Dugan
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 August 2016 |
| Neutral Citation | [2016] UKFTT 618 (TC) |
| Date | 26 August 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Richard Thomas, Ann Christian
Mr M Dugan appeared in person
Mr A Burke, Presenting Officer, appeared for the respondents
Income tax – Discovery assessments – Whether condition in Taxes Management Act 1970 (TMA 1970), s. 29(4) or (5) met – Yes – Whether claim for set off of tax credit made – No – Whether cars were pool cars Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), s. 167 – Yes – Whether effect of pool car treatment could give rise to discharge or repayment of tax – Yes.
[1] This was, apparently at least, the hearing of appeals by Mr Michael Dugan (the appellant) against:
1) The amendment of his tax return (ITR) for the tax year 2011–12 made by a closure notice under s 28A Taxes Management Act 1970 (TMA),
2) An assessment on him under s 29 TMA for the tax year 2010–11,
3) An assessment on him under s 29 TMA for the tax year 2009–10.
[2] Would that it were so simple. It became clear to the Tribunal on reading the papers sent out beforehand that there was a lot more to the case than met the eye. It is necessary to set out some of the background to the notification of the appeals to the Tribunal. The following section of this decision is taken from the papers and is not in dispute, and to the extent appropriate and necessary we find what we say as fact.
[3] The appellant was the Managing Director of, and 50% shareholder in, a company Duplas Ltd.
[4] Duplas Ltd went into liquidation on 13 July 2013. [This is relevant to one of the arguments made by the respondents: see paragraph 23].
[5] The appellant delivered his 2009–10 and 2010–11 ITRs to HMRC on 21 June 2011. No enquiry into them was made by any officer of the Commissioners for Her Majesty's Revenue and Customs (HMRC).
[6] On 31 January 2013 the appellant delivered his 2011–12 ITR to HMRC. From the pages exhibited by HMRC the appellant showed the following amounts of income:
£4,800 |
Pay from Duplas Ltd |
£5,288 |
Benefits from company cars and vans |
£4,324 |
Fuel for company cars |
£3,531 |
Benefits from private medical and dental insurance |
£1,648 |
PAYE tax taken off pay. |
£445.60 |
Total tax etc due |
[Taken off is we assume a synonym for deducted, the term that millions of employees have been used to using for decades about items that reduce their pay packets. It is not a term that the Tax Law Rewrite caused to be used in the Income Tax (Earnings and Pensions) Act 2003 nor is it used in the Income Tax (Pay As You Earn) Regulations 2003. It seems to us to be very confusing for such a vague term to be used in official documents, especially when, in the HMRC Tax Calculation associated with the return, the figure of £1,648 appears as Tax deducted.]
[7] On 23 January 2014 (eight days before the deadline) Mr Alex Dickson, an officer of HMRC, opened an enquiry under s 9A TMA into the 2011–12 TR.
[8] The appellant spoke to Mr Dickson by phone on 30 January 2014.
[9] On 3 February 2014 Mr Dickson wrote to the appellant saying that the appellant had, in the phone call, admitted that £30,000 of the £60,000 dividends shown in the accounts of Duplas Ltd for the year to 31 March 2012 had been omitted from his tax return. He enclosed a calculation of Potential Lost Revenue (PLR) of £1,980.22.
[10] In the same letter Mr Dickson told the appellant that in view of the omission in the 2011–12 ITR he had reason to believe that the previous two years' ITRs were also incorrect. In view of the fact that the enquiry deadline for those years had passed, Mr Dickson proposed to deal with the matter by raising assessments under s 29 TMA. To that end he enclosed two more calculations of PLR showing £1,106.32 and £2,199.37.
[11] The same letter also said that the submission of an incorrect ITR leading to an under-assessment of tax is deemed by [HMRC] to be careless …. He added that because the ITRs were inaccurate the appellant may be liable to a penalty under Schedule 24 FA 2007. Later in the letter Mr Dickson said that [n]ot every inaccuracy will incur a penalty. No penalty will be due if a person takes reasonable care … The appellant was given a Factsheet CCFS7a and was informed about his rights under article (art) 6 of the European Convention on Human Rights about the effect of that Article, which he was asked to confirm in writing that he had read and understood. He was asked questions to establish why and how the inaccuracy happened and he was asked for a Certificate of Full Disclosure.
[12] On 20 February 2014 the appellant replied. He said he omitted the dividends because I was advised by our accountant at the time that as a standard rate taxpayer there would be no tax liability unlike share dividends received as a result of an investment.
[13] In this letter the appellant also informed Mr Dickson that:
In 2008 the company began to run a new contract rental car, which was reallocated every two years until the demise of Duplas Ltd in June 2013.
These cars were used exclusively as pool cars in accordance with HMRC guidelines and were mistakenly assigned to me as a benefit.
To provide some background to the above I live 1.2 miles from the factory and either walk or cycle to work. Any private mileage was either in my wife's car (declared as a benefit) or my privately owned Renault Espace.
In view of the above I enclose amended P11Ds to cover the relevant years.
[14] These forms, covering 2008–09 to 2011–12, showed no benefits from cars or fuel, only for private medical insurance.
[15] Correspondence ensued on the topic of the car benefit, in the course of which the appellant provided details of the vehicles, their use by each relevant employee and copies of the insurance policies for the cars, and details of breakdown calls to the AA made by him (with a view to demonstrating that on the many occasions when the AA were called out to attend to Mr Dugan he was driving his Renault Espace).
[16] On 17 June 2014 HMRC issued Notices of Assessment under s 29 TMA showing tax charged on £1,106.32 for 2010–11 and £2,031.75 for 2009–10.
[17] The correspondence culminated in a letter from Mr Dickson of 19 June 2014 which was his closure notice in relation to the enquiry into the 2011–12 ITR. The letter stated that because the appellant had omitted dividends Mr Dickson had amended the appellant's ITR accordingly, which now showed that an additional amount of £1,980.82 tax was payable.
[18] On 15 July 2014 the appellant sent to HMRC what he called a formal appeal against the decision set out in the letter of 19 June 2014. While he freely admitted the omission of dividends, he argued that he was not liable to any charge on car and fuel benefits with the result, he thought, that HMRC owed him money.
[19] Mr Dickson replied on 25 July 2014 noting the appeal and holding over, as requested, the disputed tax relating to the three years. We think that the appellant intended to appeal against the two s 29 assessments even though they were not mentioned in the letter of 19 June, as he asked for postponement of all three amounts, and Mr Dickson seems to have assumed that the appellant was appealing against all three amounts.
[20] Mr Dickson's letter included, he said, his view of the matter, in which he reiterated the points he had already made about the car benefits. He mentioned that his letter of 1 April 2014 and 25 May 2014 had said that the car and fuel benefits designated to you could not be rescinded.
[21] The letter also told the appellant that he could request a review or notify his appeals to the Tribunal.
[22] On 22 August 2014 the appellant sent a Notice of Appeal Form, and the relevant decisions by HMRC to the Tribunal. His grounds of appeal were as in his letter of 15 July 2014. The Tribunal informed the appellant on 3 September 2014 that the case was allotted as a Standard Case and that HMRC had 60 days to produce a Statement of Case.
[23] On 23 October 2014 Mr Burke of HMRC Local Compliance Appeals and Reviews Section wrote to the Tribunal giving details of the enquiry and arguing that the appellant could not appeal against the assessments and amendment as they were specifically raised or amended to collect the tax on the undeclared dividends, and that the only recourse for the appellant was to make an application under Schedule 1AB TMA which carried time limits of which the appellant had been made aware. HMRC also stated that the P11Ds submitted by Mr Dugan could not be accepted as they were submitted on behalf of Duplas Ltd, the employer, which was in liquidation, and so the appellant as a director did not have any power to send them in unless sanctioned by the liquidator (he cited s 103 Insolvency Act 1986).
[24] The corresponding letter to the appellant of the same date referred to Schedule 1AB and informed him that he was already out of time for 2008 and 2009. He was also out of time at that date for 2010 but his letter of 20 February 2014 would be accepted as a claim but not in the correct form. He was told of the correct form and that claims in that correct form should be sent to Mr Dickson as soon as possible (this statement was emboldened).
[25] The Tribunal wrote to Mr Burke on 31 October 2014 asking him to clarify HMRC's position. Was he asking for a strike out of the appeals? Mr Burke responded to the Tribunal on 5 November 2014 apologising for sending an incomplete letter and confirming that he was asking for a strike out. The Tribunal informed the appellant of this and asked if he opposed it. He did, and sent further documents to Mr Burke, including an authorisation from the liquidator of Duplas Ltd, and three sworn and witnessed affidavits of employees of Duplas Ltd about the use of the cars.
[26] The strike out application was listed to be heard on 25 September 2015 in Leeds.
[27] On 14 January 2016 the Tribunal informed HMRC and the appellant that the appellant had withdrawn his appeal. It turned out that this was incorrect. The Judge's record of the hearing of 25 September had...
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