R & C Commissioners v Charlton
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 December 2012 |
| Neutral Citation | [2012] UKUT 770 (TCC) |
| Date | 20 December 2012 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2012] UKUT 770 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Norris J, Judge Roger Berner.
The following cases were referred to in the decision:
Anderton and Halstead Ltd v BirrellTAX (1931) 16 TC 200
British Sugar Manufacturers Ltd v HarrisTAX (1937) 21 TC 528
Cenlon Finance Co Ltd v Ellwood (HMIT)ELRTAXELR [1962] AC 782; (1962) 40 TC 176 (HL); [1961] 1 Ch 634 (CA)
Commercial Structures Ltd v BriggsTAX (1948) 30 TC 477
Corbally-Stourton v R & C CommrsSCD (2008) Sp C 692
Drummond v R & C CommrsTAXTAXSCD [2009] BTC 312 (CA); [2008] BTC 473; (2007) Sp C 617
Hankinson v R & C CommrsTAX [2012] BTC 1
IR Commrs v Mackinlay's TrusteesTAX (1938) 22 TC 305
Langham (HMIT) v VeltemaTAXTAX [2004] BTC 156; 76 TC 259
Mackinlay (HMIT) v Arthur Young McClelland Moores & CoTAX [1989] BTC 587
Pepper v HartTAXELR [1992] BTC 591; [1993] AC 593
R v Commissioners of Taxes for St Giles and St George, Bloomsbury, ex parte HooperELRTAX [1915] 3 KB 768; (1915) 7 TC 59
R v Kensington Income Tax Commrs, ex parte AramayoTAX (1913) 6 TC 279
R (on the application of Pattullo) v R & C CommrsTAX [2010] BTC 541
R & C Commrs v Household Estate Agents LtdTAX [2008] BTC 502
R & C Commrs v Lansdowne Partners Limited PartnershipTAXTAX [2012] BTC 12 (CA); [2011] BTC 224
Scorer v Olin Energy Systems LtdTAXELR [1985] BTC 181; [1985] 1 AC 645
Swift v R & C CommrsTAX [2010] UKFTT 88 (TC); [2010] TC 00399
Williams v Grundy's TrusteesELR [1934] 1 KB 524
Capital gains tax - Tax avoidance scheme - Discovery assessments - Second-hand insurance policies (SHIPs) - HMRC mistakenly failing to open enquiries in time - Tax avoidance scheme disclosed to HMRC - Meaning of "discovery" - Information inferentially available to HMRC - Nature of hypothetical officer - Whether taxpayers protected from discovery assessments because notional HMRC officer should reasonably have been aware, when enquiry window closed, of insufficiency justifying assessment - HMRC's appeal dismissed - Taxpayers' cross-appeal allowed in part - Taxes Management Act 1970, Taxes Management Act 1970 section 29 subsec-or-para 1 section 29 subsec-or-para 5 section 29 subsec-or-para 6ss. 29(1), (5), (6)(d)(i).
This was an appeal by HM Revenue and Customs against a decision of the First-tier Tribunal ([2011] UKFTT 467 (TC); [2011] TC 01317) that the taxpayers were protected from discovery assessments by s. 29(5) of the Taxes Management Act 1970, and a cross-appeal by the taxpayers.
The three taxpayers participated in the tax year 2006-07 in a marketed SHIPs tax avoidance scheme, involving second-hand insurance policies, intended to create a large allowable loss for capital gains tax purposes by the use of a large partial surrender, which was transiently treated as generating income for income tax purposes. The scheme had been disclosed to HMRC on form AAG1 and it had been given a scheme reference number (SRN) as required by the disclosure of tax avoidance schemes (DOTAS) rules. The returns of the taxpayers and other scheme participants disclosed the details of the insurance policy transactions and the reference number of the scheme. HMRC opened enquiries into the returns of other participants, but by administrative oversight failed to open enquiries into the taxpayers' returns.
A similar, but not identical, scheme was considered in the case of Drummond v R & C Commrs [2009] BTC 312 (CA). The original decision that that scheme failed was reached by the special commissioner ((2007) Sp C 617). That decision was upheld in the High Court ([2008] BTC 473) and an appeal from that judgment was dismissed by the Court of Appeal. The result was that it was accepted that the arrangements entered into by the taxpayers failed to give rise to the anticipated capital losses. After the Court of Appeal decision and after the time for enquiring into the taxpayers' returns had expired, HMRC made discovery assessments denying the capital losses claimed.
The taxpayers appealed to the First-tier Tribunal (FTT) which decided that the discovery assessments were not valid because the condition in TMA 1970, s. 29(5) had not been fulfilled. The taxpayers could not, therefore, by virtue of s. 29(3), be assessed under s. 29(1). The taxpayers' appeal was accordingly allowed ([2011] UKFTT 467 (TC); [2011] TC 01317). In allowing the appeal, the FTT concluded that the condition in s. 29(5) for the raising of discovery assessments was not met because an officer could reasonably have been expected to consult his specialist colleagues, and would accordingly have been aware of the insufficiency in the taxpayers' tax returns; or if it was wrong to suppose that the officer could be expected to consult a specialist, the officer would have been aware that the claimed tax treatment depended on the exclusion of a gain that had been taken into account for income tax purposes whereas no income had been returned, and could legitimately take the view that it might well be decided that something should only rank as having been taken into account for income tax purposes when in reality that treatment had been demonstrated. HMRC contended that the FTT was wrong in both respects. The FTT rejected the taxpayers' argument that the meaning of "discovery" connoted that there had to have been the emergence of something new, and that since nothing new had emerged after the closure of the enquiry window, no proper discovery had been made. On that issue the FTT accepted the argument of HMRC that a discovery assessment could be made merely where the original officer of HMRC changes his mind or a new officer takes a different view. The FTT also rejected the taxpayers' argument that, because the tax return gave the scheme reference number, the information in the form AAG1 was deemed by s. 29(6) to be information supplied to the officer for s. 29(5) purposes. The taxpayers cross-appealed on both those issues.
Held, dismissing HMRC's appeal and allowing the taxpayers' cross-appeal in part:
1.No new information, of fact or law, was required for there to be a discovery. All that was required for a discovery was that it had newly appeared to an officer, acting honestly and reasonably, that there was an insufficiency in an assessment. That could be for any reason, including a change of view, change of opinion, or correction of an oversight. The requirement for newness did not relate to the reason for the conclusion reached by the officer, but to the conclusion itself. Accordingly, the FTT had correctly concluded that a discovery assessment could be made merely where the original officer had changed his mind or where a different officer took a different view. The cross-appeal on that issue was dismissed. (Cenlon Finance Ltd v Ellwood (HMIT) [1962] AC 782; 40 TC 176 and Hankinson v R & C Commrs [2012] BTC 1 applied.)
2.Other than the conclusion itself, nothing new had to arise for there to be a discovery. Subject to satisfying one of the conditions in s. 29(4) and (5), such a discovery assessment would be valid. However, both the taxpayer and HMRC were bound by determinations or deemed determinations under TMA 1970, s. 50(1) and s. 54 and, to the extent they were so bound, HMRC might not raise again the same point through a discovery assessment under s. 29. Nevertheless, such an assessment was not precluded if it was founded upon a point other than the particular subject matter which was the subject of agreement or determination. (Cenlon Finance and Scorer v Olin Energy Systems Ltd [1985] BTC 181 considered.)
3.The question to be addressed under s. 29(5) was the awareness of an officer, and not what an officer might do. It was not right to take as a starting point a hypothetical officer with limited knowledge and then to assume, however obvious it might be to do so on that hypothesis, that the officer would seek guidance from other "real" officers within HMRC. That was not what s. 29(5) required the tribunal to consider. The language of awareness in s. 29(5) precluded any assumption that a notional officer would consult more specialist colleagues. The FTT made an error of law in following that path. (Langham v Veltema [2004] BTC 156 applied.)
4.The officer referred to in s. 29(5) was a legal fiction. He did not require to be imbued with personality or any particular characteristics of a typical or average officer. The purpose of s. 29(5) was to make it clear that the test of reasonable awareness was objective, and did not depend on the particular individual officer who considered the information made available. Section 29(5) focused on the quality and extent of the information, and not on the quality of the officer, or the extent of the officer's knowledge. The requirement to consider a purely notional officer made irrelevant the particular officer who considered the return, and the way in which HMRC organised itself into separate departments dealing with certain specialist issues. Section 29(5) did not require the hypothetical officer to be given the characteristics of an officer of general competence, knowledge or skill only. The officer had to be assumed to have the level of knowledge and understanding that would reasonably be expected in an officer considering the particular information provided by the taxpayer. Whilst leaving open the exceptional case where the complexity of the law itself might lead to a conclusion that an officer could not reasonably be expected to be aware of an insufficiency, the test was not to be constrained by reference to any perceived lack of specialist knowledge in any section of HMRC officers. What was reasonable for an officer to be aware of would depend on a range of factors affecting the adequacy of the information made available, including complexity. But reasonableness fell to be tested, not by reference to a living embodiment of the hypothetical officer, with assumed characteristics at a typical or average level, but by reference to the circumstances of the...
To continue reading
Request your trial
-
The Commissioners for HM Revenue and Customs v Raymond Tooth
...to whether there is a “discovery” is correctly set out in this first passage from the decision of the UT in Charlton & others v RCC [2012] UKUT 770 (TCC); [2013] STC 866 at [37], where the tribunal said: “37. In our judgment, no new information, of fact or law, is required for there to be ......
-
Thomas and Others
...first issue is whether Mr Stewart (who made the assessments which are under appeal) made a "discovery." In R & C Commrs v CharltonTAX[2013] BTC 1634, ("Charlton"), the Upper Tribunal (Norris J and Judge Berner) said at [37]: In our judgment, no new information, of fact or law, is required f......
-
TC03103: Philip Boyle
...open an enquiry under Taxes Management Act 1970 section 9As9A of the TMA. [77]Ms Woods referred to the case of R & C Commrs v CharltonTAX[2013] BTC 1634 for the proposition that it was not necessary for the hypothetical officer to understand precisely how a scheme worked, or how any claimed......
-
Fisher and Others
...of Taxes Management Act 1970 section 29s29 TMA 1970 was considered by the Upper Tribunal (UT) in R & C Commrs v CharltonTAX[2013] BTC 1634. The decision considered a number of issues of interpretation relevant to this appeal. [871]The facts concerned a tax scheme involving second hand insur......