The First-tier Tax Tribunal (FTT) ruled that a company was careless in implementing an employee benefit trust scheme.
Background:
Janet Bray Limited (JB) provides consultancy services in pharmaceutical medicine. Ms Bray is the sole shareholder and director and she is trained as a pharmacist. Mr. Bray provided support to Ms. Bray but had never generated any revenues for the business.
Mr. Alderton's firm (KAT) provided accountancy services to JB and Ms. Bray personally. Mr. Alderton introduced Ms. Bray to an avoidance scheme intended to provide a tax-free amount to JB by using a loan from an employee benefit trust. However, the tax scheme did not provide the anticipated savings. HMRC made two determinations (which were subsequently revised) under Regulation 80 of the Income Tax (Pay-As-You-Earn) Regulations 2003 (PAYE Regulations 2003) of £91,486.80 for the year 2009/2010 and £102,933.60 for the year 2010/2011. Additionally, two penalties were issued under Schedule 24 of the Finance Act 2007, amounting to £19,212.22 for 2009/10 and £21,616.03 for 2010/11, respectively.
The claimant contended that the determinations were time-barred in that they should not rely on the extended time limits for carelessness and that the company took reasonable care to avoid the loss of tax revenues to the HMRC.
Decision:
The FTT dismissed the appeal and upheld both the determinations and penalties. The FTT found that the company did in fact not take reasonable care. Despite three different tax professionals being involved in implementing the scheme, the Judge concluded that none had actually been engaged by the company to provide tax advice on the scheme. Moreover, the evidence was very clear that those professionals “had specifically stated that they were not advising JB or Ms Bray on the tax aspects of the arrangements.”
For the FTT, it boiled down to carelessness on the company’s side, as it relied on unchecked assumptions that tax advice was being provided by someone involved with the scheme and did not act as a reasonably prudent taxpayer would have. The fact that Ms. Bray asked general questions about the scheme was not in of itself sufficient to displace the finding of any potential carelessness.
Contrary to the claimant’s contentions, the Judge concluded that “Ms. Bray (personally or on behalf of JB) did not, in fact, obtain even a first opinion, or any advice as to the tax implications of the scheme.”
Regarding the time limit, the FTT ruled that the date on the letter was sufficient to discharge the evidential burden and that the date on the letter was in fact the date to be taken into consideration.
Concerning the causation of the loss of tax, the FTT disagreed with the company that, even if there was carelessness, the loss of tax arose from the scheme’s failure. Based on the facts, the Judge found that it was the failure to take reasonable care that had caused the tax loss in relation to the time limit for the PAYE determinations and the inaccuracy in the returns in relation to penalties.
Implications:
This decision offers a good reminder of the maxim that it is ‘better be safe than sorry’, especially when it comes to tax-saving schemes. The threshold for carelessness is of a reasonable prudent taxpayer and any business owner should make sure that they receive good tax advice rather than assume they have adequate knowledge. It is also important to read the documents provided and ensure there are no disclaimers that the person is in fact not providing any advice, as was the case here.