First judgment in a judicial review claim concerning the Disguised Remuneration Repayment Scheme 2020

The High Court (Mrs Justice Dias) has handed down its first judgment concerning the Disguised Remuneration Repayment Scheme 2020 (DRRS), and in particular the proper interpretation of the requirement for “reasonable disclosure”. The Claimant, Sensor Solutions Ltd, challenged a decision of HMRC not to make payments to the Claimant under the DRRS.  

In 2017, the Government introduced legislation which had the effect of bringing within the scope of tax certain disguised remuneration arrangements. At the same time, it made provision for a one-off Loan Charge to become payable in 2019 in relation to disguised remuneration arrangements entered into before the 2017 changes came into effect. Between 2017 and 2019, HMRC permitted taxpayers to settle their affairs in order to avoid the application of the Loan Charge. For this purpose, HMRC required the taxpayer to settle on a ‘voluntary’ basis, not only open tax years in respect of which a valid tax assessment had been raised, but also years where no tax assessment had been raised within the required time limit.  

The retrospective nature of the Loan Charge was subject to an independent review carried out in 2019. As a result of that review, the Finance Act 2020 required HMRC to establish a scheme, the DRRS, under which all or part of the voluntary payments could be repaid upon application by the taxpayer prior to a certain date.  

Sections 20(2)-(5) of the 2020 Act defined what amounted to a “qualifying agreement” and “qualifying amount”. An amount that is referable (directly or indirectly) to a qualifying loan or quasi-loan made on or after 9 December 2010 was not a qualifying amount unless at a time when an HMRC had power to recover the amount “a tax return, or two or more tax returns of the same type taken together, contained a reasonable disclosure of the loan or quasi-loan.” “Tax return” was defined in section 20(8) of the 2020 Act as a return made under section 8 of TMA 1970 and any accompanying accounts, statements or documents, or a return made under paragraph 3 of Schedule 18 to FA 1998, and a tax return is of the same type as another if both fall within the same paragraph of this definition.”  

The Claimant participated in an EFRBS in respect of which it concluded a voluntary settlement with HMRC. An application for repayment under the DRRS was made and rejected on the ground that reasonable disclosure of the loans had not been made as required by section 20(5) of the 2020 Act. The Claimant submitted that AAG forms (through which promoters of schemes notify HMRC of schemes and notify taxpayers of scheme reference numbers, and through which a taxpayer can notify HMRC that it is using a scheme) were essential to the correct understanding of its tax return and as such, the common law duty to act fairly required HMRC to have regard to them, even though the Claimant accepted that they did not strictly form part of the actual tax return.  

Mrs Justice Dias held that fairness did not require AAG forms to be taken into account when determining whether or not reasonable disclosure had been made. Parliament had expressly prescribed in sections 20(5) and 20(8) of the 2020 Act what is to constitute “reasonable disclosure” and evinced a clear intention that reasonable disclosure for the purposes of this section is only to be found in one or more tax returns as there defined. The rationale was presumed to be to reduce the burden on HMRC by restricting the ambit of documents it must consider and to put the onus firmly on the taxpayer to have made reasonable disclosure in those documents without requiring HMRC to spend time trying to “join the dots”.  

It was conceded that the Claimant had no case unless it could say that the AAG forms should have been taken into account, and thus the claim failed. The Judge did consider, in the alternative, whether reasonable disclosure had been made on the basis of the AAG forms in question. The Judge held that it had not been made because the qualifying loan or quasi-loan had not been identified.  

Christopher Stone KC and Ishaani Shrivastava were instructed by HMRC.  

The decision can be found in full here.  


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