Umbrella company’s argument was not waterproofby
An umbrella provider subject to a section 86 notice and named and shamed by HMRC applied for a judicial review but failed to convince the court.
This case – Easyway Umbrella Ltd vs HMRC  EWHC 3368 (Admin) – concerning an umbrella company called Easyway Umbrella Ltd, apparently has a “rather unorthodox procedural history”. The application is in the High Court for permission to bring a judicial review. The challenge is what the claimant graphically calls a decision by the defendant, namely HMRC, “to name and shame Easyway in accordance with section 86 of the Finance Act 2022”.
HMRC published a section 86 notice, citing the claimant Easyway on its website, naming and shaming them. It was published on 27 July 2023 but the challenge from Easyway was not brought until 9 October 2023, accompanied by an application for urgent consideration.
It was agreed that the court would decide the issue of permission and the issue of interim relief sought by Easyway to remove the section 86 notice pending a full substantive enquiry.
Easyway is an umbrella provider, this is a name commonly given to companies that engage employees to provide them to clients. This is attractive to clients who do not want the responsibility of being an employer. A practice has grown up of umbrella companies paying a minimal salary to its employees and topping up the salary with loans that HRMC regard as being earnings which would attract PAYE and, therefore, is tax avoidance.
Easyway apparently deliberately chose to differentiate themselves from this practice by paying more than the minimal salary and operating a bonus scheme that results in full taxable payments. Easyway acknowledged that its business began in January 2022 because it recognised the increased demand because of the change to the IR35 legislation.
HMRC decided their method would attract a section 86 notice. Such a notice may be published by an authorised officer of HMRC who “suspects that a proposal or arrangements are a relevant proposal or relevant arrangements” (section 86(1) of the Finance Act 2022). The notice may name a promoter or person connected with the proposal or arrangements. The full definition is in s234 but, “relevant arrangements” are such if they enable or might be expected to enable any person to obtain a tax advantage.
By section 234(3) a tax advantage includes:
(a) relief or increased relief from tax
(b) repayment or increased repayment of tax
(c) avoidance or reduction of a charge to tax or an assessment to tax
(d) avoidance of a possible assessment to tax
(e) deferral of a payment of tax or advancement of a repayment of tax
(f) avoidance of an obligation to deduct or account for tax.
HMRC became suspicious because the PAYE records showed that the employees were only paid the minimum wage but, they were in professional occupations that would normally command more. There was also a discretionary bonus pot. The promotional material included a statement that: “no income tax or national insurance is payable on the bonus pot until it is paid out”. An employee could receive “advances on this bonus pot in the form of loans up to 85% of the on target future bonus payment”.
Warning from HMRC
On 13 April 2023, HMRC wrote to Easyway warning them that they were considering publishing a section 86 notice. George Zambartas, the sole director of Easyway, says he never received it, meaning that he was not notified. The parties agree that section 86(5) of the Finance Act 2022 provides: “If an authorised officer intends to publish information under this section that identifies a person, an officer of Revenue and Customs must:
(a) notify the person, and
(b) give the person 30 days from that notification in which to make representations about whether or not the information should be published.”
As Easyway did not respond, HMRC decided to publish the notice on 19 July 2023. Zambartas then received this letter on 27 July 2023 and emailed HMRC to complain and ask for the notice to be taken down. The case became litigious and the day before filing HMRC, having received the judicial review papers, reassured Easyway that their view had not changed.
Grounds for judicial review
The claimant Easyway’s business has suffered severely and, in fact, may not survive. So, Easyway’s four grounds for the judicial review were:
- unfairly failing to provide an opportunity to make representations
- inadequate and unlawful reasons for publishing the section 86 notice
- irrational decision to publish the section 86 notice
- violation of article 1, first protocol to the European Convention on Human Rights by publishing the section 86 notice.
Despite these grounds, HMRC argued that Easyway had not dispelled the defendant HMRC’s justified suspicion that the claimant’s proposal was a “relevant arrangement”.
The claimant argued the Ranger’s Football Club case, but the court said that it was not on the same statutory footing because a section 86 notice may be published based on what an authorised officer “suspects”.
Mr Justice Kerr, therefore, concluded that there was nothing Zambartas could have said that would have prevented HMRC from publishing because the scheme did fall under s234 as tax avoidance.
Permission to apply for judicial review was, therefore, refused.
In addition Mr Justice Kerr refused interim relief stating: “The bar of suspicion is low, the suspicion is not obviously shown to be ill-founded and the legislation makes the defendant and not the court the arbiter of whether a notice should be published, without any right of appeal to the court before it is published.”
The lesson from this is that If you are an umbrella company with a tax avoidance scheme under s234, it’s bad enough being named and shamed but it’s ill-advised to bring a judicial review where you forget to argue the point and merely rely on arguing that you didn’t receive the letter.
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Rebecca is the UK's most prominent thought leader and leading expert in ‘employment status’ including IR35, off-payroll working and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as...