Le Roux Zeeman & Ors v HM Revenue and Customs

Retrospective tax legislation does not necessarily interfere with possessions protected by Article 1 of the First Protocol. Where taxpayers had, before the legislation, at least an arguable liability to tax on remuneration structured as loans, legislation which removes the argument that the money was tax-free does not deprive them of a possession.

Even if Article 1 of the First Protocol is engaged, retrospective taxation is lawful and proportionate where it pursues the legitimate aim of securing payment of tax, is rationally connected to that aim, and does not impose an individual and excessive burden. A claimant faces the high hurdle of showing that the legislation is manifestly without reasonable foundation in all or almost all cases.

The claimants, an employee and a self-employed contractor, challenged the loan charge provisions in Schedules 11 and 12 of the Finance (No 2) Act 2017. The provisions treated certain outstanding disguised-remuneration loans and quasi-loans as taxable income or trading profits.

They sought declarations under section 4 of the Human Rights Act 1998, arguing that the charges disproportionately interfered with property rights protected by Article 1 of the First Protocol. The claims were heard together. The central issues were whether the claimants had a protected possession and, if so, whether the interference was lawful and proportionate.

1. Claims dismissed. The loan charge legislation was not incompatible with Article 1 of the First Protocol.
2. The relevant possession was not the money received under the loan arrangements. The claimants had no clearly established right to retain that money free from tax. Existing legislation arguably imposed tax on remuneration paid indirectly through loans. The loan charge removed the argument that the sums were not taxable; it did not deprive the claimants of a possession.
3. The reasoning in RFC 2012 plc (In liquidation) (formerly The Rangers Football Club plc) v Advocate General for Scotland [2017] UKSC 45 supported the conclusion that money provided through an employee benefit trust as reward for services could be taxable remuneration, regardless of the legal genuineness of the loan or the structure of the arrangements. The same economic reality applied to the self-employed claimant.
4. The court followed the approach in R (St Matthews (West) Ltd & others) v HM Treasury and another; sub nom R (AVPCO 19 Ltd & others) v HM Treasury & Another [2015] STC 2272. A taxpayer cannot treat money as a possession for Article 1 of the First Protocol where an arguable claim to tax already exists.
5. Even if Article 1 of the First Protocol were engaged, the legislation pursued the legitimate aims of ending disguised-remuneration avoidance and securing a fair contribution to public finances. Retrospectivity did not itself make the measure unlawful. The legislation was rationally connected to those aims, and the claimants failed to show that it was manifestly without reasonable foundation or disproportionate in all or almost all cases.
6. The opportunity to repay loans before the charge took effect, double-taxation protections, and measures intended to mitigate hardship supported the conclusion that no individual and excessive burden had been established. The challenge to Schedules 11 and 12 was therefore dismissed.