The first tier tribunal (FTT) has ruled that Hyrax Resourcing Limited must provide details to HMRC of the remuneration contractor’s loan scheme it promoted, and the taxpayers who signed up to use it.
A hyrax is a small chubby rodent native to Africa and the Middle East, but the Hyrax disguised remuneration loan scheme was a successor to K2 , the scheme made famous by the involvement of comedian Jimmy Carr.
The FTT did not consider the effectiveness of the scheme itself, but whether or not the promoter should have provided details of it to HMRC under the Disclosure of Tax Avoidance Scheme (DOTAS) rules.
It is possible that even without such disclosure, HMRC could have identified the taxpayers involved, but requiring Hyrax to provide disclosure under DOTAS will make the process much easier. HMRC also estimates that disclosure will result in the payment of £40m in tax.
DOTAS is important as a way for HMRC to identify potential tax schemes, as it requires both the scheme promoter and its users to notify HMRC of their involvement, and for promoters to provide details of how the arrangement works.
Failure to comply can result in significant penalties. If Hyrax does not turn over the information HMRC has requested, it could face a penalty of almost £6m plus additional daily penalties of £5,000 per day for continued non-disclosure.
Why did Hyrax not disclose?
The case arose because Hyrax did not consider that the scheme was disclosable under DOTAS. HMRC relied heavily in court on comparing the similarities between the Hyrax scheme and K2 (and earlier iterations of the same idea).
Hyrax chose not to present any evidence to rebut this but instead concentrated on a series of often highly technical objections to various parts of HMRC’s case.
Clash of QCs
The approaches taken by the legal teams on each side provide an interesting contrast.
Robert Venables QC, for Hyrax, focused on a forensic analysis of the legislation and HMRC’s actions, seeking to undermine HMRC’s case on technical and procedural grounds.
Fairly early in proceedings, for example, he sought to have the majority of HMRC’s evidence disallowed on the basis that it had not been entered into evidence correctly (the judge disagreed).
Akash Nawbatt QC, for HMRC, argued for a broader view, urging the judge to draw adverse conclusions from the choice of Hyrax Resourcing Ltd not to give evidence, or arguing that that judge Mosedale should make inferences about the Hyrax scheme based on what was known about K2.
The difference in approaches is evidenced by arguments over the way HMRC had obtained information about the Hyrax scheme.
Venables argued that, for the tribunal to have jurisdiction to apply an order to disclose, a strict reading of the DOTAS legislation required HMRC to fully describe the arrangements and then satisfy the tribunal that they actually existed. He argued that factual inaccuracies by HMRC made its information requests invalid.
The judge preferred to interpret the legislation by considering what Parliament intended it to achieve. She concluded that since the purpose of the legislation was to provide HMRC with information to enable schemes to be investigated, Parliament cannot have intended HMRC to be required to know all the facts before the process started.
The Hyrax case is unlikely to have much of an impact on most taxpayers. It could be relevant for anyone who has used a tax avoidance scheme that has not been reported under DOTAS.
However, it is a reminder that modern courts find it relatively easy to look beyond the letter of the law in order to interpret Parliament’s intention and to give effect to it on that basis.
About Andrew Robins
Andrew Robins is a partner in RSM’s London private client tax team, advising on all areas of UK personal taxation. He specialises particularly in advising high net worth individuals, non-UK domiciled individuals, non-UK trusts, and members of corporate remuneration plans such as employee benefit trusts and international pension plans.