Matthew Evans v The Commissioners for HMRC

With the consent of the parties, this was a remote hearing by video with both parties participating via the Tribunal video hearing system.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

This decision concerns an application by the Respondents (HMRC) for a direction under rule 8(3)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) rules 2009 (the FTT Rules) striking out the proceedings brought by the Appellant (Matthew Evans) on the ground that his case has no reasonable prospect of success.

Rule 8(3) of the FTT Rules provides, so far as material;

“(3)

The Tribunal may strike out the whole or a part of the proceedings if-

(c)

the Tribunal considers there is no reasonable prospect of the appellant’s case, or part of it, succeeding.”

When considering an application to strike out proceedings under Rule 8, it is necessary to bear in mind the overriding objective of the FTT Rules. Rule 2 provides:

“(1)

The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly

(2)

Dealing with a case fairly and justly includes –

……

(c)

ensuring, so far as practicable, that the parties are able to participate fully in the proceedings;

(d)

using any special expertise of the Tribunal effectively; and

(e)

avoiding delay, so far as compatible with proper consideration of the issues.

(3)

The Tribunal must seek to give effect to the overriding objective when it –

(a)

exercises any power under these Rules; or

(b)

interprets any rule or practice direction.”

RELEVANT CASE LAW

The Upper Tribunal (Carr J and Judge Sinfield) in The First De Sales Limited Partnership and others v HMRC [2018] UKUT 396 (TCC) (“First De Sales”) (at [33]) provides helpful guidance in relation to strike out applications:

The Upper Tribunal continued at [74]:

“The issue concerning section 225 ITEPA 2003 gave rise to a short point of construction. The FTT, correctly in our judgment, was satisfied that it had before it all the evidence necessary for the proper determination of the question and that the parties had an adequate opportunity to address it in argument. The Appellants’ evidential case was, in our view, hopeless, based on the evidence before the FTT. The FTT was right to conclude it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.”

On the basis of the documents provided I find the material facts to be as follows.

At some point during the 2006/07 tax year Mr Evans entered into a tax avoidance scheme known as “Excalibur” (the Excalibur Scheme). The scheme fell within the Disclosure of Tax Avoidance Schemes (DOTAS) provisions in Schedule 7 Finance Act 2014 (and related secondary legislation), and a scheme reference number (SRN) was allocated to it. The scheme was, in broad terms, designed to create a relievable loss for tax purposes with no corresponding economic loss.

In his self assessment tax return for 2006/07 filed on 31 January 2008 (the 2006/07 Tax Return), Mr Evans claimed a capital loss of £604,446 arising from the disposal of shares pursuant to the Excalibur Scheme and sought relief for that capital loss under section 574 of the Income and Corporation Taxes Act 1988 (now repealed) by way of set-off against his income for the 2006/07 tax year. This was on the basis that the company was a “qualifying trading company”. His claim for relief was intended to result in a refund of overpaid tax. As required under the DOTAS provisions, Mr Evans included the Excalibur Scheme SRN in the 2006/07 Return.

A tax repayment of £241,501.88 (the Tax Repayment) was paid to Mr Evans by HMRC on 31 January 2008, in respect of his claim for relief made in the 2006/07 Tax Return.

On 20 June 2008, HMRC notified Mr Evans that they were opening an enquiry under section 9A of the Taxes Management Act 1970 (TMA 1970) into the 2006/07 Return. In this letter, the HMRC officer stated that “Under the authority of S59B (4A) TMA 1970 I shall not currently be making any repayments in relation to this claim”. This was a reference to the tax relief arising from the Excalibur Scheme. This was notwithstanding the fact that Mr Evans had by that date already received the Tax Repayment. The letter also mentioned that there was no need for Mr Evans to answer any questions in relation to the enquiry as the issues arising in connection with his claim were being dealt with separately. Subsequent correspondence between Mr Evans and HMRC makes it clear that this was a reference to HMRC dealing directly with the promoter of the Excalibur Scheme.

There is then a gap in the correspondence included in the Bundle, the next document being a letter dated 26 November 2014 from Mr Evans to HMRC responding to an HMRC letter of 17 November 2014. In his letter Mr Evans told HMRC that he had assumed that HMRC had agreed his tax affairs for the 2006/07 tax year and he queried the basis on which they continued to enquire into it.

On 6 March 2015 HMRC wrote to Mr Evans responding to his letter of 9 February 2015. In their letter HMRC explained that the fact that the Tax Repayment had been made did not mean that the 2006/07 Tax Return was agreed by HMRC nor did it prevent HMRC from opening an enquiry into that return. The letter also explained that HMRC’s letter of 20 June 2008 opening the enquiry into his return was a standard form letter sent to all users of the Excalibur Scheme hence the reference to not making any tax repayments. This is why the letter did not take into account the fact that Mr Evans had already received the Tax Repayment.

On 9 July 2015 HMRC wrote to Mr Evans informing him that he would soon need to make a payment in respect of the Excalibur Scheme under the “accelerated payment procedure” and on 26 August 2015 an Accelerated Payment Notice (the APN) for £241,778.80 was issued under section 219(4)(b) of the Finance Act 2014. Mr Evans paid the amount demanded shortly after receiving the APN.

On 7 September 2015 Mr Evans wrote to HMRC to complain about the way in which his tax affairs were being handled. He pointed out that HMRC had indicated that the tax repaid to him was “not in dispute”. He claimed also that the APN was incorrect and that even if it was correct, Extra Statutory Concession A19 ought to apply to prevent HMRC from claiming that tax.

In April 2017 the First Tier Tribunal considered the Excalibur Scheme in A Kerrison v HMRC [2017[ UKFTT 322. It held, so far as relevant, that (a) the capital loss was not available as it was reduced to zero by the value shifting rules in section 30 of The Taxation of Chargeable Gains Act 1992 (TCGA 1992), (b) the loss relief claim was not allowable, and (c) waiver of a loan to Mr Evans made by a BVI company as part of the scheme did not give rise to a charge to income tax under section 687 of the Income Tax (Trading and Other Income) Act 2005. HMRC appealed conclusion (c).

Following the FTT decision in Kerrison, HMRC wrote to Mr Evans on 19 June 2017 offering him the opportunity to settle the open enquiry.

On 7 July 2017 Mr Evans replied to HMRC stating that he had discussed the case with “RPC” and believed that it was premature to settle.

On 18 September 2017 HMRC wrote to Mr Evans advising him that the FTT decision in Kerrison had been appealed to the Upper Tribunal but that, notwithstanding this, if he did not settle, a closure notice would be issued.

On 18 April 2018 HMRC issued a closure notice to Mr Evans (the Closure Notice) under sections 28A(1) and (2) TMA 1970. It set out HMRC’s decision that (a) the capital loss of £604,446 was not allowable, (b) the claim to set the capital loss against income was not allowable and (c) the amount of a BVI loan made to Mr Evans and then written off was chargeable to income tax. In the Closure Notice, the HMRC officer stated that:

“I have amended your return in line with my decision:

-

It previously showed that you were overpaid £241,501.88 tax

-

It now shows that you were due to pay £217,877.32 tax

-

the difference is £459,379.20”

The Closure Notice acknowledged that an APN had been issued and that once the period for appealing against the Closure Notice had passed, arrangements for the credits set against the APN and any additional general payments on account made in respect of the Excalibur avoidance scheme would be “transferred to the Self Assessment statement” and an updated statement sent showing the additional interest due.

On 23 April 2018 Mr Evans wrote to HMRC formally appealing against the Closure Notice stating that;

“the grounds for my appeal are as follows:

-

My tax affairs were agreed by HMRC in 1 March 2013 and the enquiry was closed at that point

-

HMRC is wrong in its interpretation of the legislation

-

The capital loss claimed in the sum of £606,446 is allowable

-

The claim to set all or part of that capital loss against income is allowable

-

The amount of the BVI loan made to me and subsequently written off is not chargeable to income tax”

On 8 August 2018 HMRC responded, as required under section 49C(2) TMA 1970, to Mr Evans’ appeal, upholding the conclusions originally reached. As per standard practice, the letter stated that if Mr Evans disagreed with HMRC’s decision he could ask for a review of the decision by an HMRC officer not previously involved in the matter or he could appeal to an independent tribunal.

On 20 August 2018 Mr Evans confirmed that he did not agree with HMRC’s decision in relation to his appeal and he requested the independent HMRC officer review that had been offered. His letter included several additional representations in respect of HMRC’s decision, including that: (a) HMRC’s decision should await the decision of the Upper Tribunal in Kerrison, (b) HMRC had failed to provide him with copies of correspondence between HMRC and the scheme promoter, (c) HMRC’s summary of the facts of his case was incorrect, (d) his series of transactions was not pre-ordained, (e) HMRC had not entered into any technical correspondence with him or attempted to establish the actual facts of his case, (f) the Enquiry Notice was flawed and invalid as it said that no repayment of tax would be made to him even though a repayment was actually made, (g) the fact that he received tax repayments for subsequent years of assessment indicated that his tax affairs were in order for the 2006/07 tax year; and (h) the HMRC on-line system indicated that all of his tax years were settled.

There then seems to have been a large gap in the correspondence between HMRC and Mr Evans, with HMRC’s next substantive response to Mr Evans being a letter dated 29 September 2021. Although a copy of this letter has not been included in the materials provided to the Tribunal it appears from subsequent correspondence between Mr Evans and HMRC that this letter acknowledged HMRC’s failure to carry out the review requested in August 2018 but confirmed that it was still willing to do so. In this period the Upper Tribunal published its decision in Kerrison, upholding the FTT decision in relation to the capital loss not being allowable and the claim for loss relief not being allowable. It also upheld the FTT decision in relation to the BVI loan waiver not resulting in a charge to income tax, dismissing HMRC’s appeal on the point.

Mr Evans replied to HMRC on 23 October 2021. In that letter he said that his understanding of the applicable legislation in TMA 1970 was that HMRC’s failure to notify him of the outcome of the independent review within 45 days of having been asked to carry it out meant that HMRC had “effectively issued a closure notice and started tribunal proceedings against me”. He went on to say that HMRC had not sent him notice of this “deemed” closure notice nor complied with “s20” of the FTT Rules. He concluded that because of what he saw as HMRC’s failure to follow correct procedure, the First Tier Tribunal “would not accept the case” and he therefore sought confirmation from HMRC that the year was settled and that his payment made under the APN would be refunded.

In a telephone conversation with HMRC on 14 December 2021 (referred to in HMRC’s letter of 17 December 2021) Mr Evans made a number of additional representations in respect of the Closure Notice, including that; (a) he was not informed that he was entering into a DOTAS scheme when he made his investment, and (b) as HMRC had issued a tax repayment, the provisions of section 30 rather than section 28A TMA 1970 were in point.

On 17 December 2021 in a letter headed “Review Conclusion Letter” HMRC finally provided Mr Evans with a conclusion of the independent HMRC officer review. The review concluded, inter alia, that the provisions of section 30 TMA 1970 were not in point and that the Closure Notice was a valid one under section 28A TMA 1970. It also concluded that the decisions in relation to the availability of the capital loss and the ability to set it off against income were correct but that the Closure Notice decision should be varied to reflect the Upper Tribunal’s decision in Kerrison with the effect the BVI loan waiver should not be chargeable to income tax. The result of this was that the amount of tax due for the 2006/2007 tax year as a result of the amendments was reduced from £459,379.20 to £241,778.80.

On 11 January 2022 Mr Evans completed his Notice of Appeal form (form T240). In this form he stated in Box 18 (Grounds for appeal) that;

“Since 2015, I have been asking HMRC to issue an assessment under s30 TMA 1970 to collect the tax over-repayment. HMRC has stated that it doesn’t need to do so. HMRC believes the closure notice it has issued in the last 30 days covers the tax “underpayment”. If I accept HMRC’s viewpoint I will be liable to interest on the tax at stake from 2006/07 to the date that an APN was settled in 2016. If I am correct, I believe that no interest would be due, because the delays gave occurred as a 100% as a result of HMRC not dealing directly with me.

There are also a lot of other issues that will need to covered in the tribunal, such as whether the tax is actually payable, what is the position as a result of HMRC taking over 3 years to carry out a review of my tax affairs, as opposed to the 45 days that it is required to take under the statute.”

In Box 6 (What is your appeal about?) he wrote;

“Whether s30 TMA 1970 applies relating to a tax over-repayment”

In Box 19 (statement of desired outcome) he wrote;

“Either: No tax is payable, due to the failure by HMRC to follow the correct procedures, or

If tax is payable, there is no interest payable due to the failure by HMRC to follow the correct procedures”

In a letter dated 31 March 2022 to the Tribunal and copied to HMRC, Mr Evans set out under the heading “statement of case” (the First Statement of Case) a summary of his facts and his “list of issues to be decided”. This is considered further below.

In a letter dated 12 May 2022 to the Tribunal and copied to HMRC Mr Evans set out under the heading “statement of case” (the Second Statement of Case) a response to HMRC’s strike out application. This is also considered further below. In this letter he further developed his argument in relation to sections 28A and 30 TMA 1970. In particular he said that he did not dispute HMRC’s power to amend his tax return under section 28A TMA 1970. He focused instead on whether HMRC could in fact make the amendments it sought to make to his actual return, concluding that they could not. He went on to state that in his particular situation section 30 TMA 1970 was in fact the only provision under which HMRC could have issued an assessment for the tax in question.

Prior to the hearing Mr Evans summarised what he wanted to say to the Tribunal in a “script” (the Script) from which he read at the hearing. The Script outlined what he saw as the key aspects of his appeal.

I asked Mr Evans to send a copy of the Script to the Tribunal (copied to HMRC) after the hearing so that we could review what it said, acknowledging here that Mr Evans had not been able to read it out in full at the hearing. He also sent in a copy of the 2006/07 Return which has not been included in the Bundle.

by reason of a mistake therein as to –

…..