Hargreaves v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 February 2022 |
| Neutral Citation | [2022] UKUT 34 (TCC) |
| Year | 2022 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 34 (TCC)
Mr Justice Edwin Johnson, Judge Jonathan Richards
Upper Tribunal (Tax and Chancery Chamber)
Income tax, Capital gains tax – Discovery assessment – Whether stale – Following Supreme Court's decision in R & C Commrs v Tooth [2021] BTC 15 held no – Whether preconditions to making assessment satisfied – Yes – Appeal dismissed – TMA 1970, s. 29.
The Upper Tribunal (UT) overturned the First-tier Tribunal (FTT) decision on discovery assessments in Hargreaves [2019] TC 07090. Given the Supreme Court's decision in Tooth the assessment could not be considered invalid because of “staleness”, and although the FTT was wrong in law in their conclusion that the negligence condition had been met, there was no error of law in its conclusions on the information condition and practice condition and therefore the discovery assessment was valid.
The appellant (Mr Hargreaves) submitted his 2000–01 tax return on the basis that he was not resident nor ordinarily resident in the UK. As a consequence he did not include any capital gains nor foreign income in his return. Following an enquiry HMRC issued a discovery assessment for £84m, including £80m in respect of a capital gain on a disposal of Matalan shares.
Mr Hargreaves appealed to the FTT on the grounds that: (a) he was not resident nor ordinarily resident in the UK during 2000–01; and (b) the discovery assessment was invalid. Prior to the FTT hearing he accepted that he was resident and ordinarily resident. Therefore, the only issue was the validity of the discovery assessment.
The FTT allowed Mr Hargreaves appeal, because based on case law at the time the discovery had become “stale” by the time the assessment was made, and accordingly the assessment was invalid. Although not strictly necessary, in case it was wrong on the staleness point, the FTT considered the other conditions required for making a discovery assessment and found them all to be met.
Following the Supreme Court's decision in R & C Commrs v Tooth [2021] BTC 15, in which the concept of staleness was rejected, HMRC appealed against the FTT's decision. Mr Hargreaves agreed that HMRC's appeal had to be allowed and accordingly the appeal on that point succeeded.
Mr Hargreaves however challenged the FTT's conclusions that the preconditions for making the assessment had been met. The UT rejected Mr Hargreaves's challenge.
The UT found that there was no error in law in the FTT's conclusion that the “information condition” in TMA 1970, s. 29(5) was satisfied. The hypothetical officer could not have been reasonably expected to be aware of an actual insufficiency arising as a result of the disposal by Mr Hargreaves of his Matalan shares on the basis of the information available.
The UT found there was no error of law in the FTT's conclusion that the “practice condition” in TMA 1970, s. 29(2) was satisfied. The return had not been made on the basis or in accordance with the practice generally prevailing at the time it was made.
The UT found that the FTT had been wrong in law to conclude that the “negligence condition” in TMA 1970, s. 29(4) had been met as the FTT had made no finding that the loss of tax was attributable to Mr Hargreaves' negligence as it was not known what advice PwC would have given if Mr Hargreaves had asked for advice before submitting his return. However, this had no bearing on the decision as the other conditions were satisfied.
Mr Hargreaves's appeal was dismissed.
Given the Supreme Court's rejection of the concept of staleness, and therefore no doubt the overturning of many FTT decisions which were made on this basis, we may well see more cases like this where the preconditions for discovery assessments are considered. This case provides useful consideration of these preconditions.
David Goldberg QC, Amanda Brown QC, and Conrad McDonnell instructed by KPMG Law appeared for the appellant
Akash Nawbatt QC, Christopher Stone and Marianne Tutin, instructed by The General Counsel and Solicitor for Her Majesty's Revenue and Customs appeared for the respondents
[1] HMRC are entitled to make what practitioners refer to as “discovery assessments” under s29 of the Taxes Management Act 1970 (“TMA”) where an officer of HMRC discovers that a taxpayer has paid insufficient tax. This appeal concerns HMRC's entitlement or otherwise to make such a discovery assessment on Mr Hargreaves in respect of income and gains arising in the 2000–01 year of assessment.
[2] Mr Hargreaves submitted his self-assessment return (his “Return”) for 2000–01 on 31 January 2002 (the “Return Date”) on the footing that he was not resident or ordinarily resident in the UK in that year. HMRC formed the view that he was so resident and made an assessment (the “Assessment”) on 9 January 2007 on the basis that he was liable to both income tax and capital gains tax (“CGT”) in amounts greater than those stated in the Return.
[3] The text of s29 so far as relevant and applicable at the relevant time is set out in the Appendix to this decision. HMRC considered that they were entitled to make the Assessment by applying the following line of reasoning:
- An HMRC officer had discovered a situation mentioned in s29(1)(a) and s29(1)(b) of TMA, namely that income and chargeable gains that should have been assessed on Mr Hargreaves were not so assessed and that Mr Hargreaves' self-assessment of tax due for 2000–01 was insufficient (the Situation).
- Because Mr Hargreaves had submitted the Return, HMRC could, by s29(2), make a discovery assessment only if the condition set out in s29(4) or s29(5) was satisfied.
- The condition set out in s29(4) (the Negligence Condition) was satisfied because the Situation was attributable to the negligent conduct of Mr Hargreaves and/or of PricewaterhouseCoopers (PwC) who were acting on his behalf.
- Alternatively, the condition set out in s29(5) (the Information Condition) was satisfied because an officer of HMRC could not have been reasonably expected to be aware of the Situation by the deadline for opening an enquiry into Mr Hargreaves' return under s9A of TMA (the Information Date being 31 December 2003), on the basis of information that Mr Hargreaves had provided before that date.
[4] Mr Hargreaves appealed against the Assessment to the First-tier Tribunal (Tax Chamber) (the “FTT”). In those proceedings Mr Hargreaves originally sought to challenge the Assessment on two grounds. The first ground was that he had in fact been neither resident nor ordinarily resident in the UK in the 2000–01 tax year. The second ground was that HMRC had not, for various reasons, been entitled to make the Assessment, with the consequence that the Assessment was invalid. Shortly before the hearing in the FTT Mr Hargreaves abandoned the first of these grounds, accepting that he had been resident and ordinarily resident in the UK in the 2000–01 tax year. This left, for the determination of the FTT, the question of whether the Assessment had been invalid.
[5] In a decision notice released on 12 April 2019 (the “Decision”) the FTT allowed Mr Hargreaves' appeal against the Assessment. Its core conclusion (the “Staleness Point”) was that the “discovery” on which the Assessment was based had become “stale” as a consequence of HMRC's delay in making the Assessment. That conclusion was itself sufficient for Mr Hargreaves' appeal to be allowed. However, in case it was wrong on the Staleness Point, the FTT made the following other determinations and findings:
- It concluded that the Negligence Condition was satisfied.
- It concluded that the Information Condition was satisfied.
- It also concluded that Mr Hargreaves had not submitted the Return in accordance with practice generally prevailing (PGP) within the meaning of s29(2) of TMA. Accordingly, the condition set out in s29(2) of TMA (the Practice Condition) was not satisfied so as to preclude HMRC from making the Assessment.
[6] There are two challenges to the Decision before us:
- HMRC appeal against the FTT's conclusion on the Staleness Point. Both parties agree that HMRC's appeal must be allowed given the judgment of the Supreme Court in R & C Commrs v Tooth [2021] BTC 15 which was handed down after the Decision.
- Mr Hargreaves challenges the FTT's conclusions on the Negligence Condition, the Information Condition and the Practice Condition. (Mr Hargreaves says that his challenge is brought by way of a respondent's notice that responds to HMRC's appeal. HMRC say that he is making a separate appeal against the Decision. For reasons that we will come to, we do not consider that the precise mechanism by which Mr Hargreaves makes his challenge matters greatly).
[7] Mr Hargreaves does not challenge any of the findings of fact underpinning the FTT's conclusions on the Negligence Condition or the Information Condition, but he does submit that the FTT's conclusions on those issues were either irrational or not available to the FTT as a matter of law in the light of its factual findings. Mr Hargreaves' appeal relating to the Practice Condition is, Mr Goldberg QC accepted, a pure Edwards v Bairstow and Harrison (1955) 36 TC 207 challenge. Mr Hargreaves argues that the FTT's factual finding to the effect that the Practice Condition was not satisfied was irrational.
[8] We have had the benefit of three days of detailed oral argument from counsel, in addition to their helpful skeleton arguments. Counsel referred us to a substantial quantity of case law, which was collected into a main bundle of authorities and a supplementary bundle of authorities. We were also provided with a core bundle and 11 bundles of documents, although reference to the content of the 11 bundles of documents was fairly limited. In reaching our decision on this appeal we have taken into account everything drawn to our attention, in both the written and oral submissions. It is however inevitable, given the detail of the arguments and given the...
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