Richard Bates v The Commissioners for HMRC

Facts

Mr Richard Bates appealed against a discovery assessment in the amount of £20,716.40, made on 18 October 2013 in respect of the tax year 2010-11. HMRC's case was that Mr Bates had used a tax avoidance arrangement known as Darwinpay, a contractor loan scheme under which individuals became employees of an Isle of Man partnership, had their services supplied to end users for a fee, were paid a small salary, and received a much larger sum described as a loan from a trust funded by the partnership. In 2010-11 Mr Bates was an employee of The Darwinpay Partnership, received a salary of £8,909, benefits in kind of £3,224, and £69,029.78 from the Darwinpay Trust; underlying clients were billed at a day rate shown in example invoices as £450. He made no self-assessment return for that year. HMRC said the sums described as loans were earnings within section 62 of the Income Tax (Earnings and Pensions) Act 2003, that an officer had discovered a loss of tax on 10 September 2013, and that the Assessment was valid under section 29 of the Taxes Management Act 1970. Mr Bates, who represented himself, contended that HMRC bore and had not discharged the burden of proof on both the earnings and the discovery issues, and argued in the alternative that the Assessment overcharged him and would produce double taxation under the loan charge legislation.