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	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Qubic Tax Ltd, R (On the Application Of) v Revenue And Customs [2025] EWHC 830 (Admin) (04 April 2025) URL: https://www.bailii.org/ew/cases/EWHC/Admin/2025/830.html Cite as: [2025] EWHC 830 (Admin)

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IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		04/04/2025

Mr Justice Morris:

Introduction

1. This is a renewed application for permission to apply for judicial review of the decision of the Commissioners for His Majesty's Revenue and Customs ("HMRC") on 20 January 2016 to issue Accelerated Payment Notices ("the APNs") addressed to Qubic Tax Limited ("the Claimant").
2. By its claim the Claimant seeks judicial review of the APNs issued to it pursuant to Chapter 3, Part IV, Finance Act 2014 ("FA 2014") in respect of income tax and pursuant to Part I, Schedule 2, National Insurance Contributions Act 2015 in respect of national insurance contributions ("NICs").
3. The case has a long procedural history which I do not recite. Suffice it to say, that there are now three remaining grounds of review, namely grounds 6, 7 and 10.

Factual background

4. The Claimant is a company carrying on business as tax consultants. Mr D.M. Graham is, and was at material times, its managing director. The arrangements, the subject of these proceedings, ("the Arrangements") involve an employee benefit trust ("EBT") for the purposes of avoiding corporation tax i.e. to obtain a corporation tax deduction in relation to contributions made by the Claimant to the EBT. Initial small contributions were made at the end of March 2009 and in early April 2009. Later in April 2009 (and after the end of the tax year) a contribution of £900,000 was made to the sub-fund of the trust. Mr Graham has provided witness statements in which he sets out the purpose and nature of the Arrangements.
5. Earlier, in May 2008, the Claimant disclosed to HMRC similar arrangements in relation to clients of the firm in a form describing the arrangements and explaining how they do not fall within what was then Schedule 24 Finance Act 2003 ("FA 2003") (and is now sections 1290-1292 Corporation Tax Act 2009 ("CTA 2009")). The arrangements notified in this form were allocated by HMRC a reference number (76517170). The Claimant did not make a separate disclosure when it undertook the Arrangements.
6. In its tax return for the accounting period ended 31 March 2009, the Claimant disclosed, as a notifiable arrangement under sections 308, 309 and 310 Finance Act 2004 ("FA 2004"), under the heading "Disclosable tax avoidance schemes", scheme reference number 76517170 and stated that the "accounting period in which the expected advantage arises" was "28.2.2009" and included the reference number 76517170. The tax return was accompanied by a copy of the Claimant's accounts for the period 15 January 2008 to 31 March 2009 and its corporation tax computation for the period 1 March 2008 to 31 March 2009, in which the Claimant disclosed the Arrangements and the appointment of £900,000 to the sub-trust. Mr Graham asserts, in his evidence, that the Claimant did not have any obligation to disclose a scheme reference number to HMRC in relation to the Arrangements. The reference number was included only to assist HMRC to understand the Arrangements.
7. On 7 March 2013, HMRC issued, for the period ending 5 April 2009, to the Claimant a determination under regulation 80 of Income Tax (Pay as You Earn) Regulations 2003, for payment of PAYE of £358,972.40 ("the Determination") and a decision under section 8 of the Social Security Contributions (Transfer of Functions) Act 1999 for payment of NICs in the net sum of £124,634 ("the Decision"). These were stated to be in respect of the awards made by the company to the employees under the EBT Scheme. By letter dated 15 March 2013 the Claimant gave notice of appeal in relation to the Determination and the Decision. The letter stated that the "grounds for appeal are that there is no further tax payable" in respect of the EBT Scheme reference 76517170, and requested "a full postponement of PAYE and NICs in accordance with the Determination and Decision for the same reason."
8. On 20 January 2016 HMRC issued the two APNs in respect of PAYE and NIC for the period ended 5 April 2009, in the amounts set out above. In each case payment was stated to be due on 22 April 2016. The APN in respect of PAYE stated that the "The accelerated payment is the amount of "the disputed tax" as defined by section 221(3) FA 2014. The disputed tax is the amount of the charge to tax in accordance with our view of the effect of DOTAS arrangements" and "The figure charged for the APN reflects the amount under appeal in relation to the PAYE IT determination of £358,972.40". The APN in respect of the NIC amount was in similar terms.
9. On 18 April 2016 the Claimant made representations to HMRC seeking the withdrawal of the APNs and/or their reduction to nil.

The proceedings to date

10. On 20 April 2016 the present proceedings were commenced. On 8 June 2016 HMRC filed its Summary Grounds of Defence. By letter dated 20 July 2016 HMRC responded to the Claimant's representations dated 18 April 2016, and in particular sought to explain why the relevant payment should be treated as earnings of a particular employee.
11. In September 2016 Simler J refused permission to apply for judicial review on certain of the grounds initially advanced, and adjourned the application in respect of other grounds, pending the determination of the Court of Appeal in the case of R(Rowe) v HMRC. Following the handing down of judgment in that case in December 2017, in March 2018 the Claimant's then solicitors asked for the renewal hearing to be fixed. The matter was then left in abeyance for a further period of time (in large part awaiting the outcome of another case, Sheiling Properties v HMRC, which finally concluded in August 2022 with the refusal of permission to appeal by the Supreme Court.)

The Grounds in summary

12. In summary the three remaining grounds of challenge are as follows.

• Ground 6: The APNs are illegal/ultra vires as Condition B in section 219(3) FA 2014 was not satisfied, as the "asserted advantage" concerned only corporation tax and the APNs were issued in respect of income tax and NICs.

• Ground 7: The APNs are illegal/ultra vires as Condition C in section 219(4) FA 2014 was not satisfied, as in respect of the Arrangements, there was no "client" and the Claimant was not a "promoter" within the meaning of those terms in Regulation 10(2)(a) and (b) of the Tax Avoidance Schemes (Prescribed Description of Arrangements) Regulations 2006 ("the 2006 Regulations").

• Ground 10: The HMRC's decision to issue the APNs in relation to these particular arrangements is unreasonable and irrational. HMRC's position is exceedingly weak since they appear to have issued the Determination and Decision in relation to the wrong tax year. (Two other reasons put forward in the Statement of Grounds as the basis for the alleged irrationality under this Ground were not pursued at the oral hearing before me).

Relevant statutory background

13. There are three main statutory regimes relevant to the claim. First, arrangement for deductions for corporation tax, covered by Schedule 24 FA 2003 and subsequently re-enacted in sections 1290 to 1292 CTA 2009. Secondly, provisions relating to disclosable tax avoidance schemes under FA 2004. I refer in particular to sections 306 to 312 FA 2004 and Regulations 5(2)(e) and 10 of the 2006 Regulations. Thirdly, the regime for accelerated payment notices (APNs) under FA 2014. I refer in particular to sections 201, 219(1), (3), (4)(b) and (5), 220(5)(b), 221(2) and (3) FA 2014. I also refer to sections 18(1) and 686 Income Tax (Earnings and Pensions) Act 2003 ("ITEPA") which determine the point in time when earnings are treated as received.

Discussion

14. After hearing substantial and complex argument, I have decided to grant permission on all three grounds. In the following paragraphs I set out, in outline only, the rival contentions, and make brief observations. I express no concluded view on the merits of the competing arguments.

Ground 6: Condition B in section 219(3) FA 2014

15. By Ground 6, the Claimant contends that Condition B is not satisfied. It submits that the relevant tax advantage is a corporation tax advantage and not a PAYE or NIC advantage. In oral argument, Mr Avient appeared to accept that "the asserted advantage" (as that term appears in section 219(3) FA 2014) is non-liability to PAYE and NIC, but submitted that that advantage did not "result from" the Arrangements (within the meaning of section 219(3) FA 2014). The Arrangements were nothing to do with avoiding the payment of PAYE/NIC. Further, the Claimant contends that, in view of the fact that the £900,000 contribution post-dated 5 April 2009, there was no legal basis for HMRC to assert that that sum constituted earnings for the period ended 5 April 2009 and thus the designated officer must have acted unreasonably in determining "the amount required to ensure the counteraction" of "the denied advantage" under section 221(3) FA 2014.
16. HMRC submits, in summary, that the Arrangements sought to achieve what Schedule 24 did not permit. A corporation tax deduction without income tax and NIC charges. Income tax and NIC advantages were "particular tax advantages" resulting from the "particular arrangements." Absent the Arrangements, the corporation tax deduction is only allowed if there is also an income tax liability; with the Arrangements, the Claimant asserts that the corporation tax deduction is obtained without the income tax liability. It follows that the Arrangements give the Claimant a corporation tax deduction without an income tax liability.
17. In my judgment, Ground 6 is arguable. It is arguable that, whilst the corporation tax deduction resulted from the Arrangements, the non-liability to income tax did not "result from" the Arrangements, but rather was the reason for and/or cause of the Arrangements having been concluded in the first place. Moreover, the further argument on this ground relating to the timing of the contribution to the sub-trust is closely linked to Ground 10, which ground I consider to be arguable (see below).

Ground 7: Condition C in section 219(4) FA 2014

18. By Ground 7, the Claimant contends that Condition C in section 219(4)(b) and (5) FA 2014 is not satisfied as the Claimant was not a "promoter" of the Arrangements (and equally there was no "client") in respect of the Arrangements. This is determined by whether arrangements are notifiable arrangements for the purposes of section 306(1) FA 2004. To be notifiable arrangements it is necessary for them to fall within a relevant description prescribed by the Treasury in the 2006 Regulations. For descriptions 1 and 4-6 of the "prescribed arrangements" in the 2006 Regulations, a promoter (as defined in section 307 FA 2004) is required. However the Arrangements were being used by the Claimant "in-house" and there was no promoter. It follows that descriptions 1 and 4-6 had no application to the Arrangements. The Claimant accepts that initially when notified in 2008, it was a standardised tax product ("STP") and the Claimant was the promoter. However by the time the Claimant itself used the documentation for its own benefit, it was not a promoter. Accordingly, the Arrangements did not fall within the description of any prescribed arrangement within the 2006 Regulations and therefore were not notifiable arrangements. It follows that none of the other requirements in section 219(4) FA 2014 were met and at the time of the issue of the APNs Condition C was not met in respect of the contribution of £900,000 to the EBT.
19. HMRC contends that the Arrangements were "DOTAS arrangements", as the statutory conditions in section 219(5)(b) FA 2014 are met, because the Claimant itself notified HMRC that the Arrangements were notifiable and there is no relevant requirement for the Claimant to have been a promoter, such that Condition C is satisfied. There is no need to notify an arrangement on each subsequent occasion that it is implemented. HMRC points out that it has issued a scheme reference number for the arrangements pursuant to section 311 FA 2004. That scheme reference number was allocated following disclosure of the arrangements to HMRC in 2008 by the Claimant. The Arrangements correspond to the arrangements described in the Claimant's 2008 scheme disclosure. Further the Claimant's own corporation tax return for the period ending 31 March 2009 included the scheme reference number for the scheme disclosed in 2008 for the Arrangements. Whilst the STP hallmark is predicated on there having been a promoter of the arrangements, once the terms of the STP hallmark have been satisfied, the arrangements remain arrangements of a prescribed description, even if they are later implemented by a person (who is a promoter in relation to those arrangements implemented by the promoter's clients) acting in its capacity as a taxpayer and not then acting as a promoter. The STP hallmark is concerned with the character of the arrangements, rather than the identity of the user.
20. In my judgment, whilst it is the weakest of the three grounds, Ground 7 is arguable. First, it is arguable that HMRC's argument that there is no need to notify each time an STP is implemented is not correct and that there is such an obligation to notify each time, when there is a promoter and client (as those terms are defined in the legislation). If this is correct, then in the present case, as far as the Arrangements are concerned, since the Claimant was not acting as promoter, they would not have been a notifiable arrangement. Secondly, the fact of earlier notification in May 2008 (relied upon by HMRC) is not definitive of whether the Arrangements were "notifiable" for the purposes of section 306(1) FA 2004: see R (Carlton) v HMRC [2018] EWHC 130 (Admin) [2018] STC 589 at §64.

Ground 10: Irrationality

21. The Claimant contends that the decision to issue the APNs was irrational. HMRC stated that at the time the funds were allocated to the employee or his/her beneficiaries those funds became earnings on which PAYE and NIC were due. That being the case, the obligation to account for PAYE and NIC could not have arisen in the period to 5 April 2009 in respect of the contribution of £900,000 to the EBT. HMRC's position in its skeleton argument that it is sufficient for the amount of the contribution to the EBT to have been determined before the end of the accounting period represents a change of position. Section 221(3) FA 2014 requires the designated officer to determine the disputed tax to the best of their information and belief. Given there is no basis for the £900,000 contribution giving rise to a liability for PAYE or NIC in respect of earnings payable to Mr Graham in the period 2008/2009, the decision of the designated officer to use their discretion to issue the APNs must necessarily have been unreasonable and irrational.
22. HMRC contends, that sections 18 and 686 ITEPA set out rules which determine the point in time when a company director's earnings can be treated as having been received. HMRC understands, from their experience of how other users of the scheme have implemented the arrangements, that it is normal for the amount of the contribution to the EBT to have been "determined" before the end of the accounting period. Mr Graham's second witness statement in support of the Claimant's case that the asserted advantage arose later, in 2009/2010, is inconsistent with the Claimant's corporation tax return for the accounting period ending 31 March 2009, signed by Mr Graham, where the advantage was said to arise in the period ending 28 February 2009. This is a matter which is likely to have to be tested in cross-examination and it is not suitable for determination judicial review. It can be addressed in an FTT appeal. On this basis permission should be refused as there is a suitable alternative remedy.
23. In my judgment, ground 10 is arguable. First, it is arguable that at the time of the APNs, and applying HMRC's rule and/or policy and on the basis of the facts as then known, it was irrational for the designated officer to have concluded that the £900,000 was chargeable to PAYE and NIC in the tax year to 5 April 2009. There is some arguable doubt as to the basis upon which HMRC so concluded. There is also potential inconsistency in the Claimant's conduct at the time. HMRC accepts that this might require resolving through cross-examination. Secondly, an appeal to the FTT is arguably not a suitable alternative remedy for the claim that the APNs were irrational. An appeal to the FTT will not resolve the possibility that the Claimant will be liable for penalties for non-payment of the APNs, unless the Claimant can establish its challenge to the APNs on this Ground 10.

Conclusion

24. For the foregoing reasons, I grant permission to apply for judicial review on each of Grounds 6, 7 and 10. I will hear the parties on the terms of the order, including directions for the further conduct of the proceedings. In particular Ground 10 gives rise to issues of disputed fact, and there may need to be directions to resolve those issues, including, possibly, directions for limited disclosure and for cross-examination.