Yip
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 September 2014 |
| Neutral Citation | [2014] UKFTT 865 (TC) |
| Date | 03 September 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 865 (TC)
Judge Anne Scott, LLB, NP, Dr Heidi Poon, CA, CTA, PhD
Michael Feng appeared for the Appellant
Chris Cowan, Officer of HMRC, appeared for the Respondents
Income tax - Relationship between enquiry and disclosure - Whether discovery requires new information of fact or law - Insufficiency of assessment - Contemporaneous closure of enquiry - Validity of assessments - Yes.
The First-tier Tribunal (FTT) has determined on a preliminary issue in six appeals against discovery assessments; that HMRC did make a "discovery" under the Taxes Management Act 1970 (TMA 1970), Taxes Management Act 1970 section 29s. 29 notwithstanding that enquiry closure notices had already been issued in respect of three of the years in question. At the time the enquiry closure notices were issued, the Appellant could still have provided further information in response to, or successfully appealed against, a direction under the Income Tax (Pay as you Earn) Regulations 2003 (SI 2003/2682), reg. 72(5) Condition B and a decision under the Social Security Contributions (Transfer of Functions) Act 1999 (SSCTFA 1999), Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8 subsec-or-para 1s. 8(1)(c) (that notified the appellant that HMRC intended to collect underpaid PAYE income tax and national insurance contributions (NICs) from him personally) and only when the appeal period expired with the appellant having neither appealed nor provided further information, were HMRC able to finally ascertain and "discover" the amount of under assessed income.
The hearing was to consider whether there had been a valid "discovery" under TMA 1970, Taxes Management Act 1970 section 29 subsec-or-para 1s. 29(1) in respect of three years' discovery assessments out of six under appeal.
The appellant, Mr Yip had operated a licensed restaurant business and take away through a limited company and an enquiry into the company's account had led to enquiries into three years of Mr Yip's self assessment returns. Concluding that PAYE and NICs had been under declared on Mr Yip's earnings from the company, HMRC issued a direction under SI 2003/2682, reg. 72(5) (recovery from employee of tax not deducted by employer) (the PAYE direction) and a notice of decision under SSCTFA 1999, Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8 subsec-or-para 1s. 8(1)(c) (the NIC decision) relating to six years including the three under enquiry. On the same day, HMRC issued closure notices for the three enquiries but the closure notices did not reflect the liabilities referred to in the PAYE direction and NIC decision. HMRC then subsequently issued discovery assessments under TMA 1970, Taxes Management Act 1970 section 29s. 29 for all six years.
The appellant argued that there was no "discovery" because when the closure notices were issued, HMRC were in possession of all relevant facts.
HMRC argued that they could not have raised assessments at the time the enquiries were closed because they would have been premature. Mr Yip could have furnished further relevant information or successfully appealed the direction and decision and that might have prevented HMRC from raising the assessments on him personally. The amount of under assessed income only became finally ascertained and therefore "discovered" on the expiry of the appeal period without the provision of further information. The fact that closure notices had been issued did not preclude the raising of assessments under TMA 1970, s. 29 because the two were not mutually exclusive.
The FTT considered that Corbally-Stourton v R & C CommrsSCD(2008) Sp C 692 made it quite clear that in certain circumstances there could be both a closure notice and section 29 discovery and that only taxpayers who had made full and frank disclosure achieved certainty at the end of the enquiry window or on completion of the enquiry. Mr Yip had not made full disclosure either in his tax returns, or over the course of the enquiry.
The FTT noted that a clear and concise summary of the meaning of "discovery" was provided by R & C Commrs v CharltonTAX[2013] BTC 1634 and against that backdrop, accepted HMRC's two arguments based on Cenlon Finance Co Ltd v EllwoodTAX(1962) 40 TC 176; that a "discovery" did not require the discovery of a new fact; and could include a discovery that the law has been wrongly applied or that one is mistaken about the law.
The FTT concluded that the purpose of the direction was to try to elicit information that had not been forthcoming. Meanwhile, as there had been no progress in the enquiries, HMRC had sought to bring them to a conclusion and at the point of doing so, HMRC did not and could not know the quantum of missing information because until the expiry of the appeal window the Appellant could have produced all manner of information. Accordingly, when the days of appeal expired, HMRC did make a discovery within TMA 1970, s. 29 which meant that the appeals in respect of all six years would proceed to a substantive hearing.
This case provides a useful recap on the meaning of "discovery" for the purposes of assessments under TMA 1970, s. 29 and also confirms that the issue of a self assessment enquiry closure notice does not preclude HMRC from subsequently issuing a discovery assessment in respect of the same tax year. In this case, HMRC issued formal notifications that they intended to recover under-declared PAYE and NIC from the appellant personally (rather than his company) and at the same time issued closure notices in respect of the enquiries into his self assessment returns. The appellant tried to argue that because HMRC had all relevant information at the time they issued the closure notices, there was no subsequent "discovery" . However, the FTT found that until the window for appealing the formal notifications had closed, the appellant could still have provided further information or successfully appealed, therefore, it was only after that time were HMRC finally able to confirm the under-assessment which did amount to a valid "discovery".
[1]There are six appeals outstanding relating to assessments issued on 3 August 2011 for the years 2003/04 to 2008/09 inclusive and amounting in total to an additional liability of 175,704.19. All of the assessments in question were issued in terms of Taxes Management Act 1970 section 29section 29 Taxes Management Act ("TMA") 1970.
[2]At a Case Management Hearing in Birmingham on Friday 20 September 2013, amongst other issues, the Appellant made an application to HMCTS for a preliminary hearing on the validity of the assessments issued by HMRC for tax years 2004/05 to 2006/07 inclusive.
[3]Having heard submissions from both parties Judge Poole issued Directions (the "Directions") on 21 October 2013. In particular, whilst staying all other issues in the appeals, he directed that there should be a preliminary hearing as to whether or not the requirement in Taxes Management Act 1970 section 29 subsec-or-para 1section 29(1) TMA for a discovery had been satisfied in relation to the assessments for 2004/05 to 2006/07 inclusive. The full terms of that Direction are to be found at paragraph 12 below.
[4]Mr Feng had tabled a request that read:- "Eight days before the preliminary hearing I learned from HMRC's skeleton argument that HMRC's discovery under Taxes Management Act 1970 section 29 subsec-or-para 1section 29(1) is that there was NO APPEAL. 5.22 As HMRC's rely on NO APPEAL pursuant to Taxes Management Act 1970 section 29 subsec-or-para 1section 29(1) I respectfully ask the judge to give a decision at the start of the hearing in accordance to rule 2(1)".
[5]Whilst it is certainly true that paragraph 5.22 of HMRC's skeleton argument did state that no appeal had been received against the regulation 72 Direction and that there was then a Taxes Management Act 1970 section 29 subsec-or-para 1section 29(1) TMA discovery, the Tribunal certainly would not give a decision in regard to discovery under Taxes Management Act 1970 section 29 subsec-or-para 1section 29(1) at the start of the hearing. Rule 2(1) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 ("the Rules") reads:- "The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly". It would be the opposite of dealing with matters fairly and justly to proceed without hearing any evidence or submissions.
[6]At the foot of the Appellant's skeleton argument on page 17 Mr Feng requested that if the First-tier Tax Tribunal found in favour of HMRC on the day then the Tribunal should give permission to appeal to the Upper Tribunal. We explained to Mr Feng the appeal procedure and referred him to the Rules. In any event no decision was given on the day.
[7]Mr Feng tabled a request for Alternative Dispute Resolution that had been refused by HMRC on 30 May 2013. That refusal is not a decision which is appealable to this Tribunal.
[8]Mr Feng requested that the Tribunal consider the HMRC document "Resolving Tax Disputes" which is a commentary on the litigation and settlement strategy. Mr Feng also tabled a letter dated 5 March 2013 relating to a complaint lodged by Mr Yip with HMRC. We explained that our only remit at this hearing is to consider whether or not, in terms of the relevant facts and law, discovery had been made for the three years in question.
[9]HMRC had intended to advance arguments on Taxes Management Act 1970 section 29 subsec-or-para 4 section 29 subsec-or-para 5sections 29(4) and (5), and indeed Mr Feng had also referred thereto. It was made explicit that the only issue for the Tribunal at this hearing was the application of Taxes Management Act 1970 section 29 subsec-or-para 1section 29(1). Taxes Management Act 1970 section 29 subsec-or-para 4 section 29 subsec-or-para 5Sections 29(4) and (5) are inextricably bound up with the...
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