The Court of Appeal and Remuneration Trusts: Dentists and the Toothache of Tax

Strategic Reflections on Marlborough DP Ltd v HMRC

For many years, remuneration trust arrangements were widely marketed to incorporated professionals, business owners and contractors as tax-efficient structures capable of extracting value from companies in a manner said to reduce income tax and National Insurance exposure. A significant number of healthcare professionals, including dentists and dental practice owners, entered such arrangements following professional advice and during periods in which these structures were actively promoted within professional circles.

Over the last decade, however, HM Revenue and Customs has pursued increasingly sustained litigation concerning disguised remuneration arrangements and the operation of Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). The recent decision of the Court of Appeal of England and Wales in Marlborough DP Ltd v HMRC [2025] EWCA Civ 796 represents another important authority within that evolving landscape.

The case is particularly significant because it concerned:

• a dental practice structure;

• offshore remuneration trust arrangements;

• loans advanced via a trust mechanism;

• and the interpretation of the Part 7A requirement that amounts be provided “in connection with” employment.

The Court ultimately dismissed the appeal brought by Marlborough DP Limited and upheld HMRC’s position that the arrangements fell within the disguised remuneration regime.

Background

The appellant company operated a dental practice through its sole director and shareholder, Dr Thomas. The arrangements involved the use of an offshore remuneration trust structure through which loans were made available.

The essential dispute concerned whether those loans constituted “relevant steps” within Part 7A ITEPA and, in particular, whether the benefits provided were made:

“in connection with” employment.

That question has become one of the central doctrinal issues within disguised remuneration litigation more broadly.

The Legal Framework — Part 7A ITEPA

Part 7A ITEPA was introduced to counter arrangements designed to provide rewards or recognition connected with employment through third parties in forms intended to avoid immediate taxation.

Broadly speaking, the regime seeks to impose income tax charges where:

• third-party arrangements;

• trusts;

• loans;

• earmarking;

• or similar mechanisms

are used to provide benefits connected with employment.

The statutory language is deliberately broad. A central issue in many disputes has therefore become the scope of the phrase:

“in connection with” employment.

Taxpayers have frequently argued for narrower constructions requiring close causative linkage between employment and the relevant benefit. HMRC, by contrast, has consistently argued for a broader evaluative approach directed toward the overall commercial reality of the arrangements.

The Court of Appeal’s Reasoning

The Court of Appeal upheld HMRC’s position and dismissed the taxpayer’s appeal.

Importantly, the Court rejected a narrow causation-based interpretation of the phrase:

“in connection with” employment.

Instead, the Court adopted a broader and more realistic evaluative approach to the arrangements as a whole. The Court concluded that the loans made through the remuneration trust structure possessed the necessary employment connection required by Part 7A.

The decision is significant because it reinforces the increasingly purposive judicial approach that has emerged across disguised remuneration litigation generally. Courts have repeatedly demonstrated a willingness to examine:

• the substantive commercial reality of arrangements;
  rather than:

• merely their formal legal structure.

The Court’s reasoning therefore continues a broader judicial trend in which arrangements designed to extract value through offshore trusts, loans or intermediary mechanisms are analysed in light of their practical function and economic substance.

Why The Decision Matters

The practical significance of Marlborough DP Ltd extends beyond the immediate facts of the appeal.

First, the case represents another substantial litigation success for HMRC in the disguised remuneration arena. For taxpayers and advisers dealing with historic remuneration trust structures, the broader litigation landscape has become materially more challenging over time.

Secondly, the factual context is particularly important. The case concerned a dental practice and therefore directly reflects the types of professional structures historically used by many incorporated healthcare professionals and practice owners.

Thirdly, the decision reinforces the importance of strategic reassessment. In many cases, taxpayers entered these arrangements:

• years earlier;

• on the basis of professional advice;

• and during periods in which such structures were widely marketed within particular sectors.

The strategic landscape has since evolved significantly through:

• litigation developments;

• statutory changes;

• settlement initiatives;

• and HMRC enforcement activity.

Important Nuance — Not Every Case Is Identical

Whilst the broader litigation trend has increasingly favoured HMRC, it is important to recognise that remuneration trust disputes frequently involve highly fact-sensitive and procedurally complex issues.

Different cases may involve:

• differing trust structures;

• differing factual matrices;

• penalties;

• discovery assessments;

• closure notices;

• procedural fairness issues;

• or questions concerning limitation and HMRC process.

Similarly, settlement strategy, litigation risk and evidential issues frequently require careful individual analysis.

For that reason, the existence of adverse authorities does not eliminate the need for careful strategic consideration of individual circumstances and procedural position.

Strategic Reflections

Experience increasingly suggests that remuneration trust disputes are rarely resolved purely through technical doctrinal analysis alone. In many cases, careful strategic coordination between:

• counsel;

• accountants;

• and other professional advisers

is important in evaluating:

• settlement opportunities;

• penalty exposure;

• procedural position;

• and longer-term litigation risk.

For many affected professionals, particularly dentists and healthcare practitioners, the underlying commercial objective is often not continued confrontation but:

closure, certainty and peace of mind.

That objective frequently requires a realistic and carefully managed reassessment of both legal position and practical strategy in light of the modern litigation landscape.

Conclusion

Marlborough DP Ltd v HMRC represents another important authority within the evolving disguised remuneration and remuneration trust landscape. The decision reinforces the increasingly broad judicial approach to the Part 7A requirement that benefits be provided:

“in connection with” employment.

For taxpayers and advisers dealing with historic remuneration trust arrangements, the case also illustrates the importance of careful strategic reassessment in circumstances where:

• HMRC litigation success has increased materially;

• settlement considerations remain active;

• and penalties, procedural issues and long-term dispute strategy continue to require detailed consideration.

Michael Paulin has acted for several dentists and dental practices, and on their behalf settled and/or resolved high-value settlement cases. Contact michael.paulin@1cor.com for an informal confidential discussion.

HMRC Policy Paper: Tax Fraud Warning – Attempts to use ‘Bills of Exchange’ to Pay HMRC

On 13 May 2026, Zoe Gascoyne, Director of Fraud Investigation Service at HM Revenue and Customs, announced that HMRC had issued a Tax Fraud Warning to employers and recruitment agencies said to be targeted by promoters encouraging the use of “Bills of Exchange” (“BoE”) arrangements in an attempt to avoid or discharge tax liabilities.

HMRC’s published policy paper (13 May 2026) states in clear terms that HMRC does not accept Bills of Exchange or similar private instruments as payment of tax liabilities:

“Where customers attempt to use Bills of Exchange or promissory notes and refuse to pay the amount owed using HMRC’s usual payment methods, HMRC will use its enforcement powers to collect any outstanding amounts”.

Taxpayers who may have found themselves in a legally vulnerable position can nevertheless often improve matters substantially by engaging constructively with the issue and taking strategic advice at an early stage. HMRC’s own paper recognises that disagreement may arise concerning the amount of any alleged debt. What is often required is constructive engagement with HMRC rather than reliance upon promoters selling arrangements that many would regard as “too good to be true”.

It also remains the case that, even where a taxpayer has entered into arrangements that later transpire to have been misconceived, there may nevertheless exist procedural or substantive errors in HMRC’s own approach. Taking stock of the position carefully, and ensuring a coordinated strategy involving Counsel and the relevant accountant, can often pay dividends and reduce the inevitable stress and anxiety that can ensue.

Michael Paulin is a specialist tax barrister advising on complex HMRC disputes, investigations, Schedule 36 Information Notices, judicial review proceedings and cross-border tax litigation involving internationally mobile taxpayers and offshore issues. (Contact michael.paulin@1cor.com )

HMRC Investigations and Dubai Residents: The Reach of Schedule 36 Powers

Introduction

For internationally mobile entrepreneurs, investors and former UK residents now based in Dubai, one of the most common assumptions is that relocation outside the United Kingdom necessarily places them beyond the practical reach of HMRC’s investigatory powers.

That assumption is frequently misplaced.

In recent years HMRC has increasingly investigated the affairs of internationally mobile taxpayers, particularly where issues arise concerning tax residence, offshore structures, remittances, overseas banking arrangements, corporate ownership, or substantial UK-source income and gains.

One of HMRC’s principal investigative tools is the Schedule 36 Information Notice under the Finance Act 2008. These powers enable HMRC to require the production of information and documents that are “reasonably required” to check a taxpayer’s tax position.

The scope of those powers — particularly where the taxpayer resides overseas — was considered in the important judicial review litigation in R (Jimenez) v First-tier Tribunal and HMRC.

The case remains one of the leading authorities concerning the territorial reach of HMRC’s Schedule 36 powers in relation to taxpayers resident abroad, including in Dubai and the wider UAE.

What Is A Schedule 36 Information Notice?

Schedule 36 to the Finance Act 2008 gives HMRC extensive powers to require:

• information,

• documents,

• explanations,

• and third-party material

where reasonably required to check a taxpayer’s tax position.

The powers are broad and are commonly used in:

• residency disputes,

• offshore matters,

• COP9 investigations,

• alleged avoidance arrangements,

• domicile disputes,

• VAT investigations,

• and high-value civil enquiries.

Notices may be issued:

• directly to taxpayers,

• or to third parties such as banks, advisers or professional firms.

In many cases HMRC will seek approval from the First-tier Tribunal before issuing the notice. This is an important feature of the statutory scheme because, where Tribunal approval is granted under Schedule 36, the ordinary statutory right of appeal against the notice is excluded. In practice, this can significantly narrow a taxpayer’s procedural options and may leave judicial review as the principal route of challenge. Early strategic engagement is therefore often critically important.

The Jimenez Litigation

The claimant in the Jimenez litigation was a UK national residing in Dubai whose tax affairs were under investigation by HMRC.

HMRC issued a Schedule 36 Information Notice seeking extensive information concerning:

• bank accounts,

• credit cards,

• and UK visits.

The claimant challenged the legality of the notice by way of judicial review, arguing in substance that:

• HMRC could not lawfully exercise such powers against a taxpayer resident abroad;

• the notice involved an impermissible extra-territorial exercise of jurisdiction;

• and that international law principles prevented HMRC from compelling production of material outside the UK.

The litigation proceeded ultimately to the Court of Appeal.

The Court rejected the taxpayer’s challenge and held that Schedule 36 permitted HMRC to issue taxpayer notices to individuals resident outside the jurisdiction, including Dubai.

The Court drew an important distinction between:

• legislative or prescriptive jurisdiction (the ability of Parliament to legislate concerning tax obligations), and

• enforcement jurisdiction (the physical enforcement of state powers within another sovereign territory).

That distinction was central to the outcome.

Can HMRC Exercise Powers Outside The United Kingdom?

The short answer is, yes, in many circumstances HMRC may issue information notices to taxpayers resident abroad.

The Court of Appeal held that the statutory scheme under Schedule 36 could apply to taxpayers outside the UK where HMRC was investigating their UK tax position.

Importantly, the Court rejected the suggestion that a taxpayer’s relocation abroad necessarily prevented HMRC from exercising investigatory powers.

The judgment also confirmed that:

• the statutory purpose of Schedule 36 is investigatory

• the powers form part of HMRC’s broader self-assessment compliance framework

• and Parliament intended HMRC to possess effective investigatory mechanisms in cross-border and internationally mobile cases.

The Court also recognised the practical realities of modern tax investigations, particularly where:

• offshore structures

• international movement

• or cross-border financial arrangements

may complicate HMRC’s enquiries.

Common Misunderstandings

“Leaving the UK ends HMRC jurisdiction”

This is incorrect.

A taxpayer may remain subject to UK tax obligations notwithstanding physical residence abroad. HMRC frequently investigates:

• historic UK tax liabilities,

• residence questions,

• source of funds,

• remittance issues,

• and ongoing UK connections.

“Dubai residence prevents HMRC enquiries”

Again, this is incorrect and can reflect a common misconception. 

Dubai residence may raise important jurisdictional and factual issues, but it does not of itself prevent HMRC from opening enquiries or issuing Schedule 36 notices.

“HMRC can simply enforce anything overseas”

The position is more nuanced.

The distinction between:

• issuing notices,

• investigatory powers,

• civil penalties,

• and practical overseas enforcement

can involve complex questions of domestic law, treaty arrangements and public international law.

Careful strategic analysis is often required.

Strategic Considerations For Taxpayers Based Overseas

Cross-border HMRC investigations require particularly careful handling.

Issues frequently arise concerning:

• tax residence,

• domicile,

• offshore structures,

• international banking,

• historic planning arrangements,

• corporate ownership,

• and reputational considerations.

In many cases, the most important decisions are made at the earliest stages of the investigation, including:

• how information requests are approached,

• whether representations should be made before Tribunal approval,

• the interaction between UK and overseas legal obligations,

• and broader litigation strategy.

The procedural framework surrounding Schedule 36 can also be highly technical, particularly where:

• Tribunal approval has been obtained,

• judicial review issues arise,

• or allegations of deliberate conduct are being explored by HMRC.

Conclusion

The Jimenez litigation remains one of the leading authorities concerning HMRC’s ability to issue Schedule 36 Information Notices to taxpayers resident abroad.

For internationally mobile individuals and businesses based in Dubai, the case demonstrates that overseas residence does not necessarily place a taxpayer beyond the reach of HMRC’s investigatory powers.

Equally, however, the legal and procedural issues arising in cross-border HMRC disputes are often complex and highly fact-sensitive.

Early strategic advice can be critical.

Michael Paulin is a specialist tax barrister advising on complex HMRC disputes, investigations, Schedule 36 Information Notices, judicial review proceedings and cross-border tax litigation involving internationally mobile taxpayers and offshore issues. (Contact michael.paulin@1cor.com )

Recent Kittel Victories Against HMRC: Taxpayers Continue to Succeed in Major VAT Fraud Appeals

Recent Tribunal decisions continue to demonstrate that HMRC’s reliance upon the Kittel principle is far from unassailable. Although HMRC has devoted enormous compliance resources to alleged VAT fraud and “means of knowledge” cases over the past decade, several substantial taxpayer victories illustrate the highly fact-sensitive nature of modern Kittel litigation and the importance of detailed evidential analysis.

For businesses facing denied input tax recovery, frozen VAT repayments, or allegations of participation in fraudulent supply chains, these decisions are a reminder that HMRC’s conclusions can be challenged successfully. The ability to secure representation on a conditional fee arrangement has on occasion supported businesses that face a cash-flow crisis because of such refused, or frozen, VAT input tax repayment claims. 

The Kittel principle derives from the decisions of the Court of Justice of the European Union in Kittel and Recolta Recycling SPRL (C-439/04 and C-440/040). Broadly stated, the principle permits HMRC to deny input tax recovery where it establishes that the taxpayer knew, or should have known, that its transactions were connected with fraudulent evasion of VAT. In practice, these disputes frequently involve complex supply chains, extensive disclosure exercises, labour supply or telecoms trading, and detailed forensic analysis of commercial knowledge and due diligence. which permit HMRC to deny input tax recovery where a taxpayer knew, or should have known, that its transactions were connected with VAT fraud. In practice, these disputes frequently involve complex supply chains, extensive disclosure exercises, mobile phone or labour supply trading, and detailed forensic analysis of commercial knowledge and due diligence.

The financial consequences can be severe. HMRC assessments in Kittel cases routinely reach into the millions of pounds and are often accompanied by allegations of deliberate conduct and substantial penalties.

Importantly, however, the legal threshold which HMRC must satisfy in Kittel litigation is a high one. It is not sufficient for HMRC merely to demonstrate that fraud existed somewhere within a supply chain or commercial sector. Rather, HMRC must establish, on the evidence, that the taxpayer knew or should have known that its own transactions were connected with fraudulent evasion of VAT. In practice, this frequently gives rise to detailed disputes concerning commercial knowledge, due diligence, transaction tracing, market behaviour, and the objective credibility of HMRC’s inferences.

Recent taxpayer successes demonstrate the Tribunal’s continuing willingness to scrutinise carefully whether HMRC has genuinely satisfied that high evidential threshold on the facts of the individual case.

One notable example is Redrose Payroll v HMRC [2025] UKFTT 878 (TC) in which the taxpayer successfully appealed against approximately £7 million of denied input VAT together with a Schedule 24 penalty reportedly exceeding £2 million. The case arose in the labour supply context, an area that has attracted sustained HMRC attention in recent years. The decision is a significant example of the Tribunal rejecting HMRC’s attempt to establish the necessary knowledge connection required under the Kittel jurisprudence, and holding that inadequate due diligence – without more – is notsufficient to satisfy the Kittel test. The Tribunal held that: 

“74.         This means that the only factor indicative of knowledge or tending to show that the Appellant ought to have known that the transactions were connected with fraud is the lack of proper due diligence highlighted above. However, as this tribunal held in PTGI International Carrier Service Limited v  HMRC[2022] UKFTT 20 (TC) at [61]:

 "The proper question for us to ask ourselves is not "Did the Appellant carry out proper due diligence?"; but "Did the Appellant have the means at its disposal of knowing that by its purchases it is participating in transactions connected with fraudulent evasion of VAT?" Proper due diligence might be part of the means available to the Appellant. It is not the only means and that is why Moses LJ in Moblix encouraged the courts not to unduly focus on the question of whether the Appellant has acted with due diligence."   

75.         The point about due diligence and the context referred to in Moblix is that "tick box" due diligence is not enough. So, it will not be open to a trader to carry out superficial due diligence and expect that to, necessarily, be sufficient. The corollary of that is that inadequate due diligence, on its own, will not be enough to establish that the trader ought to have known but had, in effect, turned a blind eye to the connection with fraud. It may be a starting point (and often a good one), but it will rarely be all that is required. As that is all HMRC has been able to establish in this case, we have come to the inevitable conclusion that the Respondents have failed to establish the burden upon them to show that the Appellant's transactions with WM were connected with VAT fraud or that the Appellant ought to have known that they were so connected”. 

Another substantial taxpayer success arose in Lynton Exports (Alsager) Ltd v HMRC [2022] UKFTT 224 (TC), where HMRC issued assessments reportedly approaching £10 million, denying both input tax recovery under Kittel principles and zero-rating treatment under the Mecsek-Gabona line of authorities. The taxpayer ultimately succeeded in full. The Tribunal held that (at paragraph 24(3)): “in defending the assessments HMRC must go beyond concerns and suspicions, and must advance probative evidence of the issue in question. It is possible to infer relevant facts from circumstantial evidence, but that circumstantial evidence must exist and be presented in a credible and persuasive form”. 

Cases of this nature illustrate the extent to which Kittel disputes frequently involve not only allegations of fraudulent connection, but also broader disputes concerning the commercial and evidential legitimacy of transactions themselves. Moreover, it remains essential for taxpayers to ensure that scare tactics based upon the inevitable less-than-perfect machinations of business and trading do not prevent them from standing firm against unreasonable or unjustified suspicion from HMRC. 

Similarly significant was PTGI v HMRC‍ ‍[2022] UKFTT 00020 (TC), a telecoms trading case in which HMRC denied approximately £19 million of input tax recovery on Kittel grounds. The appeal succeeded. HMRC’s relied to some extent on a broad-brush submission that the taxpayer had sufficient information to enable it to establish at least the basics of the operation of the fraud and had been on notice that the wholesale airtime sector was particularly affected through its contact with HMRC. The Tribunal accepted that due diligence was “lacking” in certain areas, accepted that the taxpayer should have been on “heightened alert” of the possibility of fraud in the supply chain, the Tribunal reiterated the correct legal test in Kittle cases, which is not reasonable suspicion on part of HMRC, or poor due diligence on part of the taxpayer: “What must be established, on the balance of probabilities, is that the Appellant should have known or should have known that the only reasonable explanation for the circumstances in which the relevant purchases took placewas that they were transactions connected with such fraudulent evasion” (paragraph 57). Cases of this scale thus demonstrate the extraordinary financial stakes often involved in VAT fraud litigation and the continuing willingness of the Tribunal to examine critically HMRC’s factual analysis of alleged fraudulent chains.

Of particular interest in the Northern Ireland context is Ulster Metal Refiners v HMRC [2021] UKFTT 0286 (TC), a case that had a lengthy prior appellate history having reached Court of Appeal of Northern Ireland. As many of us with Northern Irish roots in the business community in Ulster and the Republic will appreciate, the complexities of cross-border trade and business life in general have a certain uniqueness. In Ulster Metal Refiners the Tribunal held that HMRC had failed properly to trace the relevant transaction chains and had therefore failed to establish the necessary connection with fraudulent evasion. While bad faith was not suggested by the Tribunal, it was relevant that: “There are endemic and incurable problems with HMRC's case in relation to the Irwin Deals. That part of HMRC's case is affected by a collection of factors which, taken together, seriously undermine the integrity of the whole case in that regard… Mistakes crept in, and, over the course of time, became embedded in the analysis and increasingly difficult to disentangle. Even after several days of evidence and submissions before us, and despite the assistance of experienced counsel for HMRC, they remain near impossible to disentangle” (para 72). 

The decision is important because it highlights a recurring feature of Kittel litigation: HMRC must establish the evidential chain properly and cannot rely merely upon broad suspicion or generalised allegations of sector-wide fraud.

Another striking example is CD v HMRC [2023] UKFTTwhere HMRC reportedly withdrew Kittel and Fini assessments amounting to approximately £15 million during the hearing itself after the taxpayer opened its case. The Tribunal subsequently ordered HMRC to pay costs. This demonstrates the extent to which careful preparation and forensic challenge can materially alter the course of litigation even after proceedings have commenced.

Collectively, these decisions demonstrate several important themes emerging in modern Kittel litigation.

First, these cases remain intensely fact sensitive. Tribunal outcomes frequently turn upon detailed evidence concerning due diligence, commercial credibility, transaction tracing, market knowledge, and the practical realities of the relevant sector.

Second, while HMRC possesses extensive investigatory powers and sophisticated fraud-analysis capabilities, the burden resting upon HMRC in Kittel litigation remains substantial. The Tribunal continues to require rigorous scrutiny of whether HMRC has genuinely established the taxpayer’s actual or constructive knowledge of fraudulent evasion.

Third, these disputes are often existential commercial cases capable of threatening businesses, directors, trading relationships, and professional reputations.

For that reason, early strategic advice in VAT fraud and denied repayment disputes can be critically important. Decisions taken at the outset of HMRC enquiries — including disclosure strategy, witness evidence, due diligence analysis, and responses to HMRC allegations — may materially affect the eventual trajectory of the litigation.

As HMRC continues to pursue increasingly sophisticated VAT fraud investigations, Kittel litigation is likely to remain one of the most commercially significant areas of modern indirect tax disputes, both in England & Wales and Northern Ireland. Recent taxpayer victories demonstrate that these cases are very much capable of successful challenge where the underlying factual and evidential analysis does not support HMRC’s conclusions.

Taxpayer successful in Landfill Tax Appeal: Nuttall & Anor v Revenue and Customs [2026] UKFTT 674 (TC)

A significant recent First-tier Tribunal decision in Nuttall v HMRC provides important guidance on the scope of landfill tax liability and the meaning of “disposal” under the modern landfill tax regime. The appeal was allowed in full, with the Tribunal rejecting HMRC’s attempt to impose more than £750,000 in landfill tax together with substantial compound interest. 

The case concerned approximately 7,686 tonnes of refuse derived fuel (“RDF”) stored on land at North Killingholme pursuant to a commercial storage arrangement entered into in 2011. The material had originally been lawfully stored under an Environment Agency licence. However, HMRC later argued that a taxable “disposal” occurred in September 2017 when the licence-holder company, North Killingholme Recycling Limited (“NKRL”), was dissolved and the environmental licence automatically revoked. 

HMRC’s case was effectively that the RDF had become abandoned on the site following the dissolution of NKRL and that this constituted a taxable disposal under section 40 of the Finance Act 1996. HMRC argued that the continued presence of the material without a valid permit amounted to a disposal for landfill tax purposes and sought to rely upon the expanded post-2018 landfill tax regime designed to target unauthorised waste sites. 

The Tribunal rejected HMRC’s position.

Importantly, the Tribunal held that, on the facts of the case, the dissolution of NKRL and the associated revocation of the environmental licence did not cause the RDF to be “disposed” of within the meaning of the legislation. 

The Tribunal accepted that the modern legislation no longer requires an express “intention to discard” in the way the original 1996 legislation once did. However, the Tribunal nevertheless held that intention remained a relevant factor in assessing whether a disposal had in fact occurred. At paragraph 75, the Tribunal stated:

“we consider that intention can be a relevant factor in a multi-factorial assessment of the facts to determine whether there has been a disposal.” 

The Tribunal went on to undertake a detailed factual analysis of the arrangements surrounding the RDF and concluded that there had never been any intention on the part of Mr Nuttall, NKSL or NKRL permanently to abandon the material. Instead, the evidence showed sustained efforts over many years to secure its removal from the site. 

Several findings were particularly important to the Tribunal’s reasoning.

First, the RDF had originally been brought to the site pursuant to a commercial storage arrangement rather than for permanent disposal. 

Secondly, the Tribunal accepted that Mr Nuttall and the associated companies consistently sought removal of the material and cooperated with the Environment Agency throughout. 

Thirdly, the Tribunal placed weight upon the fact that the RDF was continuously maintained safely on the site after the licence revocation, including re-baling work and pest control measures. The material was not simply abandoned and ignored. 

Fourthly, the Tribunal accepted that there were genuine commercial incentives to remove the material because no rent was being paid for its storage and the lease obligations ultimately required clearance of the site. 

The Tribunal ultimately concluded at paragraph 93:

“Viewing these facts in the round, we do not consider that the dissolution of NKRL and associated revocation of the Environment Agency licence caused the RDF to be ‘disposed’ on 28 September 2017.” 

The decision is significant for landfill operators, waste businesses, environmental advisers and taxpayers involved in landfill tax disputes because it demonstrates that HMRC cannot simply assume that the continued presence of material at a site automatically constitutes a taxable disposal.

The judgment also illustrates the increasingly sophisticated and fact-sensitive nature of modern landfill tax litigation. These disputes frequently involve complex interactions between tax law, environmental permitting, commercial arrangements, waste regulation and evidential analysis.

Importantly, the Tribunal emphasised that the correct approach is to examine the facts “in the round”, including the parties’ rights, responsibilities, intentions and practical conduct in relation to the material. 

The case is therefore likely to be of continuing relevance in disputes concerning:

• landfill tax assessments,

• alleged unauthorised waste sites,

• temporary storage arrangements,

• environmental permit revocations,

• and HMRC allegations that material has been “abandoned” for landfill tax purposes.

For businesses facing substantial landfill tax assessments or HMRC investigations in the waste sector, the decision is also a reminder that HMRC’s analysis may be challenged successfully where the factual and commercial reality does not support the conclusions advanced by HMRC.

HMRC Information Notices and Remuneration Trusts: Tribunal Criticises Overreach in Schedule 36 Case

In the current climate, it is worth recalling a notable First-tier Tribunal decision in R D Utilities Ltd v HMRC TC/2013/02028, which highlighted an important limitation on HMRC’s powers under Schedule 36 to the Finance Act 2008, particularly in the context of remuneration trust enquiries and disputed tax avoidance arrangements. 

The case arose from HMRC’s enquiry into a company tax return which included a substantial contribution — approximately £700,000 — to a remuneration trust. HMRC issued a Schedule 36 Information Notice seeking further information about the structure and operation of the trust. The taxpayer appealed.

What followed was an unusually direct judicial criticism of the way HMRC had framed its requests.

The Tribunal ultimately set aside key parts of the Information Notice on the basis that HMRC had gone beyond requesting factual information and had instead sought material founded upon assumptions, opinion, and speculation. 

Importantly, the Tribunal accepted submissions advanced on behalf of the taxpayer that HMRC had fundamentally misunderstood the structure and legal effect of the remuneration trust itself.

The dispute centred on two requests made by HMRC.

First, HMRC sought explanations regarding alleged “constructive obligations” said to arise in relation to payments made through the remuneration trust. The taxpayer’s position was that HMRC’s request was based upon a legally flawed assumption that the company was under an obligation to make payments through the trust structure. It was argued that the information requested simply could not properly be provided because the premise of the request itself was incorrect. 

Second, HMRC requested details of all “potential providers” under the trust deed. The taxpayer argued that the trust definition was drafted so broadly that it could potentially encompass an unlimited class of persons and that HMRC’s request was therefore incapable of sensible compliance. 

The Tribunal agreed that serious difficulties arose from the assumptions embedded within HMRC’s requests.

In a significant passage, the Tribunal observed that Information Notices should request “facts and not opinion” and that the assumptions underlying HMRC’s requests made it impossible for the parties to know whether the notice had in fact been complied with. 

The Tribunal concluded that it would not be “fair and just” to uphold the disputed requests because information which was impossible to provide could not be “reasonably required” under Schedule 36. 

The decision is notable for several reasons.

First, it demonstrates that HMRC’s Schedule 36 powers are not unlimited. Information Notices must be drafted carefully and must seek objectively ascertainable factual material rather than requiring taxpayers to speculate, interpret legal assumptions, or answer effectively unanswerable questions.

Secondly, the case is an example of a taxpayer successfully resisting HMRC procedural overreach in the remuneration trust context — an area in which HMRC has historically adopted an increasingly aggressive investigative approach.

Thirdly, the decision serves as a reminder that HMRC enquiries into remuneration trusts frequently turn not merely on accounting documents, but on the precise legal architecture of the trust itself, including the scope of trustee discretions, beneficiary definitions, and the assumptions embedded within HMRC’s analysis.

Although the Tribunal expressly stated that setting aside the disputed parts of the Information Notice did not determine the substantive tax dispute itself, the decision nevertheless represented a meaningful procedural victory for the taxpayer against HMRC in the course of a remuneration trust enquiry. 

For businesses, advisers, and taxpayers facing Schedule 36 notices in the context of remuneration trusts, COP8/COP9 enquiries, or wider HMRC investigations, the case remains a useful reminder that HMRC’s information powers are subject to statutory limits and may be challenged where notices are drafted excessively broadly or upon incorrect legal assumptions.