Case: Appeal against Schedule 36 notice for information relating to a tax avoidance scheme

[2018] UKFTT 0231 (TC)

Judge Victoria Nicholl

Decision released 23 April 2018

Corporation tax – Appeal against FA 2008, Sch. 36, para. 1 information notice – Burden of proof - Whether reasonably required – ITTOIA 2005, s. 625 - ITTOIA 2005, s. 624 – ITEPA 2003, s. 716 - R v IR Commrs, ex parte TC Coombs & Co [1991] BTC 89 (‘Coombs’) - R (on the application of Derrin Brother Properties Ltd) v R & C Commrs [2014] BTC 21 - Gold Nuts Ltd [2017] TC 05828 – Thompson [2013] TC 02521 – New Way Cleaning Ltd [2017] TC 05769 – Phillipou [2017] TC 05586 – Codexe Ltd [2017] TC 06014.

Cliftonville Consultancy Ltd [2018] TC 06464


The appeal was against an information notice issued by HMRC on 13 May 2016 under para. 1 of Sch. 36 to the FA 2008. The case was a lead appeal under r. 5(3)(b) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (‘Tribunal Rules’).

The Appellant had used a tax avoidance scheme which was disclosed by RSM Tenon Group plc on 15 August 2011. HMRC had issued information notices to the Appellant and a number of other companies that had used the scheme.

The scheme was as follows:

(1)A UK company wished to pay a dividend and either had a subsidiary or incorporated a new one;

(2)Shares in the subsidiary were settled into an interest in possession (‘IIP’) trust for the benefit of the parent company’s shareholders;

(3)The parent retained an interest under ITTOIA 2005, s. 625;

(4)If subsidiary had been incorporated, the parent would inject cash equal to the intended dividend;

(5)The dividend was paid by way of a new share subscription into mainly share premium;

(6)The share premium account was subsequently cancelled, and the reserves transferred to distributable reserves. If an existing subsidiary had sufficient reserves this step was unnecessary;

(7)A dividend paid by the subsidiary to the IIP trusts was passed to the shareholders under the terms of the trust;

(8)Section 624 ITTOIA 2005 treated the income as that of the parent company. The dividend was considered not to be taxed under any other provision due to the protection of ITEPA 2003, s. 716.

HMRC had identified that the Appellant had implemented a scheme from a note in the accounts. An enquiry was opened on 4 March 2016 and made an informal request for information. An information notice under was issued on 13 May 2016. The notices were appealed.

The condition for the issue of an information notice is that the officer reasonably requires the information or a document for the purpose of checking the tax position. The FTT considered the burden of proof and what is ‘reasonably required’ for the purposes of checking the tax position.

The FTT confirmed with reference to previous cases that the onus of proof to an appeal against an information notice lies with HMRC. If the notice specifies statutory records within the taxpayer's possession or power the burden shifts to the taxpayer to demonstrate the reason that information or document cannot be produced.

A third-party notice may not be given without the agreement of the taxpayer or the approval of the tribunal. Where the tribunal’s opinion is obtained for a third-party notice, the burden shifts to the appellant on an application for judicial review. Where approval is not sought, HMRC must establish what is reasonably required for the purpose of checking the tax position, the onus is then on the appellant on the grounds of its appeal.

The FTT found that:

Information relating to whether the company had considered its duty to provide the reference number to any other person was not reasonably required.

Information of the dates, amounts invested, and details of the shares acquired were reasonably required.

The identity of the trustee was not required for checking the company’s corporation tax position although a copy of the IIP trust deed was a reasonable request.

Beneficiary’s personal information did not relate to the corporation tax position although HMRC. The notice was varied to require whether company was a beneficiary and the link between company and other beneficiaries.

Whether the company was liable to operate PAYE was reasonably required to check the corporation tax position.

Information relating to company liabilities, including guarantees was reasonably required. The request was limited to information to guarantees given in connection to the scheme.

Key legal documents used to give effect to the transactions were reasonably required.

The engagement letter was not required unless the company claimed a deduction for the fees.

Whilst advice did not determine a company’s tax position, it was reasonably required because it assisted HMRC to consider the nature and purpose of the expenditure and payments made and because it was addressed to the company.

Board minutes considering investment in subsidiary and the establishment of IIP trust as well as the subsidiaries resolution to pay the dividends and all correspondence between the company and its officers/shareholders relating to the implementation of the scheme were reasonably required.

Copies of all correspondence between the company or its officers and the Trustees, the promoter or their agent, the company in which the investment was made was reasonably required unless legal privilege could have been claimed.

Bank statements and evidence of payments were reasonably required although the banks statements of the beneficiary were not required to check the company’s tax position.

The request for employment information was amended to where there was a change to the employment terms of directors and/or beneficiaries of the Trust involved in the arrangement.


The decision demonstrates the requirement of information to permit HMRC to understand the transactions involved with schematic planning. Whilst the information requested may have impacted on liabilities to other taxes (PAYE), it was mainly still relevant for determining the corporation tax position.

For commentary on HMRC Information powers, see the Direct Tax Reporter at ¶186-550.

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