Oculus feared £1m HMRC fine over failure to file AGG6 form

Oculus feared £1m HMRC fine over failure to file AGG6 form

May 22, 2024

The High Court has allowed Oculus, which paid contractors through UK umbrella companies, to go ahead with a limited judicial review over a dispute over form AGG6 and a scheme reference number (SRN)

Oculus Limited, run by Maltese based director Stuart Brooke, was seeking an injunction against HMRC in a bid to quash a scheme reference number (SRN) as it argued the HMRC action would ‘decimate the business carried out by Oculus through its agent GAL’ and could result in a £1m penalty for the company.

Oculus laid six grounds of appeal for a judicial review before the High Court but only persuaded the judge that one of the grounds was reasonable.

This related to the use of HMRC form AAG6, which requires scheme promotors to provide detailed information disclosure of tax avoidance schemes to participant users and clients.

Judge Justice Sheldon said ground six was a ‘reasonable standing for a judicial review’, adding: ‘I consider that the lawfulness of the AGG6 form is a matter of wider interest, and it is important for the rule of law that the arguments should be tested at a substantive hearing.’

The appeal centred around the business arrangements of Oculus in the UK where it uses two umbrella companies to offer PAYE services to contractors, namely Griffith Anderson Ltd (GAL) and Umbrella Contracts Ltd.

On 29 September 2022, HMRC wrote to GAL indicating that it was considering issuing a scheme reference number (SRN) to GAL under the provisions dealing with the disclosure of tax avoidance schemes (DOTAS regime) set out in Finance Act 2004.

As a result, GAL was required to communicate the SRN and other ‘prescribed information’ to its workers within 30 days, advising them that they might be involved in a tax avoidance scheme, which HMRC suspected ‘give[s] rise to a “tax advantage” to the scheme users’.

If GAL communicated with its clients as required, effectively HMRC would know which taxpayers were connected with a particular scheme, which Oculus was not happy about.

In the case of UCL, the employment agreement stated that UCL would ‘pay the employee at least the national minimum wage (NMW) pay rate together with any commission to be paid under the Commission Plan’.

The claimant’s lawyer Setu Kamal said that Oculus had around 200 workers engaged through GAL and would be ‘exposed to a potential penalty of £1m merely for failing to send the form AAG6’.

HMRC’s in-house solicitor Alan Bates argued that ‘the arrangements fell within two of the “hallmarks” of tax avoidance schemes prescribed by the Tax Avoidance (Prescribed Descriptions of Arrangements) Regulations 2006: that is, the payment of a premium fee, and the fact that this was a standardised tax product’.

He added that ‘objectively speaking securing a tax advantage appears to be the only discernible purpose for scheme users entering the arrangements’.

The first five grounds of appeal included that the SRN interfered with free movement of capital, Oculus’ right to set up a business, breached the General Data Protection Regulations (GDPR) and Article 5 of the Brexit Withdrawal Agreement as the DOTAS rules broke international law, and violated the company’s right to silence under the European Convention on Human Rights.

The grounds one to five were thrown out by the High Court.

Judge Justice Sheldon said: ‘We suspect that the arrangements enable or might be expected to enable a tax advantage because they are intended to avoid or reduce the charge to income tax on salary which scheme users would otherwise have received had they not entered into the arrangements.

‘We consider this tax advantage is one of the main benefits that might be expected to arise from the arrangements.’

The sixth ground of appeal argued that the SRN was ‘ultra vires as the requirement to send the form AAG6, which is consequent on the decision to issue the SRN, has pejorative allusions, is not justified by section 316 of the Finance Act 2004, and goes beyond what is permitted by section 312ZA of the Finance Act 2004’.

The claimant contended that not only was the claim arguable for the purposes of a grant of permission, but it also gave rise to a claim for interim relief.

Oculus was concerned that its business would be ‘decimated by the time of the substantive decision’, adding that workers would leave, it could face ‘very significant penalties’ for failing to comply with the notice and could even face claims from its workers for breaches of GDPR.

The High Court rejected the judicial review appeal on all grounds except that HMRC’s actions could have exceeded the remit of the law under Finance Act 2004, stressing that there was ‘no basis for contending’ the SRN which had been issued already and had been in effect for over one year.

Oculus was given the go-ahead for a limited judicial review as the wide-ranging nature of the AGG6 form ‘was a serious issue to be tried’, the Court found.

On the failure to tell workers about the existence and risks of the scheme, the ruling stated that ‘this disadvantage to the workers is at least equal to the disadvantage to the claimant in GAL being required to send the AAG6 form’.

The application for interim relief was dismissed and the judicial review can go ahead on ground 6 only.

Judge Justice Sheldon said: ‘I do not consider that the claimant should be refused permission on ground 6 on the basis that it lacks standing to proceed by way of judicial review. The claimant plainly has an interest in the matter as it is, at least, indirectly affected by the issuance of the SRN and the requirement to send the AAG6 form.’

He added: ‘I consider that the lawfulness of the AGG6 form is a matter of wider interest, and it is important for the rule of law that the arguments should be tested at a substantive hearing.’