Choudhry (as representative partner of Continental Food Store) and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 January 2019 |
| Neutral Citation | [2019] UKFTT 38 (TC) |
| Date | 16 January 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Richard Thomas, Anthony Hennessey FCA
Nigel Gibbon of Nigel Gibbon & Co appeared for the appellants
John Nicholson, litigator, HMRC Solicitor's Office and Legal Services, appeared for the respondents
Income tax – National Insurance contributions – Enquiry into partnership return for 2005–06 on basis that deposits into bank accounts exceeded returned sales in partnership's accounts – Subsequent discovery assessments for years back to 2001–02 and forward to 2011–12 based on presumption of continuity – VAT assessments of 02/02 to 08/13 based on 2005–06 income tax figures extrapolated by RPI – Validity of discovery amendments & VAT assessments – Examination of principle of presumption of continuity – Validity of penalties – Whether behaviour deliberate – Appeals allowed for the most part.
[1] The hearing was of appeals by:
- Mr Mohammed Choudhry as representative partner of Continental Food Stores, a business run in partnership with his wife Mrs Shaheen Choudhry, against (a) the amendment made to the partnership return for the tax year 2005–06, (b) discovery amendments made to those returns for the tax years 2001–02 to 2011–12 except for 2005–06 and (c) assessments of penalties for incorrect partnership returns or inaccuracies in the returns for all years 2001–02 to 2011–12 imposed on each of the partners. These assessments etc relate to income tax and Class 4 National Insurance Contributions (NICs).
- Mr and Mrs Choudhry (together the appellants) against (a) assessments to VAT for the prescribed accounting periods 02/02 to 08/13 and (b) penalties for dishonesty evading or attempting to evade VAT, inaccuracies in the VAT returns and other matters for the prescribed accounting periods covering those accounting periods.
- Mr Choudhry against assessments on him personally for 2005–06 (income tax and Class 4 NICs) and 2006–07 (capital gains tax (CGT)).
- Mrs Choudhry against an assessment on her personally for 2006–07 (income tax).
[2] The position regarding what appeals had been made, whether they were in time, whether they had been settled and whether they could be even be made was very unclear, and we have needed to investigate these questions in some detail, our findings being not always what the parties suggested they should be (see paragraph 99 to paragraph 153).
[3] For the benefit of Mr and Mrs Choudhry we explain that we have cancelled all tax and penalties assessed on them or the partnership except for 2005–06 on the partnership where we have reduced the amount of profits and as a result reduced substantially the income tax they will have to pay and we have also upheld the assessment to CGT on Mr Choudhry for 2006–07 and the assessment on interest on Mrs Choudhry for the same year. But we consider that CGT has been overcharged by the assessment on Mr Choudhry.
[4] We set out first a chronology of the investigation carried out by Mr Alan Lenegan, an officer of HMRC, into the income tax (which for this purpose includes Class 4 NICs1) affairs of the appellants' business which they carried on in partnership and of their own affairs (including CGT). The matters we mention are primarily taken from the exhibits to Mr Lenegan's witness statement and are not in dispute and we find them as fact. We consider the evidence of and for the appellants and make findings on that later.
[5] On 9 January 2008 Mr Lenegan informed Mr Choudhry that he was opening an enquiry into the partnership return for 2005–06. On the same day he also informed Mr and Mrs Choudhry separately that he was opening an enquiry into their personal tax returns for the same year. The letters, which were copied to their agent, Mr Silver of Lord & Co, set out a schedule of information required by him.
[6] Over the next year or so information was provided piecemeal and in response at times to threats of and determinations of penalties under s 19A Taxes Management Act 1970 (“TMA”). The information and documents requested such as bank statements related primary to Mr Choudhry's property income and gains.
[7] On 20 March 2009 a notice of “further” assessment was issued to Mr Choudhry for 2005–06. This was appealed on 30 April 2009.
[8] In June 2009 Mr Lenegan summarised the information that was outstanding and made certain other requests for information and documents about bank accounts of each of the appellants (whether already revealed or not) and of the partnership and records of sales of the partnership. The main thrust of his requests was the source of deposits to all the banks accounts for the 2005–06 tax year. Notices under Schedule 36 were issued to the appellants and penalties assessed for failure to comply.
[9] On 2 February 2010 (by which date some information had been provided) Mr Silver told Mr Lenegan that some of the amounts deposited had come from Pakistan and he was obtaining documentary evidence about them.
[10] On 7 April 2010 for “procedural reasons” a notice under Schedule 36 was re-issued for sales details of the partnership.
[11] Between April and September 2010 there was further correspondence, and at a meeting on 5 October Mr Silver informed Mr Lenegan that chargeable gains had been omitted from Mr Choudhry's 2006–07 personal return.
[12] On 7 October 2010 Mr Lenegan informed Mr Silver that he had reviewed the VAT returns for the period under review and they showed a large discrepancy between recorded sales figures and the recorded sales in the partnership return. Mr Silver subsequently explained this discrepancy to Mr Lenegan's satisfaction as being caused by the inclusion of National Lottery figures in the sales figures in the return.
[13] On 8 December 2010 Mr Lenegan warned Mr Choudhry and Mr Silver that in the absence of an explanation for the source of deposits into all the accounts he would have no option but to regard them as business related. Further Schedule 36 notices were issued.
[14] On 31 March 2011 Mr Lenegan issued a notice of “further” assessment on Mr Choudhry for 2006–07 to “protect the position” of HMRC. This increased the income tax, CGT and Class 4 NICs due from £795.36 to £122,965.35. The assessment was said to be to “reflect” the omitted taxable gains and to protect HMRC's position on the expected deposits made to the various bank accounts during this period that Mr Choudhry would no doubt be unwilling or unable to explain, the relevant amount being based on the deposits made during the tax year 2005–06 that that had so far not been explained. The assessment was appealed against on 15 April 2011.
[15] Also on 31 March 2011 Mr Lenegan issued a notice of “further” assessment on Mrs Choudhry for 2006–07 to “protect the position” of HMRC. This increased the tax due from £3,141.30 to £71,429.46. The assessment was said to be an estimate of undisclosed chargeable gains of £150,000. The assessment was appealed against on 15 April 2011.
[16] On 8 June 2011 Rehman Michael & Co told Mr Lenegan that they were now acting for the appellants. On 14 June 2011 Ms Sadiya Hussain2 from Rehman Michael told Mr Lenegan that she had reviewed the papers and met the appellants, who had informed her that they had borrowed from friends in the region of £150,000 to keep the business going. Mr Lenegan also spoke to a Mr Malik of Rehman Michael, who told him that Sadiya Hussain worked on a sub-contract basis for them, and that he was satisfied with the explanation from the appellants, it being not unusual among first generation immigrants from their culture. He had visited the shop and the living quarters and they seemed to be something from the 1950s with a very frugal lifestyle.
[17] At a meeting on 12 July 2011 Sadiya Hussain told Mr Lenegan that the main lender to the appellant was a Mr Hussain, a long term friend and successful businessman in Rochdale from whom he had borrowed around £40,000 to £50,000 in the period under review and maybe £150,000 over the years. Mr Hussain had expressed surprise to her that Mr Silver, who had been his accountant, had not mentioned the loans to her. She was, she said, attempting to obtain documentary evidence of the loans.
[18] Sadiya Hussain mentioned that the appellants had an account with Bookers for their purchases and that she would obtain duplicate statements as they had not been included in the business records seen by HMRC.
[19] On 4 January 2012 Mr Lenegan informed Sadiya Hussain that Bookers had been approached by his colleague in Bristol and they had supplied details of all purchases by Continental Food Stores in the period 1 December 2004 to 30 March 2006. We mention here that the basis period for the accounts of the partnership was 1 December to 30 November.
[20] Mr Lenegan's analysis of the Bookers information he had obtained showed that “additional” purchases totalling £118,845 had been made in the period 1 December 2004 to 30 November 2005. The Bookers purchases for 1 December 2005 to 28 March 2006 when annualised also exceeded the accounts figure for the year to 30 November 2006.
[21] On 1 June 2012 Mr Lenegan informed the appellants that a decision had been taken to extend the enquiries to include VAT and that HMRC had reason to believe that conduct involving dishonesty had occurred in relation to their VAT obligations.
[22] On 2 October 2012 a meeting was held at which Sadiya Hussain and Mr (but not Mrs) Choudhry were present. An unsigned letter from Mohammed Hussain was handed over. The meeting was adjourned, and on 10 July 2013 Mr Lenegan spoke to Sadiya Hussain by phone. He was told that Mr Choudhry did not wish to attend a further meeting and that HMRC should calculate what he owed and they would take it from there. Mr Lenegan informed Sadiya that he had information that purchases had been seriously understated by an amount in the region of £120,000.
[23] On the next day Sadiya told Mr Lenegan...
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Sharif
...is a fairly tenuous one. For the reasons for this statement see Choudhry (as representative partner of Continental Food Store) [2019] TC 06934 (Judge Richard Thomas and Tony Hennessy FCA) at See paragraph 46. . In fact Mr Oborne forswore using s 29(5) for 2012–13 and carelessness for the tw......
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Malcolm
...of concealing income had been followed in previous years. [98] Lastly, in Choudhry (as representative partner of Continental Food Store) [2019] TC 06934, the tribunal considered Jonas, as follows: [224] Jonas was, as we have said, the first tax case to refer to the presumption. It is notabl......