TC09557 - [2025] UKFTT 00750 (TC)

The Company was incorporated in March 1992, and its principal activity is market research. Ms Tonkin is, and has been since October 2004, the sole director and the sole shareholder of the Company. The Company previously had two directors but the second director left in 2004. At the time of the departure of the other director, the Company’s business suffered a downturn. Since then Ms Tonkin’s work and efforts have built up the Company’s profitability.

Until 2012, Ms Tonkin’s habit was to keep funds in the Company and only pay herself what she described as “basic dividends and very low salary”. When the Company was first set up, bonuses were paid every few years, but as of 2012 the last time this had happened was in 2002.

Mr Shahbaz Husain was the company secretary of the Company between 10 October 2011 and 1 January 2019. Mr Husain was also the Company’s accountant. At some time around 2012 he introduced Ms Tonkin to a Mr Martin Dore of Smart Tax Solutions Ltd. Mr Dore discussed with Ms Tonkin what she described as a “way of taking out a bonus for the work done in all these years”.

Ms Tonkin’s understanding was that under the arrangements proposed by Mr Dore, funds would not be received by her but would instead belong to a trust of which she would be a beneficiary. As Ms Tonkin understood it, the money from the trust would be lent to her, but the loan would be left outstanding indefinitely, or at least until her death.

Ms Tonkin believed that this arrangement would have inheritance tax advantages on her death. She also believed that, compared with a normal bonus, this arrangement would have the benefit of not being taxable for her.

Mr Husain approved of the scheme and advised Ms Tonkin that the Company should go ahead and enter into the arrangements.

Ms Tonkin knew that there were risks associated with the scheme but Mr Dore told her that the scheme was above board and that “this was how people did things”. She knew there was a risk that the law might change, and/or that HMRC could challenge the scheme under the existing law. She was, however, assured that HMRC would not seek to impose income tax and NICs while also denying a corporation tax deduction.

We had no evidence that inheritance tax featured in Ms Tonkin’s discussions with her advisers, although as we note below Ms Tonkin signed an engagement agreement which made specific reference to the risk of an inheritance tax charge under IHTA 1984, s 94.

The arrangements had been disclosed to HMRC under the rules on the disclosure of tax avoidance schemes (“DOTAS”) and had been given a DOTAS reference number. Ms Tonkin was aware that the scheme had a reference number from HMRC and thought this meant that it must be legitimate.

The Company entered into the scheme in November and December 2012, and the scheme transactions are summarised below. Once the scheme transactions were completed Ms Tonkin was owed a large sum of money from the Company in her director’s loan account, but left all or most of this amount within the Company rather than drawing it down.

Since the implementation of the scheme Ms Tonkin has lost contact with Mr Husain and has been unable to locate him, or the files he held relating to the Company. She last heard from him in 2018. For a number of months around the end of 2018 and start of 2019 she was without representation. She engaged MHA MacIntyre Hudson to represent her some time around the beginning of 2019.