[2011] UKFTT 99 (TC)

TC00975

Appeal number:  TC/2010/02398

FIRST-TIER TRIBUNAL

TAX

-and-

Sitting in public in Birmingham on 2 December 2010

Pat Checkley, Appeals Inspector HMRC  for the Respondents

The Appellant did not appear and was not represented

© CROWN COPYRIGHT 2011

DECISION

Introduction

1.     This case concerns an amendment to the Appellant’s self-assessment tax return for the year ended 5 April 2005 and so-called “discovery” assessments raised against the Appellant by HMRC for the two previous tax years ended 5 April 2003 and 2004.

2.     The Appellant has emigrated to Israel and did not attend the hearing.  We decided the case based on the documentary evidence produced by HMRC, which included copies of correspondence from the Appellant.

3.     At the hearing, when evidence came to light that the company from which the Appellant received payments during the calendar year 2004 was only incorporated in May 2003, HMRC took the view it was appropriate to withdraw their assessments in relation to 2002-03 and 2003-04.  The appeal, insofar as it related to those assessments, was therefore allowed by consent.  It continued solely in relation to the 2004-05 amendment to the Appellant’s return.

4.     The Tribunal issued its decision on 7 December 2010 following the hearing on 2 December 2010, and the Appellant contacted the Tribunal by email on 27 December 2010, indicating his wish to “apply to the Upper Tribunal”.

5.     We therefore consider the Appellant is contemplating appealing our decision and therefore we have treated his email dated 27 December 2010 as an application for full written findings of fact and reasons for our decision as a precursor to a possible appeal.  We note that no application for permission to appeal may be made until full written findings of fact and reasons for the decision have been applied for – see rule 35(4) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Procedure Rules”).

6.     The Appellant is referred to the last paragraph of this decision for more information about the relevant procedure and time limit for applying for permission to appeal against this decision.

The facts

7.     The Appellant was a self-employed chauffeur.  He worked as a self-employed contractor for a company called PCS (Europe) Limited (“PCS”).

8.     PCS was a chauffeuring company, using the services of a number of self-employed drivers.  It was subject to a PAYE audit by HMRC and in relation to its accounting period 1 January to 31 December 2004 it reported having made payments to the Appellant for his chauffeuring services.

9.     The figures supplied by PCS showed payments from them to the Appellant totalling £41,408 during the calendar year 2004.  Of this figure, £8,935.49 was paid from January to March 2004 and £32,472.60 was paid from April to December 2004.

10.  The Appellant had made no return of that income to HMRC and had not notified them of the commencement of his self-employment.  His tax history showed that he had been an employee of a business called SJ Chauffeurs until he left their employment in September 2001.  Thereafter there was no record of his employment status.  In one of his letters however, the Appellant maintained that he had been an employee of a business called  “RSJ” until December 2002, subject to PAYE and NIC deductions – he maintained that HMRC’s Woking office were aware of non-payment by RSJ of amounts deducted from its payments to its employees.

11.  There was no evidence before the Tribunal as to when the PAYE audit of PCS took place, but the Appellant was issued with tax returns for 2002-03, 2003-04 and 2004-05 on 24 April 2007.

12.  The Appellant filed the 2002-03 return on 7 August 2007 and he filed the 2003-04 return on 21 August 2007.  The sequence of events surrounding the filing of the 2004-05 return are not completely clear, but HMRC records show a valid filing date of 10 September 2007 (this return appears to have been submitted but rejected by HMRC on at least one occasion prior to this date – see below).

13.  In the returns as finally submitted:

(1)  The Appellant declared (in his 2002-03 return) that he had become self-employed on 1 January 2003;

(2)  The Appellant declared that in the basis period from 1 January to 4 April 2003, he had generated turnover of £4,200, incurred tax-allowable expenses of £1,250 and therefore made a taxable profit of £2,950 from self-employment in 2002-03 (his only source of taxable income in that tax year, notwithstanding his assertion that he had been an employee subject to PAYE until December 2002);

(3)  The Appellant declared that in the basis period from 5 April 2003 to 4 April 2004 he had generated turnover of £18,500, incurred tax-allowable expenses of £5,250 and therefore made a taxable profit of £13,250 from self-employment in the tax year 2003-04 (his only source of taxable income in that tax year);

(4)  The Appellant declared that in the basis period from 5 April 2004 to 4 April 2005 he had generated turnover of £11,250, incurred tax-allowable expenses of £4,750 and therefore made a taxable profit of £6,500 from self-employment in the tax year 2004-05 (his only source of taxable income in that tax year).

14.  The Appellant maintained that he had attended his local tax office in Woking after receiving the tax return forms.  HMRC records confirm that he did indeed attend at their Woking office on 21 August 2007, at which time he was given assistance with completion of the returns (though it is noted that by that time he had already filed his 2002-03 return).  He actually filed his 2003-04 return on that date.  The Appellant maintained in a letter dated 21 September 2009 that:

“ ... at that time, I furnished all the relevant information and supporting documentation required, and after completing the required forms for taxes owed for the years 2002-03, 03-04. 04-05 and 05-06 in the Woking office with their assistance, I then received a number of tax invoices for back dated taxes for all the above years.  I then paid all of these demands plus all the penalty invoices for late payment, after which I was informed that having completed all payments, my file was now closed and everything was up to date.

Unfortunately, having been assured that I no longer owed any back taxes and my file was then closed, once I moved abroad, I didn’t see any reason to retain all this paperwork and destroyed it, therefore I cannot now prove my earnings.  Also, to my knowledge, the two companies for whom I worked, have now ceased operating and therefore I cannot go back to them to ask for further verification.”

15.  In an email dated 23 December 2009, the Appellant also said:

“... at the time of completion of my tax returns, due to several errors on my behalf when completing the forms, I was advised to contact and make an appointment with the Woking HMRC office, who then in turn advised me on the telephone when making the appointment, that it would be best to bring with me all the necessary paperwork, which included my salary slips and bank statements.  This I duly did, and they in turn checked everything over with me and then instructed me as to how to complete the tax returns in question correctly.”

16.  Finally, in his notice of appeal dated 5 February 2010, the Appellant said:

“... on completion of the tax forms in the Woking branch of the Tax Office, having supplied at that time as requested by this office, all my wage slips expenses, and bank statements, the personnel on site checked and assisted me to complete the necessary tax forms.  Having then made all payments including penalties some weeks later, I was assured categorically on several occasions, that on completion of payment, and during the last payment in particular, that my file was now up to date, completed and closed.

At no time was I told that I would be required to retain these payments and paperwork, and as I was moving abroad some months later, I was assured again that everything had been finalised and dealt with.”

17.  On 7 October 2008 HMRC opened an enquiry into the Appellant’s 2004-05 return.  There was some doubt about whether the Appellant ever received the early correspondence from HMRC, having moved to Israel in about April 2008 and, so he says, put in place a year’s mail redirection.  He certainly did not reply to any of the correspondence, and says he did not receive it.  HMRC say none of the correspondence was returned undelivered to them.  Nothing hinges on this, however.

18.  Having received no response from the Appellant to their earlier letters, HMRC issued a closure notice under s 28A(1) & (2) Taxes Management Act 1970 which amended the Appellant’s self-assessment return for the year 2004-05.  They calculated that the Appellant owed an additional £8,832.80 in respect of that year.  They reached that conclusion by starting from the reported payments from PCS to the Appellant during the period April to December 2004 (£32,472.60) and annualising that figure over the whole 2004-05 year – reaching a figure of £43,330; they then allowed a 15% deduction for expenses (based on their general statistics derived from similar businesses).  This resulted in a net profit of £36,830 (in place of the declared net profit of £6,500) and the extra £8,832.80 of tax and national insurance derived from the excess £30,330 of profit.

Our findings

19.  As HMRC agreed to vacate the assessments for the two earlier years, we do not consider them further.

20.  We are satisfied, on a balance of probabilities, that whatever statements were made to the Appellant about disposal of records and finalisation of liabilities, those statements could not properly have been understood to assure the Appellant that he could safely destroy all his records and regard the whole matter as closed even if he had underdeclared his taxable earnings in the returns he made. 

21.  We are satisfied, on a balance of probabilities based on the evidence put before us, that the Appellant did make such an underdeclaration.  It is notable that neither in his notice of appeal nor in the earlier correspondence did the Appellant make an unequivocal statement that he never received the extra payments declared by PCS as having been paid to him, he simply said that he had supplied all his wage slips (not relevant for 2004-05), expenses and bank statements and then effectively relied on assistance from HMRC’s personnel.  We find the Appellant’s assertions to have been too vague for us to consider them as convincing evidence in support of his appeal on the crucial issues, especially bearing in mind that he chose not to attend (albeit from abroad) to give evidence in person at the hearing.

22.  We were satisfied that HMRC’s approach to calculating the Appellant’s correct taxable profit for the year 2004-05 was reasonable in the circumstances.  The burden lies on the Appellant to show that the adjustment is wrong, and we find that he has failed to discharge that burden.

Time limit

23.  The only other question before us was whether the enquiry into the 2004-05 return had been opened in time.  Under s 9A Taxes Management Act 1970, the time limit for opening such an enquiry expired on the quarter day following the date of filing of the relevant return.  For this purpose, the quarter days are 31 January, 30 April, 31 July and 31 October in each year.  If the Appellant’s return had been properly delivered before 31 July 2007, then the time limit for opening an enquiry under s 9A would have expired on 31 July 2008 and HMRC’s notice of enquiry would have been out of time, rendering their ultimate amendment to the relevant return invalid.

24.  There is no doubt that the Appellant’s 2004-05 tax return was first submitted well before the end of July 2007; it is equally clear that it was resubmitted at least once (and quite possibly more) before HMRC accepted it as a valid return.  HMRC’s records were unfortunately sketchy and it was not possible to reconstruct from them a clear picture of precisely what defects there had been in the returns as submitted and we therefore had some reservations about accepting their assertion that no adequate 2004-05 return was filed before 10 September 2007; however we find on a balance of probabilities that by 31 July 2007 the Appellant had not yet filed a valid return – the return or returns that he filed before that time were either not signed or contained internal inconsistencies which quite clearly rendered them inadequate as a proper return or returns; and even the final form of return (as accepted by HMRC) contains a number of deletions and alterations.

25.  We find that a valid return was only filed after 31 July 2007 – most probably on 10 September 2007, the date shown by HMRC’s IT system (and a stamp on the front of the relevant return) as the date of receipt.

Conclusion

26.  We therefore find that the enquiry was opened by HMRC within the relevant time limit and we confirm the amendments made to the Appellant’s self-assessment tax return for the year ended 5 April 2005 in HMRC’s closure notice dated 23 April 2009.

27.  The appeal is therefore dismissed so far as it relates to that amendment.

28.  So far as the appeal in relation to the assessments for the years ended 5 April 2003 and 2004 are concerned, the appeal is allowed by consent, HMRC having agreed to withdraw the relevant assessments.

29.  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.

KEVIN POOLE

TRIBUNAL JUDGE

RELEASE DATE: 2 FEBRUARY 2011