“ (1)An officer of Revenue and Customs may by notice in writing require a person (“the taxpayer”)— (a)to provide information, or (b)to produce a document, if the information or document is reasonably required by the officer for the purpose of checking the taxpayer’s tax position. (2)In this Schedule, “taxpayer notice” means a notice under this paragraph.” 43. Second, where a corporation tax return has been filed for the relevant period (as in this case), a taxpayer notice may only be given for the purposes for checking that person’s corporation tax position in relation to the chargeable period to the extent that at least one of conditions A to D is met. In this case HMRC rely on Condition D in paragraph 21 of Schedule 36. 44. The relevant provisions in paragraph 21 read as follows: “(1)Where a person has made a tax return in respect of a chargeable period under section 8, 8A or 12AA of TMA 1970 (returns for purpose of income tax and capital gains tax), a taxpayer notice may not be given for the purpose of checking that person’s income tax position or capital gains tax position in relation to the chargeable period . (2)Where a person has made a tax return in respect of a chargeable period under paragraph 3 of Schedule 18 to FA 1998 (company tax returns), a taxpayer notice may not be given for the purpose of checking that person’s corporation tax position in relation to the chargeable period. (3)Sub-paragraphs (1) and (2) do not apply where, or to the extent that, any of conditions A to D is met. 4)Condition A is that a notice of enquiry has been given in respect of— (a)the return, or (b)a claim or election (or an amendment of a claim or election) made by the person in relation to the chargeable period in respect of the tax (or one of the taxes) to which the return relates (“relevant tax”), and the enquiry has not been completed. (5)In sub-paragraph (4), “notice of enquiry” means a notice under— (a)section 9A or 12AC of, or paragraph 5 of Schedule 1A to, TMA 1970, or (b)paragraph 24 of Schedule 18 to FA 1998. (6)Condition B is that an officer of Revenue and Customs has reason to suspect that— (a)an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed, (b)an assessment to relevant tax for the chargeable period may be or have become insufficient, or (c)relief from relevant tax given for the chargeable period may be or have become excessive. (7)Condition C is that the notice is given for the purpose of obtaining any information or document that is also required for the purpose of checking that person’s VAT position. (8)Condition D is that the notice is given for the purpose of obtaining any information or document that is required (or also required) for the purpose of checking the person’s position as regards any deductions or repayments referred to in paragraph 64(2) (PAYE etc).” 45. Paragraph 64 of Schedule 36 defines a person’s tax position to include the following: “(1)In this Schedule, except as otherwise provided, “tax position”, in relation to a person, means the person’s position as regards any tax, including the person’s position as regards— […] (b)penalties and other amounts that have been paid, or are or may be payable, by or to the person in connection with any tax, and […] and references to a person’s position as regards a particular tax (however expressed) are to be interpreted accordingly. (2)References in this Schedule to a person’s tax position include, where appropriate, a reference to the person’s position as regards any deductions or repayments of tax, or of sums representing tax, that the person is required to make— (a)under PAYE regulations, [...]” 46. Paragraph 32 of Schedule 36 sets out the procedure for appeals as follows: “(1)Notice of an appeal under this Part of this Schedule must be given— (a)in writing, (b)before the end of the period of 30 days beginning with the date on which the information notice is given, and (c)to the officer of Revenue and Customs by whom the information notice was given. (2)Notice of an appeal under this Part of this Schedule must state the grounds of appeal. (3)On an appeal the First-tier Tribunal may— (a)confirm the information notice or a requirement in the information notice, (b)vary the information notice or such a requirement, or (c)set aside the information notice or such a requirement. (4)Where the First-tier Tribunal confirms or varies the information notice or a requirement, the person to whom the information notice was given must comply with the notice or requirement— (a)within such period as is specified by the Tribunal, or (b)if the Tribunal does not specify a period, within such period as is reasonably specified in writing by an officer of Revenue and Customs following the Tribunal’s decision. (5)A decision by the First-tier Tribunal on an appeal under this Part of this Schedule is final. (6)Subject to this paragraph, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to appeals under this Part of this Schedule as they have effect in relation to an appeal against an assessment to income tax.”
“The purpose of the statutory scheme is to assist HMRC at the investigatory stage to obtain documents and information without providing an opportunity for those involved in potentially fraudulent or otherwise unlawful arrangements to delay or frustrate the investigation by lengthy or complex adversarial proceedings or otherwise.”
“a request for information or documents cannot be unreasonable, or entirely without foundation, but that does not rule out an element of uncertainty or speculation on HMRC’s part.”
“Loss of tax brought about carelessly or deliberately etc (1) An assessment on a person in a case involving a loss of income tax or capital gains tax brought about carelessly by the person may be made at any time not more than 6 years after the end of the year of assessment to which it relates (subject to subsection (1A) and any other provision of the Taxes Acts allowing a longer period).” 50. HMRC submit that the information and documents listed in the Notice are reasonably required by Officer Hoare for the purpose of checking the penalty position in connection with the failure to deduct PAYE. The relevant provisions inFinance Act 2007 , Schedule 24, paragraph 1 read as follows: “(1) A penalty is payable by a person (P) where— (a) P gives HMRC a document of a kind listed in the Table below, and (b) Conditions 1 and 2 are satisfied. (2) Condition 1 is that the document contains an inaccuracy which amounts to, or leads to— (a) an understatement of a liability to tax, (b) a false or inflated statement of a loss . . ., or (c) a false or inflated claim to repayment of tax. (3) Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3) [failure to take reasonable care] or deliberate on P's part. 51. Paragraph 3 states that an inaccuracy in a document given is “careless” if the inaccuracy is due to failure to take reasonable care, 52. Ms Montes Manzano referred me to Bella Figura Ltd[2020] UKUT 120 (TCC) (“ Bella Figura ”) and Bayliss[2016] UKFTT 500 (TC) (“ Bayliss ”) in relation to the correct test for carelessness that Officer Hoare’s was checking. 53. Ms Montes Manzano also referred me to the Rangers litigation in the FTT in 2012, Upper Tribunal in 2014 and the Supreme Court in 2017, and the Morse Review in 2019, to support her submission that it was prevailing practice and a widely held view (at the time of alleged careless behaviour) that the type of arrangement implemented by Avonside would not be subject to income tax and/or Class 1 national insurance contributions. Burden of proof 54. HMRC have the burden of proof to show that the Notice meets the conditions in Schedule 36 for its issue. HMRC’s skeleton argument suggests that the burden is on Avonside, relying on the comments in Joshy Matthew[2015] UKFTT 139 (TC) , where Judge Redston discussed who had the burden of showing that the information and documents were “reasonably required”
“ …we agree with HMRC that some aspects of the appellant’s behaviour could be described as careless. A reasonable man would have paid more attention to the documents and would have kept copies at least of key ones such as the loan. …. However, our task is not to decide whether the appellant was negligent in the abstract. The question is whether he negligently filed an incorrect return within s 95(1) TMA. So we need to focus on the error in the return and whether the appellant was negligent in making that error.” “However, in order for s 95 to be engaged HMRC would also have needed to show that there was a causal link between the negligence and the errors in the return.” 66. In Bayliss HMRC did not discharge its burden of proof to demonstrate that the appellant was negligent in filing an incorrect return. The taxpayer relied fully on a chartered accountant and on what he believed to be the promoter’s expertise. As noted in paragraph 25 above, Officer Hoare’s language in his evidence in relation to this question reflects the provisions about ‘disqualified advice’ and an ‘interested person’ that were introduced for tax periods beginning on or after6 April 2017 . The officer in this case may check whether Avonside was careless in filing the return according to the applicable provisions of Schedule 24. 67. In Bella Figura the First-tier Tribunal had made detailed findings as to the care that the taxpayer had taken to select an appropriate practitioner to prepare documentation in full knowledge that the documentation would need to meet specific requirements, and identified a failure to obtain advice as a careless omission. The Upper Tribunal found that section 36 TMA was concerned with the question of whether a failure to take reasonable care had caused the loss of tax. In this case, I have concluded that Officer Hoare did not issue the Notice for the purpose of checking behaviour for the purposes of section 36 TMA, but as he was checking Avonside’s position as regards a penalty under Schedule 24, the question is whether the information is ‘reasonably required’ to check whether the inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care. The checking of Avonside’s behaviour should not be in the abstract, and the information required by the Notice should be considered in the context of paragraph 3 of Schedule 24. 68. I have gone on to consider the information and documents listed in the Notice (as varied following review) in the light of my finding that the Notice was given for the purpose of checking whether a penalty may be payable, and the caselaw cited above that shows that this means that the checking should relate whether the inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care . I have also taken account of the caselaw that provides that HMRC’s request must be “genuinely directed to the purpose for which the notice may be given” (Simler J in Derrin at [20]). A request for information or documents “cannot be unreasonable, or entirely without foundation” and while “that does not rule out an element of uncertainty or speculation on HMRC’s part” ( Gold Nuts at [202] ), it does not allow mere speculation or allow HMRC to use Schedule 36 “to “fish” for possible issues” ( Gold Nuts at [185]). I have reached the following conclusions: 1. Communications (letters, emails, faxes, notes of telephone conversations or notes of meeting) between Avonside Roofing Limited, Afortis and Herald Employment Services relating to your decision to proceed with the arrangements. 69. The information required under this heading relates to the implementation of the arrangements. HMRC’s case is that this information is reasonably required for the purpose of checking Avonside’s position as regards a Schedule 24 penalty as would assist HMRC to understand how and when the decision to proceed with the arrangements was made. 70. Officer Hoare’s evidence is that when he considered the bible of documents for Avonside’s implementation of the arrangements in the light of other documents for Clavis Herald arrangements that he had seen, he identified certain concerns about Avonside’s documentation that suggest careless behaviour. As noted above, HMRC did not produce the other documents that gave rise to Officer Hoare’s concerns, but he explained that his concerns relate to the engagement of, and with, the remuneration consultant, whether the sub trusts’ acquisition of equity was preordained and the lack of disclosure in the accounts. The disclosure and documents of concern identified by Officer Hoare were referred to at the hearing in turn and, in cross-examination, Officer Hoare confirmed that the possible carelessness in implementing the arrangements that he had identified did not affect the tax point or the under-deduction of PAYE when the remuneration arrangements were implemented by the payment to the remuneration consultant. 71. The question of whether information is ‘reasonably required’ should be considered in the context of what the officer is seeking to check. The purpose of the Notice is to check whether a penalty under Schedule 24 may be payable in respect of the under-deduction of PAYE but, as Ms Montes Manzano submits, Officer Hoare’s explanation for requiring the information under this heading relates to whether Avonside was careless in its implementation of the arrangements as opposed to whether the inaccuracy in Avonside’s PAYE return was due to failure to take reasonable care. Even if this information may demonstrate carelessness “in the abstract” ( Bayliss at [65]) , which Avonside dispute and this decision does not address (other than to note that the Tribunal would require sight of the documents on which Officer Hoare rely to reach a decision), HMRC have not established that the information under this heading is reasonably required for the purpose of Officer Hoare’s check of whether the inaccuracy in the PAYE return was due to a failure on Avonside’s part to take reasonable care. 2. The date and method of delivery, including communications between Avonside Roofing Limited, Afortis, Clavis or any other party involved in the arrangements, related to the outsourcing Agreement with Herald Resource dated18th February 2009 . 72. Officer Hoare’s evidence is that he requires this information to establish when the outsourcing agreement was received and considered. For the reasons set out in paragraphs 70 and 71 above, HMRC have not established that this information is reasonably required for the purpose of checking Avonside’s position as regards a Schedule 24 penalty on the basis that an inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care. 3.The name of the person who drew up the minute of the meeting of the Board of Directors dated18 February 2009 , where the decision to enter into the outsourcing agreement is noted. If you were provided with a blank note of the meeting for the Board of Directors to sign, confirm the date and method of how this was provided to you and provide a copy of any relevant communications relating to its receipt. 73. Officer Hoare’s evidence is that he requires this information in order to determine an accurate sequence of actions taken by the directors in order to establish a full view on behaviours. For the reasons set out in paragraphs 70 and 71 above, HMRC have not established that this information is reasonably required for the purpose of checking Avonside’s position as regards a Schedule 24 penalty on the basis that an inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care. 4. If you were not visited by Herald Employment Services, please state what their form of contact was, the date that this occurred and the name of the person who you liaised with. Please provide communications between Avonside Roofing Limited, Afortis, Clavis or any other party involved in the arrangements relating to this contact. 74. Officer Hoare’s evidence is that he requires this information in order to establish how the information relating to the company and its activities was obtained and reflected in the remuneration consultant’s report. For the reasons set out in paragraphs 70 and 71 above, HMRC have not established that this information is reasonably required for the purpose of checking Avonside’s position as regards Schedule 24 penalties on the basis that an inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care. 5. State whether the company has, at any time prior to the advice received from the remuneration consultant, indicated to Herald Resource the amount of the initial contributions to be made to the trust prior to the advice received from the remuneration consultant. If so, please provide the date and communications between the Avonside Roofing Limited, Afortis, Clavis or any other party involved in the arrangements in which this amount was discussed and quantified. 75. Officer Hoare’s evidence is that he requires this information in order to establish how the remuneration consultant obtained the figure for the payment into the EBT structure. For the reasons set out in paragraphs 70 and 71 above, HMRC have not established that this information is reasonably required for the purpose of checking Avonside’s position as regards Schedule 24 penalties on the basis that an inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care. 6. State when and how the decision to use the funds held within the sub-trust to purchase shares in the group company was made. Please include communications between Avonside Roofing Limited, Afortis, Clavis or any other party involved in the arrangements in which this decision was reached. 76. Officer Hoare’s evidence is that he requires this information in order to establish how and when this decision was made. For the reasons set out in paragraphs 70 and 71 above, HMRC have not established that this information is reasonably required for the purpose of checking Avonside’s position as regards Schedule 24 penalties on the basis that an inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care. 7. Professional advice relating to the Clavis/Herald SPT arrangements provided by Afortis and/or Clavis. 77. Officer Hoare’s evidence is that he requires this information because Avonside claims to have taken reasonable care as they sought and relied on the professional advice of Afortis and Clavis in relation to its implementation and tax treatment of the Clavis Herald arrangements. 78. Officer Hoare suspects that Avonside did not take reasonable care in this respect. Officer Hoare accepts that Avonside implemented the arrangements using the documents provided by the promoter and that it was advised by Afortis, but his evidence is that he requires the professional advice to check if the directors were involved in completing documentation without appearing to raise any doubts or seeking any additional advice about the issues of concern that he has identified. In any event, Officer Hoare considers that the company should have sought advice from its day-to-day accountants as Afortis and Clavis were financially interested in the transaction. As noted in paragraph 70 above, the issues of concern were raised in turn in cross-examination, and Officer Hoare confirmed that none of them had any effect on the tax point or the under-deduction of PAYE when the remuneration arrangements were implemented by the payment to the remuneration consultant. 79. For example, as regards the professional advice, the email concerning equity that Officer Hoare considers indicative of Avonside’s careless behaviour was between the adviser and the promoter, and it could not have changed the fact that the arrangements were implemented when the payment was made to the remuneration consultant. HMRC’s position with regard to the tax point and liability are already the subject of the Regulation 80 determination and the follower notice. 80. The information requested is not ‘reasonably required’ without some foundation that it is for the purpose of checking whether the inaccuracy in the PAYE return was due to a failure on Avonside’s part to take reasonable care. Officer Hoare’s witness evidence does not suggest or even speculate that that the inaccuracy in the PAYE return is due to Avonside’s failure to follow the tax advice received from Clavis and Afortis. As highlighted by the Rangers litigation and the Morse Review, in 2010 it was generally understood that the contribution would not trigger an obligation to make a deduction under PAYE, and taxpayers are “entitled to rely on the law as interpreted by the courts - rather than a position taken by HMRC - as the authoritative guide to their tax obligations”