Selection of recent Tax Tribunal cases

Penalty appeal allowed as it was reasonable in all circumstances not to have taken the necessary corrective action

Case details: David Andreae v HMRC [2022] TC08473

Mr Andreae appealed against penalties raised by HMRC for his failure to take corrective action by the due dates after the receipt of Follower Notices.  A Follower Notice can ask a person to settle their tax affairs and are issued where that person has used a tax avoidance scheme that has the same or similar arrangements to one HMRC has successfully challenged in court. 

The Tribunal allowed the appeal finding that it was reasonable in all circumstances for him not to have taken corrective action because of his belief following advice from the scheme promoters that, in their view, there had not been a final ruling in the related scheme case. The penalties were cancelled.

Criteria to issue discovery assessment not satisfied

Case details: Shaun McCumiskey v HMRC [2022] TC08459

Mr McCumiskey instructed Mr Brown of Alpha Tax Consultants Ltd (Alpha) to make a tax return on his behalf as he had self-employment income to report for 2015-16 year and provided Mr Brown with the necessary details. The tax return was not filed by Alpha but by Capital Allowance Consultants Ltd (Capital) and a repayment in respect of a claim to Seed Enterprise Investment Scheme (SEIS), was made to a nominee of Capital and not Mr McCumiskey. 

HMRC subsequently opened a purported discovery assessment into that tax return as it included a fraudulent claim to SEIS. It emerged that Mr McCumiskey, had never heard of SEIS, had not made any investment and was not aware of the claim. It appears that without Mr McCumiskey’s knowledge his agent had delegated the submission of his tax return to another company.

The Tribunal found that the purported return was not filed by or on behalf of Mr McCumiskey, the fraudulent claim for SEIS relief was not made by or on behalf of Mr McCumiskey and that relief was therefore not given to him.

The tribunal allowed the appeal in full.

Divers’ employment income taxed as a trade cannot be regarded as earnings of a partnership

Case details:
Adrian Corrigall v HMRC: [2022] TC08490
Jeremy Lowe v HMRC: [2022] TC08491

The appeals relating to the closure notices issued by HMRC following their enquiries into the tax returns for several tax years for both Mr Corrigall and Mr Lowe were held jointly but as the facts of each case were slightly different, the decisions were provided separately.

The appeals in both cases concerned whether earnings of a diver within section 15 ITTOIA 2005 can be regarded as earnings of a partnership. Both Mr Corrigall and Mr Lowe were mixed gas and air divers with Mr Lowe holding the role of supervisor. For the relevant tax years under enquiry both appellants had reported a percentage of their income (primarily 50%) on their tax return as a share of their partnership profits, with the remaining profit share being shown on their spouse’s tax return.  HMRC contended that the full 100% of the UK employment income should be treated as income of the appellants.

In both cases the Tribunal found that there must be evidence that the alleged partners were trading with a view to a profit and that partnership accounts and tax returns do not provide sufficient evidence that a partnership does exist.  In addition, that it was the individual appellant, not his wife, who was an employee, and it was the individual appellant that was paid, not the partnership.

Both appeals were dismissed with the Tribunal finding that the individual appellant’s relevant diving income was always his employment income. The diving income was taxed as a trade because of section 15 ITTOIA but this did not make it a trade for any other purpose. Furthermore, the individual appellant had failed to establish that a partnership did exist.

Appellant was a director when the transfer of debt notices were issued

Case details: Nigel Victor Gradidge v HMRC: [2022] TC08514

This case involved an appeal against a transfer of debt notice issued on 10 November 2016 by HMRC to Mr Gradidge relating to PAYE income tax and Class 1 National Insurance Contributions due for the 2011-12 to 2013-14 tax years transferred from a company of which Mr Gradidge had been the sole director and shareholder until he resigned on 12 April 2016.

It was not disputed in this case that the company through which Mr Gradidge provided his services was a Managed Service Company (MSC). Section 668A (2) ITEPA 2003 sets out the persons to whom the debts of the MSC may be transferred which include a director, or other office-holder, or an associate of the MSC.

Mr Gradidge appealed that the transfer of debt notice was not valid on the grounds that he had not been a director at the time the notice was issued (as he had resigned), he had not in reality been a director of the company and was not actively involved in its management and considered that it was the Managed Service Provider who controlled the company.

The Tribunal found that Mr Gradidge was a director of the company and that for the purposes of s688A he was a director at the time the transfer of debt notice was issued. The appeal was dismissed.

Appeal allowed in part regarding the application of the salaried members legislation

Case details: Bluecrest Capital Management (UK) Ltd v HMRC: [2022] TC08529

Bluecrest appealed against tax determinations and National Insurance Contributions (NIC) decisions issued by HMRC for the tax years 2014-15 to 2018-19 inclusive. The appeals concern the application of the salaried members legislation that came into force from 6 April 2014. Where this legislation applies, a member of a limited liability partnership (LLP) is treated as an employee of that LLP for PAYE income and Class 1 NIC purposes. For this legislation to apply, three conditions (Conditions A, B and C) must be satisfied; failure to satisfy any of these conditions means the rules do not apply.

It was accepted in this case that Condition C (Contributions to the LLP) was satisfied, so the appeal looked to establish the position regarding Condition A (Disguised salary) and Condition B (Significant influence) regarding the relevant members.

The Tribunal concluded that Condition A was satisfied for all the relevant members.  Regarding Condition B it was found that only certain categories of the relevant members satisfied this condition. Therefore, the appeal was allowed in part for those relevant members that did not satisfy the requirements of Condition B. 

Schedule 36 notice appeals part-allowed and varied

Case details: Matthew Jenner v HMRC: [2022] TC08528

Mr Jenner appealed against information notices issued under schedule 36 FA2008 by HMRC for the tax years 2016-17 and 2017-18 contending that the information or documents requested were not reasonably required for the purpose of checking his tax returns and that the broad scope of the details requested is not valid and also demonstrates that HMRC is engaged in a fishing expedition which is not permitted.

The Tribunal considered that HMRC are entitled to any document or information that is reasonably required to carry out an investigation or enquiry. However, broad requests made for the purposes of fishing for details would not satisfy the reasonably-required test.

The Tribunal categorised the details sought into three separate headings; household expenditure, financial information and personal accounts and considered whether the details requested were reasonably required to check Mr Jenner’s income tax position.

The Tribunal found that the broadly-drafted request relating to the household expenditure did not satisfy the reasonably required test and this aspect was set aside.  Regarding the two remaining categories, both, in the main, were considered to satisfy the reasonably-required test with a couple of amendments made. 

The outcome was that both notices had the household expenditure requirement removed and the remaining requirements were varied by the Tribunal.