R & C Commissioners v Mattu
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 October 2021 |
| Neutral Citation | [2021] UKUT 245 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2021] UKUT 245 (TCC)
UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
Judge Timothy Herrington, Judge Rupert Jones
Ben Elliott and Laura Ruxandu, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the applicants
Michael Firth, Counsel, instructed by Leigh Carr, Accountants, appeared for the respondent
Income tax – Capital gains tax – HMRC application for tax-related penalty for respondent's continuing failure to comply with an information notice – Statutory conditions satisfied – Application granted – Penalty imposed – FA 2008, Sch. 36, para. 50.
The Upper Tribunal granted HMRC's application for a taxpayer to be issued with a tax-related penalty for a continued failure to comply with an information notice, setting the penalty at £350,000 which was substantially less than the £1.9m proposed by HMRC.
HMRC had been in correspondence with Mr Mattu (the respondent), through his accountants, regarding his connection, involvement or interest in an offshore trust, the Taj Trust. Following HMRC's unsuccessful attempts to obtain information in relation to the Taj Trust, HMRC applied, and succeeded, in getting the First-tier Tribunal (FTT) to approve the giving of a taxpayer information notice to the respondent, which was issued in August 2019. The respondent did not provide any of the information or documents requested and his accountant instead directed any queries concerning the Taj Trust to the trustee in Switzerland.
Since the respondent had not provided the information and documents requested, HMRC issued a non-compliance penalty of £300 under FA 2008, Sch. 36, para. 39. HMRC subsequently issued daily default penalties under para. 40.
Given the respondent's continued non-compliance, in October 2020, HMRC made an application to the UT under para. 50 for the respondent to be issued with a tax related penalty of £1.9m, being the amount of tax HMRC considered to be at risk by the respondent not complying with the information notice.
The respondent had withdrawn from the proceedings, but then made a late application for reinstatement. The respondent's reinstatement was granted at the hearing, but an application to postpone the hearing due to the respondent being in hospital was refused.
The UT decided the para. 50 application by first considering whether each of the five statutory conditions set out in para. 50(1) had been satisfied. The UT decided as follows.
(1) The respondent had become liable to a penalty under para. 39. The UT rejected the respondent's submission that there was a “live” appeal against the penalty, finding that after the appeal had been made to HMRC, and HMRC had issued their review decision upholding the penalty, the appeal against the penalty had not been notified to the FTT within the required time limit (it was 10 days late) and therefore an appeal could only have been made if the Tribunal gave permission, which the FTT had not done (primarily because the respondent never sought permission).
(2) The failure had continued after a penalty was imposed under para. 39. The UT were satisfied that the documentation and information requested was (or at least, on the balance of probabilities, was likely to be) in his possession or power, and there was no reason why he could not provide the information requested, and it made no difference that the respondent had consented to a third-party information notice concerning some of the requested information which had resulted in HMRC obtaining some of the information.
(3) An HMRC officer had reason to believe that, as a result of the failure, the amount of tax that the respondent had paid, or was likely to pay, was significantly less than it would otherwise have been. At the time of the para. 50 application, and at the time of the hearing, it was reasonable for the HMRC officer to believe that due to the respondent's failure to comply with the information notice, £1.9m of tax was at risk because the respondent was the settlor and sole beneficiary of the Taj Trust with the consequence that the respondent was liable to income tax in respect of income that had arisen to various companies owned by the Taj Trust under the transfer of assets abroad legislation and the settlements legislation and was also liable to capital gains tax in respect of gains that had arisen to any of the non-UK entities owned by the Taj Trust.
(4) Before the end of the period of 12 months beginning with the relevant date (in this case the date the para. 39 penalty was confirmed), an HMRC officer had made an application to the UT for an additional penalty to be imposed.
(5) The UT decided that it was appropriate for an additional penalty to be imposed. It was a serious case of non-compliance.
- It was clear that the respondent had been uncooperative in responding to the request for information.
- The only reason given for non-compliance was that the respondent did not have any documents and HMRC should contact the trustee, which was not only an unjustified attempt to avoid the respondent's duties to provide this information himself but the contact did not respond and the respondent did have at least some of the documents and information in his possession or power.
- The suggestion that the respondent believed he had a reasonable excuse for failure to comply with the information notice was untenable.
- While the respondent had cooperated to some extent in the investigation by consenting to a third party notice, this partial compliance did not compensate for the complete failure to comply with the information notice.
- The overall amount of tax at stake was significant.
In considering the amount of the penalty the UT had regard to the amount of tax at risk, although any penalty had to be reduced to take account of the uncertainty of the exact figure. The UT also noted that while the penalty imposed had to act as a credible deterrent, it also had to be fair and proportionate. The UT therefore rejected HMRC's submission that the penalty should be the full £1.9m of the tax at risk. As well as a 50% reduction to the tax at risk, the UT also mitigated the penalty to reflect the respondent's conduct, such as that he had not acted dishonestly and that it was a failure to comply rather than outright obstruction. Taking into account the public interest and objectives to ensure compliance with information notices, deterrence and punishment, but that the amount should be no more than necessary to achieve these objectives and should be fair and proportionate the UT decided that the penalty should be £350,000.
This 111-page tribunal decision considers in detail the conditions required to be met for a tax-related penalty under FA 2008, Sch. 36, para. 50 to be issued for non-compliance with an information notice. This is only the second case considering a para. 50 penalty to have been the subject of a judicial decision. This decision, together with the earlier R & C Commrs v Tager (Personal Representatives of the Estate of Tager (deceased)) [2015] BTC 509 decisions provide useful guidance on what factors will be considered in deciding the amount of such penalties.
TABLE OF CONTENTS
| Section | Paragraph | |
| Introduction | 1 | |
| The reinstatement and postponement applications | 3 | |
| The substantive application | 8 | |
| The evidence of the parties and overview of their cases | 11 | |
| First statutory condition for the imposition of a penalty – Paragraph 50(1)(a) – whether the Respondent has become liable to a penalty under paragraph 39 Sch 36 | 21 | |
| The Respondent's case on the first statutory condition | 21 | |
| Relevant Law – Schedule 36 Finance Act 2008 | 24 | |
| The Facts | 36 | |
| Discussion and Decision | 62 | |
| Second statutory condition for the imposition of a penalty – Paragraph 50(1)(b): the failure or obstruction continues after a penalty is imposed under paragraph 39 of Sch 36 | 95 | |
| The Respondent's case on the second statutory condition | 95 | |
| Relevant law – possession or power | 96 | |
| The Facts | 103 | |
| Trustee Documents | 105 | |
| Correspondence | 115 | |
| Information relating to transactions | 118 | |
| Discussion and Decision | 127 | |
| Third statutory condition for the imposition of a penalty – Paragraph 50 (1)(c) – an officer of Revenue and Customs has reason to believe that, as a result of the failure or obstruction, the amount of tax that the person has paid, or is likely to pay, is significantly less than it would otherwise have been | 138 | |
| Principles relevant to the application of paragraphs 50(1)(c) and 50(3) of Schedule 36 to the FA 2008 | 138 | |
| Issues in dispute in relation to paragraph 50(1)(c) and tax at risk | 148 | |
| Reasonableness of Officer Jackson's belief as to the tax at risk | 158 | |
| Factual issues in dispute | 159 | |
| Background | 160 | |
| The Respondent's tax affairs | 161 | |
| HMRC's Investigation | 164 | |
| The Taj Trust and the Offshore Structure | 174 | |
| Economic Settlor | 176 | |
| Companies associated with the Taj Trust | 190 | |
| The Chartwell Group | 191 | |
| Transactions giving rise to the alleged tax at risk | 193 | |
| Whether Remittances were made | 202 | |
| Officer Jackson's belief as to the Tax at Risk | 205 | |
| Protective Discovery Assessments | 214 | |
| Causal link | 217 | |
| Conclusion as to the Officer's belief based on the facts | 245 | |
| The Law | 248 | |
| Transfer of Assets Abroad Legislation | 248 | |
| The Settlements Legislation | 256 | |
| Remittance basis | 262 | |
| 266 | ||
| Discussion and Decision | 271 | |
| Tax at risk: Transfer of Assets Abroad Legislation | 272 | |
| Tax at risk: the remittance basis | 280 | |
| Tax at risk: Settlements Legislation | 282 | |
| Tax at risk: Taxation of Chargeable Gains Act (TCGA)... |
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