England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/05/2007

Mr Justice Patten :

Introduction

1. This is an appeal against a preliminary decision of the Special Commissioners about two issues of principle which affect some forthcoming appeals by the Appellant taxpayers, Mr and Mrs Morris, against a series of assessments and amendments to self-assessments made by the Respondent Commissioners against them. Shortly stated, the two issues are: (a) whether the time limit imposed by s.34 of the Taxes Management Act 1970 ("TMA") applies to the closure notices served by the Respondent on 24 March 2005 under s.28A(2) TMA so as to amend the taxpayers' returns containing the self-assessment of their liability to CGT for the year 1997/98; and (b) whether Article 6 of the European Convention on Human Rights and Fundamental Freedoms ("ECHR") as applied by the Human Rights Act 1998 to the taxpayers' appeals against the penalty determinations under s.95 TMA dated 8 August 2006 alters the burden of proof in relation to the appeals against the other assessments and notices which are listed for hearing at the same time but do not themselves involve any element of penalty.
2. The Special Commissioners (Dr David Williams and Mr Edward Sadler) in a decision released on 19 February 2007 answer both questions in the negative.
3. Because it is relevant to some of the arguments raised on the first issue I need to say a little about the background to the forthcoming appeals. Much of this material is contained in the judgment of Lightman J in Morris v Roberts (H.M Inspector of Taxes) [2005] EWHC 1040 which sets out the history of these proceedings in detail.
4. Mr and Mrs Morris are UK nationals. In October 1997 they sold their controlling shareholding in Empress Car Co. (Abertillery) Limited ("Empress") to The Car Group plc for £20.3m. On that disposal they would be liable for CGT in the sum of about £7.6m. On 28 January 1999 they filed tax returns for the year 1997/98 in which they claimed that they were not resident or ordinarily resident in the UK in that tax year. Although the returns also required them to provide information if they were resident in another country for the purposes of claiming relief under a Double Taxation Agreement that information was not provided. The returns did, however, claim that they had spent only 71 days in the UK in the relevant tax year.
5. In March 1999 the Respondents served notices on the taxpayers through their accountants under s.9A TMA requesting a detailed schedule of arrival and departure dates for each visit to the UK in the tax year and other details such as the purpose of the visits, the address at which Mr and Mrs Morris stayed during their visits and whether they had used credit cards whilst in the country. No response was received and on 18 June 1999 notices under s.9A TMA requesting the same information were sent directly to the taxpayers at an address in Spain. There was no appeal against those notices but no direct response to them from Mr and Mrs Morris. Instead they instructed Messrs Howell & Co, a firm of solicitors in Birmingham, to act for them. Howell & Co wrote to the Revenue on 28 October 1999 setting out the days allegedly spent in the UK but not providing the other information.
6. Faced with this, the Revenue used their powers under s.20(3) TMA to obtain copies of the taxpayers' credit card and mobile phone records. These indicated that their credit cards and phones had been used in the UK on many more days than the taxpayers claimed they had been in the country. In subsequent correspondence, the solicitors said that this was because they had been used by other family members. These matters will fall to be investigated at the forthcoming hearing in June.
7. By 2001 the schedule originally requested in 1999 had still not been produced and at a meeting in February 2002, Mr Crocker of Howell & Co refused to produce the details requested until he "was 100 per cent certain about them". Lightman J said that:

"The clear and strong inference is that they were delaying the Revenue's attempts to obtain sufficient information to enable a tax assessment to be raised."

8. On 11 April 2002 the Revenue obtained consent from the General Commissioners to issue notices under s.20(1) TMA requiring Mr and Mrs Morris to provide the relevant information and documents relating to the period from 6 April 1996 to 5 April 1998. This included credit and debit card accounts, telephone bills and copies of their passport entries for that period. The taxpayers failed to comply with the notices and on 31 July 2002 the Revenue caused an information to be laid before the General Commissioners with a hearing fixed for 17 July 2002 for the purpose of determining the validity of the notices and imposing penalties on the taxpayers for non-compliance with them.
9. In paragraph 27 of his judgment Lightman J described the hearing on 17 July in these terms:

"On the 17th July 2002 Mr Crocker appeared before General Commissioners seeking to give reasons for the Morrises' non-compliance. At the outset of the hearing, he purported (for the first time) to "admit" (contrary to the tax returns filed by his clients) that the Morrises had been UK tax resident during the relevant years ("the Concession"). He falsely stated that the Revenue had known the Concession at all times. But no facts were admitted at all. The Concession was a tactical one designed to avoid the need to disclose the requested information. Mr Crocker argued that in light of the Concession the information sought in the Notices was no longer relevant, and that his clients were not liable to tax because they were resident in Spain and entitled to benefit from the DTA."

10. The General Commissioners upheld the validity of the notices and imposed the maximum penalty of £300 each on the taxpayers for their failure to comply with the notices. Until very recently those penalties remained unpaid.
11. In November 2002 a High Court appeal was instituted against the decision of the General Commissioners, but on 9 May 2003 it was dismissed by consent. The taxpayers were ordered to pay the costs of the Revenue but again, these were not paid. Subsequently, further penalties were imposed for non-compliance with the notices, but again no payment was made until very recently.
12. On 24 March 2005 the Revenue served the notices under s.28A TMA on each of the taxpayers to amend their returns so as to include a liability to CGT on the part of each taxpayer in the sum of £3,846,011.60 due on the disposal of their shares in Empress. On 8 August 2006 penalty determinations were made in the sums of £3,151,809.30 and £3,195,271.61 respectively. Assessments were also issued for the tax year 1995/1996 in respect of UK dividends received from Empress and for Schedule E income tax in relation to a company called Renwart Investments Limited. The assessments on Mrs Morris for 1993/4 and 1995/6 are accepted by the Revenue to have been issued out of time. The other assessments were, however, issued within the time limit prescribed by s.34 TMA and are therefore unaffected by this appeal. However, the taxpayers' appeals from all these assessments and notices will be heard together by the Special Commissioners in a four week hearing scheduled to commence on 4 June and the second issue may if decided in the taxpayers' favour, affect at least the burden of proof in relation to all of these appeals.

The first issue

13. The first and primary question on this appeal is whether the provisions of s.34 TMA have any application to a notice served under s.28A of that Act. Section 34 pre-dates the introduction of self-assessment by the Finance Act 1994. In its current amended form which applied at the date of the s.28A notices in March 2005, it provided as follows:

"34 Ordinary time limit of six years

(1) Subject to the following provisions of this Act, and to any other provisions of the Taxes Acts allowing a longer period in any particular class of case, [an assessment to income tax or capital gains tax may be made at any time not later than five years after the 31st January next following the year of assessment to which it relates

(2) An objection to the making of any assessment on the ground that the time limit for making it has expired shall only be made on an appeal against the assessment."

The words in brackets were substituted by the F.A 1994 and subsequently the F.A 1998 in place of the original time limit of six years after the end of the chargeable period to which the assessment of tax related. The differences between the amendments introduced by F.A 1994 and the subsequent amendments do not matter for the purpose of what I have to decide and I propose to take the same course as the Special Commissioners and to refer throughout this judgment to the TMA in its current form. It will, however, be necessary for me to make some reference to the provisions of the Act as they stood following the F.A in 1994 although neither party to this appeal contends that any changes in the legislation between then and now have altered the substance or effect of the provisions which I have to construe.

14. The opening words of s.34 including the reference to "an assessment" have survived the introduction of self-assessment without amendment. The original structure of TMA (before the changes introduced by the F.A 1994) was to impose on the individual taxpayer an obligation either to give notice to the Revenue that he was chargeable to tax (s.7) or (where he was in receipt of a notice to do so) to make and deliver a return containing the information required: see s.8 (1). The assessment of tax based on the information contained in the return was a matter for the Inspector under s.29 (1). This gave him the power either to make an assessment on the basis that the information supplied by the taxpayer was correct (s.29 (1) (a)), or if not so satisfied, to make an assessment of the tax due to the best of his judgment: see s.29 (1) (b). Section 29 (3) also empowered the Inspector, if he subsequently discovered that any taxable profits had not been assessed or that any relief given was excessive, to make an assessment in the amount or further amount which ought to be charged.
15. The taxpayer had a right of appeal against an assessment to tax which he could exercise by serving notice in writing on the Revenue within 30 days after the notice of assessment: see s.31 (1). Alternatively, he could within the same time period as that specified in s.34 claim back any tax which he had paid under an assessment that was excessive due to a mistake in the return see: s.33 (1).
16. Once the primary time limit under s.34 for the making of an assessment had expired, the power of the Revenue to raise an assessment was governed by TMA s.36 which now provides as follows:

"[36 Fraudulent or negligent conduct

(1) An assessment on any person (in this section referred to as "the person in default") for the purpose of making good to the Crown a [loss of income tax or capital gains tax] attributable to his fraudulent or negligent conduct or the fraudulent or negligent conduct of a person acting on his behalf may be made at any time [not later than 20 years after the 31st January next following the year of assessment to which it relates]"

The words in brackets replace a reference in the original to a period of 20 years after the end of the chargeable period to which the assessment relates. Otherwise the section is the same.

17. The first issue involves a consideration of the extent to which these provisions operate in relation to the self-assessment of tax by the taxpayer. The F.A 1994 preserved the provisions of TMA ss.7 and 8 but required the individual taxpayer's return to be made by 31 January next following the year of assessment: see s.8 (1A) (a). The principal change comes in TMA s.9 which now requires every return under s.8 to include a self-assessment which is described in s.9 (1) as:

"...a)     an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and

...b)     an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and any tax credits to which of ITTOIA 2005 applies"

This is subject to the further provisions contained in TMA s.9 (2), (3) and (3A) which provide as follows:

"(2)A person shall not be required to comply with subsection (1) above if he makes and delivers his return for a year of assessment—

...a) on or before the 30th September next following the year, or

...b)    where the notice under section 8 or 8A of this Act is given after the 31st July next following the year, within the period of two months beginning with the day on which the notice is given.

(3) Where, in making and delivering a return, a person does not comply with subsection (1) above, an officer of the Board shall if subsection (2) above applies, and may in any other case—

...a)    make the assessment on his behalf on the basis of the information contained in the return, and

...b)   send him a copy of the assessment so made;

…

(3A) An assessment under subsection (3) above is treated for the purposes of this Act as a self-assessment and as included in the return.

…….. "

18. The effect, therefore, of the Revenue making the assessment on the taxpayer's behalf under s.9 (3) is nonetheless to treat that as a self-assessment by the taxpayer contained within his own return. This has important consequences in relation to appeals. Section 31 now provides that:

"31 Appeals: right of appeal

(1) An appeal may be brought against—

(a)     any amendment of a self-assessment under section 9C of this Act (amendment by Revenue during enquiry to prevent loss of tax),

(b)     any conclusion stated or amendment made by a closure notice under section 28A or 28B of this Act (amendment by Revenue on completion of enquiry into return),

(c)     any amendment of a partnership return under section 30B(1) of this Act (amendment by Revenue where loss of tax discovered), or

(d)     any assessment to tax which is not a self-assessment.

(2) An appeal under subsection (1)(a) above against an amendment of a self-assessment made while an enquiry is in progress shall not be heard and determined until the enquiry is completed."

19. For obvious reasons s.31 does not give the taxpayer any right to appeal against his own self-assessment: see s.31 (1) (d). This has the consequence that an assessment made by the Revenue under s.9 (3), which is deemed to be a self-assessment, does not give rise to any right of appeal. Instead, the taxpayer's remedy if dissatisfied with the assessment is to amend his return by giving notice under TMA s.9ZA. This requires to be done within 12 months of the filing date of the return: see s.9ZA (2). The net effect of these provisions is that the taxpayer ends up either with a self-assessment which he has made under s.9 (1) or one which has been made on his behalf by the Revenue under s.9 (3) but has been amended by him (if desired) under s.9ZA. Similar provisions apply if no return at all is made by the filing date. The Revenue may make a determination of the tax due which is treated as a self-assessment by the taxpayer unless and until it is superseded by a self-assessment under s.9: see s.28C. The Revenue is then given a choice. It can either accept the assessment as it stands and seek payment of the tax accordingly, or it can challenge the basis of the return by giving a notice of inquiry under what is now s.9A. This is the course which was adopted in the present case in relation to the self-assessment by Mr and Mrs Morris of their liability to CGT for the year 1997/98.
20. Section 9A provides as follows

"9A Notice of enquiry

(1) An officer of the Board may enquire into a return under section 8 or 8A of this Act if he gives notice of his intention to do so ("notice of enquiry")—

(a)    to the person whose return it is ("the taxpayer"),

b)     within the time allowed.

(2) The time allowed is—

(a)    if the return was delivered on or before the filing date, up to the end of the period of twelve months after the filing date;

(b)     if the return was delivered after the filing date, up to and including the quarter day next following the first anniversary of the day on which the return was delivered;

(c)    if the return is amended under section 9ZA of this Act, up to and including the quarter day next following the first anniversary of the day on which the amendment was made.

For this purpose the quarter days are 31st January, 30th April, 31st July and 31st October."

21. The filing date in s.9A (2) is defined in s.8 (1A) as:

"8 Personal return

(1A) The day referred to in subsection (1) above is—

(a)     the 31st January next following the year of assessment, or

(b)     where the notice under this section is given after the 31st October next following the year, the last day of the period of three months beginning with the day on which the notice is given …"

22. It is clear from s.9A (4) that the purpose of the inquiry is to investigate the underlying information contained in the return which forms the basis of the self-assessment. In the present case this is largely the information supplied by Mr and Mrs Morris about the number of days spent in the UK during the relevant tax year. Once the inquiry is completed, the powers of the Revenue are set out in s.28A. It provides that:

"28A Completion of enquiry into personal or trustee return

(1) An enquiry under section 9A(1) of this Act is completed when an officer of the Board by notice (a "closure notice") informs the taxpayer that he has completed his enquiries and states his conclusions.

In this section "the taxpayer" means the person to whom notice of enquiry was given.

(2) A closure notice must either—

(a)   state that in the officer's opinion no amendment of the return is required, or

(b)  make the amendments of the return required to give effect to his conclusions.

(3) A closure notice takes effect when it is issued.

(4) The taxpayer may apply to the Commissioners for a direction requiring an officer of the Board to issue a closure notice within a specified period.

(5) Any such application shall be heard and determined in the same way as an appeal.

(6) The Commissioners hearing the application shall give the direction applied for unless they are satisfied that there are reasonable grounds for not issuing a closure notice within a specified period."

23. Section 28A in its original form (as amended by the F.A 1994) provided for the officer under s.28A (5) to state his conclusions in a notice as to the amounts which should be contained in the taxpayer's self-assessment and then empowered him (under s. 28A (4)) to give notice to the taxpayer amending the assessment so as to make good the deficiency or excess. But this power could not be exercised until after the expiry of a 30 day period in which the taxpayer himself was permitted to amend his self-assessment in order to make good the original return in accordance with the officers' conclusions reached on the inquiry: see s.28A(3). The provisions of s.28A(3) have been removed as part of the latest set of amendments introduced by F.A 2001 and the officer must now give effect to his conclusions in the notice served under s. 28A(2) following completion of the inquiry.
24. The taxpayer has a right of appeal against the conclusions stated in a closure notice and the amendment of the return in consequence: see TMA s.31 (1) (b). This is the main appeal which is listed for hearing in June. But the taxpayers have sought and obtained from the Special Commissioners a ruling as to whether the closure notices served on 24 March 2005 were subject to and therefore were served outside the time limit prescribed in TMA s.34 (1). The taxpayers, of course, accept that even if they are right about this and s.34 applies to the service of a closure notice under s.28A (1) this does not prevent an amendment being made to their returns in accordance with the notices if the Revenue can rely on the extended time limits contained in s.36 (1). But to do that they will have to show that the errors in the original returns were due to fraudulent or negligent conduct on the part of the taxpayers and the first issue therefore focuses on whether this needs to be proved assuming that the Special Commissioners otherwise confirm the conclusions of the inquiry.
25. The taxpayers' contention is that because a closure notice operates to amend the return and in particular the assessment to tax contained within the return, it constitutes an assessment within the meaning of s.34 and must therefore be made within the time prescribed. The Revenue's case is that the statute draws a clear distinction between assessments properly so-called and other mechanisms for adjusting the liabilities of the taxpayer and that the amendment of a return effected by a closure notice is so described in s.28A (2) in order to distinguish it from an assessment which would be subject to the time limits in s.34. The practical effect, they say, of applying s.34 to the process under s.28A would be that a taxpayer could (as in this case) spin out an inquiry beyond the s.34 time limit and so require the Revenue to prove either fraud or negligence in order to give effect to the conclusions of the investigation. This, they say, would create potential difficulties for which there is no obvious policy justification. Parliament has provided the taxpayer with a remedy in the form of s.28A (4) (formerly s.28A (6)) to seek closure of the inquiry. This provides effective relief against the possibility of delay by the Revenue and a lack of finality in the taxpayers' affairs.
26. As part of his submissions to me and before the Special Commissioners Mr Baker Q.C. produced two consultation papers issued by the Revenue prior to the introduction of self-assessment. The first paper (issued in 1991) discusses whether there should be time limits imposed on the audit of returns containing self-assessment equivalent to the position under TMA ss.34 and 36 and invites comments. In the second consultation document (issued late in 1992) the Revenue noted that there was little support for any time limit for the amending of returns by taxpayers which would have to go hand in hand with any time limits imposed on the Revenue for audit purposes. But the paper goes on to suggest the introduction of a time limit for commencing an audit and the imposition of a six year time limit for the making of an assessment consequent on an audit.
27. Interesting as these documents are they are not, in my judgment, admissible for the purpose of construing TMA 1970 as amended. Mr Baker has not suggested that they fall within the limited Pepper v Hart exception or anything similar and there were no ministerial statements made in relation to the 1994 Finance Bill to indicate whether the suggestions set out in the second consultation paper were intended to be given statutory effect. As Mr Grodzinski pointed out, there is no reference in the second paper to the taxpayer being given a right to apply for a conclusion of the inquiry and his submission is that this was ultimately adopted as a means of achieving closure for the taxpayer in place of the time limits under TMA s.34. It seems to me that I have to construe the legislation as it stands and that the key to the intention of Parliament has to be found in the words of the statute and not in either of the consultation papers.
28. The starting point has to be s.34 itself. As explained earlier, this pre-dates the introduction of self-assessment and was drafted to accommodate a scheme under which all assessments were made by the Revenue and not by the taxpayer. These included discovery assessments under what was then s.29 (3). The draftsman therefore clearly thought that in order to give effect to the scheme of self-assessment as finally settled, it was not necessary nor appropriate to alter the terms of s.34. Under this the time limits imposed continue to apply only to the making of an "assessment". The first issue therefore is whether the service of a closure notice under s.28A constitutes the making of an assessment within the meaning of s.34. Mr Baker submits and the Revenue accepts, that it cannot rely on the opening words of s.34 in this case because the enquiry provisions (beginning with s.9A) all precede s.34 and none of them prescribes a longer period of time. The most obvious provision which falls within those words is s.36 itself although TA s.806 was given as an example of a provision specifying a longer period of time.
29. Mr Baker's primary submission is that self-assessment is simply one form of assessment and therefore falls within the meaning of s.34. He accepts that if this is right it must mean that s.34 also applies to the making of an assessment (in the form of a self-assessment) by the taxpayer and at one point in his argument he suggested that the same applied to s.36 which also depends for its application on there being an assessment.
30. In support of this he referred to a number of provisions in the amended TMA. The most obvious of these are s.9 (1) which defines a self-assessment as an "assessment" of the tax payable on the basis of the information in the return; s.30A (1) which requires all assessments which are not self-assessments to be made by an officer of the board; and s.31 (1) (d) which grants the taxpayer a right of appeal against any assessment to tax which is not a self-assessment.
31. It seems to me difficult to identify any obvious reason why the provisions of ss.34 and 36 which were originally introduced to set time limits to the Revenue's power to assess a taxpayer should have been applied to the obligations of the taxpayer to include a self-assessment as part of his own tax return. TMA s.8 requires a return to be made within the time limits specified by s.8 (1A) and to include a self-assessment of the taxpayer's liability to tax on the declared income and capital gains. As explained earlier, s.9 (3) contains default provisions enabling the Revenue to make the assessment in place of the taxpayer if he does not comply with this obligation and to make a determination of tax with the same effect as a self assessment in the event that no return at all is delivered by the filing date: see s.28C. In these circumstances there is no purpose to be served by imposing a further (and inconsistent) time limit under s.34 and in my judgment s.34 was not intended to have that effect.
32. It seems to me that this section has always been and remains concerned only with assessments by the Revenue. This is made clear by reading s.34 in conjunction with s.36 which was obviously intended to extend the time limits in cases of fraudulent or negligent conduct by the taxpayer. Section 36 can have no application in the case of a self-assessment by the taxpayer because that is not "an assessment on any person .. for the purpose of making good to the Crown" a loss of tax. It would involve the taxpayer in effect alleging negligence or fraud against himself. Mr Baker ultimately accepted this.
33. The suggestion that s.34 can apply to the taxpayer is also, I think, inconsistent with the structure and provisions of TMA in relation to the audit of self-assessments made by the taxpayer. The taxpayer's right to amend a self-assessment by the Revenue carried out under s.9 (3) or s.28C depends upon his complying with the time limits which are imposed under TMA s.9ZA. In the case of a determination when no return is filed s.28C provides that:

"28C Determination of tax where no return delivered

[(1) This section applies where—

(a)     a notice has been given to any person under section 8 or 8A of this Act (the relevant section), and

(b)     the required return is not delivered on or before the filing date.

(1A) An officer of the Board may make a determination of the following amounts, to the best of his information and belief, namely—

(a)     the amounts in which the person who should have made the return is chargeable to income tax and capital gains tax for the year of assessment; and

(b)     the amount which is payable by him by way of income tax for that year;

and subsection (1AA) of section 8 or, as the case may be, section 8A of this Act applies for the purposes of this subsection as it applies for the purposes of subsection (1) of that section.

(2) Notice of any determination under this section shall be served on the person in respect of whom it is made and shall state the date on which it is issued.

(3) Until such time (if any) as it is superseded by a self-assessment made under section 9 … of this Act (whether by the taxpayer or an officer of the Board) on the basis of information contained in a return under the relevant section, a determination under this section shall have effect for the purposes of Parts VA, VI, IX and XI of this Act as if it were such a self-assessment.

(4) Where—

(a)    proceedings have been commenced for the recovery of any tax charged by a determination under this section; and

(b) before those proceedings are concluded, the determination is superseded by such a self- assessment as is mentioned in subsection (3) above,

those proceedings may be continued as if they were proceedings for the recovery of so much of the tax charged by the self-assessment as is due and payable and has not been paid.

(5) No determination under this section, and no self-assessment superseding such a determination, shall be made otherwise than—

(a)    before the end of the period of five years beginning with the filing date; or

(b)     in the case of such a self-assessment, before the end of the period of twelve months beginning with the date of the determination.

(6) In this section "the filing date" means the day mentioned in section 8(1A) or, as the case may be, section 8A (1A) of this Act."

34. Again in this case, specific time limits were imposed under s.28C (5) both in respect of the determination by the Revenue and in respect of any self-assessment by the taxpayer which supersedes it. Neither s.9ZA nor s.28C makes any reference to s.34 yet on Mr Baker's argument, both are inconsistent with its provisions. They are not "following provisions" of TMA 1970 nor other provisions of the Taxes Acts which allow a longer period of time. If s.34 does apply to self-assessment including amendments to self-assessments, then one has two inconsistent time limits to deal with. This was clearly not what was intended and it is avoided if one gives to the word "assessment" in s.34 a more limited meaning which excludes self-assessment by the taxpayer.
35. One construction of s.34 is that it continues to apply only to assessments of the kind that it applied to prior to the introduction of self-assessment: i.e. assessments carried out by the Revenue. It would therefore continue to apply to discovery assessments under s.29 and to assessments to recover overpayments of tax made under s.30 subject to the extension of time provided for under s.30 (5). Neither of these operate as self-assessments by the taxpayer.
36. This construction raises the obvious question of whether s.34 (apart from not applying to self-assessments by the taxpayer) has any application to self assessments at all. Mr Grodzinski, on behalf of the Revenue, was minded to concede that even when it operated as a self-assessment an assessment of tax by the Revenue fell within s.34. His argument for excluding a closure notice under s.28A from the operation of s.34 rested principally on the distinction made in TMA between an assessment (including a self-assessment) and the amendment of a self-assessment or return effected by a notice under s.28A or (e.g.) under s.9C. He submitted that the scheme of the self-assessment provisions beginning with s.9 was to make any alteration to the return and the self-assessment within it occasioned by the audit process operate as an amendment to the taxpayer's own self-assessment. I have already set out the provisions of s.28A where this is done and s.9C is to like effect. This provides that:

"9C Amendment of self-assessment during enquiry to prevent loss of tax

(1) This section applies where an enquiry is in progress into a return as a result of notice of enquiry by an officer of the Board under section 9A(1) of this Act.

(2) If the officer forms the opinion—

(a)   that the amount stated in the self-assessment contained in the return as the amount of tax payable is insufficient, and

(b)    that unless the assessment is immediately amended there is likely to be a loss of tax to the Crown,

he may by notice to the taxpayer amend the assessment to make good the deficiency.

(3) In the case of an enquiry which under section 9A(5) of this Act is limited to matters arising from an amendment of the return, subsection (2) above only applies so far as the deficiency is attributable to the amendment.

(4) For the purposes of this section the period during which an enquiry is in progress is the whole of the period—

(a)    beginning with the day on which notice of enquiry is given, and

(b)    ending with the day on which the enquiry is completed."

37. Once again, the mechanism adopted is the amendment of the taxpayer's own self-assessment.
38. I am not persuaded that this concession is necessarily correct. If, as stated earlier, s.34 has no application to any assessment by the taxpayer then it must as a matter of the language used in that section exclude all forms of self-assessment and remain restricted to assessments carried out by the Revenue which are not self-assessments. This would be consistent with s.31 (1) (d) which gives a right of appeal against such assessments. If this is right then it follows that a closure notice under s.28A is not within s.34 because although served by the Revenue it has the effect of amending the taxpayer's self-assessment which is not an assessment within the meaning of s.34 and an amendment to it cannot change its character. I would, therefore, for these reasons alone have dismissed the appeal on the first issue.
39. The main reason why Mr Grodzinski was minded to concede that s.34 might apply to some forms of self-assessment was s.9 (3). As already explained, this provides for the Revenue to make a self-assessment on behalf of the taxpayer on the basis of the information in his return when he does not himself include it in his return. Mr Grodzinski accepted that this would be subject to the s.34 time limit. He contrasted it with s.28C which contains a specific time limit for a determination of tax in cases where the taxpayer fails to file a return: see s.28C (5). He submits that the inclusion of s.28C (5) is in part a recognition that s.34 has no application to the determination under s.28C because it operates as if it were a self-assessment for certain parts of TMA but not for Part IV which contains s.34 – 36. This is by contrast with s.9 (3) which contains no time limit at all.
40. It seems to me that the real distinction between s.9 (3) and s.28C (1A) is that the provisions of s.9 (3) are in part mandatory whereas those of s.28C (1A) are permissive; and that a failure to make a return including a self-assessment as required by s.9 (1) gives rise to the power to make a determination of tax under s.28C which is subject to the time limit in s.28C (5). I am not therefore persuaded that the non-application of s.34 to s.9 (3) gives rise to any anomalies in the overall scheme of assessment.
41. But if I am wrong about this and s.34 is not excluded simply because s.28A(1) provides for the amendment of the taxpayer's self-assessment, then I need to consider Mr Grodzinski's specific arguments which relate to these provisions.
42. As already indicated, he submits that a closure notice effects an amendment to the return and not an "assessment" within the meaning of s.34 even though it has the effect of imposing an additional liability upon the taxpayer. The draftsman has, he says, been careful in his use of terminology and has deliberately chosen to avoid describing the effect of a closure notice as an assessment, just as he has referred in s.9C to amending the taxpayer's self-assessment and in s.28C to making a determination of tax. This is by contrast to ss.29, 30 and possibly 9(3) where the language used is the making of an assessment and this distinction is carried over into the appeal provisions of s.31 where a similar distinction is made between assessments and amendments to self-assessments.
43. As part of his argument he placed particular emphasis on s.30 (5) which (in the case of an assessment to recover overpaid tax) extends the time limit under s.34 to the end of a s.9C inquiry where the return is subject to that process at a time when the s.34 time limit would otherwise expire. This confirms, he submits, that Parliament intended to conform the position under s.30 in the case of an ongoing inquiry to what it would otherwise be under ss.9A and 28A. Section 34 has no application to s.28A and the extension of the inquiry beyond the s.34 time limit would therefore be otiose in relation to the closure notice. Section 30(5) was intended to create a similar position in relation to the power to assess under s.30 where an inquiry is still uncompleted.
44. The taxpayers' answer to this was that far from attempting to equalise the position s.30 (5) was intended to give a special treatment to cases falling within s.30 but to leave s.34 to apply in its full vigour to the power to amend by closure notice under s.28A.
45. It seems to me unlikely that Parliament would have wished to protect the Revenue's power to recover an overpayment of tax from the time limit under s.34 but not to have given equal treatment to an inquiry designed to recover undeclared tax. The much more likely reason for not qualifying s.28A in a similar way is that there was no need to do so because s.34 has no application to s.28A. Although I prefer to base my reasons for this on the non-application of s.34 to self-assessments by the taxpayer (and therefore to amendments of such self-assessments) I accept the submissions of Mr Grodzinski on this point if I am wrong about that. The draftsman has been careful in his choice of terminology and s.28A does not involve an assessment within the meaning of s.34. On Mr Baker's argument the time limit would have expired in this case solely due to the delaying tactics of his clients and the Revenue, in order to serve the closure notices, would have to rely on allegations of negligence and fraud. This seems to me to be an unlikely structure for Parliament to have adopted. Much more likely is that any possible delay in achieving finality following an audit inquiry could be dealt with by the inclusion of a right to apply for a direction for closure which was granted by s.28A(4). In my judgment this was the solution adopted.
46. Mr Baker raised two objections to that. His first point was that the Revenue is not prejudiced by the application of s.34 because it can always make what is known as a jeopardy amendment under s.9C. I do not accept that this provision was inserted for that purpose, or could realistically be operated in that way. It was clearly intended to cover cases where the Revenue considered that an immediate amendment of the assessment was necessary in order to prevent the loss of the tax. An example of a possible situation might be where the taxpayer was thought likely to be about to dissipate his assets and some form of recovery process needed to be put in place. For this provision to operate to assist the Revenue to be able to assess in advance of the expiry of the s.34 time limit, it would require the officer to form a view not only that the tax declared was insufficient (which before the end of the inquiry might prove difficult) but also that if the Revenue had to prove fraud or negligence under s.36 it might not be able to succeed. It is difficult to imagine a more abstruse test and I do not accept that s.9C was ever intended to operate in this way.
47. The second objection was that the right to seek a direction for the closure of the inquiry would not be available to a personal representative in a case where the taxpayer died after the inquiry was instituted but before it was completed. It would also, Mr Baker submitted, deprive the personal representatives of the reduction in the time limit provided by TMA s.40. This provides that:

"40 Assessment on personal representatives

(1) For the purpose of the charge of tax on the executors or administrators of a deceased person in respect of the income, or chargeable gains, which arose or accrued to him before his death, the time allowed by section 34, 35 or 36 above shall in no case extend beyond the end of the period of three years beginning with the 31st January next following the year of assessment in which the deceased died.

(2) …, for the purpose of making good to the Crown any loss of tax attributable to the fraudulent or negligent conduct of a person who has died, an assessment on his personal representatives to tax for any year of assessment ending not earlier than six years before his death may be made at any time before the end of the period of three years beginning with the 31st January next following the year of assessment in which he died.

(3) In this section "tax" means income tax or capital gains tax.

(4) Any act or omission such as is mentioned in section 98B below on the part of a grouping (as defined in that section) or member of a grouping shall be deemed for the purposes of subsection (2) above to be the act or omission of each member of the grouping."

48. The first part of this argument turns on the meaning to be given to the word "taxpayer" in s.28A (4). In his example, Mr Baker said that it would obviously cover the taxpayer himself but not his personal representatives after his death. If that is right it would, of course, not only defeat the personal representative's right to seek an early closure of the inquiry but would also prevent the Revenue from serving a valid closure notice under s.28A on the "taxpayer". It seems to me that there is nothing in this point. Although the TMA does not in terms define the taxpayer as including his personal representatives, they are under TMA s.74 liable for the tax chargeable to the deceased taxpayer and are liable to be proceeded against for default. In these circumstances they fall, in my judgment, to be treated as the taxpayer for the purposes of the recovery of the tax and references to the taxpayer in s.28A are to be interpreted as including his personal representatives.
49. As for the argument under s.40 it seems to me that this section does no more than to give personal representatives a shorter time limit in cases where s.34 applies. What it does not do is to cast any light in itself on the circumstances in which s.34 does apply and therefore has no relevance to the argument about the scope of s.34 in relation to s.28A.
50. For these reasons the appeal on the first issue will be dismissed.

The second issue

51. I can deal with this much more shortly. The taxpayers contend (and the Revenue accept) that in the penalty appeals listed for hearing on 4 June the burden rests upon the Revenue to prove that the conditions set out in TMA s.95 are satisfied. They must therefore satisfy the Special Commissioners that the returns are incorrect and were delivered either fraudulently or negligently.
52. Because the Special Commissioners will consider not only those appeals but also the taxpayers' appeals against the closure notices it is contended (relying on Article 6(2) ECHR) that the burden of proof also rests on the Revenue in those appeals to prove that the returns were incorrect thereby reversing the normal burden of proof in non-penalty cases which under TMA s.50(6) requires the taxpayer to show that the amount of the Revenue's assessment is wrong.
53. At the start of the argument I suggested to Mr Baker (and I remain of the view) that there is nothing of substance in this point in relation to these particular appeals. Unlike in many cases, the only issue in relation to the original returns is whether Mr and Mrs Morris have materially understated the number of days they spent in the UK during the relevant tax year. The Revenue has concluded as a result of its inquiry that the taxpayers were resident in the UK in that year and have assessed them to CGT on the sale of their shares in Empress. The calculation of the tax is not in issue. What is in issue is the taxpayers' liability to pay.
54. Mr and Mrs Morris have exercised their right under TMA s.31 (1) to appeal against the conclusions in the closure notices and the amendments to their self-assessments. I am told (and the Special Commissioners have recorded) that they intend to open their appeals and that the taxpayers and other witnesses will give evidence in support of them. During the course of the hearing they will be cross-examined on the documents which appear according to the Revenue's case to indicate the amount of time spent in the UK. The Special Commissioners having heard this evidence will then be required to make findings about residence and on the basis of these findings the issue of liability for the CGT will turn.
55. Given that Mr and Mrs Morris intend to give evidence and not to make a submission of no case, no issue about the burden of proof is likely to arise. The Special Commissioners will have heard the evidence about residence and will have to reach a decision as to whether or not they believe the explanations given. It therefore makes no difference whether the burden of proof is on the Revenue in the penalty appeals (which it is) or in all of the appeals. The procedure to be adopted will be unaffected by this point and at the end of the evidence the issue will be one of credibility not burden of proof.
56. It is not therefore necessary for me to attempt to analyse the Strasbourg jurisprudence in any detail in order to deal with the position in this case. But it is in fact clear from the decision of the ECtHR in the recent case of Jussila v Finland (Application no 73053/01) that Article 6 has no application to any of the appeals except penalty appeals which are treated as criminal proceedings for these purposes. In paragraph 45 of the judgment in Jussila (which was concerned with whether in mixed tax proceedings there needed to be an oral hearing) the Court said this:

"45. While the court has found that art 6(1) of the Convention extends to tax surcharge proceedings, that provision does not apply to a dispute over the tax itself (see Ferrazzini v Italy [GC], cited above). It is, however, not uncommon for procedures to combine the varying elements and it may not be possible to separate those parts of the proceedings which determine a 'criminal charge' from those parts which do not. The court must accordingly consider the proceedings in issue to the extent to which they determined a 'criminal charge' against the applicant, although that consideration will necessarily involve the 'pure' tax assessment to a certain extent (see Georgiou (t/a Marios Chippery) v United Kingdom (Application 40042/98) (2000) 3 ITLR 145, [2001] STC 80 and Sträg Datatjänster AB v Sweden (Application 50664/99), 21 June 2005)."

57. It seems to me that in the penalty appeals the Special Commissioners will need to be satisfied on the evidence that the returns were incorrect and that they were made either negligently or fraudulently. For the reasons already given, the determination of these matters is unlikely to be affected by the incidence of the burden of proof and the determination of the issue of residence will determine all the appeals including the penalty appeals in a way that is Article 6 compliant. In paragraphs 71-2 of their decision the Special Commissioners analysed the situation in this way:

"71 Although we will hear the main appeals together, we must reach a conclusion on each appeal separately taking into account, for that appeal, and so far as it is relevant to our decision, upon whom the burden of proof lies. It does not follow that a failure by the Appellants to satisfy us on their part with regard to the "pure" appeals leads to any assumptions that discharges the burden on the Commissioners to the "pure" appeals leads to any assumptions that discharges the burden on the Commissioners in the "criminal charge" cases.

72 The reality of the effect of any evidential burden between the different appeals will only emerge when we start to examine the evidence in detail. We make no attempt to prejudge that at this stage. It is sufficient that, in approaching and conducting the hearing of the appeals, we are aware of the differing evidential burden relevant to the different appeals, and assess the arguments and evidence accordingly. Indeed, exactly that approach is reflected in section 50 of the 1970 Act. While the main issues in these appeals are more clear-cut than in many income tax appeals – either the Appellants are within the tax jurisdiction or they are not – the question to be tried are essentially the same in many other tax appeals. The Appellants concluded that their tax position was of such-and-such nature. They stated this to the Commissioners at the time. The Commissioners did not agree. It rests with the Appellants to show us on the balance of probabilities that they were indeed right. They may do so by any evidence that they wish to bring before us. That evidence may be challenged by the Commissioners, and must be balanced against any evidence that the Commissioners may bring before us. Section 50(6) only bites in its full form if there is no evidence, so that neither side can prove their case. We do not anticipate that this will be the case on the primary questions of fact in the main appeals. "

Their approach is essentially the same as my own.

58. The appeal on the second issue will therefore be dismissed but before leaving the question of procedure at the June hearing I wish to make one or two points about the desirability of the Special Commissioners being asked to make a decision on these issues in advance of the full appeal hearing.
59. The issue about the burden of proof when properly analysed (as they did) presents the Special Commissioners with no real problems in terms of how they should conduct the hearing of the appeals. But I am far from convinced that it was appropriate to have entertained any application to rule on whether s.34 applies to the closure notices under s.28A. I say this because the effect of their determination and my ruling is to decide that issue for the purposes of the appeal and on one view to make it unnecessary for the Special Commissioners to decide whether or not the returns (if incorrect) were made negligently or fraudulently for the purpose of the appeals against the closure notices. Given that this will be an issue in any event in relation to the penalty appeals the determination of this issue at this stage serves no useful purpose whatsoever. The better course would have been to have determined both the closure notice appeals and the penalty appeals and to have then ruled on the s.34 point (so far as is necessary) as part of a single exercise.

Conclusion

60. The appeals will be dismissed with costs to be subject to detailed assessment on the standard basis if not agreed.