Forthcoming hearings

General particulars

1. Ms Baker was at all material times one of three shareholders and directors of Root 2 Tax Ltd (Root2) and Root2 Tax (Dispute Resolution) Ltd (RootDR). Root2 was incorporated on 10 February 2011 and RootDR on 11 December 2014.
2. In 2011, Root2 developed, marketed and implemented a tax avoidance scheme known as “Alchemy” (the Alchemy Scheme). The idea behind the Alchemy Scheme was that certain spread betting and option arrangements could be entered into triggering only minimal tax liabilities on the basis that the returns were tax free gambling winnings, whilst the employer nevertheless received a corporation tax deduction. Ms Baker herself took part in the Alchemy Scheme together with Root2. Root2 continued to market and advise on the Alchemy Scheme in subsequent years and assist clients with its implementation.
3. The Alchemy Scheme was not properly notified to Her Majesty’s Revenue and Customs (HMRC) under the rules relating to the Disclosure of Tax Avoidance Schemes (DOTAS) set out in the Finance Act 2004 (FA 2004), Part 7, or alternatively was not notified sufficiently promptly. Certain disclosures were made, belatedly, on 21 September 2017, 13 October 2017 and 5 April 2019. HMRC did not consider any of these disclosures to satisfy the requirements of s.308 FA 2004 and in any event the disclosures should have been made more promptly.
4. In HMRC v Root2Tax Ltd, Root3Tax Ltd [2017] UKFTT 696 (TC), the First-tier Tribunal (Tax Chamber) (FTT) held that the Alchemy Scheme was notifiable under DOTAS (see [47]), and should have been notified to HMRC by Root2 under section 308 FA 2004 (see [30]). The FTT held that Root2’s position was not “seriously arguable” and that “the only reasonable conclusion” was this was a scheme designed to secure a tax advantage (see [45]). The FTT further found that the taxpayer companies had attempted to “deflect” HMRC with an “unwillingness to be forthcoming” (see [50]). The FTT’s findings properly reflected the law and factual history.
5. In Root2Tax Ltd v HMRC [2019] UKFTT 0744, the FTT held that the Alchemy Scheme was ineffective, in that payments made under it were liable to tax and national insurance contributions as employment income. The FTT’s findings properly reflected the law and relevant facts.
6. On 3 May 2020, the professional indemnity insurance of Root2 and RootDR expired without further cover being in place. Nevertheless both firms continued to trade.

Charge 1: DOTAS Disclosure

Allegation

7. In contravention of regs. 2.6.1 and 2.6.2 and 5.1.1 of PRPG 2011 and clauses 2.13, 8.1, 8.11 of PCRT 2011, Ms Baker did not properly disclose the Alchemy Scheme under the DOTAS provisions then in force when she should have done nor did she make any attempt to effect such a disclosure by Root2.

Particulars of allegation

8. Ms Baker was at all material times a controlling mind of Root2. Root2 was a promoter of the Alchemy Scheme which should have been disclosed to HMRC by Root2 under DOTAS, but was not properly disclosed (alternatively, the Scheme was not disclosed sufficiently promptly).
9. Root2 became aware of a transaction forming part of a notifiable arrangements on 15 April 2011 (see [2021] UKFTT 346 (TC), [9]) but did not receive formal advice on DOTAS until the opinion of Mr Patrick Way dated 21 June 2012. For that reason Ms Baker cannot pray in aid the opinion of Mr Way. To the extent that Ms Baker relies on any earlier opinion of Mr Way, it has either (a) not been properly disclosed to the TDB and/or (b) was not properly retained on the client file in accordance with regs. 5.5.1, 5.5.2 PRPG 2011.
10. Further and in any event, the opinion of Mr Way was heavily caveated, predicated on unsafe assumptions and referred to the “question of whether the DOTAS rules apply” as being “more difficult”. In all the circumstances, Ms Baker should have exercised her professional judgment to disclose the Alchemy Scheme notwithstanding the opinion of Mr Way.

Charge 2: Nature of advice to clients

Allegation

11. In contravention of regs. 2.6.1, 2.6.2, 5.1.1 and 5.6.2, 5.6.3, 5.6.4 of PRPG 2011 and clauses 2.4, 2.5, 7.5 of PCRT 2011, Ms Baker of Root2 did not adequately advise clients.

Particulars of allegation

12. The advice provided by Root2 to clients was defective and inadequate; in particular:
    • It failed to give a full and fair summary of the risks of engaging in the Alchemy Scheme, including the risks of successful HMRC challenge. The advice overstated the prospects of success and failed to fairly convey the downside risk.
    • The advice provided by Root2 referred to the opinion of tax counsel Patrick Way, but did not fairly reflect the risks, caveats and assumptions referred to and highlighted by Mr Way.
    • The advice expressly relied upon and referred to the opinion of tax counsel, despite the fact that clients of Root2 were not legally entitled to rely on Mr Way’s opinion which itself stated “anyone adopting the Strategy must not rely on this opinion”.

Charge 3: Independence, objectivity, integrity

13. In contravention of regs. 2.1, 2.2.1, 2.3.1, 2.6.2, 6.1.1, 6.1.2, 6.1.3 PRPG 2011 and clauses 2.1, 2.2, 2.3, 2.4 PCRT 2011 Ms Baker:
    • allowed her independence, integrity and objectivity to be compromised, and further put herself in a position of potential conflict of interest.
    • failed to properly disclose the nature and extent of her (and/or Root2’s) potential conflict of interest, lack of independence and compromised objectivity, such being information relevant to clients.

Particulars of allegation

14. Through her interests in particular in Root2, Ms Baker stood to gain financially from others’ participation in the Alchemy Scheme. Ms Baker also took part in the Alchemy Scheme herself, and was therefore interested in its success.
15. Ms Baker was financially incentivised to provide, through Root2, favourable advice on the Alchemy Scheme. Ms Baker was therefore in a position where her personal interests conflicted or potentially conflicted with the interests of her clients, whose interests were best served by securing independent, objective and realistic advice.
16. Given her interest in the Alchemy Scheme, directly and through Root2, Ms Baker was unable to be objective or properly provide independent advice. Ms Baker nevertheless, through Root2, marketed and provided advice to clients on the merits of the Alchemy Scheme.
17. Further, there was no or no sufficient disclosure by Ms Baker and/or Root2 as to the extent of their potential conflict of interest, lack of independence and/or compromised objectivity.

Charge 4: Engagement with HMRC

Allegation

18. Contrary to clause 2.15 PCRT 2011, Ms Baker failed to manage the disagreement with HMRC as to the notifiability of the Alchemy Scheme in an open, constructive and professional manner.

Particulars of allegation

19. Root2, including through Ms Baker, were engaged with HMRC from July 2014 or earlier as to the question of whether or not the Alchemy Scheme was notifiable under DOTAS.
20. Root 2, including through Ms Baker, did not engage with HMRC in an open, constructive and professional manner. Rather, Root2 (including through Ms Baker) were not forthcoming and made attempts to deflect HMRC.

Charge 5: Professional Indemnity Insurance

Allegation

21. In contravention of regs. 2.6.2, 2.6.3 and 2.7.1 of PRPG 2018 and regs. 2.1 and 2.2 of CPIIR, Ms Baker failed to ensure that Root2, and the associated company Root 2 Tax (Dispute Resolutions) Ltd (RootDR), had a valid policy of professional indemnity cover in her capacity as director of each of those companies.

Particulars of allegation

22. Root2 and RootDR first experienced difficulty in renewing their professional indemnity cover from late September 2018, when their then-provider declined to offer renewal terms. The firms were able, with difficulty, to find further cover at this time but such cover expired on 3 May 2020 without further cover being in place or being arranged. Nevertheless both firms continued to trade and charge clients for work.

Charge 6: Disrepute

Allegation

23. In light of the matters referred to under Charges 1 to 5 above, Ms Baker brought the profession into disrepute, contrary to regs. 1.7, 2.6.2 PRPG 2011 (and, from November 2018, regs. 1.7 and 2.6.3 PRPG 2018) and clauses 2.1, 2.13 PCRT 2011.

Particulars of allegation

 The Particulars set out under Charges 1 to 5 are here repeated.