Have avoidance schemes gone toxic?

Where HMRC receive a statement of reasons why a proposal or arrangements are not notifiable by that person, they may apply to the tribunal to provide specified information or documents in the support of the reasons.

On 24 August 2018, HMRC wrote to Cornhill PW Ltd a UK registered company whose significant shareholder is Rory Kilmartin. Rory appears to have taken a slight change in career and is now a relationship researcher, human developer, author and facilitator: “At an early age I had the sense something was ‘wrong’ with the way human beings were relating to each other”.

HMRC suspected that Cornhill was a promoter of a scheme that may be notifiable under the disclosure of tax avoidance scheme rules. The arrangements related to the ‘Cornhill Wealth Ltd Remuneration Trust’, which was created on 14 June 2011 by Cornhill Wealth Ltd and Bay trust International Ltd (Belize).

The Offshore leaks database indicates that Hallgate Ltd, a company incorporated in the British Virgin Islands, is a shareholder of Bay Trust International. Hallgate is indicated as a shareholder of Apex Nominees 1 Ltd, Apex Nominees 2 Ltd , and Nautilus Corporate Services Ltd (Jersey). Nautilus Nominee Services ltd (Jersey), Fynalist Ltd (Jersey) and Atlas Trust Company (Jersey) Ltd are indicated to be shareholders of Hallgate. Queensborough Investments Ltd (BVI) is the shareholder of Apex Trust Company Ltd as well as IMT Fiduciary Services (Switzerland AG), and Neptune Trust Corporation Ltd (BVI). David Ralph Singleton (Jersey) and The Purcell Corporation (Bahamas) are shareholders of Queensborough. Singleton also appears to be linked to Whitmill Trust Co Ltd (Jersey).

HMRC sought information in relation to arrangements whereby companies entered into ‘The Cornhill Club Remuneration Trust Deed of Adherence’. Three Cornhill clients were sited: Caraneil Consulting Ltd, Euro Data Centre Services Ltd, and Toni Allan Consulting Ltd. Having looked at the ‘clients’ on Companies House, it doesn’t appear that any of them have considerable assets. It isn’t possible to discover the income of those businesses although the bank balances are small indicating that they either do not trade significantly or the majority of income into the business goes out again.

Information was requested for the period 17 April 2015 to 30 April 2019 and, in particular, we note the following request:

‘Please provide a copy of each agreement, document, correspondence (by letter or email) and note of meetings or telephone discussions held between Minerva Services Ltd, Buckingham Wealth or third parties, fiduciaries or others working on their behalf and Cornhill PW Ltd in respect of the Arrangement entered into by E.’

‘Please provide a copy of each agreement, document, correspondence (by letter or email) and note of meetings or telephone discussions held between Minerva Services Ltd, Buckingham Wealth or third parties, fiduciaries or others working on their behalf and Cornhill PW Ltd in respect of the Arrangement entered into by T .’

The references to Minerva Services Ltd and Buckingham Wealth indicate a clear connection with a provider of a ‘remuneration trust’ and Cornhill’s reply to HMRC’s letter on 20 September 2018 stated it was of the opinion that it was not a ‘promoter’ and that the arrangements (the Remuneration Trust) are not notifiable under DOTAS.

Cornhill wrote to HMRC setting out the reasons why it did not consider itself to be a promoter or consider the Remuneration Trust to be a notifiable arrangement. HMRC wrote to Cornhill on 24 February 2020 stating that the information previously sought was still considered to be relevant and reasonably required. Cornhill responded on 9 April 2020 and declined to provide the information stating that HMRC had “not substantially engaged with the statement of reasons”. A meeting with HMRC was also declined due to the restrictions imposed as a result of the coronavirus pandemic, the client being overseas and because HMRC had, “not shown any willingness to engage in any technical analysis through written correspondence.”

HMRC proceeded with its application to the Tribunal. Cornhill withdrew promoter reason and therefore relied solely on arrangements not being notifiable ones. The Tribunal found that the information and documents Cornhill should be ordered to provide should be limited to those in support of that reason only.

Cornhill contended that the definition of a “promoter” in s307(1) is dependent on the presence of a “notifiable arrangement”. In the absence of a notifiable arrangement Cornhill cannot be a promoter.

The tribunal noted that s307(6) provides that a reference to a promoter, ‘is a reference’ to a person ‘who would be a promoter … if the proposal or arrangements were notifiable’, and it is not necessary for the arrangements concerned to be ‘notifiable’ for Cornhill to be a promoter.

The tribunal found Cornhill to be a promoter and, as such, must provide the information.

It was also contended that HMRC’s application should be dismissed because HMRC’s schedule of information and documents sought, did not take account of Cornhill’s revised position and that,

‘given the arrangements concern a Remuneration Trust promoted by Baxendale Walker which has been the subject of appeals (e.g. Alway Sheet Metal Limited and Others v HMRC [2017] SFTD 719 and RFC 2012 Plc (formerly The Rangers Football Club Plc) v Advocate General for Scotland (Scotland) [2017] STC 1556) HMRC have sufficient information to allocate a DOTAS scheme reference number.’

HMRC may only allocate a reference number ‘where a person complies or purports to comply’ with s308(1) or (3), s309(1) or s310 in relation to any notifiable arrangements. It was not possible for HMRC to issue a scheme registration number because Cornhill had maintained it was not a promoter, had not complied or purported to comply with these provisions.

The Tribunal ordered Cornhill to provide HMRC with the specified information and documents sought in support of the Notifiable Arrangements Reason in accordance with the amended schedule provided by HMRC.

Returning to Rory sensing something is wrong with the way human beings relate to each other, I can not disagree. The offshore structures are clearly set up to avoid transparency yet involve highly regulated jurisdictions. The person responsible for the remuneration trust also lacks transparency: Cornhill states the arrangements concern a Remuneration Trust promoted by Baxendale Walker although HMRC’s correspondence refers to Minerva and Buckingham Wealth.

A month before the Cornhill decision, HMRC published a consultation (23 March 2021): Clamping down on promoters of tax avoidance. The consultation seeks views on proposed new measures including additional HMRC powers and strengthened sanctions:

• A security payment or asset freezing order. The measure is aimed at preventing promoters from dissipating or hiding their assets ahead of paying penalties charged as a result of them breaching their obligations under the anti-avoidance regimes.
• Allow HMRC to make a UK entity enabling the promotion of tax avoidance by offshore promoters subject to an additional penalty, up to the value of the total fees earned by all those involved in the development and sale of the tax avoidance scheme.
• A power to enable HMRC to present winding-up petitions to court and a new ground for director disqualification related to tax avoidance.
• Enable HMRC to name promoters, the websites they use and the schemes they promote at the earliest possible stage, sharing that information publicly to warn taxpayers of the risks and help those already involved to get out of avoidance.

HMRC state that the “proposals do not target legitimate tax advisers. They are instead targeted at those promoters who profit by sidestepping the rules, and whose unscrupulous actions often leave taxpayers with significant tax bills”.

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