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1
INTHETAXATIONDISCIPLINARYBOARD(TDB/2018/17)Between
THETAXATIONDISCIPLINARYBOARD(“TDB”)
Vs
DavidHANNAH(CornerstoneTaxAdvisers)
CIOTmembershipnumber135863
DECISION
Present:
DrJonathanPage(TribunalChair,Laymember)
MrPeterCadman(Laymember)
MrIanLuder(CIOTmember)
MrDavidHannah
MrJulianHickey–CounselforDavidHannah
MrJonathanLevy–SolicitortoDavidHannah
MrRogerBindschedler–witnesscalledonbehalfofDavidHannah
MrDavidYatesQC–CounselfortheTDB
MrChristopherEames–MrYates’pupil
MrNigelBremner(ClerktotheTDB)
(Aloggistwaspresenttorecordtheproceedings)
HEARINGS
1. This matter was heard on 5th and 6th February 2020 in London. The Tribunal
considereditsdecisiononthechargeson17thFebruaryincamera.Thepartieswere
2
informed of the Tribunal’s decision in writing on 18th February. Sanction was
considered in camera on 17th March 2020 following the receipt of full written
submissionsfrombothparties.
BACKGROUND
2. MrHannahhasbeenamemberoftheCharteredInstituteofTaxation(“CIOT”)since
24thMay 1988.Mr Hannah was also (and remains) a member of the Institute of
Chartered Accountants of England and Wales (ICAEW). He was the founder and
principal consultant of Cornerstone Tax Advisers ("CTA") throughout the relevant
period.CTAwasaspecialisttaxationadvisoryservicedealingwithStampDutyLand
Tax (“SDLT”).Thisbusinesswassubsequently soldbywayofanasset saleand the
businesswastransferredon2ndApril2008.
3. He faced three charges which are set out in full at Appendix 1. The relevant
regulationsthatareapplicabletothechargesarecontainedatAppendix2.
PRELIMINARYPOINT
4. BeforethechargeswereformallyputtoMrHannah,apreliminarypointwasraised
onhisbehalf.
5. Mr Hickey submitted that the ‘last incident’ as set out in Regulation 3.3 of the
TDBSR1 occurred on 11th October 2011 when HMRC sent the complainant (Cyril
Thompson of Ambitions Equestrian Centre Ltd (“AEC”)) a ‘discovery assessment
notice’ and a determination letter; because the complaintwas notmade until 9th
April2018(morethan24monthsafterthe‘lastincident’)theallegationwasoutof
time.
6. Itwasnecessarytodetermine,therefore,whetherthe‘lastincident’occurredbefore
orafter10thApril2016.
1TaxationDisciplinaryBoardSchemeRegulations2014asamendedon29thNovember2016
3
7. Mr Hickey submitted that by 11th October 2011, there were clear signs that the
ULRICAschemewouldpotentiallybechallengedbyHMRCandthereforeclearsigns
thatMrHannahhadareasontocomplainabouttheadvicehehadreceivedfromMr
Hannah.Hesubmittedthat11thOctober2011(orwithin24monthsthereof)wasthe
pointintimeatwhichhiscomplaintoughttohavebeenmadetoCIOTortheTDB.
8. Mr Yates QC submitted that there were a number of later events (or ‘incidents’)
whichcouldhavegivenrisetoacomplaint;an incidentshouldnotberestrictedto
thepointintimewhenthecomplainantfirsthadsuspicionsthattheriskassociated
withtheULRICAschememayhavebeenmis-describedbyMrHannah.
9. Hesubmitted that theproblemwith restricting thedate to11thOctober2011was
thatatthispoint intimeitmaynothavebeenapparenttoMrThompsonthatthe
scheme had beenmis-described. He submitted that the letter dated 11th October
2011cameat theveryendof the4-year timeperiod inwhichHMRCcouldraisea
‘discoveryassessmentnotice’andadetermination.Because the letterwassent so
close to this deadline, it may well have been seen by Mr Thompson as HMRC
adoptinga‘holdingposition’,asopposedtothestartofaconcertedchallengetothe
ULRICAschemebyit.ItisclearfromMrThompson’ssubsequentbehaviourin2013
and2014 thathe continued toacceptadvice fromCTA that the schemewouldbe
successful.
10. MrYatessubmittedthatMrThompson’ssettlementcorrespondencewithHMRCin
MarchandinMay2017,wasalsoan‘incident’forthepurposesoftheseregulations.
May 2017Mr Thompson had reached a settlement agreement with HMRCwhich
involvedhimpayingallofthestampdutyowed,plusinterest.
11. On2ndMay2017,MrThompsoncomplainedtoMrHannah.
12. Having heard these competing submissions, the Tribunal determined that it was
clearbyMay2017thatthecomplainanthaddecidedthattheschemepresentedan
unacceptableriskandithadbeenmis-describedbyMrHannahinSeptember2007.
4
It was far from clear before 2017 whether it would have been apparent to Mr
Thompsonthattheadvicehereceivedhadpotentiallymisledhim.
13. TheTribunalconcludedthattheregulationswouldbefrustrated if themakingofa
complaintwas restricted in theway suggested byMr Hickey; it was in the public
interest for complaints to be considered if they were validly brought, when the
complainant had formed the view that he had received advice about which he
wished to complain. Here there was clear evidence of when Mr Thompson had
formed that view, and that represented an ‘incident’ for the purposes of the
regulations. The correspondence with HMRC in March and May 2017 were
‘incidents’forthepurposesoftheseproceedings.
14. The Tribunal thenwent on to consider the allegations themselves whichwere all
formallydeniedbyMrHannahatthestartofthehearing.
THESTANDARDOFCARETOBEEXPECTEDOFATAXADVISOR
15. The case of Langsam and Beachcroft LLP [2012] EWCA Civ 1203 sets out the
principles concerning a solicitor’s duties where that solicitor had received advice
fromCounsel.NotwithstandingthatMrHannah isataxadvisorandnotasolicitor,
the principles have application in his case. At paragraph 85 The Court of Appeal
agreedwithRothJ(theJudgeatfirstinstance).ArdenLJstated:
Astorelianceoncounsel,[RothJ]heldthatasolicitordoesnotabdicatehis
responsibility when he instructs counsel. He could thereafter advise jointly
with counsel. Alternatively hemust carry on inwhat [counsel for Langsam]
callsa“whistleblowerrole”.Thatmeanshemustapplyhismindtotheadvice
received. The authorities showed that a solicitorwill be liable if the advice
fromcounselis“obviouslyorglaringlywrong”.Thisappearedfromthethree
principleslaiddownbyTaylorLJin[twofurtherauthoritieswerethencited].
Thethreeprincipleswereasfollows:
5
“(1)Ingeneralasolicitorisentitledtorelyupontheadviceofcounsel
properlyinstructed
(2)Forasolicitorwithoutspecialistexperienceinaparticularfieldto
relyoncounsel’sadviceistomakenormalandproperuseoftheBar.
(3) However he must not do so blindly but must exercise his own
independent judgment. If he reasonably thinks counsel’s advice is
obviouslyorglaringlywrong,itishisdutytorejectit.”
16. InBarkervBaxendaleWalkerSolicitorsandanother[2017]EWCACiv2056,(another
appealfromRothJatfirstinstance),AsplinLJsaid:
61.Itseemstomethatthefollowingprinciplesarelikelytoapply:
(i) Thequestionofwhetherasolicitorisinbreachofadutytoexplainthe
risk that a court may come to a different interpretation from that
whichheadvisesiscorrectishighlyfact-sensitive…
(ii) If the construction of the provision is clear, it is very likely that
whateverthecircumstances,thethresholdof“significantrisk”willnot
bemet and it will not be necessary to caveat the advice given and
explaintherisksinvolved;
(iii) However,dependingonthecircumstances,itisperfectlypossibletobe
correctabouttheconstructionofaprovisionor,atleast,notnegligent
inthatregard,butneverthelesstobeunderadutytopointouttherisk
involvedandtohavebeennegligentinnothavingdoneso…
(iv) Itismorelikelythattherewillbeadutytopointouttherisks,ortoput
thematteranotherway,thatareasonablycompetentsolicitorwould
notfailtopointthemoutwhenadvising,iflitigationisalreadyonfoot
or the point has already been taken, although this need not
necessarilybethecase…;and
(v) The issue is not one of percentages or whether opposing possible
constructionsare‘finelybalanced’butismorenuanced.
…
6
64. In thiscase, legaladvicewastheveryservicewhichwasbeingprovided
andwhichwas being relied upon. There canbe no separation between the
advice andanyappropriate caveats as to risk. Theyare oneand the same.
Thelawyeraspartofthelegaladviceheisproviding,mustevaluatethelegal
positionanddeterminewhetherinallofthecircumstances,heshouldadvise
hisclientthatthereisasignificantriskthattheviewhehastakenaboutthe
substantivematterinquestionmaybewrong…
65.Whendeterminingwhetherareasonablycompetentadviserwouldhave
advisedthattherewasasignificantriskthatacontraryviewwouldbetaken
in relation tosection 28(4)and that the post-death exclusion construction
mightwellbecorrect,therelevantfactsincludedthefactthatthiswasavery
aggressive taxavoidance schemewhichwasmarketed toMrBarkeron the
verybasis thathis familywouldbeable tobenefit fromthepropertywithin
theEBTatthedateofhisdeathfreeofCapitalGainsTaxandInheritanceTax,
anoutcomewhichmightappearonthefaceofittobetoogoodtobetrue.
LEGISLATIVEBACKGROUNDTOTHEULRICASCHEME
17. The background to the allegations concerned the use of a scheme that sought to
avoidaliabilityofStampDutyLandTax(SDLT)arisingoutofaninterpretationofthe
provisionsoftheFinanceAct2003(“theAct”),asoriginallydrafted.
18. A scheme was devised whereby an unlimited company would be formed. That
unlimitedcompanywouldthenbecapitalisedtothesumofthevalueofaproperty.
The unlimited company would then contract to purchase the property, from the
vendor. TheDirectors of the unlimited companywould resolve that the unlimited
company would reduce its share capital at the time of the completion of the
purchase,bywayofadistributioninspecieoftheproperty,toitslimitedcompany
parent. Because this distributionwas not a transfer of property for consideration
(seesection45(3)(b)(ii)),SDLTwasnotpayable.Asa result,SDLTdidnot fall tobe
paidbytheultimateacquireroftheproperty(thelimitedCompany).
7
19. Thescheme(amongstothers)wasconsideredbyHMRCtorepresentaggressivetax
avoidanceandsoon6thDecember2006at2pm,TheStampDutyLandTax(Variation
oftheFinanceAct2003)Regulations2006SInumber3237proposedanewsection
75Atobe inserted into theAct.Thisnewsectionwas tohave immediateeffect.A
Pre-BudgetReport (PBRN17), accompanied thenotice thatmade it clear that the
purpose of the new section was to prevent the avoidance of SDLT, and various
exampleswere givenwhich appeared to include the ULRICA scheme. It was clear
that the trend of cases and legislation aimed at countering tax avoidance
significantlypre-datedSeptember2007.
20. Section75Awassubsequentlyamended,and2furthersections(75Band75C)were
inserted into theAct, inaddition toanamended75A (by theFinanceAct2007,at
clause 70). These 3 new sectionswere put before parliament inMarch 2007 and
received Royal Assent in July 2007. However, the new sections were all given
retrospectiveeffect,fromthe6thDecember2006.
21. On15thAugust2007,HMRCreleasedSDLTTechnicalNews5.Again,exampleswere
givenofthetypeofschemes,includingtheULRICAscheme,thatweretheproposed
targetsofHMRC.
22. Atthetimewithwhichtheseallegationsareconcerned,thereisnosuggestionthat
therehadbeenany judicialorFirstTierTaxTribunaldeterminationsof thecorrect
interpretationofsection75A.W.T.RamsayvIRC[1982]A.C.300providedextensive
judicial guidance upon the correct approach that ought to be taken when
considering the interpretation of legislation. This was further clarified in Barclays
MercantileBusinessFinanceLtdvMawson[2005]STC1(“BMBF”).
23. Sincethen,section75AhasbeenextensivelylitigatedandtheTribunalwastakento
three decisions of the First Tier Tribunal (Vardy Properties v HMRC [2012] SFTD
1398,CrestNicholsonvHMRC[2017]SFTD481andGeeringvHMRC[2018]UKFTT
233(TC)).
8
24. InProjectBlueLtdvRevenueandCustomsCommissioners[2018]1WLR3169,the
SupremeCourtconsideredthescopeandeffectof75A.Asaresultofthislitigation,
it is now clear that Section 75A had the effect of preventing the ULRICA tax
avoidanceschemefromoperatingtoavoidtheincidenceofSDLT.
EVIDENTIALBACKGROUND
25. Therewas extensivewrittenmaterial before the Tribunal. Therewas a substantial
‘Hearing Bundle’, as well as an ‘Authorities Bundle’ that contained the relevant
legislation,TechnicalNotes,BriefingNotesandauthorities.
26. Thenon-contentiousevidencecanbesummarisedasfollows:
27. Attherelevanttime,MrHannahwasthesoleTaxAdviserforafirm,CornerstoneTax
Advisors(“CTA”),whichspecialisedingivingtaxadvice.
28. InAugust2006,MrHannahcommissionedanopinionfromCounsel(PatrickCannon)
concerningtheULRICAscheme.PatrickCannonwasregardedasaleadingauthority
onSDLT.Thatopinion,dated9thAugust2006,containedagenericviewofhowthe
ULRICAschemecouldwork.Itincludedanumberofcaveats.Therelevantpassages
areincludedbelow:
1. I am asked by my instructing solicitors to advise on the SDLT
implicationsofpurchasingacommercialpropertyusingtheSDLTsubsale
structurediscussedinconferenceon8thAugust2006.Myadviceissetout
below but in summary, I confirm that subject to thematters discussed
below,inmyopinionnoSDLTwillbepayableinrelationtoanacquisition
thatcorrectlyimplementsthestructure.
…
25. Inmyopinionthedecisionsof theHouseofLords in [BMBF]suggest
that this strategy is vulnerable to the Ramsay principle of positive
9
purposivestatutoryinterpretation.However,therearetworeasonswhyin
my opinion a successful Ramsay attack on the structure is unlikely to
occur.First,fromapracticalperspectiveHMRCappeartobereluctantfor
whateverreasontoinvokeRamsayinthecontextofSDLT.Instead,HMRC
seem content to enact extra statutory anti-avoidance whenever they
encounter “unacceptable” SDLT avoidance. Realistically, however, it
should also be recognised that if HMRC were to attack this strategy
throughtheCommissionersandthecourtstheymightdosobyasserting
that section45(3)(b)(i), FinanceAct2003doesnot includeconsideration
payablebyULCundertheoriginalcontractwithoutassertingtheRamsay
principle…
26.Second,theSDLTstatutoryprovisionareperhapslesssusceptibletoa
Ramsay approach than some other taxes because of the highly
particulariseddraftingoftherelevantprovisions.Inotherwordstherules
are extremely detailed and draftedwith very specific results inmind. It
follows that such provisions are less open to the sort of sweeping
purposive interpretation thansomeother taxeswhereRamsayhasbeen
appliedbythecourts. Inthecontextofthehighlyarticulateddraftingof
section45(3)(b)(i)FinanceAct2003plusHMRC’spublishedinterpretation
ofitinexample3…,itismyopinionmorelikelythatHMRCwouldenact
an anti-avoidance measure to deal with the strategy rather than
challengethestrategyunderRamsay[Tribunal’semphasis].
29. InMay2007,duringtheParliamentarypassageofwhatbecametheinsertedsection
75A, Mr Hannah commissioned an opinion from Patrick Way (now QC), another
leading authority on SDLT. This opinion was directed at a ‘Husband and Wife’
arrangement. In order to protect client confidentiality, some paragraphs of his
opinionwereputbeforetheTribunal,butredacted;otherswerenotreproducedfor
the Tribunal at all. The relevant sections that were disclosed to the Tribunal are
includedbelow:
10
INTRODUCTION
1. The strategy described in this opinion is intended to facilitate the
purchaseofaproperty,freeof…SDLT.Thetransactionisassumedtobeofa
residentialproperty,andinvolvesatwo-stepprocessbeing(1)theacquisition
ofthepropertybyonespouseforfullconsiderationwhichmaybefundedbya
mortgage followed by (2) an immediate gift of the property to the other
spouse.Inmyopinion,forthereasonsmentionedatlengthandsubjecttothe
caveatscontainedherein,thistransactionresultsinnoSDLTarising.
…
4.Ihaveconsidered[the]FinanceAct2003s.75Awhichcouldpotentiallytax
a scheme of this nature specifically but in my opinion, for the reasons
mentionedatlengthsubsequently,s.75AdoesnotresultinSDLTfallingdue.I
draw attention, however, to the caveats which I make subsequently in
relationtos.75A.
…
30. Theopinionthendiscussesthe‘husbandandwife’scheme.Itthencontinues:
17.Consequently,havingregardtos.45(3)inmyopinionthereisnoSDLTto
payinrelationtothetransactionbetweenthevendorandthehusbandonthe
one hand, nor in relation to the transaction, effected by gift, between the
husbandandthewife.So,inmyopinion,andsubjecttothecaveatsfoundin
thisopinion,theentiretransactiontakesplacefreefromSDLT.
18. It is of course the case that the position is not clear beyond all doubt
because some commentators have said in similar circumstances, that the
consideration deemed to be given by thewife in relation to the transfer of
rightseffectedbydeedofgiftdoesextendtosomuchconsiderationunderthe
originaltransactionasistobegivenbythehusband.Ifthiswerecorrectthen
11
theschemewouldnotworkbecausetherewouldbeSDLTtopayafterallon
thebalanceoftheconsiderationpayableafterexchangeofcontractbetween
thevendorandthehusband.
31. Theopinionthendiscussessection75Aindetail,inthecontextofthe“planningnow
under review” (i.e. thehusbandandwifesituation).Hesummarises,atparagraphs
33and34ofhisopinion,thatthereisnoconsiderationforthepropertypassingto
thewife(asagift)andthereforenoSDLTtopay.
32. Thenextparagraphsareofsomeimport:
FAULTLINES
35. It is, of course, unlikely that this state of affairs was intended by the
draftsman.Soanyonechoosingtoadoptthestrategyshouldbeputonnotice
thattheschemeisnotguaranteedtobesuccessful.AlthoughIrepeatthatit
ismyopinion,particularlywhenadoptinganintellectuallyhonestapproachto
thelegislation,thatthestepsenvisagedshouldresultinnoSDLTbeingdue.
36.Itis,however,appropriatetodrawattentiontothefollowing“faultlines”
whichIhaveidentified.
37.First,asmentioned, the legislationproducesaresultwhich isunlikelyto
havebeenintended.
38. Secondly, it is clearly a “fault line” that in [the] definition of “scheme
transactions” there are included items which are clearly land transactions
suchasasub-sale.Itislikelytobethecasethatthedraftsmandidintendto
catchthereforeasub-saleandyettheprecisewordingofthe legislation,on
myanalysis,operatestomeanthatasubsaleisnotchargeableinthewayin
which it was presumably intended. So a court might “do damage to the
legislation”tomakeitwork.
12
39.Thirdly, itmaybethatacourtwouldsaythattherelevantwordingwas
justamistakeandthatacourtmightdeterminetocorrectthemistakeinits
judgmentinwhateverwayitthoughtfit.
40. Finally as alreadymentioned and very importantly, the legislation is in
draftformandsusceptibletoretrospectivechangepriortoRoyalAssent.
41.Accordinglyanybodyentering intotheschemeshouldbeawareofthese
faultlines.
WARNING
42. It has to be appreciated that notwithstanding my honest opinion
mentionedabove,thisisaschemeanditisdesignedexclusivelytoreducethe
rate of SDLT from 4% to nil in circumstances where undoubtedly,
notwithstanding theway inwhich I have interpreted the legislation, HMRC
wouldbelikelytosaytheynever intendedittoapplytothissituationunder
review. Accordingly this is not a scheme for the “faint-hearted”. It is, by
contrast,aschemeforpeoplewhoarepreparedtoenterintoataxavoidance
schemewith their eyes open. The schememust be disclosed in the returns
thataremadeinathoroughlyopenandcandidfashion.
CONCLUSION
43.NotwithstandingtheaboveIrepeatthatinmyopinionthebetterviewis
thattheplanningdoesresultinnoSDLTbeingpayable.
GENERALLY
44.MylayclientisCornerstoneTaxAdvisors.Whilstthisopinioncontainsan
honestexpressionofmyviews,Iundertakenodutyofcaretoanythirdparty
13
who may come to read it. Any such third party should take his own
independentadviceinthelightofhispersonalcircumstances.
33. On18thJuly2007MrHannahwasreferredaclientofHazlewoodsAccountants,Cyril
Thompson,whowasseekingtopurchasearidingstablescalledHillsideStud.
34. On 8th August 2007, Chris Mattos, the Tax Manager at Hazlewoods emailed Mr
Hannahstatingthat:
TheclienthascomeunderincreasedpressuretoexchangeonFriday,thishas
gotalittleaggressiveasthevendorisclosetoBankruptcy.
35. On9thAugust2007bothAmbitionsSDUnlimited(“ASD”)andAECwereformed.Cyril
Thompsonwas thepointof contact forASDandAECalthoughMrHannahdidnot
personallymeetMrThompsonatanystage.
36. On16thAugust2007,ASDenteredintoanagreementtopurchaseHillsideStudfrom
thevendor(MrWilliams).
37. Mr Hannah commissioned a further opinion from Patrick Cannon. This opinion is
undated,however,itcannothavepre-dated15thAugust2007asitreferstoHMRC’s
‘SDLT Technical News 5’ of the same date. Mr Cannon’s opinion was directed
towardsaspecificcaseandsoitwasnotbeforetheTribunalinitsentirety.Extracts
takenfromtheopinionwereputbeforetheTribunal.Therelevantparagraphs(from
thosethatwerebeforetheTribunal)areincludedbelow:
Anti-AvoidanceLegislation
12.TheStampDutyLandTax(VariationoftheFinanceAct2003)Regulations
2006 SI number 3237 introduced a new anti-avoidance rule effective from
Wednesday6thDecember,2006intheformofanewsection75AFinanceAct
14
2003whichwasintendedamongotherthingstoblockSDLTsub-saleschemes
ofthetypeconsideredherein.Modifiedandexpandedprovisionintheformof
sections 75A to 75C … were introduced by the Finance Act 2007 with
retrospectiveeffectbackto6thDecember2006.However, inmyopinionthe
anti-avoidance rule will not apply in the circumstances of the proposed
transactionforthereasonsIshallexplainbelow.
[Paragraph13isheavilyredacted]
38. Paragraphs 14 to 17 contain a detailed technical argument setting out how Mr
Cannonwas of the opinion that the new section 75A had failed to have had the
effect of amending section 45 to include all sub-sale transactions and that there
would be sub-sales that would continue to qualify for the relief available where
completion or substantial performance of both sub-sales occur at the same time.
Paragraph18thencontinues:
18.The issuewillbe identifyingwhichsub-salesarecaughtby thenewrule
and which are not. This task is not helped by the examples given in the
currentHMRCofficialguidancecontained inSDLTTechnicalNews issue5of
15thAugust2007,astowheninHMRC’sview,theanti-avoidancerulewillor
willnotapply…..
39. It isclear fromparagraphs18to23ofMrCannon’sopinion,thathe isoftheview
thattheguidancenoteswereunclearandthatsection75Adidnotcoverallsub-sale
transactions.Hewrotethisinrespectoftheguidance:
23. … The status of official guidance as to the meaning of the statutory
wording which is at variance with the actual meaning of the statutory
wordingconcernedwasconsidered indetailbyLordSteyn inhisspeech inR
(WestminsterCityCouncil)vNASS[2002]4AllER654at658whereheheld
that the meaning of the statutory wording prevailed over the official
guidance.
15
24. Accordingly, in my opinion (but subject to the caveat below) the
transaction contemplated here will not be caught by section 75A. If the
original sale transaction is not part of ‘the scheme transactions’ then any
considerationpaidforthattransactioncannotbetreatedasconsiderationfor
the notional land transaction and is ignored. The caveat mentioned above
relates to the Ramsay principle of statutory interpretation by the courts. It
hasbeensaidthatthenewanti-avoidanceruleisHMRC’sattempttowritea
statutoryRamsayprinciple into SDLT legislation. It is certainly true that the
new rule appears to have eschewed the traditional approach of a highly
targetedstatutoryprovision…
40. On3rdSeptember,MrHannahsentAECtwoletters,towhichthesechargesrelate.
TheyarebothentitledENGAGEMENTLETTERSandbotharesignedbyMrHannah.It
istheselettersthatformthebasisofalloftheTDBcharges.
41. Letter1(theADVICEletter)includesthefollowingpassages:
I understand that you wish us to assist in mitigating the SDLT on your
proposedpurchase.
...
Iunderstandthatthetransactionneedstoproceedassoonaspossible,and
asaresult,itmaynotbepossibletomeetyouinpersonpriortoimplementing
thestrategy,butIwill,inanyevent,beavailabletodiscussthisletterandthe
planningviatelephone.
Thetaxmitigationplanningcalled“ULRICA”maybestbedescribedasfollows:
[Theschemeisthendescribed]
16
Counsel has confirmed that the sub-sale provisions in section 45 FA 2003
providethattheoriginalcontract(purchasebytheunlimitedcompany) isto
bedisregarded,evenifcompleted,wherethisissubsoldorassigned“atthe
same time and as in connection with “the performance of the sub-sale
contract(thedistributionoftheassets).
Accordingly,theoriginalcontractpurchasefallstobedisregardedasitisnot
a landtransaction.Thechargeableconsideration for thesecondarycontract
(the distribution in specie) is nil. Accordingly no SDLT is payable on the
purchase.
To summarise, the tax risks involvedare thatHMRCmay seek to litigate to
challengethisstrategy(althoughinourexperiencetheyhavenotyetdoneso)
and that there is a probability, albeit a low one, that theymay be able to
successfully challenge the strategyusing theprinciplesdeveloped in the tax
avoidancecaseofIRCv.Ramsayorundercurrentantiavoidancelegislation.
WhilstthisisalowprobabilityIamdutyboundtodrawthistoyourattention,
however, the downside risk for yourselves ismerely that youwould endup
payingtheSDLTthatwouldhavebeendueplusasmallamountofinterestat
theofficialratecalculatedfromthedatethetaxshouldhavebeenpaidtothe
date it actuallywaspaid. In our view theprobability of thepenalties being
appliedareverysmall.IntheeventthatHMRCweretosuccessfullychallenge
thearrangementthebalanceofourfeewouldbewaived.
Finally, Iamobligedtobringtoyourattentionthepossiblereputationalrisk
that you run with the HMRC in implementing any form of aggressive tax
planning. Your involvement in legalavoidancemay causeadeterioration in
yourrelationshipwithHMRCandmaymakeyourtaxaffairssubjecttoclose
scrutiny in the future beyond the remit of SDLT. If you are at all
uncomfortable with the thought of this you should not proceed with the
planning.
17
Ihopethattheabovewarningshaven’tmadeyouundulynervous–theyare
somethingthatIamboundtogiveundermycodeofprofessionalethics.
….
42. Letter2(theTERMSletter)includesthefollowingpassages:
OurServices
….
Wedonotguaranteethatwewillbeabletomitigatetheentireliabilitythat
would otherwise arise butwewillmakeour best endeavours to do so. You
should be aware that entering into a Stamp Duty Land Tax mitigation
arrangementmayresultinyouraffairsbeingscrutinisedmorecloselybythe
StampOffice.
…
Fees
Weagreetoprovidetheservicessetoutaboveforatotalfeeof£12,000(plus
VAT),whichwillberenderedasfollows:
a) A fixed fee of £4,000 (plusVAT) on implementation of the strategy due
andpayableonpresentation
b) The balance of the fee up to the amount specified abovewhichwill be
payable nine months following submission of the SDLT1 return or on
successfulconclusionofanyHMRevenue&Customsenquiry.
OurAdvice
…
Ouradvicewillbebasedonourunderstandingof thestatute,case lawand
practice as at the time of its issue and is conclusions may, therefore, be
affectedbyanysubsequentchangesinsuchlawandpractice.
18
Asummaryoftheoverallconditions,stepsandassociatedriskswillbe/have
been supplied to you. You are strongly advised to consider these before
enteringintoanytaxplanningarrangements.
…
43. AcopyoftheTERMSletter,signedby‘C.Thompson’anddated11thSeptember2007
wasfaxedbacktoCTA.
44. The schemewas thenput intoplace andAEC acquired sufficient shares inASD to
cover the value of the property. The directors of ASD resolved that the company
wouldreduceitssharecapitalbywayofadistributioninspecieoftheproperty.
45. Thepurchasewascompletedon15thOctober2007.TheLandRegistrytitlenumber
BK277416showsAECasthefinalowneroftheproperty.AnSDLT1formwasfiledfor
the transaction between the Vendor and ASD. No SDLT1 form was filed for the
second transaction. No discovery assessment was issued within 9 months of
completionandsothebalanceofthefeeof£12,000+VATwaspaidbyAECtoCTA.
46. HMRCissuedadiscoveryassessmentnoticedated11thOctober2011toASD,aswell
asadeterminationtoAECLtd(4daysbeforethestatutorydeadline)andstartedthe
processbywhichtheuseoftheschemeandtheavoidanceofSDLTwasultimately
challenged. Initially AEC, through Mr Thompson, resisted HMRC’s request for
paymentoftheSDLT.
47. On 16th January 2017, HMRCwrote to AEC and set out their view concerning the
discoveryassessmentandtheirdetermination.Thiswasreviewedandre-affirmedby
March2017. Ina letterdated30thMay2017HMRCconfirmedtheiracceptanceof
AEC’soffertopaythefullamountofSDLTplus interest.Aspartofthesettlement,
HMRCdidnotimposeapenalty.
LIVEEVIDENCEBEFORETHETRIBUNAL
19
48. MrHannahadoptedhistwowrittenstatementsandgaveevidencetotheTribunal.
He said that he had advised clients about the ULRICA scheme prior to December
2006. He said that the tax environment was wholly different to the anti-tax
avoidanceenvironmentthatdevelopedafter2007.
49. InrelationtotheULRICAscheme,priorto6thDecember2006,HrHannahhadrelied
ontheopiniondraftedbyPatrickCannon(dated9thAugust2006).Asaresultofthat
opinion,hehadconsideredthattheschemerepresenteda‘lowrisk’.
50. MrHannahstatedthathehadgivenapackofdocumentstoHazlewoods.Thispack
includeda2-pagedocumentcalled‘ULRICAFAQs’,a2-pageentitled‘ProjectULRICA
–SDLTMitigation’,a2-pagedocumentcalled‘TheWhoandWhyofSDLTPlanning–
AGuide to theMethodsofCornerstoneTax’,a2-pagedocumentcalled ‘SDLTand
Tax Planning’, a 3-page document entitled ‘TAX PLANNING – THE CLIENT’S
CONCERNS’ and a 2-page document called “WHAT ARE THE RISKS?”. This last
documentwasdated10thMarch2006.
51. Heacceptedthattheentirepackofdocumentswasdraftedpriortotheproposalto
insertsection75AintotheFinanceAct2003on6thDecember2006andthathehad
notupdatedorchangedanyofthepackofdocumentsafterwards.Hesaidthathe
had readPBRN17,HMRC’s TechnicalNoteandSDLTTechnicalNews5when they
hadbeenpublished.
52. The pack of document contained the following sections thatwere relevant to the
questionofrisk:
a. WithintheULRICAFAQ’sdocument:
6. Do I have any liability or exposure after nine months? Providing the
planningstepsarefollowed,particularlytherecommendationsofCounselon
thesubmissionsofReturns, then there shouldbeno realisticprospectofan
Enquirybeingopenedafterninemonths.However, followingthedecision in
20
Langham v Veltema the possibility of the Revenue attempting to open an
Enquiry after the ninemonths cannot be ruled out. Counsel has advised us
thattheybelievetheprobabilityofthesuccessofsuchachallengeisremote
on technicalgroundsand should thisbeattemptedwewill resist it on your
behalf.
b. Withinthe‘ProjectULRICA–SDLTMitigation’document:
TechnicalAnalysis
The sub-sale provisions in section 45 FA 2003 provide that the original
contract (purchasedby theunlimited company) is tobedisregardedeven if
completed where this is sub sold or assigned “at the same time and as in
connectionwith”theperformanceofthesub-salecontract(thedistributionof
the assets BC). Accordingly the original contract purchase wants to be
disregardedas it isnota landtransaction.Thechargeableconsiderationfor
thesecondarycontract(thedistributionofspecie)isnil.AccordinglynoSDLT
ispayableonthepurchase.
c. Withinthe‘TheWho&WhyofSDLTPlanning–AGuidetotheMethodsof
CornerstoneTax’document:
WhoareCornerstoneTaxAdvisors?
Cornerstone Tax Adviserswas established inMarch 2006 by David Hannah
ACA CTA who decided to form a practice specifically focussed on property
taxes planning and, more immediately, in his own specialist area of SDLT
planning.DavidisanexperiencedCharteredAccountant(1984)andChartered
Tax Advisor (1987) who has, since the introduction of SDLT, specialized in
producing planning strategies for the mitigation of this tax, and bespoke
advice,forclientsofSolicitors,Accountants,andBanksacrosstheUK.
…
21
SohowdoyouplanSDLT?
…
Acarefulstudyoftheprovisionsofpart4ofFinanceAct2003revealthat,far
frombeingawelldraftedandthoroughpieceofanti-avoidancelegislation(as
advertised byHMRC), therewere in fact a considerable number of drafting
defects inthestatute.Thesecentredeitheronunwittingomissionsfromthe
chargingclauses,unwitting inclusions intheexemptionclauses,andthe law
of unintended consequences applying to certain of the calculative charging
provisions.
Cornerstone Tax Advisors has developed and implemented a number of
strategiesbasedon thesedefects since2003,andcontinues toexplorenew
ways of producing legal tax avoidance structures that will successfully
mitigateSDLT.
WhatPlanningcanachieve
As a result of three years work and well over 250 cases implemented
CornerstoneisnowabletoofferSDLTPlanningstrategiesbothinvolvingand
notinvolvingthevendor.Thesestrategiesaregenerallydesignedforspecific
client groups, i.e. individuals, married couples, co-habiting couples,
partnerships, companies and pension schemes. Most planning
implementationsneed to takeplacepre-exchange,but canbe implemented
postexchangeifre-issueofcontractsnotproblematic.Reductionsof85%to
100%ofthetaxcanbeachievedwithahighprobabilityofsuccess.
d. Withinthe‘SDLTandTaxPlanning’document:
HowBindingisthePlanning?
22
Inordertoensurethatanenquirycannotberaisedafterninemonthsdueto
fraudulentactivity,yourtaxadvisorgainsafavourableopinionfromcounsel.
As you sought advice from the bar regarding the strategy, you cannot be
accused of fraud or negligence, so an enquiry cannot be raised after nine
months.However,counselwillnotgivefavourableopinioniftheybelievethe
planningwillnotstandupinacourtoflawifchallenged.
So,theopinionservestostatethat,theplanningisbothlegitimateandwill,in
allprobability,alsosucceedifchallengedincourt.
Thereforeafterexpiryof theenquirywindow theplanning is successfuland
theSDLTpaidistherequiredamount.
PotentialLoss:ThroughEnquiry?
If HMRC make a successful challenge (although unlikely in the opinion of
counsel), you would have to pay the SDLT that would be charged without
planningandanyinterestforlatepayment.
e. Withinthe‘TAXPLANNING–THECLIENT’SCONCERNS’document:
This guidance note is intended to assist you in answering clients’ questions
abouttherisks, rewards,upsidesanddownsidesandgeneralbackgroundof
taxplanningservicesundercurrentUKlegislativeenvironment.
WhatisTaxPlanning?
…
Taxplanningmightbeconsideredasgettingthebestpossibledealavailable
inside the law. It isahighly specialisedareamainlypractisedbyspecialised
firms of tax consultants andmembers of the bar in the UK. Tax avoidance
23
may be deemed unacceptable by the Inland Revenue. Recent public
pronouncements by the government have branded tax avoidance in certain
circumstances as “immoral” but this has largely been a propaganda
campaign by the government to prevent taxpayers doing what they are
permittedtodoundercurrentUKlegislation.
HowIsTaxPlanningDifferentFromTaxEvasion?
Tax planning uses techniques which are, based on the advice of Counsel,
insidethelaw.QuiteoftenthesetaxplanningtechniquesareviewedbyHMRC
asbeingacceptable.Sometimestheyarenot.Theacceptabilityorotherwise
toHMRCofaparticularpieceoftaxplanningdoesnotaffectitslegalityand
indeed a system exists for resolving disputes over technicalities or
interpretations of the law which, ultimately, end up with a question being
referredtotheHouseofLordsorindeedtheEuropeanCourt.
Ifyouareinvolvingyourself inanyprogrammeoftaxplanningthenyouwill
only do so on the advice of a tax advisor, accountant or other suitably
qualifiedprofessional.Shouldtheplanningbedeemednoveloraggressiveitis
quitenormalforyouradvisorstoseektheadviceofCounsel…andthemere
fact of taking Counsels advice and, assuming Counsel advise that the
proposedapproachislegal,meansthatyoucannotbecommittingtaxfraud.
However,themereholdingofaCounsel’sopiniondoesnotnecessarilymean
thattheadviceisguaranteedtosucceed.Counselhavemerelyexpressedtheir
view that, on the balance of probabilities, the proposed planning should
succeedbeforethecourtifchallenged.
f. Withinthe“WHATARETHERISKS?”document:
WhatHappensIfTheInlandRevenueChallengeThis?
…
24
MostcasesaredecidedatSpecialCommissionerslevel….Howeveritisopen
forHMRCor the taxpayer to take thematters toahigher court.Both sides
take cases all the way to the House of Lords where they feel there is an
important point of principle which needs clarification… The other avenue
open to the government in the event of a loss is simply to make a
parliamentarystatementandthenamendthelawinthenextbudget.
Both these routes have been used extensively by the government and
taxpayersovertheyears.RecentdecisionsintheHouseofLords….havegone
infavourofthegovernmentbutothers…havegoneinfavourofthetaxpayer.
When cases have been referred to the European Court of Justice … the
decisionhasgoneinfavourofthetaxpayerinthevastmajorityofcases.
CONCLUSION
Taxplanning isnot for everyone.Personsofanervousdisposition,whoare
relativelyunsophisticatedintheirTaxaffairs,orholdstrongviewsaboutthe
morality of Tax Planning are almost certainly best advised not to proceed
withit.
For thosepersonswhoare,orhavebeen,usedto takingmeasuredriskand
judgingthisagainstlikelyreturnsthenTaxPlanningisanotherjudgmentcall
andtheyaremorethanlikelytoproceed.
Simplyputyoucannotpredictwhichpotentialclientwill,orwillnot,beone
whowillproceed,butagoodknowledgeoftheirbackgroundandattitudeto
lifewillgiveastrongindicatoroftheirlikelyapproach.
…
10March2006
25
53. MrHannahsaidthathehadnotupdatedthispackofdocumentstoincludewhathe
saidwere“complicatedexplanations”aboutsection75A incircumstanceswhere it
would“justleadtofurtherexplanations”.Hesaidthatinhisviewtherewasnoneed
tosodo.
54. In short, he said that his view as to risk had not changed and that, after the
announcement to implement section 75A, there remained a ‘low’ risk, albeit a
slightly increasedone.He said Itmayhave increased theprobability, but itwould
stillhavebeenwithinthebracketof“low”.Whenasked,“Whatdidyoumeanbylow
probability?”he said: “Imeant less than51%,20 to25%atmost”.He said that in
lightoftheopinionCornerstoneshadreceivedfromcounsel,theydidnotthinkthat
thistechnicalmaterialneededtobebroughtup-to-date.
55. TheTribunalalsoheardevidencefromRogerBindschedler,whowasasolicitorwho
specialised in taxation and in particular SDLT. He was as a member of the SDLT
Group (agroupofpractitionerswhowouldcommunicate inorder tobounce ideas
off one another).He described his “shock” reaction to the introduction of section
75Ainthepre-budgetbriefinginDecember2006.Hesaid:‘Whenitfirstcameout,
thereactionofmyselfinitiallywas“BackOff!”,butthenwelookedatit.’
56. Mr Bindschedler said that a round robin e-mail was circulated and in early 2007
membersoftheSDLTGrouphadhad3meetingswithCrispinTaylor(HMRC’sheadof
SDLT)todiscussthelegislation.Hesaidthatthegroup‘tookapartthelegislation’.He
alsosaidthat“TheRevenuewerenotgoingto‘OK’orformallyapprovetheULRICA
scheme–theywereapplyingtheirinterpretationtodefeatit”.
57. Mr Bindschedler gave evidence that the company he then worked for stopped
offering the scheme when section 75A was initially proposed. The pre-budget
proposals came as a complete shock; and then,when they re-started offering the
scheme, theyonlyoffered it to “big commercialorganisations”,onan “eyes-wide-
open”basis.
26
58. MrHannahacceptedthatthearrivalofsection75Awas“abigstepchange”andit
wasaproblematicissue.
59. MrHannah sought a further opinion, this time from another leading authority on
SDLT (Mr PatrickWay) in respect of a ‘husband and wife’ case in May 2007. He
accepted that the facts were different, but considered that the opinion had
applicationinsofarastheeffectofsection75Awasconcernedgenerally.
60. MrHannahsaidthatitwasnothispracticetohandoutcounsels’opinionstohislay
clientsbuthewouldhavegiventheopinionstoHazlewoodsalongwiththefullpack
ofdocuments.MrHannahsaidthatheexpectedHazlewoodstopassonthepackof
documents to clients.He said thatMrThompsonmighthave seen theopinionsof
counsel,butwouldnothavebeengivenacopy.
61. He accepted that he had no knowledge of what discussions took place between
HazlewoodsandAECandMrThompsonbuthehadassumedthatHazlewoodshad
gone through theFAQsandotheradvisorydocumentswith theclient.Hehadnot
givenHazlewoodsanyformal instructionsastowhatadvicehadtobegiventothe
client.
62. Patrick Cannon’s second opinion (undated, but post 15th August 2007) had been
obtained byMr Hannah.Mr Hannah’s solicitor (Jonathan Levy) had contactedMr
CannonbyemailinJanuary2020,howeverMrCannondeclinedtoprovideawitness
statement,on theadviceofhis senior clerk. Further,whenasked fordisclosureof
documentsrelatingtotheULRICAscheme,MrCannondidnotrespond.Inanyevent,
thedateofthatopinionremainedunclearatthetimeofthetribunalhearing.Itwas
unclearwhether thisopinionexistedat thedate the two letters (the ‘ADVICE’and
‘TERMS’letters)weredraftedandsenttoAECon3rdSeptember2007.
63. Inanyevent,atthattime(August2007)MrHannahsaidthathewasinLincolnsInn
weeklyorfortnightlyandsowouldregularlyspeaktoPatrickCannon“overcoffee”.
He said thatwhether this opinionwas received before or after the date that The
27
Lettersweredrafted,itreflectedMrCannon’sopinionastoriskatthattimeofThe
Letters. Mr Cannon’s was an opinion that he felt entitled to place great reliance
upon,asMrCannonhadwrittenseveralrespectedbooksandarticlesonthesubject
andwasrecognisedasaStampDutyexpertinhisfield.
64. MrBindschedlerconfirmedthatbothMrCannonandMrWaywerepre-eminentin
theirfields.Heconfirmedthatfrommid2007hehadworkedwithMrHannahand
wasawarethatMrHannahwouldfrequentlybeinLincolnsInnandatMrCannon’s
chambers.
65. Mr Hannah said he placed reliance on the informal opinions of other tax
practitioners,whoallsharedageneralviewastothelowlevelofriskpresentedby
the introduction of section 75A, although there was no evidence, other than Mr
Bindschedler’s,fromanyothertaxpractitioners.Hesaidthathehadhaddiscussions
during the period aboutwhatweight you could give to Revenue announcements,
whethertherewasaprobabilityofsuccess.
66. Mr Hannahwas also of the view thatMr Thompsonwas financially sophisticated
becausehewasthedirectorofalimitedcompany(AECwastoberunasabusiness
byhisdaughter)andwouldthereforehavehisownappreciationoftheriskinherent
inthescheme.HeacceptedthathehadnoreasontothinkthatMrThompsonhad
anyspecialistknowledgeofSDLT,thecaseofRamsayortheintroductionofSection
75A.
67. MrHannahreliedonthedelayinMrThompsonmakinghiscomplaintinsupportof
his contention that Mr Thompson had not thought that the Advice had
shortcomings.
68. MrHannahwasaskedextensivelyaboutthetwoLetters.TheLettershadonlybeen
“slightlychanged”fromtheversionsthatwereusedpriortoDecember2006.Hesaid
that the two letters were template letters and were not specifically designed for
28
AEC.Heconcededthatidenticallettersweresenttoallotherprospectiveclientsat
aroundthattime.Hesaidthatatthistime,CTAhad40to50clientsperweek.
69. He said that he had not mentioned section 75A or the case of Ramsay (and the
doctrine of purposive interpretation) because thatmay have ‘befuddled’ ordinary
people, including the client. The letters had been drafted in an effort to boil the
advicedown inaway thatwasunderstandable.He said thathehadnot repeated
PatrickWay’s‘FaultLines”forsimilarreasons.
70. Although Mr Thompson had been referred to CTA by Hazlewoods, Mr Hannah
acceptedthathehadresponsibilityforadvisingon‘Taxmatters’,asHazlewoodshad
onlybeenpaidafeeof£500+VATforadvisingtheclient.MrHannahwastobepaid
£12,000iftheschemesucceededand£4,000ifHMRClaunchedadiscoveryenquiry
within9monthsofthepropertytransactions.Hesaidthatiftheclientdidnottake
CTA’sadviceandwalkedawayfromtheproposedscheme,CTAwouldtakenofeeat
all.
71. HestatedthatAEChadpaid£12,000+VAT,astheschemehadnotbeenchallenged
within9monthsofthepropertytransaction.Hehadnotsubsequentlyrefundedthe
fee, once a challenge had been instigated by HMRC in 2011, and the SDLT (plus
interest)hadbeenpaidin2017.
THETRIBUNAL’SDECISION
72. TheTribunalremindeditselfthattheTDBhadtheburdenofprovingitscasetothe
civilstandardandthatMrHannahdidnothavetoproveanything.
73. TheTribunal took accountofMrHannah’snear-unblemishedhistory (hedisclosed
thathehadreceivedafineresultingfromthefirm’sadministrativefailuretosubmit
ananti-moneylaunderingreturnontime.ThiswasdisregardedbytheTribunal).
29
74. Mr Hannah was an experienced and well-respected Tax Adviser.Mr Bindschedler
wrote in hiswitness statement in positive terms aboutMrHannah’s integrity and
professional standing. The Tribunal took Mr Hannah’s positive character into
account,bothintermsofhispropensitynottobreachRegulationsandalsointerms
ofhiscredibilityasawitness.
75. Itwas clear that section 75Awas proposed in order to stop schemes such as the
ULRICAscheme.
76. TheTribunalsoughttoputthemselvesinthepositionofareasonablycompetenttax
advisorarmedwiththeinformationthatwasreadilyavailableatthetimetheletters
weredrafted,3rdSeptember2007.Atthattimethenewproposedlegislationcould
nothavebeenlitigated.
77. Further,therewasnothingintheTribunal’sviewtogiverisetoaninferencethatMr
Thompsonwasexperiencedintaxaffairs.
78. Inthosecircumstances,theTribunalwereoftheviewthattheADVICElettershould
haveincluded:
a. Areferencetosection75A,whichhadbeenrecentlyproposedandenacted,
b. ThatHMRC inPRBN17 (6thDecember2006) andHMRC’s TechnicalNote5
(15thAugust2007)hadstatedtheiraimwastopreventschemesofthistype
c. Adistillationofthe“FaultLines”identifiedbyPatrickWay,
d. A distillation of the caveat mentioned in the (undated) opinion of Patrick
Cannon
e. Thefactthatthenewlegislationhadneverbeentested
f. That the risk involved in entering into this scheme was at best unknown
becausetheschemewasbeingspecificallyattackedbyHMRC
79. The Tribunal noted the contention in the defendant’s closing submissions
(paragraphs 56-58) that the FTT and the courts do not attributeweight to HMRC
30
“guidance” when interpreting legislation. However, section 75A was very new
legislation,andintheabsenceofanyJudicialinterpretation,areasonablycompetent
tax practitioner should have taken note of the published views of HMRC, when
advisingaclientoftheamendedriskprofileoftheproposals.
80. TheADVICEletterstatedthat“HMRCmayseektochallengethisstrategy(although
inour experience theyhavenot yetdone so)”. In sodoing, the letterwouldhave
provided reassurance toMrThompson that therewasa relatively low levelof risk
inherentinadoptingthescheme.
81. TheADVICEletteralsostatedthattherewasalowriskprobability,which(according
toMrHannah)wasasummationoftheadvicehehadreceivedfromCounsel.Having
read the opinions from Counsel, the Tribunal did not agree with that risk
assessment, especially when those opinionswere viewed against the backdrop of
theHMRCpublications.
82. Inaddition,useofthetermsinthefinalthreeparagraphsof“Iamobligedtobringto
yourattention”and,“theyaresomethingthatIamboundtogiveundermycodeof
professional ethics” had the effect of further undermining the limited warnings
contained in the letter. In theTribunal’sview,adequate riskwarningsshouldhave
beenafarmoreprominentfeatureoftheADVICEletter.
83. The Tribunal considered that the TERMS letter failed to set out which firm
(HazlewoodsorCTA)wasadvisinguponwhichaspectsofMrThompon’saffairs.Mr
Hannah conceded in evidence that hewas instructed as the tax advisor, and that
Hazlewoodswereoffering farmore limited taxplanningadvice.Where theTERMS
letter referred to the client being made aware of the ‘associated risks’ that will
be/will have been brought to Mr Thompson’s attention, the PACK had not been
updatedtoincludeanyreferencetosection75A.Inaddition,MrHannahhadnoway
of knowing whether the opinions of Messrs Way and Cannon had actually been
showntoMrThompsonatanystage.
31
84. TheTribunalwasof theview that thepackofdocumentswas toocomfortingand
encouraging in favour of the scheme, noting in particular the “high probability of
success”mentioned in the “WHO&WHY OF SDLT PLANNING – A GUIDE TO THE
METHODSOFCORNERSTONETAX”.Again,therewasnomentionofthefundamental
alterationtoriskcreatedbyHMRCchangesandtheiruntestednature.MrHannah’s
reasonsfornotincludingthesection75Achanges(“theywouldbebefuddlingforthe
client”)were not ones that the Tribunal accepted; the packwas very technical in
partsandtherewasnologicalreasonforitsnon-inclusion.
85. TheTribunalwasconcernedthattheADVICEandTERMSletters,aswellasthePACK
ofdocumentshadnotbeensignificantlyupdatedtotakeaccountoftheseismicshift
inriskoccasionedbythe introductionofsection75Aandthe ‘fault lines’expressly
includedinMrWay’sMay2007opinion.
86. TheTribunalalsonotedtheevidenceofMrBindschedler,whosaidhehadstopped
advisingupontheschemeimmediatelyafterthe6thDecemberpublicationandwhen
here-started,heonlyofferedtheschemetocommercialclientsonan“eyes-wide-
open”basis.
87. InthecontextoftheTribunalsconclusionsabove,theTribunalconsideredthethree
chargesinturn.
88. Charge 1 concerned the adequacy of the advice about the routes and means of
challengetotheULRICAschemebyHMRC,includingtheproperinterpretationofs.
45andtheuseofs.75AoftheFinanceAct2003.TheTribunalfoundthatthiswasa
matter that ought to have been advised upon byMr Hannah, in breach of PRPG
Rules 5.6.1 to 5.6.3, including specifically “the technical complications presented”
(5.6.1)and“theneedtoseekotherprofessionaladvice”(5.6.1).Havingappropriately
soughtadvicefromspecialistcounsel,MrHannahfailedtoadequatelytopassonthe
clear‘faultlines’guidancereceivedinthisregard.
89. Charge 2 concerned the failure to highlight the fact that the ULRICA scheme had
been expressly targetedbyHMRCwith the introduction of s.75A aswas apparent
32
fromboththePre-BudgetReport(PBRN17)andHMRC’sTechnicalNote(bothbeing
released on 6 December 2006). The Tribunalwas entirely satisfied that there had
been such a failure byMrHannahwhich breached PRPG Rules 5.6.1 to 5.6.3 and
specifically5.6.3.Itdidnotmatterwhethertheintendedeffectofthenewlegislation
wasasdesiredbyHMRC,therequirementsofthePRPGstatethattheclientneedsto
be informed of “the technical complications presented” (5.6.1), “the existence of
authorities and precedents” (5.6.1), “the risks associatedwith the advice” (5.6.2),
and“…therelevanttaxationlegislationandthepracticeofHMRC…”(5.6.3).
90. Charge3concernedthefailuretoproperlyassessandcommunicate intheADVICE
lettertheriskofasuccessfulchallengebyHMRC.Inparticular,todescribesucharisk
as a “low probability”was not an assessment that any reasonably competent tax
advisorcouldhavereachedinthecircumstances.TheTribunalwasentirelysatisfied
that the riskmust have significantly increased after the proposed introduction of
section75A.ThisfailurebyMrHannahtoadequatelyreflecttheriskrepresenteda
breachofPRPG5.6.1to5.6.3.Itspecificallyincludedafailuretotakeaccountofthe
“the tax sophistication of the taxpayer” (5.6.1), “the risks associatedwith advice”
(5.6.1)and“theintendedpracticeofHMRC”(5.6.3).ItmatterednotwhetherHMRC
hadsuccessfullytargetedtheULRICAavoidanceschemeinthepast,orwoulddoso
inthefuture.
91. Inthecircumstances,theTribunalfoundallthreechargesproved.
SANCTION
92. TheTribunaltookintoaccountthewrittensubmissionsofbothparties,aswellasthe
sanctionsguidance.
93. Thesechargesrelatedtoinadequateclientservice;theTribunalwassatisfiedthatMr
Hannahhadnotbehaveddishonestly.
94. MrHannahhadtoldtheTribunalinevidencethathehadprovidedthesameadvice
toupto40or50clientseachweekinSeptember2007.Itfollowsthathisadvicein
33
this case cannotbe regardedas isolated,but theTribunalwasmindful that itwas
concernedwithonlyonecomplainantforthepurposesofsanction.
95. The loss toAECwas£12,000 in fees in addition to the interest charged toAECby
HMRCof£11,828becauseoftheirlatepaymentoftheSDLTthatfellduein2007.
96. (ItisrighttonotethatAEChadtheuseofthisinterestbetween2007andMay2017
so this head of loss is not accurately quantifiable. In addition, the Tribunal
recognised that it could not possibly know whether AEC would have behaved
differentlyhadMrHannah’sadvicemoreaccuratelyreflectedtheriskthatexistedin
September2007).
97. The Tribunal concluded that the relevant aggravating features concerning the
chargeswerethese:
a. ThiswasnotaminormisjudgementbyMrHannahbutafailuretoappreciate
thewayinwhichHMRCwereseekingtopreventtaxavoidanceschemeslike
theULRICAschemethatfeaturesinthiscase.
b. MrHannah’s advice toAECappeared to theTribunal tobe contrary to the
spirit of the Opinions that Mr Hannah had relied upon. For example, Mr
Way’s ‘fault lines’wereostensibly ignoredwhenMrHannahadvisedAECof
therisksandpotentialrisksinherentinadoptingthescheme;hehadignored
MrWay’sadvicethat“anybodyenteringintothescheme,shouldbeawareof
thesefaultlines”.
98. Inshort,theTribunalwereoftheviewthatMrHannah’sadvicefellwellbelowthe
standardexpectedofareasonablycompetentcharteredtaxadviser.
99. Mr Hannah told the Tribunal in evidence that he remained of the view that his
advice was accurate, notwithstanding the Project Blue Supreme Court decision in
2018.Inthisway,theTribunalwasoftheviewthathelackedinsightintohisfailings
atthetimethattheadvicewasgiven,andhascontinuedsotodo.
34
100. In the Tribunal’s view, the relevant mitigating feature was Mr Hannah’s
effective good character, overmany years of professional practice and regulatory
membershipbothbeforehisadvicetoAECinSeptember2007andthereafter.
101. In addition,Mr Binschedler spoke highly ofMr Hannah in evidence to the
Tribunal.
SANCTIONIMPOSED
102. TheTribunalremindeditselfthatthepurposeofsanctionswasnotsimplyto
punishthemember,althoughapunitiveeffectmayresult.
103. The Tribunal had verymuch inmind thepublic interest, namely protecting
the public, upholding the proper standards of conduct in the profession and
maintainingthereputationoftheprofession.
104. TheTribunalconsideredalloftheavailablesanctions,startingwiththeleast
onerous. Itconsideredthat takingnoaction, lyingon file,anapologyorawarning
wouldnotmarkthistransgression.However,acensurewastheminimumsanction
thatwasnecessaryinthecircumstances.Onlyacensurewouldmarktheseriousness
of theconduct foundproved. Itwouldsendaclearmessagetotheprofessionand
thepublicthatsuchbehaviourwasunacceptable.
FINE
105. TheTribunalconsideredwhetherafineshouldbeimposedinthiscase.The
Tribunal concluded that a fineof£5,000would senda cleardeterrentmessage to
theprofessionandwouldalsomaintainpublicconfidenceintheregulatoryprocess.
COMPENSATION
106. TheTribunalalsoconsideredwhetherapaymentofcompensationwouldbe
appropriate.Regulation25provides:
35
Compensation
25.1IfafindingofInadequateProfessionalServiceismadebytheDisciplinary
TribunalortheAppealTribunal,theTribunalmayconsidercompensationasa
remedy in respect of such inadequate service. The Tribunal may direct the
Defendant to pay compensation in such sum as was the result of the
InadequateProfessionalServicerenderedbythedefendant.
25.2Indeterminingwhetheranysumistobepaid,orinfixingtheamountof
suchsum,theTribunalshallinparticularhaveregardtoanylosssufferedasa
resultoftheInadequateProfessionalService,theavailabilityofotherformsof
redress,thegravityoftheconductcomplainedofandtheamountofanyfee
claimedbyorpaidtotheDefendantforthatInadequateProfessionalService.
25.3 Any sums awarded under Regulations 25.1 and 25.2 above shall be
subjecttothelimit[of£5,000]specifiedinRegulation20.6(f)(viii)above.
107. Mr Hannah’s failings plainly reflected “Inadequate Professional Service” as
definedinRegulation2.1(p).
108. AECwas out of pocket to the sumof at least £12,000. Applying regulation
25.1,theTribunalorderedcompensation,payabletoAEC,inthesumof£5,000.
COSTS
109. Costswereagreedbetweenthepartiesinthesumof£49,013.12.
PUBLICATION
110. In accordance with Regulations 28.1 and 28.5 of the Taxation Disciplinary
Scheme Regulations 2014 (as amended), the Tribunal ordered publication of its
orderandreasons,withoutrestriction.
36
DrJonathanPage 22ndMarch2020
37
APPENDIX1
Charge1
Allegation
Incontraventionofrules5.6.1to5.6.3oftheProfessionalRulesandPractice
Guidelines 2006, Cornerstone TaxAdvisors failed to adequately set out and
describe insufficientdetail thepotential routesandmeanschallengeto the
ULRICAschemebyHMRC,includingtheproperinterpretationofs.45andthe
useofs.75AoftheFinanceAct2003.
ParticularsofAllegation
In a letter dated 3 September 2007, Cornerstone provided advice to the
ComplainantinrespectoftheULRICAscheme.Theletteradvisedthat“there
is a probability, albeit a low one, that they may be able to successfully
challenge the strategy using the principles developed in the tax avoidance
caseofIRCvRamsayorundercurrentanti-avoidancelegislation”.Theletter
failedtoprovideadequateadvicetohowHMRCmightgoaboutchallenging
theULRICAschemesuchthattheComplainantcouldhavebeeninaposition
toproperlyjudgetheriskandrewardsoftheULRICAschemeonaninformed
basis.
Charge2
Allegation
Incontraventionofrules5.6.1to5.6.3oftheProfessionalRulesandPractice
Guidelines2006,CornerstoneTaxAdvisorsfailedtohighlightthefactthatthe
ULRICAschemehadbeenexpressly targetedbyHMRCwiththe introduction
38
ofs.75AaswasapparentlyfromboththePre-BudgetReport(PBRN17)and
HMRC’sTechnicalNote(bothbeingreleasedon6December2006).
ParticularsofAllegation
Cornerstonedonotappear tohave considered theguidancenotesgivenby
HMRC at the time s.75A was released and in any event these were not
mentionedinCornerstone’sletterof3September2007.Inparticular:
(4) The 2006 Pre-Budget Report Notes. In PBRN 17 at paragraph 7, the
followingexamplewasgivenofaschemetowhichs.75Awouldapply:
“AagreestosellpropertytoBLtd,acompany.UponcompletionBLtd
transfers the property to its parent, C Ltd, by way of a dividend in
specie.”
(5) HMRC’s Technical Note in relation to the 2006 Regulations where, in
Example5atparagraph16,thefollowingwasstated:
“The following examples illustrate the application of section 75A on
the assumption that the tax saving test is satisfied. HM Revenue &
Customs does not accept that the tax saving test is necessarily
satisfiedinanyoftheseexamples.
…
(5)VagreestosellpropertytoNLtdfor£10million.NLtddeclaresa
dividendinfavourofP,itssoleshareholder,thedividendtoconsistof
thepropertyandtobepaidatthesametimeascompletionoftheV-N
Ltdcontract.Thecontract is completedand theproperty transferred
toP.”
Cornerstone either was aware or ought to have been aware of these
examples.TheyshowedthatitwasatleastintendedbyHMRCthats.75Aof
39
FinanceAct2003couldbeusedtochallengetheULRICAschemeorschemes
similartoit.
In addition, given that such material was published when the 2006
RegulationswerelaidbeforeParliamentandwouldhavebeenavailablewhen
FinanceAct2007waspassed,therewasarealriskthattheycouldbetaken
intoaccountwhenconsideringwhethers.75AappliedtoULRICA.
Further, theTechnicalNoteat leasthighlighted the fact thatHMRCdidnot
necessarily accept that any savingwas achieved under s.45 of Finance Act
2003.
In light of the above, a reasonable tax advisor acting in the position of
Cornerstoneshouldhavedrawntheabovetotheirclient’sattention.
Charge3
Allegation
Incontraventionofrules5.6.1to5.6.3oftheProfessionalRulesandPractice
Guidelines 2006, Cornerstone Tax Advisors failed to properly assess and
communicate in their letter of 3 September 2007 the risk of a successful
challenge by HMRC. In particular, to describe such a risk as a “low
probability” was not an assessment that any reasonable tax advisor could
havereachedinthecircumstances.
ParticularsofAllegation
InlightofthematerialsetoutintheParticularstoCharge2andmore
generallytheknownattitudeofHMRCtosuchformsofplanning,no
reasonabletaxadvisorcouldhaveadvisedthattheriskofasuccessful
challengewasa“lowprobability”.
40
APPENDIX2
RULES5.6.1to5.6.3OFTHEPROFFESIONALRULESANDPRACTICEGUIDELINES2006
(“PRPG”)provide:
5.6Formandcontentofadvice
5.6.1Ondecidingon the formof advice provided to a taxpayer, amember should
exerciseprofessionaljudgementandshouldconsidersuchfactorsasthefollowing:
•theimportanceofthetransactionandamountsinvolved
•thespecificorgeneralnatureofthetaxpayer’senquiry
•thetimeavailablefordevelopmentandsubmissionoftheadvice
•thetechnicalcomplicationspresented
•theexistenceofauthoritiesandprecedents
•thetaxsophisticationofthetaxpayer
•theneedtoseekotherprofessionaladvice
5.6.2Anadvicecommunicationshouldnormallysetout:
•thepurposeforwhichtheadviceisrequiredandtheclient’sobjectives
•thebackgroundfactsandassumptionsonwhichtheadviceisbased
•thealternativesopentotheclient
•therisksassociatedwiththeadvice
•relevantcaveatsandexclusions
5.6.3 When formulating advice the member should refer to the relevant taxation
legislationandthepracticeofHMRC.Dueregardshouldalsobegiventocaselaw.