“This shows that the Company received consultancy fees of£9,240 based on two invoices for services provided by Dr Mirza to an end user as an employee of the Company. After deducting£1016.40 for the administration fee,£8223.60 or 89% of Dr Mirza’s earnings was left over. Out of this, two payments of£253.16 and£1028.46 were made to Dr Mirza as payroll. This left£6941.98 to be paid to the Trust (plus the trust fee at 2% of this sum, of£138.84 ). Any PAYE and NIC due on the payroll payments – as well as the 2% trust fee – were borne by the Company out of its administration fee, such that the payroll payments to individuals were essentially ‘grossed up’.”
“Thus, the Company made (or at least thought it made) a profit of c.10% (the 13.4% fee less payment of 2% to the trustee less payment of tax on the nominal remuneration) of the amounts that the workers were earning. The Company did not do anything beyond marketing and administering the scheme.”
“… Q. What other benefits are there? A. A fund has been established for the employees of Ethos Umbrella the fund is called a Business Bonus Trust (‘BBT’). The fund is managed in Jersey. Discretionary loans are available from the fund. The loans are NOT commercial loans and are therefore NOT interest bearing. All loans are recallable. Q. Will HMR&C be informed that I have taken out loans? A. No. You do not have to inform HMR&C of the loans. … Q. Will I have to pay benefit in kind tax? A. No, the loans are not subject to any taxation. Q. Is this legal? A. Advice has been taken from Senior tax Counsel. Our accountants will support you with any HMR&C investigation. Q. Is this structure an Employee Benefit Trust? A. No but it has similarities. Over the years EBTs have been challenged and have proved resistant to challenges. The variations that are included in this planning make the structure both resistant and compliant. Q. Is this planning registered with HMR&C? A. Yes the planning itself is registered but your involvement will NOT be notified to HMR&C. Q. Have Ethos taken legal advice on this tax planning A. Yes. Senior tax counsel has advised in relation to this planning. But we can offer no guarantees that legislation will not change.”
“Parliament in enacting legislation for the taxation of emoluments or earnings from employment has sought to tax remuneration paid in money or money’s worth. No persuasive rationale has been advanced for excluding from the scope of this tax charge remuneration in the form of money which the employee agrees should be paid to a third party, or where he arranges or acquiesces in a transaction to that effect.”
“a. the provision by the Respondent of services to an end user on the Company’s behalf; b. the payment by the end user to the Company (whether directly or via a personal services company/employment agent) for those services; c. the allocation of the monies paid to the Company by the end user as follows: (i) the retention by the Company of any VAT and its ‘administration fee’; (ii) the payment of the Respondent’s contractual salary; (iii) and the payment by the Company of the balance to the Trust; d. the corresponding transfer of the monies paid to the Trust to a sub-trust for the benefit of the Respondent; and e. the loan of all or part of the sub-trust funds to the Respondent by the Trustee.”
“This tax liability affects the question of whether the incoming value to the Company was worth less than the outgoing value. The main incoming value to the Company from the transaction was the ‘administration fee’ of on average 13.4% and from which various bills needed to be paid (introducer’s commission, 2% trust fees, PAYE and NIC on payroll element of Respondents’ benefits). The consideration the Company provided was the operation of the scheme, thereby becoming liable for PAYE and NIC. The outgoing value was therefore significantly greater, than the incoming value in money or money’s worth. This is why the Company is insolvent.”
“I am satisfied that [counsel for the Liquidator’s] submission is flawed. a. Section 423(3)(a) is concerned with a prohibited purpose of putting assets out of the reach of ‘a person who is making [a claim], or may at some time make, a claim’. That clearly contemplates a current claim or a future claim. Section 423(3)(b) makes it a prohibited purpose to otherwise prejudice ‘such a person in relation to the claim which he is making or may make.’ The words ‘may make’ in s.423(3)(b) are a reference to the claim in s.423(3)(a) that a person ‘may at some time make’. The ‘claim’ which both ss. 423(3) (a) and (b) are concerned with are claims which a person is presently making or one which a person may make in the future. b. The tax avoidance purpose on which [counsel for the Liquidator] relies is that the scheme would secure that no income tax and NIC liability arose in relation to the remuneration received in respect of the Respondents’ services. The purpose was therefore that HMRC would have no claim which it could make and not to prejudice a claim which it was making at the time of the Transaction or might make in the future. c. I do not consider there to be ambiguity as to what s.423(3) means. If there were, it is important to remember that the policy behind s.423 is that debts are paid before gifts are made. That policy is not undermined by a transaction which prevents a debt arising; it is consistent with it.”
“The Company entered into the Composite Transaction in the hope that it would prevent HMRC from being able to make a claim in respect of the tax element of those monies. Thus, the Company’s clear purpose was to prejudice the interests of HMRC in respect of the claim which (but for the Scheme, if effective) it might (and would) make.”
“I approach this case on the basis that there is a fundamental difference between tax mitigation and unacceptable tax avoidance. Examples of the former have been given in the speech of my noble and learned friend. These are cases in which the taxpayer takes advantage of the law to plan his affairs so as to minimise the incidence of tax. Unacceptable tax avoidance typically involves the creation of complex artificial structures by which, as though by the wave of a magic wand, the taxpayer conjures out of the air a loss, or a gain, or expenditure, or whatever it may be, which otherwise would never have existed. These structures are designed to achieve an adventitious tax benefit for the taxpayer, and in truth are no more than raids on the public funds at the expense of the general body of taxpayers, and as such are unacceptable.”
“in the absence of some other identifiable error, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appellate court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.”
“i) An appeal court should not interfere with the trial judge’s conclusions on primary facts unless it is satisfied that he was plainly wrong. ii) The adverb ‘plainly’ does not refer to the degree of confidence felt by the appeal court that it would not have reached the same conclusion as the trial judge. It does not matter, with whatever degree of certainty, that the appeal court considers that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge could have reached. iii) An appeal court is bound, unless there is compelling reason to the contrary, to assume that the trial judge has taken the whole of the evidence into his consideration. The mere fact that a judge does not mention a specific piece of evidence does not mean that he overlooked it. iv) The validity of the findings of fact made by a trial judge is not aptly tested by considering whether the judgment presents a balanced account of the evidence. The trial judge must of course consider all the material evidence (although it need not all be discussed in his judgment). The weight which he gives to it is however pre-eminently a matter for him. v) An appeal court can therefore set aside a judgment on the basis that the judge failed to give the evidence a balanced consideration only if the judge’s conclusion was rationally insupportable. vi) Reasons for judgment will always be capable of having been better expressed. An appeal court should not subject a judgment to narrow textual analysis. Nor should it be picked over or construed as though it was a piece of legislation or a contract.”
“Appellate courts have been repeatedly warned, by recent cases at the highest level, not to interfere with findings of fact by trial judges, unless compelled to do so. This applies not only to findings of primary fact, but also to the evaluation of those facts and to inferences to be drawn from them.”
“6. Has any director or employee of [the Company] received any payment, loan, benefit or other award from the [Trust] either directly or indirectly? 7. If the answer to question 6 is ‘yes’, what are the dates, amounts and nature of such awards? 8. If the answer to question 6 is yes, have PAYE and NICs been deducted from such payments? If not, why not? 9. What are the dates on which the payments, or transfer of other assets, were made by [the Company] to the [Trust]. In what form and where are these assets held. (Bank account details, etc)”
“6. Yes 7. The amounts and nature of any award or benefit was considered by the trustees who are Nautilus Trust. We do not have access. 8. We understand that some employees of [the Company] have sought fully commercial loans from the [Trust]. 9. This information is in the sole possession of Nautilus Trust.”