Fearn
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 February 2020 |
| Neutral Citation | [2020] UKFTT 97 (TC) |
| Date | 17 February 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 97 (TC)
Judge Aleksander, Michael Bell
The appellant appeared in person
Ravi Mehta, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Tax avoidance scheme – Quantification of tax payable – Mistakes by HMRC when informing appellant of amount owed – Are HMRC bound by their erroneous statements – Estoppel and legitimate expectation – TMA 1970, s. 28A and 50 – Appeal dismissed.
The First-tier Tribunal (FTT) found that although on several occasions HMRC had mistakenly told the taxpayer that his tax liability was lower than it actually was, the taxpayer was still required to pay his full liability.
The appellant (Mr Fearn) participated in a tax avoidance scheme in 2003–04. He submitted his 2003–04 tax return showing that he had overpaid tax and had losses to carry forward. Under HMRC's “process first, check later” procedure HMRC issued Mr Fearn with a tax refund. HMRC later opened an enquiry into Mr Fearn's return and subsequently issued a closure notice under TMA 1970, s. 28A disallowing the losses claimed and telling Mr Fearn that he owed the amount of tax due per the amended return plus the repayment he had received.
HMRC later issued another “closure notice” taking into account adjustments to his computation. This notice did not mention the tax already repaid. There was a telephone call and two further letters from HMRC which mistakenly did not take into account the previous repayment Mr Fearn had received. After the second of these letters HMRC quickly called Mr Fearn to inform him of the mistake. Since then HMRC had demanded full payment.
Mr Fearn submitted that he should only be required to pay the tax shown in the second “closure notice” and the two further letters and that HMRC were estopped from claiming any more tax from him.
The FTT noted that it was unfortunate that HMRC had made a number of errors informing Mr Fearn of the amount of tax he owed. It found that the first closure notice was the only closure notice, as the second purported notice could not have been a closure notice as the enquiry had already been closed. It also found that under TMA 1970, s. 50 it was required to determine the true amount of tax payable irrespective of any self-assessment, closure notice or subsequent correspondence. The FTT accordingly determined that Mr Fearn was liable to pay both the tax to which he was liable and the tax that had been repaid to him. It also found that HMRC were not bound by the erroneous figures and therefore Mr Fearn was required to pay the full amount of his tax liability. The FTT found that Mr Fearn had not acted to his detriment as a result of the mistakes, and even if he did, it had no jurisdiction to consider whether HMRC had acted ultra vires and were estopped from pursuing him as the private law concept of estoppel did not apply to HMRC in this sort of case. Nor could the tribunal consider any breach of legitimate expectation as that would have to be by way of a claim for judicial review in the High Court.
The appeal was dismissed.
While it was unfortunate that HMRC had told the taxpayer the wrong amount of tax he owed, the FTT had to consider the correct position and had no jurisdiction to consider any possible challenge based on estoppel or legitimate expectation.
[1] This is an appeal by Mr Fearn in relation to the quantification of the tax he owes for the tax year 2003/4 in respect of his participation in a tax avoidance scheme which utilised capital redemption insurance policies.
[2] Mr Fearn represented himself. HMRC were represented by Mr Mehta. We heard evidence from Mr David Jackson, an HMRC officer, and from Mr Fearn. In addition, documentary evidence was produced.
[3] The background facts are not disputed, and we find them to be as follows.
[4] The background to this appeal is a tax avoidance scheme utilising capital redemption policies (“CRPs”). The scheme is described in the decision of this Tribunal in Abbeyland Ltd [2013] TC 02693.
[5] Mr Fearn's evidence acknowledged that he had entered into a tax avoidance scheme that was sold to him by his then tax advisors, Smith & Williamson. Mr Fearn in his evidence said that he does not know, and never knew, the details of the scheme and how it achieved its purported saving in tax. His evidence was that the scheme was backed by an opinion of counsel. But Mr Fearn accepts that the scheme was not effective, and that tax is therefore payable by him. Nor does Mr Fearn dispute HMRC's calculation of his taxable income. Given that neither the operation of the scheme, nor the calculation of the taxable income arising from its operation, are in issue before us, we do not propose to address them further in this decision.
[6] The only issue in dispute is whether HMRC are bound by mistakes they made in communicating to Mr Fearn the amount of additional tax that he owed.
[7] On 31 January 2005, HMRC received Mr Fearn's self-assessment tax return for 2003/4, signed by him on 8 January 2005. The return declared an overpayment of tax of £5718.88.
[8] Under its “process first, check later” procedure, HMRC paid Mr Fearn £5718.88 on 7 March 2005. Mr Fearn does not dispute that he received this payment from HMRC, and we find that he did receive it.
[9] On 28 September 2005, HMRC wrote to Mr Fearn opening an enquiry into his self-assessment tax return for 2003/4. The enquiry was concluded on 16 November 2011 with the issue of a closure notice under s28A, Taxes Management Act 1979 (“TMA”). The relevant provisions of the closure notice were as follows:
Is that Capital Losses claimed of £303,301 under the CRP Mark 2 Scheme are not available. There is not balance of losses to carry forward.
I have amended your Self Assessment return to reflect my conclusion.
- It previously showed that you had paid £5,718.88 too much tax
- It now shows that you are due to pay £97,365.70 tax
- The difference is £103,084.58
I enclose details of my calculations.
I have also updated your Self Assessment statement to reflect this change. As of 16 November 2011 your statement shows that you are due to pay a total of £133,692.71. This amount includes all the items, not just the results of my check. This figure may change on a daily basis if other amounts become due or interest is added. I have enclosed a copy of your statement.
If you have any questions or need more information, please phone me on the number at the top of this letter or write to me at the above address.
Please pay £133,692.71 by 16 December 2011 […]
[10] As no partial closure notice had previously been given, this closure notice was a “final closure notice” for the purposes of s28A(1B) TMA.
[11] Mr Fearn appealed against the closure notice on 6 December 2011, on the grounds that the enquiry had been closed prematurely in light of pending litigation relating to the tax treatment of CRPs.
[12] On 12 December 2011, HMRC wrote to Mr Fearn again, updating the amount owed to take account of his accountant's computation of a capital gain and other adjustments to his computation.
[13] The relevant provisions of that letter (which was described as a “closure notice” under s28A TMA):
Is that your previous Accountant's computation of the Capital Gain of £265,232 after the annual exemption can be accepted
I have amended your Self Assessment return to reflect my conclusion.
- It previously showed that you were due to pay £97,365.70 tax
- It now shows that you are due to pay £95,498.90 tax
- The difference is £1866.80
I enclose details of my calculations.
I have also updated your Self Assessment statement to reflect this change. As of 12 December 2011 your statement shows that you are due to pay a total of £131,479.89. This amount includes all the items, not just the results of my check. This figure may change on a daily basis if other amounts become due or interest is added. I have enclosed a copy of your statement.
If you have any questions or need more information, please phone me on the number at the top of this letter or write to me at the above address.
Please pay £131,479.89 by 11 January 2011 […]
[14] There are several points to note about the 12 December letter.
[15] First, the 12 December letter describes itself as a “closure notice”. HMRC submit that only the letter of 16 November was a closure notice, and a mistake was made in the 12 December letter to describe it as a closure notice. Mr Fearn's case is that the 12 December letter is the only closure notice that applies to him, and the 16 November letter should be ignored.
[16] Second, the comparison made in the letter in the amount of the “tax due” is not with Mr Fearn's original self-assessment return, but with his self-assessment return after taking account of the amendments made by the closure notice dated 16 November 2011. But we note that the amount stated in the letter as being payable (£131,479.89) does take account of the overpayment of £5,718.88 claimed in the original self-assessment.
[17] Third, the payment date is stated as being 11 January 2011 – this is clearly and obviously a typographical error, and should have been 11 January 2012. Neither party has raised any issue with this error, and nothing turns on this point.
[18] On 21 December 2011, HMRC wrote to Mr Fearn offering him a review. Because of the Christmas holidays, HMRC extended the deadline for him to request a review or file his appeal with the Tribunal to 31 January 2012. This deadline was subsequently extended to 15 February following a request from Mr Fearn, as he was going abroad.
[19] On 2 February 2012, following a telephone call, HMRC wrote to Mr Fearn with details of the tax owed as follows:
You asked for a note of the final and correct position of tax and interest arising on withdrawal of the capital redemption policy losses in 2003/2004:
The revised figure of...
To continue reading
Request your trial