1

INTHETAXATIONDISCIPLINARYBOARD(TDB/2018/17)Between

THETAXATIONDISCIPLINARYBOARD(“TDB”)

Vs

DavidHANNAH(CornerstoneTaxAdvisers)

CIOTmembershipnumber135863

DECISION

Present:

DrJonathanPage(TribunalChair,Laymember)

MrPeterCadman(Laymember)

MrIanLuder(CIOTmember)

MrDavidHannah

MrJulianHickey–CounselforDavidHannah

MrJonathanLevy–SolicitortoDavidHannah

MrRogerBindschedler–witnesscalledonbehalfofDavidHannah

MrDavidYatesQC–CounselfortheTDB

MrChristopherEames–MrYates’pupil

MrNigelBremner(ClerktotheTDB)

(Aloggistwaspresenttorecordtheproceedings)

HEARINGS

1. This matter was heard on 5th and 6th February 2020 in London. The Tribunal

considereditsdecisiononthechargeson17thFebruaryincamera.Thepartieswere

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informed of the Tribunal’s decision in writing on 18th February. Sanction was

considered in camera on 17th March 2020 following the receipt of full written

submissionsfrombothparties.

BACKGROUND

2. MrHannahhasbeenamemberoftheCharteredInstituteofTaxation(“CIOT”)since

24thMay 1988.Mr Hannah was also (and remains) a member of the Institute of

Chartered Accountants of England and Wales (ICAEW). He was the founder and

principal consultant of Cornerstone Tax Advisers ("CTA") throughout the relevant

period.CTAwasaspecialisttaxationadvisoryservicedealingwithStampDutyLand

Tax (“SDLT”).Thisbusinesswassubsequently soldbywayofanasset saleand the

businesswastransferredon2ndApril2008.

3. He faced three charges which are set out in full at Appendix 1. The relevant

regulationsthatareapplicabletothechargesarecontainedatAppendix2.

PRELIMINARYPOINT

4. BeforethechargeswereformallyputtoMrHannah,apreliminarypointwasraised

onhisbehalf.

5. Mr Hickey submitted that the ‘last incident’ as set out in Regulation 3.3 of the

TDBSR1 occurred on 11th October 2011 when HMRC sent the complainant (Cyril

Thompson of Ambitions Equestrian Centre Ltd (“AEC”)) a ‘discovery assessment

notice’ and a determination letter; because the complaintwas notmade until 9th

April2018(morethan24monthsafterthe‘lastincident’)theallegationwasoutof

time.

6. Itwasnecessarytodetermine,therefore,whetherthe‘lastincident’occurredbefore

orafter10thApril2016.

1TaxationDisciplinaryBoardSchemeRegulations2014asamendedon29thNovember2016

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7. Mr Hickey submitted that by 11th October 2011, there were clear signs that the

ULRICAschemewouldpotentiallybechallengedbyHMRCandthereforeclearsigns

thatMrHannahhadareasontocomplainabouttheadvicehehadreceivedfromMr

Hannah.Hesubmittedthat11thOctober2011(orwithin24monthsthereof)wasthe

pointintimeatwhichhiscomplaintoughttohavebeenmadetoCIOTortheTDB.

8. Mr Yates QC submitted that there were a number of later events (or ‘incidents’)

whichcouldhavegivenrisetoacomplaint;an incidentshouldnotberestrictedto

thepointintimewhenthecomplainantfirsthadsuspicionsthattheriskassociated

withtheULRICAschememayhavebeenmis-describedbyMrHannah.

9. Hesubmitted that theproblemwith restricting thedate to11thOctober2011was

thatatthispoint intimeitmaynothavebeenapparenttoMrThompsonthatthe

scheme had beenmis-described. He submitted that the letter dated 11th October

2011cameat theveryendof the4-year timeperiod inwhichHMRCcouldraisea

‘discoveryassessmentnotice’andadetermination.Because the letterwassent so

close to this deadline, it may well have been seen by Mr Thompson as HMRC

adoptinga‘holdingposition’,asopposedtothestartofaconcertedchallengetothe

ULRICAschemebyit.ItisclearfromMrThompson’ssubsequentbehaviourin2013

and2014 thathe continued toacceptadvice fromCTA that the schemewouldbe

successful.

10. MrYatessubmittedthatMrThompson’ssettlementcorrespondencewithHMRCin

MarchandinMay2017,wasalsoan‘incident’forthepurposesoftheseregulations.

May 2017Mr Thompson had reached a settlement agreement with HMRCwhich

involvedhimpayingallofthestampdutyowed,plusinterest.

11. On2ndMay2017,MrThompsoncomplainedtoMrHannah.

12. Having heard these competing submissions, the Tribunal determined that it was

clearbyMay2017thatthecomplainanthaddecidedthattheschemepresentedan

unacceptableriskandithadbeenmis-describedbyMrHannahinSeptember2007.

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It was far from clear before 2017 whether it would have been apparent to Mr

Thompsonthattheadvicehereceivedhadpotentiallymisledhim.

13. TheTribunalconcludedthattheregulationswouldbefrustrated if themakingofa

complaintwas restricted in theway suggested byMr Hickey; it was in the public

interest for complaints to be considered if they were validly brought, when the

complainant had formed the view that he had received advice about which he

wished to complain. Here there was clear evidence of when Mr Thompson had

formed that view, and that represented an ‘incident’ for the purposes of the

regulations. The correspondence with HMRC in March and May 2017 were

‘incidents’forthepurposesoftheseproceedings.

14. The Tribunal thenwent on to consider the allegations themselves whichwere all

formallydeniedbyMrHannahatthestartofthehearing.

THESTANDARDOFCARETOBEEXPECTEDOFATAXADVISOR

15. The case of Langsam and Beachcroft LLP [2012] EWCA Civ 1203 sets out the

principles concerning a solicitor’s duties where that solicitor had received advice

fromCounsel.NotwithstandingthatMrHannah isataxadvisorandnotasolicitor,

the principles have application in his case. At paragraph 85 The Court of Appeal

agreedwithRothJ(theJudgeatfirstinstance).ArdenLJstated:

Astorelianceoncounsel,[RothJ]heldthatasolicitordoesnotabdicatehis

responsibility when he instructs counsel. He could thereafter advise jointly

with counsel. Alternatively hemust carry on inwhat [counsel for Langsam]

callsa“whistleblowerrole”.Thatmeanshemustapplyhismindtotheadvice

received. The authorities showed that a solicitorwill be liable if the advice

fromcounselis“obviouslyorglaringlywrong”.Thisappearedfromthethree

principleslaiddownbyTaylorLJin[twofurtherauthoritieswerethencited].

Thethreeprincipleswereasfollows:

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“(1)Ingeneralasolicitorisentitledtorelyupontheadviceofcounsel

properlyinstructed

(2)Forasolicitorwithoutspecialistexperienceinaparticularfieldto

relyoncounsel’sadviceistomakenormalandproperuseoftheBar.

(3) However he must not do so blindly but must exercise his own

independent judgment. If he reasonably thinks counsel’s advice is

obviouslyorglaringlywrong,itishisdutytorejectit.”

16. InBarkervBaxendaleWalkerSolicitorsandanother[2017]EWCACiv2056,(another

appealfromRothJatfirstinstance),AsplinLJsaid:

61.Itseemstomethatthefollowingprinciplesarelikelytoapply:

(i) Thequestionofwhetherasolicitorisinbreachofadutytoexplainthe

risk that a court may come to a different interpretation from that

whichheadvisesiscorrectishighlyfact-sensitive…

(ii) If the construction of the provision is clear, it is very likely that

whateverthecircumstances,thethresholdof“significantrisk”willnot

bemet and it will not be necessary to caveat the advice given and

explaintherisksinvolved;

(iii) However,dependingonthecircumstances,itisperfectlypossibletobe

correctabouttheconstructionofaprovisionor,atleast,notnegligent

inthatregard,butneverthelesstobeunderadutytopointouttherisk

involvedandtohavebeennegligentinnothavingdoneso…

(iv) Itismorelikelythattherewillbeadutytopointouttherisks,ortoput

thematteranotherway,thatareasonablycompetentsolicitorwould

notfailtopointthemoutwhenadvising,iflitigationisalreadyonfoot

or the point has already been taken, although this need not

necessarilybethecase…;and

(v) The issue is not one of percentages or whether opposing possible

constructionsare‘finelybalanced’butismorenuanced.

…

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64. In thiscase, legaladvicewastheveryservicewhichwasbeingprovided

andwhichwas being relied upon. There canbe no separation between the

advice andanyappropriate caveats as to risk. Theyare oneand the same.

Thelawyeraspartofthelegaladviceheisproviding,mustevaluatethelegal

positionanddeterminewhetherinallofthecircumstances,heshouldadvise

hisclientthatthereisasignificantriskthattheviewhehastakenaboutthe

substantivematterinquestionmaybewrong…

65.Whendeterminingwhetherareasonablycompetentadviserwouldhave

advisedthattherewasasignificantriskthatacontraryviewwouldbetaken

in relation tosection 28(4)and that the post-death exclusion construction

mightwellbecorrect,therelevantfactsincludedthefactthatthiswasavery

aggressive taxavoidance schemewhichwasmarketed toMrBarkeron the

verybasis thathis familywouldbeable tobenefit fromthepropertywithin

theEBTatthedateofhisdeathfreeofCapitalGainsTaxandInheritanceTax,

anoutcomewhichmightappearonthefaceofittobetoogoodtobetrue.

LEGISLATIVEBACKGROUNDTOTHEULRICASCHEME

17. The background to the allegations concerned the use of a scheme that sought to

avoidaliabilityofStampDutyLandTax(SDLT)arisingoutofaninterpretationofthe

provisionsoftheFinanceAct2003(“theAct”),asoriginallydrafted.

18. A scheme was devised whereby an unlimited company would be formed. That

unlimitedcompanywouldthenbecapitalisedtothesumofthevalueofaproperty.

The unlimited company would then contract to purchase the property, from the

vendor. TheDirectors of the unlimited companywould resolve that the unlimited

company would reduce its share capital at the time of the completion of the

purchase,bywayofadistributioninspecieoftheproperty,toitslimitedcompany

parent. Because this distributionwas not a transfer of property for consideration

(seesection45(3)(b)(ii)),SDLTwasnotpayable.Asa result,SDLTdidnot fall tobe

paidbytheultimateacquireroftheproperty(thelimitedCompany).

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19. Thescheme(amongstothers)wasconsideredbyHMRCtorepresentaggressivetax

avoidanceandsoon6thDecember2006at2pm,TheStampDutyLandTax(Variation

oftheFinanceAct2003)Regulations2006SInumber3237proposedanewsection

75Atobe inserted into theAct.Thisnewsectionwas tohave immediateeffect.A

Pre-BudgetReport (PBRN17), accompanied thenotice thatmade it clear that the

purpose of the new section was to prevent the avoidance of SDLT, and various

exampleswere givenwhich appeared to include the ULRICA scheme. It was clear

that the trend of cases and legislation aimed at countering tax avoidance

significantlypre-datedSeptember2007.

20. Section75Awassubsequentlyamended,and2furthersections(75Band75C)were

inserted into theAct, inaddition toanamended75A (by theFinanceAct2007,at

clause 70). These 3 new sectionswere put before parliament inMarch 2007 and

received Royal Assent in July 2007. However, the new sections were all given

retrospectiveeffect,fromthe6thDecember2006.

21. On15thAugust2007,HMRCreleasedSDLTTechnicalNews5.Again,exampleswere

givenofthetypeofschemes,includingtheULRICAscheme,thatweretheproposed

targetsofHMRC.

22. Atthetimewithwhichtheseallegationsareconcerned,thereisnosuggestionthat

therehadbeenany judicialorFirstTierTaxTribunaldeterminationsof thecorrect

interpretationofsection75A.W.T.RamsayvIRC[1982]A.C.300providedextensive

judicial guidance upon the correct approach that ought to be taken when

considering the interpretation of legislation. This was further clarified in Barclays

MercantileBusinessFinanceLtdvMawson[2005]STC1(“BMBF”).

23. Sincethen,section75AhasbeenextensivelylitigatedandtheTribunalwastakento

three decisions of the First Tier Tribunal (Vardy Properties v HMRC [2012] SFTD

1398,CrestNicholsonvHMRC[2017]SFTD481andGeeringvHMRC[2018]UKFTT

233(TC)).

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24. InProjectBlueLtdvRevenueandCustomsCommissioners[2018]1WLR3169,the

SupremeCourtconsideredthescopeandeffectof75A.Asaresultofthislitigation,

it is now clear that Section 75A had the effect of preventing the ULRICA tax

avoidanceschemefromoperatingtoavoidtheincidenceofSDLT.

EVIDENTIALBACKGROUND

25. Therewas extensivewrittenmaterial before the Tribunal. Therewas a substantial

‘Hearing Bundle’, as well as an ‘Authorities Bundle’ that contained the relevant

legislation,TechnicalNotes,BriefingNotesandauthorities.

26. Thenon-contentiousevidencecanbesummarisedasfollows:

27. Attherelevanttime,MrHannahwasthesoleTaxAdviserforafirm,CornerstoneTax

Advisors(“CTA”),whichspecialisedingivingtaxadvice.

28. InAugust2006,MrHannahcommissionedanopinionfromCounsel(PatrickCannon)

concerningtheULRICAscheme.PatrickCannonwasregardedasaleadingauthority

onSDLT.Thatopinion,dated9thAugust2006,containedagenericviewofhowthe

ULRICAschemecouldwork.Itincludedanumberofcaveats.Therelevantpassages

areincludedbelow:

1. I am asked by my instructing solicitors to advise on the SDLT

implicationsofpurchasingacommercialpropertyusingtheSDLTsubsale

structurediscussedinconferenceon8thAugust2006.Myadviceissetout

below but in summary, I confirm that subject to thematters discussed

below,inmyopinionnoSDLTwillbepayableinrelationtoanacquisition

thatcorrectlyimplementsthestructure.

…

25. Inmyopinionthedecisionsof theHouseofLords in [BMBF]suggest

that this strategy is vulnerable to the Ramsay principle of positive

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purposivestatutoryinterpretation.However,therearetworeasonswhyin

my opinion a successful Ramsay attack on the structure is unlikely to

occur.First,fromapracticalperspectiveHMRCappeartobereluctantfor

whateverreasontoinvokeRamsayinthecontextofSDLT.Instead,HMRC

seem content to enact extra statutory anti-avoidance whenever they

encounter “unacceptable” SDLT avoidance. Realistically, however, it

should also be recognised that if HMRC were to attack this strategy

throughtheCommissionersandthecourtstheymightdosobyasserting

that section45(3)(b)(i), FinanceAct2003doesnot includeconsideration

payablebyULCundertheoriginalcontractwithoutassertingtheRamsay

principle…

26.Second,theSDLTstatutoryprovisionareperhapslesssusceptibletoa

Ramsay approach than some other taxes because of the highly

particulariseddraftingoftherelevantprovisions.Inotherwordstherules

are extremely detailed and draftedwith very specific results inmind. It

follows that such provisions are less open to the sort of sweeping

purposive interpretation thansomeother taxeswhereRamsayhasbeen

appliedbythecourts. Inthecontextofthehighlyarticulateddraftingof

section45(3)(b)(i)FinanceAct2003plusHMRC’spublishedinterpretation

ofitinexample3…,itismyopinionmorelikelythatHMRCwouldenact

an anti-avoidance measure to deal with the strategy rather than

challengethestrategyunderRamsay[Tribunal’semphasis].

29. InMay2007,duringtheParliamentarypassageofwhatbecametheinsertedsection

75A, Mr Hannah commissioned an opinion from Patrick Way (now QC), another

leading authority on SDLT. This opinion was directed at a ‘Husband and Wife’

arrangement. In order to protect client confidentiality, some paragraphs of his

opinionwereputbeforetheTribunal,butredacted;otherswerenotreproducedfor

the Tribunal at all. The relevant sections that were disclosed to the Tribunal are

includedbelow:

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INTRODUCTION

1. The strategy described in this opinion is intended to facilitate the

purchaseofaproperty,freeof…SDLT.Thetransactionisassumedtobeofa

residentialproperty,andinvolvesatwo-stepprocessbeing(1)theacquisition

ofthepropertybyonespouseforfullconsiderationwhichmaybefundedbya

mortgage followed by (2) an immediate gift of the property to the other

spouse.Inmyopinion,forthereasonsmentionedatlengthandsubjecttothe

caveatscontainedherein,thistransactionresultsinnoSDLTarising.

…

4.Ihaveconsidered[the]FinanceAct2003s.75Awhichcouldpotentiallytax

a scheme of this nature specifically but in my opinion, for the reasons

mentionedatlengthsubsequently,s.75AdoesnotresultinSDLTfallingdue.I

draw attention, however, to the caveats which I make subsequently in

relationtos.75A.

…

30. Theopinionthendiscussesthe‘husbandandwife’scheme.Itthencontinues:

17.Consequently,havingregardtos.45(3)inmyopinionthereisnoSDLTto

payinrelationtothetransactionbetweenthevendorandthehusbandonthe

one hand, nor in relation to the transaction, effected by gift, between the

husbandandthewife.So,inmyopinion,andsubjecttothecaveatsfoundin

thisopinion,theentiretransactiontakesplacefreefromSDLT.

18. It is of course the case that the position is not clear beyond all doubt

because some commentators have said in similar circumstances, that the

consideration deemed to be given by thewife in relation to the transfer of

rightseffectedbydeedofgiftdoesextendtosomuchconsiderationunderthe

originaltransactionasistobegivenbythehusband.Ifthiswerecorrectthen

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theschemewouldnotworkbecausetherewouldbeSDLTtopayafterallon

thebalanceoftheconsiderationpayableafterexchangeofcontractbetween

thevendorandthehusband.

31. Theopinionthendiscussessection75Aindetail,inthecontextofthe“planningnow

under review” (i.e. thehusbandandwifesituation).Hesummarises,atparagraphs

33and34ofhisopinion,thatthereisnoconsiderationforthepropertypassingto

thewife(asagift)andthereforenoSDLTtopay.

32. Thenextparagraphsareofsomeimport:

FAULTLINES

35. It is, of course, unlikely that this state of affairs was intended by the

draftsman.Soanyonechoosingtoadoptthestrategyshouldbeputonnotice

thattheschemeisnotguaranteedtobesuccessful.AlthoughIrepeatthatit

ismyopinion,particularlywhenadoptinganintellectuallyhonestapproachto

thelegislation,thatthestepsenvisagedshouldresultinnoSDLTbeingdue.

36.Itis,however,appropriatetodrawattentiontothefollowing“faultlines”

whichIhaveidentified.

37.First,asmentioned, the legislationproducesaresultwhich isunlikelyto

havebeenintended.

38. Secondly, it is clearly a “fault line” that in [the] definition of “scheme

transactions” there are included items which are clearly land transactions

suchasasub-sale.Itislikelytobethecasethatthedraftsmandidintendto

catchthereforeasub-saleandyettheprecisewordingofthe legislation,on

myanalysis,operatestomeanthatasubsaleisnotchargeableinthewayin

which it was presumably intended. So a court might “do damage to the

legislation”tomakeitwork.

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39.Thirdly, itmaybethatacourtwouldsaythattherelevantwordingwas

justamistakeandthatacourtmightdeterminetocorrectthemistakeinits

judgmentinwhateverwayitthoughtfit.

40. Finally as alreadymentioned and very importantly, the legislation is in

draftformandsusceptibletoretrospectivechangepriortoRoyalAssent.

41.Accordinglyanybodyentering intotheschemeshouldbeawareofthese

faultlines.

WARNING

42. It has to be appreciated that notwithstanding my honest opinion

mentionedabove,thisisaschemeanditisdesignedexclusivelytoreducethe

rate of SDLT from 4% to nil in circumstances where undoubtedly,

notwithstanding theway inwhich I have interpreted the legislation, HMRC

wouldbelikelytosaytheynever intendedittoapplytothissituationunder

review. Accordingly this is not a scheme for the “faint-hearted”. It is, by

contrast,aschemeforpeoplewhoarepreparedtoenterintoataxavoidance

schemewith their eyes open. The schememust be disclosed in the returns

thataremadeinathoroughlyopenandcandidfashion.

CONCLUSION

43.NotwithstandingtheaboveIrepeatthatinmyopinionthebetterviewis

thattheplanningdoesresultinnoSDLTbeingpayable.

GENERALLY

44.MylayclientisCornerstoneTaxAdvisors.Whilstthisopinioncontainsan

honestexpressionofmyviews,Iundertakenodutyofcaretoanythirdparty

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who may come to read it. Any such third party should take his own

independentadviceinthelightofhispersonalcircumstances.

33. On18thJuly2007MrHannahwasreferredaclientofHazlewoodsAccountants,Cyril

Thompson,whowasseekingtopurchasearidingstablescalledHillsideStud.

34. On 8th August 2007, Chris Mattos, the Tax Manager at Hazlewoods emailed Mr

Hannahstatingthat:

TheclienthascomeunderincreasedpressuretoexchangeonFriday,thishas

gotalittleaggressiveasthevendorisclosetoBankruptcy.

35. On9thAugust2007bothAmbitionsSDUnlimited(“ASD”)andAECwereformed.Cyril

Thompsonwas thepointof contact forASDandAECalthoughMrHannahdidnot

personallymeetMrThompsonatanystage.

36. On16thAugust2007,ASDenteredintoanagreementtopurchaseHillsideStudfrom

thevendor(MrWilliams).

37. Mr Hannah commissioned a further opinion from Patrick Cannon. This opinion is

undated,however,itcannothavepre-dated15thAugust2007asitreferstoHMRC’s

‘SDLT Technical News 5’ of the same date. Mr Cannon’s opinion was directed

towardsaspecificcaseandsoitwasnotbeforetheTribunalinitsentirety.Extracts

takenfromtheopinionwereputbeforetheTribunal.Therelevantparagraphs(from

thosethatwerebeforetheTribunal)areincludedbelow:

Anti-AvoidanceLegislation

12.TheStampDutyLandTax(VariationoftheFinanceAct2003)Regulations

2006 SI number 3237 introduced a new anti-avoidance rule effective from

Wednesday6thDecember,2006intheformofanewsection75AFinanceAct

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2003whichwasintendedamongotherthingstoblockSDLTsub-saleschemes

ofthetypeconsideredherein.Modifiedandexpandedprovisionintheformof

sections 75A to 75C … were introduced by the Finance Act 2007 with

retrospectiveeffectbackto6thDecember2006.However, inmyopinionthe

anti-avoidance rule will not apply in the circumstances of the proposed

transactionforthereasonsIshallexplainbelow.

[Paragraph13isheavilyredacted]

38. Paragraphs 14 to 17 contain a detailed technical argument setting out how Mr

Cannonwas of the opinion that the new section 75A had failed to have had the

effect of amending section 45 to include all sub-sale transactions and that there

would be sub-sales that would continue to qualify for the relief available where

completion or substantial performance of both sub-sales occur at the same time.

Paragraph18thencontinues:

18.The issuewillbe identifyingwhichsub-salesarecaughtby thenewrule

and which are not. This task is not helped by the examples given in the

currentHMRCofficialguidancecontained inSDLTTechnicalNews issue5of

15thAugust2007,astowheninHMRC’sview,theanti-avoidancerulewillor

willnotapply…..

39. It isclear fromparagraphs18to23ofMrCannon’sopinion,thathe isoftheview

thattheguidancenoteswereunclearandthatsection75Adidnotcoverallsub-sale

transactions.Hewrotethisinrespectoftheguidance:

23. … The status of official guidance as to the meaning of the statutory

wording which is at variance with the actual meaning of the statutory

wordingconcernedwasconsidered indetailbyLordSteyn inhisspeech inR

(WestminsterCityCouncil)vNASS[2002]4AllER654at658whereheheld

that the meaning of the statutory wording prevailed over the official

guidance.

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24. Accordingly, in my opinion (but subject to the caveat below) the

transaction contemplated here will not be caught by section 75A. If the

original sale transaction is not part of ‘the scheme transactions’ then any

considerationpaidforthattransactioncannotbetreatedasconsiderationfor

the notional land transaction and is ignored. The caveat mentioned above

relates to the Ramsay principle of statutory interpretation by the courts. It

hasbeensaidthatthenewanti-avoidanceruleisHMRC’sattempttowritea

statutoryRamsayprinciple into SDLT legislation. It is certainly true that the

new rule appears to have eschewed the traditional approach of a highly

targetedstatutoryprovision…

40. On3rdSeptember,MrHannahsentAECtwoletters,towhichthesechargesrelate.

TheyarebothentitledENGAGEMENTLETTERSandbotharesignedbyMrHannah.It

istheselettersthatformthebasisofalloftheTDBcharges.

41. Letter1(theADVICEletter)includesthefollowingpassages:

I understand that you wish us to assist in mitigating the SDLT on your

proposedpurchase.

...

Iunderstandthatthetransactionneedstoproceedassoonaspossible,and

asaresult,itmaynotbepossibletomeetyouinpersonpriortoimplementing

thestrategy,butIwill,inanyevent,beavailabletodiscussthisletterandthe

planningviatelephone.

Thetaxmitigationplanningcalled“ULRICA”maybestbedescribedasfollows:

[Theschemeisthendescribed]

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Counsel has confirmed that the sub-sale provisions in section 45 FA 2003

providethattheoriginalcontract(purchasebytheunlimitedcompany) isto

bedisregarded,evenifcompleted,wherethisissubsoldorassigned“atthe

same time and as in connection with “the performance of the sub-sale

contract(thedistributionoftheassets).

Accordingly,theoriginalcontractpurchasefallstobedisregardedasitisnot

a landtransaction.Thechargeableconsideration for thesecondarycontract

(the distribution in specie) is nil. Accordingly no SDLT is payable on the

purchase.

To summarise, the tax risks involvedare thatHMRCmay seek to litigate to

challengethisstrategy(althoughinourexperiencetheyhavenotyetdoneso)

and that there is a probability, albeit a low one, that theymay be able to

successfully challenge the strategyusing theprinciplesdeveloped in the tax

avoidancecaseofIRCv.Ramsayorundercurrentantiavoidancelegislation.

WhilstthisisalowprobabilityIamdutyboundtodrawthistoyourattention,

however, the downside risk for yourselves ismerely that youwould endup

payingtheSDLTthatwouldhavebeendueplusasmallamountofinterestat

theofficialratecalculatedfromthedatethetaxshouldhavebeenpaidtothe

date it actuallywaspaid. In our view theprobability of thepenalties being

appliedareverysmall.IntheeventthatHMRCweretosuccessfullychallenge

thearrangementthebalanceofourfeewouldbewaived.

Finally, Iamobligedtobringtoyourattentionthepossiblereputationalrisk

that you run with the HMRC in implementing any form of aggressive tax

planning. Your involvement in legalavoidancemay causeadeterioration in

yourrelationshipwithHMRCandmaymakeyourtaxaffairssubjecttoclose

scrutiny in the future beyond the remit of SDLT. If you are at all

uncomfortable with the thought of this you should not proceed with the

planning.

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Ihopethattheabovewarningshaven’tmadeyouundulynervous–theyare

somethingthatIamboundtogiveundermycodeofprofessionalethics.

….

42. Letter2(theTERMSletter)includesthefollowingpassages:

OurServices

….

Wedonotguaranteethatwewillbeabletomitigatetheentireliabilitythat

would otherwise arise butwewillmakeour best endeavours to do so. You

should be aware that entering into a Stamp Duty Land Tax mitigation

arrangementmayresultinyouraffairsbeingscrutinisedmorecloselybythe

StampOffice.

…

Fees

Weagreetoprovidetheservicessetoutaboveforatotalfeeof£12,000(plus

VAT),whichwillberenderedasfollows:

a) A fixed fee of £4,000 (plusVAT) on implementation of the strategy due

andpayableonpresentation

b) The balance of the fee up to the amount specified abovewhichwill be

payable nine months following submission of the SDLT1 return or on

successfulconclusionofanyHMRevenue&Customsenquiry.

OurAdvice

…

Ouradvicewillbebasedonourunderstandingof thestatute,case lawand

practice as at the time of its issue and is conclusions may, therefore, be

affectedbyanysubsequentchangesinsuchlawandpractice.

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Asummaryoftheoverallconditions,stepsandassociatedriskswillbe/have

been supplied to you. You are strongly advised to consider these before

enteringintoanytaxplanningarrangements.

…

43. AcopyoftheTERMSletter,signedby‘C.Thompson’anddated11thSeptember2007

wasfaxedbacktoCTA.

44. The schemewas thenput intoplace andAEC acquired sufficient shares inASD to

cover the value of the property. The directors of ASD resolved that the company

wouldreduceitssharecapitalbywayofadistributioninspecieoftheproperty.

45. Thepurchasewascompletedon15thOctober2007.TheLandRegistrytitlenumber

BK277416showsAECasthefinalowneroftheproperty.AnSDLT1formwasfiledfor

the transaction between the Vendor and ASD. No SDLT1 form was filed for the

second transaction. No discovery assessment was issued within 9 months of

completionandsothebalanceofthefeeof£12,000+VATwaspaidbyAECtoCTA.

46. HMRCissuedadiscoveryassessmentnoticedated11thOctober2011toASD,aswell

asadeterminationtoAECLtd(4daysbeforethestatutorydeadline)andstartedthe

processbywhichtheuseoftheschemeandtheavoidanceofSDLTwasultimately

challenged. Initially AEC, through Mr Thompson, resisted HMRC’s request for

paymentoftheSDLT.

47. On 16th January 2017, HMRCwrote to AEC and set out their view concerning the

discoveryassessmentandtheirdetermination.Thiswasreviewedandre-affirmedby

March2017. Ina letterdated30thMay2017HMRCconfirmedtheiracceptanceof

AEC’soffertopaythefullamountofSDLTplus interest.Aspartofthesettlement,

HMRCdidnotimposeapenalty.

LIVEEVIDENCEBEFORETHETRIBUNAL

19

48. MrHannahadoptedhistwowrittenstatementsandgaveevidencetotheTribunal.

He said that he had advised clients about the ULRICA scheme prior to December

2006. He said that the tax environment was wholly different to the anti-tax

avoidanceenvironmentthatdevelopedafter2007.

49. InrelationtotheULRICAscheme,priorto6thDecember2006,HrHannahhadrelied

ontheopiniondraftedbyPatrickCannon(dated9thAugust2006).Asaresultofthat

opinion,hehadconsideredthattheschemerepresenteda‘lowrisk’.

50. MrHannahstatedthathehadgivenapackofdocumentstoHazlewoods.Thispack

includeda2-pagedocumentcalled‘ULRICAFAQs’,a2-pageentitled‘ProjectULRICA

–SDLTMitigation’,a2-pagedocumentcalled‘TheWhoandWhyofSDLTPlanning–

AGuide to theMethodsofCornerstoneTax’,a2-pagedocumentcalled ‘SDLTand

Tax Planning’, a 3-page document entitled ‘TAX PLANNING – THE CLIENT’S

CONCERNS’ and a 2-page document called “WHAT ARE THE RISKS?”. This last

documentwasdated10thMarch2006.

51. Heacceptedthattheentirepackofdocumentswasdraftedpriortotheproposalto

insertsection75AintotheFinanceAct2003on6thDecember2006andthathehad

notupdatedorchangedanyofthepackofdocumentsafterwards.Hesaidthathe

had readPBRN17,HMRC’s TechnicalNoteandSDLTTechnicalNews5when they

hadbeenpublished.

52. The pack of document contained the following sections thatwere relevant to the

questionofrisk:

a. WithintheULRICAFAQ’sdocument:

6. Do I have any liability or exposure after nine months? Providing the

planningstepsarefollowed,particularlytherecommendationsofCounselon

thesubmissionsofReturns, then there shouldbeno realisticprospectofan

Enquirybeingopenedafterninemonths.However, followingthedecision in

20

Langham v Veltema the possibility of the Revenue attempting to open an

Enquiry after the ninemonths cannot be ruled out. Counsel has advised us

thattheybelievetheprobabilityofthesuccessofsuchachallengeisremote

on technicalgroundsand should thisbeattemptedwewill resist it on your

behalf.

b. Withinthe‘ProjectULRICA–SDLTMitigation’document:

TechnicalAnalysis

The sub-sale provisions in section 45 FA 2003 provide that the original

contract (purchasedby theunlimited company) is tobedisregardedeven if

completed where this is sub sold or assigned “at the same time and as in

connectionwith”theperformanceofthesub-salecontract(thedistributionof

the assets BC). Accordingly the original contract purchase wants to be

disregardedas it isnota landtransaction.Thechargeableconsiderationfor

thesecondarycontract(thedistributionofspecie)isnil.AccordinglynoSDLT

ispayableonthepurchase.

c. Withinthe‘TheWho&WhyofSDLTPlanning–AGuidetotheMethodsof

CornerstoneTax’document:

WhoareCornerstoneTaxAdvisors?

Cornerstone Tax Adviserswas established inMarch 2006 by David Hannah

ACA CTA who decided to form a practice specifically focussed on property

taxes planning and, more immediately, in his own specialist area of SDLT

planning.DavidisanexperiencedCharteredAccountant(1984)andChartered

Tax Advisor (1987) who has, since the introduction of SDLT, specialized in

producing planning strategies for the mitigation of this tax, and bespoke

advice,forclientsofSolicitors,Accountants,andBanksacrosstheUK.

…

21

SohowdoyouplanSDLT?

…

Acarefulstudyoftheprovisionsofpart4ofFinanceAct2003revealthat,far

frombeingawelldraftedandthoroughpieceofanti-avoidancelegislation(as

advertised byHMRC), therewere in fact a considerable number of drafting

defects inthestatute.Thesecentredeitheronunwittingomissionsfromthe

chargingclauses,unwitting inclusions intheexemptionclauses,andthe law

of unintended consequences applying to certain of the calculative charging

provisions.

Cornerstone Tax Advisors has developed and implemented a number of

strategiesbasedon thesedefects since2003,andcontinues toexplorenew

ways of producing legal tax avoidance structures that will successfully

mitigateSDLT.

WhatPlanningcanachieve

As a result of three years work and well over 250 cases implemented

CornerstoneisnowabletoofferSDLTPlanningstrategiesbothinvolvingand

notinvolvingthevendor.Thesestrategiesaregenerallydesignedforspecific

client groups, i.e. individuals, married couples, co-habiting couples,

partnerships, companies and pension schemes. Most planning

implementationsneed to takeplacepre-exchange,but canbe implemented

postexchangeifre-issueofcontractsnotproblematic.Reductionsof85%to

100%ofthetaxcanbeachievedwithahighprobabilityofsuccess.

d. Withinthe‘SDLTandTaxPlanning’document:

HowBindingisthePlanning?

22

Inordertoensurethatanenquirycannotberaisedafterninemonthsdueto

fraudulentactivity,yourtaxadvisorgainsafavourableopinionfromcounsel.

As you sought advice from the bar regarding the strategy, you cannot be

accused of fraud or negligence, so an enquiry cannot be raised after nine

months.However,counselwillnotgivefavourableopinioniftheybelievethe

planningwillnotstandupinacourtoflawifchallenged.

So,theopinionservestostatethat,theplanningisbothlegitimateandwill,in

allprobability,alsosucceedifchallengedincourt.

Thereforeafterexpiryof theenquirywindow theplanning is successfuland

theSDLTpaidistherequiredamount.

PotentialLoss:ThroughEnquiry?

If HMRC make a successful challenge (although unlikely in the opinion of

counsel), you would have to pay the SDLT that would be charged without

planningandanyinterestforlatepayment.

e. Withinthe‘TAXPLANNING–THECLIENT’SCONCERNS’document:

This guidance note is intended to assist you in answering clients’ questions

abouttherisks, rewards,upsidesanddownsidesandgeneralbackgroundof

taxplanningservicesundercurrentUKlegislativeenvironment.

WhatisTaxPlanning?

…

Taxplanningmightbeconsideredasgettingthebestpossibledealavailable

inside the law. It isahighly specialisedareamainlypractisedbyspecialised

firms of tax consultants andmembers of the bar in the UK. Tax avoidance

23

may be deemed unacceptable by the Inland Revenue. Recent public

pronouncements by the government have branded tax avoidance in certain

circumstances as “immoral” but this has largely been a propaganda

campaign by the government to prevent taxpayers doing what they are

permittedtodoundercurrentUKlegislation.

HowIsTaxPlanningDifferentFromTaxEvasion?

Tax planning uses techniques which are, based on the advice of Counsel,

insidethelaw.QuiteoftenthesetaxplanningtechniquesareviewedbyHMRC

asbeingacceptable.Sometimestheyarenot.Theacceptabilityorotherwise

toHMRCofaparticularpieceoftaxplanningdoesnotaffectitslegalityand

indeed a system exists for resolving disputes over technicalities or

interpretations of the law which, ultimately, end up with a question being

referredtotheHouseofLordsorindeedtheEuropeanCourt.

Ifyouareinvolvingyourself inanyprogrammeoftaxplanningthenyouwill

only do so on the advice of a tax advisor, accountant or other suitably

qualifiedprofessional.Shouldtheplanningbedeemednoveloraggressiveitis

quitenormalforyouradvisorstoseektheadviceofCounsel…andthemere

fact of taking Counsels advice and, assuming Counsel advise that the

proposedapproachislegal,meansthatyoucannotbecommittingtaxfraud.

However,themereholdingofaCounsel’sopiniondoesnotnecessarilymean

thattheadviceisguaranteedtosucceed.Counselhavemerelyexpressedtheir

view that, on the balance of probabilities, the proposed planning should

succeedbeforethecourtifchallenged.

f. Withinthe“WHATARETHERISKS?”document:

WhatHappensIfTheInlandRevenueChallengeThis?

…

24

MostcasesaredecidedatSpecialCommissionerslevel….Howeveritisopen

forHMRCor the taxpayer to take thematters toahigher court.Both sides

take cases all the way to the House of Lords where they feel there is an

important point of principle which needs clarification… The other avenue

open to the government in the event of a loss is simply to make a

parliamentarystatementandthenamendthelawinthenextbudget.

Both these routes have been used extensively by the government and

taxpayersovertheyears.RecentdecisionsintheHouseofLords….havegone

infavourofthegovernmentbutothers…havegoneinfavourofthetaxpayer.

When cases have been referred to the European Court of Justice … the

decisionhasgoneinfavourofthetaxpayerinthevastmajorityofcases.

CONCLUSION

Taxplanning isnot for everyone.Personsofanervousdisposition,whoare

relativelyunsophisticatedintheirTaxaffairs,orholdstrongviewsaboutthe

morality of Tax Planning are almost certainly best advised not to proceed

withit.

For thosepersonswhoare,orhavebeen,usedto takingmeasuredriskand

judgingthisagainstlikelyreturnsthenTaxPlanningisanotherjudgmentcall

andtheyaremorethanlikelytoproceed.

Simplyputyoucannotpredictwhichpotentialclientwill,orwillnot,beone

whowillproceed,butagoodknowledgeoftheirbackgroundandattitudeto

lifewillgiveastrongindicatoroftheirlikelyapproach.

…

10March2006

25

53. MrHannahsaidthathehadnotupdatedthispackofdocumentstoincludewhathe

saidwere“complicatedexplanations”aboutsection75A incircumstanceswhere it

would“justleadtofurtherexplanations”.Hesaidthatinhisviewtherewasnoneed

tosodo.

54. In short, he said that his view as to risk had not changed and that, after the

announcement to implement section 75A, there remained a ‘low’ risk, albeit a

slightly increasedone.He said Itmayhave increased theprobability, but itwould

stillhavebeenwithinthebracketof“low”.Whenasked,“Whatdidyoumeanbylow

probability?”he said: “Imeant less than51%,20 to25%atmost”.He said that in

lightoftheopinionCornerstoneshadreceivedfromcounsel,theydidnotthinkthat

thistechnicalmaterialneededtobebroughtup-to-date.

55. TheTribunalalsoheardevidencefromRogerBindschedler,whowasasolicitorwho

specialised in taxation and in particular SDLT. He was as a member of the SDLT

Group (agroupofpractitionerswhowouldcommunicate inorder tobounce ideas

off one another).He described his “shock” reaction to the introduction of section

75Ainthepre-budgetbriefinginDecember2006.Hesaid:‘Whenitfirstcameout,

thereactionofmyselfinitiallywas“BackOff!”,butthenwelookedatit.’

56. Mr Bindschedler said that a round robin e-mail was circulated and in early 2007

membersoftheSDLTGrouphadhad3meetingswithCrispinTaylor(HMRC’sheadof

SDLT)todiscussthelegislation.Hesaidthatthegroup‘tookapartthelegislation’.He

alsosaidthat“TheRevenuewerenotgoingto‘OK’orformallyapprovetheULRICA

scheme–theywereapplyingtheirinterpretationtodefeatit”.

57. Mr Bindschedler gave evidence that the company he then worked for stopped

offering the scheme when section 75A was initially proposed. The pre-budget

proposals came as a complete shock; and then,when they re-started offering the

scheme, theyonlyoffered it to “big commercialorganisations”,onan “eyes-wide-

open”basis.

26

58. MrHannahacceptedthatthearrivalofsection75Awas“abigstepchange”andit

wasaproblematicissue.

59. MrHannah sought a further opinion, this time from another leading authority on

SDLT (Mr PatrickWay) in respect of a ‘husband and wife’ case in May 2007. He

accepted that the facts were different, but considered that the opinion had

applicationinsofarastheeffectofsection75Awasconcernedgenerally.

60. MrHannahsaidthatitwasnothispracticetohandoutcounsels’opinionstohislay

clientsbuthewouldhavegiventheopinionstoHazlewoodsalongwiththefullpack

ofdocuments.MrHannahsaidthatheexpectedHazlewoodstopassonthepackof

documents to clients.He said thatMrThompsonmighthave seen theopinionsof

counsel,butwouldnothavebeengivenacopy.

61. He accepted that he had no knowledge of what discussions took place between

HazlewoodsandAECandMrThompsonbuthehadassumedthatHazlewoodshad

gone through theFAQsandotheradvisorydocumentswith theclient.Hehadnot

givenHazlewoodsanyformal instructionsastowhatadvicehadtobegiventothe

client.

62. Patrick Cannon’s second opinion (undated, but post 15th August 2007) had been

obtained byMr Hannah.Mr Hannah’s solicitor (Jonathan Levy) had contactedMr

CannonbyemailinJanuary2020,howeverMrCannondeclinedtoprovideawitness

statement,on theadviceofhis senior clerk. Further,whenasked fordisclosureof

documentsrelatingtotheULRICAscheme,MrCannondidnotrespond.Inanyevent,

thedateofthatopinionremainedunclearatthetimeofthetribunalhearing.Itwas

unclearwhether thisopinionexistedat thedate the two letters (the ‘ADVICE’and

‘TERMS’letters)weredraftedandsenttoAECon3rdSeptember2007.

63. Inanyevent,atthattime(August2007)MrHannahsaidthathewasinLincolnsInn

weeklyorfortnightlyandsowouldregularlyspeaktoPatrickCannon“overcoffee”.

He said thatwhether this opinionwas received before or after the date that The

27

Lettersweredrafted,itreflectedMrCannon’sopinionastoriskatthattimeofThe

Letters. Mr Cannon’s was an opinion that he felt entitled to place great reliance

upon,asMrCannonhadwrittenseveralrespectedbooksandarticlesonthesubject

andwasrecognisedasaStampDutyexpertinhisfield.

64. MrBindschedlerconfirmedthatbothMrCannonandMrWaywerepre-eminentin

theirfields.Heconfirmedthatfrommid2007hehadworkedwithMrHannahand

wasawarethatMrHannahwouldfrequentlybeinLincolnsInnandatMrCannon’s

chambers.

65. Mr Hannah said he placed reliance on the informal opinions of other tax

practitioners,whoallsharedageneralviewastothelowlevelofriskpresentedby

the introduction of section 75A, although there was no evidence, other than Mr

Bindschedler’s,fromanyothertaxpractitioners.Hesaidthathehadhaddiscussions

during the period aboutwhatweight you could give to Revenue announcements,

whethertherewasaprobabilityofsuccess.

66. Mr Hannahwas also of the view thatMr Thompsonwas financially sophisticated

becausehewasthedirectorofalimitedcompany(AECwastoberunasabusiness

byhisdaughter)andwouldthereforehavehisownappreciationoftheriskinherent

inthescheme.HeacceptedthathehadnoreasontothinkthatMrThompsonhad

anyspecialistknowledgeofSDLT,thecaseofRamsayortheintroductionofSection

75A.

67. MrHannahreliedonthedelayinMrThompsonmakinghiscomplaintinsupportof

his contention that Mr Thompson had not thought that the Advice had

shortcomings.

68. MrHannahwasaskedextensivelyaboutthetwoLetters.TheLettershadonlybeen

“slightlychanged”fromtheversionsthatwereusedpriortoDecember2006.Hesaid

that the two letters were template letters and were not specifically designed for

28

AEC.Heconcededthatidenticallettersweresenttoallotherprospectiveclientsat

aroundthattime.Hesaidthatatthistime,CTAhad40to50clientsperweek.

69. He said that he had not mentioned section 75A or the case of Ramsay (and the

doctrine of purposive interpretation) because thatmay have ‘befuddled’ ordinary

people, including the client. The letters had been drafted in an effort to boil the

advicedown inaway thatwasunderstandable.He said thathehadnot repeated

PatrickWay’s‘FaultLines”forsimilarreasons.

70. Although Mr Thompson had been referred to CTA by Hazlewoods, Mr Hannah

acceptedthathehadresponsibilityforadvisingon‘Taxmatters’,asHazlewoodshad

onlybeenpaidafeeof£500+VATforadvisingtheclient.MrHannahwastobepaid

£12,000iftheschemesucceededand£4,000ifHMRClaunchedadiscoveryenquiry

within9monthsofthepropertytransactions.Hesaidthatiftheclientdidnottake

CTA’sadviceandwalkedawayfromtheproposedscheme,CTAwouldtakenofeeat

all.

71. HestatedthatAEChadpaid£12,000+VAT,astheschemehadnotbeenchallenged

within9monthsofthepropertytransaction.Hehadnotsubsequentlyrefundedthe

fee, once a challenge had been instigated by HMRC in 2011, and the SDLT (plus

interest)hadbeenpaidin2017.

THETRIBUNAL’SDECISION

72. TheTribunalremindeditselfthattheTDBhadtheburdenofprovingitscasetothe

civilstandardandthatMrHannahdidnothavetoproveanything.

73. TheTribunal took accountofMrHannah’snear-unblemishedhistory (hedisclosed

thathehadreceivedafineresultingfromthefirm’sadministrativefailuretosubmit

ananti-moneylaunderingreturnontime.ThiswasdisregardedbytheTribunal).

29

74. Mr Hannah was an experienced and well-respected Tax Adviser.Mr Bindschedler

wrote in hiswitness statement in positive terms aboutMrHannah’s integrity and

professional standing. The Tribunal took Mr Hannah’s positive character into

account,bothintermsofhispropensitynottobreachRegulationsandalsointerms

ofhiscredibilityasawitness.

75. Itwas clear that section 75Awas proposed in order to stop schemes such as the

ULRICAscheme.

76. TheTribunalsoughttoputthemselvesinthepositionofareasonablycompetenttax

advisorarmedwiththeinformationthatwasreadilyavailableatthetimetheletters

weredrafted,3rdSeptember2007.Atthattimethenewproposedlegislationcould

nothavebeenlitigated.

77. Further,therewasnothingintheTribunal’sviewtogiverisetoaninferencethatMr

Thompsonwasexperiencedintaxaffairs.

78. Inthosecircumstances,theTribunalwereoftheviewthattheADVICElettershould

haveincluded:

a. Areferencetosection75A,whichhadbeenrecentlyproposedandenacted,

b. ThatHMRC inPRBN17 (6thDecember2006) andHMRC’s TechnicalNote5

(15thAugust2007)hadstatedtheiraimwastopreventschemesofthistype

c. Adistillationofthe“FaultLines”identifiedbyPatrickWay,

d. A distillation of the caveat mentioned in the (undated) opinion of Patrick

Cannon

e. Thefactthatthenewlegislationhadneverbeentested

f. That the risk involved in entering into this scheme was at best unknown

becausetheschemewasbeingspecificallyattackedbyHMRC

79. The Tribunal noted the contention in the defendant’s closing submissions

(paragraphs 56-58) that the FTT and the courts do not attributeweight to HMRC

30

“guidance” when interpreting legislation. However, section 75A was very new

legislation,andintheabsenceofanyJudicialinterpretation,areasonablycompetent

tax practitioner should have taken note of the published views of HMRC, when

advisingaclientoftheamendedriskprofileoftheproposals.

80. TheADVICEletterstatedthat“HMRCmayseektochallengethisstrategy(although

inour experience theyhavenot yetdone so)”. In sodoing, the letterwouldhave

provided reassurance toMrThompson that therewasa relatively low levelof risk

inherentinadoptingthescheme.

81. TheADVICEletteralsostatedthattherewasalowriskprobability,which(according

toMrHannah)wasasummationoftheadvicehehadreceivedfromCounsel.Having

read the opinions from Counsel, the Tribunal did not agree with that risk

assessment, especially when those opinionswere viewed against the backdrop of

theHMRCpublications.

82. Inaddition,useofthetermsinthefinalthreeparagraphsof“Iamobligedtobringto

yourattention”and,“theyaresomethingthatIamboundtogiveundermycodeof

professional ethics” had the effect of further undermining the limited warnings

contained in the letter. In theTribunal’sview,adequate riskwarningsshouldhave

beenafarmoreprominentfeatureoftheADVICEletter.

83. The Tribunal considered that the TERMS letter failed to set out which firm

(HazlewoodsorCTA)wasadvisinguponwhichaspectsofMrThompon’saffairs.Mr

Hannah conceded in evidence that hewas instructed as the tax advisor, and that

Hazlewoodswereoffering farmore limited taxplanningadvice.Where theTERMS

letter referred to the client being made aware of the ‘associated risks’ that will

be/will have been brought to Mr Thompson’s attention, the PACK had not been

updatedtoincludeanyreferencetosection75A.Inaddition,MrHannahhadnoway

of knowing whether the opinions of Messrs Way and Cannon had actually been

showntoMrThompsonatanystage.

31

84. TheTribunalwasof theview that thepackofdocumentswas toocomfortingand

encouraging in favour of the scheme, noting in particular the “high probability of

success”mentioned in the “WHO&WHY OF SDLT PLANNING – A GUIDE TO THE

METHODSOFCORNERSTONETAX”.Again,therewasnomentionofthefundamental

alterationtoriskcreatedbyHMRCchangesandtheiruntestednature.MrHannah’s

reasonsfornotincludingthesection75Achanges(“theywouldbebefuddlingforthe

client”)were not ones that the Tribunal accepted; the packwas very technical in

partsandtherewasnologicalreasonforitsnon-inclusion.

85. TheTribunalwasconcernedthattheADVICEandTERMSletters,aswellasthePACK

ofdocumentshadnotbeensignificantlyupdatedtotakeaccountoftheseismicshift

inriskoccasionedbythe introductionofsection75Aandthe ‘fault lines’expressly

includedinMrWay’sMay2007opinion.

86. TheTribunalalsonotedtheevidenceofMrBindschedler,whosaidhehadstopped

advisingupontheschemeimmediatelyafterthe6thDecemberpublicationandwhen

here-started,heonlyofferedtheschemetocommercialclientsonan“eyes-wide-

open”basis.

87. InthecontextoftheTribunalsconclusionsabove,theTribunalconsideredthethree

chargesinturn.

88. Charge 1 concerned the adequacy of the advice about the routes and means of

challengetotheULRICAschemebyHMRC,includingtheproperinterpretationofs.

45andtheuseofs.75AoftheFinanceAct2003.TheTribunalfoundthatthiswasa

matter that ought to have been advised upon byMr Hannah, in breach of PRPG

Rules 5.6.1 to 5.6.3, including specifically “the technical complications presented”

(5.6.1)and“theneedtoseekotherprofessionaladvice”(5.6.1).Havingappropriately

soughtadvicefromspecialistcounsel,MrHannahfailedtoadequatelytopassonthe

clear‘faultlines’guidancereceivedinthisregard.

89. Charge 2 concerned the failure to highlight the fact that the ULRICA scheme had

been expressly targetedbyHMRCwith the introduction of s.75A aswas apparent

32

fromboththePre-BudgetReport(PBRN17)andHMRC’sTechnicalNote(bothbeing

released on 6 December 2006). The Tribunalwas entirely satisfied that there had

been such a failure byMrHannahwhich breached PRPG Rules 5.6.1 to 5.6.3 and

specifically5.6.3.Itdidnotmatterwhethertheintendedeffectofthenewlegislation

wasasdesiredbyHMRC,therequirementsofthePRPGstatethattheclientneedsto

be informed of “the technical complications presented” (5.6.1), “the existence of

authorities and precedents” (5.6.1), “the risks associatedwith the advice” (5.6.2),

and“…therelevanttaxationlegislationandthepracticeofHMRC…”(5.6.3).

90. Charge3concernedthefailuretoproperlyassessandcommunicate intheADVICE

lettertheriskofasuccessfulchallengebyHMRC.Inparticular,todescribesucharisk

as a “low probability”was not an assessment that any reasonably competent tax

advisorcouldhavereachedinthecircumstances.TheTribunalwasentirelysatisfied

that the riskmust have significantly increased after the proposed introduction of

section75A.ThisfailurebyMrHannahtoadequatelyreflecttheriskrepresenteda

breachofPRPG5.6.1to5.6.3.Itspecificallyincludedafailuretotakeaccountofthe

“the tax sophistication of the taxpayer” (5.6.1), “the risks associatedwith advice”

(5.6.1)and“theintendedpracticeofHMRC”(5.6.3).ItmatterednotwhetherHMRC

hadsuccessfullytargetedtheULRICAavoidanceschemeinthepast,orwoulddoso

inthefuture.

91. Inthecircumstances,theTribunalfoundallthreechargesproved.

SANCTION

92. TheTribunaltookintoaccountthewrittensubmissionsofbothparties,aswellasthe

sanctionsguidance.

93. Thesechargesrelatedtoinadequateclientservice;theTribunalwassatisfiedthatMr

Hannahhadnotbehaveddishonestly.

94. MrHannahhadtoldtheTribunalinevidencethathehadprovidedthesameadvice

toupto40or50clientseachweekinSeptember2007.Itfollowsthathisadvicein

33

this case cannotbe regardedas isolated,but theTribunalwasmindful that itwas

concernedwithonlyonecomplainantforthepurposesofsanction.

95. The loss toAECwas£12,000 in fees in addition to the interest charged toAECby

HMRCof£11,828becauseoftheirlatepaymentoftheSDLTthatfellduein2007.

96. (ItisrighttonotethatAEChadtheuseofthisinterestbetween2007andMay2017

so this head of loss is not accurately quantifiable. In addition, the Tribunal

recognised that it could not possibly know whether AEC would have behaved

differentlyhadMrHannah’sadvicemoreaccuratelyreflectedtheriskthatexistedin

September2007).

97. The Tribunal concluded that the relevant aggravating features concerning the

chargeswerethese:

a. ThiswasnotaminormisjudgementbyMrHannahbutafailuretoappreciate

thewayinwhichHMRCwereseekingtopreventtaxavoidanceschemeslike

theULRICAschemethatfeaturesinthiscase.

b. MrHannah’s advice toAECappeared to theTribunal tobe contrary to the

spirit of the Opinions that Mr Hannah had relied upon. For example, Mr

Way’s ‘fault lines’wereostensibly ignoredwhenMrHannahadvisedAECof

therisksandpotentialrisksinherentinadoptingthescheme;hehadignored

MrWay’sadvicethat“anybodyenteringintothescheme,shouldbeawareof

thesefaultlines”.

98. Inshort,theTribunalwereoftheviewthatMrHannah’sadvicefellwellbelowthe

standardexpectedofareasonablycompetentcharteredtaxadviser.

99. Mr Hannah told the Tribunal in evidence that he remained of the view that his

advice was accurate, notwithstanding the Project Blue Supreme Court decision in

2018.Inthisway,theTribunalwasoftheviewthathelackedinsightintohisfailings

atthetimethattheadvicewasgiven,andhascontinuedsotodo.

34

100. In the Tribunal’s view, the relevant mitigating feature was Mr Hannah’s

effective good character, overmany years of professional practice and regulatory

membershipbothbeforehisadvicetoAECinSeptember2007andthereafter.

101. In addition,Mr Binschedler spoke highly ofMr Hannah in evidence to the

Tribunal.

SANCTIONIMPOSED

102. TheTribunalremindeditselfthatthepurposeofsanctionswasnotsimplyto

punishthemember,althoughapunitiveeffectmayresult.

103. The Tribunal had verymuch inmind thepublic interest, namely protecting

the public, upholding the proper standards of conduct in the profession and

maintainingthereputationoftheprofession.

104. TheTribunalconsideredalloftheavailablesanctions,startingwiththeleast

onerous. Itconsideredthat takingnoaction, lyingon file,anapologyorawarning

wouldnotmarkthistransgression.However,acensurewastheminimumsanction

thatwasnecessaryinthecircumstances.Onlyacensurewouldmarktheseriousness

of theconduct foundproved. Itwouldsendaclearmessagetotheprofessionand

thepublicthatsuchbehaviourwasunacceptable.

FINE

105. TheTribunalconsideredwhetherafineshouldbeimposedinthiscase.The

Tribunal concluded that a fineof£5,000would senda cleardeterrentmessage to

theprofessionandwouldalsomaintainpublicconfidenceintheregulatoryprocess.

COMPENSATION

106. TheTribunalalsoconsideredwhetherapaymentofcompensationwouldbe

appropriate.Regulation25provides:

35

Compensation

25.1IfafindingofInadequateProfessionalServiceismadebytheDisciplinary

TribunalortheAppealTribunal,theTribunalmayconsidercompensationasa

remedy in respect of such inadequate service. The Tribunal may direct the

Defendant to pay compensation in such sum as was the result of the

InadequateProfessionalServicerenderedbythedefendant.

25.2Indeterminingwhetheranysumistobepaid,orinfixingtheamountof

suchsum,theTribunalshallinparticularhaveregardtoanylosssufferedasa

resultoftheInadequateProfessionalService,theavailabilityofotherformsof

redress,thegravityoftheconductcomplainedofandtheamountofanyfee

claimedbyorpaidtotheDefendantforthatInadequateProfessionalService.

25.3 Any sums awarded under Regulations 25.1 and 25.2 above shall be

subjecttothelimit[of£5,000]specifiedinRegulation20.6(f)(viii)above.

107. Mr Hannah’s failings plainly reflected “Inadequate Professional Service” as

definedinRegulation2.1(p).

108. AECwas out of pocket to the sumof at least £12,000. Applying regulation

25.1,theTribunalorderedcompensation,payabletoAEC,inthesumof£5,000.

COSTS

109. Costswereagreedbetweenthepartiesinthesumof£49,013.12.

PUBLICATION

110. In accordance with Regulations 28.1 and 28.5 of the Taxation Disciplinary

Scheme Regulations 2014 (as amended), the Tribunal ordered publication of its

orderandreasons,withoutrestriction.

36

DrJonathanPage 22ndMarch2020

37

APPENDIX1

Charge1

Allegation

Incontraventionofrules5.6.1to5.6.3oftheProfessionalRulesandPractice

Guidelines 2006, Cornerstone TaxAdvisors failed to adequately set out and

describe insufficientdetail thepotential routesandmeanschallengeto the

ULRICAschemebyHMRC,includingtheproperinterpretationofs.45andthe

useofs.75AoftheFinanceAct2003.

ParticularsofAllegation

In a letter dated 3 September 2007, Cornerstone provided advice to the

ComplainantinrespectoftheULRICAscheme.Theletteradvisedthat“there

is a probability, albeit a low one, that they may be able to successfully

challenge the strategy using the principles developed in the tax avoidance

caseofIRCvRamsayorundercurrentanti-avoidancelegislation”.Theletter

failedtoprovideadequateadvicetohowHMRCmightgoaboutchallenging

theULRICAschemesuchthattheComplainantcouldhavebeeninaposition

toproperlyjudgetheriskandrewardsoftheULRICAschemeonaninformed

basis.

Charge2

Allegation

Incontraventionofrules5.6.1to5.6.3oftheProfessionalRulesandPractice

Guidelines2006,CornerstoneTaxAdvisorsfailedtohighlightthefactthatthe

ULRICAschemehadbeenexpressly targetedbyHMRCwiththe introduction

38

ofs.75AaswasapparentlyfromboththePre-BudgetReport(PBRN17)and

HMRC’sTechnicalNote(bothbeingreleasedon6December2006).

ParticularsofAllegation

Cornerstonedonotappear tohave considered theguidancenotesgivenby

HMRC at the time s.75A was released and in any event these were not

mentionedinCornerstone’sletterof3September2007.Inparticular:

(4) The 2006 Pre-Budget Report Notes. In PBRN 17 at paragraph 7, the

followingexamplewasgivenofaschemetowhichs.75Awouldapply:

“AagreestosellpropertytoBLtd,acompany.UponcompletionBLtd

transfers the property to its parent, C Ltd, by way of a dividend in

specie.”

(5) HMRC’s Technical Note in relation to the 2006 Regulations where, in

Example5atparagraph16,thefollowingwasstated:

“The following examples illustrate the application of section 75A on

the assumption that the tax saving test is satisfied. HM Revenue &

Customs does not accept that the tax saving test is necessarily

satisfiedinanyoftheseexamples.

…

(5)VagreestosellpropertytoNLtdfor£10million.NLtddeclaresa

dividendinfavourofP,itssoleshareholder,thedividendtoconsistof

thepropertyandtobepaidatthesametimeascompletionoftheV-N

Ltdcontract.Thecontract is completedand theproperty transferred

toP.”

Cornerstone either was aware or ought to have been aware of these

examples.TheyshowedthatitwasatleastintendedbyHMRCthats.75Aof

39

FinanceAct2003couldbeusedtochallengetheULRICAschemeorschemes

similartoit.

In addition, given that such material was published when the 2006

RegulationswerelaidbeforeParliamentandwouldhavebeenavailablewhen

FinanceAct2007waspassed,therewasarealriskthattheycouldbetaken

intoaccountwhenconsideringwhethers.75AappliedtoULRICA.

Further, theTechnicalNoteat leasthighlighted the fact thatHMRCdidnot

necessarily accept that any savingwas achieved under s.45 of Finance Act

2003.

In light of the above, a reasonable tax advisor acting in the position of

Cornerstoneshouldhavedrawntheabovetotheirclient’sattention.

Charge3

Allegation

Incontraventionofrules5.6.1to5.6.3oftheProfessionalRulesandPractice

Guidelines 2006, Cornerstone Tax Advisors failed to properly assess and

communicate in their letter of 3 September 2007 the risk of a successful

challenge by HMRC. In particular, to describe such a risk as a “low

probability” was not an assessment that any reasonable tax advisor could

havereachedinthecircumstances.

ParticularsofAllegation

InlightofthematerialsetoutintheParticularstoCharge2andmore

generallytheknownattitudeofHMRCtosuchformsofplanning,no

reasonabletaxadvisorcouldhaveadvisedthattheriskofasuccessful

challengewasa“lowprobability”.

40

APPENDIX2

RULES5.6.1to5.6.3OFTHEPROFFESIONALRULESANDPRACTICEGUIDELINES2006

(“PRPG”)provide:

5.6Formandcontentofadvice

5.6.1Ondecidingon the formof advice provided to a taxpayer, amember should

exerciseprofessionaljudgementandshouldconsidersuchfactorsasthefollowing:

•theimportanceofthetransactionandamountsinvolved

•thespecificorgeneralnatureofthetaxpayer’senquiry

•thetimeavailablefordevelopmentandsubmissionoftheadvice

•thetechnicalcomplicationspresented

•theexistenceofauthoritiesandprecedents

•thetaxsophisticationofthetaxpayer

•theneedtoseekotherprofessionaladvice

5.6.2Anadvicecommunicationshouldnormallysetout:

•thepurposeforwhichtheadviceisrequiredandtheclient’sobjectives

•thebackgroundfactsandassumptionsonwhichtheadviceisbased

•thealternativesopentotheclient

•therisksassociatedwiththeadvice

•relevantcaveatsandexclusions

5.6.3 When formulating advice the member should refer to the relevant taxation

legislationandthepracticeofHMRC.Dueregardshouldalsobegiventocaselaw.