Hoey - next steps

[webberg]

administrativecourtoffice.listoffice...x.gsi.g ov.uk

On Thursday this week (23rd), there is an appeal hearing about whether the Judicial Review sought by Mr Hoey should be heard in the Administrative Court.

If you email the above, you can be given details about how to "attend" the hearing.

As a reminder.

Mr Hoey used the Penfolds scheme. In the FTT it was argued that the end client could/should have deducted tax from the payments made. HMRC claimed that they had a "discretion" afforded them by sec 684 of ITEPA as to whether to require the end client to make such deductions.

An argument was had over two key points.

First, was it the fact that the obligation to deduct was always "on" and HMRC's discretion was to turn it "off" - or vice versa.

Second, as the discretion was whether to apply the secondary legislation in the PAYE regulations, was the FTT competent to hear the case or was it outside their jurisdiction. If it was, then the proper route to a hearing was via a Judicial Review.

On the second point, the FTT decided it had no jurisdiction. An appeal was made to the Administrative Court. That Court refused the appeal on the basis that an earlier case (Addo) had already covered this point in HMRC's favour.

I understand that the hearing later this week is to appeal this refusal but it may rehearse some of the key arguments.

If the Administrative Court refuses to hear the appeal and the JR application, then at the moment it may well be the case that the question of whether PAYE could/should have been applied by the end client will have to be argued in a County Court convened to decide whether money should be paid. Clearly not very satisfactory.

[dammit chloe]

From what I have heard in the twitter vine all appeals have been denied.

Does this case have any further legs to run on? What does it say about anyone trying the legal route. It seems like the wagons have been circled and no-one is getting past the HMRC/Judiciary roadblock.

[bobbydazzler75]

I have heard the decision of Judge Andrews today in Hoey & the underlying FTT decisions in that case and Higgs (using Keith Gordon) and discusses their impact with my accountant and advisor.

Their view was that HMRCs discretion under s684(7A) means that even if you were successful in arguing that the sums paid to me were always earnings; HMRC will always be able to disapply the PAYE provisions to make me liable; be that in respect of re pre or post DR loans. Indeed the same is true of their arguments regarding the PAYE credit under Reg 185 where HMRC have repeatedly said that the exercise of discretion (which appears to have no time limit!) removes that credit. My advisor has therefore asked how your approach will help anyone unless Hoey is overturned. I understand that they may have a shortage of funds required to continue their JR whilst you have invoiced us for significant contributions toward litigation that has not yet been forthcoming despite numerous timeline promises. Will you be willing to contribute toward Mr Hoey’s appeal given that it will clearly affect us all? If not, why not?

[webberg]

The application of Mr Hoey to appeal against the refusal to hear a Judicial Review action was heard - remotely - today.

The application was refused on the grounds that it had no prospect of success.

Unfortunately it appears that the links to the hearing were all curtailed after 3 hours and as a result the final minutes of the Judgement were not broadcast (to me at least).

The remaining issue was perhaps whether the upcoming Upper Tier hearing (scheduled for October but perhaps may be delayed now) could hear the point at the JR in a combined hearing. I think the Judge was going to say "no" but I can't be sure.

We'll have to await the final decision which hopefully will be soon as the Judge appeared to have something in writing already.

This does not mean that the case is over.

The original hearing presented a case for Mr Hoey that the end client (in his case Arriva) should have deducted tax equal to PAYE from all the payments made in respect of his work. If that had happened, then he would be entitled to a credit for that amount. if the liability existed but HMRC failed to collect it, then the credit was still available.

HMRC defended this on the basis that they had a discretion to direct whether PAYE was due to be deducted or not. This is granted them by virtue of section 684 ITEPA. HMRC argued that they could "turn off" the obligation, many years after the event, and that they did not actually have to issue a notice to that effect. (In the event they seem to have sometimes issued notices, sometimes not).

Hoey argued that it was perverse not to expect the end client to have deducted PAYE and that the obligation was always there and that failure of HMRC to exercise their discretion - on time or at all - was also perverse.

HMRC argued that the law was clear, they had discretion to turn the obligation on and had chosen not to.

Their argument is incoherent and weak and is not supported by the letters they have written. For example, in one we have seen, they link the discretion to require PAYE to be applied to there being a tax avoidance scheme in operation. Unless I've misread the law, there is no such required link.

Regardless, the FTT decided it had no jurisdiction to hear whether the discretion (a decision by a public body) was applied correctly and that the correct route was for an Administrative Court to hold a Judicial review. Application was made and rejected - see above. This hearing was an appeal against that rejection.

Given that Hoey was argued on very narrow grounds and no attempt was made to point to other potential PAYE sources, whilst there may be some further grounds to continue the case, Mr Hoey may well be painted into a corner. Whether the team around him see any point in going to UTT remains to be seen. Advancing more and better terms now may be refused by the Tribunal.

It may be better in the circumstances for the case to stop where it is as FTT decisions are not precedent?

I stress that I have no particular insight into the detailed circumstances of Mr Hoey nor why such limited arguments were taken. Perhaps the team around him considered this was the best and/or only option. Perhaps they have further weapons to roll into UTT.

In our view there remain many avenues to explore the section 684 and related points, not the least of which is hugely inconsistent HMRC practice.

[Saleos]

Mr Hoey’s appeal to the UT proceeds and is largely unaffected by today’s decision save possibly for one potential line of challenge (subject to appeal).

More broadly, your misleading of readers (and your own clients) and the thinly veiled digs at those who are actually doing what you seem to unendingly promise, mean I am compelled to speak up.

Before addressing the elephant in the room I’ll make three statements of fact that you can readily verify.

1. I am only involved in Hoey on a pro bono basis to the extent that the taxpayer, Counsel or instructing solicitor ask. The litigation is being run by RPC with Rory Mullan instructed as Counsel.

2. The arguments presented by Counsel and how they are presented are entirely his own. The suggestion that they are in some way fettered by those instructing him is vexatious and plumb wrong. Again as Counsel will readily confirm. You know who he is: just ask him.

3. All parties involved in cases deaking with these issues BUT you exchanged views and indeed respective skeleton arguments last year to ensure that each is able to put the best case forward given the particular facts. That is 3 lots of “competing” advisors, 3 Counsel working toward a common aim.

Your “contribution” was limited to your previous Counsel asking Rory for his skeleton in the days after the Hoey FTT hearing without offering anything in return and freeloading at every hearing without making any contribution toward the arguments being presented or financial cost. All whilst posting on here some weeks ago calling for many who had already come together to do so thus giving a false impression.

Instead you keep your own cards away from view of your own clients and indeed the rest of the tax world despite the fact that any case you finally bring will now always be behind both Hoey and Higgs and bound if yours isn’t heard before Hoey’s appeal. A 3rd as yet unpublished case was also heard last year yet your “further weapons” are better hidden than Saddam’s WMD!

You assert that the arguments presented for Hoey were “very narrow” (presumably you’re of the same view of Keith’s in Higgs which might be awkward if you’ve also instructed him) but do not say what other arguments should be presented. I will happily relay anything meaningful. Equally you know Counsel and instructed solicitors so could put them forward directly. It absolutely doesn’t have to be public. But I would publicly acknowledge that you had contributed if you do so.

And so to the elephant in the room.

Whomever you, Rory, Keith, Anne, or I argue was the ”other potential PAYE source” (to use your own words) is absolutely irrelevant if HMRC has, as Judges Andrews and Gillett decided, an unfettered discretion to disengage the PAYE obligations on that party. The effect of that discretion is to render the employee liable and, say HMRC, to remove the PAYE credit.

Those two key issues arise whoever the obligation to account for the PAYE fell on. It means that it matters not whether the employer, agency, end user or frankly anyone within the contractual chain was liable. It would not matter whether the obligation arose under an RFC analysis, s62 ITEPA or under Part 7A (LC or otherwise). It would not matter whether the true relationship was one of direct employment or simply disguised employment. HMRC can, in their view, remove the obligation to account for PAYE from whoever it fell on, whenever it fell, and transfer it to the employee and can do so at any time.

Perhaps the only issue on which we obviously agree is that HMRC must be wrong. Sadly the Courts have so far disagreed on the question of discretion. Hence it is more vital than ever that the best arguments are put forward.

But to suggest to readers (and clients) that mysterious “further weapons” about the identity of the ”PAYE source” will ride to the rescue of all is simply wrong and misleading. On that I’m more than 65% confident of being right.

The application of Mr Hoey to appeal against the refusal to hear a Judicial Review action was heard - remotely - today.

The application was refused on the grounds that it had no prospect of success.

Unfortunately it appears that the links to the hearing were all curtailed after 3 hours and as a result the final minutes of the Judgement were not broadcast (to me at least).

The remaining issue was perhaps whether the upcoming Upper Tier hearing (scheduled for October but perhaps may be delayed now) could hear the point at the JR in a combined hearing. I think the Judge was going to say "no" but I can't be sure.

We'll have to await the final decision which hopefully will be soon as the Judge appeared to have something in writing already.

This does not mean that the case is over.

The original hearing presented a case for Mr Hoey that the end client (in his case Arriva) should have deducted tax equal to PAYE from all the payments made in respect of his work. If that had happened, then he would be entitled to a credit for that amount. if the liability existed but HMRC failed to collect it, then the credit was still available.

HMRC defended this on the basis that they had a discretion to direct whether PAYE was due to be deducted or not. This is granted them by virtue of section 684 ITEPA. HMRC argued that they could "turn off" the obligation, many years after the event, and that they did not actually have to issue a notice to that effect. (In the event they seem to have sometimes issued notices, sometimes not).

Hoey argued that it was perverse not to expect the end client to have deducted PAYE and that the obligation was always there and that failure of HMRC to exercise their discretion - on time or at all - was also perverse.

HMRC argued that the law was clear, they had discretion to turn the obligation on and had chosen not to.

Their argument is incoherent and weak and is not supported by the letters they have written. For example, in one we have seen, they link the discretion to require PAYE to be applied to there being a tax avoidance scheme in operation. Unless I've misread the law, there is no such required link.

Regardless, the FTT decided it had no jurisdiction to hear whether the discretion (a decision by a public body) was applied correctly and that the correct route was for an Administrative Court to hold a Judicial review. Application was made and rejected - see above. This hearing was an appeal against that rejection.

Given that Hoey was argued on very narrow grounds and no attempt was made to point to other potential PAYE sources, whilst there may be some further grounds to continue the case, Mr Hoey may well be painted into a corner. Whether the team around him see any point in going to UTT remains to be seen. Advancing more and better terms now may be refused by the Tribunal.

It may be better in the circumstances for the case to stop where it is as FTT decisions are not precedent?

I stress that I have no particular insight into the detailed circumstances of Mr Hoey nor why such limited arguments were taken. Perhaps the team around him considered this was the best and/or only option. Perhaps they have further weapons to roll into UTT.

In our view there remain many avenues to explore the section 684 and related points, not the least of which is hugely inconsistent HMRC practice.

[cojak]

Sales, Saleos...


I know that name.

You were one of the introducers of these schemes, weren’t you?

I’m very surprised you’re showing your face around here again.

[dammit chloe]

Sales, Saleos...


I know that name.

You were one of the introducers of these schemes, weren’t you?

I’m very surprised you’re showing your face around here again.

I will give him credit. He is fighting it. He is walking the talk and, IMO, he knows his stuff.

[Where did it all go wrong]

Have you bothered to read Saleos’ comments? Seems to be that Saleos is one of only a handful with the knowledge and understanding to be able to question Webbergs hyperbole. Why not let Webberg respond rather than try and chase off Saleos with personal attacks?

I’m a client of Phil Manley’s and what Saleos says here is exactly what Phil has said for a while and he was also hounded for pointing out the obvious re BG.

I would really like to see Webberg’s reply to Saleos.

Sales, Saleos...


I know that name.

You were one of the introducers of these schemes, weren’t you?

I’m very surprised you’re showing your face around here again.

[Fred Bloggs]

Sales, Saleos...


I know that name.

You were one of the introducers of these schemes, weren’t you?

I’m very surprised you’re showing your face around here again.

FWIW - A quick Google will inform anyone wondering about cojak's post here. I believe we are referring to Saleos Consultancy Services Ltd, director I believe, is Mr Matthew Hall. Information available on that businesses website and elsewhere in the public domain. HTH.

[webberg]

Thank you for your commentary Saleos. Your contribution to the discussion in this forum, which is more conducive to considered analysis than its 280-character counterpart, is appreciated.

Whilst our previous discussion and subsequent invitations and exchanges have not unfortunately led to any collaboration, we respect your knowledge and the fact that you were and are prepared to defend your clients.

We remain entirely unaware of whatever financial arrangements you have and this is in any event, not something we have or would comment on. If you are indeed working pro bono, then again, respect is due.

Discussing respect, it is also a fact that the adverse commentary on WTT and Big Group via social media have been entirely unhelpful. We have in the main chosen not to engage in these. It cannot be helpful to clients if they see professionals behaving this way.

I remain very much open to any public discussion that does not prejudice my clients, which I’m sure you will appreciate.

Regards your statements of fact;

1. I am aware that Counsel will be very influential in preparing arguments. I am aware that Counsel will also be instructed. I have not been involved in conferences with your Counsel and therefore cannot verify which of the two influences above may have taken precedence. I can say that Counsel will usually run the arguments they consider are best in the circumstances.

2. We have shared with our clients and here various thoughts and strategies usually in response to requests from external sources for us to provide information. This is always a balance. Our Counsel – of his own volition and without our instruction – contacted Mr Mullan. I’m not aware of etiquette between Counsel but at the time we were analysing the first Hoey decision and he considered it helpful -to him - if he contacted Mr Mullan. I understand nothing came of that request. It should be remembered however that Tribunal cases are heard in public and we therefore reject any accusation of “freeloading”.

You also note that I could interfere and offer Counsel and Instructing Solicitors our thoughts and views. That may be possible although I’ve never heard of it being done before, absent an invite. Being frank, I would have had reservations about this given previous rejections of our ideas and social media criticism.

Moving to the “elephant in the room”.

It is well known that HMRC read these threads and so nothing in the below is contrary to arguments we have not already raised with HMRC, nor told our clients.

We think it obvious that any transaction chain involving the flow of funds to a contractor, involves more parties than just the end client. Usually flows begin with the end client but then goes on to encompass, agency (sometimes more than one), promoter or party working for the promoter, some form of third party – often more than one entity – and then the contractor.

Why then limit the PAYE source argument to just one of those?

Indeed, one of the cases mentioned above is very much focused on a party other than the end client. Given that the decision there is not public, we don’t yet know what the Tribunal thinks of that. We can say that a senior barrister in this space considers that the “key” to resolution here lies in that argument.

Often the documented transaction chain is not matched by the flow of money. In those circumstances, it is contrary to the tax jurisdictional principle of “purposive interpretation” to slavishly assume that the documents show the true transaction. Instead a Judge is able (and usually willing) to interpret matters in a manner that suits him/her especially if those money flows – real evidence of action – allow them to arrive at a sensible decision. Look no further than Rangers to see evidence of this is action.

In the transaction chains above, aside from those schemes which claimed on no evidence at all that contractors were self-employed (a status routinely challenged by HMRC in general but conveniently here, allowed to pass unhindered), there is usually a party with a live PAYE scheme. Sometimes those parties were not UK resident. It will be hard for HMRC to argue that a non UK employer with a PAYE scheme reference which and remitted funds to the UK Exchequer, could be somehow excluded from liability by virtue of a discretion.

Close examination of both scheme operation and HMRC attention to process and the rule of law, exposes flaws. Often promoters and agencies shortcut money flows – money should (but does not) go to a third party and then be distributed. If money essentially arrives from end client and is turned around by agency/promoter without going to the alleged third party (which changes the label on the funds apparently), is a PAYE point established? If so, on whom?

Further HMRC has made multiple errors in their enquiry. Even those cases going into Tribunal, including Hoey, were found to have errors in terms of who is bound or not to the decisions. It has since emerged that HMRC has issued some section 684 letters disapplying PAYE – ten years too late and of very dubious provenance or force – but these are not universal.

We would agree therefore that we share a view that HMRC must be wrong. The above elements of this situation have not, from what we read or heard in Tribunal or JR, been addressed.

For all we know, there are reasons why these (and perhaps others) were not raised. What we do know however is that until these matters are examined in a Tribunal, the fight is not over.

WTT has always been careful to keep its clients appraised of the progress of enquiry. As you will acknowledge the time from scheme opening to FTT is long and often extended by HMRC in the hope that funds will dry up.

We have material from Penfolds from 2007. Hamilton from 2009. The first Tribunal was 2020. So yes, we have been pushing for hearings and did have case management hearings in April, May, June this year, all now postponed. We would have hoped to be in FTT by now, but sadly some of the pieces that need to be in place are not ours to control.

Penultimately, (and I thank all those who have read this far), our door remains open. We have seen advisers enter this space and we have always treated them with professional courtesy, even where for reasons of their own, we appear to have become the object of their ire. We remain of the view that coordination of effort is best for clients of all parties. We therefore welcome this sort of debate which may lead to that. Our door is open.

Finally, our focus remains on our clients. We are now unfortunately engaged on more than one front with the advent of loan repayment claims, but our route to tax resolution is clear – if delayed now by the pandemic. Some clients have left us to pursue other ideas or settlement. Some are engaged with more than one adviser. Some accept strategies without question, some ask questions all the time. Regardless we act for all those who wish to engage us.