--- title: "Fluid System Technologies v HMRC: Disguised Remuneration Repayment Claims and the Limits of Judicial Review" url: https://taxdisputes.co.uk/2026/07/fluid-system-technologies-v-hmrc-disguised-remuneration-repayment-claims-and-the-limits-of-judicial-review/ date: 2026-07-17 modified: 2026-07-17 author: "Muhammad Awais Bahadur" description: "The Upper Tribunal has dismissed a judicial review challenge to HMRC's refusal to repay sums paid under disguised remuneration settlements in Fluid System Technologies v HMRC [2025] UKUT 00278 (TCC). Our tax litigators analyse the decision, the strict eligibility conditions of the Disguised Remuneration Repayment Scheme 2020, and the key lessons for taxpayers still pursuing loan charge refunds." categories: - "Disguised remuneration" - "First Tier Tax Tribunal" - "Judicial Review" - "Tax Investigation" - "Tax Issue" - "Tax Law" - "Uncategorized" tags: - "disguised remuneration" - "Disguised Remuneration Repayment Scheme 2020" - "DRRS" - "Finance Act 2020" - "Fluid System Technologies v HMRC" - "HMRC repayment claim" - "HMRC Tax Appeal" - "judicial review HMRC" - "loan charge" - "reasonable disclosure" - "tax litigation London" - "UKUT 00278 TCC" - "Upper Tribunal Tax and Chancery" - "voluntary restitution" image: https://taxdisputes.co.uk/wp-content/uploads/2026/07/ChatGPT-Image-Jul-17-2026-01_53_35-PM-1024x576.png word_count: 1796 --- # Fluid System Technologies v HMRC: Disguised Remuneration Repayment Claims and the Limits of Judicial Review *In one of the most instructive tax decisions of 2025, the Upper Tribunal (Tax and Chancery Chamber) dismissed a judicial review challenge to HMRC's refusal to repay sums paid under disguised remuneration settlements. The judgment in* Fluid System Technologies (Scotland) Ltd & Anor, R (oao) v HMRC *[2025] UKUT 00278 (TCC) is essential reading for any employer or individual who settled a loan scheme with HMRC and later sought a refund under the Disguised Remuneration Repayment Scheme 2020. It confirms just how demanding the Scheme's eligibility conditions are, and how narrow the path to overturning an HMRC repayment decision by [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) really is. Our specialist tax litigators explain what the case decided and what it means for taxpayers still pursuing repayment claims.* ### Background: The Loan Charge and the Disguised Remuneration Repayment Scheme To understand the *Fluid System Technologies* decision, it helps to understand the legislative journey that produced it. [Disguised remuneration](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) arrangements typically involved rewarding employees or contractors through loans, often routed via employee benefit trusts, rather than through ordinary taxable salary. HMRC's long-standing view is that these payments were always taxable as employment income, and Parliament ultimately introduced the loan charge to impose a charge on the outstanding balance of such loans. Following the widespread criticism of the loan charge's retrospective reach, the government commissioned the independent review led by Sir Amyas Morse. That review led to significant changes enacted in the Finance Act 2020. In particular, the loan charge would no longer apply to loans made before 9 December 2010, nor to loans made between 9 December 2010 and 5 April 2016 where the taxpayer had made a reasonable disclosure of their scheme use and HMRC had failed to act. Because many taxpayers had already settled with HMRC and paid tax on years that were now taken outside the charge, sections 20 and 21 of the Finance Act 2020 established the Disguised Remuneration Repayment Scheme 2020 (the "DRRS"). The Scheme allows HMRC to repay or waive "voluntary restitution" broadly, sums a taxpayer paid to settle a liability that, on the amended rules, HMRC had no legal power to recover at the date the settlement agreement was made. Understanding these mechanics is central to any [HMRC tax appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) touching on the loan charge. ### The Two Eligibility Conditions at the Heart of the Case The DRRS does not offer an open-ended refund of everything paid in a loan scheme settlement. Repayment or waiver is available only where strictly defined conditions are met. Two of those conditions were directly in issue before the Upper Tribunal in *Fluid System Technologies*: - **The "no power to recover" condition.** For loans made before 9 December 2010, voluntary payments of income tax and National Insurance contributions may be repaid where, at the date the settlement agreement was made, HMRC had no power to recover the tax or NICs in question, for example, because the relevant assessment window had closed and no assessment or determination was in place. - **The "reasonable disclosure" condition.** For loans made on or after 9 December 2010 but before 6 April 2016, a repayment may be available where the taxpayer made a reasonable disclosure of their scheme use at a time when HMRC still had the power to recover, but HMRC did not take action, such that by the date of settlement HMRC was out of time. The dispute in *Fluid System Technologies* turned on whether these conditions were satisfied on the facts and critically, on whether HMRC's conclusion that they were not could be impugned as a matter of public law. ### The Facts: Refused Repayment Claims and a Judicial Review Challenge The claimants, Fluid System Technologies (Scotland) Limited and London Fluid System Technologies Limited, had settled their disguised remuneration liabilities with HMRC and subsequently applied for refunds of income tax and Class 1 National Insurance contributions under the DRRS. HMRC decided that the companies had no entitlement to repayment, and it maintained those conclusions on internal review in decisions made during 2021 and 2022. Rather than a merits appeal, the companies brought a claim for [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) in the Upper Tribunal, seeking quashing and mandatory orders to compel HMRC to make the repayments. The claim was heard by Mrs Justice Bacon and Judge Swami Raghavan, who delivered judgment on 15 August 2025. Notably, this was not the first time the litigation had reached the Upper Tribunal: an earlier procedural decision, [[2024] UKUT 00322 (TCC)](https://www.gov.uk/tax-and-chancery-tribunal-decisions/the-king-on-the-application-of-1-fluid-systems-technologies-scotland-limited-2-london-fluid-system-technologies-limited-3-airedale-chemical-company-limited-v-the-commissioners-for-his-majestys-revenue-and-customs-), had addressed the cross-examination of an HMRC witness, underscoring how hard-fought this dispute had been. ### Why Judicial Review, Not a Statutory Appeal? A recurring theme in DRRS disputes is that the Scheme provides for an internal review of a repayment decision, but does not create a statutory right of appeal to the tax tribunals on the merits. That structural feature funnels aggrieved applicants towards judicial review as the primary remaining route of challenge. This matters enormously, because judicial review is not a rehearing of the facts. As we explain in our detailed guide on [challenging HMRC decisions by judicial review](https://taxdisputes.co.uk/2026/06/challenging-hmrc-decisions-by-judicial-review-in-2026/), the court does not substitute its own view of whether a taxpayer met the eligibility conditions. It asks only whether HMRC's decision was unlawful, for example, because HMRC misdirected itself in law, took into account irrelevant considerations, ignored relevant ones, or reached a conclusion no reasonable decision-maker could reach. The classic public law grounds derive from [*Council of Civil Service Unions v Minister for the Civil Service* [1985] AC 374](https://www.bailii.org/uk/cases/UKHL/1984/9.html) and the *Wednesbury* principle in [*Associated Provincial Picture Houses Ltd v Wednesbury Corporation* [1948] 1 KB 223](https://www.bailii.org/ew/cases/EWCA/Civ/1947/1.html). For any taxpayer, that is a materially higher hurdle than a merits appeal, and it shaped the outcome here. ### The Upper Tribunal's Decision: Repayment Correctly Refused The Upper Tribunal dismissed the claim. It concluded that HMRC had been correct to refuse repayment in each of the review decisions under challenge. The eligibility conditions on which the claimants relied were not met, and the Tribunal found no public law error capable of vitiating HMRC's decisions that would justify a quashing or mandatory order. A central plank of the reasoning concerned the "reasonable disclosure" condition. The Tribunal considered that the disclosure the claimants relied upon amounted to a plainly inadequate description of the arrangements. In other words, what had been put to HMRC at the relevant time did not give a fair and accurate picture of the scheme sufficient to constitute a reasonable disclosure of scheme use. That finding was fatal to the aspect of the claim resting on that condition. Significantly, the Tribunal did identify a limited error in HMRC's reasoning in relation to the decision concerning the Scotland company. But it held that this made no difference to the outcome. Applying the well-established principle that relief may be refused where it is highly likely the outcome would have been the same absent the error, the Tribunal was satisfied that the same conclusion would have been reached in any event. The relief sought by the claimants was therefore refused in full. ### Key Lessons for Taxpayers with Disguised Remuneration Settlements The decision carries several practical lessons that our [tax dispute solicitors](https://taxdisputes.co.uk/expert-advice/) regularly emphasise to clients considering a repayment claim or a challenge to a refusal. - **Disclosure quality is decisive.** The "reasonable disclosure" condition is not a box-ticking exercise. A cursory or misleading account of a scheme given to HMRC years ago will not qualify. Taxpayers should scrutinise exactly what was disclosed, when, and whether it genuinely conveyed the nature of the arrangement. Contemporaneous correspondence and returns are critical evidence. - **Eligibility conditions are construed strictly.** The DRRS is a targeted relief, not a general amnesty. Each condition, the date of the loan, the state of HMRC's recovery powers at settlement, the adequacy of disclosure, must be satisfied precisely on the facts. Assumptions that "it was all voluntary restitution" are dangerous without rigorous analysis. - **Judicial review is a high bar.** Because the Scheme offers no merits appeal, challenges proceed by judicial review, where a taxpayer must demonstrate a genuine public law defect. Even where an error in HMRC's reasoning is found, the court may still refuse relief if the outcome would have been the same. Framing the grounds correctly, with the right evidence, is essential from the very first pre-action letter. - **The three-month clock is unforgiving.** Judicial review claims under Part 54 of the Civil Procedure Rules must be brought promptly and in any event within three months of the decision challenged. Delay while corresponding informally with HMRC is one of the most common reasons strong-looking claims fail before they begin. ### How This Fits the Wider Landscape of HMRC Litigation *Fluid System Technologies* sits alongside a run of recent decisions in which the higher tribunals have scrutinised HMRC's use, and taxpayers' challenges, of its powers. The Supreme Court in [*R (Haworth) v HMRC* [2021] UKSC 25](https://www.supremecourt.uk/cases/uksc-2019-0124) confirmed that HMRC's exercise of aggressive statutory powers such as follower notices is amenable to judicial review, while later loan charge litigation has repeatedly shown how carefully the courts examine the boundary between lawful decision-making and reviewable error. For businesses, the interaction between disputed tax liabilities and enforcement is equally important. Where HMRC threatens recovery on a genuinely disputed debt, there may be scope to resist a [winding-up petition](https://windinguppetitionsolicitors.co.uk/) in the Companies Court, and separately to consider a public law challenge. And where a taxpayer's losses flow from negligent advice given by a former scheme promoter or adviser, a [professional negligence claim](https://professionalnegligenceclaimsolicitors.co.uk/) may provide a route to recovery that tax litigation alone cannot. Choosing the right combination of remedies is precisely the strategic judgment our team is instructed to provide. ### How LEXLAW Can Help with Disguised Remuneration and DRRS Disputes At [LEXLAW](https://lexlaw.co.uk/contact-us/), our dual-qualified solicitors and barristers have extensive experience advising employers, contractors and high-net-worth individuals on the loan charge, disguised remuneration settlements, and repayment claims under the DRRS. We are the only solicitors' firm in England to operate from professional chambers in Middle Temple, adjacent to the Royal Courts of Justice, and our team includes former in-house HMRC counsel and Big 4 tax litigators. We advise on the full lifecycle of these disputes: assessing whether a repayment claim meets the Scheme's eligibility conditions; assembling the disclosure and settlement evidence that a claim stands or falls on; drafting robust pre-action correspondence; and, where appropriate, pursuing [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) of an unlawful refusal. Crucially, unlike accountants, our communications with you are protected by [legal professional privilege](https://www.gov.uk/government/organisations/hm-revenue-customs), giving you a confidential space to assess your true position before engaging with HMRC. If HMRC has refused your DRRS repayment claim, or you are considering whether you are entitled to a refund of tax paid in a loan scheme settlement, do not delay. The judicial review time limit moves quickly and the evidential work required to succeed is substantial. Contact our team today for a confidential, fixed-fee [case assessment](https://taxdisputes.co.uk/legal-case-assessment/).