Contractor
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 February 2021 |
| Neutral Citation | [2021] UKFTT 54 (TC) |
| Date | 23 February 2021 |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 54 (TC)
Judge Heidi Poon, Dr Caroline Small
Income tax – Discovery assessment – Tax avoidance scheme – Ground of appeal against the quantum of assessment and not the efficacy of the scheme – TMA 1970, s. 29 and 34 – Whether assessment validly made – Pre-condition under s. 29(5) – Whether a hypothetical officer could have been reasonably expected to be aware of the insufficiency from the information made available – No – Whether assessment stands good – Yes – Onus for displacing assessment regarding quantum on the appellant – Appeal dismissed.
[1] The appellant, Mr Cyrus Contractor, appeals against a discovery assessment to income tax in the sum of £31,600 in relation to the tax year ended 5 April 2015. The assessment was raised by the respondents (“HMRC”) on 12 March 2019 under s 29 of the Taxes Management Act 1970 (“TMA”) following an investigation into a mass marketed tax avoidance scheme.
[2] The principal issue for determination, as parties put it, concerns the quantum of the assessment, in that whether as a matter of fact, there was additional income assessable on the appellant in the year 2014–15 in the light of the information gathered from the investigation of the tax avoidance scheme.
[3] The following provisions from TMA relevant to this appeal are set out in the Annex.
- Section 29 provides for the requisite conditions to be met for a discovery assessment to be valid.
- Section 34 provides for the ordinary time limit for an assessment under s 29 to be made within 4 years after the end of the year of assessment to which it relates.
- Section 50 provides for the Tribunal's jurisdiction on an appeal.
[4] For the respondents, Officers Michael Tyler and Zakir Hussain appeared as witnesses, and were cross-examined by Mr Turner. Their witness statements were adopted as evidence in chief, supplemented by their answers to questions put to them by the Tribunal and Mr Turner. We find both witnesses reliable and credible, and we accept their evidence as to matters of fact.
[5] For the appellant, two short witness statements were provided by:
- Mr Mark Aylwin Turner, Designate Partner of Runnymede Services LLP (Runnymede) from its incorporation on 19 April 2012 until it was dissolved on 19 December 2017; and
- Ms Tina Lorraine Bandyle, director and owner of IFL Management Ltd (IFL) since 11 February 2002.
[6] Neither Mr Turner nor Ms Bandyle were called as witnesses for cross-examination, and the substance of their short witness statements are related later in the decision. While not appearing as a witness, Mr Turner appeared instead as the appellant's representative.
[7] Noting that the entity of which Mr Turner was the designate partner had been dissolved, the Tribunal tried to ascertain the capacity in which Mr Turner is acting in these proceedings at the outset. Mr Turner was equivocal, but went on to state that he was instructed by TJL Assessments Ltd, which would appear to be a business owned by Ms Bandyle. The Tribunal asked if any professional designation should be recorded after Mr Turner's name, and he confirmed in the negative. In response to the Tribunal's further questions, Mr Turner also stated that TJL Assessments Ltd is now the appellant's tax agent.
[8] The joint bundles of documents provided to the Tribunal contain the following sections:
- Section A paginated A1 to A20 contains the appeal documents;
- Section B (B21 – B31) contains the witness statements of the two witnesses for the appellant (not called), and two witnesses for the respondents (called);
- Section C (C1 – C33) contains the correspondence of the enquiry leading to the issue of the discovery assessment;
- Section E (E1 – E42) contains the Disclosure of Tax Avoidance Schemes (DOTAS) letter from HMRC with the description heading of Arrangements using a foreign currency loan, and Companies House records of the entities in the Scheme;
- Section F (F1 to F6) contains the appellant's returns for the tax periods from 2011–12 to 2016–17;
- Third party documents obtained under Schedule 36 notices are paginated as:Section D (D1 to D60) contains communications emanating from third parties in relation to the Scheme, and trust repayments and bank statements;Section G (G1 to G115) contains more third party documents and information, bank statements, leaving letters of entities, and loan agreements;Section H (H1 to H102) contains invoices between scheme entities and bank statements of some of the scheme entities;Section I (I1 to I108) contains bank statements, correspondence, leaving letters and a sample contract between the scheme provider and the contractor;Section J (J1 to J129) contains third party contracts of the various entities involved in the Scheme, and invoices between entities;Section K (K1 to K75) contains transaction listings from Barclays Online Banking showing movements of funds, redacted in many instances for payers into the account, invoices to entities; agreements (Contract for Services) between the scheme provider and the contractors.
[9] On 23 September 2020, HMRC applied to the Tribunal to admit an additional document, designated as “G70 unredacted”. The application was not forwarded in time for the Tribunal to consider before the hearing, and Ms Arnold made an oral application as a preliminary matter.
[10] On “G70 unredacted”, the headings: “Drawings Cyrus Contractor” and “Total Drawings Cyrus Contractor” are identifiable, while they are redacted on the G70 that has been included in the bundle. In their application, HMRC draw the Tribunal's attention to the fact that G70 was included in HMRC's List of Documents; was referred to in the Statement of Case and Officer Tyler's witness statement. The headings on the original G70 were redacted in error, and that the appellant is not prejudiced by the inclusion of the unredacted G70.
[11] It is clear to us that the redaction on the original G70 included was done to protect the identity of other names and entities unrelated to this appeal. By error, the redaction went too far by blackening out the two key headings. The document G70 was originally provided to HMRC by the appellant's representative without redaction, and no objection was raised by the appellant's representative to the lodgement of the unredacted G70. For these reasons, the Tribunal granted the application to admit the unredacted G70.
[12] Apart from the unredacted G70, the Tribunal requested the production by HMRC of the appellant's Self-Assessment (“SA”) return filed for the year 2014–15, since reference was made as to the contents of the return proper during evidence.
[13] Mr Tyler is an officer of the Counter-Avoidance Team in HMRC. He has been the “Technical Lead” within the team investigating the arrangements used by Mr Contractor, Officer Tyler is the decision maker in relation to the discovery assessment for 2014–15, and the “case owner” throughout the course of the enquiries into the SA returns filed for Mr Contractor for the other years; namely: 2011–12, 2012–13, 2015–16 and 2016–17.
[14] From Officer Tyler's evidence, and the documents included, we find the following facts in relation to the enquiries led by Officer Tyler into the mass marketed avoidance scheme (“the Scheme”), and how those enquiries in relation to the Scheme led to the discovery assessment raised on the appellant for 2014–15.
[15] In 2013, Officer Tyler took responsibility for the enquiries into the Scheme, which led to the enquiry into Mr Contractor as a partner of one of the UK entities involved in the Scheme.
- The UK entities involved in the Scheme included:Berwick Associates (2011) LLP (Berwick)Choice Premier Ltd (Choice Premier)Computer Contracts Ltd (Computer Contracts)IT Contracts Finance Ltd (IT Contracts Finance)
- Tina Bandyle and Mark Turner were the directors of Choice Premier, Computer Contracts, and IT Contracts Finance.
- Berwick LLP has two designated partners: Mr Mark Turner and Mr Michael Kerridge.
- Prior to the commencement of the arrangements, Mr Mark Turner resigned his directorship in some of these companies.
- The appellant, Mr Contractor, joined Berwick as a partner on 13 June 2011.
[16] Between March 2013 and March 2014, enquiries were opened into the tax returns of the majority of the partners of Berwick for the tax years 2011–12, and 2012–13. However, Mr Contractor's 2011–12 return was submitted late on 30 April 2014. Unlike the majority of the partners of Berwick, the enquiry into Mr Contractor's 2011–12 and 2012–13 returns was not opened until 8 June 2015. Both of Mr Contractor's returns disclosed “foreign exchange loans” in the white box section.
[17] In March 2014, HMRC began investigating the arrangements run by Berwick and Choice Premier, referred to as the Foreign Exchange Scheme (“Forex”).
[18] The Forex arrangements involved loans being made to participants in depreciating foreign currencies, and then repaid as part of the mechanism, but leaving a large “gain” which is said to be non-taxable.
[19] During the investigations into the Forex arrangements, HMRC identified further entities involved in the Scheme, being:
- Runnymede Services LLP (Runnymede);
- International Corporation based in the Seychelles (InterCorp Seychelles);
- Mapleseed Limited based in Abu Dhabi (Mapleseed A–D).
- Méte Corporation Ltd based in the Seychelles (Méte Seychelles).
[20] Runnymede was set up in April 2012 with Mr Turner as the designated partner to run the same arrangements alongside Berwick. Later investigations showed that Runnymede was created following a disagreement between Mr Turner / Ms Bandyle and Mr Kerridge.
[21] Even though Runnymede had been created in 2012, which was the year prior to Officer...
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