Answered by Andrew Thornhill QC (ATQC) and the LCJREU Team (LCJREU)


Can you summarise what this case could actually achieve?

Yes, it would declare the Loan Charge legislation effectively invalid. (ATQC)

The Legal Team

The following are the members of the Legal Team advising on the new Judicial Review proceedings:

Richard Clayton QC
(Exchequer Chambers)– Richard is highly experienced in administrative law (which includes Judicial Review) and sits as a Deputy High Court Judge. He has produced with Nikolaus Grubeck of Monckton Chambers the joint opinion on EU law and the Loan Charge.

Nikolaus Grubeck
(Monckton Chambers)– Nik specialises in EU law. His assistance in pursuing the new Judicial Review will be invaluable.

Andrew Thornhill QC
(Exchequer Chambers) – Andrew has been in practice for over 50 years, argued the Rangers at all levels except the Court of Session and is fully conversant with all aspects of personal taxation. Andrew is Head of Chambers at Exchequer Chambers and it is fair to say that without him this case could not have proceeded. His knowledge and contacts continue to support our effort was way beyond what we could have expected.

David Welsh
(Axiom Advocates)– David is a Scottish advocate and also an English barrister. He has assisted Andrew in answering the ‘Frequently Asked Questions’. David has a good knowledge of tax law but can also handle Judicial Review proceedings in Scotland. It is contemplated that these proceedings will be launched alongside English proceedings.

Alex Peebles
(Duncan Lewis Solicitors) is a solicitor for English proceedings. Alex is well experienced in Judicial Review proceedings.

Elaine Motion
(Balfour + Manson Solicitors) is a solicitor for Scottish proceedings. Elaine is well versed in Judicial Review proceedings.

The team have devoted many hours so far to the cause at substantially reduced fees. It is vitally important to put the best care forward.


A1. If this litigation is based on EU law, will it work if we are out of the EU?

This is a good question. Currently, EU law still applies. The Government’s policy is that accrued EU rights will be respected by all courts below the Supreme Court. The Supreme Court would be able, if it thought fit, to override EU law protection. Given that the Loan Charge was introduced in 2017 when we were in the EU, there would be strong arguments against doing this. The European Union (Withdrawal) Act 2018 provides expressly that, for proceedings brought but not finally determined by the courts prior to 31st December 2020, it will still be possible to base domestic proceedings on failures to comply with general principles of EU law. (ATQC)

A2. How can the new Judicial Review work now the Loan Charge legislation is already enacted?

The mere fact that legislation has been enacted does not make it sacrosanct. (ATQC)

A3. Will this ultimately end up in the European Court of Human Rights or the European Court of Justice?

Because of Brexit, it is likely to end up in the Supreme Court. It is possible, if a question of EU law were to arise, that a domestic court may seek to refer that question to the Court of Justice in Luxembourg for a determination. Often this is done on the papers and does not require a hearing in person. When that determination is made by the Court of Justice, the matter would be referred back to the domestic court. (ATQC)

Judicial Process

B1. I understand that the Supreme Court can overturn a win in a lower court based on EU law overriding UK law. What arguments make the QC's so sure we can win in the Supreme Court having won at the High Court?

The arguments remain the same at all levels. There does not seem much doubt that the Loan Charge does inhibit loans and loans involve free movement of capital. There can be more argument on whether the Loan Charge is proportionate. We shall use an opinion from an experienced accountant showing how the matter should have been handled. There is room for argument here and this is the area where the courts could disagree. (ATQC)

B2. What are the known risks that may sway the Supreme Court to put aside EU law?

See the answer in the paragraph above. Proportionality is a flexible issue. (ATQC)

B3. The government is "reviewing" JR's - what is the likely impact on our ability to challenge through JR's?

Very little because our JR will have been started before the review. (ATQC)

B4. How long will proceedings take?

In all likelihood unless we on the claimants’ side gave up, proceedings are likely to go to the Supreme Court. That could mean 5 or 6 years unless HMRC insisted on speedier progress. While these proceedings are ongoing, it may be possible to postpone the payment of tax but this may depend on individual circumstances.(ATQC)


C1. What is the difference between the new Judicial Review proposal and the existing one heard in the High Court and under appeal?

The new Judicial Review claims that the Loan Charge breaches the fundamental EU law requirement of free movement of capital. If that is right, EU law overrides the domestic law and the Loan Charge is invalidated with all its machinery. The existing Judicial Review is based on the human rights legislation. It does not invalidate the Loan Charge legislation. So the new approach is more fundamental. (ATQC)

C2. If the existing Judicial Review continues, does it affect the new argument?

No, they are separate arguments with separate consequences. (ATQC)


D1. What level of confidence do we have in the case succeeding?

The view of specialist counsel is that the prospects are better than ever and would be improved further by expert evidence. It is hoped that this note, approved by tax counsel, goes some way to satisfying the need for answers. There are many varying cases. The answers and advice given cannot deal with every variant. Taxpayers have two courses. Course 1 is to take the advice in counsel’s opinion to their advisers to ensure that nothing in the circumstances of their case leads to a different conclusion. Tax counsel’s general advice in these circumstances must be given at a high level and understood accordingly. Individual advice will be required for each taxpayer from their own adviser as each individual set of circumstances may necessitate a different approach. The tax adviser does not have to take a view on the correctness of the opinion. He or she can accept them but make sure there is nothing in the facts to contradict their conclusions. Course 2 is to direct questions to counsel for a small fee. Both are possible and course 2 is available. (ATQC)


E1. Is there a lead case, if so do we have someone for that?

There are five applicants in England, and one, possibly two, in Scotland. (ATQC)

E2. If I contribute to the case am I named in the litigation, and I am protected from the LC by being stayed behind the case.

No, you will not be named in the case as the lead cases will be the named participants. You will not be ‘stayed’ behind the case as you would need to be named. However, you will be protected from the LC because of the information below in relation to your tax return and your reliance upon QC Opinion in relation to disclosure (LCJREU)

E3. Will all contributors be named on the JR? A few years ago there was a tax avoidance scheme that was subject to a JR. The JR was successful but because a number of people were not named on the JR they still had to pay the APN. I am worried that HMRC will do the same thing in this scenario and demand the money because I am not named on the JR??

No. You would need to be named if you were a person claiming the benefit of, say, a ruling given to particular taxpayers. That does not apply here. The point is general. (ATQC)


F1. How does this Judicial Review align with the Rangers case?

Firstly, there has been a great deal of misleading references to the Rangers case. Secondly, it has nothing to say about self-employed persons. Thirdly, the case shows that if an employee bargains for reward on the basis that much of it is paid to a third party, all the reward constitutes his earnings. In typical contractor schemes, an entity other than the taxpayer contracts to provide the taxpayer’s services to a third party for a fee paid to the providing entity. This entity then agrees to a minimal salary for the employee and in addition provides a series of loans. Rangers did not decide that the loans were earnings. The earnings had already arisen. HMRC would have to argue in these cases that the loans were earnings. (ATQC)


Counsel have provided a short Opinion. This Opinion will allow you to go to your accountant and or tax adviser and if he agrees with the Opinion and takes into account the planning which you have used you will be able to legitimately not enter the details of loans on your SATR. This SHOULD REMOVE THE RISK of punitive (up to 100%) penalties but not interest and late payment penalties(up to 15%) should the challenge fail.

G1. If I do not disclose the loans, what stops HMRC from issuing me with late payment penalties and later issuing further penalties up to 100 percent for deliberate non-disclosure? Even if I do not attract penalties, will interest have to be paid if we fail?

This is an important question. Firstly, you will have seen either an opinion or a synopsis of an opinion stating that (a) there are good arguments that EU law does override the Loan Charge and (b) you as a taxpayer are entitled to act on this view of EU law if your tax adviser advises you that there is nothing in the particular circumstances of your case disentitling you to rely on it. You must get particular, specific advice from your adviser. Armed with that advice, you are entitled to follow it and, if you have not already disclosed loans, not to disclose them. Suppose EU law does override the Loan Charge. You then had no obligation to disclose and there will be no penalties or interest. Now suppose EU law does not override the Loan Charge, if you have followed professional advice backed by opinions from Counsel with relevant experience, there is no case for penalties but you would have to pay interest and automatic late payment penalties. (ATQC)

G2. I have already disclosed my loans to HMRC on the whitespace of my SATR for 18/19. Can I still rely upon the Judicial Review, so I do not have to pay the charge?

Yes, you can. We assume that the entry in the whitespace is to inform HMRC of the facts, not to admit liability. (ATQC)

G3. What are my options for completing my tax return (SATR)?

Do not put the loans on your return in the relevant boxes as this is tantamount to admitting tax is due. In many cases HMRC will know you have loans. In that case fill in the white space and state: "Although I have loans outstanding which prima facie come within the Loan Charge, I am advised that by reason of EU law no tax is due." If HMRC have not been told previously of your loans and you have been advised that EU law debars any claim against the tax, then you could either fill in the whitespace or alternatively omit mention of the loans. This is on the basis that a taxpayer is entitled to take what he is told is the better view. Consequently, the omission of mention of the loans would not involve payment of penalties. There would be a reasonable excuse. However, filling in the white space as suggested would render the case against penalties unanswerable. (ATQC)

G4. What is the white space which is referred to?

White space is the additional information on your tax return. If is a free text box for you to state any additional information which HMRC needs or may need to be informed of

G5. Can I amend my SATR so that I am covered and if so for how long?

Section 9ZA Taxes Management Act 1970 allows a return to be amended for up to twelve months of the filing date (31st of January 2021). (ATQC)

G6. I am with a tax adviser who is providing whitespace wording to say that the Loan Charge does not apply – can I use that and reference this action (so basically saying I have two possible defences)?

Yes, you could do this. Alternatively, you could be advised that the better view is that EU law does override the Loan Charge and no disclosure is necessary. (ATQC)

G7. I do not have a tax adviser and the large amounts of money they can cost. Can I rely on the information you suggest for filling in the tax return?

No, someone familiar with the circumstances of your case (remember there are many different schemes) must advise. If you do not have an adviser, we can organise advice for you from counsel at low cost. (ATQC)

G8. Will this JR give me protection and include me in litigation to challenge HMRC when they inevitably disagree with my tax return?

Yes, part of the funding for the JR is being set aside for this challenge within FTT. If there needs to be further challenges in higher courts then additional funding will be required to cover this. (ATQC)

G9. Question being reassessed.

G10. How can I show that I received a tax adviser’s opinion if I do not have a tax adviser?

If HMRC ask you to provide proof that you have approached a tax adviser then you can present them with the Opinion (link to Opinion). (ATQC) For a small fee, our barrister will provide said advice directly, but says that you will not need that confirmation until/if HMRC ask you. (ATQC)

G11. What is the mechanism for me sending my account the Counsel’s opinion and then turning it around to them giving me the same opinion as tax advice?

We are setting up a service whereby you will submit your circumstances via email to an accountant, onboarded and the opinion dispensed for a small fee (LCJREU will not be involved nor receive any income from it). (ATQC)

G12. I have not declared any loans on my 2018/2019 SATR submitted for January 31st 2020, nor am I aware that HMRC knows my loan amounts and I wish to make use of the LCJREU opinion for the September 30th 2020 SATR deadline. What can I do?

1) You must receive tax advice if you choose not disclose your loans using the LCJREU opinion

2) You do not have to write anything in the whitespace

3) If the 2018/2019 SATR deadline of 31st of 2020 now remains unchanged under the LCJREU opinion, then you do not have to re-submit the SATR under the September 30th 2020 deadline - as nothing has changed.


H1. Presumably, everybody who does not disclose and/or pay the Loan Charge will have an enquiry open and eventually a tax assessment. How will I deal with this?

If the existence of the loan has already been disclosed or is known to HMRC it is very likely they will institute an enquiry. If they do, you will have to contend that there is no valid charge and if that proves right, that is the end of the matter. In the meantime HMRC may issue a closure notice which would have to be appealed and an application made to defer payment. If it transpires tax is payable, as already indicated, only interest and late payment penalties should be eligible. (ATQC)

H2. Will the litigation stop individuals being taken to FTT for open years? Given there are so many people and so many different arrangements involved, then how might this work?

If HMRC sought to litigate open years in the FTT, the taxpayer should apply for a postponement. Technically HMRC would oppose it on the grounds that whether or not there is a tax charge in the open year is a separate question. Taxpayers in this situation are having very varying experiences. (ATQC)


H1. Does the litigation stop Open Years and/or APNs being chased by HMRC?

Not directly. APNs remain payable regardless of the JR moving forwards. Open years will remain open and HMRC need to conclude their enquiries and issue a closure notice when the enquiry is finished. This can be appealed and the case can proceed to the FTT. This is outside the litigation at this time.

Suppose old years, say 2012-13 and 2013-14 are open because HMRC has made a discovery or there is an enquiry.

Firstly, if HMRC ask whether a contractor has received a loan, the question has to be answered. If HMRC then claim tax is due either because there were earnings of an employment or receipts of a trade, the taxpayer must appeal. Will the appeal have to be heard? There is a very strong likelihood that it will NOT. This is because one of the issues in the new Judicial Review proceedings will be how strong is HMRC’s claim that there was a tax charge under the legislation pre-existing the Loan Charge. If the court were to give a hostile view, that would be a major disincentive to HMRC’s claiming any tax.

Where an APN has been validly issued, different considerations arise. The difficulty is that APNs can only be challenged soon by Judicial Review and even then within 3 months. The threat of bankruptcy has to be considered. Expert advice is that in the circumstances a bankruptcy registrar would defer proceedings pursuant to s.266(3) Insolvency Act. We would propose lining up advisers to help in any case. Possibly, there could be a test case.


J1. If I have already settled or begun the settlement process can I use the litigation to stop the settlement and reclaim any monies paid?

If the settlement is not completed, you can stop the process and reclaim tax. If it has been completed, it may be possible to reclaim the tax. This is a complex issue. (ATQC)


K1. Do people who do not contribute to the Judicial Review end up getting protected? If so, what benefit is there for me to actually contribute?

If the new Judicial Review succeeds, you can take the benefit whether or not you have contributed and if it fails, you cannot use the opinions supporting the Judicial Review as a protection against penalties or in support of any appeal because, not having contributed, you will not have received them. Furthermore, success depends on contributions. If no-one contributes, no-one will benefit. (ATQC)

K2. How much money needs to be raised and how will it be spent?

Far too much has been spent so far. To get the petition for Judicial Review launched will cost about £50,000. If leave is granted, costs will be about £100,000 but, if we lose, there will be HMRC costs of a similar amount. There are two further courts, the Court of Appeal and the Supreme Court. In both courts the costs will be similar. Every effort has been made to get the best counsel at the lowest cost. (ATQC)

K3. Some of the other tax advisers claim they know the argument and that it was decided several years ago not to pursue it because it was a poor argument and would fail. Are they correct?

This is quite wrong. The old argument referred to was based on discrimination. The new argument founds on the Cardinal EU principle on unrestricted transfer of capital. Loans are a transfer of capital. This is undisputed. The Loan Charge is a severe inhibition of free transfer which is disproportionate. It is surprising that this point has not been raised before. It should have been. There is an opinion from two specialist counsel to this effect. Based on that opinion, tax counsel advise that taxpayers can treat the legislation on the Loan Charge as overridden by EU law. This goes much further than the existing proceedings based on human rights or other arguments. (ATQC)

Other Questions

How much support will be provided from your team if I have to correspond with HMRC for any letters they send once I add the reason that you provide in my SATR for not disclosing the loans and join the JR. Will there be any additional cost if I need your support in correspondence and if yes how much will that cost?

We have a team of counsel. One at least of them will be available to help you at low cost. (ATQC).
We We hope to have standard rebuttal letters for some enquiries. (LCJREU)

Some people are facing the Loan Charge as directors of Limited Companies, will this JR help them?

Yes, it should. (ATQC)

Your FAQ’s refer to loans received etc. However the Loan Charge catches any "disguised remuneration". The scheme I used didn’t offer loans, instead they instigated FX trades on depreciating currencies. All trading profit is non-taxable. Does this non-loan disguised remuneration fit into the EU JR?

It probably does as one suspects it involves movement of capital between states. This should be checked or advice can be obtained. (ATQC)

What is the position in relation to Inheritance Tax (IHT)?

If HMRC say that loans are earnings because the loans are never going to be repaid, then the "loans" are not really loans and trusts holding "loans" are not holding any property. If so, there can be no IHT. HMRC will try and refine their position based on Rangers. They will say that they were earnings first before they were then paid the trust and became loans. It is correct that if the money was paid to the trust and becomes trust property then there will be IHT. However, if the loans are unlikely to be repaid (as HMRC believe) then the trust property has very little value so there is no IHT of any consequence. (ATQC)