Wildin
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 February 2022 |
| Neutral Citation | [2022] UKFTT 42 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 42 (TC)
Judge Heidi Poon, Celine Corrigan
Mr Graham Wildin in person, appeared for the appellant
Mr Martin Priestley, Litigator of HM Revenue and Customs' Solicitor's Office and Legal Services, appeared for the respondents
Income tax – VAT – Penalties – Discovery assessment and closure notice – TMA 1970, s. 28, 29 and 34– Capital allowances and revenue expenditure and loss relief claims – Expenditure to construct a sports complex and house renovation – Whether there was a trade being carried on for income tax purposes – Whether entitlement to input VAT relief – VATA 1994, s. 24 – Whether inaccuracies in returns deliberate for FA 2007, Sch. 24 penalties – Whether surcharge upheld – Appeals dismissed in part.
The First-tier Tribunal (FTT) dismissed the taxpayer's appeal against HMRC's decision to deny claims for income tax relief and input VAT in respect of expenditure on constructing a leisure complex on the basis that there was no business purpose for incurring the expenditure.
This was an appeal against the decision of HMRC to deny Mr Wildin's (the Appellant's) claims for capital allowances, income tax relief and input VAT in respect of expenditure incurred in constructing a sports and leisure complex (the Complex) adjacent to his dwelling house and in the grounds of the surrounding properties he also owned. The appeal extended to penalties charged under FA 2007, Sch. 24 for inaccuracies in returns and to a surcharge under VATA 1994, s. 59.
The Appellant prepared income tax and VAT returns on the basis that he was carrying on a single trade with three constituent parts: property let, sports complex membership subscriptions and record storage and management, all of which related to the Complex. All sales were to connected parties. The Complex is under an injunction order for demolition.
The FTT found as fact that the Appellant's intention at the time of incurring the expenditure in constructing and fitting out the Complex was that it would be used solely for the private enjoyment of himself, his family and any invited guests. It followed that: the Appellant was not carrying on a qualifying activity for the purposes of capital allowances; that the activities did not amount to a trade for income tax purposes and that there was no economic activity with a business purpose that could have given rise to a “direct and immediate” link for the input VAT on the expenditure to be reclaimable. The appeals were dismissed.
The FTT confirmed the penalty assessments and the VAT surcharge. In considering the VAT surcharge, the FTT rejected the Appellant's ground for appeal that he had withheld payments for the default periods because HMRC had blocked his VAT repayment claims for earlier periods.
The focus in this case was less on technical analysis and more on establishing the Appellant's intention in incurring the expenditure on constructing the Complex. Based on the evidence before it, the FTT found that the Appellant constructed the Complex for non-business reasons and so the appeal was dismissed.
[1] The conjoined appeals are brought by Mr Wildin (“the appellant”) against the following decisions by the respondents (“HMRC”) in relation to:
- Closure notice and Discovery assessments pursuant to sections 28A and 29 of the Taxes Management Act 1970 (the Income Tax Assessments);
- Assessments under section 73 of the Value Added Tax Act 1994 (the VAT Assessments);
- Penalties for inaccuracies in returns under Schedule 24 to the Finance Act 2007 (the Penalty Assessments);
- Surcharge under section 59 Value Added Tax Act 1994 (VAT Surcharge).
[2] The central issue for determination in these appeals is whether the statutory conditions as set down by the relevant provisions in relation to there being in existence a “trade” at the relevant time for the appellant's claim of: (a) capital allowances, (b) income tax loss relief, and (c) input VAT, which HMRC's decisions sought to disallow.
[3] The claims under the different heads of tax were all related to the expenditure incurred by the appellant in constructing a sports and leisure complex (“the Complex”) adjacent to his dwelling house and in the garden grounds of the surrounding properties he also owned.
[4] The overall quantum under appeal is £297,630.65 (not including interest), and relates to the following periods as tabulated under the relevant headings.
| Tax year | Income Tax Decision | Date | Amount | |
| 1 | 2013–14 | Closure notice s 28A TMA | 2 June 2017 | 27,496.00 |
| 2 | 2014–15 | Discovery assessment s 29 TMA | 1 Nov 2017 | 23,760.38 |
| 3 | 2015–16 | Closure notice s 28A TMA | 1 Nov 2017 | 32,126.40 |
| Income Tax Total | £83,382.78 |
| VAT Period | Date of Decision | Amount | |
| 1 | 11/13 | All issued on | 1,505 |
| 2 | 02/14 | 10 October 2017 | 3,299 |
| 3 | 05/14 | 49,410 | |
| 4 | 08/14 | Assessments | 24,863 |
| 5 | 11/14 | pursuant to | 26,909 |
| 6 | 02/15 | 18,780 | |
| 7 | 05/15 | 5,156 | |
| 8 | 08/15 | Hardship application | 11,313 |
| 9 | 11/15 | Granted by HMRC | 2,527 |
| 10 | 02/16 | On 5 April 2018 | 10,416 |
| 11 | 05/16 | 112 | |
| 12 | 08/16 | 3,170 | |
| VAT Total | £157,460 |
| Period | Type of Decision | Date | Amount | |
| 1 | 02/16 | VAT Penalty Sch 24 FA 2007 | 10 July 2017 | 22,091.991 |
| 2 | 2013–14 | IT Penalty Sch 24 FA 2007 | 31 Oct 2017 | 9,623.60 |
| 3 | 2014–15 | IT Penalty Sch 24 FA 2007 | 1 Nov 2017 | 8,208.20 |
| 4 | 2015–16 | IT Penalty Sch 24 FA 2007 | 1 Nov 2017 | 16,062.16 |
| 5 | 02/17 | Surcharge under s 59 VATA | 13 April 2017 | 801.92 |
| Total Penalties & Surcharge | £56,787.87 |
[5] The legislative frameworks relevant to this appeal are as follows, and relevant statutory provisions are set out in the Annex.
- The Taxes Management Act 1970 (TMA) is in relation to the enquiry, and closure notice, discovery assessment and time limit, and the Tribunal's jurisdiction on appeal.
- The Capital Allowances Act 2001 (CAA) is in relation to the eligibility of a claim for expenditure incurred in a qualifying activity, including that of UK furnished holiday letting businesses, and the definition of Trades for capital allowances purposes.
- Income Tax (Trading and Other Income) Act 2005 (ITTOIA) is in relation to trading profits and deductible expenses being wholly and exclusively for the trade; the meaning of generating income from land and commercial letting of furnished holiday accommodation and capital allowances and loss relief.
- Income Tax Act 2007 (ITA) is in relation to the restriction on relief unless trade is commercial and the context of relief for UK furnished holiday lettings business.
- The Value Added Tax Act 1994 (VATA) is in relation to allowable input VAT, the meaning of business, the default surcharge regime and mitigation.
- The Value Added Tax Regulations 1995 (the VAT Regulations) set out the requirements in relation to input VAT claims, return submissions and VAT payments.
- Schedule 24 to the Finance Act 2007 (Sch 24) is in relation to the penalty assessments for inaccuracies in returns.
- The Licensing Act 2003 (LA2003) is in relation to Licensable activities, meaning of supply of alcohol and sale by retail.
- The Town and Country Planning (General Permitted Development) Order 1995 (SI/1995/418) (GPDO 1995) in relation to Permitted Development within the curtilage of a dwelling house.
[6] The authorities lodged by the parties are listed with citation references in the Annex.
[7] The Tribunal is provided with the following documentary evidence from the parties:
- Joint bundles of documents in electronic format: Part 1 of 903, Part 2 of 639 pages, and Part 3 of 30 pages.
- The appellant's Powerpoint presentation of 352 slides showing the surroundings and the interiors of the Sports Complex.
- A short video clip on MP4 being an interview of the appellant.
- The appellant's additional documents of 29 pages, being 4 pages of submission followed by an income summary and unaudited Financial Statements of Forest of Dean Luxury Holidays.
[8] In the course of the hearing, the parties have lodged further documents as follows:
- The appellant produced a page of Bank Statement for March 2021 for the entity known as Forest of Dean Luxury Holidays, and VAT return for the two quarters to 30 November 2020, and 28 February 2021;
- The appellant produced a copy of the High Court Injunction Order issued against him on 12 December 2018 and associated documents;
- HMRC provided a chronology of events leading to the High Court Injunction Order at the request of the Tribunal, and another chronology in relation to the transfer of land.
[9] The Tribunal heard Mr Wildin's evidence, followed by HMRC's witnesses in the order of: (i) Officer Stuart Ferguson; (ii) Mrs Helen Blundell; and (iii) Officer Russell Hall.
[10] Mr Wildin led his own evidence and spoke mainly to the 352 slides in his Powerpoint presentation. He was cross-examined by Mr Priestley, and answered supplementary questions from the Tribunal. In relation to the purpose of the expenditure incurred for the Complex, we do not find Mr Wildin a credible or reliable witness. There are significant inconsistencies over the same factual matrix between his evidence at a High Court hearing in September 2018, and his evidence to this Tribunal in June 2021. We find that the material aspects of his oral testimony to this Tribunal represented an account of events framed with the legal issues in mind. In some such areas, we have accorded more weight to primary facts ascertainable from contemporaneous records, and have based our findings of fact on known and probable facts, and inferences drawn therefrom. We consider the value of Mr Wildin's evidence lies largely in the opportunity afforded by cross-examination to subject the documentary evidence to critical scrutiny, and for the Tribunal to gauge...
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