Jafari
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 March 2020 |
| Neutral Citation | [2020] UKFTT 134 (TC) |
| Date | 05 March 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 134 (TC)
Judge James Austen
Procedure – Permission to appeal – Discovery assessment – Grounds of appeal – (1) staleness not part of law – (2) Tribunal's decision unexplained – (3) Finding of staleness not reasonably open to Tribunal – Application refused – TMA 1970, s. 29
The First-tier Tribunal (FTT) refused to give HMRC permission to appeal against an earlier FTT decision which had allowed a taxpayer's appeal against a discovery assessment on the basis of “staleness”.
HMRC belatedly realised that a closure notice they had issued to Mr Jafari (the appellant) was invalid, and therefore tried to rectify the position by issuing a discovery assessment under TMA 1970, s. 29. The appellant appealed against the assessment and in Jafari [2019] TC 07465 the FTT decided that the discovery assessment was invalid due to “staleness”. The FTT came to this decision adopting and applying the Upper Tribunal's approach and conclusions in Beagles v R & C Commrs [2018] BTC 528. The FTT accordingly rejected HMRC's view that “the doctrine of “staleness” was unsound and devoid of statutory authority”. Although the appellant decided to offer no case at the hearing, the FTT raised the issue of whether the assessment was stale. HMRC chose not to deal with the staleness issue in their pleadings.
In this decision HMRC had applied for permission to appeal the FTT's earlier decision. The FTT refused permission on each of the three grounds put forward by HMRC.
HMRC submitted that the discovery assessment was not “stale” as delay in acting on a discovery does not prevent the issuing of an assessment so long as the statutory time limits are complied with. Unlike in the substantive hearing, HMRC accepted that this ground was contrary to the current state of the law, but both Beagles and R & C Commrs v Tooth [2019] BTC 14 were under appeal. With HMRC planning to argue in those cases that the concept of staleness has no application to discovery assessments. If permission was granted on this ground, HMRC would have sought to have the appeal stayed behind Beagles and Tooth.
Given HMRC's acknowledgement that the current state of the law (as exemplified in Beagles) includes the concept of TMA 1970, s. 29 discovery assessments becoming “stale”, and thus void, that was enough for the FTT to refuse this ground. The existence of leave to appeal in the Tooth and Beagles cases did nothing to change the law pending the hearing of those appeals. HMRC's hope or expectation of overturning Tooth or Beagles was immaterial. HMRC could have applied for a stay before the substantive hearing and seeking leave to appeal the decision already arrived at with a view to staying the appeal behind other cases in the hope of a better outcome would be inappropriate.
Accordingly, the FTT refused permission to appeal on ground 1
HMRC submitted that the FTT's decision on “staleness” was unexplained. Alternatively the Tribunal was asked to allow the parties to make representations and then give reasons, or, alternatively, simply to give reasons.
The FTT did not understand this ground as the decision explained the reasons for the decision, both as to specific findings of fact and the application of the law. The FTT also considered that while the reasons given for the decision were brief, they were sufficient to deal with the case fairly and justly.
The FTT also rejected the idea that HMRC should be given the opportunity to raise new points as there were no representations that HMRC could have made now that could not have been made, and were given the opportunity to make, at the hearing. It was HMRC's decision not to make submissions on the issue of staleness.
Accordingly, the FTT refused permission to appeal on ground 2.
HMRC submitted that the finding that the discovery assessment was “stale” was not reasonably open to the Tribunal. Based on Pattullo v R & C Commrs [2016] BTC 510 staleness is exceptional and will not take place where the discovery has been “kept fresh” by continuous action by HMRC or the parties. HMRC contented that there had been no inaction by HMRC in this case.
The FTT decided that as the legal arguments introduced in ground 3 were not made during the hearing (or in the papers), they were “new”. The question was therefore whether it was fair and just to allow these new arguments to be heard for the first time on appeal. The FTT concluded that it would be inappropriate to allow HMRC to raise new legal arguments, whether or not supported by new evidence, in circumstances in which it had the opportunity to make them in the earlier hearing. The legal arguments raised were not in the FTT's view of such weight that they should override the prejudice that would arise to the appellant should the appeal be allowed.
Accordingly, the FTT refused permission to appeal on ground 3.
This case highlights that as the law stands discovery assessments can be void because of staleness. HMRC disagree with this concept, and have been granted leave to appeal the Court of Appeal's decision in R & C Commrs v Tooth [2019] BTC 14 and the Upper Tribunal's decision in Beagles v R & C Commrs [2018] BTC 528.
[1] On 13 November 2019, the Tribunal issued the decision in this appeal (“the Decision”). On 14 February 2020, HMRC made an in-time application to appeal the Decision (pursuant to an application for an extension of time dated 8 January 2020 under rule 5(3)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (S.I. 2009/273 (L.1), as amended) (the Rules), which was approved by Judge Poole on 17 January 2020).
[2] I considered in accordance with rule 40 of the Rules whether to review the Decision but decided not to undertake a review as I was not satisfied that there was an error of law in the Decision.
[3] The appellant's appeal related to closure notices and discovery assessments for the tax years 2008/9 to 2013/14 inclusive. In each case, the closure notices and discovery assessments related to the under-declaration of income from the appellant's property interests.
[4] Following exchanges with the Tribunal at the beginning of the hearing, the appellant decided to offer no case and, with the Tribunal's agreement, withdrew his evidence and submissions.
[5] That disposed of each of the closure notices and discovery assessments except for the discovery assessment relating to 2009/10, in respect of which HMRC had the initial burden of proof, and which I considered from my review of the papers to be “stale”. Accordingly, following exchanges with Mrs O'Reilly (who appeared on behalf of HMRC), I allowed the appeal in respect of that year alone.
[6] Having given my decision orally at the conclusion of the hearing on 2 August 2019, I gave a short written decision, without reasons (with the agreement of the parties) on 6 August 2019. HMRC subsequently requested full reasons for my decision, which resulted in the Decision released on 13 November 2019.
[7] HMRC's skeleton argument included the following relevant paragraph (quoted in the Decision at [10]):
The year 2009/10 was closed on 24 February 2016 by issuing of a closure notice under S28A(1) & (2) TMA 1970. When preparing the Statement of Case, it became apparent that this was incorrect. The reason being that although a return for 2009/10 was initially received on 16 July 2013 this was not captured and was returned as unsatisfactory on 28 October 2013. The S9A TMA 1970 enquiry notice was issued on 26 July 2013 however no return had been captured at that time. It follows that the enquiry notice and the resulting closure notice issued under S28A(1) & (2) TMA 1970 were invalid. To rectify that situation HMRC issued an assessment on 15 August 2018 under S29 Taxes Management Act 1970. As the taxpayer had already appealed the decision HMRC treated the assessment to have been issued and appealed on the same day. It is this assessment HMRC will be requesting the Tribunal to determine.
[8] As recorded at [8]–[9] of the Decision:
[8] Mrs O'Reilly told me that:
(1) HMRC had erroneously issued a closure notice on 24 February 2016 in respect of the 2009/10 tax year, not at that time having identified that there was no enquiry open into that tax year; and
(2) HMRC belatedly realised that the 24 February 2016 closure notice for 2009/10 was invalid and purported to cure the defect by issuing a s.29 discovery assessment on 15 August 2018.
[9] I asked Mrs O'Reilly to explain the date and circumstances of the discovery for 2009/10. She told me that the discovery had been made on or around 24 February 2016 when the purported closure notice had been issued. I enquired whether there had been any subsequent fresh discovery, for example at or near the date on which the discovery assessment was issued on 15 August 2018. Mrs O'Reilly confirmed that there had not.
[9] At [11], I made the following specific findings of fact pursuant to the position revealed by the papers and Mrs O'Reilly's answers to my questions:
11. …
(1) HMRC discovered an insufficiency to tax in respect of the 2009/10 tax year no later than on 24 February 2016 (and in view of my decision predicated on that date, it is unnecessary to ascertain any earlier date on which the insufficiency was discovered);
(2) There was no new discovery when HMRC issued the s.29 discovery assessment on 15 August 2018, or at any time between 24 February 2016 and then.
[10] At the end of the Decision, I wrote the following:
23. Having reflected after the hearing, I am disappointed that HMRC's pleadings failed to deal with the “staleness” issue dealt with in this decision. I have no doubt that had I not raised the invalidity of the 2009/10 assessment at the hearing, it would have escaped scrutiny altogether and the appellant would have paid tax (and penalties) not properly due.
24. It is true that the paragraph from HMRC's...
To continue reading
Request your trial