R & C Commissioners v Hicks
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 January 2020 |
| Neutral Citation | [2020] UKUT 12 (TCC) |
| Date | 14 January 2020 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 12 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Morgan, Judge Guy Brannan
Akash Nawbatt QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Keith Gordon, Counsel, instructed by Crowe UK LLP, accountants, appeared for the respondents
Income tax – Discovery assessments – TMA 1970, s. 29(1) – Whether a discovery – Whether carelessness within s. 29(4) – Whether assessment time limit in s. 34 could be extended to six years under s. 36 – Whether an officer could reasonably have been expected to be aware of the insufficiency of tax within s. 29(5) – Information made available under s. 29(6) – Appeal allowed.
The Upper Tribunal (UT) overturned the First-tier Tribunal (FTT) decision on discovery assessments in Hicks [2018] TC 06301. The UT ruled that the discovery assessments could be raised because the taxpayer's accountant's carelessness had brought about the insufficiency of tax in the submitted returns, and due to this carelessness the six-year time limit applied to the assessments.
The respondent (Mr Hicks) participated in a tax avoidance scheme which had been disclosed to HMRC on form AAG 1 under the Disclosure of Tax Avoidance Scheme Rules (DOTAS). The scheme had been promoted by Montpelier Tax Consultants (IOM) Ltd (Montpelier) and had been strongly recommended to him by his accountant, Mr Bevis. Under the scheme Mr Hicks claimed a trading loss in 2008–09 some of which he carried forward to set off against his trading profits in 2009–10 and 2010–11. In December 2010 HMRC opened an enquiry into Mr Hicks' 2008–09 tax return. In March 2015 HMRC raised discovery assessments under TMA 1970, s. 29 in respect of 2009–10 and 2010–11 which Mr Hicks appealed. Mr Hicks' appeal was not on the basis that the losses were available but that the requirements for making the discovery assessments had not been met.
The FTT allowed Mr Hicks' appeal, finding that:
- HMRC had made a discovery pursuant to TMA 1970, s. 29(1), and as the assessment was made at most nine months after the discovery it was not stale.
- A discovery assessment was not permitted for 2010–11 as the insufficiency of disclosure condition in s. 29(5) had not been met because sufficient information had been provided to HMRC to alert the hypothetical officer to the potential loss of tax.
- Neither Mr Hicks nor his accountant acting on his behalf were careless pursuant to s. 29(4) so as to allow a discovery assessment to be made for 2009–10 and/or 2010–11. In the FTT's considerations of s. 29(4) it found that Montpelier had not acted on Mr Hicks' behalf.
HMRC appealed to the UT, which allowed their appeal. More specifically HMRC appealed against findings (2) and (3) and Mr Hicks appealed against finding (1).
In relation to (1), the UT rejected Mr Hicks' submission that an HMRC officer had made the discovery no later than 20 January 2012. This was because it did not know what any HMRC officer believed in January 2012, and even though HMRC had written to Mr Hicks on 20 January 2012 concerning the 2008–09 enquiry, the letter had only said that HMRC had ‘concerns' in relation to some issues and asked for more information, and this was insufficient to infer that a discovery had taken place. Given this the UT did not need to consider whether any discovery prior to 20 January 2012 had become stale by the time the assessments were issued in March 2015. The UT rejected Mr Hicks' appeal.
In relation to (3) the UT decided that the insufficiency of tax in Mr Hicks' 2009–10 and 2010–11 self-assessments had been brought about because Mr Hicks' accountant (Mr Bevis) had given advice which a reasonably competent tax adviser could not have given as to the deductibility of the expenditure giving rise to the losses and, similarly, he had failed to give the advice which a reasonably competent tax adviser ought to have given to the effect that the expenditure was not deductible. Therefore, the UT ruled that the insufficiency in the assessments was brought about by the careless actions of a person acting on behalf of Mr Hicks within s. 29(4). The UT accordingly allowed HMRC's appeal in relation to s. 29(4). It followed that HMRC were also able to rely on the six-year period for assessments provided by s. 36, and accordingly, the discovery assessments were valid.
This conclusion made it unnecessary for the UT to consider whether Mr Hicks was also careless within s. 29(4) and whether Montpelier had acted on behalf of Mr Hicks and, if they had, whether they had been careless. The UT did consider the issues but did not come to a firm conclusion on the issues.
The UT also did not need to consider the sufficiency of disclosure issue in s. 29(5) and HMRC's additional submission that the FTT had erred in its conclusion concerning what information had been made available to the HMRC officer pursuant to s. 29(6). Again, the UT did consider the issue and concluded that it would not have allowed HMRC's appeal in relation to either s. 29(5) or (6).
The UT did not need to consider the issue of staleness in its decision, but it did record HMRC's view that there is no legal principle which limits discovery assessments to cases where the discovery relied upon is not “stale”. HMRC recognised that as a matter of authority (presumably such as that provided by the Court of Appeal in R & C Commrs v Tooth [2019] BTC 14) the UT could not decide this issue in HMRC's favour, and the UT noted that the issue was likely to be determined by higher courts.
[1] This is an appeal against the decision of the First-tier Tribunal (Judge Thomas Scott) (“FTT”) released on 12 January 2018 (“the Decision”). Essentially, the appeal relates to the question whether “discovery” assessments issued to the taxpayer (“Mr Hicks”) under section 29 Taxes Management Act 1970 (“TMA”) were valid. The FTT allowed Mr Hicks' appeal and the appellants (“HMRC”) now appeal against that decision, with the permission of Judge Scott.
[2] In summary, the FTT allowed Mr Hicks' appeal against discovery assessments raised in respect of the 2009/10 and 2010/11 income tax years. The assessments concerned alleged insufficiencies in Mr Hicks' self-assessments resulting from his participation in a tax avoidance scheme (referred to as the Montpelier section 730 Dividend Strip Scheme – “the Montpelier Scheme”) during the 2008/09 income tax year.
[3] Although the scheme was entered into (and the losses arose in) the 2008/09 income tax year, the result of the scheme was that losses exceeded Mr Hicks' income in that year and the surplus losses were carried forward and set off against his trading profits of the 2009/10 and 2010/11 income tax years. The FTT's decision and this appeal relate to those later two income tax years.
[4] HMRC opened an enquiry under section 9A TMA into Mr Hicks' 2008/09 self-assessment return. However, no enquiry was opened into the returns for the 2009/10 and 2010/11 income tax years. On 30 March 2015, however, HMRC issued discovery assessments in respect of those two income tax years, seeking to deny the loss relief claimed.
[5] HMRC closed its enquiry into the income tax return for the year ended 2008/09 on 24 November 2016 and, we understand, the appeal against that closure notice is still to be determined.
[6] For the purposes of the present appeal, Mr Hicks did not seek to argue that the losses were in fact available. Instead, the appeal before the FTT and before us related solely to the application of the provisions in section 29 TMA. All references to the provisions of section 29 are to section 29 TMA.
[7] The FTT, in summary, concluded:
- HMRC had made a valid discovery assessment under section 29(1) and that the discovery was not stale; but
- HMRC did not show carelessness either by Mr Hicks or a person acting on his behalf for the purposes of section 29(4) in respect of the 2009/10 and 2010/11 income tax years; and
- the condition in section 29(5) was not met in respect of the 2010/11 income tax year, because sufficient information within section 29(6) had in fact been supplied to HMRC so as to alert the hypothetical officer of the potential insufficiency in the original assessment.
[8] Accordingly, the FTT allowed Mr Hicks' appeal.
[9] Again, in summary, HMRC appeal against the FTT's conclusions in paragraph 7(2) and (3) above and Mr Hicks cross-appeals, by a Respondent's Notice, against the conclusion in paragraph 7(1).
[10] HMRC applied for the late admission of their record of the oral evidence before the FTT. In particular, having obtained a copy of Judge Scott's manuscript note of the evidence, HMRC applied to admit their manuscript notes of the oral witness evidence on the basis that Judge Scott's note of the evidence was incomplete.
[11] The issue relating to the record of oral evidence concerned the application of section 29(4). HMRC's Permission to Appeal on this issue had been given by the FTT, in particular, on the ground that the evidence of Mr Bevis (of Precision Accountancy – Mr Hicks' accountant) had not been taken into account. It seemed to us, therefore, that it was necessary to establish what evidence was before the FTT. We therefore gave permission for this evidence to be admitted.
[12] The underlying facts were not in dispute and can be summarised as follows. It will be seen later in this decision, however, that HMRC contest certain other findings of fact by the FTT.
[13] Mr Hicks was one of a number of participants in the Montpelier Scheme. The Montpelier Scheme was marketed by Montpelier Tax Consultants (IOM) Ltd (“Montpelier”) and was disclosed to HMRC on Form AAG 1 under the Disclosure of Tax Avoidance Scheme Rules (“DOTAS”) received by HMRC on 24 September 2008. The Form AAG 1 stated that the arrangement was available to self-employed derivative traders who worked at least 10 hours per week on...
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