Scott
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 March 2016 |
| Neutral Citation | [2016] UKFTT 171 (TC) |
| Date | 07 March 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Howard M. Nowlan
Michael Firth, counsel, appeared on behalf of the Appellant
Tom Cleaver, counsel, appeared on behalf of the Respondents
Procedure – Capital gains tax – Application to add a new ground of appeal in the appellant's substantive appeal to be heard at a later date – Whether HMRC can dispute, in an open enquiry, whether the terms of the taxpayer's return, made in accordance with then guidelines from HMRC, can be amended to rectify what HMRC now claim is an error – Decision that there is a sufficient chance that the Appellant's new ground is correct for it to be admitted – Application allowed.
The First-tier Tribunal (FTT) allowed a taxpayer to add a new ground of appeal to his substantive appeal. While the FTT found that on the balance of probability HMRC's view of the issue would have prevailed the FTT did not consider that the new ground had no chance, or no realistic chance, of success.
Andrew Scott (the appellant) appeared to have implemented a scheme in which he claimed large deductions in relation to surrendered insurance policies to ensure his income and very substantial chargeable gains in 2006–07 and 2007–08 avoided 40% tax. For 2006–07 the appellant supplied the figures of income and gains (which were not in dispute) and HMRC calculated the tax on the capital gains at 20%. For 2007–08 the appellant's return was completed electronically using software based on calculations from HMRC indicating that 20% tax was due on the capital gains. HMRC opened enquiries into both tax returns and challenged the proposition that the deductions claimed in respect of the insurance policies could reduce the rate of tax on the capital gains from 40% to 20%.
The appellant sought a judicial review against HMRC to establish that when HMRC had indicated that the relevant rate of tax was 20% he had some legitimate expectation that that was the proper rate so that HMRC could not subsequently apply a higher rate. The written and oral applications for judicial review were rejected because there had been no unequivocal representation that the tax rate would be 20%. The appellant then applied to the Tribunal to amend its substantive case, alleging that it was correct for the appropriate rate of tax on the capital gains to be 20%, to add that since the tax shown on the original returns had either been calculated by HMRC at 20% or inserted on the electronic return in reliance on indications from HMRC, HMRC could not properly, in pursuing enquiries, enquire into their own calculations and recommendations.
The FTT considered two factors in making its decision:
1) it was not required to decide whether, on the balance of probability, the appellant's contentions were correct, but simply whether there was a sufficient chance that they were correct that admitting the new ground of appeal would not be pointless; and
2) pragmatically if it refused to admit the new point, it could well lead to two distinct disputes between the parties that could not proceed in one hearing through the upper courts.
The FTT's decision was not wholly influenced by the pragmatic point. It was that while on the balance of probability it decided that HMRC's case in the application would have prevailed, it could not refuse to admit the requested new point because it did not consider that it had no chance, or no realistic chance, of success. The FTT accordingly allowed the appellant to advance his new point in the substantive appeal.
It was clear that the FTT did not think that the taxpayer would succeed in his substantive appeal on the new ground he wanted to put forward, but as the point was not unarguable it allowed the addition. The FTT also considered that if it had not allowed the addition of the new ground it could have extended the litigation process.
[1] This was an Application by the Appellant to add a new ground to its grounds of appeal in a substantive hearing to be heard at some future date.
[2] The circumstances leading to the present Application are slightly involved, but the point presently in dispute is as follows. The Appellant claims that his tax returns for the periods 2006/7 and 2007/8, both of which were the subject of open enquiries by HMRC, contained calculations of tax either actually made by HMRC, or made under software itself generated by HMRC's calculations and software made available to taxpayers. HMRC has made adjustments to the two returns in the open enquiries, essentially doubling the tax chargeable on capital gains in the two years, based on the claim that the returns were incorrect. Since the claimed errors in the returns were themselves...
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Andrew Scott v The Commissioners for HM Revenue and Customs
...properly, in pursuing “enquiries”, enquire into their own calculations and recommendations. This application was allowed (see Scott TAX[2016] TC 04947). Before considering the procedural issue, the judge dealt with an issue raised by HMRC concerning whether the Tribunal had the jurisdiction......