[2025] UKUT 00278 (TCC)

During the course of the tax years 2008/09 to 2013/14, the claimants entered into loan or quasi-loan transactions, which we will generally refer to in this judgment simply as “loans”. Those arrangements were disclosable to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime. In broad terms, each loan arrangement involved a series of agreements under which certain employees of the claimants incurred a debt to either an Employee Benefit Trust (EBT) (sometimes referred to by the relevant scheme promoter as a Business Benefit Trust or BBT), or an Employer-Financed Retirement Benefit Scheme (EFRBS), and received payments of an equivalent amount from the relevant claimant. The economic effect of these transactions, in circumstances where there would usually be little practical likelihood of repayment being required, was that the employee ended up with significant sums of money. The intention of the schemes was to escape the relevant tax and NICs charges on remuneration, while avoiding triggering the “disguised remuneration” anti-avoidance provisions in Part 7A ITEPA 2003 which had been designed to combat loan schemes of this type.

In respect of some but not all of the relevant years, HMRC issued Regulation 80 determinations within the relevant limitation periods, and s. 8 decisions. The Regulation 80 determinations were appealed to HMRC, but no reviews pursuant to ss. 49B or 49C TMA 1970 were either requested by the claimants or offered by HMRC; nor were the appeals notified to the FTT. Where s. 8 decisions were issued, HMRC generally, but not always, commenced court proceedings in the county court to recover the NICs stated in those decisions.

Following the enactment of the Loan Charge in 2017, the claimants entered into settlement agreements with HMRC to prevent the Loan Charge applying to the loans outstanding under the various arrangements. The settlement agreements were made on 26 March 2018 (Fluid Scotland), 13 March 2018 (London Fluid) and 5 April 2019 (Airedale), and covered both PAYE and NICs. HMRC treated part of the income tax amounts paid under each settlement as “voluntary restitution”, on the basis that the relevant Regulation 80 determinations issued by HMRC had understated the income tax due, or were determinations in relation to different transactions, and it was by the time of the settlement too late to issue new Regulation 80 determinations. Likewise, NICs amounts paid under the settlements were also treated as “voluntary restitution” where they were considered not to be protected by a s. 8 decision and corresponding county court claim.

The consequence was that the settlements of those voluntary restitution amounts did not give rise to the statutory interest which would otherwise have been payable on late payments of PAYE and NICs. The settlement sums and the amounts treated as voluntary restitution for the three claimants were as follows:

Following the establishment of the DRRS, each claimant made a claim for repayment of the amounts of PAYE and NICs that had been treated as voluntary restitution in the settlements with HMRC. Some claims were accepted on the basis that HMRC agreed that it had no power to recover the relevant amounts, either because no Regulation 80 determination or s. 8 decision and county court claim had been made, or because the Regulation 80 determination that was made did not extend to the relevant employees whose loans were the subject of the settlements, the relevant limitation periods for additional Regulation 80 determinations or county court proceedings (as relevant) having expired. The judicial review proceedings before us concern repayment claims that were, by contrast, refused. Those refusals were upheld on review by HMRC in decisions dated 10 December 2021 (Fluid Scotland), 17 December 2021 (Fluid London) and 22 June 2022 (Airedale).

The disputed repayments for all three of the claimants concern situations where HMRC had issued a Regulation 80 determination, but subsequently considered a higher amount of tax to be due, that higher amount then being the subject of a settlement. In the case of Fluid London, there is also a claim in respect of NICs included in the settlement agreement, following a s. 8 decision and county court claim which did not cover the additional NICs due on a particular loan transaction. Again, in both cases the relevant limitation periods had expired, precluding HMRC from issuing new Regulation 80 determinations or new county court claims.

Mr Stone’s oral submissions explained that in such cases the need to increase or “uplift” the amount specified in the original determination or decision arose in two broad situations. The first was where HMRC’s calculation had assumed that the employee was a basic rate taxpayer, but HMRC then sought to increase that calculation in light of information later received that the employee was in fact a higher rate taxpayer. The second situation was where a Regulation 80 determination amount referred to one use of a loan scheme, but HMRC then sought to capture income tax (and sometimes NICs) in relation to additional amounts paid into the same scheme. All of the claimants pursue repayment claims for the shortfall between the amounts originally specified by HMRC in the Regulation 80 determination (and in Fluid London’s case s. 8 decision) and the uplifted amounts paid under the settlement agreements.

In respect of Fluid Scotland and Airedale, repayments are also sought in respect of amounts relating to years where HMRC accepts that it had no “power to recover”, but contends that the claimants did not meet the additional requirement of “reasonable disclosure”.

The next sections summarise the reasoning provided in HMRC’s review decision letters that are the subject of the judicial review claims brought by the three claimants, focusing on the relevant tax years and specific income tax/NICs sums that remain in dispute in this claim. (We therefore omit findings that relate to sums that are no longer disputed by the claimants.) Where relevant we distinguish the particular schemes used by their DOTAS numbers.