The Commissioners for HM Revenue and Customs v Raymond Tooth
| Jurisdiction | England & Wales |
| Judge | Lord Justice Floyd,Lord Justice Males,Lord Justice Patten |
| Judgment Date | 15 May 2019 |
| Neutral Citation | [2019] EWCA Civ 826 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2018/1266 |
| Date | 15 May 2019 |
[2019] EWCA Civ 826
Lord Justice Patten
Lord Justice Floyd
and
Lord Justice Males
Case No: A3/2018/1266
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
Mr Justice Marcus Smith and Judge Hellier
Royal Courts of Justice
Strand, London, WC2A 2LL
Hui Ling McCarthy QC and John Brinsmead-Stockham (instructed by General Counsel and Solicitor to HM Revenue and Customs) for the Appellants
Julian Ghosh QC and Charles Bradley (instructed by Pinsent Masons) for the Respondent
Hearing date: 2 April 2019
Approved Judgment
In 2009, the respondent, Mr Raymond Tooth, participated in a tax avoidance scheme which was designed to utilise employment-related losses incurred in 2008/09 to relieve his liability to tax on other income (“the Romangate scheme”). He claimed to be entitled to carry back these losses and set them off against income for the 2007/08 year of assessment. The scheme as a whole was defeated by anti-avoidance legislation, but Mr Tooth maintained that his self-assessment for 2007/08, which took account of the disputed losses, should stand as it had not been validly challenged. In 2014, the appellants, Her Majesty's Commissioners for Revenue and Customs (“HMRC”), purported to raise a “discovery assessment” under section 29 of the Taxes Management Act 1970 (“ TMA”) in respect of income tax which they contended was due for the 2007/08 year of assessment. Mr Tooth successfully appealed from this discovery assessment to the First-tier Tribunal (Tax) (“FTT”) (FTT Judge Brooks) and a subsequent appeal to the Upper Tribunal (Tax and Chancery Chamber) (“UT”) (Marcus Smith J and Judge Charles Hellier) was dismissed. HMRC now bring this further appeal, with permission granted by Lewison LJ on 16 July 2018.
There are two broad issues on this appeal. The first (“the discovery issue”) is whether HMRC made a relevant “discovery” about Mr Tooth's self-assessment, and in particular whether HMRC “discover[ed] … that an assessment to tax [was] insufficient” within the meaning of section 29(1)(b) of TMA. The second (“the deliberateness issue”) is whether Mr Tooth, or a person acting on his behalf, can be said to have “deliberately” brought about a situation in which “an assessment to tax is or has become insufficient” within sections 29(1)(b) and (4) of TMA. If so, HMRC were not prevented by section 29(3) from raising the assessment. A closely related question is whether HMRC can show, as they must, that they can take advantage of the 20 year time limit for raising an assessment provided by section 36(1A)(a) of TMA, which applies if a “loss of … tax … [is] brought about deliberately” by a person or someone acting on his or her behalf.
Section 8 TMA provides that, for the purposes of establishing the amounts in which a person is chargeable to tax for a year of assessment, an officer may require a person to make a return. Subject to exceptions, section 9(1)(a) provides that every return shall include a self-assessment, that is to say:
“an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment”.
One of the exceptions is that a person is not required to comply with section 9(1) if he makes and delivers his return before 31 October following the year of assessment (section 9(2)). In such circumstances it can be left to HMRC to compute the tax which is payable for the year and make the assessment on the basis of the information contained in the return (section 9(3)). Where this occurs, HMRC's computation is treated as the taxpayer's self-assessment.
Section 29 TMA provided at the relevant time (so far as material):
“(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment –
(a) that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or
(b) that an assessment to tax is or has become insufficient, or
(c) that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax….
(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above–
(a) in respect of the year of assessment mentioned in that subsection; and
(b) in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
(4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf.
(5) The second condition is that at the time when an officer of the Board –
(a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment; or
(b) informed the taxpayer that he had completed his enquiries into that return,
the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.”
The discovery assessment which HMRC purported to make in the present case was on the basis that an officer had discovered, as regards Mr Tooth and the year of assessment 2007/08, that an assessment to tax was or had become insufficient. HMRC contended that the prohibition in section 29(3) was overcome because the first condition (i.e. that specified in section 29(4)) was satisfied, namely that the insufficiency of the assessment had been brought about deliberately by Mr Tooth or a person acting on his behalf.
A “discovery assessment” is not the only way in which HMRC can go behind past assessments to tax or claims to relief. HMRC can launch an enquiry into a claim for relief under Schedule 1A TMA. They can also launch an enquiry into a return under section 9A TMA. Schedule 1A and section 9A TMA are mutually exclusive mechanisms. Each has a prescribed time limit within which HMRC must take action.
Under Schedule 1A, HMRC can only enquire into a claim which is not included in a return, and the time limit is, in broad terms, 12 months from the date of the claim. By contrast, where a claim is included in a return made under section 8 or 8A TMA, the enquiry must be under section 9A. Enquiries under section 9A extend to anything contained in the return or required to be contained in the return, including a claim or election included in the return. The time limit for section 9A enquiries is, again in broad terms, 12 months from the filing of the return.
Schedule 1A paragraph 3 contains a power for HMRC to amend a claim, but that power is not exercisable during the period when a claim is being enquired into. Section 9ZB contains a power to amend a return, which must be exercised within 9 months of the delivery of the return or a relevant amendment.
Where an enquiry is launched into a claim under Schedule 1A, paragraphs 4(1) and (3) of that Schedule provide that HMRC are not required to give effect to the claim until the enquiry is completed.
It can therefore be of some importance to decide whether or not a claim is included in a return. This question was considered by the Supreme Court in Revenue and Customs Commissioners v Cotter [2013] UKSC 69; [2013] 1 WLR 3514 (“ Cotter”), where it held that a return did not include the entirety of the information set out in the return, but only that information which was submitted for the purpose of establishing the amount to which a person is chargeable to tax for a year of account. Lord Hodge (with whom the other members of the Supreme Court agreed) said this:
“24. Where, as in this case, the taxpayer has included information in his tax return but has left it to the Revenue to calculate the tax which he is due to pay, I think that the Revenue is entitled to treat as irrelevant to that calculation information and claims, which clearly do not as a matter of law affect the tax chargeable and payable in the relevant year of assessment. It is clear from sections 8(1) and 8(1AA) of TMA that the purpose of a tax return is to establish the amounts of income tax and capital gains tax chargeable for a year of assessment and the amount of income tax payable for that year. The Revenue's calculation of the tax due is made on behalf of the taxpayer and is treated as the taxpayer's self-assessment (section 9(3) and (3A) of TMA).
25. The tax return form contains other requests, such as information about student loan repayments (page TR2), the transfer of the unused part of a taxpayer's blind person's allowance (page TR3) or claims for losses in the following tax year (box 3 on page Ai3) which do not affect the income tax chargeable in the tax year which the return form addresses. The word “return” may have a wider meaning in other contexts within TMA. But, in my view, in the context of sections 8(1), 9, 9A and 42(11)(a) of the TMA, a “return” refers to the information in the tax return form which is submitted for “the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax” for the relevant year of assessment and “the amount payable by him by way of...
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