The Commissioners for HMRC v Marlborough DP Limited
[2024] UKUT 98 (TCC)
Mark Northwood v The Commissioners for HMRC
21 March 2023
[2023] UKFTT 351 (TC)
First-tier Tribunal
A dentist set up a trust to supposedly reward his suppliers and reduce his taxes. The taxman disagreed. A judge decided the trust was a sham, designed to avoid taxes, and the dentist couldn't deduct the payments.
Key Facts
- •Mark Northwood, a dental surgeon, established a remuneration trust (RT) in 2009.
- •He claimed income tax and NIC deductions for contributions to the RT totaling £999,755.81.
- •HMRC issued closure notices disallowing the deductions.
- •The RT's purported purpose was to benefit suppliers and future employees, but this was disputed by HMRC.
- •Significant fees were paid to Baxendale Walker LLP (BW) and Foy Wealth Ltd for establishing and managing the RT.
- •Loans were made from the RT to Mr. Northwood, raising questions about the true nature of the transactions.
- •The appeal contested the disallowance of deductions, the correctness of the accounts, the sham nature of the scheme, and whether the expenses were wholly and exclusively for business purposes.
- •Mr Northwood's accounts were not prepared in accordance with UK GAAP.
- •Mr Northwood claimed that his payments to the RT were irrevocable gifts, while HMRC argued the funds remained under his control.
Legal Principles
Profits of a trade must be calculated in accordance with generally accepted accounting practice (GAAP).
Section 25(1) Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)
No deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade.
Section 34(1) ITTOIA 2005
Sham doctrine: If the scheme documentation intended to make things appear other than they were, the transactions could be disregarded.
Ingenious Games v HMRC [2015] UKUT 0105
An expense is only deductible if it meets the "wholly and exclusively" test; even incidental private benefits can invalidate the deduction if they were a purpose of the expense.
Vodafone Cellular Ltd v Shaw [1997] STC 734
In determining whether an expense was "incurred", the taxpayer must bear the economic burden.
Revenue and Customs Commissioners v NCL Investments Ltd [2022] UKSC 9
Outcomes
Appeal dismissed.
Contributions to the RT and associated fees were not deductible because they were not recognised as expenses under UK GAAP, were not wholly and exclusively for the purposes of the trade, and the RT documentation was a sham.
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