Stephen White & Anor, R (on the application of) v The Commissioners for HMRC

The court considered challenges to HM Revenue & Customs’ exercise of the power in section 684(7A)(b) of the Income Tax (Earnings and Pensions) Act 2003 to relieve end users from obligations under the Income Tax (Pay As You Earn) Regulations 2003 (the "PAYE Regulations") in relation to offshore contractor loan schemes. The claimants did not dispute that the schemes amounted to disguised remuneration and that income tax and national insurance contributions were due.

The claimants alleged that HMRC acted unlawfully by acting prematurely, retrospectively, by failing to investigate end users and by taking into account irrelevant considerations or making mistakes of fact (including misapplication of HMRC’s AHP manual). The judge concluded that HMRC’s staged investigation (scheme-level review and sample case review), conducted in accordance with the AHP manual, was sufficient. The court held that HMRC lawfully exercised the 7A power, that no Tameside-based duty required further enquiries of the end users in the circumstances, that the retrospective exercise did not evidence an improper purpose, that there was no sufficient basis to treat Edge or AML as having a UK tax presence, and that the UK intermediaries were not "relevant persons" under section 689. The judge also held HMRC were not obliged to investigate the claimants’ personal circumstances.

Accordingly, permission to amend the statements of facts and grounds (except by deletions) was refused and permission to apply for judicial review was refused.

Background and parties: These are judicial review applications brought by Stephen White and Gary Robert Laws as lead claimants for a larger group of contractors who used offshore contractor loan schemes arranged by Edge Consulting Limited and Aston Management Limited respectively. HMRC officer Mr Millard decided in decision notices (dated 20 July 2022 and 2 September 2022) to exercise the 7A power in section 684(7A)(b) ITEPA to relieve UK end users of PAYE obligations arising under section 689 ITEPA, with the effect that contractors lost the PAYE credit they would otherwise have been able to claim. The claimants accept the schemes were disguised remuneration and accept tax and NIC were due but challenge HMRC’s decision-making process.

Nature of the application: The claimants sought permission for judicial review of HMRC’s decisions. They advanced grounds that HMRC acted prematurely, retrospectively, failed to take into account relevant matters (including personal circumstances), took into account irrelevant matters, and acted on mistakes of fact and misapplied HMRC policy (the AHP manual). They also contended HMRC should have investigated whether the offshore employers (Edge/AML) had a UK tax presence or whether UK intermediaries were "relevant persons" under section 689.

Issues framed by the court:

• Whether HMRC lawfully exercised the 7A power, having carried out sufficient inquiries under the Tameside duty;
• Whether HMRC acted improperly or retrospectively for an improper purpose;
• Whether Edge or AML had a UK tax presence making them subject to PAYE;
• Whether the UK intermediaries were "relevant persons" under section 689;
• Whether HMRC should have investigated the claimants’ personal circumstances.

Reasoning and conclusions: The court reviewed HMRC’s two-stage investigative process, the AHP manual criteria, and precedent (notably the Court of Appeal’s decision in Hoey and authority on the Tameside duty). The judge found HMRC correctly identified the schemes as offshore contractor loan schemes involving offshore employers and UK intermediaries deliberately used to obscure the offshore employer. Given those facts and the practical limits on what end-user due diligence would have revealed, no reasonable decision-maker would have been obliged to undertake further enquiries of the end users before exercising the 7A power. The court rejected the claimants’ retrospectivity/improper-purpose argument on the facts, followed the Court of Appeal’s analysis in Hoey about retrospective exercise, and held that voluntary PAYE registration or provision of a UK address did not establish a UK tax presence (following Clark v Oceanic and Hoey). The court also held the claimants did not work for the UK intermediaries and so section 689 did not apply to them. Finally, HMRC were not obliged to investigate the claimants’ personal circumstances for purposes of deciding whether to exercise the 7A power.

Disposition: Permission to amend (other than deletions) was refused and permission to apply for judicial review was refused.

This is a first-instance judicial review application. The court refused permission to amend the statements of facts and grounds except for deletions and refused permission to apply for judicial review. The judge held that HMRC lawfully exercised the section 684(7A)(b) power: their inquiries were sufficient in the circumstances; they did not act for an improper purpose or irrationally; there was no basis to find a UK tax presence for Edge/AML; the UK intermediaries were not "relevant persons" under section 689; and HMRC were not required to investigate the claimants’ personal circumstances.