The Commissioners for HM Revenue and Customs v John Hicks
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Morgan,Judge Brannan |
| Neutral Citation | [2020] UKUT 0012 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,14 January 2020 |
| Date | 14 January 2020 |
| Published date | 14 January 2020 |
[2020] UKUT 0012 (TCC)
Appeal number: UT/2018/0040
INCOME TAX – discovery assessments – section 29 (1) TMA 1970 –
whether a “discovery” – whether carelessness within section 29(4) – whether
an officer could reasonably have been expected to be aware of the
insufficiency of tax within section 29(5) – information made available under
section 29(6)
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
THE COMMISSIONERS FOR HER MAJESTY’S
Appellants
REVENUE & CUSTOMS
- and -
JOHN HICKS
Respondent
TRIBUNAL:
MR JUSTICE MORGAN
JUDGE GUY BRANNAN
Sitting in public at the Royal Courts of Justice, Rolls Building, London from 16-
18 October 2019
Akash Nawbatt QC, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Appellants
Keith Gordon, Counsel, instructed by Crowe UK LLP, accountants, for the
Respondents
© CROWN COPYRIGHT 2020
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DECISION
Introduction
1. This is an appeal against the decision of the First-tier Tribunal (Judge Thomas
Scott) (“FTT”) released on 12 January 2018 (“the Decision”). Essentially, the appeal
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relates to the question whether “discovery” assessments issued to the taxpayer (“Mr
Hicks”) under section 29 Taxes Management Act 1970 (“TMA”) were valid. The
FTT allowed Mr Hicks’ appeal and the appellants (“HMRC”) now appeal against that
decision, with the permission of Judge Scott.
2. In summary, the FTT allowed Mr Hicks’ appeal against discovery assessments
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raised in respect of the 2009/10 and 2010/11 income tax years. The assessments
concerned alleged insufficiencies in Mr Hicks’ self-assessments resulting from his
participation in a tax avoidance scheme (referred to as the Montpelier Section 730
Dividend Strip Scheme – “the Montpelier Scheme”) during the 2008/09 income tax
year.
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3. Although the scheme was entered into (and the losses arose in) the 2008/09
income tax year, the result of the scheme was that losses exceeded Mr Hicks’ income
in that year and the surplus losses were carried forward and set off against his trading
profits of the 2009/10 and 2010/11 income tax years. The FTT’s decision and this
appeal relate to those later two income tax years.
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4. HMRC opened an enquiry under section 9A TMA into Mr Hicks’ 2008/09 self-
assessment return. However, no enquiry was opened into the returns for the 2009/10
and 2010/11 income tax years. On 30 March 2015, however, HMRC issued discovery
assessments in respect of those two income tax years, seeking to deny the loss relief
claimed.
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5. HMRC closed its enquiry into the income tax return for the year ended 2008/09
on 24 November 2016 and, we understand, the appeal against that closure notice is
still to be determined.
6. For the purposes of the present appeal, Mr Hicks did not seek to argue that the
losses were in fact available. Instead, the appeal before the FTT and before us related
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solely to the application of the provisions in section 29 TMA. All references to the
provisions of section 29 are to section 29 TMA.
7. The FTT, in summary, concluded:
(1) HMRC had made a valid discovery assessment under section 29(1) and
that the discovery was not “stale”; but
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(2) HMRC did not show carelessness either by Mr Hicks or a person acting
on his behalf for the purposes of section 29(4) in respect of the 2009/10 and
2010/11 income tax years; and
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(3) the condition in section 29(5) was not met in respect of the 2010/11
income tax year, because sufficient information within section 29(6) had in fact
been supplied to HMRC so as to alert the “hypothetical” officer of the potential
insufficiency in the original assessment.
8. Accordingly, the FTT allowed Mr Hicks’ appeal.
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9. Again, in summary, HMRC appeal against the FTT’s conclusions in paragraph
7(2) and (3) above and Mr Hicks cross-appeals, by a Respondent’s Notice, against the
conclusion in paragraph 7(1).
Application to admit evidence
10. HMRC applied for the late admission of their record of the oral evidence before
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the FTT. In particular, having obtained a copy of Judge Scott’s manuscript note of the
evidence, HMRC applied to admit their manuscript notes of the oral witness evidence
on the basis that Judge Scott’s note of the evidence was incomplete.
11. The issue relating to the record of oral evidence concerned the application of
section 29(4). HMRC’s Permission to Appeal on this issue had been given by the
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FTT, in particular, on the ground that the evidence of Mr Bevis (of Precision
Accountancy - Mr Hicks’ accountant) had not been taken into account. It seemed to
us, therefore, that it was necessary to establish what evidence was before the FTT. We
therefore gave permission for this evidence to be admitted.
Factual background
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12. The underlying facts were not in dispute and can be summarised as follows. It
will be seen later in this decision, however, that HMRC contest certain other findings
of fact by the FTT.
13. Mr Hicks was one of a number of participants in the Montpelier Scheme. The
Montpelier Scheme was marketed by Montpelier Tax Consultants (IOM) Ltd
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(“Montpelier”) and was disclosed to HMRC on Form AAG 1 under the Disclosure of
Tax Avoidance Scheme Rules (“DOTAS”) received by HMRC on 24 September
2008. The Form AAG 1 stated that the arrangement was available to self-employed
derivative traders who worked at least 10 hours per week on average in the trade. The
trader acquired dividend rights with the intention that the cost of such rights was a
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deductible expense of the trade but the dividend income was not taxable as a result of
section 730 Income and Corporation Taxes Act (“section 730”).
14. Under the Montpelier Scheme, Mr Hicks entered into a contract to acquire the
rights to 5 dividends (all payable on 5 February 2009) of £300,000 each at a total cost
of £1,498,035. Entities controlled by Montpelier lent Mr Hicks the funds to acquire
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the right to acquire the dividends. On 27 February 2009, Mr Hicks paid Montpelier an
up-front fee of £75,000 pursuant to a Professional Service Agreement (“PSA”). The
PSA stated that a further £75,000 was contingent upon agreement of the losses by
HMRC. Mr Hicks claimed the deduction in full (i.e. £150,000 in respect of the fees)
in his 2008/09 accounts.
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