The Commissioners for HMRC v Root2 Tax Limited

This is an appeal by HM Revenue & Customs (“HMRC”) against a decision of the First-tier Tribunal dated 22 September 2021 (“the FTT Decision”). The FTT Decision has reference [2021] UKFTT 0346 (TC). The appeal concerns the Disclosure of Tax Avoidance Schemes (“DOTAS”) provisions which are contained in Part 7 Finance Act 2004 (“FA 2004”). The DOTAS provisions require those who promote and use certain tax avoidance arrangements to provide information to HMRC about the arrangements.

In a previous decision, the FTT had held that certain arrangements known as the “Alchemy Scheme” in respect of which the respondent (“Root2”) was a promoter, were ‘notifiable arrangements’ for the purposes of DOTAS – see Root2 Tax Ltd and Root3 Tax Ltd v HM Revenue & Customs [2017] UKFTT 696 (TC) (“the DOTAS Decision”). As such, Root2 was required to provide information in relation to the arrangements to HMRC.

Section 98C Taxes Management Act 1970 (“TMA 1970”) makes provision for penalties where a promoter fails to comply with the information requirements in FA 2004. HMRC considered that Root2 had failed to provide information in relation to the arrangements as required by FA 2004. In the circumstances, HMRC applied to the FTT for the FTT to determine a penalty for non-compliance pursuant to section 100C TMA 1970 (“the Penalty Application”). Root2 opposed the Penalty Application on various grounds, including that the application was made out of time and should be dismissed.

The FTT directed that the following issue be determined as a preliminary issue:

In determining the preliminary issue, the FTT had to identify the date on which the penalty for failing to provide information required by the DOTAS provisions was incurred or began to be incurred. The FTT helpfully provided an Appendix of relevant legislation to the FTT Decision and for convenience we gratefully adopt it as an Appendix to this decision with a few minor additions. The provisions are in the form at the time the penalty was said to be incurred, and do not take into account amendments in Finance Act 2021.

The principal section with which this appeal is concerned is section 308 FA 2004 which in so far as relevant provides as follows:

For present purposes, the prescribed period referred to in section 308(3) is defined by Regulation 5(4) Tax Avoidance Schemes (Information) Regulations 2012. It is a period of 5 days after the date on which a promoter “first becomes aware of any transaction forming part of the notifiable arrangements”. In the event of non-compliance, a penalty is incurred or begins to be incurred on the first day after the prescribed period. The penalty is a daily penalty not to exceed a certain amount, initially £600 per day whilst the failure continues.

The FTT succinctly summarised the issues before it at [10] to [12] of the FTT Decision:

The FTT determined the preliminary issue in favour of Root2. It stated at [55]:

Having determined the preliminary issue in favour of Root2, the FTT dismissed the Penalty Application.

HMRC appeals against the FTT Decision with permission of the FTT. They were represented before us by Aparna Nathan KC, who appeared before the FTT, and Georgia Hicks. We are grateful for their detailed written arguments and oral submissions. Root2 opposed the appeal and submitted a Response to the Notice of Appeal, drafted by Hartley Foster of Counsel. Shortly before the hearing, the Upper Tribunal was informed that Root2 was not able to attend the hearing or instruct representatives on its behalf. Root2 asked us to dismiss the appeal and relied on the reasons given in the FTT Decision. In the circumstances, while we were assisted by its Response to the Notice of Appeal, we did not have the benefit of any skeleton argument or oral submissions on behalf of Root2.

The preliminary issue and the issue on this appeal concern the construction of section 308(1), (2), (3) and (5) FA 2004. There are three grounds of appeal but, essentially, HMRC contend that the FTT wrongly construed section 308(3) as requiring a promoter to provide information only on the first occasion on which it became aware of a transaction forming part of the notifiable arrangements. It ought to have found that a promoter had an obligation to provide that information each time that it first became aware of a transaction forming part of a particular scheme user’s implementation of a set of notifiable arrangements, unless that duty had been relieved by a previous notification.

We shall refer in this decision to the obligation of a promoter to provide information to HMRC in connection with notifiable arrangements as a “duty to notify”, adopting the terminology of the parties and the FTT.

We will consider the relevant DOTAS provisions in detail when we come to consider HMRC’s grounds of appeal in more detail. At this stage we can give a brief summary.

The DOTAS provisions are concerned with notifiable arrangements. Section 318 FA 2004 provides that “arrangements” includes “any scheme, transaction or series of transactions”. It is important to note that the term can include a single transaction or several transactions which together form a series of transactions. It also includes a scheme.

Part 7 FA 2004 starts at section 306 with a definition of the terms “notifiable arrangements” and “notifiable proposal”. Notifiable arrangements must fall within a description provided by the Treasury by regulations. For present purposes we are concerned with Regulation 10 Description 5 of the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006, which refers to standardised tax products. In brief, they are arrangements which enable or might be expected to enable any person to obtain a tax advantage where the main benefit or one of the main benefits that might be expected to arise is the obtaining of that tax advantage.

A notifiable proposal is a proposal for arrangements which would be notifiable arrangements if the proposal is entered into. Chronologically, a proposal will precede the implementation of the arrangements.

Duties to notify for the purposes of the DOTAS provisions fall on promoters of a notifiable proposal and promoters of notifiable arrangements. Section 307(1)(a) defines a promoter for the purposes of a notifiable proposal and section 307(1)(b) defines a promoter for the purposes of notifiable arrangements. In broad terms, promoters might be involved in designing or marketing the arrangements, or in organising or managing the arrangements when they are implemented by a particular taxpayer.

Section 308, set out above, describes the duties of promoters. Section 308(1) and (2) concern the duty to notify in relation to a notifiable proposal. Section 308(3) describes the duty to notify in relation to notifiable arrangements.

The prescribed information which a promoter must provide in relation to both a notifiable proposal and notifiable arrangements is set out by Regulation 4 Tax Avoidance Schemes (Information) Regulations 2012. It is “sufficient information as might reasonably be expected to enable an officer of HMRC to comprehend the manner in which the proposal or arrangements are intended to operate”. It must include information such as the promoter’s name and address, a summary of the arrangements or proposed arrangements, the name (if any) by which they are known, an explanation of the tax advantage which is expected to be obtained and the statutory provisions on which the tax advantage is based.

Where a promoter complies with a duty to notify then section 311 FA 2004 provides that HMRC may allocate a reference number to the notifiable arrangements or the proposed notifiable arrangements. In practice, HMRC describe this as a Scheme Reference Number or “SRN”. Section 312 provides that a promoter in relation to notifiable arrangements must within a prescribed time provide that reference number and the information prescribed in Regulation 6 Tax Avoidance Schemes (Information) Regulations 2012 to any client to whom it is providing services in connection with the notifiable arrangements, or arrangements which are substantially the same as the notifiable arrangements.

Section 313 provides that any person who is a party to notifiable arrangements, including the taxpayer, must provide certain prescribed information to HMRC, which may include the requirement to provide the information in a tax return.

It is worth noting at this stage that the DOTAS provisions also deal with the position where there is doubt as to whether arrangements are notifiable arrangements or whether a proposal is a notifiable proposal. In cases of doubt, HMRC can apply to the FTT for an order under section 306A FA 2004 or section 314A FA 2004. An order under section 306A is that a proposal or arrangements are to be treated as notifiable. It is made where HMRC have reasonable grounds for suspecting that the proposal or arrangements are notifiable. An order under section 314A is that a proposal or arrangements are notifiable. It is made where the FTT is satisfied that the relevant arrangements are notifiable arrangements under section 306(1).

The FTT made various findings of fact for the purpose of determining the preliminary issue. Many of the findings were agreed between the parties. We can state the relevant facts quite briefly. They are relevant to the issue of construction we must determine only in the sense that they give context to the issues that arise.

Root2 became aware of transactions being undertaken by various individuals using the Alchemy Scheme between April 2011 and August 2017. Those individuals included directors of Root2 and employees of other companies not connected to Root2.

The Alchemy Scheme is described at [3] – [6] of the DOTAS Decision. Very broadly, it involves an employee entering into a spread bet with an established spread betting business. The bet relates to the performance of a basket of hedge funds over a period of time. If the funds rise to a stated level at the end of the period, the bet wins. If not, the bet loses. At the same time the employee enters into a hedging contract with the spread betting business. The hedging contract mirrors the spread bet but in reverse. If the employee wins on the spread bet, he will lose on the hedging contract and vice versa. There is a small built-in loss which is the fee of the spread betting business. Soon after the spread bet and hedging contract are made, the employer relieves the employee of the hedging contract by way of novation. At that stage, the outcome of the two contracts is uncertain. The spread bet has a modest positive value and the hedging contract a modest negative value. When the employer relieves the employee of the hedging contract an employment-related benefit is conferred on which the employee pays tax. When the contracts mature a few months later, ideally the employee will have won the spread bet and the employer will have lost the hedging contract. The employer therefore makes a payment to the spread betting business, which in turn makes a payment to the employee. It is intended that the employee should receive that payment as betting winnings which are not taxable. On some occasions the spread bet would be lost, in which case the employee would suffer an economic cost and the employer a corresponding gain. We need not be concerned as to how that is dealt with in the Alchemy Scheme.

The DOTAS Decision also found that Root2 was a promoter in relation to the Alchemy Scheme. It did not say on precisely what basis Root2 was a promoter, but it is not suggested that anything turns on that for the purposes of this appeal.

On 13 July 2015, HMRC wrote to Root2 setting out their understanding of the Alchemy Scheme. The letter stated that HMRC had reason to believe that Root2 had a duty to notify the Alchemy Scheme pursuant to section 308.

In June 2016, HMRC applied to the FTT for an order pursuant to section 314A FA 2004, alternatively under section 306A, that the Alchemy Scheme constituted or should be treated as notifiable arrangements within section 306(1). The application was heard by the FTT in March 2017. The DOTAS Decision was released on 11 September 2017. The FTT granted HMRC’s application for an order under s.314A in respect of the Alchemy Scheme. There are no rights of appeal against such decisions, and Root2 sought permission to commence judicial review proceedings. They were refused permission by the High Court, and permission was refused by the Court of Appeal in January 2019.

Root2 had not provided information to HMRC in relation to the Alchemy Scheme until it made certain disclosures on 21 September 2017, 13 October 2017 and 5 April 2019. HMRC did not consider that those notifications satisfied Root2’s duty to notify pursuant to section 308(3) FA 2004. HMRC considered that in relation to one taxpayer who had implemented the Alchemy Scheme, Root2 first became aware of a transaction forming part of the notifiable arrangements on or shortly before 20 June 2013. HMRC therefore made the Penalty Application on 22 May 2019. Root2 considered that it first became aware of a transaction forming part of the notifiable arrangements on 15 April 2011, when another taxpayer had first taken steps to implement the Alchemy scheme.

The DOTAS provisions have previously been considered by the Administrative Court in judicial review proceedings. Firstly, in R (otao Walapu) v HM Revenue & Customs [2016] EWHC 658 (Admin) and then in R (otao Graham and others) v HM Revenue & Customs [2016] EWHC 1197. For reasons stated below, in agreement with HMRC, we do not consider that either of these cases are authoritative on the particular point of construction we must determine. We therefore address the issue from first principles, as a matter of statutory construction. It is not controversial that we must take a purposive approach and construe the provisions so as to give effect to the purpose of the provisions. The relevant principles were recently restated by the Supreme Court in Hurstwood Properties (A) Ltd v Rossendale BC [2021] UKSC 16:

In the words of Lord Dunedin in Whitney v IRC [1926] AC 37 at 52:

The purpose of the DOTAS provisions was described by Green J as he then was in Walapu at [152]:

HMRC’s case is that the statutory scheme recognises a distinction between a duty to notify, which arises on each occasion when a promoter first becomes aware of a transaction implementing the arrangements by each scheme user, and actual notification. Whilst a duty to notify may arise on many occasions, actual notification of the arrangements or a previous proposal to HMRC is only required once. Ms Nathan submitted that the FTT wrongly held that the duty to notify only arose once, on the first occasion that a promoter becomes aware of a transaction implementing the scheme. She submitted that the FTT Decision was wrong because:

Section 307 defines who is a promoter for the purposes of the DOTAS provisions as follows:

It is not controversial that the DOTAS provisions identify at least two separate occasions on which a duty to notify arises. The first occasion is the duty to notify that arises under section 308(1) in relation to a notifiable proposal. That is a proposal for arrangements which, if entered into, would be notifiable arrangements. The meaning of promoter in this context is set out in section 307(1)(a), and includes persons responsible for the design and marketing of the proposed arrangements and persons who make the notifiable proposal available for implementation by others.

The second occasion is the duty to notify that arises under section 308(3), when the arrangements are implemented. The meaning of promoter in this context is set out in section 307(1)(b) and includes persons who are promoters in relation to a notifiable proposal which is implemented by the arrangements, and someone who is responsible for the design, organisation or management of the arrangements.

There is a clear proviso to section 308(3) which excludes the duty (or duties) to notify arising on the implementation of arrangements where those arrangements implement a proposal which has already been notified pursuant to section 308(1).

Ms Nathan submits that the DOTAS provisions focus on implementation of the arrangements by particular taxpayers, and that there is a duty to notify on each occasion that notifiable arrangements are implemented by a taxpayer. However, she acknowledges that one would then expect to see an exclusion of the duty to notify later implementations of the arrangements when an earlier implementation has been notified. Ms Nathan submits that this is the purpose, or at least one of the purposes of section 308(5).

We do not accept Ms Nathan’s construction of section 308(3) and 308(5) for the following reasons.

First, the relevant wording in section 308(3) (“the date on which [the promoter] first becomes aware of any transaction forming part of the notifiable arrangements”) is exactly the same as that in section 308(2)(b) in relation to the duty to notify a proposal. We would expect that carefully chosen phrase to have the same meaning in both provisions.

Section 308(2) is identifying the relevant date by reference to which the duty to notify a proposal arises. It does so by reference to the earliest of three dates set out in sub-paragraphs (za), (a) and (b). HMRC accept that in section 308(2)(za), “the date” refers to a single date, namely “the date on which the promoter first makes a firm approach to another person ...”. It is not each date on which the promoter first approaches another person. Similarly, in section 308(2)(a), “the date” again refers to a single date, “the date on which the promoter makes the notifiable proposal available for implementation by any other person”. Again, HMRC accept that it is not each date on which the promoter makes the notifiable proposal available. However, HMRC say that section 308(2)(b) catches multiple dates, whenever a promoter first becomes aware of a transaction implementing the notifiable arrangements.

The fact that “the date” in each of section 308(2)(za) and section 308(2)(a) refers to a single date supports the conclusion that “the date” in section 308(2)(b) is also intended to refer to a single date, that is “the date on which the promoter first becomes aware of any transaction … implementing the notifiable proposal”.

Ms Nathan suggested that it would only be a designer of the arrangements who would be likely to fall within section 308(2)(b). It is not clear to us that is the case, but in any event it does not seem to be relevant to the point in issue.

Our view as to the meaning of section 308(2)(b) is reinforced by the fact that section 308(2) is all about identifying a single date, which is “the relevant date” for the purposes of section 308(1). It does so by reference to the earliest of the three dates in sub-sections (za), (a) and (b). The problem with HMRC’s construction is that it makes section 308(2) unworkable wherever two or more dates in (b) span the date in either or both of (za) and (b). This can be illustrated as follows:

It is then impossible to answer the question which is the earliest of the dates in (za) and (b) because there are two dates falling within (b), one of which is before the date in (za) and one of which is after it. The problem does not arise if “the date” in (b) refers only to a single date by reference to the promoter’s awareness of the first implementation of the arrangements. Parliament would have referred to “the dates” or “the earliest date” in subsection (b) if it intended the construction relied upon by HMRC.

If the date in section 308(2)(b) means a single date when the promoter becomes aware that the notifiable proposal has been implemented, then it is difficult to see why precisely the same wording in section 308(3) should bear a different meaning.

Second, HMRC’s case involves the proposition that where section 308(3) refers to “notifiable arrangements” in the phrase “any transaction forming part of the notifiable arrangements”, it is referring to each implementation of the relevant scheme by separate taxpayers. This would lead to the unworkable conclusion that a duty to notify in relation to the scheme arose on each implementation of the scheme by successive taxpayers. The proviso at the end of subsection (3) only removes the duty if the proposal has been earlier notified. There is nothing within section 308(3) itself which removes the duty to notify an implementation of the scheme if an earlier implementation has been notified.

HMRC say that the answer to that problem is found in section 308(5). But that provision does not help. It is premised upon there being two or more “sets of notifiable arrangements” (or two or more notifiable proposals). On the present facts, HMRC say that each time a taxpayer implements the Alchemy Scheme, that is a “set of notifiable arrangements”. Thus, there will be two or more such sets of notifiable arrangements once two taxpayers have implemented the scheme. That cannot be right, for a number of reasons.

Section 308(3) draws a distinction between the notifiable arrangements (a transaction, series of transactions or scheme) and a transaction forming part of those arrangements.

We understood Ms Nathan to submit that the notifiable arrangements in this case consisted of a series of transactions, comprising the spread bet, the hedging contract and a novation with the employer, and that each of those steps was itself a transaction forming part of those arrangements for the purposes of section 308(3). If that is right, she submits that each implementation of the Alchemy Scheme is a "set of notifiable arrangements", so that there are two or more sets of notifiable arrangements for the purposes of section 308(5). We do not accept that submission. In the context of the Alchemy Scheme, each implementation by a taxpayer would be of the same scheme involving the same series of transactions. The implementation by an individual taxpayer would amount to notifiable arrangements as defined in s 306(1). It would not be a "set" of notifiable arrangements. On HMRC's case, s 308(5) would have the same effect even if the words "sets of" were omitted. In our view a "set" of notifiable arrangements is intended to refer to what in this case is the Alchemy Scheme as a whole. Section 308(5) is removing the duty to notify that would otherwise arise where there is a variation in the overall scheme but the new variant is substantially the same as the original scheme. It goes no further than that.

Moreover, the whole purpose of the notification procedure is to give HMRC advance warning of tax avoidance schemes so that it can allocate an SRN pursuant to section 311. The promoter must then give the SRN and certain prescribed information to each taxpayer that implements the scheme, so that they can make disclosures in their tax returns. The prescribed information in Regulation 6 includes the name or a brief description of the arrangements. HMRC is therefore alerted to the existence of the scheme, and separately to the fact that individual taxpayers have utilised the scheme. Defining the notifiable arrangements in section 308(3) as the series of transactions each taxpayer enters into on implementing the Scheme does not best accord with that purpose.

HMRC rely on the words in parentheses in section 308(5), namely “whether they relate to the same parties or different parties”. The “they” in question is the notifiable proposals or the sets of notifiable arrangements. Those words do not in our view favour either of the competing constructions.

We consider that our reading of sections 308(3) and 308(5) is consistent with the purpose of the DOTAS provisions. There is an obligation on promoters to provide early information to HMRC about tax avoidance schemes when, to the knowledge of a promoter, they are first proposed or first implemented. That obligation is a continuing obligation.

This reading of sections 308(3) and 308(5) does not undermine the proper functioning of the penalty provisions. Nor as Ms Nathan suggests does it “open the door to non-compliance”. She submitted that the penalty regime would not have any teeth if the FTT’s interpretation is correct. A promoter could choose not to notify and let the 6 years run knowing that at that stage there could be no penalty.

We do not accept these submissions. Where a promoter fails to provide information about the implementation of a scheme, it is liable to a penalty. However, that liability to a penalty is not open ended. Parliament clearly intended the liability should cease after a period of time. On our reading of the provisions, liability ceases 6 years after the prescribed period. Namely, 6 years and 6 days after the promoter first became aware of a transaction implementing the notifiable arrangements. HMRC say that a longer limitation period would be more consistent with the overall scheme of the legislation. That is a period which effectively expires 6 years after the promoter first becomes aware of the last transaction implementing the notifiable arrangements. HMRC say that would be a more effective limitation period because until notification they are likely to be in the dark about the existence of a scheme. A promoter might take the risk of incurring a penalty in the period of 6 years and 6 days from the first transaction where it would not take the risk if time ran from the last transaction. We do not find that persuasive. Parliament has chosen to define the commencement of the limitation period by reference to the date on which a promoter acquires knowledge of a relevant transaction, not by reference to the date when HMRC becomes aware of the promoter’s default. It is that choice which means there is always a risk that HMRC will not become aware of the fact that the promoter has incurred a potential penalty liability until after the limitation period has expired, whether the limitation period commences upon the promoter first becoming aware of a transaction, or upon the promoter becoming aware of the last transaction implementing a scheme.

Ms Nathan also submits that once HMRC become aware of the existence of a scheme it may take time to establish whether the scheme is notifiable. That may be true, but it does not mean that the penalty regime is without teeth or ineffective. Nor does it cause us to consider that the otherwise clear language of sections 308(3) and (5) can be construed to give the result favoured by HMRC.

In the context of penalties for breach of a duty to notify, HMRC accept that with multiple duties to notify, in principle there would be multiple breaches and multiple penalties. In practice however, they accept there would only be one penalty. Effectively, the requirement for HMRC to apply to the FTT to impose a penalty acts as a limitation in this regard and there would only be one application for a penalty. It seems to us that the fact Parliament did not specifically deal with the possibility of multiple penalties is also a pointer to the fact that only one duty to notify arises on a promoter first becoming aware of a transaction forming part of the notifiable arrangements.

Even if the language were not as clear as we consider it to be, we would not construe the provisions in the way HMRC invites us to. The principle of doubtful penalisation would be engaged. That principle was described by Sales J as he then was in Bogdanic v Secretary of State for the Home Department[2014] EWHC 2872 (QB):

This would be a further factor in an overall consideration of the provisions which would cause us to arrive at the same conclusion on the point of construction.

While acknowledging that they did not address the question of construction we are faced with, Ms Nathan relied upon Walapu, Graham and a decision of the FTT in HM Revenue & Customs v Premiere Picture Limited [2021] UKFTT 58 (TC) as supporting HMRC’s construction of section 308(3) FA 2004. At the same time, Ms Nathan submitted that the FTT in the present case had wrongly interpreted those decisions as supporting its conclusions on the true construction of section 308(3). We can deal with these points relatively briefly.

Walapu involved a judicial review of HMRC’s decision to issue an accelerated payment notice (“APN”) to the taxpayer. One of the issues was whether the relevant scheme was a “DOTAS arrangement” for the purposes of section 219 Finance Act 2014. A DOTAS arrangement in this context is notifiable arrangements in respect of which HMRC have issued an SRN or arrangements where there is a duty to notify because they are substantially similar to such notifiable arrangements. The scheme in question was described as “the Syndicate Scheme”. The taxpayer argued that the Syndicate Scheme was not a notifiable arrangement and therefore no APN could be issued.

A previous scheme on which the Syndicate Scheme was based known as “the Partnership Scheme” had been rendered ineffective by anti-avoidance legislation. The Partnership Scheme had been notified. A proposal for the Syndicate Scheme was also subsequently notified by a promoter. Despite this, the taxpayer argued that the Syndicate Scheme was substantially the same as the Partnership Scheme which had already been notified and hence there was no requirement to notify the Syndicate Scheme as a result of section 308(5).

Green J noted at [144] that the proviso to section 308(3) removed the duty to notify when the Syndicate Scheme was implemented because the proposal had previously been notified. He found that section 308(5) therefore had no application because it only applies where there is a duty to notify under section 308(3):

In case he was wrong on that point, Green J went on to consider whether the duty to notify on implementation of the Syndicate Scheme was excluded by the application of section 308(5) because the Syndicate Scheme was substantially the same as the Partnership Scheme which had previously been notified. He found that the Syndicate Scheme was not substantially the same as the Partnership Scheme.

Ms Nathan says that there are passages in the judgment of Green J that support HMRC’s submissions in the present appeal. In particular she refers to the reference in [144] to section 308(3) being capable of applying to “schemes which implemented the notified Syndicate Scheme”. Ms Nathan submitted that use of the plural “schemes” must have been a reference to individual implementations of the Syndicate Scheme. Further, the reference to there being no duty for “the specific Syndicate Scheme entered into by the claimant to be notified” supports a construction which requires notification of arrangements entered into by individual taxpayers.

Ms Nathan also relied on [148] in Walapu where Green J referred to there being no obligation to notify the “particular” scheme implemented by the claimant:

Since Walapu was not concerned with the issue in the present appeal, we consider that in these passages Green J was merely setting the context for the issues he was considering. It does not carry HMRC’s case any further forward.

We note that the FTT in this appeal considered that Walapu was authority which supported Root2’s submissions on the issue of construction. The FTT said as follows at [46]:

We do not think that Walapu went as far as that, and we cannot identify passages in the judgment in Walapu which support those propositions. We disagree to this extent, therefore, with the reasoning of the FTT.

Put simply, the reasoning in Walapu does not support the case of either party on this appeal.

As far as Graham is concerned, this was another judicial review by taxpayers concerning the validity of APNs issued in relation to the partnership schemes referenced in Walapu. The taxpayers all participated in one set of partnership schemes known as the Liberty Partnerships. Each partnership raised capital from individual taxpayers who subscribed as partners. The taxpayers contended that none of the partnership schemes being considered were notifiable arrangements.

HMRC’s contentions and the taxpayer’s contentions were noted by Sir Kenneth Parker as follows:

Again, HMRC do not say that Graham was concerned with the issue in the present appeal. In that case, the partnerships were the relevant entities which implemented the arrangements and any tax advantage to the individual taxpayers arose as a result of the partnership’s transactions. It was held at [35], [36] and [43] that each partnership was a separate set of notifiable arrangements under section 308(3) because each partnership had its own particular components including, in particular, the alleged tax advantage. In the circumstances of that case therefore, the relevant arrangements for the purposes of section 308 were the specific arrangements for each particular partnership. There was no justification for sweeping all the individual partnerships under a single “umbrella” arrangement.

In relation to Graham, the FTT said at [48]:

It is not clear what support, if any, the FTT found in Graham for the proposition that a tax avoidance scheme which is implemented on several occasions with only immaterial changes need only be notified once. If the FTT did treat Graham as authority for that proposition then with respect, it was wrong to do so. Again, the reasoning in Graham does not support the case of either party on this appeal.

The same point can be made in relation to reliance in the FTT Decision at [53] on what was said in the DOTAS Decision.

Finally, Ms Nathan relied on a decision of the FTT in Premiere Picture, which involved investment by taxpayers in various film schemes, one involving a general partnership, the other involving an LLP. HMRC applied for orders under either Section 314A or Section 306A FA 2004. Overall, the appeal concerned whether the schemes comprised “notifiable arrangements” which raised 5 issues. The first issue was whether there were “arrangements” falling within section 318(1). The FTT dealt with this at [44]:

The FTT went on to say that “each implementation of the scheme gave rise to arrangements which were separate and distinct from the arrangements which arose when the same scheme was implemented on another occasion”. Those findings are not surprising given the limited nature of the first issue. There were clearly arrangements, which was common ground. We do not consider that the FTT in Premiere Picture made any finding that each implementation of the schemes amounted to notifiable arrangements giving rise to a separate duty to notify. It was not concerned with the duty to notify. Nothing said by the FTT in that case causes us to depart from the conclusions we have reached on the construction of section 308(3).

For all the reasons given above we dismiss the appeal. We are satisfied that the FTT correctly construed section 308(3) FA 2004 for the purposes of the preliminary issue. We do not agree in all respects with the analysis of the FTT, but we are satisfied that it was right to dismiss HMRC’s Penalty Application.