TC03696: Isocom Ltd and related appeal
| Jurisdiction | UK Non-devolved |
| Judgment Date | 10 June 2014 |
| Neutral Citation | [2014] UKFTT 571 (TC) |
| Date | 10 June 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 571 (TC)
Judge Jennifer Blewitt, Mr Leslie Brown
Mr R. Mullan, Counsel appeared for the Appellant
Mr J. Daley, Officer of HM Revenue and Customs, appeared for the Respondents
PAYE - Whether fraud of employee attributable to the first appellant - Yes - Appeal dismissed - Discovery assessments and closure notices - Whether there was a discovery - Whether vehicles owned by the company were pool cars - Appeal allowed.
The Tribunal dismissed the company's appeal against PAYE determinations: fraud by an employee was to be attributed to the company, and hence the extended time limit applied. The Tribunal allowed the company director's appeal against discovery assessments in respect of car-related benefits: the vehicles in question were pool cars, and in any event it was doubtful a discovery could properly be made.
These were separate appeals, but dealt with by the Tribunal in the same hearing. The company appealed against determinations under applicable PAYE regulations and NIC legislation in respect of unpaid PAYE and NICs on employee earnings over the three years 1997-98 to 1999-2000. Mr Bayat ("B"), the managing director of the company, appealed against discovery assessments in respect of car and fuel benefits for the five years 2000-01 to 2004-05 (including an element by way of penalty).
The determinations against the company followed on an Employer Compliance Review which noted discrepancies in the company's records and returns. Three P35s submitted in August 2000, in respect of the three years 1997-98 to 1999-2000, understated the amount of tax due. These forms had been falsified by an employee engaged at the time as an internal accountant, who had diverted monies due from the company to HMRC, to himself (the fraud had been reported by B to the police and HMRC when he became aware, and the employee concerned had subsequently been convicted). Genuine forms P35, with correct figures and signed by B at the appropriate times, existed for the same periods.
Subsequent enquiries into B's own self-assessment returns had covered several matters, but before the Tribunal these had resolved down to discovery assessments in respect of car and fuel benefits. HMRC's case was that no records had been provided that the cars in question were "pool cars"; no P11Ds had been submitted and no benefits declared in tax returns; HMRC believed benefits in kind arose, and that therefore there had been a discovery. However, the decision to assess had been taken by one HMRC officer on the basis that another officer had established that benefits had not been declared; but the evidence from the second officer was that in his only conversation with the first, he had intended to convey the message that records should be checked to ascertain whether any benefits arose.
B's evidence was that he was not aware there was an issue on car-related benefits until September 2007. A pool car was needed to visit customers and suppliers, attend meetings and collect visitors. The vehicle was available for business use of all employees and was used on average three or four days each week. It was kept overnight in a locked compound at the company's premises. The rules for use of the car were set out in the company's handbook, which expressly forbade private use. During the period of the assessments in question, B owned variously four private vehicles and had no need to use the company's car for private use.
An issue on both the company's appeal and B's appeal was whether HMRC were out of time to raise determinations and make discovery assessments.
The Tribunal, dealing with the assessments against B in respect of car-related benefits, said it accepted B's evidence in its entirety, and against the relevant statutory conditions (in ICTA 1988, Income and Corporation Taxes Act 1970 section 159s. 159 and ITEPA 2003, Income Tax (Earnings and Pensions) Act 2003 section 167s. 167) it was satisfied the two vehicles owned over the tax years in question were pool cars. The company's lack of records was not fatal to the case. B's appeal against the assessments fell to be allowed.
Although this finding dealt with the appeal, the Tribunal also said that (based on helpful guidance from the Upper Tribunal decision in R & C Commrs v CharltonTAX[2013] BTC 1634), whilst satisfied that HMRC had made a "discovery" for the purposes of TMA 1970, Taxes Management Act 1970 section 29s. 29, it had doubts as to whether, given the misunderstanding between the HMRC officers which formed the basis of the assessment together with an actual lack of any investigation, the discovery was a reasonable conclusion from the evidence available to the officer. Nor was it clear that HMRC would have discharged the burden of proof in respect of negligence under TMA 1970, s. 29 (or under s. 36 time limits, which was relevant to two out of the five years of assessment) - the comments of the judge in PMS International Group plcTAX[2012] TC 02181, as to "neglect", were of assistance here.
The Tribunal said the case of Bilta (Bilta (UK) Ltd v Nazir [2012] EWHC 2163 (Ch)) supported the proposition that attribution of fraud (committed by an employee of a company) to that company was appropriate in circumstances where the company had to compensate HMRC for a loss of tax which was properly due, notwithstanding the company would itself suffer a loss thereby. The element of fraud had been established in this case, and that fraud was to be attributed to the company. It followed that the extended time limit in respect of PAYE and NIC liabilities applied, and the company's appeals against the determinations fell to be dismissed.
This case covers some recurring matters of principle - "discovery", "burden of showing neglect", "attribution of employee's fraud to the company" - and so helpful to see the Tribunal's drawing down of guidance from prior case law.
[1]By Notices of Appeal dated 20 August 2010 and 12 July 2011 the First and Second Appellants ("Isocom" and "Mr Bayat" respectively) appealed against the following:
Year |
Assessment/Determination |
Amount |
1997/98 |
National Insurance Contributions ("NIC") under section 8 Social Security Contributions (Transfer of Functions, etc) Act 1999 |
7,348.46 |
1998/99 |
As above |
4,057.52 |
1999/00 |
As above |
5,491.71 |
1997/98 |
PAYE under regulation 80 Income Tax (Pay As You Earn) Regulations 2003 |
5,059.46 |
1998/99 |
As above |
3,183.67 |
1999/00 |
As above |
4,856.02 |
Year |
Discovery Assessment/Closure Notice |
Amount |
Penalty |
2000/01 |
Discovery Assessment |
687.28 (subsequently amended to 1,488.08) |
206 (subsequently amended to 446) |
2001/02 |
Discovery Assessment |
2,511.52 (subsequently amended to 3,071.64) |
754 (subsequently amended to 921) |
2002/03 |
Closure Notice |
1,054.18 (subsequently amended to 1,646.86) |
316 (subsequently amended to 494) |
2003/04 |
Closure Notice |
16,146.70 (subsequently amended to 17,166.46) |
4,844 (subsequently amended to 5,150) |
2004/05 |
Closure Notice |
1,494.02 (subsequently amended to 1,780.46) |
448 (subsequently amended to 534) |
[2]The issue to be determined in respect of Isocom's appeal is whether HMRC were out of time to issue regulation 80 determinations in respect of unpaid PAYE and NIC liabilities.
[3]In relation to Mr Bayat's appeal the issues are:
(a) Whether there was a discovery in respect of car and fuel benefits;
(b) Were the discovery assessments made out of time; and
(c) Whether penalties were correctly imposed.
[4]We should note at this point that although there are two separate appeals, we directed that the evidence should be heard together on the basis that the evidence of the two HMRC officers, Mr Stewart and Mr Bassett, and Mr Bayat, the Managing Director of Isocom and the Second Appellant, would overlap and potentially be relevant to both appeals.
[5]As a preliminary point there were also a number of matters which formed the basis of the Discovery Assessments and Closure Notices when Mr Bayat's appeal first came before us. Those matters included car and fuel benefits, income from property and an increased capital gain on the disposal of a property. We were informed by the parties that the issues in respect of income from property and capital gains had been agreed and therefore the only issue remaining for us to determine was that in relation to car and fuel benefits and the consequential penalties. The car and fuel benefits upon which additional duties were assessed by HMRC are as follows:
Year |
Discovery Assessment/Closure Notice |
Amount |
2000/01 |
Discovery Assessment |
3,124 |
2001/02 |
Discovery Assessment |
5,521 |
2002/03 |
Closure Notice |
5,054 |
2003/04 |
Closure Notice |
5,315 |
2004/05 |
Closure Notice |
6,791 |
[6]Furthermore, it was conceded on behalf of the First Appellant that the regulation 80 determination and consequential NIC liability raised in respect of 2000/2001 were properly made and therefore the appeal against that period was withdrawn.
[7]The grounds of appeal relied upon by Isocom as set out in its Notice of Appeal can be summarised as follows:
NIC liabilities cannot be collected, if due at all, as a result of the Limitation Act 1980;
The assessment is out of time;
The Appellant informed HMRC of fraudulent actions relating to the company's PAYE and NIC payments by its former Accounts Manager in 2000 and there is therefore a reasonable excuse.
[8]On behalf of Mr Bayat the grounds of appeal relied upon are:
In each year of assessment the only company cars were those which met the criteria for pool cars;
HMRC have no evidence to suggest that the company vehicles were not pool cars;
The car benefits were first mentioned in correspondence from HMRC dated 28 September 2007 - 12 days before the assessments were raised - prior to which the HMRC officer responsible for raising the assessment had not requested any information relating to the company vehicles.
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...2014 was in fact a Tribunal Decision (“the Decision”) in an appeal involving the appellant and his company and its neutral citation is [2014] TC 03696. [4] The “review” decision was attached to the Notice of Appeal and was a letter from an HMRC Complaints Officer. [5] The quantum is a refer......