TC09623 - [2025] UKFTT 01064 (TC)

There was no dispute about the factual background which was set out in a bundle of documents. I set this out below:

In a letter dated 6 March 2013 to the appellant, Officer Stopp (“OS”) told the appellant that she had made a discovery assessment for additional income tax of £4,198.40 for the tax year 2008/2009 in order to protect HMRC’s position. The letter enclosed a discovery assessment for that tax year and went on to explain that the further sums which the assessment brought into charge were those “related to an employment arrangement you entered into with Merchant Group Limited a company sited outside the UK. Although described as loans, I believe that the sums relate to your professional work in the UK and are taxable income”.

The appellant appealed against this discovery assessment by way of a letter dated 11 March 2013. The grounds of appeal were, basically, that HMRC had offered no evidence for their suggestion that the loans were taxable income, and the relevant conditions for a discovery assessment had not been made out.

OS responded to this letter on 13 May 2013. In her response she noted the grounds of appeal, explained in a bit more detail the rules which enabled her to tax the loans as additional income, and justified the making of a discovery on the basis that new facts had come into her possession which demonstrated that there was an insufficiency of the tax returned by the appellant.

HMRC’s original discovery assessment for 2009/2010 was dated 28 January 2014 and was sent to the appellant by OS under cover of a letter dated 30 January 2014. The explanation for issuing that assessment is virtually identical to the explanation in her letter of 6 March 2013 in relation to the earlier period.

The appellant appealed against this assessment on 6 February 2014. The grounds of appeal were that there were no grounds for raising the discovery assessment, nor that the loan constituted taxable income.

In a letter to the appellant dated 7 February 2014, OS explained that the original assessment for 2009/2010 included incorrect figures and was therefore invalid. She enclosed a new assessment and amended the appellant’s self-assessment statement accordingly.

On 2 October 2018, Mr Dyer, on behalf of the appellant, sent a letter to HMRC referring to an HMRC letter of 26 July 2018 (which was not in the bundle) in which he said that having reviewed the appellant’s position, the appellant had no liability for tax under “your assertion of Contractor loans-the loan charge”. And went on to say: “Please advise me of any open tax enquiry so I can advise my client accordingly”.

In a letter to the appellant dated 28 May 2021, HMRC’s Avoidance Arrangements Support Team explained that the disguised remuneration loan charge applied to the loans made to the appellant under the contractor loan scheme in which he had participated and went on to explain changes to that loan charge and what they meant to the appellant. It recorded the progress of the Hoey case from the initial appeal in July 2019 through to the Upper Tribunal decision in April 2021. It recorded the issues considered by the tribunals and how they might affect the appellant, including reference to the Supreme Court ruling in the Rangers case. It referred to settlement terms which the appellant might wish to consider and what he should do if he decided to settle.

A further letter to the appellant dated 14 November 2022 recorded HMRC’s view that the appellant had been involved in a disguised remuneration scheme and, given that it was not appropriate for the end user to account for income tax under PAYE, it was up to the appellant to settle the income tax liability in connection with the contractor loan scheme.

HMRC provided their view of the matter and offered a review in a letter to the appellant dated 18 January 2024. It provided schedules which recorded their then current view of the matter. Those schedules recorded, in considerable detail, the technical basis on which HMRC considered that the loans were redirected earnings, together with two alternative arguments. They also contained a detailed explanation of why, in HMRC’s view, there had been a valid discovery pursuant to which there had been valid in time discovery assessments.

Mr Dyer responded by asking for an independent review of the conclusions which were set out in HMRC’s letter of 13 May 2024 to the appellant. It set out the background, HMRC’s understanding of the contractor loan arrangements, the application of the Rangers case to those arrangements, and the validity of the discovery assessments. It upheld the discovery assessment for the tax year 2008/2009 but varied the discovery assessment for 2009/2010 by increasing it to £8,764.85.

On 10 June 2024, the appellant appealed to the tribunal. The grounds of appeal were that the discovery assessments were wrong in law and are invalid since they did not comply with section 29 of the Taxes Management Act 1970.

On 11 September 2024, HMRC made an application for the tenant to provide further and better particulars in support of his grounds of appeal.

On 29 November 2024, the appellant provided those further and better particulars (“the further and better particulars”). These set out the background to the discovery assessments; identified the relevant points at issue as being the validity of those assessments, their quantum, whether sums received under the contractor loan arrangements had actually been received by the appellant; and if they had been so received, whether they were taxable as income. They set out the relevant legislation in considerable detail; the relevant facts and case law; and details of the relevant challenge.

His challenge is that; he received no notice to file a return under section 8 TMA; he did not submit or approve any tax return for the relevant tax years; he did not appoint or authorise to HMRC, an agent to submit returns on his behalf. In the appellant’s view since there was no valid return filed, there could be no valid discovery assessment. Furthermore, no detailed calculations have been provided of the appellant’s additional income, nor whether it was actually received by the appellant, nor why the loans were taxable as additional employment income.

Mr Hopkins provided me with a timeline of the case law which he submitted was relevant to HMRC’s consideration of the appellant’s contractor loan scheme arrangements.

The Upper Tribunal decision in the Rangers case (originally Murray Holdings but now colloquially known as “Rangers”) was released in July 2014. It was appealed to the Court of Appeal which released its decision on 4 November 2015. This was then appealed to the Supreme Court which released its decision on 5 July 2017 (RFC 2012 Plc (in liquidation) vAG for Scotland [2017] UKSC 45).

The Upper Tribunal decision in Hoey v HMRC [2021] UKUT 0082 (“Hoey”) was released on 12 April 2021, and the Court of Appeal decision was released on 13 May 2022. Hoey had originally been heard by the FTT in July 2019.