Hankinson v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 September 2010 |
| Neutral Citation | [2010] UKUT 361 (TCC) |
| Date | 30 September 2010 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2010] UKUT 361 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Warren J, Judge Colin Bishopp.
Robin Mathew QC (instructed by Cowgill Holloway) for the appellant.
Ingrid Simler QC and Akash Nawbatt ( instructed by the Solicitor to HM Revenue and Customs) for the respondents.
The following cases were referred to in the judgment:
Cenlon Finance Co Ltd v EllwoodTAX (1962) 40 TC 176
Langham v VeltemaTAXTAX [2004] BTC 156 (CA); [2003] BTC 15
R v IR Commrs, ex parte Newfields Developments LtdTAX [2001] BTC 196
R (on the application of Johnson) v BraniganUNKTAX [2006] EWHC 885 (Admin); [2008] BTC 783
R (on the application of Pattullo) v R & C CommrsTAX [2009] CSOH 137; [2010] BTC 541
R & C Commrs v Household Estate Agents LtdTAX [2008] BTC 502
Scorer v Olin Energy Systems LtdTAX [1985] BTC 181
Tower MCashback LLP v R & C CommrsTAX [2010] BTC 154
Vickerman v Mason's Personal RepresentativesTAX [1984] BTC 119
Capital gains tax - Residence - Discovery assessment - Return claiming taxpayer not resident in UK - Whether taxpayer working full-time abroad - Whether dual resident - Discovery assessment - Whether statutory requirements for discovery assessment satisfied - Taxpayer's appeal dismissed - Taxes Management Act 1970, Taxes Management Act 1970 section 29s. 29.
This was an appeal by the taxpayer from a decision of the First-tier Tribunal ([2009] UKFTT 384 (TC); [2010] TC 00319) that a discovery assessment was validly made.
The taxpayer submitted a tax return for 1998-99 which stated that he had not been resident or ordinarily resident in the UK, but had been working in the Netherlands during that year. In 2005 HMRC issued a "discovery" assessment under s. 29 of the Taxes Management Act 1970 for income tax and capital gains tax amounting in the aggregate to £30,003,607.65, on the basis that the taxpayer had been resident and ordinarily resident in the UK in 1998-99. The taxpayer appealed against the discovery assessment and a statutory determination of his ordinary residence in the UK for the relevant tax year.
The First-tier Tribunal found that the taxpayer's circumstances had not changed sufficiently to show that he had ceased to be resident or ordinarily resident in the UK in the relevant tax year. In relation to the discovery assessment, the tribunal decided that, on the facts, both of the conditions referred to in s. 29(3) of the 1970 Act and set out in s. 29(4) and (5) had been fulfilled. In relation to subs. (5), on the basis of the taxpayer's 1998-99 return, an officer could not reasonably have been expected, as at 31 January 2001 when the enquiry window closed, to have been aware of the insufficiency. That, the tribunal decided, was all that was necessary for the assessment to be valid. Furthermore, the subs. (4) condition was fulfilled, because the taxpayer had been negligent in not making a full disclosure of the time he spent respectively in the UK, the Netherlands and Barbados. Thus the discovery assessment was validly made ([2009] UKFTT 384 (TC); [2010] TC 00319). The taxpayer appealed. He argued that it was not enough that one or other of the conditions was in fact fulfilled; HMRC had to show that the officer himself considered them before making the assessment. There was no evidence before the tribunal that the assessing officer in this case had considered the conditions before he made the assessment, which was therefore fatally flawed.
Held, dismissing the appeal:
1. TMA 1970, s. 29 was not concerned with the subjective view of the assessing officer (or the Board) about fulfilment of either or both of the conditions specified in s. 29(4) and (5). The officer had to have made a discovery before he could raise an assessment; but, subject to that, if he did raise an assessment, its validity was to be tested by reference to those two conditions. The phrase "he shall not be assessed", as it was used in s. 29, meant "he shall not be validly assessed". Accordingly, if one or both of the conditions was fulfilled, the assessment was valid; if neither of them was fulfilled, the assessment was invalid. The subjective opinions of the assessing officer or the Board about fulfilment of the conditions had no part to play in the operation of s. 29. That was the only conclusion consistent with s. 29(8): the subject matter of an appeal was whether or not either of the conditions was fulfilled, without any form of qualification. If neither was fulfilled, the assessment should not have been made and would be invalid. And that was so whether the officer had formed the view that the conditions were fulfilled (and turned out to be wrong) or whether he had not considered them at all. The protection for the taxpayer in either case was his right of appeal under s. 29(8).
2. The purpose of s. 29 was to protect the taxpayer who had made an honest, complete and timely return from a late assessment. The need to demonstrate fulfilment of one or both of the objective conditions found in s. 29(4) and (5), far from undermining the protection, was the means by which it was directed at those for whom it was intended. The section was permissive, not mandatory. The officer's supposed duty to raise an assessment was one which depended not on his own assessment of whether the conditions were fulfilled, but on whether they were in fact fulfilled. The tribunal concluded that a discovery had been made and that the conditions were both fulfilled. Those were findings of fact which were not susceptible of challenge before the Upper Tribunal. The First-tier Tribunal came to the right conclusion for the right reasons. (Vickerman v Mason's Personal Representatives [1984] BTC 119 and R v IR Commrs, ex parte Newfields Developments Ltd [2001] BTC 196 considered.)
1. This is an appeal by Mr Derek Hankinson from the decision of the First-tier Tribunal (Judge Avery Jones CBE and Judge Clark) ("the Tribunal"), released on 29 December 2009 ([2009] UKFTT 384 (TC); [2010] TC 00319), by which they dismissed Mr Hankinson's appeal against a discovery assessment in respect of the year 1998-99. The assessment was made on 24 January 2005, in accordance, or purported accordance, with s. 29 of the Taxes Management Act 1970 ("TMA"). It was for income tax and capital gains tax amounting in the aggregate to £30,003,607.65.
2. Before the Tribunal the issues were: (1) whether Mr Hankinson was resident or ordinarily resident in the United Kingdom, as the respondents maintained, or in the Netherlands, as he contended; (2) if the Tribunal's finding on the first issue made the point relevant, whether application of the double taxation agreement between the UK and the Netherlands had the result that the income and gains which were the subject of the assessment were properly taxable in the UK or in the Netherlands; and (3) whether the assessment was lawfully made. The calculation of the tax, should Mr Hankinson be liable to pay it at all, was undisputed. The Tribunal decided all of the issues before it against Mr Hankinson, and upheld the assessment. Mr Hankinson appeals to this tribunal only in respect of the last of the three issues.
3. Section 29 of TMA, as it was in force at the time and so far as it is relevant to this appeal, is as follows:
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(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...
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