UT/2024/000066 - [2025] UKUT 00065 (TCC)

In summary, the second set of disclosure seeks disclosure of 1) HMRC’s policy/internal communications in respect of issuing Regulation 80 PAYE determinations, and s8 NICs decision notices where use of an EFRBS was suspected, and 2) evidence as to how the decision was made to issue such determinations, decisions and county recovery proceedings for NICs.

It is submitted that HMRC’s historical challenges to similar tax arrangements and the decisions in respect of PAYE, NICs liability and NICs recovery are a relevant factor in determining whether a disclosure provided sufficient information “…for it to be apparent that a reasonable case could have been made that an amount was payable to the Commissioners” (for the purpose of s20(5)(d) FA 2020 (at [4] above). The claimant argues a summary of HMRC’s knowledge of EFRBS is required in order to under whether HMRC misdirected itself in law or acted unreasonably or irrationally in its decision making process.

In agreement with HMRC’s submissions however, information regarding the junctures when HMRC considered it appropriate to commence liability and recovery proceeding will not throw light on whether the information provided was sufficient “…for it to be apparent that a reasonable case could have been made…”. While evidence sought as to HMRC’s policy on the issue of decisions/determinations might indicate when it was that that HMRC considered it had a reasonable case, that would be besides the point on the issue of whether the information provided was sufficient from an objective point of view “…for it to be apparent”. Similarly, evidence as how such determinations, decisions and recovery proceedings were actually taken in respect of the claimant would not help on whether the relevant test was satisfied objectively.

To approach the matter in the way the claimant suggests would lead to counter-intuitive result in the context of a provision concerning whether returns contained “reasonable disclosure”. Satisfaction of the “reasonable disclosure” requirement and resolution of whether information was sufficient “for it to be apparent” would depend on how stringent or lenient a policy stance (perhaps known only to HMRC) HMRC happened to adopt in relation to what it considered was needed to show when the requisite reasonable case could have been made.

The claimant relies on a passage of Dias J’s judgment in Sensor (at [45] and underlined below) for the proposition that HMRC’s state of knowledge is relevant to whether the s20(5)(d) test is met, but that reliance is misplaced. In that paragraph, Dias J explained (in rejecting an HMRC submission that the s20(5)(d) test was not satisfied where a note (note 10) to accounts had expressly recorded the director’s belief that awards out of the scheme would not result in any PAYE/NIC liability):

“I would not have found against the Claimant on this point alone. If the quasi-loans had been disclosed by virtue of AAG1, then it seems to me that the information available would have been sufficient for HMRC reasonably to have concluded that tax was payable even though note 10 did not explicitly state that the avoidance of tax was because of the EFRBS. I accept [the claimant’s]submission that HMRC had consistently been challenging schemes of this nature and that the mere assertion of the taxpayer that there was no liability could not reasonably have been regarded as conclusive.”

As HMRC’s submission point out, Dias J was rejecting HMRC’s argument that simply because the taxpayer had said no liability arose, that did not mean the information could not be sufficient. The reasoning (that matters of assertion were not conclusive) was not dependent on HMRC’s approach and the reference to HMRC’s history of challenge was merely illustrative. (Moreover the reasoning in any event appears obiter given the court’s earlier conclusions that there was no disclosure of the relevant loans).

Accordingly, I am not satisfied the evidence sought is required for the fair and just resolution of the issue of whether HMRC had misdirected itself in law (Ground 1). Evidence as to the policy on liability and recovery decisions and in relation to the particular decisions deployed in respect of the claimant are not necessary to determine what test Ms Fletcher in fact applied in fact. Nor, by definition, could evidence be necessary to determine the statutory interpretation issue of what the correct legal test was.

The evidence also does not assist on Ground 2. The issues of reasonableness and rationality raised by Ground 2 similarly concern the objective evaluation of information. For the reasons discussed that evaluation would not be impacted by HMRC’s policy on issue of liability and recovery or its decision making on such issue in respect of the claimant.