TC09660 - [2025] UKFTT 01226 (TC)

I do not agree with Mr Hopkins that I must strike out the appeal because the tribunal does not have jurisdiction. Whilst I accept that certain elements of the appellant’s case are not within the ambit of the tribunal (for example the general submission of unfairness, or reliance on his advisers) there are two aspects of his case which are clearly within the tribunal’s jurisdiction; namely his challenge to the technical basis of the closure notice on the ground that he has repaid the loan, and secondly that (not quite as cogently explained by the appellant as this) HMRC have been guilty of inexcusable and inordinate delay which renders it impossible for him to have a fair trial.

I am not, therefore, prepared to strike out the appellant’s appeal for want of jurisdiction. However, for the reasons given below, I consider that there are no reasonable prospects of the appellant’s case or part of it succeeding.

Turning first to his challenge to the technical basis of the closure notice (“the technicalchallenge”). This is brought on the basis that the loan should not be subject to income tax on the basis that it was repaid, and even if tax was due, it should be recovered from the employer.

As regards the first element, HMRC say that the loan reflects earnings which were redirected to the trust by the appellant’s employer (AML). And that Rangers is authority that the charge to income tax on that employment income arises at the point at which that “salary” is paid by AML to the trust.

I agree. The relevant extracts from Rangers are set out below:

“[41] As a general rule, therefore, the charge to tax on employment income extends to money that the employee is entitled to have paid as his or her remuneration whether it is paid to the employee or a third party. The legislation does not require that the employee receive the money; a third party, including a trustee, may receive it…

[58] In summary, (i) income tax on emoluments or earnings is due on money paid as a reward or remuneration for the exertions of the employee; (ii) focusing on the statutory wording, neither s 131 of ICTA nor s 62(2)(a) or (c) of ITEPA, nor the other provisions of ITEPA which I have quoted (except s 62(2)(b)), provide that the employee himself or herself must receive the remuneration; (iii) in this context the references to making a relevant payment ‘to an employee’ or ‘other payee’ in the PAYE Regulations fall to be construed as payment either to the employee or to the person to whom the payment is made with the agreement or acquiescence of the employee or as arranged by the employee, for example by assignation or assignment; (iv) the specific statutory rule governing gratuities, profits and incidental benefits in s 62(2)(b) of ITEPA applies only to such benefits; (v) the cases, to which I have referred above, other than Hadlee, do not address the question of the taxability of remuneration paid to a third party; (vi) Hadlee supports the view which I have reached; and (vii) the special commissioners in Sempra Metals (and in Dextra) were presented with arguments that misapplied the gloss in Garforth and erred in adopting the gloss as a principle so as to exclude the payment of emoluments to a third party.

[59] Parliament in enacting legislation for the taxation of emoluments or earnings from employment has sought to tax remuneration paid in money or money’s worth. No persuasive rationale has been advanced for excluding from the scope of this tax charge remuneration in the form of money which the employee agrees should be paid to a third party, or where he arranges or acquiesces in a transaction to that effect”.

As regards timing, and relevance of subsequent payments by and to the trust, the Inner House held at [61] of Advocate General of Scotland v Murray Group Holdings Ltd [2015] CSIH 77 that:

“It follows that the existence of the trust arrangements and the loans made by trustees to the employee in question were irrelevant to the question of whether there was a redirection of earnings. The redirection of earnings occurred at the point where the employer paid a sum to the trustee of the Principal Trust, and what happened to the moneys thereafter had no bearing on the liability that arose in consequence of the redirection”.

I have found as a fact that the appellant participated in this contractor loan arrangement. He was an employee of AML who supplied his services to the end user. He was entitled to be paid a salary and other benefits by AML as a reward for those services. The work which he undertook was delivered directly to the end user, and payments made by the end user to AML reflected those services. It was contractually agreed between Mr Brown and AML that, subject to a deduction for administrative costs, the amount payable by the end user would be paid to Mr Brown by way of a mixture of salary and benefits from the trust, to which AML would contribute the balance which had not been paid to Mr Brown by way of salary. Both the salary and the balance payable to the trust were payable because of Mr Brown’s exertions as an employee and it was thus employment income. At the moment, therefore, that AML paid the balance to the trust, a tax point arose. At that moment the payment to the trust became “redirected earnings” on which employment tax was due and payable.

This is the case whether or not any subsequent loan by the trust to the appellant was made, and if so whether it was repaid. What happens “downstream” of the payment to the trust does not affect the taxability of the payment to the trust in the first place.

Furthermore, I accept on the authority of Hoey that I have no jurisdiction to consider the exercise of HMRC’s discretion to visit the tax charge on the appellant rather than on AML.

I need to consider whether this technical challenge has a realistic, as opposed to a fanciful, prospect of success. Regrettably for Mr Brown, I do not think that it does. My view is that this ground of appeal has no reasonable prospect of succeeding. In coming to this conclusion, I do not need to conduct a mini trial. Nor do I think that there is any further evidence which Mr Brown could adduce which would assist him if this matter went to a full trial. The technical challenge is “bad in law”. I should therefore grasp the nettle and deal with it at this stage.

However, Mr Brown has another string to his bow. It is that he will not get a fair trial because of the inordinate and inexcusable delay by HMRC (the fair trial challenge”).

Such an abuse of process is something which can be considered by the tribunal (see Nuttall vHMRC [2022] UKFTT 192 (“Nuttall”)).

In Nuttall at [23] it is clear that if, because of HMRC’s delay, a taxpayer has been prejudiced in pursuing his appeal because, for example, relevant evidence has been lost, then a hearing could be unfair to the taxpayer without some remedy from the tribunal.

As set out at [30] of Nuttall “the real question is whether HMRC’s delay has led Mr Nuttall to suffer any prejudice in pursuing his appeal”.

Mr Brown has not made any submissions about the prejudice to his case which HMRC’s delay has caused. He has not submitted, for example, that by virtue of the delay, it has not been possible to collect evidence which is relevant to his appeal.

To my mind, even though the delay between February 2013 and August 2022 is inordinate, and HMRC’s failure to provide any form of update to the appellant (broadly speaking they were pursuing the Rangers and Hoey litigation) might be considered inexcusable, I do not think that the appellant’s appeal has been prejudiced by that delay. It seems to me that he is in exactly the same position now as he would have been if he had pursued his appeal in, say, 2014. It might be possible at that stage to have sought evidence from AML, but in truth I suspect it would have been unlikely that they would have provided any relevant witness evidence, and indeed the contractor loan arrangements which are at the heart of the technical challenge, and which are set out above, are accepted as accurate by Mr Brown. I cannot see what additional evidence might have assisted him had it been available in 2014 and which is not available today.

My conclusion on the merits of the fair trial challenge is the same as regards the merits of the technical challenge. His prospects of succeeding in the fair trial challenge are fanciful and not realistic. There is no further evidence that I can see that might be produced at a trial which might bolster this ground of appeal and improve its chances of success.

I should add, for completeness, that none of the other grounds of appeal (for example unfairness, reliance on advisers, or HMRC’s encouragement to bring an appeal) have sufficient merit as to warrant this matter going forward to trial. They, too, have no reasonable prospects of succeeding.

I have taken the view that I should grasp the nettle and deal with this appeal at this stage. It would be wrong to permit this appeal to go further and take up time and cost when the appellant’s chance of success is fanciful. The appellant’s case has no reasonable prospect of success.