Locke, R (On the Application Of) v Revenue And Customs

For a follower notice to be given, the asserted tax advantage is identified at the level of the claimed tax relief, rather than by reference to each statutory condition governing eligibility for that relief. HMRC may compare the taxpayer’s chosen arrangements with arrangements considered in a final judicial ruling and form the required opinion where the arrangements are materially similar. The fact that an issue of legal characterisation was not decided in the earlier ruling does not prevent that ruling from being relevant if its principles and reasoning would, if applied, deny the asserted advantage. The statutory scheme is intended to deter the continued pursuit of tax advantages based on arrangements already addressed by a final ruling.

The claimant sought judicial review of ten follower notices and corresponding accelerated payment notices issued by HMRC under Part 4 of the Finance Act 2014. He had claimed income-tax relief for interest on loans used to finance his participation in a film partnership.

HMRC relied on the Court of Appeal’s decision in Eclipse Film Partners No 35 LLP v Revenue and Customs Commissioners [2015] EWCA Civ 95. In that case, arrangements involving capital contributions to a film partnership were held not to satisfy the statutory conditions for relief because the partnership was not trading. The claimant argued that his arrangements involved purchasing a partnership share, an issue not decided in Eclipse 35.

The central questions were whether Condition B and Condition C in section 204 of the Finance Act 2014 were satisfied.

1. The claim was dismissed. The conditions for issuing the follower notices were satisfied, and HMRC was entitled to issue the accelerated payment notices.
2. The asserted tax advantage was the claimant’s claim for relief on interest paid on money borrowed to finance participation in the partnership. Section 353 ICTA created the entitlement to claim relief. Section 362(1)(a) and (b) supplied conditions governing the amount of interest eligible for relief; they did not create separate tax advantages for the purposes of section 204(3) of the Finance Act 2014.
3. Condition B was satisfied because the claimed interest relief resulted from the claimant’s chosen arrangements, comprising the relevant partnership and adherence documents and the loan arrangements. It was open to HMRC to conclude that obtaining the tax advantage was one of the main purposes of those arrangements.
4. Condition C was also satisfied. Under sections 204(4) and 205 of the Finance Act 2014, HMRC had to form a rational opinion that a relevant final judicial ruling existed. HMRC was entitled to compare the nature of the arrangements in Eclipse 35 with the claimant’s arrangements and assess whether the earlier reasoning would apply.
5. The documents described the payment as a contribution, subscription or investment. They did not indicate that the claimant had purchased a share in the partnership. The arrangements were therefore materially similar to those in Eclipse 35. The Court of Appeal’s reasoning that the partnership was not trading, and that the conditions for relief on capital contributions were not met, could rationally be regarded as denying the asserted advantage if applied to the claimant’s arrangements.
6. This interpretation was consistent with the purpose of Part 4: deterring the pursuit of tax advantages and disputes based on arrangements already addressed by a final ruling, while preserving the taxpayer’s ability to maintain the substantive claim subject to the statutory penalty and immediate payment consequences.

First-instance judicial review decision. No earlier judgment in the same proceedings was stated.