JurisdictionUK Non-devolved
CourtFirst Tier Tribunal (Tax Chamber)
Judgment Date14 May 2019
Neutral Citation[2019] UKFTT 312 (TC)
Date14 May 2019

[2019] UKFTT 312 (TC)

Judge Rupert Jones, David Batten


Neil Staff, Raffingers Chartered Certified Accountants, appeared for the appellant

Paul Harbottle and Brian Horton, Litigators and Presenting Officers of HM Revenue and Customs, appeared for the respondents

Income tax – Discovery Assessment – TMA 1970, s. 29 – Whether HMRC subjectively and objectively made a discovery – Whether it was stale – Whether it was made within the extended time limit – Appellant's carelessness – Failure to keep records – Tax loss – Large credit and small credit said to be loan and payment of expenses – Undeclared income from trade or self-employment – Lawfulness of informal compliance check rather than formal enquiry or investigation – Whether HMRC used coercion or false pretences to obtain information – Appeal dismissed.


[1] Keith Hunter (“Mr Hunter” or “The Appellant”) appeals against a discovery assessment (“the Discovery Assessment”) issued by HMRC on 27 September 2017. It was made against him pursuant to section 29(1) of the Taxes Management Act 1970 (“TMA 1970”) for the tax year ended 5 April 2012 (the “Tax Year”).

[2] The Discovery Assessment charged the Appellant income tax in the amount of £42,565.30, albeit that HMRC now invite the Tribunal to reduce the sum to £36,225.62.

[3] HMRC submit that the Appellant received undeclared and untaxed income amounting to £66,866.54 during the Tax Year. This was made up of two sums credited to his bank account, £8,056.10 on 17 October 2011 (“the small credit”) and £58,810.44 on 7 December 2011 (“the large credit”).

[4] At the time of the decision to make an assessment in 2017, HMRC suggested that both credits were taxable as unspecified gains or income. HMRC believed the payments to the Appellant were from miscellaneous sources and did not seek to identify the type of income that the credits may represent.

[5] Prior to the hearing and in defending the appeal, HMRC submitted that the small and large credits are likely to have been derived from the Appellant's taxable trading income or self-employment such as the provision of “Consultancy Services” . HMRC say that the two credits are chargeable to tax under Part 2 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”) as “Trading Income.”

Issues in the appeal

[6] The first issue the Tribunal must decide is whether HMRC have proved the Discovery Assessment is valid. This involves determination as to whether HMRC Officer Booth made a “discovery” pursuant to section 29(1) of the TMA 1970 of income which ought to have been assessed but was not so assessed, thus leading to a tax loss.

[7] This requires deciding whether Officer Booth subjectively believed that he was making such a discovery and that the information or evidence was objectively discoverable. In addition, HMRC must prove that the Discovery Assessment was raised within a reasonable time period of the discovery having been made so that it was “fresh” or “not stale”. The Appellant submits there was no “subjective” nor “objective” discovery of any income which ought to have been assessed nor any tax loss during the enquiry into his tax affairs.

[8] The second issue the Tribunal must decide is whether HMRC have proved any loss of income tax was brought about by the carelessness of the Appellant. If so, this empowers HMRC to raise the Discovery Assessment pursuant to sections 29(3) and 29(4) TMA 1970. It also determines whether the Discovery Assessment was made within the time period limited by law. If the Appellant acted carelessly in bringing

[9] HMRC's assessment was raised in September 2017 some five and a half years after the end of the Tax Year in April 2012. The Appellant argues that he did not act carelessly and was under no duty to retain records relating to non-taxable receipts. If HMRC do not prove that the Appellant acted carelessly, then the Discovery Assessment must be cancelled as it would have been made outside the standard or default four-year time limit provided under section 34 TMA.

[10] The third issue the Tribunal must decide, if HMRC prove that the Discovery Assessment is valid and made in time, is whether the Appellant has proved that either of the two credits are not taxable receipts. The Appellant bears the burden of proving the amount charged under the Discovery Assessment should be reduced and/or set aside.

[11] In support of his argument that the Discovery Assessment should be cancelled, the Appellant submits that the large credit of £58,810.44 represents a loan and is not taxable income and the smaller credit was the repayment of expenses and is likewise not taxable.

[12] The burden or “onus” of proof is upon HMRC in relation to the first two issues but upon the Appellant in respect of the third issue. The standard of proof is the ordinary civil standard, being the balance of probabilities.

[13] The Appellant raised two further issues in the appeal which were not identified in his grounds of appeal but which the Tribunal permitted him to pursue.

[14] The fourth issue is whether HMRC acted lawfully in undertaking an informal (ie. non-statutory) enquiry or “compliance check” of the Appellant's tax position. HMRC say they sought his voluntary cooperation, outside the formal or statutory enquiry mechanisms such as those provided under section 9A of the TMA 1970 for enquiring into returns or by obtaining material through the issue of Taxpayer or Information Notices under Schedule 36 to the Finance Act 2008.

[15] The Appellant submits that HMRC's enquiry or check was not lawfully opened or conducted and he was the subject of an unlawful investigation. He therefore submits that the material and information that he provided to HMRC, such as the bank statements revealing the two credits, were obtained unlawfully and cannot be relied upon in making the Discovery Assessment against him.

[16] The fifth issue is whether HMRC placed the Appellant under any undue pressure or coercion to cooperate with the “voluntary enquiry” or “informal compliance check” and produce information to them in relation to his tax position for the Tax Year.

[17] The Appellant submits that HMRC obtained material from him under false pretences and not as a result of truly voluntary cooperation. He suggests HMRC misled him when asking him to provide information to them and he did so under threat of penalties or other serious action such that his compliance was not voluntary.

The facts

[18] The Tribunal received a bundle of evidence from the parties including witness statements and documentary exhibits from the two witnesses, the Appellant and HMRC Officer Steven Booth. Both witnesses were cross examined during the hearing.

[19] The Tribunal makes all findings of fact on the balance of probabilities. It has assessed the reliability and credibility of the contents of the written evidence. The documents in the case include witness statements and exhibits. Likewise, the Tribunal has considered the oral evidence of the witnesses, its consistency with the other evidence and its inherent probability in determining whether it is reliable or credible.

The informal “compliance check” or investigation into the Appellant's tax return

[20] Officer Booth of HMRC provided a witness statement dated 2 August 2018 and was cross examined during the hearing. The Tribunal found his evidence to be reliable and credible, relying upon it to make factual findings on the balance of probabilities. The Tribunal accepts Officer Booth's oral evidence and relies upon the documentary material he produced.

[21] Officer Booth gave oral evidence and produced documents which established the following.

[22] The Appellant, Keith Lindsay Hunter, is a former Metropolitan Police Detective. He had retired from the police well before he was arrested, on 23 May 2012, on suspicion of making corrupt payments to a serving police officer. Criminal charges were not pursued against him following the conclusion of the investigation.

[23] Thereafter HMRC received, via what they submit was a legal gateway, information from the police regarding the suspicion of potential tax loss involving Mr Hunter through his company Risc Management Ltd. Risc Management Ltd was a private investigation company controlled and run by Mr Hunter until it was placed into administration on 3 February 2014. The information from the police was that Mr Hunter may have diverted (and retained) confidential cash payments from his company Risc Management Ltd which were to be made to human sources. If so, no tax would have been paid on the diverted cash receipts.

[24] On 31 August 2012 HMRC received the Appellant's Self-assessment tax return for the Tax Year ending 5 April 2012. The Appellant declared £35,055 (excluding benefits & expenses) in Employment Income from Risc Management Limited, £74,098 (excluding 10% tax credit) in UK Dividends and £13,421 in Private Pensions.

[25] On 13 February 2015 HMRC Officer Steven Booth wrote to the Appellant in terms he described as HMRC opening an investigation into the Appellant's tax affairs. Officer Booth emphasised in oral evidence that it was “a compliance check” conducted with the aim of achieving a civil settlement.

February 2015 letter opening the check or investigation

[26] The letter was addressed as being from HMRC's Criminal Taxes Unit (“CTU”).

[27] The precise terms of the letter included the following:

I am writing to inform you that I am commencing an investigation into your taxation affairs.

Information held by HMRC suggests the tax returns and accounts you have submitted are incorrect. Although this position is subject to change eg. should you be capable of providing a satisfactory explanation, it is my duty to pursue the matter further.

The investigation will cover all businesses which you are or ever have been connected with and any dealing with companies that may have an effect on your personal tax liability. It will include all sources of income and gains...

To continue reading

Request your trial
1 cases
  • JJ Manangement LLP v The Commissioners for HM Revenue and Customs
    • United Kingdom
    • Queen's Bench Division (Administrative Court)
    • 25 July 2019
    ...situation, and that HMRC regularly make use of such informal investigations. Indeed it appears from the recent FTT decision in Hunter v HMRC [2019] UKFTT 0312 (TC) (Judge Rupert Jones and Mr David Batten) (“ Hunter”) that Mr Brown's letter of 9 June 2016 initiating the investigation is, as......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT