TC09557 - [2025] UKFTT 00750 (TC)

On 5 December 2013, HMRC opened an enquiry into the Company’s corporation tax return for the period ending 30 April 2012, and on 9 January 2015, they opened an enquiry into the Company’s corporation tax return for the period ending 30 April 2013.

On 30 September 2015, HMRC made and issued to the Company:

On 29 June 2017, HMRC issued closure notices to the Company in respect of the enquiries for the periods ending 30 April 2012 and 30 April 2013. These made amendments denying the Company a corporation tax deduction for the £740,000 it had paid to IES under the scheme. This resulted in additional corporation tax due from the Company of £166,943.54.

HMRC sent the Company a letter to accompany the closure notices. This set out HMRC’s analysis of the Company’s participation in the scheme. It explained that HMRC’s view was that the scheme resulted in the payment of earnings to the employees (ie Ms Tonkin) from the employer in the form of money or money’s worth, in the form of gold. In HMRC’s view, the effect of the scheme was that payments of PAYE income (for income tax purposes) and earnings of an employed earner (for NICs purposes) had been made.

As regards corporation tax, HMRC denied the deduction for the payment of £740,000 on a number of bases, one of which was that the Company’s purpose in making the payment was not simply to reward employees, but was also to implement a pre-arranged scheme to obtain a tax deduction. As such, in HMRC’s view, the payment had a dual purpose and was not incurred wholly and exclusively for the purposes of the Company’s trade.

HMRC also took the view that the income tax due from the Company under PAYE was earnings for NICs purposes, resulting in a further liability to Class 1 NICs of £54,987.40.

In total, in HMRC’s view, the Company’s combined liability to PAYE income tax, NICs and corporation tax was £690,329.94. Interest was due in addition. The letter stated that inheritance tax charges may also apply, and that these would be set out in a separate notice of determination.

The Company appealed against the Regulation 80 Determination, the Section 8 Decision and the closure notices. Ms Tonkin did not know who lodged the appeals on the Company’s behalf, and they have since been withdrawn. Ms Tonkin has accepted that the payment made by the Company under the scheme was a payment of employment income and was subject to PAYE.

Sometime in the first half of 2018, Ms Tonkin started to receive letters from a company connected with the scheme promoter about some Tribunal proceedings concerning the scheme. She attempted to contact Mr Husain and Mr Dore to find out more, but obtained little information. In August 2018 she received a large lever arch of files from HMRC in connection with the Company’s appeal. She described these documents as arriving “out of the blue”. She was unable to contact Mr Husain after July 2018 and did not (and still does not) have access to any of Mr Husain’s files or correspondence regarding the Company’s appeal. In October 2018, she received a short email from Mr Dore advising her to “settle with HMRC”.

At some point in autumn 2018, Ms Tonkin called HMRC, spoke to an adviser and explained the situation. Ms Tonkin did not record this adviser’s name but they told Ms Tonkin she was doing the right thing by speaking to them and that HMRC would get back to her with options.

On 21 December 2018, HMRC sent a “without prejudice” letter to Ms Tonkin. This letter referred to some settlement terms in respect of disguised remuneration schemes such as those entered into by the Company, which HMRC had published on 7 November 2017. HMRC stated that as the Company had referred their appeal to the Tribunal on 3 January 2018, these settlement terms were not available to the Company in full. The Company was offered the opportunity to proceed on “alternative terms” whereby no deduction would be available for the contribution to the scheme or the associated fees, but that “otherwise the normal disguised remuneration settlement terms would apply”. The letter continued that if Ms Tonkin did not respond by 21 January 2019, HMRC would assume that she did not want to take advantage of this settlement opportunity.

We find as a fact that Ms Tonkin did not receive HMRC’s letter of 21 December 2018. HMRC had not sent a copy to an agent for Ms Tonkin as it was not clear to HMRC at that stage whether she had set up an authority for an agent to act on her behalf.

On 7 March 2019, Ms Tonkin received a call from a Mr Passmore of HMRC’s Counter Avoidance unit. Ms Tonkin’s understanding of this call was that if she withdrew the Company’s appeal, HMRC would make her a settlement offer. As a result, on 29 March 2019, Ms Tonkin sent an email to the Tribunal, asking to “formally halt any further proceedings in relation to this Tribunal”. Ms Tonkin’s new advisers, MHA MacIntyre Hudson, were not involved in preparing this email.

We find as a fact that although Ms Tonkin was aware that the appeal concerned the effectiveness of the scheme, she was not aware that it was specifically concerned with whether the Company could obtain a corporation tax deduction. She withdrew the appeal because she did not want to challenge the charges to income tax and NICs. She was unable to speak to Mr Husain to obtain better information on the nature of the appeal.

On 12 February 2020, HMRC wrote to the Company in its capacity as settlor of the Trust. The letter stated that the transfer of assets worth £740,100 into the Trust on 4 December 2012 had given rise to a charge to inheritance tax of £83,020. At that stage HMRC were also seeking an additional amount of inheritance tax in the form of an exit charge, but this potential additional charge was not raised as an issue in this appeal.

On 8 April 2022, HMRC issued a notice of determination to Ms Tonkin on the basis that she was liable to inheritance tax under section 94 of the Inheritance Tax Act 1984. The charge was for £83,020 plus interest.

Ms Tonkin appealed against the notice of determination on 25 April 2022, and requested that HMRC conduct a statutory review. On 9 May 2022, HMRC informed Ms Tonkin of their view of the matter, and on 22 June 2022 issued the conclusion of their review, in both cases upholding their view that the notice of determination was correct.

Ms Tonkin notified her appeal to the Tribunal on 21 July 2022.