Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT/2023/000096 - [2024] UKUT 00203 (TCC)

Fecha: 02-May-2024

Appellants’ submissions

Appellants’ submissions

86.

Mr Woolf submitted that whilst the FTT had correctly directed itself as to the relevant test, namely that in Auxilium, it had then failed to apply that test correctly. His submissions included that the reasoning at [164] to [171] of the Revised Decision explained why the Montpelier Arrangements were not effective, but does not explain why the FTT considered that the Appellants knew that the scheme was not effective (and that therefore they knew their returns were inaccurate), and that the generalised explanations set out therein would apply to any participant in the scheme.

87.

In particular, Mr Woolf submitted that:

(1)

[164] simply recites the underlying facts which are not a matter of dispute, and, at [164(b)] the FTT imputed to the Appellants its own conclusion (which it had reached at [148]) that there was no trade;

(2)

the finding at [165] that the Appellants knew they were not carrying on a trade which entitled them to make a claim for loss relief does not follow from the findings in [164]. The FTT had referred to the Montpelier Materials but then glossed over significant comments made therein about what amounts to a trade that would have made it understandable that the Appellants should consider they were entitled to relief. The relevant consideration was what the Appellants appreciated amounted to a trade giving them an entitlement to a deduction;

(3)

the Appellants’ reliance (referred to at [166]) on Montpelier must be assessed by reference to the advice from Montpelier, which included that the scheme was backed by counsel, and the Montpelier Materials. Any lack of diligence, eg not asking for a copy of counsel’s opinion, may be an indicator of carelessness but not actual knowledge. The reference to the contents of that opinion, which the Appellants had not seen, does not explain why the FTT concluded they had actual knowledge;

(4)

the findings in [168], which referred to “glib assertions that they were not men with an eye for detail”, may similarly be indicators of carelessness but not knowledge;

(5)

the findings at [168] and [169] are consistent with the Appellants being prepared to bear any losses because of the hoped-for tax reliefs, and are consistent with them knowing that they were engaging in a tax avoidance scheme;

(6)

the language of [171] echoes the decision of the FTT in Sacutia Healthcare Ltd v HMRC [2018] UKFTT 699 (TC) (“Sacutia”). The FTT had drawn this case to the parties’ attention during the hearing. Mr Woolf submitted that Sacutia had incorrectly taken an objective approach to determining knowledge; and

(7)

the FTT said at [171] that the Appellants were trying to create a loss and “crucially” do not and never did have any liability to repay a purported loan. This does not address the fact that the Appellants signed loan agreements and thought there was a loan. Mandaconsult did not execute the loan agreements and claimed to have no knowledge of the agreements, but Montpelier did not tell the Appellants of this. There is no explanation for why the finding on the absence of a loan justifies concluding that the conduct was deliberate. The only possible explanation might be if the FTT had thought that there could be no tax loss in the absence of a loan, but that is incorrect in law.

88.

Mr Woolf had expanded upon this final submission in the context of his submissions on Grounds 1 and 4. Mr Woolf submitted that the FTT’s emphasis of its finding that the loans had not in fact been made and that the Appellants therefore had no liability to repay any loans not only failed to address the Appellants’ belief that there were loans, but also indicated that the FTT failed to appreciate the way in which the tax loss arose. The liability to a lender was not an essential requirement to obtain the intended tax benefits – the Appellants had a liability under the Pendulum Contracts and were entitled to claim a loss on that basis. Mr Woolf submitted that the Revised Decision at [116], [154] and [156], as well as its reasoning at [171], suggest that the FTT had considered that a loss can only be claimed if there is a payment by the lender to satisfy the liability under the Pendulum Contracts, and this incorrectly formed part of the FTT’s reasoning on deliberate conduct.