Atherton v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 February 2019 |
| Neutral Citation | [2019] UKUT 41 (TCC) |
| Date | 12 February 2019 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Mr Justice Fancourt, Judge Thomas Scott
Keith Gordon, Counsel, appeared for the appellant
Kate Balmer, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Discovery assessment – Whether new discovery made or discovery stale – Whether insufficiency in tax return brought about by carelessness of taxpayer or person acting on his behalf – Appeal dismissed – TMA 1970, s. 29.
The Upper Tribunal (UT) upheld the First-tier Tribunal (FTT) decision on discovery assessments in Atherton [2017] TC 05556. The UT agreed that the FTT had correctly decided that a valid discovery had been made, and that the insufficiency of tax had been brought about by the carelessness of the taxpayer or a person acting on his behalf and therefore the extended six-year deadline for issuing the discovery assessment applied.
The appellant (Mr Atherton) participated in the Romangate tax planning scheme in January 2009 resulting in a manufactured employment loss. Mr Atherton's 2007–08 tax return was completed by Fitzgerald and Law (F&L) accountants and claimed relief for the employment loss generated in 2008–09 against his income for 2007–08. The return included:
- the manufactured employment loss in box 3 of the additional information pages (under the heading income tax losses);
- a white space disclosure explaining that box 3 included a 2008–09 employment related loss despite the box being for trading or capital losses, and details about the schemes; and
- the employment income loss capped at the amount of Mr Atherton's actual income in box 20 of the partnership pages, under the heading loss from this year set-off against other income for 2007–08.
In May 2009 Mr Clarke of HMRC opened an enquiry into the loss relief claim under TMA 1970, Sch. 1A.
In 2014, as a result of the Supreme Court's judgment in R & C Commrs v Cotter [2013] BTC 837, Mr Clark decided that the Sch. 1A enquiry was invalid as such an enquiry could only enquire into a standalone claim, but in accordance with Cotter the claim was “in” Mr Atherton's 2007–08 return. As such, an enquiry could only be raised under TMA 1970, s. 9A, for which it was too late. Mr Clark instead arranged for Officer Taylor to issue a discovery assessment in March 2014 to assess the underpaid tax because the scheme was ineffective.
Mr Atherton accepted that retrospective legislation had made the scheme ineffective, however he appealed against the discovery assessment.
The FTT found that because of the entry in box 20 there was an insufficiency of the amount assessed in Mr Atherton's 2007–08 tax return; that insufficiency was brought about by the carelessness of Mr Atherton and his accountants in inserting, without explanation, into box 20 an employment loss for 2008–09 although box 20 related to partnership losses for 2007–08, and that claim duplicated the claim in box 3. That insufficiency was discovered by HMRC when, following the Cotter judgment in late 2013 they discovered that the box 20 entry comprised a part of the taxpayer' self-assessment and that it had effectively reduced the self-assessment to nil, and that Mr Atherton' self-assessment for 2007–08 was therefore insufficient. The FTT therefore considered that the discovery assessment was valid and the appeal was dismissed.
Mr Atherton appealed to the UT, which rejected his appeal.
The UT considered that the FTT was correct to conclude that HMRC made a discovery within s. 29 in 2014. Although the 2014 discovery clearly related to the same issue as the 2009 discovery, namely the Romangate loss, it was a different discovery. The new discovery was that Mr Atherton should have been treated as having made a claim for relief “in” his tax return.
The UT also upheld the FTT's decision that the insufficiency was brought about carelessly, but for different reasons. Having held that Mr Atherton had failed to do what a reasonably diligent taxpayer who was mindful of the need to make a complete and accurate tax return would have done, the FTT should have asked whether Mr Atherton and F&L had taken reasonable care to avoid bringing about the insufficiency. Given that neither Mr Atherton nor F&L had received advice to make use of box 20 as they did from anyone who could be argued to be acting other than on Mr Atherton's behalf, the answer was that there was a failure to take reasonable care to avoid the insufficiency.
The taxpayer had participated in the Romangate tax planning scheme and had “forced” a claim into his 2007–08 tax return by including a loss created in 2008–09 into his 2007–08 tax return by putting it into a completely unrelated box which had fed into his self-assessment calculation.
The UT agreed that a new discovery was made when, as a result of the Supreme Court's judgment in R & C Commrs v Cotter [2013] BTC 837, HMRC realised that the taxpayer should be treated as having made a claim for relief “in” his tax return rather than as a standalone claim “on” his return.
The UT also agreed that the insufficiency of tax was brought about carelessly, although it found this to be the case because the taxpayer or his adviser had failed to take reasonable care to avoid the insufficiency, rather than as the FTT found that it was careless to have forced a claim into the return by using an unrelated box without explanation.
[1] This is the decision on the appeal by Richard Atherton (“Mr Atherton”) against the decision of the First-tier Tribunal (Tax Chamber) (“FTT”) reported at [2017] TC 05556 (“the Decision”).
[2] The appeal relates to a discovery assessment issued by HMRC to Mr Atherton for the tax year 2007/08. Two issues are raised by the appeal. The first is whether there was a valid discovery by HMRC and, in particular, when any discovery was made and whether it was stale. The second is whether the insufficiency in the 2007/08 return (which is accepted by Mr Atherton) was brought about by the carelessness of Mr Atherton or a person acting on his behalf.
[3] There is no material dispute between the parties as to the FTT's findings of primary fact, although Mr Atherton takes issue with certain of the inferences drawn by the FTT from those facts. The facts found by the FTT relevant to this appeal are as follows (paragraph references being to paragraphs in the Decision):
- At the relevant time, Mr Atherton was a partner in a hedge fund, having worked previously in financial institutions. The FTT considered that this background gave him a reasonably good lay understanding of tax returns and tax matters: [65].
- Mr Atherton retained a firm of accountants, Fitzgerald and Law, (F&L) to complete his tax returns: [59].
- In 2008 Mr Atherton was introduced through F&L to NT Advisers (NTA), a company which marketed tax avoidance schemes: [57]. Mr Atherton wanted to avoid tax on his 2007/08 partnership income of £5 million: [58], [66].
- NTA told Mr Atherton about a scheme called Romangate, devised and marketed by NTA. He understood that the scheme aimed to generate artificial employment losses, unrelated to his partnership, and that the scheme was risky: [66].
- In January 2009 Mr Atherton entered into the Romangate scheme. The resultant employment loss arose in the tax year 2008/09: [1].
- Mr Atherton discussed his tax return for 2007/08 with F&L prior to its submission. F&L explained to him that he had two options in claiming the Romangate loss. He could make a standalone claim for loss relief, or he could claim the relief in his 2007/08 self-assessment tax return. With a standalone claim, the tax he owed for 2007/08 would be paid up front, and HMRC would repay it if and when they accepted that the loss was validly claimed. With a claim in his 2007/08 return, the tax he would otherwise have to pay on 31 January 2009 would be reduced by the Romangate loss. Mr Atherton chose the second option: [67].
- F&L completed and submitted the 2007/08 return (the Return) on 30 January 2009: [59]. The effect of claiming the Romangate loss in that return was to reduce his tax liability for 2007/08 from just over £2 million to nil: [2].
- The Return contained the following relevant entries ([5]):Box 3: The standard tax return pages for 2007/08 included Additional Information pages. The Additional Information pages entitled the taxpayer to make a claim for relief in Box 3 under the heading income tax losses in respect of the sub-headingRelief now for 2008–9 trading, or certain capital, losses.Mr Atherton entered his manufactured employment loss of £6,149,999 which arose in 2008/09 in this box.White space disclosure: Mr Atherton made a fairly lengthy white space disclosure in his tax return. The disclosure referred to a 2008/09 15 employment related loss being claimed using box 3 and explained that box 3 was being utilised, despite its title about trading or capital losses, as there was no other equivalent box for employment losses. The disclosure went on to mention details about the scheme, including its DOTAS (Disclosure of Tax Avoidance Schemes) number. It said:I acknowledge that my interpretation of the tax law applicable to the above transactions and the loss (and the manner in which I have reported them) may be at variance with that of HMRC.It repeated at the end that, although the claim was made in box 3, it might not be seen by HMRC as appropriate to that box and concluded, for these reasons:I assume you will open an enquiry.Box 20: Mr Atherton also entered the figure of £5,048,602 into Box 20 of the Partnership pages of his tax return for 2007/8. It was accepted that this figure was the employment income loss capped at the amount of Mr Atherton's actual income.However, box 20 was under the main heading:Your share of the partnership's trading or professional lossesBox 19 under the same heading asked the taxpayer to enter the loss for 2007–08 from the working sheet. Box 20 itself was...
To continue reading
Request your trial
-
Paya Ltd and Others
...of HMRC … [663] The UT has also accepted this concept of “newness” in Beagles v R & C Commrs [2018] BTC 528 and Atherton v R & C Commrs [2019] BTC 507. Since the hearing, the Court of Appeal has released a decision in the Tooth case (R & Commrs v Tooth [2019] BTC 14) in which, at [61], that......
-
Hunter
...to avoid bringing about that loss or situation. Case law on discovery assessments [211] At paragraphs 10–15 of Atherton v R & C Commrs [2019] BTC 507 the Upper Tribunal summarised the principles on discovery assessments as follows: [10] Two important principles underpin the construction and......
-
Oriel Developments Ltd
...in Tooth. [32] In this context, it is helpful to compare the decision in Tooth to the Upper Tribunal decision in Atherton v R & C Commrs [2019] BTC 507 (“Atherton”), which was published shortly before the hearing in the Court of Appeal in Tooth. The facts of Atherton were broadly similar to......
-
Redmount Trust Company Ltd
...a mistake here, and the present case is very close to what is going on in R & C Commrs v Tooth [2019] BTC 14. Atherton v R & C Commrs [2019] BTC 507 was decided before Tooth, and the Tribunal needs to be cautious about its application given aspects of which are not entirely consistent with ......