The Commissioners for HMRC v Tailored UK Services Limited (in Liquidation)

In summary, HMRC submit as follows:

It is apparent from the DOTAS decision that the FTT was satisfied on the evidence before it that the arrangements were notifiable arrangements within section 306 FA 2004 and it made an order under section 314A FA 2004 that the arrangements were notifiable arrangements.

The application is submitted on the basis that the arrangements were always notifiable in accordance with the order under section 314A FA 2004.

The company had a statutory obligation to notify HMRC of the arrangements under section 308(3) FA 2004 within the prescribed period following its first implementation in or around August 2017. The “prescribed period” for the purposes of section 308(3) FA2004 is that provided by regulation 5(5) of SI 2012/1836, namely five days beginning on the day after that on which the promoter first becomes aware of any transaction forming part of arrangements.

The “relevant day” under section 98C(2ZA) TMA 1970 is the “first day after the end of the prescribed period” referred to in section 308(3) and defined in regulation 5(5) of SI 2012/1836, with the consequence that the “initial period” in section 98C(1) TMA 1970 commences on the relevant day; and with regard to the commencement of proceedings by HMRC under section 100C(1) TMA 1970, “the date on which the penalty was incurred or began to be incurred” in section 103(4) TMA is also the “relevant day”.

Section 308(3) is clear: “[a] person who is a promoter in relation to notifiable arrangements” is obliged to provide the Board with the prescribed information within the prescribed period “after the date on which he first becomes aware of any transaction forming part of the notifiable arrangements”.

HMRC have evidence of continued usage of the arrangements between August 2017 and November 2019. One such user was Mr R Maskell. Evidence demonstrates that this person had entered into a transaction forming any part of the arrangements on 18 August 2017, when his payroll records show him being paid by the company. This shows that the pay date is noted as 18 August 2017. The company thus came under an obligation to disclose the arrangements to HMRC within five working days of the date when it first became aware of that transaction under section 308(3) FA 2004 and regulation 5(5) of SI 2012/1836. As the 18 August 2017 fell on a Friday, the company had until the following Friday (25 August 2017) in which to have notified the arrangements.

It is HMRC’s case that there has been a failure to notify arrangements, which are notifiable arrangements as defined by section 306 FA 2004 within the prescribed period, in respect of the arrangements that should have been notified by 25 August 2017. HMRC are proceeding on the basis that the non-compliance with section 308 ceased on 13 June 2022, being the day before the liquidators disclosed the arrangements to HMRC by emailing the AAG1 form to them.

In relation to the company’s liability to a penalty for non-compliance with section 308, HMRC submit:

As this penalty application has been filed on 11 August 2023 these proceedings have commenced less than six years after the date on which the penalty was incurred or began to be incurred in accordance with section 103(4) TMA 1970 (see below).

HMRC maintain that the company is liable to a penalty under section 98C(1)(a)(i) and (2)(a) of TMA 1970, subject to any reasonable excuse defence under section 118(2) TMA 1970 (see below).

Save in respect of the costs application, the liquidators have made no substantive submissions on the merits of the application.

This is unsurprising given the barring order made by Judge Bailey referred to above.

HMRC submit that the arrangements were notifiable under section 306 (1) (a) to (c) FA 2004.

I agree. This was determined by Judge Bedenham in the DOTAS decision and I find it as a fact.

This too was determined in the DOTAS decision and I find as a fact that the company was a promoter of those notifiable arrangements.

A promoter of notifiable arrangements has a duty to notify HMRC of those arrangements under section 308 FA 2004.

The relevant parts of Section 308 provide:

The terms “prescribed period” and “prescribed information” are defined in Regulations 4 and 5 of the Tax Avoidance Schemes (Information) Regulations 2012. The relevant parts of Regulation 4 provide:

The relevant parts of Regulation 5 provide:

HMRC submit that they have evidence of the use of the arrangements between August 2017 and November 2019. The evidence of Officer Lloyd is that one user, Mr Maskell, had entered into a transaction forming part of the arrangements on 18 August 2017 when his payroll records show him being paid by the company. That pay date is 18 August 2017.

They therefore submit that the date on which the company first became aware of the transaction forming part of the arrangements was that date and submit that, as it was a Friday, the relevant date (the first day after the end of the prescribed period) was 25 August 2017.

I agree with this submission, and I find that the company failed to comply with its obligation to notify and that failure started on 25 August 2017.

The liquidators submitted form AAG 1 on 14 June 2022. So, the company’s non-compliance ceased on the day before that date, namely 13 June 2022.

HMRC have asked me to impose a penalty on the company. They have to show that the conditions for imposing that penalty are satisfied.

However, under section 118 (2) TMA 1970, if the company has a reasonable excuse for having failed to notify HMRC of the arrangements, then (in effect) the company is deemed not to have so failed.

I therefore deal with this point before dealing with the penalty since, obviously, if I find that the company has a reasonable excuse, there is no need for me to go on to consider the penalty.

The onus is on the company to establish a reasonable excuse. I agree with HMRC that the relevant law in relation to any excuse put forward is that set out by the Upper Tribunal in Perrin v HMRC [2018] UKUT 156. It is an objective test. I must consider all relevant circumstances.

The test endorsed in Perrin in determining whether the appellant has an objectively reasonable excuse is that set out in The Clean Car Co Ltd v C&E Commissioners [1991] VATTR 234, in which Judge Medd QC said:

That this is the correct approach has also been confirmed by the Court of Appeal in William Archer v HMRC [2023] EWCA Civ 626 .

HMRC submit there are two relevant periods during which I need to consider reasonable excuse. The first is pre-liquidation when the company was run by its directors. In their submission there is no evidence whatsoever that the company intended to comply with their obligations under DOTAS.

However, things changed once the company went into liquidation. It is then the liquidators personal attributes and circumstances which are relevant to the issue of reasonable excuse given that the failure by the company directors to comply with DOTAS could have been rectified had the liquidators complied with the notification obligation without unreasonable delay after they were appointed.

HMRC’s submission is that they did not do so. It had been made clear by Officer Lloyd that HMRC believed the arrangements to be notifiable and in response to his note to the liquidators that he was intending to make an application for an order, the liquidators, on 6 October 2020, confirmed that they would not be contesting that proposal to make that application.

Notwithstanding that, they did not make the disclosure until 14 June 2022 after the order had been made by the FTT on 6 May 2022.

Pursuant to s.98C(2E) TMA 1970, where an order is made under s.314A FA 2004, then for the purposes of s.118(2) TMA 1970, a person identified as a promoter of the arrangements cannot, in respect of any time after the 10 day period following the order, rely on doubt as to notifiability as an excuse for failure to comply with s.308 FA 2004, and any delay in compliance after the end of that period is unreasonable unless attributable to something other than doubt as to notifiability.

The fact that the company ceased to trade, went into liquidation or that liquidators were appointed does not excuse the initial failure to notify, nor does it prevent the penalty from continuing to apply to the company (HMRC v Industria Umbrella Ltd (In Liquidation) [2025] UKFTT 494 (TC) at [250]).

The burden of establishing a reasonable excuse lies with the company. Unsurprisingly, given that it has been barred from taking any further part in these proceedings, the liquidators have made no submissions regarding reasonable excuse.

The application is an adversarial process. It is not for HMRC to make the liquidators’ case. However, it is their view that the company has put forward no evidence which justifies a finding that it had a reasonable excuse.

I agree. I can see nothing in the papers justifying the failure to notify HMRC of the arrangements. As far as the period before liquidation is concerned, a company and its directors promoting tax planning schemes such as the arrangements would have been fully aware of the DOTAS regime and their obligations thereunder. It is, for them, an inconvenient regime, something to which I return later, as it obliges the users to notify the use of the scheme to HMRC. And so it is convenient for the promoter to turn a blind eye to the regime.

There is no evidence before me to show that the company considered the regime, nor took any advice as to whether it applied to the arrangements. In these circumstances I do not believe that the company or its directors acted as a responsible trader conscious of and intending to comply with its obligations under the DOTAS regime.

I agree that the position changed once the liquidators were appointed. But they inherited the lack of reasonable excuse from the company and did nothing to rectify it until they submitted their notification of the arrangements in June 2022.

To my mind they could, and should, have done so following notification of the intended application, given to them by Officer Lloyd in August 2020, that he was on the point of issuing an application for a DOTAS notification order, and supplied the liquidators with all the information on which he had based that decision. It is clear that the liquidators considered that information and then decided that they would not be contesting the proposal. At that stage they were, effectively, accepting that they had a duty to notify, and there is no evidence before me to explain why they did not do so at that stage, and waited until the issue of the DOTAS decision before doing so. Once that decision had been released, they responded with considerable alacrity (albeit after the 10 day period mentioned at [42] above).

But it is my view that neither before nor after the company went into liquidation, did the company have a reasonable excuse for its failure to notify HMRC of the arrangements until it did so on 14 June 2022.

I therefore need to consider the penalty.

By section 103(4) TMA 1970, proceedings for a penalty may be commenced before the FTT at any time within six years after the date on which the penalty was incurred or began to be incurred.

That six year period starts on the “relevant day” which in turn is defined as the first day after the end of the “period prescribed”, which in turn is defined as “the period of 5 days beginning on the day after that on which the promoter first becomes aware of any transaction forming part of [the] arrangements”. The day on which the promoter first becomes aware is known as the “trigger date”.

The application was made on 11 August 2023. So it will only be in time if the relevant day is on or after 11 August 2017.

HMRC submit that the evidence of Officer Lloyd based on the RTI information of Mr Maskell, is that the date on which the company first became aware of a transaction forming part of the arrangements was no later than 18 August 2017. And given the user would have signed various documents before that date, the trigger date is likely to be a few days before 18 August 2017.

Let us say, therefore, that the trigger date was 14 August 2017. The prescribed period runs from the following day, 15 August 2017 to 21 August 2017. The penalty application would need to have been filed by 21 August 2023 to fall within the six year deadline.

Given that it was filed on 11 August 2023, it is within that deadline and so is in time.

The same is true even if the trigger date was 18 August 2017. The prescribed period would start on 19 August 2017, and the penalty application would need to be filed by 25 August 2023 to fall within the six year deadline. And it was.

I accept HMRC’s submissions on this point and agree with them that the penalty proceedings (i.e. the application) commenced within the six year time limit required by section 103 TMA 1970.

Any penalty is to be calculated in accordance with section 98C TMA 1970. This is far from straightforward.

So far as relevant, that section provides as follows:

In simple terms, as regards the application, this operates as follows.

The legislation provides for a statutory maximum. In this case HMRC have calculated it at £1,178,800. I accept their calculation of this amount.

They start by calculating the initial period. That period started on 26 August 2017 and ceased on 13 June 2022 (the day before the liquidators disclosed the arrangements to HMRC).

Within that, there are two prescribed periods. The first is the period from 26 August 2017 to 15 May 2022 (that being the tenth day after the DOTAS decision was released). The second is the period between 15 May 2022, and 13 June 2022.

The penalty for the first prescribed period is calculated as £600 per day for 1,723 days (£1,033,800).

The penalty for the second prescribed period is calculated as £5,000 per day for 29 days (£145,000).

However, before considering that statutory maximum I must consider section (2ZB) and decide on an amount of penalty having taken into account all relevant considerations. This includes deterrence for future promoters.

Once I have arrived at that penalty, I need to test it against the statutory maximum.

I am required by statute to consider all relevant considerations including the desirability of setting the penalty at a level which deters promoters and having regard in particular to the amount of fees received by the company.

For the reasons given at [17(13)] above, HMRC estimate that the total turnover derived from the arrangements is £25,178,526, of which the company retained approximately 10 to 12% of the users gross contract values. It follows therefore that the company retained at least £2,517,853, and in their submission this is the penalty which should be imposed having no regard to the statutory maximum (“the suggested penalty”).

I accept that submission. When considering all relevant considerations, I have considered:

The fact that the company did not engage, meaningfully, with HMRC, once HMRC opened their enquiries.

That it was highly likely that the company, as promoter, and the directors of the company, were fully aware of the DOTAS regime, and I strongly suspect that they took a conscious decision not to comply with it.

That given the egregious nature of the arrangements, any reasonable person considering them against the relevant hallmarks would have been bound to have concluded that the arrangements were notifiable.

The statutory obligation to consider deterrence.

As regards this latter point, I repeat what I said in my decision in WS Vision [2025] UKFTT 1535:

Since the suggested penalty exceeds the statutory maximum and the statutory maximum exceeds £1 million, then the penalty is the statutory maximum.

I therefore impose a penalty of that statutory maximum, namely £1,178,800 on the company.

In conclusion, therefore, I have decided as follows in respect of the relevant issues in relation to the application:

The company was a promoter of notifiable arrangements.

It failed to comply with its notification requirements under section 308 FA 2004.

It had no reasonable excuse for that failure.

The penalty proceedings commenced within the six year limitation period.

It is liable to a penalty for non-compliance of £1,178,800.

The application was allocated to the complex track. The company has not opted out of the costs regime.

On 3 February 2026, HMRC asked the tribunal for an order that their costs should be paid by the company in any event (to be assessed if not agreed).

Since then, the parties have discussed the question of costs, and some draft directions have been proposed which effectively mean that if costs cannot be agreed, the successful party needs to make an application for them to be assessed.

This means that there may need to be a further hearing to consider that application which I am not keen on.

The sentiments behind these proposed directions are admirable. The parties want to keep costs proportionate and to agree them if possible.

However, I shall deal with costs here and now.

Although the award of costs is something for my discretion, I see no reason to disturb the general principle that costs should follow the event. Given that HMRC have succeeded in the application, and that I have imposed a penalty on the company, then they are entitled to their costs of and incidental to the application and its disposal. These are costs on the standard basis.

Those costs will be subject to a detailed assessment, but HMRC may not apply for that detailed assessment for 35 days following the release of this decision. That should enable the parties to negotiate an appropriate level of costs. Given the correspondence I have seen passing between HMRC and the liquidators, I have no doubt that those negotiations will be conducted in good faith.

I therefore order that:

The company is liable to pay HMRC’s costs of and incidental to the making of the application and its disposal by this decision.

Those costs shall be subject to a detailed assessment pursuant to Rule 10(6)(c) of the First-Tier Tribunal Rules.

HMRC shall not make an application under Rule 10 (7) for that detailed assessment until 35 days after the date on which this decision has been released to the parties.

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.