TC09681 - [2025] UKFTT 01333 (TC)

This final issue arises only because I have found in HMRC’s favour on all three issues above. I have not identified any submissions from Moir concerning the amount of a penalty (if any) that should be applied for non-compliance with either Section 308 or Section 313A.

Penalties are to be calculated in accordance with Section 98C TMA 1970. However, the legislation is not straightforward: Section 98C(1)(a)(i) specifies that a penalty must not exceed a specified maximum, before Subsection 98C (2ZB) provides:

Therefore, in considering the amount of the penalty, I am required to take account of all “relevant considerations” including the amount of the fees likely to have been received by Moir, and the “desirability of [the penalty] being set at a level” which deters Moir or other persons from engaging in similar failures in the future.

It is not possible to know precisely the amount of fees received by Moir in connection with the notifiable arrangements. In estimating this amount, HMRC have had regard to the turnover declared in Moir’s VAT returns for the periods 09/18 to 03/20 inclusive, which totals £13,547,551. On the basis that Moir invoiced organisations for the gross fee payable for each individual’s work, and a percentage of this gross fee was deducted by Jarvis before payment was made to individuals using the annuity model, HMRC have suggested that an amount equal to 12% of Moir’s turnover would be an acceptable estimate of the fees earned by Moir in connection with the Jarvis annuity model. I agree with HMRC that the turnover declared in Moir’s VAT returns for the periods 09/18 to 03/20 inclusive, amounts to £13,547,551. 12% of this figure is £1,625,706.12.

In the absence of more accurate information from Moir, I agree with HMRC that this is an acceptable way to estimate the likely fees earned by Moir. I have considered whether 13.75% of turnover would be a more accurate figure, increasing the estimate of fees earned to £1,862,788.26. However, I have also borne in mind that a small amount of the turnover declared by Moir would include amounts invoiced to end-clients but paid to individuals under the traditional PAYE model with tax, NICs and a £26 fixed fee deducted. In order not to over-estimate Moir’s income from only the notifiable arrangements, I agree with HMRC that 12% is the appropriate percentage.

For a penalty to deter others, it must be set at an appropriately high level. However, this does not necessarily mean the penalty should be set at the maximum possible (discussed below). I consider other relevant considerations include the period of time over which there was non-compliance (this is also be taken into account by the nature of the calculation of the maximum permissible), whether the non-compliance was remedied, any reasons for the non-compliance, the level of co-operation shown by Moir once HMRC began investigating and the extent to which HMRC can recover the tax which was not deducted.

All of these factors weigh against Moir. Moir did not respond to early HMRC correspondence, and Moir provided individuals with draft replies to send to HMRC which were inaccurate and obfuscatory. Moir does not have any reasonable excuse for its failures. It is unclear to what extent HMRC has or can recover the tax which was not deducted but, at best, there will be a significant additional cost to the Exchequer in recovering those amounts.

In setting the amount of the penalty, I need also to bear in mind that the penalty must not exceed the amount specified in Subsection 98C(1). The relevant parts of Subsections 98C(1) and (2) provide:

A failure to comply with Section 308 is one of the provisions included at Section 98C(2)(a), and so the maximum penalty is prescribed by Section 98C(1)(a)(i). Therefore, the penalty to be imposed on Moir for its Section 308 obligation should not exceed “£600 for each day during the initial period”.

Subsection 98C(2ZA) provides:

The “relevant day” is the day specified in the table in Section 98C. For a failure under Subsection 308(3) the “relevant day” is “the first day after the end of the period prescribed under that subsection”. As noted above, the “prescribed day” in relation to Subsection 308(3) is the “period of 5 days beginning on the day after that on which the promoter first becomes aware of any transaction forming part of arrangements to which that subsection applies”.

Therefore, the “initial period” begins on the sixth day after Moir first became aware of any relevant transaction, and that initial period ends on the earlier of: the date when the penalty is determined, and the last day before the failure ceases. In Moir’s case, the failure did not cease. Therefore, the initial period runs until the last date before the penalty is determined, i.e. the date of this decision. As I do not consider it appropriate that the penalty should be perceived as being increased through any delay by the FTT in the production of this decision, I will calculate the “initial period” as ending on the last date of the hearing of this appeal: 31 July 2025.

HMRC’s position in respect of Moir’s failure to comply with Subsection 308(3) is that Moir’s non-compliance commenced on 26 April 2018. I agree that is the relevant start date. Thus, the initial period runs from 26 April 2018 to 31 July 2025, which is 2,653 days. Therefore, the penalty to be imposed must not exceed £1,591,800 (being £600 for each of these 2,653 days).

Section 98C continues:

Bringing these considerations together, the estimate of the likely fees earned by Moir is £1,625,706.12. The maximum penalty which can be imposed is £1,591,800. Both those amounts already exceed £1 million.

While a penalty does not have to be imposed at the maximum level possible, I have concluded that in this case, the long period over which Moir’s failures continued, the absence of a reasonable excuse and Moir’s failure to co-operate once the Jarvis annuity model was identified by HMRC, all make it appropriate for the penalty to be set at the maximum so that others are deterred from behaving as Moir has done.

I have decided that, in respect of Moir’s failure to comply with its obligations under Section 308, the penalty to be imposed under Section 98C(1)(a)(i) is £1,591,800.

Finally, I turn to Moir’s failure to comply with Section 313A. Failure to comply with an obligation under Section 313A is noted at Section 98C(2)(e). As this is not a penalty caught by Section 98C(1)(a)(i), the relevant penalty should not exceed the amount specified in Section 98C(1)(a)(ii), which is £5,000.

I have decided that, in respect of Moir’s failure to comply with its obligations under 313A, the penalty to be imposed under Section 98C(1)(a)(ii) is £5,000. There are no mitigating factors for Moir’s failure in this regard and it is right that the penalty should be appropriately high to deter others.