Manisty and Another as Trustees of the EA Manisty FURBS Trust
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 July 2011 |
| Neutral Citation | [2011] UKFTT 507 (TC) |
| Date | 26 July 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 507 (TC)
Nicholas Aleksander (Tribunal Judge) (Chairman), Mrs RA Watts Davies FCIPD, MIH
Edward Manisty, a trustee of the Appellant
Andrew Pickering, an officer of HM Revenue and Customs
Income tax - discovery assessment - negligence of appellant - yes - whether HMRC could reasonably have been expected to have been aware of relevant facts - no - appeal dismissed
1.This appeal relates to the taxation of the EA Manisty Funded Retirement Benefit Scheme Trust ("the FURBS"), and the power of HM Revenue and Customs to raise a "discovery" assessment in respect of the year of assessment 2006/7.
2.The FURBS was represented by one of its trustees, Edward Manisty. For the first day of the hearing, Mr Manisty was assisted by Laura Coutts as a "Mackenzie friend". HMRC were represented by Andrew Pickering, an officer of HM Revenue and Customs. We heard oral evidence from Mr Manisty and from Mr Paul Callaway, the HMRC officer who raised the assessment which is the subject of this appeal. In addition we had two bundles of documents submitted in evidence.
3.We would also note that this appeal was the subject of a lengthy pre-trial review held on 30 September 2010 before Judge Hellier. Following that hearing, directions were issued by Judge Hellier. Representations were made by the parties in respect of the directions, and in consequence minor amendments were made to the directions by Judge Hellier. The (amended) directions, amongst other things, limited the substantive hearing to consideration of the following points:
(2) Whether one or other or both of the conditions in Taxes Management Act 1970 section 29 subsec-or-para 4 section 29 subsec-or-para 5sections 29(4) and (5)Taxes Management Act 1970 ("TMA") (taken together with the later associated subsections) were satisfied; and
(3) What the law (having regard to the provisions not only of the Taxes Act but also the Human Rights Act and any other relevant legal principle) required the proper form of the assessment to be and whether there were conditions therefore other than those appearing on the face of Taxes Management Act 1970 section 29section 29 TMA and Taxes Management Act 1970 section 30Asection 30A TMA; and
(4) Whether the assessment under appeal satisfied the test to be determined under (2).
4.In view of the limitations imposed by Judge Hellier's directions, we declined to hear argument from Mr Manisty that HMRC had a duty to correct any "obvious mistake" contained in the tax return of the FURBS trustees.
5.One of the issues before the tribunal was the application of section 29(5) TMA, and the approach that an "ordinary competent inspector" would take to the information before him. As noted in Judge Hellier's directions, evidence of an experienced officer of HMRC could be material to these issues, but we considered that Mr Callaway, who was a very experienced HMRC officer (first appointed as an Inspector of Taxes in 1985, and who had worked on trust cases since 1994) was competent to given evidence on these issues. We declined to admit in evidence the witness statements of Mr Andrew Pickering or Mr David Smith. Mr Smith is a senior HMRC manager responsible for its Trusts and Estates division. He generally has no involvement in the casework relating to individual taxpayers, and had no involvement in this case. He could therefore give no relevant evidence to the Tribunal. Mr Pickering is the officer conducting this appeal on behalf of HMRC. His only involvement in this matter has been in the conduct of the Appeal. He had no involvement in the decision by HMRC to raise a discovery assessment, and he only became involved in this matter after the FURBS raised its appeal. Accordingly we considered that he could give no relevant evidence to the Tribunal.
6.We would also note that Mr Manisty's bundle of authorities contained thirty seven references, and during the course of argument, he referred us to a number of further authorities. Most of these authorities had little (if any) relevance to the issues before us. We refer in this decision only to those authorities which we consider relevant to our decision, but for the sake of completeness, a complete list of all of the case authorities cited by the parties is appended to the end of this decision.
7.Although the parties were unable to reach agreement on a statement of facts not in dispute, the background facts are for the most part not in dispute, and we find them to be as follows.
8.Mr Manisty is a solicitor. He qualified in 1967, and for 20 years was a partner with the City of London firm, Stephenson Harwood, where he specialised in estate planning and trust related matters. In April 1992 he gave up private practice, and became a director of Christie, Manson & Woods Ltd ("Christies"), the well known auctioneers, in charge of its Heritage and Taxation Advisory Service. He retained this position until his retirement from Christies in 2006. From 1999 until his retirement, he was Vice-chairman of Christies. Since leaving Christies, he has returned to private practice as a consultant to Farrer & Co LLP, where he advises on heritage property and estate planning. He is a member of the Society of Trust and Estate Practitioners. He is a regular contributor to technical journals on the administration and taxation of chattels.
9.Although Mr Manisty is not an expert on pensions or pensions taxation, it is clear from his background, the contents of his correspondence with HMRC and the manner in which he gave evidence before us (and we find) that he is meticulous and pays great attention to detail, he has (and had at all material times) a thorough understanding of trusts and trust law, he can read and understand complex trust and legislative drafting, and he has a good understanding of the general principles of income tax and capital gains tax.
10.When Mr Manisty agreed to join Christies, it was acknowledged that it would no longer be feasible for him to build up provision for his retirement at the same level as had been possible whilst a partner at Stephenson Harwood. Accordingly Christies agreed to establish a funded unapproved retirement benefit scheme for him. The trust deed establishing the FURBS was executed on 24 May 2001, appointing senior Christies executives (not Mr Manisty) as trustees. Until Mr Manisty's retirement, Christies made regular contributions to the FURBS, and advisors appointed by Christies provided investment advice to the trustees, prepared annual accounts and tax returns.
11.A copy of the FURBS trust deed was sent to HMRC on 29 January 2003, by the trustees' then tax accountants, but it was returned by HMRC with a covering letter stating that in accordance with their prevailing practice it had not been read.
12.Mr Manisty's 65th birthday was on 12 May 2006. Approximately a year prior to that date, Mr Manisty had decided that he would retire from full-time involvement at Christies at the end of May 2006. Mr Manisty was aware that significant changes to pensions taxation would be brought into effect on "A Day" in April 2006, and that these changes would affect his own pensions arrangements. He sought advice during 2005/6 from Mercer & Hole on various taxation matters (including the impact of the A Day reforms) in the light of his impending retirement. Mercer & Hole are a firm of chartered accountants, who were responsible for the preparation of the FURBS tax returns.
13.In particular, on 4 April 2006, Mr Manisty wrote a long letter to Lisa Spearman, a tax partner at Mercer & Hole seeking comprehensive advice about the tax position of the FURBS. Ms Spearman recommended that they should meet after the Finance Bill 2006 had been published. He had a meeting with Ms Spearman on 5 May 2006. At the meeting Ms Spearman advised that there were no material changes to the taxation of FURBS in the Finance Bill, and confirmed that the FURBS would not be subject to income tax at 40%. Mr Manisty made a contemporaneous note of this advice in manuscript on the copy of the 4 April 2006 letter which he had kept. Following the meeting, on 8 May 2006 Mr Manisty sent Ms Spearman a comprehensive note of the meeting, which included a statement that the FURBS would be liable to basic rate income tax. Ms Spearman responded by letter on 26 May 2006, making no comments on the contents of the note of the meeting. We find that Mr Manisty was advised by Ms Spearman on 5 May 2006 that for the tax year 2006/7, the FURBS would be liable to income tax at the basic rate. At no subsequent point was that advice qualified. The advice was incorrect (and probably negligent), as the FURBS was liable to income tax at the trust rate (40%). Although in his witness statement Mr Manisty stated that he did not allege that the advice given in relation to the FURBS was wrong or negligent, during the course of cross-examination he acknowledged that their advice was negligent - both as regards the rate of income tax applicable to the FURBS for 2006/7, but also as regards certain aspects relating to the completion of the FURBS's tax returns.
14.The tax returns prepared by Mercer & Hole for the FURBS trustees for the tax years 2005/6 and earlier contained errors. In particular in the 2004/5 and 2005/6 returns, against the question "Are you completing this Tax Return as the trustee of an employee related trust?" the "No" box (box 8.5) was ticked, whereas the correct answer to the question was "Yes".
15.By a supplemental deed dated 4 April 2006, the Christies executives retired as trustees of the FURBS, and Mr Manisty and his son Alexander were appointed in their place. A copy of the deed was sent to HMRC on 26 May 2006.
16.On 6 April 2007 the trustees of the FURBS were served with a notice under Taxes Management Act 1970 section 8section 8Taxes Management Act 1970 ("TMA") to file a tax return for the FURBS for the tax year 2006/7. The completed tax return was...
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