Robb
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 September 2016 |
| Neutral Citation | [2016] UKFTT 641 (TC) |
| Date | 16 September 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jonathan Cannan, Mrs Ann Christian
No appearance by the Appellant
Mr Shamsher Singh of the National Crime Agency appeared for the respondents
Income tax – Failure to notify chargeability – Tax assessments – Penalties – Whether justified – Whether excessive – Appeal dismissed – Proceeds of Crime Act 2002 (“POCA 2002”), s. 317, 323 – Taxes Management Act 1970 (“TMA 1970”), s. 29, 36 – Former TMA 1970, s. 7(8)
The First-tier Tribunal (FTT) found that: the National Crime Agency (NCA) and its predessor the Serious Organised Crime Agency (SOCA) were entitled to assume the functions of HMRC in relation to the taxpayer; discovery assessments were validly made; and penalties of 70% of the lost tax were justified.
Mr Gary Robb (the appellant) was involved with the Colosseum nightclub in Sunderland. In July 2010 the appellant pleaded guilty to various counts of permitting the Colosseum to be used for supplying controlled drugs and was sentenced to five years imprisonment. In September 2010 the appellant was interviewed by officers of SOCA at HM Prison Holme House. The main purpose of the interview was to establish the nature and source of £1.5m which prior to his imprisonment the appellant had tried to transfer from his bank account in Northern Cyprus (where he had absconded for 12 years) to an account he held in Thailand. During the course of that interview the appellant stated that another man ran the Colosseum for him whilst he was in Northern Cyprus and over a period of one or two years the door money was sent to him together with the door money from another club in South Shields, which amounted to maybe £5–10,000 per week. In 2011 SOCA successfully sought a civil recovery order in relation to the £1.5m. During those proceedings the appellant maintained that the source of the £1.5m was legitimate, but admitted that he had not declared income transferred to him in Northern Cyprus to HMRC, he also claimed that the figures he had given in the Holme House interview were exaggerated.
In February 2012 SOCA gave notice to HMRC pursuant to the Proceeds of Crime Act 2002 (“POCA 2002”), s. 317(2) that it would be taking over the general Revenue functions in relation to the appellant's income tax, National Insurance and capital gains tax for tax years 1993–94 to 2005–06 inclusive. At the same time SOCA issued discovery assessments under the Taxes Management Act 1970 (“TMA 1970”), s. 29 to the appellant for the tax years 1994–95 to 1998–99, assessing the appellant to tax of £618,354 on income of £1.6m. The basis on which the tax assessments were made was the appellant's admission in the Holme House interview. The assessing officer therefore estimated that the appellant's income from the club in 1997–98 and 1998–99 was £7,500 per week. Lower figures were used for prior years to give some allowance for the fact that they were earlier years in the business.
In October 2013 penalties were issued for failure to notify under former TMA 1970, s. 7(8) equal to 70% of the additional tax. It appears that this was based on the penalty regime in Finance Act 2008 (“FA 2008”), Sch. 41 (which replaced TMA 1970, s. 7(8) with effect from 1 April 2010) where the standard penalty for a deliberate but not concealed failure to notify chargeability is 70% of the additional tax.
The assessments and penalties were upheld following a review by HMRC. The appellant appealed to the tribunal, broadly on the grounds that other people were involved, he was not the “main man” and the assessments and penalties were based on limited paperwork. He intimated that he was putting his paperwork together but he never provided any documentation to the tribunal.
The FTT was satisfied that the qualifying condition for SOCA to give notice under POCA 2002, s. 317(2) was satisfied. SOCA plainly had reasonable grounds based on the Holme House interview to suspect that income chargeable to income tax had accrued directly or indirectly as a result of criminal conduct. It seemed to the FTT that the door money was income which indirectly accrued from permitting use of the Colosseum for supplying controlled drugs.
The FTT noted that in the case of a failure to notify chargeability to tax the only relevant condition for issuing discovery assessments was that an officer had discovered that income had not been assessed to tax. The FTT found that SOCA had satisfied it that there was a discovery engaging TMA 1970, s. 29 and that the extended time limit in TMA 1970, s. 36(1A)(b) gave it the power to make an assessment more than four years after the end of the year of assessment.
The FTT found that the appellant was entitled to the door money from the Colosseum and that in the absence of any more reliable figures or records SOCA was entitled to calculate the lost tax by reference to the figures given by the appellant in the Holme House interview.
On the issue of penalties, the FTT was satisfied that there had been a failure to notify chargeability to income tax and therefore that penalties arose. The FTT was not satisfied that the penalties were excessive. They were calculated as 70% of the lost tax which was the penalty that would have been applicable under FA 2008, Sch. 41 if it had applied and while the present penalties arose under TMA 1970, s. 100 it considered that a penalty at the rate of 70% was justified.
The appeal was accordingly dismissed.
It is interesting that in this case:
1) Although the FTT received an email from the taxpayer's doctor seeking a postponement of the hearing, the FTT decided to proceed. The FTT considered that this was in the interests of justice taking into account that the taxpayer had not made any real attempt to engage with the tribunal and SOCA/NCA.
2) It was found that SOCA/NCA could adopt the general fuctions of HMRC under POCA 2002, s. 317(2) as they had reasonable grounds to suspect criminal conduct and there was income flowing from it.
3) Although the penalties for failing to notify chargeability to income tax related to years before the rules in FA 2008, Sch. 41 took effect, the FTT was satisfied that calculations based on the new rules were justified.
[1] This appeal is against assessments and penalty determinations made by the National Crime Agency (“NCA”) in carrying out the general Revenue functions of HM Revenue & Customs pursuant to the Proceeds of Crime Act 2002. The tax assessments under appeal are for income tax and national insurance in tax years 1994–95 to 1998–99 and total £618,354 (“the Tax Assessments”). The penalty determinations are for the same tax years and total £432,847 (“the Penalties”).
[2] The Tax Assessments and the Penalties arise out of the Appellant's alleged failure to notify HMRC of his chargeability to income tax on income arising from a nightclub business in Sunderland. We set out the circumstances in which that income is said to arise in detail below.
[3] The Appellant's grounds of appeal are essentially that the income from the nightclub was not his, and in any event the Tax Assessments and the Penalty are excessive.
[4] The Appellant did not appear when the appeal came on for hearing. We were satisfied that the Appellant had been notified of the hearing and that it was in the interests of justice to proceed. The hearing commenced at 10.45am. At about 11.30am we were told that the Tribunal office had received an email from the Appellant's doctor seeking a postponement of the hearing and we took time to consider the email.
[5] We set out in Annex 1 to this decision the terms of that email and the procedural history of the appeal. The Appellant failed to serve his witness statement on the Respondents. The Tribunal's original directions required that witness statement to be served by 9 January 2015. Subsequent directions made it clear that if he did not serve his witness statement then he would be entitled to rely only on a witness statement of his brother which had been served. Further, the Appellant had been given an opportunity to lodge written submissions which he had not done. Whilst making allowances for the Appellant's medical issues, described in Annex 1, we did not consider that he had made any real attempt to engage with the Tribunal and the Respondents. He failed to progress his appeal expeditiously, avoiding unnecessary delay and cost as required by the Tribunal Rules. In the light of the procedural history and in all the circumstances we considered that it remained in the interests of justice to proceed with the hearing.
[6] The Tax Assessments were made under section 29 Taxes Management Act 1970 (“TMA 1970”). Insofar as relevant section 29 provides as follows:
(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment –
a) 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
b) that an assessment to tax is or has become insufficient, or
c) that any relief which has been given is or has become excessive,
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
[7] Section 29(3) provides that where a taxpayer has made or delivered a self-assessment return, he cannot be assessed under section 29(1) unless one of two conditions is satisfied. The Respondents allege that the Appellant failed to notify his chargeability to tax and had not made or delivered any return of income for the relevant tax years. It was not therefore necessary for them to establish that the conditions referred to in section 29(3) were satisfied.
[8] The meaning of the term “discover” in section 29(1) was considered by the Upper Tribunal in R & C Commrs v Charlton TAX[2013] BTC 1,634 where it...
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