Hive Umbrella Limited v The Commissioners for HMRC [2025] UKFTT 457 (TC)

[2025] UKFTT 00457 (TC)

Case No TC09494

FIRST-TIER TRIBUNAL

TAX CHAMBER

Hearing Heard on: 27 January (Reading Day),

Date Judgment date: 17 April 2025

Appeal reference: TC/2022/12889

DISCLOSURE OF TAX AVOIDANCE SCHEMES (DOTAS) – Whether the arrangements were notifiable arrangements? – Yes – Whether the Appellant was a promoter? – Yes – Appeal dismissed.

28-30 January 2025

Before

TRIBUNAL JUDGE NEWSTEAD TAYLOR

MISS SUSAN STOTT

Between

HIVE UMBRELLA LIMITEDAppellant

THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondent

Mr Julian Hickey of counsel (with Mr Hickey and Mr Andrew Wood, also of Counsel both signing the Skeleton Argument) both instructed on a Public Access basis. for Appellant

Ms Joanna Vicary of counsel, instructed by HM Revenue and Customs’ Solicitors Office, Salford. for Respondents

DECISION

Introduction

[1]Hive Umbrella Limited (hereafter “Hive”) appeals HMRC’s decision to allocate a Scheme Reference Number (“SRN”), to certain arrangements that HMRC considered Hive should have notified to them under the Disclosure of Tax Avoidance Schemes (“DOTAS”) Regime, pursuant to s.311 of the Finance Act 2004 (“FA 2004”).

[2]Hive’s Grounds of Appeal (“GoA”), as settled by Mr. Wood, are limited to s 311B(3) (c) FA 2004. Specifically, “…that the arrangements are not in fact notifiable arrangements or, in the case of proposed arrangements, that the proposal for the arrangements is not in fact a notifiable proposal.”

[3]Hive was granted permission to appeal out of time, Hive Umbrella Limited v The Commissioners for His Majesty’s Revenue & Customs

[2023] UKFTT 753 (TC)

[4]For the reasons set out in detail below, we have decided that the arrangements were notifiable arrangements within the proper meaning and effect of Part 7 FA 2004 and HMRC was and remains entitled to allocate an SRN (07889152) to those arrangements for DOTAS purposes. Accordingly, we dismiss the Appeal.

The Evidence

[5]Prior to the hearing, we were provided with(i) a skeleton argument from each party,

(ii) a Hearing Bundle, ultimately, comprising 1808 pages,

(iii) an Authorities Bundle comprising 998 pages,

(iv) a second witness statement from Mr Belli comprising 16 pages and

(v) a supplementary note from Hive comprising 6 pages. Unfortunately, there were significant difficulties with the bundles, including the main hearing bundle ‘missing’ approximately 300 pages, the inclusion of an out-of-date copy of the FA 2004 and differences in the running order of the Tribunal’s bundles. With perseverance, these difficulties were all overcome.

[6]The Appellant adduced two witness statements from Ms Victoria Chapman, the former director and owner of Hive. Ms Chapman was cross-examined and answered questions from the Tribunal. Despite initial reservations, we accept Ms Chapman’s repeated evidence that, having received legal advice, she designed the arrangements. We note the following exchange between Ms Vicary and Ms Chapman:

“Ms Vicary: Is the reality – I am trying to be fair to you here – you were completely out of your depth here and you did not understand what was going on? Ms Chapman: No, I don’t believe so. Ms Vicary: You cannot explain to me how your payslips work, you cannot explain your business plan, you cannot explain where this bonus pot was coming from. Were you taking advice from the outset? Ms Chapman: No Ms Vicary: From somebody else who has led you down the garden path? Ms Chapman: No. Ms Vicary: I am trying to give you an out here. Ms Chapman: No. I wanted to do something for myself. I had tried, worked for people before. I just wanted to do something for myself and see if I could do it.”

Ms Chapman: No

Ms Vicary: From somebody else who has led you down the garden path?

[7]In the circumstances, we expected Ms Chapman to be able to explain, in detail, those arrangements. She could not. Her repeated response in cross-examination was words to the effect of ‘I can’t recall.’ Even having made appropriate allowances for the fact that giving evidence in a Tribunal is stressful and that the passage of time inherently affects a person’s recollection, we found Ms Chapman’s evidence to be lacking in detail, on occasion implausible and, overall, unconvincing.

[8]HMRC adduced two witness statements from Officer Martin Belli, who issued the SRN. He was cross examined and answered the Tribunal’s questions. We found him to be an honest and credible witness who was doing his best to assist the Tribunal.

[9]Based on the evidence provided, we make the following findings of fact on the balance of probabilities. Some of the facts were in dispute and we also make further findings later in our decision. The Facts Incorporation:

The Facts

[10]Prior to Hive’s incorporation, Ms Chapman had acquired, approximately, eleven years’ experience and expertise running umbrella companies for third parties. She had managed large operational teams with big client bases of up to 1,500 employees, as well as setting up accountancy and payroll companies. On being made redundant, Ms Chapman decided to use her industry experience and contacts to set up her own umbrella company.

[11]On 26 May 2020, Hive The name Hive Umbrella derived from the female worker bee symbol of Manchester and the idea of a ‘hive of activity’ with people working towards the same goal. was incorporated. Ms Chapman was appointed as Hive’s sole registereddirector and main shareholder. Hive was her business. In brief, Hive employed contract workers from a range of industries/professions, including medics, who required a payroll vehicle, without an umbrella company such workers would have been self-employed. Hive’s unique selling point (“USP”), as acknowledged by Ms Chapman, was its bonus pot structure (the “Bonus Scheme”) The essence of the Bonus Scheme was that Hive’s employees (“Scheme Users”) would accept a lower salary from the work undertaken in order to participate in a bonus which may deliver a higher income in the future and, in return for entering into the Bonus Scheme, Hive would make available to Scheme Users ‘loans’ / advances of up to 85% of the value of the future bonus payment.

[12]Despite, Ms Chapman’s significant experience in the industry, Hive was the first umbrella company that Ms Chapman had worked in that utilised a bonus pot structure. Ms Chapman’s evidence was that she had heard of the bonus pot structure in the industry and “I just thought it was time to try it and see if I could make it work.” A couple of months after incorporation, Hive retained Mr Wood. Ms Chapman had met Mr Wood through contacts in the umbrella industry and had known him for, approximately, 12-18 months. Mr Wood provided a legal advice, which was not disclosed in this appeal, on the structure of the bonus arrangement and was, according to Ms Chapman, “…available to discuss any aspect of the structure at any time.”

Hive’s Business Plan:

[13]In the first few months following incorporation, Ops 360, an outsourced payroll and operational company with accountants, prepared a business plan for Hive. This was a private document. It was not available to Hive’s clients. In order to prepare the business plan, Ms Chapman provided Ops 360 with costings, a rough idea of contract numbers and set out the idea of the Bonus Scheme. In cross-examination, Ms Chapman confirmed that she understood the basics of the business plan and that she had used it to create her business model. However, Ms Chapman was unable to offer any cogent explanation of the business plan. Notably, she could not explain why the ‘loans’, which on Hive’s case are liabilities owed by the Scheme Users to Hive, are included within cost of sales, being items that are not to be repaid. Further, the Business plan details a ‘Bonus Pot Accrual’ and ‘Advanced bonus to employees.’ In Year 1, the figures for the Bonus Pot Accrual and the Advanced bonus to employees were the same. In later years, the Bonus Pot Accrual figure was higher. Ms Chapman was unable to explain the later Bonus Pot Accrual figures. We do not consider the business plan to be commercially viable, noting, for example, that the projected operating profit for Year 1 was £43,090, but the projected Bonus Pot Accrual figure was £790,027. The projected operating profit is 5% of the advances paid. Therefore, if the aim was to pay the bonuses from profit then Hive required a 1800% increase on the projected profit to even match the projected advances paid. In short, Hive’s business plan raises a number of questions that Ms Chapman was unable to answer.

Hive’s Employees:

[14]The Scheme Users worked in a range of industries, including medicine. Hive was not involved in placing Scheme Users in roles. The Scheme Users obtained their roles first and then sought an umbrella company for payroll purposes. The Scheme Users came to Hive via a number of routes.

[15]First, Scheme Users could visit Hive’s website, www.hiveumbrella.co.uk which had a ‘contact me’ form (where Scheme Users entered their name, email, and any additional information) for people to send enquiries. Ms Chapman described the website as “fairly neutral”, simply setting out the company’s details, who Hive was, what Hive did and the vibe Hive was trying to create. Specifically, the website stated “Based in the Northwest of England, Hive Umbrella is purely focused on delivering the best contractor payroll solution and only that. No distractions. All of the team at Hive are singularly passionate about one thing, you!” Notably, the website made no mention of the Bonus Scheme. In cross examination, Ms Chapman was asked why Hive’s USP was not front and centre on its website. Initially, Ms Chapman stated “Because at the time I wanted to keep the website just more about the company and what our aims were.” However, this illuminating exchange then followed between Ms Vicary and Ms Chapman:

“Ms Vicary: If we just cut to it, Ms Chapman, is not the reality that you knew this was a tax avoidance scheme, so you did not want to put it on your website? Ms Chapman: No. Ms Vicary: Because otherwise why on earth would you not put your main attraction on your web page? Ms Chapman: because some people don’t like it, don’t agree with it, don’t want to see it. Tribunal Judge Newstead Taylor: Sorry, do not like or agree or want to see what? Ms Chapman:. A tax avoidance scheme, which this wasn’t. Ms Vicary: So, if I can put it this way: you were worried that some people might perceive it to be a tax avoidance scheme even though that is not what you considered it was. Is that fair? Ms Chapman: Yes, I would say so. Ms Vicary: So the reason you did not commit it to writing on your website is because you thought people might think it was a tax avoidance scheme? Ms Chapman: I think people would have been a bit more wary. The reality was, actually, the website was there obviously as a marketing tool but a lot of our referrals were coming from agencies directly in light of our sales focus.”

Tribunal Judge Newstead Taylor: Sorry, do not like or agree or want to see what?

[16]Second, having obtained accreditation from Professional Passport, a well-known assessor of payment intermediary compliance, Hive was added to the list of approved providers on Professional Passport’s website, meaning that Scheme Users could chose Hive from the list.

[17]Third, via industry referrals. Ms Chapman, who by her own admission was not a salesperson, approached people she knew within the sales industry (“the Sales Consultants”), who had contacts at both the main agencies and the smaller players, to provide leads and sell to Scheme Users. The Sales Consultants spoke directly to contract workers and End Clients by telephone. 95% of Hive’s Scheme Users were with recruitment agencies. Only 5% came directly from the end client. If a contract worker wished to proceed with Hive, an application form was completed detailing their full name, address, mobile number, email address, agency details, details of the role, its duration and contract rate and their preference for either the bonus scheme structure or the standard PAYE umbrella. The Sales Consultants forwarded the application form to Hive. Unfortunately, no examples of the application form were included within the bundle. The Sales Team worked on a consultancy basis, receiving either a percentage commission (meaning that the more referrals they made the more money they earned) or a fixed fee in return.

[18]According to Ms Chapman, it was during the Sales Consultants’ conversations with the contract workers that the Bonus Scheme was first mentioned and the contract workers were given the option of either the Bonus Scheme structure or the standard PAYE umbrella. Whilst Ms Chapman accepted that “… there probably would have been something, a basic script” for these conversations, no script has been disclosed. Therefore, the precise information provided by the Sales Consultants to the contract workers is unknown. In cross examination, Ms Chapman stated that the Sales Consultants did not work solely for Hive. They were brokers for a number of umbrella companies. Accordingly, “The people that we were dealing with were used to dealing with all types of umbrella companies, so they were quite apt at selling the umbrella scheme that we --- the umbrella product.” However, this does not assist. Hive was not a standard umbrella company. Specifically, the Bonus Scheme was non-standard. In the absence of either a script or evidence from those on the telephone calls, we do not know precisely how Hive and, in particular, the Bonus Scheme was marketed by the Sales Consultants.

[19]At its peak, Hive had 305 Scheme Users on payroll in 1 week. Over Hive’s lifetime, it had a total of 822 Scheme Users on payroll.

The Onboarding Process:

[20]On receipt of a website enquiry form, a referral from Professional Passport or an application form, Hive commenced the onboarding process. Initially, Ms Chapman carried out all aspects relating to the operations side of the business including onboarding.

[21]The onboarding process involved a welcome call to discuss the contract worker’s current situation, their requirements, their experience of working with umbrella companies, how the employment structure works, the benefits and options for pay, whether they wanted to participate in the Bonus Scheme and the steps required to complete the onboarding process. Ms Chapman did not use a script for the welcome calls as she was fully familiar with the details having set up Hive, but she used the Bonus Arrangement Letter (“the BAL”) as a guide. It is unclear whether or not records were made and kept of the welcome calls. In any event, none have been disclosed in these proceedings. As a result, we have not seen any documentation evidencing a contract worker’s decision, made during the welcome call, to either participate in the Bonus Scheme or not.

[22]If a contract worker wished to progress, they had to complete an online application form and review and sign the contract of employment (“COE”). The online application form required the contract worker to confirm their name and email address, to upload necessary Right to Work (“RTW”) and Know Your Client (“KYC”) documentation and to acknowledge their understanding of the arrangements. Specifically, the contract workers were required to confirm that “… the umbrella product has been fully explained to me and I understand how it works and how I will be paid. I also understand that all pay queries must be direct to Hive Umbrella in the first instance.” In short, the contract workers understanding of Hive’s product was based upon the information provided initially by the Sales Consultants and, thereafter, by Ms Chapman (later Ops360) in the Welcome Call.

[23]At the same time, Hive contacted the end client/agency to confirm the contract details, provide Hive's company details and exchange contracts, being either a master agreement or an individual contract per person.

[24]The contract worker was fully onboarded as an employee of Hive once the COE and agency contract had been signed and the relevant identity and RTW checks completed. The Scheme User could then begin to submit timesheets for payroll and was also given access to the Hive online portal to view payslips, timesheets, advance statements and other relevant documentation.

Contract of Employment:

[25]In July 2020, Ms Chapman instructed Egos, an approved supplier by Professional Passport, to provide Hive’s contracts of employment (“COE”). She was familiar with Egos’ contracts. Ms Chapman chose Egos’s ‘Light Package’ at a cost of £2,500 plus VAT. In February 2021, Ms Chapman purchased an updated Light Package from Egos at a cost of £800 plus VAT.

[26]All COE were standardised, being either the 2020 or 2021 version. Every contract worker was required to sign a COE to be fully onboarded. There were no additional documents, such as a loan agreement, that a contract worker was required to sign. It was just the COE.

[27]There was nothing in the Light Package, that was specific to the Bonus Scheme. In fact, Ms Chapman did not inform Egos about the Bonus Scheme. When we asked her why not, she stated “We were just contacting them for employment contracts. We obviously had some people that weren’t going to make use of the bonus scheme so we needed an employment contract that would cover both options, and that was a standard – what Egos provided was. A pack of documents but included in that was a standard umbrella employment contract.” That answer was unconvincing. The COE provided by Egos could not “…cover both options…” because Ms Chapman had chosen not to tell Egos about the Bonus Scheme. We consider that Ms Chapman did not inform Egos about the Bonus Scheme for the same reason that she did not highlight it on Hive’s website, namely that Egos might think it was a tax avoidance scheme.

[28]The COE was a standard employment contract for an umbrella company. It was not adapted for an umbrella company operating the Bonus Scheme. It did not contain any clauses referrable to the Bonus Scheme. Clause 3.8 Ad HocPay Advances, which might at first glance look like it relates to the Bonus Scheme, was, in fact, simply a standard placeholder clause that was not relevant to Hive’s business structure. Notably, in August 2021 Ms Chapman emailed Egos forwarding a query received from an agency about Clause 3.8. Clearly, Ms Chapman herself did not understand the relevance of Clause 3.8. Egos’ response was “This section is a 'placeholder', and is there in case you enter into an arrangement to offer such a facility. So you might answer that we do not have a pay advance partner, or offer pay advances, at the present time. I'm unclear why an agency regards this as something they feel they need to know about!” Egos’ response shows both the standard nature of the COE and that Egos was ignorant of the Bonus Scheme. In short, Hive, without informing Egos, chose to use a COE drafted for a standard umbrella company for a structure, namely the Bonus Scheme, for which it had not been designed. The contract workers were required to sign these contracts to work with Hive.

The Bonus Arrangement Letter (“BAL”):

[29]The contract workers were not required to sign the BAL. It simply provided information.

[30]At the outset, it read as follows:

“We are writing to confirm details of your engagement with Hive Umbrella Ltd (the Company) as your employer. This document is an important addition to your contract of employment, the detail within. The Company has made a commercial decision to make available a bonus for workers who choose to take part. This bonus is designed to incentivise employees to stay with the company and work as much as they can. The more they contribute to the company, the greater the bonus becomes. Workers who take part in the bonus, have the opportunity to receive a greater return for their effort when the bonus is paid. The Company will benefit from an initial larger margin which we will re-invest in the Company to aid growth and eventual success which will enable the release of any bonuses to you in in the future. The bonus and associated advances are not designed to create a tax advantage. When you agree to enter this arrangement, you agree to pay all taxes and national insurance contributions as they become due…”

[31]The Bonus Scheme was stated to operate as follows:(1) The bonus was discretionary and dependent on Hive’s overall performance.

(2) Enrolment in the Bonus Scheme was optional. A Scheme User could opt in and opt out at any time.

(3) In return for accepting a lower salary, a Scheme User would be enrolled on a discretionary bonus based on the overall performance of Hive which may deliver a higher income in the future.

(4) The discretionary bonus was only payable after 3 years of full trading or the achievement of Hive’s financial targets. We note that the financial targets were not set out in the BAL. The financial targets were determined in the forecasted business plan produced by Ops360. The business plan was not available to the Scheme Users meaning that they could not make an informed choice about the likelihood of receiving any bonus.

(5) A contractor’s contribution was measured through the work conducted for Hive and the income generated towards the bonus.

(6) There were at least 3 possible outcomes from participation in the bonus: (a) On Target: The Contractor would receive a bonus equal to the income they generated for the bonus. (b) Exceed Target: The Contractor would receive a bonus greater than the income they generated for the bonus. (c) Below Target: The Contractor would receive a bonus less that the income they generated for the bonus.

(7) On payment of a bonus, a statement would be issued to illustrate how the bonus had been decided.

(8) No income tax or national insurance was due on the bonus until it was paid out.

(9) Further, in return for the salary sacrifice, Hive would make available to Scheme Users advances on the bonus in the form of loans up to a value of no more than 85% of the on target future bonus payment.

(10) The advances were made for a fixed term of 50 years from the date of the advance and carried interest at a rate equivalent to the published HMRC rate at the time and varied in accordance with HMRC guidance. The notice of interest showed the date the period of interest was for, which always coincided with the tax year end, that the interest rate is that of HMRC’s official rate from when the loan was taken out, how much interest was due and the advance balance outstanding.

(11) The advances were made from Hive (as Employer) to a Scheme User (as Employee). No third parties were involved.

(12) The Scheme User did not need to make any interim repayments of the advances, repayment would be dealt with at the time of the final bonus. If there was a shortfall, Hive would contact the Scheme User regarding repayment. However, if any advances were repaid before the next monthly pay cycle no interest would be charged.

(13) Hive would write to the Scheme User at least annually to inform them of the balance of any advances and any interest owing.

(14) If, for any reason, Hive was unable to pay a bonus at any time Hive would write to the Scheme User setting out their options and explaining the next steps with regard to any outstanding advances.

(15) If a Scheme User left Hive’s employment then, Hive would “…be unable to process any future bonus though payroll. Should we subsequently pay a bonus, you will need to declare your advances as income and pay the necessary income tax and national insurance. We may write to you and ask you to repay some or all of the advances in the event [Hive] is not able to pay a bonus. A decision is entirely at our discretion and we will write to you to inform you of your options.”

[32]Ms Chapman’s very clear evidence was that she wrote the BAL without any assistance. We observed that the BAL is a technical document which appears to address the DOTAS Regime. We asked Ms Chapman if she recalled how she was able to produce the BAL. In response, she said that she could not fully recall due to the passage of time but “… I had heard about the bonus scheme arrangement obviously within industry, so I sort of took the points that I could from there and used that to make the letter.” In all of the circumstances and, in particular, noting that Ms Chapman is not legally trained, that she instructed Egos to draft the COE and that she struggled to explain how the Bonus Scheme operated, we are not satisfied that Ms Chapman wrote the BAL without assistance.

[33]There was some confusion as to whether or not the contract worker would have seen the BAL before completing the online application form and the COE. In her witness statement, Ms Chapman stated that the BAL should be read alongside the COE and, consequently, they were sent out together to contract workers during the onboarding process. However, in cross examination Ms Chapman repeatedly stated that the contract workers did not have access to the BAL until the onboarding process was complete and access had been granted to the portal. When we queried the discrepancy, Ms Chapman’s response was unconvincing and evidenced her own confusion, stating “Sorry. I can’t – I thought it was on the portal. We could have sent them out as well by email. The idea was that they would have them on the portal as reference. Obviously emails can get lost in translation. Or lost in junk mail., etc, but … I’m sorry, probably we did probably send them as email as well. I’m sorry, I omitted that at the time.” We are not satisfied that the BAL was sent out to contract workers along with the COE. We find that the first time a Scheme User would have been able to view the BAL was once they were fully onboarded and given access to the portal, and only then if they searched for the BAL within the portal. In reaching this finding, we have referred to and relied on the following factors. First, that there is no documentary evidence, such as email correspondence, showing that the BAL was sent out with the COE. Second, that no Scheme Users have referred to or forwarded the BAL. Third, that one Scheme User, in fact, emailed Hive querying “…Why do the figures on each payslip not match up with the hours I worked or the wage I earned. They also don’t tally up with the money paid into my bank account. What are the Advance Advice sheets for? Has any tax or National insurance been paid on the advances? If so where can I find these figures? Where have my pension contributions been paid to?...” Clearly, this Scheme User did not understand the Bonus Scheme. Accordingly, the content of this email is inconsistent with a policy of transparency that involves sending the BAL along with the COE, before a contract worker is fully onboarded.

[34]Further, we note that the Bonus Scheme was stated to be optional and that a Scheme User could opt in or opt out at any time. We have considered §38 of Ms Chapman’s first witness statement and the table attached to Hive’s Supplementary Note, both of which purport to identify 6 Scheme Users who had opted out, being NZ, JP, KK, MO, FH and SAN. The basis on which these 6 Scheme Users were identified as having opted out was unclear. In evidence, Ms Chapman said that maybe one third of the Scheme Users opted out. She also stated that a Scheme User who had opted out would not have a BAL. However, both NZ and FH had a BAL within their documentation. In explanation, Ms Chapman suggested that these BALs were either included in error or the individuals had opted in and then opted out. However, there was no evidence in support of this. In Ms Chapman’s first witness statement she relied on Annex C: Annual leave pay advances form as evidence of opting in, stating that “In order to sign up for the bonus and loan advances, the employee would tick the box on Terms and Conditions.” However, Annex C concerns only the payment of annual leave. It does not concern the Bonus Scheme, namely a salary sacrifice. We are not satisfied that completion of Annex C indicated either opting in or out of the Bonus Scheme. We have not seen any of the application forms completed by the Sales Consultants so as to determine whether the Scheme Users opted in or out of the Bonus Scheme at this stage. Further, there is nothing in the online application form completed during the onboarding process that specifically references the Bonus Scheme. Mr Belli in his evidence referred to RTI data that suggested some Scheme Users had opted out. However, Mr Belli conceded that the data was only a snapshot and there could have been advances pre/post that snapshot. In the absence of clear documentary evidence, we are not satisfied that any Scheme Users, in fact, opted out of the Bonus Scheme.

The Operation of the Bonus Scheme:

[35]As to the operation of the Bonus Scheme, Ms Chapman explained that where a Scheme User had ‘opted in’ then the more work they did, the more money in the bonus pot and the greater the potential reward. Ms Chapman was cross-examined in detail as to the operation of the Bonus Scheme. The following exchange, whilst lengthy, was illuminating:

“Ms Vicary: As I understand what you are saying, you are saying somehow you are investing this £210 to create a bonus pot that will pay off the loan, just for this one week, of £881 and possibly a bit more. So in three years you are looking at a return on investment of over 400 per cent. What investment vehicle are you using? Ms Chapman: I’m sorry, I can’t answer that. I have accountants and financial people to help me with things and I don’t, I don’t, I can’t answer that one, I’m afraid. Sorry… Ms Vicary: What you are saying to your clients, to your employees, in this letter, a bonus arrangement letter, is: “We are going to create a bonus pot which will pay off your loan.”

Is that also correct? “So the £881.52, if you stay with us for three years, at the end of the three years that loan will be paid off by a bonus,” I think is what you say. Ms Chapman: I may have, I may have got that slightly wrong. So there isn’t actually a physical bonus pot. That’s obviously been used to pay the advances week by week through the three - or to the time that we had to stop. So there isn’t a physical amount of money in a bank somewhere, of the bonus pot, it was the advances, that was used to pay the advances. Ms Vicary: Yes, so we know that was the case, but obviously if you were telling people that, that is not what you are telling people in the letter, is it? You are telling people in the letter - you are not saying there is a fantasy bonus pot that does not actually exist, which is what you are now telling us, you are telling us in this letter there is a bonus pot from which your loan will be paid off, and it is incentivising you, it is going to give you a greater return. Ms Chapman: I think - I sort of used the word, referred to the word the opportunity to receive it. It wasn’t a guaranteed result. Again we probably would never have known that because we couldn’t process that. Ms Vicary: I am trying my best to be fair here. Ms Chapman: Sorry. Ms Vicary: I am just really trying to understand your position. So when you wrote this letter, it seems to me there is two options: either you have written this in bad faith when you have written there is a bonus pot and you knew it did not really exist - was that what happened? Ms Chapman: No, the bonus pot structure, there was no physical bonus pot in the bank that they were - we were going to pay out everything at the end. It was being - the advances were being paid from that pot as they went along. Ms Vicary: I am not sure what you are describing. Are you familiar with the term a Ponzi scheme? Ms Chapman: No. Ms Vicary: Because that is the only other explanation I can think of here, where it sounds like new users into the scheme are effectively paying for the old ones. Ms Chapman: Um … Ms Vicary: Okay, you are going to have to explain to me how this bonus was going to be paid. Where is that money coming from? When you wrote this letter, what did you understand? Ms Chapman: They had already had the bonus as advances against a future bonus. Tribunal Judge Newstead Taylor: : Sorry, say that bit again for me, Mrs Chapman. They had already had … Ms Chapman: They were receiving the advances against the future bonus pot. Tribunal Judge Newstead Taylor: How is the future bonus pot - where is the future bonus pot coming from? Ms Chapman: Any residual that we have left over from cost, etc. Ms Vicary: Okay, so looking at these figures - I am going to come to your business plan in a bit, but I am just trying to understand the basics when you wrote the letter. To use your terms, come from any residual, okay? So just looking at this, £210, I think, is your fee in this one week we are looking at. Yes? So that is your money that the company has taken, the gross amount that you have retained, and from that you are paying your company expenses. Then is it after all your expenses have been paid you are essentially taking your net profit figure, investing that and you are hoping that is going to create a bonus pot? Ms Chapman: Yes. Tribunal Judge Newstead Taylor: Where was this money being invested? Ms Chapman: It was probably just being held in an account. There wasn’t, you know, there wasn’t the big bonus pot, it was just cash flow in the bank. Ms Vicary: So if we are going to get real about this, you cannot give us any sort of coherent explanation as to how these advances were going to be paid back. I think that has to be fair. Unless you want to give me another explanation – Ms Chapman: That’s fair, that’s fair. I’m sorry, that’s fair, yes… Ms Vicary: So if that is fair, which I think it has to be, on what basis are you saying this was a loan? Ms Chapman: Because they were getting loans against the bonus pot. So the pot wasn’t there, they were receiving loans against it. Ms Vicary: Against something that didn’t exist. Ms Chapman: Their … The advance payment, the advance amounts would have been the bonus pot, they were getting loans from that advance amount, that bonus pot that could - sorry.” (Emphasis added) Ms Chapman: Um … Tribunal Judge Newstead Taylor: Where was this money being invested?

Ms Chapman: That’s fair, that’s fair. I’m sorry, that’s fair, yes…

[36]In summary, Ms Chapman could not give a coherent explanation of the Bonus Scheme. She confirmed that there was no physical bonus pot per se and no investment vehicle, of which she was aware. In reality, Hive’s residual funds after payment of Employer’s NIC, Pension Contributions and operating costs, was retained as cashflow in Hive’s bank account. We note that Hive did not undertake an ongoing calculation of the amount of the potential bonus pot as against the amount of advances made. Therefore, it did not know what was owed either from Hive to the Scheme Users or vice versa. Further, in these circumstances it is unclear how Hive calculated the advances at 85% of the on-target bonuses. In reality, they didn’t. We accept HMRC’s submissions that the net retained sums were insufficient to form a ‘bonus pot’ from which bonuses could be paid and against which the advances could be offset, especially since these monies were simply cashflow in Hive’s bank account as opposed to being invested.

[37]We do not accept that Hive ever intended to pay bonuses to the Scheme Users. It did not do so on its 3-year trading anniversary 31 July 2023, being after the Stop Notice but before Ms Chapman sold Hive to Acquisitions Hub Ltd. Further, as Hive only ever reached a fraction of its forecasted position, with peak Contractor numbers being 305 paid in one month, it did not reach its financial targets, and, consequently, no bonuses were paid. None of the Scheme Users have, at any time, received a bonus.

[38]Hive contends that the advances were genuine loans, as stated at §§3 and 13 of Mr Hickey’s Skeleton Argument. We do not accept that the advances were genuine loans. We note that there were no loan agreements. No assessments of eligibility. Hive never expected the advances to be paid back, as, to some extent, reflected in the 50-year term of the advances. Hive never demanded repayment of the advances. It is far from clear that the Scheme Users knew that the advances were ‘loans’. As acknowledged by Ms Chapman, the Scheme Users “…had already had the bonus as advances against a future bonus.” We consider that this comment gets closest to the truth of the situation and that this reality is reflected in the business plan where the advances are included within cost of sales. The reality is that the advances were income not loans, but by packaging the advances as loans the Scheme Users received these sums without deductions for tax and NIC which was to be deferred for (approximately) 3 years or until Hive met its financial targets.

Payslips:

[39]It is Hive’s case that the Scheme Users’ rates of pay were agreed. Specifically, for those on the Bonus Scheme, that a salary sacrifice was agreed. However, there was no documentary evidence showing the agreed salary sacrifices for any Scheme User.

[40]There was no direct contractual relationship between the end user and Scheme Users. The contract for services was between Hive and the agency or end client. Hive would either send an invoice for the time worked by the Scheme User or receive a self-bill invoice from the agency, which would then be paid directly to Hive and then be processed through payroll with applicable deductions.

[41]The payslips generated by Hive listed 3 payments. First basic pay which was National Minimum or Living Wage multiplied by the number of hours worked. Second, Commission. Third, Holiday Pay calculated at 12.70%. Ms Chapman referred to the three elements as the standard umbrella calculation. Notably, in cross examination, Ms Chapman was unable to explain the second element (Commission) save for stating that it was simply the total income less Holiday Pay and Basic Pay, that it was driven by the system and that Hive could have varied the category title from ‘Commission’ to anything else. It remains unclear why Commission was separated out from Basic Pay. From the total income deductions were made for tax, national insurance and auto-enrolment pension contributions leaving Net Pay. Accordingly, income tax and national insurance were calculated on the NMW/NLW, Commission and Holiday Pay.

[42]In addition, the Scheme Users who had opted in to the Bonus Scheme received loan advances. The loan advances were recorded on Advance Notices detailing the date, reference, description and amount of the advance under the heading ‘Credit.’ No income tax or national insurance deductions were made in respect of the advances.

[43]The Scheme Users received combined payments (comprising Net Pay and the Advance) into their bank accounts. Notably, the total paid into the Scheme User’s bank account did not always equate to the total of the Net Pay plus the Advance. Ms Chapman was unable to explain these discrepancies.

Hive’s Fee:

[44]Ms Chapman agreed that a ‘vanilla’ company, by which the parties meant an umbrella company not operating a Bonus Scheme but paying its Scheme Users PAYE, charged £15-20 per person per payroll.

[45]As to Hive, it is clear from an analysis of the invoice to the end client and the Scheme User’s payslip that the amount invoiced by Hive to the agency / end-client was higher than the total income on the payslip. Hive contends that the difference was gross profit before expenditure and covered commercial running costs, insurances, marketing, investment in growth of the business and SMP/SSP.

[46]In cross-examination, the following exchange took place as to Hive’s fee : “Ms Vicary: How do I calculate your fee from what I see on this invoice or from what I see on the pay slip? Ms Chapman: That would vary ---that would have varied.’ Ms Vicary: How do you mean it would have varied? Ms Chapman: I can’t remember how it did. I’m really sorry, I’m struggling with this.”.. Ms Vicary: Just so I can understand that, this is your business, it is you, you have set it up, it is your business model that operates with a variable fee that you cannot identify? What caused it to vary? Ms Chapman: It would be from their --- from what I can remember, we would have agreed an amount for them to be paid so that we could retain the fee and that would include then the operating costs, so ---… Ms Vicary: So why would someone want to pay you £50 per person per payroll if they are not even on your bonus arrangement scheme? Ms Chapman: I can’t speak for them obviously personally. It could have been to do with the fact that the agency would only want to use Hive umbrella or a certain umbrella but that was obviously down to the contractor. Ms Vicary: Did they [the Scheme Users] even know what you were charging? Ms Chapman: Yes. Ms Vicary: How? Ms Chapman: They would see it on their payslips. Ms Vicary: Where do I see on the payslips what you are charging? Ms Chapman: They would have been able to work it out from their deductions. Ms Vicary: How? Ms Chapman: Just as we have done now with the invoice amount and the salary amount. Ms Vicary: So you would expect them to know to go online and calculate what your employer national insurance contribution was and your pension contribution that does not appear on their payslip. You would expect them to know how to calculate it and from that make the calculation that your barristers have done to arrive at the result that you are being paid £49.76? Ms Chapman: Yes." Ms Chapman: That would vary ---that would have varied.’ Ms Vicary: How do you mean it would have varied? Ms Vicary: Did they [the Scheme Users] even know what you were charging? Ms Vicary: How? Ms Vicary: Where do I see on the payslips what you are charging? Ms Vicary: How? Ms Chapman: Yes."

Ms Vicary: How?

[47]Unfortunately, Ms Chapman was unable to explain to the Tribunal how the fee varied, albeit she later suggested that the salary sacrifices were not the same for everyone and these “…would feed through the calculations and provide for the differences in percentages.” It is not clear to us, nor was it any more fully explained, how the precise salary sacrifice impacted upon the fee charged by Hive given the fact that the same level of administration was required in running each worker’s payroll regardless of their salary. No documentation was within the bundle that showed the Scheme Users agreeing to any fee, let alone a variable fee. However, it was apparent from an analysis of the invoices and payslips within the bundle, as detailed in Hive’s Supplementary Note, that the fee did in fact vary. Notably, within the individuals who had purportedly opted out of the Bonus Scheme the fee varied from 3% to 11%, meaning that on one payroll FH paid a fee of £124.98. Further, within the individuals who purportedly opted into the Bonus Scheme the fee varied from -12% to 23%, such that on one payroll JO paid a fee of £1,2241.14. We consider Ms Chapman’s suggestion, that a Contractor could calculate Hive’s fee from the invoice and payslips, to be implausible

[48]In cross examination, when presented with the varying fees, the following exchange took place:

“Ms Vicary: …Are you able to assist with anything that your company told people that would mean they would be willing to pay something that was eight or nine times more than they could get from a standard vanilla company? Ms Chapman: I have to say I can’t recall and those are excessive compared to the others so I can only assume that somewhere there has been a payroll error that was missed at the time, I’m sorry. Ms Vicary: Sorry, what is the error? Ms Chapman: That they are such high percentage compared to the others. Ms Vicary: So it is an error that one person is paying ten percent and one person is paying 11 percent? Ms Chapman: Possibly. I’m really sorry, I can’t recall. Ms Vicary: You are not able to help me with what the fee should have been? Ms Chapman: From memory I tried to base it around the five per cent mark, so those are higher than that, I appreciate that.”

Ms Vicary: Sorry, what is the error?

[49]On 15 June 2020, Hive was VAT registered and submitted quarterly VAT returns until it was deregistered on 8 August 2023.

[50]In July 2020, Hive onboarded the first contractor. On 3 July 2020, Hive registered as an Employer with HMRC, operating a PAYE scheme under reference 120NE16501. It submitted daily RTIs to HMRC as part of the payroll process.

[51]On 31 July 2020, Hive ran the first payroll.

[52]In 2021, Ms Chapman experienced some ill health that coincided with an increase in Contractor numbers. Up to this point, Ms Chapman had carried out all operational roles herself. However, having considered her options, Ms Chapman decided to outsource the operational side of Hive to Ops 360 who was already running operations for a number of companies including umbrellas. Ops 360 was given access to the full suite of documents, including employment contracts, the BAL and the payroll system. Ms Chapman considered that the use of Ops 360 created a competitive advantage and aided efficient handling of workload. Once outsourced, Ms Chapman continued to maintain daily contact with the new team and would forward mail and queries and communicate with agencies as and when required.

[53]On 10 June 2021, s.310D FA 2004 came into force. The contracts of employment of BW and RM were signed after 10 June 2021.

[54]On 21 January 2022, HMRC became aware of an employee entering into COE with Hive dated 12 July 2021.

[55]On 24 June 2022, HMRC issued a S.310D FA 2004 notice to Hive. The notice confirmed that unless Hive was able to persuade HMRC that the arrangements described in the notice were not notifiable, then HMRC may issue an SRN. A response was requested by 24 July 2022. No response was received.

[56]On 4 August 2022, HMRC wrote to Hive issuing an SRN.

[57]Due to an error distributing post at Hive’s serviced offices, Hive received the s.310D Notice and the SRN decision the same day.

[58]On 9 September 2022, HMRC wrote to Hive stating that Hive would be published on their website as a promoter of a tax avoidance scheme.

[59]On 30 September 2022, Hive appealed HMRC’s decision to issue an SRN.

[60]On 23 February 2023, HMRC wrote to Hive stating that Hive Umbrella was going to be named on the ‘List of named tax avoidance schemes, promotors, enablers, and suppliers’ pursuant to s.316C FA 2004.

[61]In March 2023, HMRC sent a Stop Notice to Hive meaning that Hive had to stop trading and could no longer bring any new business into the company. Unfortunately, Hive continued trading for a short period after the Stop Notice as Ms Chapman failed to understand the severity of the situation. As a result of the publication and subsequent Stop Notice, there was a sizeable decline in employee numbers as agencies moved their Scheme Users out and into other umbrella companies and sales slowed. The Stop Notice prevented Hive from marketing or attracting new Scheme Users. Whether or not Hive would have survived absent the Stop Notice is not clear and is a matter outside the remit of this decision.

[62]The 31 July 2023 was Hive’s three-year trading anniversary. No bonuses were paid.

[63]On 9 November 2023, Ms Chapman resigned as the sole director of Hive. She sold her shares to Acquisition Hub Ltd, a company based in Dubai. She was not involved with Acquisitions Hub Ltd, that company approached her to buy Hive making an offer that Ms Chapman accepted. She does not know anything about Acquisitions Hub Ltd or those behind it, albeit to her knowledge Mr Wood, who was in Dubai at the time of the hearing, is not involved with Acquisitions Hub Ltd.

The DOTAS Regime & The Law

[64]This appeal concerns the Disclosure of Tax Avoidance Schemes (‘DOTAS’) regime contained within Part 7 of the Finance Act 2004 (‘the FA 2004’). As succinctly summarised by Ms Vicary, the DOTAS regime is a set of administrative measures designed to impose duties to provide advance warning to HMRC of tax avoidance schemes. The objective of the DOTAS regime is to provide HMRC with early information about certain tax arrangements, from which obtaining a tax advantage is or might be expected to be a main benefit, see R (on the application of Walapu) v Revenue & Customs Commissioners

[2016] EWHC 658 (Admin)

STC 1682 at §§ 11-1.

[65]Further, we are grateful to Judge Sukul for her analysis of the relevant legislation in Greenwich Contracts Ltd v The Commissioners for His Majesty’s Revenue & Customs

[2023] UKFTT 874 (TC)

(“Greenwich”) at §§11-17 as follows:

“11. Section 310D(1) applies where HMRC have become aware that a transaction forming part of arrangements has been entered into, or a proposal for arrangements is made available for implementation, and HMRC have reasonable grounds for suspecting that the arrangements are notifiable. 12. Under section 310D(2), HMRC may issue a notice of potential allocation of reference number to a person explaining that, unless the person is able to satisfy HMRC, before the end of the notice period, that the arrangements or proposal are not notifiable, HMRC may allocate a reference number to the arrangements. 13. Section 310D(4) states that a notice under this section must be issued to any person who, on the day the notice is issued, HMRC reasonably suspect to be a promoter in relation to the arrangements or proposal and section 310D(5) provides that a notice under this section may be issued to any other person who HMRC reasonably suspect to be involved in the supply of the arrangements. 14. Section 311(3) provides for the allocation of a reference number to arrangements where a notice in relation to arrangements has been issued in accordance with section 310D (notice of potential allocation of reference number), the notice period has expired, and the person to whom the notice was given has failed to satisfy HMRC, before the expiry of the notice period, that the arrangements are or the proposal is not notifiable. HMRC may at any time withdraw such a reference number under section 311(8). 15. Section 311(9) states that the allocation of a reference number to arrangements or proposed arrangements is not to be regarded as constituting an indication by HMRC that the arrangements could as a matter of law result in the obtaining by any person of a tax advantage. 16. Where such a reference number is allocated, section 311A(2) requires HMRC to notify the number to any person who HMRC reasonably suspect to be, or to have been, a promoter in relation to the arrangements or the proposed arrangements, and any other person who HMRC reasonably suspect to be, or to have been, involved in the supply of the arrangements or the proposed arrangements. Section 311A(3) provides that the duty applies irrespective of whether the notice under section 310D as a result of which the reference number was allocated has been issued to the person concerned. 17. A person who has been notified of such a reference number may appeal to the tribunal against its allocation only on the basis of the specific grounds set out in section 311B(3)...”

[66]The relevant sections of the FA 2004 are set out and considered, as appropriate, below.

The Issues

[67]Hive’s single GofA is whether or not the arrangements are in fact notifiable arrangements, s.311B(3)(c) FA 2004.

[68]On request, the parties produced an agreed list of sub-issues as follows:(1) Was Hive a promoter as defined by s.307 (1) FA 2004?

(2) Are there notifiable arrangements within s.306 (1) (a-c) FA 2004? (a) Do the arrangements fall within any description prescribed by the Tax Avoidance Schemes (Prescribed Description of Arrangements) Regulations 2006 (“the Regulations”)? (b) Do the arrangements enable, or might they be expected to enable, any person to obtain an advantage in relation to any tax that is prescribed in relation to the arrangements, s.306 (1) (b) and 318 FA 2004? (c) Are such that the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage?

[69]The burden of proof on all issues rests with Hive, Greenwich at §§19 - 29. The standard of proof is the usual civil standard, namely on a balance of probabilities.

[70]In deciding whether or not the arrangements are in fact notifiable arrangements under s.311B(3)(c) FA 2004, we have considered each of the sub-issues in turn.

Analysis

(A) Was Hive a promoter as defined by s.307 (1) FA 2004?

[71]Whilst Hive accepts that HMRC’s view was that it reasonably suspected Hive to be a promoter for the purposes of s.310D (4) FA 2004; it is not accepted by Hive that they were a promoter within s.307 (1) FA 2004 as required by the Regulations.

[72]S.307 FA 2004 provides, as relevant:

“307 Meaning of “promoter” (1) For the purposes of this Part a person is a promoter - (a) in relation to a notifiable proposal, if, in the course of a relevant business, the person (“P”) (i) is to any extent responsible for the design of the proposed arrangements, … (iii) makes the notifiable proposal available for implementation by other persons, and (b) in relation to notifiable arrangements, if he is by virtue of paragraph (a)(ii) or (iii) a promoter in relation to a notifiable proposal which is implemented by those arrangements or if, in the course of a relevant business, he is to any extent responsible for - (i) the design of the arrangements, or (ii) the organisation or management of the arrangements. (2) In this section “relevant business” means any trade, profession or business which - (a) involves the provision to other persons of services relating to taxation, or…” (a) in relation to a notifiable proposal, if, in the course of a relevant business, the person (“P”) (i) is to any extent responsible for the design of the proposed arrangements, … (iii) makes the notifiable proposal available for implementation by other persons, and (b) in relation to notifiable arrangements, if he is by virtue of paragraph (a)(ii) or (iii) a promoter in relation to a notifiable proposal which is implemented by those arrangements or if, in the course of a relevant business, he is to any extent responsible for - (i) the design of the arrangements, or (ii) the organisation or management of the arrangements. (a) involves the provision to other persons of services relating to taxation, or…”

[73]As to s.307 (1) (a) (iii), Hive made the notifiable proposal available for implementation by others in that Hive marketed the Bonus Scheme via the Sales Consultants and during the onboarding process, Hive was a counter signatory to the COE, Hive issued documents required to participate in the Scheme, such as COE and BAL and Hive entered into arrangements with end clients / agencies to facilitate implementation by the Scheme Users.

[74]Further, Hive is a promoter in relation to notifiable arrangements in accordance with s.307(1) (b) (i-ii). First, because by virtue of s.307 (1) (a) (iii) Hive is a promoter of a notifiable proposal which is implemented by those arrangements. Second because Hive, as a relevant business, was responsible, at least to some extent, for (i) the design of the arrangements (s.307 (1) (b) (i)) and (ii) the organisation or management of the arrangements (s.307 (1) (b) (ii)). (1) As to a relevant business, we are satisfied that Hive comes within the definition, namely any business involving the provision to other persons of services relating to taxation. Firstly, we note that Hive provided payroll services. Secondly, we agree with the Tribunal in HMRC v Curzon Capital Ltd [2019] UKGFTT 63 (TC) (“Curzon”) that ‘services relating to taxation’ is sufficiently broad to cover the activity of administering a tax avoidance scheme. We have considered the decision in HMRC v Smartpay Ltd

[2022] UKFTT 146

TC where Judge Malek stated that “…’Related’, of course , connotes a degree of nexus or connectivity and, as I have said, cannot mean any and all services that are tangentially related to taxation. It will always be a question of degree and each case will turn on its own facts.” We have no hesitation in concluding, on the facts of this case, that Hive’s business has the necessary degree of nexus or connectivity to taxation, as set out above, to come within the definition of ‘relevant business.’

(2) As to the design of the arrangements, s.307 (1) (b) (i), Hive, via its controlling mind Ms Chapman, was responsible for the design. This was Ms Chapman’s very clear evidence. Notably, Ms Chapman was aware, from her time in the industry, of the bonus pot structure and “… thought it was time to try it and see if I could make it work.” She, as Hive’s sole director, instructed Egos to produce COE, without telling Egos about the Bonus Scheme and she, with assistance, drafted the BAL. For the avoidance of doubt, we do not think that the involvement of others such as Egos and/or any unknown third parties militate against Hive’s responsibility.

(3) As to the organisation and management of the arrangements, Hive instructed the Sales Consultants and Ops 360, Hive’s director initially undertook the operational side of the business including the onboarding process, Hive provided the COE to the Scheme Users, collated time sheets for the Scheme Users, issued invoices to End clients / agencies, made payments to the Scheme Users, prepared and issued payslips, advance advices, interest statements and provided RTI to HMRC.

[75]In our view, Hive was a promoter within the meaning and effect of s.307 (1) (a) (iii) and (b) (i) and (ii). (B). Are there notifiable arrangements within s.306 (1) (a-c) FA 2004?

[76]In order to decide whether or not there are any ‘notifiable arrangements’, we must consider whether there are any arrangements which:(1) fall within any description prescribed by the Treasury by regulations, s.306 (1) (a) FA 2004,

(2) enable, or might be expected to enable, any person to obtain an advantage in relation to any tax that is prescribed in relation to the arrangements, s.306 (1) (b) and 318 FA 2004, and

(3) are such that the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage, s.306 (1) (c) FA 2004.

[77]As to arrangements, Hive accepts that the term ‘arrangements’ means “any scheme, transaction or series of transactions”, s.318 FA 2004. Hive takes no issue on the definition and scope of the term, by which we understand that Hive accepts that the definition at s.318 FA 2004 is met. For the avoidance of doubt, we are satisfied that that definition is met. We note that Hive’s services included, at a minimum, the following transactions. First, Hive entered into COE with the Scheme Users and contracts with the end client / agent. Second, Hive received payments from the end client. Third, Hive issued payslips, advance advices and interest certificates. Fourth, Hive paid PAYE and NIC on the NMW, Commission and Holiday Pay components of the payslips. Fifth, Hive paid the net pay, as per the payslip, to the Scheme User. Sixth, Hive paid the advances to the Scheme Users.

[78]We proceed to consider Ss.306 (1) (a-c) in turn, each of which must be satisfied for there to be ‘notifiable arrangements’. (i). Do the arrangements fall within any description prescribed by the Tax Avoidance Schemes (Prescribed Description of Arrangements) Regulations 2006 (“the Regulations”)?

[79]HMRC contends that Hive’s arrangements fall within one or more of the descriptions prescribed by the Regulations. The Regulations set out various hallmarks (‘the Hallmarks’). HMRC contend that the arrangements fall within the following Hallmarks; Regulations 8, 10, 18 and/or 19. Hive disagrees. We will consider each of the hallmarks in turn.

(a) Regulation 8: Premium Fee Hallmark

[80]Regulation 8, Description 3 Premium Fee provides:

“8.—(1) Arrangements are prescribed if they are such that it might reasonably be expected that a promoter or a person connected with a promoter of arrangements that are the same as, or substantially similar to, the arrangements in question, would, but for the requirements to disclose information under these Regulations, be able to obtain a premium fee from a person experienced in receiving services of the type being provided. But arrangements are not prescribed by this regulation if— (a) no person is a promoter in relation to them; and (b) the tax advantage which may be obtained under the arrangements is intended to be obtained by an individual or a business which is a small or medium-sized enterprise. (2) For the purposes of paragraph (1), and in relation to any arrangements, a “premium fee” is a fee chargeable by virtue of any element of the arrangements (including the way in which they are structured) from which the tax advantage expected to be obtained arises, and which is— (a) to a significant extent attributable to that tax advantage, or (b) to any extent contingent upon the obtaining of that tax advantage.”

But arrangements are not prescribed by this regulation if—

[81]Regulation 8 imposes a hypothetical and objective test, see CountrywidePartners Ltd (formerly known as IPS Countrywide Ltd) v Revenue & Customs Commissioners

[2024] UKFTT 323 (TC)

(“Countrywide”) §136. As stated in Greenwich §89:

“89. This hallmark does not require that a premium fee is paid; only that it might be reasonably expected that a promoter of substantially similar arrangements would be able to obtain a premium fee from a person experienced in receiving services of the type being provided. (See HMRC v Hyrax Resourcing Ltd & Ors [2019] UKFTT 175 (TC) (‘Hyrax’) at [211]) The parties agree that the actual fee can be taken into account when considering the hypothetical test.”

[82]Hive, as detailed at §§ 44 - 48 above, obtained a fee from the Scheme.

[83]We are satisfied that the fee retained by Hive was the equivalent of the Scheme Users paying a Premium Fee and, consequently, that the hypothetical test imposed by Regulation 8 is met.

[84]In reaching this conclusion, we have referred to and relied on a number of factors. First, that the fee is a variable percentage and not a flat fee. We have considered Hive’s argument that because the fee was variable as opposed to uniform this indicates that it was not a Premium Fee. We disagree. Regulation 8 does not require a Premium Fee to be a set amount. Second, the fee was paid from income generated by the Scheme User’s economic activity and was deducted from the gross amounts due to the Scheme Users prior to calculating the Basic Pay, Commission and Holiday Pay. Third, the greater the gross contract value the greater the tax advantage intended to be obtained. Accordingly, there was a direct link between the fee charged and the tax advantage expected to be obtained. Fourth, as in Hyrax §222, Hive was in effect splitting the expected tax saving with the Scheme User. Fifth, it was paid at the expense of the Scheme User. In short, it was the cost of their entering into and participating in the scheme. Sixth, the fee remunerated Hive for the Scheme. Seventh, given that the same level of administration was required in running each worker’s payroll, the fee was not referable to or intended to reflect Hive’s work administering payroll, if it had been then a uniform fixed fee would be expected. Eighth, the fee was significant, notably considerably more than the standard £15-20 per week charged by ‘vanilla’ umbrella companies. Ninth, given that, save for the Bonus Scheme, Hive did not provide any services additional to those provided by a vanilla umbrella company, the only reasonable explanation for Hive retaining such a fee was that the Scheme was expected to give rise to a tax advantage, see §§ 100 - 101 below.

[85]For the avoidance of doubt, we note that the exemption provided in Regulation 8 (1) (a-b) does not apply as Hive was the Promoter of the Scheme.

[86]In all the circumstances, we are satisfied that a promoter of substantially similar arrangements would be capable, in a hypothetical scenario, of charging a Premium Fee; Hyrax §214.

(b) Regulation 10: Standardised Tax Product Hallmark

[87]Regulation 10, Description 5, Standardised Tax Products provides:

“10.—(1) Arrangements are prescribed if the arrangements are a standardised tax product. But arrangements are excepted from being prescribed under this regulation if they are specified in regulation 11. (2) For the purposes of paragraph (1) arrangements are a product if— (a) the arrangements have standardised, or substantially standardised, documentation— (i) the purpose of which is to enable the implementation, by the client, of the arrangements; and (ii) the form of which is determined by the promoter, and not tailored, to any material extent, to reflect the circumstances of the client; (b) a client must enter into a specific transaction or series of transactions; and (c) that transaction or that series of transactions are standardised, or substantially standardised in form. (3) For the purpose of paragraph (1) arrangements are a tax product if it would be reasonable for an informed observer (having studied the arrangements) to conclude that the main purpose of the arrangements was to enable a client to obtain a tax advantage. (4) For the purpose of paragraph (1) arrangements are standardised if a promoter makes the arrangements available for implementation by more than one other person.”

[88]We are satisfied that Regulation 10 is met. In reaching this decision, we have referred to and relied on the following points. First, the BAL and COE were standardised, functionally identical and uniform in that they were the same for all of the Scheme Users. Second, the purpose of the BAL and the COE was to implement the Scheme, a contractor could not participate in the Scheme unless they had signed the COE. Third, the Scheme Users had no input into the drafting of either the BAL or the COE. The form and content were determined by Hive. As to the BAL, this was drafted by Ms Chapman with assistance. As to the COE, Ms Chapman, due to her previous knowledge of their products, chose Egos to draft the COE. Ms Chapman chose the Light Package. We do not think that the fact that the COE were drafted by Egos militates against the fact that the form was chosen by Hive, via Ms Chapman. The COE were drafted on behalf of and further to the instruction of Hive. Fourth, Hive was the counterparty to both the BAL and the COE. Fifth, we agree with HMRC that it would be reasonable for the informed observer, having studied the arrangements, to conclude that the main purpose of the Scheme was to obtain a tax advantage. Specifically, because there is no rational reason why a Scheme User, who had provided services of economic value to an end user, would consent to a salary sacrifice, a purported loan liability to Hive and Hive retaining the variable fee unless the main purpose of the arrangement was to obtain a tax advantage. Sixth, the COE was made available for implementation by more than one person. In fact, the COE was implemented by 822 Scheme Users. Seventh, the Regulation 11 exemptions do not apply. (c). Regulation 18: Employment Income Provided through third party Hallmark

[89]Regulation 18, Description 8, Employment income provided through third parties 96. provides:

“18.— (1) Arrangements are prescribed if— (a) Conditions 1 and 2 are met and Condition 3 is not met; or … (2) Condition 1 is met if the arrangements involve at least one of the following— (a) a relevant third person taking a relevant step under section 554B; (b) any person taking a relevant step under section 554C or 554D; or (c) B taking a step under section 554Z18 or 554Z19. (3) Condition 2 is met if the main benefit, or one of the main benefits, of the arrangements is that an amount that would otherwise count as employment income under section 554Z2(1) is reduced or eliminated. (4) Condition 3 is met if, by reason of at least one of [sections 554E to 554XA] or regulations made under section 554Y, Chapter 2 of Part 7A does not apply...”

[90]As to Regulation 18, HMRC relies on Regulation 18 (1) (a) and, consequently, we only need to consider Conditions 1 and 2. Hive agrees that Condition 3 is not met.

[91]As to Condition 1, HMRC rely on Regulation 18 (2) (b). We are satisfied that this is met. Specifically, that there is a relevant arrangement for rewarding employees under S.554A of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). Hive is the employer and comes within the term ‘any person’, see Countrywide §156(2). The Scheme Users are employees. Each time Hive makes an advance payment to a Contractor it takes a relevant step under S.554C(1) (a) ITEPA, being the payment of a sum of money to a relevant person who is defined as an employee by Ss.554A and 554C(2) ITEPA.

[92]As to Condition 2, this is met if “…the main benefit, or one of the main benefits, of the arrangements is that an amount that would otherwise count as employment income under section 554Z2(1) is reduced or eliminated.” We have carefully considered Hive’s position that the advances paid by it, as employer, to the Scheme Users, as employees, were genuine loans. We accept that if the advances are genuine loans then, in accordance with MR Currell Ltd v HMRC

[2024] UKUT 00404 (TCC)

(“Currell”) such loans would be liabilities as opposed to taxable earnings. However, we are satisfied that the advances were not genuine loans for the reasons given in §§37-38 above. Accordingly, one of, if not, the main benefit of the Scheme was that an amount, namely the advances, that would otherwise count as employment income, was reduced or eliminated.

[93]In the circumstances, we are satisfied that Regulation 18 is met.

(d) Regulation 19: Financial Products Hallmark:

[94]Regulation 19, Financial Products Hallmark provides:

“19.— (1) Subject to regulation 21, arrangements are prescribed if— (a) condition 1 is met, and (b) it would be reasonable to expect an informed observer (having studied the arrangements and having regard to all relevant circumstances) to conclude that— (i) condition 2 is met, and (ii) … or condition 4 is met. (2) Condition 1 is that the arrangements include at least one financial product specified in regulation 20(1) (a “specified financial product”). (3) Condition 2 is that the main benefit, or one of the main benefits, of including a specified financial product in the arrangements is to give rise to a tax advantage… (5) Condition 4 is that the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained… (8) For the purposes of condition 4 a step is not to be treated as being contrived or abnormal if— (a) that step involves only the transfer of an asset to which the condition in paragraph 15A(2)(b) of Schedule 7AC to TCGA 19923 applies; or (b) that step involves only the issue of shares and— (i) that step is taken to eliminate or substantially reduce the economic risk of holding a loan relationship or a derivative contract, or part of such a loan relationship or a derivative contract, which is attributable to fluctuations in exchange rates, and (ii) the shares are treated for accounting purposes as a liability of the company in accordance with generally accepted accounting practice...”

[95]As to Regulation 19, HMRC relies on Conditions 1, 2 and 4. Hive accepts that Condition 1 is met, namely that the loan is a specified financial product within Regulation 20 (1) (a) of the Regulations. We agree. Hive does not accept that Conditions 2 or 4 are met.

[96]As to Condition 2, we are satisfied that that the main benefit, or one of the main benefits, of including a specified financial product, namely the ‘loans’, in the arrangements is to give rise to a tax advantage. We agree with Mr Belli’s analysis at §33 of his first witness statement that “The advance is the mechanism that is intended to deliver the tax advantage by providing cash payments to employees. The tax and NICs advantages clearly derive from the user receiving the largest part of their rewards from employment in the form of advances rather than as taxable and NIC-able income. These payments are therefore the direct source of the tax and NICs advantages. As explained elsewhere, these advantages are in our view at least one of the main benefits arising from the arrangements so Condition 2 is met.”

[97]As to Condition 4, we are satisfied that it is both contrived and abnormal to provide the majority of an employee’s recompense in the form of a ‘loan’. Notably, Ms Chapman, in cross examination, accepted that the arrangements involved one or more abnormal steps without which the tax advantage could not be obtained. We agree. Accordingly, this suffices to satisfy Condition 4. In cross examination, Ms Vicary put to Ms Chapman that the arrangements also involved one or more contrived steps. The following exchange took place:

“Ms Vicary: So why do you not accept it is abnormal when compared to -- Ms Chapman: Abnormal maybe. I won’t accept contrived. Ms Vicary: Why do you not accept contrived? Ms Chapman: Because there was a clear plan of what we wanted to try and achieve. Ms Vicary: Is that not contrived? What do you think contrived means? Ms Chapman: I’m taking it that you’re sort of referring to the tax avoidance that you keep mentioning, so apologies if I’ve misunderstood.”

[98]It was clear to us that Ms Chapman was reluctant to accept the word contrived because she considered that it indicated that Hive was involved in a Tax Avoidance Scheme. It is our view, on the evidence, that the arrangements also involved one or more contrived steps without which the tax advantage could not be obtained.

[99]For the avoidance of doubt, the exemption provided in Regulation 19 (8) does not apply

[100]In the circumstances, we are satisfied that Regulation 19 is met. (D). Do the arrangements enable, or might they be expected to enable, any person to obtain an advantage in relation to any tax that is prescribed in relation to the arrangements, s.306 (1) (b) and 318 FA 2004?

[101]Whilst Hive takes no issue on the definition and scope of the term ‘arrangements’, Hive does not accept that the arrangements enable, or might be expected to enable, any person to obtain an advantage as defined by s.318 FA 2004.

[102]We are satisfied that the test in s.306 (1)(B), as informed by s.318 FA 2004, is met. In reaching this conclusion, we referred to and relied on the following points. First, the ‘might be expected to enable’ test is a low bar, which is objectively assessed, see Curzon §49. Second, we have reminded ourselves that it is not necessary that the arrangements are actually effective to achieve a tax advantage, Hyrax §192 and HMRC v EDF Tax Limited (In Creditors Voluntary Liquidation)

[2019] UKFTT 598 (TC)

(“EDF”) §96. Third, it is no defence to say either that the arrangements did not, in law, achieve the aim, HMRC v. Redbox Tax Associates LLP

[2021] UKFTT 293 (TC)

(‘Redbox’) §119 or that the outcome was uncertain, Redbox §112 and 120. Fourth, it is an objective test such that the presentation of the arrangements is not limited to the marketing, which is relevant in this case where the Bonus Scheme was not marketed on Hive’s website and we have no evidence of what was said by either the Sales Consultants in their initial conversations with the Scheme Users or Ms Chapman / Ops 360 during the Welcome Call. Fifth, Regulation 5 of the Regulations states that income tax is a prescribed tax. Sixth, whilst the advances were not genuine loans as detailed in §§36-38, the idea was that the Scheme Users paid tax and NIC on the NMW/Commission/Holiday Pay amounts only and received the advances tax free on the basis that(i) the advance was a loan so it did not attract income tax (s.62 ITEPA) and

(ii) the loan was made by Hive as employer so was not charged under Part 7A ITEPA. In contrast, an equivalent employee who did not enter into the Scheme would receive all of the consideration for their services subject to deductions for tax and NIC. Seventh, it was intended that tax would be payable once any bonus was awarded which was to be the earlier of Hive achieving its financial targets or after 3 years of full trading. A tax advantage includes “the deferral of any payment of tax”, s.318 (1) (b) FA 2004.Weare satisfied that the arrangements might be expected to enable the Scheme Users to receive a tax advantage in the form of “the deferral of any payment of tax”, s.318 (1) (b) FA 2004. Notably, Ms Chapman repeatedly accepted this in cross-examination as follows:

“ Ms Vicary: So, I think we are agreed, then, the one thing that they did obtain on your case and on my case is a delay in which, in the time period that they had to pay the tax, so instead of paying it at the time that they earnt the money, they put that time back, there was a deferral until three years later? Ms Chapman: Yes, well, almost three years… Ms Vicary: I think where we agree is you accept it gave people a deferral of tax. Is that fair? Ms Chapman: That’s fair… Ms Vicary: Yes, but you do accept that they would obtain a deferral of their liability to pay. Ms Chapman: Yes… Ms Vicary: Again, one of the advantages of that, we can agree, was the deferral of tax. Ms Chapman: Correct…”

Ms Chapman: Yes, well, almost three years… Ms Chapman: That’s fair… Ms Chapman: Yes… Ms Chapman: Correct…” (E). Are such that the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage?

[103]Whether the anticipated tax advantage was a main benefit or one of the main benefits expected to arise from the arrangements is a question of fact in all the circumstances.

[104]Hive argues that s.306 (1) (c) FA 2004 is not satisfied. Hive notes that the benefits of the Scheme were (i) employed status with its associated benefits, (ii) insurance cover to indemnify Scheme Users whilst out working on site, (iii) Ms Chapman’s experience and expertise and (iv) the Bonus Scheme.

[105]HMRC contend that s.306 (1) (c) FA 2004 is satisfied. In summary, they say that the only reasonable explanation for the Scheme Users to use Hive, thereby agreeing to receive NMW/NLW, pay a significant, variable fee to Hive and be ‘indebted’ via loans, was the income tax and NICs advantages expected to accrue from the arrangements.

[106]We agree with HMRC. For the avoidance of doubt, we do not accept that the insurance cover provided the benefit claimed by Hive. It did not cover certain professions, for example medics, and additional cover was required. There was no evidence before us that any additional cover was ever obtained for those Scheme Users who were medics.

[107]Whilst we accept that the arrangements pursued other main benefits such as the provision of payroll services, we are entirely satisfied that, at the least, one of the main benefits that might be expected to arise from the arrangements was the obtaining of that tax advantage, namely the deferral of any payment of tax, s.318 (1) (b) FA 2004. Conclusion

[108]For all of the above reasons, the arrangements were notifiable arrangements within the proper meaning and effect of Part 7 FA 2004 and HMRC was and remains entitled to allocate SRN (07889152) to those arrangements. Hive’s appeal pursuant to s.311B(3)(c) FA 2004 fails.

Right to apply for permission to appeal

[109]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 17th APRIL 2025

Cited in 1 later judgment

Property 118 Limited & Anor v The Commissioners for HMRC 2026