Brimheath Developments Ltd; Burgess (t/a M J Bradleys)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 March 2014 |
| Neutral Citation | [2014] UKFTT 301 (TC) |
| Date | 25 March 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 301 (TC)
Judge John Brooks, Ms Anne Redston
Robert T B Green FCA of Tarrant Green & Co Chartered Accountants for the Appellants
Duncan Tebbet, Officer, of HM Revenue and Customs, for the Respondents
Income tax/Corporation tax - Discovery assessments - £97,970 held in safety deposit box - Unexplained lodgements into bank accounts - Whether undeclared trading profits - Burden of proof - Whether sufficient evidence to displace assessments.
[1]Brimheath Developments Limited ("Brimheath") appeals against discovery assessments, issued by HM Revenue and Customs ("HMRC") on 22 November 2011, in respect of accounting periods ended 30 November 1999, 2001, 2002, 2003, 2004, 2005, 2006, 2007 and 2008 for the following amounts of corporation tax:
30 November 1999 - £ 3,460.63;
30 November 2001 - £8,817.08;
30 November 2002 - £9,790.50;
30 November 2003 - £12,674.74;
30 November 2004 - £4,550.83;
30 November 2005 - £16,546.03;
30 November 2006 - £18,734.73;
30 November 2007 - £13.312.61; and
30 November 2008 - £9,766.00.
[2]Michael Victor Burgess, the sole director and shareholder of Brimheath, appeals against discovery assessments issued by HMRC on 7 November 2011 in relation to his self-employment as a sole trader, trading as M J Bradleys, for the years 1996-97, 1997-98, 1998-99 and 1999-00 for the following amounts of income tax:
1996-97 - £3,028.80;
1997-98 - £4,326.05;
1998-99 - £5,717.55; and
1999-00 - £2,706.14.
[3]In accordance with the direction of the Tribunal released on 21 August 2012, the appeals of Brimheath and Mr Burgess were heard together. Mr Robert Green of Tarrant Green & Chartered Accountants represented both Brimheath and Mr Burgess. HMRC was represented by its presenting officer, Mr Duncan Tebbet.
[4]Insofar as it applies to this appeal, section 29s 29 of the Taxes Management Act 1970 ("TMA") provides:
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(2) 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 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.
(3) …
(4) 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,
(5) unless one of the two conditions mentioned below is fulfilled.
(6) 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.
(7) The second condition [is not applicable to the present appeals]
Similar provisions, written in almost identical terms, in relation to corporation are contained within paragraphs 41-43 of schedule 19schedule 19 to the Finance Act 1998.
[5]Therefore, if HMRC "discover" income which ought to have but has not been assessed for income or corporation tax they make an assessment in that amount to make good the loss of tax. If a return has been submitted HMRC may only make an assessment for this purpose if the loss of tax has been brought about as a result of the careless or deliberate action of the taxpayer or a person acting on his or its behalf.
[6]With regard to assessments, as Walton J said, in Johnson v Scott (HM Inspector of Taxes)(1978) 52 TC 383 at 394, in a passage approved by the Court of Appeal (at 403) in that case:
Of course all estimates are unsatisfactory; of course they will always be open to challenge in points of detail; and of course they may well be under-estimates rather than over-estimates as well. But what the Crown has to do in such a situation is, on the known facts, to make reasonable inferences. When, in paragraph 7(b) of the case stated, the Commissioners state that (with certain exceptions) the inspector's figures were 'fair' that is, in my judgment, precisely and exactly what they ought to be, fair. The fact that the onus is on the taxpayer to displace the assessment is not intended to give the Crown carte blanche to make wild or extravagant claims. Where an inference of whatever nature falls to be made, one invariably speaks of a 'fair' inference. Where, as is the case in this matter, figures have to be inferred, what has to be made is a 'fair' inference as to what such figures may have been. The figures themselves must be fair.
[7]Taxes Management Act 1970 section 50subsec-or-para 6Section 50(6) TMA provides that if, on an appeal, it appears to the Tribunal that an appellant is overcharged by an assessment the assessment shall be reduced accordingly but "otherwise the assessment … shall stand good."
[8]In the decision of the Court of Appeal in T Haythornwaite & Sons v Kelly (HMIT)(1927) 11 TC 657 Lord Hanworth MR, referring to a previous incarnation of this enactment, said, at 667:
Now it is to be remembered that under the law as it stands the duty of the Commissioners [and from 1 April 2009 the Tribunal] who hear the appeal is this: Parties are entitled to produce any lawful evidence, and if on appeal it appears to a majority of the Commissioners by examination of the Appellant on oath or affirmation, or by other lawful evidence, that the Appellant is over-charged by any assessment, the Commissioners shall abate or reduce the assessment accordingly; but otherwise every assessment or surcharge shall stand good. Hence it is quite plain that the Commissioners are to hold the assessment as standing goods unless the subject - the Appellant - establishes before the Commissioners, by evidence satisfactory to them, that the assessment ought to be reduced or set aside.
[9]Similarly in Moschi v Kelly (HMIT)(1952) 33 TC 442 in which the Court of Appeal upheld the decision of the General Commissioners that the unexplained source of a...
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