Oct 5
The taxpayer company entered into a marketed scheme for the avoidance of income tax, duly notified to the revenue under “DOTAS” (Disclosure of Tax Avoidance Schemes) legislation contained in the Finance Act 2014, with two of its directors, whereby the company made substantial payments to its directors in return for which they incurred obligations to subscribe for partly paid shares in the company. Having considered the scheme, the revenue formed the view that the sums paid to the two directors by the company constituted employment income in their hands from which tax should have been, but was not, deducted at source by the company in accordance with regulation 67 of the Income Tax (Pay As You Earn) Regulations 2003 and made a determination of the amount of tax due under regulation 80. The company appealed against those determinations and decisions, and the revenue agree to postpone the amounts due. Subsequently, the revenue served an accelerated payment notice (“APN”) on the company for payment of the tax so determined, and thereafter issued penalty notices. The company appealed against the penalty notices to the First-tier Tribunal contending, inter alia, that a demanded under a regulation 80 determination fell outside the scope of the definition of “disputed tax” in section 221(3) of the 2014 Act with the consequence that APN scheme could not apply with the result that the tax previously postponed was not subject to section 55(8D) of the Taxes Management Act 1970 and could not be "un-postponed", and no penalty could be charged in relation to the APN. The tribunal dismissed the appeal, which decision was upheld by the Upper Tribunal.
On the company’s further appeal —
Held, appeal dismissed. Since (i) income tax was a relevant tax for the purposes of Part 4 of the Finance Act 2014, (ii) the definition of “tax appeal” in section 203(a) of the 2014 Act meant an appeal under section 31 of the Taxes Management Act 1970 which included, inter alia, an appeal under that section by virtue of the Income Tax (Pay As You Earn) Regulations 2003 and (iii) the effect of regulation 80(5) of the 2003 Regulations was to treat a regulation 80 determination as if it were an assessment for the purposes of an appeal under section 31 of the 1970 Act, it followed that an appeal against a regulation 80 determination was a “tax appeal” for the purposes of the APN regime in Part 4 of the 2014 Act. Therefore, on the facts of the present case, the taxpayer had made a tax appeal on the basis that a particular tax advantage arose from its particular Disclosure of Tax Avoidance Schemes arrangements so that the conditions in section 219 of the 2014 were met and the revenue had, in principle, been entitled to issue the accelerated payment notice. The statutory scheme enacted by Parliament would be stultified if the tax charged by the regulation 80 determination were not to be treated as “disputed tax” within the meaning of section 221(3) of the 2014 Act. Since the definition of “tax appeal” made it clear that Parliament intended appeals against regulation 80 determinations to fall within the scope of the APN regime, there was no rational basis on which Parliament could have intended to negate that result on the ground that there could never be any “disputed tax” in such a case. It followed that, if possible, the legislation had to be construed in a way which accorded with Parliament’s evident intention that an APN founded on a regulation 80 determination should be effective to ensure the counteraction of the denied advantage as determined by an officer of the revenue. As the First-tier Tribunal rightly perceived, that was the minimum that a purposive construction of the APN regime required. There was no difficulty in construing section 221(3) so as to conform with Parliament’s evident intention. Since tax appeals against regulation 80 determinations were clearly brought within the scope of condition A in section 219, and since conditions B and C were also satisfied, the revenue had been entitled to serve the company with an APN. The provisions of section 221 as to the content of the notice were therefore of an ancillary nature, and had to be interpreted so as to give effect to, rather than contradict, that entitlement. Accordingly, the reference to the “assessment to tax appealed against” in the definition of “the disputed tax” in section 221(3) had to be read as including a regulation 80 determination (paras 32–37, 42, 43, 44).
Ben Elliott (instructed by Levy and Levy Solicitors) for the company.
Aparna Nathan QC (instructed by Solicitor, Revenue and Customs) for the revenue.