Selection of recent Tax Tribunal Cases

January 2024 – March 2024

Time for our latest round-up of some interesting recent First Tier Tribunal tax cases.

IT consultant did not behave deliberately

Case details: Scott Thompson V HMRC [2024] TC09073

Following an enquiry into Mr Thompson’s 2023-14 self-assessment tax return, HMRC advised him in correspondences sent in January 2020 that, in addition to the tax liability identified, a penalty assessment based on deliberate behaviour would also be raised. In earlier correspondence, Mr Thompson had acknowledged the tax liability but contested the penalty explanation.

As no further action regarding the penalty was taken, Mr Thompson thought that the matter had been resolved. However, in 2022, a bailiff turned up regarding the outstanding penalty, following which Mr Thompson submitted an appeal against such penalty on 23 January 2023.

Firstly, the tribunal had to decide whether to allow such a late appeal and, if so, whether to allow the appeal against the deliberate behaviour penalty. Despite the significant delay in appealing, the tribunal considered that Mr Thompson held a genuine belief that he had appealed earlier in his dealings with HMRC, and, therefore, this part of the appeal was granted.

HMRC considered a deliberate penalty was appropriate because Mr Thompson had failed to include two sources of income on his tax return. Being new to self-assessment, Mr Thompson had engaged an accountant to assist with the completion of his tax return but had failed to notice that the two sources of income had not been included. He further believed that PAYE and NICs had already been deducted in respect of these payments.

The tribunal found that Mr Thompson’s actions did not meet the threshold for deliberate behaviour but concluded that he had failed to take reasonable care, and therefore the penalty should be based on this behaviour.

Footballer was not an entertainer

Case details: Baye Oumar Niasse V HMRC [2024] TC09093

Mr Niasse, a professional footballer player, appealed against HMRC’s refusal to allow a deduction in both his 2015-16 and 2016-17 tax returns relating to his agent’s fees which he had claimed as an expense of his employment with Everton FC. The tax at stake was £152,873.00. In addition, appeals were also made against the penalty assessments raised for the late filing of his tax returns for 2015-16 to 2017-18 tax years.

Mr Niasse accepted that the payments made by Everton on his behalf to his agent were taxable as employment income but argued that the fees paid were deductible under either section 336 or section 352 ITEPA 2003.

To be allowable under section 336, the expense must be incurred wholly, exclusively, and necessarily in the performance of the duties of the employment and the tribunal concluded that the fees were not necessarily incurred in the performance of Mr Niasse’s duties of his employment and therefore the requirements under section 336 were not met.

A deduction under section 352 is allowable for certain agency fees paid by an “entertainer” and section 352 defines an entertainer as an actor, dancer, musician, singer, or theatrical artist. It was argued on Mr Niasse’s behalf that a professional footballer should be treated as a theatrical artist as a footballer is engaged to entertain.  The tribunal concluded that Mr Niasse was neither an entertainer nor a theatrical artist within the meaning of section 352.  The tribunal found that Mr Niasse was not entitled to a deduction in respect of his agent’s fees and, accordingly, the appeals were dismissed.

Regarding the appeals relating to the late filling penalties in respect of the 2016-17 and 2017-18 tax years, which the tribunal was able to address, it was found that Mr Niasse did not have a reasonable excuse for the late filling and the appeals were dismissed

Mini umbrella companies not entitled to take advantage of tax schemes

Case details: Elphysics Ltd & Ors V HMRC [2024] TC09126

This case involves several cases where four lead appellants had been chosen as the lead cases with the tribunal being asked to rule on several tax issues that were common to the four companies.

The companies all operated under the mini-umbrella companies (MUC) model, and under this model a MUC:

• employs temporary workers and deals with HMRC in relation to any tax liabilities arising from the employment, including making use of the Employment Allowance (EA);
• supplies its employees’ labour to employment intermediary companies, who in turn supply that labour to recruitment agencies for onward supply to end-clients;
• charges VAT to the intermediary companies at the standard rate; and
• makes use of the VAT Flat Rate Scheme.

The case sought to establish the legality of the MUC model and also considered whether there was VAT fraud, compliance with tax regulations, and any entitlement to tax benefits under certain schemes.

The tribunal found that, overall, the scheme as a whole was fraudulent and, as such, the companies were not entitled to account for VAT under the flat rate scheme (a scheme to support small businesses with lower flat VAT rates available). Neither were they entitled to claim the employment allowance which enables an eligible employer to reduce their annual National Insurance Contribution liability (the current yearly maximum amount being £5,000).

The findings did not all go the way of HMRC, however, as the tribunal also found that HMRC should not have de-registered the companies for VAT as it concluded that the directors were not fraudulent themselves nor did they know or could have known of any fraud.