to make people aware of both the scheme itself and of the fact that it is under challenge by HMRC.¹³ Prior to the changes introduced by section 34 FA 2024, failure to comply with the POTAS rules could potentially result in civil consequences. Specifically, in the context of stop notices, R could be liable to a penalty for a failure to comply with the notice.¹⁴ The penalty could be up to a maximum of £100,000 in respect of one or more failures relating to a particular stop notice and £5,000 for each person to whom the arrangements (or proposals for such arrangements) of a description specified in the stop notice were promoted.¹⁵ 

Under section 277A FA 2014, a new criminal offence is introduced where R, without reasonable excuse, continues to promote a scheme or fails to provide a copy of the stop notice to another person (P) and P continues to promote the scheme. There is no statutory definition of what constitutes a reasonable excuse, but section 277A(3) FA 2014 prescribes three circumstances that do not constitute a reasonable excuse: (i) insufficiency of funds (unless attributable to events outside of R’s control); (ii) reliance on others (unless R took reasonable care to avoid the failure); and (iii) if R is a monitored promoter, reliance on legal advice where either the advice was not based on a full and accurate description of the facts, or the conclusions in the advice that R relied on were unreasonable.¹⁶ In addition, where R had a reasonable excuse for a failure, R must remedy that failure without unreasonable delay after the excuse ends.¹⁷ There are parallels between these reasonable excuse provisions and the way 'reasonable excuse' has been applied in other parts of the tax code, for example, in the context of penalties imposed by HMRC for failure to notify a charge to tax,¹⁸ or for late payment of tax.¹⁹ 

Conviction for failing to comply with a stop notice can result in an unlimited fine and or a custodial sentence of up to two years and could also lead to director disqualification.²⁰ The offence applies to any failures which take place on or after 22 February 2024 (the date the Finance Bill 2024 received Royal Assent) regardless of when the stop notice was issued.

Safeguards—no independent scrutiny before issuance of a stop notice

A criminal conviction represents a severe sanction for anyone subject to a stop notice. Whilst it is no doubt hoped that the possibility of a criminal conviction for those who do not comply with a stop notice will have a greater deterrent effect, a stop notice that can have serious criminal consequences for the recipient should not be issued lightly and should be subject to appropriate safeguards.

Despite concerns raised by bodies such as the CIOT,²¹ and the HLEAC,²² arguably, insufficient safeguards are in place to protect the rights and interests of those who receive such a notice. In particular, there is no independent scrutiny of whether it is appropriate, in all the circumstances, for HMRC to issue a stop notice.

In its response to the HLEAC, HM Treasury has published details of certain safeguards which are in place in relation to the issuing of stop notices.²³ For example, a stop notice can only be issued by an Authorised Officer (AO). An AO is a senior civil servant who, although within HMRC, is outside the Counter-Avoidance business unit of HMRC and therefore is independent of the investigation into the avoidance scheme in question. There is also a right to appeal the issue of a stop notice (considered further below). In addition, although HMRC will identify and investigate cases, it is the independent prosecuting authorities that ultimately decide whether to pursue a criminal prosecution.²⁴ 

Whether the AO is sufficiently independent to enable them to be able to provide independent and objective oversight and determine whether the conditions for issuing a stop notice are met, particularly in circumstances where R could be subject to criminal sanctions, is debatable. It has been suggested by the CIOT that it would have been preferable if the issuance of a stop notice was subject to judicial scrutiny by an independent tribunal or court, such as the Upper Tribunal (Tax and Chancery Chamber).²⁵ Regrettably, the government chose to ignore this suggestion.

Criminal liability possible even if the scheme is the subject of civil challenge

A criminal sanction for failing to comply with a stop notice can be imposed notwithstanding that there may be ongoing litigation relating to the stop notice.²⁶ This could be litigation concerning the effectiveness of the scheme or where R applies to HMRC to withdraw the stop notice and the request is denied, following which R appeals HMRC’s refusal to the First-tier Tax Tribunal (FTT).²⁷ The effect of the new measure is that it ignores any related civil litigation with the consequence that R can be prosecuted and convicted of a criminal offence, notwithstanding that there is on-going civil litigation where a tribunal/court may ultimately determine that the scheme is effective or where R is pursuing litigation to have the stop notice withdrawn.²⁸ Anyone involved in tax related litigation will be aware that such litigation may be ongoing for a prolonged period of time before the dispute is finally determined.

This measure creates a significant degree of uncertainty. It might have been preferable for any criminal proceedings associated with a stop notice not to be commenced, or at least be stayed, until any related civil litigation is finally determined. This was indeed the recommendation of the HLEAC.²⁹ Somewhat surprisingly, the government declined to accept this recommendation, which would have ensured that criminal proceedings would not be commenced where there was related on-going civil litigation.

HMRC have suggested, in correspondence with the CIOT, that the tribunal/court in the civil proceedings could order a stop notice to cease having effect with retrospective effect to the date it was issued, the implication being that such an order would also prevent any criminal sanctions because there would never have been a stop notice to which criminal sanctions could be attached.³⁰ However, whether such an order would have this effect is uncertain and the legislation is silent on the point. Ultimately, the position may have to be tested before the courts which may mean the incurring of significant professional fees for those involved. The current lack of clarity of the interaction between the civil consequences and criminal consequences of failing to comply with a stop notice is unsatisfactory. The Institute of Chartered Accountants in England and Wales has suggested two options to deal with this issue.³¹ First, the Crown Prosecution Service could delay taking a case to court where a stop notice has been appealed. Secondly, the legislation could have been amended to create a new 'reasonable excuse' defence in circumstances where R has successfully appealed a stop notice.³² It would have been helpful if the interaction between criminal and civil action had been provided for in the legislation, in line with the recommendation of the HLEAC. That would have removed the uncertainty and put the matter beyond doubt.

Will the new powers be effective in deterring offshore promoters?

One of the biggest challenges facing HMRC in its fight against the tax avoidance industry is promoters of tax avoidance schemes who are based offshore. In theory, international treaties could be used by HMRC in respect of such promoters but there are likely to be practical difficulties for HMRC, not least because some of the jurisdictions in which promoters operate do not have appropriate treaties with the UK. There must therefore be some doubt as to whether the new measures will act as an effective deterrent to promoters based in such jurisdictions. Even in those jurisdictions where a treaty with the UK is in place, in practice, the exchange of information between HMRC and the relevant authority will inevitably take time and scarce HMRC resources.

The measures may also be ineffective in relation to offshore promoters because prosecution of such promoters would require extradition proceedings against the individuals concerned. Such proceedings can be challenging and time-consuming for HMRC. In order to extradite a person from another jurisdiction to stand trial in the UK, there normally has to be dual criminality, meaning that the relevant criminal act has to be an offence both in the UK and in the jurisdiction from which the person is to be extradited. This may create an insurmountable difficulty for HMRC in respect of many jurisdictions given the particular nature of the offence of failing to comply with a stop notice. If offshore promoters cannot be easily prosecuted for the new offence, this will significantly reduce the deterrent effect in respect of such promoters. Indeed, the new measures may even encourage promoters who are currently based in the UK to relocate to jurisdictions where it would be difficult, if not impossible, for them to be extradited to the UK to stand trial.

Will the new powers lead to successful prosecutions?

If the government’s stated intention of deterring individuals from promoting tax avoidance schemes is to be realised, it will be necessary for successful prosecutions to be brought using the new powers. If HMRC fail to instigate successful prosecutions, or they are brought too slowly then, as with the Criminal Finances Act 2017,³³ the deterrent effect of these measures will lessen overtime. Given HMRC’s limited resources, there must be a real risk that few, if any, prosecutions will be brought under the new powers in the short to medium term. For example, evidence suggests that HMRC’s success rate at securing prosecutions in relation to tax fraud has been declining.³⁴ In relation to stop notices, HMRC have said they intend to use such notices in the most serious cases where HMRC considers it needs to send a strong deterrent message, or a civil investigation would be insufficient. Given their finite resources, HMRC are likely to focus on those promoters who are prolific or are involved in promoting schemes which involve large sums. However, if these measures are to have the desired deterrent effect, HMRC will have to bring successful prosecutions sooner, rather than later, and cannot afford to wait too long.

HMRC’s power to apply for directors to be disqualified

Section 33 and Schedule 13 FA 2024,³⁵ permit HMRC to apply for a director’s disqualification order against a person under the Company Directors Disqualification Act 1986 (CDDA 1986) where that person is connected with the promotion of a tax avoidance scheme.³⁶ Under these provisions, HMRC may apply directly to a court which has jurisdiction for the purposes of the Insolvency Act 1986, such as the High Court, to disqualify directors of a company where it considers that it is 'expedient in the public interest' for such an order to be made in one of two circumstances: (i) following an order winding up the relevant company; or (ii) where tax avoidance is being promoted, in both cases, including in relation to individuals who control or exercise influence over such a company (so-called 'shadow directors').³⁷ The court must make a disqualification order (it has no discretion) in applications following a winding up order. Where a disqualification order is sought in relation to the promotion of a tax avoidance scheme, the court has a discretion in deciding whether to make the order. The maximum period of disqualification is 15 years.³⁸ Prior to the enactment of these provisions, HMRC could not apply to the court itself for a director’s disqualification order and had to refer a case to the Insolvency Service if it wished to have a person disqualified from being a director.

What test will HMRC apply before seeking disqualification?

Whilst the government considers it appropriate for directors who have been found to promote tax avoidance schemes to be disqualified from being a company director, such a significant step should not be undertaken lightly. Section 8ZG CDDA 1986, provides that HMRC may apply for a director to be disqualified if it is 'expedient in the public interest' to do so. The legislation does not expand on the factors that should be considered when determining whether this test is satisfied. The HLEAC recommended that, when deciding whether to make such an application, HMRC should assess the extent of the director’s culpability and knowledge of the tax avoidance scheme in question, and whether there is history of persistent involvement in such schemes, or a failure to comply with stop notices.³⁹ The HLEAC also recommended that HMRC publish the criteria it intends to apply when deciding whether disqualification is in the public interest.⁴⁰ 

In its response to the HLEAC, the government declined the opportunity to set out in legislation the factors that would be considered by HMRC when deciding whether to seek a director’s disqualification order, stating that it was important not to constrain the way the provision operates.⁴¹ It explained that HMRC will look at a wide range of factors which may include, for example, the actions and behaviours of individuals and their failure to discharge their duties and obligations, evidence of any failures and non-compliance with obligations under the government’s anti-avoidance legislation, previous non-compliant behaviour, compliance or enforcement action taken by HMRC or information received from taxpayers and other government departments.⁴² It also said that HMRC will work with the Insolvency Service/the Department for Business and Trade on how best to make further information about this new power available to the public.⁴³ At the time of writing, further information has not been published on the circumstances in which HMRC will exercise this new power.

Whilst it might be argued that HMRC, when deciding whether to make an application to disqualify a director connected to the promotion of a tax avoidance scheme, has too much discretion, some comfort can be taken from the fact that an application for a director’s disqualification order must be determined by a court, which provides a degree of independent judicial scrutiny of HMRC when exercising its broad discretion. However, as the legislation has been drafted in wide terms, it remains to be seen how the courts will treat such applications from HMRC. Again, as in the context of stop notices, there would be greater certainty if the specific factors to be considered by HMRC, when exercising its discretion in relation to this provision, had been set out in the legislation itself or in published guidance.

No protective measures for 'stooge' directors

The new measure does not afford any protection for 'stooge' directors who are, on occasion, recruited to front companies which are involved in the promotion of tax avoidance schemes. Such directors are often young people who have been targeted because they are naïve and unsophisticated individuals. The government has chosen not to include any specific protection for such directors. It has stated that the measure needs to apply to those willing to act as stooge directors in order to discourage them from becoming involved with tax promoters in the first place. In the view of the government, there are already sufficient safeguards in place to protect such individuals.⁴⁴ For example, the government considers that there is relevant information and guidance already available on gov.uk which supports directors in understanding their duties and obligations. Be that as it may, the fact remains that some individuals who may have become involved unwittingly with a tax promoter and had no real involvement in the decision-making process of the company concerned, may nonetheless find themselves having to respond to an application by HMRC for a director’s disqualification order.

The increase in the maximum sentence for tax fraud

Section 32 FA 2024, makes amendments to various provisions in the tax code to increase the maximum sentence for tax fraud from seven to 14 years. This change applies to, for example, offences relating to the fraudulent evasion of income tax in the Taxes Management Act 1970⁴⁵ and the fraudulent evasion of plastic packaging tax in the FA 2021.⁴⁶ This increase in the maximum sentence for certain tax fraud offences demonstrates the government’s continued focus on tax fraud and is indicative of the hard line it is taking in relation to those who commit tax fraud.⁴⁷ 

As with the other measures discussed above, whether this increase in the maximum sentence for certain tax fraud will have the desired deterrent effect will largely be dependent on the length of sentence the courts impose in practice on those convicted of tax fraud offences. The Crown Prosecution Service (at HMRC’s behest) normally rely on the common law offence of cheating the public revenue, when prosecuting individuals for tax evasion. Those convicted of this offence can be subjected to an unlimited fine and/or life imprisonment. This does raise the question of whether this increase in the maximum sentence for certain statutory tax evasion offences was necessary. In the writer’s experience, the criminal courts rarely impose a prison sentence of greater than seven years for a tax fraud offence, even in those cases where a defendant has been successfully prosecuted for the common law offence of cheating the public revenue. With regard to the new maximum sentence of 14 years, the courts will require guidance on when this maximum sentence should be applied. In the absence of such guidance, the government may find the courts are reluctant to impose this maximum sentence.

Conclusion

If these new measures are to be effective and have the desired effect, HMRC will need to utilise its new powers and this will require a willingness on the part of senior management within HMRC and, crucially, HMRC will have to be provided with sufficient funding to enable it to properly discharge its public functions.

It is regrettable that the government has chosen not to incorporate some of the reasonable and proportionate recommendations made by various interested bodies which would have improved the effectiveness of the measures whilst at the same time ensuring a more certain legal framework with appropriate safeguards.

Footnotes

¹ Finance Act 2014 (FA 2014) ss.234–236.
² HMRC, Avoidance: power of HMRC to apply for disqualification order: draft clauses (Issue date of draft clauses 18 July 2023), https://www.gov.uk/government/publications/dealing-with-promoters-of-tax-avoidance/draft-legislation-avoidance-accessible-version [Accessed 11 June 2024].
³ HMRC, Avoidance: power of HMRC to apply for disqualification order: draft clauses (Issue date of draft clauses 18 July 2023).
⁴ House of Lords, 2nd Report of Session 2023–2024, Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (Economic Affairs Committee, 1 February 2024), HL Paper 52 (Session 2023–24).
⁵ Letter of 20 June 2023 from the ATT to HMRC; Letter of 12 September 2023 from the CIOT to HMRC.
⁶ Letter of 20 June 2023 from the ATT to HMRC; letter of 12 September 2023 from the CIOT to HMRC.
⁷ House of Lords, 2nd Report of Session 2023–2024, Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (Economic Affairs Committee, 1 February 2024) HL Paper 52 (Session 2023–24).
⁸ Letter of 3 May 2024 from HM Treasury to the Economic Affairs Finance Bill Sub Committee, https://committees.parliament.uk/publications/44623/documents/221650/default/.
⁹ Finance Act 2021 (FA 2021) s.121.
¹⁰ FA 2014 s.236A.
¹¹ FA 2014 s.236B.
¹² FA 2014 s.236C; the return must contain the following information: the number of relevant clients of R in the relevant period to which the return relates, the client’s name and address, the unique taxpayer reference number (if any) allocated to the client by HMRC, the client’s national insurance number (if any) and any name by which any such arrangements or proposal is known or is marketed.
¹³ FA 2014 s.236H.
¹⁴ FA 2014 s.274 and Sch.35.
¹⁵ FA 2014 Sch.35.
¹⁶ FA 2014 s.277A(3).
¹⁷ FA 2014 s.277A(3)(c).
¹⁸ Finance Act 2008 Sch.41.
¹⁹ Finance Act 2009 Sch.56.
²⁰ FA 2014 s.280; Finance Act 2024 (FA 2024) Sch.13.
²¹ Letter of 12 September from the CIOT to HMRC.
²² House of Lords, 2nd Report of Session 2023–2024, Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (Economic Affairs Committee, 1 February 2024) HL Paper 52 (Session 2023–24).
²³ Letter of 3 May 2024 from HM Treasury to the Economic Affairs Finance Bill Sub-Committee.
²⁴ The Crown Prosecution Service in England and Wales and the Procurator Fiscal Service in Scotland.
²⁵ Letter of 12 September 2023 from the CIOT to HMRC.
²⁶ FA 2014 s.280.
²⁷ FA 2014 ss.236D, 236E.
²⁸ FA 2014 ss.236D, 236E.
²⁹ House of Lords, 2nd Report of Session 2023–2024, Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (Economic Affairs Committee, 1 February 2024) HL Paper 52 (Session 2023–24).
³⁰ Letter of 20 October 2023 from HMRC to the CIOT.
³¹ "Representation 58/23: Tougher consequences for promoters of tax avoidance" (ICAEW, 21 June 2023), https://www.icaew.com/-/media/corporate/files/technical/icaew-representations/2023/icaew-rep-058-23-tougher-consequences-for-promoters-of-tax-avoidance.ashx [Accessed 11 June 2024].
³² “Representation 58/23: Tougher consequences for promoters of tax avoidance” (ICAEW, 21 June 2023).
³³ There has not been a single prosecution under the Criminal Finances Act 2017 for the corporate offences of failure to prevent the criminal facilitation of tax evasion.
³⁴ House of Lords, 2nd Report of Session 2023–2024, Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (Economic Affairs Committee, 1 February 2024) HL Paper 52 (Session 2023–24).
³⁵ FA 2024 s.33 and Sch.13.
³⁶ A director’s disqualification order prevents a person from being a company director.
³⁷ Company Directors Disqualification Act 1986 (CDDA 1986) s.8ZF and s.8ZG.
³⁸ CDDA 1986 s.8ZF(4) and s.8ZG(5).
³⁹ House of Lords, 2nd Report of Session 2023–2024, Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (Economic Affairs Committee, 1 February 2024) HL Paper 52 (Session 2023–24).
⁴⁰ House of Lords, 2nd Report of Session 2023–2024, Research and development tax relief, HMRC data requirements, promoters of tax avoidance and sentencing for tax fraud (Economic Affairs Committee, 1 February 2024) HL Paper 52 (Session 2023–24).
⁴¹ Letter of 3 May 2024 from HM Treasury to the Economic Affairs Finance Bill Sub-Committee.
⁴² Letter of 3 May 2024 from HM Treasury to the Economic Affairs Finance Bill Sub-Committee. 
⁴³ Letter of 3 May 2024 from HM Treasury to the Economic Affairs Finance Bill Sub-Committee. 
⁴⁴ Letter of 3 May 2024 from HM Treasury to the Economic Affairs Finance Bill Sub-Committee. 
⁴⁵ Taxes Management Act 1970 s.106A(2)(b).
⁴⁶ FA 2021 s.77(3)(d)(i).
⁴⁷ HMRC, Doubling the maximum prison term for the most egregious examples of tax fraud (18 July 2023), https://www.gov.uk/government/publications/increasing-the-maximum-prison-term-for-tax-fraud/doubling-the-maximum-prison-term-for-the-most-egregious-examples-of-tax-fraud [Accessed 11 June 2024]. 

One of HMRC’s most feared powers is its ability to conduct a 'dawn raid'. This phrase, which is not used in legislation, refers to an unannounced search of premises, usually early in the morning, by a number of HMRC officers. HMRC carries out dawn raids when it suspects tax evasion and it considers there is a likelihood that evidence could be destroyed if it arranged a visit, or requested the information.

Be prepared

The risk of a dawn raid is an ever real one and it is important that businesses are properly prepared for such an eventuality. Given the stressful nature of a raid and the complexity of HMRC's powers, costly mistakes can be made if a business has failed to properly prepare.

When and how can HMRC conduct a dawn raid?

The Police and Criminal Evidence Act 1984 (PACE) allows HMRC to apply to the Crown Court for authority to enter and search premises to investigate suspected tax fraud.

HMRC must satisfy the Court that there are reasonable grounds to believe that: 

• an indictable offence has been committed;
• there is material on the premises which is likely to be of substantial value to the investigation of the offence;
• the material is likely to be relevant evidence (ie, evidence which is admissible in evidence at a trial for the alleged offence); and
• the material does not consist of or include items subject to legal professional privilege (LPP), excluded material or special procedure material.

One of the following conditions must also be satisfied:

• it is not practicable to communicate with any person entitled to grant entry to the premises;
• it is practicable to communicate with a person entitled to grant entry to the premises but it is not practicable to communicate with any person entitled to grant access to the evidence;
• entry to the premises will not be granted unless a warrant is produced; or
• the purpose of a search may be frustrated or seriously prejudiced unless a constable arriving at the premises can secure immediate entry.

Once HMRC is granted a search warrant, it will prepare to execute it. The search warrant will specify the location HMRC is permitted to search. Often, coordinated raids are carried out at a variety of premises. HMRC can, and often do, conduct dawn raids at a taxpayer’s home address, business premises and the premises of their external professional advisers.

Often, this early morning ‘knock at the door’ will be the moment a taxpayer or their adviser first becomes aware of an investigation into the taxpayer’s affairs.

PACE permits HMRC to use reasonable force to gain access to the premises which are to be searched. Once HMRC has gained access to the premises, it can examine, copy or remove any material covered by the warrant, unless it is subject to LPP. 

Dawn raids can be very difficult for businesses to manage, being disruptive, stressful and highly pressurised. As with most things in business, advance preparation is key. This is especially true for professional advisers whose clients could come under HMRC scrutiny and may then themselves be drawn into an investigation, despite having done nothing wrong.

Steps businesses can take

Fortunately, businesses can proactively prepare for a dawn raid. It is crucial that businesses have a comprehensive dawn raid policy and protocol in their crisis management plans, which deals with how their staff should respond during a raid.

The policy should confirm the importance of remaining calm, courteous and professional, as well as not taking any actions without the agreement of the business’ legal team. This will not only minimise stress levels, it will also reduce the risk of staff behaving inappropriately, such as attempting to deny HMRC access or volunteering information beyond the scope of the warrant - which they are under no legal obligation to provide.

The business should have sufficient trained staff who will be available to ‘shadow’ each HMRC officer. The purpose of each shadow is to monitor the search undertaken, make a note of all questions asked/answered and take a copy of all documents examined, copied or removed by the HMRC officer they are observing.

It is very important that HMRC officials are not allowed to simply wander around unsupervised. Members of the shadow team should raise concerns with the business’ legal team if it appears that HMRC’s search may be going beyond the scope of the warrant, or officers wish to copy or remove material that might be subject to LPP. They should also keep a note of the questions asked by HMRC and any answers provided.

Certain staff have key roles in responding to a dawn raid and will require additional training. Reception, security and IT staff should receive specific additional training. It is likely that reception and security staff will be the first people to greet the HMRC officers when they arrive to execute a warrant.

They should be trained to check and record the IDs of every member of the HMRC dawn raid team, assure the officers that the business intends to cooperate, before contacting the business’ crisis management and legal teams.

IT staff should be made aware of the need to keep a record of everything accessed or searched by HMRC officials on the company’s IT systems and mobile devices. They must also obtain a copy of all documents copied, imaged or removed by HMRC.

Beyond trained staff, it is crucial to have experienced dawn raid responders available who can be contacted and who can attend the relevant premises. Matters such as the precise scope of the warrant or LPP determinations, require difficult judgement calls and it is important that suitably experienced lawyers, with the necessary expertise in this area, are consulted.

The business’ dawn raid plan should include the contact details of experienced external lawyers who have agreed to be on call in the event of a raid. HMRC is entitled to refuse a request that the search not be commenced until the business’ external solicitors arrive, so delays in identifying and contacting an appropriate solicitor can be costly.

Given the ever-increasing regulatory landscape, the risk of a dawn raid is a real one. It is therefore essential that all businesses are fully prepared should they find themselves subject to such a raid. To assist businesses in their preparation, we have developed RPC Raid Response. This is an app toolkit featuring all the guidance needed to successfully navigate a dawn raid, including a live report incident button which connects you to RPC’s specialist lawyers. It is free to download from Apple Store and Google Play.

The First-tier Tribunal (FTT) approved the issuing by HMRC of an information notice to Mr Paul Baxendale-Walker (PBW) pursuant to paragraph 1, Schedule 36, FA 2008 (the notice). HMRC amended the deadline for compliance with the notice to 15 March 2022, because of a delay in service and, after agreeing to two further extensions, issued penalty notices to PBW for non-compliance, pursuant to paragraphs 39 and 40, Schedule 36, FA 2008. On 1 March 2023, HMRC withdrew those penalties and informed PBW that he had a further 14 days (until 15 March 2023) to comply. 

On 15 March 2023, HMRC issued a new paragraph 39 penalty to PBW, which PBW appealed to the FTT. On 28 March 2023, HMRC applied to the UT for the imposition of a tax-related penalty on PBW in the sum of £14,031,851.01, pursuant to paragraph 50, Schedule 36, FA 2008 (HMRC's application).

On 29 March 2023, PBW made an application to the UT, under Rule 8(3)(c) of the Upper Tribunal Procedure (Upper Tribunal) Rules 2008, to strike out HMRC's application on the basis that certain statutory pre-conditions for the imposition of a paragraph 50 penalty had not been met and accordingly there was no reasonable prospect of HMRC's application succeeding (the strike out application). 

PBW argued that: 

• a paragraph 50 penalty cannot be imposed where there is an extant appeal against the underlying paragraph 39 penalty; 
• the statutory pre-requisite that the failure to comply with an information notice continued after the imposition of the penalty, had not been met in the instant case because HMRC was considering making an application for a paragraph 50 penalty even though the paragraph 39 penalty had been raised the day before;
• there was no failure that continued after the paragraph 39 penalty was imposed, as required by paragraphs 50(1)(b) and (c); 
• to the extent that paragraph 50(1)(a) is open to more than one reasonable interpretation, the interpretation which avoids a paragraph 50 penalty should be preferred; and
• HMRC's interpretation of the relevant provisions breached Article 6 of the European Convention on Human Rights (ECHR).  

HMRC argued that PBW's interpretation required reading into paragraph 50(1)(a) additional words which were not present and its interpretation of paragraph 50 did not involve any incursion into the presumption of innocence, for the purposes of Article 6, ECHR. Further, HMRC argued that there was a continuing failure to comply, as the paragraph 39 penalty was imposed on 15 March 2023 and PBW had not complied with the notice by 28 March 2023, when HMRC's application was made. 

UT decision

The strikeout application was allowed.

The UT held that not all of the paragraph 50 conditions had been satisfied. 

In striking out HMRC's application, the UT:

• disagreed with PBW that a paragraph 50 penalty cannot be imposed if there is an extant appeal because liability to a paragraph 39 penalty can arise, for the purposes of paragraph 50, as soon as a taxpayer fails to comply with an information notice; 
• commented that any danger of procedural chaos or potential unfairness could be dealt with by the ability of the FTT to stay a paragraph 50 application until any paragraph 39 penalty appeal has been finally determined;  
• did not need to definitively decide whether HMRC is able to vary the compliance date stated in an information notice because, either way, a requirement of paragraph 50 was not met because if HMRC had such a power, paragraph 50(1)(b) was not satisfied because HMRC's purported assessment of the paragraph 39 penalty was invalid (at the time the HMRC officer made and notified the assessment, PBW had not failed to comply with the notice)and if it did not, HMRC's only power was under paragraph 44, which only relieved PBW from the consequences of his failure if he complied within such further time as HMRC permitted; paragraph 50(1)(d) was not satisfied because HMRC applied to the FTT for the paragraph 50 penalty on 28 March 2023, but the deadline expired on 15 March 2023, that being the end of the period of 12 months beginning with the date PBW became liable to the paragraph 39 penalty. 

Comment 

The UT's decision provides helpful analysis on the correct interpretation of paragraphs 39, 40 and 50, Schedule 36, FA 2008. 

Although the UT did not definitively determine whether HMRC can vary the date for compliance stated in an information notice issued under paragraph 1, Schedule 36, FA 2008, and which has been approved by the FTT, the UT's obiter comments strongly suggest that HMRC is not able to do so.  

The decision can be viewed here. 

Beech Construction Partnership Ltd (BCPL), the main contractor on several construction projects, operated the CIS on the sub-contracts it made.  BCPL was also a sub-contractor on various contracts with six related entities which, for convenience, are referred to collectively in this article as 'Beech'. Beech failed to operate the CIS in respect of payments made to BPCL.  HMRC therefore issued determinations to Beech, under regulation 13 of the Income Tax (Construction Industry Scheme) Regulations 2005 SI 2005/2045 (the regulations). The determinations were appealed to the First-tier Tribunal and have been stayed pending the outcome of the judicial review proceedings instigated by Beech and the subject of this decision.

The CIS is designed to reduce the risk of evasion by construction industry workers. In outline, it does so by requiring contractors s who carry on construction business to make deductions from payments to sub-contractors engaged by them and account for the amounts deducted to HMRC. The cost of materials is excluded so that the deduction is confined to the element attributable to labour. Amounts so deducted are then available for credit against the sub-contractor's own liabilities. The rate of deduction is determined by the status of the sub-contractor. If the sub-contractor is not registered with HMRC the rate is 30% and if the sub-contractor is registered the rate is 20%. However, if certain conditions are met it is possible to register for gross payment, in which case no deduction is made.

Where, contrary to the terms of the legislation, no deduction, or an insufficient deduction, is made from a payment to a sub-contractor not registered for gross payment, the contractor must still account to HMRC for the amount that should have been deducted. If they do not do so then HMRC may make a determination of the amount in question under regulation 13 of the regulations. Further, and unsurprisingly given that no deduction has been suffered, there is no provision that permits the sub-contractor to obtain a credit against their own liabilities for amounts that the contractor is required to pay but which have not been deducted. However, where the sub-contractor does in fact meet their own tax liabilities the mischief at which the CIS is aimed is not only not present, but without more HMRC would receive and retain a greater sum than it would have been entitled to had the correct deduction been made. Alternatively, the contractor may have taken care to comply with the CIS regime but made an innocent mistake and be left out of pocket.

Regulation 9 of the regulations recognises these possibilities by providing a mechanism that empowers HMRC, if certain conditions are satisfied (referred to as condition A or condition B), to issue a direction to the effect that the contractor is not required to pay. HMRC's interpretation of the regulations has been that there is no power to issue a direction under regulation 9 if a determination has already been made, under regulation 13, of the amount in question. 

Beech challenged, by way of judicial review proceedings, HMRC’s interpretation of regulation 9 that it cannot be invoked after a determination made under regulation 13 and argued that regulation 9 remains applicable until a determination becomes final. 

Having been unsuccessful before the Administrative Court, Beech appealed to the Court of Appeal.

Court of Appeal judgment

The appeal was allowed.

The Court concluded that HMRC has the authority to issue a direction under regulation 9 concerning amounts already subject to a determination under regulation 13, provided the determination remains open for adjustment. The Court clarified that if a regulation 9 application is properly raised as a ground of appeal, it can prevent the determination from becoming final, thereby allowing for adjustments under regulation 13(3) to account for any direction issued by HMRC. Accordingly, Beech's appeal was allowed and HMRC’s refusal to consider Beech's claim under regulation 9(4) was quashed, enabling Beech to claim relief under regulation 9.

Comment 

The Court of Appeal noted that if the order of events had been different and if HMRC's interpretation was correct, there would be a potential windfall for HMRC. For example, in circumstances where a sub-contractor pays their own tax liabilities, but the contractor also pays the same tax following a determination, HMRC could refuse to issue a direction waiving the contractor's liability. Clear words would be needed in the legislation to justify such a windfall, especially since the mischief intended to be addressed by the CIS would not exist in such a scenario. This decision overturns a number of previous decisions that had supported HMRC's interpretation of the regulations.

On a practical note, it is clear from this decision that a contractor who receives a regulation 13 determination must respond quickly. They will need to appeal the determination and apply for a regulation 9 direction. Time is of the essence, as once the regulation 13 determination is finalised, a regulation 9 direction will have no effect.

The decision can be viewed here.

Chee Whye Yip was born in Malaysia. He arrived in the UK in 1961 and set up a food delivery business that operated as a partnership known as Archers Meat or Archers Supplies (Archers). The business was transferred to various entities, including to Archers Meat Supplies Ltd (AMSL) in 2006. 

In February and April 2012, two cash deposits amounting to almost £250,000 were made into a bank account in the name of AMSL. In April 2012, £250,000 (the Disputed Amount) was transferred from a separate AMSL bank account to Mr Yip's bank account. In June 2012, Mr Yip transferred £295,020.78 to a law firm in connection with the purchase of a property.

Mr Yip's tax return for 2012/13 did not include the Disputed Amount. The return showed that he had received total income in that year of £24,332, made up of dividends, interest and pensions. Mr Yip did not seek any professional advice in relation to the tax treatment of the Disputed Amount.

In the years prior to the payment of the Disputed Amount, Mr Yip was working for the business but did not receive a formal salary. His responsibilities were not defined by a contract as it was a family business, but he worked in a management capacity and his responsibilities included paying suppliers. The last time he was paid as an employee of the business was in tax year 2004/05.

In June 2017, HMRC identified a risk in respect of Mr Yip's tax affairs as a result of information provided in the course of another investigation. Much of HMRC's correspondence in connection with Mr Yip was with Indirect Sales Ltd (IS). IS acted at various times as agent for him and while the identity of the person corresponding with HMRC was unknown, the standard of written English in their letters was poor and consistent with the author not having English as their first language. In its initial correspondence with HMRC, IS referred to the Disputed Amount as Mr Yip's "return from the business”.

In March 2021, following correspondence between the parties, HMRC wrote to Mr Yip stating that it believed the Disputed Amount was a payment by AMSL to him for services provided by him in a self-employed “consultancy” capacity which should have been charged to income tax as an amount of “self-employment income”. Mr Yip subsequently discussed with HMRC health and memory problems he had and said he did not remember receiving the Disputed Amount but that if he had then he “earned his money”. Mr Yip said he was shocked to learn of HMRC's claim and that his accountants may have made a mistake.

HMRC subsequently issued a discovery assessment to Mr Yip in the sum of c.£120,000 on the basis that the Disputed Amount was taxable self-employment income. In HMRC’s view, Mr Yip acted deliberately and it issued a penalty assessment in the sum of approximately £55,000, on the basis that his tax return contained an inaccuracy that was “deliberate but not concealed” and that the disclosure was "prompted". 

The discovery assessment and penalty assessment were appealed to the FTT.  

FTT decision

The appeals were allowed. 

At the date of the hearing, Mr Yip was 85 years old and suffered from chronic metastatic prostate cancer. At the start of the hearing the FTT was informed that Mr Yip was unwell and was unable to attend the hearing. Having considered the matter, the FTT decided that it was in the interests of justice to proceed with the hearing in Mr Yip's absence (he was represented by counsel).

Mr Yip had provided a witness statement in support of his appeal, explaining that in 1997 he agreed to lend £250,000 to a Malaysian businessman named Mr Teo. The loan was made in cash and was not reduced to writing, but was based on trust. This was a personal loan from Mr Yip and not connected to his business and therefore no record of the loan was made in the company records. Mr Teo repaid the loan in the two cash deposits in 2012.

As Mr Yip was unable to attend the hearing, his statement was hearsay evidence. The FTT determined that the Disputed Amount was not the repayment to Mr Yip of a personal loan made to Mr Teo. In reaching that conclusion, the FTT considered a range of factors. Firstly, in estimating the weight to place on Mr Yip's evidence, the FTT had regard to the fact that he had a motive to represent matters in a manner that would result in the assessments being discharged (this can be said against all appellant taxpayers) and that this may render aspects of his evidence unreliable. Secondly, the FTT took into account that the witness statement related to historical events and that he  suffered from memory issues and his statement might not therefore be reliable. Thirdly, the FTT regarded it as highly unlikely that Mr Yip would have made a personal loan of £250,000 in cash in 1997, without documenting it in any way. Fourthly, Mr Teo was not produced as a witness and there was no evidence of his identity or existence besides Mr Yip's witness statement. Finally, the FTT considered that depositing the money into a business bank account and then transferring it to a personal account was not consistent with the repayment of a personal loan. It was more likely the deposits were related to the business of the company rather than to Mr Yip personally.

HMRC’s case was that the Disputed Amount was a payment for consultancy or management services provided to AMSL by Mr Yip in a self-employed capacity. The FTT agreed with HMRC that, in the absence of a credible alternative explanation, it was more likely than not that the payment was a reward for, or in recognition of, the services Mr Yip had provided to the business. The FTT was therefore satisfied that HMRC had discharged its burden to prove that Mr Yip’s return was insufficient.

However, the FTT concluded that HMRC had not proven that the insufficiency was brought about deliberately because it had not shown that Mr Yip knew that the Disputed Amount was taxable when failing to include it in his return. The FTT rejected HMRC's argument that Mr Yip's previous experience of the self-assessment regime meant that he would have given consideration to the tax consequences of the Disputed Amount. In that regard, the FTT took account of Mr Yip's  lack of sophistication in tax matters, HMRC's notes of conversations with him which, the FTT concluded, did not give the impression of someone intending to mislead HMRC. The FTT also considered that the fact Mr Yip received the Disputed Amount as a lump sum would make it less likely that he would have appreciated that it was subject to income tax, and the fact there was no evidence of any written agreement between Mr Yip and AMSL under which he would supply consultancy or management services in return for payment, increased the likelihood that he would not have viewed the Disputed Amount in this way. The FTT also rejected HMRC's argument that the fact Mr Yip did not seek advice as to the tax treatment of the Disputed Amount was evidence that he knew it was taxable.

Accordingly, the FTT allowed the appeals and discharged both assessments. 

Comment

As well as a reminder of the test that HMRC must satisfy in order to issue a valid discovery assessment under section 29, Taxes Management Act 1970, this decision provides some helpful guidance on the approach taken by the FTT to hearsay evidence. Given the length of time that HMRC enquiries and investigations often take, the unavailability of witnesses and gaps in the evidential record are risks that are frequently faced by taxpayers seeking to challenge HMRC decisions. While ultimately those issues did not prove fatal to the taxpayer's appeal in the circumstances of this particular case, the decision does highlight the importance of taxpayers considering how their witness evidence might be received in circumstances where the witness is unable to attend the hearing to provide their testimony and the proactive steps that should be taken in the preparation of witness evidence to mitigate any associated risks.

The decision can be viewed here.

The IHT threshold is currently £325,000.  It was last increased some 15 years ago, in 2009, and currently remains frozen until 2030 (as of this autumn's budget).  While the transferable nil rate band (which has been in place since October 2007) and the main residence nil-rate band (introduced in April 2017) mean that in practice for some (but by no means all) estates that would otherwise be liable to IHT, the threshold is effectively increased, this still constitutes considerable fiscal drag.  According to the Nationwide house price index, a house worth £325,000 in April 2009 would now be worth £559,040 (based on UK-wide average prices).  Inflation in sectors other than housing, although not quite so extreme, has still been significant over this period – the Bank of England's CPI calculator suggests that goods and services costing £325,000 in 2009, would have cost £502,433.54 in July 2024.

Against this backdrop, it is not surprising that the £7.4bn indicated to have been due in respect of IHT for the year to 31 March 2024 in HMRC's accounts, is the highest on record and represents an increase of over 25% in 5 years from £5.3bn in the year to March 2019.  In light of this, it is equally unsurprising that disputes involving IHT appear to be on the increase.  Two recent decisions are worth noting.  

In Carvajal and another (as exors of Jennifer Fleet) v HMRC [2024] UKFTT 651 (TC), the deceased had settled a discretionary trust in 2011.  Upon establishment of the trust, the trustee had been offered a £1.4m term loan facility, repayable on demand, or on the earlier of: (1) five years from drawdown; and (2) the death of the deceased.  The loan was guaranteed by the deceased in the same sum.  The following day, the trustee drew the loan, and invested it in bonds, which it charged in favour of the lender.  The trustee distributed the bonds to the appellants (Ms Fleet's executors, who were also the beneficiaries of the trust).  The following day, Ms Fleet died.  In due course, the executors provided HMRC with form IHT400, indicating a deduction for the £1.4m loan amount.  They applied for a certificate of discharge, pursuant to section 239(2), Inheritance Tax Act 1984 (IHTA 1984), without filling in the section on form IHT30 that relates to lifetime transfers.  HMRC issued a certificate of discharge (apparently in error – the officer dealing with the case was unaware that a certificate had been issued).  In due course, HMRC issued determinations assessing the estate for IHT on £1.4m (later increased to £1,668,750).  The appellants appealed to the First-tier Tribunal (FTT).  

The FTT held that on the facts, the deceased had not made a transfer of value for IHT purposes by executing the guarantee and this led to the arrangement being ineffective.  However, the fact that HMRC had issued the certificate of discharge prevented it from pursuing the executors for the amounts set out in the determinations.  Once again, enquiry procedure proves to have been decisive in determining the outcome in this appeal.

In D Marks (exor of Hilda Marks) v HMRC [2024] UKFTT 706 (TC), the FTT had two issues to determine: (1) whether the charitable giving condition in Schedule 1A, IHTA 1984, applied to reduce the IHT payable by the estate from 40% to 36% (the Charitable Giving claim); and (2) whether a property operated as a kosher holiday let qualified for business property relief under section 104, IHTA 1984 (the BPR claim). 

The facts of this case can be stated shortly. A husband (H) and wife (W) died around 18 months apart.  H died first.  His will provided for some pecuniary legacies, with the rest of his estate held on trust to pay the income to W for her life and, subject to that, to pay income and capital to certain residuary beneficiaries.  25% of H's estate was to be paid to the trustees of the Hilda and Samuel Marks Foundation, a registered charity.  H's will trustees had the power to appoint the whole or part of the capital and/or income of H's residuary estate, in which W had a subsisting interest in possession, to any one or more of H's grandchildren and great grandchildren.  £300,000 was appointed, pursuant to this power, to H's six grandchildren prior to the death of W.  Following W's death, this sum was included in the total of lifetime transfers in the IHT account for her estate which was submitted to HMRC.  This account included a charitable gift which was slightly under 10% of W's estate. 

Following a review by  HMRC of W's IHT account (in relation to the BPR claim and also in respect of certain valuation issues), W's executors sought to argue that the appointments from H's will trust to his grandchildren had been made in excess of their powers, leaving insufficient funds in H's will trust to discharge the 25% payment to charity, which should correctly have been determined by reference to the value of the property in H's will trust at the time of its creation and not by reference to the residue after the appointments had been made.  In consequence of this, the executors argued, the value of W's free estate should be reduced and a corresponding amount be credited to the value of her will trust.  They argued that the charitable contribution from W's will trust should be recomputed by reference to the assets of the will trust at the time of its creation, which would result in it exceeding 10% of the value of both components of W's estate.  The reduced rate of IHT should therefore apply.  

HMRC disagreed and issued determinations to the executors of W's estate claiming IHT on W's free estate and lifetime transfers at 40%.  W's executors appealed to the FTT.  The FTT considered that H's will was clear, and that a natural reading of its language favoured the interpretation adopted by HMRC – that the appointments from H's will had been validly made.  The FTT did not appear to derive much assistance from what were termed to be 'submissions' by counsel on the appellants' behalf, presented by way of a written paper but without the opportunity to hear directly from their author.  The FTT also noted a certain amount of inconsistency in the appellants' witness statements.  Accordingly, the FTT rejected the Charitable Giving claim.

In relation to the BPR claim, HMRC had accepted that the property was operated as a business; the issue was whether it consisted 'wholly or mainly of … making or holding investments' in which case it would be excluded from the definition of 'relevant business property', by section 105(3), IHTA 1984.  The FTT found that very little factual evidence had been offered as to W's involvement with the letting business, and that most of what had been put forward for its consideration constituted assertion which was not supported by evidence.  While the FTT accepted that the provision of kosher food could constitute a 'key non-investment service', it held that there was 'simply not enough information here to be able to make a determination'.  Given that the burden of proof fell on the appellants to displace HMRC's case, the appeal also failed on this ground.  

These decisions are unlikely to represent the last word in IHT disputes.  Indeed, in light of the changes to agricultural property relief and business property relief in the recent budget, the scope for IHT disputes is likely to increase significantly.  Watch this space!

SDLT

While SDLT has not been subject to the same fiscal drag issues as IHT, in that the thresholds have been amended as recently as September 2022 (albeit that the changes, initially announced as permanent, were later converted into temporary measures, now due to expire in March 2025), a larger proportion of the UK population is affected by SDLT.   In light of the increase to the second home surcharge and reduction in the relief for first-time buyers of residential property, both announced in the recent budget, SDLT's impact is likely to increase.  Even before the recent budget, the steady stream of SDLT appeal cases ending up before the FTT showed no sign of abating.

The decision in Marie Guerlain-Desai v HMRC [2024] UKFTT 515 (TC), concerns an argument by the taxpayer that land purchased at the same time as a substantial house, gardens and outbuildings (together, the Property) did not constitute residential property and that a refund of £225,250 of SDLT initially paid on purchase should be made by HMRC.  HMRC, concluded that the entire Property constituted residential property and denied the application for a refund. The taxpayer appealed to the FTT.  

The FTT accepted the appellant's evidence that the 12-acre woodland (surrounding the house and 4-acre garden on three sides) had been used by the owners of nearby woodland areas for walks for decades, and that more recently the general public walked through the woodlands.  They were, the appellant claimed, generally treated as a commonly-used wooded area rather than part of the Property.  Access to the woods was open and tit was not fenced from the general public, although there was fencing and a 'privacy screen' of mature trees and bushes separating the house and garden from the woods.  There was no view of the house from the woods. 

HMRC contended that, as at the date of the appellant's purchase of the Property, it consisted entirely of residential property, including 'land that is or forms part of the garden or grounds' of the house for the purposes of section 116(1)(b), Finance Act 2003.  

The FTT noted that no-one from HMRC had visited the Property.  It therefore treated statements made by HMRC in submissions (such as a claim that the wood could be viewed from the house, that there were no features separating the land, and that the wood provided privacy and security from users of nearby public footpaths, that were flatly contradicted by the appellant's evidence which the FTT accepted) 'with caution' – perhaps a diplomatic understatement.  The FTT noted the considerable intrusion by the public into the woods (contradicting statements in the marketing material produced in evidence), and that the woods, in contrast to the garden, were not fenced off from the public – indeed, the FTT determined that it was treated as public woodland with unrestricted public access.  It provided neither security nor privacy to the house, and it was not a 'key selling point' or 'essential' to the enjoyment of the house and garden.  The FTT considered that there must be some link between the house and the woods (beyond them having been purchased together), and that the woods must have a 'functional purpose for, or a use that supports, the dwelling', for it  to comprise the gardens and grounds of the house.  In the circumstances the FTT held, in allowing the appeal, that it did not.  

In both this decision and in Marks, discussed above, it is worth noting the FTT's reserved, but nonetheless apparent, criticism of the parties' approach to the material placed before it (by the appellant in Marks and by HMRC in Desai, where its over-reliance on ambitious marketing material in its submissions attracted judicial criticism).  This illustrates the importance of tax litigants obtaining expert advice from appropriate tax litigation specialists. Whilst the procedure before the FTT is generally less formal than CPR litigation, the basic rules of evidence still have to be complied with and evidential mistakes can be costly and are likely to influence the outcome of the appeal.

On 11 December 2020, Mr and Mrs Suterwalla (the taxpayers) purchased a property which included a family house and adjoining paddock.  On the same day (but after completion), they granted a grazing lease to their neighbour in respect of the paddock.

On 14 December 2020, the taxpayers filed an SDLT return which declared that the property was a residential and non-residential mixed-use property, on the basis that the paddock was a non-residential part of the property. The consequence of that declaration was that less SDLT (£169,500) was chargeable on the transaction than if the property had been purely residential (£330,750). HMRC opened an enquiry into the return. On 8 November 2021, HMRC issued a closure under paragraph 23, Schedule 10, Finance Act 2003, increasing the SDLT due in respect of the acquisition of the property from £169,500 to £330,750.

The taxpayers successfully appealed to the First-tier Tribunal (FTT). HMRC then appealed to the U,T arguing that the FTT erred:

1. by declining to apply the UT's decision in Ladson Preston Ltd v HMRC [2022] UKUT 301 (TCC), in which it was held that the property's nature at the time of completion was relevant, when determining whether the property was purely residential;
2. in treating the grazing lease as relevant to the issue of whether the transaction was for the acquisition of land consisting entirely of residential property; and
3. in any event, in finding that the taxpayers had established that the property was of mixed use. 

UT decision

The appeal was dismissed.

In relation to ground 1, the UT agreed with the FTT that it was not obliged to follow Ladson Preston because that case concerned with multiple dwellings relief and not mixed use SDLT rates. The UT noted that Ladson Preston confirmed that the chargeable interest acquired is the chargeable interest that exists at the time of completion, and therefore the SDLT chargeable is the SDLT chargeable at the time of completion.

With regard to ground 2, the UT found that the FTT had erred in its approach when considering whether the paddock was part of the grounds of the house. This was because the FTT took into account the existence of the grazing lease which did not exist until after the time of completion. As a result, the grazing lease should not have formed part of the SDLT analysis.

As for ground 3, the UT found that the paddock was non-residential because:

(i) there were separate titles at the Land Registry for the house and paddock;

(ii) the paddock was not close to or visible from the house;

(iii) the paddock was only accessible by a small gate; and

(iv) the paddock did not support the house, nor did it form an integral part of the property.

Overall, on the facts, the UT agreed with the FTT that the lower rate of SDLT payable for a mixed-use property, was the correct rate.

Comment 

The UT's reasoning is helpful in clarifying when a property may be considered mixed-use and so subject to the lower rate of SDLT. Although the nature of the property at the time of completion is relevant when determining whether the mixed use SDLT rates apply, the UT did note that there may be circumstances where a transaction that takes place after completion will evidence the nature of the property at completion. 

The decision can be viewed here. 

HMRC issued an information notice to Mr Surat Singh Sangha, under paragraph 1, Schedule 36, Finance Act 2008 (FA 2008) (the Notice). The Notice concerned enquiries opened by HMRC under section 9A, Taxes Management Act 1970 (TMA), into Mr Sangha's tax returns for the years 2015/16 and 2016/17 and in particular his income from certain property and directorships. 

Mr Sangha requested a review of the Notice. The Notice was upheld on review but after some items were removed from it. Mr Sangha then appealed the Notice to the First-tier Tribunal (FTT). 

FTT decision

The FTT set aside some of the items requested in the Notice and varied the others.

The FTT held that:

• The Notice should be varied so that it only related to the 2015/16 and 2016/17 tax years as there was no evidence of HMRC having opened an enquiry into tax year 2018/19.
• The Notice was given with the approval of an authorised officer and therefore requests for documents originating more than six years before the date of the Notice was valid (paragraph 20, Schedule 36, FA 2008).
• The information and documents requested by the Notice in relation to Mr Sangha's tax position for tax year 2016/17 were not required to be limited to items relating to his income from property and directorships, as the wording of section 9A, TMA, is such that an enquiry extends to anything contained in a taxpayer's return, or anything required to be contained in their return.
• The extended time limit, under section 12B, TMA, that requires a person to preserve records until the completion of an open enquiry, did not apply because HMRC failed to demonstrate that any of the documents required by the Notice in relation to Mr Sangha's tax returns for 2015/16 or 2016/17, were statutory records. Specifically, HMRC had failed to discharge its burden of proof in respect of section 12B, which required it to have issued notices to file tax returns in order to trigger the requirement to preserve records until the completion of any enquiry.
• The burden was on HMRC to establish that the information and documents requested in the Notice were 'reasonably required' for the purpose of checking Mr Sangha's tax position. 
• An information notice only requires a person to produce a document if it is in that person's 'possession or power'. Power means both legal and de facto power to obtain documents or information.

The effect of the above analysis was that HMRC's request for:

• bank statements and accounts in relation to Evolution Drinks Hong Kong Ltd (Evolution) was set aside because HMRC had failed to establish a prima facie case that such information was in Mr Sangha's 'possession or power'.  
• a copy of Mr Sangha's Chase bank account statements was varied to limit the request to the years under enquiry. 
• details of other overseas bank accounts was varied on the basis that, while the information was reasonably required, the request should be limited to the years under enquiry and limited to the accounts which Mr Sangha had the power to operate. 
• information in relation to Mr Sangha's investment in Yagna Ltd was varied in order to limit it to the years under enquiry. 
• information in relation to Mr Sangha's disposal of shares in Asiana Ltd (Asiana) was set aside because HMRC had failed to establish that the information requested was reasonably required to check Mr Sangha's tax position for the years under enquiry. 
• information in relation to Mr Sangha's role in Octavian Securities Inc was varied on the basis that it was too vague. 
• information in relation to Mr Sangha's income from Asiana was varied on the basis that the original request incorrectly requested information relating to Mr Sangha's wife. The Notice could not require Mr Sangha to disclose information relating to the tax position of a third party. However, as the account was a joint account, HMRC could enquire about the account in order to clarify Mr Sangha's tax position.
• information in relation to Mr Sangha's Nat West credit card was set aside on the basis that HMRC had failed to demonstrate that the information was reasonably required to check Mr Sangha's tax position for the years under enquiry.

Comment 

This decision provides a helpful indication of the analysis that the FTT is likely to adopt when examining the appropriateness of information requested by HMRC in a formal information notice. 

The decision also highlights the importance of carefully considering the information requested by HMRC, in order to ensure that it is entitled to request the information and, in particular, whether the information which has been requested is 'reasonably required' in order to check the taxpayer's position. The FTT concluded in this case that many of the items requested by HMRC were not reasonably required. 

The decision can be viewed here.

This case concerns an application to the First-tier Tribunal (FTT) by HMRC for an order against the first respondent, Elite Management Consultancy Ltd, that certain arrangements known as the "enhanced umbrella scheme" are, or should be treated as, "notifiable arrangements", within the meaning of section 306(1), Finance Act 2004. HMRC contended that the arrangements were notifiable as a tax avoidance scheme under the disclosure of tax avoidance schemes (DOTAS) regime. 

During the course of the litigation, HMRC had applied to the FTT for an extension of time to comply with direction 12 of the FTT's case management directions, which provided for the service of an authorities bundle and stated that failure to comply with the direction would result in the proceedings being struck out. The respondents had opposed HMRC's application but the FTT had granted an extension of time to 17 June 2024.

HMRC's authorities bundle was served via its Secure Data Exchange Service and an email notification was sent at 7:05pm on 17 June 2024. An email from HMRC at 7:19pm confirmed that the authorities bundle had been uploaded for the respondents to download.

The following day (the day before the hearing was due to start), the second respondent's representative applied to the FTT for HMRC's application to be struck out, for failing to comply with the time limit (as extended) in direction 12 of the case management directions.

FTT decision

The application was granted.

The FTT noted that Rule 12 of the Tribunal Rules applied in relation to the time limit such that the authorities bundle should have been served by 5pm on 17 June 2024. However, it was clear that HMRC's authorities bundle was not served until after 7pm that day.

The FTT therefore concluded that the automatic strike out provisions in Rule 8(1) of the Tribunal Rules were engaged and HMRC's DOTAS application was automatically struck out at 5:01 pm on 17 June 2024.

Comment 

This decision serves as a timely reminder to both taxpayers and HMRC that deadlines stipulated in case management directions must be adhered to and failure to comply with an 'unless' order, issued by the FTT under Rule 8(1) of the Tribunal Rules, will result in the offending party's case being automatically struck out, as happened in this instance. If HMRC wishes to pursue its DOTAS application, it will have to apply to the FTT, under Rule 8(5) of the Tribunal Rules, for its application to be reinstated and persuade the FTT why it should be permitted to pursue its application notwithstanding its failure to comply with an 'unless' order.

The decision can be viewed here.

John Douglas Wardle (the Appellant) had an interest in Biomass UK No. 1 LLP (the LLP), which undertook a project to construct a waste-to-energy power plant (the Plant) at the Port of Hull (the Hull Project). The Hull Project aimed to divert biomass waste from landfill and use it to produce electricity which would be exported into the wholesale market. The Appellant's involvement with the Hull Project began in early 2014 when, as part of a project team, he purchased the Hull Project and associated rights from a third party.

From 2014, various steps were undertaken toward the construction of the Plant. These steps included: 

• the preparation of a financial model to facilitate engagement with potential funders; 
• the issuing of a Project Information Memorandum to a number of potential funders followed by the entering into of exclusive Heads of Terms with the chosen funder for the financing of the Hull Project; 
• the engagement of a full team of legal, financial, tax, accounting, market, environmental and fuel advisers to carry out due diligence; 
• securing final approval to proceed from the funder’s Investment Committee; 
• the establishment of the LLP as the special purchase vehicle for the Hull Project; 
• entering into a connection agreement with the grid company to connect the LLP to the grid company’s distribution system;
• entering into a new partnership agreement that established a substantial organisational and management structure and mapped out how the LLP would proceed with the Hull Project;
• entering into an unsecured loan agreement with the funder;
• entering into approximately 56 contracts with various parties relating to the construction, operation and financing of the Plant on 21 August 2015 (Financial Close); 
• entering into a power purchase agreement (PPA) with the grid company relating to the sale of electricity; 
• drawing down funds under the loan; 
• entering into a 25 year lease of land in Hull; 
• securing relevant environmental permits; carrying out of commissioning tests and trial runs; and 
• optimisation, commissioning and construction of minor residual elements, such as landscaping. 

Electricity was generated commercially for the first time in June 2019.

In February 2020, the Appellant disposed of his remaining interest in the LLP and made a claim for ER (now Business Asset Disposal Relief) in relation to the disposal, in his self-assessment return for the tax year 2019/20. HMRC subsequently opened an enquiry into the return and determined that the LLP did not trade at the date of the disposal. HMRC therefore denied the Appellant’s claim to ER. The Appellant appealed to the FTT.

FTT decision

The appeal was allowed. 

The issue before the FTT was whether the disposal constituted a material disposal of business assets under section 169I(1), Taxation of Chargeable Gains Act 1992 (TCGA). The answer to that question ultimately turned on whether the LLP was trading for the period of two years ending with the date of the disposal in February 2020 (the Relevant Period). Accordingly, the central issue in the appeal was when, if at all, the LLP commenced trading. 

Applying the three-step test identified in Mansell v HMRC [2006] STC (SCD) 605, the FTT rejected HMRC's argument that the LLP had not commenced trade by Financial Close, or at any point prior to the disposal. The parties were agreed that step one of the Mansell test was satisfied, and that the LLP had a specific concept of the type of activity to be carried on, namely, generating profit from the construction and operation of the Plant. HMRC also accepted that, if step two of the Mansell test was satisfied, then step three would also be satisfied because the PPA was operational activity, being dealings with a third party that were immediately and directly related to the supplies to be made which it was hoped would give rise to expected profit and which involved the LLP putting money at risk. Accordingly, the key issue was whether step two of the Mansell test was satisfied, namely, that the LLP's trade had been "set up". 

The FTT determined that "set-up" did not require full, 100% completion. Rather, step two required the setting up of the business "to the extent it needs to be set up", which was a fact-sensitive analysis and what is required to set up one business to the requisite level will vary (potentially greatly) from what is required to set up another. Further, the FTT considered that, perhaps depending on the trade in question, set-up could coexist with operational activity in that there was not necessarily a bright line moving between the two, but that, in reality, the two could proceed hand-in-hand. 

Having weighed up all of the available evidence, the FTT determined that the second step in the Mansell test was satisfied for a number of reasons. Firstly, the partnership agreement organised the decision-making structure and management. Secondly, the finance was fully organised with funds being drawn down from 24 August 2015 and continually thereafter. Thirdly, Financial Close was reached and notices to proceed had been issued. In summary, the FTT concluded that "the train was on the tracks travelling to its destination" with a genuine and very substantial commercial underpinning and purpose, and it was being conducted under the integrated suite of agreements determining many aspects of its activity, including operational activities. The agreements were inter-related and had been drawn up to a high degree of complex legal, financial and technical detail. The FTT was therefore satisfied that the LLP traded in the Relevant Period and accordingly that the Appellant was entitled to ER.

Comment

Disputes with HMRC concerning the commencement of a trade are becoming increasingly common and affect large numbers of taxpayers. The innumerable number of different trades combined with the fact-sensitive nature of the legal analysis means that identifying the date of commencement of a trade can be difficult, which can create a significant amount of uncertainty for taxpayers. This is especially true for trades that require the construction of capital intensive trade-specific infrastructure with long lead-in times before sales take place and profits are generated, such as with the construction and operation of a power plant. 

This decision provides some helpful guidance on the approach to be taken when determining the commencement of a trade and confirms that a trade can commence despite not all of the underlying infrastructure being complete. 

HMRC has indicated that it intends to appeal this decision and, assuming it is given permission to appeal, it will be interesting to see what approach the Upper Tribunal takes to this very important issue. 

The decision can be viewed here.

Wealthy taxpayers are dealt with by the Wealthy Team within HMRC’s Customer Compliance Group. Wealthy taxpayers are defined by HMRC as individuals with incomes of £200,000 or more, or assets equal to or above £2m in any of the last three years. HMRC advises that it applies a risk-based model utilising high quality intelligence to identify wealthy taxpayers with potential errors in their tax returns. As to that intelligence, HMRC holds significant amounts of information collected from both internal and external sources. The key sources are as follows:

HMRC's "Connect" computer system and HMRC sources

HMRC maintains a high degree of secrecy around its Connect computer system, its capabilities and how it operates. However, it is understood that Connect is a highly sophisticated data mining system that sifts through databanks of personal and commercial information, and compares that information against that provided to HMRC by taxpayers themselves. Connect looks for discrepancies in the data to identify potential non-compliance, which may lead to an HMRC enquiry or investigation.

While it is difficult to obtain any official statements on Connect, it has been said that the system sifts more data than that stored in the British Library, and the information it can gather includes everything from bank records, land registry records and DVLA records to information on online platforms and social media. It is also understood that Connect interfaces with British Overseas Territories and around 60 other OECD countries.

As well as Connect, HMRC utilises its own internal sources to obtain information about HNWs. HMRC is a vast organisation, with various teams and directorates responsible for different parts of the tax system. They include the Wealthy Team, HMRC's Fraud Investigation Service (FIS) and the Counter-Avoidance Directorate and, as part of their activities, they obtain large amounts of information which they share with each other. Other potential internal sources of information on HNWs include the Trust Registration Service, the Register of Overseas Entities, and the World Wide Disclosure Facility.

Foreign sources of information on HNWs

HMRC is increasingly more connected with regulators and financial institutions abroad, giving it access to unprecedented levels of financial information about HNWs at an international level. The key mechanisms by which HMRC obtains information from, and indeed shares information with, foreign sources are:

•  The Common Reporting Standard (CRS), which was developed by the OECD and provides for the automatic exchange of financial account information between those jurisdictions that have signed-up to the measure. To date, more than 100 jurisdictions have committed to adopting the CRS, and a significant number of countries have activated agreements in place to exchange information with the UK, including the Bahamas, Barbados, the British Virgin Islands, the Cayman Islands and the Isle of Man. The International Tax Compliance Regulations 2015 require UK Financial Institutions, such as banks and building societies, to collect, maintain and report information for exchange with CRS jurisdictions.
  
  
• Tax Information Exchange Agreements, which are described by HMRC as bilateral agreements under which territories agree to co-operate in tax matters through exchange of information. The UK has entered into such agreements with a number of countries, including the Bahamas, Belize, British Virgin Islands, and the Isle of Man.
  
  
• Tax Treaties, which are bilateral tax agreements between the UK and other countries and that may make provision for the exchange of information.

Tax crime has become increasingly complex and international in nature as global economies and technology has developed.  HMRC have been building their global connections and data sharing capability in order to prevent taxpayers slipping between jurisdictional cracks.   At the cornerstone of this,  HMRC is a founding member of the joint chiefs of global tax enforcement (J5), which was formed in 2018 in response to a call from the OECD for greater international co-operation to tackle tax crime.  The J5 is an alliance of tax authorities from the UK, Canada, the Netherlands, United States and Australia who work together to gather information, share intelligence and conduct co-ordinated operations against tax fraud.  The J5 have also invested in a digital platform which enables the countries to compare, analyse and exchange real-time data to enable them to identify risk areas and financial anomalies to then investigate. 

Conclusion

HMRC has an ever-increasing arsenal of sophisticated tools for gathering offshore information about the financial affairs of taxpayers and, perhaps not surprisingly, HNW individuals are a particular focus when it comes to deploying those tools. The advent of automatic exchange of information and AI developments in particular will make HMRC's task of ensuring tax compliance easier than it has been in the past and will likely place taxpayers at a disadvantage when it comes to challenging HMRC's enquiries and investigations. It is therefore crucial that HNWs familiarise themselves with the wide range of sources from which HMRC can and does obtain information about their financial affairs, and consider what that might mean for their own tax compliance.

This article was first published in issue 15 of Private Client Magazine.

In 2017, Jonathan Cooke purchased shares in ISG Holdings Ltd (ISG) from the two founder shareholders for £500,000. He intended to hold exactly 5% of the shares in ISG in order to qualify for ER (now business asset disposal relief). An anti-dilution clause was included in the shareholders' agreement to protect his 5% shareholding in ISG.

In 2019, Mr Cooke sold his shares in ISG, realising a gain of around £600,000, and claimed ER on the disposal. HMRC denied the claim because his shareholding was slightly less than the required 5% of the share capital of ISG due to a spreadsheet rounding error (it was 4.99998%).  The spreadsheet used to calculate the number of shares purchased by Mr Cooke rounded percentages to two decimal places. Mr Cooke appealed to the FT.

FTT decision

The appeal was allowed.

Mr Cooke argued that the High Court would, if requested to do so,  rectify the documents to reflect the intended 5% shareholding.

The FTT concluded that the Mr Cooke's clear intention was to hold 5% of the shares of ISG because:

• he requested the anti-dilution clause and the shareholders' agreement reflected this;
• the founder shareholders understood that the agreement was to transfer 5% of the shares in ISG;
• the Heads of Terms supported the agreement to transfer 5% of the shares;
• the common intention of the parties continued throughout and they were surprised when it later transpired that 5% of the shares had not been transferred; and
• the parties agreed that there had been a mistake due to the spreadsheet rounding error.

The FTT also confirmed that it had jurisdiction to take into account what the High Court would do if it had been asked to order rectification. The FTT considered that the High Court would have granted rectification of the share redesignation documents, stock transfer agreement and share certificate, to reflect a 5% shareholding.  The ER conditions were therefore deemed met and the appeal was allowed.

Comment 

Following Lobler v HMRC [2015] UKUT 0152, this is another example of the tax tribunals being willing to consider what the High Court would do in rectification proceedings and to proceed to determine an appeal as if rectification had been ordered by the High Court.

The decision can be viewed here.