Keith Hunter v The Commissioners for Her Majesty's Revenue & Customs, TC 07140
| Jurisdiction | UK Non-devolved |
| Judge | Rupert JONES |
| Judgment Date | 14 May 2019 |
| Neutral Citation | [2019] UKFTT 0312 (TC) |
| Respondent | The Commissioners for Her Majesty's Revenue & Customs |
| Appellant | Keith Hunter |
| Reference | TC 07140 |
| Court | First-tier Tribunal (Tax Chamber) |
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[2019] UKFTT 0312 (TC)
TC07140
Appeal number:TC/2018/00356
INCOME TAX – Discovery Assessment – Section 29 Taxes Management
Act 1970 - 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
FIRST-TIER TRIBUNAL
TAX CHAMBER
KEITH HUNTER
Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
Respondents
REVENUE & CUSTOMS
TRIBUNAL:
JUDGE RUPERT JONES
DAVID BATTEN
Sitting in public at Taylor House, London on 17 January 2019 with written
submissions served by the parties on 28 January 2019 and 14 February 2019
Neil Staff, Raffingers Chartered Certified Accountants, for the Appellant
Paul Harbottle and Brian Horton, Litigators and Presenting Officers of HM
Revenue and Customs, for the Respondents
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DECISION
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
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
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about a tax loss, it empowers HMRC to extend the time limits in which to make an
assessment up to six years after the end of the Tax Year by virtue of section 36(1)
TMA 1970. HMRC submit that the Appellant acted carelessly for a number of
reasons including that he did not retain records, documents or receipts to evidence his
income as required by law.
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
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.
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