Mehrban
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 February 2021 |
| Neutral Citation | [2021] UKFTT 53 (TC) |
| Date | 25 February 2021 |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 53 (TC)
Judge Asif Malek, Julian Sims
The hearing was held in public.
Whether a discovery could, as a matter of principle, become stale and whether it had done so in this case? Held – Yes on both accounts – R & C Commrs v Charlton [2013] BTC 1,634; Pattullo v R & C Commrs [2016] BTC 510; Anderson v R & C Commrs [2018] BTC 516, R & C Commrs v Tooth [2019] BTC 14 considered and applied – TMA 1970, s. 29, 34 and 36.
The First-tier Tribunal (FTT) allowed a taxpayer's appeal against fourteen years' worth of discovery assessments because based on current case law the assessments had become stale.
Mr Mehrban (the appellant) owned and operated a shop. In March 2013, HMRC began checking the credibility of the appellant's VAT and income tax returns. The checks included visits to the business premises, an interview with the appellant, analysis of VAT returns, a late night cash up exercise, analysis of purchases, the use of self-invigilation sheets and test purchases. By 25 March 2014, the HMRC officer co-ordinating the checks (Mrs Goodliffe) had concluded that both purchases and sales had been understated and she made a referral to the fraud investigation team for the appellant to be investigated under the COP 9 procedure.
Following the referral, Mrs Russon (an officer in the Fraud and Bespoke Avoidance Team) opened an investigation under COP 9. Mrs Russon wrote to the appellant on 12 September 2014 to inform him that HMRC suspected that he had committed tax fraud and invited him to enter into a Contractual Disclosure Facility. The appellant took up the offer and in his disclosure he accepted that his taxable profits had been understated. On 21 April 2017, after further correspondence, Mr Metcalfe of the Fraud and Bespoke Avoidance team issued discovery assessments under TMA 1970, s. 29 for the tax years 2002–03 to 2015–16.
The assessments were appealed.
The FTT considered the case law on discovery assessments and in particular the principles which had been established in R & C Commrs v Charlton [2013] BTC 1,634; Pattullo v R & C Commrs [2016] BTC 510; Anderson v R & C Commrs [2018] BTC 516, and R & C Commrs v Tooth [2019] BTC 14.
In the FTT's judgment the discovery was made by Mrs Goodliffe, at the very latest on or around 25 March 2014. Given the case law as it stood a discovery could only be made once and therefore neither Mrs Russon nor Mr Metcalf had made a discovery, they had simply found out that either tax assessments had become insufficient or income which should have been assessed had not been assessed.
The FTT considered that the delay of over three years between the discovery and assessment was significant. It also concluded that once a discovery clock has started it is not paused because the officer seeks further information which is not forthcoming. The FTT accordingly rejected HMRC's submission that because the delay between discovery and assessment was caused by the appellant, rather than HMRC sitting on their hands, it was not stale. Therefore, by the time that the assessments were made the discovery had become stale and HMRC were not entitled to raise assessments under TMA 1970, s. 29.
The FTT accordingly allowed the appeals.
Given the emerging body of case law on discovery and stateless, and that at the time of the hearing:
- the decision in Tooth had been appealed to the Supreme Court and was to be heard soon;
- the decision in Beagles v R & C Commrs [2018] BTC 528 had been appealed to the Court of Appeal, and
- in Beagles the Upper Tribunal concluded that given the state of the authorities on the question of whether a discovery is capable of becoming stale it was a matter best left to the higher courts,
Judge Asif Malek said that he should have no hesitation in granting permission for HMRC to appeal the decision.
Judge Malek also suggested that HMRC should seek preliminary hearings in discovery assessment cases to consider the “discovery issue” as this could save much time, energy and expense.
The decision contains a useful summary of the principles applying to discovery assessments based on current case law [para. 39].
[1] These are appeals against assessments made by the Respondent under section 29 of the Taxes Management Act 1970 (the “TMA 1970”) on 21 April 2017. The years in question are the tax years 2002/03 to 2015/16 and the total amount assessed was £176,513.39. In addition the Respondents assessed the Appellant to penalties in the sum of £70,123 on 22 September 2017 under section 95(1) of the TMA 1970 and £69,162.95 on 21 September 2017 under Schedule 24 of the Finance Act 2007.
[2] By the time of the hearing the Respondents no longer sought to maintain these assessments and penalties, but invited us to revise them as follows:
| Tax Year | Tax Assessed | Penalty | Rate | Penalty Assessed | Revised tax Calculation | Revised Penalty |
| 2002–03 | £5,650.36 | s95 TMA 1970 | 75.00% | £4,237.00 | £3,964.30 | £2,973.00 |
| 2003–04 | £11,371.91 | s95 TMA 1970 | 75.00% | £8,528.00 | £7,628.20 | £5,721.00 |
| 2004–05 | £17,312.83 | s95 TMA 1970 | 75.00% | £12,984.00 | £11,149.71 | £8,362.00 |
| 2005–06 | £31,817.18 | s95 TMA 1970 | 75.00% | £23,862.00 | £21,711.50 | £16,283.00 |
| 2006–07 | £11,178.86 | s95 TMA 1970 | 75.00% | £8,384.00 | £5,357.73 | £4,018.00 |
| 2007–08 | £16,170.94 | s95 TMA 1970 | 75.00% | £12,128.00 | £13,867.97 | £10,400.00 |
| 2008–09 | £11,394.73 | Sch 24 FA 2007 | 86.00% | £9,799.46 | £8,587.32 | £7,385.09 |
| 2009–10 | £6,812.48 | Sch 24 FA 2007 | 86.00% | £5,858.73 | £5,852.64 | £5,033.27 |
| 2010–11 | £16,625.59 | Sch 24 FA 2007 | 82.50% | £13,716.11 | £14,638.32 | £12,076.61 |
| 2011–12 | £8,122.90 | Sch 24 FA 2007 | 82.50% | £6,701.39 | £5,697.34 | £4,700.30 |
| 2012–13 | £1,068.40 | Sch 24 FA 2007 | 82.50% | £881.43 | £861.80 | £710.98 |
| 2013–14 | £11,722.27 | Sch 24 FA 2007 | 82.50% | £9,712.12 | £8,478.49 | £6,994.75 |
| 2014–15 | £10,336.81 | Sch 24 FA 2007 | 82.50% | £8,527.86 | £6,111.75 | £5,042.19 |
| 2015–16 | £16,928.13 | Sch 24 FA 2007 | 82.50% | £13,965.85 | £9,617.81 | £7,934.69 |
[table and figures taken from the Respondent's skeleton argument]
[3] Before us, it was submitted on behalf of the Respondents, that we were entitled to increase or decrease the assessment further to our power under section 50 of the TMA 1970. No issue was taken with this submission on behalf of the Appellant. We accordingly proceeded to hear the appeals on that basis.
[4] Section 29 of the TMA 1970 provides:
(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a [year of assessment]–
- that any [income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax,] have not been assessed, or, or
- that an assessment to tax is or has become insufficient, or…
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax …
(3) Where the taxpayer has made and delivered a return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment], he shall not be assessed under subsection (1) above–
- in respect of the [year of assessment] mentioned in that subsection; … unless one of the two conditions mentioned below is fulfilled.
(4) The first condition is that the situation mentioned in subsection (1) above [was brought about carelessly or deliberately by] the taxpayer or a person acting on his behalf …
[5] Section 29 of the TMA 1970 is circumscribed by sections 34 and 36 of the TMA 1970. That is to say that there are no separate time limits for assessments raised pursuant to section 29. In broad terms, with effect from 1 April 2010, the normal time limit for raising an assessment of four years is extended to six years for careless behaviour and to twenty years in the case of deliberate behaviour. Prior to 1 April 2010 the time limit for raising a discovery assessment where there has been fraudulent or negligent conduct was 20 years after 31 January following the end of the year of assessment concerned.
[6] It was accepted before us that it was for the Respondents to show, in respect of the section 29 TMA 1970 assessments, that they had made a discovery that income which ought to have been assessed has not been assessed and that this was brought about by the careless or deliberate conduct of the taxpayer or someone acting on his or her behalf.
[7] If the Respondents are able to satisfy us that they have properly made a discovery, as set out above, the burden then shifts on the Appellant to show that the assessment made is incorrect.
[8] The burden of proof, in respect of any penalties, is upon the Respondents.
[9] The standard of proof in each case is the “balance of probabilities”.
[10] As might be expected in appeals relating to assessments covering such a prolonged period of time, as in this case, there were a large amount of documents for us to review. Unfortunately, the way that the bundle containing these documents was prepared for this Tribunal was wholly inadequate. The bundle that we had contained multiple paginations and multiple copies of the same document. In addition, the Appellant had his own bundle which was sent to us part-way through the hearing and his advocate did not have or use the bundle that was before us. This all made the hearing more time consuming and difficult then it needed to be. Despite these difficulties we were able to adequately view the relevant documents and given the generous time allocated for the hearing we were able to finish the hearing well within time.
[11] More disturbingly it was alleged by the Appellant that a...
To continue reading
Request your trial
-
Mehrban ' Discovery Assessments Invalid Due To Staleness
...Mehrban v HMRC [2021] UKFTT 53 (TC) the First-tier Tribunal (FTT) held that a three-year delay in issuing a 'discovery' assessment issued pursuant to section 29,Taxes Management Act 1970 (TMA), resulted in the discovery becoming 'stale', even though the delay had not been the result of HMRC......