FTT decision defines DOTAS scheme ‘promoter’
A First Tier Tribunal (FTT) has refused an unusual application by HMRC for an order that a scheme included ‘notifiable’ arrangements under disclosure of tax avoidance schemes (DOTAS) rules, on the grounds that the adviser who provided administration services for the scheme was not a promoter, as HMRC claimed, under the terms of the legislation
12 Feb 2019
The case concerned Curzon Capital Ltd (CCL), which was described at the tribunal as a ‘small corporate finance adviser’, which had ‘never provided tax advisory services in the normal sense of that phrase.’ [The Commissioners for Her Majesty’s Revenue and Customs and Curzon Capital Ltd, TC06949].
In 2011 CCL was asked by a third party to provide administration services for a set of arrangements, to be called ‘Capital Contracts’, which was known to HMRC as a ‘contractor scheme’ or a ‘contractor loan scheme’.
CCL was contracted by the scheme designer to carry out various administrative tasks delegated to it in accordance with detailed instructions it would receive, such as liaising with new participants, dealing with invoices, operating bank accounts and distributing information to the participants to enable them to complete their tax returns.
HMRC applied to the FTT for an order that certain specified arrangements were ‘notifiable’ arrangements for DOTAS purposes under FA 2004, s306 or, in the alternative that the arrangements were to be treated as notifiable under FA 2004, s306A.
The FTT agreed the arrangements fell within the definition of ‘arrangements’ under DOTAS rules, on the basis they comprised a scheme, transaction or series of transactions designed to enable someone to obtain an advantage in relation to income tax, and the main benefit from the arrangements was the obtaining of that advantage.
In coming to this conclusion, the tribunal looked at the ‘premium fee’ and the ‘standardised tax product’ descriptions in the regulations.
The FTT found that it was irrelevant that CCL did not itself obtain a premium fee. The general presentation of the arrangements, including the level of detail provided and their endorsement by specialist leading counsel as ‘a very neat and cleverly worked variant’ of previous schemes, meant they were clearly directed to the serious potential scheme user and, as such, it would have been reasonable to expect that a premium fee would be obtainable. Therefore, the arrangements fell within the premium fee description and accordingly within FA 2004, s306(1)(a) and therefore the arrangements were notifiable.
The FTT also considered that the arrangements fell within the standardised tax product definition as they had standardised, or substantially standardised, documentation, and the client had to enter into a specific transaction or series of transactions which were standardised, or substantially standardised in form.
The FTT then considered whether CCL was a promoter under FA 2004, s307. The tribunal found that CCL did act in the course of a relevant business being any trade, profession or business which involved the provision to other persons of services relating to taxation. This was because the FTT found ‘services relating to taxation’ to be ‘sufficiently broad in meaning to cover the activity of administering a tax avoidance scheme, even when doing so without any clear knowledge of the detailed way in which it is intended to work’.
However, the FTT found that although CCL made contacts amounting to ‘firm approaches’ as CCL was reliant on the scheme designer to make the arrangements available CCL was not a promoter. This was in accordance with FA 2004, s307(1)(a)(ii) and highlighted by HMRC’s DOTAS guidance at 3.6.3.
As a result, the FTT accordingly refused HMRC’s application. This was because an order, whether under section 314A or section 306A should only be made if HMRC have correctly identified a promoter as ‘the promoter’ in their application. As HMRC had incorrectly identified CCL as such, it followed that the application must be refused, both in relation to section 314A and in relation to section 306A.
Meg Wilson, senior technical tax writer at Croner-i, said: ‘This is the first tribunal decision which has considered the meaning of “promoter” under the DOTAS regime.
‘The company was found not to be a “promoter” because while it made “firm approaches” to IFAs about a notifiable scheme it was not able to actually provide the scheme itself, as is required by FA 2004, s307(1)(a)(ii).’
Report by Pat Sweet