TC03780: Karen Rotberg
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 July 2014 |
| Neutral Citation | [2014] UKFTT 657 (TC) |
| Date | 07 July 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 657 (TC)
Judge Roger Berner, Mrs Amanda Darley
Hui Ling McCarthy, instructed by BDO LLP, appeared for the Appellant
Paul Shea, HMRC, appeared for the Respondents
Capital gains tax - Assessment made outside ordinary time limit - Taxes Management Act 1970 ("TMA 1970"), Taxes Management Act 1970 section 36 subsec-or-para 1s. 36(1) - Whether loss of capital gains tax attributable to negligent conduct of taxpayer or a person acting on her behalf.Jurisdiction - Whether First-tier Tribunal has jurisdiction to consider legitimate expectation and other public law arguments - Construction of Taxes Management Act 1970 ("TMA 1970"), Taxes Management Act 1970 section 50 subsec-or-para 6s. 50(6).Legitimate expectation - Whether appellant had a legitimate expectation as a consequence of representations of HMRC either (i) that relief would apply to a gain on certain share disposals, and (ii) that no other reliefs would be available, at a time when a claim for EIS relief could have been made for a particular tax year.
The First-tier Tribunal (FTT) has dismissed a taxpayer's appeal against two capital gains tax discovery assessments and a tax return amendment. The FTT found that the loss of tax was attributable to the taxpayer's accountant's negligence, in failing to realise that roll-over relief was not available and in placing total reliance on a brief and general conversation with an HMRC officer, and that therefore the time limit for raising an assessment was extended. The FTT also ruled that it did not have jurisdiction to consider legitimate expectation and even if it did it would have found that the taxpayer had no legitimate expectation based on HMRC's conduct.
The appellant (Mrs Rotberg) made three disposals of shares in two private companies (Jobsite Ltd and Auto Online Ltd) in 1999-00, 2000-01 and 2003-04, reinvesting the proceeds in subscriber shares in El Shaddai Business Development Ltd (El Shaddai). Prior to the disposal in 1999-00 Mrs Rotberg's then accountant (Mr Michell FCA) of Small Firms Accounts and Tax Ltd telephoned HMRC and spoke to a Mr Hutchings, an inspector of taxes at a local compliance office, to ask whether roll-over relief would be available in respect of the sale and reinvestment, and based on the barest of facts Mr Hutchings confirmed that roll-over relief would be available. Mr Michell advised Mrs Rotberg that a new company should be set up, and that the new company would be eligible for roll-over relief in respect of other companies that it invested in. In respect of the 2000-01 and 2003-04 sales Mr Michell advised that roll-over relief would again be available. Mr Michell completed Mrs Rotberg's tax returns, but for 1999-00 and 2000-01 no mention was made of the share disposals and for 2003-04 the disposal was included but only the balance of disposal proceeds after deducting the amount reinvested in El Shaddai was included. Following the making of claims for roll-over relief in September 2005 HMRC opened an enquiry into Mrs Rotberg's 2003-04 tax return and said that they were considering making discovery assessments for 1999-00 and 2000-01. Shortly afterwards, a Mr Graham of HMRC wrote to Mrs Rotberg to inform her that business asset roll-over relief only applies if the old and new assets are of a certain type, and shares are not qualifying assets. He also said that "I have considered the possibility of other reliefs, for example reinvestment relief but again must say that such a claim will fail as this type of relief ceased to be available for shares acquired on or after 6 April 1998". Following further correspondence, in May 2006 HMRC issued discovery assessments for 1999-00 and 2000-01 and amended the 2003-04 tax return, against which Mrs Rotberg appealed. Another meeting was held in July 2006 between Mrs Rotberg, her husband (Mr Rotberg), Mr Michell and two HMRC inspectors in which it was noted, in respect of the letter sent by Mr Graham, that "Mr Graham had gone out of his way to research possible relief options for Mrs Rotberg but "had drawn a blank"". On this basis Mrs Rotberg believed that there were no options for obtaining relief and thus did not seek any further advice on the issue, however it later transpired that she could have been able to benefit from Enterprise Investment Scheme (EIS), but by the time Mrs Rotberg received this advice in September 2007 it was too late to make a claim.
The FTT had to consider:
(2) whether the assessment for 1999-00 was validly made under TMA 1970, Taxes Management Act 1970 section 36s. 36 (as was then applicable) as being for a loss of capital gains tax attributable to the negligent conduct of either Mrs Rotberg or her accountant;
(3) whether it has jurisdiction under TMA 1970, Taxes Management Act 1970 section 50s. 50 to give effect to any legitimate expectation or other public law argument of Mrs Rotberg; and
(4) if it does have jurisdiction to consider the legitimate expectation arguments, did Mrs Rotberg have a legitimate expectation based on the conduct of HMRC, either that she would obtain roll-over relief or that she would not be entitled to any other relief, with the result that a claim to EIS relief was not made in time in respect of the 2003-04 disposal.
On the first issue, the FTT accepted that in accordance with AB (a firm)v R & C CommrsSCD(2006) Sp C 572 Mrs Rotberg was not negligent, even though her reliance on her accountant turned out to be misplaced there was nothing to suggest that she could have had an indication that Mr Michell was "unable to advise appropriately on the tax issues surrounding the share sale". However the FTT had "no doubt that the loss of tax in this case was attributable to the negligence of Mr Michell in failing to come to the view that the rollover relief was not available to Mrs Rotberg, and his reliance on Mr Hutchnigs". Mr Michell had not acted as would be expected of an ordinarily competent accountant or tax adviser.
On the second issue, having considered both Oxfam v R & C CommrsVAT[2010] BVC 108 and R & C Commrs v NoorVAT[2013] BVC 1571, the FTT decided that once it is accepted (as it was in both cases) that the FTT has no general supervisory jurisdiction, the question of jurisdiction is not one of principle but one of statutory construction. In this case, this depends on the meaning of "the appellant is overcharged" in TMA 1970, Taxes Management Act 1970 section 50 subsec-or-para 6ss. 50(6)(a) and (c). The FTT found the case of Aspin v Estill (HMIT)TAX[1987] BTC 553 provides authority that the jurisdiction of the FTT in direct tax cases of this nature is limited to considering the application of the tax provisions themselves and as "s. 50(6) falls to be construed so as to refer only to the case where the charge to tax made on the assessment or amendment exceeds that which the tax legislation provides. There is thus no jurisdiction for the tribunal to apply the public law principle of legitimate expectation, even in a case where a relevant degree of assurance is provided before the event, and the taxpayer has done something to his detriment in reliance on that assurance. On this reading of s. 50(6), therefore, a challenge can only arise in respect of the enforcement of the liability. That, according to "Aspin", is something that can only be achieved on judicial review".
Even if the FTT was wrong on the issue of jurisdiction in respect of legitimate expectation the FTT found that Mrs Rotberg still did not have any legitimate expectation based on the conduct of HMRC, the confirmation provided by Mr Hutchings fell well short of the threshold at which a legitimate expectation could be regarded as having been created for Mrs Rotberg.
Although the taxpayer lost this case, the FTT had every sympathy with her, finding that she had been "ill-served" by her accountant and by not receiving appropriate advice she was faced with a significant tax liability which should have been capable of being deferred. As such, the case highlights the need for accountants to appreciate their limitations and seek specialist help when appropriate and if they do not they can expect to face court proceedings from their clients, as Mrs Rotberg and El Shaddai instigated against Mr Michell.
Whilst accepting that statements made by HMRC officers did not give rise to legitimate expectation, as those statements were either wrong or incomplete the FTT found that this was a "matter of considerable regret to HMRC".
It is interesting that although this case was heard in private, Judge Berner decided that the decision should be published without anonymisation. He made this decision having regard to the grounds put before the general commissioners in 2008 that the case should be heard in private.
For commentary on what constitutes "careless or deliberate" behaviour (which replaced fraudulent or negligent in 2010) and the time limits for HMRC to make discovery assessments, see the CCH Tax Reporter at 184-315 and 184-375, respectively. For commentary on roll-over relief, see the CCH Tax Reporter at 570-100ff..
[1]By direction of the tribunal on 1 November 2011, all hearings in relation to these proceedings were directed to be held in private. The substantive hearing of this appeal was thus heard in private.
[2]Under rule 32(6) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, if the tribunal publishes a report of a decision resulting from a hearing which was held wholly or partly in private, the tribunal must, so far as practicable, ensure that the report does not disclose information which was referred to only in a part of the hearing that was held in private (including that information which enables the identification of any person whose affairs were dealt with in the part of the hearing that was held in private) if to do so would undermine the purpose of holding the hearing in private.
[3]When publishing a decision where...
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