On the 31st December 2020, a Part 8 claim was lodged at the High Court on behalf of 55 claimants. Under this claim, which is drafted by Setu Kamal, a declaration is being sought from the High Court on behalf of the various extant claimants to the effect that the Loan Charge and the Disguised Remuneration rules more generally, insofar as it relates to them, be interpreted in a way which conforms with the laws of the European Union and the Human Rights Act 1998 and therefore be set aside.
Setu Kamal has proposed to LCAG that he join new claimants to the claim on a direct access basis. There are various differences between what is being attempted here and what is already being done by LCJREU:
(a) The grounds, as particularised by Counsel, are different. Amongst other things, Counsel has also argued that Part 7A itself constitutes an infringement of EU law;
(b) The forum is different. There may be issues relating to the JR which are less likely to apply with seeking a declaration. The power of the High Court to make a declaration has been said to be ‘unfettered.’
(c) Each claimant crystallises their claim by lodging it. This ought to protect from the UK overriding EU law points retrospectively, now that Brexit has happened.
(d) It applies on a point of principle and would apply to open years too.
(e) Because the funding is primarily through a CFA, the product is not just defensive but aggressive too with the risks lying with both sides. If damages arise by reason of the CFA, the HMRC, rather than argue that the Loan Charge did apply in a given case, may be more inclined to argue the opposite.
Eligibility to join
The class of persons who are eligible to join the action are those who took a loan or directed or agreed to any payment and who feel like they might potentially be within the scope of the Loan Charge or Disguised Remuneration (Part 7A ITTEPA) as a result.
Where EU laws are engaged, then if the UK government were to even ‘dissuade’ you from exercising them, that would constitute an infringement of those laws and would be illegal unless the dissuasion was justified or proportionate.
Setu Kamal is of the view that the UK government (through the Loan Charge and Disguised Remuneration) dissuades one from exercises of fundamental EU freedoms. To regard and tax a loan or any collateral payment as though it were a payment of earnings is clearly dissuading the taking out of loans or making of payments. Insofar as justification is concerned, there is no limitation in these rules to ‘tax avoidance’ in a sense which is recognised by the European Union. For the sake of completeness, the EU rules which Setu believes are engaged are the Right To Free Movement of Capital but also could include (as indicated in Finucane) the Right to Provide Services.
What if I took steps to address the Loan Charge prior to the 5th April 2019?
The class of persons eligible to join the action also includes persons who initially owed funds to someone else but who in the run up to the 5th April 2019 entered into arrangements with the view to avoiding the Loan Charge applying to them. The reason such persons may also join the action is because the Loan Charge regime ignores certain steps taken to avoid it from applying. It follows that a person who did take steps might still potentially be within the Loan Charge. As said above, if damages were to arise to HMRC from the CFA, then this ought to make them more inclined to argue that the Loan Charge had not applied rather than that it did.
If the application to the High Court is unsuccessful or if it is successful but HMRC appeal it, then all participants would have the choice at that time to consider afresh whether they wish to proceed with any continuing litigation.
The engagement shall be for the upfront fees of £200.00 plus VAT for those who joined from the 19th April 2021 till the 19th May 2021. The upfront fees shall be £500.00 plus VAT for those who engage between the 20th May 2021 and the 20th June 2021.
In addition, each claimant would have to enter into an agreement whereby ‘success fees’ would become payable by them to Setu Kamal in the event of a successful outcome. However, such fees would be limited to what the claimant would himself be able to recover from the government in meeting his legal expenses.
The intention is that all new participants be added to the group in one tranche. Please contact the clerk at 15 Old Square Tax Chambers at Franco@15oldsquare.co.uk with subject title: ‘Part 8 claim’ and in the body, ‘I wish to join the Part 8 claim’.
Please note that as the litigation is to be conducted on a direct access basis, Chambers may not be able to field individual queries. However, FAQs have been produced and these shall be updated from time to time.