Daisley
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 December 2018 |
| Neutral Citation | [2018] UKFTT 708 (TC) |
| Date | 07 December 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0708 (TC)
Judge Nigel Popplewell, Mr Simon Bird
Mr Michael Martin, legal representative, appeared for the appellant
Mr Christopher Stone, Counsel, instructed by the National Crime Agency, appeared for the respondents
Income tax – Adoption of revenue functions by the NCA – Discovery assessments – Is knowledge that there is undeclared income, without more, sufficient to point an officer in the direction of there being an insufficiency of tax? – No – Whether assessments valid – Yes – Whether satisfactory evidence to displace assessments – No – Appeal dismissed – TMA 1970, s. 29 – FA 2008, Sch. 41.
In Daisley [2018] TC 06851, the First-tier Tribunal (FTT) dismissed a taxpayer's appeal against discovery assessments and failure to notify penalties issued by the NCA following a criminal investigation.
The National Crime Agency (NCA) ran an investigation into the affairs of Mr Daisley (the appellant). As a result, in July/August 2013 the NCA adopted the revenue functions of HMRC. In July 2013 Officer Lisi made a discovery that the appellant had received income which ought to have been taxed. The discovery assessments were issued under TMA 1970, s. 29 on 25 September 2014. The assessments were based on two mortgage applications made by the appellant in which he declared that his income for 2004 was £75,000, and for 2003 it was £70,000, which were extrapolated. Officer Lisi later issued failure to notify liability penalties under TMA 1970, s. 7 for the earlier years and FA 2008, Sch. 41 for 2009–10 onwards, on the basis that the appellant had deliberately failed to notify HMRC about his business income, and that he concealed that income from them.
The appellant accepted that he had income which he failed to notify to HMRC. But he submitted that the assessments were flawed since they were neither new nor made reasonably by the assessing officer. And even if they were new and made reasonably, the appellant's taxable income was considerably less than the amounts assessed.
The FTT found the main issues of principle concerning the discovery assessments were:
- Given that the test for a valid discovery required only that it had newly appeared to an officer that there was an insufficiency, had the insufficiency already newly appeared to another HMRC officer before Officer Lisi made the discovery so that Officer Lisi's discovery in 2013 was not new?
- Did Officer Lisi act honestly and reasonably when concluding that there was an amount which should have been assessed to income tax that had not been so assessed?
- When should that honesty and reasonableness be tested? Should it be the date on which the discovery was made (July 2013) or when the assessments were made (29 September 2014) or should it have been later, on 9 September 2016 when Officer Lisi issued a view of the matter letter in which he reduced the assessments and penalties?
- Did newly appeared apply not just to the conclusion reached by the officer, but also to any assessment that was based on that conclusion? Or indeed an assessment which was amended by Officer Lisi's view of the matter letter?
The FTT referred to the cases of R & C Commrs v Charlton [2013] BTC 1,634, Anderson v R & C Commrs [2018] BTC 516, Pattullo v R & C Commrs [2016] BTC 510 and R & C Commrs v Tooth [2018] BTC 505.
In relation to issue (1), the FTT did not think that any police officer or HMRC officer had made a discovery before Officer Lisi. The police and the HMRC Criminal Taxes Unit knew that there was undeclared income, but they did not appear to have had any idea as to the amount, which the FTT thought was crucial. The FTT concluded Officer Lisi's discovery was newly made in July 2013 and when he made his discovery.
On issue (2) and (3) the FTT found that in accordance with both Charlton and Anderson the time at which to test the reasonableness of Officer Lisi's discovery was at the date on which he made his discovery in July 2013.
Regarding issue (2) the FTT found it clear that Officer Lisi had a prima facie reasonable basis for concluding that income which ought to have been assessed had not been and that there was an insufficiency of tax paid by the appellant and so for making his discovery and subsequently the assessments.
Regarding issue (3) the FTT disregarded the appellant's challenge to the reasonableness which was based on information which was not available to Officer Lisi at the relevant time. The FTT concluded that Officer Lisi had made an honest genuine and objectively reasonable attempt to assess the appellant's income based on information available to him in July 2013 through to September 2014.
The FTT therefore concluded that Officer Lisi's discovery satisfied both the subjective and objective tests set out in Anderson.
On issue (4) the FTT found that it was bound by Pattullo and so had to accept that an assessment could become stale if the assessing officer, having made an otherwise valid discovery, failed to act on it whilst it was still fresh. Although, equally noting that Pattullo made clear that it was only in the most exceptional of circumstances that inaction on the part of HMRC would result in a discovery losing its required newness by the time that an assessment was made. The FTT agreed with NCAs submission that there were no exceptional circumstances in this case. While the time period of 13 or 14 months or so was significant, it was not exceptional in the circumstances of this case. In particular this was because the NCA was concerned that the appellant might dissipate his assets on receipt of the assessments, and so needed to line up an application for a freezing order in parallel to the assessments.
On the issue of the quantum of the assessments, the appellant's position was that the assessments should have been based on £18,000 of declared income used by him in a mortgage application in 2000. The FTT noted that if it was to reduce the assessments it had to have an amount to which to reduce them. It concluded that there was no credible evidence on which it could base a finding that it was more likely than not that the appellant's income was £18,000.
On the issue of the penalties the appellant submitted that the starting point for the penalties under Sch. 41 should be deliberate and unconcealed, rather than deliberate and concealed. The FTT disagreed, it could not accept the appellant lack of education meant that he was ignorant of an obligation to both declare his income, and pay tax on it. The FTT's view was that this was a conscious decision and that in not informing HMRC of his income, he concealed that income from them.
The FTT dismissed the appeal and confirmed the assessments to income tax and National Insurance contributions, and the penalties.
On the issue of whether a discovery can become stale, the FTT found the NCA's various submissions that there was no legal concept of staleness which could invalidate the assessments were forceful and persuasive. However, it accepted that it was bound by Pattullo v R & C Commrs [2016] BTC 510 and so had to accept that an assessment could become stale if the assessing officer, having made an otherwise valid discovery, failed to act on it whilst it was still fresh.
[1] This is an income tax case. The appellant appeals against discovery assessments to income tax (the “discovery assessments” or the “assessments”) visited on him under section 29 Taxes Management Act 1970 (“TMA 1970”) for the tax years 1999/2000 to 2011/2012 (the “adopted years”). He also appeals against penalty determinations based on the assessments (the “Penalties”).
[2] The respondents (or the “NCA”) have adopted the revenue functions of HM Revenue & Customs (“HMRC”) for the adopted years.
[3] The respondents allege that the appellant has not declared any income to HMRC for the adopted years. They say that the assessments have been validly made and that the appellant has put forward no credible evidence to displace them.
[4] The appellant accepts that he had income which he failed to notify to HMRC for the adopted years. But the assessments are flawed since they were neither new nor made reasonably by the assessing officer. And even if they were new and made reasonably, the appellant's taxable income for the adopted years was considerably less than the amount assessed.
[5] This appeal raises the following issues:
- The validity of the assessments and in particular:The newness of the reviewing officer's discovery at the time of the discovery in July 2013.The reasonableness of the reviewing officer's discovery.Whether the assessments based on a valid discovery had become stale when they were issued in September 2014.
- The amount of the assessments.
- The amount of the penalties visited on the appellant under section 7 TMA 1970 (for the tax years 1999/2000 to 2006/2007) and under Schedule 41 Finance Act 2008 (for the tax years 2009/2010 to 2011/2012).
[6] The NCA (which in this case includes its predecessor the Serious Organised Crime Agency) may assume the general revenue functions of HMRC where it has a reasonable suspicion that income chargeable to tax has arisen (wholly or partly) as a result (directly or indirectly) of criminal conduct.
[7] By notice dated 19 July 2013 the NCA sought to adopt the revenue functions of HMRC for the adopted years. This was acknowledged by HMRC on 7 August 2013.
[8] The appellant accepts that the NCA adoption has been validly and rightfully made and takes no point to the contrary. He accepts that the NCA is the competent respondent in this appeal.
[9] In addition to the considerable volume of documents and correspondence with which we were provided, we also had oral evidence from four witnesses namely:
- Mr Daisley the appellant.
- The assessing officer Mr Tommaso Lisi (Officer Lisi).
- Mr Robert Gregory, an employee of the company which ran the car auction centre in Westbury (Mr Gregory).
- Mr Mark Kent a former tenant of the appellant...
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Choudhry (as representative partner of Continental Food Store) and Others
...whether it is open to an officer to have that state of mind. [183] In Daisley this Tribunal (Judge Nigel Popplewell and Mr Simon Bird) [2018] TC 06851 has helpfully summarised the recent binding decisions about these tests: The subjective test [25] It is clear that before an officer makes a......