Le Roux Zeeman & Ors v HM Revenue and Customs

This judicial review challenges Schedules 11 and 12 to the Finance (No 2) Act 2017 (the "loan charges") as a disproportionate interference with possessions under Article 1 of Protocol 1 (A1P1) to the European Convention on Human Rights. The court held that the claimants did not establish a possession for A1P1 purposes because, on the relevant facts and authorities (notably RFC 2012 plc v Advocate General for Scotland ("Rangers") and Brumby v Milner), the sums received as loans were at least arguable remuneration and therefore subject to existing tax law (ITEPA 2003 s.62 and ITTOIA s.25).

Even assuming A1P1 were engaged, the court concluded the loan charge measures were lawful and proportionate: Parliament was entitled to draw a line under long-standing disguised remuneration schemes, the measures pursued a legitimate aim of protecting the public revenue and fairness between taxpayers, and they fell within the State's wide margin of appreciation. The claims for declarations under s.4 of the Human Rights Act 1998 were dismissed.

Background and parties

• The claimants, Mr Zeeman and Mr Murphy, are contractors who received payments through arrangements characterised as "disguised remuneration" (DR), typically a low salary/fee together with loans from or assigned to employee benefit trusts (EBTs).
• The defendant is HM Revenue and Customs. The litigation challenged primary legislation imposing the loan charges contained in Schedule 11 (employees) and Schedule 12 (self-employed) of the Finance (No 2) Act 2017.

Nature of the claim and relief sought

• The claimants sought declarations under s.4 Human Rights Act 1998 that the loan charge legislation is incompatible with A1P1 because it disproportionately interferes with their property rights.

Issues framed by the court

1. Whether the claimants had a "possession" within the meaning of A1P1 that was interfered with by the loan charge.
2. If A1P1 was engaged, whether the interference was lawful and proportionate (including whether the measures were "manifestly without reasonable foundation").

Evidence and legal context

• The judgment summarised the background of DR schemes, prior targeted anti-avoidance measures (including the Disguised Remuneration Rules and amendments to ITEPA), and the legislative purpose of the loan charge to treat outstanding balances as taxable in 2018/19 unless repaid or on commercial terms.
• The court relied on authorities including Rangers and Brumby to explain that sums paid by an employer (or provided via an EBT) as part of remuneration can be taxable even if structured as loans.

Reasoning and conclusion

• On the question of possession, the court followed the reasoning in R (St Matthews) v HM Treasury: where there is an at least arguable statutory claim by HMRC that sums are taxable, the money cannot be said to be an unfettered possession for A1P1 purposes. Given the legal and factual context (including Rangers), HMRC had a viable claim that the loans were taxable, so the loan charge only removed an argument rather than depriving the claimants of an established possession.
• Assuming arguendo that A1P1 applied, the court found the loan charge had a legitimate aim, was rationally connected to that aim, and fell within the State's margin of appreciation. The measures were not "manifestly without reasonable foundation"; Parliament was entitled to adopt a retrospective (in timing) solution to complex avoidance schemes and to give time for repayment. The statutory provisions and reliefs (including double taxation reliefs) limited unfairness.

Disposition

• The court dismissed the claims and refused the declarations sought under the Human Rights Act 1998.

The claim is dismissed. The court held that the claimants did not have a possession for A1P1 purposes because HMRC had at least an arguable claim that the loans formed part of taxable remuneration; and, even if A1P1 were engaged, the loan charge legislation (Schedules 11 and 12 to the Finance (No 2) Act 2017) pursues a legitimate aim and is proportionate and within the margin of appreciation afforded to the State.