HMRC shoot own feet - part 94

HMRC win the technical argument - but most discovery assessments invalid

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 In another LLP profit share manipulation scheme a la Bluecrest HMRC won, as in Bluecrest UT, on the "miscellaneous income" (or Case VI as I call it) point and in default on the "sale of occupation income anti-avoidance (by Cliff Richard)" rules, both in relation to the members, but failed on the partnership points.   But HMRC only succeeded in showing that one discovery assessment on a member for one year was valid.  All the out of time ones were held not careless (but had the LLP itself been in the frame then s 30B discvery amendments would have been OK as carelessness there was upheld) and in relation to the not out of time DAs in only one did HMRC get through the hypothetical officer gateway (s 29(5)).   The case is Boston Consulting Group UK LLP & ors v HMRC [2024] UKFTT 84 (TC) (Judge Tracy Bowler).    

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By FactChecker
31st Jan 2024 17:11

Wholly irrelevant, but I like what I take to be the P Eye reference in the title.

More usefully for anyone who wants to dig deeper, the full Judgement can be found at https://caselaw.nationalarchives.gov.uk/ukftt/tc/2024/84

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By Justin Bryant
06th Feb 2024 13:01

Yes; another HMRC c*ck-up.

I'm possibly being thick, but I don't follow HMRC's s118(5) TMA causation argument in para 414.

Also, I think the FTT's reference in para 417 to (hypothetical) counsel opinions supporting alternative tax treatment misses the loss causation point here re carelessness.

It seems to be better dealt with at para 346 et seq here: https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08858.html

Funny also how the client thought it was all "too good to be true", as that's HMRC speak for tax avoidance (which mainly worked in this case).

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Replying to Justin Bryant:
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By richard thomas
06th Feb 2024 14:33

I agree that the decision does not really deal with the appellants' point, nor does the HMRC argument deal with it, but at least it is a moot point and not determinative.

Did it "mainly work" given the defeat on the miscellaneous income point?

And yes, FactChecker, it was a deliberate Private Eye reference from a reader of many decades' standing. I never managed to get a P Eye reference into my judicial decisions in the unofficial competition among the less po-faced judges to get cultural references into them. Monty Python was the main source of references by judges including mine to Arthur "Two Sheds" Jackson and Nick Aleksander's to the Faculty of Philosophy at the Univ of Woolloomooloo ("There is nooo rule 6"), but the daddy of them all was John Brooks' Eric Morecambe reference in Tooth at the FTT.

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Replying to richard thomas:
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By Justin Bryant
06th Feb 2024 15:04

HMRC was generally out of time for recovering the tax loss is what I meant (i.e. a win is a win, albeit procedural) and agreed re Mr Andrew Preview.

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Replying to richard thomas:
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By FactChecker
06th Feb 2024 15:43

P Eye always acted like a lodestone to me for finding where 'things were more interesting' ... I used to hang out at their Greek Street office where, as a schoolkid, one of my first memories of the UK was wondering how Willie Rushton could take up that much of the small space available to everyone.

I only came to realise how much more than mere humour lay at the heart of what they did when, at the end of the '60s, I had a blazing row with my father (who thought he was more British than the British and had bought wholesale the image of honesty permeating the establishment).
So he was more than indignant to discover that extracts from confidential Civil Service documents he'd written were being quoted in "that debauched gutter-press that you read" ... and suggested that I must be the source!
After calmly pointing out that I couldn't disseminate what I'd not seen I asked, as he was certain it hadn't been him, 'how limited' had been the circulation? The transformation on his face as he moved from "Very limited - only the Minister" to "Oh ..." was a wonder to behold - and he never really trusted the establishment again.
So thank you P Eye (and Judith Hart for it was she) for helping me to open the eyes of a supremely intelligent, but up to that time gullible, father. We got on much better thereafter as he learned to mine redacted documents (many still locked away now) in his specialist area of the Middle East in the 20th century.

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Replying to FactChecker:
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By Justin Bryant
06th Feb 2024 16:01

To quote Camp Freddie, everybody in the *world* is bent! (One way or another.)

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Replying to Justin Bryant:
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By Justin Bryant
07th Feb 2024 09:55

Here's a recent typical example of how bent the organs of state are: https://www.bbc.co.uk/news/uk-politics-68222915

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Replying to FactChecker:
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By richard thomas
06th Feb 2024 16:14

I too was accused of leaking to the Eye. My boss in IR's International Division thought I had leaked information about Hanson plc and Lord Hanson (Private Eye passim) and their Panamanian companies, as I had been in an upstart investigative division of IR he disapproved of. I did in fact know Michael Gillard (Slicker) and gave him help on tax issues but in general and not about specific cases.

I was also on the periphery of an HMRC row when Richard Brooks defected to the Eye from HMRC and HMT where he worked. Hartnett was incandescent about him going there and accused all and sundry in my area (CT & VAT) of various crimes and misdemeanours.

You referred recently to birdwatching - you can imagine my joy when I found a large flock of Choughs near the house I've got in Spain (an FHL) and when they landed in a field below the mountain to feed I counted exactly 94 of them. From then all Chough flocks consist of 94 birds, they being, like all corvids, intelligent and capable of reading and understanding Private Eye.

I also won an informal competition among Tribunal judges for best bird sighting while sitting judicially or at least having a walk during lunch break. I was sitting in Belfast at the RCJ in Chichester St and during lunch walked across a bridge over the nearby Lagan (of Line of Duty fame) and saw a Black Guillemot.

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By FactChecker
06th Feb 2024 17:13

Well spotted ... presumably it was on a longish distance reconnoitre from base (Isle of Man or Anglesey)?

And I've tried, but obviously failed, to restrain myself from saying you must have been chuffed in Spain!

Incandescent was the natural colour of plumage of many senior HMRC mandarins (and probably still is) - their pomposity being prone to be pricked by the latent schoolboy still in me. I'd better not mention who ordered me to be manhandled from the room in Euston Towers (SIG on pre-release RTI) after I stood up and asked if they'd forgotten part of their speech, which seemed to focus on how nothing was their fault rather than resolutions.
Them: "I don't think so, what?"
Me (without the Frankie Howerd impersonation): "Infamy, infamy! They've all .." and the rest of the audience completed it for me.

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Replying to FactChecker:
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By richard thomas
06th Feb 2024 17:40

And you've made the opposite of the mistake I made once when describing the noise made by the Eider duck - in Carry on Cleo it was Kenneth Williams who said (3 times - not a lot of people know that) "Infamy!".

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By FactChecker
06th Feb 2024 18:04

For anyone else who hasn't a clue what's being discussed here, have a quick listen at https://www.facebook.com/bbcradiowales/videos/tweet-report-eider-duck/83... ... as the reporter says "That's not a duck?"

And I'm happy to stand corrected (in the dunce's corner) regarding the 'infamy' attribution - I could've sworn I'd heard Frankie utter the line in that later and down-market Up Pompeii show.
But it can join the long list of mis-attributions in my head ... the most pedantic one being:
Supposedly it was actually Peter Sellers (*impersonating* Michael Caine) who recorded a voicemail message to inform callers that he (Sellers) was away and that …. “Not a lot of people know that."

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Replying to FactChecker:
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By richard thomas
06th Feb 2024 17:41

Black Guillemots (Tysties) are common round the Ulster coast.

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By Justin Bryant
07th Feb 2024 09:58

I was at this DH dinner and I'm in the video (I'm not one of those clapping I hasten to add, as I was not so dumb as to think it was a not a set up).
https://www.accountingweb.co.uk/tax/hmrc-policy/hartnett-gets-golden-han...

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By FactChecker
07th Feb 2024 12:10

Thanks - I missed this at the time but would love to have seen the the slow dawn of realisation in close up on the face of the the King of Sweetheart Deals.

Aweb were braver in those days, publishing quotes like: “Dave Hartnett was to HMRC integrity what Genghis Khan was to international diplomacy.”

What does intrigue me, however, is why *you* were there?

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Replying to FactChecker:
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By Justin Bryant
07th Feb 2024 12:18

Yes; those were the good old days of Aweb and in case you're unaware, like RT I'm very much one of the great & the good of the tax world is the simple answer to your question, so that such tax festivals (to coin a phrase) where I hobnob with other such highfalutin tax types are meat & drink to me (literally).

In fact, it's quite incredible to think that I consort with the general hoi polloi encountered here, so your question is not a silly one.

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By Dib
06th Feb 2024 17:22

Ah, yes. "The ship of state - the only ship that leaks from the top". (Yes, Minister)

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Replying to richard thomas:
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By Justin Bryant
08th Feb 2024 10:40

This bloke seems to agree with us re s118(5) not being determinative and that you need to look at the facts re carelessness etc.

https://taxinvestigation.co/new/you-couldnt-make-it-up/

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Replying to Justin Bryant:
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By richard thomas
08th Feb 2024 16:55

Sorry Justin, but I’m a bit mystified by this.

First, I don’t see how what we agree on in relation to the decision in Boston is characterised as you rather succinctly (using “re” here is definitely not helpful for clarity) say.

My understanding is that:

We agree that the point raised by Sam Grodzinski KC at 413 is a valid point, backed up by Anderson and Bella Figura UT, and put very clearly by Anne Redston in Strachan. It is I think best captured authoritatively by the UT in Bella Figura:

“[61] ….
(2) Second, [the FTT] did not take into account the fact that s36 of TMA is concerned with the question of whether a failure to take reasonable care causes a loss of tax. The FTT identified the failure to obtain advice as a careless omission. However, it did not go on to consider what would have happened if BFL had asked PPCL if the Falken 1 loan qualified. That was a relevant consideration because, if PPCL would have replied that it believed the documentation it had drafted would be effective, that might well have demonstrated that BFL’s carelessness did not cause the loss of tax.
[64] However, that submission overlooks the fact that the burden is on HMRC to show that BFL was careless for the purposes of s36 of TMA. HMRC had certainly shown a prima facie case of carelessness since the Falken 1 loan was not a qualifying employer loan. However, BFL had produced evidence to rebut the prima facie case of carelessness by showing that at least some steps had been taken to ensure that the Falken 1 loan met the relevant statutory requirements. In our view, had the FTT turned its mind to the question of causation, it would have been open to it to conclude, even without knowing the terms of the retainer with PPCL, that BFL had done enough to rebut the allegation of carelessness on which HMRC bore the burden of proof.
[85] We remind ourselves that HMRC have the burden of proving that BFL’s failure to take reasonable care caused an insufficiency of tax. Once the additional relevant considerations that we have identified in our discussion of Issue 2 are taken into account, we conclude that HMRC have not discharged that burden for the following reasons:
(1) The FTT’s findings of fact at [81] demonstrate to us that Mr Wightman realised that the Scheme could lend funds to Falken 1, without any tax charge arising, provided that the loan in question met certain criteria. He took reasonable care to engage an adviser who could help BFL to navigate the various constraints.
(2) Although Mr Wightman did not obtain express advice from PPCL that the Falken 1 loan was an authorised employer loan (see [89] of the Decision), BFL did rely on PPCL to produce documentation and make necessary filings to achieve that outcome. When PPCL produced loan documentation that was reasonably detailed, in the absence of any suggestion that it was defective, Mr Wightman concluded that the documentation would achieve the desired result10.
(3) It was reasonable for Mr Wightman to derive that reassurance in the circumstances.11
(4) On a related point, HMRC have not discharged their burden of proving that the “carelessness” on which they rely (BFL’s failure to obtain express advice) caused the insufficiency of tax. In our judgment, given the FTT’s finding as to the background to PPCL’s appointment, it is reasonable to infer that, if PPCL had been asked whether the documentation they were producing would produce the desired result, they would have given that confirmation.”
We are I think agreed that what HMRC say in Boston at [414] is no answer at all to the Grodzinski point (somewhere near Zabriskie Point I think).

We are also agreed I think that at [415] to [419] the FTT does not engage with the Groskzinski causation point either.

This has nothing to do with s 118(5) but with the meaning of “brought about carelessly” in s 36(1) and 29(4) TMA.

Trying to interpret your latest post, I assume that “the facts re carelessness etc” is intended to cover the causation point, in which case we are agreed that s 118(5) is not determinative, but mainly because, as I say above, it is not remotely relevant.

Does “this bloke” agree with that? I can see nothing in the article, fine as it may be bar one point, that addresses the causation point or the burden of proof.

He mentions section 118(5) certainly, but only to show that it (sort of) defines carelessness but leaves entirely undefined the meaning of “reasonable care”. But trying to define “reasonable” here would be a job for a superhuman drafter and in my view couldn’t be done. It is a matter for evaluation by the Tribunal, akin to judicial review.

Ironically, section 118(5) does not apply to what he is talking about. He is referring to Schedule 24 FA 2007 penalties for errors in documents. The opening words of ss (5) are vital:

“*For the purposes of this Act* a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation.”

FA 2007 is not “this Act”, and does not contain any words that incorporate it by reference such as are found in section 117(2) FA 1998. The wording of s 118(5) is in any case in paragraph 3(1)(a) Schedule 24. The “brought about” aspect in ss 29 and 36 is in paragraph 1(2) – “amounts to or leads to”.

The possibility of a double penalty in Schedule 24 raised by the article raised my eyebrows, but I haven’t had time to check if it’s right.

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Replying to richard thomas:
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By Justin Bryant
08th Feb 2024 17:09

It's just that HMRC seemed to cite s 118(5) as being somehow determinative re the point (which we all agree it isn't). Thanks.

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By richard thomas
08th Feb 2024 17:27

I just don't think they had an answer.

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