First-tier Tribunal (Tax)

[2010] UKFTT 271 (TC)

TC00565

Appeal number: TC/2009/13423

Discovery assessments and amendment to returns – Whether negligent in completing and filing incorrect returns – Yes – Appeal dismissed – s. 29 Taxes Management Act 1970 – Penalties – Whether correct amount – Appeal allowed in part -  s 95 Taxes Management Act 1970  

FIRST-TIER TRIBUNAL

TAX

                                                COLIN MOORE                                Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: John Brooks (Judge)

                        William Haarer (Member)                                       

Sitting in public at Eastgate House, Cardiff on 14 May 2010

The Appellant in person

Colin Williams of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal, by Mr Colin Moore, against “discovery” assessments of £1,355.80, £1,259.40 and £423.60 for the years 2000-01, 2001-02 and 2002-03 respectively; an amendment to his 2003-04 self assessment tax return increasing the tax due for that year by £44.78; and penalties, of £745, £692, £232 and £24 “for negligently delivering incorrect returns” for those years.

2.       Having heard Mr Moore and considered the documents before us we find the following facts:

(1)        Other than a short period of unemployment around 1991, Mr Moore was in full time employment from about 1971 until he decided to retire early in December 2003.

(2)        During this time although he paid income tax through the PAYE system he was sent a tax return for completion.

(3)        On 23 December 2004 the Inland Revenue sent a letter to Mr Moore stating that they “have looked at your last Tax Return and do not propose sending you returns in the future.”

(4)        Following receipt of this letter as he believed that his tax affairs from his “working life days” were “complete” Mr Moore destroyed his financial records relating to this period when clearing out material during his move from Portsmouth to West Wales.  

(5)        Boxes 10.2, 10.3 and 10.4 of the returns for 2000-01, 2001-02, 2002-03 and 2003-04 require a taxpayer to enter details of the “amount after tax deducted”, “tax deducted” and the “gross amount before tax” of taxed bank or building society interest. The taxpayer is referred to a Working Sheet in the tax return guide, sent to him with the return, to help him fill in these boxes.

(6)        Mr Moore did not refer to the Working Sheet or follow the guidance set out in the tax return guide but, as he (wrongly) believed that he was entitled to do so as a result of informal advice he had been given at a social occasion, deducted reductions in capital from the total amount of interest received and inserted the reduced figures in boxes 10.2, 10.3 and 10.4 of his 2000-01, 2001-02, 2002-03 and 2003-04 Returns.

(7)        A ‘calculation sheet’ prepared by Mr Moore which was filed with, but not attached to, the returns showed how the figures included in his returns had been computed. These calculation sheets were subsequently lost by HMRC.

(8)        An enquiry by HM Revenue and Customs (“HMRC”), into Mr Moore’s 2003-04 tax return, was commenced in June 2005.

(9)        This enquiry was prompted by the receipt of statutory returns, under s. 17 Taxes Management Act 1970 (“TMA”), from Mr Moore’s bank showing that the interest he had received was greater than the amount shown on his tax returns.

(10)     The assessments giving rise to these appeals were made on the basis of the amounts stated in the s. 17 TMA returns. 

3.       The following issues arise out of these facts:

(1)        whether the assessments are in the correct amount;

(2)         whether HMRC has the power to make discovery assessments; and

(3)        the penalties

Amount of Assessments

4.       Mr Moore who has destroyed most of his financial records explained that he was not in a position to either agree or disagree with the figures used by HMRC in the making the assessments. As the onus falls upon the taxpayer to show that HMRC’s figures are wrong (see e.g. Jonas v Bamford (HMIT) (1972) 51 TC 1) and Mr Moore is unable to do so, we find that the assessments are in the correct amount.

Discovery Assessments

5.       The power of HMRC to make discovery assessments is contained in s. 29 TMA which, so far as is it is material to this appeal, provides as follows:

(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—

(a)     that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or

 (b)     that an assessment to tax is or has become insufficient, or

 (c)     that any relief which has been given is or has become excessive,

the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.

…

 (3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above—

(a)     in respect of the year of assessment mentioned in that subsection; and

(b)     ... in the same capacity as that in which he made and delivered the return,

unless one of the two conditions mentioned below is fulfilled.

(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.

(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 or 8A 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.

(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 or 8A of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return;

6.       Mr Williams, for HMRC, quite properly conceded that if we found, as we have, that Mr Moore had sent a calculation sheet with his returns that the second condition, in s. 29(5) TMA, could not be fulfilled and that HMRC would have to rely on the first condition, namely that the interest had not previously been assessed to tax as a result of the “negligent conduct” of Mr Moore who, Mr Williams contended, had failed to take reasonable care in completing his Returns.

7.       Mr Moore does not accept that he was negligent contending that he acted reasonably and did take reasonable care when completing his returns. However, he did not refer to the guidance material provided with the returns or use the working sheet to which he was specifically referred but relied on informal advice given to him at a social occasion.

8.       Although we were not referred to any authorities we find the comments of the Tribunal Judge (Roger Berner) in Anderson (Deceased) v HMRC [2009] UKFTT 258 (TC) to be helpful where he said at [22]:

“The test to be applied, in my view, is to consider what a reasonable taxpayer, exercising reasonable diligence in the completion and submission of the return, would have done.”

9.       We consider that, viewed objectively, such a taxpayer would, unlike Mr Moore, have referred to the guidance provided to him, made use of the working sheet to which he was directed and not have relied on informal advice received in a social context as the basis for completing his returns.

10.    We therefore find that Mr Moore was negligent in completing and filing incorrect returns and as such HMRC were entitled to make the discovery assessments.

Penalties

11.    The liability to a penalty arises under s. 95 TMA which provides that where a person “negligently delivers any incorrect” return to HMRC he shall be liable to penalty of up to 100% of the tax assessed.

12.    Having found that Mr Moore was negligent in filing incorrect returns we agree that the penalties were properly determined by HMRC and that the question for us is the amount of those penalties.

13.    Mr Williams explained that HMRC have a system of abatement for penalties of 20% for disclosure; 40% for co-operation and 40% for “seriousness” which is based on the size of omissions and seriousness of the “offence”.

14.    In this case HMRC gave no abatement for disclosure as no documents were produced by Mr Moore. However, they did apply an abatement of 20% for Mr Moore’s co-operation and 25% for seriousness, a total abatement of 45% reducing the penalties for each year.

15.    Adopting the same basis on abatement as HMRC we consider that, as it was not possible for Mr Moore to produce documents that had been destroyed, there should be 20% abatement for disclosure. Also we feel that, having regard to the circumstances of the case, that there should be greater abatement for co-operation and we increase this from 20% to 30% although we accept the view of HMRC with regard to seriousness. We therefore increase the total abatement of the penalties from 45% to 75%.

Conclusion

16.    For the reasons stated above we dismiss the appeals against the assessments which are confirmed in the amounts set out below. However, we allow the appeals against penalties to the extent that these are reduced as set out below:

Year                               Tax              Penalty

2000-01                        1,355.80           339

2001-02                        1,259.50           315

2002-03                           423.60           106

2003-04                             44.78             11

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

JOHN BROOKS

TRIBUNAL JUDGE

RELEASE DATE: 14 June 2010