Simon Fleet v The Commissioners for HMRC

The form of the hearing was by video on the Teams telephone conference system.

Simon Fleet, the Appellant (“the Appellant”) represented himself and gave evidence as did Christopher Hethrington an Officer of the Respondents (“the Respondents/HMRC”) in their Counter Avoidance Directorate. Both were credible witnesses.

The documents to which we were referred were a document bundle of 283 pages, and an authorities bundle of 254 pages. In addition, we had a skeleton argument from HMRC. Included within the document bundle was a ‘witness statement of defence’ for the Appellant.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

The Appellant was appealing (1) a final closure notice (“FCN”) for the year 2009-10, issued by HMRC on 30 October 2023, which removed the Appellant’s claim for charitable giving relief under section 431 of the Income Tax Act 2007 (“ITA07”) of £199,989 relating to a purported gift of shares to the Milia Charitable Trust (“Milia”), with the resultant reduction in his self-assessment tax liability of £79,995. 60, and (2) a Notice of Penalty Assessment dated 1 December 2023 under Schedule 24 of the Finance Act 2007 (“FA07”) in the sum of £16,199.10 relating to an inaccuracy in his 2009-10 self-assessment tax return (“SATR”) regarding his claim for tax relief on the gift of shares to Milia.

Appendix A.

Appendix B.

The principal participants involved in the Appellant’s process to make a gift of shares to a charity (“the Arrangement”) were:

The only evidence of the gift of the shares was a Deed of Gift (“Deed of Gift”) which was signed by the Appellant, as the donor, on 22 March 2010 but not by DMRT, as the trustee of Milia, and there was no other evidence of delivery or transfer of the shares to Milia/its trustee.

There was insufficient evidence that the Standard Chartered shares actually belonged to or had been transferred to the Appellant, other than letters from Mitcham claiming this, as no other further evidence was produced, or was apparently available, to identify the beneficial owner of the nominee account 3642 referred to in the Ramsey Crookall & Co Ltd contract note.

Christopher Hetherington stated that enquiries were made of relevant Cypriot authorities, following HMRC’s discovery that the Appellant was one of twenty-six taxpayers who purported to make gifts of shares and/or property to Cypriot charities during the tax year ended 5 April 2010.

The Cypriot authorities responded that Milia was not regulated by tax law but by other laws of Cyprus and that it operated no bank account and no charitable activities were carried out by it during the period 6 April 2009 to 5 April 2010.

Milia had not then, or since then, produced any accounts which are publicly available and HMRC considered that it would be normal for it to have a website with pictures and text showing the trust’s activities but it had no online presence.

The Appellant repeatedly asserted in his witness statement and throughout the hearing that he had provided all the documentation he had to HMRC and that this was provided to him by MT and Mitcham.

His position was complicated by HMRC’s investigation of whether MT had been involved in a number of tax avoidance schemes, which had either resulted or contributed to MT ceasing business in 2011 and which created considerable difficulties for the Appellant when attempting to retrieve and obtain documents in connection with his dispute with HMRC.

In addition, the Appellant stated that the dispute with HMRC referred to the tax year 2009- 2010 which resulted in his being unable to remember events after such a long time gap when questioned by HMRC.

The Appellant, in the tax year 2009-2010 had been an Appointed Representative for St James’s Place, the financial services company, as a self-employed earner and his earnings had been in excess of £325,000. He confirmed that although not registered as an Independent Financial Adviser, he had, as an Appointed Representative, similar training, and qualifications.

In the Loan Agreement, the Appellant was designated as a ‘sophisticated investor’ as defined in the Financial Services and Markets Act 2000 but in his oral evidence he was unsure what this involved other than that Mitcham was, as a consequence, not required to perform a number of regulatory and consumer protection steps in providing the loan.

HMRC were of the view that the Arrangement was primarily one of tax avoidance and not of charitable giving and much of the hearing evidence related to the different steps involved in the Arrangement.

The Appellant confirmed that he had made regular personal annual charitable donations, although of much lower amounts than even £30,000, and had actively been involved in a number of charitable activities and raising substantial sums for the St James’s Place Foundation.

Milia was on a list provided by MT of three Cypriot entities described as charities which they supported. Its purpose was described as Relief of multiple sclerosis and promotion/research of same and allied conditions. The Appellant said he wished for personal reasons to benefit those suffering from multiple sclerosis and therefore selected Milia. The Appellant stated that once he had given £30,000 to MT and obtained a loan from Mitcham to enable the purchase of the shares, he, thereafter, in writing on 22 March 2010, stated he had no further interest in the shares and passed the matter over to Mitcham to deal with DMRT.

The Appellant did not consider it necessary to, and did not, carry out any due diligence in relation to Milia and its activities which was consistent with his previous experience of giving the better-known charities and to those where he had a personal link such as sponsoring a particular charitable event for an acquaintance. He had not seen the Trust Deed when he made what he considered was the gift to Milia.

Although there was an understanding that he would receive six monthly updates as to Milia’s activities, he did not receive them and took no steps to do so. His view was that he had made the charitable donation and was content to leave the charity to proceed and had “no idea what happened to the gift.”

Having been introduced to MT by a colleague, the Appellant had dealt with MT prior to the Arrangement in relation to a tax avoidance scheme which he had used personally and was mindful that that particular scheme had a DOTAS number so that HMRC were aware of the scheme.

The Loan Agreement stated that Mitcham could, with the consent of the Appellant, obtain a first charge over shares in a company listed on the London Stock Exchange/the Standard Chartered shares but the Appellant confirmed that no such charge had been granted, as far as he could recall.

If a charge had been or was created over the Standard Chartered shares then there would then have been a contradiction in relation to the Deed of Gift, albeit unsigned and therefore of limited, if any, evidential value, in which the Appellant confirmed that his gift of shares were “free from any charges, liens or encumbrances of any kind.”

Accordingly, if there had been a charge then the gift would not have been valid even under a correctly signed Deed Of Gift but there was no such valid document and there was no evidence of any transfer or delivery of the shares to Milia.

It had been suggested by MT that, as intended, there had been a charge over the shares then the charity would have had the benefit of the dividends from the shares for a period of 5 years after which the loan would be repaid by selling the shares and the charity would retain any surplus proceeds. The funds passing to the charity would not then be valued at £199,989.

If there was no charge over the shares and they had in fact been transferred to Milia, then it would be up to the trustees of Milia whether or not to sell the shares and not the Appellant or Mitcham. Milia had no bank account in which to receive the dividends.

In the event of the failure to repay the loan after five years to Mitcham, this would be due by the Appellant who confirmed that he had never been asked to repay the loan over the previous 15-16 years. The Appellant stated that he had been told by MT that the loan would be repaid by the sale of the shares and not by him.

The Appellant, accepted HMRC’s submission that the Arrangement was primarily to reduce the Appellant’s personal tax liability and not about charitable giving but disputed that a reasonable and properly informed person would, in the circumstances of the Arrangement, have carried out further enquiry and due diligence.

HMRC suggested that the Appellant’s failure to obtain and retain sufficient documents to substantiate a sizeable claim for tax relief on giving to a charity was carelessness. The Appellant responded that he did not believe his actions were careless and that he had submitted everything he had received from the various participants in the Arrangement.

On 27 January 2011, the Appellant filed his SATR making a claim for £199,989 for shares gifted to a charity.

On 18 August 2011, the Respondents opened an enquiry into the SATR pursuant to Section 9A of the Taxes Management 1970 (“TMA70”) requesting information and documents concerning the relief claimed.

HMRC then made enquiries over the intervening years in respect of the users of the scheme to first try and establish the charitable credentials of the entities to which shares were said to be gifted and then later attempted to settle enquiries with different taxpayers.

On 19 February 2018, HMRC offered the Appellant a chance to settle the matter by withdrawing his claim; but this was not accepted.

On 30 October 2023, HMRC issued the FCN in respect of the enquiry into the SATR and issued a penalty explanation letter and schedule to the Appellant.

On 16 November 2023, the Appellant appealed the FCN.

On 30 November 2023, in regard to the FCN, HMRC provided their current view of the matter and offered a statutory review of the decision.

On 1 December 2023, HMRC issued their penalty assessment.

On 30 December 2023, the Appellant responded to HMRC’s view of the matter in respect of the FCN which was accepted as a request for the statutory review of the decision.

On 24 January 2024, the Appellant appealed the penalty assessment and requested a statutory review of the decision.

On 30 May 2024, HMRC issued a Review Conclusion letter upholding the decisions contained in the FCN and penalty assessment.

On 24 June 2024, the Appellant notified his appeal to the First-tier Tribunal (Tax Chamber).

In regard to the FCN, under s50(6) TMA70, the Appellant bears the burden of proof to show that he is overcharged by the amendment to his self-assessment.

In regard to the Penalty, HMRC have the initial burden to show that all the conditions for making the penalty assessment have been met. Once HMRC have done so, the burden shifts to the Appellant to show why he is not liable to the penalty, or that there are facts not taken into account that would reduce the penalty amount and/or suspend it.

The standard of proof is the civil standard, the balance of probabilities.

The Appellant took professional advice from Watkin Gittins, CEO of MT between December 2009 and March 2010, and invested £30,000 of his own money, which together with a loan facility of £170,000 from Mitcham, granted on 05 March 2010,was used to purchase shares which he gifted to the DMRT, the trustee of Milia. He then had no further interest in the shares.

This was, therefore, the end of his involvement with the charitable gift other than completing his tax return with the information and figures for charitable giving, a process of which he was aware, having gifted monies to charities in previous tax years.

At the request of HMRC in 2011, the Appellant sent them copies of all correspondence to back up his claim, including proof of a paid consultancy fee of £1,175 to MT. He also answered HMRC’s additional questions from his own knowledge and further advice from MT.

HMRC state that the loan is unusual as no interest has been payable and yet the loan agreement states that interest will be charged in full on repayment of the loan and that the lender can have a first legal charge over the shares purchased. The Appellant says that this works in the same way as an equity release loan and so is not unusual.

MT also explained that the charity would benefit from any dividends together with any surplus after loan repayment upon the sale of those shares and which the Appellant also considered to be perfectly logical.

MT supplied confirmation that the charity was based in Cyprus and was under no obligation to register with the charity commissioners, and that for HMRC to seek to prevent a tax deduction for a donation to a Cyprus charity, but grant it to a UK charity, would be a breach of the EEC/EU treaty.

HMRC state that more research should have been carried out into Milia before gifting the shares and submitting the claim but the Appellant submits that he has made gifts to a large number of charities over the last 30 years and has never carried out any research or due diligence on those charities.

The Appellant says that for tax relief to be given, the gift needs to be to a charity at the time of the gift and HMRC have confirmed that Milia was established by deed dated 23 November 2009, before the Appellant’s gift in March 2010.

The Appellant was not aware of the Trust Deed when he made the donation nor was he aware until the hearing that the Deed of Gift was ostensibly incomplete and therefore invalid. HMRC have at no time asked the Appellant to produce a fully signed deed of gift.

HMRC say that they made a further request to Cypriot authorities in 2017 for information and were told in 2019 that Milia was not registered as a charity with any of the regulatory bodies in Cyprus, which may be because it no longer exists, but that is irrelevant to the claim.

HMRC carried out high profile raids at MT’s offices in the Isle of Man and London in September 2010 and did not find any evidence to deny the Appellant’s claim and, therefore, the claim must remain and be honoured.

HMRC’s attempted prosecuted of Watkin Gittins and Martin Calcutt of MT, claiming that they had abused tax reliefs allowing those gifting to charity to offset the value of those gifts against liabilities, had the effect of shutting down MT which resulted in the Appellant’s inability to obtain further information.

Over the last 14 years, the Appellant has met with HMRC, answered more than twenty-five information requests, and dealt with nine different employees. Having trawled through all his information extensively, the Appellant is of the opinion that the entries on his SATR are correct and substantiate his claim for charitable gift relief.

The Appellant says he took reasonable care by keeping accurate records and checking with a tax adviser, which in terms of HMRC’s published standards means that there cannot be a penalty.

HMRC’s statement that the loan appeared to have no expectation of being repaid or have any interest charged on it is untrue. The Loan Agreement states that interest will be charged in full on repayment of the loan which would happen upon the sale of the shares if there was a first legal charge or otherwise be repaid by the Appellant.

The Appellant was a company representative of St James’s Place , advising on traditional investment and pension products of that company but not an Independent Financial Adviser.

The Appellant says that the Arrangement was simply a charitable gift (with gearing) advised by a professional tax adviser and he took advice, in the same way that his clients took his professional advice on VCT’s, Pensions etc..

The Appellant has never, nor does he know anyone who has, researched, or carried out any due diligence on a charity before making a gift to it and considers that it is unreasonable for HMRC to think he should have done so, as this is not what a reasonable man would do.

The Appellant believes that taking the advice of a professional and checking all the documentation to substantiate his claim is more than sufficient to demonstrate taking ‘reasonable care’.

HMRC have also been inconsistent with their adjustments of the penalty for “careless behaviour.” In December 2017 they allowed reductions of 25% for telling, 30% for helping and 15% for giving access to records. In November 2019, they gave the following reductions: 20%, 25% and 20% respectively and in October 2023 they gave 15%, 30% and 25%, respectively. Utilising the same information they had all the way through, the total reductions across the three categories have fluctuated between a minimum of 55% (15, 25 and 15) and a maximum of 75% (25, 30 and 20). HMRC have generated a complex web of different penalties which cannot apply as the Appellant was not careless in his behaviour toward his claim.

The Appellant says that there is no prompted disclosure. All entries on his SATR were correctly backed up with documentation and there was no reason to think that there were any inaccuracies to disclose.

The Appellant rejects HMRC’s contention that their penalty regime should centre around their guidelines for a tax avoidance scheme, because the Arrangement is not a tax avoidance scheme, and if it were it would have a DOTAS number. It is instead a charitable gift.

The Appellant says he acted with reasonable care and even if his claim is disallowed or reduced, the penalty should not be imposed.

HMRC say that the evidence to substantiate the claim for charitable giving relief is either non-existent or insufficient.

In particular there is insufficient evidence that Milia is a real charity in UK legislation terms, which is the test required at law, and that the shares were (a) acquired by the Appellant and (b) gifted to Milia.

In addition there was insufficient evidence as to how the loan arrangement would work in a way that Milia could have received full value of the shares as was claimed as the amount of the gift.

HMRC say that the Appellant has been on notice since August 2011, when HMRC opened their enquiry, and in any event, should have obtained and retained all the documents at the time he entered into the Arrangement if he was going to make a claim for giving to charity relief in his SATR. The Appellant had a duty to retain the information and the delays in dealing with the matter are not a relevant factor.

HMRC say that the Appellant acknowledges that he did not hold all the documents but thought he had enough on completing his tax returns. They find it surprising that he did not secure a fully completed Deed of Gift and say that the responsibility for this cannot be passed to his professional advisers.

HMRC say that the Appellant was a successful and articulate professional in the financial services sector and he did not act in a way of a prudent man properly informed.

Whereas it is not necessary to decide whether or not the Arrangement is a tax avoidance scheme in terms of the FCN, HMRC say that it is important in understanding the context of the Arrangement particularly in relation to the imposition of a penalty and consideration of the penalty suspension.

HMRC say that the Arrangement was an undisclosed tax avoidance scheme and consequently had no DOTAS number. It was not a simple charitable donation it was a scheme by MT, to generate a tax saving which exceeded the cash contribution made by the Appellant.

There was no obvious reason for the choice of entity in the normal course of events and the Appellant confirmed that it was different from his usual charitable donations. Similarly the use of leveraged finance to increase the claim is simply to provide the upside for the transaction. The Arrangement uses offshore entities in either the Isle of Man or Cyprus and there was a rapid completion of pro forma or standard letters in quick succession to attempt to evidence the Arrangement.

HMRC are aware that there were twenty-six taxpayers who used this type of arrangement of which only two remain with unsettled tax affairs, of which the Appellant is one

There was no evidence that Milia was a charity recognised under charity law in England and Wales or other constituent parts of the United Kingdom.

The meaning of charity in this context is defined at section 989 of ITA07 as follows: – “charity” means a body of persons or trust established for charitable purposes only”. To qualify for a charity under the law of England and Wales, amongst other regulatory requirements, the charity must meet the requirements of the Charities Act 2006 which, in 2010, defined, at sections 2 and 3, ‘charitable purpose’ and ‘public benefit test’.

Milia was never operating as a charity in a way that UK authorities would recognise and a trust deed purporting to establish a charity in Cyprus is not definitive evidence that Milia was a charity and operated as one.

Milia was not recognised with any regulatory body in Cyprus. It owned no bank accounts and there was no record of any charitable activity by it in the period to 5 April 2010.

Assurances that the Appellant obtained from MT are not evidence that Milia was a charity, much less that it would be one that is recognised by UK authorities.

HMRC say that if the Appellant cannot demonstrate with evidence that Milia is a charity, operated as such and would be recognised by such by UK authorities, his claim for relief under section 431 ITA07 must fail.

Given the substantial value of the shares purportedly gifted to Milia, it would be expected that the charity would have had bank accounts, retained accountants, auditors, solicitors, all of which could be easily evidenced, and, furthermore, that there would be evidence of its activities or promotional materials setting out its charitable works in progress.

If Milia had operated as a charity it is something that would be remarkably easy for the Appellant to evidence and as he has not provided that evidence which, when considered in the context of the responses HMRC received from the Cypriot authorities, strongly suggest that Milia has never operated as a charity and confirms HMRC’s assertion that it would not be recognised as a charity by UK authorities.

HMRC do not agree with the Appellant’s assertions that the lack of any due diligence is not unusual and that it is unreasonable for them to argue that he should have caried this out.

HMRC say that it is not unreasonable in the circumstances to expect the Appellant to be able to evidence how he came to the decision to make the purported donation to this recently established and fairly obscure entity based in an overseas jurisdiction and to have undertaken research to understand the precise nature of the charitable works Milia was planning, before making the purported donation and to have obtained and retained documents to back up his claim for tax relief.

The Appellant has not provided any relevant evidence that Milia met the UK definition of a charity at the time of his purported gift.

HMRC say that there is no evidence to establish that the Appellant acquired the beneficial ownership of the shares or that they were later transferred to Milia. The contract note only shows the shares being acquired by Mitcham for an undisclosed nominee and there is no direct evidence, other than letters, that the Appellant was that nominee. What happened next is simply unknown.

Similarly there is no evidence that Mitcham transferred the beneficial ownership of the shares, apparently on the Appellant’s instructions, either in full or partially to Milia.

The Deed of Gift was not signed by DMRT and whereas the letter from the Appellant to DMRT requested the return of the signed deed, this has not been produced in evidence and does not establish that the gift was made as asserted.

HMRC say that the issue of the loan or purported loan is unclear given the conflicting statements within the Loan Agreement and the Deed of Gift as to whether or not the shares were encumbered by a first charge but in any event it was unclear how the loan was repaid or was to be repaid.

If the shares were subject to a charge and transferred to Milia and sold to repay the loan then not only would this be in contravention of the Deed of Gift but it would also mean that they had not been transferred.

HMRC say that in terms of paragraph 1 of schedule 24 FA 07 where a person’s tax return contains a careless or deliberate inaccuracy which amounts to or leads to an understatement of a liability to tax, a false or inflated statement of a loss, or a false or inflated claim to repayment of tax, a penalty is payable by that person.

HMRC say they have clearly identified the document that contains the inaccuracy resulting in an understatement of the Appellant’s liability to tax being his SATR with the claim for relief for gift of shares in an amount of £199,989. The Appellant carelessly submitted his SATR containing an inaccuracy.

The inaccuracy is “careless”, in terms of paragraph 3 of schedule 24 FA 07 as it is due to a failure by the Appellant to take reasonable care. That failure was because the Appellant incorrectly claimed relief for the gift of shares to Milia.

The amount of relief was funded by a personal cash contribution of £30,000 and a loan of £169 989 by way of a loan that appears to have had no expectation of being repaid or having interest charged on it.

At no time did the Appellant raise any questions about the leverage nature of the relief he was claiming and why he should expect to obtain tax relief against the full amount he had plainly not incurred.

HMRC would have expected the Appellant as a sophisticated investor and given the unusual nature of the Arrangement to have ascertained (at a minimum) whether the offshore charity in respect of which the claim was made was a charity recognised as such by UK authorities. The Appellant did not do that but relied on professional advice.

HMRC say that in the circumstances the Appellant should have carried out some further due diligence as Milia was a newly formed fairly obscure offshore entity with no track record of any activity.

The Appellant professionally would have been aware of the risks of financial product scams and recognising products that offer unrealistic returns or are “too good to be true”.

Consequently, HMRC say that the Appellant has been careless by not looking into the charitable status of Milia at the time he purported to make his significant donation.

The Appellant took no steps to check whether the shares he purported to give to Milia were ever transferred and no subsequent evidence was provided to demonstrate the progress of share ownership.

HMRC say that it is clear from the lack of any due diligence as to the status of Milia and its activities, that the Appellant was focused solely on the aspect of the Arrangement that provided him with a leveraged tax relief to use against his general income for his SATR.

The transactions happened in “short order” in March 2010 with no evidence of any questioning by the Appellant as to how the Arrangement worked and why he was entitled to claim for charitable relief far exceeding his personal contribution towards the purchase of the shares.

Given the Appellant’s professional role at the time and his classification as a sophisticated investor, he would be expected to be familiar with the basic tax rules around relief for charitable giving and the conditions to be met in making a claim for tax relief.

The Appellant had simply no evidence that he could reasonably rely on to support his belief that Milia is or ever was an entity that carried out any charitable activity that would be recognised as such by UK authorities under the law of England and Wales. Without that evidence the claim for relief was always going to fail.

The lack of questioning and due diligence in respect of the charitable status of Milia and the operation of the Arrangement does not constitute taking reasonable care by the Appellant as regards the accuracy of his SATR.

HMRC say that in failing to take reasonable care, the Appellant’s actions were careless leading to an inaccuracy in his SATR and as such he is liable to a penalty.

Paragraph 4(1)(a) Sch 24 FA07 provides that the penalty payable by a person under Paragraph 1 Sch 24 FA2007 in a case involving careless action is 30% of the “potential lost revenue” (“PLR”)

Paragraph 5(1) Sch 24 FA07 relevantly defines PLR as:

The total PLR for the tax year ended 5 April 2010 is £79,995.60 which was shown on the FCN.

Paragraph 9 Sch 24 FA07 explains what is meant by ‘unprompted disclosure’ and ‘prompted disclosure’ for the purposes of Paragraph 10 Sch 24 FA2007:-

HMRC say that the Appellant’s disclosure was prompted. The inaccuracy (which is denied by the Appellant) was established as a consequence of HMRC’s enquiry into the SATR. The Appellant did not alert HMRC to any inaccuracy or under assessment before the enquiry.

Although the Appellant continues to dispute that there is any inaccuracy in his SATR such that he considers he had nothing to disclose, as the liability to the penalty only arises if an under assessment is agreed or determined, for the purposes of considering the calculations of the penalty at this stage of proceedings, it must be assumed that liability to a penalty exists.

Paragraph 10 Sch 24 FA07 provides that, where a careless penalty is otherwise payable by a person in a case involving prompted disclosure, HMRC “must reduce the standard percentage to one that reflects the quality of disclosure” but may not reduce the percentage below 15%.

CH82430 of HMRC’s Compliance Handbook suggests the following weightings for the different elements of disclosure, on the basis of which the HMRC caseworker has allowed the below reductions:

The HMRC caseworker determined the reductions for ‘telling’ at 15%, ‘helping’ at 30% and ‘giving’ at 20% and imposed a penalty at a rate of 20.25% calculated as follows:

HMRC’s Compliance Handbook CH82442 and onwards, states that telling includes “admitting that the document was inaccurate or that there was an under- assessment, disclosing the inaccuracy in full, explaining how and why the inaccuracy arose.” It further specifies that “What is important for the telling of the disclosure is the timing, in CH82444, nature, in CH82446 and extent, in CH82448”.

Although the Appellant disagreed about the inaccuracy in his SATR, he answered HMRC’s questions about what they believed is an inaccuracy in it.

HMRCs had to issue information notices on two occasions and a final warning letter. HMRC say that the responses were reactive to its questions; however, the Appellant did cooperate and provided extended answers during a meeting with HMRC.

Taking these factors into account, HMRC say that the reduction of 15% out of a maximum 30% for the telling element of quality of disclosure is appropriate.

HMRC’s Compliance Handbook CH82450 and onwards, states that “Helping includes giving reasonable help in quantifying the inaccuracy or under-assessment, positive assistance as opposed to passive acceptance or obstruction, actively engaging in the work to accurately quantify the inaccuracies, volunteering any information relevant to the disclosure.”

HMRC acknowledge that in considering the timing, nature, and extent of the help the Appellant provided, the responses to requests for information and documents have been helpful in determining the inaccuracy. However, HMRC say that a full reduction is not appropriate as there were delays in responding and formal notices had to be issued.

Taking these factors into account, HMRC say the reduction of 30% out of a maximum 40% for the ‘helping' element of quality of disclosure is appropriate.

HMRC’s Compliance Handbook CH82460 states that, giving access includes a person responding positively to requests for information and documents and allowing access to their business and other records, other relevant documents. It also specifies that what is important is the timing, nature and extent of the access given.

HMRC had to issue information notices to the Appellant so a full reduction is not possible but have restricted it to just the delay in responding and not the use of information notices .

HMRC say that taking account of the relevant factors the reduction of 20% out of a maximum 30% for the giving element of quality of disclosure is appropriate.

By virtue of Paragraph 11(1) Sch 24 FA07, HMRC may reduce a penalty payable under Sch24 FA2007 if “they think it right because of special circumstances”.

Penalty legislation provides for common circumstances, and these are therefore taken into account in establishing the liability to and level of a penalty.

To be “special circumstances”, the circumstances in question must apply to the particular individual and not be general circumstances applying to many taxpayers by virtue of the penalty legislation.

In Advanced Scaffolding (Bristol) Ltd v HMRC [2018] UK FTT 0744 (TC) at [10] and [102], Judge Vos said:

The Upper Tribunal in Marano v HMRC [2023] UKUT 133 (TCC) at [112] commented with approval the approach taken in Advanced Scaffolding:

The approach to considering whether a special reduction is appropriate is to examine any additional relevant facts or circumstances relating to the inaccuracy that have not been taken into account in the calculation of the penalty under paragraph 10 Sch 24 FA07.

HMRC submit that unless their decision is shown to be flawed applying the principles applicable for judicial review, the First-tier Tribunal (Tax) should not substitute its own view in regard to special reduction.

HMRC have considered all the relevant facts and circumstances under which the inaccuracy in the SATR occurred and say that no facts or circumstances that they are aware of or otherwise declared to them by the Appellant justify a special reduction. This is not a case whereby the imposition of the penalty (at the calculated level) can be described as being contrary to the intention of the law.

In particular, the Appellant is both a knowledgeable professional selling financial products and was classified as a Sophisticated Investor and as such it must be assumed, unless otherwise evidenced, that he entered into this tax avoidance scheme to access a leveraged tax deduction exploiting the gift to charity rules with his “eyes open” to the nature of the Arrangement and the risks present that the claim would be challenged and potentially denied by HMRC.

The penalty, as calculated under paragraph 10 Sch 24 FA 07, has been mitigated as appropriate and there are no additional facts or circumstances that justify further mitigation of the penalty.

Paragraph 14 Sch 24 FA07 provides that HMRC may suspend a penalty for a careless inaccuracy but only if doing so will help the Appellant avoid becoming liable to further penalties. If a penalty is suspended, conditions to be met are attached to the suspension notice together with a time period for the meeting the conditions.

Although an appeal can be made against HMRC’s decision to not suspend the penalty, HMRC submit that unless their decision is shown to be flawed applying the principles applicable for judicial review; the First-tier Tribunal (Tax) should not substitute its own view in regard to the decision.

HMRC say that the decision to not suspend the penalty is in line with its internal guidance at CH83144 and CC/FS10 where it is stated that inaccuracies arising from the use of a tax avoidance scheme would generally not be eligible for suspension.

Each case should nevertheless be considered on its merits. HMRC submit that given the nature of the tax avoidance scheme used in this matter, the explanations given by the Appellant as to his choice to use it, the lack of any evidence of questioning the fundamentals of the Arrangement and his professional background, this is a case where HMRC are correct in their decision to not offer suspension of the penalty.

HMRC request that the appeal is dismissed.

The Appellant confirmed that he had not agreed to a first charge over the shares being granted to Mitcham and, accordingly, the purported gift by the Appellant was of unencumbered shares to Milia.

The case before the tribunal was characterised by non- existent or inadequate evidence to substantiate the Appellant’s claim for tax relief.

There was insufficient evidence that the Appellant, having paid £30,000 to and having seemingly obtained a loan of £179,989 from Mitcham to enable the purchase of shares through Ramsay Crookall & Co Ltd, was in fact the owner of the shares as the contract note says they were bought for an undisclosed entity in the name of RENE NOMINEES (IOM) Ltd Account 3642.

There was a statement by Mitcham in a subsequent letter that the Appellant beneficially owned the shares but there was no other evidence of the link in ownership between the nominee account and the Appellant nor that the shares had been gifted to Milia. This was principally because the Deed of Gift was incomplete having only been signed by the Appellant and not by DMRT, the trustee of Milia, but not by both.

There was no other evidence of delivery of the shares to Milia which seemed unlikely given that it had no bank account to receive any dividends and it produced no accounts evidencing the ownership of this asset or its monies worth or equivalent.

Section 431 of ITA07, “Relief for the gift of shares, securities and real property to charities etc”, requires an individual to dispose of the whole beneficial interest in a qualifying investment to charity to obtain tax relief.

As there was insufficient evidence that the Appellant (a) owned the shares to allow him to dispose of them and/or (b) that he did dispose of them, the claim failed and the Appellant was not entitled to relief.

Section 989 ITA07, defines a charity as a body of persons or trust established for “charitable purposes” only. In 2010 the Charities Act 2006, defined at section 2 that a charitable purpose is a “purpose” which is “for the public benefit”.

“Purpose” is defined in the Oxford Dictionary as an object to be attained; a thing intended.

Whereas Milia had been created by a Trust Deed for charitable purposes, there was no evidence that it carried out any purposes that could be classified as charitable purposes for the public benefit or even any activities at all. It could not attain an object or objective or intend to do something unless it had the means to do so. Its failure to even have a bank account, having purportedly received a gift of nearly £200,000, means that its ability to carry out charitable purposes for the public benefit was not credible.

We considered that if a charitable trust did not or could not carry out its purposes which it claimed to do within its trust deed and could not demonstrate any public benefit then it could not be classified as a charity that could satisfy the UK’s Authorities’ definition of a charity at the time of the gift.

Accordingly, on this ground, we do not consider that Milia met the definition of a charity required in Section 431 ITA07 and hold that the Appellant was not entitled to relief.

At the hearing there was much discussion about the loan which allowed Mitcham to instruct the purchase shares worth just over £200,000, of which £30,000 had been advanced by the Appellant in cash, to allow him to make a claim for tax relief of £199,989.

These arrangements, were unusual and seemingly unworkable if a charge had been granted by the Appellant, as had been intended, but which he did not grant.

As there was no charge the Appellant himself was liable to repay the loan of £170,000 which he understood he would not have to pay because MT envisaged that it would be repaid by the sale of the shares which were purportedly being gifted to Milia.

All these factors should have raised questions in the Appellant’s mind and/or the need to make further checks, as a sophisticated investor and a professional in the financial services sector, before making his claim as to how the shares could be gifted ‘unencumbered’ if they were subject to Mitcham’s first charge.

As they were not subject to a charge and the Appellant was told by MT that he would not need to repay the loan personally, the issue then was how, or why, would Milia sell them.

There was no evidence of any first charge and the Appellant has not been asked to pay, and has not repaid, the loan.

As it was not the loan or the cash that were purportedly transferred to Milia but the shares on which the relief was claimed, we did not consider under section 431 ITA07 that the loan arrangement was relevant, as there was no first charge, but the considerations around it had some relevance as to whether in making the claim the Appellant was careless.

We agree with HMRC and consider that the Arrangement was an undisclosed tax avoidance scheme and, accordingly, disagree with the Appellant.

We also agree with HMRC that, given the professional attributes of the Appellant and his agreement to be treated as a sophisticated investor when entering into the loan, the standard of enquiry and investigation when making, what the Appellant agreed was an unusual charitable donation, should have exceeded those which he did carry out, as he largely relied only on the information given by MT.

This charitable gift was not in the same category of the charities the Appellant had given to in the past which were either well known charities or charities to which he gifted on the basis of some personal connection or knowledge.

Milia was a fairly obscure and not well known charity set up in a non- UK jurisdiction and was months old when the purported gift was made. He was aware, or should have been aware, that relief would only be available if it met the UK Authorities definition of a charity at the time of gifting.

Milia was not chosen by the Appellant on his own initiative but from a list of three charities suggested by MT.

The loan arrangements for the loan repayment were contradictory between the potential terms of the Loan Agreement to allow a first charge and the Deed of Gift which transferred the shares unencumbered.

The Arrangement envisaged Milia obtaining only the value of five years of dividends and the surplus proceeds, if any, of the sale of shares in implementation of Mitcham’s intended charge, in five years’ time after repaying the loan and interest. The Appellant’s claim, however, was for £199,989.

In these circumstances and for all these reasons, we consider that the Appellant was careless in not making further enquiry or carrying out due diligence, as set out in HMRC’s submissions, before making his claim for tax relief.

It is incumbent on taxpayers to retain evidence and documentation to substantiate amounts they enter into their tax returns and the Appellant would be aware of the level of documentation required in his working life for his clients subscribing to investment products.

We do not consider it was incumbent on HMRC to have asked for a completed Deed of Gift, as alleged by the Appellant. The onus was on the Appellant to have such a document if he wished to make a claim for tax relief on a gift of shares.

The Contract note was ambiguous as to the real identity of the purchaser of the shares, throwing doubt on the Appellant’s ownership of the shares; the critical Deed of Gift was incomplete and legally invalid as a contractual document, and there was no evidence of delivery to or acceptance by Milia of the shares, which might also have enhanced the evidential value of the Deed of Gift.

It was, accordingly, clear from the evidence that the Appellant had not kept accurate records to substantiate his claim for relief. Some documents were missing or incomplete and there was a lack of a comprehensive series of records to evidence the Arrangement.

For these reasons we consider that the Appellant was careless in that he failed to take reasonable care to substantiate his claim for tax relief on the purported gift of shares to Milia.

Whereas we acknowledge that the Appellant took professional advice from a firm he knew had a specialism in tax avoidance schemes, we consider, given his status as a sophisticated investor and a successful professional in the financial service industry coupled with the unusual nature of the Arrangement, that a reasonable person in his position should have ascertained, as a minimum, whether Milia was going to meet the test to make a claim for tax relief before making the donation and subsequently claiming tax relief.

His failure to do so was also careless in terms of paragraph 1 of schedule 24 FA07.

HMRC issued the penalty assessment on 01 December 2023 having opened an enquiry on 18 August 2011. The amount stated in HMRC’s submissions reflected their decision as at 01 December 2023 and whereas we note and understand the Appellant’s concern that these differed from the amounts they had put forward in 2007 and 2019, we consider they were entitled to change their minds up to the date of the issuance of the penalty assessment.

Taking all the factors set out in HMRC submissions, with which we agree, concerning the calculation of the penalty into account, we consider that the final calculation of the penalty and consideration of the three categories of Telling, Helping and Giving were appropriate and the calculation of the Potential Loss Revenue was correct.

We also agree with HMRC’s submissions that there were no circumstances to justify a special reduction.

We agree that the Arrangement was an undisclosed tax avoidance scheme and also agree with HMRC’s submissions that they were correct in not offering a suspension of the penalty.

For all the reasons set out in this Decision, the appeal is dismissed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

An individual who disposes of the whole of the beneficial interest in a qualifying investment (see section 432) to a charity is entitled to relief if-

the disposal is otherwise than by way of a bargain made at arm’s length, and

the individual makes a claim.

– “The definitions”:

“charity” means a body of persons or trust established for charitable purposes only.