‘Parasitical’ HMRC investigation dismissed at tribunal

‘Parasitical’ HMRC investigation dismissed at tribunal

May 20, 2024

A £40m dividend payment to companies incorporated in Bermuda and a settlement in Guernsey led HMRC to investigate three company directors

Three brothers who inherited RHG were arguing for closure notices from HMRC to be issued regarding a £40m payment who HMRC believed were beneficiaries of.

Jonathan Hitchins, Jeremy Hitchins and Stephen Hitchins were the respondents in this case where HMRC appealed the decision of the First Tier Tribunal. Unfortunately, Stephen passed away before the tribunal and an executor represented him.

The tax years in question for Jeremy and Jonathan were three years 2017/18, 2018/19, and 2019/20. Enquiries opened into Stephen’s tax returns spanned eight years from 2012/13 to 2019/20.

Closure notices had not been issued in this case – the matter before the FTT was an application from the brothers for a direction that HMRC issue closure notices.

At the Upper Tribunal, HMRC argued that the FTT ‘erred in law’ as they did not ‘apply the relevant legal principles in determining the closure notice applications’.

All of the shares of RHG were transferred to a Bermuda-based company in 1999, called Bay Investments, then later moved to a trust managed in Guernsey called The Hitchins Family Settlement. This was done by Robert Hitchins, the founder of RHG, and father to the three brothers.

All three of them were listed as beneficiaries of the trust, confirmed by their agent, however the onward distribution of the funds was unknown. HMRC investigating officer, Mr Rolls, believed all three brothers were the receivers of the £40m trust.

This was paid to the settlement by the transfer of shares through multiple companies, three of which were registered in Bermuda and one in the UK.

HMRC had no evidence of who the £40m beneficiary was and was accused of going on a ‘fishing expedition’ at the FTT tribunal.

Sadiya Choudhury KC, representative of HMRC stated the reason there was no evidence of who the beneficiaries were was because ‘the respondents refused to provide that information’.

Choudhury said if this were the case, ‘HMRC are not entitled to ask for information or conduct enquiries where they have no evidence of undisclosed income or gains’.

Judge Rupert Jones said: ‘We reject Ms Choudhury’s submission that the logical conclusion of the decision was that HMRC could not check a tax return or investigate an individual’s tax position where HMRC had no evidence of undisclosed income or gains.’

The judge also described the length of time the investigations went on for as ‘parasitical’.

The brothers’ barrister, Keith Gordon KC, had handed a ‘considerable volume of information to HMRC on a voluntary basis’.

Judge Jones said: ‘HMRC’s complaints about the respondents’ alleged failure to supply information pursuant to schedule 36 information notices is not a matter which is appropriate for this tribunal.’

He added: ‘We have decided that the decision discloses no error of law. The FTT took account of (and balanced) a variety of factors in reaching its conclusion and we see no reason to interfere with its decision.

‘We experienced some difficulty in ascertaining, from HMRC’s grounds of appeal, the exact nature of the errors of law which HMRC contended had been made in the decision.’

All HMRC’s grounds of appeal were rejected and the case was dismissed.

An HMRC spokesperson said: ‘We are carefully considering the tribunal’s decision.’