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

Ms Choudhury submitted that the FTT made it clear that it was applying the subjective test in Auxilium, and a tribunal can be expected to have been seeking faithfully to apply the legal principles expressly identified, and to have done so unless the contrary is clear from the language of the decision (citing DPP Law v Greenberg [2021] EWCA Civ 672 (“Greenberg”)).

Whilst the Appellants contend that the FTT’s comments have clear echoes of the FTT’s decision in Sacutia, Sacutia is not referred to in the Revised Decision. The closest reference is that in [168] to the Appellants not being “men with an eye for detail”. The taxpayer in Sacutia had argued that it ought not to be liable for a penalty on the grounds that its director was not a “detail man” (at Sacutia[57]). The FTT had rejected this as a basis for escaping the penalty. Moreover, the FTT in Sacutia had referred to Auxilium and said that some measure of knowledge was required for an inaccuracy to be made deliberately, but it considered that a taxpayer had the required “knowledge” for an inaccuracy to be deliberate where the taxpayer knew that they should take steps to check the accuracy before information is submitted or relied upon and did not do so. The “objective reasoning” in Sacutia was in the context of considering whether the appellant in that appeal had acted carelessly.

In any event, none of the examples referred to by the Appellants indicate that the FTT had lost sight of the Auxilium test, whether due to Sacutia or otherwise:

The FTT’s mode of reasoning leading to its conclusions was not “impermissibl[y] objective”: rather, the FTT was fulfilling its duty to give sufficient reasons for its decision by explaining in detail the process by which it had come to its conclusion. The FTT had referred to Auxilium, summarised the findings it had already made at [164], stated its conclusion at [165] and then based on this conclusion as to knowledge the FTT went on to conclude at [171] and [172] that the behaviour had been deliberate.

Ms Choudhury submitted that, at most, the Revised Decision shows that the FTT considered that the true overall reason that the Appellants’ behaviour deviated in several instances from what might have been reasonably expected of individuals in their position was because they knew that their tax returns were inaccurate as a result of claiming a loss to which they were not entitled.

Responding to Mr Woolf’s submissions in relation to the absence of any loans, Ms Choudhury submitted that the Montpelier Arrangements were premised on the Appellants claiming a loss which was artificial, or not an economic loss. In that situation, it didn’t matter whether such a loss arose from a loan or from the terms of the Pendulum Contracts. The existence or absence of the loan was significant because it was key to how the Montpelier Arrangements were designed and intended to work, and (as the FTT found at [153]) was important to the Appellants.

In their written submissions before the hearing, HMRC submitted that the findings at [166] and [168] are consistent with the Appellants having “blind-eye knowledge” that their returns were inaccurate, referring to CPR Commercials Ltd v HMRC [2023] UKUT 00061 (TCC) (“CPR”), where the Upper Tribunal stated at CPR[23]:

HMRC submitted that if we were to conclude that the Appellants had established that the FTT had made an error of law, we should go on to consider whether the Revised Decision could nevertheless be upheld on the basis that its findings were consistent with the Appellants having blind-eye knowledge.