Ark Angel – CJRS case – courts find in favour of HMRC
By Justine Riccomini, Head of Tax (Employment and Devolved Taxes)
29 October 2024
Justine Riccomini explains why Ark Angel lost its CJRS case to HMRC.
On 28 August 2024, the First-Tier Tribunal (FTT) decided the Ark Angel case. The company is a property investment business involved in claiming over £75,000 in incorrect Coronavirus Job Retention Scheme (CJRS) payments.
On 18 December 2023, the Tribunal had directed the parties come to an agreement on the figure which Ark Angel should settle with HMRC by Wednesday 31 January 2024. HMRC filed their documents to the court two days late, but the judge (Mark Baldwin) decided that the case should still go ahead as no real detriment had been caused by the delay. He stated: “The delay was very short and did not cause any inconvenience. The delay is regrettable, but Mr Marks [on behalf of HMRC] has apologised for this. Most importantly, we consider that to reach balanced conclusions on all the issues before us, we need to take account of both sets of submissions.
“Accordingly, whilst we absolutely agree with Mr Boparai that the rules are there to be followed and should be observed, we do not consider that we would be acting fairly or justly if we did not admit HMRC’s submissions.”
How did the problem arise?
The case concerns itself with a husband and wife, Mr and Mrs Bopari, the husband being an executive director of Ark Angel Ltd. HMRC’s suspicions were raised when they noted that the two Ark Angel employees had signed contracts of employment of four months duration on 27 February 2020, immediately before lockdown began on 20 March 2020. This increased their salaries to £3,200 per month – the figure at which, if multiplied by 80%, resulted in exactly the maximum monthly salary figure payable under the CJRS scheme rules (£2,500).
The case transcript tells us that on 1 March Ark Angel instructed the employees to stop working and they were advised that furlough applied to them from 1 March. However, HMRC deemed the relevant furlough period to begin on 17 April, not 1 March – i.e. when Ark Angel received written confirmation that the CJRS scheme could apply.
Matters were further complicated by the fact that the two employees in question were found to have been employed by companies associated to Ark Angel. In the court proceedings, the regulations applying to that scenario were cited: “An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing… that the employee will cease all work in relation to their employment.”
What did the court decide?
The lengthy 15-page decision really boils down to the interpretation of the original legislative provisions of The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction (the “Coronavirus Direction”) which were introduced on 15 April 2020.
A question concerning the definition of the term “fixed-rate employee” is discussed in some detail at paragraphs 81 to 89 of the decision, because the matter of whether the two people in question could be classified as fixed-rate employees or not would ultimately determine the level of the CJRS they would be entitled to. In the end, the Boparis’ arguments did not pass muster, because they could not demonstrate any form of consistency of earnings prior to signing the contracts which might have entitled them to claim CJRS despite submitting arguments that claimed they needed around £6,000 a month just to live.
It’s worth reading the decision if you are interested in how the confusion arose and led to the liabilities being assessed. In the end, the Tribunal found in favour of HMRC, dismissing Ark Angel’s appeal and leaving it up to HMRC and the appellant to reach agreement on how much should be paid. It will be interesting to see how long it takes for agreement to be reached and for HMRC to recoup the money.
If you’ve spotted a tax anomaly that is producing an inequitable result or getting in the way of doing business, why not share it with us at tax@icas.com.
