When HMRC misses an FTT deadline but still wins another CJRS case

Back on October 30th, Rachel Reeves got a big cheer in the House of Commons when she announced her intent to appoint a Covid Corruption Commissioner. Unveiling Autumn Budget 2024, the chancellor said the CCC would “uncover those companies that used a national emergency to line their own pockets.”

The Covid Corruption Commissioner: appointment date still TBC

With the appointment of the commissioner still pending, it seems the taxman is doing his bit to track down what he sees as unfair or even abusive use of covid income-support schemes.

And in the case of Ark Angel Ltd v HMRC, you might argue that he even got a little help from the courts, writes Naseerah Mussa, a consultant at law firm Chartergates.

What is Ark Angel Ltd v HMRC about?

Heard almost a year ago at the First-Tier Tribunal (FTT), but published only in August, Ark Angel Ltd V HMRC is part of an ongoing series of disputes where HMRC aims to recover funds paid out under the Coronavirus Job Retention Scheme, which it alleges were overclaimed.

In other words (and as the FTT put it), HMRC believes Ark Angel’s claims under the furlough scheme were “excessive.”

Caveats

Before reading on, be aware that this FTT case delves into the complexities surrounding a limited company’s entitlement to the furlough scheme (the CJRS). There is therefore a focus on highly specific details relevant to the claim. 

Potentially similarly limiting its application to the many limited company contractors we advise, the taxpayer in Ark Angel v HMRC chose to represent themselves.

An HMRC assessment of £76,000

On August 4th 2023, the FTT initially heard the case and made key determinations on issues related to the calculation of the support payments under the CJRS.  Following these decisions, the FTT left it to HMRC and Ark Angel to agree on the final amounts owed, with the option to return to the FTT if they could not reach an agreement. 

However, as two key issues remained unresolved, Ark Angel requested corrections to the FTT’s initial decision in December 2023.

And the sums outlined at the top of the judgment are not small. There are two notices of assessment from HMRC, for £59,664.54 and £16,000.00, for the tax years ended April 5th 2021 and April 5th 2022, respectively.

A taxing delay with no excuse

Submissions for the case were originally due no later than January 31st 2024. 

However, HMRC submitted their documents in February -- on the 2nd and 5th of the month, prompting an objection from Ark Angel, which argued that HMRC’s submissions should have been filed on or before the deadline.

Ark Angel insisted to the FTT that its rules should be strictly adhered to. 

The late submissions became a point of contention, with Ark Angel emphasising the importance of compliance with procedural deadlines.

‘No good reason for the delay – but it wasn’t serious or significant’

In response, the FTT noted that the delay in HMRC’s submissions was minimal and did not cause any “serious or significant” inconvenience to the proceedings. 

Although HMRC acknowledged that there was “no good reason” for missing the deadline (attributing the late submission to other work commitments), the FTT considered the shortness of the delay and decided it did not warrant excluding the Revenue’s late submissions. 

The focus then turned to resolving the substantive issues of the case.

The issues 

Issue 1: Ark Angel employees’ ‘reference salary’

The level of CJRS support payments is determined by an employee’s “reference salary”, providing that the reimbursed amount should not exceed the lower of £2,500 per month or 80% of the employee’s reference salary. 

In the case, during the 2019-20 tax year, and before February 27th 2020, no formal employment contracts were in place -- and Ark Angel’s two employees, Mr Kulvinder Boparai and Ms Ramandeep Boparai, received only “ad hoc” payments. 

Important dates, key percentages, and significant figures

However, on February 27th 2020, formal contracts were signed, increasing the two employees’ salaries to £3,200 per month -- for a fixed term of four months (covering the period from February 27th to June 1st 2020).   

Eagle-eyed mathematicians will notice that 80% of £3,200 is to £2,560 -- a figure marginally above the maximum monthly CJRS payment of £2,500.  

According to the FTT, due to the coronavirus pandemic, the employees ceased work an incredibly short time afterwards -- on March 1st 2020. 

Then, on April 17th 2020, the two employees were sent letters (by Ark Angel) stating that their furlough period had commenced on March 1st 2020.

The crux of the company’s argument is that the “period of employment” should disregard the period before February 27th 2020 (because the employees’ period of employment only began on that date) and the period from and including March 1st (as that is when the employees’ ‘period of furlough’ began).

Covid (and potentially other) concerns

This date (March 1st -- which was a Sunday) is when the company stopped asking them to do any work because it was concerned about coronavirus spreading. 

To add to this, the employees were sent letters which stated: “Your period of furlough commenced on 1st March 2020”.

In the 2019/20 tax year, both employees were paid £480 for three days’ work at the end of February 2020. These amounts were considered by Ark Angel as ad-hoc payments which were taken as and when needed by the employee but, crucially, not for doing any particular work. 

The FTT found that the employees were employed by Ark Angel throughout the tax year 2019/20 and that their period of furlough did not begin until April 17th 2020. 

As such, the correct method of calculating their salary would be by averaging the amounts paid to them by Ark Angel (excluding any other amounts which are to be disregarded in line with the Treasury Direction) in the 2019/20 tax year -- over the whole of that year.

Issue 2: Payment to Mr Kulvinder Boparai in the tax year 2021/22

It was accepted that Mr Boparai would cease to qualify as being on furlough with Ark Angel from the beginning of December 2020, due to his starting to work for Greenwich/Grosvenor, which were connected companies with Ark Angel. 

Furlough letters dated May 21st 2021 followed from both companies, confirming that Mr Boparai had been placed on furlough and was required to cease all work, with flexible furlough arrangements beginning on July 1st 2021. 

The FTT had to determine whether Mr Boparai worked between May 1st 2021 and June 30th 2021, which was key to Ark Angel’s CJRS claim. 

Crucially, the seventh Treasury Direction outlines that:

“For the purposes of CJRS, an employee must be treated as working for an employer if the employee works for a person connected with the employer (see paragraph 40.4) or otherwise works indirectly for the employer.”

Thereby, if it was found that Mr Boparai worked for either Greenwich or Grosvenor during this period, then the Ark Angel claim would be invalid. 

Based on the evidence provided, including the May 2021 letters and the statement from Mr Boparai, it was concluded that Mr Boparai did not work for Greenwich or Grosvenor during this period, and this conclusion did not turn on whether Greenwich or Grosvenor placed him on furlough. 

Valuable insights

The FTT’s analysis of the case offers valuable insights, particularly regarding the precise timing of employee eligibility to CJRS, and how employment relationships with connected companies can influence a company’s entitlement to the grant. 

The FTT’s decision also highlights the importance of understanding these finer details for businesses facing similar disputes with HMRC, over CJRS calculations -- although, importantly, this case is highly fact-sensitive.

A relatively strict application for taxpayers versus leniency for HMRC

The CJRS rules in the tribunal have been applied in a relatively strict approach to the Treasury Direction.

And the constant changes during the pandemic created room for error, making it challenging for taxpayers to apply and stay updated on the evolving rules during an unprecedented situation.

From a taxpayer’s perspective, the leniency towards HMRC in the case of Ark Angel could be seen as unfair, especially when compared to the strict deadlines typically imposed on taxpayers.

Indeed, taxpayers are expected to adhere strictly to HMRC’s timelines often facing penalties for late submissions -- even if the reasons for the delay are beyond their control.  

HMRC admitted there was no valid reason for missing the deadline citing only work commitments, yet the tribunal allowed the late submission. 

Final thought

Quite rightly, in our view, the FTT’s leniency towards HMRC raises questions about the balance of fairness, as taxpayers are rarely afforded the same flexibility. Whether the cheered-on Covid Corruption Commissioner will be lenient and flexible remains to be seen but taxpayers who received CJRS payments or other covid income support grants would be unwise to bank on it.