England
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 September 2016 |
| Neutral Citation | [2016] UKFTT 627 (TC) |
| Date | 08 September 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jonathan Richards, Amanda Darley
Setu Kamal, instructed by MWS Accountants, appeared for the appellant
Sue Spencer, Officer of HM Revenue & Customs, appeared for the respondents
Income tax, capital gains tax, national insurance contributions – Whether discovery assessments valid – Taxes Management Act 1970 (TMA 1970), s. 29, s. 34, s. 36 – Whether correct amount assessed – Failure to notify chargeability – TMA 1970, s. 7 – Whether penalties due and apply to National Insurance contributions element – Finance Act 2008 (FA 2008), Sch. 41 – Social Security (Contributions and Benefits) Act 1992 (SSCBA 1992), s. 16 – Certain issues treated as preliminary issues – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 5(3).
The First-tier Tribunal (FTT) concluded as preliminary issues that discovery assessments and penalty assessments were validly issued and that capital gains were correctly assessed. However the FTT directed that the parties make further representations as to whether the appeal should be stayed behind a potentially relevant civil litigation and whether unpaid Class 4 National Insurance contributions (NICs) count as potential lost revenue for penalties for failure to notify.
The appellant (Mr England) did not submit tax returns for the tax years 2009–10 to 2012–13 and had approximately £1,000 of income each year subjected to PAYE. Following Mr England's conviction for fraud and false representation which was brought by the Child Support Agency (CSA), the CSA sent HMRC information on Mr England's financial situation which indicated that he had significant income and assets. HMRC opened enquires into Mr England's tax position and a meeting was held between Mr England, his accountant and HMRC. HMRC were not happy with progress on the enquiry and they therefore issued discovery assessments for the tax years 2009–10 to 2012–13 under the Taxes Management Act 1970 (TMA 1970), s. 29, assessing Mr England to:
income tax and Class 4 NICs on additional income of £150,000 per year – this was on the basis that during the meeting Mr England had estimated that a Mr Jenner owed him £600,000 of commission from a car dealership business (Mr England had business dealings with Mr Jenner which ended acrimoniously and there was ongoing civil litigation between the two with each claiming sums from the other); and
capital gains tax (CGT) on the sale of four properties – this was based on information obtained by HMRC from Land Registry and after deducting 5% of the gross gains as expenses associated with the disposals and the annual exempt amounts.
HMRC also assessed Mr England to a penalties of 59.5% of the total tax and NICs chargeable for the four tax years pursuant to Finance Act 2008 (FA 2008), Sch. 41, for failing to notify his liabilities under TMA 1970, s. 7. The percentage was based on Mr England's actions being deliberate, the disclosure being prompted and a reduction of 30% of the maximum possible reduction to reflect the quality of the disclosure.
Mr England appealed the discovery assessments and penalties, arguing that:
1) HMRC had not satisfied the requirements necessary to make a valid assessment under TMA 1970, s. 29;
2) HMRC had based their assessments on Mr England's estimate that Mr Jenner owed him £600,000, but it had later been clarified that Mr England was only seeking £436,385 from Mr Jenner, so HMRC could not have had an honest belief that the assessments were correct and therefore the assessments were invalid;
3) HMRC had not taken into account payments of business expenses;
4) Mr England's tax liability could only be determined by reference to what his actual rights against Mr Jenner were and how much he actually received pursuant to those rights; and
5) the tribunal proceeding should be stayed pending the legal proceedings between Mr Jenner and Mr England.
The FTT considered that it was clear that there was a requisite discovery for the purposes of TMA 1970, s. 29 and the discovery assessments were not invalidated by the assessments being based on estimates. The FTT also accepted that for 2009–10 Mr England's behaviour in not declaring the sale of two properties, quite apart from any income from Mr Jenner, was deliberate and therefore the extended time limit in TMA 1970, s. 36 applied. The FTT accordingly found that all of the assessment were valid and in-time.
On the issue of whether the assessments were for the right amounts, the FTT noted that Mr England had made no submissions that HMRC had miscalculated the amount of CGT owed on the disposal of the four properties. Therefore based on the facts the FTT concluded that HMRC had assessed the correct amount of CGT due. The FTT did not consider that Mr England had shown positively in what figures his assessments to income tax and Class 4 NICs should have been and if it had not been for the civil litigation between Mr Jenner and Mr England it is likely that the FTT would have upheld the assessments. However as the outcome of the civil litigation had the potential to be relevant, the FTT directed that the parties provide further information on the status of the litigation and the possibility of it materially assisting in this appeal. On receipt of those submission the FTT would determine whether to stay proceedings. In the meantime this decision would determine a number of issues as preliminary issues.
The FTT decided as preliminary issues that: the penalty notices were validly issued; Mr England's failure to notify was deliberate but not concealed; the disclosure was prompted; and the penalties had been properly mitigated by HMRC. The FTT directed that the parties provide further submissions on whether unpaid Class 4 NICs count as potential lost revenue for the purposes of penalties for failure to notify, as it was not clear to it whether the effect of the Social Security (Contributions and Benefits) Act 1992 (SSCBA 1992), s. 16 was to treat Class 4 NICs as income tax for purposes of Finance Act 2008 (FA 2008), Sch. 41.
As a side point, HMRC initially raised one penalty assessment imposing an aggregate penalty in relation to the taxpayer's four separate failures to give notice of liability to income tax and CGT. Following an internal review HMRC decided that the penalty notice was invalid because of the aggregated penalty and therefore they reissued the penalties as four separate penalty assessments. The revised penalty assessments were still raised within the required time limit and were therefore found to have been validly raised.
[1] Mr England appeals against assessments issued under s29 of the Taxes Management Act 1970 and penalties imposed under Schedule 41 of the Finance Act 2008 as set out in the table below.
Tax Year |
HMRC Decision |
Date of Issue |
Amount |
2009–10 |
Assessment |
12 November 2014 |
£70,102.65 |
Penalty |
16 March 2015 |
£41,711.06 |
|
2010–11 |
Assessment |
12 November 2014 |
£57,234.05 |
Penalty |
16 March 2015 |
£34,054.25 |
|
2011–12 |
Assessment |
12 November 2014 |
£66,019.60 |
Penalty |
16 March 2015 |
£39,281.65 |
|
2012–13 |
Assessment |
12 November 2014 |
£86,328.80 |
Penalty |
16 March 2015 |
£51,365.63 |
[2] HMRC relied on witness evidence from Officer Steven Booth, a civil investigator with the Criminal Taxes Unit at HMRC. He provided a witness statement and was cross-examined by Mr Kamal.
[3] Mr England gave evidence himself. He served a witness statement dated 13 August 2016, just a few days prior to the hearing. HMRC had no objection to him giving witness evidence even though that witness statement was served late and Mrs Spencer cross-examined him. It was clear from the bundle of documents that Mr England had previously provided a witness statement in connection with an earlier Tribunal hearing which had been adjourned and the statement of 13 August 2016 was different from that earlier statement. The statement of 13 August 2016 was described as Mr England's witness statement in relation to his appeal, not as an additional witness statement, and was prepared at a time when Mr England had engaged the services of counsel. Moreover, prior to Mr England commencing his oral evidence, he adopted only the statement of 13 August 2016 and did not adopt any other statement. We have, therefore treated only the statement of 13 August 2016 as Mr England's witness evidence and it was that statement on which he was cross-examined.
[4] We also had various bundles of documents, some prepared by HMRC and some by Mr England and his advisers.
[5] We will preface our findings of fact by stating that, at least in part, Mr England's tax liabilities for the years in dispute arise from his business dealings with a Mr Matthew Jenner. Those business arrangements were complicated and opaque and have terminated acrimoniously. There is ongoing civil litigation between Mr England and Mr Jenner with each claiming sums from the other and disputing the other's account of the facts. Mr Jenner was declared bankrupt on 11 March 2015. Since we had no evidence from Mr Jenner, and such evidence as we had as to the nature of the business arrangement was both sketchy and came solely from Mr England, we are not in a position to make findings of fact as to matters in dispute between Mr England and Mr Jenner such as the amounts (if any) that Mr England or Mr Jenner owed each other, or paid each other, in the relevant tax years.
[6] Officer Booth gave evidence as to information that HMRC held on Mr England's tax history. That evidence was not challenged and we have concluded that his tax history can be summarised as follows:
1) In the tax year 2000–01, Mr England paid tax under PAYE on gross income of approximately £8,000.
2) Between 2001–02 and 2006–07, HMRC have no record of Mr England receiving any taxable income.
3) In 2007–08 and 2008–09, Mr England received a gross...
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