UT/2023/000049 - [2024] UKUT 00233 (TCC)

Mr Firth submits that there was no failure to take reasonable care on the part of Mainpay as it took advice from Mishcon de Reya in relation to the 2010 Contract, having explained the context and the importance of obtaining a deduction for the relevant expenses.

In this context, Mr Firth referred to the decision of the Upper Tribunal in Bella Figura Limited v HMRC [2020] UKUT 120 (TCC). The Upper Tribunal observed at [61] that even though advice may not deal with a specific point, it may contain implicit reassurance in relation to that point…

We accept that Mainpay did take advice from Mishcon in relation to the appropriate form of contract between Mainpay and its workers. We also accept that, in instructing Mishcon, Mainpay referred to the reimbursement of expenses which would either be allowable or deductible. However, there was no detailed explanation as to what these expenses were and the basis on which they might be deductible or allowable for tax purposes. Mr Hugo knew that he was dealing with employment lawyers and not tax advisers. Mr Hugo himself was an accountant with significant experience in the operation of umbrella companies. He was therefore well aware of the complexities of ensuring that expenses could be reimbursed on a tax free basis.

With this background in mind, we do not accept that it was reasonable for Mr Hugo (and therefore Mainpay) to rely on the vague assurance from Mishcon that the form of the contract did not affect Mainpay’s ability to reimburse the workers for “deductible business expenditure”. This is very far from either an explicit or implicit reassurance that the reimbursement of subsistence expenses to the relevant individuals would, based on a particular contract produced by Mishcon, be deductible for tax purposes. Mr Hugo cannot realistically have expected Mishcon to give such a reassurance as they clearly did not have the information relating to the particular expenses and the circumstances in which they would be reimbursed in order for them to provide definitive advice in relation to this.

As we have already mentioned, it is in any event apparent that Mainpay was taking separate tax advice in relation to the reimbursement of expenses from a Dr M. J. O’Brien of UK and International Tax Consultants. Mr Hugo’s own evidence in cross-examination was that umbrella companies were a relatively new sector which was constantly evolving as learning developed and that Mainpay was, throughout the period, taking tax advice on an ongoing basis. This is no doubt the context for the advice sought by Mainpay from Dr O’Brien in December 2008 in relation to the appropriate rates which could be used for the reimbursement of subsistence expenses.

The fact that Mainpay had a separate tax adviser who was being consulted on an ongoing basis but who does not appear to have been consulted about the new form of contract or the ability to deduct subsistence expenses based on that contract in our view confirms that reliance on brief statements from the employment team at Mishcon who did not have the full background facts demonstrated a failure on the part of Mainpay to take reasonable care.

“The FTT’s approach to advice received from a major law firm was wholly unrealistic, unreasonable and inconsistent with the approach in Bella Figura at [61]-[62]”. Mr Hugo was entitled to rely on the assurances given by Mishcon. In particular, if Mishcon’s lawyers did not have the necessary tax expertise, “the burden would be on them to either tell the client that in clear terms or obtain any additional advice needed”.

We reject these assertions. The FTT dealt with these issues at FTT[208]-[209], and reached a conclusion which was clearly reasonably open to it. Although it is not the relevant test, we would have reached the same conclusion.

The FTT “entirely fails to explain what the categorical assurance from Mishcon should have been interpreted as meaning”, and the failure not to identify an alternative meaning was a “fundamental gap”.

We disagree. We do not consider that the advice from Mishcon (set out in the quote at [139] above) can be described as giving any “categorical assurance”. We agree with the FTT that in context it was at best a somewhat vague assurance. Beyond that, we do not consider it was necessary for the FTT to speculate on alternative meanings.

The FTT does not actually identify what it says Mr Hugo (or Mainpay) should have done differently.

It is obvious from the FTT’s decision read as a whole that the failure to take reasonable care essentially arose from a failure by Mainpay to obtain advice from a qualified tax adviser as to whether the 2010 Contract reviewed by that adviser was an overarching contract of employment. That was HMRC’s case, and the FTT accepted it.

The FTT “relied on a finding that Mr Hugo had not consulted a separate adviser (Dr O’Brien) about the drafting of the contract” and that was “wholly impermissible” as it was not pleaded or argued.

This presumably refers to FTT[211]. The task of the FTT was to evaluate the nature and quality of the advice said by Mainpay to demonstrate that it had taken reasonable care. In carrying out that task, the FTT was entitled to refer to the facts which it found. Ironically, the FTT was here indulging in speculation as to what Mainpay/Mr Hugo could have done differently, said in the argument summarised at (3) to be a necessary task for the FTT.

The standard of reasonableness does not require a taxpayer to instruct one adviser to review the advice of another adviser.

We agree, but the FTT did not say it was.