Hargreaves v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Underhill,Lord Justice Sales |
| Judgment Date | 22 March 2016 |
| Neutral Citation | [2016] EWCA Civ 174 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2014/3823 |
| Date | 22 March 2016 |
[2016] EWCA Civ 174
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX & CHANCERY CHAMBER)
Mr Justice Nugee
FTC1122013
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Underhill
and
Lord Justice Sales
Case No: A3/2014/3823
David Goldberg QC, Clare Montgomery QC, Michael Furness QC and Conrad McDonnell (instructed by KPMG LLP) for the Appellants
Akash Nawbatt and Christopher Stone (instructed by HMRC Solicitors Office) for the Respondent
Hearing dates: 15–16 December 2015
Issue for decision
The issue here is whether the appellant taxpayer, Mr Hargreaves, has the right to require the respondent ("HMRC") to establish, at a separate preliminary hearing prior to the hearing of his appeal against a "discovery" assessment ("DA") made pursuant to section 29 of the Taxes Management Act 1970 (" TMA"), the matters which under that section HMRC must establish to show that the DA was validly made.
The Upper Tribunal (Nugee J) on 8 September 2014 rejected Mr Hargreaves' application for this purpose, dismissing an appeal against the First-tier Tribunal ("FTT") (Judge Gort). Having held there was no right, the FTT held that, while it had a discretion to order a separate preliminary trial, it would not do so. The Upper Tribunal upheld the FTT's decision on this. It held that it was possible to have a single hearing even though there were different burdens of proof in this case and also that it would need to hear evidence on the issues together. The trial of separate issues would probably lead to separate appeals and delay and that would be contrary to the overriding objective set out in Rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. Mr Hargreaves does not in this appeal challenge the exercise by the FTT of its discretion if he fails to establish his right.
Mr Hargreaves' wish is to stay silent as to the details of his own case as long as he can. He wants to be able to elect not to give evidence until HMRC have proved their case on the relevant conditions. He contends that HMRC will not be able to prove that the conditions are satisfied, and is prepared to abandon his challenge to an in time assessment for 2001/2 if a separate trial is ordered.
The DA was issued on the basis that in the events that happened Mr Hargreaves was not entitled to be treated as neither resident nor ordinarily resident in the UK for tax purposes in his 2000/1 self-assessment tax return ("SATR"). He had stated, on his case in accordance with HMRC's IR20 guidance on residence, that he was to be regarded as "provisionally non-resident and not ordinarily resident with effect from 12 March 2000." He says this was a "red flag" which ought to have put HMRC on enquiry. The point is important because in that year Mr Hargreaves made capital gains of some £84m respectively on the sale of a shareholding in Matalan plc, which he had founded. Until 2000/1, he was ordinarily resident in the UK. HMRC contend that Mr Hargreaves did not take sufficient steps to become non-resident. Following the subsequent decision of the Supreme Court in R (Gaines-Cooper) v HMRC [2011] STC 2249, he has to show that he had effected a distinct break in his pattern of life in the UK and that would involve a multi-factorial inquiry. I need not go further into Mr Hargreaves' grounds for contending that section 29(2) applies.
In my judgment, for the detailed reasons given below, the question is one of statutory construction in the light of what Parliament may be taken to have known about the trial process in the FTT. The proper meaning of section 29 TMA in that context is in my judgment that the tribunals should have a discretion to determine whether there should be a separate trial of the issue on which the onus of proof rests on HMRC. In my judgment, Mr Hargreaves cannot establish the right to require a separate trial or any related right under the relevant statutory provisions.
I shall start with the statutory scheme for DAs, the FTT's rules of procedure and the judgment of the Upper Tribunal. I then turn to the parties' submissions and set out the reasons for my conclusions.
WHEN DAS MAY BE MADE AND WHAT HAS TO BE SHOWN
A DA is to be contrasted with an in time assessment. A taxpayer must file a SATR each year disclosing his income and chargeable gains (section 8 of the Taxes Management Act 1970 (" TMA 1970")) and (save where he files his SATR before 30 September in each year) calculating his liability to tax. HMRC has in general one year within which it can then start an inquiry into whether any item in the return was not correctly charged to tax. The inquiry must be brought to a close within a prescribed time, but within that time HMRC can make an assessment, which will be an "in time" assessment.
If the applicable time limits expire and HMRC subsequently discover that any assessment to tax was insufficient, section 29(1) of the TMA 1970 provides that HMRC may issue a DA. I am only concerned with the provisions applying to individuals, and so my description of the statutory scheme will be confined to the material provisions which apply to them.
In this case, HMRC issued a DA against Mr Hargreaves for 2000/1 and an in time assessment for 2001/2.
Section 29(1) provides:
(1) If an officer of the Board or the Board discovers, 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.
The statutory provisions for DAs contain protections for the taxpayer. In particular, section 29(3) provides that one of two further conditions must be fulfilled:
(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.
The first condition ("the conduct condition") relates to the taxpayer's conduct and is set out in section 29(4), which, as in force at the relevant time, provides:
(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.
The second condition ("the officer condition") relates to whether HMRC could reasonably be expected to know of the tax loss at the time when the time limits expired. This condition is set out in section 29(5), supplemented by section 29(6):
(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 s 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 …
HMRC must show that either the conduct condition or the officer condition is fulfilled. The Tribunals called this "the competence issue," and I will do the same and will refer to the conditions together as the conduct/officer condition. In this case, HMRC contends that both conditions were fulfilled. There are time limits applying to each condition, but nothing turns on these on this appeal.
The DA's validity depends on satisfaction of the conduct/officer condition. When section 29(3) states that a taxpayer "shall not be assessed" unless the conduct/officer condition is satisfied, this means: "shall not be validly assessed." In Hankinson v HMRC ...
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