In Janet Bray Limited v HMRC [2024] TC09277, the First Tier Tribunal (FTT) dismissed the taxpayer's appeal against determinations for tax and associated penalties for 2009-10 and 2010-11 following the use of a tax scheme.
The company provides consultancy services in pharmaceutical medicine. Ms Bray remains the company's sole director-shareholder.
- The scheme was purported to provide tax-free amounts to employees through an offshore Employee Benefit Trust (EBT). It also gave an immediate deduction for Corporation Tax for the contributions to the EBT and the fees for using the scheme.
- For the tax deduction, it relied on an exception in the CTA 2009 for payments that were "consideration for goods or services provided in the course of a trade or profession".
- The so-called services were provided by a Jersey company reviewing the business to make recommendations on how key employees should be rewarded.
- An invoice was raised for fees and the amount recommended to be made available to incentivise the employees.
- This latter amount was settled in the EBT in the name of the employer company.
- A sub-trust was set up for each employee benefiting from the arrangement. A proportion of the funds was allocated to that sub-trust and loaned to the employee. No PAYE or National Insurance Contributions (NICs) were accounted for for the loans.
- After the company entered the scheme, the Supreme Court concluded that amounts contributed to an EBT to remunerate employees by way of loans should be treated as earnings at the time of the contribution (the Rangers' case). Accordingly, the determinations were not appealed.
- All parties agreed the scheme did not provide the anticipated tax savings.
- HMRC issued Regulation 80 determinations and associated penalties.
The company Appealed to the FTT.
- The determinations were challenged on the basis that there had been no carelessness so an extension of the time limit for making an assessment was not justified, and even if there had been carelessness it did not lead to the relevant loss of tax.
- The Penalties were challenged on the basis that any inaccuracies had not been brought about carelessly.
The FTT found that no tax advice was taken:
- Ms Bray had asked questions of the parties involved but did not seek any technical knowledge on the tax aspects of the arrangements.
- The parties facilitating the scheme drafted information sheets and although they interviewed Ms Bray, the information in the report subsequently produced was virtually identical.
- A reasonable and prudent person would not have entered into these arrangements without ensuring they had taken tax advice from a suitably experienced adviser. This was careless and meant the subsequent completion of the returns was part of that carelessness.
- Under s.35 TMA 1970 the ordinary time limit for an assessment is four years, but this is extended to six years by s.36 where a loss of tax brought about carelessly. Although case law from HMRC v John Hicks related to Self Assessment returns, the decision applies equally to PAYE returns. Similar case law confirms the same test of carelessness applies to penalties.
- FTT found the determinations were validly made within the six-year time limit under s.36.
The company's alternative argument was that even if there was carelessness, the loss of tax arose from the failure of the scheme:
- The FTT felt that had tax advice been obtained, it was unlikely the arrangements as implemented would have achieved the Corporation Tax savings sought as the scheme clearly followed a set of pre-ordained steps.
- The loss of tax was caused by the company's failure to take reasonable care under s.36.
The appeal was dismissed and the determinations and penalties were upheld.
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Discovery valid: agent was careless in advising on tax scheme
In HMRC v John Hicks [2019] UKUT0040, the Upper Tribunal (UT) allowed HMRC’s appeal. It found there had been carelessness on the part of the taxpayer's adviser so the discovery assessments raised were in time after all.
HMRC win Rangers' Big EBT case
Three judges have decided in favour of HMRC in their long-running battle with the Murray group and the former Rangers football club over its Employee Benefit Trusts (EBT). Payments made to executives, players and their families via the EBT were deemed remuneration and not loans.
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External link
Janet Bray Limited v HMRC [2024] TC09277
