In City Shoes Wholesale Ltd & Ors v HMRC [2018] EWCA Civ 315 the Court of Appeal agreed there was no conspicuous unfairness leading to an abuse of power by HMRC in denying the Liechtenstein Disclosure Facility (LDF) to users of EBT schemes.

The Liechtenstein Disclosure Facility (LDF) ended in December 2015; it offered taxpayers with undeclared offshore assets generous terms if they brought their tax affairs up to date provided that they disclosed their income according to HMRC’s disclosure requirements.

  • The taxpayers set up EBTs between 2002 and 2010, and HMRC opened enquiries into each scheme.
  • The taxpayers' advisers in lengthy discussion with HMRC, intimated that they could use the LDF and applications to join the LDF were made.
  • HMRC took the view in turning down the applications to use the LDF:
    • the LDF was to promote the disclosure of previously undeclared income when they knew about the EBTs
    • it was unfair for other EBT users if they were not given the same opportunity to use the LDF because they had used the EBT settlement opportunity (EBTSO) instead.

The EBT users applied for judicial review claiming they had a Legitimate expectation to use the LDF. The High Court dismissed the case noting:

  • HMRC had never provided any guarantees 
  • As the LDF registrationwas never accepted, the taxpayers could not complain they had been treated unfairly.

The taxpayers appealed to the Court of appeal on the grounds that the High Court:

  • Failed to take into account all relevant considerations.
  • Misdirected itself as to the law governing challenges on grounds of conspicuous unfairness.
  • It's analysis of HMRC's decision-making process was flawed because:
    • it focused solely on the risk of a legitimate expectation-based challenge;
    • it did not consider HMRC's duty to act fairly; and
    • material considerations were disregarded.

The Court of Appeal dismissed the appeal saying:

  • HMRC's decision to exclude the EBT users from the LDF was not based solely on considerations of legitimate expectation, but extended more widely to embrace considerations of fairness in the interests of the general body of the taxpayers 
  • No challenge could sensibly be made to the rationality of taking such wider considerations into account, given evidence of a probable loss of tax of between £214 and £256 million if EBT users were able to settle their cases through the LDF instead of the EBTSO.

It is still not clear to what extent other EBT (or similar scheme) users were allowed to use the LDF prior to its closure without challenge by HMRC. Now that the LDF is closed however the only option for EBT participants is to make use of the Disguised Remuneration final settlement opportunity, or pay the Loan charge in April 2019.


Disguised Remuneration

Disclosure opportunities

Grounds for Appeal: legitimate expectation

City Shoes Wholesale Ltd & Ors v HMRC [2018] EWCA Civ 315

R (on the application of City Shoes Wholesale Ltd) v HMRC [2016] EWHX  107 (Admin)



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