[2012] UKFTT 198 (TC)
TC01893
Appeal number
TC/2010/05689
PAYE –
appeal against a direction notice requiring the appellant to pay income tax and
interest in respect of untaxed remuneration which HMRC alleged he had received
as a shadow director – appellant disputed the allegation and the amounts of the
payments –the Tribunal found that he was a shadow director but allowed a
reduction in the amount of the deemed payments
FIRST-TIER TRIBUNAL
TAX
MR
MICHAEL RANGOS Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
S.M.G.RADFORD (TRIBUNAL JUDGE)
H.
ADAMS
Sitting in public at 45 Bedford Square, London WC1 on 2 December 2011
Mr J Gibbons for the Appellant
Dr L Jacobs for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This
is an appeal against a notice issued by HMRC under Regulation 81(4) Condition A
of the Income Tax (PAYE) Regulations 2003.
2. The
notice required the appellant to pay tax plus interest of some £215,888.22 in
respect of untaxed remuneration in respect of tax years 2006/07 and 2007/08.
3. HMRC
claimed that the appellant was a shadow director and thus an employee of Ticket
Tout Limited (“TT”) and Ticketout Limited (“TO”) and that he received relevant
payments from them. The companies acted as secondary ticket agents.
4. HMRC
claimed that the Appellant received those relevant payments knowing that his
employer had wilfully failed to deduct the amount of tax which should have been
deducted from those payments.
5. The
appellant claimed that although he helped the director of the companies to
obtain tickets he was not an employee and did not receive payments in that
capacity.
6. The
appellant, Mr Howells his accountant and Mr Lee of HMRC gave evidence.
Background and Facts
7. HMRC’s
interest in the affairs of the appellant started with an approach from the
Public Interest Unit of the Official Receiver. The Official Receiver was
dealing with the liquidation of a string of five phoenix companies operating in
the secondary ticket market. The Official Receiver believed that the appellant
was behind all the companies.
8. The
Public Interest Unit had taken an interest in the appellant’s dealings
following complaints from the public over the companies failing to provide
tickets or refunds to events for which they had paid via web sites. The
companies’ transactions were mainly in cash with incomplete company records
being submitted to enable the Official Receiver’s office to determine whether
the considerable cash transactions were for business or personal use.
9. The
appellant was a named director of the first company in the chain, Get Me
Tickets Limited (“GMT”). He was given a disqualification undertaking for eight
years in respect of that company and admitted that proper accounting records
had not been kept and that there was no proper record kept of directors’
remuneration or loan accounts.
10. The appellant
was not a named director of the fourth company in the chain, MLT Services
Limited and claimed initially during interviews with the Official Receiver that
he was only an employee who acted on instructions. However later he admitted
that he was a director and that the company had kept inadequate accounting
records.
11. TT and TO were
numbers two and three in the chain. The appellant was not a named director in
either company and denied that he was an employee of either company.
12. TO was
incorporated to provide banking facilities for TT after its banking facilities
were withdrawn.
13. The Official
Receiver decided not to continue with disqualification proceedings against the
appellant in respect of TT and TO as the appellant had already been given a
fourteen year disqualification undertaking.
14. HMRC claimed
that the appellant was a shadow director of TT and TO. Ms Caroline Beale was
the named director of TT and TO. At the initial interview with the Official
Receiver Ms Beale maintained that she was solely responsible for TT and TO and
the appellant merely provided contacts to source tickets. At the end of the
interview Ms Beale stated that she did not want to say anything about the appellant’s
involvement until she had taken legal advice.
15. At a subsequent
interview Ms Beale said “Michael had the final say in everything and I had no
real control of the company only on a superficial level”. Ms Beale asserted
that the appellant had persuaded her to allow company funds to pass through her
bank account as he was unable to obtain a bank account of his own.
16. The registered
secretary of TT, Mr Woodhouse-Powell, told the Official Receiver that TT was
the appellant’s company and that “Mr Rangos was careful not to have his
fingerprints on anything to hide the fact that he was running the company.”
17. In interviews
with the Official Receiver both Ms Beale and Mr Woodhouse-Powell confirmed that
prior to handing over the computers belonging to TT and TO the appellant
instructed the staff to purchase new computers, load certain data onto them and
then hand them over to the administrators.
18. The Official
Receiver’s analysis of the computers showed that certain data was missing which
included emails subsequently retrieved by the Official Receiver from TT’s
internet provider and spreadsheets provided to the Official Receiver from TT’s
accountants.
19. The appellant
was shown to have sent most of the emails to the web designers of TT and TO. Mr
Norbury of Arclid.Com Ltd, the web designers, provided the Official Receiver
with copies of email correspondence with TT. A review of the emails showed that
of the 1108 email items provided, 729 emails were sent by the appellant from michael_rangos@hotmail.com. In an email to Mr
Norbury from the appellant dated 19 October 2006 which was sent from the appellant’s hotmail address, the appellant stated “You should be getting a cheque
tomorrow morning (Thursday) by special delivery post in full settlement of the
2 outstanding invoices for Ticket Tout”.
20. Mr Norbury
stated in an email to the Official Receiver dated 12 June 2008 that “It was my understanding that I was to speak to either Michael Rangos or Caroline Beale in
relation to the tickettout.net website”.
21. The Official
Receiver’s agents retrieved an email dated 9 December 2006 to Jim Kurtagh of www.zudfunck.com from the appellant regarding
advertising in which the appellant stated “I am the owner of two of the largest
independent ticket agencies in the UK: www.londonticketshop.co.uk and www.tickettout.com”. On 12 December 2006 the appellant sent exactly the same email to Shane Dell the editor of the Abc of Cricket
website. Both emails were sent from michael@londonticketshop.co.uk and were signed
Michael Rangos.
22. At an interview
with the Official Receiver on 18 June 2008 the appellant was presented with
various pieces of evidence showing that he was involved in the affairs of TT.
The evidence included emails sent from the appellant’s personal email address
to the company solicitors, accountants, web designers and staff giving
instructions on the running of TT. The emails were obtained by the Official
Receiver from TT’s server held by Demon. Throughout the interview the appellant
either stated that he “could not recall” or he “would look into it”.
23. On consulting
with the Official Receiver and receiving a number of schedules from them HMRC
decided that the appellant had received untaxed remuneration from TT and TO.
The Insolvency Service’s inspection of the available company records indicated
that considerable sums were withdrawn for which there were no analysis to
determine whether these withdrawals were personal or legitimate business
expenses.
24. HMRC decided
that with no company accounts or company PAYE returns submitted, coupled with
the incomplete records, it was reasonable to assume that the appellant was in
receipt of untaxed income from these companies.
25. In the absence
of any company accounts and PAYE returns together with the appellant’s failure
to submit his tax return for 2007/08 Regulation 80, assessments were issued by
HMRC on 27 January 2009 in respect of perceived untaxed remuneration received
by the appellant from these companies during 2006/07 and 2007/8. With no
appeals lodged against these assessments within thirty days they became due and
payable.
26. The appellant
did file a return for 2006/07 on which he declared himself to be self employed
in the resale of tickets and that he had received £12,000 in net income for the
year.
27. HMRC issued the
assessments in the amounts of £330,324 for 2006/07 and £195,484 for 2007/08. They
reached these amounts by adding the cash withdrawals together with all the
unidentifiable payments including those without any supporting company records
or invoices and then in the interests of reaching an equitable conclusion
decided to allow a 50% reduction in the level of payments uncovered to allow
for possible legitimate business expenses. HMRC then split the balance between
Ms Beale and the appellant.
28. HMRC stated that
their claim that the appellant was in fact a shadow director appeared to be
substantiated by the fact that company payments were made to a company called
Metacharge Ltd who confirmed that the payments were in respect of personal
debts owed by the appellant.
29. Mr Howells wrote
to HMRC explaining that the appellant was suffering from ill health but denied
that he had received any untaxed remuneration from the companies. Mr Howells
requested a breakdown as to how the amounts were reached. HMRC sent a letter
detailing the quantum and suggesting that the appellant and his accountant
liaise directly with the Insolvency Service in order to resolve matters.
30. At the same time
a letter was received from Mr Howells appealing against the assessments on the
grounds that the appellant had at no point been provided with information
concerning the alleged payments.
31. An attempt by
HMRC to arrange a meeting with all the interested parties was abortive on
account of the Insolvency Service pleading that the Confidentiality Act would
prohibit such a meeting.
32. Numerous
attempts were made by HMRC to provide further information but Mr Howells
continued to query the analysed details provided and provided an analysis of
his own in respect of the relevant bank accounts.
33. Mr Lee sent Mr
Howells’ letter to Mr Stone at the Insolvency Service for comment. Mr Stone
confirmed that the uncategorised expenditure included payments made to named
persons for which there were no books or records to support the transactions.
As a result it was not known why these payments were made and so they could not
be categorised.
34. Mr Lee passed on
Mr Stone’s comments to Mr Howells who on reply continued to query several of
the uncategorised amounts. He reiterated that whilst the appellant could
explain how the system worked, as the appellant did not have access to the
company’s books he was unable to provide any supporting information.
35. In a subsequent
telephone conversation with Mr Howells Mr Lee pointed out that if it was agreed
to reduce the Official Receiver’s figures on account of business expenditure then
it was likely that the 50% concession by HMRC would be reduced downwards.
36. Mr Lee wrote
further to Mr Howells having received a response from Mr Stone and forwarded Mr
Howells details of the only records which had been made available to Mr Stone.
As HMRC had already allowed a concessionary 50% deduction in recognition of the
fact that some of the uncategorised expenditure was for legitimate business
expenditure, Mr Lee stated that unless the appellant had irrefutable
documentary evidence as to how the uncategorised amounts were spent he saw no
reason to spend further time on analysing the expenditure.
37. Finally a review
was requested by the appellant. This was undertaken by Mr Pighills who rang the
accountant on 12 April 2010 outlining his understanding of the case and seeking
some common ground in order to reach an equitable agreement. Whilst Mr Pighills
agreed with Mr Howells that there had been an extraordinary amount of
expenditure treated as uncategorised and that most of the money paid out was
for ticket purchases he explained to Mr Howells that Mr Lee had had to reach a
starting point.
38. Mr Howells
pleaded however that the appellant had no access to any of the companies’
records with which to substantiate HMRC’s claim and so Mr Pighills decided that
the chances of an agreement were remote. Although Mr Pighills produced a
further schedule of withdrawals for Mr Howells hoping to use these as a
starting point in negotiations there was no response and on 20 May 2010 Mr Pighills wrote to Mr Howells informing him that if no further
representation evidence was forthcoming then he intended to conclude his
review.
39. On no response
being received to this letter Mr Pighills, the reviewing officer, wrote to the
appellant in June 2010 upholding the assessments. He stated that his findings
were that there were considerable sums of money withdrawn from the companies’
bank accounts. He stated that although the appellant had suggested that these
monies were used to meet legitimate business expenses, the appellant had also
accepted that some of the monies were used for personal expenses and the fact
remained that the vast majority of the withdrawals were not identifiable.
40. Mr Pighills
subsequently received a letter from Mr Howells with further information but he
explained that as his review had been finalised the appellant’s only course of
action was to appeal to the Tribunal.
The appellant’s evidence
41. The appellant
contended that HMRC had no evidence that he had been in control of either TT or
TO. The only evidence which HMRC had was from Ms Beale who had changed her
story and turned against the appellant after taking advice from her solicitor.
42. The appellant
denied that he had been a shadow director of either of these companies. He knew
Ms Beale because she had worked at GMT.
43. In his witness
statement the appellant described his involvement with the Public Interest Unit
of the official Receiver. On 1 February 2006 three Public Interest Petitions
were presented in respect of GMT, Get Me Tickets Net Limited and Get Me Tickets
Com Limited. He stated that GMT was concerned with the secondary ticket market
and procured and sold tickets for events, concerts, and sporting fixtures
amongst other things. He stated that the latter two companies were dormant but
at the time that the Petitions came to trial in May 2006 it was common ground
that if GMT was wound up then the other two companies should also be wound up.
44. He stated that
on 2 February 2006 Mr Justice Lindsay ordered that the Official Receiver be
appointed provisional liquidator of GMT until the conclusion of the hearing of
the petitions. That same day the Official Receiver had applied without notice
to Mr Justice Lindsay for a freezing order against the appellant’s and his co-director’s,
Ms Thavaratnam, assets. The official Receiver’s request was approved and a
freezing order was granted over his and Ms Thavaratnam’s assets up to the value
of £1,100,000.
45. On 18 May 2006 judgement on the contested winding up application was given and the judge
ordered that GMT and the other dormant companies be wound up. The appellant
stated that the grounds of complaint justifying winding up did not involve any
allegation of misappropriation by the directors of the companies.
46. On 3 February 2006 the Official Receiver who had been appointed provisional liquidator
commenced misfeasance proceedings against the directors.
47. On 10 July 2006 following an application to continue the freezing order which was opposed,
judgement was given indicating that the Judge would only continue the freezing
order in respect of named properties owned by Ms Thavaratnam and the appellant.
Following that indication Ms Thavaratnam and the appellant undertook that until
the trial of the misfeasance proceedings they would not dispose or deal with or
charge in any way whatsoever or diminish the value of their interest in those
properties and accordingly no further order was made in relation to the
continuation of the freezing order which therefore expired after 10 July 2006.
The appellant stated that the undertaking in so far as it related to the two
properties he then owned was in place for over five years until May 2011 when
the misfeasance proceedings were finally settled between him and the Official
Receiver acting as liquidator of GMT and the settlement contained a
confidentiality clause.
48. The appellant
stated that he had subsequently been involved in directors disqualification
proceedings initiated against him in respect of GMT, TT, MLT and London Ticket
Shop KFT. In respect of GMT on 3 March 2010 he gave a disqualification
undertaking for eight years. He stated that no allegation of misappropriation
of funds was made against him. In respect of MLT on 3 May 2011, the same day that the GMT misfeasance summons was finally settled after five years, he
gave a disqualification undertaking for fourteen years. The appellant stated
that the reason that he gave an undertaking in the MLT proceedings was that,
apart from the fact that he was employed by MLT on contract, after all that had
happened he was not interested in being the director of a company. Also he had
already been disqualified for eight years in respect of GMT and had
insufficient resources to fund a legal challenge.
49. The appellant
stated that he was aware from the previous proceedings how costly they could be
and if he lost he would be responsible for the claimant’s costs which would be
increasing exponentially if he did not give the undertaking. The appellant
stated that the undertaking he was asked to give, like GMT, did not include any
allegation of misappropriation of funds, but, as with GMT, that he had failed
to maintain, preserve or deliver adequate accounting records.
50. The appellant
stated that the directors disqualification proceedings commenced against him in
respect of TT and KFT were discontinued by consent on 24 May 2011. No disqualification proceedings had ever been brought against him in respect of TO nor
had he ever been involved in any misfeasance proceedings other than in
connection with GMT. The appellant stated that he failed to understand why HMRC
had found it reasonable to pursue him in these proceedings to recover tax when
the burden of proof for these unsubstantiated allegations against him had not
been justified by any other body such as the companies’ liquidators as would be
expected if they had any evidence against him.
51. Having been
through the long drawn out liquidation proceedings in respect of GMT the appellant
did not want to become involved again as a director in the running of a
company. However he had worked in the secondary ticket industry as a tout for
some time and it was the only industry which he knew. From early 2006 therefore
he worked as a self employed tout and filed his tax return for 2006/07 in that
capacity.
52. His business
with Ms Beale was as a secondary ticket broker in a sole trader capacity. He
remained in contact with Ms Beale because he regarded her as a friend and he
was the primary outlet for the sale of the tickets he was able to supply to TT.
Ms Beale regularly asked him to obtain tickets for her customers and once he knew
of the availability of tickets he would offer them to her for her customers.
Although he traded with Ms Beale regularly he was unclear whether she was
contracting with him personally or as a director of TT or TO. He was therefore
unable to confirm the source of any payments she made to him in respect of the
tickets which he sold her. Apart from these payments the appellant denied
receiving any income from either TT or TO.
53. The appellant referred
to HMRC’s statement of case in which it was stated that they considered that
there was clear evidence that he had received income from TT and TO because of
information received from the Official Receiver because:
·
“considerable sums were withdrawn” – the appellant presumed that
by this it was meant from the bank accounts of TT and TO – “for which there was
no analysis to determine whether these withdrawals were personal or legitimate
business expenses”;
·
“no company accounts or company PAYE returns were submitted by TT
or TO”;
·
“the books and records of TT and TO were incomplete”.
54. The appellant
referred to the HMRC conclusion that from this “it is reasonable to assume that
Michael Rangos was in receipt of untaxed remuneration from these employers”. He
stated that this was not a reasonable assumption because in fact he had not
received such remuneration. Any money which he received from Ms Beale was for
tickets which he sold her.
55. The appellant
stated that in the bundle of documents HMRC exhibited schedules of income and
expenditure from three different bank account of TT from March 2006 to January
2007 and for TO from February to March 2007.
56. The appellant
commented that at paragraph 3.7 of the Statement of Case, HMRC had stated that
they made a Regulation 80 assessment on both TT and TO and sent those
assessments to the relevant liquidators setting out the amounts of PAYE tax
liabilities due in respect of the “perceived untaxed remuneration” allegedly
received by him. The liquidators did not contradict these figures and,
therefore, the assessments became legally due and payable.
57. The appellant
stated that he did not know about these assessments. He did not know if they
were actually received by the liquidators, checked by the liquidators or
whether the liquidators even bothered to respond to HMRC. To the appellant it
seemed unjust that he should be bound by an untested, unchecked and unopposed
assessment by HMRC.
58. The appellant
stated that he and Ms Beale used each other’s hotmail accounts and each had
access to the other’s email address. In her interviews with the Official
Receiver Ms Beale was covering her back.
59. Insofar as Mr
Norbury was concerned the appellant stated that he had dealt with Mr Norbury
when he was with GMT and when Ms Beale set up on her own she used his contacts.
60. The appellant
denied sending the emails which were sent in his name to Messrs Kurtagh and
Dell as referred to at paragraph 21 above.
61. The appellant
denied buying new computers and stated that this was part of the unsuccessful
proceedings against him by the Official Receiver in respect of TT and TO.
62. The appellant
explained that when tickets are ordered in advance it is necessary to pay 50%
of the cost upfront as a deposit. If the sale does not take place because the
balance is not paid when the tickets become available then the deposit is lost.
When TT went into liquidation therefore their 50% deposits on a number of
tickets was lost.
63. The appellant
stated that in many cases a credit card was used to purchase the tickets.
64. Reference was
made in HMRC’s statement of case to payments made to a company called
Metacharge Limited in respect of a personal guarantee owed by the appellant.
The appellant confirmed that he had discovered that TT and TO had paid £115,000
and £50,000 respectively to Metacharge on his behalf. The appellant stated that
these payments were made by Ms Beale in consideration for the tickets he had
bought from Ticket Queen and provided to her companies.
65. The appellant
stated that it now appeared that some £200,000 had been repaid to the Official
Receiver by Metacharge but it was unclear in what capacity. His solicitor was
still waiting for a response as to the terms of settlement between the Official
Receiver and Metacharge.
The Appellant’s Submissions
66. The appellant
submitted that if in fact those sums paid to Metacharge were in effect income
used to discharge his personal debt then that debt remained undischarged and
that money should be credited to him.
67. The appellant
accepted that as a result of the administration and liquidation of TT and TO
tax was not paid to HMRC but the appellant submitted that those companies were
liquidated prior to the end of the financial years in question.
68. The appellant
submitted that there had been considerable communication between his
accountants (previously Kingston Smith and currently Howells & Co) and the
HMRC in respect of the lack of information provided as to how the relevant
payments on which tax was due had been calculated and to what such payments
related. As this information had not been provided the appellant submitted that
it did not exist.
69. The appellant
submitted that a letter from HMRC to Kingston Smith dated 6 January 2010 which stated that “…your client has continually failed to provide the Official
Receiver’s Office with comprehensive company records…he appears reluctant to
take the opportunity to meet with them to resolve the impasse” was very
misleading.
70. He submitted
that as he was not a director or employee of TT or TO he did not hold and had
no obligation to hold the books or records of these companies.
71. He submitted
that it was also unfair to say the he was reluctant to take the opportunity to
meet with the Official Receiver as he had numerous meetings with the Official
Receiver in respect of the liquidation of both TT and TO. In respect of the tax
issue and the relevant payments HMRC had tried to arrange a meeting between the
appellant and the Insolvency Service but the Insolvency Service had declined to
attend. The appellant submitted that an internal HMRC memo in which it was
stated: “Unfortunately attempts to get Rangos to personally meet with the
Official Receiver in order to resolve the matters concerning the “unidentified
withdrawals” have proved abortive” was therefore misleading.
72. The appellant
submitted that when his accountants asked for a review of HMRC’s decision of 6 January 2010 that tax of £193,468.40 plus interest was due Mr Pighills who carried out
the review made a harsh finding. He submitted that the fact that Mr Pighills
stated that the majority of the withdrawals were unidentifiable did not justify
them being classed as his personal expenditure.
Mr Howell’s evidence
73. Mr Howells gave
evidence that he had acted as the appellant’s accountant firstly when he was a
partner at Kingston Smith and secondly at his current firm, Howells & Co.
74. Mr Howells
referred to the claim by HMRC that the appellant had received notional payments
under Regulation 81 Condition A although in fact the legislation referred to
relevant payments. He stated that he had written to Mr Lee of HMRC pointing
this out but Mr Lee had replied that the terminology did not effect the
legality of HMRC’s claim that the appellant had received untaxed remuneration
from TT and TO.
75. He stated that
the information received by HMRC from the Official Receiver was a list of
transactions either taken from bank statements for a number of bank accounts or
from an analysis provided to the Official Receiver by him when he worked at
Kingston Smith.
76. He claimed that
the schedules supplied to HMRC by the Official Receiver were inaccurate as
transactions which were for legitimate business expenditure had been analysed
as personal expenditure.
77. Mr Howells
stated that four bank accounts had been analysed and this analysis formed the
basis of the claim against the appellant.
78. With reference
to TT’s bank account 03455808 with Lloyds TSB he stated that HMRC had accepted
expenditure on ticket purchases for which the Official Receiver had not seen
invoices as the appellant’s remuneration. For this account he stated that the
only information of any relevance was cash withdrawn of £94,259.69 of which 25%
was deemed to be the appellant’s remuneration. This was calculated by
allocating 50% to Ms Beale and then applying HMRC’s allowed discount of
attributing 50% of the balance to the appellant.
79. In respect of
TT’s bank account 90460834 with HSBC he stated that it appeared that there was
an unidentified figure of £134,347.55, 25% of which was attributed to the
appellant as calculated above.
80. He stated that
it appeared that most of the figures were based on the Kingston Smith analysis
in which there was various inconsistencies but the appellant had not had a
chance to go through the figures and so they remained as analysed. Mr Stone of
the Insolvency Service had in fact stated in an email to Mr Lee that the reason
that certain items had not been analysed was because “there were no books or
records to support the transaction and therefore it is not known why the
payment was made and as such they could not be categorised. The example Mr
Howells has referred to (payments to H Deluca, D Edmond and Gary Haygarth) are indeed
good examples….” Mr Howells stated that this was an interesting response as
elsewhere on the spreadsheet payments to D Edmond had been analysed as ticket
purchases and to H Deluca as agent cards.
81. Further he
stated that a closer look at the analysis showed that there was an entry for
£9,000 clearly analysed as for Ms Beale but treated as unknown. 25% of further
payments of £3,739.35 and £3,000 to Ms Beale had been assessed on the
appellant.
82. Mr Howells
stated that there was a significant amount of cash withdrawals from this
account, over £228,000 and HMRC had added this to the unidentified payments
although often it was necessary to pay for the tickets in cash.
83. Referring to
the TT account number 70892726 with Barclays he stated that the summary for
this account showed that the payments amounted to £1,237,954.72 of which
£781,936.67 was classed as unidentified.
Mr Howells’ Submissions on behalf of the appellant
84. Mr Howells
submitted that as the appellant had not had access to the books and records of
TT and TO the appellant was not in a position to defend himself by being able
to look at the transactions which had been alleged to be personal expenditure.
85. Mr Howells
produced a rough calculation for the Tribunal in which he had added the
unexplained cash and unidentified transactions relating to TT and TO. He
omitted amounts which he believed had been attributed to legitimate business
expenses. The total of these came to £1.088 million. On his calculation this
meant that if 50% was attributed to Ms Beale and HMRC’s 50% deduction to the
balance £272,000 would be attributable to the appellant as untaxed remuneration
in respect of being a shadow director, and he would be liable to some £108,000
of tax, assuming the amount was taxable at 40%.
86. Mr Howells
submitted that HMRC had not been able to demonstrate that a single payment had
been made to the appellant. He submitted that there was no reason for 25% of
the payments shown to be Ms Beale’s in the HSBC account 90460834 to be
attributed to untaxed remuneration of the appellant’s.
87. In addition he
submitted that a number of unidentifiable transactions in this account were
payments to A Powell, B Frew, J Soares, V Costa, Jake Trask, Y Adenyin and V
Lopes Nascimento all of whom appeared on the payrolls sent to the Insolvency
Service. He asserted that Mr Stone had chosen to ignore these payments and
treat them as untaxed remuneration to the appellant. In fact he submitted that
there were a number of inconsistencies such as entries described as tickets but
not analysed as such. He submitted that if all these entries had been correctly
analysed the unidentified figure of £134,347.55 25% of which was attributed to
the appellant would be reduced considerably to some £10,000.
88. Mr Howells
stated that there was a significant amount of cash withdrawals from this
account, over £228,000 and HMRC had added this to the unidentified payments. He
submitted that by its very nature ticket touting involved the purchase of
tickets for cash. On the schedule of documents delivered to the administrator
of TT there were at least three lever arch files labelled Ticket Tout VAT
invoices. Mr Howells submitted that he believed that these were records of
tickets purchased for cash. He submitted that it was unclear whether the
Official Receiver had used this information to establish how the cash was
spent. He submitted that Kingston Smith had also provided the Official Receiver
with petty cash reports which as far as he was aware identified tickets
purchased for cash. Those reports showed significant cash payments for tickets,
in excess of £74,000. He submitted that those reports were supplied by Kingston
Smith and he did not have copies but this information appeared to have been
ignored by the Official Receiver.
89. Referring to the
TT account number 70892726 with Barclays he stated that the summary for this
account showed that the payments amounted to £1,237,954.72 of which £781,936.67
was classed as unidentified. However just to mention a few Mr Howells submitted
that a review of the spreadsheets showed entries such as A Mizra tickets
£1,773.07, Gary Agar tickets £5,000, S J Eris tickets £2,000, Ticketdaddy
tickets £15,578 which were categorised as unidentifiable. He submitted that if
the expenditure was categorised as ticket sales he did not understand why HMRC
had concluded that it was reasonable to conclude that 25% of these sales should
be attributed as untaxed remuneration to the appellant.
90. He submitted
that the other significant payments were to credit card companies all of which
had been treated as unidentifiable. He referred to the appellant’s statement
that very often credit cards were used to pay the 50% deposit for the tickets.
91. With reference
to Ms Beale’s account 00445418 account with TSB he submitted that due to the
significant number of transactions it was difficult to effectively analyse. He
submitted that there were again details obtained regarding payments which
seemed to clearly explain the nature of the transaction but once more had
resulted in what appeared to be reasonable business expenditure being
categorised as unidentifiable, 25% of which had been included as the
appellant’s untaxed remuneration. Some such examples were payments to Transport
for London, Thames Water, Ticketmaster, South West Trains, News international
Advertising, Guardian Newspapers, The Royal Albert Hall, Vodaphone Limited,
Caroline Beale plus significant payments to J Trask, B Frew, A Powell, A Da
Silva and J Soares all of whom were TT employees.
92. He further
submitted that there was a sum of £264,684.45 which had fallen under the
heading of “corrections and unpaid”. As far as he was able to establish this
amount represented adjustments to rectify errors but was included in the
unidentifiable figure of £813,099. He submitted that this was a significant
error which called into question the accuracy of the spreadsheets prepared by
the Official Receiver.
93. Mr Howells
submitted that a review of the HMRC income and expenditure statement which
provided the basis for the calculation of what HMRC claimed to be untaxed
remuneration to the appellant showed income from the sale of tickets of
£4,638,365. It also showed that according to the Official Receiver’s analysis
£1,548,056 was spent on purchasing tickets and there were refunds of £98,995,
making a combined cost of £1,647,051. He submitted that in order to achieve
this turnover tickets would have had to be sold on average at 2.8 times the
price paid ignoring for the purpose of the calculation any unsold tickets held
when TT an TO ceased to trade.
94. Mr Howells
reminded the Tribunal that in Ms Beale’s interview with the Official Receiver
she had eventually confirmed that the payments made to Metacharge were in
respect of tickets purchased by the appellant from Ticket Queen.
95. Mr Howells
submitted that much of the delay had been as a result of the appellant’s
continued health problems for which he was still required to attend the Cromwell Hospital.
Mr Gibbon’s submissions on behalf of the appellant
96. Mr Gibbons
submitted on behalf of the appellant that the direction notice referred to
“notional payments” rather than “relevant payment” as defined by Regulation 4.
He submitted that this was a Condition A case and not a case involving
“notional payments as defined by Regulation 2 and Section 710(2) of the Income
Tax (Estates and Pensions) Act 2003.
97. He submitted
that the appellant had always denied the receipt of remuneration from either TT
or TO.
98. Mr Gibbons
submitted that in order to prove the claim HMRC were required to establish that
as an employee the appellant received income from which TT and TO as employer
wilfully failed to deduct the right amount of tax and as an employee the
appellant knew of that failure.
99. Mr Gibbons
submitted that it was not disputed that £165,000 was paid to Metacharge to
relieve the appellant of his liability to that company in respect of his
personal guarantee. However this money was paid in respect of tickets supplied
to TT’s customers. Such money did not therefore represent the receipt of
untaxed remuneration and as a result of this there should be a significant reduction
in the tax claimed.
100.Mr Gibbons
submitted that whilst the appellant’s primary contention was that he was not
liable because HMRC’s criteria were not made out, the appellant also took issue
with the level of assessment made. The appellant submitted that HMRC schedules
were considered to be inaccurate as transactions for legitimate expenditure had
been analysed as personal expenditure.
101.Mr Gibbons
submitted that HMRC had made their decision based on the second hand hearsay
contained in the Official Receiver’s report.
HMRC’s Submissions
102. Mr Jacobs
submitted that the appellant had received income that had not been taxed by TT
and TO and the appellant knew of that failure.
103. HMRC
considered that there was clear evidence that the appellant had received income
from these companies in the light of the information received from the
Insolvency Service who were acting on behalf of the companies’ creditors.
104. He submitted
that their examination of the available company records indicated that
considerable sums were withdrawn for which there was no analysis to determine
whether they were personal or legitimate business expenses.
105. He submitted
that with no company returns or company PAYE records it was reasonable to
assume that the appellant was in receipt of untaxed remuneration from those
companies.
106. He submitted
that Regulation 73(1) of the Income Tax (PAYE) Regulations 2003 required an
employer to submit annual returns on or before the end of an income tax year
and TT and TO both failed to submit either company accounts or PAYE returns.
107. He submitted
that Ms Beale had admitted to the Insolvency Service that she acted on
instructions from the appellant who was the person in control of the companies’
financed and management.
108. HMRC
referred to a number of cases where directions were made prior to the right to
appeal against such determination by HMRC. In each of these cases it was shown
that income had been paid to an employee who should have known that no tax had
been deducted and HMRC succeeded in their claim.
Mr Lee’s evidence
109. Mr Lee
stated that he felt that by only attributing 25% of the unidentified amount to
the appellant he was being quite generous.
110. Mr Lee
emphasised that that there was a complete lack of company records by virtue of
which the appellant could refute HMRC’s claim.
111. He stated
that the fact that Ms Beale was unaware of the payments made to Metacharge
until she was questioned by the Insolvency Service added credence to HMRC’s
claim that the appellant had financial and management control over the company.
112. He stated
that the Official Receiver’s assertion in the directors’ disqualification
proceedings, which initially included the appellant, that funds were used to
the detriment of the customers, was sufficient evidence that the appellant was
in receipt of untaxed remuneration.
113. Mr Lee
confirmed that he had relied on the information provided by the Insolvency
Service in making the tax assessment.
The Law
114.Regulation 81
of the Income Tax (Pay As You Earn) Regulations 2003 states:
(1) This regulation applies if—
(a) any part
of the tax determined under regulation 80 is not paid within 30 days from the
date on which the determination became final and conclusive, and
(b) condition
A or B is met in relation to an employee.
(2) Condition A is that the Inland Revenue
are of the opinion that the employee in respect of whose relevant payments the
determination was made has received those payments knowing that the employer
has wilfully failed to deduct the amount of tax which should have been deducted
from those payments.
(3) Condition B is that the unpaid tax
represents an amount for which the employer was required to account under
regulation 62(5) (notional payments) in relation to a notional payment to the
employee.
(4) The Inland Revenue may direct that
the employer is not liable to pay the amount of tax which appears to them
should have been but was not—
(a) deducted
on making those relevant payments, or
(b) accounted
for under regulation 62(5).
(5) If a direction is made, the amount of
tax must not be added under regulation 185(5) or 188(3)(a) (adjustments for
self-assessments and other assessments) in relation to the employee.
(6) Tax payable by an employee as a
result of a direction carries interest, as if it were unpaid tax due from an
employer, in accordance with regulation 82 (interest on tax overdue).
(7) The tax payable carries interest from
the reckonable date until whichever is the earlier of—
(a) the date
on which payment is made, or
(b) the date
(if any) immediately before the date on which it begins to carry interest under
section 86 of TMA(1).
Findings
115. We
considered the direction notice which referred to notional payments rather than
relevant payments as stated in the legislation. We decided however that this
did not effect the legality nor negate HMRC’s claim that the appellant had
received untaxed remuneration from TT and TO. We noted that at 2.5 of their
statement of case HMRC referred to Regulation 81(4) and stated that it
“provides that Condition A applies where HMRC are of the opinion that the
employee in respect of whose relevant payments the determination was made
received those payments knowing that the employer had wilfully failed to deduct
the amount of tax which should have been deducted from those payments.
116. We found
that HMRC had established that they were of the opinion that the appellant had
received untaxed remuneration.
117. We accepted
that after the appellant’s gruelling experience with the Insolvency Service he
did not wish to become a director and indeed he could not as a result of his
disqualification.
118. Nevertheless
we found that by virtue of his actions on balance he was a shadow director and
thus an employee.
119. Despite the
appellant’s evidence concerning the various emails and the fact that we were
unable to hear Ms Beale’s and Mr Woodhouse- Powell evidence but had to rely on
the second hand hearsay, we found the mountain of evidence from HMRC and the
Insolvency Service concerning the appellant’s involvement with TT and TO impossible
to ignore. We also found that although hearsay Ms Beale’s evidence was
corroborated by Mr Woodhouse – Powell.
120. Both the
appellant and his accountant repeatedly stated that if the appellant had a
chance to examine the figures he would be able to identify the amounts. We
found that this also indicated a high level of involvement with the companies.
121. We accepted
that it seemed likely that after the disqualification proceedings the appellant
found it hard to obtain a bank account as alleged by Ms Beale in her interview
with the Insolvency Service and therefore used her accounts.
122. We found
that he was in receipt of remuneration from these companies from which they had
wilfully omitted to deduct tax and he was aware of this failure. We found that
the appellant failed to prove that he had not received remuneration from the
companies.
123. We accepted
that a good proportion of the money was paid to him in respect of tickets sold
by him to these companies but we found that his declared income of £12,000 for
tax year 2006/07 was not credible.
124. We found however
that a number of transactions were classified as unidentifiable because
although a company or person was named as the recipient there was no supporting
invoice. A proportion of the payments for these transactions were also
attributed to the appellant.
125. We also
accepted that the amount paid to Metacharge was in respect of reimbursement for
tickets purchased by the appellant for the companies’ customers from Ticket
Queen and this was apparently latterly confirmed by Ms Beale. It appeared
however from the evidence that no credit had been given to the appellant for
this amount when it was reclaimed by the Insolvency Service.
126. We accepted
that in the absence of any substantial evidence from the appellant or his
accountant Mr Lee relied entirely on the information from the Insolvency
Service and believed that he was being generous in allowing an effective 75%
deduction to the appellant in making his assessment.
127. We noted Mr
Howells’ detailed submissions on the various bank accounts and found merit in
them and accepted that there were probably various inconsistencies in the
Insolvency Service’s final analysis. It appeared to us that their final
calculation of the uncategorised expenditure was fairly severe.
128. We found it
most unsatisfactory that the Insolvency Service ultimately refused to meet with
the appellant and his accountant in order to provide more details of the
unidentified amounts of which a 25% proportion was attributed to the appellant.
129. Accordingly
we found that we had no option but to accept Mr Howells’ calculation which
appeared unchallenged by HMRC that the ultimate total of cash and
unidentifiable amounts came to £1.088 million of which 50% should be attributed
to Ms Beale.
130. Mr Howells
suggested that HMRC’s deduction of 50% should apply to the balance of £544,000
but we did not agree with that as we presumed his figures were fairly accurate.
However as we decided that it was likely that even this lower figure contained
some genuine business costs we decided to apply a 10% deduction so that the
balance attributable to the appellant was £489,600.
131. We decided
however that the £165,000 reclaimed by the Insolvency Service from Metacharge
and paid in respect of tickets provided and paid for by the appellant should be
deducted from the balance so that the appellant should be taxed as having
received £324,600.
132. Generally
we found this a most difficult case on which to reach a decision. Whilst we
found that the appellant did act as a shadow director albeit perhaps
inadvertently, we found the lack of direct evidence from Ms Beale, Mr
Woodhouse-Powell and particularly the lack of liaison with the Insolvency
Service concerning the various amounts meant that we were left with few firm
facts on which to base our decision.
133. We were assisted
however by the decision in Johnson v Scott 52T383
“It is quite
impossible to see how the Crown, in cases of this kind, could do anything else
but attempt to draw inferences. The true facts are known, presumably, if known
at all, to one person only- the Appellant himself….Of course all estimates are
unsatisfactory; of course they will always be open to challenge in points of
detail; and of course they may well be under-estimates rather than
over-estimates as well. But what the Crown has to do in such a situation , is
on the known facts to make reasonable inferences….”
Decision
134. The appeal
is allowed in part. The amount taxable is reduced to £324,600 plus interest on
the tax payable.
135.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.
TRIBUNAL JUDGE
RELEASE DATE: 19 March 2012
