Judgment summary
This decision concerns a renewed application for permission to appeal to the Upper Tribunal (Tax and Chancery Chamber) following a First-tier Tribunal decision released on 26 November 2025 (TC/2022/02543) regarding the Rathowen Scheme, a contractor loan arrangement promoted by Montpelier (paras 1, 8).
The Applicants had sought permission to appeal on nine grounds. Judge Tilakapala had earlier granted permission on eight grounds on the papers but refused permission on Ground 4, concerning the FTT's treatment of Isle of Man law (paras 2-4, 14).
At the oral renewal hearing on 24 September 2026, the Applicants pursued Ground 4 in its original form and also sought to advance a reformulated version of that ground (paras 5, 18-20). The Tribunal refused permission on both versions (paras 50-51).
Background
The Applicants are lead appellants in a group of appeals concerning participation in the Rathowen Scheme, a contractor loan scheme promoted and administered by Montpelier (para 8). The arrangements, originally structured as 'DTA arrangements', involved individuals supplying services through contractual structures connected with the Isle of Man, with the intended effect that participants would not be treated as agency workers for the purposes of section 44 ITEPA 2003 (para 8).
HMRC's case before the FTT was that section 44 ITEPA 2003 applied notwithstanding the contractual structures, with a central issue being the identity of the relevant 'agency' (para 9). Participants were said to have been migrated from Isle of Man partnerships into a structure involving a company called Rathowen (para 10).
During closing submissions before the FTT, the Applicants argued that the consultancy agreements were contracts for personal service and so incapable of lawful assignment, an argument the FTT addressed at FTT [230]-[240] despite noting it had not formed part of the pleaded grounds of appeal (para 12).
Core dispute
Following refusal of permission to appeal by the FTT on 6 March 2026, the Applicants renewed their application to the Upper Tribunal on nine grounds (paras 2-3, 13). Permission was granted on the papers on eight grounds, but refused on Ground 4, which contended that the FTT erred in law in requiring evidence of Isle of Man law in connection with the Applicants' assignment argument (paras 4, 14, 22-23).
At the oral hearing, the Applicants pursued Ground 4 as originally formulated, relying on Lord Leggatt's judgment in FS Cairo (Nile Plaza) LLC v Lady Brownlie [2022] AC 995, and also sought permission to advance a reformulated version of Ground 4, contending that contracts for personal service are not assignable as a matter of law and that HMRC's case that the consultancy agreements had been assigned, transferred or otherwise moved to Rathowen was therefore legally impossible (paras 19-20, 24, 31).
The reformulated ground was accepted by the Applicants' representative as potentially a new ground of appeal, raising the question of whether, applying Singh v Dass, Mullarkey v Broad, R (Humphreys) v Parking and Traffic Appeals Service and Notting Hill Finance v Sheikh, it should be admitted (paras 35, 42).
Court findings
On Ground 4 as originally formulated, the Tribunal held that even if the FTT had erred in treating the absence of evidence of Isle of Man law as determinative at FTT [234], the FTT had gone on, at FTT [235]-[239], to assume that Isle of Man law corresponded with English law and had nevertheless concluded that the Applicants' argument failed. The FTT had also addressed the position at FTT [240]-[245] on the assumption that the assignment argument succeeded. The Tribunal found no arguable basis that any error at FTT [234] could have affected the outcome, and therefore no material arguable error of law (paras 27-30).
On the reformulated Ground 4, the Tribunal accepted that the legal impossibility argument was arguable and did not arise in a factual vacuum, since the assignment issue had been raised in closing submissions and addressed by the FTT at FTT [230]-[240] (para 41). However, the Tribunal held that the reformulated point was properly characterised as a new ground of appeal, being a substantively different legal issue from the original Ground 4, and one not advanced as a ground before the FTT or in the original permission application (paras 42-43).
Applying the principles in Singh, Mullarkey, Humphreys and Notting Hill, the Tribunal concluded that there was a realistic possibility that the evidential and forensic conduct of the proceedings would have been different had the reformulated point been articulated and pleaded before the FTT, including investigation of the legal characterisation of the consultancy agreements, substitution provisions and the relevance of Isle of Man law (paras 45-47). The Tribunal was accordingly not satisfied that it was appropriate to permit the reformulated ground to proceed as a new ground of appeal (para 48). The Tribunal emphasised that this refusal did not reflect any concluded view on the substantive merits of the legal impossibility argument (para 49).
Outcome
Permission to appeal was refused in respect of Ground 4 as originally formulated (para 50).
Permission to pursue the reformulated Ground 4 was also refused (para 51).
Permission to appeal remains granted in respect of Grounds 1, 2, 3, 5, 6, 7(b), 8 and 9, and in respect of Ground 7(a) insofar as it relates to the closure notices issued by HMRC in 2021 (para 52).
Major issues / areas of contention
- Whether the FTT erred in law in requiring evidence of Isle of Man law in connection with the Applicants' assignment argument (Ground 4 as originally formulated)
- Whether any such error was material given the FTT's alternative reasoning at FTT [235]-[245] which proceeded on the assumption that Isle of Man law corresponded with English law
- Whether a reformulated argument, that consultancy agreements were contracts for personal service incapable of lawful assignment to Rathowen, could be admitted as a new ground of appeal
- Whether admitting the reformulated ground would risk unfairness given that the evidential and forensic conduct of the FTT proceedings might have differed had the point been pleaded earlier
- The proper application of principles from Singh v Dass, Mullarkey v Broad, R (Humphreys) v Parking and Traffic Appeals Service and Notting Hill Finance v Sheikh governing the admission of new points on appeal