Upper Tribunal Tax and Chancery Chamber

UT/2024/000069 - [2025] UKUT 00236 (TCC)

Fecha: 23-May-2025

Introduction

Introduction

This case concerns a decision of the First-tier Tribunal (“the FTT”) in relation to the temporary labour sector and, in particular, an employment and payroll model that involves the use of employers known as “mini-umbrella companies” or “MUCs”.

Under this model, a MUC:

(1)

employs temporary workers and deals with HMRC in relation to liabilities to tax or national insurance contributions arising from the employment;

(2)

supplies the labour of their employees to intermediaries, who supply that labour to recruitment agencies (who then provide the workers to the end customers in need of the temporary labour);

(3)

charges VAT to the intermediaries at the standard VAT rate of 20% but accounts to HMRC for VAT under the so-called flat-rate scheme (or the FRS): this is a simplified scheme under which taxpayers are not entitled to make deductions for input tax but instead apply a lower percentage than the standard rate to the total value of their supplies and account to HMRC for VAT at that lower rate; and

(4)

claims an employment allowance under the National Insurance Contributions Act 2014 (“the NICS Act 2014”) the effect of which is to reduce the liabilities of the MUCs to pay national insurance contributions.

Each of the appellants in this case – Elphysic Limited, Phyarreidon Limited, Rosscana Limited, Zraytumbiax Limited – is a MUC and each of them sought to take advantage of both the FRS and the employment allowance.

HMRC de-registered the appellants from VAT, issued assessments to VAT (on the basis that the appellants were not entitled to use the FRS) and denied their entitlement to use the employment allowance. HMRC considered that the appellants were part of a scheme involving over 18,000 other MUCs to defraud the public revenue of hundreds of millions of pounds.

Although there were separate decisions in respect of those other MUCs, HMRC’s stated position in relation to them was in all material respects the same. Given the factual and legal similarities in HMRC’s case against each of the MUCs, the appellants were specified as lead appellants under rule 18 of the First-tier Tribunal (Tax Chamber) (Procedure) Rules 2009. In the remainder of this judgment, we refer to the appellants (as the FTT did) as “the Lead Appellants”.

As part of their appeals, the Lead Appellants raised concerns about the adequacy and propriety of HMRC’s pleadings. In particular, the Lead Appellants were concerned that, in both HMRC’s statement of case and their skeleton argument before the FTT, HMRC had used various terms (such as ‘organisers’) without making it clear whether those terms were intended to denote fraud or dishonesty, and, if they were being used in that way, who was alleged to fulfil these roles and by reference to what evidence.

In a decision of the FTT [2024] UKFTT 291 (TC), released on 27 March 2024, the FTT:

(1)

allowed the appeals of the Lead Appellants against HMRC’s decisions to de-register them from VAT in reliance on the CJEU decision in Case C-527/11 Valsts ienemumu dienests v Ablessio SIA EU:C:2013:168 (“Ablessio”); but

(2)

dismissed their appeals against HMRC’s decisions to terminate their authorisations to use the FRS and deny them an entitlement to an employment allowance under the NICS Act 2014.

The FTT granted the Lead Appellants permission to appeal against its decision on five separate grounds:

(1)

Ground 1: the FTT erred in holding that HMRC had adequately pleaded and particularised their case that the “MUC scheme as a whole was and is itself fraudulent”.

(2)

Ground 2: in circumstances where (a) HMRC put their case on the basis that the alleged fraud had been organised/operated by named individuals, and (b) the FTT found that HMRC’s pleaded case did not contain “the particularisation necessary to enable us to identify the fraudster or fraudsters behind the MUC scheme”, the FTT erred in nonetheless proceeding to find that there had been a fraud in operation as part of which the Lead Appellants were being “controlled” by (unnamed) “organisers” who had not been identified as fraudsters in HMRC’s pleaded case. Such a finding was (1) not open to the FTT as a matter of principle and logic, and/or (2) perverse, and/or (3) procedurally unfair.

(3)

Ground 3: the FTT failed to give adequate reasons for its central conclusion that the “organisers of the MUC scheme must have known that the Lead Appellants were not entitled to use the FRS … and only entitled to claim EA in consequence of avoidance arrangements”.

(4)

Ground 4: the FTT’s central conclusion that the “organisers of the MUC scheme must have known that the Lead Appellants were not entitled to use the FRS … and only entitled to claim EA in consequence of avoidance arrangements” was not one properly open to it.

(5)

Ground 5: the FTT erred in concluding that a finding that the Lead Appellants were under the “control” or “dominant influence” of the “scheme organisers” was a relevant consideration in determining whether Regulation 55(L)(1)(d)(iii) of the Value Added Tax Regulations 1995 (“the 1995 Regulations”) applied.

The FTT also granted HMRC permission to appeal against its decision concerning the principle in Ablessio on the ground that, despite the finding of the FTT to the contrary, HMRC were not required to prove that the directors of the MUCs knew, or should have known, that they were facilitating the organisers of the fraud.