[2025] UKUT 00278 (TCC)

The arguments were different for the income tax and NICs claims. For income tax, as set out above, the sums at issue in these proceedings were treated as voluntary restitution for the purposes of the settlement agreements, on the basis that those sums were not covered by Regulation 80 determinations. For settlement purposes, therefore, those sums were treated as amounts that HMRC had no power to recover (with the consequence noted at §29 above that statutory interest was not payable on those sums). HMRC nevertheless takes the view that the effect of the deeming provision in DRRS §4.5.1 is that HMRC should be regarded as having had a power to recover those sums, since it issued Regulation 80 determinations for years in which those sums may have been payable, albeit that those determinations did not specifically cover the sums in question.

Mr Stone submitted that this follows from the wording of §4.5.1 which refers only to HMRC having issued a Regulation 80 determination in respect of any year for which the amount may have been payable. He pointed out that there is no express requirement in that paragraph for the Regulation 80 determination to have been for the amount in question. He therefore said that it was sufficient if there was a determination in place, even if that was for a different and far lower amount than subsequently claimed by HMRC in the relevant settlement agreement (and indeed calculated by reference to a different transaction to the transaction subsequently relied upon by HMRC). While he accepted that this would deem HMRC to have had a power to recover sums which it could not in fact have recovered (particularly if HMRC had “issued a determination” under Regulation 80 for a lower amount, which was not then appealed), he submitted that this was simply the consequence of the adoption in §4.5.1 of a “bright line” test.

In the alternative, Mr Stone submitted that he could get to the same result on the facts of the decisions in this case without needing to rely on the deeming provision, since HMRC does in fact have a “power to recover” under the TMA 1970 framework set out at §24 above where a Regulation 80 determination has been appealed. In such a case, he said, HMRC has the power to seek to recover sums greater than set out in the Regulation 80 determination, either by providing a “view of the matter” letter setting out a greater amount than in the original Regulation 80 determination, or by increasing the amount in the statutory review process, or by seeking to recover increased amounts on appeal to the FTT.

In respect of all of the present claims, the Regulation 80 determinations had been appealed but the appeals had then not progressed further, such that there had not been either a review of the determinations by HMRC or a notification of an appeal to the FTT. Accordingly, Mr Stone contended, at the date of the settlement agreements it remained open to HMRC to offer a review and thereafter to increase the amounts claimed under the Regulation 80 determinations. Mr Stone therefore submitted that even without reference to the §4.5.1 deeming provision HMRC had a “power to recover” the amounts treated as voluntary restitution under the settlement agreements, for the purposes of DRRS §3.1.27.3.

Mr Goodfellow and Mr Mullan submitted that §4.5.1 could not sensibly be interpreted in the way suggested by HMRC, since that would create a situation where, contrary to the clear intention of the Morse report and ss. 20–21 of the Finance Act 2020, HMRC could refuse repayment on the basis of a deemed power to recover, in a situation where in fact it did not have such a power under the TMA 1970 provisions. Their submission was that §4.5.1 should instead be interpreted as treating HMRC as having had a power to recover where HMRC either (i) had issued a Regulation 80 determination for the amount in question, for a year in which that amount may arguably have been payable, or (ii) was still in time to issue such a determination, if it had not done so.

As to HMRC’s alternative argument that it had a power to recover in this case under the appeal/review framework in the TMA 1970, Mr Goodfellow and Mr Mullan advanced various different arguments contending that HMRC did not have the power to uplift the existing Regulation 80 determinations. In particular, they said that HMRC does not have the power under s. 49C TMA 1970 to increase an assessment when stating its “view of the matter”. Nor (they said) does HMRC have a unilateral power to uplift following a statutory review or appeal to the FTT, those processes depending instead on the taxpayer taking action (such as requesting a review and then not objecting to an uplift) or the FTT deciding to uplift (where an appeal to the FTT is notified). On the facts here, however, there was no statutory review or appeal to the FTT that had been commenced as at the time of the settlement. Mr Mullan also advanced an argument about the scope of an appeal to the FTT, if the taxpayer chose to notify such an appeal. Finally, the claimants contested the extension of existing Regulation 80 determinations to further contributions not originally addressed in those determinations.

The NICs uplift issue was only in dispute for Fluid London, for one year (2009/10). Airedale did not dispute the power to recover in relation to NICs; and in relation to Fluid Scotland the longer limitation period meant that HMRC was for all of the relevant tax years still in time to issue county court proceedings, such that it was common ground that it had a power to recover NICs at the time of the settlement agreement.

In relation to Fluid London, the NICs sum for 2009/10 was treated in the settlement agreement as voluntary restitution, on the basis that it was not covered by the s. 8 decisions that had been issued. Mr Stone’s submission (reflecting the wording of DRRS §4.5.2) was that HMRC could have taken action to protect or recover the full NICs liability, and thus could have established a “power to recover” where a s. 8 decision specified a lesser sum than the amount subsequently agreed in a settlement. This was on the basis that the s. 8 decisions could have been varied to cover higher amounts, and HMRC could then have applied to amend its county court claim to cover the higher amount of NICs in issue.

Mr Elliott disputed that analysis, arguing that HMRC did not itself have any power to uplift its claim for NICs, since that was a matter for the discretion of the county court on an application to amend; and he said that any such application would likely have failed because the amendment would have related to different facts to those that were the subject of the original claim.

We will address these arguments by considering first the arguments on the interpretation of the DRRS §4.5.1 deeming provision, and HMRC’s alternative argument on the power to uplift the Regulation 80 determination amounts in any event. We will then consider the power to recover NICs. Having addressed the legal arguments, we will consider their application to the specific claims in these proceedings.