The Commissioners for HMRC v PNO Group Limited (in liquidation)

On 11 July 2022, the Applicants (“HMRC”) applied to the Tribunal for an order, under s 100C Taxes Management Act 1970 (“TMA”), for a penalty on the Respondent, PNO Group Limited (in Liquidation) (“PNO”), under s 98C(1)(a) and (2)(a) TMA, on the grounds that PNO failed to comply with the requirement under s 308(3) Finance Act 2004 (“FA 2004”) to notify “notifiable arrangements” to HMRC within the “prescribed period” after the date on which it first became aware of any transactions forming part of the notifiable arrangements (the “Application”).

The Application, as confirmed by an email of 29 November 2023 to the Tribunal from the liquidators of PNO, is not opposed

PNO was incorporated in the UK on 2 November 2016. Its sole director and shareholder was Matthew Tanner. On 9 January 2020 PNO entered into creditors’ voluntary liquidation.

On 15 January 2021 the liquidators disclosed arrangements under the DOTAS legislation by submitting a “Disclosure of avoidance scheme (notification by a scheme promoter), Form AAG1, to HMRC. On 9 February 2021, HMRC advised the liquidators by email that the arrangements had been allocated a Scheme Reference Number.

The Form AAG1 submitted by the liquidators stated, inter alia:

Further details of the operation of the arrangements, which date from August 2017, can be found in an email of 8 September 2017 from a Paul Mitchinson of ‘ComparetheUmbrella.co.uk’ to a potential user of the arrangements. This stated that the user would be able to get 77% of earnings “via PNO Umbrella” and provided an illustration on the basis of a day rate of £133 resulting in take home pay of £515.39 per week or £2,233.37 per month.

The email, which provided a link to PNO’s website, explained the arrangements as follows:

“How this works is you would sign up to services as an employee through PNO Umbrella. Once you submit your timesheets, they would then raise an invoice to the employer/agency you’re contracting through and once they are in receipt of the funds from the employer/agency they will pay you the same day.

First of all, you will receive a salary payment of £300 weekly/£1200 monthly of which your tax and national insurance will be deducted by PNO Umbrella as your employer. Then the remainder of your funds is remitted in the form of a commercial loan and with any genuine and legitimate loan it does have to be paid back, as otherwise it would not constitute a loan. To add comfort to you they hold a bonus pot for you & once the funds have been received the funds are then submitted to you, therefore meaning the loan has-been written off immediately.

As with everything we do here to make your life as easy as possible, as well as all fees and taxes being deducted at source, as is the interest or additional charges associated with this indemnity, leaving you safe in the knowledge that when you receive your funds you have no further deductions to pay further down the line.

To get set up on the employed service, we will just need an application form completing either over the phone, or the [ComparetheUmbrella.co.uk website] and if you could also send me pictures of your proof of ID and address over email that will speed up the registration process and you just need to tell your agency/end client that you are using PNO Umbrella as your payroll provider and they would follow up with the company information.”

Following a referral, a representative from PNO would contact the potential user by telephone before confirming the next steps by email. The email advised that a contract of employment and commercial loan agreement would be sent via EchoSign for e-signing and specified the other documents required before payments could commence. These included identity and proof of address documents. The email also instructed users to continue sending timesheets to their agency or end user client as normal and to also email a copy of their timesheet information to PNO to enable it to raise and send an invoice to the agency.

The contract of employment set out the terms on which users were employed by PNO, in essence confirming users would provide specialist services for PNO’s customers. The contract also provided that the user would be paid a basic wage and would be entitled “to receive a bonus from time to time and based on the performance and subject to the absolute discretion” of PNO. The contract made no reference to the rates charged to end user clients.

At the same time as entering into the contract of employment a user would enter into a loan agreement with PNO under which it was agreed that PNO would lend a sum of money to the user. By way of illustration in a loan agreement dated 10 May 2018 between PNO (described in the agreement as “the Employer”) and a user (described in the agreement as “the Employee”) it was agreed that:

In the loan agreements that have been obtained by HMRC, the Premium varied between 11% and 20% of the amount drawn down within a year. There is also no evidence of users having paid the premiums or made repayments on the loans.

In addition to the contract of employment and loan agreement with the user, PNO also entered into agreements with the agencies for the provision of the users’ services to end user clients. Such agreements provided for PNO to invoice the agency concerned in respect of the services and the rate at which such services were charged. Although HMRC was unable to provide copies it is also understood that contracts were entered into between the agencies and end user clients.

Once users had entered into the contracts of employment and loan agreements, the user, having obtained a timesheet from their agency or end user client would complete and copy it to PNO. PNO would then invoice the agency or end user client for the services carried out by users. PNO subsequently received from the agency or end user client the payments it had invoiced. It then paid the users, through its PAYE system, in two separate payments on the same day which constituted their take home pay.

The first of those payments was the amount users were entitled to be paid pursuant to the contracts of employment with PNO. The basic daily wage rate in the contracts was broadly equivalent to the National Minimum Wage (“NMW”). Nominal deductions were made for tax and NICs. Payslips issued by PNO to users confirmed the part of their income paid via PNO’s PAYE system indicated that most users’ gross salaries were £300 or £350 per week for a five day week or £140 for a two day week.

This is corroborated by HMRC’s RTI records which indicate that the earliest payment by PNO to users of the arrangements was on 23 August 2017 and that most users were paid between £1,000 and £1,200 per month in line with NMW rates. Such payments were described in the users’ bank statements as “salary”. HMRC’s records also show that by January 2020 there were approximately 600 users of the arrangements.

The second of the payments by PNO to users were said to be advances or loans in anticipation of future earnings and/or bonus payments generated by users’ contracts with end user clients. These payments were made pursuant to the loan agreements entered into by users with PNO and were made without deductions of tax and NICs. These payments were confirmed in letters from PNO to users entitled “Letter of Credit Advice” confirming the date and amount of the loan payments made. The payments, made on the same day but generally larger than those described as “salary”, were described in users’ bank statements as “loan”.

A user of the scheme who requested a breakdown of how his wages and loan were calculated to give to his accountant to prepare his 2017-18 and 2018-19 self-assessment tax returns was advised by PNO that:

“… the only thing you put in your self-assessment(s) is the salary amounts you receive”

The user was also provided with a spreadsheet indicating as follows:

That user’s P60s for 2017-18 show tax and NICs of £846.10 and £438.78 for 2018-19 whereas the tax and NICs for those years would have been expected to be £8,795.32 and £19,719 respectively, indicating a tax saving of over £28,000.

From around December 2018 the arrangements altered and users received a single payment comprising both salary and loan.

In summary, the arrangements were clearly designed to allow users to provide contractor services to arm’s length end user clients while retaining more money than they would as an employee, a self-employed individual or a director of their own company. The arrangements were designed to avoid income tax on remuneration for services and/or reduce PAYE and NICs in relation to the scheme’s users by making payments to users in the form of an advance or loan on top of salary payments amounting to around the NMW. The arrangements purport to pay users take home pay of approximately 80% of their gross contract value, the large majority of which is received by users pursuant to loan agreements.

In addition to these arrangements PNO operated another separate standard PAYE umbrella option via the same payroll reference. The standard PAYE umbrella option did not involve substituting earnings with payments in the form of loans. As the users of the arrangements, the subject of the Application are paid NMW rates, they can be distinguished from those employees that use the standard PAYE umbrella option. Some scheme users received emails from PNO with personal illustrations comparing users’ take-home pay on PNO’s standard PAYE umbrella option and the arrangements, with the latter offering take home pay of 72% to 81% of the gross contract value.

On 17 May 2023, HMRC issued a Joint and Several Liability Notice (“JSLN”) to Mr Tanner (PNO’s director at the material time) pursuant to paragraph 5(1) of schedule 13 to the Finance Act 2020. The JSLN was upheld on 20 October 2023 following a review.

Mr Tanner appealed to the Tribunal on 17 November 2023. However, his appeal was settled by way of a consent order which was confirmed by the Tribunal on 28 June 2025.

Under s 308 FA 2004, as in force in 2017, promoters were obliged to provide HMRC with certain information about “notifiable arrangements”. Insofar as material (with emphasis added) it provides:

The material parts of s 307 FA 2004, as in force in 2017, provided:

In HMRC v Hyrax Resourcing Limited [2019] UKFTT 175 (TC) (“Hyrax”) Judge Mosedale considered, at [295], the condition in s 307(1)(a)(iii) would be met if the person must have been able to ensure that a user who wanted to use the arrangements would be able to do so.

Section 306(1) FA 2004 defines “notifiable arrangements” as:

Under Regulation 5 of the Prescribed Descriptions Regulations 2006, as in force at the relevant time, the following were prescribed arrangements (descriptions that are commonly referred to as ‘hallmarks’).

Description 3: Regulation 8 provides as follows in relation to Premium Fee:

It is clear that the hallmark does not require a premium fee is paid; only that it might reasonably be expected that a promotor of the same or substantially similar arrangements would be able to obtain such a fee from a person experienced in receiving services of the type being provided (see HMRC v AML Tax [2022] UKFTT 114 (TC)).

Description 5: Regulation 10, as amended in 2016 by SI 2016/99, (insofar as material in the present case) provides as follows:

Arrangements are ‘standardised’ if, as between the documentation by which different participants enter the arrangements, there is “little variation, apart from dates, names, amounts and similar details, from one iteration to another”; and where it is, “apparent that the documentation required minimal tailoring to each user” (see HMRC v Curzon Capital Limited [2019] UKFTT 63 (TC) at [36]).

In HMRC v White Collar Financial Limited [2020] UKFTT 459 (TC) at [37] Judge Harriet Morgan concluded that it would be reasonable for an informed user (having studied the arrangements) to conclude that the main purpose of the arrangements was to enable a participant to obtain a tax advantage in circumstances where the tax advantage:

“… constituted the receipt of up to 85% of the monies relating to the provision of the participants’ services in the form of a “loan” which the participants did not expect to repay and which was not expected to attract income tax (or national insurance contributions) on the basis that the monies did not comprise taxable earnings for those purposes (at least at the time of receipt).”

The fact that there may be some other, commercial purpose pursued by the arrangements does not preclude the conclusion that the main purpose is obtaining a tax advantage (see HMRC v Premiere Picture Limited [2021] UKFTT 58 (TC)).

Description 8 of regulation 18 provides:

Insofar as applicable to the present case Description 9 of regulation 19 provides:

It is clear from s 306(1) FA 2004 that the arrangements only need to fall within one of above descriptions to meet the requirement of that section.

The meaning of “tax advantage” in the context of s 306(1)(b) FA 2004 was considered by Judge Mosedale in Hyrax where she said:

“199.

While I accept that the legislation is penal and Parliament must therefore have intended the meaning of ‘tax advantage’ to be clear, I think that it is clear that Parliament intended to refer to economically similar contrast situations (as well as legally identical ones). A layman, including promoters and users of the scheme, when considering a scheme would consider its economic reality and not its legal form and should understand ‘tax advantage’ in the same way.

200.

In conclusion, I find that the scheme gave, or was expected to give, rise to a tax advantage because it was intended to avoid or reduce the charge to tax on salary which would otherwise have been received by scheme users, had they not adopted the scheme and received equivalent sums in an economically similar, but legally distinct form, of small salary and large loans which were not expected to be repaid (at least not in their lifetime).”

Section 306(1)(c) FA was also considered by Judge Mosedale in Hyrax who in relation to the “main benefit” said, at [205]:

“… I would find that the main benefit that might be expected to arise from the arrangements was the obtaining of that advantage. This is obvious from the evidence such as §§69-76: it was clear that the scheme was marketed and sold on the basis of its tax advantage (as described above). In any event, there is no other rational reason for why anyone would implement a convoluted and expensive set of arrangements which left them with a legal (if economically unreal) obligation to repay a sum that they would otherwise have received as salary, save for the expected tax advantage. It seems an obvious and logical inference that the scheme was implemented by scheme users because of the desire to obtain the tax advantage that was at the heart of the marketing of the scheme. Objectively speaking, the main benefit that might be expected to arise from the arrangements would be the tax advantage.”

The prescribed period, the period for providing the information required under s 308(3) FA 2004 is defined by Regulation 5(5) of the Information Regulations as being:

Regulation 2(3) of the Information Regulations provides that, in reckoning this period, any day which is a non-business day within the meaning of s 92 of the Bills of Exchange Act 1882 shall be disregarded.

In the present case HMRC contend, and I accept, that the latest date the prescribed period ended, for the purposes of s 308 FA 2004, was five working days after 23 August 2017 (the date the first amount known to HMRC was paid under the arrangements), ie on 31 August 2017.

As such, the “relevant day” is 1 September 2017, being the first day after the end of the prescribed period, and when the day from which promoter’s failure to comply with s 308 FA 2004 began. Also, for the purposes of the present case it is accepted that the non-compliance with s 308 FA 2004 ceased on 14 January 2021, the day before the liquidators submitted the completed Form AAG1 to HMRC.

The “prescribed information” to be provided to the Board is defined at Regulation 4(1) of the Tax Avoidance Schemes (Information) Regulations 2012 (the “Information Regulations”). This provides that it must be sufficient information as might reasonably be expected to enable an HMRC officer to comprehend the manner in which the proposal or arrangements are intended to operate, including:

Section 318 FA 2004 contains the following relevant definitions:

HMRC do not have the power to impose a penalty (see s 100 TMA). Instead it must make an application to the Tribunal to do so (see s 100C TMA).

It is not disputed that it is for HMRC to establish, on a balance of probabilities, that there has been a failure to comply with s 308 FA 2004 and the period during which that failure continued. If HMRC do establish the non-compliance and the period over which it continued, it is then for the taxpayer to demonstrate that it has a reasonable excuse for the failure to comply, under s 118 TMA as explained by the Upper Tribunal in Perrin v HMRC [2018] UKUT 156 (TCC).

A promoter that fails to comply with s 308(3) FA 2004 is liable to a penalty (see s 98C TMA (as in force in 2017). Section 98C TMA contains detailed provisions regarding the calculation of that penalty.

Section 98(1)(a)(i) TMA provides that a promoter shall be liable to a penalty for non-compliance “not exceeding” £600 for each day during the initial period, beginning with the “relevant day” (ie the first day after the end of the period prescribed in that subsection) and ending on the earlier of the day on which the penalty is determined or the last day before the failure ceases. In the present case the initial period commenced on 1 September 2017 and ended on 14 January 2021 (see paragraph 44, above).

Section 98C(2ZB) TMA, which provides that the amount of a penalty is to be arrived at after taking account of “all relevant considerations”, was considered by Judge Staker in HMRC v IPS Progression Limited [2024] UKFTT 136 (TC) who observed, at [76]:

“In determining the amount of the penalty, the Tribunal must take account of all relevant considerations (s 98C(2ZB) TMA).

(1)

“[The] usual considerations which apply when the imposition of a tax penalty is in question, include[e] such matters as the reasons for non-compliance, the extent to which the position has been remedied, the gravity and duration of the non-compliance, the presence of aggravating or mitigating factors, the availability of other methods for HMRC to recover the tax at risk (most obviously by making an assessment, if necessary on a best of judgment basis), and generally the need to achieve a fair and proportionate outcome, having regard to the interests of the public purse and the general body of taxpayers as well as the circumstances of the non-compliant taxpayer himself” (Revenue and Customs Commissioners v Tager [2018] EWCA Civ 1727, [2018] STC 1755 (“Tager”) at [88], [111], [112]).

(2)

When determining a penalty for non-compliance with s 308(3) FA 2004, the Tribunal is required by s 98C(2ZB) TMA to have regard also to “the desirability of its being set at a level which appears appropriate for deterring the person, or other persons, from similar failures to comply on future occasions”. This provision states that this is a matter to be considered, but not that this is to be the sole or overriding consideration.

(3)

Section 98C(2ZB) TMA states that the Tribunal shall consider “in particular” the amount of fees received by the promoter in connection with the notifiable arrangements. However, it states that this is to be considered “in particular” as an aspect of the matter referred to in the immediately preceding sub-paragraph. The words “in particular” do not indicate that the matter referred to in the immediately preceding sub-paragraph is itself to be given greater weight than would otherwise be the case in the overall balancing exercise.

(4)

Section 98C(2ZB) TMA does not state that a penalty for a failure to comply with s 308(3) FA 2004 should be set at a level equivalent to the total amount of fees received by the promoter in connection with the notifiable arrangements, subject to the maximum of £600 per day. If the legislation had intended this, it could have said so. Section 98C(2ZB) TMA states merely that the fees received by the promoter in connection with the notifiable arrangements is a particular consideration in determining what level of penalty will deter similar failures to comply in future. It reflects the obvious reality that a relatively small penalty is unlikely to deter future non-compliance if a promoter is receiving very large amounts of fees in connection with the notifiable arrangements. However, this provision does not suggest that promoters will necessarily be undeterred by any penalty that is less than the total amount of the fees that they have received.

(5)

There could for instance be cases where a promoter receives very large fees, from which it makes only a very small profit due to very high overheads. In such a case the Tribunal would be entitled to take into account that a penalty at a given level will have a larger deterrent effect than if the whole of the fees represented profit. The fact that s 98C(2ZB) TMA requires the Tribunal to consider the amount of the fees received by the promoter does not mean that it precludes the Tribunal from also taking into account the amount of profit made from those fees.

(6)

Section 98C(2ZC) TMA empowers the Tribunal to impose a penalty in excess of the normal maximum, up to an overall maximum of £1 million, in cases where the maximum penalty “appears inappropriately low after taking account of [all relevant] considerations”. This provision does not state that the penalty must or should ordinarily be increased beyond the normal maximum by reason alone, for instance, that the normal maximum penalty would be less than the amount of the fees received by the promoter.

(7)

Section 98C(2ZC) TMA still reflects the general consideration that penalties must always remain proportionate (see also Lindsay v Customs and Excise [2002] EWCA Civ 267 and Le Roux Zeeman & Ors v HM Revenue and Customs [2020] EWHC 794 at [73]-[97]). Section 98C(2ZC) TMA is reserved for the most serious cases, where the normal £600 daily penalties would be inadequate even if imposed at the maximum level. Even in such cases, this provision still does not allow for unlimited penalties. It simply sets a higher maximum. Contrary to what HMRC suggest, it is not possible to draw from this provision a simple proposition that “a penalty in seven figures is not unacceptable to Parliament”. On the other hand, it is also not possible to draw from this provision a proposition that all penalties for non-compliance with s 308(3) FA 2004 should be capped at £1 million, even if the normal maximum £600 daily penalties would add up to a total maximum of more than £1 million. If the legislation had intended this, it could have said so.

(8)

The penalty under s 98C TMA only penalises the failure to provide HMRC with prescribed information as required by s 308(3) FA 2004. It does not penalise any tax avoidance as such, and does not as such penalise any other non-compliance with tax law, such as a failure to deduct correct amounts of PAYE and National Insurance from payments to employees. The penalty is not intended to be a proxy for the recovery of any unpaid tax (Tager at [90], [111], [112]). However, the wider consequences of the failure to comply with s 308(3) FA 2004, if known, may nonetheless be relevant to determining the quantum of the penalty.

(9)

The Tribunal's approach must simply be to determine an overall amount of penalty within the penalty range that is fair and proportionate in all the circumstances, taking account of all relevant considerations.

(a)

All else being equal, non-compliance for a given period is not of itself necessarily twice as serious as non-compliance for a period of half as much time. Deterring a person who has been non-compliant for six months from future non-compliance will not necessarily require a penalty of twice the amount required to so deter a person who has been non-compliant for three months. It would therefore be wrong in principle to determine first what would be the appropriate daily penalty in the range between zero and £600, and then simply to multiply that amount by the number of days in the period of default.

(b)

It would certainly be wrong to take as a starting point the maximum penalty, and to impose a penalty at this maximum level unless there is some reason not to do so. The Tribunal cannot accept the HMRC argument that in this case “there is no particular reason why the penalty should be less than the maximum allowed by the statute”

(10)

For the reasons above, the Tribunal does not accept without more the HMRC argument that because the Respondent is estimated to have received fees in the region of £3.6 million in connection with the notifiable arrangements, the penalty in this case must be set at or near the maximum possible amount of some £1.3 million.

Further guidance can be in the decision of the Tribunal (Judge Anne Scott and Ms Myerscough) in Hyrax Resourcing Limited v HMRC [2022] UKFTT 218 (TC) (“Hyrax 2022”) at [300-307]:

“300.

Mr McDonnell argued that the quantum of penalty should be relatively modest and that the penalty sought by HMRC was excessive not least because Hyrax was a relatively small company with a low income. That did not sit well with his arguments on the scale of the business in HRT. In our view the two must be considered conjunctly when looking at the question of penalty. It was those involved in Hyrax who decided to put almost all the income and expenditure through HRT.

301.

As we have explained at paragraph 25, Judge Mosedale found that Hyrax retained 18.5% which was effectively them splitting the tax saving with the scheme user. HMRC have calculated that the gross receipts in the period were £37,608,000 which is approximately 18.26% which is broadly consistent with that finding. That means that the tax saving was a very significant figure.

302.

We are not persuaded by Mr McDonnell’s unsupported assertion that HMRC should have been able to recover the tax that was at risk. Yes, they might be able to impose loan charges assessments etc on individual taxpayers but that would be time consuming, labour intensive and expensive. Although HMRC were aware, in very general terms, from the end of 2014 that Hyrax were involved in what they suspected was a tax avoidance scheme, because it was not notified and because HMRC had to have recourse to the Tribunal there was a considerable elapse of time. It would be disproportionate to have to pursue more than a thousand taxpayers (We note that at one point Joanne Macnamara misled HMRC by suggesting that there were only hundreds of taxpayers involved (see paragraph 161 above)).

303.

We accept HMRC’s argument that the penalty imposed should act as a deterrent. It should certainly do so to deter others from deliberately setting up a company with a sole director who can at best be described as displaying Nelsonian acuity in regard to the company’s affairs. It should also act to deter those who rely only on the advice of the promoter of the tax avoidance scheme and a promoter who makes large sums of money from it.

304.

We do not accept that the question as to whether the Hyrax arrangements were notifiable was extremely complex and therefore that was a reason for non-compliance. Sir Duncan Ouseley rightly described it as being a “rigmarole”.

305.

The Hyrax arrangements had ceased to operate before the matter reached the Tribunal so no remedial action was possible.

306.

We have considered all of the factors identified in Tager and weighed all relevant circumstances in the balance. We are particularly mindful of the fact that David Gill sought to hide behind Joanne Macnamara whilst at all times being actively involved.

307.

We find that this was a very serious matter and the statutory maximum penalty is appropriate. The statutory maximum penalty for the period 9 April 2014 to 5 March 2019, being 1,791 days at £600 per day totals £1,074,600.”

Section 98C(2ZC) provides:

HMRC contend that the arrangements in the present case are “notifiable arrangements” under s 306(1) FA 2004 and that PNO was the “promoter” of the arrangements as defined by s 307 FA 2004. Due to its failure to disclose the arrangements during the prescribed period, HMRC contend that PNO is liable to a penalty under s 98C TMA.

It is clear that, until Form AAG1 was submitted by the liquidators, HMRC had not been notified by PNO of the arrangements in this case within the prescribed period or at all. Therefore, if the arrangements were “notifiable arrangements” and PNO was a “promoter” it will be liable to a penalty to be determined having regard to the above statutory provisions.

HMRC submit that the arrangements are notifiable as they fall within the descriptions prescribed by Regulations 8, 10, 18 and 19 of the Prescribed Descriptions Regulations 2006; that they enable any person to obtain an advantage in relation to tax that is prescribed in relation to the arrangements; and that one of the main benefits that might be expected to arise from the arrangements is the obtaining of that tax advantage.

Although HMRC refer to the arrangements being notifiable being within Regulations 8, 10, 18 and 19 of the Prescribed Descriptions Regulations 2006, they only have to establish that they fall within one of those regulations to be notifiable arrangements.

Given that there were approximately 600 users of the arrangements by January 2020 Regulation 10(1) has clearly been satisfied.

I also find that the conditions in Regulation 10(2) have been met in that an informed observer could reasonably be expected to conclude that:

It therefore follows that the arrangements in the present case fall within a prescribed description thus satisfying s 306(1)(a) FA 2004 and, as such, it is not necessary for me to consider whether the arrangements also fall within any of the other descriptions in the Prescribed Descriptions Regulations 2006.

With regard to enabling a person to obtain an advantage in relation to any tax, the arrangements in this case fall within the definitions of “arrangements”, “advantage” and “tax” contained in s 318 FA 2004 with the “advantage” being the reduced charge to income tax that would have otherwise been payable if the arrangements had not been used. As such, the condition in s 306(1)(b) FA 2004 is satisfied.

I also consider that, as with the arrangements in Hyrax, the arrangements in the present case result in a legal obligation to repay a sum that, if not for the tax advantage, they would otherwise have received as a salary. It must therefore follow that that tax advantage is a main (or at the very least) one of the main benefits that might be expected to arise from the arrangements.

Therefore, for the reasons above, I have come to the conclusion that the arrangements in the present case are notifiable arrangements as defined by s 306(1) FA 2004.

HMRC contend that PNO is a promoter in relation to the arrangements, pursuant to s 307(1)(a)(iii) and the opening words of s 307(1)(b) FA 2004, on the basis that in the course of its business PNO made a notifiable proposal (ie a proposal for the arrangements) available for implementation by users. I agree.

PNO, which was a “relevant business” as defined by s 307(2) FA 2004, ensured that the users who wished to do so were able to use the arrangements and is a promoter of a notifiable proposal (see s 307(1)(iii) FA 2004) and therefore also a promoter of notifiable arrangements by virtue of s 307(1)(b)(ii) FA 2004 by virtue of its role in the organisation and management of those arrangements.

Having concluded that PNO was a promoter that had failed to notify HMRC of notifiable arrangements within the prescribed period or at all, it follows that PNO, which has not advanced any reasonable excuse for that failure to comply, is liable to a penalty under s 98C(1)(a) and (2)(a) TMA.

I am invited by HMRC to determine the amount of the penalty pursuant to the following steps:

In this case HMRC contend that an appropriate penalty would be £1 million or, in the alternative, the statutory maximum of £739,200.

Adopting the suggested approach, Step 1 requires all relevant factors to be taken into account, in particular:

Although HMRC do not hold direct evidence of the income earned by PNO, they have estimated its earnings by applying the average rate of fees (or an amount economically equivalent to fees) retained by PNO to the turnover as declared on PNO’s VAT returns.

For the tax years 2017-18 to 2019-20, during which time the arrangements were in place and as supported by the RTI data held by HMRC, the gross receipts of PNO (VAT outputs) were £19,228,218, £5,571,550 was declared salaries paid through RTI, and £10,717,237 in loans was paid to known scheme users. Therefore, if PNO retained 17% of users’ gross contract values in fees it would amounted to £3,268,797. If PNO retained 20% in fees that amounted to £3,845,644.

As such, step 1 produces a penalty amount, not taking into account the statutory maximum under s 98C(1)(a)(i) TMA, of at least £3,268,797.

Step 2 is to calculate the maximum statutory penalty for the failure to comply with s 303(3) FA 2004, a sum not exceeding £600 per day (see s 98C(1)(a)(i) and (2)(a) TMA) during the initial period. The initial period ran from 1 September 2017 until 14 January 2021 (see paragraphs 44 and 50, above), a period of 1,232 days. The statutory maximum penalty is therefore £739,200 (ie 600 x 1,232).

As the penalty at Step 1 exceeds the statutory maximum at Step2, Step 3 is not applicable. Neither, for the same reason, are Steps 4 – 6.

Step 7 requires the Tribunal to consider the option, provided by s 98(2ZC) TMA, of increasing the penalty to an amount not exceeding £1 million if the amount based on the daily rate is inappropriately low.

Having carefully considered HMRC’s submissions, given that the fees (or an amount economically equivalent to fees) obtained by PNO through the arrangements equate to at least £3.2 million, I consider it appropriate to increase the penalty to £1 million. Moreover, I consider that such a penalty would be a warning to other promoters of similar schemes and encourage them to notify HMRC in a timely manner in accordance with the relevant statutory provisions, thus protecting both users and the public purse.

Therefore for the reasons above, having concluded that PNO failed to comply with the requirements under s 308(3) FA 2004 to notify HMRC of notifiable arrangements within the prescribed period, I allow the Application and determine the penalty payable by PNO at £1 million.

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.