Successful year for HMRC in tax avoidance litigation

HMRC have published their list of tax avoidance litigation decisions for the 2021-22 year. This identifies the results in litigation decisions where HMRC considered that tax avoidance was involved. The summary indicates a high win rate for HMRC. 

Of the 21 cases litigated, 17 were recorded as wins for HMRC, with the remaining four being partial wins where substantive elements of HMRC’s case succeeded.

Among HMRC’s wins were:

• Stephen Hoey & Ors v HMRC [2022] EWCA Civ 656, in which the Court of Appeal found that no PAYE credit was available for payments made to an Employee Benefit Trust.
• Hargreaves Property Holding Limited v HMRC [2021] TC08310, where the First Tier Tribunal (FTT) found that despite extensive offshore loan restructuring, loan interest paid from profits arising from UK assets was from a UK source. It was subject to Withholding tax on the payment to non-UK recipients.

HMRC identified a further 18 procedural cases which consisted of nine wins, five partial wins and four losses. These included some particularly memorable cases:

• HMRC win: In Tinkler v HMRC [2021] UKSC 39, the Supreme Court examined the conditions for estoppel by convention, finding that an agent's action in complying with an enquiry notice rendered a tax enquiry and a subsequently issued Closure notice valid, even though the original enquiry notice was invalid.
• HMRC partial win: In Assem Allam v HMRC [2021] UKUT 0291, the Upper Tribunal (UT) found that the Transactions in Securities provisions did not apply. In HMRC’s favour, the UT found that:
  • Entrepreneurs’ Relief (now Business Asset Disposal Relief) did not apply.
  • The withdrawal of Business Investment Relief could not be overturned.
  • The tax returns had been validly issued.
• HMRC loss: In HMRC v Raymond Tooth [2021] UKSC 17, the Supreme Court ruled on two important issues in relation to HMRC's powers in making Discovery assessments.
  • Entering the correct figures in the wrong boxes of a tax return because there is nowhere else in the return to put them, and making a full disclosure of that fact, cannot be construed as a deliberate error.
  • The concept of 'staleness' in respect of discovery assessments has a very narrow application.

HMRC did note that although Tooth was recorded as a loss, the findings on staleness have led to other significant discovery challenges being withdrawn.

Of the three judicial review cases recorded, HMRC saw two wins and one loss.

League table

Results for the three most recent years are summarised in the league table below. Results for 2021-22 are quite similar to those for 2020-21, both years showing a notable increase in case numbers and HMRC successes on 2019-20 figures.

Useful guides on this topic

DOTAS: Disclosure of Tax Avoidance Schemes
What are the Disclosure of Tax Avoidance Schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

Anti-avoidance: HMRC's spotlights
What are HMRC's Spotlights and where can you find them?

What is the Ramsay principle in tax?
Not sure what is meant by the Ramsay principle? Here is a quick guide.

Tax Agents: HMRC's Standards for Agents
HMRC's "Standards for agents" are non-statutory and are aimed at all tax agents, largely those tax agents who are not members of any of the professional tax and accountancy bodies. HMRC is now building on safeguards and raising standards in the tax advice market.

Professional Conduct in Relation to Taxation
This is a freeview 'At a glance' guide to the requirements of the Professional Conduct in Relation to Taxation (PCRT) adopted by the main professional accounting and tax bodies.

External link

Tax avoidance litigation decisions 2021 to 2022