Validity of Trust Disputed: Tribunal Clarifies HMRC's Authority in Information Requests

Citation: [2023] UKFTT 944 (TC)
Judgment on

Introduction

The recent case of Andrew James Wilson v The Commissioners for HM Revenue and Customs ([2023] UKFTT 944 (TC)) delves into issues surrounding the request for documentation and information under Schedule 36 of the Finance Act 2008. The case concerns the validity of a trust and the extent to which it impacts HMRC’s authority to demand information. The First-tier Tribunal (Tax Chamber) has delivered an insightful judgment that clarifies several legal principles regarding compliance with information notices and the implications of an alleged void trust in such a context.

Key Facts

The crux of the case revolves around HMRC’s imposition of a £300 penalty on Mr. Andrew James Wilson for his failure to produce information and documents related to his tax return, particularly concerning the use of a disguised remuneration trust. HMRC requested these documents under Schedule 36 of the Finance Act 2008.

Mr. Wilson appealed the £300 penalty, claiming the related trust was void ab initio (from the outset), and hence, his tax return did not need to include information about disguised remuneration loans. The key events proceed as follows:

  • HMRC opened an inquiry into Wilson’s tax return to determine the inclusion of a loan charge.
  • Wilson was approached with a “Sunrise solution” to address concerns over a tax charge on outstanding loans from remuneration trusts.
  • Following the Sunrise solution, loans were hypothecated.
  • HMRC served a Notice under Schedule 36 requiring Wilson to submit the requested information.
  • After failing to comply with the Notice, Wilson was penalized, which he subsequently appealed on the grounds, among others, that the trust was void and therefore all such requested documentation was also void.

Several pivotal legal principles were scrutinized during the proceedings:

Challenge to Notices under Schedule 36

The tribunal underscored that a Schedule 36 notice compels a taxpayer to produce documents or information if it’s “reasonably required” for checking their tax position. If appealed, HMRC must prove the notice was justified.

Settled Notices and Formal Settlements

HMRC argued that the legality of their information notice was affirmed following a review and, as no appeal was raised to the Tribunal, under Sections 49F(2) and 54 TMA, it became a formal settlement.

Validity of Trusts and Irrelevance in Compliance

A central debate was whether the supposed void status of the trust affected the request for documentation. The Tribunal concluded that the validity of the trust was irrelevant to the requirements of furnishing requested information under Schedule 36.

Reasonable Excuse

Drawing from Christine Perrin v HMRC [2018] UKUT 156 (TCC) and William Archer v HMRC [2023] EWCA CIV 626, for a reasonable excuse defense, an objective evaluation of the facts leading up to the default and subsequent steps is necessary. The Tribunal held that Wilson’s reasonable excuse appeal did not align chronologically with the Notice.

Jurisdiction Limits and Tribunal Overreach

The Tribunal cited PML Accounting Ltd v HMRC [2017] EWHC 733 (Admin) for its lack of jurisdiction to critique the validity of a Schedule 36 notice. Relatedly, issues such as the validity of AILRT were deemed extraneous to proceedings.

Outcomes

The application to stay proceedings was refused, with the Tribunal concluding that Wilson’s case did not establish grounds for the invalidation of the Schedule 36 Notice or the penalty. The judgment delineates the boundary between the perceived legal status of a trust and the powers of HMRC to procure information required for tax assessment.

Conclusion

This case reinforces the premise that taxpayers must comply with the requirements set forth by HMRC notices, irrespective of peripheral legal disputes about the nature of underlying entities, such as trusts. The Tribunal’s decision emphasizes that the validity of HMRC’s notice, once settled after the review, stands, and appeals to Tribunal are procedurally bound within this context. Moreover, the Tribunal’s refusal to grant a stay illustrates the necessity for taxpayers to substantiate claims of a reasonable excuse in concurrence with their obligation to comply with notices.

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