Marano
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 April 2020 |
| Neutral Citation | [2020] UKFTT 199 (TC) |
| Date | 23 April 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 199 (TC)
Judge Anne Redston, Mr Charles Baker
Capital gains tax – Discovery assessment – Concept of staleness – Whether stale – Whether SA return issued – Whether quantum correct – Whether late filing penalties issued/notified – Whether correctly calculated – Whether payments on account reduce the base on which penalties calculated – Whether special circumstances – Appeal refused.
[1] Mr Peter Marano is a US citizen who is resident in the UK. At all relevant times he was on the remittance basis for UK tax purposes, and as a US citizen he also had to file and pay taxes in the USA.
[2] On 28 December 2012, Mr Marano's accountant, RSM, informed HMRC that Mr Marano had remitted a chargeable gain, and that the capital gains tax (“CGT”) on that gain was an estimated £5,744,219. On the same day, Mr Marano paid that tax so it could be claimed as a credit against his US tax liabilities. As this was part way through the 2012–13 tax year, HMRC had not yet issued any self-assessment (“SA”) returns for that year.
[3] The due date for submitting 2012–13 returns was 31 January 2014. Mr Marano did not submit an SA return by that date. HMRC issued fixed and daily penalties. On 20 November 2014, HMRC issued a determination charging tax of £118,199. This amount was based on Mr Marano's earlier returns, and did not include the tax on the remitted gain, which had been overlooked by HMRC. The determination was followed by tax-geared 5% penalties, based on the amount of the determination.
[4] n November 2015, responsibility for the case moved to a different HMRC officer, Mrs Louise McGovern. She reviewed Mr Marano's file and found RSM's letter. She contacted Mr Matthews of RSM, who told her that the return had been prepared but not yet approved, and that it included the remitted gain. Subsequent calls received the same response. However, on 25 October 2016, Mrs McGovern had a further conversation with Mr Matthews. Her file note recorded that Mr Matthews believed it was “highly unlikely” that Mr Marano would ever approve the return.
[5] Mrs McGovern was aware that the four year ordinary time limit for issuing assessments would expire on 5 April 2017. On 8 March 2017, she issued a discovery assessment for £5,744,219, the figure in RSM's letter. This was followed on 14 March 2017 by a late filing penalty notice for £574,422, being two 5% tax-geared penalties based on the amount charged by the discovery assessment.
[6] Mr Marano finally approved his 2012–13 return, and on 29 June 2017 Mr Matthews sent it to HMRC. However, that was after the ordinary time limit for filing a return, see Taxes Management Act 1970, (“TMA”) s 34A, so it was not accepted by HMRC. According to RSM's computation, the CGT for the year was £132,429.85 less than the figure previously notified to HMRC. At the same time, RSM submitted a separate claim for Mr Marano to be given EIS deferral relief of £100,000, and asked that this be carried back so as further to reduce his 2012–13 CGT.
[7] On behalf of Mr Marano, Mr Gordon raised more than ten challenges to the discovery assessment and the penalties, see §60. In relation to the assessment, Mr Gordon accepted that Mrs McGovern had made a discovery, but submitted that it was stale. For HMRC, Mr Vallis said there was no concept of staleness, although he accepted that HMRC and the Tribunal were bound by case law on this point. He also submitted that in any event the discovery was not stale. In the absence of binding authority, we too would have found that staleness is not part of the statutory framework, for the reasons we explain at paragraph 78–paragraph 85. However, we are of course bound by precedent on that point. Having accepted the concept as valid, and having applied it to the facts of the case, we found that the discovery was not stale.
[8] Mr Gordon also challenged the 2012–13 Notice to File and the issuance and/or delivery of certain penalty notices. We found that HMRC succeeded on each of these points. In addition, Mr Gordon submitted that tax-geared penalty notice for £574,422 should have been based on a tax figure reduced by payments on account. For the reasons set out at paragraph 181ff, we found that penalties for late filing are not reduced by payments on account. He also submitted that the penalties should have been based on a lower tax figure, because of (a) the lower CGT shown in RSM's computation and (b) the EIS claim. For the reasons set out at paragraph 199ff and paragraph 205ff we disagreed. We also found that the tax-geared penalties were not disproportionate and that there were no other special circumstances which would allow them to be reduced, see Issue 9. Finally, we considered and rejected Mr Gordon's submission that TMA s 50 required us to reduce the assessment and/or the penalties.
[9] As a result, we confirmed the discovery assessment of £5,744,219 and the following penalties, all of which were issued under Finance Act 2009, Schedule 55 (“Sch 55”) for late filing of the 2012–13 SA return:
- under para 3, the initial penalty of £100 issued on 18 February 2014;
- under para 4, the daily penalty of £900 issued on 18 August 2014;
- under para 5, a six month penalty of £300 also issued on 18 August 2014;
- under paras 5 and 6, two initial tax-geared penalties issued on 25 November 2014 and 3 March 2015, each of £5,609; and
- also under paras 5 and 6, the two tax-geared penalties issued on 14 March 2017 totalling £574,422.
[10] In this decision, all legislation is cited only so far as relevant to the issue being considered.
[11] The Tribunal was provided with a main hearing bundle prepared by RSM on behalf of Mr Marano, and two supplementary bundles, one prepared by HMRC and one by RSM. The supplementary bundles were filed and served late, but neither party objected to them being provided and we decided it was in the interests of justice to allow them to be admitted into evidence. In this decision, we have referred to all three as “the Bundle”.
[12] The Bundle included the following documents:
- correspondence between the parties, and between the parties and the Tribunal;
- microfiche data relating to Mr Marano, provided by HMRC;
- extracts from HMRC's debt management notes recording system (IDMS); and
[13] Mr Marano provided a witness statement, gave oral evidence led by Mr Gordon, was cross-examined by Mr Vallis, and answered questions from the Tribunal. We found him to be an honest witness. Although his evidence was often vague, we accepted that this was because of the passage of time.
[14] Mrs McGovern provided three witness statements, gave oral evidence led by Mr Vallis, was cross-examined by Mr Gordon, and answered questions from the Tribunal. We found her to be a straightforward and credible witness.
[15] Mr Stephen Matthews is an associate director of RSM. He provided a witness statement, gave oral evidence led by Mr Gordon and was cross-examined by Mr Vallis. The main issue about which he gave evidence was whether Mrs McGovern had accurately recorded the conversation which had taken place on 14 August 2016, see paragraph 39. However, Mr Matthews freely admitted that he could not recall that conversation, although he said he “did not believe” he would have used the words recorded by Mrs McGovern. We found Mrs McGovern's contemporaneous file note to be entirely reliable evidence and accepted it.
[16] Based on the evidence provided, we make the findings of fact set out below. Some of the facts were in dispute, and we also make further findings later in our decision.
[17] Mr Marano was and remains a citizen of the USA. At all relevant times, he was tax resident in the UK but domiciled in the USA. He was entitled to claim the remittance basis of taxation under the Income Tax Act 2007, s 809B, and for all dates relevant to this decision, he did so.
[18] Mr Marano was and remains a property developer who operates through a number of companies. Until around February 2007, he lived with his family in a significant property on a London square. In February 2007, he separated from his wife, and moved into a nearby mews property (“the Mews”) which he already owned, and which had previously been used as guest accommodation and office space.
[19] On 19 August 2011, Mr Marano was appointed an “LLP member” of Bucentaure LLP. The LLP was managed by Palatium Capital Partners (“PCP”), who used a firm of accountants called Berley, based at 76 New Cavendish Street, London. The Companies House record for Mr Marano as a member of that LLP gives his correspondence address as 76 New Cavendish Street.
[20] In January 2013, Mr Marano purchased a property in Miami which he decided to refurbish and use as a home. He began to spend significant amounts of time there. However, he remained the owner of the Mews, which he had also decided to refurbish. The refurbishment took three months. Mr Marano told us that this occurred either between November 2014 to February 2015, or between November 2015 to February 2016: he could not be sure which was correct. However, HMRC's contemporaneous IDMS notes record that on 22 December 2014, Mr Marano told HMRC that he was intending to let the Mews from January 2015, and we therefore find that the renovation took place between November 2014 to February 2015. In the same call, Mr Marano told HMRC that the Mews was empty at that time, but that he “uses it as a communication address”, and “has no fixed abode and moves around to various hotels”. He did not inform HMRC that he had a property in Miami which he was using as a home.
[21] For about two months of that refurbishment period, Mr Marano was not at the Mews at all: his evidence to the Tribunal was there were “maybe only two solid months [of] not being there”. When the renovation was finished, Mr Marano tried to sell or let the Mews, but was unable to do either. The Mews was never rented out and it remained in his ownership at the date of the...
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