Selection of recent Tax Tribunal cases, July - September 2023
Time for our latest round-up of some interesting recent Tax Tribunal cases. July 2023 – September 2023
Director receiving employment income was required to file RTI returns
Case details: Purple Sunset Ltd v HMRC  TC08880
Purple Sunset Ltd is a one-person limited company and prior to the 2018-19 tax year, the company did not file Real Time Information (RTI) returns or pay National Insurance Contributions (NIC) on the income received from the company by the director Mr McDonald. However, Mr McDonald did include the income he received from the company on his self-assessment return as employment earnings.
Following a compliance check, HMRC issued NIC decisions for the tax years 2014-15 to 2017-18 and penalties for failing to file RTI returns for the tax years 2015-16 to 2017-18. The company accepted the NIC liability but appealed the RTI penalties on the grounds that Mr McDonald did not have an employment with the company but rather was only a director and received his money in that capacity and that there was no requirement to file RTI returns. The company was represented by Mr Kerridge.
HMRC considered that RTI returns were required as set out in PAYE Regulations 2003 and that the company Purple Sunset Ltd and Mr McDonald as the director and office holder did meet the definition of ‘employer’ and ‘employee’ respectively as set out in the Regulations. The Tribunal agreed with HMRC that the company was required to submit RTI returns.
Whilst the company had not raised the issue of a reasonable excuse for the failure to submit the returns (neither in its appeal submission nor skeleton argument) the Tribunal decided, in the interest of justice, to consider this issue, since HMRC had included this point in its skeleton argument.
After considering whether the company did have a reasonable excuse, because Mr McDonald had relied on Mr Kerridge’s incorrect understanding of the law or because he was ignorant of the legal requirements, The Tribunal found this not to be the case and dismissed the appeals against the RTI penalties.
HMRC did not discharge its burden to show the loss of income tax and penalty position were ‘careless’
Case details: Magic Carpets (Commercial) Limited v HMRC  TC08892
HMRC raised Regulation 80 determinations in respect of unpaid PAYE income tax for the 2009-10 and 2010-11 tax years in respect of P35 returns and related penalty assessments for the same years on Magic Carpets (Commercial) Limited, regarding the use of a tax avoidance scheme involving an Employee Benefit Trust (EBT).
The Regulation 80 determination for the 2009-10 tax year was issued on 5 April 2016 and on 10 February 2017 for the 2010-11 tax year. Both determinations were raised outside the ordinary time limit of 4 years but within the extended time limit of 6 years after the end of the year of assessment to which it relates, where the loss of tax is brought about carelessly by a person or by another person acting on behalf of that person.
The EBT scheme was recommended to the company via their accountants and was marketed by a third party on the basis that loans made to employees did not attract PAYE income tax and National Insurance Contributions.
The Tribunal looked to consider whether the company’s conduct on both issues amounted to carelessness, that is whether it demonstrated a lack of reasonable care as judged by reference to a prudent and reasonable taxpayer in the position of the company at that time. The burden of proof on these issues sits with HMRC.
Considering the details of the case, including the case law at the time, the subsequent tax cases of Murray Group Holdings Ltd and others v HMRC and the conclusions of the Independent Loan Charge Review in December 2019, the Tribunal concluded that HMRC had not discharged its burden to show that there was any causal link between any carelessness on the part of the company or by the accountants acting on the company’s behalf regarding the tax loss or inaccuracies in its P35 returns.
The appeals were therefore allowed in full.
Contractor is not able to appeal against refusal to grant relief under Regulation 9(4)
Case details: Gallagher’s Windows, Doors & Conservatories Ltd v HMRC  TC08897
Following a compliance review into the company Gallagher’s Windows, Doors & Conservatories Ltd, HMRC (after considering the relief provisions under Regulation 9(4) Condition B) raised Regulation 13 determinations for the tax years 2013-14 to 2016-17 inclusive and for the period 6 April 2017 to 5 May 2017.
The determinations included those payments made to subcontractors within the scope of the Construction Industry Scheme (CIS) that were not subject to CIS deductions nor included on CIS monthly returns and did not qualify for relief under reg. 9(4) Condition B.
Under reg. 9(4) Condition B, HMRC can relieve a contractor of the CIS tax under-deducted where it is satisfied that the subcontractor has taken account of the payments within its own self-assessment tax return and has paid the tax due to HMRC.
The company’s appeal was based on an unjust enrichment for HMRC, as the company contended that the subcontractors had paid the tax and, within their appeal to the Tribunal, also raised the question as to whether there is a right of appeal against a refusal to make a direction under reg. (5) of the CIS Regulations if the requirements of reg. 9(4) Condition B are not met.
HMRC maintained that the company had failed to operate CIS correctly, that it had not satisfied the criteria for relief under reg. 9(4) Condition B and that HMRC had applied the legislation correctly. Furthermore, once a reg. 13 determination is raised, the option to make a direction under reg. 9(5) is no longer open to HMRC or the Tribunal.
The Tribunal found that there is no right of appeal against HMRC’s refusal to grant relief under reg. 9(4) Condition B and that if the company wished to challenge the determinations raised on the grounds stated in their appeal, they can only do so by way of a judicial review.
The appeal was dismissed with the Tribunal concluding that the amounts included in the determinations were in accordance with the statutory scheme.
Conditions for issuing Personal Liability Notice not satisfied
Case details: Sharon Suttle v HMRC and John Jaekel v HMRC  TC08950
Ms Suttle and Mr Jaekel separately appealed against personal liability notices (PLN) issued by HMRC under paragraph 19 Schedule 24 FA2007. Each PLN amounted to £5,322,918.45.
The PLNs were issued to Ms Suttle and Mr Jaekel as joint directors of Earn Extra 139 Ltd (EE139), a company that provided umbrella services. HMRC had conducted a compliance check of EE139 and concluded that it had deliberately submitted PAYE returns that it knew to be inaccurate and concealed those inaccuracies. The inaccuracies related to the incorrect treatment of travel expenses, most of which HMRC believed had not been incurred and were false and that the hours worked were significantly higher than those recorded by the company.
As a result of these findings, HMRC issued Regulation 80 Determinations and Section 8 National Insurance Contributions Decisions covering the tax years 2010-11 to 2015-16 to EE139 totalling £12,524,514 and raised a penalty of £10,645,836.90.
Officers of a company may be personally liable to pay all or part of a penalty (inaccuracy penalty) where a company is liable to a penalty for a deliberate inaccuracy in a return or other document, and the deliberate inaccuracy is attributed to the action of officers of the company.
To charge a company officer penalty, both of these two mentioned conditions must be met, along with either one of the following circumstances – the officer gained or attempted to gain personally from the inaccuracy, or the company is insolvent or likely to become insolvent.
As the PLNs were issued under paragraph 19 Schedule 24, the Tribunal looked to consider whether there were any inaccuracies in the returns that amounted or led to an understatement of liability to tax; whether such inaccuracies were deliberate and, if so, were they also concealed; whether the penalty had been calculated correctly; and whether any amount of the penalty is attributable to Ms Suttle and/or Mr Jaekel.
The Tribunal found that there were inaccuracies in the returns that did lead to an understatement of tax, but that HMRC had not established deliberate behaviour on the part of EE139. Therefore, the conditions for issuing the PLNs to the directors were not satisfied and the appeals were allowed. The tribunal also rejected HMRC’s submission that the inaccuracies were concealed.
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