UT-2023-000051 - [2024] UKUT 00114 (TCC)

In the appeal before us, HMRC did not seek to disturb the factual findings made by the FTT and recorded above.

The FTT at [51] noted that the parties disagreed about how the ToAA legislation was to be interpreted and it accepted HMRC’s submission that it should not determine whether HMRC’s interpretation of the legislation was correct in order to avoid entering into the kind of debate criticised by the Court of Appeal in Eastern Power Networks plc v HMRC [2021] 1 WLR 4742.

At [53] the FTT said that even if HMRC’s interpretation of the law was correct, their position was undermined because Mr Rolls had misunderstood the facts i.e. he refused to recognise the actual sequence of transactions relating to the £40 million distribution. Instead, the FTT accepted the Respondents’ submission that the dividend was paid by RHG to Relkeel, and not to a Bermudan entity.

Next, at [55] the FTT noted HMRC’s argument that the Respondents may have received the benefit in the light of the transactions which may have occurred after the appointment of the £40 million by the Settlement to a beneficiary. In that case, the condition in section 732(1)(b) ITA would be met. Therefore, if one or more of the Respondents had received a benefit from that £40 million appointed from the Settlement as a result of one or more subsequent transactions, the condition in section 732(1)(c) will be met. The subsequent transactions would, HMRC contended, constitute associated operations within the meaning of section 719. It was for this reason, the FTT noted, that HMRC wanted to know the entity or person to whom the Settlement had appointed the £40 million and how the £40 million was then applied. The FTT noted that the Respondents had argued that this simply amounted to a “fishing expedition” and that HMRC had to show some reason (based on evidence) to believe that there was a trail to be followed which would lead to a charge under the ToAA legislation.

On the evidence before it the FTT decided at [56]:

The FTT at [57] considered that the Respondents had been advised at all times by reputable and well-known advisers who had written to HMRC following the first hearing in May 2022 to say that they had re-examined matters and “can confirm that there are no known omissions or errors relating to the 2003 dividend on the three brothers’ tax returns for the years under enquiry.”

The FTT continued by stating at [58] that HMRC’s enquiries regarding to whom the dividend was appointed and whether any of the Respondents could benefit from it amounted to a “fishing expedition” in the absence of any evidence for believing that there may be associated operations.

The FTT then stated its conclusions:

“60.

I find that HMRC's enquiries have been conducted to a point where it is reasonable for Officer Rolls to make an “informed judgment” of the matter, even though every line of enquiry may not have been pursued to the end. Whilst HMRC have not received answers to all of their questions, I consider that the outstanding questions relating to the £40m distribution do not have a reasonable basis and amount to a fishing expedition.

61.

I note Ms Choudhury's submission that if HMRC were to issue closure notices now, they would be in vague and uninformative terms. I do not agree. HMRC are in full possession of information relating to the transmission of the distribution made by RHG on its journey up to the Settlement, and are aware that the distribution was not appointed to any of the Applicants. That should be more than enough information on which to be able to close the enquiry as regards the potential for a ToAA charge on the Applicants in respect of the distribution for the years under enquiry.

…

63.

There was considerable evidence and submissions on whether HMRC had unreasonably protracted their enquiries. These enquiries were first opened in 2014, over eight years ago. These enquiries have gone on for far too long. The reasons for the time taken cannot be ascribed solely to the fault of either HMRC or the Applicants. But as I have reached my decision without needing to consider the reasons for the delay, I have not analysed the history of the enquiries and the reasons for the delays in this decision.

64.

It is for HMRC to show that there are reasonable grounds for refusing the applications for closure notices. I find that HMRC have not so shown.

65.

The Applicants have submitted that I direct that closure notices be issued within 28 days of my decision being released. I consider that in the circumstances of this case, a slightly longer period should be allowed.”

The FTT at [66] therefore directed that HMRC issue a closure notice for the periods under enquiry within six weeks of the date on which the Decision was released. This direction was suspended pending HMRC’s appeal.

HMRC’s grounds of appeal were as follows.