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HM Revenue & Customs (HMRC) announced a new Settlement Opportunity for Participants in Tax Avoidance Schemes early last week.  It had been trailed for some time beforehand.

HMRC said,

“...we are inviting some participants in certain schemes to settle their tax liabilities by agreement, without the need for litigation. We believe that this settlement opportunity offers both the taxpayers and HMRC the best opportunity to resolve these disputes in a way which is cost-effective and consistent with the law. Where people decline the settlement opportunity, we will [sic] increase the pace of our investigations and accelerate disputes into litigation...

... We have had recent successes in litigation including:

Commissioners for Her Majesty's Revenue and Customs v Tower MCashback LLP 1, Eclipse Film Partners No 35 LLP v Revenue & Customs, Icebreaker 1 LLP v Revenue and Customs...”

...but not Employee Benefit Trusts, eh? To torture a pun, an almost open shot at goal, one might have thought. And not the first case in the last year with a footballing slant to have an unfortunate turn of events for HMRC.

To be fair, EBTs are not within the scope of this Settlement Opportunity: it is aimed more at those using partnerships to generate sideways Income Tax loss reliefs over and above the amounts ‘genuinely’ risked by the taxpayer. I mention it because HMRC so rarely acknowledges its failures that they do, I think, need to be reminded from time to time.

At this point I should stress that I am in no way against HMRC challenging these schemes. Nor am I against HMRC’s offer to settle on terms it believes to be appropriate. One could admire Mr. Dave Hartnett’s open position on negotiated settlements long before it blew up in public – see HMRC Offers Settlement Deals for EBTs - "Disguised Remuneration"

 But read on:

“...Where the unresolved disputes mainly arise between HMRC and the relevant partnership, we hope the partners will collectively agree that the partnership should accept the offer.

We will also be prepared to offer settlements to individual partners even if the partnership as a whole continues to challenge our views. Such settlements will enable the partner to finalise [his or her] tax position, taking no further interest in the result of any subsequent litigation with the partnership.

The settlement opportunity extended to individual partners is open only to individual partners and company partners who have used specific tax avoidance schemes. It is not open to partners in any other partnerships.

What happens if individual partner/s settle but there are insufficient partners who accept the offer to bind the partnership?

We will use additional resources to accelerate the progression of the partnership enquiry with the likelihood that it will be litigated quickly. However, the individual partner will still be entitled to the terms of the settlement opportunity, providing HMRC still consider the dispute appropriate for this settlement opportunity.”

So if I have read that correctly, an individual partner may come to a separate agreement with HMRC about the treatment of the scheme. How strange. I was so sure that the power and rights of appeal, etc., lay in the hands of only the nominated partner.
 
For instance, in the Enquiry Manuals at EM7035:

EM7035 - Partnerships: Nominated or Representative Partner: Appeals

Appeal rights in respect of partnership issues lie with the nominated or representative partner as being the person allegedly failing to comply with the particular notice, responsible for making the relevant return or otherwise identified in the legislation as the person having such rights.

The structure of the partnership legislation ensures that partnership issues are finalised at partnership level and any rights of appeal are exhausted at that stage. No second tier of appeal rights becomes available at partner level in respect of partnership issues.

Again, I should clarify that I do not want to stand in the way of any route to a satisfactory conclusion between taxpayer and tax authority, on an individual basis. But Mark McLaughlin, in his Taxation article “Out in the Cold”, asked why it was that tax law forbade anyone but the nominated partner to appeal against a partnership penalty. And perceived potential conflict with Human Rights legislation, as referred to in a recent First Tier Tribunal case. (Jarvis).

Of course penalties and assessments are strictly two different issues. And an individual partner is entitled to deal with his or her share of partnership profits or losses independently of the other partners. But it is essentially the quantum of those losses which is disputed in these cases, which is at partnership level. And in my experience, that is very much how HMRC has handled matters when assessing individual partners in the past - particularly where a settlement is achieved at partnership level.

Simply put, it seems to me that it would be preferable if HMRC were to exercise a sense of flexibility more roundly than when it suited only HMRC.