UT/2020/403 - [2023] UKUT 00296 (TCC)

In a decision released on 24 February 2020 (“the Decision”), the First-tier Tribunal (Tax Chamber) (‘the FtT’) (Judge James Austen) determined three preliminary issues that had been identified and which concern the FtT’s jurisdiction.

As the FtT judge set out at paragraph [3] of the Decision, the Appellants are the lead Appellants in the litigation between HMRC and the users of a tax avoidance scheme marketed by Edge Consulting Ltd (“ECL”). This scheme was designed to minimise its users’ income tax liability by splitting the remuneration for their work for third parties (“end users”) into two components: (1) payment of a minimum wage via an offshore company; and (2) payment of sums through an Employee Benefit Trust which purported to be discretionary loans.

It is necessary to provide a little more detail of the arrangements which are said to have been put in place, in order to set in context the issues which were before the FtT.

Users of the scheme (generally individual contractors, typically in the IT sector) entered into contracts of employment with ECL in the Isle of Man; ECL entered into contracts with at least one UK intermediary which, in turn, contracted with an employment agency for the provision of the individual contractors’ services to end users. The end users would pay the intermediary for the services of the contractors; the intermediary would pay ECL (subject to fees or commission), ECL would pay a minimal wage to the individual contractors (upon which voluntary PAYE and NIC deductions were operated) and the balance of cash received would (after deduction of fees or commission) be paid over to an employee benefit trust in the Isle of Man which would then pay it on to the contractors, purportedly by way of loan.

The Appellants wished to pursue before the FtT an argument that they were entitled to a credit for income tax which they said ought to have been deducted by the UK intermediaries pursuant to the PAYE regulations, but in respect of which HMRC had issued retrospective determinations pursuant to section 684(7A)(b) Income Tax (Earnings and Pensions) Act 2003 that it was “unnecessary or not appropriate” for the deductions to have been made by them. Judge Sinfield had directed that the first of 10 substantive issues agreed between the parties – the FtT’s jurisdiction – should be dealt with at a preliminary hearing.

Pursuant to Judge Sinfield’s directions, the preliminary questions for the FtT to decide were:

“1.

Does the First-tier Tribunal have jurisdiction to consider Questions 2 to 3 below?

2.

Was the end user or any other person in the contractual chain (other than the Appellant) under an obligation to deduct and/or account for income tax from the employment income prior to payment in accordance with the PAYE Regulations?

3.

Given that no income tax was in fact deducted nor accounted for in respect of those amounts, are the appellant’s [sic] entitled to a credit under the PAYE regulations for the income tax that should have been (but which was not) deducted and/or accounted for?”

The FtT decided that the Tribunal does not have jurisdiction to consider questions 2 and 3.