Callen
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 February 2022 |
| Neutral Citation | [2022] UKFTT 40 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 40 (TC)
Judge Tracey Bowler
Mr Jason Callen as a litigant in person.
Christopher Stone, Counsel, and Matthew Bignell, Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the Respondents.
Discovery assessment – Was the taxpayer or a person acting on his behalf careless – Application of Hicks – Accountant acting on taxpayer's behalf and careless – Appeal dismissed – TMA 1970, s. 36, 118(5).
The First-tier Tribunal (FTT) dismissed a taxpayer's appeal against a discovery assessment, finding that HMRC were entitled to go back six years because the insufficiency of tax in the taxpayer's return was brought about by his accountant acting carelessly.
The appellant (Mr Callen) had participated in a tax avoidance scheme. He accepted that the scheme did not work and as a result the losses he had claimed were not allowable and therefore there was an insufficiency in his tax return. However, Mr Callen submitted that the insufficiency was not brought about carelessly by him and/or anyone acting on his behalf, and therefore HMRC could not use the extension in TMA 1970, s. 36 to raise a discovery assessment going back six years.
In R & C Commrs v Hicks [2020] BTC 536, the Upper Tribunal (UT) had looked at a very similar case, in which the taxpayer had been advised by the same accountant as in this case, Mr Bevis. Although the FTT noted that there were some factual differences between this case and Hicks, as a result of applying the principles set out by the UT it concluded that Mr Bevis was acting on behalf of Mr Callen and the insufficiency in the assessment was brought about by the carelessness of Mr Bevis.
The approach to be applied in determining who is treated as “acting on behalf of another” is as set out in Bessie Taube Discretionary Settlement Trust [2010] TC 00735. Therefore the expression connotes a person who takes steps that the taxpayer himself could take, or would otherwise be responsible for taking, such as completing a return, filing a return, entering into correspondence with HMRC, providing documents and information to HMRC and seeking external advice as to the legal and tax position of the taxpayer. The person must represent, and not merely provide advice to, the taxpayer.
Judging Mr Bevis by the standard of a reasonably competent tax adviser giving advice to a taxpayer, he had acted carelessly in completing the tax returns. He had used figures given by the scheme promoter but without considering Mr Callen's entitlement to the claimed deductions and without any mention that a large proportion of the professional fees shown as deductible expenses were contingent, provisional or estimated.
The FTT accordingly dismissed Mr Callen's appeal.
This decision very much follows the UT's decision in R & C Commrs v Hicks [2020] BTC 536, which involved the same tax avoidance scheme and the same accountant.
Given that the accountant was found to have acted on the taxpayer's behalf and the insufficiency in the assessment was found to have been brought about by the accountant's carelessness, there was no need for the FTT to consider: (a) whether the taxpayer had acted carelessly; and/or (b) whether the scheme promoter had acted on the taxpayer's behalf, and if yes whether they had been careless.
[1] The Appellant (referred to as Mr Callen in this decision) appeals against a discovery assessment raised by the Respondents (“HMRC”) in respect of the 2009–2010 tax year. The assessment relates to his participation in a tax avoidance scheme (known as the Montpelier Section 730 Dividend Strip Scheme (“the Scheme”)) during the 2008/09 tax year. He sought to set off losses claimed to have been generated by the Scheme against income from his existing trade in the 2008–2009 tax year, and to carry forward the balance and use them in the 2009–2010 tax year against income arising in the same trade. He does not appeal against HMRC's conclusion that the Scheme did not work and that the losses are not allowable. He therefore accepts that there was an insufficiency in his tax return for 2009/10.
[2] The issue in the appeal is whether the insufficiency in Mr Callen's tax return was brought about carelessly by Mr Callen and/or by another person acting on his behalf, so that HMRC's assessment was in-time.
[3] The Scheme has been considered by the Upper Tribunal in the case of Clavis Liberty Fund 1 LP (acting through Cowen) v R & C Commrs [2017] BTC 534. In addition, in the case of R & C Commrs v Hicks [2020] BTC 536 the same questions as those before me were addressed in the context of the participation by one of Mr Hicks' colleagues in the Scheme, who was advised by the same accountant, Mr Bevis. Although there are some factual differences between this case and Hicks, the result of applying the principles set out by the Upper Tribunal is that I conclude that Mr Bevis was acting on behalf of Mr Callen and the insufficiency in the assessment for 2009–2010 was brought about by the carelessness of Mr Bevis, for the reasons I now explain.
[4] An enquiry was opened into the Appellant's 2008/09 self-assessment tax return on 17 September 2010 under section 9A TMA 1970. Enquiries were not opened into the self-assessment return for 2009/10; however, a discovery assessment was issued for this year on 30 March 2015.
[5] On 4 November 2010 HMRC issued an information notice under paragraph 1 of Schedule 36 of the Finance Act 2008. A penalty warning letter was issued on 18 January 2011 requiring compliance by 31 January 2011. A response was provided by Mr Callen's representatives, Precision Accountancy (“Precision”), on 2 February 2011.
[6] Furner information was sought on 11 March 2011 by HMRC. On 25 May 2011 another information notice under Schedule 36 was issued by HMRC. Precision responded on 18 July 2011 providing further information which included a Counsel's opinion about the Scheme.
[7] Correspondence continued between HMRC and Mr Callen and Precision, with Precision pressing for a decision by HMRC.
[8] Mr Callen bought a Certificate of Tax Deposit on 6 February 2013.
[9] On 14 November 2014 HMRC issued a letter setting out their technical analysis of the Scheme.
[10] On 30 March 2015 HMRC issued an assessment for 2009–10 under s 36(1) TMA on the basis that the loss of tax was brought about carelessly. The assessed tax was £308,798.37.
[11] Precision wrote to HMRC to appeal the assessment on 28 April 2015 and request postponement. On 30 April 2015 Mr Callen wrote to HMRC directly to appeal the assessment and set out the basis of his appeal.
[12] On 30 June 2015 Precision wrote to set out further reasons why HMRC's assessment was disputed.
[13] On 16 November 2015 accelerated payment notices (“APNs”) for income tax and National Insurance Contributions in the tax years 2008/2009 and 2009/2010 arising from the Scheme were issued by HMRC to Mr Callen under Part 4, Chapter 3 of the Finance Act 2014. The amounts were:
2008–09 £432,122.00 – Income Tax
2008–09 £ 13,405.40 – NIC
2009–10 £298,470.80 – Income Tax
2009–10 £ 10,327.57 – NIC
[14] Mr Callen paid the APN for 2009/2010 on 16 May 2016.
[15] On 16 February 2016 HMRC wrote to Mr Callen to inform him of the First Tier Tribunal (“FTT”) decision in Clavis Liberty 1 LP (acting through Cowen) [2016] TC 05028. In that decision the FTT decided that the Scheme did not work as a tax avoidance scheme: the purchase of the dividends and dividend rights were not transactions in the course of a trade. The FTT decision was confirmed by the Upper Tribunal the next year ([2016] BTC 510).
[16] On 10 February 2017 Precision requested a statutory review of the HMRC decision and assessment for the tax year 2009/2010. The statutory review letter of 19 May 2017 confirmed the assessment for 2009/2010.
[17] On 14 June 2017 Crowe Clark Whitehill LLP submitted a Notice of Appeal on behalf of Mr Callen.
[18] The grounds of appeal were:
- HMRC had not made a discovery in accordance with the requirements of s 29(1) TMA, in respect of the tax year 2009/2010; and
- HMRC had not demonstrated careless behaviour.
[19] Prior to the hearing the first ground was abandoned by Mr Callen in the light of the decision in R & C Commrs v Tooth [2021] BTC 15.
[20] The burden of proof lies with HMRC. It is the usual civil standard of the balance of probabilities.
[21] I have been provided with a hearing bundle running to 689 pdf pages. In addition, I heard oral evidence from Mr Callen, Mr Bevis and Officer Boote of HMRC.
[22] I found Mr Callen to be a generally reliable and consistent witness. HMRC have identified inconsistencies in his evidence and in particular, his evidence in his Witness Statement that he had not heard any negative comments from any colleague's accountants compared to the evidence of an email being copied to him in which a colleague's accountant is noted to have described the Scheme as high risk. However, I have concluded that' given the evidence overall, this is not inconsistent. I am satisfied that the participants in the Scheme were comforted by the reassurance provided by Montpelier and considered that, even if there was a high risk of challenge by HMRC, at worst, they were obtaining a cheap loan (albeit that I recognise that after HMRC's enquiries started Mr Callen purchased a certificate of tax deposit). Mr Callen's submissions regarding suggested findings of fact provided by HMRC reflect an understanding that at most the reference to “high risk” was to financial risk. I am satisfied in the context of the evidence overall that this is consistent.
[23] Similarly, at times Mr Callen was reluctant to agree to points put to him in cross-examination, particularly in relation to whether he had entered into the Scheme in order to generate the tax losses rather than for some other commercial benefit. However, it was clear that Mr Callen was...
To continue reading
Request your trial