SPC00515
PROCEDURE – Lead case directions – Special Commissioners (Jurisdiction and Procedure) Regulations 1994 regulation 7A
THE SPECIAL COMMISSIONERS
EDI SERVICES LIMITED & OTHERS Appellants
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents
Special Commissioner: STEPHEN OLIVER QC
Sitting in public in London on 29 September 2005
David Ewart, counsel, instructed by Grant Thornton, accountants, for the Appellants
Launcelot Henderson QC, instructed by the acting legal counsel and solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2005
DECISION
- This decision relates to an application heard by me on 29 September 2005 for:
(i) a direction, under regulation 7A of the Special Commissioners (Jurisdiction and Procedure) regulations 1994 ("the 1994 Regulations"), that the appeals of EDI Services Ltd against two decisions for the period 6 April 1995 to 5 April 1997 be designated a "lead case";
(ii) a direction, pursuant to regulation 7 of the 1994 Regulations, that a number of the appeals be heard at the same time as the lead case;
(iii) a direction, pursuant to regulation 7A(3) of the 1994 Regulations, that a number of other appeals be stayed and
(iv) consequential directions leading to a hearing of the lead case and the appeals which are to be heard with it.
This is the first occasion on which the Presiding Special Commissioner has been asked to designate a lead case and give directions under Regulation 7A. Following the hearing of the application I decided that it was appropriate to publish my reasons; the parties agreed with this course.
- Paragraphs (1) to (4) of Regulation 7A of the 1994 Regulations provide as follows:
"(1) Where –
(a) one or more proceedings under Part II of the Transfer Act … have been brought before, but have not been heard by, the Special Commissioners, or
(b) one or more proceedings under Part II of the Transfer Act … have been brought before, but have not been heard by, any General Commissioners; and
(c) it appears to the Presiding Special Commissioner that those proceedings give rise to common or related issues of fact or law ("same issue proceedings"),
the Presiding Special Commissioner may of his own motion or on application by a party to any of these proceedings direct that one of those proceedings be heard in the first instance as the lead case.
(2) The Presiding Special Commissioner may give such further directions as he also considers appropriate for determining the lead case and without prejudice to the generality of the foregoing, such further directions may include in particular directions as to –
(a) which common or related issues of fact or law ("same issues") are to be determined in the lead case; or
(b) which tribunal is to hear the lead case.
(3) Subject to paragraph 14 the Presiding Special Commissioner may also direct that pending determination of the lead case all other same issues proceedings before the Special Commissioners, or that were pending before the General Commissioners, shall be stayed.
(4) Directions shall not be given under paragraphs (1) to (3) except on notice to all parties to the proceedings in question who shall be entitled to be heard before any directions are given."
Background
- The purpose of the preliminary hearing was for directions to be given for the efficient disposal of a large number of cases all of which appear to involve use of the same arrangements involving the provision of bonuses to directors or employees in the form of antique gold coins located offshore. The apparent purpose of the arrangements was to secure that the bonuses did not attract Class I National Insurance Contributions.
- A common feature of all the cases whether the coins had apparently been purchased by the employer company in question from the same UK broker, transferred by the employer company to the relevant directors or employees by means of a deed of transfer and then after a short interval resold by the directors or employees to the UK broker for cash. The purpose of the scheme was to take advantage of the exemption from Class I NICs for "payments in kind" in regulation 19(1)(d) of the Social Security (Contributions) Regulations 1979 ("the 1979 Regulations").
- For the record, I understand that HMRC will contend that the exemption is not available on two main grounds. The first ground relies on the "Ramsay" approach to characterize the bonus arrangements as being a payment of money and not a payment in kind within the meaning of the NICs legislation. The second ground is that, if the payment were a payment in kind, the exemption would be removed by paragraph 9C of Schedule 1A to the 1979 Regulations because the gold coins were an asset for which "trading arrangements" existed within the meaning of that expression in section 203K(2)(a) ICTA 1988. In addition HMRC will require the Special Commissioners to be satisfied that the implementation of the scheme was genuine and effective in law to achieve the series of transactions that apparently took place.
- HMRC, I was told, are aware of about 200 cases in all where the gold coins scheme was used and there are open appeals against decisions on liability under section 8(1)( c) of the Social Security Contributions (Transfer of Functions, etc) Act 1999 ("the Transfer Act"). After several years of correspondence and negotiations HMRC and Grant Thornton are now at one in wishing to have a lead case determined as soon as possible by the Special Commissioners and to invoke the lead case procedure under regulation 7A of the 1994 Regulations. Hence this application.
Can two or more proceedings be heard together?
- Regulation 7A allows for only one set of NICs appeal proceedings to be directed to be heard as the lead case. This appears to follow from the reference to "one of those proceedings" at the end of paragraph (1) contrasting that with references to "one or more proceedings", in subparagraphs (1)(a) and (b). It will be noted however that regulation 7 gives the Special Commissioners a wider more general power to direct that two or more proceedings pending before them or any General Commissioners shall be heard together or consecutively, if some commons issue arises in them.
- The proposed lead case, EDI Services Ltd, enables the arrangements to which the decisions related to be examined against a relatively simple factual background. Only two directors are involved and they also appear to be the only shareholders in that company. The scheme was operated on four occasions between September 1994 and November 1996. On all but the first of the occasions the scheme was also operated in favour of one or both of the same two directors by three related companies, namely EDI International Ltd, H&M (UK) Ltd and H&M Services Ltd. I have had a look at the documentation relating to the arrangements adopted in all four cases. There is sufficient similarity to enable me to conclude that it would not make sense to look at the appeal of EDI Services Ltd in isolation. I do not understand any of the appellants to contend otherwise. For that reason I have directed that the appeals of the other three companies should be heard at the same time as the lead case (relating to EDI Services Ltd) and that a direction to this effect should be given under Regulation 7.
Relevance of the fact that the proceedings are still before the General Commissioners
- HMRC submit that the jurisdiction of the Presiding Special Commissioner to designate a lead case that give directions in relation to proceedings pending before General Commissioners may be exercised even if the proceedings in question have not been formally transferred to the Special Commissioners. The Appellants do not challenge this submission but, again for the record, I set out my reasons for deciding that it is proper in these proceedings to designate a lead case in the circumstances.
- There is, as I read them, nothing in paragraph 7(1) to (4) of Regulation 7A which expressly imposes any such requirements. I note also that paragraphs (11), (12) and (13) all refer to notices being given to the Clerks to General Commissioners in respect of "same issues proceedings". It seems therefore to be contemplated that formal transfers do not have to have been effected in respect of all potential same issues proceedings as a prerequisite to exercise by the Presiding Special Commissioner of his jurisdiction to give directions under paragraphs (1) to (3). Moreover, the interests of the taxpayers concerned are fully protected by the requirement in paragraph (4) that notice must be given to all parties to the proceedings in question and that they shall be entitled to be heard before any directions are given. In this connection I note that regulation 6A of the General Commissioners (Jurisdiction and Procedure) Regulations 1994 provide, in paragraph (1), that where proceedings are pending before General Commissioners for one or more divisions and those proceedings give rise to common or related issues of fact or law then the General Commissioners or each of the General Commissioners for each division (as the case may be) shall arrange for transfer of those proceedings to the Special Commissioners. I do not read that provision as restricting the power given to the Presiding Special Commissioner under Regulation 7A of the 1994 Regulations. It seems to me that Regulation 6A of the General Commissioners Regulations is to be read as an enabling procedural provision. It has directory force only but its exercise is not a prerequisite.
"Same issues proceedings"
- Before a lead case can be designated it must, as noted above, appear to the Presiding Special Commissioner that there are "same issues proceedings", i.e. proceedings which give rise to "common or related issues of fact or law". I have addressed the question of how much evidence is needed to satisfy me on this point. The parties were at one in saying that a detailed investigation was not required; there must nonetheless be some evidence available in relation to each of the proceedings from which the Presiding Special Commissioner can draw the conclusion, as a largely subjective matter, that common or related issues of fact or law are involved. In this connection I satisfied myself that the core scheme documentation in all the cases was substantially the same. I have not been made aware of any special features relating to the arrangements adopted in different cases. I have been provided with a short witness statement by Mr Ian Haughton, a senior tax manager at Grant Thornton. In that witness statement Mr Haughton states, from his own knowledge and from discussions with his colleagues, that the same legal issues are common to all the appeals listed in the Schedule to the draft directions presented by the parties. In the light of Mr Haughton's witness statement and the documentation that I have seen, I am satisfied that all the circumstances of all the appeals listed in that Schedule can be described as "same issues proceedings". I am therefore satisfied as to the requirements of regulation 7A(1)(c) in relation to all those appeals.oug
Formal notice
- I am asked whether, on the basis that Grant Thornton do have current instructions to act for all the parties to all the appeals listed in the Schedule, lead directions can be given in respect of Grant Thornton's clients without giving formal notice to each of the party separately under regulation 7A(4). I am satisfied in these circumstances that notice to Grant Thornton of the Directions setting out the names of all the Appellants in the Schedule annexed will amount to notice to those parties for purposes of regulation 7A(4).
Irrecoverability of alleged liabilities
- Attention has been drawn to the fact that on the first three occasions on which the arrangements to which the EDI case is related were operated the potential liabilities to Class I NICs were not protected by either the commencement of recovery proceedings or entry into an appropriate "standstill" agreement. The result is that recovery of these liabilities would prima facie be time-barred under section 9(1) of the Limitation Act 1980. Although proceedings by the Crown for recovery of any tax or duty are exempted from the operation of the Limitation Act by section 37(2)(a), there is no similar dispensation for proceedings to recover NICs. I am told that, in general, HMRC will not now seek to establish liability in a case where recovery would in practice be impossible. Nonetheless I am satisfied that in a lead case it is desirable that the arrangements should be examined from their inception and Grant Thornton through their counsel have confirmed that they are content for this to be done in the EDI appeals notwithstanding the accrued limitation defence. It would not be an abuse of process for HMRC to pursue their right to bring the bonuses within charge to Class I NICs. The Limitation Act operates only in relation to the remedy and the remedy is outside the scope of the jurisdiction for Special Commissioners. I am satisfied therefore that the Special Commissioners are in a position to decide the question of liability in the context of a lead case for periods in respect of which recovery might be time-barred.
STEPHEN OLIVER QC
SPECIAL COMMISSIONER
RELEASED: 11 October 2005
SC 3148/2005
