fbpx Skip to main content

Overview of Tax Adviser At The Tax Tribunal

Get strapped in securely for this HMRC Tax Information Notice rollercoaster, involving a tax adviser at the Tax Tribunal.

Health And Safety Notice

Before we take flight in respect of Revenue and Customs v AML Tax (UK) Limited [2022] UKUT 81 (TCC), take note:

  • This ride is for adults only.
  • Leave all loose items behind as it may get a little bumpy.
  • Not recommended for panic prone passengers.

Final Checks

As with all rollercoasters, this one should keep you right on the edge of your seat, nevertheless please ensure you stay in it, taking full and careful note of the disclaimer at the end of this article as no liability is accepted. Ride on entirely at your own risk.

Here we go.

Revenue and Customs v AML Tax (UK) Limited

As we set off, it is perhaps ironic that the leading protagonist appears to have lent his name to an organisation that claimed to offer expertise in respect of compliance with HMRC Tax Information Notices.

AML Tax (UK) Limited (“AML”) is a company operated by Director Arthur Lancaster and was involved in providing services in connection with various tax avoidance structures to UK resident taxpayers.

AML has not according to its Companies House filing history filed accounts since 30 December 2017.

The AML Companies

AML was associated with a number of companies in the Isle of Man, which along with AML are held by various trusts. This group of companies was referred to as the Knox Group.

Was AML Operating A Tax Avoidance Scheme?

A dispute between AML and HMRC arose as to whether AML was involved in the operation of a tax avoidance scheme. However, it appears that it was later accepted by September 2021 that AML was operating annuity planning arrangements and the tribunal said:

Overall, the evidence in relation to these critical aspects of AML’s activities has been inconsistent and seriously misleading.

Witness Evidence At The Tax Tribunal

Mr Preston appeared for HMRC and the Tax Tribunal ticked him off saying he was reliable.

Whilst not crossing out Mr Lancester’s evidence the Tribunal did not really give him a glowing report. This was running theme looping through this Judgment:

In contrast, we have real concerns as to the reliability of Mr Lancaster’s evidence. His witness statements and oral evidence contained significant inconsistencies, either acknowledged by him or in light of the documentary evidence. His evidence did not contain any clear and straightforward description of AML’s business and its activities. For example, even now we have little evidence as to who AML’s employees were during 2015 and what their roles were in the business. There is a similar lack of evidence in relation to the Isle of Man companies. It is notable how much relevant evidence was adduced by Mr Lancaster in cross examination when it ought to have appeared in his witness statements. Overall, we were left with the impression that Mr Lancaster was evasive, providing as little evidence as possible and that he did not wish to volunteer anything more than he considered necessary. As a result, it seems to us that the evidence Mr Lancaster gave in his witness statements and orally was confused, lacking in candour, in some respects incorrect and littered with inconsistencies. We describe such instances in detail below.We make no observation as to why Mr Lancaster’s evidence might have been so unreliable. It may be because of the passage of time, a lack of involvement in detail or for some other reason. We hasten to add that HMRC made no allegation of dishonesty against Mr Lancaster and we make no findings in this respect. Further, we do not discount the entirety of Mr Lancaster’s evidence but where it is not supported by the documentary evidence we treat it with considerable caution.

HMRC Tax Enquiries Of The Tax Adviser Company

Tax enquiries for the accounting periods ending 31 December 2014 and 31 December 2015 were opened and it seems certain records requested were not provided to HMRC.

The enquiries appear to have been related to checking the arms-length nature of associated company transactions involving AML.

A Mr Horler appears to have been instructed to assist AML deal with the HMRC tax enquiries.

Some information was provided but it seems that a computer problem sprouted and other information was not:

On 11 December 2019, Mr Horler provided a box containing 5 ring binders of documents purportedly in compliance with the Information Notice. A covering letter dated 6 December 2019 described the contents of the box which included bank statements, purchase records and a list of sales invoices. It stated that day books and cash and bank books were not maintained, and that payroll records and sales invoices were no longer available. In relation to sales invoices the letter said as follows:

“Sales invoices – these were prepared by the sales staff, and details were sent to accounts. If copies were kept by the sales staff these are no longer available as all such records are routinely deleted for data protection reasons once the individual staff member leaves the business. We have enclosed a listing of all sales and recharges made in the year.”

The Tribunal was not readily impressed with this position and said:

111. We have considerable doubts concerning the reliability of the evidence as to why certain documents and information required by the Information Notice have still not been provided. For example, we have recorded above what Mr Horler said in his letter dated 6 December 2019 about sales invoices.

112. We struggle to see why sales invoices should be routinely destroyed for data protection purposes and Mr Lancaster said he did not understand why Mr Horler might have been told that the sales invoices had been destroyed for that reason. Mr Lancaster understood that there had been a “computer failure” but he did not know the reason for that. Whatever the computer issue was, Mr Lancaster said that it only affected the 2015 records. Again, it was not clear why that should be the case.

117. It is clear that not all documents required by the Information Notice were provided by AML. There was belated partial compliance in December 2019. But even then, not all documents in the possession or control of AML were provided. In particular, a nominal ledger and trial balance were subsequently provided in August 2021.

124. We consider that there is an evidential burden on AML to establish that it has complied with the Information Notice. It should be able to demonstrate why basic statutory records have not been produced. We cannot be satisfied even now that AML has complied with the Information Notice. Mr Lancaster’s evidence is not reliable and we cannot accept his explanations at face value. There is no documentary evidence whatsoever of any requests by Mr Lancaster to anyone in the Isle of Man in connection with the documents required by the Information Notice. The absence of such evidence is remarkable in a case where the failure to produce can have such serious implications, both for HMRC’s ability to properly conduct their enquiry and for AML in terms of potential penalties for breach of the Information Notice. Those implications would have been known to AML given the technical qualifications and expertise of Mr Lancaster and Mr Horler.

Jeopardy Amendments Of The HMRC Tax Adviser

The purpose behind a jeopardy amendment is to protect the position for HMRC whilst a Tax Enquiry develops.

Jeopardy amendments are similar to discovery assessments and issued prior to the end of an HMRC tax enquiry when HMRC consider a likely loss to the Crown could arise. In this case, these were not for small sums: £1,6661,772.39 for 2014 and £1,620,425.55 for 2015. AML appealed them, and with HMRC’s agreement, the tax was postponed pending the outcome.

HMRC Tax Information Notice Penalty

HMRC can request information from the taxpayer to check its tax returns. These are unremarkably known as HMRC Tax Information Notices.

When AML failed to supply information in a Tax Information Notice on 30 April 2018, HMRC issued a penalty notice of £300 pursuant to paragraph 39 of Schedule 36 of the Finance Act 2008. This was appealed by AML on 20 May 2018.

Daily penalties can sprout upon further compliance failures at up to £60 per day. HMRC can also under paragraph 50 apply to the Upper Tribunal to impose additional penalties for information compliance failures.

AML said there was no tax risk and HMRC in a nutshell had gotten matters wrong.

Delegation By AML Of The HMRC Tax Information Notice

However, notwithstanding AML’s position, the Tax Tribunal said Mr Lancaster’s delegation of compliance with the HMRC Information Notice was an unsatisfactory position to adopt without proper oversight. It said that the burden was on AML to show it had complied with the same and in fact, this was not a position that the Tax Tribunal accepted had necessarily happened.

The position of AML in respect of responding properly to the Information Notice was not seemingly assisted by the fact that Mr Lancaster had given his name to one of the AML entities (Lancaster Knox) that offered expertise in dealing with HMRC Tax Information Notices. Given that background, the Tax Tribunal asserted AML could not excuse itself from properly dealing with the HMRC Information Notice in such circumstances.

Strike Off Of AML

On 13 March 2019, Mr Lancaster lodged a strike-off notification to Companies House.

In an email from Mr Horler to Mr Lancaster on 15 November 2019, the following was said:

You may recall that you mentioned some time ago a penalty hearing at the Tribunal. That hearing is actually on Monday 18 November. I have simply been ignoring the issue on the grounds that the company would go into liquidation and it would become someone else’s problem. That is clearly not going to be the case.

The Tax Tribunal inferred from that email that part of AML’s strategy to “defeat” the HMRC Tax Information Notice was Liquidation. It was noted as being unclear as to whether there was a connection between the proposed dissolution and Liquidation from that email.

However, the problem is that in order to dissolve a company you must provide notice to all unpaid (including disputed) creditors. In this case, what Mr Lancaster conveyed to the Tax Tribunal was interesting:

Mr Lancaster said that he understood it was common practice to simply lodge the form and that notice would automatically be given to HMRC by Companies House. The striking off would therefore not take place until HMRC were in agreement that it should. We do not accept that evidence at face value. Whatever Mr Lancaster’s understanding, in circumstances where HMRC had issued jeopardy amendments and the enquiry was ongoing Mr Lancaster should not have applied to have the company struck off and in so doing failed to notify HMRC. It is an aggravating factor in the context of this application.

Tax Tribunal’s Assessment

Information Notice Compliance

The success or failure of HMRC’s application to the Tax Tribunal meant it had to show that it was reasonable for HMRC to consider non-compliance with the Information Notice meant tax was at risk.

The Tax Tribunal did not camouflage its view with euphemistic terminology, that it was satisfied that Mr Preson (the HMRC Inspector) did indeed believe that as a result of AML’s failure to comply with the HMRC Tax Information Notice, it was likely to have paid less tax than it should have done. It was “completely” satisfied.

The Tax Tribunal did not appear overly impressed with the notion that a failure to provide information did not give rise to tax being at risk. Why? Well, it seems because the information would be required to enable HMRC to check the tax returns. Without such information, the same could not be properly checked meaning that:

… the true tax payable will often be an uncertain amount if there has been a failure to provide the necessary information, as recognised by the Court of Appeal in Tager CA.

The HMRC Tax Jeopardy Amendment

It was suggested that as a result of the jeopardy amendment that tax could not be at risk ie. because of its issuance. However, the Tax Tribunal belted this submission right out of the park. It said the jeopardy amendment concerned the risk of default in paying tax whereas the penalty (which was what the matter to be decided by the Tribunal) related to the continual failure to cooperate fully with an Information Notice.

Considerations For An Additional Penalty

Following the rationale in the matter of Target Group Ltd v Her Majesty’s Revenue And Customs [2021] EWCA Civ 1043 at [88], the Tribunal considered the following points:

  • reasons for non-compliance;
  • the extent to which non-compliance had been remedied;
  • the gravity and duration of non-compliance;
  • existence of aggravating or mitigating factors;
  • other options available to HMRC to recover tax at risk;
  • need for a fair and proportionate outcome;
  • regard for public interest and the public purse.

The Last Loop

The Tax Tribunal noted a series of aggravating factors in this case as follows:

  • AML attempted partial compliance with the information notice.
  • Mr Lancaster did not accept responsibility for numerous misleading, incomplete and inconsistent statements.
  • The duration of the non-compliance period with the Information Notice was such that the Tax Tribunal was uncertain if compliance had been forthcoming.
  • Statutory records were required and mandatory.
  • The tax and accounting expertise of Mr Lancaster and Mr Horler and the AML group with Lancaster Knox claims to Information Notice expertise.
  • The unsatisfactory and unhelpful nature of a lot of Mr Lancaster’s evidence.
  • The attempted strike-off of AML.
  • Important underlying records were routinely destroyed.

At The Finishing Gate

The Tax Tribunal powerfully dealt with the seemingly attractive submissions of Counsel for AML, highlighting the circular looping proposition put to it that the tax at risk had to be identified before a penalty could be imposed:

Such a construction of paragraph 50(3) would incentivise a taxpayer to provide no information at all so that no amount of tax could as a practical matter be identified. In such a situation, we consider that an inability to quantify tax at risk would go to quantum and not the Tribunal’s ability properly to impose a penalty of some amount.

In highlighting the vacuum caused by AML’s apparent conceivably continued failure to comply with the HMRC Tax Information Notice, the Tax Tribunal said:

… we take the view that the tax at risk is not less than £100,000. At the other end of the spectrum, the tax at risk would not be as much as £4m, being 20% of total group profits, because that would assume that AML carried on all the profitmaking activities of the group, entirely from the UK. It could, however, potentially be in six figures. On any view, there is a significant amount of tax at risk as a result of AML’s failure to comply with the Information Notice.

Result: Tax Adviser At The Tax Tribunal

The Tax Tribunal imposed a penalty of a huge sum of £150,000.

Can’t Pay HMRC Tax Debts?

If you can’t pay HMRC Tax Debts and you want to close down a company then we can help you with that process. We are fully licensed to enable you to consider placing a company into Creditors Voluntary Liquidation and if it is right for the circumstances. This may enable you to make a fresh start but in any event, the Liquidation can look to address the HMRC Tax Debts. Contact us for a quote and free initial confidential advice.

Disclaimer Notice: The reference to any rollercoaster in this article is entirely fictional. Its reference was purely a means of exploring ideas and providing a lively presentation. Hopefully, it was a helpful and engaging way to present the information and convey serious matters about a recent tax tribunal case. Please refer below to the further legal disclaimer.

What Next For Tax Adviser At The Tax Tribunal?

Expert Advice Is Just A Click Away

If you have any questions in relation to Tax Adviser At The Tax Tribunal – An HMRC Tax Information Notice Rollercoaster then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.

Our expertise is at your fingertips.

By submitting this form you agree with the storage and handling of your data by Oliver Elliot. For more details, please read our Privacy Policy.

Disclaimer: Tax Adviser At The Tax Tribunal – An HMRC Tax Information Notice Rollercoaster

This page Tax Adviser At The Tax Tribunal – An HMRC Tax Information Notice Rollercoaster is not legal advice and should not be relied upon as such. This article Tax Adviser At The Tax Tribunal – An HMRC Tax Information Notice Rollercoaster is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

Recent Posts / View All Posts

Elliot Green

Licensed Insolvency Practitioner & Chartered Accountant. We Know Insolvency Inside Out.