Derek William Hankinson v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Sir Mark Waller,Lord Justice Mummery |
| Judgment Date | 16 December 2011 |
| Neutral Citation | [2011] EWCA Civ 1566 |
| Docket Number | Case No: A3/2010/2704 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 December 2011 |
[2011] EWCA Civ 1566
Lord Justice Mummery
Lord Justice Lewison
and
Sir Mark Waller
Case No: A3/2010/2704
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
MR JUSTICE WARREN
JUDGE BISHOPP
FTC/14/2010
Royal Courts of Justice
Strand, London, WC2A 2LL
Robin Mathew QC (instructed by Bracher Rawlins LLP) for the Appellant
Ingrid Simler QC and Akash Nawbatt (instructed by HM Revenue and Customs Solicitors) for the Respondent
Hearing date : 6 December 2011
On 24 January 2005 an officer of HMRC assessed Mr Hankinson to income tax and capital gains tax in respect of the tax year 1998–1999. The bill came to over £30 million. The reason why the assessment was made so long after the end of the tax year in question was that it was what is called a "discovery assessment" made under section 29 of the Taxes Management Act 1970. This appeal from the Upper Tribunal [2010] UKUT 361 (TCC) [2010] STC 2640 (Warren J, President and Judge Colin Bishopp) concerns the conditions that must be fulfilled before a discovery assessment can be made.
Section 29, as it stood at the relevant time, provided:
"(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—
(a) that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.
(2) Where—
(a) the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, and
(b) the situation mentioned in subsection (1) above is attributable to an error or mistake in the return as to the basis on which his liability ought to have been computed,
the taxpayer shall not be assessed under that subsection in respect of the year of assessment there mentioned if the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made.
(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above—
(a) in respect of the year of assessment mentioned in that subsection; and
(b) in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
(4) The first condition is that the situation mentioned in subsection (1) above is attributable to fraudulent or negligent conduct on the part of the taxpayer or a person acting on his behalf.
(5) The second condition is that at the time when an officer of the Board—
(a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment; or
(b) informed the taxpayer that he had completed his enquiries into that return,
the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.
(6) For the purposes of subsection (5) above, information is made available to an officer of the Board if—
(a) it is contained in the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return;
(b) it is contained in any claim made as regards the relevant year of assessment by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim;
(c) it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer, whether in pursuance of a notice under section 19A of this Act or otherwise; or
(d) it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above—
(i) could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or
(ii) are notified in writing by the taxpayer to an officer of the Board.
…
(8) An objection to the making of an assessment under this section on the ground that neither of the two conditions mentioned above is fulfilled shall not be made otherwise than on an appeal against the assessment. …"
Although "discovery assessments" have a long history it is common ground that the circumstances in which they may be made were tightened on the introduction of self-assessment. The mechanics of the self assessment scheme are contained in the Taxes Management Act 1970, as amended. A taxpayer must make and normally deliver a tax return by 31 January of the year following the year of assessment ("the filing date"). His return should disclose all the relevant information and correctly assess, on the basis of it, the tax due. It must also include a self-assessment of the tax due. HMRC may then enquire into the return by issuing a formal notice within twelve months after the filing date. The power to open an enquiry is unfettered. If HMRC give notice of enquiry there are wide powers enabling HMRC to require the taxpayer to produce documents and particulars. At the end of any such enquiry HMRC may amend the return and issue a closure notice. If HMRC make no enquiry and the taxpayer has not amended his return, the self-assessment return becomes final on the expiry of that twelve month enquiry period, subject only to the possibility of making a discovery assessment. That twelve month period is often referred to as the "enquiry window".
Section 20 of the Taxes Management Act 1970 (and now Schedule 36 to the Finance Act 2008) also gives powers to call for information. These powers may be exercised after the enquiry window has closed. Notice under section 20 (1) and 20 (3) may be given by an inspector authorised by HMRC, but it can only be given with the consent of the tribunal. If the inspector gives notice in exercise of these powers he must give the taxpayer a written summary of his reasons for applying for consent: section 20 (8E). The giving of a notice under section 20 is a precursor to the making of a discovery assessment; and it can only be done where there is a sensible or practical possibility of a discovery assessment being made under section 29: R (oao Johnston) v Branigan [2006] EWHC 885 (Admin)§§ 14, 15; R (oao Pattullo) v HMRC [2009] CSOH 137 [2010] STC 107§ 91.
Moses LJ explained the changes to section 29 consequent upon the introduction of self-assessment in Tower MCashback LLP 1 v HMRC [2010] EWCA Civ 32 [2010] STC 809 (§§ 12 – 18). He pointed out (§ 24):
"As I have already observed, apart from a closure notice, and the power to correct obvious errors or omissions, the only other method by which the Revenue can impose additional tax liabilities or recover excessive reliefs is under the new s 29. That confers a far more restricted power than that contained in the previous s 29. The power to make an assessment if an inspector discovers that tax which ought to have been assessed has not been assessed or an assessment to tax is insufficient or relief is excessive is now subject to the limitations contained in s 29(2) and ( 3) (s 29(1)). Section 29(2) prevents the Revenue making an assessment to remedy an error or mistake if the taxpayer has submitted a return in accordance with s 8 or s 8A and the error or mistake is in accordance with the practice generally prevailing when that return was made. Section 29(3) prevents the Revenue making a discovery assessment under s 29(1) unless at least one of two conditions is satisfied (s 29(3)). The prohibition applies unless the undercharge or excessive relief is attributable to fraudulent or negligent conduct (s 29(4)) or having regard to the information made available to him the inspector could not have been reasonably expected to be aware that the taxpayer was being undercharged or given excessive relief (s 29(5)). There are statutory limitations as to the time at which the sufficiency or otherwise of the information must be judged. These provisions underline the finality of the self-assessment, a finality which is underlined by strict statutory control of the circumstances in which the Revenue may impose additional tax liabilities by way of amendment to the taxpayer's return and assessment."
This summary of the provisions is both accurate and entirely uncontroversial; but understandably it does not address the point raised by this appeal. It is useful background, but no more.
In the present case the assessment was raised on the ground that HMRC had discovered that, as regards the tax year 1998–1999, Mr Hankinson had been resident and ordinarily resident within the UK. On Mr Hankinson's appeal to the First Tier Tax Tribunal (Judge Avery Jones CBE and Judge Clark) the FTT decided that Mr Hankinson was indeed resident and ordinarily resident in the UK for that year of assessment. They also decided that Mr Hankinson's...
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