BN66 - Round 2 (Court of Appeal)

[moira under the stairs]

deja vu

You could be right, I'm hearing quite a bit about the incompetence within the HMRC . I'll ping it straight of to MP to see what they say, will keep you all posted.

Well you know I said I was hearing about the incompetence within the HMRC, I have witnessed it first hand........ they have sent me the exact same letter they did earlier this week, same date, same content.

Nine out of Ten UK citizens pay their Self Assessment tax on time..... etc etc

yes I am one of the Nine and pay in advance payment on account......

[Alan Jones]

Mr Gittins did

..and what also really puzzles me, is how the Padmore case wasn't even in the ballpark until 2008 and now seems the central axiom on which it all hinges. In 2002-2008 no-one even mentioned it .. or did they?

He knew about it in 1998 i.e he knew about Padmore, about HMRC 1660 and about retrospection. All these were discussed with Counsel.

Also ask Mr Gittins about Paragraph 9B of the UK/IOM Double Tax Treaty inserted in 1994. This could be reason why a s28 [or sic] was not "triggered" - this is an option available to the taxpayer to force a dispute before the commissioners very quickly (used by "M" on another case in 2001). EVEN Judge Parker QUERIED why you had not taken that route.

FINALLY - Re my comments about Padmore and retrospective law and therefore users of identical/similar scheme for IR35 should have expected retrospection - I was MERELY QUOTING the JUDGE. What is the saying dont shoot the messenger.

[poppy01]

He knew about it in 1998 i.e he knew about Padmore, about HMRC 1660 and about retrospection. All these were discussed with Counsel.

Also ask Mr Gittins about Paragraph 9B of the UK/IOM Double Tax Treaty inserted in 1994. This could be reason why a s28 [or sic] was not "triggered" - this is an option available to the taxpayer to force a dispute before the commissioners very quickly (used by "M" on another case in 2001). EVEN Judge Parker QUERIED why you had not taken that route.

FINALLY - Re my comments about Padmore and retrospective law and therefore users of identical/similar scheme for IR35 should have expected retrospection - I was MERELY QUOTING the JUDGE. What is the saying dont shoot the messenger.

this a good point and has troubled me, why didn't mp force the case as soon as the scheme came under investigation. this would have minimised the risk to there clients and would have verified the scheme as valid or otherwise years ago

[silver_lining]

He .. and retrospective law and therefore users of identical/similar scheme for IR35 should have expected retrospection - I was MERELY QUOTING the JUDGE. What is the saying dont shoot the messenger.

Parker used whatever was convenient irrespective of it's weakness or whether it was a point of law. A judge on the on the other hand that has the backbone to actually apply the law, would reasonably expect that the onus cannot be on taxpayer to challenge HMRC and potentially incur personal stress and serious expense, which on average no one can afford. Secondly challenge on what basis? what HMRC believed this month, last month or 5 years ago.... or maybe just the romance they did not believe it worked.

As for shoot the messenger....

I personally want to see the flight over the cuckoo's nest..... so gentlemen resist the offer to lock an load

[seadog]

..and what also really puzzles me, is how the Padmore case wasn't even in the ballpark until 2008 and now seems the central axiom on which it all hinges. In 2002-2008 no-one even mentioned it .. or did they?

MontP knew about Padmore case because it was a variation on the same DTA rules which were being used to claim the DTA exemption.

Lets make it clear Padmore and all the others who were subject to appeal won the case and did not have to pay any retrospective tax.

What the retrospection did was to change the law so that that UK partners were liable to tax and that anyone who had overpaid could not get a refund or as Norman lamont said a windfall bonus.

Following the case the HMRC manual went on to say that some tax planners thought that using Trusts would get round the legislation. HMRC did not clarify it by saying they did not think it would work. All they said at the time way back in the mid 1990's was that they would keep it under review and that all claims for DTA exemption using Trusts should be sent to the International Tax Division.

The question whcih HMRC cannot answer is when the hundreds of cases started coming through the system in the early 2000's why did HMRC not issue any clarification. They certainly knew enough about the scheme and at that time because they had hundreds under enquiry and had done the deal with Alan Jones.

The reason they did not clarify or take legal action is because they knew the scheme worked. Just look at the internal HMRC Technical Note 63 which admitted that they could not challenge the scheme.

According to one of MontP's letters to us they had copious correspondence with HMRC about the scheme but HMRC did not come up with any credible arguments as to why it did not work.

When they finally decided to take 4 test cases throught the usual legal system to test it out they used one set of arguments which Judge Parker has already said did not hold water.

Knowing they had a very weak case the only option for HMRC was to use legislation to change the law. Doing that to close teh loophole was always on teh cards but with a massive majority and misleading information they introduced it retrospectively and steered S58 through parlaiment without MP's knowing the full facts and background.

To apply teh Padmore principle we should have been able to test our case in court. If we won as we all think we would, then as with Padmore no one woudl have had to pay any retrospective tax.

HMRC took away our opportunity to do that hence our claim that our human rights have been breached.

[Tax_shouldnt_be_taxing]

this a good point and has troubled me, why didn't mp force the case as soon as the scheme came under investigation. this would have minimised the risk to there clients and would have verified the scheme as valid or otherwise years ago

Oh dear, we're back to that old chestnut again. Yep, I reckon even HMRC knew about Padmore and HMT and goodness only knows who else. The fact that Padmore was not referred to ONCE by HMRC until February 2008 in all of this and supported by the evidence of TE63 is because... Padmore doesn't actually apply here?

Witness statements submitted by HMRC at the JR stated that in late 2007 HMRC looked at the 1987 legislation again. No mention of when they last looked at it and by all account, not between 2001 and 2007.

Even Parker refused to rule the scheme in violation of 1987. He chose to sit on the fence.

So the "solution" is to bring in legislation to "clarify" the "intent" of Parliament in 1987. Quite convenient actually. 7 years of HMRC naval gazing and then "Lo, there was a great light that shone from the void and HMRC said let it be so".

Padmore was never brought up before 2008 because it wouldn't wash. And don't forget, 1987 never had anyone taxed retrospectively anyway.

As for taking it to the SC early. Well, consider if HMRC had clearly stated why the scheme did not work then there would be a case to defend. Imagine being told you're guilty but no charge of the guilt is levied. What are you going to go to court to defend exactly? Might have helped if they had stated their Padmore Policy at the time if as BN66 implies, it was always the case. Then MP would have a case to defend. As it was there was a period of 7 years where "always having effect" was somehow unknown to those who now claim this was always so. Don't find this a little "odd"?

In any event, imagine someone getting a letter from HMRC saying they don't accept a tax relief claim yet not given the hard reasoning as to why? Would that person go "right, I'm off to the SC!". On what grounds exactly? Sorry, this redress seems a little shaky to me.

The 4 test cases would have resolved this one way or the other at the SC. Pity HMRC renaged on following this through in favour of legislation where Padmore was held up in lights to Parliament yet the Padmore position has never been proved one way or the other. Not even at the JR.

Next?

[Tax_shouldnt_be_taxing]

Tax Policy

Let's not forget what came out of the JR. The 2 new in fashion "regulations" are Social Policy and Fair Share. Well, if they are the basis on whether tax relief should be allowed or not instead of actual law then I see it as meaning the following:

Just because bimbo brains or numb nuts can't earn 200 grand a year, those who have climbed the social ladder to do just that should be penalised as it's not fair on bimbo or numb. Well, I'm sorry, it's called evolution. Some make a better life for themselves and some do not. If we're all to be taken down to the lowest common denominator then we should have a flat rate of tax. Problem solved. 5 pages of taxation instead of 10,000. Personally I don't think it is "fair" that someone should pay 40% tax or even 50% tax just because they have succeeded where others have not or couldn't be bothered to try. Harsh? But fair and actually true (except in a Socialist State).

[Alan Jones]

let it be so".

The 4 test cases would have resolved this one way or the other at the SC. Pity HMRC renaged on following this through in favour of legislation where Padmore was held up in lights to Parliament yet the Padmore position has never been proved one way or the other. Not even at the JR.

Next?

You are missing/evading the Question. Let me quote Justice Parker:
# Secondly, Mr Elvin QC submits that, unlike in Padmore, HMRC lacked the courage of its convictions (if any) and failed over a long period to take appropriate proceedings in respect of the arrangements. HMRC ought, he argued, to have brought such proceedings and, if HMRC lost - as he maintains was inevitable - Parliament ought, as it did in Padmore, to have allowed the successful taxpayers to retain the fruits of victory. The failure to follow that route made the retrospective legislative response disproportionate.

# However, in my view, the state was not obliged to test the matter first in the courts before enacting legislation, even with retrospective effect. The public policy was of such paramount importance that legislation was necessary in any event to put the position beyond all doubt and to maintain the relevant public policy. Furthermore, for reasons already given, such litigation would probably have been protracted, costly and uncertain. At no time did HMRC indicate to affected taxpayers, including the Claimant, that they could safely rely upon the arrangements. On the contrary, HMRC consistently maintained that the arrangements did not work, and advised taxpayers to pay on account the income tax which HMRC said was properly due. Any prudent taxpayer who followed that advice would not now be prejudiced by the retrospective effect of the legislation. The circumstances here are wholly different from those in Beyeler v Italy (2001) 33 EHRR 52, where the public authorities by their conduct over many years had led the applicant to believe that the state would not exercise a right that it enjoyed, and the later exercise of the right conferred a specific unjust enrichment on the state at the expense of the citizen.

# Nor did HMRC represent, expressly or even impliedly, that legal proceedings would first be pursued before the enactment of any legislation, or that any legislation would not have retrospective effect. In so far as taxpayers may have relied upon the route previously travelled by HMRC and the legislature in Padmore, they did so at their own election and risk.

# Furthermore, taxpayers were not themselves powerless to bring the issue to a head if they so chose. They did not have to wait until HMRC brought proceedings in respect of the arrangements. Section 28A of the Taxes Management Act 1970 is in the following terms:

"28A Completion of enquiry into personal or trustee return

...1) An enquiry under section 9A(1) of this Act is completed when an officer of the Board by notice (a "closure notice") informs the taxpayer that he has completed his enquiries and states his conclusions.

In this section "the taxpayer" means the person to whom notice of enquiry was given.

(2) A closure notice must either-

(a) state that in the officer's opinion no amendment of the return is required, or

(b) make the amendments of the return required to give effect to his conclusions.

(3) A closure notice takes effect when it is issued.

(4) The taxpayer may apply to the Commissioners for a direction requiring an officer of the Board to issue a closure notice within a specified period.

(5) Any such application shall be heard and determined in the same way as an appeal.

(6) The Commissioners hearing the application shall give the direction applied for unless they are satisfied that there are reasonable grounds for not issuing a closure notice within a

specified period."

# It was, therefore, open to any affected taxpayer to apply to the special commissioners for a direction under section 28A (4). If such a direction had been given, and the closure notice had been adverse, the taxpayer would have had an appealable decision. Mr Elvin QC did not suggest that, if such a direction had been sought at a time when HMRC had complete information about the arrangements made by the Claimant, and HMRC had had a reasonable opportunity to consider the legal consequences of such arrangements, an application under section 28A (4) would not have had strong prospects of success. Mr Elvin stressed the relative simplicity of the arrangements and that the Claimant had given complete information about them at a fairly early stage after submission of the first returns. In my view, therefore, the Claimant did not need to wait, but could himself have applied for a direction under section 28A (4), with reasonable prospects of success. If the closure notice had then proved adverse, the Claimant would have had a decision regarding his tax liability which he could have appealed in the usual way.

SO WHY IF YOU WERE SO CERTAIN DID YOU NOT TAKE THIS ROUTE

NEXT

[Alan Jones]

MontP knew about Padmore case because it was a variation on the same DTA rules which were being used to claim the DTA exemption.

Following the case the HMRC manual went on to say that some tax planners thought that using Trusts would get round the legislation. HMRC did not clarify it by saying they did not think it would work.

The reason they did not clarify or take legal action is because they knew the scheme worked. Just look at the internal HMRC Technical Note 63 which admitted that they could not challenge the scheme.

To apply teh Padmore principle we should have been able to test our case in court. If we won as we all think we would, then as with Padmore no one woudl have had to pay any retrospective tax.

HMRC took away our opportunity to do that hence our claim that our human rights have been breached.

First see response to tax not taxing AND another quote from Judge Parker:

"There were perhaps tactical advantages perceived by taxpayers in not pursuing such a course. There was a chance that HMRC, left to its own devices, and unpressured by any application under section 28(4), might come round to accepting that taxpayers were right and that the arrangements were effective to avoid, or reduce, income tax. It might also have been thought that, with the passage of time and long inaction on the part of HMRC, the likelihood of retrospective measures receded, and it was safer to let sleeping dogs lie. However, if such tactical calculations were made, taxpayers simply ran the risk that at some point Parliament might legislate to put the matter beyond doubt, and might well do so, as in Padmore, retrospectively, and with effect in respect of the periods when taxpayers themselves had not taken steps to bring the question of the efficacy of the arrangements to adjudication. "

In my humble opinion fee receiving promoters cannot be independent tax advisors. It was crazy NOT to go for s.28 UNLESS .............

[Tax_shouldnt_be_taxing]

You are missing/evading the Question. Let me quote Justice Parker:
Blah blah blah

SO WHY IF YOU WERE SO CERTAIN DID YOU NOT TAKE THIS ROUTE

NEXT

Sorry Alan, I had to delete the judgement part as I've read it many times like everyone else, but thankyou for sharing it (again).

I don't think you understood my point. Have another read and see if you get it. Not sure I can make it more obvious. Anyways, have a good day.