Sharif
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 April 2019 |
| Neutral Citation | [2019] UKFTT 278 (TC) |
| Date | 26 April 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 278 (TC)
Judge Richard Thomas, Rayna Dean FCA
Mr Naseem Akram, of Advice with Accounts, accountant, appeared for the appellant
Mr Philip Oborne, litigator HM Revenue & Customs, appeared for the respondents
Income tax, Class 4 National Insurance Contributions and student loan repayments – (1) Enquiry into used car selling trade for 2013–14 – Whether omissions of sales – Whether amendments to return correct – Whether penalties due under FA 2007, Sch. 24 for deliberate conduct – Appeals allowed in part (2) Compliance check into takeaway business for 2007–08 to 2012–13 – Whether omissions of sales through intermediaries – Whether discovery assessments valid – Whether penalty under TMA 1970, s. 95 for fraudulent conduct and under FA 2007, Sch. 24 for deliberate and concealed conduct due – All appeals allowed.
The First-tier Tribunal (FTT) partly allowed a taxpayer's appeal against an amendment to a tax return made by a closure notice and a related penalty, and fully allowed appeals against discovery assessments and associated inaccuracy penalties.
Mr Sharif (the appellant) had submitted tax returns which HMRC believed were incorrect because he had understated turnover from his used car trade and his takeaway business. HMRC accordingly issued a closure notice for 2013–14 amending his tax return, discovery assessments for 2007–08 to 2012–13, a determination of a penalty for 2007–08 and assessments of penalties for 2008–09 to 2013–14, against which the appellant appealed.
As a preliminary issue the FTT refused HMRC's application for the appeals to be struck out under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8. The FTT decided that the failings of the taxpayer or his representative to comply with the tribunal's directions as to the exchange of documents, witness statements and skeleton arguments could either be excused because he was an appellant in person and/or HMRC's interests could be protected at the hearing. In any event after the hearing the FTT realised that the application to strike out had apparently not been copied to the appellant but had been in the 56 page bundle handed over just before the hearing. This, therefore, did not allow a non-lawyer proper opportunity to make representations about the application, so that SI 2009/273, r. 8(4) meant that the tribunal should not strike out the appeals.
HMRC submitted that the appeals had been notified to the tribunal late. The FTT found that the appeals had not been notified late because the appellant had not been offered a review. And if a person is not offered a review and does not request one then there is no time limit for notifying an appeal to the tribunal.
The FTT found there to be errors with the closure notice issued by HMRC in respect of the additional turnover for the used car trade, but despite this did hold that it was a valid closure notice.
The FTT found that as the cash basis option box on the return had not been ticked the entries on the return should have been calculated in accordance with generally accepted accounting practice, but this had not been done in relation to the cost of the stock of vehicles which were transferred to a related company and for the sale or other transfer of those vehicles. The FTT therefore concluded that there was an additional liability equal to the excess of the market value of the cars over their cost. The FTT decided that as HMRC had not even noticed the issue or included it in their conclusions and did not seek to argue for an undercharge in the self-assessment as amended, the FTT decided not to make any adjustment either.
The FTT reduced the income tax, Class 4 NICs assessed and a student loan repayment amount charged as a result of the closure notice. This was because it found there to be no basis to HMRC's assumption that money deposited in the appellant's wife's account was cash sales from her husband's business.
In relation to the relating inaccuracy penalty the FTT found the appellant's behaviour had been careless and not tantamount to fraud as HMRC had submitted. The FTT therefore reduced the penalty accordingly.
In relation to the discovery assessments for apparent undisclosed turnover of the takeaway business, the FTT did not think that the HMRC officer had honestly and reasonably made the assessments she did in the amounts she did in order to recover the tax loss she had discovered. This was because:
- She calculated the tax loss for six tax years on the basis of one month's figures extrapolated to six years, firstly by multiplying one month's figures by twelve and then applying the RPI upwards and downwards to the month's figures, on the basis of presumption of continuity.
- She had not only taken one month's figures as representative of six years, but her one month's figures were in fact nothing of the sort.
- A presumption of continuity exercise was a relevant thing to do if HMRC were unable to get the information they needed to calculate a more accurate figure, yet the HMRC officer had the bank statements in front of her for at least 2011–12 onwards and probably from mid-2007.
- There was undue haste in which things were done.
The FTT also had no hesitation in holding that the assessments would have been invalid because they failed to meet the requirements of TMA 1970, s. 29(1). HMRC had not justified the discovery assessments for years before 2012–13 by reference to the appellant's conduct in omitting the income being at least careless (2010–11 and 2011–12) or deliberate, i.e. fraudulent, for years before 2010–11.
The FTT was also unhesitating in saying that had it been necessary to consider the assessments under TMA 1970, s. 29(4), it would have found that HMRC had not shown that the conduct of the appellant in relation to the takeaway business had been careless or deliberate. It was not sufficient for HMRC to say that that the appellant had not shown the audit trail: it was for HMRC to show that the amounts in the accounts of the appellant's wife were not included in the accounts and that was because of his carelessness or fraud and they had come nowhere near to doing so.
The related penalties also had to fall because there was no potential lost revenue as result of the FTT's decision on the assessments.
In summary, the appeal against the amendment to the 2013–14 tax return and the related penalty were partially allowed, and the appeals against the assessments for 2007–08 – 2012–13 and associated inaccuracy penalties were fully allowed.
The FTT were not impressed by HMRC's actions leading to this appeal, including HMRC's “sloppiness” in drafting the closure notice and in relation to other issues, and the undue haste in which things were done to issue the discovery assessments.
[1] This was an appeal by Mr Sirforaz Sharif (“the appellant”) against:
- an amendment to his tax return made by a closure notice for the tax year 2013–14
- assessments to tax for the tax years 2007–08 to 2012–13 inclusive
- a determination of a penalty for the tax year 2007–08
- assessments of penalties for the tax years 2008–09 to 2013–14 inclusive
all of which were made by an officer of the respondents (“HMRC”).
[2] By an application notice dated 6 February 2019 HMRC, through Mr Oborne, applied for the appeals to be struck out. The grounds for so applying were that the appellant had failed to co-operate with the Tribunal to such an extent that the Tribunal could not deal with the proceedings fairly and justly.
[3] The lack of co-operation described was the failure of the appellant or his representative to comply with the Tribunal's directions as to exchange of documents, witness statements and skeleton arguments. Mr Oborne said HMRC had so complied but the appellant had provided nothing.
[4] As to “exchange of documents”, the directions required two things, a list of documents that the appellant intended to rely on at the hearing and copies of any documents on that list not already provided.
[5] In our view an appellant in person as Mr Sharif was (Mr Akram is not a lawyer) can be excused for thinking that if all relevant documents in the case have been given to HMRC in the course of enquiries that led to the appeals HMRC will produce them in the bundle they were directed to produce and there is no need for the appellant to do anything if there are no other documents they wish to produce. If the appellant did produce documents at the hearing about which HMRC had no notice then it would be open to HMRC to argue that they should not be admitted or that HMRC should have an adjournment to consider them.
[6] The same applies to witness statements by the appellant. In this case the appellant was the only potential witness. If he said something in evidence which caught HMRC by surprise then their remedy was to submit to the Tribunal that no, or limited, weight should be put on it if they are unable to properly cross-examine the witness on it.
[7] As to a skeleton, the appellant would in the normal course of things be limited to putting forward only those arguments he raised in his grounds of appeal about which HMRC are well aware.
[8] As a result we did not strike out the appeals, but made it clear to Mr Akram that we would intervene, on a case by case basis, if the appellant was giving evidence or he was putting in documents that HMRC were unaware of. That in our view was sufficient to enable us to protect HMRC's interests and to give them a hearing which was fair to them as well as to the appellant, so that we could deal with the appeals fairly and justly. It is also in accordance with rule 15(2)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Rules”)
[9] After the hearing we realised that Mr Oborne had not apparently copied the application to strike out to the appellant on 6 February but had stated in an email to the Tribunal that copies of “the...
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