Afzal Alimahomed v The Commissioners for HMRC

The Appellant (Afzal Alimahomed) appeals against: (i) a discovery assessment issued by HMRC pursuant to s 29 of the Taxes Management Act 1970 (‘TMA’); and (ii) a closure notice issued pursuant to s 28A TMA, as follows:

The discovery assessment and the closure notice were issued because the Appellant, a non-domiciled but UK resident individual in the years in question, was considered by HMRC to have made taxable remittances to the UK, pursuant to s 809L of the Income Tax Act 2007 (‘ITA 2007’).

With the consent of the parties, the form of the hearing was V (video). The documents to which we were referred were (i) the Court Bundle consisting of 755 pages; (ii) the Legislation and Authorities Bundle consisting of 305 pages; (iii) the Appellant’s Skeleton Argument (‘ASA’) dated 19 June 2023; and (iv) the Respondent’s Skeleton Argument (‘RSA’) dated 19 June 2023 (incorporating the submissions made in HMRC’s Statement of Case). 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.

There is a lengthy history to this matter. What follows is a summary of the history leading up to the discovery assessment and the closure notice, sufficient to set the scene.

The Appellant joined his father’s packaging business in 1986 and the business was sold in 2006, with the proceeds of the sale being deposited into a bank account in Guernsey (‘the Guernsey account’). The Appellant and his family (wife and children) then moved to Dubai in 2007. As the Appellant had then remained non-UK tax resident for more than five years, the proceeds of the sale of the business were, effectively, “clean capital” for remittance purposes, and it was the Appellant’s intention to use those proceeds for personal use, whether in the UK or overseas; however, inadvertently, certain income from overseas sources was credited to that account, creating a “mixed fund” for the purposes of the ordering rules in s 809Q(6) ITA 2007.

The Appellant transferred money from the Guernsey account (which was described as a “family account”) to a personal Barclays Bank account in the Isle of Man, which also consequently became a mixed fund. He made transfers from that account to his own personal bank account in Dubai to pay his living expenses, and made various other payments with the same result. He also operated a credit card based in Dubai, the bills on which were paid out of his Dubai account.

The business (under its new owners) went into administration in 2009 and the Appellant’s family purchased the business back, in order to save jobs. Local UK management was employed to run the business, but the business continued to struggle until the Appellant returned to the UK for significant periods of time from 2014, in order to assist in the recovery of the business, for which he was not remunerated. Due to the size of the challenge, the Appellant fell-foul of the 90-day limit and became UK resident for tax purposes during the relevant period covered by the discovery assessment and closure notice.

On 27 January 2017, HMRC received the Appellant’s self-assessment tax return for the year ending 5 April 2016. There was no source of income declared in the tax return and the Appellant had made a claim to the remittance basis of taxation under s 809B ITA 2007, such that his foreign income for the relevant tax year would be taxed only to the extent that it had been remitted to the UK. On 11 January 2018, the Appellant’s tax return for the year ending 5 April 2017 was received. No remittances were included in the tax returns for either tax year.

On 18 December 2018, HMRC opened an enquiry, under s 9 TMA (‘the opening letter’), for the tax year ending on 5 April 2017. The enquiry was opened in order to consider the Appellant’s domicile position, and to review his means. It was subsequently accepted, on the Appellant’s behalf, that amounts should have been included in the Appellant’s tax return for the year under enquiry, and for earlier years. The Appellant’s representatives, therefore, proposed to make amendments to the tax return(s).

The payments made by the Appellant are considered in more detail below, but included payments made to the UK bank account of his son, Ibrahim Majid (‘IM’), aged over 18, who was studying at the London School of Economics.

On 31 March 2020, HMRC issued a notice of assessment for the tax year ending on 5 April 2016, on the basis that there was foreign income that had been remitted to the UK that had been omitted from the Appellant’s tax return. On 22 February 2022, HMRC issued a closure notice for the year ending 5 April 2017, on the same basis.

Following appeals against both the closure notice and the discovery assessment, HMRC issued their formal “view of the matter” letters on 22 April 2022, and their decisions were confirmed in a statutory review letter dated 14 June 2022. The Appellant submitted an appeal to the Tribunal on 30 June 2022.

The Appellant entered into transactions falling into the following categories:

The issue(s) under appeal are whether the payments made by the Appellant were taxable remittances within the meaning of s 809L ITA 2007. This, in turn, requires consideration of: (i) whether the definition of “brought to” catches bank transfers from an offshore bank account to a UK bank account: s 809L(2)(a) ITA 2007; and (ii) whether a relevant person must benefit in order for there to be a taxable remittance pursuant to s 809(1)(a) ITA 2007.

In respect of the payments, the substantive issues for consideration are whether the Appellant makes a remittance when he:

The relevant law, so far as is material to the issues in this appeal, is as follows:

Condition A is that—

At the commencement of the hearing, both representatives confirmed that the hearing would largely proceed by way of submissions. We also heard brief oral evidence from the Appellant and Officer Matthew Clough.

During his oral evidence, the Appellant adopted the contents of his witness statement, dated 14 April 2023, as being true and accurate. He was not asked any further questions in examination-in-chief by Mr Firth. Under cross-examination by Mr Hunter, the Appellant accepted that he had initiated the movement of money to the UK when he made transfers from his offshore accounts to the UK bank accounts of IM and persons who had provided services to IM (such as IM’s university and landlord). He added that he had already paid tax on the money that was for his personal benefit.

Officer Matthew Clough also adopted the contents of his witness statement, dated 22 December 2022, as being true and accurate. In response to brief questions in examination-in-chief from Mr Hunter, he stated that he had discovered a loss of tax in respect of the Appellant. He added that he did not assess the Appellant for the 2014-15 tax year because such an assessment would have been outside of the normal time-limit of four years. Under cross-examination by Mr Firth, Officer Clough stated that HMRC did not conclude that the Appellant’s behaviour was deliberate. When referred to the schedule of transactions appended to the Appellant’s witness statement by Mr Firth, Officer Clough accepted that HMRC had not cross-referenced the transactions identified by the Appellant in his schedule to those forming part of the assessment. He explained that this was because a full breakdown of the transactions in question had been sent to the Appellant previously.

We then heard submissions from both representatives. There were no applications to amend the Grounds of Appeal or the Statement of Case (‘the pleadings’) by either representative. I shall refer to the pleadings later to shed light on the relevance of those unamended pleadings to our findings.

Mr Firth’s submissions (as contained in the ASA) can be summarised as follows:

Mr Hunter’s submissions can be summarised as follows:

At the conclusion of the appeal hearing, we reserved our decision which we now give with reasons.

The facts of this appeal are largely undisputed, save that the parties differ in view as to the conclusions that we should reach as a result of those facts. The following facts were admitted or proved:

The Appellant appeals against HMRC’s decision to: (i) issue a discovery assessment, pursuant to s 29 TMA (in the sum of £89,546.24) in respect of 2015-16 tax year; and (ii) a closure notice issued pursuant to s 28A TMA (in the sum of £133,681.90) in respect of the 2016-17 tax year. The discovery assessment and closure notice were issued on the basis that the Appellant had made taxable remittances to the UK, pursuant to s 809L ITA 2007.

The remittance basis is a system of taxation for UK resident, but non-UK domiciled, individuals. This means that it cannot be used by a person with a domicile of origin or domicile of choice in the UK, or anyone who is deemed to be domiciled in the UK. The remittance basis allows for an individual’s non-UK source income and gains to go untaxed in the UK if that income and those gains are not remitted to the UK. Ordinarily, a UK resident individual’s worldwide income and gains are taxed on an arising basis in the UK. Claiming the remittance basis means only UK source income and gains are taxed on an arising basis—foreign income and gains arising in a tax year of UK residence are sheltered from UK tax unless brought to the UK, or used and enjoyed in the UK.

The statutory definition of a remittance covers a range of situations in which a remittance may occur whenever non-UK income and gains are ‘used’ in the UK, even if they are not physically brought to the UK. Generally, assets brought to the UK which derive from foreign income or gains are treated as remittances.

In order to determine whether a remittance has occurred, it is necessary to consider the conditions set out in s 809L ITA 2007. There are four condition clauses in s 809L, referred to as Conditions A to D. Section 809L(7) defines a ‘relevant debt’. A relevant debt includes a debt on a credit card issued by a non-UK bank used to purchase assets or pay for services in the UK.

The discovery assessment in this appeal relates, solely, to the 2015-16 tax year. This is because the 2016-17 tax year was dealt with by the issue of a closure notice. If HMRC discover income which ought to be, but has not been, assessed for income or corporation tax, they may make an assessment in that amount to make good the loss of tax. Section 29(1) TMA focuses on the state of mind of the individual officer of HMRC who makes the assessment. What must be ‘discovered’ is that:

The above elements are commonly abbreviated as “a loss of tax”. What has been discovered must fall within at least one of those descriptions.

The burden of proof is on HMRC to show that the discovery assessment was validly issued. The standard of proof is the civil standard; that of a balance of probabilities. The Upper Tribunal said this in Burgess & Brimheath v HMRC [2015] UKUT 578, at [38], (in relation to the parallel statutory provisions relating to corporation tax):

Section 50(6) TMA provides that if, on an appeal, it appears to the tribunal that an appellant is overcharged by an assessment, the assessment shall be reduced accordingly but ‘otherwise the assessment…shall stand good.’ The Appellant, therefore, has the legal burden of demonstrating that he is overcharged by the assessment, once it has been established that the assessment was validly issued. As explained by Moses LJ in Tower MCashback LLP 1 v HMRC [2010] STC 809 (‘Tower MCashback’), at [17]-[18], the taxpayer’s self-assessment constitutes the final determination of his liability, subject to three circumstances; namely (i) an amendment to the return; (ii) an enquiry by HMRC; or (iii) a discovery assessment.

The discovery assessment was made on 31 March 2020. HMRC’s case is that a discovery had been made within the meaning of s 29(1) TMA. The Appellant’s 2015-16 tax return was made in accordance with s 8 TMA and s 29 TMA is, accordingly, on point. The discovery assessment which HMRC purported to make in the present case was on the basis that an officer had discovered, as regards the Appellant, that an assessment to tax was or had become insufficient. This was because the Appellant was considered to have made remittances to the UK, and those remittances were subject to income tax under the remittance rules. It was not submitted on the Appellant’s behalf that there was no discovery. The case advanced on the Appellant’s behalf was that the discovery assessment was not valid in the sense that HMRC failed to make their case on the gateway conditions referred to at s 29(3), specifically s 29(4) (deliberate behaviour).

Section 29(3) TMA provides that a taxpayer who has made a self-assessment return can only be assessed under a discovery assessment if one of two conditions is met. Section 29(4) TMA provides for one of the conditions which must be satisfied for a valid discovery assessment in a case where a return has been made; namely that the loss of tax was brought about ‘carelessly’ or ‘deliberately’ by the taxpayer, or a person acting on his behalf. On the issue of deliberateness, the Supreme Court in R & C Comrs v Tooth [2021] UKSC 17 (‘Tooth’), said this, at [47]:

This includes “blind-eye” knowledge: CPR Commercials Ltd v HMRC [2023] UKUT 00061 (TCC) (“CPR”). It is, however, clear that HMRC are only required to show a prima facie case within their Statement of Case: Atherton v HMRC [2017] UKFTT 831 (TC), at [35]. The requirement for the tribunal is then to consider the totality of the evidence and decide if the Appellant acted deliberately. In this respect, in Addo v R & C Comrs [2018] UKFTT 93 (TC) (Judge Richards), the tribunal held, at [14], that:

Similarly, in Sheth & Ghazi v HMRC [2022] UKFTT 167 (TC) (Judge Bowler), the tribunal held, at [309] to [312], that:

Returning, therefore, to the absence of any application to amend the pleadings by either representative, Mr Firth submits that HMRC rely on deliberateness in making the discovery assessment. In this respect, he submits that HMRC have failed to make a case on the deliberateness issue and that there is no case to answer. I pause at this stage to mention that the Grounds of Appeal did not raise any issue about the validity of the discovery assessment, or indeed that HMRC are barred from assessment under s 29(2) TMA. The issue relating to deliberateness only arose as a result of HMRC’s Statement of Case, which only referred to the assessment being justified on the basis of deliberate concealment.

During the appeal hearing, Officer Clough stated in evidence that HMRC were not taking the view that the Appellant’s actions were careless, or deliberate, in nature. We find, however, that HMRC pleaded their case on the basis of deliberate behaviour, in the absence of any application by HMRC to amend their pleadings either prior to, or during, the hearing. The full parameters of HMRC’s case were set out in the Statement of Case, as repeated in the RSA:

We find that the manner in which HMRC’s case was argued blurred the distinction between s 29(1) TMA (the issue of what amounts to a discovery at all) and s 29(3)/(4) TMA. It is abundantly clear that in the Statement of Case, HMRC initially sought to justify the assessment purely on the basis of deliberate omission by the Appellant (i.e., under one limb of s 29(4)). We find that deliberateness is not made out by HMRC, and this is the case that HMRC specifically advanced. We further find that it is insufficient for HMRC to simply say that the pleadings may have been over-prescribed, in an attempt to depart from the original case pleaded in the absence of any application to amend the pleadings.

In First Choice Recruitment Ltd v HMRC [2019] UKFTT 412 (TC), which we consider to be persuasive though not binding on us, Judge Nicholas Aleksander said this:

Having considered the case advanced by HMRC, we hold that the issue of deliberateness was not substantiated by HMRC, in relation to the gateway conditions in s 29(4) TMA. The full parameters of HMRC’s case were set out in the Statement of Case and the Appellant was not cross-examined on the issue of deliberate behaviour. Mr Hunter’s cross-examination of the Appellant focused, solely, on whether he had initiated the transfer of money to the UK. We are, further, unable to uphold the discovery assessment on the basis of s 29(5) TMA as HMRC did not plead their case on that basis.

The purpose of the restrictions on HMRC’s right to make a discovery assessment was to afford taxpayers a greater sense of finality in self-assessment. In cases where a taxpayer has submitted a tax return for the relevant year, as well as showing that they have made a discovery of a loss of tax, HMRC will need to satisfy at least one of the two additional conditions for a discovery assessment to be valid. Where HMRC allege careless or deliberate conduct, the statute is clear in that it requires the situation to have been brought about carelessly, or deliberately, by the taxpayer or a person acting on their behalf. Having considered the totality of the documentary and oral evidence, we are satisfied that this his has not been established by HMRC in the circumstances of this appeal.

The 2015-16 assessment must, therefore, be set aside in full.

HMRC’s primary method for correcting under-assessments is through formally opening an enquiry into the return and then making any necessary amendments by way of a closure notice, which closes the enquiry. It is only if HMRC are too late to open an enquiry that they will then proceed by means of a discovery assessment. In relation to the enquiry opened in this appeal, HMRC received the Appellant’s self-assessment tax return for the year ending 5 April 2017 on 11 January 2018 and the Appellant made a claim to the remittance basis of taxation. On 18 December 2018, HMRC opened an enquiry under s 9 TMA in order to consider the Appellant’s domicile position, and to review his means. Mr Firth submits that HMRC have failed to explain which transactions gave rise to a remittance, in order to allow quantum to be properly tested.

We have considered the transactions that are relevant to this appeal in light of the case advanced on behalf of the Appellant on the issue of whether the Appellant made taxable remittances:

In respect of the bank transfers made by the Appellant from his offshore bank account into IM’s UK bank account to meet IM’s personal expenses whilst he was studying in the UK; transfers made to other family members/friends; the bank transfers made to IM’s university bank account in respect of IM’s tuition fees and to IM’s landlord (for rent and accommodation expenses), the relevant statutory provision with which we are concerned is s 809L(2)(a), which provides that:

Mr Firth submits that:

In further amplification of the first of these submissions, Mr Firth submits that a person whose account is credited in a bank transfer does not receive property from the person whose account is debited, but that what they receive is new property that never belonged to anyone else, with the original chose in action being extinguished. He adds that the Appellant did not remit property (money) to the UK and did not have any right, or entitlement, to property in the UK. Mr Firth refers to the position as described by the House of Lords in Foskett v. McKeown, which held that a bank account consists of a debt owed by the bank, and that no money passes when there is an electronic bank transfer.

Mr Firth relies on the legal analysis of property in relation to a bank account, described in Foskett v. McKeown, at p 127-8:

The legal nature of a funds transfer was also considered by the House of Lords in Preddy. The case concerned dishonesty in the making of mortgage applications. In making their applications for mortgage advances, the defendants had deliberately given false information to the lending institutions. In cases where the advances were approved, they were paid, not in cash but by the CHAPS electronic transfer of funds from the bank account of the lending institution to the account of the defendant (or his solicitor).

The key question for the House of Lords in Preddy was whether the process meant that the defendants had obtained property belonging to another. The property was the credit balance in the bank account. The House of Lords held that it did not. The specific questions of law before the House of Lords in Preddy were: (i) whether the debiting of a bank account and the corresponding credit of another’s bank account brought about by dishonest misrepresentation amounts to the obtaining of property within the meaning of s 15 of the Theft Act 1968; (ii) is the answer to (i) different if the account in credit is that of a solicitor acting in a mortgage transaction?; and (iii) where a defendant is charged with obtaining intangible property by deception, namely an advance by way of a mortgage, is his intention to redeem the mortgage in full relevant to the question of permanent intention to deprive or only to dishonesty? Essentially, the House of Lords was satisfied that credit into an account represented a debt due from the bank and, therefore, a chose in action.

Mr Hunter, on the other hand, submits that notwithstanding the underlying mechanics of an international bank transfer, such a transfer should be viewed in a “real world and commercial manner”. During the appeal hearing, Mr Hunter submitted that the Appellant’s argument that money should not be thought of as a thing which can be moved is a fiction designed to obscure the transfer of money from one country into the UK, and that it is false to suggest that no remittance has taken place by the substitution of an offshore bank debt for a UK bank debt. He further submits that the Appellant brought money to the United Kingdom by transferring it to the UK bank account of a non-relevant person.

In further amplification of this position, he submits that HMRC’s “RDRM 36120 – Residence, Domicile and Remittance Basis” manual provides that:

Mr Hunter, therefore, submits that HMRC’s view is consistent with the courts’ established attitude towards banking methodologies in the remittance basis context, as demonstrated by the House of Lords in Thomson v Moyse. The question for determination in Thomson v Moyse was whether the respondent was liable to assessment to income tax in respect of income from securities in the United States, and in respect of income from possessions in that country. HMRC however quote from the judgment of Wynn-Parry J in the Chancery Division (at 301), whose decision was under appeal before the House of Lords. In Thomson v Moyse, Mr Moyse had Case IV and Case V income in his bank account in New York. He then drew cheques on the New York bank and sold these cheques in London to English banks in return for the Sterling equivalent of the number of dollars in the cheque. Thereafter, the English banks cashed the cheques in New York and received the dollars in New York. I shall return to consider Thomson v Moyse later.

We have also considered the second of Mr Firth’s submissions that by initiating bank transfers the Appellant merely “sent” money to the UK; and that sending the money does not amount to “bringing” it to the UK. In further amplification of this submission, Mr Firth states that HMRC’s reliance on Thompson v Moyse is misconceived as that case does not assist in interpreting the current legislation, specifically the concept of “brought to” the UK. He submits that Parliament, in drafting legislation such as the remittance basis, legislated in the knowledge of the law, and that it would have been a relatively simple and straightforward matter for Parliament to include “sending” into the legislation, but did not do so.

He referred us to Lachaux v Independent Print Ltd & Anor [2019] UKSC 27 (‘Lachaux’), where the Supreme Court (Lord Sumption - with whom Lords Kerr, Wilson, Hodge and Briggs agreed) said this, at [13]:

So far as the “bringing/sending” issue is concerned, Mr Hunter submitted that the initiator of the bank transfer brings the money to the UK. Ultimately, Mr Hunter submits that there are taxable remittances because the Appellant “brought” money to the UK from an overseas bank account by initiating a transfer of money to the UK. He further submits that it matters not that the Appellant did not receive, or benefit from, the money as a relevant person.

Returning to Thomson v Moyse, the legislation at that time was different from the current remittance rules. Case IV’s remittance rule was as follows:

Mr Firth helpfully set out the Case V remittance rule, with formatting added for ease, in his ASA:

A majority of the House of Lords (Viscount Simonds and Lords Reid, Radcliffe, Cohen and Denning) held that the four specific instances did not limit the general words, such that there was a remittance if sums were received in the UK. The House of Lords further, unanimously, held that the third illustration (money or value arising from property not imported) was satisfied, as follows:

Their Lordships emphatically stated that property had not been brought to the United Kingdom, this being the reason why the case was within the third illustration (rather than the second). Lord Reid added this, at 329; 987:

Lord Radcliffe observed, in respect of the rules:

Lord Radcliffe concluded that a sum represents “income” if it is derived from that income (p 995).

Under s 809L ITA 2007, we accept that this would be a straightforward case: (i) Condition A: Moyse received property in the UK (Sterling); and (ii) Condition B: that property (Sterling) derived from his foreign income (the funds in his New York bank account). The analysis in Thomson v. Moyse confirms that no money or other property was brought to the UK. It is, indeed, not surprising that Mr Moyse was regarded as remitting income by receiving Sterling in the UK, which derived from his foreign income. We are satisfied that there was no requirement to “bring” for Case IV to apply.

This issue is now addressed by the legislation in the form of s 809L(1)(a) ITA 2007, Condition B, which requires the property brought to/received in the United Kingdom by the taxpayer (or a relevant person) to derive from the income (s 809L(3)(b)).

We find that whilst there was considerable force in Mr Firth’s analysis of the logistical and legal mechanics of international bank transfers, we are not in agreement with his submissions in respect of the issue of whether the remittance basis applies to international bank transfers. We further find that Preddy was concerned with the offence of obtaining property by deception under s 15 of the Theft Act 1968, and not the situation that has arisen in the appeal before us. The Appellant in the appeal before us effected transfers from an offshore bank account to a UK bank account.

Furthermore, whilst we generally accept Mr Firth’s submissions on the definition of “brought to”, this does not take the Appellant’s case any further. The relevant statutory test with which we are concerned is contained in Condition A(a), which describes circumstances that can be classified as free-standing provisions. The issue is whether money or other property was “brought to”, or “received” or “used” in the UK, “by” or “for the benefit of” a relevant person.

We are satisfied that the Appellant brought money (or other property) to the UK when he initiated bank transfers from his offshore account into the UK bank accounts of non-relevant persons such as IM, his landlord and his university, for reasons which I will now elaborate on.

In respect of whether the bank transfers initiated by the Appellant amounted to remittances, the meaning of ‘brought to’ in s.809L ITA 2007, and the purpose of s.809L, we are satisfied that the meaning of a word depends upon conventions known to the ordinary speaker of English, or ascertainable from a dictionary. However, the meaning of an English word is not a question of law because it does not, in itself, have any legal significance. It is the meaning to be ascribed to the intention of the notional legislator in using that word which is a statement of law.

The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transactions, viewed realistically. The task in construing statutory language is to look at the mischief at which the Act is directed: C & E Comrs v Top Ten Promotions Ltd [1969] 1 WLR 1163, at 1171 (per Lord Upjohn). The principles of statutory construction were first applied by the House of Lords in W T Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300 (‘Ramsay’). Lord Wilberforce said this, at p 323, on the general approach to statutory construction:

At pp 323-324, on the application of a statutory provision so construed to a composite transaction, he said this:

The approach was to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply, and then to decide whether the actual transaction answered to the statutory description.

The Ramsay case did not introduce a new doctrine operating within the field of revenue statutes. As Lord Steyn observed in Inland Revenue Commissioners v McGuckian [1997] 1 WLR 991, 999 (‘McGuckian’), it rescued tax law from being “some island of literal interpretation” and brought it within generally applicable principles. Lord Steyn explained that the modern approach to statutory construction is to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose.

The need to avoid sweeping generalisations about disregarding transactions undertaken for the purpose of tax avoidance was shown by MacNiven v Westmoreland Investments Ltd [2003] 1 AC 311 (‘MacNiven’), in which the question was whether a payment of interest by a debtor who had borrowed the money for that purpose from the creditor himself, and which had been made solely to reduce liability to tax, was a “payment” of interest within the meaning of the statute which entitled him to a deduction or repayment of tax. The House decided that the purpose of requiring the interest to have been “paid” was to produce symmetry by giving a right of deduction in respect of any payment which gave rise to a liability to tax in the hands of the recipient (or would have given rise to such a liability if the recipient had been a taxable entity). As the payment was accepted to have had this effect, it answered the statutory description, notwithstanding the circular nature of the payment and its tax avoidance purpose.

As Lord Nicholls of Birkenhead said at para. 8:

MacNiven illustrates the need for a close analysis of what, on a purposive construction, the statute actually requires

In Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51; [2005] 1 AC 684, (‘Barclays Mercantile’) (Lord Nicholls), the House of Lords was considering whether the relevant provision of the statute, upon its true construction, applied to the facts as found. In answering that question, the court will attach significance to the purpose of the legislation. The court said this, at [28]:

And, at [32]:

In Astall v HMRC [2010] STC 137 (“Astall”) at [44], Arden J, giving the leading judgment, said this:

In Berry v HMRC [2011] STC 1057 (“Berry”) at [31], Lewison J set out the different elements of the Ramsay approach derived from the case law authorities. At [31(vi)] he added this:

In Pollen Estate Trustee Co Ltd v R & C Comrs [2013] 1 WLR 3785; [2013] EWCA Civ 753 (‘Pollen Estate’), Lewison LJ said this, at [25]:

Lord Justice Lewison also considered what was said in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, 592 (‘Inco Europe’), where Lord Nicholls said this:

Legislation can, potentially, be rectified without the court being able to discern, with confidence, exactly what Parliament would have done had it realised its mistake. In Inco Europe, the House of Lords was considering the interpretation of an amendment to s 18(1)(g) of the Supreme Court Act 1981 made by the Arbitration Act 1996. The question was whether that provision, as amended, conferred jurisdiction on the Court of Appeal to entertain an appeal against the grant or refusal of a stay in favour of arbitration. Read literally, the provision appeared not to confer such jurisdiction. However, the House of Lords unanimously held that the sole object of the amendment had been to substitute a new paragraph (g) serving the same purpose as the original paragraph had done in relation to the Arbitration Act 1979 - which did confer such jurisdiction - and that although the draftsman had not used language apt to achieve the intention of the legislature, it was permissible to read words into the amended s 18(1)(g) to give effect to that intention.

In Inco Europe, Lord Nicholls said that the court must be “abundantly sure” of the substance of the provision Parliament would have made, although not necessarily the precise words Parliament would have used. The approach in Inco Europe may, therefore, be applied if the court “can be confident of the gist or substance of the alteration, rather than its precise meaning”.

This was confirmed in Pollen Estate, at [49] per Lewison LJ. To rectify legislation would, however, be to engage in judicial legislation and would not be discharging the courts’ interpretative function. It is only if the legislative instrument has a clear, objectively assessed, meaning having regard to all the circumstances and all indicators of the legislator's intention available to the person subject to the law, and that meaning is contrary to the literal meaning of the text of the instrument, that it will be appropriate for the court to give a rectifying interpretation to the instrument.

In Bogdanovic v Secretary of State for the Home Department [2014] EWHC 2872, at [41], Sales J (as he then was) said this:

In Eclipse Film Partners No 35 LLP v HMRC [2015] EWCA Civ 95, at [110], the Court of Appeal held that:

In Project Blue Ltd v R & C Comrs [2018] UKSC 30; [2018] 1 WLR 3169 (‘Project Blue’), Lord Hodge said this, at [31]:

The court will seek to avoid an interpretation which gives rise to absurd, or anomalous, consequences. The question is always whether the relevant provision of statute, upon its true construction, applies to the facts as found. There is a need to focus upon the particular statutory provision and identify its requirements before one can decide whether payments or elements should be disregarded or treated as irrelevant for the purposes of the statute. The courts’ constitutional role in this field is interpretative.

The purpose of s. 809L ITA 2007 is to identify situations where remittance basis income is genuinely enjoyed in the UK by the taxpayer (or a relevant person). That conclusion is supported by the explanatory notes:

A transfer will be a remittance if it meets the conditions set out at s 809 ITA 2007. A transfer of money to the UK by a relevant person meets Condition A and B because it is brought to the UK by the relevant person (including at his/her direction) and derives from foreign income or chargeable gains. We find that case law cannot override statute, which clearly defines when a remittance is made. We further find that there is no reference in the legislation to choses in action, simply to income/gains being “brought to” the UK by the relevant person

It is accepted by both parties that “property” includes “money”. Furthermore, Chapter A1, Part 14 ITA 2007, provides that property includes money. By making a direct transfer from an offshore bank account to a UK bank account, the Appellant brought money to the UK. We are satisfied that in respect of the remittance basis of taxation and the intention of Parliament, the bringing of money means effecting the transfer/transmission of money. In this respect, the emphasis is on the person who initiates the transfer. The incontrovertible fact in this appeal is that the person who initiated the transfer was the Appellant. It is of no relevance that the Appellant did not benefit from the money or other property as the Appellant made remittances when he initiated the transfers.

Condition A(b) deals with a service provided in the UK “to” or “for the benefit of” a relevant person. The only parts of Condition A that are disjunctive are sub-paras. (a) and (b). Once either of sub-para (a) of Condition A is satisfied (i.e., money or other property is “brought to”, or “received” or “used” in the UK), the focus of the enquiry then shifts to Condition B, which can adequately be described as the derivation condition. In respect of Condition B, we are satisfied that the property in question derives wholly and directly, or indirectly, from the income or chargeable gains given the acceptance by both parties that the Appellant’s offshore bank account became a mixed fund account from which transfers were initiated.

For completeness, no reliance was being placed on the issue of whether the money or other property was “received” or “used” in the UK as the money never went to the Appellant as he is not the holder of a UK bank account, but it was the Appellant who initiated the transfer of money from an offshore bank account into the bank account(s) of a non-relevant person.

Under the accepted canons of statutory interpretation, we are unable to interpret the effect of the remittance basis of taxation on electronic bank transfers in the manner in which Mr Firth suggests. Accordingly, therefore, we hold that when the Appellant made bank transfers from his offshore bank account to the UK bank accounts of non-relevant persons, such as IM and IM’s university or landlord, he remitted money to the UK. Consequently, therefore, we hold that the bank transfers fall within the statutory provisions and the Appellant, therefore, made remittances to the UK.

In respect of payments of IM’s university-related expenses, accommodation expenses to his landlord and gifts (including jewellery) to non-relevant persons by the Appellant using his offshore credit card, the relevant statutory provision with which we are concerned is s 809L(7), as follows:

Subsections (2)(a) and (2)(b) are set out in the following terms:

Mr Firth submits that the thing that is enjoyed in the UK in this situation is the service by the non-relevant person, and that it is clear that the legislation does not treat the enjoyment of a service by a non-relevant person in the UK as a remittance. He further submits that it is clear from the legislation that Parliament does not intend to tax the taxpayer because property deriving from the taxpayer is enjoyed by a non-relevant person (who, as Parliament would be aware, may be a close family member, such as an adult son) in the UK.

Mr Hunter, on the other hand, submits that by using an offshore credit card in the UK, the Appellant created a “relevant debt” so that payment of that credit card with an offshore bank account amounted to the use of income or chargeable gains outside the UK in respect of a relevant debt (thus implicitly satisfying Condition B by falling within s 809L(3)(c)). In essence, HMRC’s case is that the purchase via a credit card is treated as being equivalent to the cardholder authorising the credit card company to pay the bill for the goods, or service, on their behalf, and that this creates a ‘relevant debt’, the definition of which encompasses a debt that relates to...property within subsection (2)(a) of s 809L(7).

Having considered the legislation, we are satisfied that the use of any credit card to make purchases in the UK of property falling within Condition A creates a relevant debt, so that payment of the credit card account from an offshore bank account containing foreign income or gains amounts to a remittance under s 809L(3)(c). Whilst a non-relevant person may have benefitted from the service/gifts, the Appellant is the person who made the purchases using his offshore credit card, using foreign income or gains to pay the offshore credit card company. In this respect, it was not suggested that the non-relevant person(s) made the purchases themselves using money given to them by the Appellant. In any event, such a situation would still require the Appellant to have transferred the money from his offshore bank account (or to have physically brought it) for a non-relevant person.

We find that it is neither here nor there that the relevant person (i.e., the Appellant) purchased the gifts for a non-relevant person. The key consideration is that the Appellant first purchased the items in the UK, using funds held overseas, and then gifted the purchases to a non-relevant person. In further analysis of such transactions, the vendor from whom the Appellant made the purchases did not make a gift to the non-relevant person but sold an item to the relevant person who either gave it to a non-relevant person, or directed it to be delivered to a non-relevant person. The credit card payments/purchases emanated from foreign income or chargeable gains and a relevant debt was created.

In respect of the jewellery purchased by the Appellant for his own personal use (and for his wife), paid for with his non-UK credit card, s 809X ITA provides that:

The personal use rule is stated as follows:

Mr Firth submits, in reliance on s 809X ITA 2007, that the jewellery purchased by the Appellant is “exempt” property. He further submits that this position is not challenged by, or on behalf of, HMRC. We are satisfied that Mr Firth’s submissions are misconceived. This is because the exemption applies to property brought to, received, or used in the UK for personal use. The position in this appeal is that the Appellant actually purchased jewellery in the UK using his offshore credit card, and that jewellery was for a relevant person (the Appellant and his wife).

Returning to the issue of the use of an offshore credit card, whilst the jewellery may have been received by the Appellant in the UK once it was purchased, as the jewellery was purchased by the Appellant using his offshore credit card, the Appellant was making a remittance. This is because the Appellant was, effectively, authorising the offshore credit card company to make a payment in the same way as if he had instructed the credit card company to make a direct payment to the person supplying the goods. Whilst the terms of credit card agreements may differ as to the moment of indebtedness between the cardholder and the credit card company, the use of the credit card to pay for goods used, or received, in the UK will create a relevant debt. The use of the Appellant’s untaxed foreign income, or gains, to pay the offshore credit card company in respect of the debt is a taxable remittance.

In conclusion, therefore, we hold that the bank transfers initiated by the Appellant gave rise to taxable remittances and it is of no consequence that the Appellant did not have access to the money which formed the subject of those transfers, or that he did not personally benefit from those remittances. The fact of the matter is that the remittances were initiated by the Appellant. All that is required to be established is that he initiated those transfers from his offshore bank account. In respect of the purchases made by the Appellant using his offshore credit card (payment for services and gifts to non-relevant persons). The purchases were made by the Appellant using foreign income or gains emanating from a mixed fund account and created a relevant debt for the reasons given above. Finally, in respect of the jewellery purchased by the Appellant (for himself and his wife) using his offshore credit card, those purchases are not exempt and created a relevant debt for the purposes of the remittance basis of taxation.

On the basis of our findings above, we allow the appeal, in part, in light of our findings in respect of the discovery assessment.

In respect of the closure notice, and the issue of quantum, whilst we find that the Appellant did make taxable remittances, the quantum cannot be discerned from the evidence provided by either party. Mr Firth submits that the Appellant has set out his view of which specific transactions are in issue, and that HMRC have not identified any amounts going beyond that.

Paragraph 12 of the Appellant’s witness statement identifies amounts, as follows:

HMRC rely on exhibit MAC21 to Officer Clough’s witness statement. This identifies the following:

We, therefore, direct the parties to seek to agree the final figures in respect of quantum (in light of our findings above), with leave to apply to the Tribunal if an agreement on the figures cannot be reached.

For completeness, we note that the Appellant has paid tax on some remittances, as set out in the schedule to his witness statement. He has also paid tax on the cash withdrawals made from his offshore bank account and an item-by-item analysis of the expenditure incurred has been provided. In respect of flights with a UK element, the Appellant is prepared to pay a remittance charge on half of all travel originating from, or ending in, the UK in respect of relevant persons.

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.