Anderson
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 May 2016 |
| Neutral Citation | [2016] UKFTT 335 (TC) |
| Date | 16 May 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Harriet Morgan, Member Mr Noel Barrett
Mr Ben Elliott, instructed by PricewaterhouseCoopers, as Counsel appeared for the appellant
Mrs Lynne Gray, an officer of the Respondents, appeared for the respondents (HMRC)
Capital gains tax – Validity of discovery assessment issued under Taxes Management Act 1970 (TMA 1970), s. 29(1) – Whether an insufficiency of capital gains tax was discovered – Yes – Whether insufficiency of capital gains tax was brought about carelessly – No – Appeal allowed.
The First-tier Tribunal (FTT) allowed a taxpayer's appeal against a discovery assessment. The FTT found that an HMRC officer had made a discovery of an insufficiency of capital gains tax (CGT) in 2007–08, because during an enquiry into the taxpayer's 2008–09 tax return it became apparent that the open market value of shares used in the taxpayer's earlier return was lower than the Shares and Assets Valuation team (SAV) considered appropriate. However the FTT found that this situation was not brought about by the careless behaviour of the taxpayer, because the taxpayer relied on advice provided by a leading firm of accountants and he fully considered the basis for the advice and whether it made sense. In any event it was not careless to rely on a third party offer made for the purchase of the shares only days before the disposal date as the best evidence of the market value of the shares at that date.
On 4 April 2008 Mr Anderson (the appellant) and his brother sold their shares in Anson to ANS (1002) Ltd, a wholly owned subsidiary of ANS (1001) Ltd (HoldCo), as part of a restructuring process. The appellant's 2007–08 tax return accordingly showed a taxable chargeable gain, with the disposal proceeds/open market value shown as £36m. This was based on a value for all the shares of £72m, which was the amount of an offer for the purchase of all the shares in Anson by the Weir Group (which had no connection to Anson) on 25 March 2008. On 2 April 2009 the appellant and his brother sold their shares in HoldCo to National Oilwell Varco for £88,607,734, with the appellant's share of the proceeds being £44,303,867. The appellant included this capital disposal in his 2008–09 tax return, with the chargeable gain calculated on the basis that he acquired the shares for £36m. During an HMRC enquiry into the appellant's 2008–09 tax return, which included the involvement of the SAV team at HMRC, in October 2012 the appellant's agent, PricewaterhouseCoopers (PwC), agreed to a valuation of his shares at 4 April 2008 of £44,303,867, which gave rise to a tax repayment for 2008–09 of more than £1.2m. In February 2013 HMRC wrote to PwC to say they had removed the capital gains charge for 2008–09 and raised a discovery assessment for 2007–08 under the Taxes Management Act 1970 (TMA 1970), s. 29(1), to reflect the agreed open market value of the shares at 4 April 2008 of £44,303,867, this showed further CGT due for 2007–08 of £830,381. The appellant appealed against the discovery assessment.
A few days before the hearing HMRC made an application for the hearing to be postponed on the grounds that the enquiry for 2008–09 had not been closed. This was on the basis that the February 2013 letter did not constitute a closure notice as: it was issued to PwC instead of the taxpayer; it did not refer to the closure of enquiries; and it did not make or enclose the amendment required to the appellant's 2008–09 tax return. With reference to the Upper Tribunal decision in Portland Gas Storage Ltd v R & C Commrs TAX[2014] BTC 520, the FTT noted that the notice did not need to be in a prescribed form and it could be given in more than one document. In the FTT's view, looking at all the circumstances, the appellant could only reasonably have been expected to have concluded from HMRC's letter of February 2013 that HMRC had completed their enquiries and that their conclusions were set out in that letter. Although the letter was not addressed to the appellant the FTT found that as it was addressed to PwC and PwC was the appellant's agent, a letter to them was sufficient to regard the appellant as being informed, and in any event a copy of the letter was sent to the appellant for his information. On the basis that the enquiry for the 2008–09 tax year had been completed, the grounds for HMRC's postponement application fell away and the FTT decided, therefore, to proceed to hear the appeal.
The issue for the FTT was whether HMRC were entitled to make a discovery assessment for additional CGT due from the appellant for the tax year 2007–08 on the disposal of his shares in Anson. The question was first, whether an officer of HMRC made a discovery that, for the tax year 2007–08, chargeable gains had not been assessed which ought to have been assessed and secondly, whether that situation was brought about by the carelessness of the appellant.
The FTT noted that in accordance with the Upper Tribunal decision in R & C Commrs v Charlton TAX[2013] BTC 1,634 the threshold for there to be a discovery was relatively low. It sufficed if it had newly appeared to an officer, acting honestly and reasonably, that there is an insufficiency in an assessment. That can be for any reason, including a change of view, change of opinion, or correction of an oversight. The requirement for newness related to the conclusion itself and not the reason for the conclusion. In the FTT's view, there was sufficient evidence from the correspondence that, in the course of the enquiry into the appellant's tax return for 2008–09, it newly appeared to the HMRC officer, acting honestly and reasonably, that additional CGT was due, once she became aware that the open market value of the shares in Anson was, in her colleagues' view, higher than that used by the appellant. Therefore there was a discovery within the meaning of TMA 1970, s. 29(1).
The FTT noted that a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation (TMA 1970, s. 118). In the FTT's view the careless test required consideration of the conduct which could have been expected of a prudent and reasonable taxpayer in the position of the taxpayer in question and that the correct approach in this context was to follow that adopted in Collis TAX[2011] TC 01431 and Hanson TAX[2012] TC 02000 of assessing what a reasonable hypothetical taxpayer would have done in all the applicable circumstances of the actual taxpayer.
In this case, the FTT considered that the appellant did what could be expected of a person acting reasonably and diligently, attributed with the knowledge and understanding that could reasonably be expected of him, when selling a substantial asset. It was clear from his evidence that, whilst the appellant relied on PwC's advice, he did fully consider the basis for the advice he was being given and whether it made sense. The FTT did not consider that there was any reason for a person in the appellant's circumstances, acting reasonably and diligently, to: question the advice received; question the credentials of the corporate finance team at PwC; or to obtain another professional opinion.
In any event the FTT did not regard it as careless to rely on a third party offer made for the purchase of shares only days before the disposal date as the best evidence of the market value of the shares at that date. The test under the Taxation of Chargeable Gains Act 1992, s. 272 and 273 was by reference to a sale between a hypothetical willing seller and purchaser in the open market on the assumption the purchaser had all available information such a prudent purchaser would have. It was reasonable to suppose that, although the test was a hypothetical one, the best evidence of such market value was an actual offer made for the shares by a willing purchaser in the open market very soon before the valuation date and which was still on the table at that date.
The FTT concluded that HMRC were not entitled to issue a discovery assessment for 2007–08 and therefore the appellant's appeal was allowed.
As an aside to the decision, the appellant argued that the correspondence relied on by HMRC to evidence the discovery did not suffice, especially as the HMRC officer was not called as a witness, based on the FTT case of Gardiner TAX[2014] TC 03550. In that case, Judge Cannan was critical of HMRC in seeking to rely on documents in the bundle produced to the tribunal as evidence as to the truth of their contents, without any supporting witness evidence, in a case where the onus was on HMRC to prove a prima facie case of negligence against the taxpayer. In this case, the FTT did not regard the Gardiner decision as authority that it would necessarily be inappropriate in all circumstances for the tribunal to accept documentary evidence of a discovery.
[1] The appellant appealed against a discovery assessment issued by HMRC under s 29 of the Taxes Management Act 1970 (TMA) on 26 February 2013 for £830,387 of capital gains tax asserted to be due for the tax year 2007/08 in respect of the sale of the appellant's shares in Anson Limited (Anson). The issue was whether HMRC were entitled to issue the assessment on the basis there was a discovery of an insufficiency of capital gains tax brought about by the careless behaviour of the appellant (under s 29(4) TMA).
[2] We have based our findings of fact on the evidence presented to the tribunal being bundles of documents and the evidence of the appellant.
[3] At the period in question the appellant had for some time owned a 50% shareholding in and been a director of Anson, a company which manufactured and...
To continue reading
Request your trial
-
Gordon and Others
...– Clark [2017] TC 05856 – R & C Commrs v Tooth [2018] BTC 505 – Honig v Sarsfield (HMIT) [1986] BTC 205 – TMA 1970, s. 36 – Anderson [2016] TC 05092 – Cooke [2018] TC 06239 – TFEU, art. 63 – Clark [2016] TC 05366 – Danvers v R & C Commrs [2017] BTC 502. The appellant concerns HMRC's raising......
-
Paya Ltd and Others
...should have considered the possible application of IR35 and (b) could not reasonably have concluded that it did not apply (see Anderson [2016] TC 05092, at [73]). It is common, however, for there to be more than one tenable interpretation of a provision, for an adviser to take a view on whi......
-
R & C Commissioners v Hicks
...care to avoid bringing about that situation (section 118(5) TMA). The FTT agreed at [141] with the observations of the FTT in Anderson [2016] TC 05092 (Judge Morgan and Mr Barrett) in relation to “carelessness” at [123]: Our view is that the correct approach in this context also is to follo......
-
RALC Consulting Ltd
...acting on behalf of RALC as contemplated in section 36(1B) TMA. HMRC had not discharged that burden of proof. [295] In Anderson [2016] TC 05092 the FTT considered the issue of what suffices as regards proving carelessness on the part of the appellant and whether HMRC had satisfied their bur......