The most peculiar case of the forged SDLT scheme   

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

The prologue

 

Worst title for an Agatha Christie novel ever.

 

However, in the Autumn of 2017 we began acting for a total of 23 clients (in reality more than this as there were a number of married couples) who were involved in a plot so murky that – permission to mix my Agatha – your average moustachioed Belgian detective would be left twiddling his elaborate facial hair.

 

“No, it is a curious case. Full of contradictory features. I am interested. Yes, I am distinctly interested.” – Hercule Poirot

 

The total tax at stake was £583k plus interest.

 

Although all the names of the cast (other than the Clients) are a matter of public record, I have left them out for the purposes of this article.

 

What happened?

 

Each of the clients had entered in to an aggressive tax planning arrangement with a firm of providers.

 

Said provider had instructed a lawyer from a firm of lawyers in Manchester to instruct a barrister in relation to this Stamp Duty Land Tax (“SDLT”) planning arrangement. A tax opinion (“The Tax Opinion”) was provided which was purportedly the work of tax counsel.

 

Each Client entered in to the planning on the back of The Tax Opinion and paid fees to the provider as a result.

 

However, it transpired that The Tax Opinion was a forgery. Yup, a forgery.

 

This has been held to be a matter of fact by the Solicitor’s Disciplinary Tribunal (“SDT”).

 

Many months after this hearing, HMRC wrote to each client and pointed this out to the Clients. In the circumstances, it added, they might want to pay the SDLT.

 

This might be considered bad enough. But…

 

HMRC also included another assessment to tax.

 

They had decided that the purported transactions resulted in two chargeable (and therefore taxable) transactions. In other words, they were raising a second SDLT liability on the one, real world transaction that had taken place.

 

Wowsers. Who thought a tax-based Agatha Christie tale could be so terrifying?

 

In addition to findings of the SDT, our skulduggery-ish solicitor was also found guilty of multiple offences including fraud and has been sentenced to a long custodial sentence.

 

Clearly some murky goings on.

However, after the dust had settled a little, it seemed somewhat troubling that HMRC’s initial aim was to ‘maximise revenues’ from those who were, in reality, victims of crime.

 

In short, it seemed surprising that HMRC’s initial aim was to ‘maximise revenues’ from those who were, in reality, victims of crime.

 

However, not only was there initial, or indeed tactical position, but one which became deeply entrenched.

 

Correspondence with HMRC

 

Unsurprisingly for anyone who deals with HMRC on a regular basis, correspondence was extremely slow.

 

When it became apparent that we would be representing a group we requested a meeting with HMRC to deal with the issues on a group basis. Face-to-face.

 

However, HMRC were not prepared to meet or indeed speak over the phone. All correspondence was to take place in a written form.

 

Indeed, HMRC, despite raising the assessments which all had to be appealed by the clients, did not set out their technical reasoning until over a year after the issue of the original second assessments. So we, and the clients, were fighting with an arm tied behind our backs.

 

However, HMRC were quite prepared to reject late appeals made by clients.

 

Technical & moral arguments

 

Despite the above, a number of technical arguments were put forward to HMRC as to why there should only be one SDLT liability.

 

Indeed, towards the end of 2018, HMRC agreed with some of these technical arguments and withdrew the second assessments.

 

This released 6 of the 23 clients from the second charge and immediately saved a sum of £194k.

 

Although this might seem puzzling as to why only around a quarter of the clients were left of the hook, there was a slight distinction in the paperwork. The paperwork undertaken by the felonious lawyer (putting in place his phantom scheme) was abysmal. However, a better set of documentation had been prepared by another solicitor who had taken over the legal work on the scheme. HMRC agreed that this new set of paperwork, despite implementing the same ‘scheme’, did not create the second charge.

 

However, this was no good for the other 17 clients.

 

In addition, we also put to them a number of arguments that HMRC’s pursuit of this money was clearly immoral. These people had purchased a house, had been persuaded to enter in to a scheme based on a forgery, and it was this misrepresentation that made them act.

 

In reality, setting aside the sets of paperwork, all that had happened was that they had bought houses and most of them would live in the property as a main residence. Despite the superfluous transactions, this had not changed. There was no intention to give another person a beneficial interest in the property.

 

Essentially, this was an argument that HMRC would have run if ‘the shoe had been on the other foot.’ In other words, we were arguing a kind of ‘reverse Ramsay’ principle.

 

In other words, we were arguing a kind of ‘reverse Ramsay’ principle.

 

Needless to say, HMRC weren’t buying it.

 

So, to the FTT it was.

 

The denouement

 

Or so it looked, anyway.

 

Well over two years after raising the double assessments, and all the clients had submitted their applications to HMRC, HMRC threw in the towel after taking ‘further advice’ from Counsel.

 

Two years of having a substantial second SDLT charge hanging over their heads, interest being added all the time and a paucity of correspondence from HMRC it was all over in a short email.

 

As such, the balance of £389k had been protected for the remaining 16 clients. A good result but too long in concluding and with no sane policy rationale.

 

As my colleague Thomas Slipanczewski has recently demonstrated with his recent Freedom of Information request, it appears that there is a tactic of grinding down taxpayers through litigation with HMRC pulling out on the metaphorical steps of the FTT where the taxpayer manages to stay the course.

 

It is, admittedly, a tactic that seems to work. Many taxpayers would rather simply pay up than face litigation.

 

Incredibly, in calendar year 2019, we made 31 applications to the tribunal and in ALL 31 cases HMRC withdrew!

 

Incredibly, in calendar year 2019, we made 31 applications to the tribunal and in ALL 31 cases HMRC withdrew!

 

Epilogue

 

A gut reaction from some is that these people entered in to these tax avoidance schemes and got what they deserved. They should have been aware of the risk.

 

But this simply isn’t the case.

 

Clearly, the risk of entering in to such as scheme (at the time they did) would be that they would need to pay the tax, plus interest and lose the significant fee they paid for the privilege.

 

It was not a forseeable risk that the solicitor involved was a crook. It was not a forseeable risk that the opinion was a forgery. Indeed a large tax scheme insurer had insured the fees payable under scheme on the back of the opinion (clearly doing no due diligence in the process). Clearly, they ran for the hills when the truth was out.

 

Further, it is concerning that HMRC can internally think it is a good idea to raise tax from the victims of crime. They must have had meetings discussing this approach. They thought this was the right thing to do.

 

In the end, after two years, we got the right answer..

 

In my opinion, two years too late.

 

 

If you have any queries about this article, or any other tax matters, please do get in touch.

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