Countrywide Partners Limited v The Commissioners for HMRC

This case concerns the operation of the law concerning the Disclosure Of Tax Avoidance Schemes ('DOTAS'). DOTAS is designed to allow HMRC to obtain early information about certain tax arrangements, how they work, and who has used them. The relevant provisions are to be found in Part 7 of the Finance Act 2004 ('FA 2004'), as amended by Finance Act 2021, which amendments came into effect on 10 June 2021.

The Appellant company ('CPL'; 'the Appellant') challenges HMRC's decision to allocate a Scheme Reference Number ('SRN') to certain arrangements which HMRC considered the Appellant should have notified to them under the DOTAS regime.

The Appellant provided PAYE payroll services in relation to individuals whose personal services were made available by recruitment agencies to businesses and entities requiring those services.  For example, the Appellant provided its services in relation to locum doctors, nurses, and other medical professionals, whose services were made available to hospitals and other healthcare providers by recruitment agencies. 

The Grounds of Appeal, dated 16 May 2022, challenge the validity of the SRN on the following three bases:

For reasons set out more fully below, I have decided to dismiss the whole of this Appeal:

As others in this Tribunal have done, I gratefully adopt the succinct outline of the DOTAS regime given by Green J in R (on the application of Walapu) v Revenue and Customs Commissioners [2016] EWHC 658 (Admin), [2016] STC 1682 at Paras [11]-[12]:

The Appellant was incorporated in England and Wales on 14 December 2016. Until 12 July 2019, it was known as IPS Countrywide Ltd. According to Companies House, the 'Nature of its Business' is 'Other activities of employment placement agencies'.

At all relevant times following incorporation, its registered office, and its address for correspondence, was Suite 114, 25 Goodlass Road, Liverpool L24 9HJ. The Liverpool address is a suite in a business centre. The Appellant has staff in Liverpool and on the Isle of Man.

The Appellant has three directors: Michael John Hall; Julie-Marie Hall (who is also the Company secretary); and Christopher David Champion. Mr Hall and Mr Champion are the two persons listed by Companies House as persons with significant control.

A Mr David Alan Shand was named by the company in a submission to the FCA dated 21 August 2017 as exercising the controlled function of money laundering reporting. He is an employee. An application was made, in the Appellant's Skeleton Argument, that none of the Appellant's employees should be named in this published decision. I decline to make such an order:

But I take a different view when it comes to identification of participants in the arrangements. They are neither parties nor witnesses. I do not know whether they are even aware of these proceedings, or that papers relating to their individual circumstances have been placed before the Tribunal. It would not be fair to name those persons in this decision.

On 25 October 2021, HMRC's Counter-Avoidance directorate wrote to the Appellant that it had reason to suspect that the Appellant might have been carrying on a business as a promoter as defined under the Promoters of Tax Avoidance Scheme (POTAS) legislation in the Finance Act 2014, and requiring information and documents.

On 8 March 2022, HMRC produced a 'Notice of potential allocation of Scheme Reference Number' (the subject matter of Ground 1 of this Appeal).

On 18 April 2022, HMRC allocated an SRN (the subject matter of Grounds 1 and 2 of this Appeal).

On 4 August 2022, HMRC published information about the Appellant and its arrangements on its 'Current List of Named Tax Avoidance Schemes, Promoters, Enablers, and Suppliers'.

On 6 December 2022, HMRC issued a 'Stop Notice' against the Appellant. On 23 December 2022, the Appellant asked HMRC that the notice should cease to have effect in relation to it. On 3 February 2023, HMRC declined that request.

The arrangements in issue in this appeal were, to all intents and purposes, the same arrangements as had previously been carried on by another company, IPS Progression Ltd ('Progression'):

HMRC applied to this Tribunal for an order that Progression be subject to a financial penalty for failure to comply with section 308(3) FA 2004 (ie, a failure to notify arrangements):

After its release, HMRC alerted me to the Staker Decision but did not invite me to treat any matters decided in it as now res judicata or for some other reason no longer calling for my determination in this appeal. Nor have I been asked to stay release of this Decision pending any application by Progression for permission to appeal the Staker Decision. I have proceeded on the basis that the Staker Decision is relevant and important, and, although it does not formally bind me, I should nonetheless, as a matter of judicial comity, have appropriate regard to it, especially where it traverses substantially similar ground, both in terms of the facts, and the law.

At Paras [3]-[4], Judge Staker described Progression's arrangements as follows:

In my view, those arrangements are materially identical to the ones which I am called upon to consider in this case.

Judge Staker's findings included the following:

Judge Staker also found, amongst other matters, that the arrangements being operated by Progression were "arrangements" within the proper meaning and effect of the legislation, and were notifiable:

Whilst I am not bound by those findings, I adopt them. They mirror the facts and circumstances which I am called on to consider. Of particular significance, and as furnishing a factual and legal 'nexus' between Progression's arrangements and CPL's activity (and without deciding, at this stage, whether those amounted to arrangements within the proper meaning and effect of the legislation):

An appeal under Part 7 of FA 2004 can only be brought on certain, prescribed, grounds: see FA 2004 311(3), which reads:

FA 2004 s 311B(6) provides that "the notice of appeal must specify the grounds of appeal".

Given the wording of sections 311(3) and 311B(6), it is therefore appropriate to scrutinise the Grounds of Appeal, which were settled by Andrew Wood of Counsel and dated 16 May 2022, so as to ensure that they align with the permissible appeal rights. Anything falling outside the scope of section 311(3) is not appealable.

As I read them, there are three grounds:

The burden of proof on the Notice Issue and Allocation Issue issues rests with the Appellant, for the reasons recently set out by the Tribunal in Greenwich Contracts Ltd v HMRC [2023] UKFTT 874 (TC) at Paras [18] onwards and especially at Para [29]. However, like Judge Sukul in that case (see Para [130] of her decision) I will also consider whether the outcome would have been different had HMRC and not the Appellant borne the burden.

In relation to the Notifiability Issue, the burden is on HMRC. It must show, to the appropriate standard, that the criteria in sections 306(1)(a)(b) and (c) and 307 are met - namely, that the Appellant was, at the relevant time, the promoter of arrangements which were notifiable arrangements.

The standard of proof in relation to disputed matters is the usual civil standard - namely, whether something is likelier than not.

 On behalf of the Appellant, its internal accountant, Mr Peter MacGregor FCCA, had filed two witness statements dated 9 March 2023 and 11 December 2023. He also gave oral evidence and was cross-examined by Ms Vicary.

A witness statement had been filed and served from Mr Hall, dated 9 March 2023. However, I was provided with information that Mr Hall was not well enough to attend the Tribunal hearing to give evidence. Even though Mr MacGregor's evidence was that he had seen Mr Hall "a couple of times" "in the last few weeks" in the office, "picking things up" for "maybe half an hour or so" I was nonetheless prepared to accept that Mr Hall was not well enough to attend the hearing, and to give Mr Hall's witness statement such weight as appropriate, given that Mr Hall was not present to be cross-examined about it.

I was told that his co-director Mr Champion had given evidence in the Progression appeal, but that no evidence from him was being relied on in support of this appeal.

I was told by Mr MacGregor in the course of giving his evidence that the third director (who was also the Company Secretary), Ms Hall, would not have any useful evidence to give about the matters which are in dispute in this case. He said that she "wouldn't have enough knowledge to take [the] stand, to answer questions about [the Appellant]" and (at a later stage in his evidence) "I don't think she would know enough".

I found that somewhat surprising evidence. It runs counter to the generally accepted position that directors (who are not only assuming directorial duties but also liabilities) ought to know something about the business which they are directing.

I am bound to say that, to my mind, there remain questions as to who actually was exercising the directorial functions in this business, and whether it was the named directors or someone else. The roles of Mr Shand and Mr Wood were each explained to me by Mr MacGregor in ways which I did not always find easy to follow.

However, I do not consider it necessary or appropriate, in this instance, draw any adverse inferences from the failures either of Mr Champion or Ms Hall to give evidence in support of this Appellant's appeal.

On behalf of HMRC, I heard from Officer Charlotte Stanford. She is an Intervention Lead in HMRC's Counter-Avoidance Directorate. She had filed two witness statements; 17 March 2023 and 19 January 2024. The latter, and its exhibit, was principally directed to the systems which HMRC used to issue the Notice. She was cross-examined by Mr Hickey.

FA 2004 section 310D reads:

In short, where HMRC have reasonable grounds for suspecting that a person has failed to disclose to HMRC arrangements which should have been notified to them under DOTAS, HMRC can issue a Notice of potential allocation of a Scheme Reference Number.

If a person or entity subject to such a notice fails to satisfy HMRC within 30 days of issue that the arrangements are not notifiable, then HMRC may allocate a Scheme Reference Number.

The first formal Ground of Appeal is that HMRC's Notice of Potential Allocation dated 8 March 2022 ('the Notice') was never 'delivered to' and/or (insofar as different) 'received' by the Appellant. If correct, it is argued that this would have been a failure to comply with section 310D, meaning that the appeal would have to be decided in favour of the Appellant.

This Ground of Appeal has a curious history, which I consider it necessary to set out.

Until on or about Friday 19 January - ie, the Friday immediately preceding the weekend following which the appeal hearing was to begin - the Appellant's position in relation to this Ground was as follows:

However, on Monday 22 January, being the reading day allocated to this Appeal, the Appellant, under cover of an application dated 22 January, signed by Mr Andrew Wood of Counsel, disclosed an email, dated 26 May 2022, from Mr Peter MacGregor to Mr Andrew Wood, reading as follows:

The document attached, referred to as 'the missing letter' was a 2 page letter from Officer Stanford to CPL, dated 8 March 2022, correctly addressed. That letter enclosed a 6-page "Notice of potential allocation of an SRN" also dated 8 March 2022.

In the application of 22 January, it was said that Mr MacGregor had identified his email dated 26 May 2022 'following sight of HMRC's 2nd witness statement'. It is not clear whether that point was intended to be purely temporal, or was intended to also capture some element of causality. I would reject either explanation.

The true position, on the Appellant's own evidence, albeit coming to light only belatedly, is not that the Notice was never, as a matter of fact, received. Any such contention (i) is not only plainly unsustainable in the light of the above email, but also (ii) after 26 May 2022, always was, since, on 26 May 2022, the Appellant and its adviser both knew that the Notice had been received.

The passing suggestion in the email that the appearance of the Notice may have been that HMRC may have sent out another notice of potential allocation in response to a letter of complaint is - and never was - anything more than hypothesis. In his evidence, Mr MacGregor accepted that was pure speculation. In my view, it was.

Officer Stanford was not challenged on the contents of her second witness statement. Mr Hickey asked her where the information in Paragraphs 1 to 5 of that witness statement came from - her answer was one of the managers in HMRC's "Central Print Service" (HCPS) team - and whether those Paragraphs effectively set out what she had been told. Officer Stamford said that they did, and I accept her evidence.

She was not challenged by Mr Hickey on any of the following matters:

I am entirely satisfied:

I cannot identify anything which HMRC have done wrong with the Notice. I find that what did go wrong is that the Appellant's business address (that is to say, the address which its directors have deliberately chosen to be its official address) is an office building in Liverpool where the Appellant is said to rent a room with 5 or 6 desks, sharing the building with about 30 other businesses. All the occupants share the same street address and postcode, and post for all the occupants arrives together, and is handed over by the Royal Mail's delivery person to the building's receptionist at the front desk. That is the time and manner of delivery. In doing that, the Royal Mail did, in my view, discharge its service obligation and did its job.

After delivery, post is sorted inside the building. But that is not done by Royal Mail. The building's receptionist, who is not an employee of the Appellant, sorts the mail into a series of open-fronted 'pigeon holes', being a communal facility which line one wall of a corridor, accessible to the building's occupants, behind reception. Mr MacGregor is familiar with the building's layout and appearance and confirmed the accuracy of a photograph of the postboxes (which photograph appears, as a selling feature, on the website of the building). The Appellant had a mid-sized pigeon hole, about 1 foot square, being one of 12 such pigeon-holes. There are 4 larger pigeon-holes on one side, and 60 on the other side.

Mr MacGregor's evidence is that post addressed to the Appellant, delivered in Liverpool, is periodically - every week or so, but not as part of any individual's regular work-flow - gathered together by a representative of the Appellant (this was said to be done by one of the director's daughters, coming across from North Wales to do so specially, or by her boyfriend, said to work in the building), taken up to the Appellant's office, parcelled up, and sent on using the Royal Mail to the Appellant on the Isle of Man.

In his oral evidence, Mr MacGregor complained - and I accept his evidence on this point - that post addressed to the Appellant sometimes goes astray in the building in Liverpool - for example, it is put (by the person doing the sorting) into the wrong pigeon-hole. He says that he knows that this happens because post addressed to other occupants of the building is sometimes parcelled up (by the Appellant's own representative) and sent to the Isle of Man. That can only be because it was put in the wrong pigeon-hole.

In the circumstances, and given the totality of the evidence, either the Notice was not picked up by the Appellant and forwarded promptly enough, or it spent some time in the wrong pigeon-hole. But in either event, it was delivered.

There are also two emails in evidence, dated 13 April 2022 and 20 April 2022, both written by Mr MacGregor to HMRC in which he complains about post from HMRC not reaching him promptly. The latter letter refers specifically to this appellant. The former refers to another (unnamed) company.

The Appellant's arrangements for handling its post once it arrived in Liverpool were its responsibility. Moreover, it knew that there was a problem with the sorting of its mail in Liverpool, but there is no evidence that it actually did anything about it. It did not put in place any different process for handling its post. The Appellant was leisurely in the handling of post once received, collecting it only every week or so, and then sending it on to the Isle of Man with the Royal Mail.

Its entire system for handling incoming mail carried with it the jeopardy that important letters, including those from HMRC, would go astray and/or would not be opened or actioned promptly. It was not using a courier; it did not have its post opened by its own staff in Liverpool and scanned; and it had not put in place any system whereby any particularly urgent correspondence was identified. In my view, it had no-one but itself to blame for the Notice going to its address in Liverpool, but then not reaching it on the Isle of Man for about 2 and a half months.

As such, I am entirely satisfied, as a fact, and so find, that the Notice was received by the Appellant, at its registered office, shortly after 8 March 2022. What happened after the Notice reached the receptionist's desk in Liverpool was nothing to do with HMRC. HMRC had discharged its statutory obligation.

Now that the true situation has come to light, nothing presently remains to be said as to the argument about non-receipt and/or non-delivery, as matters of fact, and/or the meaning of the expression 'issued to', as a matter of law and/or fact.

HMRC sent the Notice, dated 8 March 2022, on 9 March 2022. It gave until 7 April 2022 to respond. On 18 April 2022, and not having received any response, HMRC allocated SRN 20980718 to certain arrangements involving the Appellant.

The Appellant does not put any other matter in section 310D in issue. Insofar as relevant, I find - as unchallenged - that HMRC first became aware that a transaction forming part of arrangements had been entered into on 7 January 2022 and that HMRC had reasonable grounds for suspecting that the arrangements were notifiable.

The answer to this Ground is no different had HMRC borne the burden.

Miss Vicary challenged Mr MacGregor as follows:

On the evidence, that was a fair challenge. His answer was:

She also asked him, looking at the Skeleton Argument, and especially Paragraph 39, whether he agreed with its assertion that the notice had never been received by the Appeal. That was also a fair challenge. His answer was:

My impression of Mr MacGregor was that he was genuinely confused and wrong-footed by the late (re)appearance of the Notice, even though he had definitely known of it sooner, and that he was trying to give me honest evidence, albeit, as it emerged, this evidence was confused and fragmentary. But he did not seek to advance any argument before me that the notice which had been discovered was not the original, but was one sent later by HMRC (in effect, to cure a deficiency in service of the original notice). Mr MacGregor recognised, properly, that was not a sustainable argument. On the facts, it was not. I did not form the impression that he was being dishonest. My impression was that he was struggling (as the Appellant's only witness) to support its somewhat shambolic mail arrangements.

Nonetheless, the Notice point was a bold and ambitious one for the Appellant to have taken, especially in the unequivocal way it was taken, and pursued, without proper assurance that it was (at the very least) reasonably arguable, on the facts. It is clear that it was only Mr Hickey's late intervention which brought the original notice to light. But that intervention would not have been necessary had the Appellant conducted a proper search in the first place, and/or had its legal representative drawn proper, and timeous, attention to the email.

Without having invited submissions specifically on the point, I do not think that it is appropriate to go beyond simply noting my abiding sense of unease as to how this argument, despite evidence to the contrary known to the Appellant and one of its legal advisers as early as 22 May 2022, was nonetheless persisted in, including at the hearing, and gave rise to the need to consider evidence and legal submissions which were, on the face of it, except for the timing issue (which was pressed on me only faintly, and which was the matter of one question) otherwise unnecessary.

Having said that, I also remind myself that the Notice Issue is a discrete ground of appeal, and that I should not let the Appellant's absence of success on that ground, or the way in which that Ground has eventually to be dealt with, influence my assessment of its other grounds.

The second limb of the appeal is whether there was compliance with section 311.

FA 2004 section 311 provides as follows:

The alleged non-compliance here is that, on the basis that the Notice was not delivered, then the allocation of the SRN was wrong because section 311(3)(a) cannot be satisfied, and the notice period in s 311(3)(b) cannot have expired.

Insofar as this is a challenge to section 311(3)(c) ("the person to whom the notice was given has failed to satisfy HMRC, before the expiry of the notice period, that the arrangements are not notifiable or (as the case may be) that the proposal is not notifiable") this is not an arguable ground of appeal by this Appellant.

Section 311(3)(c) was satisfied. The Appellant undoubtedly failed to satisfy HMRC, before 7 April 2022, that the arrangements were not notifiable. That was because the Appellant failed to deal with the Notice, as set out above.

I dismiss the appeal on this Ground. It cannot be sustained in the light of my conclusion on the Notice Issue.

The answer to this Ground is no different had HMRC borne the burden.

I am now able to arrive at consideration of the Appellant's final Ground, which is that the arrangements were not in fact notifiable arrangements: FA 2004 s 311(3)(c).

As already explained, the arrangements set out below are, in my view, materially identical to those considered by Judge Staker in the Progression case. In his evidence, Mr MacGregor confirmed that the paperwork was "the exact same paperwork. It's identical".

I was provided with a suite of documents relating only to a small number of scheme users (described as 'candidates') and have proceeded on the footing that these documents are a representative sample of the whole.

Prospective scheme users with CPL were provided with a leaflet which said that CPL sought to "[combine] skills to provide a better service to our clients and greater value for your temporary work. We provide a leading UK PAYE payroll service, ensuring our employees receive the best return for sub-contracting their skills as services of CPL". It said that working with CPL "as an employee can offer great returns from your contract work". This leaflet did not mention any loan, bonus scheme, or management fee.

Applicants completed an 'Application Form'. This provides for their personal details, including their bank details, and the details of the agency. It required verification of the right to work in the UK. It does not say what it is an application form for, and ends with the curious declaration - the purpose of which is entirely unclear - that "I agree that the time spent attending the current work place will be less than two years. Once this assignment has been completed I expect to continue employment with IPS Countrywide Ltd at another workplace".

The Welcome Pack says:

Thereafter, each individual simultaneously entered into three agreements, each in a discrete document, with the Appellant:

Completion of these documents, as a suite, was mandatory ("you will need to sign and return"). On the face of it, employees were invariably required sign all three of these documents. Moreover, there is no evidence that someone could become an employee only by signing and returning the Statement alone; or with the Loan Agreement (but not the Bonus Scheme); or vice versa. I find that all three documents had to be signed and returned. The only optional element, set out as an 'opt-in' was to the IPS Countrywide Ltd pension scheme.

This was said "to describe the employment". It relevantly provided as follows.

The bundle also contains a "Contract of Employment", 'incorporating particulars required by the Employment Rights Act 1996", and "intended to be over-arching". This relevantly provides:

The NMW being applied was £7.38 an hour; but, between April 2018 and March 2019, £7.38 was only the NNW for those aged 21-24. The NMW for those aged 25 or more (also known as the National Living Wage; NLW) was £7.83.

I do not agree with the Appellant's argument that the terms of employment "were those which would normally be expected in an employment contract". Whilst this might be true, at a certain, high-level, of abstraction, it does not adequately capture the substance of the terms, and in particular that a person's earnings are capped at the National Minimum Wage.

In an 'Important Note', the Welcome Pack says that "IPS Countrywide has negotiated with your Recruitment Company/Client a Contract for Services'. There is no evidence before me of any such negotiation.

The Statement is silent as to the Appellant's intention to deduct 15% of the gross pay as a 'Management Fee'.

In the papers before me, this does not appear in the template introduction letter, or the introductory leaflet (although, in the introductory leaflet for Progression, it appears - albeit only inferentially - in the statement that working for Progression 'can offer returns of 85% of your contract value') but does appear (as a sum, but described only as 'Management Fee', without any percentage) in the specimen pay advice at page 99 of the bundle, and note 6 of the Payslip Information Notes at page 133 ("Management Fee charged for processing the payment. This is 15%").

This was said to be because "The Employer may make available bonus schemes from time to time".

The "Bonus, Incentive or Pay Scheme Offer" ("the Bonus Agreement") relevantly provided as follows.

The Further Explanations to CPL's payslip at page 132 of the bundle refers to 'ILO Bonus', or 'Payment in Lieu of Bonus'. This is said to be a payment in lieu of future bonus, given as an employment loan from CPL. CPL asserted that this was not a 'beneficial loan', and that "deductions were not required from this part of the payment, in the same way as if candidates had a loan from a bank or finance company."

This was said to be because "the Employer may make a loan to you, typically secured against future bonus payments".

The "Loan Agreement" ('the Loan Agreement') relevantly provided as follows.

As Judge Staker set out in Paragraph [13] of his Decision, at the end of the 2017-2018 tax year, all of IPS Progression's existing and future employees were transferred to this Appellant "which provided similar services pursuant to the same model."

An e-mail from Mr Shand to "all users" dated 3 April 2018 states that the reason for the transfer of the Respondent's business to another company in the group was that the Respondent "is now full" and that "We have reach[ed] the maximum liability that the directors are happy to hold in the [IPS Progression Ltd]".

The result of these arrangements appears, illustratively, in a Pay Advice at pages 132 and 394 of the bundle:

As is apparent, income tax and NI are being calculated only on the NLW and rolled-up holiday pay. After deduction of the Appellant's 15% Management Fee, most of the money actually earned (here, about 79.5% of it, net of the Management Fee) is being passed on, without deduction of tax and NI, as "ILO Bonus".

I note that the hourly rates in that instance were £50 and £53. The hourly rates in the timesheet analysis for other participants were between £19 and £34. It is therefore obvious that the cash yield for participants, if only an hourly sum equivalent to NLW/NMW were to be taxed, with the remainder paid as ILO Bonus, would be significant.

One employee, CS, was contacted by HMRC's Individual and Small Business Compliance team in January 2022 about her employment arrangements with the Appellant.

She had entered into the arrangements in May 2021. That came about because the Appellant's 'Account Manager', who had been given her details by the recruitment consultant for a named locum agency, emailed her, on the basis that the Appellant 'runs the payroll for [the named agency]". To that extent, it is not clear to me - contrary to the introductory remarks in the Welcome Pack - that CS could genuinely be said to have 'chosen' the Appellant. That was more to do with the locum agency and the Appellant.

In the bundle is a document written by her setting out what she was told about the employment arrangements. Her hourly rate was £42. She had a conversation with the Appellant's account manager, who told her that she would be paid by the Appellant, and she understood that she would be paying the Appellant a fee (although she does not say what this was). She makes no mention of any discussion about the Loan, or the Bonus, or ILO Bonus; but does seem aware that she would be paying tax at the Basic Rate. Her payslips reflect the general pattern: there is no timesheet analysis, but in one week in December 2021 she did 14.75 hrs of work at £42/hr. Deduction of a 15% management fee left £526.57, which was paid to her at £8.91/hr, with holiday pay at £1.08/hr, with tax of £29.40 deducted from those, and the largest element - ILO Bonus - being £379.22, paid without deduction. Her payslip describes her 'NET PAY" as £497.17, but the 'This Period' boxes only include £147.35 as gross for tax, with £29.40 tax deduction. The ILO Bonus been silently included in the "Net Pay" figure. I was not given any explanation as to why the ILO Bonus was being treated in this way on the payslip - ie, as part of Net Pay, compounded silently together with 'salary paid', and 'holiday pay'. That treatment is consistently adopted across the complete run of her payslips.

The extent of CS's confusion - and anxiety - about the arrangements which she had entered into is clear from the correspondence which ensued when she was called up for jury service, and had to fill in a loss of earnings form, doing so on the basis of figures given to her by the Appellant. It was only then that CS, having been told that she was on a minimum wage of £8.91/hr, with the rest made up of 'the ILO bonus for your payment' had occasion to ask the Appellant 'What does the ILO Bonus actually stand for?' She also then realised that the weekly tax deduction 'sounds low if meant to [be] 20%'. Eventually, a local accountant looked at her payslips and advised her that the full amount of tax had not been deducted, "they have only taken tax off part of the income." She described herself as "devastated" to hear that this might involve tax avoidance.

Mr Hall's written evidence is that bonuses were paid to 11 employees of Progression and 13 of CPL, that all such bonuses were subject to full PAYE deductions; and that, once such bonuses had been paid, any employment loans were repaid. In the absence of Mr Hall, I give little weight to his evidence, which could not be tested in cross-examination.

In the Progression case, Mr Champion asserted that Progression had paid bonuses to 13 employees (ie, to less than 1% of Progression's 1593 employees) but Judge Staker noted that there was only evidence of the payment of bonuses to two of these (Paragraph 60(2)(a)). Judge Staker found that "The fact that, even now, over 7 years after [Progression] began providing its services, and over 5 years after it ceased doing so, Progression says that it has paid bonuses to only 13 of its 1593 employees. [This] further confirms that it never intended to pay bonuses to the generality of its employees.

The same reasoning and observation applies here, with similar force.

Moreover, on the totality of the evidence before me, I do not consider that CPL ever intended to pay bonuses to the generality of its employees, and did not. Letters in the bundle dated 17 March 2017 regarding a bonus payment to candidates AS and HA come from Progression, and not CPL; and antedate the "porting" across of Progression's business to CPL. There is no similar award letter in evidence from the Appellant, and no plausible explanation why not. The best available evidence are two anonymised payslips, one undated, one for a period in November 2021, which each record sums deducted by the Appellant and described as "Loan Repayment". But it is impossible from those to extrapolate or infer any wider pattern of loan repayment.

Mr MacGregor's second witness statement says that the lending business for the Appellant was intended to be carried out by a separate company, IPS Loans Ltd, which had been incorporated on 9 January 2017, and that this goes to the fact that the Appellant really intended to make loans and generate surpluses from which genuine bonuses could be paid. But the main difficulty with this is that this is not what actually happened.

Even though IPS Loans received FCA authorisation in late October 2018, I am sceptical that the figures in IPS Loan's 'Regulatory Business Plan', especially a £65,000 capital injection, and its trading projections, leading to very modest profits (projected as £26,475, before tax and dividends), would ever have permitted it to operate in the way that Mr MacGregor described.

Mr MacGregor's evidence in this regard developed in an interesting way. As I understood it, his evidence was that IPS Loans was to make loans, "and make more money and we'll be able to use that money and have both companies (ie, Progression and CPL) paid ... But .. it didn't work out the way it was planned". Mr MacGregor's evidence was that Mr Shand "was adamant that this would have worked if it had "gone to plan". But it did not go to plan because of the difficulties with IPS Loans.

This led to the following exchange between Ms Vicary, Mr MacGregor, and the Tribunal:

I found this an interesting passage of evidence. It seemed to me that Mr MacGregor was doing his best to give me truthful evidence. He had a good understanding of the overall structure of the arrangements, and of the activity of CPL within the group. I bear in mind that he was the only person able, or willing, to come to give evidence on behalf of the Appellant to the Tribunal. But this evidence shows that he was consciously treading a very fine line, emerging with clarity here, as to what the arrangements actually, in the real world, as opposed to on the drawing board, ended up accomplishing. There was a potent counter-factual throughout, which was that the IPS Loans business would generate money to feed into CPL. Had that actually happened, and as Mr MacGregor recognised, the fiscal landscape, and the operation of the arrangements, might well have been materially different.

In summary, HMRC argues as follows:

In summary, the Appellant argues as follows:

With the exception of the contingent remuneration argument, I note that many of these submissions are identical to those which Judge Staker records as having been made to him in the Progression case.

In my view, for the reasons set out more fully below, these arrangements were notifiable arrangements.

 Section 306(1) FA 2004 provides:

 Yes:

I then fall to consider the individual parts of section 306(1)(a)(b) and (c). All must be satisfied.

Yes. They fall within several descriptions prescribed by the Treasury in regulations.

The relevant Regulations are the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI/2006/1543) ("2006 Regulations"), as amended at the relevant time.

At the relevant time, they prescribed different "Descriptions" of arrangements, often referred to in HMRC Guidance and in practice as "Hallmarks".

In order to satisfy s 306(1)(a) FA 2004, "arrangements" need fall within only one of these Descriptions.

HMRC argue that the relevant Hallmarks are as follows:

HMRC pursue their case and seek judicial determination in relation to all four Hallmarks, even though success in relation to any one would suffice. HMRC submit that each of the four Hallmarks is independently met. HMRC do not make any submissions as to whether anything of material significance arises if arrangements happen to conform to more than one Hallmark.

Having reflected on the matter, lest my conclusions should fall to be reconsidered, and recognising that Judge Staker reached his conclusion only on the basis of one Hallmark, I consider that it is appropriate to deal with all of the Hallmarks placed before me, even though this will add significantly to the length and complexity of this Decision. For the avoidance of doubt, I approach each Hallmark discretely: that is to say, I do not consider, if I find one Hallmark to be satisfied, that my discussion in relation to the other and/or subsequent Hallmark(s) to be taken as given obiter. It is not.

For the sake of convenience, I am going to deal with the Hallmarks in their numerical order.

Regulation 8 Description 3 provides that:

A "Premium Fee" is "a fee chargeable by virtue of any element of the arrangements (including the way in which they are structured) from which the tax advantage expected to be obtained arises, and which is (a) to a significant extent attributable to that tax advantage, or (b) to any extent contingent upon the obtaining of that tax advantage as a matter of law".

This test is hypothetical and objective.

The Appellant obtained a 'Management Fee' from the Scheme. This was the 15% deducted from the gross amounts due to Scheme Users.

I agree with HMRC that this Management Fee was the equivalent of a Scheme User paying a 'premium fee', therefore satisfying the Hallmark. The Management Fee was the cost of the Scheme User entering into and taking part in the Scheme. Other relevant factors are:

The Appellant's description, and the fact that it did not describe this as a "Premium Fee" does not matter. I agree with the Tribunal's analysis in HMRC v Hyrax Resourcing Ltd and others [2019] UKFTT 0175 that the key issue is whether the ability to take a percentage cut is evidence that, instead of a cut, the Appellant would have been able to take a fee. Here, there would, economically speaking, have been no difference to the Appellant between its 15% cut and a fee. I agree with Judge Mosedale that the fact that the Appellant here was able to earn a 15% cut, being economically the same as a fee, is good evidence that it might reasonably be expected (the hypothetical, objective, test) that a promoter of substantially similar arrangements would be able to obtain a fee from the arrangements.

This is a convenient point at which to consider the notion of 'tax advantage' in Part 7 FA 2004, because this notion pervades the legislation, and is one in relation to which the parties to this appeal fundamentally disagree.

"Advantage", in relation to any tax, means:

HMRC's position is that there was a tax advantage, albeit HMRC point out that, for the purposes of Part 7 FA 2004, 'tax advantage" includes an advantage in relation to income tax, but does not include an advantage in relation to NICs. HMRC contend that the only benefit that the arrangements might be expected to enable any person to obtain are an income tax advantage (being a relevant 'tax advantage') and "a benefit relating to the concomitant reduction in NICs associated with the income tax advantage" (not being a relevant 'tax advantage'). HMRC thereby encourage me to focus on the income tax effect.

 The Appellant points me to Paragraphs 41 and 48 of the decision of the Supreme Court in RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) (Appellant) v Advocate General for Scotland (Respondent) (Scotland) [2017] UKSC 45.

Lord Hodge JSC said:

On a proper analysis of the facts, I do not consider that the arrangements in this appeal give the employee only "a contingent interest" or "right" (as opposed to "an immediate vested beneficial interest") of a kind where the taxable earnings are "not paid by the employer as remuneration until the occurrence of the contingency":

Paragraph 55.3 of the Appellant's Skeleton Argument says that "The deferral of tax in respect of the advance bonus payments until they cease to be contingent is an incident of the plain vanilla nature of the transactions". But, if that is correct, then the deferral is a tax advantage within the plain and ordinary meaning of section 318(1)(b) anyway.

Even if I were wrong about that, in my view, there was a tax advantage within the proper meaning and effect of section 318(1):

Indeed, to my eyes, and notwithstanding the Appellant's contingent remuneration argument, no different conclusion can realistically be identified. Put shortly, the Scheme was one which had, as its centrepiece, the proposition that the Scheme User would get - if even in the short term - to keep more of their income than they had done hitherto, notwithstanding the deduction of the Appellant's 15%.

That aim could only, objectively, be accomplished by the Scheme User paying less tax, whether now, or in the future:

Therefore, if the Appellant is a promoter, a matter to which I shall return below, then the exception in Hallmark 8 will not apply, and Hallmark 8 will be met.

Regulation 10 Description 5:  Standardised tax products relevantly provides:

In my view, this Hallmark is met:

In my view, the arrangements are a tax product because it would be reasonable for an informed observer (having studied the arrangements) to conclude that the main purpose of the arrangements was to enable a client to obtain a tax advantage.

HMRC contend that Regulation 18 Description 8 is met, meaning that arrangements are prescribed if Conditions 1 and 2 are met and Condition 3 is not met.

Condition 1 is met if the arrangements involve "any person taking a relevant step under ITEPA 2003 section 554C": 18(2)(b).

I consider that Condition is met:

Condition 2 is met if the main benefit, or one of the main benefits, of the arrangements is that an amount that would otherwise count as employment income under ITEPA s 554Z2(1) is reduced or eliminated.

I consider that Condition 2 is met:

Condition 3 is met if, by reason of at least one of [ITEPA] sections 554E to 554XA or regulations made under section 554Y, Chapter 2 of Part 7A does not apply.

I agree with Condition 3 is not met.

Accordingly, Regulation 18 Hallmark 8 is present.

This regulation provides that arrangements are prescribed if Condition 1 is met, and "it would be reasonable to expect an informed observer (having studied the arrangements and having regard to all relevant circumstances) to conclude that Condition 2 is met, and either Condition 3 or Condition 4 is met."

Here, HMRC argue that Conditions 1, 2 and 4 are met.

Condition 1 is that the arrangements include at least one financial product specified in regulation 20(1) (a 'specified financial product').

This is met:

Condition 2 is that the main benefit, or one of the main benefits, of including a specified financial product in the arrangements is to give rise to a tax advantage.

This is met:

Condition 4 is that the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.

This is met:

This Hallmark is met.

In my view, the answer to this question is yes:

Yes:

Insofar as material, FA 2004 section 307 provides:

In my view, and insofar as this is actually put in issue by the Appellant, the Appellant was a "promoter" in relation to those notifiable arrangements within the proper meaning and effect of FA 2004 s 307(1)(b):

As signposted above, that therefore leaves the Appellant within Hallmark 3.

For the above reasons, the Appellant's appeal fails on all Grounds.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.