In Stephen Hoey v HMRC [2019] TC07292 the FTT held that discovery assessments on EBT loans which had been disclosed by the taxpayer were valid, and HMRC could decide to transfer the tax due from the employer to the employee.

Under s29 TMA 1970 HMRC may make a discovery assessment if they find an incomplete or inaccurate disclosure leading to a loss of tax.

Under s 684(7A) ITEPA 2003 HMRC can use their discretion to disapply the PAYE regulations in respect of the taxation of employment income in circumstances where they consider it “unnecessary or not appropriate” to pursue the employer.

Mr Hoey was an IT specialist who participated in two contractor loan schemes, Penfolds and Hamilton, whereby he received loans from offshore employee benefit trusts (EBTs).

HMRC’s case for the tribunal put forward an alternative argument that a charge to tax arose under the provisions of Chapter 2, Part 13, ITA 2007, the Transfer of Assets Abroad legislation (“ToA”).

Prior to the case being heard it was established that Mr Hoey accepted the reasoning in the Rangers case  and therefore HMRC’s argument that the original payments to the EBTs were taxable as his employment income.

The FTT dismissed the appeal and found:


Both schemes here were standard EBT schemes which were disclosed to HMRC in a manner not dissimilar to many other such schemes. Scheme users and their advisers may have thought that by entering the DOTAS number and declaring their interest free loans on their tax returns they could avoid the application of the discovery provisions; this decision suggests otherwise but as an FTT decision is not binding precedent and was made despite the 2012 decision in Charlton where the Upper tribunal ruled that the presence of a DOTAS scheme reference number on a return should be enough for an officer of HMRC to be reasonably expected to be aware of an insufficiency of tax. 

The decision includes details about how HMRC set up an entirely new team to consider the application of the ToA rules to EBT’s with offshore employers. The FTT judge did agree that the ToA rules could apply; the creation of the employment contracts between Mr Hoey and Penfolds/Hamilton constituted the transfer of an asset by Mr Hoey, a UK resident, to Penfolds/Hamilton, who were not resident in the UK, and were therefore persons abroad. However he concluded that the correct amount of income assessable under the provisions was nil as deductions were due for the contributions made to the trusts.

The judge's conclusion on the application of the ToA rules, thought not case precedent as an FTT case, is not fact specific and could therefore apply to many disguised remuneration schemes. This means, unless a different view is taken in any future tribunal cases, and in particular by a higher court, that HMRC’s plan to attack such EBT's using the ToA rules may have failed. Of course it is possible, and perhaps expected, that this decision itself may be appealed to a higher court.

Links to our guides:

Disguised remuneration

Disguised Remuneration final settlement opportunity

Transfer of Assets Abroad 

Regulation 80 and 72 assessment for PAYE

External link:

Stephen Hoey v HMRC [2019] TC07292