Champions Fun Learning Centre (a charity)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 August 2018 |
| Neutral Citation | [2018] UKFTT 516 (TC) |
| Date | 28 August 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0516 (TC)
Judge Richard Thomas, Amanda Darley
Mr Mark Brown, chairman of trustees, appeared for the appellant
Ms Larissa Mulder, solicitor in HM Revenue and Customs, appeared for the respondents
Income tax – Repayment of tax treated as paid by charitable company on gift aid payments – Whether donations qualifying: in part no – Whether assessments to recover over-repaid tax valid – No – Whether TMA 1970, s. 114 applies – No – Whether penalty assessments valid – No – Whether behaviour careless – No – Appeals allowed.
The First-tier Tribunal (“FTT”) allowed a charity's appeal against three discovery assessments and four penalties for careless inaccuracy in respect of Gift Aid repayment claims connected with “donations” paid by parents/guardians.
The Appellant charity (Champions Fun Learning Centre) made claims to HMRC for repayment of tax that was treated as being suffered on gift-aided donations made to it on 5 April 2014, 12 December 2014, 14 April 2015 and 14 April 2016. HMRC gave effect to the claims soon thereafter. On 31 March 2016, HMRC opened a check into the claims and wrote to a sample of 14 donors (out of 139) who were shown as having made donations to the charity. HMRC came to the view that the charity was offering a service (education) to donors' children, which meant that the payments did not qualify for Gift Aid. According to HMRC, the charity had incorrectly claimed a total of £34,373 in the three years from 2012/13 to 2014/15 and they raised three discovery assessments accordingly. HMRC also issued penalties for careless inaccuracies in the claims submitted in respect of four tax years from 2012/13 to 2015/16.
In looking at the status of the Appellant charity, the FTT concluded that it was an unincorporated association (not an LLP as incorrectly assumed by HMRC) and therefore subject to corporation tax. That being the case, any repayments of income tax suffered by a company were not required to be made by way of a claim (under the provisions of s. 42 TMA 1970 or otherwise) and therefore any Sch. 1A TMA 1970 enquiries opened into the Appellant's “claims” were invalid. It followed that any discovery assessments would have to be issued under para. 52 of Sch. 18 FA 1998. The discovery assessments would apply if an officer of HMRC discovered that as regards an accounting period of a company, the repayments amounts made which ought to have been assessed were not assessed. Since the purported assessments were in respect of tax years and not accounting periods of the Appellant company, there was only one assessment which had been made for the correct period (the 12 months to 5 April 2015).
After a very detailed review of the purported assessments, the FTT held that the assessments for 2012/13 and 2013/14 were so riddled with errors (including the amounts specified) that they could not be saved by the provisions in s. 114 TMA 1970. With regard to the assessment for the accounting period ended 5 April 2015, even though the correct period was stated, an objective taxpayer would be misled as to the amount he had to pay and how that amount was arrived at. There were several discrepancies in the amounts:
- between the amount shown as being due and the amount that had to be sent to HMRC;
- between the amount on which tax was shown as being charged and the amount of income on which tax arose;
- an unexplained use of a 25% rate of tax and not the correct 20%; and
- the total amount for the accounting period was shown in the penalty and other documents as being for the previous tax year (2013/14).
Due to all of these discrepancies, an objective reader of the penalty notice would be confused as to the correct amount of tax that was said to be due and payable.
In terms of the penalties assessed, HMRC intended to charge a total penalty of £9,486.71 which was said to be 15% of the potential lost revenue (“PLR”) but the FTT discovered that this sum amounted to 18% of the PLR. HMRC had decided to suspend the penalties in their entirety subject to a number of conditions being satisfied for 12 months. If the conditions were met for the specified period the penalties would be cancelled.
The FTT concluded that the penalty notices issued in respect of 2012/13 and 2013/14 stated incorrect payment periods and could not be saved by s. 114 TMA 1970 either. With regard to the penalties issued for the accounting periods ended 5 April 2015 and 5 April 2016, the penalty notices did not state the name of the officer who had given the notice and therefore the taxpayer would be unable to send an appeal to that officer (in accordance with para s. 31A(1)(c) TMA 1970). In addition, the penalty that had been issued for the accounting period ended 5 April 2016 could not exist as there was no inaccuracy that had been corrected or PLR assessed by way of discovery. Even if the penalties had been found to be valid, the FTT would have rejected to “reset” the suspension period set by HMRC to 12 months from the date of the appeal hearing. They FTT had no jurisdiction on suspension since the Appellant had no appealed against the conditions imposed. The correct way to deal with a suspension was for HMRC to satisfy themselves (by asking the Appellant for proof) that the conditions set were complied and if not, the penalties could have ceased to be suspended.
In considering the status of various “donations” made to the Appellant charity, the FTT considered the sample questionnaires collected by HMRC. The FTT found that all responses showed that the recipients thought they were paying a monthly sum for the private tuition of their children. Whilst the Appellant argued that they were running a membership scheme for which donors would get benefits in exchange for their contributions, the Appellant seemed to have misinterpreted HMRC Guidance on the subject. The Guidance did not suggest that where services are provided to a minor any payment made by the parent or guardian for membership will be treated as a gift. In any event, the FTT was not prepared to opine on whether or not all or some of the parental donations were gifts without a further and more detailed analysis of the Appellant's accounts.
The FTT disagreed with HMRC's argument that the possibility of a refund of any donations could be of itself a condition for repayment and therefore not capable of being a gift. However, if a donation was refunded then it could not be classified as a gift.
The provision of tuition was a benefit within the meaning of s. 417 ITA 2007 where the donation was made by a parent or a guardian. The value of the benefit is the cost to the Appellant of providing the service and the size of the benefit is not to exceed a percentage of the donation, not the opposite as argued by the Appellant.
In terms of any expenses paid to volunteers by cheque which were either returned, not cashed or torn up by the volunteers, the FTT also disagreed with HMRC's view that they could not be gifts because there was no “payment of money” as required by s. 416(2) ITA 2007. Condition EA in s. 416(6A) seemed to suggest that waivers could be gifts and therefore returned expenses by volunteers could also be gifts.
The appeal was therefore allowed.
This decision contains a detailed explanation of the procedural requirements and the inherent safeguards of discovery assessments and penalty assessments. It is also a helpful summary of the law relating to gift-aid donations and the conditions to be satisfied in this context.
[1] This was the hearing of appeals by Champions Fun Learning Centre, a registered charity, against assessments made by the respondents (“HMRC”) which sought to recover income tax which HMRC said had been over-repaid to the appellants. Because certain issues concerning the assessments were raised by the Tribunal in the course of the hearing we asked for further submissions. Mr Brown took the opportunity to respond to HMRC submissions on the law and to press his points on other matters.
[2] Our decision is to cancel on procedural grounds the assessments to recover tax and to impose penalties. We have then also considered the arguments put forward by HMRC on the question whether some or all donations to the appellant are disqualified and set out our views. We have done this because, among other things, HMRC have withheld repayment for a later year for which there is, it seems, no assessment.
[3] We had a witness statement with exhibits from Mr Tony Johnson. Mr Johnson is the senior technical adviser in the Charities Unit of HMRC. His evidence is on two matters. He had reviewed the check carried out by Mr Mark Hewitt, the case officer, and he described the actions he took in the course of that review and produced the documents he had examined. We accept his evidence on the nature and form of his enquiry and what he did in the course of it. The second matter in his evidence was his “technical view” of what he found, ie his conclusions as to the effect of the law on the facts he and Mr Hewitt had found. These are in effect submissions on the law, and were incorporated into HMRC's statement of case and Ms Mulder's skeleton arguments and we treat them as such. It is opinion evidence and not evidence of fact, however expert Mr Johnson may be, and he is undoubtedly expert in the tax law and practice relating to the qualifications for a donation being treated as gift aid.
[4] Mr Johnson was cross-examined by Mr Brown and asked questions by us.
[5] Mr Brown also gave evidence and produced some further documents. One issue in particular arising from those documents was a matter of controversy. HMRC had issued questionnaires to a small number of donors and had received a smaller number still of replies which they used as evidence to demonstrate that the payments by the responders were not qualifying donations. Mr Brown...
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