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broken umbrella | acoountingweb | Easyway Umbrella Ltd subject to section 86 notice
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Umbrella company’s argument was not waterproof

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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.

30th Jan 2024
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This case – Easyway Umbrella Ltd vs HMRC [2023] 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.

Umbrella provider

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.

Relevant proposal

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.

Suspicious minds

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 refused

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.

Replies (4)

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By kestrepo
30th Jan 2024 17:26

If Easyway’s business does not survive will the Administrators / Liquidators / Official Receivers job be to get all of those loans paid as "advances" repaid?

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By fellowcraft
30th Jan 2024 19:34

Former Registered Office 'Inovasion House' :)

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By fellowcraft
30th Jan 2024 19:35

It does beggar belief that these loan schemes are still happening

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By cfield
01st Feb 2024 20:41

One of our locum clients ended up in the clutches of this company, steered into them via an equally dodgy agency. Not whilst we were his accountants, I hasten to add, but we are now trying to sort out the mess. According to him, he never even saw any loan/bonus documentation and was totally unaware of it. He only ever received weekly summaries from the agency, which showed his gross earnings and looked just like payslips to the untrained eye.

As the Loan Charge legislation (Schedule 11 FA No 2 2017) refers only to loans or quasi loans, I wonder if it can apply in cases where the worker didn't even know there was a loan. Must there not be a willing borrower for a loan to even exist? Surely you can't lend someone money without their knowledge and consent. Seems a bit too easy to argue that though, otherwise hundreds of others would have avoided the loan charge by now (and I use the word "avoided" in its original sense; i.e. the right side of the prison wall).

It never fails to amaze me how slow HMRC are to react to these dodgy umbrellas. Their laughingly named Early Intervention Team only ever get involved years after the damage has been done. Yet these firms made no secret of their activities. Back then, their websites all promised +80% net pay rates for all the world to see. All HMRC had to do was look up their RTI submissions and pay them a compliance visit. Too proactive for them I suppose.

Better still, they could have paid the agencies a visit and demanded to see their preferred supplier lists, using a Schedule 36 Information Notice if necessary. The ones providing contract workers to the NHS and Local Authorities are fairly well known. That would have led them straight to the dodgy umbrellas. A well-organised team could have identified the miscreants and come down on them like a ton of bricks within weeks. Instead of that, it is the poor locums years later who are carrying the can and suffering all the stress.

HMRC have got a lot to answer for with these blatant tax abusers. They could and should have done more to nip them in the bud and stop the situation getting as bad as this. It was patently obvious that these firms would prey on the locums once they were forced to stop using their own personal companies following the iniquitous IR35 reforms back in 2017. Someone should have used a bit of foresight and done something about it. Jim Harra, maybe!

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