Anderson v Revenue and Customs Commissioners

17 May 2018. MORGAN J handed down the following judgment of the court.

1 This is the appeal of Mr Jerome Anderson from the decision of the First-tier Tribunal (“FTT”) (Judge Rachel Short and Mrs Rebecca Newns) released on 10 August 2016 and published under the reference [2016] UKFTT 565 (TC). By that decision, the FTT dismissed Mr Anderson’s appeal against a discovery assessment issued to him on 2 May 2012 under section 29 of the Taxes Management Act 1970 (“the TMA”). The FTT decided, first, that the discovery assessment had been validly made, and secondly that Mr Anderson had not been entitled to the losses he had claimed either under section 64 of the Income Tax Act 2007 or section 72 of that Act.

2 The losses claimed by Mr Anderson were said to have arisen from a trade carried on by Mr Anderson as a sole trader. The trade was said to involve Mr Anderson carrying on activities to acquire a stake in young African footballers whom he would then seek to market to major European clubs.

3 There was no dispute as to the background facts. Those were concisely set out by the FTT at paras 9–18 which can conveniently be repeated here:

“9. Mr Anderson is a well-known football agent. He has worked as a football agent for thirty years and represented some well-known players. His work as a football agent is carried out through his company, Jerome Anderson Management Ltd.

“10. Mr Anderson was introduced to a soccer academy in South Africa run by Bafana Soccer Developments Ltd, a Jersey company (‘Bafana’) firstly by Mr Steptoe, who set up Bafana and later, as a business opportunity, by Mr Caisley, an independent financial adviser. Bafana had been set up as a training scheme in South Africa to nurture young footballing talent and to promote their prospects in the lucrative European footballing leagues and make money by the successful transfer of talented players.

“11. Bafana was financed by external individuals such as Mr Anderson, who were given the opportunity in return for providing finance to pick players who were being trained at Bafana, securing an interest in any future transfer fees made by Bafana from the players picked.

“12. In his personal capacity Mr Anderson put £2,943,000 into Bafana in January 2009 and picked three players in July 2009 from the Bafana academy; Ayanda Patosi, Devon Saal and Armien Campbell, from a list of twenty players provided by Bafana.

“13. Mr Anderson’s investment was financed through a loan to him from a Jersey-based entity, Maddox Ltd. That loan was entered into on 6 January 2009 for an amount of £2,850,000. First and second repayments were due in March 2009 and June 2010 equal to one and two nineteenths respectively of the amount borrowed.

“14. Mr Anderson’s tax return for the 2008–2009 tax year, filed on 28 January 2010 included a claim for £3,002,772 of losses described as in relation to ‘Bafana Soccor’ and a business of football development, which commenced on 6 January 2009.

“15. Bafana went into administration in 2011. Mr Anderson did not make any significant profits from the Bafana Scheme.

“16. HMRC identified six footballers who had participated in what they described as an ‘undisclosed tax avoidance scheme’ in 2008–2009 involving a football academy in South Africa, the ‘Bafana Scheme’. HMRC became aware of Mr Anderson’s involvement in the Bafana Scheme in the course of its inquiries into other scheme participants.

“17. HMRC raised a discovery assessment on 2 May 2012 under section 29 of the Taxes Management Act 1970 which disallowed all of the £3,002,772 losses claimed by Mr Anderson.

“18. Mr Anderson appealed to this tribunal on 28 May 2012.”

4 Mr Anderson appeals against the FTT’s decision with the permission of this tribunal. Although permission was given on ten separate grounds, there are essentially two limbs to his appeal. First, in relation to the validity of the discovery assessment, he argues that the FTT erred in law in deciding that there had been a “discovery” by HMRC as required by section 29(1) of the TMA and that the discovery assessment had been validly made. Secondly, and in any event, Mr Anderson submits that the FTT made errors of law in determining that he was not carrying on a trade and was otherwise precluded from claiming the losses against his general income and gains.

5 The discovery assessment of 2 May 2012 was made, or purportedly made, pursuant to section 29 of the TMA. The power to make such an assessment is conferred by subsection (1) of section 29 but it is useful to set out the whole of the section. Section 29 in the form in which it was on 2 May 2012 was in these terms:

“Assessment where loss of tax discovered

“(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment— (a) that any income, unauthorised payments under section 208 of the Finance Act 2004 or surchargeable unauthorised payments under section 209 of that Act or relevant lump sum death benefit under section 217(2) of that Act which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax have not been assessed, or (b) that an assessment to tax is or has become insufficient, or (c) that any relief which has been given is or has become excessive, the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.

“(2) Where— (a) the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, and (b) the situation mentioned in subsection (1) above is attributable to an error or mistake in the return as to the basis on which his liability ought to have been computed, the taxpayer shall not be assessed under that subsection in respect of the year of assessment there mentioned if the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made.

“(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above— (a) in respect of the year of assessment mentioned in that subsection; and (b) … in the same capacity as that in which he made and delivered the return, unless one of the two conditions mentioned below is fulfilled.

“(4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf.

“(5) The second condition is that at the time when an officer of the Board— (a) ceased to be entitled to give notice of his intention to inquire into the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment; or (b) informed the taxpayer...