“7. The Appellant was incorporated in England and Wales on14 December 2016 . Until12 July 2019 , it was known as IPS Countrywide Ltd. According to Companies House, the 'Nature of its Business' is 'Other activities of employment placement agencies'. … HMRC's initial interest 12. On25 October 2021 , HMRC's Counter-Avoidance directorate wrote to the Appellant that it had reason to suspect that the Appellant might have been carrying on a business as a promoter as defined under the Promoters of Tax Avoidance Scheme (POTAS) legislation in theFinance Act 2014 , and requiring information and documents. The Notice of Potential Allocation 13. On8 March 2022 , HMRC produced a 'Notice of potential allocation of Scheme Reference Number' (the subject matter of Ground 1 of this Appeal). The Allocation of the SRN 14. On18 April 2022 , HMRC allocated an SRN (the subject matter of Grounds 1 and 2 of this Appeal). The naming of the Appellant on the list of named tax avoidance schemes 15. On4 August 2022 , HMRC published information about the Appellant and its arrangements on its 'Current List of Named Tax Avoidance Schemes, Promoters, Enablers, and Suppliers'.”
“Power to give stop notices (1) An authorised officer may give a person a notice (a “stop notice”) if the authorised officer suspects that the recipient promotes, or has promoted, arrangements of a description specified in the notice or proposals for such arrangements. (2) A description of arrangements may be specified in a stop notice only if the authorised officer considers that – (a) condition A and any of conditions B and C are met, or (b) conditions B and D are met. (3) [Condition A is set out here but is not relevant here] (4) Condition B is that - (a) arrangements of that description, or proposals for such arrangements, have been, or are likely to be, marketed (in any manner, whether by the recipient of the stop notice or otherwise) as capable of enabling a person to obtain a particular tax advantage, and (b) it is more likely than not that arrangements of that description are not capable of enabling that advantage to be obtained. (5) [Condition C is set out here but is not relevant here.] (a) condition A and any of conditions B and C are met, or (b) conditions B and D are met. (a) arrangements of that description, or proposals for such arrangements, have been, or are likely to be, marketed (in any manner, whether by the recipient of the stop notice or otherwise) as capable of enabling a person to obtain a particular tax advantage, and (b) it is more likely than not that arrangements of that description are not capable of enabling that advantage to be obtained. (6). Condition D is that - (a) arrangements of that description or proposals for such arrangements would be relevant arrangements or relevant proposals (see section 234), and (b) the recipient of the notice is subject to a conduct notice or a monitoring notice. (7) For the purposes of this section, and sections 236B to 236K and 272A, a person promotes arrangements or a proposal for arrangements if the person does anything in connection with those arrangements or that proposal that would, if those arrangements or that proposal were relevant arrangements or a relevant proposal, cause the person to be carrying on a business as a promoter, or to be treated as such, for the purposes of this Part.” (Emphasis added.)
“Section 236B Effect of stop notices (1) A person subject to a stop notice must not promote – (a) Any arrangements that meet the description specified in the notice or that have similar form or effect to the arrangements of that description; or (b) Any proposal for such arrangements.” (Emphasis added.)
“Carrying on a business “as a promoter” (1) A person carrying on a business in the course of which the person is, or has been, a promoter in relation to a relevant proposal or relevant arrangements carries on that business “as a promoter”. (1A) For the purposes of this Part, a person is treated as carrying on a business as a promoter if the person is a member of a promotion structure (whether or not the person carries on a business). Schedule 33A describes the cases in which a person is a member of a promotion structure. (2) A person is a “promoter” in relation to a relevant proposal if the person - (a) is to any extent responsible for the design of the proposed arrangements, (b) makes a firm approach to another person in relation to the relevant proposal with a view to making the proposal available for implementation by that person or any other person, or (c) makes the relevant proposal available for implementation by other persons. (3) A person is a “promoter” in relation to relevant arrangements if the person – (a) is by virtue of subsection (2)(b) or (c), a promoter in relation to a relevant proposal which is implemented by the arrangements, or (b) is responsible to any extent for the design, organisation or management of the arrangements.” (Emphasis added.)
“(a) they enable, or might be expected to enable, any person to obtain a tax advantage, and (b) the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage.” (3) “Tax advantage” includes – “(a) relief or increased relief from tax, (b) repayment or increased repayment of tax, (c) avoidance or reduction of a charge to tax or an assessment to tax (d) avoidance of a possible assessment to tax, (e) deferral of a payment of tax or advancement of a repayment of tax, and (f) avoidance of an obligation to deduct or account for tax.” (4) “Arrangements” includes “any agreement, scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions.”
“2(1) A person who (a) fails to comply with a duty imposed by or under this Part mentioned in column 1 of the Table is liable to a penalty not exceeding the amount shown in relation to that [duty] in column 2 of the Table.” (2) Column 1 includes s 236B and the maximum amount is specified as follows in para 2(A): “(2A) In relation to a failure to comply with section 236B(1), the “relevant amount” is the sum of— (a)£100,000 in respect of one or more failures relating to a particular stop notice, and (b)£5,000 for each person to whom arrangements of a description specified in that stop notice, or a proposal for such arrangements, were promoted (within the meaning it has in that section). … (4) The amount of a penalty imposed under sub-paragraph (1) is to be arrived at after taking account of all relevant considerations, including the desirability of setting it at a level which appears appropriate for deterring the person, or other persons, from similar failures to comply on future occasions having regard (in particular)— (a) in the case of a penalty imposed for a failure [relating to any arrangements or proposal promoted by a person], to the amount of fees received, or likely to have been received, by the person in connection with the [those arrangements or that proposal]; (b) in [such a case], to the amount of any tax advantage gained, or sought to be gained, ... in relation to the ... arrangements or the arrangements implementing the ... proposal [ (including, where the person liable to the penalty is the promoter of those arrangements or that proposal, any advantage that was gained or sought to be gained by the persons to whom the arrangements or proposal were promoted)]. (5) The references in sub-paragraph (4) to arrangements or a proposal being “promoted” are to be construed in accordance with section 236A(7). (6) Sub-paragraphs (5) to (11) of paragraph 13A of Schedule 34 (meaning of “control” and “significant influence”) apply to this paragraph as they apply to Part 2 of that Schedule.” (a)£100,000 in respect of one or more failures relating to a particular stop notice, and (b)£5,000 for each person to whom arrangements of a description specified in that stop notice, or a proposal for such arrangements, were promoted (within the meaning it has in that section). (a) in the case of a penalty imposed for a failure [relating to any arrangements or proposal promoted by a person], to the amount of fees received, or likely to have been received, by the person in connection with the [those arrangements or that proposal]; (b) in [such a case], to the amount of any tax advantage gained, or sought to be gained, ... in relation to the ... arrangements or the arrangements implementing the ... proposal [ (including, where the person liable to the penalty is the promoter of those arrangements or that proposal, any advantage that was gained or sought to be gained by the persons to whom the arrangements or proposal were promoted)]. (3) A taxpayer is not liable to a penalty if there is a reasonable excuse for the relevant failure under para 9: “Reasonable excuse 9(1) Liability to a penalty under this Schedule does not arise if there is a reasonable excuse for the failure. (2) For the purposes of this paragraph - (a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside the person's control, (b) if the person relies on any other person to do anything, that is not a reasonable excuse unless the first person took reasonable care to avoid the failure, (c) if the person had a reasonable excuse for the failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased, (d) reliance on legal advice is to be taken automatically not to constitute a reasonable excuse where the person is a monitored promoter if either – (i) the advice was not based on a full and accurate description of the facts, or (ii) the conclusions in the advice that the person relied on were unreasonable, and (a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside the person's control, (b) if the person relies on any other person to do anything, that is not a reasonable excuse unless the first person took reasonable care to avoid the failure, (c) if the person had a reasonable excuse for the failure but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased, (d) reliance on legal advice is to be taken automatically not to constitute a reasonable excuse where the person is a monitored promoter if either – (i) the advice was not based on a full and accurate description of the facts, or (ii) the conclusions in the advice that the person relied on were unreasonable, and (e) reliance on legal advice is to be taken automatically not to constitute a reasonable excuse in the case of a penalty for failure to comply with section 258, if the advice was given or procured by the monitored promoter mentioned in subsection (1) of that section.” (4) It is provided that the provisions in theTaxes Management Act 1970 regarding penalties apply subject to certain exceptions: “Assessment of penalty and appeals Part 10 of TMA 1970 (penalties, etc) has effect as if – (a) the reference in section 100(1) to the Taxes Acts were read as a reference to the Taxes Acts and this Schedule, (b) in subsection (2) of section 100, there were inserted a reference to a penalty under this Schedule, other than [(i)] a penalty under paragraph 3 of this Schedule in respect of which the relevant sum is£600 . [(ii) a penalty in respect of a failure to comply with section 236B(1) unless an officer of Revenue and Customs authorised for the purposes of section 100 of TMA 1970 considers that paragraph 2(2C) of this Schedule applies in relation to that failure; (iii) a penalty in respect of a failure to comply with section 236B(3), (4) or (3), 236C(1) or 236J(1);….”
“[HMRC’s representatives] Going forward HMRC intend to: Publish information under S316C – FA S86 – Inform public of risk of using IPS Name & Shame directors Send conduct notices to directors Stop notices to be issued. Operations to cease by 31/12/22 (penalties for non-compliance) [Mr MacGregor] Explained problems with stopping suddenly, damage caused to reputation if we advise agencies with immediate effect. Also advised that from an operational point of view, IPS couldn’t handle the switching of all workers in a single week. IPS need to run down the business more gradually. [Mr MacGregor] Advised HMRC that the publication of information is also not helpful from a reputation point of view. Told HMRC that the damage caused to the business could put IPS in a position where the payment of penalties would become impossible. This is not in HMRC’s interest and they would need to work with us rather than punish and damage the business. AE Agreed that they would not look to harm our wider business and they are not in the business of trying to stop businesses operating or ceasing assets. Closure The meeting ended amicably and both parties agreed to go away and consider matters further with regards to quantum of penalties and other matters.” (Emphasis added.)
“[HMRC’s representatives] explained the stop notice legislation and stated that HMRC would be looking to issue a stop notice which would help alleviate any “phoenixing”. [He] explained that if CP are already leaving the market the stop notice obligations would be minimal provided there was no transfer of users. [Mr MacGregor] queried whether HMRC intended to publish IPS. [HMRC representative] explained that the publishing decision was pending based on the outcome of the meeting. [He] queried whether a client list had been provided…. [Mr Andrew Wood, a barrister acting for the appellant] queried whether IPS would be published under S86 FA 2022, S316C FA 2004 or using the stop notice legislation (POTAS). [A HMRC representative] confirmed that HMRC were looking at S316C…. [A HMRC representative] explained that HMRCs main concern is the promoter activity. [He] queried if there were current financials for the company. [A HMRC representative] clarified the future actions that could be taken by HMRC. [He] explained that HMRC could publish under S86 to inform the public of any risk. [Mr MacGregor] queried whether this would be beneficial for a scheme that has ceased. [He] explained that the grouping would like to move forward with a “clean slate”. [He] raised concerns that publishing would result in no money being available to pay penalties. [Mr Wood] queried whether there was a threat of loss to the taxpayer. [A HMRC officer] explained there was a possibility to name directors and any links. [He] stated that if the arrangements continued and agreement couldn’t be reached, HMRC could look to publish under S86 and possibly issue a conduct notice. [Mr MacGregor] explained that as CP are not taking on new clients then there will naturally come a point where CP ceases. [He] stated that if they were to cease before this then they would need to give clients some notice. [A HMRC officer] queried whether CP had started informing clients of the cessation. [Mr MacGregor] confirmed that they had not informed clients. [He] stated that no-one new had been taken on since the SRN was issued. [He] explained that the directors would be reluctant to cease straight away as they do not wish to alarm their big agency clients into taking their business elsewhere. [Mr Wood] queried whether CP could give the agencies a date by which CP will be ceasing. [He] suggested December as a possible cessation date. Mr MacGregor explained that CP would need to issue a P45 to each client. [He] stated that this could be done by December. [Mr Wood] suggested the issuing of the stop notice should line up with the cessation. [A HMRC officer] raised the concern that a consensus hadn’t been reached on penalties. [There was some discussions recorded on this.] [A HMRC officer] queried whether [Mr MacGregor] had previously discussed penalties with the directors. [The officer] explained that the penalty acts as a deterrent for others looking to promote avoidance. [He] stated that he is prepared to look at the IPS penalty for settlement to see if the dates could be changed, however HMRC would still seek the maximum should a compromise not be achievable. [He] outlined that HMRC would seek to issue a stop notice by December for CP. [A HMRC officer] stated that if CP were to cease then it would be prudent to resolve all outstanding issues at the same time. All parties agreed to keep an open dialogue on the issues. Meeting End Time: 13:25 Action points - HMRC to request statements of assets and liabilities for each director. - HMRC to issue stop notice to CP by31st December 2022 - CP to stop arrangements by31st December 2022 .” (Emphasis added.)
“The description of the arrangements is based on my review of the evidence provided by users of the arrangements (“Scheme Users”) 1. The user enters into a Contract of Employment with a company which provides that the employee will be paid for time worked at the National Minimum Wage (NMW) rate (or, if applicable, the National Living Wage (NLW) rate unless otherwise specified in the Employee Assignment Schedule. At the same time the user also enters into a Loan Agreement. 2. The loan amount is unspecified. The company (lender) promises to loan certain monies to the borrower (the scheme user) and the borrower promises to repay the principal amount to the lender plus 2% interest above the official HMRC rate. The loan is said to be repayable within 60 days on written demand from the Lender and is be secured against ‘any achieved bonus payments’ 3. Users also enter into a ‘Bonus, Incentive or Pay Scheme Offer’ agreement with the company. The offer invites the user to participate in a bonus scheme where the company will pay a bonus in the event of the user generating in excess of 170% of their employment cost. The bonus paid will be between 100% and 170% of the of the total employment cost attributable to the user. The company enters into a contract with end users directly or via an Agency. The employee then undertakes work for the end client/agency and submits timesheets either directly to the company or their agency who pass on the details to the company. 4. The company invoices the end client for work done, then receives payment for services from the end user or Agency. 5. The company issues a payslip to the user and deduct a management fee of 15% from the gross amount received from the end user as shown in the “Company Deductions” section of the payslip. 6. The company pay NMW and Holiday pay at an hourly rate as outlined in the Contract of Employment. National Insurance contributions (NICs) s and PAYE are deducted from the NMW/NLW and holiday earnings. 7. The company pay the remaining balance in the form of loan, the terms of which secure repayment against any future bonus or incentive payments arising from the ‘Bonus, Incentive or Pay Scheme Offer’ Agreement users enter into with CP. No tax or NICs is paid on the loan”
“Why I suspect you promote, or have promoted, arrangements of this description, or proposals for such arrangementsSection 236A(7) of the Finance Act 2014 provides that for the purposes of section 236A a person promote arrangements or a proposal for arrangements if the person does anything in connection with those arrangements or that proposal that would, if those arrangements or that proposal were relevant arrangements or a relevant proposal undersection 234 of the Finance Act 2014 , cause that person to be carrying on a business as a promoter, or to be treated as such. Section 235 FA 2014 - Carrying on a business as a promoter Section 235(1) FA2014 provides that a person carrying on a business in the course of which the person is, or has been, a promoter in relation to a relevant proposal or relevant arrangements carries on that business “as a promoter”
“I have been trying to pull the information together for our first quarterly report under the stop notice issued on the 6th of December 2022. Can you please confirm that my understanding of the requirements is correct. We made no proposals, approaches or took on any new workers during the relevant period therefore in that regard the report is a nil report. For the existing workers who were with us prior to the relevant period and were still in run-off at the 12th of December, do we supply the names addresses and NI numbers for them as we “provided services”? If so, will HMRC accept a listing of these people sent by email and who would I send this to?” (2) Ms Stanford replied to Mr MacGregor that the following information was required: “The number of persons to whom Countrywide Partners has made a firm approach or provided services in relation to the relevant scheme. In respect of each client you must provide the: i. client’s name and address ii. unique taxpayer reference number (if any) allocated to the client by HMRC iii. client’s national insurance number (if any) Any names by which the scheme to which the stop notice relates is known or is marketed.”
“More information on stop notices and the effects of stop notices can be found here: Promoters of tax avoidance schemes: guidance - GOV.UK (www.gov.uk). (Section 4.4 gives further details about quarterly returns)…. Please note that the quarterly return was due on the 27th of March, I therefore have issued a penalty warning letter explaining that a penalty may be due. Please do not hesitate to contact me should you require further clarification.”
“As you know, they have already had their details published under the DOTAS “naming and shaming” provisions, the structure has been issued with an SRN and the owners of the business have wound down their activities. They ceased marketing some time ago and all that remains is the rump of the business. This seems to be accepted by HMRC. It is explicit in FA 2022, s86 that there must either be a risk to taxpayers (under s86(1)(a)) or to the public revenue (under s86(1)(b)). Bearing in mind my comments above, I cannot see how there is any risk to taxpayer or public revenue for a structure which is: • no longer marketed (and has virtually ceased operation), • has been issued with an SRN and forced to comply with DOTAS; and • also been subject to a prior naming and shaming. I don’t think any reasonable analysis would come to a different conclusion Further, in my last call to Mr Hughes and yourself, Mr Hughes went out of his way to thank my Clients for their engagement and for winding down their business.” (Emphasis added.)
“On the 24th of May 2024, our advisor, Mr. Andrew Wood (who is a Barrister, with a tax specialism), advised us that part of HMRC's case was that we had made£3.2 million in turnover since the issue of the Stop Notice. I provided him a graph showing how the turnover of the business had plummeted from the month before the issue of the Stop Notice. I have attached a summary of the sales figures for each month from December 2022 up until the business run off was completed in January 2024. These clearly demonstrate a sharp decline in business demonstrating the CPL's intention to cease trading.” “During the run-off period in 2023, CPL wasn’t contributing any profits to our wider business the accounts show a loss of£6,652 for the year to 31.12.2023. CPL did pay£108,691 to a related company, IPS Administration, who provided IT, Staff and all other back office functions. The contribution received from CPL would barely cover the costs of operating the business for one year therefore CPL was not continued during 2023 with any intention of making profits.”
“It is clear that Ms Stanford, and possibly her supervisors at HMRC, had difficulty interpreting the conditions of a Stop Notice and therefore it would be unfair to expect a higher level of interpretation from the taxpayer when HMRC are unsure of their own advice”
“Your RTI records [being the date set out in [27] above] show that you have continued to promote the arrangements post6 December 2022 . You have continued to employ users of the arrangements who were employed by you prior to the issue of the stop notice. In addition, the letter of3 July 2023 provided by your agent stated that the company has “virtually ceased operation” thus suggesting that as at3 July 2023 the company had not ceased operation of the arrangements.”
“1. The Company received a stop notice in December 2022. There may be grounds for challenging the notice on the basis that the Conditions specified in s.236A FA 2014 are not satisfied. I do not deal with this point but am concerned to deal with a separate question – What does a stop notice stop? 2. Section 236B FA 2014 answers the question. By sub-section (1) the recipient “must not promote” arrangements of the type specified in the notice and must not “promote” any proposal for such arrangements. 3. Suppose the recipient has clients to whom he has promoted the arrangements and those clients have entered into the arrangements. In other words clients have become employed by the recipient, supplied services to an end user and received a mixture of salary, loans and bonuses. Does the continued operation of the promoted arrangements amount to promotion? 4. In my view, the answer is clearly, NO. To promote arrangements involves getting persons to enter into them and does not involve operating them once entered into. This seems plain as a matter of ordinary language but is surely confirmed by s.236C. The section provides for 3 monthly returns of clients to whom proposals have been made, that is, persons in relation to whom the recipient has acted as promoter. The information enables HMRC to contact the clients and claim any tax they consider to be due. If operating previously promoted arrangements amounted to promotion, it would have been stopped by the stop notice. The fact that s.236C envisages continuing operation seems to me to give strong support that such continuing operation is not promotion. 5. The Company should write to HMRC stating that it has been advised that continuing the operation of arrangements already promoted for the contractual term of such arrangements is not promotion. HMRC should be asked to agree and explain, if they do not agree, how this is reconcilable with s.236.”
“To promote arrangements involves getting persons to enter into them and does not involve operating them once entered into. This seems plain as a matter of ordinary language but is surely confirmed by FA 2006, s236C. This section provides for quarterly returns of clients to whom proposals have been made, that is, persons in relation to whom the recipient has acted as promoter. The information enables HMRC to contact the clients and claim any tax they consider to be due. If operating previously promoted arrangements amounted to promotion, it would have been stopped by the Stop Notice. The fact that s236C envisages continuing operation seems to give strong support that such continuing operation is not promotion. My Client has obtained multiple opinions on the position that support the view that continuing the operation of arrangements already promoted for the contractual term of such arrangements is not promotion. As such, if HMRC disagrees with this position then they should explain why this is so and how this is reconcilable with s236C.”
“A phone call took place on16 May 2023 to follow up on the issue of settling the disputes between IPS Progression, Countrywide Partners and HMRC. On this call were Mr Hughes, Ms Stanford and me. At the beginning and end of this call Mr Hughes went out of his way to make clear his gratitude for My Client ceasing marketing the structure and for taking noticeable steps to unwind their business. There was no suggestion here that what remained of the business, the extent of which was known to HIMRC through RTI submissions, was in breach of the Stop Notice. General Further, for well over 12 months, there has been a direct line of communication between myself and HMRC regarding My Client. At any time, knowing that My Client has been actively trying to get out of the market and draw a line under their dealings, HMRC could have raised their concerns regarding any activity that they believed was in breach of the notice. They did not.”
“Please accept my apologies for giving you the incorrect information in relation to the quarterly return below. Please note that the quarterly return should include individuals that you continue to provide services to. Further information on stop notices and the effects of stop notices can be found here: Promoters of tax avoidance schemes: guidance - GOV.UK (www.gov.uk). On this occasion HMRC do not intend to charge a quarterly return penalty for the second quarterly return failure. Please do not hesitate to contact me should you require further clarification.”
“There is extensive evidence of the company continuing to undertake the organisation and management of the arrangements. Countrywide Partners continue to make salary payments to users and complete RTI requirements. Countrywide Partners have continued to make the arrangements available to users and is therefore a promoter in regard to the above legislation. Mr Wood has also stated that s236C confirms continued operation is not promotion, I disagree with this analysis. Firstly, S236A(7) applies to s236C of which I have covered above. Secondly the wording of s236C (5)(c) states: “P has provided services to C in relation to arrangements falling within the description specified in the stop notice, or in relation to a proposal for such arrangements.”
“Mr Wood claims that as the breach was not mentioned to the company during a recent phone call or in prior communication then HMRCs conduct is consistent with no breach of the Stop Notice. There is no requirement for HMRC to inform a promoter of a breach of Stop Notice in all its communications with the company. Countrywide Partners Limited received the penalty warning letter explaining that HMRC believe a breach has occurred and therefore the company has been informed. Mr Wood also highlighted the email that was sent to Mr McGregor on XXX as proof of HMRC conduct being consistent with no breach of Stop Notice. This email queried the second quarterly return. Upon review I can see that information contained within the email sent to Mr McGregor was incorrect, however in a prior email to Mr McGregor dated5 April 2023 he was correctly informed that the providing of services was to be included and given a link to the online POTAS guidance which also specifically states that the providing of services is to be included within the quarterly return. As per ADML1200, HMRC is not bound by any advice it gives which is incorrect in law. There has been no legitimate expectation given to the customer regarding the compliance of a stop notice, I therefore believe that a penalty is due. Please find attached copy of the “Notice of penalty determination – failure to comply with a stop notice.”
“The penalty for failing to comply with S236B(1) FA2014 has two parts: S236B(1)- Continuing to promote arrangements in relation to which a person is subject to a stop notice •£100,000 in respect of one or more failures in relation to a particular stop notice •£5,000 for each person to whom arrangements (or proposals for such arrangements) of a description specified in the stop notice were promoted The penalty amounts outlined above are the maximum penalties chargeable. Based on the company’s Real Time Information (RTI) returns, you continued to employ 180 clients following the issue of the stop notice on6 December 2022 . In employing these clients you continued to be involved in the organisation and management of the arrangements, and therefore you continued to promote the arrangements after the date of the stop notice. As a result, the second part of the penalty amounts to a maximum of 180 x£5000 =£900,000 . This is added to the first part of the penalty, a maximum of£100,000 , to give a total penalty of£1,000,000 . Due to the serious nature of a promoter continuing to promote arrangements after the receipt of a stop notice HMRC has applied the maximum penalty amounts.”
“again, it comes down to that word “promoting”
“in our eyes we were doing nothing wrong. We had stopped selling the scheme, we had done that from September 22. We were then in full dialogue with HMRC about what we were doing. Nobody was raising objections at that.” (6) It was put to him that he had accepted that the appellant was responsible for the organisation and management of the scheme and the leaflet makes it clear that that falls within the term “promote” so the leaflet told the appellant to stop promoting immediately. He said that is correct but again “it comes down to that word “promoting”
“I think if we are down to one particular line in one fact sheet in amongst all the legislation, which I believe is not clearly written, then it is open to interpretation. And at that point nobody was objecting to the appellant’s interpretation, including HMRC.” (7) He said that at the meeting with HMRC in September 2022 he explained the risk as regards damage to reputation if the appellant stopped business suddenly; they had various products with various clients/agencies, and if they stopped one suddenly, there is a risk that that agency would then take their other business and walk away and go to a competitor. Hence, a sudden, abrupt stop in this particular area could damage the wider business. In fact, HMRC agreed they would not try to harm the wider business. (8) It was put to him that the meeting notes show that both the appellant and HMRC appear to have been working towards the same endpoint – for the appellant’s business to cease by December 2022. He said that they were in negotiations, there were talking points. He agreed that the appellant’s adviser, Mr Wood, is recorded as suggesting that the issuing of the stop notice should line up with the cessation of the appellant’s business. He added that it was a discussion point and this took place prior to seeing the stop notice, so they did not know what the stop notice would be asking them to do at this point. This was just a discussion at this point. We do not accept this evidence in full as set out in our conclusions. (9) He accepted that (a) the business of the appellant was organising and managing a tax avoidance scheme, (b) for doing that it took a 15% fee from the gross amount processed each payroll, (c) in real world terms, the organisation and management of the tax avoidance scheme involved the issuing of pay slips, reflecting amounts that were going to be credited to users’ bank accounts and the making of payments to the scheme users by way of salary and loan, and (d) the meeting in September 2022 was all about ceasing that business at the time of the stop notice. (10) He accepted that in any correspondence or meetings, or any contact that HMRC had with him/the appellant, HMRC never said that the appellant could keep administering the scheme following service of the stop notice and at no time did they say, “yes, you keep issuing payslips, you keep making salary payments, that is absolutely fine”
“to a certain extent we had statutory requirements to contend with, as in, we still had employees we had to pay, so therefore payslips had to be issued by law. Monies had to paid to the employees by law.”
“17. On3 July 2023 , HMRC received representations relating to a potential publishing unders 86 Finance Act 2022 . Within that letter, AW stated that CPL had “virtually ceased operations”
“21. … I reviewed the legislation at s235 FA 2014. I concluded that as CPL continued to make salary payments to users and complete RTI requirements, this demonstrated that CPL satisfied the condition at s235(3)(b) FA 20141 of being to any extent responsible for the organisation or management of the arrangements. Furthermore, I concluded that the condition s235(2)(c) FA 20142 was satisfied as CPL continued to make the arrangements available to users and was therefore a promoter. I concluded that the continued operation of the arrangements was evidence that CPL was still involved in the promotion of the arrangements outlined in the Stop Notice 22. …I considered whether I (or HMRC more widely) had said or implied anything that could reasonably be taken to suggest that CPL had been compliant with the Stop Notice. CPL claimed that as the breach of the Stop Notice was not mentioned during the phone call of16 May 2023 between myself, James Hughes and AW, or in prior communication, I had provided CPL with a legitimate expectation that it was compliant. As of16 May 2023 , I was not aware that CPL was continuing to promote the scheme. AW’s letter dated3 July 2023 , informed me that CPL had continued to promote the scheme. It was at this point I became aware the CPL had potentially failed to meet the requirements of the Stop Notice. CPL further claimed that my email to PM on10 July 2023 , regarding the second quarterly return, implied there was no breach of the Stop Notice. 23. I reviewed my email of10 July 2023 and noted that information contained within my email to PM was incorrect. I had incorrectly stated that there was nothing to report in the quarterly return as there were no new customers. However, I noted that in a prior email to PM dated5 April 2023 , he was correctly informed that the providing of services to existing users was to be included and was given a link to the online POTAS guidance. The POTAS guidance specifically stated that the providing of services is to be included within the quarterly return. 24. I checked the HMRC Manual regarding providing incorrect advice to customers (ADML1200). It stated that HMRC is not bound by any advice it gives which is incorrect in law. PM’s email of5 April 2023 queried the contents of the quarterly return, it did not query the definitions contained within the Stop Notice. I believed that there had been no legitimate expectation given to the customer regarding the requirements to comply with the Stop Notice. 25. I further noted CPL was made aware of the Stop Notice requirements, specifically the requirement to stop operations, in the meeting of13 September 2022 , prior to the issuance of the Stop Notice. 26. As CPL was provided with the factsheets, online guidance and verbal advice, I did not agree that I had provided CPL with a legitimate expectation that it was compliant with the Stop Notice. I believed I had provided clear instructions so as to facilitate compliance with the requirements of the Stop Notice. At no point were CPL told, either implicitly or explicitly, that it had met the requirements of the Stop Notice. I therefore concluded that a penalty was due.”
“27. I calculated the penalty by using the figure for RTI users for5 February 2023 . I chose to use the February figure instead of the higher January figure, thus showing some consideration to CPL’s contention that “IPS need to run down the business more gradually” as per the meeting note of13 September 2022 . 28. The RTI for February 2023 showed 180 users were continuing to use the arrangements after the Stop Notice. The penalty consisted of£100,000 for failure to stop promoting and£5,000 for each person to whom the arrangements were promoted. This totalled£1,000,000 . 29. On15 December 2023 , my manager, Craig Hinks, agreed with my decision. As I am not an authorised officer, my opinion was sent to an independent Authorised Officer, Colin Williams. 30. On4 January 2024 , Officer Williams agreed that the statutory conditions for charging a penalty were met and that the penalty amount had been calculated correctly. 31. On14 February 2024 , I emailed PM apologising for the incorrect advice RE: Quarterly Return as summarised in paragraph 23 above and clarified that HMRC would not be charging a penalty for the failure to provide quarterly returns. 32. On16 February 2024 , I issued the penalty determination letter for CPL’s failure to stop promoting the arrangements along with a cover letter addressing the representations made in AW’s letter of13 September 2023 ”
“no, Mr MacGregor, stop means stop, you can’t run down your business”
“Well, in hindsight, yes. Because we are here”. (8) She accepted that in her email exchanges with Mr MacGregor relating to the first quarterly return she did not expressly state that a “run-off” period is contrary to the stop notice legislation. She said: “but Mr MacGregor specifically asked me about the first quarterly return. So…that was the point I was addressing. In addition, he did say, “In run off at the 12 December.”
“Whilst you are referring to no new customers, if there are any customers in run off that is contravening the stop notice”
“There is a lot of internal governance to make sure that, you know, we are correct in issuing the penalty”
“Our view was clear that stop meant stop. Our view was: have I given them a legitimate expectation regarding the stop notice by saying there is no need to provide a return for any clients you provided services to? That was the question that we were dealing with”
“stop means stop. This is HMRC's interpretation” but at the time she answered Mr McGregor’s question on reporting. She realised in September 2023 that what she had said in that email was incorrect on reviewing the representations then received from Mr Wood. (14) She confirmed that (a) the contents of the penalty letter were discussed with Mr Williams and her manager and others reviewed it as set out above, and (b) she recognises that under the penalty legislation HMRC is required to take into account all relevant considerations in setting the penalty and the amount of the penalty is not a target - it is a maximum amount. It was put to her that in light of what is stated in the penalty notice at the meeting in September 2022 HMRC should have said: “If you continue to employ any clients, have any employees, then you will be involved in the organisation and management of the arrangements which will be subject to the stop notice”
“We took that to mean there were going to be no clients as at 31 December for them to promote or arrange or manage the said arrangements. So no, I do not think at that September meeting it would have been prudent to do so.” (15) It was put to her that there is no reference anywhere in the penalty notice to the co-operation of the appellant with HMRC, attending meetings and the email correspondence between Mr MacGregor and her, no acknowledgement that the appellant was represented by Mr Wood and was relying on him from at least September 2022, no recognition that she had got her advice wrong to Mr MacGregor in relation to the quarterly returns and that HMRC had not expressly said: “stop means stop”
“You must stop supplying immediately, the services, under the commercial contracts which form the basis of the steps which we have set out in this stop notice, or you must alter the contract and vary them”. (2) The explanatory notes published when the relevant provisions in FA 2014 were introduced (byFinance Act 2021 ) support this interpretation. For example, para 1 of the notes states this: “This clause and Schedule amend Part 5 of theFinance Act 2014 (FA 2014), the Promoters of Tax Avoidance Schemes regime (POTAS). POTAS applies a series of sanctions to a person carrying on a business as a promoter of tax avoidance. These amendments give HM Revenue and Customs (HMRC) the power to issue ‘stop notices’ to promoters of tax avoidance schemes at an earlier stage, to stop the sale of schemes before the scheme has been defeated. HMRC will be able to publish details of the promoters and scheme when a stop notice has been issued. These amendments widen the scope of the legislation to include as promoters certain other persons involved in promotion structures. The legislation also introduces a range of technical amendments.” (Emphasis added.)
“Promoters of tax avoidance schemes” also supports the appellant’s interpretation. It states this: • a stop notice - can be issued by HMRC to a person carrying on business as a promoter where the arrangements they are promoting meet certain conditions - the stop notice requires the promoter to immediately cease promoting the arrangements, along with certain other duties and requirements … Section 236A — Power to give stop notices Section 236A gives HMRC the power to issue stop notices. In addition to various duties placed on the promoter which are discussed below, the stop notice requires the promoter to immediately stop promoting the proposal or arrangements described in the notice or any that are similar in form or effect. This is designed to stop suspected promoters from selling schemes HMRC, on balance, think do not work. This will reduce the number of clients buying into such schemes, reducing the risk of taxpayers continuing to use a scheme for multiple tax years, potentially ending up with large tax bills if the scheme is ultimately found not to work. … Practical Implications Persons who are subject to a stop notice are required to cease any promotion activity in relation to the relevant arrangements at once. Persons who are subject to a stop notice are required to cease any promotion activity in relation to the relevant arrangements at once. Recipients of a stop notice also become subject to the duties to - make quarterly returns to HMRC, notify clients and intermediaries….. A person who is subject to a stop notice must provide quarterly returns to HMRC including information about the clients to whom they have promoted the relevant arrangements in the quarter to which the return relates. The first return must cover the 3-month period commencing on the day the stop notice was given. Further returns are required for each subsequent 3-month period that commences within 3 years of the date the stop notice was given….. The following information should be provided in returns: The number of persons to whom the person subject to the stop notice has made a firm approach or provided services in relation to the relevant scheme in the period in which the return relates.”
“stop means stop. You must stop continuing to provide services under the existing contracts you have entered into, which are subject to the arrangements which we have identified in our stop notice” and “you need to vary your contracts, or you are in breach of the stop notice, and there are the following severe penalties which flow from that”. (5) The effect of non-compliance with a stop notice is that it results in a penalty being imposed under para 2 of schedule 35 FA 2014. Clearly, the penalties are set at such a level that the financial burden imposed on a person is severe. Penalty provisions are to be interpreted on a narrow basis, and where two interpretations are available then the interpretation which favours a narrower and lenient construction is to be applied. In Baxendale-Walker v Revenue and Customs[2024] UKUT 154 (TCC) the Upper Tribunal said this: “4. The same reasoning applies so far as the principle against doubtful penalisation is concerned. The principle against doubtful penalisation reflects the approach the courts have taken that it is: “generally reasonable to assume that Parliament intended to observe what Bennion on Statutory Interpretation (7th Edn, 2017) in section 27.1 calls the “principle against doubtful penalisation”
“If there is a reasonable interpretation which will avoid the penalty in any particular case, we must adopt that construction. If there are two reasonable constructions, we must give the more lenient one. That is the settled rule for the construction of penal sections (Tuck & Sons v Priester)(1887) 19 QBD 629 ) “Without doubt, Parliament cannot have intended a person to be subjected to paragraph 50 penalty whilst there was real doubt about whether one of the conditions to liability had been met, but again the safeguard against doubtful penalisation is the requirement that the Upper Tribunal considers the imposition of a paragraph 50 penalty to be 'appropriate'; it is hard to see how imposing a paragraph 50 penalty could be appropriate before any live questions around the paragraph 39 liability had been finally determined.”
“11. The Disclosure of Tax Avoidance Schemes ("DOTAS") regime was introduced by Part 7 of theFinance Act 2004 entitled "Disclosure of Tax Avoidance Schemes". Pursuant to these provisions certain persons, normally the promoters of tax avoidance schemes, were required to provide HMRC with information about "arrangements" and "proposals for arrangements" (i.e. the tax avoidance schemes): where that arrangement or proposal might be expected to provide a person with a tax advantage in relation to a specified tax; where the tax advantage might be expected to be the main benefit, or one of the main benefit, of using the scheme; and, where the scheme fell within certain descriptions contained within the Regulations. There have been changes to the Regulations since 2004 and the scheme now in force was introduced in 2006. 12. In circumstances where a scheme is notifiable the promoter is required to provide specified information to HMRC. The obligation to notify normally accrues within 5 days of the marketing of the scheme or the making of the scheme available to clients for implementation. HMRC may issue a Scheme Reference Number ("SRN"). If so the promoter is required to pass the SRN on to the scheme users who, in turn, are obliged to notify HMRC of their use of the scheme. They do this normally by including the SRN upon their tax return. This enables HMRC to identify the users of a particular scheme.” (8) The point to be taken from the purpose of the DOTAS rules is that the related stop notice rules are aimed at stopping the promotion of tax schemes and not the orderly winding down of an activity in compliance with a stop notice. (9) On4 August 2022 , HMRC published information about the appellant and its arrangements on its “Current List of Named Tax Avoidance Schemes, Promoters, Enablers, and Suppliers”
“(a) whether the activity is a ‘serious undertaking earnestly pursued’, a phrase derived from the judgment of Widgery J in Rael-Brook Ltd v Minister of Housing and Local Government[1967] 1 All ER 262 at 266,[1967] 2 QB 65 at 76, or ‘a serious occupation, not necessarily confined to commercial or profit-making undertakings’, a phrase derived from the speech of Lord Kilbrandon in Town Investments Ltd v Department of the Environment[1977] 1 All ER 813 at 835,[1978] AC 359 at 402, both of them cited to and referred to by the tribunal in their decision; (b) whether the activity is an occupation or function actively pursued with reasonable or recognisable continuity: per Lord Cameron in Morrison’s Academy[1978] STC 1 at 8; (c) whether the activity has a certain measure of substance as measured by the quarterly or annual value of taxable supplies made: again per Lord Cameron (at 8); (d) whether the activity was conducted in a regular manner and on sound and recognised business principles: again per Lord Cameron (at 10); (e) whether the activity is predominantly concerned with the making of taxable supplies to consumers for a consideration: per the Lord President (at 6); (f) lastly, whether the taxable supplies are of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them: per the Lord President (at 6) and per Lord Cameron (at 10).” (11) Those criteria which are of relevance here (some are relevant in a VAT context only) are not met in this case: (a) Although, prior to the appellant being named as set out above, the activities were a serious undertaking earnestly pursued, they evidently cannot be characterised as such since that time. It cannot be said that there is a long-term strategy or that the activities were conducted to any serious financial plan. The goal of the appellant was simply to strike a balance between obligations to HMRC (including the stop notice) and not being sued. There is no “serious undertaking” where one is faced with such a ‘Hobson’s Choice’. (b) Since6 June 2023 , there is nothing being pursued actively or with reasonable or recognisable continuity. Activities would only continue until the final contractual obligations were fulfilled. (c) If one looks at this question in the context of the current matter, the substance of sales were in fast decline due to the winding down of the business. (d) There is no sound or recognised business principle. One does not run a business with no attention to making a profit and with a singular aim of not being sued. (e) The activities of the appellant are not at all predominantly concerned with making sales. The primary focus was winding the business down without being sued by clients or employees. (f) The conduct of the appellant is at odds with a business which was seeking to profit from its activities. For example, in the latter case, there would be a clear plan for the future to maximise revenues and profits. In the present case, the rump of the business was being wound down against the threat of legal action (g) Based on the factors set out above, it is clear that the activities, since the “naming and shaming” (allied to the fact that the stop notice was issued) meant that the appellant was no longer carrying out a business at all (as a matter of law and fact), let alone as a promoter, at the time of the purported breach. (12) Further, for there to be a breach of s 236B(1) FA 2014 the legislation would specifically have to bring within the meaning of “promote” (within s 236B(1)) and /or “business” the concept of carrying on “anything carried out in connection with the termination, or intended termination, of a business”
“Further the development, progress or establishment of (a thing); encourage, help forward, or support actively…”
“Organisation, supervision, or direction; the application of skill or care in the manipulation, use, treatment, or control (of a thing or person), or in the conduct of something”
“The action or process of organizing, ordering, or putting into systematic form; the arrangement and coordination of parts into a systematic whole; spec. the action of banding together or gathering support for a political cause.”
“The notice requires the recipient and the other persons subject to the notice to immediately stop promoting arrangements of the kind described in the notice.”
“Reasonableness is to be determined in each case depending on the facts. The analysis of Judge Berner in Barrett v HMRC[2015] UKFTT 329 (TC) at [161] is of assistance: "The test is one of reasonableness. No higher (or lower) standard should be applied. The mere fact that something that could have been done has not been done does not of itself necessarily mean that an individual's conduct in failing to act in a particular way is to be regarded as unreasonable. It is a question of degree having regard to all the circumstances, including the particular circumstances of the individual taxpayer. There can be no universal rule; what might be considered an unreasonable failure on the part of one taxpayer in one set of circumstances might be regarded as not unreasonable in the case of another whose circumstances are different…. ….The standard to be adopted is that of the responsible trader, explained by Judge Medd QC in The Clean Car Co Ltd v C&E Commissioners [1991] VATTR 234 as follows: "The test of whether or not there is a reasonable excuse is an objective one. In my judgment it is an objective test in this sense. One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?"”
“ (1) First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer's own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts). (2) Second, decide which of those facts are proven. (3) Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, the Tribunal should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the Tribunal, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”
“One situation that can sometimes cause difficulties is when the taxpayer's asserted reasonable excuse is purely that he/she did not know of the particular requirement that has been shown to have been breached. It is a much-cited aphorism that “ignorance of the law is no excuse”, and on occasion this has been given as a reason why the defence of reasonable excuse cannot e available in such circumstances. We see no basis for this argument. Some requirements of the law are well-known, simple and straightforward but others are much less so. It will be a matter of judgment for the FTT in each case whether it was objectively reasonable for the particular taxpayer, in the circumstances of the case, to have been ignorant of the requirement in question, and for how long.”
“As is clear from the approach to the question of reasonable excuse in Clean Car and indeed in Perrin, the judgment of whether a taxpayer has a reasonable excuse will depend on the evaluation of the particular facts relevant to the taxpayer’s circumstances. There is no benefit in focussing on a selection from the multitude of FTT decisions on reasonable excuse, each of which will turn on their facts, to extract more specific points of principle. This is illustrated by the way in which the UT in Perrin dealt with the situation where a taxpayer’s reasonable excuse argument was based on ignorance of the law, an issue which arose in a number of tribunal decisions, and concluded that ignorance of the law did not necessarily mean the taxpayer’s argument failed. The UT explained (at [82]) that it will be a matter of judgment for the tribunal in each case whether it was objectively reasonable for the particular taxpayer, in the circumstances of the case, to have been ignorant of the requirement in question. We make the same observation in relation to questions regarding what actions should be taken in the face of law which is said to be unclear; the objective reasonableness of what the taxpayer did or did not do in the light of that legal backdrop will depend on the particular case, and the relevant legal provisions.”
“Legal advice always gives person reasonable excuse? HMRC argue that, in any event, the mere fact of seeking legal advice does not, and should not, afford a “reasonable excuse”
“Stop notices are one of the ways in which HMRC tackle tax avoidance and those responsible for promoting it. The main aim of issuing stop notices is to reduce the number of tax avoidance schemes that are being marketed. This makes it harder for people to get caught up in them. When HMRC issues a stop notice to a promoter, it means: • the promoter who receives the notice must stop selling the specified scheme • the promoter who receives the notice must also pass a copy of it to certain associated persons, who are also subject to the stop notice and must also stop selling the promoter who receives the notice must also pass a copy of it to certain associated persons, who are also subject to the stop notice and must also stop selling the specified scheme • all those persons subject to the notice must inform HMRC of all the people they have promoted the scheme to and any they continue to promote it to • the persons subject to the stop notice must inform all clients and intermediaries that they are subject to a stop notice, what this means, and provide them with a copy of the stop notice” (Emphasis added.)