[2010] UKFTT 501 (TC)

TC00756

 

Appeal number: TC/2009/11618

 

[INCOME TAX AND NI – understated self-assessment – appeal against amendments and against penalty under section 95 TMA – burden of showing amendment should not stand not discharged – appeal dismissed]

 

 

FIRST-TIER TRIBUNAL

 

TAX

 

GRAHAM CARTER Appellant

 

 

- and -

 

 

  THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

 

TRIBUNAL: TRIBUNAL JUDGE: ADRIAN SHIPWRIGHT

TRIBUNAL MEMBER: HELEN FOLORUNSO

 

 

Sitting in public at Holborn Bars, London on 26 May, 2010

 

 

Sylvein Pinto of Actar Ellis Brown & Co appeared for the Appellant

 

Peter Massey of HM Revenue and Customs appeared for the Respondents

 

 

 

 

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.    This is an appeal by Graham Carter (“the Appellant”) against the Respondents’ (“HMRC”) amendments to returns and discovery assessments and penalty determinations for the years 1998-99 to 2006-07 as detailed below. These were made following an inquiry by HMRC. The Respondents’ decision to do this was set out in a letter and notice dated 13 March 2009 (“the Decision Letter”). 

 

2.    The various assessments, etc. are summarised as follows:

 

Year of Assessment	Type	Tax and NIC £	Penalty £
1998-99	Assessment	7, 602.86	3,041.00
1999-2000	Assessment	8, 117.76	3,247.00
2000-01	Assessment	7, 819.18	3,128.00
2001-02	Assessment	5, 557.02	2,223.00
2002-03	Assessment	6, 330.51	2,532.00
2003-04	Assessment	5, 458.48	2,183.00
2004-05	Assessment	8, 753.90	3,502.00
2005-06	Assessment	11, 290.16	4,516.00
2006-07	Assessment	8, 343.54	3,337.00
Total		69, 273.41	27,709.00

 

3.   It may be that this appeal is brought out of time.  However, it was said in their e-mail of 17 July, 2009, paragraph 6 that "HMRC will now accept the late appeal application".  Accordingly, no point is taken on this and HMRC did not wish the appeal to be treated as one made out of time.  Consequently, we allowed the appeal to be brought.  We considered that HMRC would not be inconvenienced by this and to the extent necessary we so find and allow the appeal to be brought out of time.

 

4.   At the hearing, the Appellant asked to be allowed to submit further documents and related arguments.

 

5.   We agreed to this for reasons of fairness. We directed at the hearing that the Appellant would have 14 days to make representations on the revised computations which HMRC submitted at the hearing.  HMRC very properly did take this further information into account.  HMRC was to make any response if it wished to within seven days.  HMRC did so in time. The representations made by the Appellant, as HMRC helpfully pointed out, are to a large extent a repeat of what was said at the hearing and the evidence then lead. HMRC say the tribunal should determine the appeal in HMRC's revised figures. They say nothing has changed since the hearing.

 

The Issue

6.    The essential issue in this case is whether the Appellant over claimed the interest to be deducted in computing the profits of his rental business and understated his profits from the garden centre business.

 

7.   The Law

8.   The legislation in so far as is relevant here is found in:

(1)            sections 21A and 74 TA for the years 1998-99 to 2004-05 deductions in completing rental income.

(2)            Chapter 4 Part 2 ITTOIA for subsequent years.

(3)            Section 95 TMA, allows penalties to be determined by HMRC[1]

(4)            Section 16 Social Security Contributions and Benefits Act 1992[2].

 

9.     We were also referred to the following cases

(1) Blyth vs Birmingham Water Works (1856) 11 Ex Ch 781.

(2) Hurley vs Taylor, 71 TC 268

(3) Jonas vs Bamford 51 TC 1

(4) Johnson vs Scott, 52 TC 383

The Evidence

10.  We were provided with documentation by each party.  The documents were all admitted in evidence, no objection having been taken to any of the documents.

 

11.  We heard oral evidence from Mr Brathwaite  and Mr Carter.

 

12.  They were examined and cross examined.

 

The Facts

13.  . From the evidence we make the following findings of fact.

(1)    Mr Carter carried on business as Cann Hall Garden Centre. He had done so since 1993-94.

(2)    Mr Carter also owned a number of properties which he let. These were bought with the help of mortgages and refinancing had taken place. The rental business had been started before 1998-99.

(3)    HMRC opened an enquiry into Mr Carter's tax affairs for the year of assessment 2003-04.

(4)    HMRC concluded that for the year 2003-04 the total payments made to lenders during the year on property loans was £29,882.  The whole of this is claimed in the land business calculation.  This was inappropriate.

(5)    When the interest certificates were reviewed they showed that the interest claim for the property business should only have been £8,972.

(6)    The property loans had included an amount which related to the purchase of Mr Carter's private residence of some £25,000.

(7)    The business account shows a deficiency of cash of at least £11,336.  HMRC considered this must have been attributable to unrecorded sales income.

(8)    HMRC concluded the enquiry and amended Mr Carter's tax return to the amount which HMRC considered due in line with their conclusions.

(9)    HMRC then considered the surrounding years of assessment and the returns made in the light of the 2003-04 return as amended.  HMRC considered on that basis.  Full returns had not been made and assessments were issued for the years of assessment 1998-99 to 2002-03 and for 2004-5 to 2006-07 to recover the amounts which HMRC determined to be unpaid.  The assessments and amendments were issued on 13 March, 2009.

(10) These amendments and assessments were made to the best of the HMRC officer's judgement.  We accept that this was the case and find it is a primary fact.

(11) It was considered that the omission of sales income and the over claim of interest payments meant that the taxpayer must have been "negligent" in making the return.  Accordingly, penalties were authorised to be imposed and notice of this was issued on 28 April, 2009.

(12) The details of the assessments and examinations have already been set out above.  For the avoidance of doubt, we find that these assessments and determinations were so issued.

(13) We heard from the HMRC officer who conducted the investigation, Mr Brathwaite, who gave evidence before us.  We found him a carefully considered witness and we accept his evidence.  Where there was any difference in evidence between Mr Carter and Mr Brathwaite, we preferred Mr Brathwaite's evidence and have done so in making our findings.

(14) HMRC helpfully produced revised figures at the hearing.  We accept these figures and they are used in the following paragraphs.

(15)  HMRC produced figures from which we have derived the following figures. We find these as primary fact.

 

Year of Assessment	4 Cardigan Road	36 Adine Drive	61 Crowlands Avenue	59 Southdown Road	1 Painters Road
1998-99	10, 758	2,750	5882	7, 074	Nil
1999-00	9,246	2,000	5, 085	5, 863	Nil
2000-01	9,240	1,902	4, 898	6, 088	Nil
2001-02	4, 535	1,215	4, 077	5, 294	Nil
2002-03	3, 422	703	4, 845	1, 025	Nil
2003-04	4, 785	Nil	3, 062	Nil	Nil
2004-05	5, 031	Nil	4, 139	Nil	Nil
2005-06	5, 870	Nil	4, 828	Nil	Nil
2006-07	5, 259	Nil	3, 638	Nil	10, 443

 

14.   This may be summarised as follows.

 

Year of Assessment	Interest  allowable	Interest claimed	Over/under claim
1998-99	26, 463	20, 904	(5, 559)
1999-00	22, 195	22, 797	602
2000-01	22, 128	22, 078	(50)
2001-02	15, 121	18, 793	3, 672
2002-03	9, 995	30, 253	20, 258
2003-04	7, 847	29, 882	22,035
2004-05	9, 170	13, 268	4,098
2005-06	10, 698	30, 825	20,127
2006-07	19, 339	26, 558	7,219

 

 

 

 

 

 

 

 

 

 

 

 

The Submissions of the Parties

The Appellant’s Submissions in outline

15.  In essence, the Appellant submitted that the assessments and determinations were not properly made and were excessive and so should be quashed with the consequence that there could be no penalties.

 

16.  The Appellant's representative asked to produce further information and submissions after the hearing.  We have dealt with this above.  We allowed further information and submissions and have considered them carefully in reaching conclusions. 

 

HMRC’s Submissions in outline

17.  In essence, HMRC submitted that the assessments and determinations were properly made and the penalties were properly imposed.  Accordingly, the appeal should be dismissed.

 

18.  The reason for this in more detail is:

(1)             The amount of interest claimed to be deductible in the rental business has been overstated;

(2)             The profits from the garden centre business have been understated - specifically over claimed expenses and under declared receipts having been identified in the course of the enquiry;

(3)                             The presumption of continuity applies to the other years and so the assessments and determinations were properly made;

(4)             Consequently, the returns were made negligently and so penalties apply;

(5)            Accordingly, the appeal must be dismissed.

Discussion

18.  The issue for determination here is whether the Appellant over claimed the interest to be deducted in computing the profits of his rental business and understated his profits from the garden centre business.

 

19.  We accept HMRC's figures and adjustments.  We consider that these were carefully made proper estimates following a thorough investigation.  We also consider they were properly made and made on HMRC's best judgement on their usual procedures.

 

20.  The onus is on the taxpayer to displace these figures.  We find that the taxpayer has not discharged the burden of proof to do so We have accepted HMRC's figures which consequently stand. 

 

21.  It might be said that HMRC's figures are estimates and not proof.  However, we consider that involves a misunderstanding of what is involved as they are not required to be proof but best judgement estimates reasonably and fairly made.

 

22.  Walton J said in Johnson v Scott “...The true facts are known, presumably, if known at all, to one person only - the Appellant himself. If once it is clear that he has not put before the tax authorities the full amount of his income, as on the quite clear inferences of fact to be made in the present case he has not, what can then be done? Of course all estimates are unsatisfactory; of course they will always be open to challenge in points of detail; and of course they may well be under-estimates rather than over-estimates as well. But what the Crown has to do in such a situation is, on the known facts, to make reasonable inferences. When, in para 7(b) of the Case Stated, the Commissioners state that (with certain exceptions) the Inspector's figures were 'fair", that is, in my judgment, precisely and exactly what they ought to be - fair. The fact that the onus is on the taxpayer to displace the assessment is not intended to give the Crown carte blanche to make wild or extravagant claims. Where an inference, of whatever nature, falls to be made, one invariably speaks of a "fair" inference. Where, as is the case in this matter, figures have to be inferred, what has to be made is a "fair" inference as to what such figures may have been. The figures themselves must be fair. So far from representing an inference that the Commissioners did not appreciate the Inspector's figures fully, this demonstrates that they did. I think the point can be put conversely in another way. At times during Mr. Hall's address to me it almost appeared as if what he was requiring by way of his "lawful proof" was a duly audited certificate as to the Appellant's undisclosed expenditure. Of course, this was not what he was seeking; but once it is clear that this is not, and in the nature of things cannot be, available, then it follows as night follows day that some form of estimate must be made”.

This approach was followed in the Court of Appeal.

 

23.  We respectfully and gratefully adopt this approach. We sought to apply it here.

 

24.  Accordingly, we confirm HMRC's figures and the assessments and determinations.

 

25.  It follows that the penalty provisions are therefore engaged.  No reasonable excuse, in the statutory sense, was shown.  We also consider the penalties were proportionate and reasonable.

 

26.  Accordingly, we find the penalties were properly imposed and that the penalties were proportionate and reasonable.  Consequently, the appeal in respect of the penalties is dismissed.

 

 

27.  For completeness, we record that we have carefully considered the further information produced by the appellant.  However, we do not consider that it adds to the evidence and submissions produced at the hearing.  We took this into account in reaching our findings and reaching our conclusion.

 

28.  We have found that:

(1)    the Appellant has failed to discharge the onus necessary to displace HMRC's figures and we have confirmed the assessments and determinations;

(2)    the penalties were properly imposed and were reasonable and proportionate and no reasonable excuse having been shown we have confirmed the penalties.

 

29.  Accordingly, the Appeal is dismissed.

 

30.  This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

 

 

 

 

 

 

 

 

ADRIAN SHIPWRIGHT

TRIBUNAL JUDGE

 

RELEASE DATE: 16 September 2010