Stephen White & Anor, R (on the application of) v The Commissioners for HMRC [2025] EWHC 1600 (Admin)

[2025] EWHC 1600 (Admin)Case No AC-2022-LON-002938Case No AC-2022-LON-003474
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 27 June 2025
Before
MR JUSTICE LAVENDER
Between
REXClaimantson the application ofClaimantSTEPHEN WHITEClaimantGARY ROBERT LAWSClaimantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSDefendants
Ximena Montes Manzano (instructed by Sharpe Pritchard) for ClaimantsEwan West KC (instructed by His Majesty’s Revenue and Customs’ Legal Group) for DefendantsHearing Hearing dates: 4 and 5 February 2025
Approved JudgmentThis judgment was handed down remotely at 10.30am on 27 June 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................
[1]This case concerns schemes under which the claimants provided their services as IT consultants to businesses, which have been referred to as “end users”. In Stephen White’s case, the scheme was arranged by Edge Consulting Limited (“Edge”) and the end user was Nomura International Plc (“Nomura”). In Gary Robert Laws’ case, the scheme was arranged by Aston Management Limited (“AML”) and the end user was initially RBS and then JP Morgan.[2]An officer of the defendants (“HMRC”), Paul Millard, formed the view that each scheme was a disguised remuneration scheme. It is not in dispute that:(1) Each scheme was indeed a disguised remuneration scheme.(2) Income tax and national insurance contributions (“NIC”) were due on the whole of the claimants’ remuneration for the relevant years.(3) Income tax and NIC have not been paid on the whole of the claimants’ remuneration for the relevant years.[3]As set out in decision notices dated 20 July 2022 and 2 September 2022 respectively, Mr Millard decided, pursuant to section 684(7A)(b) of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”), that it was not appropriate for the end users to comply with the Income Tax (Pay As You Earn) Regulations 2003 (“the PAYE Regulations”). His view was that, for reasons which I will explain, in the absence of these decisions, the claimants would have been entitled to a credit against, and in the amount of, the unpaid income tax, but that the effect of these decisions was that the claimants were deprived of that credit.[4]The claimants apply for permission to apply for judicial review of these decisions. The claimants have been selected as lead claimants for a total of 46 other claimants who used either the Edge scheme or the AML scheme and who each seek to challenge the equivalent decision taken in their case. The claimants’ cases were listed for a rolled-up hearing of both the applications for permission to apply for judicial review and, if permission was granted, the applications for judicial review. As I will explain, I have also had to consider applications by the claimants for permission to amend their statements of facts and grounds. (2) The Legal Framework[5]As long ago as 6 April 2000 HMRC introduced legislation, colloquially known as the “IR35” rules, which, in broad terms, was designed to align the tax treatment of contractors with that of employees. However, between 6 April 2000 and 10 December 2010 many contractors used schemes such as those at issue in the present case rather than:(a) becoming employees of their end users; or(b) using schemes under which income tax and NIC were paid on the whole of their remuneration. 10 December 2010 is a significant date because legislation (now contained in Part 7A of ITEPA) came into force on 6 April 2011 which applied to transactions commonly referred to as disguised remuneration entered into from 9 December 2010.[6]It was not, however, until the Supreme Court’s decision in 2017 in RFC 2012 Plc v Advocate General for Scotland [2017] 1 WLR 2767 (“RFC 2012”) that contributions made into a trust in respect of employees (an employee benefit trust or “EBT”) were held to be payments of employment earnings. Before the decision in RFC 2012, the decisions in Dextra Accessories Ltd v Inspector of Taxes [2002] STC (SCD) 413 and Sempra Metals v R & C Comrs [2008] STC (SCD) 1062 were relied on by many tax advisors as support for the proposition that payments to EBTs were not employment income.[7]Hoey v Revenue and Customs Commissioners [2022] 1 WLR 4113 (“Hoey”) was a case concerning a scheme under which a contractor was employed by an offshore company which paid part of his remuneration into an EBT, which in turn lent the money to the contractor (“an offshore contractor loan scheme”): see the summary of the facts in paragraphs 24 to 28 of the judgment in Hoey. It was not suggested to me that there was any material difference between the scheme used in Hoey and the Edge and AML schemes.[8]Much of the legislation relevant to the present case was set out by the Court of Appeal in paragraphs 31 to 62 of its judgment in Hoey. I do not propose to repeat those paragraphs. What follows is a very brief summary of the principal relevant points:(1) As is well known, employees are liable to pay income tax and NIC on their earnings but, where the PAYE scheme applies, the income tax and NIC liability arising on an employee’s total earnings in a tax year is, or should be, met by the deductions made by their employer from their gross earnings during that year. The employer is required to make the appropriate deductions and to pay the amounts deducted to HMRC.(2) The PAYE scheme is dealt with in Part 11 of ITEPA and is governed by the PAYE Regulations, which are made by HMRC pursuant to section 684(1) of ITEPA.(3) As stated in paragraph 50 of the judgment in Hoey: “Section 689 of ITEPA deals with the situation where the person or entity paying remuneration is based offshore and therefore cannot be made liable to deduct or account for the PAYE tax, but there is an end user of the employee’s services based in the UK. It treats the end user of the services as making a payment of employment income and that end user becomes liable to make payments under the PAYE Regulations as if it were the employer. If the employer, or end user, is liable to account for the tax to HMRC then in broad terms, regulations 185 and 188 of the PAYE Regulations mean that the employee is entitled to treat the PAYE tax as having been paid and claim it as a credit against his or her own liability to pay tax.”(4) Section 684(7A)(b) of ITEPA provides as follows: “Nothing in PAYE regulations may be read- … (b) as requiring the payer to comply with the regulations in circumstances in which an officer of Revenue and Customs is satisfied that it is unnecessary or not appropriate for the payer to do so.” …[9]The power conferred on HMRC by section 684(7A) of ITEPA has been referred to as “the 7A power”. In Hoey, the Court of Appeal upheld the following argument by HMRC (summarised in paragraph 56 of the judgment in Hoey):
“HMRC rely on section 684(7A)(b) as giving them the 7A power to remove the requirement on the End Users to comply with the PAYE Regulations, with the result that Mr Hoey’s underlying liability to pay the income tax due on the contributions to the EBTs remains and there is no PAYE credit available to Mr Hoey …”
[10]The Court of Appeal also said as follows:
“72. Returning to the language of the 7A power, it could not have been expressed more plainly and clearly. There is no expressed limit to the circumstances in which an HMRC officer can decide that it is “inappropriate” for the payer to comply with obligations under the PAYE Regulations. The provision recognises that, despite the detail of the PAYE Regulations, HMRC may form the view in the circumstances of a particular case, that it is not appropriate to expect an end user (or other employer) to comply with the deduction and/or accounting obligations in the PAYE Regulations. 73. As Mr Grodzinski submitted, sections 684(7A)(a) and (b) are dealing with different aspects of the same problem - a situation where for whatever reason the payer ought to be relieved of its obligations under the PAYE machinery. Certain outlier situations, such as short-term or casual employment, are likely to fall within subsection (a). Since subsection (b) was also enacted, this provision must have an additional purpose and cater for different situations. Given its broad terms, it was clearly intended to apply whenever it is considered appropriate to relieve an employer from PAYE requirements and is not limited to outlier situations as Mr Mullan contended. Its focus is inevitably on the payer, and neither subsection makes any reference to the payee. This is unsurprising in circumstances where exercise of the 7A power has no impact whatever on the underlying liability to tax of the payee recipient of the PAYE income, which remains undisturbed. 74. The question for the officer in a subsection (7A)(b) case is simply whether, in the circumstances of the case, he or she is satisfied that it would be unnecessary or inappropriate for the payer to comply with the PAYE Regulations. Two points follow from the plain words of the provision. First, because the words “unnecessary” and “not appropriate” are used in the alternative by the drafter, it is clearly contemplated that an officer may be satisfied that it would be inappropriate to expect compliance with the PAYE Regulations, even where compliance is otherwise necessary. Secondly, by empowering the officer to decide what is appropriate, Parliament has decided that it should be within the discretion of the officer to decide when compliance with the PAYE Regulations is not appropriate. Nonetheless, this is not an untrammelled power. It must be exercised in accordance with well-established principles of public law, including the obligation to act Wednesbury rationally and the Padfield obligation not to act inconsistently with the purpose of the legislation.”
[11]Section 689 of ITEPA (“section 689”) provides as follows: “(1) This section applies if—(a) an employee during any period works for a person (“the relevant person”) who is not the employer of the employee,(b) any payment of, or on account of, PAYE income of the employee in respect of that period is made by a person who is the employer or an intermediary of the employer or of the relevant person,(c) PAYE regulations do not apply to the person making the payment or, if that person makes the payment as an intermediary of the employer or of the relevant person, the employer, and(d) income tax and any relevant debts are not deducted, or not accounted for, in accordance with the regulations by the person making the payment or, if that person makes the payment as an intermediary of the employer or of the relevant person, the employer.” “(2) If subsection (1C) does not apply, the relevant person is to be treated, for the purposes of PAYE regulations, as making a payment of PAYE income of the employee of an amount equal to the amount given by subsection (3).” “(6) In this section and sections 690 and 691 “work”, in relation to an employee, means the performance of any duties of the employment of the employee and any reference to the employee’s working is to be read accordingly.” (a) an employee during any period works for a person (“the relevant person”) who is not the employer of the employee, (b) any payment of, or on account of, PAYE income of the employee in respect of that period is made by a person who is the employer or an intermediary of the employer or of the relevant person, (c) PAYE regulations do not apply to the person making the payment or, if that person makes the payment as an intermediary of the employer or of the relevant person, the employer, and (d) income tax and any relevant debts are not deducted, or not accounted for, in accordance with the regulations by the person making the payment or, if that person makes the payment as an intermediary of the employer or of the relevant person, the employer.” (2)(a) The Avoidance Handling Process Guidance Manual[12]The investigation of offshore contractor loan schemes was addressed in paragraphs AHP8850 to AHP8868 of HMRC’s Avoidance Handling Process guidance manual (“the AHP manual”). This set out HMRC’s policy for dealing with offshore contractor loan schemes.[13]The AHP manual included the following provisions:(1) (AHP8850) “HMRC has publicly stated that it expects employers and engagers of contractors to undertake reasonable due diligence to establish whether they have obligations under PAYE. However, contractor loan schemes are often complex and frequently interpose several layers between the offshore employer and the End Client designed to disguise the nature of the arrangements. Where a contractor loans scheme is used, the nature and operation of the scheme may therefore mean that reasonable due diligence would be insufficient for the End Client to identify an obligation to operate PAYE.”(2) (AHP8854) “Where a contractor loans scheme has been used, the following criteria need to be met if HMRC is to consider exercising the discretion provided by s684(7A)(b): 1. The taxpayer has used a contractor loans scheme involving an offshore employer or offshore entity; 2. The amounts received by the taxpayer may be taxable as employment income and, as a consequence, the PAYE Regulations may apply; 3. HMRC has reason to believe the End Client would not have been aware of or involved in the tax avoidance scheme. HMRC does not need to know the identity of the End Client to be able to use the power provided by s684(7A)(b), provided HMRC has sufficient information about the way the scheme operates so that it is reasonable to assume that the End Client was unaware of and not complicit in the avoidance arrangements. It is not necessary to test the actual motivation and knowledge of entities/persons that HMRC does not know of, have ceased to exist, or where the evidence HMRC has and HMRC’s knowledge of the facts and surrounding circumstances are such, that it reasonably demonstrates an End Client exercising reasonable due diligence could not have been aware that they were required to operate PAYE.”(3) (AHP8856) “As a guide, the following factors might be relevant in determining whether it is reasonable to conclude that the End Client was not party to or aware of the tax avoidance:  the existence of a UK intermediary independent of the agency or employer undertaking ‘typical’ intermediary activities e.g. payroll support/ invoicing functions. It is reasonable to consider, in the absence of evidence to the contrary, that the intermediary can only supply the End Client with information relating to its functions/ services that it provides. The intermediary is the person that the End Client typically has the contractual relationship with and, in consequence, one of the persons towards whom due diligence enquiries should be directed. It may be reasonable to conclude, on the evidence HMRC has, that the intermediary cannot pass to the End Client any information on the arrangements as a whole and this will impact on the effectiveness of any due diligence enquiries undertaken by the End Client/intermediary; …”[14]In addition to the AHP manual, HMRC has produced various documents setting out the procedures to be followed in respect of what is known as the “Pre-DR Contractor Loans Closure Project”.

(a) The Edge and AML Schemes

[15]It is not in dispute that the Edge and AML schemes had the following features, which were typical of offshore contractor loan schemes:(1) A contractor became the employee of an offshore employer. Mr White and Mr Laws became employees of Edge and AML respectively. Edge and AML were Isle of Man companies.(2) The contractor worked for (and usually at the premises of) a UK end user. As I have said, in Mr White’s case, the end user was Nomura and, in Mr Laws’ case, the end user was first RBS and then JP Morgan.(3) There was a UK agent as intermediary (“the UK intermediary”) between the offshore employer and the end user or its agent. In Mr White’s case, the UK intermediary was first Norla Consulting Limited (“Norla”) and then Target Recruitment and Nomura’s agent was Knight Munro. In Mr Laws’ case, the UK intermediary was Smartpay, RBS’s agent was Resource Solutions and JP Morgan’s agent was Church International.(4) The end user paid (either directly or through its agent) the UK intermediary for the contractor’s work.(5) The UK intermediary passed that money, less fees and costs, on to the offshore employer.(6) The offshore employer paid a modest salary (less PAYE deductions) to the contractor.(7) The balance of the money received (less fees) was contributed to an EBT of which the contractor was a beneficiary. In Mr White’s case, the EBT has been referred to as the Edge EBT. In Mr Laws’ case, the EBT was the Aston Management Limited Employee Benefit Trust.(8) The trustees of the EBT made an interest-free loan to the contractor in an amount equivalent to the amount contributed.(9) These loans were expressed to be repayable on demand, but the trustees did not in fact make demands for repayment. Mr White and Mr Laws were never asked to repay any of the money lent to them in this way. On 5 April 2017 Mr White’s loan was written off. Mr Laws has said as follows: (a) “I didn’t think that the loans had to be re-paid and that the label of “loan” was required for the arrangement to be compliant.” (b) “I regarded the payments as being for services performed and not loans.”[16]The schemes were set up on the assumption that the money contributed to the EBT would not constitute taxable income. However, in the light of the decision in RFC 2012, it was not disputed before me that that money was taxable income from the claimants’ employment.[17]The schemes were promoted on the basis that they operated to the contractor’s benefit and were tax compliant. For example, a “Scheme Overview” prepared by AML said as follows:(1) “… As an employment business using tax efficient remuneration planning, AML enables our employees to receive their income in a tax efficient manner, allowing them to take home up to 86% of their gross contract value (as opposed to circa 68% under PAYE).”(2) “… AML’s business model is IR35 and s660 compliant. It is endorsed by leading Tax Counsel, has been fully disclosed and registered with the UK Inland Revenue (with a Scheme Registration Number) and is registered in the UK for PAYE. All aspects of the AML Scheme have also been verified by leading Employment Counsel.”[18]I note that it was no part of HMRC’s decisions or of HMRC’s case before me that the claimants were party to any deliberate deception of either the end users or HMRC or that the claimants did not believe that the Edge and AML schemes were lawful and effective tax avoidance schemes.[19]However, it will be noted that the financial advantages offered to a contractor by a scheme such as this could not be achieved if the end user, knowing that the contractor had an offshore employer and that, as a result, the end user was liable under section 689 to account for income tax and NIC under the PAYE Regulations as if it were the contractor’s employer, deducted income tax and NIC from the payments which it made in respect of the contractor’s services. There was, therefore, an incentive for anyone who promoted or operated such a scheme to design it in such a way as to conceal from the end user the fact that the contractor had an offshore employer.

(b) Disclosure, Tax Returns and HMRC Notices

[20]Pursuant to section 310 of the Finance Act 2004, Edge and AML submitted disclosure of tax avoidance scheme forms (“DOTAS forms”) to HMRC.[21]The claimants were provided with P60 forms in respect of the amounts which had been paid to them (less PAYE deductions) by Edge or AML. Edge and AML provided P14 forms to HMRC in respect of these amounts. The claimants were provided with P11D forms in respect of the loans and reported these amounts to HMRC on their tax returns, on the basis that an interest-free loan to them constituted a benefit to them insofar as they did not have to pay interest on the loan. The claimants stated in their tax returns that they were employed by Edge and AML respectively. They did not declare the amounts paid to the relevant EBT as income.[22]HMRC issued enquiry notices to the claimants in respect of the relevant tax years as follows: Tax Year Mr White Mr Laws 2007/08 14 August 2009 2008/09 22 February 2013 22 October 2010 2009/10 26 November 2013 2 January 2014 2010/11 26 November 2013 14 November 2012[23]Thereafter, there was no relevant contact between the claimants and HMRC until HMRC sent the decision notices in late 2022.

(c) HMRC’s Investigation: Stage 1

[24]Mr Millard oversaw the investigation into the Edge and AML schemes, as well as various other offshore contractor loan schemes. He began by consulting the relevant paragraphs of the AHP manual.[25]Stage 1 of the investigation was a scheme level review, using various information sources from within HMRC’s systems to establish how the scheme arrangements were claimed to work. The sources of information considered included DOTAS forms, P14 and P11D data, records of loan payments and arrangements and employment contracts with offshore employers. Mr Millard identified the Edge and AML schemes as offshore contractor loan schemes involving payments which HMRC regarded as taxable employment income.[26]For each scheme, Mr Millard completed a template in which he answered various questions. These asked whether the three conditions set out in paragraph AHP8854 of the AHP manual were met and also asked whether there was:(1) “Evidence that the end user(s) stipulated that the contractors must provide their services via this avoidance scheme structure”;(2) “Evidence of any due diligence undertaken by the end user(s)”;(3) “Evidence that the scheme promoter is a company director, key employee or shareholder of the end user”;(4) “Any connections such as common directorship between end user(s), offshore employer and/or scheme promoter”; and(5) “Have any Regulation 80 assessments been issued to end users?”[27]Mr Millard’s response was that he had seen no such evidence.

(d) HMRC’s Investigation: Stage 2

[28]Stage 2 of HMRC’s investigation into each scheme involved reviewing a number of individual cases, i.e. a randomly-selected sample of 5% of the contractors known to have used each scheme. Mr White and Mr Laws were not among the 5% of contractors whose cases were reviewed at stage 2.[29]For the relevant years:(1) 820 contractors used the Edge scheme and the sample consisted of 41 of those contractors; and(2) 1,091 contractors used the AML scheme and the sample consisted of 61 of those contractors.[30]Again, the results of each individual review were recorded in a template. The questions asked were substantially the same as in the template used at stage 1. The individual reviews did not uncover any evidence which conflicted with the decision in principle made at scheme level.[31]This resulted in a decision by Mr Millard to exercise the 7A power in respect of every contractor who had used the Edge or AML scheme and to whom, as in the case of Mr White and Mr Laws, discovery assessments or closure notices had been issued.

(e) The Decision Notices

[32]Between 15 July 2022 and 5 April 2023 HMRC sent decision notices to 483 contractors who had used the Edge scheme and to 683 contractors who had used the AML scheme. More have been sent since 5 April 2023.[33]As I have said, the decision notices sent to Mr White and to Mr Laws were dated 20 July 2022 and 2 September 2022 respectively. The decision notice sent to Mr White related to the tax years 2007/08, 2008/09, 2009/10 and 2010/11 (but only in respect of the period to 8 December 2010). The decision notice sent to Mr Laws related to the tax years 2008/09, 2009/10 and 2010/11 (but only in respect of the period to 8 December 2010).[34]The two decision notices and the covering letters were in substantially the same terms. The covering letters stated, inter alia, as follows:(1) “I am writing to you about the amounts you received in connection with your use of the [Edge Consulting Ltd/Aston Management Limited] scheme. It is HMRC’s view that this is a disguised remuneration scheme.”(2) “I believe it is not appropriate for the end users of your services to account for any tax due under the PAYE regulations in respect of the income you received in connection with the [Edge Consulting Ltd/Aston Management Limited] scheme. I explain the reason for my decision in the enclosed document, under the heading ‘No requirement to operate PAYE – my decision to exercise a power conferred on HMRC’. I also explain what you need to do if you do not agree with my decision.”[35]The decision notices stated, inter alia, as follows:(1) “Your employer, [Edge Consulting Ltd/Aston Management Limited], was a non-UK resident person. I understand they had no UK tax presence. This means that they were not obligated to deduct or account for PAYE in respect of your employment income. Because of the above, the ‘end-users’ of your services may have been required (under section 689 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003)) to comply with the PAYE regulations. This would mean they had to account for tax in respect of the income from your employer.”(2) “In relation your use of the [Edge Consulting Ltd/Aston Management Limited] scheme, I consider that it is not appropriate for the end users of your services to be required to comply with the PAYE regulations in relation to your employment income. This is because I have no reason to believe that any end user of your services was:• aware or party to the disguised remuneration scheme• aware that they were obliged (under the PAYE Regulations) to account for any tax due to HMRC in respect of the income from [Edge Consulting Ltd/Aston Management Limited] This is based on the information available to me at this time.”(3) “You cannot appeal against my decision. But if you have information that may affect my decision, please write to tell me. We call this ‘making representations’.

(f) Subsequent Representations

[36]WTT Consulting Limited (“WTT”) submitted representations on behalf of Mr White and Mr Laws, dated 18 August 2022 and 1 October 2022 respectively. The letters were largely identical and consisted on the whole of generic comments and questions. A schedule to each letter identified the end user(s) and their agent(s) and stated as follows:(1) (Mr White’s letter) “Nomura was a long term user of contingent labour and would have been familiar with their working conditions and the impact IR35 introduction in 2000 had. It was common knowledge in the company and especially in working units employing contingent labour that structures such as Edge were in use. These units would have included full time permanent end user employees, reporting into their respective line managers.”(2) (Mr Laws’ letter) “Whilst Mr Laws worked for his end client RBS Group, RBS would pay Resource Solutions who would then pass funds to AML who would then pay/loan him. There was an acceptable list of companies that RBS would work with and Mr Laws believes that AML was one of them. Whilst Mr Laws worked for his end client JP Morgan, Church International would receive payment from JPM and would then pass funds to AML who would then pay/loan him. Again, there was an acceptable list of companies that JPM would work with and Mr Laws believes that AML was one of them.”[37]Mr Saldanha considered these representations, but he was not persuaded that HMRC should change their decision in either case, especially in the absence of evidence to support the assertions made in the representations about the end users.[38]There was a further review of the claimants’ cases following the receipt of their pre-action protocol letters, which were dated 18 October 2022 and 8 November 2022 respectively. The pre-action protocol letters did not provide any further information. Each case was reviewed in the same manner as at stage 2 of the investigation. Again, however, HMRC decided not to change their decision.

(g) (i) The Claimants’ Witness Statements

[39]Each claimant has made two statements, one accompanying the claim form and one accompanying the reply. Neither claimant has produced a witness statement from anyone representing an end user. Nor has either claimant produced any documentary evidence showing that he told an end user that he was employed by an offshore company or that an end user was aware that he was employed by an offshore company.[40]In his first statement Mr White said that both Nomura and Knight Munro were experienced in the contingent labour market and that, when working for Nomura, he made no secret of the fact that Norla and Edge were part of the remuneration arrangements.[41]In his second statement he said that when he joined Nomura in 2005 there was an onboarding process with the HR team and, to the best of his knowledge, they discussed how payments would be made to the agencies and enquired about his arrangements for getting paid. He said that he was sure that the discussion would have included the role which he understood Norla and Edge played in the cash flows leading to payments being received by him, although he also said that he understood that he was an employee of Norla and that he assumed that Edge and Norla were one and the same. He also said that contract renewals were discussed with his Nomura manager, who was fully aware of the Edge scheme and how he was paid via a trust. He did not, however, identify in either statement any specific individual at Nomura or Knight Munro whom he alleged was aware that he had an offshore employer.[42]In his first statement Mr Laws said that neither Resource Solutions (for RBS) nor JP Morgan or Church International raised any questions as to the use of the AML/SmartPay arrangements. He also said that his contracts were all visible to the end users and their agents and that his discussions with colleagues in the office were open and often included management who were permanent employees of the banks.[43]In his second statement he said that he recalled asking “the Agency” (by which he appears to have meant Resource Solutions) if the AML arrangement was approved by HMRC, although he did not recall the specific response. He also said that AML was on the acceptable list of solutions shared by the Agency.[44]Again, however, Mr Laws has not identified any specific individual at RBS, Resource Solutions, JP Morgan or Church International whom he alleges was aware that he had an offshore employer.[45]Mr Saldanha reviewed the claimants’ first witness statements, but decided not to change HMRC’s decision. The second witness statements have also been considered, but again have not resulted in any change to HMRC’s decision.

(g) (ii) Mr Webber’s Statement

[46]The claimants served with their reply a statement by Graham Webber of WTT. This includes some general background about the development of contractors’ arrangements and HMRC’s response to them over time. Parts of the statement, drawing from WTT’s experience of other cases, appear to be intended to support a complaint that HMRC has treated different schemes differently and has treated different contractors differently, but the claimants do not assert any ground for seeking judicial review on that basis. Mr Webber’s statement also contains a great deal of comment, but the claimants did not seek permission to rely on any expert evidence and I have not treated the comments as expert opinion evidence. (4) The Grounds for Judicial Review[47]When the claim forms were issued (on 24 October 2022 and 6 December 2022 respectively) there was an outstanding application to the Supreme Court for permission to appeal in Hoey. However, that application was refused on 8 December 2022. Thereafter, a consent order was made by Swift J on 2 August 2023 in the following terms:
“All 62 Claimants in the attached schedule have permission to file and serve amended statements of facts and grounds by 4pm on Friday 18 August 2023. Such amendments must be confined to addressing the decision of the Court of Appeal in Hoey v HMRC [2022] EWCA Civ 656, and is without prejudice to the Defendants’ right to defend the claims on the ground that any one or more of the grounds upon which the Claimants (or any one of them) are seeking to rely, have not been brought promptly or within 3 months after the grounds to make the claim(s) first arose.”
[48]Amended statements of facts and grounds were served shortly thereafter. The claimants abandoned certain grounds, but also added new grounds, which HMRC contend have been brought too late. Then in the claimants’ skeleton argument a different formulation of the claimants’ grounds was proposed. HMRC objected to this and on 27 January 2025 the claimants applied for permission to re-amend their statements of facts and grounds. It is necessary, therefore, to spend some time analysing the various formulations of the claimants’ case.

(a) The Different Versions of the Grounds

[49]The original statement of facts and grounds in each case, drafted by WTT, listed four grounds for seeking judicial review. The original grounds (i) and (iii) are no longer pursued. Grounds (ii) and (iv) were in the following terms:
“(ii) The 7A power was unlawfully exercised in that: it was exercised prematurely, retrospectively and it took into account irrelevant considerations and/or failed to take into account relevant considerations.” “(iv) The exercise of the 7A power was made upon a mistake of fact which, despite information requested and received from the Claimant, has not been corrected. This mistake of fact has led to an improper application of HMRC’s own unpublished policy on the exercise of the 7A power in cases relating to contractor loan schemes.”
[50]This was renumbered, reformulated and added to in the amended statement of facts and grounds in Mr White’s case so as to read: “(i) The 7A power was irrationally and unreasonably exercised in that: it was exercised prematurely, retrospectively and it took into account irrelevant considerations and/or failed to take into account the personal circumstances of the Claimant, despite statements to the contrary. (ii) The 7A power appears to have been exercised by HMRC without their having considered material considerations and/or making a mistake of fact namely:(1) Whether the alleged offshore employer had a presence in the UK for the purposes of determining PAYE obligations(2) Whether the transaction chain the Claimant was part of could have included an agency as defined in section 44 ITEPA 2023(3) What was the true employment status of the Claimant. (iii) The 7A power appears to have been exercised by HMRC having considered irrelevant matters.” (1) Whether the alleged offshore employer had a presence in the UK for the purposes of determining PAYE obligations (2) Whether the transaction chain the Claimant was part of could have included an agency as defined in section 44 ITEPA 2023 (3) What was the true employment status of the Claimant.[51]The amended statement of facts and grounds in Mr Laws’ case was in the same terms, save that it omitted the allegation in ground (i) that HMRC had taken into account irrelevant considerations.[52]Then in the claimants’ skeleton argument the grounds were said to be:
“Ground 1: the 7A Power was irrationally and unreasonably exercised in that: it was exercised prematurely, retrospectively and/or it did not take into account the personal circumstances of the Claimants. Ground 2: The 7A Power was exercised by HMRC without their having considered material considerations, and/or considered irrelevant matters and/or mistake of fact/misapplication of HMRC’s own guidance namely: (a) whether the alleged offshore employer had a presence in the UK for the purposes of determining PAYE obligations (b) whether the UK entity in each case was a “relevant person” and/or a deemed employer (this was previously framed as: “b. whether the transaction chain the Claimant was part of, could have included an agency as defined in section 44 ITEPA 2003.”
After considering HMRC’s disclosure of scheme documents in relation to other individuals particularly the contracts, this point is no longer pursued) (c) what was the true employment status of each Claimant.”[53]As I pointed out during the hearing, grounds 2(a) to 2(c) are confusing, since it is unclear which of the allegations in ground 2 they are intended to provide particulars of.

(b) The Grounds Now Relied On

[54]The allegations made in the original grounds (ii) and (iv) on which the claimants continue to rely are that:(1) HMRC exercised the 7A power prematurely.(2) HMRC exercised the 7A power retrospectively.(3) HMRC took into account irrelevant considerations.(4) HMRC failed to take into account relevant considerations.(5) HMRC acted under a mistake of fact and thereby misapplied its policy (i.e. the AHP manual).[55]The claimants are entitled to rely on these allegations, which have survived from the original statements of facts and grounds. The areas of dispute are therefore:(1) The allegation that HMRC failed to take into account the claimants’ personal circumstances.(2) The matters set out in grounds 2(a) to 2(c) of the grounds as formulated in the claimants’ skeleton argument. As to these, and having regard to the allegation that they are based on matters which were already pleaded: (a) In relation to ground 2(a), it was alleged in the original statements of facts and grounds that Edge and AML had a UK presence. (b) In relation to ground 2(b), it was not alleged in the original or amended statements of facts and grounds that the UK intermediaries were “relevant persons”. It was not suggested that the allegation that the UK intermediaries were “deemed employers” meant anything different. (c) As for ground 2(c), the claimants’ real employment status was raised as an issue in the original statements of facts and grounds, but only in the context of a submission that “the basis upon which HMRC think the “Employer” is an offshore entity is simply illogical”. Contrary to that submission, the claimants now accept that they were employed by Edge and AML.

(c) The Grounds for Judicial Review: Decision

[56]The way in which the claimants’ cases have evolved has been unhelpful. It has not been consistent with either the court’s requirement for procedural rigour or HMRC’s right to know the case which they are facing. In addition:(1) The order of 8 August 2023 provided that the amendments must be confined to addressing the decision of the Court of Appeal in Hoey. Save insofar as they consisted of deletions, it is unclear how the proposed amendments addressed that decision (which was made on 13 May 2022, long before the claims in the present case were issued).(2) The order of 8 August 2023 was expressly made without prejudice to HMRC’s right to defend the claims on the grounds of delay. Insofar as the proposed amendments go beyond the original grounds, it is unclear how it is alleged they could not have been made in time. They give every impression of being “second thoughts” about the case.[57]Nevertheless, since these are test cases, I have considered it appropriate to consider the merits of all of the grounds which the claimants seek to advance. It is in that context that I will address the question whether permission to amend should be granted.[58]In any event, as I will explain, it seems to me that the claimants really advanced five main points, which were that HMRC should not have decided to exercise the 7A power:(1) without carrying out further investigations into the end users;(2) after the time for seeking payment of the relevant income tax and NIC from the end users had expired;(3) in circumstances where Edge or AML had, or may have had, a UK presence for tax purposes;(4) in circumstances where each of the UK intermediaries was, or may have been, a “relevant person” for the purposes of section 689; and/or(5) without investigating the claimants’ personal circumstances. (5) Some Procedural Issues[59]A number of the claimants’ submissions were to the effect that HMRC did not adequately investigate the following possibilities (“the alternative scenarios”), i.e. that:(1) Edge or AML had a UK tax presence, in which case section 689 would not apply to the end users, since the requirement in section 689(1)(c) would not be satisfied;(2) the UK intermediaries were “relevant persons” for the purposes of section 689, either in place of or in addition to the end users, in which case either: (a) section 689 would not apply to the end users; or (b) if section 689 applied to both the UK intermediaries and the end users, then exercising the 7A power in respect of the end users would not deprive the claimants of the credit due to them in respect of the income tax and NIC which should have been accounted for by the UK intermediaries; and/or(3) having regard to the test for what constitutes employment, as set out most recently in Professional Game Match Officials Ltd v HMRC [2024] ICR 1480, the end users were the claimants’ employers, in which case the PAYE Regulations would apply to them as such and not by virtue of section 689.[60]I was concerned that some, at least, of these submissions might be incapable of assisting the claimants in their challenge to the decision notices, since, in deciding whether to exercise the 7A power in any case, the principal question for HMRC was whether it was appropriate for the end user to comply with the PAYE Regulations. As set out in the decision notices, HMRC considered that question because they believed that, unless the 7A power was exercised, the PAYE Regulations would apply to the end user by virtue of section 689.[61]If the true position was as suggested in any of the alternative scenarios, then that would make it unnecessary for HMRC to exercise the 7A power, but it would not make it appropriate for the end user to comply with the PAYE Regulations pursuant to section 689. On the contrary, it would confirm that it was inappropriate for the end user to comply with the PAYE Regulations pursuant to section 689.[62]Moreover, in the case of some of the alternative scenarios, the claimants submitted not only that these were possibilities which should have been considered further by HMRC, but that they did indeed represent the true position. Thus, it was submitted that:(1) Edge and AML had a UK tax presence; and/or(2) the UK intermediaries were “relevant persons” for the purposes of section 689.[63]However, Miss Montes Manzano confirmed that it was not submitted that the end users were the claimants’ employers.[64]In the hearing, I expressed to Miss Montes Manzano my concern that I was being asked to make findings of fact on issues which were going to be decided in other proceedings. I said this because the claimants had stated in their statements of facts and grounds that they would appeal any closure notices which were issued to them. Closure notices have since been issued by HMRC with a view to collecting the income tax and NIC alleged to be due for the relevant years and the claimants have indeed appealed. It was stated in the statements of facts and grounds that, in effect, the question of who was to be treated as each claimant’s employer would be an issue in the appeals against the closure notices. (I note in passing that there may be issues in this respect as to the extent of the jurisdiction of the First-tier Tribunal in the appeals, a jurisdiction which was considered at some length in paragraphs 110 to 133 of the judgment in Hoey, but that will be a matter for consideration in the appeals.)[65]Miss Montes Manzano’s response to my concern was, in effect, that the claimants did not want to be faced in the appeals with the argument from HMRC that my decision precluded the claimants from advancing arguments about the question of who was to be treated as their employer. Mr West confirmed that HMRC would advance such an argument in the appeals, although he also acknowledged that this is an application for judicial review, rather than an appeal involving a merits-based review.[66]In the light of those submissions, it seems to me that I should treat this application for judicial review as a challenge not merely to HMRC’s decision that it was inappropriate for the end users to comply with the PAYE Regulations pursuant to section 689, but also to HMRC’s decision that the exercise of the 7A power would leave the claimants liable to pay the income tax and NIC due on their employment income for the relevant years, which necessarily involves HMRC’s rejection of the alternative scenarios. That, as I understand it, is what both parties wanted me to do. The implications of this approach for the appeals, or for any subsequent proceedings, will be a matter for consideration in the appeals or other proceedings. (6) Further Investigation into the End Users (6)(a) Further Investigation into the End Users: The Claimants’ Case[67]The claimants’ primary case was that HMRC should not have decided to exercise the 7A power without carrying out further investigations into the end users. In particular, Miss Montes Manzano submitted that HMRC should not have exercised the 7A power in respect of a contractor without first taking steps to ascertain:(1) the identity of the end user(s);(2) whether the end user(s) knew about the scheme being used by the contractor;(3) whether the end user(s) turned a blind eye to the contractor’s employment by an offshore employer;(4) whether the end user(s) carried out due diligence in respect of the contractor;(5) whether the end user(s) would, if they had carried out proper enquiries, have found out that the contractor had an offshore employer; and(6) whether the end users(s) were the contractor’s deemed employers.[68]The claimants contended that HMRC had a wealth of information about the end users and that they could and should have asked questions both of the claimants and of the end users.[69]In terms of legal analysis:(1) This submission is what was meant by the allegation that the 7A power was exercised prematurely.(2) It was also an aspect of the allegation that HMRC took account of immaterial considerations, insofar as it was alleged that HMRC relied on untested assertions and assumptions about the end users (e.g. that the end users carried out reasonable due diligence).(3) It was also at least an aspect of the allegation that HMRC failed to take account of material considerations (i.e. the information which further investigations would have revealed).(4) It was presented in the claimants’ skeleton argument, albeit for the first time, as a breach of the Tameside duty of a decision-maker “to ask himself the right question and take reasonable steps to acquaint himself with the relevant information to enable him to answer it correctly”: see Secretary of State for Education and Science v Tameside MBC [1977] A.C. 1014 (“Tameside”), 1065B, per Lord Diplock.[70]In my judgment, although it was not presented in this way until the service of the claimants’ skeleton argument, this submission is best understood as primarily an allegation of a breach of the Tameside duty. I say that because, in the absence of further investigation, when they issued the decision notices, HMRC had no evidence that the end users were aware of the fact that the claimants had offshore employers. Instead:(1) HMRC had evidence that the Edge and AML schemes included the use of a UK intermediary for no commercial purpose; and(2) there was, as I have already noted, an obvious incentive for the promoters and operators of these schemes to conceal from the end users the fact that the contractors had an offshore employer.[71]Miss Montes Manzano submitted that:(1) The existence of section 689 and the potential for liability under that section imposed, in practice, a duty on end users to exercise due diligence with regard to contractors working for them.(2) This was particularly so for end users such as Nomura, RBS and JP Morgan, who were sophisticated entities, experienced in dealing with contractors and operating in a highly-regulated sector. She relied in this context on the Code of Practice for Banks.(3) Indeed, paragraph AHP8850 of the AHP manual (which I have already quoted) states: “HMRC has publicly stated that it expects employers and engagers of contractors to undertake reasonable due diligence to establish whether they have obligations under PAYE.”(4) HMRC did not seek to ascertain the identity of the end users.(5) There was information available to HMRC about the end users, derived from their compliance checks on the end users.(6) There was no urgency to HMRC’s decisions.(7) HMRC ought to have considered whether the claimants were employed by the end users. However, as I have already noted, she did not go so far as to submit that the claimants were in fact employed by the end users.[72]The claimants also contended that HMRC should have conducted further investigations into the end users once the end users were identified in the claimants’ representations and that the claimants’ statements provided uncontroverted evidence that the end users were aware of the schemes used by the claimants.

(b) Tameside: The Law

[73]In R (Plantagenet Alliance Ltd) v Secretary of State for Justice & Ors [2014] EWHC 1662 (Admin) (“Plantagenet Alliance”) the Divisional Court stated the law in relation to the Tameside duty as follows:
“(1) The obligation upon the decision-maker is only to take such steps to inform himself as are reasonable. (2) Subject to a Wednesbury challenge (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223), it is for the public body, and not the court to decide upon the manner and intensity of inquiry to be undertaken (R (on the application ofKhatun) v Newham London BC (Office of Fair Trading, interested party) [2004] EWCA Civ 55, [2004] LGR 696, [2005] QB 37 at [35] per Laws LJ). (3) The court should not intervene merely because it considers that further inquiries would have been sensible or desirable. It should intervene only if no reasonable authority could have been satisfied on the basis of the inquiries made that it possessed the information necessary for its decision (R v Kensington and Chelsea Royal London BC, ex p Bayani (1990) 22 HLR 406 at 415 per Neill LJ). (4) The court should establish what material was before the authority and should only strike down a decision by the authority not to make further inquiries if no reasonable council possessed of that material could suppose that the inquiries they had made were sufficient (per Schiemann J in R v Nottingham City Council, ex p Costello (1989) 21 HLR 301; cited with approval by Laws LJ in R (on the application of Khatun) v Newham London BC at [35]). (5) The principle that the decision-maker must call his own attention to considerations relevant to his decision, a duty which in practice may require him to consult outside bodies with a particular knowledge or involvement in the case, does not spring from a duty of procedural fairness to the applicant, but from the Secretary of State’s duty so to inform himself as to arrive at a rational conclusion (R v Secretary of State for Education, ex p Southwark London BC [1995] ELR 308 at 323 per Laws J). (6) The wider the discretion conferred on the Secretary of State, the more important it must be that he has all relevant material to enable him properly to exercise it (R v Secretary of State for the Home Dept, ex p Venables, R v Secretary of State for the Home Dept, ex p Thompson [1997] 1 All ER 327 at 378, [1998] AC 407 at 466G).”
[74]This statement of the law was approved by the Court of Appeal in paragraph 70 of its judgment in R (Balajigari) v Secretary of State for the Home Department [2019] 1 WLR 4647.

(c) Further Investigation into the End Users: HMRC’s Case

[75]HMRC submitted that:(1) It was not disputed that the claimants made use of tax avoidance schemes.(2) It was not disputed that HMRC correctly understood how the tax avoidance schemes were intended to work.(3) The claimants’ submissions did not adequately take into account the context for the decisions taken in this case, which includes the fact that the underlying liability to pay tax rested at all times on the claimants.(4) Mr Millard asked himself the right question (i.e. whether he should exercise the 7A power) and there was no suggestion to the contrary.(5) The claimants could not overcome the high hurdle set by the second and third principles identified in Plantagenet Alliance.(6) A similar argument was rejected in Hoey: see paragraphs 101 to 105 of the judgment in Hoey.(7) There was no statutory obligation on end users to exercise due diligence until 2017.(8) HMRC did not have access to end users’ internal communications.

(d) Further Investigation into the End Users: Hoey

[76]It was submitted in Hoey that HMRC should have asked questions of the end users and taken steps to discover the end users’ knowledge: see paragraph 101 of the judgment in Hoey. This submission was rejected, for the reasons set out in paragraphs 102 to 105 of the judgment in Hoey. In particular, in relation to due diligence, the Court of Appeal said as follows in paragraph 104 of its judgment in Hoey:
“… Mr McFarlane was amply entitled to conclude, on the facts known, that the End Users, exercising reasonable due diligence, could not have been aware that they were required to operate PAYE. Even if questions were asked by Aviva Investors in Mr Hoey’s case, and a thorough due diligence process had revealed the existence of multiple intermediaries and an offshore employer, we have no reason to doubt that Aviva Investors would have been told that Mr Hoey was employed by the Employers who were operating PAYE on his salary payments, deducting PAYE and NICs. It is highly unlikely that the avoidance scheme and loans would have been disclosed. Even if the loans were disclosed, there would have been no reason for the End Users to conclude that such loans were in fact payments of earnings until the Rangers decision [2017] 1 WLR 2767. Even then, the point was only conceded by the Claimants in July 2019. In those circumstances, we accept Mr McFarlane’s evidence: he reasonably formed the view that due diligence by the End Users would not have identified a liability to deduct PAYE under the arrangements which the Claimants had participated in, even if the End Users had asked the Claimants to explain their arrangements.”
[77]As I have said, it was not suggested to me that the scheme used in Hoey (in which Aviva Investors were the end user) was materially different from the Edge or AML schemes.[78]The Court of Appeal then addressed what was, in effect, an allegation of breach of the Tameside duty in paragraph 105 of its judgment, as follows:
“Ultimately the question for us on this part of the case is whether the HMRC officers took a lawful approach to the exercise of the 7A power. They were required to acquaint themselves with the facts and the relevant considerations. It is not for the court to decide on the manner and intensity of the enquiry to be undertaken. We can intervene only if no reasonable decision-maker could be satisfied, on the basis of the enquiries made, of the merits of the decisions. This test is not met. We consider that the approach of the HMRC officers was lawful: they took into account the relevant considerations as we have explained, and their decisions were not based on irrelevant considerations. Mr Hoey and the Claimants were given the opportunity to provide evidence that the End Users were aware of the arrangements and/or the need to operate PAYE, but as we have observed, no such evidence was ever provided.”
[79]The opportunity provided to Mr Hoey to provide evidence was effectively the same as that provided to the claimants in the present case. There is a quotation from the decision letter sent to Mr Hoey in paragraph 10 of the judgment in Hoey and that letter also contained the invitation to make representations quoted in paragraph 96.[80]Mr Hoey’s case was different from the present case in that he did not respond to the invitation to provide evidence about the end users’ knowledge. As I have said, the claimants in the present case did respond to that invitation and have provided representations and witness statements about the end users’ knowledge, but this has not led HMRC to make a different decision.

(e) Further Investigation into the End Users: Decision

[81]In the language of Plantagenet Alliance, I do not consider that, when the decision notices were issued, “no reasonable authority could have been satisfied on the basis of the inquiries made that it possessed the information necessary for its decision”. A number of factors contribute to this decision:(1) The enquiries made by HMRC were sufficient for them to identify correctly the nature of the Edge and AML schemes.(2) Those schemes involved both an offshore employer and the use of a UK intermediary for no apparent commercial purpose. As I have said, there was an incentive for those promoting or operating the schemes to conceal from the end users that the claimants had offshore employers.(3) Although the end users were expected to exercise due diligence, the considerations identified in Hoey apply.(4) It was argued that end users insisted on individuals being contractors rather than employees, but that consideration is neutral as to the nature of the scheme used by the contractor.(5) It was also suggested that end users turned a blind eye to contractors’ arrangements, but I was shown no evidence of this, let alone any evidence which was available to HMRC when they made the decisions.(6) It was not at all clear what information might have been available to HMRC about the end users’ understanding of the Edge and AML schemes: (a) If and insofar as HMRC had information about the due diligence carried out by the end users, that was inherently unlikely to contain information that the end users were aware that they were “relevant persons” for the purposes of section 689: had the end users acknowledged this to HMRC, then they would surely have complied with their obligations under section 689 and the PAYE Regulations. (b) The same is true of the end users’ own records of their due diligence. (c) The sort of informal discussions referred to by the claimants in their witness statements are inherently unlikely to be the subject of records which could be obtained by HMRC.[82]I do not consider that the matters identified in the claimants’ representations or witness statements obliged HMRC to change their decisions or to conduct further investigations. In particular, the evidence provided in the claimants’ witness statements was vague and unsubstantiated.

(a) Retrospectivity: The Claimants’ Case

[83]It was agreed that, by 2022, HMRC could not (in the absence of fraud) have done anything to collect the unpaid income tax and NIC from the end users. The claimants contended that it was wrong for HMRC to exercise the 7A power after the time for seeking payment of tax from the end users had elapsed. As I have said, this is the basis for the contention that HMRC exercised the 7A power retrospectively.[84]However, the legal basis for this contention was not entirely clear:(1) It was not submitted that ITEPA imposes any time limit on the exercise of the 7A power. In rejecting a related argument in Hoey, the Court of Appeal held (at paragraphs 81 to 94 of its judgment) that the power can be exercised retrospectively.(2) If there were good grounds for exercising the 7A power in a particular case which were in existence before the expiry of the time for enforcing an end user’s obligations under the PAYE Regulations, no argument was addressed to me that those grounds would cease to be good grounds simply because that time had expired.(3) I suggested in the hearing that the retrospectivity argument appeared to be an argument that HMRC had acted for an improper purpose, i.e. to use the 7A power to make up for its own failure to pursue the end users in time. Miss Montes Manzano agreed with this analysis.(4) It was alleged in the amended statements of facts and grounds that the decisions were unfair, but substantive unfairness is not a ground for judicial review and procedural unfairness appears to be no more than a restatement of the submission that the 7A power either could not be exercised when it was or was exercised for an improper purpose.

(b) Retrospectivity: HMRC’s Case

[85]HMRC submitted that it was decided in Hoey that the 7A power could be exercised retrospectively and that the purpose for which HMRC exercised the 7A power was as set out in HMRC’s witness statements.

(c) Retrospectivity: Decision

[86]I do not consider that there is any basis in the evidence in the present case for a finding that HMRC acted for an improper purpose. On the contrary, the evidence shows that there was a structured and considered investigation, carried out in line with HMRC’s policy as set out in the AHP manual. It would not be right for me to infer, as Miss Montes Manzano invited me to, that HMRC’s officers had in fact acted for a hidden reason.

(a) UK Tax Presence: The Claimants’ Case

[87]As has been seen, HMRC set out in the decision notices their understanding that Edge and AML had no UK tax presence and were therefore not bound by the PAYE Regulations. Clearly, HMRC had considered the question whether Edge and AML had a UK tax presence, but the claimants contended that it was wrong for HMRC to exercise the 7A power without investigating further whether Edge or AML had a UK presence for tax purposes. In my judgment, this is best seen as another alleged breach of the Tameside duty.[88]The claimants also contended that HMRC acted under a mistake of fact and that in fact Edge and AML did have a UK tax presence. This was put on two bases, as follows:(1) Edge and AML registered for PAYE, made PAYE deductions from the income which they paid directly to the claimants and accounted for those deductions to HMRC.(2) In various documents, i.e. P60, P11 and P14D forms relating to Mr White and others, Edge gave an address in Coventry. The address provided appears to have been that of Edge’s accountants, Thomas & Co, whose name was sometimes given, prefaced in some documents by “C/O”. Moreover, this was the address recorded by HMRC in their employer record system, until it was replaced with the address in Coventry of different accountants, Advantage Accounts Limited.

(b) UK Tax Presence: HMRC’s Case

[89]HMRC submitted that neither of these matters were sufficient to give Edge or AML a UK tax presence and that HMRC were not under a duty to investigate further the question whether Edge or AML had a UK tax presence.

(c) UK Tax Presence: The Tameside Duty

[90]Again, I do not consider that “no reasonable authority could have been satisfied on the basis of the inquiries made that it possessed the information necessary for its decision”. HMRC correctly identified that Edge and AML were Isle of Man companies. HMRC also correctly identified that, as part of the relevant scheme, each of them registered for PAYE, but, as I will explain, that did not give them a UK tax presence. HMRC were also aware that Edge had provided a UK address, but, as I will explain, that was not sufficient to give Edge a UK tax presence.[91]Apart from these matters, there was no reason why HMRC should have considered it appropriate to investigate further whether Edge or AML had a UK tax presence, not least because it was inherently unlikely that those who created and operated the Edge and AML schemes, having decided to make use of offshore employers, would allow those offshore employers to acquire a UK tax presence and thereby risk subjecting the offshore employers to UK tax.

(d) UK Tax Presence: Voluntary Participation

[92]Insofar as the claimants relied on the voluntary participation by Edge and AML in the PAYE scheme, that submission was considered and dismissed by the Court of Appeal in Hoey in paragraph 90 of its judgment, as follows:
“In oral argument Mr Mullan suggested, for the first time, that the voluntary operation of PAYE by the Employers in respect of the small salary element of the contractors’ earnings meant that the Employers had surrendered to the jurisdiction of the PAYE regime. Mr Mullan produced no authority to support this novel contention. Clark v Oceanic [1983] 2 AC 130 does not provide any support for this proposition: it sets out the relevant test as whether there is a trading presence in the UK. There is no evidence that the Employers had a UK tax presence applying this test. The arrangements depended on the use of UK-based intermediaries, and absent evidence, it certainly cannot be assumed that the offices and postal addresses of such intermediaries could be treated as those of the Employers. No positive case has otherwise been advanced. Despite their voluntary operation of PAYE on part of the earnings, no doubt to lend respectability to the arrangements, we can see no foundation for any suggestion that the PAYE Regulations did in fact apply to them. Accordingly, this argument is without any merit either.”
[93]I do not consider that I can distinguish that reasoning in the present case. Consequently, I am bound to follow it.[94]In any event, even if the Court of Appeal had not decided the point in Hoey, I would not have been assisted by the two authorities referred to by Miss Montes Manzano, BAV-TMW-Globaler-Immobilien Spezialfonds v Revenue and Customs Commissioners [2019] SFTD 631 (“BAV v HMRC”) and Inland Revenue Commissioners v Stype Trustees (Jersey) Ltd [1985] 1 W.L.R. 1290 (“Inland Revenue v Stype”), which concerned different aspects of tax law, namely registered pension schemes in BAV v HMRC and capital transfer tax in Inland Revenue v Stype. Moreover, I note that the passages in BAV v HMRC on which reliance was placed (i.e. paragraphs 88 to 92), were obiter, as can be seen from paragraph 72, and that it was admitted that the trustees in Inland Revenue v Stype, despite having a foreign domicile and being resident abroad, were liable to pay capital transfer tax. The dispute in that case concerned the trustees’ liability to deliver an account of all relevant property, which Walton J said was “miles away” from Clark v Oceanic Contractors Inc. [1983] 2 A.C. 131 (“Clark vOceanic”), which is the only decision concerning the territorial scope of the PAYE Regulations to which I was referred.

(e) UK Tax Presence: Edge’s UK Addresses

[95]Insofar as the claimants contended that Edge had a UK tax presence by reason of providing a UK address, it is necessary to refer in some detail to Clark v Oceanic. Oceanic Contractors Inc (“Oceanic”) provided services in the United Kingdom’s sector of the North Sea (and its employees’ emoluments in respect of duties performed there in respect of exploration or exploitation activities were, pursuant to section 38(6) of the Finance Act 1973, to be treated for the purposes of income tax as emoluments in respect of duties performed in the United Kingdom), but there was no suggestion that its employees worked for anyone other than Oceanic when those services were being provided.[96]The facts of Clark v Oceanic were summarised by Lord Scarman as follows (at 141F to 142A):
“… (1) Oceanic is not resident for income tax purposes in the United Kingdom. (2) It has, however, a design office at Wembley, a platform fabrication yard near Inverness, and a branch at Aberdeen providing skilled services in connection with its North Sea activities. It operates P.A.Y.E. in respect of employees at these establishments. (3) It accepts that it has a place of business within Great Britain and is liable to corporation tax on profits from its activities in the United Kingdom and in the United Kingdom sector of the North Sea, all of which are taxed as a single trade. It is an overseas company to which section 407 of the Companies Act 1948 applies. It has complied with the requirements of the section and has an address for service in Wembley. (4) The operating base for its North Sea activities is the port of Antwerp; the headquarters of its North Sea division are at Brussels. Its North Sea activities consist of installation and maintenance of platforms and the laying of pipelines in the United Kingdom and Norwegian sectors of the North Sea, for which purpose it operates barges out of Antwerp. (5) The work force employed on these operations was in 1977-78 several hundred strong (approximately 400 in 1977), of whom approximately 60 per cent. were United Kingdom nationals. They had written contracts not governed by English law. They were paid (in United States dollars) and employed outside the United Kingdom.”
[97]The issue in Clark v Oceanic was the construction of section 204 of the Income and Corporation and Taxes Act 1970 (which imposed the obligation to comply with the version of the PAYE Regulations then in force) in the light of the presumption against extra-territoriality of legislation, as set out in cases such as Ex parte Blain (1879) 12 Ch.D. 522. In relation to that issue:(1) The majority of their Lordships (i.e. Lord Scarman, Lord Wilberforce and Lord Roskill) rejected Oceanic’s argument that the section only applied to employers who were resident in the United Kingdom. This is the context for Lord Scarman’s dictum (at 145F) that: “Presence, not residence, is the test.”(2) A differently-constituted majority, i.e. Lord Scarman (at 146G), Lord Edmund-Davies (at 154F to 156A) and Lord Lowry (at 157D to 158C), rejected the Crown’s argument that the section applied to any employer whose employees were chargeable to United Kingdom income tax.(3) The majority held that section 204 applied to Oceanic, but they did not purport to define the circumstances in which section 204 would apply to any other employer who was not resident in the United Kingdom.[98]Clark v Oceanic can be taken as authority for the proposition that a “tax presence” in the United Kingdom is sufficient to bring an employer within the scope of the PAYE Regulations. Miss Montes Manzano agreed with my characterisation of it as a pretty fact-specific decision, although I note that the Court of Appeal in Hoey said (in paragraph 90 of its judgment, which I have already quoted) that Clark v Oceanic “sets out the relevant test as whether there is a trading presence in the UK.”[99]Moreover, a significant distinction between the present case and Clark v Oceanic is that, although not resident in the United Kingdom, Oceanic was made subject, by section 38(4) of the Finance Act 1973, to corporation tax on profits or gains arising to it from exploration or exploitation activities carried on in the United Kingdom’s sector of the North Sea or from exploration or exploitation rights and to capital gains tax on any gain accruing to it on the disposal of such rights. Such profits or gains were to be treated as profits or gains of a trade, or gain accruing on the disposal of assets used for the purposes of a trade, carried on by Oceanic in the United Kingdom through a branch or agency.[100]Of the three judges who were in the majority:(1) Lord Wilberforce said (at 150H) that he regarded section 38(4) of the Finance Act 1973 as critical in the appeal. He went on to say as follows (at 153A-C): “So, the question one has to ask in relation to section 204 is this: why should not this section apply to a company which, as regards the very activities to which the section relates, is itself made subject to United Kingdom tax legislation. Why not more particularly, when the employees, to whom the question relates, are employed on precisely those activities, so that the wages they are paid, which are treated as being in respect of duties performed in the United Kingdom, enter into the trading accounts of the company? To the answering of this question non-residence is quite immaterial, as, indeed, section 246 itself shows; it disregards non-residence or, perhaps more accurately, it makes “non-residence” a condition of liability and fastens upon trading through a branch or agency. This provides a clear, and surely satisfactory, answer to the question of construction of section 204, so that this section only applies to those companies which are within the taxing provisions of section 246. As to such companies section 246 provides a convincing reason why the respondent company should be liable to operate the P.A.Y.E. system. I should add that, as the company has an address for service in the United Kingdom, the liability can be enforced against assets here.”(2) Lord Scarman also attached significance to Oceanic’s trading presence in the United Kingdom. Although he did not expressly refer to section 38(4) of the Finance Act 1973 in his speech, he clearly had it in mind when he said (at 148E-F): “… But the present case is concerned with the territorial limitation to be implied into a section which establishes a method of tax collection. The method is to require the person paying the income to deduct it from his payments and account for it to the revenue. The only critical factor, so far as collection is concerned, is whether in the circumstances it can be made effective. A trading presence in the United Kingdom will suffice. Upon the facts of this case a trading presence is made out. For the purposes of corporation tax Oceanic, it is agreed, carries on a trade in the United Kingdom which includes its operations in the United Kingdom sector of the North Sea. For the purpose of this trade it employs a work force in that sector, whose earnings are assessable to British income tax. Finally, Oceanic does have an address for service in the United Kingdom. It is not the least surprising that the special commissioners concluded that in Oceanic's case there would be no practical difficulties in operating P.A.Y.E. For these reasons I conclude that Oceanic by its trading operations within the United Kingdom and in the United Kingdom sector of the North Sea has subjected itself to the liability to operate P.A.Y.E. in respect of those emoluments of its employees which are by section 38 (6) of the Act of 1973 chargeable to British income tax. Oceanic must, therefore, operate P.A.Y.E. in respect of those emoluments.”(3) Lord Roskill agreed (at 161C) with both Lord Scarman and Lord Wilberforce.[101]In the present case, it was not suggested that Edge or AML had a trading presence in the United Kingdom. That, in my judgment, is sufficient to establish that the PAYE Regulations did not apply to Edge or AML.[102]It was submitted on behalf of Mr White that the combination of three factors was sufficient to constitute a “tax presence” so as to make Edge subject to the PAYE Regulations, namely:(1) having a workforce in the United Kingdom which was subject to United Kingdom income tax;(2) Edge’s voluntary registration under the PAYE scheme; and(3) the provision by Edge of an address in the United Kingdom.[103]However:(1) As I have said, a majority of their Lordships decided in Clark v Oceanic that the first of these factors was not sufficient, in itself, to subject a non-resident employer to the PAYE Regulations.(2) I have already dealt with the second of these factors.(3) There is nothing in the speeches in Clark v Oceanic to support the proposition that the mere provision of an address within the United Kingdom would suffice to constitute a “tax presence” such as to bring an employer within the scope of the PAYE Regulations. On the contrary, the passages which I have cited show that the provision of an address was merely an additional consideration, rather than a necessary or sufficient consideration, in deciding whether an offshore employer was subject to the PAYE regulations.[104]Moreover, those passages referred not merely to the provision of an address, but to the provision of an address for service pursuant to what was then section 407(1)(c) of the Companies Act 1948, which provided that: “Oversea companies which, after the commencement of this Act, establish a place of business within Great Britain shall, within one month of the establishment of the place of business, deliver to the registrar of companies for registration:— … (c) the names and addresses of some one or more persons resident in Great Britain authorised to accept on behalf of the company service of process and any notices required to be served on the company.” …[105]The current equivalent of this provision is to be found in the Overseas Company Regulations 2009, made under section 1046 of the Companies Act 2006, which apply to a company which opens a UK establishment. It was not suggested that Edge had a UK establishment or that it was subject to the Overseas Company Regulations. (9) The UK Intermediaries[106]As I have said, the claimants contended both:(1) that it was wrong for HMRC to exercise the 7A power without investigating whether the UK intermediaries were liable to tax as a relevant person for the purposes of section 689; and(2) that the UK intermediaries were liable to tax as a relevant person for the purposes of section 689.[107]In my judgment, it is clear that:(1) Section 689 did not apply to the UK intermediaries. Having regard to the definition of “work” in section 689(6), the claimants did not work for the UK intermediaries. There is no evidence that the claimants performed any of the duties of their employment for the UK intermediaries. The claimants were employed by their offshore employers to provide services to the end users. That is what they did. Their employment contracts did not require them to provide any services for the UK intermediaries. They did not provide any services for the UK intermediaries. Miss Montes Manzano sought to rely on an “Individual Project Agreement” issued to Mr White, but that document clearly identified Edge as Mr White’s employer.(2) There was no reason for HMRC to conduct any further investigation into this alternative scenario. It was fundamental to the Edge and AML schemes that the claimants had offshore employers. The claimants identified Edge and AML as their employers in their tax returns. There is no evidence which identifies any reason for HMRC to doubt that the schemes had operated as intended in that respect. (10) The Claimants’ Personal Circumstances[108]The claimants contended that HMRC should not have decided to exercise the 7A power without investigating the claimants’ personal circumstances, including:(1) their reasons for entering into the relevant scheme;(2) how the scheme was marketed to them;(3) the (incorrect, or even misleading) advice which they had received;(4) their honest belief that the scheme was tax-compliant; or(5) the financial and other effects on them of having to pay tax so long after the event.[109]I note in this context what the Court of Appeal said about the 7A power in paragraph 73 of its judgment in Hoey (which I have already quoted):
“… Its focus is inevitably on the payer, and neither subsection makes any reference to the payee. This is unsurprising in circumstances where exercise of the 7A power has no impact whatever on the underlying liability to tax of the payee recipient of the PAYE income, which remains undisturbed.”
[110]I do not consider that HMRC were obliged to enquire into the claimants’ personal circumstances. It was no part of HMRC’s decision-making process that they were of the view that the claimants had had anything other than an honest belief that the schemes which they used were tax-compliant. Equally, it was no part of HMRC’s decision-making process that the claimants would find it easy to pay the tax due from them or that their experience had not been distressing for them.[111]In my judgment, none of the matters now relied on by the claimants imposed a duty on HMRC to investigate the claimants’ personal circumstances. HMRC were entitled to take the view that the claimants, and others in their situation, were liable to pay income tax and NIC for the relevant years and that nothing about their personal circumstances could relieve them of that liability. Nothing about the individual claimants’ circumstances has been identified which could make HMRC’s decision in their case irrational.[112]I note in this context that:(1) The claimants submitted tax returns in which they failed to declare the majority of their income. I do not doubt that they did this in reliance on what they had been told by others, but the receipt of bad tax advice does not remove an individual’s liability to pay tax and it certainly does not make it appropriate for a third party to pay that tax instead.(2) The claimants must have appreciated that they were using schemes which involved the payment of significantly less tax than would have been paid if the money paid for their services by the end users (after deduction of administration fees) had been treated as their income.(3) It may well be a challenge for the claimants, and others like them, now to find the money to pay the tax which is due from them (assuming that there is tax due from them), but that situation would not have arisen if the claimants had entered into schemes under which the tax due from them in the relevant years had been paid at the time. Also, the claimants have known for some time that their tax returns for the relevant years were being investigated, so they have had the opportunity to prepare themselves for an adverse outcome to that investigation.(4) Likewise, any distress which has been caused to the claimants is the consequence of their decision to enter into the Edge and AML schemes. (11) Section 31 of the Senior Courts Act 1981[113]HMRC relied in the alternative on subsections 31(2A) and/or 31(3D) of the Senior Courts Act 1981. I have not found it necessary to base my decision on either of these subsections. Moreover, with one exception, I have not considered it appropriate to express an opinion as to whether the outcome would have been different if, contrary to my decision, HMRC had erred in law in any way, since that would have required me to speculate as to how it might be held that my decision was wrong.[114]The one exception concerns the question whether HMRC should have sought representations and/or evidence from the claimants before issuing the decision notices. As to this:(1) My understanding of the judgment in Hoey is that the Court of Appeal considered that it was not unlawful for HMRC to proceed by issuing a decision notice before seeking representations from the taxpayer, but to ask in that decision notice for representations from the taxpayer.(2) As I understand that decision, and as I would myself have held in the absence of that decision, the decisions set out in the decision notices in the present case, although not expressed to be provisional, were in substance provisional, since they invited representations which were capable of leading to a reconsideration of the decision.(3) However, if I am wrong about that, I consider that any error of law on HMRC’s part made no difference, since HMRC were entitled, having received the claimants’ representations and witness statements, to maintain their decisions, as they did. (12) Conclusion[115]For the reasons which I have stated:(1) I refuse permission to amend the statements of facts and grounds, save insofar as the amendments consist of deletions. The proposed new grounds were made late and have no prospect of success.(2) I refuse permission to apply for judicial review.[116]I repeat my expression of gratitude to all concerned for the way in which this case was presented at the hearing.