Investec Asset Finance Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 May 2016 |
| Neutral Citation | [2016] UKFTT 356 (TC) |
| Date | 24 May 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jane Bailey, Mr William Silsby
Robert Grierson, of counsel, instructed by Spencer Gardner Dickins, appeared for the Appellants
Marika Lemos, of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Procedure – Respondents' application to amend Statement of Case – Supported by evidence – Appellants' unsupported application to amend their Grounds of Appeal – Reasons for making application and for any delay – Whether permission should be granted in either case – Yes and no.
Discovery assessment – Whether the requirements in Taxes Management Act 1970 (“TMA 1970”), s. 29 and 34 were satisfied – Yes – Whether respondents prevented from raising assessment if discovery under s. 29(5) had grown “stale” – No.
The First-tier Tribunal (FTT) ruled that discovery assessments raised under the Taxes Management Act 1970 (“TMA 1970”), s. 29 were validly raised and within time: the conditions in TMA 1970, s. 29(1) and (5) were satisfied and the assessments were raised within the time limits provided by TMA 1970, s. 34. The FTT also granted the Appellants permission to add two new grounds of appeal in the substantive dispute with HMRC to be heard subsequently and directed evidence be produced in support of the Appellants' application to add a third new ground of appeal (which, if opposed by HMRC, would be referred back to Judge Bailey and decided on paper).
Mr Tersam Gakhal, Mr Ajit Gakhal and Mr Sohan Pawar (the Appellants) were all employed by Aeroplas (UK) Limited, and (together with one other person, now deceased) were the sole shareholders and directors of Aeroplas Holdings Limited, the parent company of Aeroplas (UK) Limited. Aeroplas (UK) Limited set up a Funded Unapproved Retirement Benefit Scheme (“FURBS”) for each of the Appellants. The trustees of the FURBS then bought shares in Aeroplas Holdings Limited and received £525,000 of dividends into each FURBS. The dividend income was declared on the Trustees tax returns but not the personal tax returns of the Appellants. HMRC raised discovery assessments to recover income tax of £130,000 each on the basis that the Income and Corporation Taxes Act 1988 (“ICTA 1988”), s. 660A applied to the income of the trusts.
The hearing before the FTT was to determine preliminary and procedural issues only and, in particular, whether HMRC were to be permitted to amend their statement of case, whether the condition in TMA 1970, s. 29(5) was satisfied in relation to the discovery assessments and whether the Appellants were to be permitted to include further arguments on both the discovery issue and the substantive dispute.
The FTT noted the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273) (“Procedure Rules”), r. 2 which provided the overriding objective in exercising any power under the rules was to enable the Tribunal to deal with cases fairly and justly. Following the decision of the Court of Appeal in BPP Holdings Ltd v R & C Commrs VAT[2016] BVC 9 and various other authorities, this meant considering (i) the prospects of success; (ii) the reasons for the application and explanations for any delays; (iii) the prejudice caused to the other party if the application was permitted and (iv) the prejudice caused to the applicant if the application was refused.
The FTT considered first HMRC's application and concluded that although the Appellants would lose the possibility of succeeding by default if permission was granted, the balance of factors weighed in favour of granting permission. The amendment had real prospects of success and the application was brought without delay.
Considering the Appellant's application to add a new ground on the “discovery” issue, the FTT found that the proposed amendment had no prospects of success and the only reason for the many years of delay in making the application appeared to be the Appellant's failure to engage with litigation until very shortly before what would have been the substantive hearing. The FTT concluded that although refusing permission would mean the Appellants would be unable to present argument on TMA 1970, s. 29(2), having balanced the relevant factors, permission was refused.
Regarding the validity of the discovery assessments, the FTT found that the only information made available at the time when an officer of HMRC ceased to be entitled to open an enquiry (TMA 1970, s. 29(5)(a)) was information contained in the Appellant's return and information in the Trust and Estate returns could not be considered to have been made available to HMRC within the meaning of TMA 1970, s. 29(6)(d)(ii). However, even if the hypothetical officer had the information in the Trust and Estate return, he still could not have reasonably been expected to have been aware of the insufficiency of tax. The condition in TMA 1970, s. 29(5) was satisfied.
The FTT then went on to consider whether there had been a “discovery” within TMA 1970, s. 29(1) and whether the assessments had been raised within the time limits provided by TMA 1970, s. 34. The FTT concluded that over the course of dealing with the enquiries, HMRC had received new information and had “freshly” arrived at the conclusion that the settlements legislation was applicable and there was income of the Appellants which should have been assessed to tax. Accordingly, the condition in TMA 1970, s. 29(1) was satisfied. The FTT further noted that each of the discovery assessments was raised within five years of 31 January following the end of the year of assessment and the assessments were raised within time.
The FTT concluded that all the conditions required for HMRC to raise the discovery assessments had been met and that the discovery assessments were validly raised.
Finally, as part of the case management, the FTT addressed the issue of three new grounds of appeal that the Appellants were seeking to include in the substantive dispute with HMRC. HMRC were not opposed to two of the grounds and permission was granted. On the third ground, HMRC were unable to state whether they objected or not because the application was unsupported. Accordingly, the FTT directed the Appellants produce evidence and in the event that HMRC opposed the application, it was to be referred back to Judge Bailey and decided on paper.
This case concerns an appeal by three individuals (the Appellants) against discovery assessments raised by HMRC for income tax on dividend income received by their respective FURBS on the basis that ICTA 1988, s. 660A (the settlements legislation) applied to the income received by the trustees.
This hearing deals with a number of preliminary and case management issues, including whether discovery assessments were validly raised by HMRC; whether the Appellants were entitled to add further arguments to their grounds of appeal and whether HMRC were entitled to amend their statement of case. The FTT granted permission to HMRC to amend their statement of case to address the validity of the discovery assessments but refused the Appellants permission to add a further argument on the “discovery” issue to their grounds of appeal. The FTT then ruled that the discovery assessments were both validly raised and within time. The Appellants had also applied for permission to add three further arguments in the substantive dispute, two of which the FTT granted as HMRC were not opposed. The third, however, was unsupported and, therefore, the FTT directed that further evidence be produced and if HMRC were opposed the matter would be decided on paper.
[1] By Notices of Appeal filed with the Tribunal on 26 February 2015, Mr Tersam Gakhal (the “First Appellant”), Mr Ajit Gakhal (the “Second Appellant”) and Mr Sohan Pawar (the “Third Appellant”) each appealed against the Respondents' review decisions, dated 2 February 2015, to uphold the raising of discovery assessments under section 29 Taxes Management Act 1970 (“TMA 1970”). Those assessments, two dated 22 December 2009 and one dated 21 January 2010, were raised to recover income tax in the sum of approximately £130,000 said to be due from each Appellant for the tax year 2003/04.
[2] In the tax year 2003/04, the Appellants were all employed by Aeroplas (UK) Limited, and (together with one other person, now deceased) were the sole shareholders and directors of Aeroplas Holdings Limited, the parent company of Aeroplas (UK) Limited. On 15 December 2003, Aeroplas (UK) Limited set up a Funded Unapproved Retirement Benefit Scheme (“FURBS”) for each of the Appellants. Once each FURBS had been set up, Aeroplas (UK) Limited made a contribution of £10,000 into each FURBS. This contribution was declared in each of the Appellants' personal tax returns for the year 2003/04.
[3] On 30 December 2003, Aeroplas Holdings Limited increased its share capital by the creation of 20 “A” shares at £1 each. These shares ranked behind the ordinary shares held by the Appellants. The trustees of each FURBS successfully applied to buy 5 “A” shares in Aeroplas Holdings Limited for a total cost of £1,000. Also on 30 December 2003, an interim dividend of £100,000 was declared on the “A” shares, resulting in £25,000 being paid to each FURBS. On 16 March 2004 a final dividend of £2million was declared on the “A” shares resulting in £500,000 being paid to each FURBS. No dividend was declared on the ordinary shares held by the Appellants. The dividend income received by each FURBS in the year 2003/04 was accordingly £525,000. This was declared on the Trust and Estate tax return submitted for each FURBS for the year 2003/04. No mention was made of this dividend in the personal tax returns of the Appellants.
[4] On 19 January 2006 an enquiry was opened into the Trust and Estate return of the FURBS for each of the First, Second and Third Appellants. Correspondence relating to these enquiries continued between...
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