Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT/2023/000103 - [2025] UKUT 00102 (TCC)

Fecha: 22-Ene-2025

The FTT’s Decision

The FTT’s Decision

262.

The FTT discussed the “just and reasonable” test in two places:

(1)

between [148] to [190] (“the earlier section”), where it considered and assessed the evidence and made relevant findings, and

(2)

between [215] to [224] (“the later section”), which for the most part consisted of a list of factors put forward by Appellants, together with the FTT’s discussion and conclusions.

263.

In the earlier section, the factors identified by the FTT focused on the documentation and the valuations. The FTT described the documentation as “cavalier” [169], as exemplified by the following:

(1)

Documents signed off by Mr Carwithen which contained various errors and omissions, see [168].

(2)

Mr Dowding signing off some of the Pension Funding Deals within five to ten minutes, see [159].

(3)

Some MLA checklists signed off with issues still outstanding, although the FTT also noted Mr Dowding’s evidence that these outstanding issues would be actioned subsequently, see [161].

264.

However, the FTT also observed that many commercial companies large and small are similarly poor at ensuring the documents are properly completed and said that this factor alone does not lead to the conclusion that it was not just and reasonable to discharge MLT from liability, see [169].

265.

In relation to the valuations, the FTT took into account the following:

(1)

MLT’s decision in 2011 to move from using accountants to instructing experienced IP valuers to provide “more robust” valuations, together with the fact that this was a gradual process and some of the original accountant valuers were used until December 2012, see [158] and [167].

(2)

The only scrutiny of the valuation reports by anyone at MLT or MLA was:

(a)

to check that the valuation was sufficient to cover the funding required by the client, see [165]; and

(b)

to ensure the valuation had been based on the right inputs; the correct company accounts, in the name of the right company and over the right IP assets.

(3)

There was no questioning of the valuation itself, or of the profit forecasts on which the valuation was based [175].

(4)

As soon as the process got past the initial review stage, no substantial challenge to the valuation occurred [178].

(5)

MLA failed to “consider from a commercial perspective, whether the valuations made sense”, as exemplified by the fact that “no-one even questioned how the highly personalised “trademark” valued for Mr Gannon could possibly have had any real value to anyone but him”, see [194]-[195].

(6)

It was in no-one’s interest to challenge the valuations as being too high [179].

266.

The later section of the FTT Decision considered the points put forward by the Appellants. We have set these out in italics, followed by the FTT’s discussion of the weight to be given to each:

(1)

The loans were ultimately repaid to the SSAS. The FTT accepted that in Bella Figura the UT had said at [75] that repaying the loans would be “considerably less serious” than if the money was never recovered, and recognised that this was therefore “a significant element of the test”. However, the FTT went on to say that this was not “the only element in the context of a set of provisions which include other specific tests which are to be applied at the time when the loan is entered into not at the time when it is repaid”.

(2)

As the loan or leaseback payments were made, the risk to the pension fund
diminished. The FTT accepted this was the case, but again referred to the fact that “the legislation is drafted on the basis that the relevant time for measuring the risk is the time when the transactions are entered into”.

(3)

The pension fund belonged to the Employers and so no third party was in jeopardy. The FTT recognised that this was a relevant factor, but also took into account that “the legislation is premised on the fact that the pension funds in question belong to the directors of the borrowing company, and these rules apply even though this is the case”.

(4)

Both HMRC’s experts and the Appellants’ experts were agreed that someone who was not a professional valuer would not have a reason to doubt the valuations . The FTT had already accepted that this was the position, see [194], but reiterated that the key issue was MLT’s failure to “stand back and apply commercial common sense”.

(5)

MLT had processes, such as the checklist and the valuations, which were designed to comply with the legislation and which went beyond what was required by those provisions. The FTT’s own assessment was that there was “more form than substance” in MLT’s procedures.

(6)

MLT did not deliberately seek to circumvent the rules. The FTT said this “may be true” but held that MLT did “consistently fail to apply any critical analysis to fundamental aspects of the Pension Funding Deals, which…amounts to at best a passive approach to the application of the rules in favour of generating fees for themselves and other members of the group”.

267.

In addition to the factors put forward by the Appellants, at [223] the FTT also placed weight on the fact that MLT was prepared to sign off multiple pension funding deals with the same Employer, resulting in nearly 100% of that Employer’s pension fund being leveraged, as exemplified by:

(1)

the 2012 Ballards transaction, entered into after that company had already obtained pension funding through an earlier sale and leaseback of £145,000, providing funding of £194,000 on a total pension value of £200,000, and “on assets to which no realistic valuation had been applied”; and

(2)

the Criticall transaction, which provided funding of £110,000 on a total pension value of £143,000.