TC09660 - [2025] UKFTT 01226 (TC)

I was provided with a substantial bundle of documents (including authorities). Mr Brown gave oral evidence on which he was cross-examined by Mr Hopkins. I found him to be a reliable and truthful witness and I accept his evidence in all respects. From this documentary and oral evidence, I make the following findings:

In September 2010 Mr Brown was considering starting work as a consultant/construction project manager and sought professional advice and guidance on how to structure the provision of those services.

His accountants advised him that there might be opportunities to reduce his tax burden by entering into a contract with a service provider (for example AML - see below) who would manage client invoicing and payments to him as well as dealing with his tax affairs.

It was Mr Brown’s evidence, which I accept, that the administrative services which were supplied by AML were of considerable importance to him and was as much a reason for using them as was any tax saving.

Furthermore, although AML had produced marketing material concerning the details of the scheme (to which I was taken by Mr Hopkins) it was Mr Brown’s evidence, which again I accept, that such material was not brought to his attention by either AML or his accountants before Mr Brown participated in the scheme.

However, he did accept that by participating in the scheme his effective tax rate was essentially reduced from 40% to 20%.

The way in which the scheme worked was as follows.

The contractor (in this case Mr Brown) entered into a contract of employment with an offshore employer, AML. Mr Brown’s contract was not available but he did not deny that it was similar if not identical to those contracts which I was shown as part of the bundle. The contract specifies an hourly rate of pay and other clauses one would expect in an employment contract. It also refers to an “Employee Handbook” the terms of which are deemed to be incorporated into the relationship between AML and the contractor/employee.

AML also entered into a contract with the end user to supply the contractor’s services to that end user (the “contract for services”). In the case of Mr Brown, the contract is between AML and Accor Afrique and provided that AML would supply the services of Mr Brown between November 2010 and February 2011 at a daily rate of €1,200 for that 74-day period, the total price being €88,800. Substantiated expenses would also be reimbursed.

An offshore trust (“the trust”) was established by an entity associated with AML.

The end client paid AML under the terms of the contract for services. AML then paid the contractor (Mr Brown) a salary based on national minimum wage or a small fraction of the full commercial earnings. That amount was paid under deduction of PAYE and National Insurance. In the case of Mr Brown, the amount of employment income recorded in his tax return for the tax year 2010/2011 was £2,516.

The balance of the amount payable under the contract for services (less an amount to cater for AML’s administrative fees) was then paid by AML to the offshore trustees, who then lent either all or a large proportion of that amount to the contractor.

It is not clear to me, as I did not have Mr Brown’s employment contract, whether his right to that balance was set out in the contract. However, I infer from the evidence, (namely the marketing material from AML, and a letter dated 26 July 2010, which concerns another AML employee in which AML indicate to a mortgage provider that the employee had a contract of service under which the remuneration of £98,000 was to be provided via salary and taxable loan awards) that AML was contractually obliged to pay to Mr Brown that balance by way of a combination of direct salary and indirect contributions to the trust. Indeed, Mr Brown did not gainsay that he had such a contractual entitlement.

The P11D submitted by AML for the relevant tax year records a loan made on 14 February 2011 with a closing balance amount of £43,899 (“the loan”). It is this figure that HMRC have used as the basis for the closure notice.

On 20 November 2012 HMRC opened an enquiry into Mr Brown’s self-assessment tax return for the 2010/2011 tax year and asked him for further information concerning the amounts received by him in connection with his engagement with AML.

A letter dated 22 January 2013 signed by Martin Rissbrook, the finance director of AML Tax (IOM) Ltd, records that the total of the loans made to the appellant in the 2010/2011 tax year was £43,898 and that on 17 May 2011, the same amount of those loans was repaid.

HMRC wrote to the appellant on 4 February 2013 indicating that they would then review the information supplied.

But it was not until 9 August 2022 that HMRC wrote to the appellant in connection with this matter, and that letter talked about his use of a disguised remuneration scheme, and that it was not appropriate to recover underpaid tax from the end user; and so HMRC intended to recover income tax on payments that the appellant had received in connection with the scheme, from him.

This was followed up, on 15 September 2023, with the closure notice against which the appellant appealed on 26 September 2023. On 21 December 2023 HMRC set out their view of the matter (the “view of the matter letter”) and offered a review which was accepted by the appellant on 19 January 2024 and followed up by him three days later with the provision of further information. The reviewing officer upheld the closure notice, and on 26 March 2024, the appellant appealed to the tribunal.