Against the press doom and gloom of forwarder payments there has been some good news from the courts last week on the Glasgow Rangers Employee Benefit Trust case. Following an HMRC appeal of an earlier Tribunal verdict, the Upper Tribunal have now ruled in favour of Glasgow Rangers.
It’s been described as a comprehensive defeat for HMRC and although HMRC may appeal again it is difficult to see on what grounds. As we have said all along the case law on employer trusts has been in the tax payers favour, originally with the Dextra case, then Sempra Metals and now with Glasgow Rangers.
The court has effectively reaffirmed that employer contributions to these trusts do not give rise to PAYE/NIC and that properly constituted loans should be respected as such and treated accordingly. The interpretation of the legislation is they do not represent income for the employee.
So, this is good news for anyone currently running an Employee Benefit Trust. It seems unlikely HMRC will be able to take another EBT case and argue that PAYE applies. Of course that won’t stop them continuing with litigation on EBTs in relation to the Corporation tax deduction.
Where now for follower notices and accelerated payment notices?
The Finance Bill 2014 contains provisions whereby a taxpayer would receive a penalty if they litigate and lose a case after receiving a follower notice. HMRC would issue the notice if they opine that the legal issues of the case have already been determined by other litigation. In such cases HMRC could require accelerated payment of tax in dispute by issuing an accelerated payment notice.
In spite of unprecedented adverse comment and intense lobbying by the tax and legal professions MP’s have allowed HMRC to have their way. Just like Turkeys don’t vote for Christmas, MP’s don’t vote against tax avoidance legislation. As I have said in my blogs we cannot rely on MP’s to uphold fairness and constitutional rights, they want to get elected. We can however rely on the courts as the last bastion of the constitutional rights of the individual. They simply have a different agenda compared to MP’s.
The Glasgow Rangers decision does raise an interesting question for HMRC, do they consider issuing accelerated payment notices on EBT cases where they have failed to collect PAYE/NIC? This would be very much at odds with this latest decision of the courts. HMRC did promise guidance notes at the end of May on these notices but so far this has not materialised. We have been informed council are advising on the possibility of issuing judicial challenges on these notices once they are issued.
What HMRC have said on the matter
Lin Homer, head of HMRC has said when questioned on this matter by the Treasury select committee that at this stage they will only seek accelerated payment in cases where there has already been a tribunal decision in their favour. Although further clarification is required it does suggest there will be no rush to issue these notices. We have to wait and see but I suspect the sheer volume of objections and their validity has had some effect on HMRC.
HMRC could issue accelerated payment notices to any DOTAS tax strategy but all this would do is create considerable legal challenge thus bringing the legal process to a standstill. By selecting DOTAS schemes where there has been successful legal challenge gives HMRC more chance of success. We have to be careful with our definitions; a tribunal challenge has to have taken place in a higher court to have legal precedence. A First Tier, formerly Special Commissioners hearing would not give that legal precedent. If that were the case it considerably reduces the risk of failure for HMRC.
Interestingly on the above definition (with the exception of Stamp Duty Land Tax planning) the guidance from our strategic tax planning partners is that the risk of follower notices and advance payment notices being issued in relation to the type of tax planning they have promoted over the past 10 years is reduced. Certainly clients using some form of trust structure or employed through the contractor structures would fall into this category. All of the structure providers are progressing cases towards, or are already in, the litigation process.
It does appear likely that HMRC will not issue advance payment notices if litigation is in process. There is no definitive statutory support for this contention; however the advice is that it would be a “legal nightmare” for HMRC to consider such action.
So we have to wait and see how the new rules may play out in practice. There is some hope that the new regime will actually speed up the litigation process which we may already see in evidence by the appointment of 38 new recruits to sit in the first tier tribunals.
Chartered Accountant and Chartered Financial Planner