England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Roya1 Courts of Justice Strand, London WC2A 2LL
		10 December 2002

Mr Justice Park:

Overview

1. This is an income tax appeal by the Inspector of Taxes from a decision of the General Commissioners of Taxes for King's Lynn. The case is not about any principle of substantive tax law. Rather it concerns the machinery of the tax system, and in particular the self-assessment mechanism which was introduced in the late 1990s. I may be wrong, but as far as I know this is the first case in which the self-assessment system has been considered in the High Court.
2. In circumstances which I will describe later in this judgment the taxpayer, Mr Veltema, was liable to income tax upon the market value of a house. He was advised that the value was £100,000, and he put in his self-assessment tax return an entry showing that figure as the taxable amount. Later the Inspector of Taxes formed the view that the true value was more than £100,000, and after negotiation a value of £145,000 was agreed between the Revenue and Mr Veltema's advisers. The inspector then assessed Mr Veltema to income tax on the extra £45,000. Mr Veltema appealed. His case was that under the self-assessment system there is normally a deadline after which the Revenue cannot alter an existing self-assessment or make a new assessment, and the inspector had missed the deadline. The inspector agreed that that would normally have been so, but he pointed out that there are two situations in which assessments can be made after the deadline. He said that either or both of those situations was present in Mr Veltema's case.
3. The General Commissioners did not agree with the inspector and therefore allowed Mr Veltema's appeal. The inspector has appealed to this court. However, I agree with the result reached by the Commissioners, although I would myself express the reasons somewhat differently. I shall therefore dismiss the inspector's appeal.

The factual background and the general tax law applicable

4. Mr Veltema is of Dutch origin, but he has lived in this country for many years. He is now in his mid to late eighties. He has been a farmer, and his farming activities were carried on by a company controlled by himself and his wife. At the time relevant to this appeal he was the sole director. The company is called British Horticultural Company Limited. I will refer to it simply as 'the company'. It owned the house in which he lived. The house is at Castle Rising near King's Lynn in Norfolk. In 1997 or 1998 Mr Veltema was planning to retire, and it was decided that the house should be transferred to him for no consideration. It was so transferred on 6 March 1998, in the tax year 1997/98.
5. The transfer had tax consequences both for Mr Veltema and for the company, and the amounts of the consequences depended on the value of the house at the time of the transfer. Mr Veltema, being a director of the company who had received a valuable asset from the company without paying anything for it, was liable to income tax under Schedule E for 1997/98 upon the market value of the house. The company was liable to corporation on any chargeable gain which was deemed to accrue to it on the disposal of the house to Mr Veltema. The disposal was deemed to be made at the open market value of the house (Taxation of Chargeable Gains Act 1992 s 17), and the chargeable gain would be the excess of that value over the value of the house in 1982 (ibid. s 35). Mr Veltema and the company were both advised by the well-known firm of chartered accountants, Pannell Kerr Forster (hereafter referred to as 'PKF'), and they appreciated that the foregoing tax consequences geared to the value of the house in March 1998 (income tax for Mr Veltema and corporation tax on chargeable gains for the company) would follow. They took advice from a King's Lynn firm of chartered surveyors, whose estimate of valuation was £100,000. The company and Mr Veltema both made returns to the Revenue disclosing the £100,000 figure. Later in this judgment I shall have to explain more precisely the nature and the timing of the returns.
6. Mr Veltema's tax return was submitted to the Inspector of Taxes for King's Lynn. In the first instance the Revenue raised no queries about the return. However, when over a year later the company's corporation tax returns and computations were submitted to the Company Tax Unit at Leicester the company's Inspector of Taxes referred the valuation to the District Valuer. I do not think that he did this out of any sense of suspicion. It was simply a matter of common procedure. When a liability of more than trivial dimensions depends on a valuation, the Revenue will often have the valuation considered by their own valuation experts. The District Valuer reported back to the company's inspector that in his opinion the house was worth more than £100,000. His initial valuation was £160,000. It was arranged that the matter would be discussed between the District Valuer and the surveyors who had advised Mr Veltema and the company. After discussion and negotiation the District Valuer and the surveyors agreed on a figure of £145,000. There was nothing out of the ordinary about what happened. Discussions about valuations between a taxpayer's advisers and the Revenue's advisers, resolved by a negotiated figure, happen all of the time in the routine operation of the tax system.
7. So far as the company was concerned the agreed valuation of £145,000 meant that the chargeable gain which was taken to have accrued to it was computed by reference to a deemed disposal consideration of that amount. There is no issue concerning the company's corporation tax liability. However, the revised valuation could have made a difference to Mr Veltema's income tax liability: the benefit on which he was in principle liable to tax under Schedule E was not £100,000 (the amount which had appeared in his self-assessment return, and on which he had already paid the tax) but £145,000. The increased valuation was notified by the District Valuer (or possibly by the Company Tax Unit in Leicester) to the Inspector of Taxes for King's Lynn, who was responsible for Mr Veltema's tax affairs. The inspector made an additional assessment to income tax on Mr Veltema for the extra £45,000. That was the assessment which was the subject matter of the appeal to the General Commissioners and which has now come before me.

Information supplied to the Revenue

8. The transfer of the house by the company to Mr Veltema required to be disclosed in three documents which had to be supplied to the Revenue.

i) The P11D return. This is a return made of benefits in kind, etc, provided by an employer to employees. Where the employer is a company, directors are treated in the same way as employees. The form is relevant to the tax affairs of the director or employee, but the responsibility for submitting it rests with the employer, in this case the company. The P11D for Mr Veltema for 1997/98 disclosed some other benefits and expenses, but importantly for the present appeal it recorded the transfer of the house to him, valued at £100,000. I say more about the P11D in paragraph 28 below. The P11D was prepared by PKF and sent to the office of the inspector at King's Lynn. Mr Veltema also received a copy. It was the first of the three returns which were sent to the Revenue. It was due by 6 July 1998, and it was sent on that date.

ii) Mr Veltema's own self-assessment return. This was prepared by PKF and signed by Mr Veltema on 28 July 1998. It was required to be sent to the Revenue by 31 January 1999, and in fact was received by the King's Lynn inspector on 30 July 1998, six months early. I will say more about the contents of the return later, but I mention now that, in a box captioned 'Assets transferred/payments made for you' and providing a space for an amount to be entered, the return stated '£100,000'.

iii) The company's corporation tax returns, if I have understood the position correctly the company drew up accounts for the calendar year 1998, but because it had ceased to carry on its farming trade on 24 February 1998 it needed to submit two corporation tax returns, one for the period from I January to 24 February 1998, and the other for the period from 25 February 1998 to 31 December 1998. Both returns and all supporting accounts, computations, etc, were sent together on 7 October 1999 to the Leicester Company Tax Unit. One of the supporting computations was a chargeable gains computation relating to the disposal of the house. It was based on a market value of £100,000, and was the item which led to the company's inspector consulting the District Valuer.

The working of the self-assessment system

9. The statutory provisions which regulate the self-assessment system are now found in the Taxes Management Act 1970 (the TMA), but for the most part they were inserted in that Act by statutes enacted in the mid 1990s, beginning with the Finance Act 1994. For most purposes they started to operate from the income tax year 1996/97, Henceforth references to sections are to sections of the TMA in the form which that Act took at the time of the matters with which this case is concerned.
10. The self-assessment system was a significant change to the tax machinery. It imposed new burdens on taxpayers by requiring them to submit fuller tax returns than had previously been required (not that the earlier forms of returns were by any means short and simple), including in many cases the taxpayer's own calculation of the amount of tax payable by him: his 'self-assessment'. The new burdens were balanced by new protections for taxpayers who conscientiously complied with the system, in particular by new and tighter time limits on the power of the Revenue to make further tax assessments. One of those time limits is at the heart of this case.
11. Section 8 requires an individual taxpayer to complete the self-assessment tax return form, and to deliver it to an officer of the Board of Inland Revenue (usually an inspector) by a deadline date. The deadline for Mr Veltema's 1997/98 return was 31 January 1999. He did complete and deliver the return, and, as I have already mentioned, he submitted it six months before the deadline, on 30 July 1998. I have also mentioned that the form specified a figure of £100,000 in the box against 'Assets transferred/payments made for you'. That was by far the largest single item in the return.
12. When the inspector received Mr Veltema's tax return form he could, under section 9A, have given Mr Veltema notice in writing that he intended to enquire into the return. If he was going to give such a notice he had to do so by 31 January 2000. (It would have been later if Mr Veltema's return had been delivered late.) The main effect of a notice would have been that, until the inspector gave notice that his enquiries were completed and for a further 30 days after that, the inspector could amend the assessment (ie the self-assessment which Mr Veltema had himself made in his return) to what the inspector considered to be the correct figure. For full details of how this works, see section 28A. The practical effect was that the opening of an enquiry would for the time being have prevented time running against the inspector. However, the inspector did not give notice that he was opening an enquiry. On the contrary, on 9 September 1998 (about six weeks after Mr Veltema's self-assessment return had been submitted to him) he sent a standard printed acknowledgement to PKF stating: 'Your client's Tax Return for the year ended 5 April 1998 has been processed without any need for correction.'
13. Before the introduction of the self-assessment system the inspector would still have been entitled until 5 April 2004 (six years after the end of the tax year in which the house was transferred to Mr Veltema) to make a further assessment if he 'discovered' that the taxable income was greater than the amount shown in the tax return: s 29(3) in its original unamended form. The six years' period for an assessment did not depend on there having been some form of fraud or other default by or on behalf of the taxpayer: the inspector had six years whether the taxpayer was in default or not. The concept of a discovery was widely interpreted by the courts. When the inspector learned that the value of the house had been agreed at £145,000 instead of £100,000 (which he did in about March 2000) that would have been a discovery, and if section 29 had not been heavily amended as part of the self-assessment system, he could have made an additional assessment on the extra £45,000 at any time before 6 April 2004.
14. Section 29(1) in the new form of the section still uses the concept of a discovery. If an officer of the Board or the Board 'discover' that income which ought to have been assessed has not been assessed, or that an assessment is or has become insufficient, the subsection empowers them to make an assessment in the amount, or the further amount, which in their opinion ought to be charged. However, the ability to make a discovery assessment is now more circumscribed: the inspector no longer has a free hand for the six years after the end of the tax year concerned.
15. The general rule is that, if the taxpayer has delivered a self-assessment return under section 8 (as Mr Veltema did), the inspector cannot make a discovery assessment under section 29: see section 29(3). The inspector's recourse where he is not satisfied with a return is to give notice of opening an enquiry under section 9A, in which case (as I explained in paragraph 12 above) no time limit runs against him while the enquiry is still in progress and for 30 days after that. That recourse was not used by the King's Lynn inspector in Mr Veltema's case. However, to the general rule that the inspector cannot make a discovery assessment under section 29(1) there are two exceptions, and the present appeal proceedings by Mr Veltema have revolved around the exceptions They are contained in section 29(4) and (5). Section 29(4) reads as follows:

"(4) The first condition is that the situation mentioned in subsection (1) above is attributable to fraudulent or negligent conduct on the part of the taxpayer or a person acting on his behalf."

'The situation mentioned in subsection (1)' is that income has not been assessed or has been assessed insufficiently. The present case is one of income having been assessed insufficiently: an item of taxable income had been assessed at £100,000, whereas the correct figure turned out to have been £145,000. Section 29(5) reads as follows:

"(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 .. 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."

I will examine this subsection fully later in this judgment, but I should say now that the time by reference to which it operates in Mr Veltema's case is 31 January 2000: under section 9A that was the last time at which the inspector could have given notice of his intention to enquire into Mr Veltema's return for 1997/98. The subsection refers to 'the information made available to [the inspector]'. This term is defined or at least explained, and the definition or explanation is important for the purposes of the argument presented on behalf of the Revenue by Miss Simler. Subsection (6), so far as relevant to this case, reads as follows:

"(6) For the purposes of subsection (5) above, information is made available to an officer of the Board if—

(a) it is contained in the taxpayer's return under section 8 .. of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return;

(b), (c) ...; or

(d) it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above

(i) could reasonably have been expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above ..."

The General Commissioners

16. Before the Commissioners it was not disputed on behalf of Mr Veltema that the inspector had 'discovered' that the assessment made in Mr Veltema's self-assessment return was insufficient. It was submitted however that the inspector had no power to make a discovery assessment under section 29. The inspector contended that he could rely on either or both of subsections (4) and (5). As regards subsection (4) he did not suggest that there had been any fraudulent conduct, but he did argue that there had been negligent conduct by Mr Veltema or on his behalf. The Commissioners rejected this argument, and there is no appeal against that part of their decision. I shall not, therefore, quote the specific reasons which the Commissioners gave, and. I shall not say more about this aspect of the case, except for this. Mr Sherry, who appeared before me on behalf of Mr Veltema, said, and I am inclined to agree, that the Commissioners' rejection of the argument of negligence, coupled with the absence of an appeal against the rejection, is tantamount to an acceptance that there was nothing wrong with the tax return which PKF prepared and which Mr Veltema submitted. Mr Veltema might have chosen to say more in his return, but what he did say fully complied with his obligations.
17. The Commissioners also rejected the inspector's submission that he could rely on section 29(5). The decision in that respect is challenged before me, and I ought to quote the reasons which the Commissioners gave:

"(b) On the issue of whether within the meaning of section 29(5) TMA 1970 the officer could not have been reasonably expected, on the basis of the information made available to him by 31.1.00, to be aware of the situation mentioned in section 29(1) TMA 1970:

(i) The taxpayer's return properly informed the inspector of the receipt of a benefit by transfer of asset of £100,000 which benefit the taxpayer had received from his employer, British Horticulture Company Limited

(ii) The inspector at King's Lynn would be aware that, in respect of the Company's tax affairs, the valuation upon the P11D would have to be the subject of consultation by the Valuation Office under section 19(1) ICTA 1988 and, therefore, the inspector should have been aware that the valuation of £100,000 would be scrutinised and could have raised that issue with the taxpayer before the 31 January2000."

Discussion and analysis

18. Despite a submission by Mr Sherry (on behalf of Mr Veltema) that this appeal by the Revenue to this court is an appeal on a question of fact, I consider that it is in essence an appeal on law. Accordingly I consider that the question is at large before me. There was no oral evidence given before the Commissioners. The appeal proceeded on the basis of agreed (or at least undisputed) documents. The Commissioners' decision made implicit assumptions about the meaning and effect of section 29(5) and (6), and also drew conclusions about how the subsections applied to the facts disclosed by the documents and to inferences to be drawn from the documents. It seems to me that the Commissioners' decision was essentially one of law, or at least of mixed fact and law. The right approach is for me to consider the questions myself, interpreting the statute myself and applying it in what appears to me to be the correct way to the circumstances which appear from the documents. Adopting that approach I reach the same conclusion as the Commissioners.
19. The key point which underlies the case is that, when the King's Lynn inspector received Mr Veltema's return and 'processed' it (the word used in the printed form of acknowledgement of 9 September 1998), he did not refer to the District Valuer the question of whether the amount of £100,000 given in the box for 'Assets transferred/payments made for you' should be agreed to have been the market value of the house. This was notwithstanding the following passage in the Inland Revenue Manual of guidance to inspectors (the Manuals are now published and available to taxpayers and their advisers generally):

"Where land is transferred by an employer to an employee at less that its market value, there is usually a chargeable emolument under section 19(1) ICTA 1988 equal to its open market value less what the employee pays for it. ... 'Land' includes a house… .

In all cases where land is transferred to a director or employee, an inspector must consider whether the transfer is at full value and, if not, whether the undervalue is a profit from the directorship or employment. Where the property is in the United Kingdom the Valuation Office must be consulted (not on form CG2O) in all cases where the transfer appears to be at less than full market value."

There was no explanation before the Commissioners of why the inspector simply accepted the figure of £100,000. Perhaps he did not realise that the transaction was a transfer of a property by the company to Mr Veltema. Perhaps he did but did not think that there was any need to ask the District Valuer to consider the value.

20. Whatever the explanation, the King's Lynn inspector did not discover that the value of the property was greater than £100,000 until the company's inspector at the Company Tax Unit in Leicester had, for purposes of establishing the chargeable gain which accrued to the company, consulted the District Valuer, and the increased valuation of £145,000 was agreed between the District Valuer and the surveyor who had originally advised the value of £100,000. The increased value of £145,000 was agreed some time in March 2000, and was presumably notified to the King's Lynn inspector soon after that. By then it was too late for the inspector to give a notice under section 9A that he was opening an enquiry into Mr Veltema's tax affairs. Therefore the Revenue could only charge Mr Veltema to income tax on the extra £45,000 if they could bring the matter within section 29(4) or (5). They no longer seek to rely on section 29(4) (because they never alleged fraud, and they do not appeal against the Commissioners' finding that there was no negligent conduct either), but they do still say that section 29(5) applied, and that the Commissioners were wrong to hold that it did not.

21. I have set out the relevant wording of section 29(5), and of the associated provisions of section 29(6), in paragraph 15 above. As applied to the facts of this case the effect of subsection (5) was this: the inspector could not assess Mr Veltema to income tax on the extra £45,000 after 31 January 2000 unless on that date he (the inspector) 'could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware' that the assessment (in this case a self-assessment) upon Mr Veltema was insufficient. The effect of subsection (6) was that the information made available to the inspector before 31 January 2000 was the information contained in Mr Veltema's tax return and any accompanying documents, plus information the existence and relevance of which could be inferred from the tax return and accompanying documents.

22. Miss Simler, for the Revenue, has submitted that the Commissioners came to the wrong conclusion. She says that they ought to have decided that, on the basis of the information available to the inspector before 31 January 2000, he could not have been reasonably expected to be aware that an assessment to income tax which took the value of the house at £100,000 was insufficient. I hope that I do not do an injustice to her careful and clear submissions if I say that, as it appears to me, there are two main strands to them. One is that the return did not make it sufficiently plain that the figure of £100,000 which appeared in it (i) was there because the company had transferred an asset (the house) to Mr Veltema for no consideration, and/or (ii) was an estimate of the market value of the house. If those points had been more clearly flagged up in the return, the inspector would have noticed them and obtained a valuation from the District Valuer; alternatively he would have given notice of the opening of an enquiry. The second main strand to Miss Simler's submissions is that the information available to the inspector, as defined in subsection (6), was not by itself sufficient for him to know that the market value of the house was not £100,000 but a higher figure, eventually agreed at £145,000.
23. I do not agree with Miss Simler in those respects. I first point out that section 29(5) does not refer to the inspector being or not being reasonably expected to be aware of the insufficiency of the existing assessment solely from the (defined) 'information made available to him'. It refers to him being or not being reasonably expected to be aware of the insufficiency of the assessment 'on the basis of' that information. The words 'on the basis of' do not seem to me to limit the sources of information which the inspector is assumed to have to what was in the tax return and accompanying documents to the exclusion of anything else which, though he started with the return and accompanying documents, he could reasonably be expected to have known or found out, and which was readily available to him.
24. I am not suggesting that the inspector can reasonably be expected to undertake a time-consuming and onerous trawl through the files and records of his own Tax District, let alone through the mass of information of all kinds held by other offices of the Inland Revenue. Any such suggestion would be ridiculous. All that I say is this. The starting point to the question of whether the inspector could reasonably have been expected to be aware that the taxpayer's self-assessment was insufficient is the information specifically contained in the tax return and accompanying documents, but that information is not necessarily also the finishing point. It is reasonable to assume that the inspector would read the return and accompanying documents (with normal care but nothing more demanding than that), and that one thing which he would be looking for was whether they disclosed anything which it was sensible for him to investigate further. Suppose that his reading of a particular tax return could reasonably be expected to have shown to him that there was a point which it would be sensible for him to investigate, and which he could without substantial difficulty or inconvenience investigate from other information which was readily available to him. In that case the question whether he could reasonably be expected to have been aware that the taxpayer's self-assessment was insufficient should, in my view, be considered taking account of the information in the return and accompanying documents, and of any further information which he would have obtained from the normal and not particularly demanding enquiries which he could reasonably be expected to have made This seems to me to be in accordance with the words 'on the basis of' in subsection (5), and also to have the advantage of corresponding to what one would normally imagine to happen in practice.
25. On the particular facts of this case I assume that, shortly after Mr Veltema's tax return was received in the office of the Inspector of Taxes for the King's Lynn District, an inspector in the office looked through the return. He might have been the inspector who was responsible for issuing the acknowledgement of 9 September 1998 stating that the return had been processed without any need for correction. I do not know whether the inspector noticed the £100,000 entry; I do not know whether, if he did, he realised that it was an entry for the transfer of an asset from the company to Mr Veltema for no consideration; I do not know whether, if he realised that, he also realised or assumed that the amount of £100,000 was a valuation rather than the amount of an actual payment. The Revenue adduced no evidence on those points before the Commissioners.
26. I do say, however, that, even on the basis of the return itself, the following matters could reasonably have been expected by an objective outside observer.

i) That the inspector would notice the entry of £100,000. It was the largest single entry in the return, and it would have been surprising if the inspector had not noticed it.

ii) That the inspector would have interpreted the return as disclosing that an asset had been transferred by the company to Mr Veltema. The entry was in the section of the return headed 'EMPLOYMENT, and was in one of the boxes under a sub-heading 'Benefits and Expenses' (not under an earlier sub-heading 'Money', in one of the boxes for which Mr Veltema's salary or director's fees (E13,200) had been recorded). I repeat that the box in which £100,000 was entered was captioned 'Assets transferred/payments made for you'. There were several schedules, which I imagine were prepared by PKF, accompanying the return. One of them, in connection with Mr Veltema's taxable income from his employment with the company, gave particulars of 'Other benefits in kind and expense allowances'. The first entry was: 'Asset placed at disposal of employee - £100,000'. Those words were not an entirely apt description of an outright transfer of an asset from the company to Mr Veltema, but it was in my view tolerably clear from the box in the return itself and the accompanying schedule that the company had transferred an asset to him

iii) That the amount of £100,000 could only have been what those responsible for the return (Mr Veltema and his professional advisers) believed to have been the market value of the asset concerned.

27. If the inspector was unsure about precisely what the entries in the return and the schedule signified he could have written to PKF to ask. That would have been a totally straightforward and conventional thing to have done PKF would undoubtedly have confirmed to him what the exact position was.
28. Further, the position was in any event made clear by another item of information which was already in the inspector's possession, namely information in the P11D form for Mr Veltema, which had been sent to the King's Lynn Tax District less than a month before the tax return was submitted. Before the Commissioners the inspector accepted that 'the Revenue did compare the information relating to the valuation of the property upon the taxpayer's personal tax return with that disclosed on the P11D provided by the company.' (The quotation is from the Case Stated prepared by the Commissioners for the purposes of the present appeal.) In other words the P11D was on the inspector's desk when he was going through Mr Veltema's self-assessment return. The heading for the first item of information required to be disclosed in the P11D is 'Assets transferred (cars, property, goods or other assets)'. Under that heading there are four boxes to be completed. The first box asked for a description of the asset. Mr Veltema's form said: 'Transfer of house previously occupied by director'. The next box was 'Cost/Market value'. The reply given was £100,000. There was then a box for 'Amount made good or from which tax deducted'. This was left blank, indicating that Mr Veltema had paid nothing for the house. So the £100,000 in the previous box was obviously inserted on the basis that it was the market value of the house The fourth box was for the 'Cash equivalent', which was entered as £100,000.
29. In those circumstances it seems to me that the inspector could reasonably have been expected to be aware, on the basis of the information in the return, perhaps by itself but certainly taken together with other information which was readily available to him and to some of which he did have regard when reading the return, that the largest item disclosed in the return represented the transfer of the house to Mr Veltema for no consideration, and that the figure of £100,000 had been entered on the basis that it was the market value of the house. I have expressed the foregoing sentence in the positive, because if it is put that way the sense of it is more easily assimilated. But under the statute the position seems to me to be even stronger, because strictly the question should be formulated in negative terms was it the case that the inspector could not have been reasonably expected to have been aware that the house had been transferred to Mr Veltema for no consideration, and that the amount of £100,000 was entered as being the market value? In my opinion it cannot possibly be said that that was the case.

30. There are consequential questions to be considered. On the footing that the inspector could reasonably have been expected to be aware that the house had been transferred to Mr Veltema for no consideration, what could he reasonably have been expected to do next? In my opinion he could reasonably have been expected to do what the company's inspector did 15 months later when he received the company's tax return, namely to refer the valuation to the District Valuer, asking the District Valuer whether he agreed with the valuation of £100,000. In this connection I refer to the guidance note in the Manual for inspectors which I quoted in paragraph 19 above Mr Veltema's inspector could also have been expected to refer the valuation to the District Valuer reasonably promptly. The inspector had processed the return by 9 September 1998, and if in the course of doing that he had formed the view that the District Valuer needed to be consulted he would, I feel confident, have referred the matter to the District Valuer at an early date. Further, the District Valuer can be expected to have come back with his opinion that the value was greater than £100,000 in, at most, a matter of a few months. When the inspector at the Leicester Company Tax Unit wished to consult the District Valuer it took less than six months from him writing to PKF to tell them that he would be doing that to the agreement between the District Valuer and the company's surveyor that the value was not £100,000 but £145,000. If the King's Lynn inspector had referred the matter to the District Valuer in September 1998 I say with confidence that the inspector would have known long before 31 January 2000 that the self-assessment, which had been based on a value of £ 100,000, was insufficient.
31. I wish to say more about what I described earlier as the second main strand in Miss Simler's submissions on behalf of the Revenue. That strand was that the Commissioners' decision was wrong because the information available to the inspector, as defined in subsection (6) and was not by itself enough for him to know that the market value of the house was not £100,000 but a higher figure, eventually agreed at £145,000. This is of course one aspect of Miss Simler's general submission that the Commissioners, in determining whether the inspector could reasonably have been expected to be aware that Mr Veltema's self-assessment was insufficient, had to assume that the only information which the inspector had was the information described in subsection (6) to the exclusion of everything else, even if the inspector had other relevant information readily available to him. I have not accepted that submission, and I believe that the unsatisfactory nature of it can be highlighted in the context of this second main strand in Miss Simler's submissions, as I explain in the next few paragraphs.
32. A different point which Miss Simler advanced on a number of occasions was that Mr Veltema's return, or a covering letter, did not contain a statement something like this:

    'The entry of £100, 000 in the box for 'Assets transferred/payments made for you' arises from the transfer of Mr Veltema's house to him by the company for no consideration. £100, 000 is a surveyor's estimate of the market value.' The assumption behind Miss Simler's point was that, if the return had included a statement like that, the case would have been altogether different. I think that she took it for granted that there would have been no possibility of Mr Veltema being assessed under section 29(4) or (5) on the basis of a discovery after 31 January 2000.

33. However, suppose that the return had contained such a statement, but the inspector did not take the matter up with the District Valuer, and the date of 31 January 2000 came and went without any amendment being made to Mr Veltema's self-assessment. That could have happened, for example, as a result of inadvertence by the inspector. inspectors of Taxes would be superhuman if they never overlooked anything. Alternatively, suppose that the inspector did refer the matter to the District Valuer but somehow it got mislaid in the District Valuer's office and the inspector did not learn of the under-valuation until after 31 January 2000. If Miss Simler was right the inspector would, in either of those cases, have been entitled under section 29(5) to make an assessment after that date. Mr Veltema would have flagged up everything which he possibly could flag up; he would have gone out of his way, beyond what the return form required of him, to point out to the inspector that the £100,000 was a valuation on which opinions might differ. But if the inspector had to be assumed to limit himself to the materials specified in section 29(6) (the tax return, accompanying documents, and anything that could reasonably be inferred from them) he could not have been aware that the self-assessment was insufficient. It would have been insufficient only if the £100,000 valuation was too low, and the inspector could not possibly tell or infer from the return and accompanying documents whether it was too low or not. He could tell or infer that there might be a question about the level of the valuation, but that was as far as the return and accompanying documents could possibly take him, and therefore he could have assessed Mr Veltema after 31 January 2001 in reliance on section 29(5).
34. That would be a remarkable result, and I cannot believe that it could be right. I regard this as supporting my view that, although the tax return and accompanying documents are obviously the starting point for the question of whether the inspector could, 'on the basis of' them, reasonably be expected to be aware that Mr Veltema's self-assessment was insufficient, the Commissioners and courts are not constrained to proceed on the unreal basis that the tax returns and accompanying documents must have been the only items of information which the inspector had. If as a matter of common sense and normal administrative procedures it is likely that the inspector would in fact have other items of information before him the statute does not require the question posed by section 29(5) to be answered on an unrealistic basis.
35. Approaching the question on what I consider to be a realistic basis I begin by taking myself back to 31 January 2000, which is the date as at which the statutory question falls to be answered. I ask myself what information the inspector can reasonably be expected to have had available to him before that date. I know that from 18 months before 31 January 2000 he had had before him the information contained in the tax return and the accompanying documents. Section 29(6) tells me to assume that that information was before the inspector. He had plenty of time to take the few simple steps which would have led to him concluding, well before 31 January 2001, that the self-assessment in the sum of £100,000 was insufficient. I believe further that the inspector could reasonably have been expected, starting on the basis of what was in the tax return and accompanying documents, to have taken those few simple steps. In those circumstances I am quite unable to say that, at 31 January 2000, the inspector could not have been reasonably expected to be aware that Mr Veltema's self-assessment was insufficient.

36. There is one last point which I wish to make. I should not be understood to be saying or implying that, because the inspector could reasonably have been expected to be aware that the self-assessment was insufficient but in fact was not aware of that, therefore the inspector must have been at fault. There could be many other explanations of how the situation came about, for example shortness of staff through illnesses or other reasons which meant that at the time when Mr Veltema's tax return was processed in the King's Lynn office it could be looked at only superficially, and could not be examined in the manner which in more normal circumstances would have applied. However, the statutory test is an objective one of what could or could not reasonably have been expected. The subsection leaves no room for a subjective explanation that, although an objective outside observer could not say that the inspector could not have been reasonably expected to be aware that the self-assessment was insufficient, there actually was a reasonable explanation, unknown to the outside observer, of why the inspector was not in fact aware that the self-assessment was insufficient.

Conclusion

37. It follows that I reach the same conclusion as that reached by the General Commissioners. My reasons may not be exactly the same as theirs, and I have certainly set out my reasoning at greater length. The result is the same, and I dismiss this appeal.