Allan Firth Webster v Claim issued without naming a Defendant under CPR Part 8.2A pursuant to the Order of Master Kaye dated 19th March 2020
| Jurisdiction | England & Wales |
| Judge | Master Kaye |
| Judgment Date | 25 August 2020 |
| Neutral Citation | [2020] EWHC 2275 (Ch) |
| Docket Number | Case No: PT-2020-000259 |
| Court | Chancery Division |
| Date | 25 August 2020 |
[2020] EWHC 2275 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
PROPERTY TRUSTS AND PROBATE LIST
7 Rolls Building
Fetter Lane,
London, EC4A 1NL
Master Kaye
Case No: PT-2020-000259
Robert Arnfield (instructed by Mills & Reeve LLP) for the Claimant
Remote Hearing date: 10 August 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is the Claimant Mr Webster's claim for rectification of his electronically submitted tax return for the tax year 2016/2017.
Brief Outline
The Claimant says that when completing his tax return, in error, he included the figure of £400,000 rather than £800,000 in the charitable giving section. For tax relief purposes he had intended to claim tax relief on these payments as gift aid payments made after 5 April 2017 but to carry them back and treat them as if they had been made in the previous tax year i.e. 2016/2017.
Having later realised he had made an error he sought to amend his 2016/2017 tax return to reflect the figure of £800,000 rather than £400,000.
According to the closure notices issued by HMRC dated 26 June 2020 as a consequence of this error the Claimant is now liable to pay an additional sum of approximately £215,000 by way of additional tax, penalties, and interest for the tax years 2016/2017 and 2017/2018. This sum includes the tax liability on the entirety of the £800,000 donation. The Claimant says this is a draconian and disproportionate outcome and seeks to rectify his tax return.
The claim was issued on 24 March 2020 without naming a Defendant and the Claimant was directed to give notice to HMRC after the claim was issued allowing HMRC an opportunity to acknowledge the proceedings and participate. HMRC neither acknowledged service nor sought to participate in the claim.
The claim is supported by the Claimant's first witness statement dated 24 March 2020 and his updating witness statement dated 3 August 2020.
Whilst HMRC were not named as Defendant, they were sent a draft of the proceedings on 2 October 2019 and invited to consent to being a party to the claim. Mr Uddin (Higher Officer, Wealthy/Mid-sized Business Compliance) responded on behalf of HMRC on 17 October 2019. Having reviewed the draft claim he indicated that the proposed application was not something that HMRC could be party to and, in his view, the issues between the Claimant and HMRC should be dealt with through the Specialist Tax Tribunal. Mr Uddin indicated that he would be arranging to issue a closure notice.
On 3 March 2020 Mr Uddin wrote on behalf of HMRC saying:
“As discussed I intend issuing a closure notice…As it stands there is an open check and not currently an appealable decision, as such we cannot be party to any proposed applications outside the formal process within which we are obliged to operate.”
On 26 June 2020 HMRC issued closure notices in respect of each of the 2016/2017 and 2017/2018 tax year. Unless the Claimant appealed the additional tax, penalties and interest would have been payable on 27 July 2020.
On 21 July 2020, the Claimant's solicitors gave formal notice to HMRC of the Claimant's intention to appeal against the conclusions reached by HMRC both in relation to the Gift Aid carry back claim and the penalties and interest. In addition, they reminded HMRC of these proceedings in which they sought rectification of the tax return and the date of this hearing. They sought a postponement of all payments.
I have considered and taken into account the two witness statements of the Claimant and the submissions of Mr Arnfield both written and oral. As this was a disposal hearing the Claimant's evidence is untested.
Background
The Claimant's wife Christine died on 4th August 2016. In her memory he established a fund (the Christal Foundation) with a charity (the Community Foundation for Lancashire & Merseyside (“the Charity”)).
In the tax year 2016/2017 the Claimant sold his entire share capital in Arizonaco Limited and Portall Travell Limited and realised gains of £5.3 million from the sale of those business interests.
In the next tax year, 2017/2018, on 4 August 2017 (the anniversary of Christine's death) he made the donation of £800,000 to the Charity. The donation of £800,000 was the initial endowment intended to finance projects (primarily in Burnley) including the support of children and young people from disadvantaged backgrounds, people with mental health issues and people with disabilities.
The Claimant explains that although the donation was made in the 2017/2018 tax year he was aware from his limited knowledge of tax, and as confirmed by his financial adviser, that he would be able to treat the payment as made in 2016/2017 for Gift Aid purposes. Exhibited to the Claimant's first witness statement is a Gift Aid Declaration confirming a donation of £800,000 to the Charity. The Gift Aid Declaration had been annotated to specify that it was in respect of the 2016/2017 tax year. The Gift Aid Declaration makes it clear, on its face, that it is the tax payers responsibility to pay the tax attributable to the Gift Aid donation if they have not paid enough income tax or do not have sufficient gains to cover the gift aid on donations in the relevant tax year. There is an acknowledgment of the donation from the Charity confirming that they would be applying for Gift Aid in respect of the donation.
The Claimant explains that it was important that he was able to treat the payment as being made in 2016/2017 when he had significant income and gains as his position in 2017/2018 was substantially different and insufficient to support a donation with Gift Aid of such a significant sum.
The Claimant explains that he was using a piece of software called Taxcalc to assist with the calculation of his tax liabilities. He explains that he had initially considered making a charitable donation of £400,000 and put this figure into Taxcalc. He later changed his mind and made a donation of £800,000 on 4 August 2017.
He explains that as a result of the significant gains he had made selling his businesses and the use of Capital Gains Tax Entrepreneurs Relief that whether he donated and carried back £400,000 or £800,000 it did not make any difference to his personal tax position. The tax benefit to the Charity of the donation of £800,000 being subject to Gift Aid was its ability to claim back £200,000, which it did.
On 28 November 2017, the Claimant submitted his tax return for 2016/2017 electronically. Box 8 on page TR4 (as subsequently printed) contains the figure £400,000. The Claimant explains that he often slotted figures into Taxcalc but had forgotten to change/update the figure from £400,000 to £800,000 when he made the donation to the Charity in August 2017. He explains that as his personal tax position was unaffected, he did not question the calculation produced by Taxcalc when he submitted his tax return.
The Claimant does not explain how he subsequently identified the error in early 2018. He submitted an amended tax return on 9 February 2018. He notes that Taxcalc automatically treated the changes as an amendment. The amended tax return now included the figure of £800,000. At the same time, he sent an email to HMRC explaining that it was a transposition error and a genuine mistake not an amendment. He does not say whether he sought any advice prior to taking this step.
He spoke to a Liam Krumins at HMRC who explained that HMRC might raise an inquiry later but, says the Claimant, said that he did not see it as a problem. He says that he is sure that is what Mr Krumins said because he subsequently emailed his financial adviser telling her that.
In about November 2018 HMRC opened an enquiry under S9A of the Taxes Management Act 1970 ( TMA) in relation to both the Gift Aid relief and his shares in Arizonaco. The Claimant was surprised when he was contacted by HMRC who made it clear that the Gift Aid tax relief claim could only be made on the original tax return.
The consequences for the Claimant were significant. Section 426 Income Tax Act 2007 (“ITA 2007”) allows a taxpayer to carry back a donation to the previous tax year. Section 426 ITA 2007 refers throughout to “a gift” and not to part of a gift. HMRC's position subsequently set out in their letter of 1 March 2019, was that tax relief was denied entirely unless the amount of the donation and the tax return entry correspond exactly.
Section 426(6) ITA 2007 requires an election to be made,
“(a) on or before the date on which the individual delivers a return for [the previous tax year] … and
(b) not later than the normal self-assessment filing date …”
From the moment the Claimant filed an incorrect tax return on 28 November 2017 he fell foul of S426(6)(a).
As Mr Arnfield noted HMRC's position on timing is supported by Cameron v HMRC [2010] UKFTT 104 (TC) (“ Cameron”). The Claimant now accepts that Cameron establishes the principle that a Gift Aid carry-back election must be made in an original and not an amended tax return.
Section 9ZA Taxes Management Act 1970 (“ TMA 1970”) permits a taxpayer to amend a tax return. However, this does not have retrospective effect.
The Claimant having taken advice responded to HMRC's inquiry in January 2019. On 1 March 2019 Mr...
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...High Court in Webster determined that a tax return is not a unilateral instrument that is capable of rectification. See Re Webster [2020] EWHC 2275 (Ch) at [46] to [50] (Webster). In relation to rescission HMRC consider the compliance statement is not a contract and that the remedy of resci......