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

We have already established that we find that:-

The appellants had knowingly taken part in a tax avoidance scheme;

They knew that that scheme involved the need to have a trade and thereafter create losses, whereas the reality was that there was no trade;

They knew that the losses would be created by a purported loan on uncommercial terms and that that loan would not be repayable on the elapse of 50 years;

They knew that their other CFD contracts were not even modest but were in fact minimal in size and occurred within a very short period and after the meeting on 3 March 2006;

The only information given to BR was the extent of the alleged trade;

They did not seek tax advice from BR at any stage in relation to the Pendulum Contract.

Therefore we find that each of the appellants knew at the time of filing their respective SATRs that they were not carrying on a trade which entitled them to make a claim for loss relief.

We were wholly unconvinced by the appellants’ argument that they were entitled to rely on Montpelier for everything and that they needed to check almost nothing because Montpelier was FSA registered and had a Counsel’s Opinion which they had not seen. Had they asked to see it, as they were entitled to do, as Judge Richards says at paragraph 48 of Thomson (which is quoted with approval by Judge Sinfield at para 56 of Sherrington) that Opinion made it clear that Counsel was not endorsing the scheme. We have underlined the key words.

“He also sought tax advice from UK tax counsel, Mr Shipwright, on the tax consequences for investors. Mr Shipwright’s advice included an analysis of the general law, and HMRC practice on what amounted to the carrying on of a trade on a commercial basis with a view to profit. However, that analysis was generic: Mr Shipwright was not purporting to advise as to whether any particular taxpayer met this requirement and he noted that the question was ultimately a question of fact that depended on what a taxpayer actually did.”

As can be seen their primary dealings were in fact with Andrew Simpson of City and their Professional Services Agreements were with MTP, neither of which were FSA registered. The documentation made it abundantly clear that there was no FSA protection and nor was there protection in the Seychelles. They had both requested a sophisticated investors certificate, which was provided by Montpelier and which took them out of FSA protection.

Their glib assertions that they were not men with an eye for detail and that they had therefore not read the documents in detail, do not assist them. By any standard, purported indebtedness of £185,000 and £465,000 is not insignificant for individuals of relatively limited means.

The fact that neither of them knew whether they had accepted Pendulum’s offer to re-purchase the CFDs and their failure to check what had happened in subsequent years, points to a disregard of anything other than the losses which they had set out to achieve.

This is a self-assessment system. The taxpayer is ultimately responsible for submitting an accurate SATR.

This was not a question of the appellants turning a blind eye. They did not ask questions or read documents because they knew precisely what they were doing. They were trying to create a significant loss and thereafter make substantial claims for repayment of tax. Crucially the appellants do not and never did have any liability to repay a purported loan. Therefore they did not incur expenditure and they incurred no losses that were capable of being relieved. Furthermore they had not been carrying on a trade on a commercial basis with a view to making a profit.

In submitting their SATRs we find that they acted deliberately with a view to claiming non-existent losses. Their intention was to mislead HMRC and obtain repayments of tax.

For all these reasons the appeals are dismissed.”