Sanderson v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 December 2013 |
| Neutral Citation | [2013] UKUT 623 (TCC) |
| Date | 06 December 2013 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2013] UKUT 0623 (TCC)
Mr Justice Newey
Mr Keith Gordon and Miss Ximena Montes Manzano, instructed by Bramhall solicitors, appeared for the Appellant
Mr David Yates, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Capital gains tax - validity of "discovery" assessment under Taxes Management Act 1970 ("TMA 1970"), Taxes Management Act 1970 section 29s. 29 - whether a "discovery" - whether conditions of section 29 subsec-or-para 4s. 29(4) and section 29 subsec-or-para 5(5) satisfied.
The taxpayer's appeal against a discovery assessment for the tax year 1998/99, relating to a claim to set off £1.8 million of losses (purchased by the taxpayer under the Castle Trust scheme) against chargeable gains, was dismissed.
Although neither the taxpayer nor persons acting on his behalf had been negligent, the information contained on his return was not sufficient to mean the hypothetical officer in TMA 1970, section 29 subsec-or-para 5s. 29(5) could reasonably be expected to be aware of an insufficiency of tax, and nor could other information held by HMRC be attributed to such officer under section 29 subsec-or-para 6s. 29(6)(d)(i).
The taxpayer (S) appealed against (and HMRC cross-appealed against one part of) the First-Tier Tribunal's decision to uphold a "discovery" assessment ((2012) TC 01902).
S had filed his tax return for the 1998/99 tax year in February 2003. The return reported chargeable gains of £1.8 million, and also stated that losses of more than £2m had been incurred. These losses were almost entirely attributable to a "beneficial interest in the Castle Trust", a marketed capital loss scheme in which S had participated. S had in 1998 purchased a share in the Trust Fund of the Castle Trust, and claimed the benefit of Trust Fund losses under TCGA 1992, section 71 subsec-or-para 2s. 71(2). Certain additional information in this respect was provided in the "white space" on the return.
HMRC became aware of the Castle Trust scheme by mid-1999, and it was the subject of an investigation over an extended period by Special Compliance Office and Special Investigations Section. One of the officers involved was Mr Thackeray (T). In July 1999, the SCO received a list of the purchasers of the losses, including S. T obtained S's file, but at that stage S's tax return for the year had not yet been submitted. By 2003, it had been established that the Castle Trust scheme was ineffective, and, following negotiations between HMRC and the Trustees of the Castle Trust Fund, a closure notice was issued in November 2003 reducing the Castle Trust's capital losses to nil. S was advised of this by the promoter of the scheme in January 2004, and contacted his accountants: the advice was to do nothing further.
It was not until the autumn of 2004 that T became aware that S's return had been filed. In January 2005, HMRC raised a discovery assessment against S. It was agreed in the proceedings that the enquiry window for the return in question closed on 30 April 2004.
The issues before the First-Tier Tribunal (FTT) had been:
(2) Whether there had been a "discovery" by HMRC (TMA, section 29 subsec-or-para 1s. 29(1));
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(3) If so, whether:
(a) the insufficiency of tax was attributable to negligent conduct on the part of S or anyone acting on his behalf (TMA, section 29 subsec-or-para 4s. 29(4)); or
(b) at the conclusion of the enquiry window for the return, an officer could not reasonably have been expected on the information made available to him, to have been aware of the insufficiency (TMA, section 29 subsec-or-para 5s. 29(5), section 29 subsec-or-para 6(6)).
The FTT decided issues 1 and 2(b) in favour of HMRC; and issue 2(a) in favour of S. S appealed, and HMRC cross-appealed in respect of the same.
The Upper Tribunal (Mr Justice Newey) confirmed the FTT's decision on the three issues, as follows:
Although, as S submitted, HMRC (in general) and T (in particular) were well aware of S's participation in the Castle Trust scheme before S had even submitted his return, the judge agreed with the conclusion of the FTT that:
the fact that [T] may have had sufficient evidence to reach a conclusion that there was an insufficiency of tax sooner than he did, does not … preclude him from reaching that conclusion and making a discovery at a later date.
The judge went on that "as was stated in Charlton [(2013) BTC 1634], "all that is required is that it has newly appeared to an officer, acting honestly and reasonably, that there is an insufficiency in an assessment"". In this case, it newly appeared to T in late 2004 that there was such an insufficiency. Whilst T may have been alive to the possibility of S relying on the losses when he obtained S's file in 1999, he did not know until 2004 that the filed tax return in fact included a loss claim. Even had he been aware that the return had been filed in February 2003 (which he was not), he could not have been certain until he saw it that S was relying on the loss. In the circumstances, the FTT was amply justified in concluding that T "discovered" the insufficiency only in 2004.
Before the Upper Tribunal, HMRC was not seeking to argue that S himself had been negligent. The FTT had observed that, given the nature of the Castle Trust scheme, S did take proper and appropriate advice in relation to the preparation and disclosure on his return.
Instead, HMRC contended that there was negligent conduct on the part of "persons acting on S's behalf", namely his accountants. HMRC argued that a taxpayer's duty of care does not end with the filing of a return; rather, a taxpayer has a duty to correct matters if he learns that a claim for relief made in the return was ill-founded, at least if the error emerges before the (long) period allowed for making such a claim has expired.
The judge decided that, regardless of whether HMRC were right that a taxpayer has a duty to correct mistakes (as to which he did not think he needed to express a final view), it was reasonable for the accountants in the particular circumstances of this case not to advise S that he should contact HMRC in early 2004. The judge's reasons included the following:
(a) although a failure to correct an error could go to penalties, there was no statutory provision obliging a taxpayer to correct a return, nor any duty (so far as he was aware) to inform HMRC of past mistakes;
(b) S was not entitled - because out of time - to amend his return after receiving the letter from the scheme promoter;
(c) S's accountants consulted other accountants who had been providers of the scheme, and were advised by them to "do nothing until you hear from HMRC". Whilst those accountants may not have been independent, S's accountants were entitled to regard them as having particular expertise in relation to the Castle Trust scheme;
(d) it was reasonable to assume that HMRC were already aware of S's participation in the Castle Trust scheme, it having been referred to in S's 1998/99 return.
The judge decided that S's tax return might have alerted the hypothetical officer to the fact that S was seeking to take advantage of a tax scheme, but it did not contain enough information to make the officer aware of an "actual insufficiency" or to justify the making of an assessment. The mere fact that S's loss was attributable to a tax scheme would not have meant that it was open to challenge; any assessment would have been speculative.
Nor, on balance, did the judge accept the submission that information that HMRC held about the Castle Trust scheme should be attributed to the hypothetical officer. That submission related to TMA 1970, section 29 subsec-or-para 6s. 29(6)(d)(i):
it is information the existence of which, and the relevance of which as regards [a discovery of an insufficiency of tax] … could reasonably be expected to be inferred by an officer [from information provided by the taxpayer] …
This was, the judge said, principally because:
(a) S disclosed nothing about the Castle Trust scheme beyond what was contained in his 1998/99 return (which was, itself, inadequate);
(b) While Taxes Management Act 1970 section 29subsec-or-para 6s. 29(6)(d)(i) is not confined to information supplied by the taxpayer, the authorities establish that the provision is to be construed restrictively;
(c) Unlike the case of Charlton, where there was a reference number (SRN) under DOTAS (which inevitably meant that a form AAG1 had been lodged, and which form was bound to contain information about the scheme in question), an officer considering T's return could have done no more than surmise that HMRC would somewhere have other information about the Castle Trust and that, if it did, it could shed light on S's loss claim. That was not good enough for the purposes of section 29 subsec-or-para 6s. 29(6)(d)(i).
On the basis of his decisions on issues 1 and 2(b), the judge dismissed S's appeal.
This is another "discovery" case, re-stating the principles from earlier cases. The discussion on the question of "taxpayer's duty" to correct errors in a return, in the context of "negligent conduct" under TMA 1970, Taxes Management Act 1970 subsec-or-para 4s. 29(4), was interesting though, albeit the judge decided he did not need to take a view on that for the purposes of his decision.
[1]This case concerns the validity of a "discovery" assessment made pursuant to section 29section 29 of the Taxes Management Act 1970 ("the TMA"). The assessment in question relates to 1998-1999 but was not made until January 2005. In a decision dated 20 February 2012, the First-tier Tribunal (Judge John Brooks and Mr Peter Davies) upheld the assessment. However, the appellant, Mr David Sanderson, appeals against that decision.
[2]On 24...
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Daisley
...there was an insufficiency of tax or could only have speculated as to that possibility: the Upper Tribunal in Sanderson v R & C Commrs [2014] BTC 502 at [50], upheld on appeal, [2016] BTC 3 at [35]. The subjective test [25] It is clear that before an officer makes a discovery assessment, he......
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Hunter
...the conclusion earlier on the basis of the evidence available, does not preclude a discovery at a later date (Sanderson v R & C Commrs [2014] BTC 502 per Mr Justice Newey sitting in the Upper Tribunal [24]). Appellant's submissions [222] Mr Staff, on behalf of the Appellant raised four grou......
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Anderson v Revenue and Customs Commissioners
...– Discovery assessment – TMA 1970, s. 29 – ITA 2007, s. 64 and 72 – ITA 2007, s. 66 and 74 – ITA 2007, s. 74B – Sanderson v R & C Commrs [2014] BTC 502 – Tower MCashback LLP 1 v R & C Commrs [2010] BTC 154 – R & C Commrs v Charlton [2013] BTC 1,634 – R v Kensington Income Tax Commissioners ......
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Cumming-Bruce
...the conclusion earlier on the basis of the evidence available, does not preclude a discovery at a later date (Sanderson v R & C Commrs [2014] BTC 502 per Mr Justice Newey sitting in the Upper Tribunal [24]). HMRC's submissions [124] Mr Hall, on behalf of HMRC, submitted as follows. Principl......