Thomas and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 March 2013 |
| Neutral Citation | [2013] UKFTT 203 (TC) |
| Date | 06 March 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 203 (TC)
Judge Roger Berner, Nigel Collard
Roderick Thomas, Appellant appeared in person and on behalf of Stuart Thomas
Anthony Stewart, HM Revenue and Customs, appeared for the Respondents
Settling of appeals by agreement - TMA 1970, Taxes Management Act 1970 section 54s. 54 - CRCA 2005, Commissioners for Revenue and Customs Act 2005 section 5s. 5 - preliminary issues 2002-03: whether 2004 settlement agreement precluded issue of closure notices - whether agreement reached on basis of assessment such that liability treated as settled under 2004 settlement agreement - whether certain correspondence amounted to agreement precluding adjustments made by closure notices 2004-05: whether agreement in respect of self assessments
The First-tier Tribunal decided the taxpayers' settlement agreement with the then Inland Revenue did not have the same effect as a closure notice in respect of a relevant year. A clause in the agreement, stating that the agreement was without prejudice to enquiries in a relevant return period in connection with the acquisition of the partnership business, operated as a carve-out from what were otherwise settled liabilities. Those settled liabilities did not include liabilities arising from the taxpayers' sale of their partnership goodwill. The Tribunal also decided that the taxpayers did not reach an agreement with HMRC that any distribution income included in the closure notices for the relevant year was to be treated as income arising under the settlement for the purpose of the Income and Corporation Taxes Act 1988 ("ICTA 1988"), Income and Corporation Taxes Act 1988 section 660As. 660A. HMRC did not intend that their seeking of a concession on the taxpayers in relation to the settlor issue of a trust should be by way of a binding agreement. Furthermore, there was no meeting of minds on the application of ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A to the sale of partnership goodwill.
The taxpayer brothers appealed against HMRC's closure notices in respect of tax year 2002-03 and adjustment of the taxpayers' respective personal self-assessments.
The taxpayers carried on a partnership business. On 26 July 2002, the partnership sold goodwill to a UK company ("SSSL") for £2.8m. SSSL was indirectly owned by a Guernsey settlement ("the Maclennan Trust") through an offshore company ("BL"). As a consequence of the sale, each of the taxpayers made a tax return for the relevant period showing a chargeable gain of £1.4 m on disposal of a business asset.
On 24 May 2004, a settlement agreement ("the agreement") was entered into by the Inland Revenue, the taxpayers, their partnership and SSSL. That was in respect of certain tax, interest and penalties. The agreement was expressed to be final and conclusive only in respect of the liabilities set out in a number of schedules. For each of the taxpayers, the schedule referred to tax arising in respect of the Maclennan Trust under ICTA 1988, Income and Corporation Taxes Act 1988 section 660A section 739ss. 660A and 739 and the Taxation of Chargeable Gains Act 1992 ("TCGA 1992"), Taxation of Chargeable Gains Act 1992 section 86s. 86. In the agreement, it was stated in clause 2d that the agreement was without prejudice to and did not limit further enquiries in the return period to 31 July 2002 in connection with SSSL's acquisition of the partnership business.
In considering the taxpayer's application for closure notices for periods 2001-02 and 2002-03, the general commissioners decided that the Revenue could not open a further enquiry into the period 2002-03. That decision was quashed by Williams J in R (on the application of R & C Commrs) v General Commissioners of Income Tax for the Division of BerkshireTAX[2007] BTC 497. Williams J declared that the agreement did not prevent enquiries in respect of the tax year 2002-03, except only actual or potential liabilities arising from the affairs of BL or the Maclennan Trust.
HMRC disputed the taxpayers' treatment of the disposal of goodwill and opened enquiries into the tax returns. On 31 October 2007, HMRC issued closure notices in respect of tax year 2002-03 and an adjustment in respect of the respective personal self-assessments. In each case, the UK dividend income was increased by an amount of £1,555,555, representing an income distribution of £1.4m and the associated tax credit of £155,555.
On 30 April 2012, HMRC e-mailed the inspector ("Mr AS") dealing with the tax affairs of the taxpayers to report on the hearing. On the same day, one of the taxpayers ("Mr RT") e-mailed Mr AS. Mr RT stated that on the basis that Mr AS would not be seeking to impose penalties in respect of liabilities under ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A and TCGA 1992, Taxation of Chargeable Gains Act 1992 section 86s. 86, the taxpayers had conceded that they were the only settlors of the Maclennan Trust. They also agreed with HMRC that income arising in respect of settlements on the trust, including any amounts treated as distributions made by SSSL, were assessable on them by virtue of ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A.
The taxpayers contended that the agreement had the same effect as the issue of closure notices for the relevant tax year. The power to make enquiries did not mean that HMRC could issue a new closure notice. They also contended that they reached an agreement with HMRC through Mr RT's e-mail on 30 April 2012. During the hearing on 30 April 2012, they agreed with an HMRC officer ("Mr W") that if any part of the £1.4m was treated as income rather than a capital gain, the liability arose under ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A. Thus, any distribution income included in the closure notices for the relevant year was to be treated as income arising under such settlement for the purposes of ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A.
HMRC accepted that Mr W discussed the settlor issue with Mr RT. However, Mr W did not say that the taxpayer would be liable to income tax on the distribution of £1.4m each by virtue of ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A. His focus was on the settlor issue and attempting to de-clutter the proceedings by obtaining a concession on that point from the taxpayer. That was not intended to be binding and the taxpayers could resile from it at any time.
(2) Whether the agreement had the same effect as a closure notice in respect of the relevant year so that HMRC had no power to issue further closure notices for that year.
(3) Whether the taxpayers reached an agreement with HMRC that any distribution income included in the closure notices for the relevant year was to be treated as income arising under the settlement for the purpose of ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A.
Held, dismissing the taxpayer's appeal:
The Tribunal held that as clause 2d of the agreement operated as a carve-out from what were otherwise settled liabilities, the enquiry and the closure notice in respect of the sale of partnership goodwill were subject to no restriction as to the nature of the liabilities that HMRC could determine had arisen. By virtue of clause 2d, HMRC were entitled to allege that liability arose in that respect under any of the provisions that were subject to the carve-out, including ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A. The agreement did not preclude the issue of the closure notice of 31 October 2007. That notice closed enquiries into the sale of partnership goodwill, which were fully open to be made by HMRC under clause 2d of the agreement. Any liability arising as a result of those enquiries, including a liability under ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A, could not be precluded by the agreement.
The agreement did not have the same effect as the issue of closure notices for the relevant periods, including 2002-03. It had that effect in accordance with its terms and only in respect of the settled liabilities. Those settled liabilities did not include liabilities arising from the sale of the partnership goodwill. The declaration made by Williams J did not operate to treat as settled all liabilities arising from the affairs of BL and the Maclennan Trust. That would ignore the effect of clause 2d of the agreement, which the learned judge himself acknowledged in his judgment. Liabilities arising from the sale of the partnership assets were left open and were not settled by the agreement, even if they arose from the affairs of the Maclennan Trust.
The Tribunal also held that the Mr RT's e-mail of 30 April 2012 would satisfy the requirements of the Taxes Management Act 1970, Taxes Management Act 1970 section 54 subsec-or-para 3s. 54(3). However, it could have no effect unless there had been an oral agreement capable of being so confirmed. Mr W's failure to respond to the relevant part of Mr RT's e-mail could not result in an agreement. Furthermore, there was no such agreement reached between Mr W and the taxpayers at the hearing on 30 April 2012. Mr W was acting in his capacity as advocate. He was solely attempting to obtain a concession from the taxpayers on an issue where he considered the evidential burden on them was considerable. Mr W did not intend the concession to be binding. There was no meeting of minds on the application of ICTA 1988, Income and Corporation Taxes Act 1988 section 660As. 660A to the sale of partnership goodwill. For there to be an agreement, there should be both an intention to agree and a mutual understanding of what was being agreed. Neither was present in this case. Mr W did not intend that his seeking of a concession on the part of the taxpayers in relation to the settlor issue should be by way of a binding agreement, and there was no meeting of minds on...
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