Anderson v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 May 2018 |
| Neutral Citation | [2018] UKUT 159 (TCC) |
| Date | 17 May 2018 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2018] UKUT 0159 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Morgan, Judge Roger Berner
Keith Gordon, instructed by Wilson Wright LLP, appeared for the appellant
Aparna Nathan, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Discovery assessment – TMA 1970, s. 29 – ITA 2007, s. 64 and 72 – ITA 2007, s. 66 and 74 – ITA 2007, s. 74B – Sanderson v R & C Commrs [2014] BTC 502 – Tower MCashback LLP 1 v R & C Commrs [2010] BTC 154 – R & C Commrs v Charlton [2013] BTC 1,634 – R v Kensington Income Tax Commissioners (ex parte Aramayo) (1913) 6 TC 279 – R v Bloomsbury Income Tax Commissioners [1915] 3 KB 768 – Cenlon Finance Co Ltd v Ellwood (HMIT) (1962) 40 TC 176 – Hankinson v R & C Commrs [2012] BTC 1 – Sanderson v R & C Commrs [2014] BTC 502 – Hankinson v R & C Commrs [2012] BTC 1 – R & C Commrs v Lansdowne Partners Ltd Partnership [2012] BTC 12 – Sanderson v R & C Commrs [2016] BTC 3 – R & C Commrs v Lansdowne Partners Ltd Partnership [2012] BTC 12 – Pattullo v R & C Commrs [2016] BTC 510 – R & C Commrs v Tooth [2018] BTC 505 – Eclipse Film Partners No 35 LLP v R & C Commrs [2015] BTC 10 – Samarkand Film Partnership No. 3 v R & C Commrs [2017] BTC 4.
The appellant claimed the discovery assessment had not been validly made because it was not reasonable the officer believed there was an insufficiency of tax and instead the office merely suspected there was. The Appellant further contended that the trading losses incurred arose from a commercial trade. The UT dismissed the appeal.
The Appellant appealed against the First-tier Tribunal's (FTT) decision. There were two main limbs to the appeal:
- The validity of the discovery assessment; and
- That the Appellant did carry on a trade and the FTT was wrong to preclude the claim to loss relief.
The Appellant, a football agent of thirty years, represented around 20 known players. The Appellant was introduced to a soccer academy in South Africa run by a Jersey company. The company had been set up as a training scheme in South Africa to nurture young talent and promote them through European footballing leagues. The Appellant invested £2,943,000 into the company and selected 3 players. The investment was funded through a loan from a second Jersey company. Repayments were due in March 2009 and June 2010 equal to two nineteenths of the amount borrowed. The Appellant claimed a loss of £3,002,772 in the 2008–09 tax year. The company went into administration in 2011. The investment had been described by five other participants to HMRC as an undisclosed tax avoidance scheme. A discovery assessment was raised on 2 May 2012 disallowing all the losses.
The Appellant's grounds of appeal challenged the FTT's conclusion that the officer that raised the assessment had a reasonable basis for her belief that there had been an insufficiency of tax. Two issues were considered:
- What did the officer actually believe and did that belief satisfy the subjective test for a discovery?
- Did that belief satisfy the objective test for a discovery.
The Appellant contended that the officer did not believe that there had been an insufficiency of tax because they only had a suspicion and it was not reasonable believe that there had been an insufficiency of tax.
The UT found that on the basis of evidence and applying the subjective test, the officer did believe that there was an insufficiency of tax and that belief went beyond suspicion.
The UT also found that the FTT applied an objective test considering whether the officer's belief was reasonable. The test being that the belief is one which a reasonable person could form based on the information available to them and acting on that information, could form the belief.
The UT also considered the possibility of a discovery becoming stale and found there was no issue because the discovery assessment was premature as there had not been a discovery by 2 May 2012.
The appeal was dismissed.
The Appellants claim was for sideways loss relief: to set certain losses against general income or chargeable gains. A condition for the application of the loss relief is that the claimant must be carrying on a trade in the tax year in question and the loss must be made in that trade.
The discovery assessment was made, including the basis that HMRC did not accept the Appellant was carrying on the asserted trade. Section 64 ITA includes an express restriction that there must be a trade in which the loss is made and the trade must be commercial (s. 66 ITA). Section 72 ITA provides a similar relief in the case of early trade losses subject to a restriction by reference to the commercial nature of the trade (s. 74 ITA) – the fact the trade is carried on with the potential realisation of profits. A further restriction is contained in s. 74B ITA in relation to relevant tax avoidance arrangements.
The FTT concluded that the Appellant's activities did not constitute a trade. The grounds of appeal criticised the FTT for having sought to identify what else might have done to maximise profit. The UT found that the FTT was correct to ascertain the true purpose or expectation and establish a benchmark against which to test the activities supported a conclusion that, there was a trade and a view to or expectation of profit. The UT noted two items in particular:
- A document headed Bafana Soccer Academy, Cape Town, South Africa – Investment Opportunity, which stated, … the way this opportunity is structured you will be able to claim tax back on your investment. The document also set out the connection and benefit for each party.
- An unsigned and undated letter of authorisation by Appellant which demonstrated the splitting of the tax repayment between a partial loan repayment and payment to the Appellant.
The FTT had identified that the tax relief, and the effective sharing of the cash proceeds of that relief was an integral element of the arrangements. The larger part of the initial funding was to be derived from the tax relief.
Consideration was also given to the period of time an individual is engaged in more than one activity. The burden of proof to establish a requisite amount of time is engaged in the trade is with the individual.
The Appeal was dismissed.
The decision is not only a good reminder of the tests for a valid discovery assessment but also that a trade needs to be run commercially for loss relief to be available.
[1] This is the appeal of Mr Jerome Anderson from the decision of the First-tier Tribunal (Judge Rachel Short and Mrs Rebecca Newns) (“FTT”) released on 10 August 2016 and published under the reference [2016] TC 05314. By that decision, the FTT dismissed Mr Anderson's appeal against a discovery assessment issued to him on 2 May 2012 under s 29 of the Taxes Management Act 1970 (“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 s 64 of the Income Tax Act 2007 or s 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 [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 Limited.
[10] Mr Anderson was introduced to a soccer academy in South Africa run by Bafana Soccer Developments Limited, 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 3 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 Limited. 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 2008-9 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 2008–9 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 enquiries into other scheme participants.
[17] HMRC raised a discovery assessment on 2 May 2012 under s 29 TMA 1970 which...
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