JHAB is pleased to announce that Ben Grunberger-Kirsh will be joining the firm later this year as a partner in our market leading energy, infrastructure and construction disputes group. Ben joins us from Vinson & Elkins, where was the lead lawyer on a number of that firms' very largest and most complex international construction disputes.
Ben is described in Legal 500 UK 2023 as a “star” who “is definitely rising fast. He is a wise head on young shoulders. He wins clients’ trust easily and is really coming into his own as a specialist in offshore construction disputes”. Sources also say Ben is “excellent. He is always on top of the detail – he displays creativity in terms of working out what the best points are and how to get them across. Very easy to work with” (Legal 500 UK 2022).
JHAB Presiding Partner James Bremen said "Having Ben join is consistent with our firm's strategy of identifying the very best lawyers in the areas we practice and giving them the opportunity to excel. Ben is a technically superb lawyer, a pleasure to work with and has a very strong record of being successful in his cases. As London's elite dispute resolution firm our absolute focus is on bringing the most effective and talented lawyers together to achieve exceptional outcomes for clients. Our proposition to clients and lateral partners is simply that we have the best lawyers, are conflict free and that our only interests are practising law at the very highest level and helping our clients achieve their goals."
On 19 March 2019 the Court of Appeal handed down its judgment in Christianuyi Limited & Others v HMRC [2019] EWCA 474 (Civ). The Court of Appeal upheld the decision of the Upper Tribunal (“UT”) that the Managed Service Company (“MSC”) legislation, contained in Chapter 9 Part 2 of the Income Tax (Pensions and Earnings) Act 2003 (“ITEPA”), applies to personal service companies (“PSCs”) who engage accountancy service providers.
HMRC has recently increased enforcement in this area and this insight revisits the background to Christianuyi. For an analysis of the MSC legislation see this article.
The appellants were all PSCs which were each set up by a company called Costelloe Business Services Ltd (“Costelloe”). The PSCs paid Costelloe a fee for a “standardised package of services” which Costelloe called its “Gold Business Service” (“GBS”). The GBS product included: a) providing a registered office for the PSC; b) dealing with invoicing; c) managing payroll; and d) preparing and filing annual company accounts and returns and paying Corporation Tax to HMRC.
The PSCs contracted with end clients to provide the services of an individual and charged clients fees for those services. The PSCs almost always paid the individual a combination of minimum wage salary and dividends. This resulted in higher net pay for the individual than if the payment had been treated as employment income and subject to PAYE and National Insurance Contributions (“NICs”) on the whole amount.
If the MSC legislation applies, then all payments to the individual are treated as employment income and taxed as if the individual was employed by the PSC.
The FTT
In the FTT the appellants conceded that Costello was an “MSC provider” within the meaning of section 61B(1)(d) ITEPA but maintained that Costelloe was not “involved with” the appellants within the meaning of section 61B(2) ITEPA. It was common ground between the appellants and HMRC that the other MSC requirements in section 61B(1) ITEPA were satisfied, and the appellants did not argue that the exemptions in section 61B(3) and (4) ITEPA applied.
The FTT held that Costelloe was “involved with” the appellants and dismissed the appeals on the basis that:
· Costelloe benefitted financially on an ongoing basis from the provision of the services of the individual (section 61B(2)(a) ITEPA) because: 1) Costelloe charged a percentage fee linked to payments which the PSC received; and 2) Costelloe collected interest on tax amounts deposited in separate bank accounts by Costelloe;
· Costelloe influenced or controlled the way payments to the individual were made (section 61B(2)(c) because Costelloe decided the level of salary and dividends paid to the individuals; and
· Costelloe influenced or controlled the PSC’s finances or any of its activities (section 61B(2)(d)) because: 1) Costelloe influenced which bank account the appellants used; 2) made tax deductions and collected interest on those amounts in a separate bank account; and 3) for certain periods withdrew amounts from the appellants’ accounts without proper authority.
The UT
The arguments in the UT concerned in summary: a) whether parliamentary material could be used as an aid to statutory construction; b) whether the appellants should be granted permission to resile from their admission before the FTT that Costelloe was an “MSC provider”; and c) whether Costelloe was “involved” with the appellants within the meaning of section 61B(2)(a), (c) or (d) ITEPA.
The UT held that Costelloe was “involved” with the appellants and that it was an “MSC provider” (despite granting permission for the appellants to withdraw their admission on that issue in the FTT).
The UT interpreted some parts of the MSC legislation more widely than the FTT. In particular the UT held at [81] that section 61B(2)(a) ITEPA did not require “any form of correlation or relationship between the amounts earned by the individual and the extent of the financial benefit received by the MSC provider. As long as there is a causal link between the two, the fact that one may fluctuate whilst the other does not is nothing to the point - it is a wholly irrelevant factor.” On that basis, section 61B(2)(a) would appear to be satisfied if the MSCP receives any payment from the PSC for its services which it is expected would be a factor in nearly all professional arrangements.
The Court of Appeal
By the time the case reached the Court of Appeal, the issues in dispute had been narrowed significantly. There was no argument as to whether Costelloe was “involved” with the appellants under section 61B(2) ITEPA. The only argument before the Court of Appeal concerned the interpretation of section 61B(1)(d). This argument was ultimately unsuccessful, and the taxpayers’ appeals were dismissed.
In 2007 the Managed Service Company (“MSC”) legislation, contained in Chapter 9 Part 2 of the Income Tax (Pensions and Earnings) Act 2003 (“ITEPA”), came into force.
Despite the legislation now being almost two decades old, HMRC enforcement in this area has increased in recent years. HMRC were successful in the Court of Appeal in Christianuyi Limited & Others v HMRC [2019] EWCA 474 (Civ) (“Christianuyi”) which confirmed that the MSC legislation could apply to personal service companies (“PSCs”) who engage accountancy service providers. For a summary of Christianuyi see this article.
Following Christianuyi, HMRC has been specifically targeting specialist accountancy service providers who provide accountancy advice to contractors on the basis that those businesses: (a) are Managed Service Company Providers (“MSCPs”), and (b) their PSC clients are MSCs. There are currently proceedings going through the First Tier Tax Tribunal to decide how the rules apply to those businesses. Depending on how the proceedings are decided, many more businesses could be issued with HMRC enquiry notices and significant tax assessments.
Businesses which advise and engage with PSCs should seek appropriate legal advice on their business practices now.
Directors and ex-directors of potential MSCPs should also obtain advice on their position as the tax debt of the PSCs can potentially be transferred to them personally for periods during which they were a director or “associate” of the MSCP.
Section 61B(1) ITEPA states that a “Managed Service Company” is a company which: (i) provides the services of an individual to others; (ii) pays that individual all or most of the fees it charges to those others; (iii) pays the individual in a way which increases the net amount received by the individual, as compared with what he would have received net if he had earned the fees as his employment income; and (iv) involves an MSCP in its business in one of the ways set out in section 61B(2) ITEPA.
All four MSC conditions must be met for the MSC legislation to apply.
If the PSC is deemed to be an MSC then all payments to the individual are treated as employment income and taxed as if the individual was employed by the MSC (so subject to PAYE and National Insurance Contributions on the full amount).
An MSCP is “a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals,” (section 61B(1)(d) ITEPA).
HMRC considers “promotion” to mean promoting or marketing the use of PSCs, and “facilitation” to mean “helping, making easier, enabling” (see HMRC Employment Status Manual: ESM3515 - Managed Service Companies (MSC): MSC Providers).
An MSCP is “involved with the company” (i.e. the PSC) if the MSCP or an associate of the MSCP:
· benefits financially on an ongoing basis from the provision of the services of the individual (section 61B(2)(a) ITEPA);
· influences or controls the provision of those services (section 61B(2)(b) ITEPA);
· influences or controls the way in which payments to the individual (or associates of the individual) are made (section 61B(2)(c) ITEPA);
· influences or controls the company's finances or any of its activities (section 61B(2)(d) ITEPA); or
· gives or promotes an undertaking to make good any tax loss (section 61B(2)(e) ITEPA).
Only one of the above conditions needs to be met for this section to apply.
HMRC’s position (see HMRC’s spotlight 67 on MSCs) is that the first condition is met if the alleged MSCP charges any fee for its services. It is expected that this would be a relevant factor in almost every professional arrangement.
There are two exemptions to the application of the MSC legislation:
1. Under section 61B(3) ITEPA a person does not fall within section 61B(1)(d) “merely by virtue of providing legal or accountancy services in a professional capacity.” This is aimed at preventing accountants and legal advisors who advise PSCs from being caught by the legislation; and
2. Section 61B(4) ITEPA contains an exemption for staffing businesses. For example, an employment business or agency undertaking its core business of placing work seekers (including those operating through companies) with end clients.
In broad terms, the PSC bears the risk and is responsible for paying the tax. However, under the transfer of debt regulations which apply to MSC arrangements (section 688A,
Part 11, ITEPA), if HMRC cannot recover the tax from the PSC then it can apply to transfer the debt to:
· The director, or other office holder or associate of the PSC;
· The MSCP or the director, or office holder or associate of the MSCP; or
· Any other person who directly or indirectly has encouraged or been actively involved in the provision by the PSC of the services of the individual, or a director, or other office holder or associate of such a person.
The MSCP is likely to have deeper pockets than the PSC which may not have any assets or hold any funds, or which may have been dissolved. Therefore, the MSCP faces a significant risk of the debt being transferred to the company or its directors if the PSCs are found liable for the tax.
There are strict time limits within which a transfer of debt notice must be issued by HMRC to the MSCP, and there is a right of appeal against such a notice.
We are pleased to introduce a new collaboration between MFDP, Egypt’s leading corporate and M&A law firm, and Joseph Hage Aaronson & Bremen LLP (“JHAB”), a leading international dispute resolution and arbitration powerhouse with extensive experience throughout the Middle East region.
This alliance provides market participants in Egypt with direct access to proactive top-tier international dispute avoidance and resolution specialists, coupled with a critical on-the-ground understanding of Egyptian legal nuances and business culture.
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At a time of significant growth and activity in the Egyptian market, this collaboration offers Egyptian and international clients unparalleled legal expertise to navigate complex disputes and to safeguard their commercial interests.
Please contact a member of the team to discuss how we can assist your organization to benefit from this innovative service offering.
Paragraph 5, Schedule 9 of the Finance Act 2025 inserted the emboldened wording to section 809P(12) ITA 2007 concerning the ‘re-remittance’ of foreign income and gains:
“if the amount remitted (taken together with any amount previously remitted that has been charged to tax) would otherwise exceed the amount of the income or chargeable gains, the amount remitted is limited to the amount which (when taken together with any amount previously remitted that has been charged to tax) is equal to the amount of the income or chargeable gains.”
The legislation refers to the treatment of remittances to the UK where the relevant foreign income and/or gains (“FIGs”) had previously been remitted to the UK, but not charged to tax- usually because the taxpayer was not UK resident in the remittance year and did not subsequently fall within the temporary non-residence rules.
The wording of s.809P(12) ITA 2007 prior to the FA 2025 tweak was widely accepted by the tax profession to mean that FIGs could be remitted to the UK at a time when this remittance was not taxable and that would ‘cleanse’ those FIGs such that they could be used freely in the UK thereafter- for example when the taxpayer resumed UK residence having been away for 6 years.
The addition of the emboldened wording now seems to mean that such cleansing will no longer be effective and if these income and gains are subsequently re-remitted to the UK, this later remittance may be charged to UK tax.
Of some concern is that HMRC set out their view on the FA 2025 amends in written correspondence with the CIOT stating that the amends to the legislation in fact simply reinforce/ clarify what has always been the HMRC view- that second/ subsequent remittances are only ever relieved from tax if the first occasion of the remittance had been charged to tax.
Perhaps as a result of this confusion/ conflicting views between industry experts and HMRC, a relief was introduced at Amendment 24 (“Relief for amounts remitted again on becoming UK resident”) to the Finance Act 2025 to limit the impact of the insertion of the new wording to future action only. The relief operates by treating the original remittance as having been taxed so that future re-remittances are not charged to tax. The wording of Amendment 24 possibly adds further uncertainty but the intention is to limit the retrospective impact of the FA 2025 wording.
In short going forward, relief should be available to individuals who cleansed and re-remitted funds prior to 6 April 2025. It will not help:
· Individuals who remitted FIGs to the UK in a non-UK resident period but have not yet re-remitted the FIGs to the UK;
· Individuals who have not been UK resident in 2024/25 or 2025/26;
· Individuals who have made a claim for split year treatment in either 2024/25 or 2025/26;
· Taxpayers who have previously ‘cleansed’ their FIGs by remitting these at a time when they were not subject to tax, for a reason other than a period of long term non-residence. This includes those with a period of non-residence of less than 5 years but where the temporary non-residence rules do not apply (for instance because they were UK resident for fewer than 4 of the 7 years before becoming non-resident) and those who have made a remittance of FIGs which were not subject to tax due to the availability of their personal allowance/ annual exempt amount.
Action Points
Some taxpayers may need to regularise their tax position with HMRC where the re-remittances of perceived cleansed funds have been treated as taxable.
Individuals who had been advised that FIGs were cleansed (but may in fact not be) and could be treated as clean capital may have ceased to operate account segregation meaning clean capital is now be buried deep beneath the affected FIGs. A mixed fund analysis may be required.
Anyone affected should take professional advice.
In his speech delivered on 11 March 2025 at the Chartered Institute of Taxation, James Murray, Exchequer Secretary to the Treasury, announced plans for HMRC to introduce a new whistleblowing scheme. The new scheme will take inspiration from the US and Canadian whistleblowing schemes which substantially reward informants for providing information to tax authorities on tax non-compliance.
The new scheme follows the measures outlined in the Chancellor’s Autumn Budget to “close the tax gap,” and is aimed at tackling “serious non-compliance in large corporates, wealthy individuals, offshore and avoidance schemes.” The scope of the scheme has not been confirmed but given the reference to “avoidance schemes” it is not expected to be limited to reports of tax evasion but also “serious” tax avoidance.
How does HMRC’s current rewards scheme work?
The new scheme is intended to complement HMRC’s current rewards scheme (contained in section 26 of the Commissioners for Revenue and Customs Act 2005) which rewards informants on a “discretionary” basis rather than as a percentage of the tax recovered (and so currently in the UK there is actually no guarantee that an informant would receive any reward for providing information to HMRC).
Rewards under HMRC’s current scheme are relatively modest and not linked to the amounts recovered. Therefore, it is unlikely that money is currently the main incentive for informants to approach HMRC (and the scheme is not widely publicised in any case). In 2023 – 24 HMRC reportedly paid out nearly £1m in awards (the highest payout in recent years). However, in comparison, in the same year the Inland Revenue Service (“IRS”) paid out a total of $88.8m across 121 awards in respect of recoveries totalling $338m.
How might the new scheme work?
Details of the new scheme have not been confirmed but, if the UK followed the US model, then rewards for whistleblowers could be between 15 – 30% of the sums collected (which includes tax, interest, penalties and fines). Whistleblowers in Canada receive less (5 – 15%). The payments are potentially very large sums, and it marks a significant change in practice for HMRC in tackling tax non-compliance.
In the US, the IRS has a dedicated Whistleblower Office which processes information relating to whistleblowing claims. Whistleblowers in the US will qualify for awards for providing “specific” and “credible” information to the IRS regarding tax underpayments or violations that lead to proceeds being collected.
Informants making claims are required to provide the following information to the IRS to support their claim:
• A description of the alleged tax non-compliance and supporting evidence (and a description of documents or evidence not in the whistleblower’s possession or control);
• An explanation of how and when the whistleblower became aware of the information;
• A description of the whistleblower's relationship to the relevant party (for example, family member, client, employee etc); and
• A signed declaration under penalty of perjury if false information is provided.
There are certain “ineligible” whistleblowers who cannot make claims, mainly individuals reporting on non-compliance linked to their roles in the federal government.
In order to qualify for a tax-geared award the information provided must relate to a claim exceeding $2,000,000 or, if the subject of the claim is an individual, the individual’s gross income for the relevant tax year must exceed $200,000 (the Canadian thresholds are less). If the claim does not meet the criteria for a tax-geared award, then the IRS can instead pay awards as part of discretionary programme. It might be anticipated that the UK government will include similar minimum thresholds in order to reduce time and cost spent pursuing smaller claims.
Notably awards can be decreased for claims based on information obtained from public sources or if the whistleblower “planned and initiated” actions which led to the non-compliance. Again, it is expected that a similar provision would be included in the UK rules to prevent, for example, individuals involved in planning and procuring tax avoidance schemes from receiving substantial awards.
Conclusion
It remains to be seen how the new UK whistleblowing scheme will work in practice, however, some early observations can be made at this stage:
1. Under the new UK scheme, whistleblowing will become a much more attractive option given the powerful financial incentives for informants. In essence, people are being encouraged to whistleblow. Even if the information supplied does not directly lead to a tax recovery, it (the information) will presumably potentially sit on HMRC’s Connect system. It is assumed that there will need to be systems in place to separate reports of genuine tax non-compliance from opportunistic informants providing misleading information to HMRC;
2. Dealing with more claims will require significant resource allocation from HMRC, but also from businesses and individuals who are the subject of allegations;
3. Due to the nature of the information provided, reports are more likely to be made by individuals close to the taxpayer or employed by them. Businesses should be aware of the protections afforded to whistleblowers by the law; and
4. Information obtained from whistleblowers by HMRC can be shared with different Government departments (subject to relevant information gateways), including, for example, the Serious Fraud Office, the Police (in some circumstances) and the Financial Conduct Authority.
The details of the new scheme are not yet available but there is clearly a potential for a significant change in tax compliance work. All of the information supplied to HMRC is likely to involve a breach of confidence of some nature. Some of the information supplied will be accurate, but it is likely that some of the information supplied will be inaccurate or incomplete. Both types of information may have consequences for the taxpayer.
A further note will be produced when details of the new scheme are published.
The latest Finance Bill amendments correct some technical errors and include a few helpful changes to the Temporary Repatriation Relief.
The Finance Bill 2025 Report Stage amendments were published mid-afternoon on Tuesday 25 February. The Committee Stage amendments had been somewhat lacklustre – but following inviting comments around the Temporary Repatriation Relief (TRF) made by the Chancellor at the World Economic Forum at Davos, hopes were high for some softening of the changes to the taxation of non-UK domiciled individuals to stem the surge of wealth leaving the UK.
The relevant Report Stage amendments can be found at: Gov 5 to Gov 17 (13 in total) and then Gov 21 to Gov 66 (46 amendments). There is no substantive change in policy, the adjustments instead largely correct technical drafting oversights.
Mercifully, the changes made in Sch 9 para 5 to the definition of ‘remitted to the UK’ will no longer render cash in an offshore bank account ‘remitted’ to the UK by default! In addition, it seems that capital payments/benefits from any TCGA 1992 s 89 so-called migrant settlements will be able to benefit from the TRF where matching is to pre-6 April 2025 income or gains.
Meaning of ‘remitted to the UK’: The Report Stage amendments fortunately alleviate concerns that money in non-UK bank accounts will result in inadvertent remittances, however, there is still significant concern with respect to the other extensions to the meaning of ‘remitted to the UK’. The ICAEW and CIOT both called for Sch 9 para 5 to be withdrawn in full, but this has not happened. In the absence of clearly drafted legislation, it seems inevitable that the impending issued HMRC guidance will come to be heavily relied on in this arena which in turn creates significant uncertainty and difficulty for those affected who are trying to structure their affairs.
Trust legislation: Various technical amendments (Gov 50 to Gov 55) have been made to Sch 12 which governs the treatment of trust income/gains under the new rules. The technical adjustments hopefully ensure that trust pooling works as intended.
TRF amends: The TRF amendments are contained at Gov 28 to 49 (22 in total). The changes make helpful changes to the way that the TRF will operate. Specifically:
Conclusion: The great speed with which the Government is acting to abolish a long-established set of tax rules will inevitably mean that errors will be made. It is hoped that the changes on the horizon in relation to the personal offshore anti-avoidance legislation (the call for evidence having closed on 19 February) receive adequate consultation and are not also enacted with such haste.
Original article can be found here: Finance Bill Report Stage amendments to the non-dom reforms (taxjournal.com)
We are happy to announce that JHA's Tax Disputes Team has been ranked as Band 1 by Chambers Global today. A special congratulations to our lawyers who also received individual recognition: Graham Aaronson KC (Band 1), Michael Anderson (Band 2) Iain MacWhannell (Band 4) and Paul Farmer (Senior Statespeople).
This is the latest successful ranking, following previous top-tier rankings in Legal 500 United Kingdom 2025, Chambers UK 2025 and Chambers High Net Worth Guide 2024.
Helen McGhee TEP, Elizabeth Dean and Megan Durnford consider HMRC’s ever-expanding criminal investigation powers
The number of civil investigations opened by His Majesty’s Revenue and Customs’ (HMRC’s) Offshore Corporate and Wealthy team more than doubled between 2021/2022 and 2022/2023, rising from 284 to 627 respectively.[1]
The number of Crown Prosecution Service decisions to bring criminal charges rose 80 per cent over the same period, going from 46 to 83.[2]
HMRC has extensive powers to support this increasingly aggressive approach taken to noncompliance.
Should His Majesty’s Revenue and Customs (HMRC) decide to start a criminal investigation, the powers already available to its authorised officers are expansive.
Search warrants
It is not just the police who can carry out ‘dawn raids’. HMRC too, with a warrant granted by a magistrates’ court, can enter one’s property unannounced, often early in the morning, to collect evidence to further an investigation into HMRC-related offences. During the search, HMRC can seize any material to which the warrant relates. Although HMRC cannot use certain documents (those protected by legal professional privilege, for example), it can take months for an independent barrister to determine which of the material seized falls within that limited category. It may be possible to challenge the legality of the search warrant itself, and so the retention and/or use of any documents seized by HMRC, or to argue that the seized material falls outside the scope of the warrant.
Orders and notices
Production orders and disclosure orders/notices are useful instruments in HMRC’s toolkit as they grant HMRC the ability, when conducting investigations into particular offences, to compel those subject to the order or notice (often third parties such as banking staff or accountants) to provide specified material and/or information, including by answering questions relevant to the investigation in an interview with HMRC. Compliance with such orders is compulsory and non-compliance is an offence punishable by a fine and/or imprisonment. HMRC must apply for a production order in the Crown Court. Representations can be made at that hearing on behalf of the individual or company to argue that the proposed terms of the order are too broad in scope. Moreover, the individual or company which is required to produce material and/or information in response to the production order or disclosure order/notice is often given only seven days to comply. It may be possible to negotiate with HMRC to extend time for compliance where that task is particularly onerous.
Arrest
HMRC’s powers of arrest may only be used in relation to HMRC-related offences and in circumstances where the authorised officer has reasonable grounds for believing that it is necessary to arrest the person in question. The consequences of doing so can be far-reaching, for example, the US will often reject visa applications from persons who have been arrested. In addition, HMRC can search suspects and premises following an arrest. Voluntarily attending an interview under caution will normally negate the necessity of an arrest. However, obtaining specialist legal advice is critical in deciding whether to attend an interview voluntarily and, if so, whether to answer HMRC’s questions in full, answer ‘no comment’, or provide a written statement prepared in advance.
Recovery of assets
HMRC can recover criminal assets through the Proceeds of Crime Act 2002.
Accessing data
HMRC can apply to the Court to use intrusive surveillance powers in the context of serious crime. This does not mean however, that one’s data is off limits in any other instance. As HMRC’s criminal investigation policy makes clear,[3] ‘HMRC may observe, monitor, record and retain internet data which is available to anyone.’ This is known as ‘open source’ material and includes blogs and social networking sites where no privacy settings have been applied. We are living in an increasingly digital age and as a result, HMRC have access to a plethora of information on any given individual.
A Code of Practice 9 (COP9) is a process whereby a person whom HMRC suspects is guilty of tax fraud is given the opportunity to make a disclosure setting out the background/reasons for any noncompliance and make good any potentially unpaid tax. In exchange, subject to some exceptions, HMRC will formally agree not to open a criminal investigation. This agreement is called the Contractual Disclosure Facility (CDF).
The HMRC COP9 guidance was substantially altered in 2023.[4] One change of particular note was the broadening of the definition of tax fraud. Under the previous COP9 guidance,[5] tax fraud was defined by HMRC as ‘dishonest behaviour that led to or was intended to lead to a loss of tax’. Under the new COP9 guidance,[6] however, this was extended to ‘dishonest behaviour that led to or was intended to lead to a risk of loss of tax’. Taxpayer behaviour may fall within this definition even if the fraud is in respect of tax owed by another, even if the individual does not personally make any gain. HMRC’s definition of ‘tax fraud’ for the purposes of COP9 is slightly different to when it is being prosecuted as a criminal offence. For example, a person will be guilty of fraud by false representation if they dishonestly make a false representation and intends, by making that representation, to make a gain for themselves or another, or to cause loss to another or to expose another to a risk of loss.
It is HMRC’s policy to deal with fraud by use of the cost-effective civil fraud investigation procedures under COP9 ‘wherever appropriate’. HMRC intends to reserve criminal investigations ‘for cases where HMRC needs to send a strong deterrent message or where the conduct involved is such that only a criminal sanction is appropriate.’ When deciding between COP9 or a criminal investigation, HMRC’s criminal investigation policy also confirms one factor will be whether the taxpayer has made a complete and unprompted disclosure of the offences committed.[7] In cases of non-compliance, following a COP9 route will almost always be preferable, particularly given the broad powers available to HMRC in a criminal investigation and the risk of conviction and a potential sentence of imprisonment following a criminal prosecution.
New criminal offence: failure to prevent fraud
The new ‘failure to prevent fraud’ corporate offence is expected to come into force in the first half of 2025. Specifically, the new offence will be committed if one of the relevant body’s associated persons commits a specified type of fraud intending to benefit, directly or indirectly, the relevant body or a person to whom services are provided on its behalf. Although it only applies to large organisations, this new offence has a broader scope than the similar ‘failure to prevent the facilitation of tax evasion’ offence created under the Criminal Finances Act 2017 (the Act). The definition of the relevant body’s associated persons is wider including:
Unlike the mentioned offence under the Act, HMRC will not need to prove that the subsidiary was performing a service on behalf of the relevant body.
Expansion of DPAs
A deferred prosecution agreement (DPA) is an agreement, approved by a court, between either the Crown Prosecution Service (CPS) or the Serious Fraud Office (SFO) and an offending company, as an alternative to prosecution. Under the agreement, the corporate defendant will agree to certain conditions (such as payment of a financial penalty) and the prosecuting agency agrees to ‘defer’ prosecution indefinitely, provided the defendant does not subsequently breach the agreement. Key advantages of a DPA include avoiding a long and expensive trial and minimising the reputational damage caused by a criminal conviction.
Since the introduction of DPAs in 2014, the SFO has entered into 12 agreements[8] and the CPS has entered into one agreement.[9] In Labour’s Plan to Close the Tax Gap,[10] published shortly before the 2024 general election, Labour expressed dissatisfaction with the number of criminal prosecutions and criticised the ‘weakened … deterrent effect’ this has resulted in. One possible avenue they have suggested to address this is to expand the use of DPAs to include individuals (the current scheme being limited to particular offences committed by corporate bodies). One might think that COP9 already serves this purpose but there is a crucial difference: DPAs are public. Should the government go ahead with this planned expansion, it will be interesting to see what impact, if any, this has on HMRC’s willingness to enter into the COP9 process and/or the terms it is willing to agree to under that process.
The end to the non-dom regime
The end to the non-domicile regime, under which certain taxpayers could elect to pay tax on foreign income/gains only when remitted to the UK, is expected to occur with effect from 6 April 2025.[11] Significant sums of foreign income/gains are therefore expected to become taxable for the first time and HMRC will need to consider how to police the new regime effectively. Flexing their muscles in the realms of criminal investigations using their extensive powers may then prove a useful deterrent.
Despite the already broad powers afforded to HMRC, the Labour government has made their dissatisfaction with the current levels of criminal prosecutions in the context of tax non-compliance clear. Should they follow through with the plans set out during their election campaign, it is expected that an extra GBP3 billion will be allocated to HMRC, with the purpose of employing an additional 5,000 employees by 2030 and thereby providing the resources to secure more criminal convictions. With the political push to recover more tax through criminal investigations and/or DPAs, it is more important than ever that clients understand their rights and options during such investigations.
When deciding how to respond to a criminal investigation conducted by HMRC, whether as an individual or company suspected of wrongdoing, or a third party required to disclose information, clients will need legal advice from specialist tax and white-collar crime lawyers.
[1] Taxation, ‘Criminal charges rise 80% in a year’
[2] Above, note 1
[3] HMRC’s criminal investigation policy
[4] Joseph Hage Aaronson, ‘HMRC Makes Changes to COP9’
[5] The previous COP9 guidance
[7] HMRC’s criminal investigation policy
[10] ‘Labour’s Plan to Close the Tax Gap’
[11] Tax Journal, ‘Much ado about non-doms: the new policy paper’
Original article can be found here: Search and seizure (STEP Journal)
This decision is a stark reminder of the public nature of litigation. Before embarking on any litigation, practitioners would be wise to advise their clients on (i) the importance placed on hearings and decisions being public and (ii) the very limited circumstances in which their identity could be protected.
For those considering making an application for anonymity, this decision emphasises the need to accumulate evidence to support an assertion that failure to provide such anonymity would cause harm. That the taxpayer in this case was unable to preserve their anonymity by withdrawing their substantive appeal also flags the importance of considering all the consequences of making an interim application.
Note that the Taxpayer remains anonymous for the time being pending appeal. Either party may later seek to appeal this discrete issue which will continue to remain live, regardless of whether the substantive appeal is later withdrawn or settled.
The decision additionally provides guidance for third parties seeking disclosure of documents, including the test for determining such applications and a reminder of the importance of seeking disclosure from the correct court or tribunal.
In a decision released on 11 January 2024 (the January Decision) the UT allowed an appeal against a case management direction issued by the FTT on 15 September 2021 that ‘preliminary proceedings in this matter shall be heard in private’. The January Decision was temporarily anonymised, pending the expiry of the period for seeking permission to appeal, permission being refused or the taxpayer’s appeal ultimately failing.
On 9 April 2024, the taxpayer made an application to the UT to continue the anonymity proceedings provided for in the January Decision (the Anonymity Application) on the basis that the Taxpayer had decided to withdraw his substantive appeal to the FTT and ‘in those circumstances he ought to be permitted to retain the existing anonymity’. The taxpayer then later withdrew their substantive appeal on 8 October 2024.
Two of the key grounds for the Anonymity Application were:
One of the third parties, Times Newspapers Ltd and News Group Newspapers Ltd (together NGN), also applied for disclosure of a number of documents relating to both the appeal to the UT and the substantive appeal with the FTT.
The Anonymity Application
The UT refused the Anonymity Application. In doing so, it held that it is not the application for privacy which leads to publicity (if a privacy application is refused) but the choice to bring a tax appeal (or any other civil proceedings) [para 26]. The UT ‘firmly reject[ed]’ the taxpayer’s submissions that the very act of making a privacy application (regardless of its merits and without any supporting evidence) (i) generates anonymity for the proceedings in question, (ii) can be carried out with no risk of anonymity being lost, even if refused or overturned on appeal, and (ii) must itself attract permanent anonymity, in circumstances where the substantive appeal is eventually withdrawn [para 34].
A factor which appeared to have played a prominent role in the UT’s decision was the taxpayer’s failure to produce any evidence of potential harm which was said to have justified either the application to the FTT for privacy or the Anonymity Application. The UT further noted that the necessary requirement to justify the Anonymity Application did not disappear simply because the taxpayer had withdrawn their substantive appeal to the FTT.
In reaching its decision, the UT applied the principles for determining anonymity applications set out by Lord Neuberger in JIH v News Group Newspapers Ltd [2011] EWCA Civ 42, stating those principles would be undermined if the Anonymity Application was ‘granted without any consideration of the degree of necessity, the facts and circumstances said to justify anonymity, or the proportionality of the derogation from the principle of open justice’ [para 33].
The UT further confirmed that the guidance on the principle of open justice provided in Farley v Paymaster Ltd (1836) t/a Equiniti [2024] EWHC 3883, in the context of Civil Procedure Rules, equally applies to tribunal proceedings [paras 17–18].
The UT additionally distinguished the exception to open justice established in Scott v Scott [1913] A.C. 417 on the basis that that decision applied specifically to cases where trade secrecy is the subject matter of proceedings. JK v HMRC [2019] UKFTT 411 (TC), A v Burke and Hare [2022] IRLR 139 and Zeromska-Smith v United Lincolnshire Hospitals [2019] EWHC 552 (QB) were also all distinguished as each ‘concerned a situation in which the applicant had a strong, arguable case, supported by evidence, for privacy or anonymity’ [para 29].
Disclosure application
Paragraphs 44 to 50 of the UT’s decision concerned NGN’s disclosure application. In summary:
Original article can be found here: UT considers taxpayer’s application for permanent anonymity and third-party disclosure request (HMRC v The Taxpayer and Others) - Lexis
