England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/07/2017

Charles J :

Index

Paragraphs 1 to 6	Overview and Conclusion
Paragraphs 7 to 33	General Introduction
Paragraphs 34 to 41	Abuse of power
Paragraphs 42 to 49	The most relevant provisions relating to the APN regime
Paragraphs 50 to 62	Disclosure of tax avoidance schemes - DOTAS
Paragraphs 63 to 66	The policy objective or underlying intention of Parliament when enacting the APN regime
Paragraphs 67 to 73	The underlying taxation issue
Paragraphs 74 to 87	The range of circumstances covered by this claim - Discovery assessments
Paragraphs 88 to 121	The information provided by and on behalf of the Claimants to the Revenue
Paragraphs 122 to 141	The Revenue's explanation for the long delay and the change in its position
Paragraphs 142 to 150	April 2013 to the giving of the APNs
Paragraphs 151 to 152	The Revenue's litigation and settlement strategy
Paragraphs 153 to 184	Analysis and Conclusion
Paragraph 185	Result

Overview and Conclusion

1. This claim for judicial review relates to the giving of accelerated payment notices (APNs) by the Defendant (the Revenue) in reliance upon Chapter 3 of the Finance Act 2014 after the Revenue had agreed to postpone the payment of the underlying disputed tax liability pending the resolution of the disputes between the Claimants and the Revenue on tax appeals to the First-tier Tribunal (the FTT).
2. The effect of the APNs is to reverse the effect of the postponement agreements and so the express promise made by them.
3. It is clear that the Revenue has the power to give APNs that have that effect and the issue is whether in all the circumstances of these cases it was an abuse of power for the Revenue to do so.
4. The Claimants seek to distinguish their cases from earlier ones because of the express promise made by the postponement agreements and rely on those promises and the way the Revenue has dealt with their tax affairs to found their challenge which is based exclusively on abuse of power.
5. So, this judicial review raises the issue: Whether, applying public law principles, it was an abuse of power for the Revenue to resile from its express promise not to enforce the payment of the tax it had assessed and which had become due pending the resolution of the disputes relating to the validity of its assessments?
6. Under the last heading "Analysis and Conclusion" I set out why I have decided that arguments advanced by the Revenue on this issue outweigh the Claimants' arguments on it and so the claim should be dismissed.

General Introduction

7. Following the hearing there was an exchange of further evidence and comment.
8. An APN requires the taxpayer to pay the Revenue the sum of money that a designated HMRC officer has determined to be the "disputed tax" (which is defined). For present purposes, the effect of this is that the APNs required the Claimants to pay to the Revenue sums equal to the income tax charged in their assessments that they have appealed to the First-tier Tribunal (the FTT).
9. The relevant assessments are discovery assessments made under s. 29 of the Taxes Management Act 1970 (the TMA) and the amounts assessed by them became due and payable. But, pursuant to s. 55 of the TMA the Revenue agreed to postpose the payment of the income tax claimed until after the determination of the appeals. These agreements (the Postponement Agreements) were made in letters. An example is a letter dated 3 February 2014 relating to Mr Dickinson and the tax year 2009/10 which is in the following terms:

I have noted your reasons for appealing and agree that we will postpone collection of the amounts shown in the table below whilst your appeal is considered. Your client's appeal will remain open whilst we continue with our enquiries and you will be provided with an update in due course

[The table shows an income tax liability of £26,077.60].

I understand that the matter of the tax liability is under discussion with AML Tax (IOM) Ltd [to whom this letter was addressed] and Mr. Andy Finch of HMRC Specialist Investigations [who has given evidence]

HMRC will continue to review the arrangements and will contact you further when the review is completed, in the meantime if you would like to provide further documentary evidence in respect of amounts received or the operation of the scheme in your client's particular circumstances then we will be happy to consider it.

10. So, the Revenue necessarily accepts that by the Postponement Agreements it made clear and express promises to each of the Claimants that the payment of the disputed tax would be postponed whilst their appeals were being considered.
11. Payments under the APNs are treated as advance payments, and so, if the relevant tribunal or court decides that the disputed tax is not due because either (i) the assessments were not lawfully made, or (ii) the Claimants' arguments on taxability are correct those sums are repaid. A similar result would ensue if there had been no Postponement Agreements, no APNs and the disputed tax had been paid prior to the determination of the appeals.
12. Parliament provided that APNs can be given when the taxpayer has appealed an assessment (see, in particular, s. 199 (c)(ii), s. 219(2)(b) and s. 221 of the Finance Act 2014). Also, by s. 224, Parliament addressed what was to happen if payment of the appealed liability to tax had been postponed. It did so by amending s. 55 of the TMA to provide that nothing in s. 55 of the TMA enables the postponement of the payment of the disputed tax specified in the APN. The result of that amendment is that, if the payment of the disputed tax is postponed pursuant to s. 55 of the TMA before an APN is given, it ceases to be so postponed and becomes payable pursuant to the APN regime.
13. This reverses the position on who holds the disputed tax specified in the APN pending the outcome of the appeal. In cases in which tax has not become due and been postponed an APN also reverses the position on who holds the disputed tax specified in the APN. So, an APN turns a disputed or putative tax liability into an immediate and actual liability that will be repaid with interest if the taxpayer wins.
14. If there had been no APNs or they are invalid and the disputed tax remained unpaid until the tax appeals are decided, the Claimants, if they lose the appeals, would have to pay the disputed tax with interest at (currently) 2.75%. This is higher than the rate of (currently) 0.5% payable if the amount paid pursuant to an APN has to be repaid to the taxpayers. (The current rate if the sum that becomes due under an APN is not paid is a series of 5% charges with rests (see paragraph 42 of the judgment of Simler J in Rowe cited below)).
15. In short, the Claimants' case is that the giving of the APNs was an abuse of power because:

(i) it breached the express and direct promise made to them by the Postponement Agreements which gave rise to a legitimate expectation that the disputed tax specified in the APNs would not be collected from them until after their appeals had been decided, and

(ii) in all the circumstances of the case that was conspicuously unfair as a matter of procedure and substance.

16. The Revenue accepts that:

(i) when the conditions for giving an APN are satisfied (see Conditions A to C defined in s. 219 of the Finance Act 2014) it has a power and not a duty to give an APN, and

(ii) in deciding to give the APNs to the Claimants it gave no consideration to the existence of the Postponement Agreements and so to the express and clear promises it had made by them to them, pursuant to s. 55 of the TMA that payment of the disputed tax, that had become due by the giving of the assessments, would be postponed.

On the face of it, this is a surprising approach for a Government Department to take when it decides to exercise a power that ends the effect of a clear and express promise that it has given.

17. The Revenue's first argument was that this approach to giving APNs, and so one that did not take into account the promises it had made by the postponement agreements, is lawful on the basis that it accords with and implements the provisions and underlying intention of the Finance Act 2014. The evidence does not indicate when this analysis was carried out by the Revenue. But this argument was not advanced on the basis that:

(i) this thought process had been gone through before the decisions to issue the APNs were made, and so that

(ii) it explained the lack of any mention or consideration of the Postponement Agreements at the relevant decision-making meetings.

18. This argument is effectively one:

(i) that in all cases relating to DOTAS arrangements when the power to give an APN arises the Revenue has a duty (or save in exceptional circumstances has a duty) to give it, and further or alternatively

(ii) that the language and underlying intention of the APN legislation means that postponement agreements can, as a matter of good administration, simply be ignored by the Revenue.

19. Alternatively, the Revenue advanced arguments to the effect that, applying the public law principles on abuse of power, in all the circumstances, including the promises made by the postponement agreement, Parliament's intention in enacting, and the relevant provisions of the Finance Act 2014, the decision of the Revenue to exercise its power to give the APNs, and so to terminate the effect of the Postponement Agreements in respect of the disputed tax specified in them, did not result in any conspicuous unfairness or alternatively any conspicuous substantive unfairness to the Claimants and so was not an abuse of power.
20. Alternatively, at the hearing, the Revenue argued that applying s. 31(2A) of the Senior Courts Act 1981 relief should be refused.
21. These arguments of the Revenue are based on what has been described in the cases as "macro-political" issues of policy.
22. The underlying tax dispute. I shall return to this in more detail but in short it is whether loans paid to the Claimants are taxable as benefits in kind (as the Claimants have always contended), or as income (as the Revenue now contends).
23. The validity of the discovery assessments – the "discovery dispute". The case was argued before me on the basis that all the Claimants were given discovery assessments under s. 29 of the TMA and their validity is challenged in both of the broad classes of cases before me namely:

(i) when the Claimant had put in a return (self-assessment) under s. 8 of the TMA, and

(ii) when the Claimant had not done so and tax had been paid under PAYE coding by the Claimant's employer.

24. In my view, correctly I was not asked by the parties to second guess the FTT and so reach conclusions on these issues on the tax appeals. I am not doing so.
25. Consistently, I was not invited to find that the rival positions on those disputes were not reasonably arguable and so, for example, that the APNs were not founded on an arguable conclusion that income tax is due on the loans. Accordingly, I shall proceed on the basis that all of the rival contentions on the tax appeals are reasonably arguable.
26. An arguability test and so approach also underpins the postponement agreements (see s. 55 (6) TMA cited later).
27. The earlier cases. The accelerated payment scheme has been the subject of three recent decisions. The first is a decision of Simler J, R (Rowe and others) v HMRC [2015] EWHC 2293 ("Rowe"), the second is a decision of Green J, R (Walapu) v HMRC [2016] EWHC 658 (Admin) (Walapu) and the third is a decision of mine R (Vital Nut and others) v HMRC [2016] EWHC 1797 (Admin) (Vital Nut). In all of them the claims for judicial review were dismissed, permission to appeal has been given and the appeals have not yet been heard. I understand that the appeals in Rowe and Vital Nut are due to be heard together.
28. Notwithstanding those appeals, the only ground of challenge to the APNs in these claims reflects the permission to bring them and it is limited to abuse of power based on breach of a legitimate expectation. This incorporates arguments on fairness and natural justice. A legitimate expectation argument was advanced and failed in Rowe and Walapu. In Vital Nut a related argument that the APNs were issued in breach of the principles of natural justice and were otherwise unreasonable and unfair was rejected.
29. It is accepted by the Revenue that the starting point for an argument to distinguish the earlier cases exists because here:

(i) tax became due, and

(ii) the Revenue has, by the Postponement Agreements, made express and clear promises postponing the payment of that tax that the APNs have reversed or rendered ineffective.

30. In none of the earlier cases were express promises made. Indeed, in Rowe this was the basis for rejecting the argument based on legitimate expectation (see paragraph 9), in Walapu this was also the case (see paragraph 91) and in Vital Nut I found that the breach of natural justice / fairness argument was founded on a mirage (see paragraphs 87 and 88) – in that case there was a "standstill" reliance was not put on an appeal and a postponement agreement (see paragraphs 60 and 61).
31. However, and understandably, the Revenue argues that the earlier cases provide support for its alternative arguments, particularly because Parliament expressly addressed and therefore envisaged that APNs would be given in cases in which the taxpayers had appealed an assessment and the disputed tax had been postponed by agreement (or by order of the FTT) and, by doing so, it has shown that the underlying Parliamentary purpose of changing the position on where the disputed tax lies pending the resolution of the dispute applies with force even though by agreement the tax due has been postponed.
32. As the power to give APNs in cases such as these is expressly envisaged by Parliament, it cannot be asserted that of itself the existence of a postponement agreement and the express and clear promise given by it cannot found the result the Claimants seek.
33. However, the Claimants argue that the express and clear promises to postpone the tax that were made cannot be ignored, as it is accepted they were, and that when they are taken into account with all the relevant circumstances of their cases they carry such weight that it would be conspicuously unfair for their effect to be reversed.

Abuse of power

34. I was taken to a number of cases that set out the principles to be applied. There was no real dispute on those principles.
35. Starting points are:

(i) Lord Mustill's summary in R v SSHD ep Doody [1994] 1 AC 531 at 560 of the case law on procedural fairness. I was referred to its citation with approval by Lord Sumption in Bank Mellatt v HM Treasury (No 2) [2014] AC 700 at paragraph 29, and

(ii) Lord Woolf MR's judgment in R v North and East Devon Health Authority ex p Coughlan [2001] QB 213 which demonstrates the relevance of an analysis that has regard to whether a legitimate expectation is procedural or substantive and has been said to demonstrate that an abiding principle which underpins legitimate expectation cases is the court's insistence that public power should not be abused.

36. In my view, the approach to be taken to whether an exercise of a power by a Government Department is an abuse of power is helpfully summarised by Laws LJ in R(Nadarajah) v SSHD [2005] EWCA Civ 1363 at paragraphs 66 to 70. I respectfully agree with his comment at paragraph 69 that his description of the operative principle as a requirement of good administration was not new. Nor is an approach that assesses whether there is a sufficiently (my emphasis) good reason for departure from an earlier promise with or without consultation and so a consideration of competing interests (both public and private) from both sides of the street.
37. The challenge in these claims engages issues relating to the jurisdiction of the FTT and, in particular, whether in the circumstances it should be engaged on the basis of a change on where the disputed tax lies, pending the resolution of the tax appeals following the introduction of the APN regime.
38. In my view, the summary and analysis of the cases (some of higher authority) and the approach in Nadarajah and later by Nugee J in R (Veolia ES Landfill & Others) v HMRC; Viridor Waste Management Ltd & Others v HMRC [2016] EWHC 1880 (Admin) (in particular at paragraphs 153 to 168 and 186 to 189) and Green J in Walapu (in particular at paragraphs 83 to 89) show that the court is the ultimate judge of whether there has been an abuse of power and that:

(i) categories of case or situations are not hermetically sealed but are of assistance as a matter of analysis of the competing factors and so in reaching the result,

(ii) all the competing factors have to be assessed and weighed in the round to assess and identify the proportionate balance between the rival contentions,

(iii) the competing factors engage private and public interests,

(iv) the clarity of the promise and the circumstances in which it is made are relevant. They can be weighty, and require the public authority to provide compelling reasons to depart from it,

(v) "macro-political" issues of policy are relevant. They can be weighty and present a steep climb for a person to whom the relevant promise has been made,

(vi) once the promise is proved the onus shifts to the authority to justify the departure from the legitimate expectation it creates (and see Paponette v A-G of Trinidad and Tobago [2010] UKPC 32 at paragraph 37,

(vii) if a claimant wishes to reinforce his position by relying on detriment he must prove it. The existence of detriment is not a necessary ingredient, but is often present when a claimant succeeds (and see R (Bancoult) v Foreign Secretary (No 2) [2009] 1 AC 453 at paragraphs 73 and 179),

(viii) where a public authority is considering whether to act inconsistently with a promise that has given rise to a legitimate expectation good administration and elementary fairness demands that it takes its promise into account (see Lord Mustill in Doody and Paponette at paragraph 46),

(ix) in assessing the scales of fairness and so whether the breach of a promise is so unfair as to amount to an abuse of power the court asks itself whether the breach of the promise is conspicuously unfair to the persons to whom it was made, and

(x) that focus on the relevant individuals is an important aspect of the necessary balance between private expectations and policy objectives.

39. When the unfairness or breach of a legitimate expectation is only procedural it is more likely that a court could be persuaded to exercise its discretion to refuse relief on the basis that a reconsideration would lead to the same decision without a substantive breach of a legitimate expectation.
40. This multi-faceted approach needs to take account of all and only the relevant circumstances of the case. Accordingly, it requires an examination of those circumstances. This is so even though:

(i) Parliament expressly provided that an APN can be given when the Revenue has agreed to postpone (or the FTT has ordered) its payment,

(ii) the Revenue succeeded in the earlier cases (Rowe, Walapu and Vital Nut), and

(iii) this Court should not second guess the FTT in its performance of its statutory role in determining tax appeals.

41. Those circumstances include (a) the history of the disclosure and assessment process relating to the Claimants, (b) the changing positions of and what the Revenue knew during its consideration of the DOTAS arrangement used by the Claimants over a number of years, or (c) the nature and effect of the underlying arguments before the FTT on the basis that they are all arguable.

The most relevant provisions relating to the APN regime

42. Sections 219, 220 and 221 of the Finance Act 2014, with highlighting of the most relevant parts provide:

219 Circumstances in which an accelerated payment notice may be given

(1) HMRC may give a notice (an "accelerated payment notice") to a person ("P") if Conditions A to C are met.

(2) Condition A is that—

(a) a tax enquiry is in progress into a return or claim made by P in relation to a relevant tax, or

(b) P has made a tax appeal (by notifying HMRC or otherwise) in relation to a relevant tax but that appeal has not yet been—

(i) determined by the tribunal or court to which it is addressed, or

(ii) abandoned or otherwise disposed of.

(3) Condition B is that the return or claim or, as the case may be, appeal is made on the basis that a particular tax advantage ("the asserted advantage") results from particular arrangements ("the chosen arrangements").

(4) Condition C is that one or more of the following requirements are met—

(a) -------

(b) the chosen arrangements are DOTAS arrangements;

(c) ---------

(5) "DOTAS arrangements" means—

(a) notifiable arrangements to which HMRC has allocated a reference number under section 311 of FA 2004 ------------

220 Content of a notice given while a tax enquiry is in progress

(5) "The denied advantage"—

(a) in the case of a notice given by virtue of section 219(4)(a), has the meaning given by section 208(3),

(b) in the case of a notice given by virtue of section 219(4)(b), means so much of the asserted advantage as is not a tax advantage which results from the chosen arrangements or otherwise, and ----------

to the relevant tax in relation to which the accelerated payment notice is given), and

(d) -----------------------

221 Content of notice given pending an appeal

(1) This section applies where an accelerated payment notice is given by virtue of section 219(2)(b) (notice given pending an appeal).

(2) The notice must—

(a) specify the paragraph or paragraphs of section 219(4) by virtue of which the notice is given,

(b) specify the disputed tax (if any), and

(c) explain the effect of sections 222 and of the amendments made by sections 224 and 225 (so far as relating

(3) "The disputed tax" means so much of the charge to tax arising in consequence of:

(a) the amendment of assessment to tax appealed against, or

(b) where the appeal is against a conclusion stated in a closure notice, that conclusion

as a designated HMRC officer determines, to the best of the officer's information and belief, as the amount required to ensure the counteraction of the what that officer so determines as the denied advantage.

(4) "The denied advantage" has the same meaning as in section 220(5). ------------

43. It is apparent from a comparison of ss. 220 and 221 that in their application at different stages of the process directed to the payment of tax namely when an enquiry is in progress and tax has not become due and then pending an appeal from an assessment or a closure notice the contents of an APN mirror each other in the identification of the "disputed tax" and the "denied advantage".
44. As Simler J recounts, in paragraphs 40 to 42 of her judgment in Rowe:

40 Within 90 days of the date of the notice the taxpayer may make written representations to HMRC in relation to the notice under s. 222(2):

(a) objecting to the notice on the grounds that Conditions A, B or C in section 219 was not met,

(b) objecting to the amount specified in the notice ---

HMRC must consider any representations made in accordance with s. 222(2) and having done so, must determine whether to confirm or withdraw the notice, and/or determine whether a different amount (or no amount) ought to have been specified, and then confirm, vary or withdraw the notice: s.222(4).

41 By s. 223 payment of the amount stated in the notice ("the accelerated payment") must be made to HMRC and

"the accelerated payment is to be treated as a payment on account of the understated tax;" s. 223(3)

It must be made before the end of the "payment period". Where no representations are made under s. 222, the payment period is 90 days beginning with the day on which the notice was given. Where representations are made, the payment period is extended to the period of 30 days beginning with the day on which HMRC's determination of the representations are notified, if that is later than the 90 day period: s. 223(5).

42 Under s. 226 if the taxpayer does not pay before the end of the payment period there is an automatic 5% penalty. A further 5% penalty accrues at the end of a further five months and another 5% at 11 months from the end of the payment period.

45. Section 227(2) and (12) provide that an APN may be suspended, withdrawn or modified by the Revenue and that if it is withdrawn it is treated as if it had never been issued and for repayment (but does not provide for interest).
46. Section 224 of the FA 2014 amended s. 55 of the TMA 1970. It provided that:

224 Restriction on powers to postpone tax payments pending initial appeal

(1) In section 55 of TMA 1970 (recovery of tax not postponed), after subsection (8A) insert—

(8B) Subsections (8C) and (8D) apply where a person has been given an accelerated payment notice or partner payment notice under Chapter 3 of Part 4 of the Finance Act 2014 and that notice has not been withdrawn.

(8C) Nothing in this section enables the postponement of the payment of (as the case may be)—

(a) the understated tax to which the payment specified in the notice under section 220(2)(b) of that Act relates,

(b) the disputed tax specified in the notice under section 221(2)(b) of that Act, or

(c) the understated partner tax to which the payment specified in the notice under paragraph 4(1)(b) of Schedule 32 to that Act relates.

(8D) Accordingly, if the payment of an amount of tax within subsection (8C)(b) is postponed by virtue of this section immediately before the accelerated payment notice is given, it ceases to be so postponed with effect from the time that notice is given, and the tax is due and payable—

(a) if no representations were made under section 222 of that Act in respect of the notice, on or before the last day of the period of 90 days beginning with the day the notice or partner payment notice is given, and

(b) if representations were so made, on or before whichever is later of—

(i) the last day of the 90 day period mentioned in paragraph (a), and

(ii) the last day of the period of 30 days beginning with the day on which HMRC's determination in respect of those representations is notified under section 222 of that Act.

47. Other relevant parts of s. 55 of the TMA provide:

(1) This section applies to an appeal to the tribunal against

(b) an assessment tax other than a self-assessment.

(2) Except as otherwise provided by the following provisions of this section, the tax charged

(a) by the ---- assessment

shall be due and payable as if there had been no appeal.

(3) If the appellant has grounds for believing that the --- assessment ---- overcharge the appellant to tax --- the appellant may

(a) first apply by notice to HMRC within 30 days of the specified date for a determination by them of the amount of tax the payment of which should be postponed pending determination of the appeal;

(b)where such a determination is not agreed, refer the application for postponement to the tribunal within 30 days from the date of the document notifying HMRC's decision on the amount to be postponed.

An application under paragraph (a) must state the amount believed to be overcharged to tax on the grounds of that belief.

(6) The amount of tax the payment of which shall be postponed pending the determination of the appeal shall be the amount (if any) in which it appears that there are reasonable grounds for believing that the appellant is overcharged to tax; and ------

(9) On the determination of the appeal

(a) the date on which any tax payable in accordance with that determination is due and payable shall, so far as it is tax the payment which has been postponed --- if there had been no appeal, be determined as if the tax were charged by an -- assessment

(i) notice of which was issued on the date on which HMRC issued to the appellant to notice of the total amount payable in accordance with the determination, and

(ii) against which there had been no appeal; and

(c) any tax overpaid shall be repaid.

48. In summary:

(i) s. 55 (1) to (9) provide for postponement tax pending the outcome of a tax appeal (either by agreement of HMRC or order of the FTT) where there are any reasonable grounds for believing that the appellant was overcharged to tax and that where any agreement or order was in place, the tax is payable following the conclusion of the FTT proceedings, and

(ii) s. 55 (8(D)) provides that when the "disputed tax" specified in an APN has been postponed pursuant to s. 55 (by agreement or order) it ceases to be so postponed and becomes payable pursuant to the APN.

49. The identification and quantification of the "disputed tax" under the APN regime is founded on the determination of a designated HMRC officer of the amount of the tax advantage asserted by those using a DOTAS arrangement that is not a tax advantage that results from that arrangement and so in these claims the difference in income tax payable if the loans are treated as benefits in kind (the Claimants' case) or as income (the Revenue's case).

Disclosure of tax avoidance schemes - DOTAS

50. All of the APNs were issued on the basis that the Claimants had entered into a DOTAS arrangement. It is accepted that this is the case.
51. The objective of DOTAS, which was introduced by the Finance Act 2004, was to notify HMRC of tax arrangements, and particularly of new and innovative schemes that potentially took advantage of "legal loopholes", in order to enable those loopholes to be closed by subsequent legislation. As I said in Vital Nut, recent Guidance on DOTAS (with my emphasis) confirms that as the objective:

2.1 Objectives

The objectives of the disclosure rules are to obtain:

•    early information about tax arrangements and how they work

•    information about who has used them

2.2 The effect of disclosure

On its own the disclosure of a tax arrangement has no effect on the tax position of any person who uses it. However, a disclosed tax arrangement may be rendered ineffective by Parliament, possibly with retrospective effect.

52. It is important to remember that neither registration under DOTAS nor the opening of an enquiry indicates that the Revenue disputes or will dispute the validity of the claimed tax advantage. Indeed, the recent Guidance on DOTAS specifically states:

2.3.2 Summary: Income Tax, Corporation Tax and Capital Gains Tax

Under the rules, a tax arrangement may need to be disclosed even if HMRC is already aware of it or it is not considered to be avoidance. A tax arrangement should be disclosed where:

it will, or might be expected to, enable any person to obtain a tax advantage (see paragraph 6.2)

that tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the arrangement (see paragraph 6.3)

53. In short, a DOTAS arrangement may be lawful and effective in the way the taxpayer asserts. And, if it is, and Parliament decides that the tax advantage it gives rise to should be removed, it may do that retrospectively or prospectively by legislation.
54. It is also important to remember that there are penalties for not registering a scheme under DOTAS and they encourage (as no doubt was intended) a safety- first approach to registration of what are or might be tax avoidance schemes.
55. In my view, the points made above show that care needs to be taken:

(i) to distinguish between different types of registered tax avoidance schemes, and

(ii) to recognise that the fact of registration under DOTAS does not create a single class of tax avoidance schemes or warrant a common approach to all tax avoidance schemes.

56. The General Anti-Abuse Rule (GAAR) which was introduced by the Finance Act 2013 and only applies to arrangements that were entered into after 17 July 2013. Accordingly, it does not apply to and was not relied in in respect of the DOTAS arrangement in these cases although some of the submissions made on behalf of the Revenue about the way in which the Claimants had managed their affairs as compared to UK resident employees did not seem to recognise this point.
57. Also, it should be remembered that the Revenue was given powers to obtain information in relation to tax avoidance schemes by ss. 234 to 283 of the Finance Act 2004 and, in any event, could ask for it.
58. Legacy cases. The evidence relating to the background to the APN regime shows, and it is common knowledge, that there were significant numbers of legacy cases (i.e. long outstanding cases that raised tax avoidance issues) at the time that the APN regime was introduced. These cases raised many different issues, for example, they include:

(i) what Green J refers to as "hide and seek" cases in which the Revenue's diligent or reasonably diligent enquiries were being thwarted by the persons who promoted or entered into the scheme,

(ii) cases that involved complex transactions and voluminous documentation which meant that considerable time and effort was needed to enquire into them and assess them,

(iii) as in Vital Nut, cases in which the validity and effectiveness of the scheme turned on a short point of statutory construction,

(iv) again, as in Vital Nut, cases in which lengthy delays before the introduction of the APN regime did not arise from non-co-operation by, or the approach of, the taxpayer or the scheme promoter,

(v) cases in which the respective strengths of the rival arguments of the taxpayer (and scheme promoter) and the Revenue varied. The Revenue asserts that it is successful in 80% of the cases it brings in respect of schemes registered under DOTAS, but this necessarily means that in 20% the taxpayer wins, and for each taxpayer it is his or her result that matters, and

(vi) cases in which the impact on the taxpayer of a change in the position on who holds the disputed tax pending resolution of the dispute would be serious. As to this, the evidence and the approach to interim relief in the earlier cases indicate that the Revenue has regard to this after an APN has been given.

In these cases, it was recognised at the time they were given that the APNs may result in bankruptcies.

59. In referring to delays I acknowledge that the mismatch between:

(i) the Revenue's resources, and

(ii) the burdens placed on it by uncooperative taxpayers and complicated schemes

is or can be a significant factor in many cases.

60. I have sympathy for the problems caused by this mismatch and their impact on the way in which the Revenue conducts its workload and duties. But it should be remembered that any delays that are caused by those problems:

(i) are not the responsibility of cooperative individual taxpayers whose arrangements are openly disclosed and are not complicated or particularly complicated, and that

(ii) those taxpayers clearly have an interest in their tax position being considered without undue delay and in being able to rely on an acceptance by the Revenue of the way in which they have calculated and paid their tax particularly once any relevant primary periods for raising an enquiry about a particular tax year have passed.

In my view, there is a public interest in the promotion of those private interests of cooperative individual taxpayers.

61. Further, in my view, good administration by the Revenue should promote that public and private interest and so take into account the extent to which:

(i) such taxpayers, and

(ii) the Revenue and other taxpayers

have been responsible for delays that have occurred before and after the primary periods for raising an enquiry and the introduction of the APN scheme.

62. In this context, the finality or degree of finality and so the degree of certainty and confidence that a taxpayer can have that he has no further liability to tax for the relevant year is an important factor.

The policy objective or underlying intention of Parliament when enacting the APN regime

63. The Revenue puts great emphasis on the point that in enacting the legislation relating to APNs Parliament intended to remove the cash flow advantage of participating in DOTAS arrangements and by changing the presumption of where the tax sits during a dispute.
64. As I said in Vital Nut:

(i) It is clear that this was the intention but, in my view, it tells one very little about the checks and balances enacted by Parliament in respect of the trigger to that change by the giving of a valid APN in respect of a DOTAS arrangement.

(ii) Those checks and balances, and thus the circumstances in which the power to give an APN can be exercised, the terms relating to the valid exercise of that power and so what the APN must contain, are found in the relevant sections of the Finance Act 2014 and the principles of public law.

(iii) In argument, counsel for the Revenue made several references to the Summary of Responses to the Consultation Document. In response to my enquiry as to the validity and helpfulness of this she referred me after the hearing to paragraph 76 of the judgment of Sales LJ in R (Best) v Chief Land Registrar [2016] QB 23 where he concluded that a similar response to consultation had a similar status to a White Paper and so is a legitimate source for guidance as to the policy objective of the legislation. I accept that. But to my mind it does not either:

a) advance the issue as to how Parliament achieved that policy objective by the legislation, or

b) remove the danger of interpreting the words Parliament has used by reference to, or primarily by reference to, that policy objective and so without due attention to their normal meaning in their context.

(iv) Indeed, to my mind there is particular danger in a Department that was responsible for putting forward legislation basing its arguments on the policy objective without close attention to the words actually used by Parliament in their context.

(v) Particular reliance was placed on paragraphs 20 to 25 of the judgment of Simler J in Rowe which reflect paragraphs 26, 270, 217 and 284 of the Summary of Responses in March 2014. In paragraph 19 of her judgment, Simler J also refers to the consultation paper in which it was asserted that "most structures that are notified under DOTAS have characteristics or hallmarks of avoidance" and "DOTAS provides a clear and objective criterion for this policy which can be readily operated by taxpayers and their advisers". This is part of the background to paragraphs 2.1 to 2.6 and 4.4 of the Responses cited by Simler J. Having referred to the high level of "complexity and contrivance" that make marketed avoidance schemes difficult to analyse and challenge at 2.6 and 4.4 the Responses state:

2.6 The Government's proposals therefore have the simple objective of changing the presumption of where the tax sits, so that anyone who enters into an avoidance scheme will have to pay over the tax in dispute. -------

4.4 -------- DOTAS provides an objective criterion to apply the measure and, in the majority of cases, is an indicator of avoidance activity. There are no other legislative criteria that could provide the same level of certainty and objectivity

(vi) Pausing there it is apparent that, as one would expect, the policy objective relates to a wide range of schemes and situations. With that in mind and remembering that (a) not all DOTAS schemes are complicated and some may be registered out of caution, (b) the breadth of the definition of a tax advantage (e.g. a claim for relief from tax) and (c) the Revenue will accept that some DOTAS schemes are effective under the existing relevant legislation, it seems to me that those Responses and their identification of the policy objective do not tell you what the position as to the giving of a valid APN is if and when, for example, there is full disclosure of a scheme that is not complicated.

(vii) Further, to my mind the heavy reliance of the Revenue on the Responses to Consultation opens the door to the responses of the Minister on 17 June 2014 in respect of the Finance Bill. These include, with my emphasis:

The final criterion is DOTAS, and in this case, there was a wider range of views. Let me set out our thinking. First, DOTAS is clear and objective; the scheme has been disclosed and allocated a reference number and the taxpayer has been told about the disclosure and number. That is clear and easy to apply. Secondly, DOTAS is about tax avoidance schemes. I know that there are concerns that some people disclose arrangements just in case they might fall into DOTAS. I am pleased that they do so, and they should carry on doing so. Where there is no extra tax to pay, HMRC will be able to agree that fairly quickly and there will be no accelerated payment. It will, of course, be in the interests of advisers and taxpayers to provide complete information to HMRC as soon as possible.

I have been very disappointed by the assertions made in a number of letters in my postbag. They claim that HMRC will have almost unfettered power to demand what they described as arbitrary sums of tax. That objection is misconceived. Taxpayers and their advisers need to work with HMRC to get to the right figure of disputed tax, but where that cooperation is not forthcoming, HMRC will have to take the decision. I know that robust governance is being put in place by HMRC requiring scrutiny at senior levels. HMRC takes its responsibility very seriously in this regard. I am also aware that this measure may be seen as penalising those who disclose against those who do not. Let me be clear: we will take robust action against those who choose not to disclose when they should. Our new measures against high-risk promoters, which we will come to shortly, will be part of tackling that behaviour, and in the summer we will consult on further improvements to DOTAS. -----

I shall make two points in response to my Hon. Friend. The first is one that I made a moment ago: disclosure under DOTAS does not necessarily mean that someone will be affected by the accelerated payments regime. HMRC will look at the particular scheme and assess whether it is effective. There may well be circumstances in which HMRC will look at a particular scheme and say, "A DOTAS disclosure has been made, but as far as we can see this scheme is entirely consistent with the law. It is effective and there is no tax under dispute, so no accelerated payment will need to be made." If there is no tax under dispute there is no accelerated payment. ----------------------

(viii) These answers provide clear and expected confirmation of the view that it was not intended that an APN should be given simply because a scheme has been registered under DOTAS and that that is particularly the case if and when there has been full disclosure.

65. In my view, those responses by the Minister confirm, as one would expect, that Parliament's intention was that the exercise of the power to give an APN was to be governed by the public law principles that found good administration and create a two-way street between the Revenue and the taxpayer.
66. The evidence in these cases includes an extract from the policy costings for the Budget 2014 that the accelerated payments regime extends the position announced under the Autumn Statement for 2013 and accelerated payments will be sought from all (my emphasis) taxpayers involved in avoidance schemes disclosed under DOTAS and schemes that the Revenue counteracts under the GAAR. Those costings provide confirmation that the accelerated payments regime created a cash flow benefit for the Exchequer. I was not directed to this in oral argument. Nonetheless it seems to reflect the mindset of the Revenue decision-makers and its primary argument that led it to ignore the impact of the postponement agreements. But, in my view, it is not admissible as an aid to construction, and it cannot undermine the need for the Revenue to comply with public law principles of good administration and so, for example, justify a blanket approach to all DOTAS arrangements.

The underlying taxation issue.

67. The APNs and the assessments to tax that are the subject of appeals to the FTT in these cases relate only to income tax and do not include NICs. The taxation issue is whether interest free loans made to the Claimants are liable to income tax.
68. The Claimants argue that the loans made to them are taxable as benefits in kind pursuant to Chapter 7 Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). This is how they were presented in their P60s, P11Ds and their tax returns.
69. Section 174 ITEPA provides that:

(i) for the purposes of Chapter 7 an employment related loan is a loan:

(1)(a) made to an employee or a relative of an employee, and (b) of a class described in subsection (2)

(ii) s. 174(2) ITEPA) identifies classes of employment-related loans. Employee benefit trusts ("EBTs), are generally considered to be within one or more of these classes such that any loan made by an EBT to an employee or their wives, husband, widowers and widows' children and step-children is an "employment related loan", and

(iii) employment related loans are taxable under s. 175 ITEPA.

70. In summary, applying those provisions:

(i) the cash equivalent of the loan is treated as earnings of the employee if the loan is a "taxable cheap loan" (see s. 175 (2)),

(ii) the cash equivalent of the loan, the benefit in kind, is calculated as the "difference between (a) the amount of interest that would have been payable on the loan for that year at the [HMRC's prescribed rate known as the "official rate"], and (b) the amount of interest (if any) actually paid on the loan for that year" (s. 175(3)),

(iii) once calculated, the recipient of a loan is taxed on the benefit in kind in the usual way, and

(iv) no income tax or NICs are payable in respect of the loan.

71. As appears below, using Mr Dickinson as an example, the Revenue was in a position to and did issue PAYE codes based on:

(i) the information provided to it by the Claimants through their P11Ds, P60s and, when filed, their tax returns, and

(ii) the Claimants' case on the taxability of their salaries and loans.

By doing that and not raising enquiries under s. 9A TMA the Revenue accepted or indicated an acceptance of the Claimants' approach and so the tax advantage claimed as a result of the DOTAS arrangement they had used.

72. The Revenue's case relating to income tax is now put in the alternative:

(i) the Claimants are liable to income tax on the loans under the Transfer of Assets Provisions now in Part 13, Chapter 2 of the ITA 2007 (and, if relevant, their predecessors) because their employment contracts constitute a transfer of assets abroad and, in respect of that argument, the Revenue relies on CIR v Brackett 60 TC 134, [1986] STC 521 and Boyle v HMRC [2013] UKFTT 723 (TC), and alternatively

(ii) the Claimants are liable to income tax under the provisions of the ITEPA 2003 on the basis that the sums paid as loans are employment income and the Revenue again relies on Boyle.

73. As appears from its reference, the Brackett case was decided well before the tax years in question. The facts of Boyle are stark and so at least potentially easily distinguishable from other cases, including the Claimants' cases.

The range of circumstances covered by this claim – Discovery assessments

74. In oral argument, the parties focused on the APN given to Mr Dickinson in respect of the tax year 2009/10 and so a year in respect of which he had made a tax return.
75. As promised,. after the hearing the Claimants have provided me with a spreadsheet listing each of the 1,014 Claimants showing that:

(i) in the vast majority of cases a P11D in respect of the loans was submitted to the Revenue. (The note accompanying the spreadsheet says that a P11D was submitted to the Revenue for all of the Claimants but this does not correspond to my reading of the spreadsheet and the difference between "all" and the "vast majority" does not matter for my purposes),

(ii) in a significant number of cases no tax return was filed,

(iii) in a significant number of cases a tax return was filed and in a significant number of them the registration number of the DOTAS arrangement was included, and

(iv) the claims span tax years 2008/9, 2009/10 and 2010/11 (although the DOTAS arrangement was used in earlier years by AML employees).

76. There are therefore the following classes of Claimant:

(i) those who filed a tax return referring to and including the registration number of the DOTAS arrangement,

(ii) those who filed a tax return not including the registration number of the DOTAS arrangement (and perhaps not referring to it at all),

(iii) those who did not file a tax return for the relevant year in respect of whom P11Ds were submitted to the Revenue, and

(iv) possibly a very small number who did or did not file a tax return for the relevant year in respect of whom P11Ds were not submitted to the Revenue.

77. Discovery assessments. The case was argued on the basis that a discovery assessment had been given in each case that was followed by an appeal and a postponement agreement. This was the case in the examples referred to.
78. Section 29 (1) TMA provides that:

(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment that (a) any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax have not been assessed, or (b) that an assessment to tax is or has become insufficient or (c) that any relief which has been given is or has become excessive, then the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.

79. Section 29(2) provides that a discovery assessment cannot be made if a return was made in accordance with the practice generally prevailing at the time. No reliance was put on this before me.
80. Section 29(3), (4) and (5) provide that this power cannot be exercised unless one of two conditions is fulfilled, namely that:

(i) …the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf." (s. 29(4)); or

(ii) at the time when an officer of the Board (a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's return in respect of the relevant year of assessment or (b) informed the taxpayer that he had completed his enquiries into that return, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above: (s. 29(5)).

81. The latter condition is further explained in s.29(6).
82. The time limit when the first condition applies is six years after the end of the year of assessment to which it relates (see s. 36 TMA 1970) and the time limit when the second condition applies is four years after the end of the year of assessment to which it relates (see s. 34 TMA 1970).
83. The oral argument and the majority of the written exchanges focused on the application of ss. 29(3) to (5) of the TMA and so to cases where returns have been filed. These only apply when a return has been made and in such cases s. 9A of the TMA empowers the Revenue to open an enquiry within a time limit set by reference to the delivery of the return.
84. It was confirmed common ground that s. 29(1) applied in cases where no tax return has been made and so a "discovery" has to be made in the relevant time period to justify the giving of such an assessment.
85. No start date or starting circumstances for assessing whether a "discovery" had been made was identified and the case was argued on the basis that the relevant time limit for making a discovery assessment when no return had been filed was the 4 year period set by s. 34 TMA.
86. No enquiry was opened in respect of Mr Dickinson's tax year 2009/2010 under and within the one year period set by s. 9A of the TMA. I understand that this is common to all of the Claimants who had made tax returns in and before 2009/10 and so to whom s. 9A of the TMA applied. Mr Dickinson refers to a s. 9A enquiry being made in respect of his return for 2010/11 but the existence or absence of such an enquiry being made within that time limit was not relied on in argument. Nor was the argument based on any closure notices given in any such enquiries.
87. There is some dispute about the nature and extent of such "discovery disputes" in the appeals in cases where there are and are not returns but it was common ground that:

(i) there are such disputes, and as mentioned already

(ii) I am not being asked to determine them applying the authorities directed to s. 29 of the TMA (some of which I was referred to).

The information provided by and on behalf of the Claimants to the Revenue

88. The Claimants have provided information to the Revenuer in various ways.

The disclosure of the tax avoidance scheme which the Claimants used

89. The disclosure of the tax avoidance scheme (DOTAS) was made by Tenon (its promoter) in March 2006. It was registered with the number 43525375. The form making the disclosure contained the following statements:

Scheme details

Off shore employer – loan facility

Summary of proposal or arrangements

Non-resident company is established and centrally managed and controlled in the Isle of Man. This employs specialist contractors and others who work in a number of different industries. Non-resident company sponsors an employee benefit trust. Services of employees of offshore company are provided to end-users.

Employees receive remuneration through the payroll subject to PAYE. Loan facilities are also offered by the EBT. The EBT may also be used to provide other benefits

Explanation of each element of the proposal or arrangements from which the expected tax advantage arises

Offshore company with no place of business in the UK is not subject to UK corporation tax

Creation by an offshore company of an EBT whose trustees are not UK resident has no UK tax implications

Contribution to EBT is deductible under Manx Law

Payment of salary to UK resident employees of offshore companies subject to PAYE and primary NIC contributions

Benefits provided by EBT to UK resident employees are taxable in the UK under the benefits code. In particular loans provided to employees will be subject to the normal regime for employee loans

Statutory provisions relevant to those elements of the proposal or arrangements from which the expected tax advantages arise

Offshore company CT status. TA 1988 s 11

Taxation of employment related loans - ITEPA 2003 ss 173-191

Taxation of employment income – ITEPA 2003 Part two chapter 7 and 8

90. The employer of the Claimants who used this scheme during tax years 2006/07 to 2010/11 is AML, a company registered in the Isle of Man. It used it as a means of offering interest free loans to employees which were made by an EBT in the Isle of Man, which AML set up.
91. I acknowledge that this disclosure does not refer to:

(i) the likely size of the loans that would be made and so a comparison between salary paid subject to PAYE and NIC contributions and the loans, or

(ii) the interest rate that would be charged on the loans.

92. However, to my mind, any reasonably informed reader of this disclosure at that time would appreciate that under this scheme a company registered in the Isle of Man (namely AML) would set up an EBT also registered in the Isle of Man and that:

(a) AML would employ persons resident in the UK who would work in the UK for end users on the basis that those end users would pay AML for those services,

(b) those payments for services would equate to what the AML employees would have been paid by way of salary,

(c) AML would pay salary to those UK residents, and

(d) those AML employees would or probably would also receive loans from the EBT.

93. Put another way, it seems to me that any such reader would appreciate that as was stated in AML's promotional literature (which was not provided to the Revenue at this time) that this scheme was, or had the potential to be used as, an income extraction scheme which was designed to enable UK residents to receive a combination of salary and loans which equated to what they would have earned if they had been employed by the end users in the UK. And that the loans would or might constitute a significant proportion of the sums paid to the UK residents.
94. In the context of an assessment of whether there has been an abuse of power this conclusion cuts both ways. Firstly, it indicates that the Revenue would have or should have appreciated this. However, secondly it indicates that the Claimants all knew that they were entering into a scheme in reliance on a view that it was lawful and had the tax saving consequences referred to in the DOTAS disclosure, namely that the loans were taxable as benefits in kind and the salary was subject to PAYE and NIC contributions.
95. Also, unless the loans were a sham, the Claimants knew that they were repayable and so should have managed their financial affairs on that basis.
96. Tenon held a meeting with members of the anti-avoidance group at the Revenue on 22 June 2006. That meeting related to a number of Tenon's schemes. The recorded reaction of the Revenue's representatives to this scheme (43525375) was that prima facie it appeared to be a straightforward service company using an EBT and they could not see anything new or innovative in it. They wondered whether there was something missing from the disclosure and were told by the Tenon representative that he suspected that disclosure had been made on a safety-first basis.
97. All present at that meeting were well informed readers of what had been disclosed and so would have realised the potential use of the scheme as described above and so, for example, that the employer (AML) and EBT was in the Isle of Man and that the loans could make up a substantial part of what the UK resident tax payers were paid each year from moneys paid to their employer by the end users of their services.
98. To my mind, the initial reaction of the members of the anti-avoidance group to the AML scheme shows that what many might regard as a surprising result on the taxability of what could readily be categorised as remuneration paid by salary and loan by an offshore company to UK residents was regarded by the Revenue and others as correct.
99. This is confirmed by the approach taken by the Revenue to Mr Dickinson who was used as an example of the approach taken by the Revenue to the taxability of the loans to the Claimants as AML employees before it issued the discovery assessments.

Mr Dickinson

100. Mr Dickinson was used as an example. His self-assessment tax return for the tax year 2009/10 is dated 14 September 2010. He also made one for the year 2010/11. But for the year 2008/09 and earlier years he did not make a tax return.
101. For the year 2008/09, AML paid PAYE and NIC and provided a P14 and a P11D to the Revenue in respect of Mr Dickinson's salary and the loans to him. The P11D treated the loans as benefits in kind and tax was paid on that basis.
102. Mr Dickinson's PAYE coding notice issued on 11 January 2009 for the tax year 2009/10 shows that it was calculated by the Revenue on the basis that the loan to Mr Dickinson was treated as a benefit in kind because that calculation included a taxable sum of £4,404 on the basis that the interest Mr Dickinson had to pay on his loans was less than the official interest rate.
103. In his tax return or the year 2009 /10 Mr Dickinson completed an employment page showing a salary before tax of £11,826, included a tax calculation based on that salary and a benefit in kind totalling £8, 999 and under the heading "tax avoidance schemes" he identified the registered scheme by its number 43525375.
104. His P11D for the year 2009 /10 includes the following information relating to interest-free and low interest loans:

(i) amount outstanding at 5 April 2009, £146,603.60,

(ii) amount outstanding at 5 April 2010, £232,321.53,

(iii) maximum amount outstanding at any time in the year, £232,321.53,

(iv) no interest was paid in 2009 /10.

This information correlates with the calculation made by the Revenue of his PAYE code for that year based on the information provided by his employer on the amount of the outstanding loans to him and the interest that was paid on them.

105. It should have been obvious to anyone reading the information provided to the Revenue by Mr Dickinson's employer (through his P14 and P11D) and his tax return that in the tax years 2008/09, 2009/10 and 2010/11 Mr Dickinson was being paid substantially more by way of an interest free loan than he was by way of salary. Indeed, it is clear that the Revenue was aware of this from its calculation of his PAYE tax code for 2009/10.
106. Further, in February 2011 Mr Dickinson received a revised tax calculation for the years 2007/08 and 2008/09 from the Revenue. This shows (as did the disclosure by Tenon and the reason for the COP 8 enquiry referred to below) that AML employees had been paid significant loans for earlier years than those covered by these claims.
107. The revised calculation was prepared on the basis that the amount of the beneficial loan included in the calculation of his PAYE code was lower than the amount that was taxable and so he had underpaid tax that would be collected through his tax code for 2011. The attached calculations show that the Revenue based its calculation on the amounts of the salary and the loans that had been provided to it and treated the loans as benefits in kind.
108. This treatment of Mr Dickinson's remuneration by the Revenue is in line with the reaction of the anti-avoidance group I have already referred to. Also, it is a clear confirmation of the Revenue proceeding on the basis that the underlying premise of the DOTAS arrangement (number 43525375), namely that the loans were taxable as benefits in kind, was correct.
109. Discovery assessments were made against Mr Dickinson for the years 2008/09 (a year in respect of which he had not made a return) and 2009/10 (a year in respect of which he had made a return) on respectively 7 February 2013 and 14 December 2013.
110. The first of these assessments was accompanied by a covering letter which stated that it had been made under the discovery provisions of s. 29 TMA in order to protect HMRC's position and ensure that tax due for 2008/09 is not lost because of the statutory time limits for issuing assessments. The letter accompanying the later assessment did not include that passage. Both letters include an assertion that the assessments bring into charge further sums that Mr Dickinson had received during the tax year and give slightly different explanations of the reasons for the additional assessment.

The Code of Practice 8 investigation

111. AML has a sister company (AML Tax (IOM) Ltd (AIOM)). About 40 employees of AML had received s. 9A TMA enquiries for the years 2006/07 and 2007/08 and the evidence indicates that these enquiries remain ongoing and no closure notices have been issued. These employees are not Claimants or not claimants for those tax years.
112. In January 2009, AIOM contacted the Revenue and suggested that given that, due to their participation in the same scheme, the facts and information required of each AML employee would be similar the Revenue could conduct a collective review and centralise its enquiries through corresponding with AML and/or AIOM.
113. A Code of Practice 8 (COP 8) Investigation was instigated by HMRC Specialist Investigations Team on 16 January 2009. It was conducted on that basis. Accordingly, it provided a centralised source of information to the revenue about AML employees who had taken part in the registered scheme in addition to the information provided by and in respect of the individual employees through tax returns, P60s and P11Ds.
114. Initially that enquiry was limited to NICs and AML provided information requested to the investigation.
115. At first it was conducted by the Special Investigations Section Solihull (lead investigator a Mr Hadley), it was transferred to Liverpool Specialist Investigations (lead investigator a Mr Whitehouse) and on 3 February 2010 it was transferred to Edinburgh Specialist Investigations (lead investigator a Mr Griffin). On 22 September 2010, the Revenue through Mr Griffin appropriately apologised for long delays. An exchange of correspondence and information and requests for more information followed. An offer to the Revenue to visit the Isle of Man to inspect documents and Counsel's opinion was declined and a counter suggestion that relevant documents could be sent recorded delivery, or by the international equivalent, was not followed up.
116. On 3 June 2011, the Revenue's investigator (Mr Griffin) wrote stating that if further information or documents were required for the purposes of the investigation or he had any progress to report, he would be in touch with AML at the appropriate time.
117. The Revenue, through its special investigations team, did not contact AML or AIOM until 19 April 2013. This letter raised the income tax arguments that the Revenue now relies on.
118. The period from 11 June 2011 to April 2013. Towards the end of this long period of non-communication and shortly before the expiration of the tax year 2012/13 the Revenue issued discovery assessments for 2008/9 accompanied by a letter stating that they had been given to ensure that tax due for that year was not lost due to statutory time limits (the 4 year limit). Mr Dickinson is an example.
119. It may also have issued some s. 9A enquiries in cases where tax returns had been filed and the one year time limit was due to expire shortly.
120. So, it is apparent that by June 2011 at the latest that the Revenue must have had enough information:

(i) to make the discovery assessment it made in February 2013, and

(ii) to raise all of the arguments relating to income tax set out in the letter of 19 April 2013.

This is because it had not sought any further information pursuant to the letter dated 3 June 2011.

121. The same point can be made from:

(i) the information provided by and the way in which the Revenue dealt with Mr Dickinson, as an example, set out in paragraphs 100 to 110 above, and

(ii) the point made in paragraphs 92 and 93 on what a reasonably informed reader would know from the disclosure of the DOTAS arrangement and the information proved in the Claimants' P11Ds.

The Revenue's explanation for the long delay and the change in its position

122. The Revenue addresses this in a statement by Ms Becky Clubb who, since April 2012 has worked with a team within the Revenue that is responsible for investigating "contractor loans schemes".
123. She asserted that when the discovery assessments were raised the project team believed that the conditions for doing so in s. 29 TMA were met and that the Revenue's position on that is set out in a letter to AML dated 3 September 2013. I indicated during the hearing that it was not clear to me whether she was asserting that the decision-makers for the discovery assessments raised on each individual taxpayer had considered whether the conditions for doing so existed and reached decisions on the basis set out in the later letter of 3 September 2013. I gave the Revenue the opportunity to clarify the position. It did so through a statement of Andrew Finch. He is an Inspector of Taxes who first became involved with contractor loans in November 2011. He is referred to by Ms Clubb in her statement and in the Postponement Agreement letter cited in paragraph 3 above. Also, he wrote some of the relevant letters (e.g. the letters of 19 April 2013 and 3 September 2013).
124. In her statement, Ms Clubb says that the Revenue was not inactive between May 2011 and April 2013 and that in 2011 Mr Griffin (the writer of the letter to AML in June 2011) "reviewed the evidence available on legacy Contractor Loans schemes and considered that the evidence could support a number of alternative potential approaches to tax the loans as income". He was joined by Mr Finch in November 2011and they continued to review the "substantial evidence and complex technical issues in respect of the legacy Contractor Loans schemes, including the AML scheme". She joined them in April 2012 and at that time the Revenue established an internal but independent review panel of Contractor Loans schemes which included a review by two officers who had not previously been investigating the schemes.
125. She goes on to say (with my emphasis):

It was clear from the files reviewed in April 2012 that HMRC did not hold a full set of documents on how the AML scheme worked in practice and, in particular, how the scheme operated in relation to any individual user of the scheme. As I have set out in more detail below, documents have since been requested in an attempt to gather a complete set.

However, a number of factors became clearer following the review in discussions between HMRC stakeholders (including technical specialists). In particular:

a. The contractors (i.e. scheme users) generated the market the contractor loans avoidance themselves as individuals and their aim was to save themselves income tax and national Insurance;

b. The end-users did not intend to employ the contractors and were generally not apparently aware of the schemes

In light of both the conclusions of the review in 2012 and technical analysis by internal technical specialists both before and after the review HMRC's position became and remains that the claimants and any other scheme users who received loans from the AML EBT were and are liable to income tax in respect of such receipts

126. The disclosure of the DOTAS and the results of the COP 8 investigation were available to those who conducted the 2012 review as were the relevant P11Ds, tax returns, tax calculations and PAYE code calculations of the Claimants.
127. Surprisingly, Ms Clubb does not address this or specify what additional documents would have better informed the Revenue about the individual use by the Claimants of the AML DOTAS arrangement or what documents would provide a "complete set".
128. It is apparent from what Ms Clubb says that the views of technical specialists were taken into account and that a number of schemes were the subject of the 2012 review. Indeed, Ms Clubb says that from October 2012 to January 2013 some 4,000 enquiries were opened into 2010/11 returns for those using contractor loans avoidance schemes before the statutory window for opening those enquiries closed (and it seems that one of these was the s. 9A enquiry that Mr Dickinson says was made after November 2012 in respect of his 2011/12 return). This is clear confirmation that the AML employees were only a part of a wider review and decision making process of the Revenue.
129. Later in her statement Ms Clubb says:

Following the 2012 review Mr Finch [the Special Investigation Team investigator ] and I prioritised opening enquiries and issuing discovery assessments to protect tax due before offering a settlement opportunity. We had insufficient resources to do both at once and we recognised the need to renew contact with scheme users, their agents, and with scheme promoters such as AML --------------

In late 2012, a larger dedicated team ("the project team") within HMRC was set up to ensure tax from these avoidance schemes was protected and to increase communications with users of these schemes and their representatives -----------

To allow the team to review each customer's record and raise a discovery assessment Mr Finch provided the project team with a list of scheme users. The project team checked whether HMRC had P11D forms in respect of each scheme user showing the amount the scheme user had received as loans. Where HMRC did not have a P11D form showing the correct amount of loans received by a scheme user, Mr Griffin provided the project team with a multiplier to help them to decide how to estimate assessments for that particular scheme user -----------------

The multiplier was only used when the team could not trace a P11D form which gave details of the loans received during the relevant tax year. A P11D form was however traced in the vast majority of AML scheme users for whom discovery assessments were raised

Having reviewed the details of scheme users and having completed their checks of individual customer's tax record, the project team came to the view that those using the AML scheme had not sufficiently self-assessed their taxable income - either by making no return at all or by including insufficient income in ITSA returns for the earlier years in which they had used these arrangements and in which they received the loans. This belief that there was an insufficiency of tax assessed because the sums received as loans should have been taxed as income amounted to a "discovery" for the purposes of s. 29(1) TMA 1970. Discovery assessments were therefore then raised by the team. [As an example she then exhibits the assessments issued to Mr Dickinson for the tax years ending April 2009 and April 2010] "

130. Ms Clubb exhibits an example of a Postponement Agreement with an unidentified AML taxpayer which states that:

"The assessments are estimated in the absence of details of actual loan amounts received and we will be happy to revise these to the correct figures these are provided"

This shows that in the minority of cases in which the Revenue did not have the details of the loans (through a tax return and/or P11D) it was still able to make an assessment.

131. Miss Clubb's evidence needs some de-coding.
132. Notwithstanding her earlier assertion that the Revenue did not have a full set of documents on how the AML scheme worked in practice, her references to the 2012 review, and her assertion of a recognition of the need to renew contact with scheme users, their agents and scheme promoters such as AML, a careful reading of her evidence confirms that (a) no such contact was made, and (b) to raise the discovery assessments the Revenue:

(i) did not use or need any further information to that provided before June 2011 by or on behalf of each of the individual taxpayers and further or alternatively AML through their tax returns, P 60s and P 11Ds, and so

(ii) the reasons for the long delay were generic, and the Claimants were not responsible for them, and

(iii) the reference to the Revenue not having a full set of documents on how the AML scheme worked, although true, is at least potentially misleading because it was not a relevant factor in the delay, and if it had been it could easily have been overcome by asking for more information.

133. In his statement Mr Finch expands on what was happening within the Revenue in 2012 and, in doing so, he confirms the points made in the last paragraph.
134. They are also apparent from his letter of 3 August 2013 to AIOM in which he confirmed that the Revenue had not required anything further between 11 June 2011 and April 2013 and apologised for not keeping in touch over that period to advise AIOM of the Revenue's progress.
135. Mr Finch sets out that he joined Mr Griffin in November 2011 as the new project lead in the investigation of contractor loans schemes. He explains that before his initial discussions with Mr Griffin in November and December 2011 he had not come across the transfer of assets provisions. Mr Griffin, who Mr Finch describes as the previous lead in that investigation, was the third Specialist Investigations Inspector to head up the COP8 enquiry and the author of the letter of 3 June 2011. Mr Finch does not say when Mr Griffin became aware of the transfer of assets provisions but it is at least possible that they were not "new" to him and so to the lead investigator in the COP 8 enquiry from early 2010. Mr Finch says that advice was sought from the Revenue's Transfer of Assets specialists in March 2012. It would be surprising if the existence of the transfer of assets provisions were not known by a number of officers in the Special Investigation units of the Revenue (including its Anti-Avoidance group) and so to officers (including Mr Griffin) who were addressing the AML scheme in the COP 8 enquiry.
136. Mr Finch describes a general approach in 2012 to the issue whether the conditions for raising discovery assessments existed that included thought being given to s. 29(4) and (5) of the TMA. He refers to a sample of five cases that included two users of the AML scheme (one of whom is a claimant in these proceedings). What he describes is a generic process that leads to what he says in paragraph 17 of his statement in respect of a note he made of a meeting on 1 February 2013, namely:

"As the note recalls, we were of the view that:

(i) It will be unusual in contractor loans cases to find cases where we do not have a "Discovery" position as such and, since we had fully considered the Transfer of Assets provisions with specialists in recent months, it seemed quite clear that we have an insufficiency of tax, and

(ii) It will be unusual in contractor loans cases to find cases where our position was restricted by the first condition of s. 29(4); and

(iii) It will be unusual in contractor loans cases to find cases where our position is restricted by the second condition in s.29(5)."

137. Arguably in contrast, in his letter dated 19 April 2013, Mr Finch says that the conditions regarding the discovery conditions in s. 29 TMA will vary according to the circumstances of each case and suggested that the best way to establish the conditions for discovery in these cases might be to take a few examples and to consider each on its merits and that he would be happy to do this with AIOM at any time. In his statement, he says that whilst the project team were opening enquiries and making assessments he resumed contact with the parties who represented users of contractor loans schemes:

"in the knowledge that HMRC had extensively considered discovery beforehand and that, in my view, HMRC had good arguments in respect of the validity of the assessments when they were made".

138. Comment on this explanation by the Revenue. As no doubt was apparent during the hearing I consider that this explanation lacks clarity and an appropriate focus on the position of the Claimants within the approach, processes and investigations decided on and pursued by the Revenue.
139. The Revenue's problems due to its resources and volume of work are dealt with in the statement of Julie Elsey, the Deputy Director (Policy and Technical) of Counter Avoidance Directorate.
140. The de-coding of Ms Clubb's statement shows that it is these general problems and the general approach taken by the Revenue to its investigation and consideration of DOTAS arrangements that has caused the lengthy delays and that if the particular circumstances of the Claimants are looked at in isolation Ms Clubb's references to, for example, the complication of Contractor Loans Schemes and the need for further documents to obtain a complete picture of the AML scheme are obfuscation.
141. The position as confirmed by the actions of the Revenue was that:

(i) the AML DOTAS arrangement was not complicated and was clearly one that was known to the Revenue through its anti-avoidance group and those responsible for issuing the relevant PAYE codes from the time that it started to be used by AML employees,

(ii) the underlying legal bases for the arguments now relied on by the Revenue were known or ought to have been known or appreciated by officers of the Revenue during the period that PAYE codes were being issued to and recalculated for AML employees on the basis that the loans were taxable as benefits in kind, even if they were not known or appreciated by those responsible for doing this,

(iii) it cannot be persuasively asserted that throughout its use by the Claimants the Revenue did not have sufficient factual information to enable it to formulate and advance the arguments it now relies on in the underlying tax dispute. And, in any event, it issued the discovery assessments on the information it had by June 2011, and so

(iv) if "discovery" is used in its ordinary sense of uncovering or finding out a line of argument or a fact the Revenue, as a body, did not so discover anything over and above what it had been told by and on behalf of the Claimants by at the latest June 2011.

142. I repeat that in setting out this conclusion I am not seeking to second guess the FTT on the discovery dispute before the FTT and I acknowledge that:

(i) under s. 29 of the TMA it is at least arguable that "discovery" is not used or applied in that sense under s. 29(1) or when applying the conditions that apply when there has been a tax return,

(ii) further evidence may be relied on before the FTT,

(iii) the Revenue was understandably not focusing only on the AML DOTAS arrangement in its consideration of Contractor Loans schemes and individual officers have different experience and knowledge, and

(iv) in advancing their arguments in favour of the conclusions set out in the last paragraph the Claimants did not invite me to determine or second guess the discovery dispute or the tax dispute before the FTT. Rather as I have said they invited me to proceed on the basis that the Revenue's case on all issues before the FTT was arguable (and so that view of the officer of HMRC that founded the APNs was also arguable).

April 2013 to the giving of the APNs

143. AIOM replied to Mr Finch's letter dated 19 April 2013 by letter dated 28 June 2013 making a number of points on the taxability of AML employees and on the conditions for the making of a discovery assessment under s. 29 of the TMA for AML employees who had filed tax returns. AIOM also accepted that s. 34 of the TMA was in point for employees who had not submitted tax returns but asserted that they had concerns about the "reasonableness" of the Revenue's decision to make protective assessments for the years 2008/09 given the delays in the COP 8 investigation.
144. The Revenue, through its special investigations team by letter and on the telephone in July and August 2013, and by a letter dated 3 September 2013, address the points put forward in the letter of 28 June 2013 from AIOM on the conditions for the issue of a discovery assessment for employees who had filed a tax return. On the issue of reasonableness concerning employees who had not filed a tax return the Revenue stated that, as was the case, it had already written about delays in respect of the COP 8 investigation and asserted that in any event the enquiry into the arrangements of AML was entirely separate from the individual tax affairs of the employees, which I do not accept.
145. The letter then makes the assertion that assessments have been raised on individuals as the law permits following HMRC enquiries over a period of time into these and other similar arrangements establishing the facts and the appropriate application of taxing statutes.
146. Communication between the Revenue and AML continued up to a meeting held on 23 July 2014 at which the rival arguments were discussed. A progress meeting was held on 13 October 2014 at which Mr Finch said that the application of the APN regime to the AML DOTAS arrangement was being handled by a different department. The APN warning letters were sent in March 2015.
147. Following the issue of the APNs in March 2015, the first communication between the Revenue and AML was by a letter of 25 June 2015 in which the Revenue correctly apologised for the very long delay in answering the letter from AML dated 25 June 2014. Although this letter had been followed by the meeting on 23 July 2014 this apology is a correct recognition that such an apology was due. No reasonable excuse apart from staff shortages and work load was offered for this considerable delay.
148. The evidence from the Revenue in these proceedings shows that the decisions to give APNs were made at two meetings held on 4 December 2014 and 6 January 2015 of the Accelerated Workflow Governance Group (the WFGG). A paper was presented to the December meeting by Ms Clubb. The WFGG:

"approved the recommendation to move these schemes forward for AP delivery schedule and issue APNs for the income tax. The WFGG agreed that the NICs challenge will continue and WFGG would consider APNs for NICs in the future."

149. Ms Clubb's paper included the following:

"The main challenges in the scheme is on the basis of transfer of assets rules or employment income (in the alternative). We will be seeking tax from the individual. We may also contend that Class 1 NICS is due, regardless of the basis of the income tax charge. -----------------

There is a current settlement opportunity open on which we will accept tax only as the basis for settlement. This is LSS compliant as it is in line with the representative case, Boyle. In this case, we did not seek to challenge the NICs position.

The Delivery Channel's preferred view is [recommendation 2.1], to issue the APNs in April with clear communication that this is the first stage in the APN process and we will be issuing a further APN for the NICs in due course. The intention is to extend the deadline for customers to engage with CLSO [the settlement offer] until 30 June 2015 (this remains subject to approval by Tax Commissioners) and for some AP notices to predate this. It is important that we get the communications around this right to encourage customers to settle and to ensure customers do not disregard AP notices because of CLSO and, equally, do not pay AP notices and assume they have reached full and final settlement "

150. At the meeting held on 6 January 2015 the meeting notes of the WFGG record under the heading "Counter Avoidance Schemes - April per delivery schedule" that:

"It is considered that there is a high risk of bankruptcy for a number of these users.

Although the precursor letter and FAQ sheet does suggest that they can speak to us if they are unable to pay, we need to consider this communications agents and users.

The APNs will be issued on the basis of income tax but need to make clear that we are not including Class 4 NICs as we do not have NICs legislation and ensure users are aware that we are still pursuing this technical challenge.

There are a mixture of enquiry and appeal cases with a substantial number of Discovery Assessment cases.

Operationally, three steps to take: (1) Provide the cases with an open enquiry, (2) With the Discovery Assessments establish if there is an appeal and (3) If there is an appeal, consider the validity of the Discovery Assessment. "

The Revenue's litigation and settlement strategy

151. As appears from the citation of extracts of the documents recording the decisions to issue APNs an aspect of this strategy before and after giving APNs is the making of settlement offers under which the Revenue advance its case on taxability.
152. It is obvious that the giving of an APN changing the position on where the disputed tax lies puts pressure on individual taxpayers to settle or to try and get the appeal heard quickly. In cases where the tax became due but was postponed the giving of an APN returns, and because of the interest charges increases, the cash flow pressures on settlement and advancing the hearing of the appeal to those that would have existed if postponement had not been agreed.

Analysis and Conclusion

153. The strength of the Claimants' case. Firstly, it is not built on a mirage as I found to be the case in Vital Nut. Rather, and in contrast to the position in both Rowe and Walapui, it is founded on a clear and specifically directed promise to postpone the payment of the disputed tax.
154. This is not its only foundation. Indeed, applying the principles applicable to the determination of whether there is an of abuse of power it creates the starting point of the expectation the Claimants rely on and which has to be considered in all the relevant circumstances.
155. Those circumstances relied on by the Claimants are:

(i) a DOTAS arrangement that is not complicated,

(ii) initial reaction of the Revenue that supports a conclusion that the Revenue accepted that the arrangement worked in the way asserted by and on behalf of the Claimants,

(iii) early disclosure of the information that the Revenue relied on several years later to issue the discovery assessments,

(iv) positive steps by the Revenue, namely the issues of PAYE codes and their recalculation taken on the basis or the apparent basis that it was accepted that the loans were taxable as benefits in kind,

(v) negative steps namely not issuing s. 9A enquiries into tax returns submitted by some of the Claimants, which indicate that the Revenue was then accepting that the loans were taxable as benefits in kind,

(vi) no uncovering or finding out a fact or a line of argument by the Revenue as a body over and above what it had been told by and on behalf of the Claimants by at the latest June 2011 that triggered the giving of the discovery assessments,

(vii) long delays in the processes and investigations of the Revenue for which the Claimants were not responsible, and

(viii) the reality that the discovery assessments were issued after those long delays because it was only then that applying its approach, processes and resources that the Revenue got round to pursuing its present argument that the tax advantages of the DOTAS arrangement asserted by and on behalf of the Claimants do not exist and the loans are taxable as income.

156. By reference to the underlying purposes of DOTAS points (i) to (vi) above support the view that the DOTAS arrangement used by AML and its employees was a loophole or possible loophole that Parliament might want to address because:

(i) it was uncomplicated, and

(ii) under the existing tax legislation, it had the effect that the loans were taxable as benefits in kind as asserted by and on behalf of the Claimants and apparently accepted by the Revenue.

157. More generally, and I agree (see in particular paragraphs 55, 64(viii) and 65 hereof) as:

(i) DOTAS and its underlying purposes cover a wide range of circumstances, and

(ii) the Revenue has a power not a duty to give an APN when it maintains that a DOTAS arrangement does not have the tax advantage claimed

a "one approach fits all" approach to DOTAS arrangements by reference to the underlying purpose of the APN legislation to marketed tax avoidance schemes is flawed and, in any event, fails to apply the principles that govern good administration and so abuse of power.

158. The weakness of the Revenue's first argument. The Revenue sought to defend its complete failure to address those strengths of the Claimants' case by effectively asserting that when the conditions for giving an APN in respect of a DOTAS scheme exist it can always lawfully give one.
159. This seems to reflect the approach and mindset referred to in the policy costings for the Budget 2014 (see paragraph 66 hereof). It does not recognise or sufficiently recognise:

(i) that the Revenue has been given a power to give APNs the exercise of which is governed by public law principles, and

(ii) the points made in paragraph 157 hereof.

160. In aid of that argument the Revenue relied on what Simler J concluded in Rowe at paragraph 16 of her judgment where she said:

"Given the nature and purpose of PPNs (namely to accelerate the payment of tax considered to be due, by removing the cash flow advantages and requiring a payment on account of the disputed tax to be made before resolution of the underlying dispute), there is nothing wrong in my judgment, with a general rule that when the statutory criteria are met, the discretion will be exercised by issuing the notice, save in exceptional circumstances."

161. But Simler J said this in the context of a challenge based on irrationality having earlier rejected the argument on legitimate expectation. And she refers to a general policy and not one that is determinative of the different issues that arise in respect of a challenge to the exercise of a power based on legitimate expectation and so abuse of power.
162. The cases make it quite clear that such a macro-political policy issue is a factor but not the only factor to be considered. In some cases, it can be a weighty or magnetic factor and effectively determinative. But, like a clear and unequivocal promise, it does not of itself and so without considering competing factors provide the answer to whether there has been an abuse of power.
163. Also, if the exercise of the power does not accord with the underlying purpose of the legislation this can give rise to different grounds of challenge, namely a Padfield or irrationality challenge
164. Further, in my view the points I have made above (see in particular at paragraphs 55, 64 (viii) and 65) that:

(i) the exercise of the power to give APNs is governed by public law principles, and

(ii) DOTAS arrangements and legacy cases cover and give rise to a wide range of circumstances that are relevant to issues concerning good administration,

mean that care should be taken in applying this conclusion of Simler J other than in respect of a rationality argument.

165. In summary, I have concluded that this argument of the Revenue, and so the approach it took in deciding to give the APNs, effectively ignores the principles of good administration and so is unlawful as being conspicuously unfair as a matter of procedure and substance.
166. Further, I do not accept the Revenue's argument that it finds support in Rowe at paragraph 96, or Walapu at paragraph 95, because those passages are not dicta to the effect that if there had been a legitimate expectation based on a clear promise it would not be conspicuously unfair to ignore it.
167. The strength of the Revenue's alternative arguments. The first point to make is that these arguments address rather than ignore the relevant principles relating to the lawful exercise of a statutory power when addressing the terms of the APN legislation and its underlying purpose.
168. In my view, they have both generic and macro-political strengths and strengths that are directed to the circumstances of the Claimants.
169. In her statement Ms Elsey says that the Revenue routinely agrees to the postponement of tax, that there were difficulties in resisting postponement and it was not considered an appropriate means of tackling tax avoidance, or for securing payment in advance of the determination of the taxpayer's appeal. In doing so, she refers to paragraphs 2.20 and 3.36 in "Tackling marketed tax avoidance - A Summary of Responses". In those responses, the Government asserts that the test for postponement set by s. 55 of the TMA namely, reasonable grounds for believing that the taxpayer has been overcharged (and so an arguability test), is a relatively low hurdle for the taxpayer to cross and that reliance on a refusal to postpone to alter the position on where disputed tax lies could only be used where there is an appeal and not where there is an open enquiry.
170. I agree that the statutory test set by s. 55 of the TMA creates a relatively low hurdle. Also, the advantage of postponement that it gives to the taxpayer reflects a general approach that disputed tax does not have to be paid until the dispute is resolved. In my view, these two points provide a good reason:

(i) for the Revenue entering into the postponement agreements with the Claimants, and

(ii) for the Government not regarding refusals to postpone as a solution to the problems arising from marketed tax avoidance that it was seeking to address.

171. Paragraph 2.6 of a chapter entitled "Typical taxpayer journey" and the foreword to those responses of the Government also provide a clear confirmation, should it be needed, of the Revenue's point that by giving a power to give an APN after tax has been postponed pursuant to s. 55 of the TMA the underlying intention of Parliament was that, whilst an appeal as to the effectiveness of a marketed tax avoidance arrangement was determined, the position on where the disputed tax lies should no longer be based on a presumption or test that the taxpayer would hold the disputed tax if he had reasonable grounds for asserting and believing that it was not payable (and so the s. 55 TMA test).
172. This intention or purpose underlies the whole of the APN regime which covers:

(i) open enquiry cases where tax had not become due and so postponement agreements under s. 55 of the TMA were not and would not be made, and

(ii) appeals and enquiries in which a closure notice has been given and so cases in which postponement agreements were regularly made (and can still be made although now with the prospect that an APN will be given).

173. Accordingly, Parliament has expressly and deliberately "changed the goal posts" with the effect that the test set by s. 55 of the TMA for the postponement of disputed tax:

(i) that presented a low hurdle for the taxpayer and so was favourable to the taxpayer, and

(ii) was the basis for the postponement agreements in these cases

is no longer determinative of the issue where disputed tax lies pending the determination of a tax appeal relating to a DOTAS arrangement.

174. Parliament has enacted the same result in cases when the Revenue has concluded that it is arguable (namely when an officer of HMRC believes) that the tax advantage does not exist in cases where the taxing statutes have not provided that the disputed tax is due (e.g. open enquiry cases).
175. This does not mean that as a matter of good administration the postponement agreements and the clear promises made by it can be ignored. But it does mean that their force, and the normally very powerful argument that public authorities should not resile from their clear promises, have been significantly undermined. This is because the statutory base for and so the reason why the Revenue entered into the postponement agreements and thereby made a clear promise is no longer determinative of the issue where disputed tax should lie.
176. Rather, in considering whether to give an APN and so reverse or change the effect of an existing postponement agreement the Revenue has to consider that result from a base that it has identified a tax dispute and Parliament has provided that postponement is no longer governed by the existence of the taxpayer's side of the arguments relating to it. The underlying purpose of the APN legislation is relevant to that consideration.
177. In other words, the clear promise relied on by the Claimants has been made to them as taxpayers but Parliament has made clear that the reason why it was made no longer governs whether payment of the tax in dispute on the appeal should be postponed by giving the Revenue a power to effectively reverse the existing agreements and promises made by them.
178. In my view this analysis provides:

(i) a macro-political policy reason for departure from the clear and unambiguous promises relied on by the Claimants which put an onus on the Revenue to justify a departure from them, and

(ii) a powerful argument, when the conditions for giving an APN exist, that of itself the prima facie distinction between cases in which such promises have been made by postponement agreements and other cases has limited force.

179. This does not mean that the existence (or non-existence) of a postponement agreement or other express promise (e.g. a standstill agreement as proposed in Vital Nut) is not a factor to be considered. Rather, it goes to the weight to be given to that factor in determining whether the giving of an APN in the particular case is lawful or an abuse of power.
180. Also, it does not mean that all DOTAS arrangements and so the taxpayers who have entered into them should be treated in the same way.
181. Although in my view the Claimants have established the eight circumstances set out in paragraph 155 hereof, I consider that the Revenue can rely on the following circumstances to support the giving of APNs to the Claimants:

(i) the accepted arguability of its case on the tax dispute and the discovery dispute,

(ii) the related point that the arguability condition of a valid APN is satisfied,

(iii) the change in the threshold test to postponement of the payment of disputed tax,

(iv) notwithstanding the Revenue's initial reaction and approach to the DOTAS arrangement, the lack of complication of the arrangement and the early disclosure of its application by AML and its employees, that arrangement has an underlying artificiality or tax avoidance purpose that:

a) naturally puts it into in that type of case that is described as "marketed tax avoidance" in, for example, the Government responses I have referred to, and

b) alerts the Claimants to the point that they are entering into such an arrangement in reliance upon a view taken of the tax advantages it gives,

(v) the point in (iv) (b) means that if the Claimants did not plan their finances on the basis that they might have to pay more tax they were or should have been aware that they were taking a risk.

(vi) if they are not artificial or shams, and so can support the tax advantages claimed, the loans are repayable and so if the Claimants have not planned their affairs on that basis they were taking a risk,

(vii) the Claimants do not assert that pending resolution of their tax appeals they are faced with the Catch 22 situation of having to repay the loans and pay the disputed tax,

(viii) the detriment relied on by the Claimants is based on (a) assertions that the scheme introduced by Parliament is draconian, and (b) the cash flow and other pressures created by the APNs (which I accept exist), rather than any particular difficulty caused by their need to make payment at an earlier date than they would have done if the risk they took resulted in more tax being payable after any tax dispute was resolved,

(ix) the Claimants in their evidence do not convincingly advance reliance or detriment arising from any understanding caused or reinforced by either actions and omissions of the Revenue, or the point that initially the Revenue accepted or appeared to accept that the DOTAS arrangement worked in the way its promoters asserted and advised,

(x) as I do not accept the point made by the Revenue in correspondence that the COP 8 Investigation is separate from its dealings with individual taxpayers it can be relied on to show that the Revenue was investigating the DOTAS arrangement and so had not accepted that it worked,

(xi) the Claimants or many of them and the relevant officers of AML and AIOM would be aware or could readily find out that delays by the Revenue are not uncommon and there is no evidence of them pressing for answers and final decisions by the Revenue, and

(xii) the discovery assessments were issued within the 4 year time limit set by s. 34 of the TMA and although they dispute the validity of those assessment (the discovery dispute) the Claimants do not rely on any earlier time period or event giving them finality.

182. The outcome of the assessment of the competing strengths of the Claimants' case and the alternative arguments of the Revenue. As the Revenue did not consider and assess these arguments when making the decisions to give the APNs the strength of its alternative arguments do not avoid a conclusion that it acted in a way that was conspicuously unfair as a matter of procedure.
183. But in my view this does not mean the Claimants succeed if the Revenue's alternative arguments found the conclusion that as a matter of substance and so of result there was no abuse of power. If that is the case, to my mind in these cases it does not matter if they are dismissed on the basis that there was no substantive unfairness or relief is refused applying s. 31(2A) of the Supreme Court Act 1981.
184. Applying the principles on abuse of power set out in paragraphs 34 to 41 hereof, I have concluded that the strengths of the Revenue's alternative arguments outweigh the strengths of the Claimants' arguments and the core of that conclusion is that:

(i) the macro-political policy issues flowing from the terms and underlying purpose of the APN legislation undermine the force of the clear and unambiguous promises given by the postponement agreements because the legislation provides a change in the underlying statutory test and approach to the issue when disputed tax should be paid,

(ii) those macro-political policy issues provide a weighty factor in favour of the conclusion that the giving of APNs is unlikely to be an abuse of power if the arguability of the tax dispute and other conditions for giving them are satisfied, as they are here, although they do not warrant a "one approach fits all" approach or one that has regard only to those policy issues reflected in legislative change, and

(iii) the strengths of the Claimants' case identify a number of valid criticisms of the approach and decision making of the Revenue but assessed with the rival strengths of the Revenue's case relating to the particular circumstances of the Claimants and the approach taken by it to them, the Claimants' assertions of conspicuous unfairness to them are effectively based on the change that Parliament has enacted and do not found an abuse of power.

Result

185. I dismiss the claim.