TC02870
Appeal number: TC/2012/03024
INCOME TAX – ASSESSMENT
AND PENALTY – HMRC treated a series of deposits in the Appellant’s bank
accounts as taxable income – the Appellant’s explanations of the sources
for the deposits were on the whole unconvincing – assessment reduced to £24,924.98 – penalty reduced to £11,216.23 – Appeal allowed in part.
FIRST-TIER TRIBUNAL
TAX CHAMBER
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DR JAMSHID KOHAL
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE MICHAEL TILDESLEY OBE
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SONIA GABLE ATII
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Sitting in public at The
Nottingham MJC, Carrington Street, Nottingham on 17 July 2013
The Appellant appeared in
person
Mrs Nadine Newham Presenting
Officer of the Appeals and Reviews Unit for HMRC
© CROWN COPYRIGHT
2013
DECISION
The Appeal
1.
The Appellant appealed against the closure notice and amendment to the
self assessment tax return dated 18 February 2010 for the tax year ended 5
April 2004 issued under section 28A(1) and (2) of the Taxes Management Act
(TMA) 1970, and a penalty under section 95(1)(a) TMA 1970. The amount of tax
due under the amendment to the return was £27,000.78 based upon taxable income
of £80,438.00. The penalty was assessed at 60 per cent of the tax due, which
produced an amount of £16,201.
2.
On 11 January 2006 HMRC opened an enquiry into the Appellant’s tax
return for the year ended 5 April 2004. HMRC received the return on 11 October
2005.
3.
The enquiry was prompted by the Appellant’s declaration in the return
that he did not work and had no other income or gain during the year ended 5
April 2004. The Appellant’s declaration was incorrect. The Appellant had been
gainfully employed as a civil engineer with a firm in Nottingham until 29
August 2003. The P45 for this employment showed that the Appellant received
income of £8,426.56 from this employment during 2003/04. The Appellant stated
that he did not work again until 1 December 2004.
4.
The Appellant held jointly with his wife current and savings accounts
with Barclays Bank, and a current account with National Westminster Bank. The
Appellant also held an account in his own name with HSBC. The enquiry uncovered
unidentified bank deposits during 2003/04 amounting to £79,466.97. HMRC took the
view that in the absence of a reasonable explanation from the Appellant it was
entitled to treat the unidentified bank deposits as taxable income (Woodrow
v Whalley 42 TC 249).
5.
The Appellant had come to the United Kingdom from Iran in1979 as a student. The Appellant held a Masters degree and a Doctorate in Civil
Engineering. The Appellant had been employed in the UK as a research assistant
and as a civil engineer. The Appellant had settled in Nottingham with his wife
and two children. The Appellant retained strong ties with his native Iran, and as the eldest son he had important family responsibilities, particularly to his parents
who remained in Iran. As a result of his family responsibilities and his affinity
with his country of birth the Appellant made frequent visits to Iran.
6.
On 18 July 2002 the Appellant purchased a new family home in West Bridgford
Nottingham before he had sold his existing family home at Harrington Street. The
Appellant financed the West Bridgford property with a mortgage and monies from
his father-in-law. On 27 March 2003 the Appellant sold the Harrington Street
property for £202,324.95. On 19 May 2003 the Appellant applied for planning
permission to build a single storey extension to the West Bridgford property which
was completed on 6 July 2004.
7.
On 15 May 2003 the Appellant took out a loan of £150,000 with Hammonds
Direct which was used to redeem the mortgage of £149,975 on the West Bridgford property.
8.
The Appellant said that he took time off work from August 2003 to
December 2004 to carry out improvements to the West Bridgford property with the
assistance of local building contractors. During this period the Appellant
stated that he financed the building works to the West Bridgford property and
his lifestyle with the sale proceeds from the Harrington Street property and
loans from family and friends. As part of the enquiry the Appellant supplied
HMRC with details of his private expenditure during the said period, which he
estimated to be £57,539.80. The Appellant informed the Tribunal that his wife
did not work from August 2003 to December 2004.
9.
The Appellant pointed out that the enquiry was opened almost two years after
the end of the tax year 2003/04 and took some four years to complete involving
three different HMRC Inspectors. The Appellant asserted that the last Inspector,
Mrs Innes, the assessing Officer, had revisited decisions taken by the first
Inspector, Mr Roberts. The Appellant believed that he had reached an agreement
with Inspector Roberts, which would have resulted in a much lower assessment
for unpaid income tax.
10.
The Appellant stated that it was unreasonable to expect him to
recollect the finer details of the disputed bank deposits, especially in view
of the time taken by HMRC to complete the enquiry into his tax return for
2003/04. The Appellant was also hampered by the inadequacies of the records
kept by his banks, and the reluctance of persons to provide him with
information once they knew that it was for the tax authorities. The Appellant
asserted that many of the bank deposits represented monies loaned to him by
family and friends in Iran.
11.
The Appellant said that he did his best to get the necessary proof to
establish the source of the bank deposits which included trips to Glasgow for the purpose of securing documents to prove that he was acting as a consultant
to overseas students. The Appellant indicated that it was extremely
embarrassing for him to ask family members to confirm the money loans, which caused
him and his family dishonour in accordance with his cultural standards. The
Appellant stated that during the enquiry he spent a significant time in Iran to care for his mother who was suffering from a chronic illness. Also in this period
his father and one of his brothers sadly passed away. According to the
Appellant, his stays in Iran inevitably lead to delays in responding to
questions asked by HMRC Inspectors.
12.
HMRC acknowledged the length of the enquiry but pointed out that
throughout it the Inspectors were in constant correspondence with the
Appellant. The Inspectors had to issue several statutory requests for
information. Also the Inspectors did not receive copies of the statements of
the National Westminster Bank Account until January 2008.
13.
HMRC contended that the Appellant had failed to demonstrate that the unidentified
bank deposits had come from non taxable income sources. Further HMRC argued
that the Appellant had been negligent with the completion of his tax return
which justified the issue of a penalty. Given these circumstances HMRC
requested dismissal of the Appeals.
14.
At the hearing on 17 July 2013 the Appellant gave evidence and an agreed
bundle of documents was admitted in evidence. At the conclusion of the hearing
the Tribunal reserved its decision.
The Issue
15.
The Appellant had the burden of proving that the assessment was wrong.
HMRC had the burden of demonstrating that the Appellant had been negligent in
completing the return for the purpose of levying a penalty.
16.
Essentially the dispute between the parties was one of fact. The
Tribunal approached the dispute by evaluating the Appellant’s explanations for
each of the unidentified deposits in order to make its decision on whether the
Appellant had proved on the balance of probabilities that the assessment was
wrong.
The Unidentified Bank Deposits
Deposits 1 & 2: £13,500 on 4 July 2003 & £11,180 on 4 August
2003
17.
The Appellant originally stated the deposits represented cash in UK
Sterling brought back from Iran as loans from family members. On 7 June 2011
the Appellant changed his account by asserting that the two cash deposits were
a loan from a Mr RB Joveyn, who had returned to Iran after working with the
Appellant in the UK. The Appellant stated that he required the loan to fund the
improvements to the West Bridgford property.
18.
The loan was evidenced by a written agreement dated 1 July 2003. The
agreement did not specify the addresses of the lender and borrower, and
contained a typographical error in respect of the second amount stating
£11,9180 rather than £11,180. The agreement stated that the loan would attract
interest of nine per cent. The terms of the loan were 82 consecutive and equal
monthly instalments of £400. The agreement was witnessed by Mr Joveyn’s
brothers who gave addresses in Gedling, Nottingham and West Bridgford.
19.
On 16 June 2012 Inspector Innes wrote to the Appellant stating that she
did not consider his explanation credible and requested a response to the following
matters:
(1)
The two cash deposits were originally said to be cash loans from family in
Iran. If the loan agreement with Mr Joveyn was in existence at the time the
Appellant gave his original explanation why was it not submitted as evidence?
(2)
The copy loan agreement provided implied that it was made on 1 July 2003
to lend the Appellant £13,500 on 1 July 2003 and a further £11,180 on 4 August
2003. Why would a loan agreement made on 1 July 2003 also specify such a
specific amount to be lent on 4 August 2003? In Inspector Innes’ opinion the
agreement had all the hallmarks of a retrospective document drawn up to fit the
specific deposits.
(3)
The loan carried interest of 9% and repayments were to be 82 instalments
of £400 with the first payment to be made on 1 August 2013. No evidence of any
repayments has been seen.
(4)
Why would the Appellant consider it necessary to borrow £24,680 in July
and August from RB Joveyn with interest when the Appellant signed a loan
agreement on 1 August 2013 with Mr B Abasspour to lend him £50,000. This was
repaid on 18 November 2003 via a solicitor.
(5)
The Appellant had sufficient funds in his Open Plan Savings account from
the proceeds of the sale of his house to make the loans so why would the
Appellant need to borrow money at 9% interest.
20.
The Appellant did not provide a response to Inspector Innes’ letter. At
the hearing the Appellant explained that the loan was agreed orally with Mr
Joveyn who arranged for the monies to be transferred into his brother’s account
in the UK, as Mr Joveyn was living in Iran when the loan was given. The
Appellant said that in his culture if a friend or a family member needed help
financially it was customary to give that help and accept the recipient’s word
that the loan would be repaid.
21.
The Appellant accepted that the written agreement with Mr Joveyn had
been drawn up after the event in order to meet HMRC’s requirements of having
documentary proof of the loan arrangements. The Appellant stated that he had
repaid the loan on one of his visits to Iran.
22.
The Appellant was unable to give a satisfactory explanation as to why he
needed to borrow the money in the first place. At the time of the first deposit
of 4 July 2003 he had a balance of over £100,000 in his savings account which
was just after he had transferred £50,000 to J Ravandi to be used by the
Appellant’s wife. The Appellant also during this period loaned his friend Mr Abasspour
£50, 000 to assist with his mortgage.
23.
The Tribunal is not persuaded by the Appellant’s explanation that the
deposits of £13,500 and £11,180 constituted a loan from Mr Joveyn. The Tribunal
finds that the Appellant did not require a loan from Mr Joveyn to fund the
improvements to the West Bridgford property. He had sufficient funds in his
savings account to carry out the works and pay for his living expenses. The
Appellant also had the wherewithal to give a loan of £50,000 to his friend, Mr
Abasspour.
24.
The Appellant’s admission that the loan agreement had been drawn up
retrospectively coupled with the absence of reliable evidence of repayments
cast doubt on the existence of a loan from Mr Joveyn. In the Tribunal’s view,
there was no need for the Appellant to create the façade of a formal agreement
if the loan was genuine. HMRC had previously accepted a straightforward letter
from the Appellant’s father in law as sufficient proof of a £32,000 advance.
25.
The Tribunal having regard to the above findings decides that the
Appellant has failed to demonstrate that the deposits of £13,500 and £11,180
were not taxable income.
Deposit 3: £17,047.50 on 1 August 2003
26.
The Appellant gave contradictory statements about the source of this
deposit. At the meeting held on 28 June 2006 he said it was a loan to finance
the improvements on the West Bridgford property. On the 14 March 2007 he
supplied HMRC with a copy of the cheque for £17,047.50 that was paid into his
account. On the 31 August 2007 the Appellant stated that the sum may have been a
refund of tuition fees from Glasgow University in respect of an Iranian
student who had asked the Appellant to receive the fees on his behalf because
he did not have a UK bank account. On 25 January 2008 the Appellant named the
Iranian student as Mr Reza Tajarloo.
27.
On 23 July 2010 the Appellant provided a letter from a Dr S Ghasomi with
an address in Tehran. Dr Ghasomi stated that he had introduced the Appellant to
Mr Tajarloo to facilitate his admission to University and sort out residential
matters. According to Dr Ghasomi, Mr Tajarloo gave the Appellant a cheque for
£17,047.50 for which the Appellant was to provide Mr Tajarloo with the
equivalent amount in Iranian currency when the Appellant was next in Iran. Dr Ghasomi also stated that he was unable to locate the current address for Mr
Tajarloo.
28.
When giving evidence the Appellant admitted that he had not met Mr
Tajarloo. The Appellant was also vague about the actual arrangements for
repaying Mr Tajarloo in Iranian currency.
29.
The details on the copy of the cheque for £17,047.50 were relatively
indistinct. The Appellant’s bank apologised for the poor copy which was a
result of the way the cheque had been scanned when processed. The details,
however, revealed that the account holder for the cheque banked with Barclays
at 1 Winbourne Road Poole which was the address of Barclays’ support functions,
Global retail and Commercial banking. The cheque was typed and made payable to
the Appellant. It was not possible from the details recorded on the cheque to
identify the name of the account holder, although it appeared to state we
credit your account with our London…. and below that, on behalf of.
30.
The Tribunal is unconvinced with the Appellant’s assertion that the
origin of the cheque for £17,047.50 was from a non-taxable source. The
Appellant changed his explanation for the source from a loan to fund
improvements to the West Bridgford property to monies from an Iranian student
for which the Appellant would give the equivalent in Iranian currency. The
Tribunal is of the view that the circumstances surrounding the monies from the
Iranian student were highly improbable.
31.
According to the Appellant, he had never met Mr Tajarloo even though Dr
Ghasomi said that he introduced Mr Tajarloo to the Appellant. The Appellant
adduced no evidence that he had repaid the monies to Mr Tajarloo. Further there
was no entry of a withdrawal of an equivalent amount to that recorded on the
cheque from the Appellant’s bank accounts. Next the details on the cheque
suggested that the account holder was not an individual. At one stage in the
enquiry the Appellant said that the cheque may have been paid by a Scottish University. The Tribunal considers it highly unlikely that a Scottish University would bank with a branch in England.
32.
The Tribunal concludes that the Appellant has failed to establish that
the cheque for £17,047.50 constituted non taxable income.
Deposit 4: £7,000 on 2 October 2003
33.
On the 25 January 2008 the Appellant stated that the £7,000 was cash to
purchase a car which was deposited in his bank account when the car purchase
fell through. The Appellant said that he had saved the £7,000 over a period of
five years. He kept the money in a small safe at home along with his passports.
The Appellant stated that he had accumulated the money from his occasional
winnings at the casino.
34.
The Tribunal was not satisfied with the Appellant’s explanation about
the origin of the £7,000. On 28 June 2006 the Appellant informed Inspector
Roberts that he had not received any gambling wins, and that the £7,000
represented a repayment on a loan. On 31 August 2007 and 25 January 2008 the
Appellant informed HMRC that the £7,000 represented cash to purchase a car,
which he had saved up over five years. According to the Appellant, the cash was
returned to his bank account when the car purchase fell through.
35.
On 17 March 2008 Officer Roberts pointed out that the Appellant had
supplied contradictory accounts of the source of the £7,000, and requested
further clarification about where the money was held over five years. On 16
April 2008 the Appellant responded by stating that the money was kept in a safe
along with his passports, and that the source of the money was his occasional
winnings at the casino. On 28 June 2008 the Appellant provided HMRC with
mandates to approach the two casinos where the Appellant allegedly gambled. One
casino replied to HMRC’s request for information indicating that the Appellant
had gambled once in 1998 incurring a loss of £150. The Tribunal notes that the
Appellant used the same explanation of car purchase for the source of the
monies identified in deposits 9 and 10 (see below).
36.
The Tribunal finds that the Appellant has given contradictory accounts
for the source of the £7,000 deposit. The Appellant adduced no reliable
evidence to substantiate the various explanations given of a loan and winnings
from gambling. The Tribunal is satisfied that the £7,000 cash originated from a
taxable source.
Deposit 5: £450 on 15 October 2003
37.
On 31 October 2008 Inspector Innes required clarification of a deposit
of £450 in the Appellant’s Barclays’ Open Plan savings account held jointly
with his wife. The Appellant argued that it was difficult with the passage of
time to remember the sources of deposits of relatively small amounts.
38.
The Tribunal notes that HMRC’s request for clarification with respect to
this deposit was some 20 months after the opening of its enquiry, and some five
years from when the sum was deposited. In those circumstances the Tribunal
considers the Appellant’s plea about the problems of recalling the origin of
deposits of relatively small amounts reasonable. Mrs Newham acknowledged the
Appellant’s difficulties in this regard.
39.
The Tribunal, therefore, decides to exclude the £450 from the
assessment.
Deposits 6-8: £5,000 on 29 August 2003; £4,050 on 25 November 2003; and
£2,500 on 2 December 2003
40.
On 28 June 2006 the Appellant originally stated that the £4,050
miscellaneous credits and the £2,500 cash were loan refunds. On 29 August 2008
Inspector Innes requested the Appellant to provide copies of the loan
agreements along with details of the individuals involved. Inspector Innes also
sought clarification of an entry of £5,000 cash which was deposited in the
Barclays Joint Open Plan Savings account on 29 August 2003.
41.
On 21 July 2010 the Appellant’s representative advised Inspector Innes
that the above three deposits were cash in UK sterling brought back from Iran as loans from family members. According to the Appellant, there had been no trusted or
reliable banking system in Iran since the Revolution, and the charges for
transferring money into the UK were prohibitive. In those circumstances when
the Appellant and his wife went to Iran they would bring back cash in UK sterling directly because at that time there were no restrictions on the amount of monies that
could be taken out of Iran. The Appellant stated that the monies were used to fund
the house extension which started early in 2003.
42.
The Tribunal is not convinced by the Appellant’s explanation for the
sources of these deposits. He produced no documentary evidence to substantiate
the existence of loan arrangements. At the time the Appellant made the deposits
his balance in the joint savings account ranged over the dates in question from
£60,000 to £95,000. On 1 August 2003 the Appellant lent his friend, Mr
Abasspour, £50,000 which was repaid to him on 18 November 2003. Also on 1
October 2003 the Appellant borrowed £14,512 from a Mr Aghassi. In short the
Tribunal is satisfied that the Appellant had more than sufficient funds to
carry out the extension to his house without the need to borrow monies from
family members.
43.
The Tribunal also notes that the deposit of £5,000 was made on the same
day as the Appellant left his employment with the Nottingham civil engineering firm
which posed the possibility that the £5,000 may have been a termination
payment. Finally the Appellant’s explanation about the arrangements for
obtaining cash in UK sterling in Iran was vague and contradictory.
44.
Given the above findings the Appellant has failed to satisfy the Tribunal
that the deposits of £5,000 on 29 August 2003, £4,050 on 25 November 2003; and
£2,500 on 2 December 2003 were from non-taxable sources of income.
Deposits 9-10: £1,600 and £3,200 on 29 December 2003
45.
On 28 June 2006 the Appellant originally asserted that the cash deposits
of £1,600 and £3,200 constituted loan refunds. On 21 July 2010 the Appellant’s
representative stated that the Appellant had drawn out £3,230 and £2,250 on 18
and 29 December 2003 respectively in order to purchase a vehicle at a car
auction. The Appellant did not buy a vehicle and re-banked the balance of the
monies, £1,600 and £3,200, on 29 December 2003.
46.
The Tribunal considers that the Appellant has provided a plausible
explanation for the source of the deposits on the 29 December 2003. The amounts
withdrawn on 18 and 29 December 2003 were closely linked in time to the
disputed deposits. The respective transactions involved similar amounts of
monies, and their pattern was consistent with a proposed purchase of a vehicle
at a car auction.
47.
The Tribunal, therefore, holds that the deposits on 29 December 2003
originated from non-taxable sources, and should be excluded from the
assessment.
Deposits 11-14: £580 on 9 April 2003, £254.47 on 11 April 2003, £2,755
on 22 May 2003, and £100 deposit on 14 May 2003
48.
On 30 May 2008 Officer Turnbull first queried the nature of these
deposits, which related to the Appellant’s joint account with his wife at the
National Westminster bank. The Appellant supplied Officer Turnbull with the
statements for the year 2003/04 on 25 January 2008. The Appellant also provided
Officer Turnbull with a signed authority to contact the National Westminster
direct.
49.
The Appellant has given no explanation for the sources of these
deposits. The Appellant asserted that he made enquiries of the National
Westminster but the bank was unable to help.
50.
The Tribunal considers it unreasonable after a period of five years to
expect the Appellant to recall the sources of the deposits for the relatively
small amounts of £580, £254.47 and £100. Mrs Newman for HMRC did not demur from
the Tribunal’s observation. The Tribunal, however, would expect the Appellant
to provide an explanation for the larger deposit of £2,755 on 22 May 2003. The
bank statement showed that the source of the deposit carried a sort code of 60
15 49. It would appear that the Appellant made no attempt to identify the sort
code.
51.
The Tribunal, therefore, decides that the Appellant has failed to
persuade the Tribunal that the deposit of £2,755 came from a non-taxable
source. The sums of £580, £254.47 and £100 are to be excluded from the
assessment.
Deposit 15: £2,500 on 29 May 2003
52.
On 30 May 2008 Officer Turnbull enquired about the source of this
deposit from the Appellant’s joint account with his wife at the National
Westminster bank. On the 21 July 2010 the Appellant’s representative said that
the £2,500 deposit was re-banked money that had been drawn out on the 27 May
2003 (£3,200).
53.
Mrs Newman for HMRC pointed out that the entry for the £3,200 in the
Appellant’s bank statement suggested that it was for a debit card purchase and
not a cash withdrawal. The Tribunal agrees with Mrs Newman’s observation. In
those circumstances the Tribunal finds that the Appellant has not given a
satisfactory explanation for the source of the £3,200 deposit.
Deposit 16: £3,000 on 18 June 2003
54.
On 30 May 2008 Officer Turnbull enquired about the source of the deposit
of £3,000 from the Appellant’s joint account with his wife at the National
Westminster bank. On the 21 July 2010 the Appellant’s representative stated
that the sources of the £3,000 deposit were £2,500 which originally had been
drawn out of the Appellant’s bank account for transfer to a cash ISA and then
withdrawn, and £500 representing monies that had been re-banked following the
cashing of cheques to the value of £904.19.
55.
The Tribunal finds that the Appellant transferred the £2,500 into the
ISA on the 4 June 2003. The Appellant adduced no evidence that he withdrew the
£2,500 from the ISA account. The Tribunal considers that it was unlikely that
the three cheques to the value of £904.19 had been for cash. The amounts
involved with each of the cheques and their timings suggested that the cheques
had been drawn to pay specific bills. Also the Appellant normally drew cash
from an ATM rather than issuing a cheque.
56.
Given the above findings the Appellant has failed to satisfy the
Tribunal that the deposit of £3,000 on 18 June 2003 was from a non-taxable
source of income.
Deposits 17- 19: £350 on 9 July 2003; £350 on 18 August 2003; and £3,500
on 19 August 2013
57.
On 30 May 2008 Officer Turnbull enquired about the sources of these
deposits from the Appellant’s joint account with his wife at the National
Westminster bank. On the 21 July 2010 the Appellant’s representative stated
that the source of the £350 on 9 July 2003 was cash drawn off a debit card
withdrawal of £1,200 made on 25 June 2003. The representative also said that
the Appellant used cash from withdrawals from his bank account on 6 and 7
August 2003 to make the deposits on the 18 and 19 August 2003.
58.
The Tribunal is not convinced with the Appellant’s explanations for the
sources of the deposits. The withdrawals on the 25 June and 6 August 2003 were
payments made by debit card which were more likely to be used to discharge
bills rather than for cash withdrawals. This characterisation was particularly
apt for the entry on the 6 August 2003 which was in the amount of £458.71. The
Tribunal is of the view that a cash withdrawal would consist of an amount in
round numbers of £ sterling. The withdrawal on 7 August 2003 comprised a cheque
for £3,000. The Tribunal considers that a cheque was also more likely to be
used for the payment of bills, particularly as it was drawn during the period when
the building works were being carried out on the Appellant’s home.
59.
The Tribunal has previously given the Appellant the benefit of the doubt
regarding deposits of small amounts. In this instance, however, there were two
deposits of the same sum of £350 in consecutive months. The Tribunal considers
that the timing of these payments in identical amounts together with the
absence of a convincing explanation from the Appellant indicated that they were
taxable income for work done by the Appellant. The Tribunal is also satisfied
on the above findings that the larger deposit of £3,500 on 19 August 2003
originated from a taxable source of income.
Deposit 20: £550 on 20 August 2003
60.
On 30 May 2008 Officer Turnbull enquired about the source of a deposit
of £550 from the Appellant’s joint account with his wife at the National
Westminster bank. The Appellant gave no explanation for the source of this
deposit. The Tribunal notes from the bank statement that this deposit was a
card payment. Given that fact and the relatively small amount the Tribunal
considers that it was unreasonable to expect the Appellant to recall the origin
of this deposit after a period of four years. Mrs Newman for HMRC raised no
objections to the Tribunal’s observation. The Tribunal, therefore, excludes the
amount of £550 from the assessment.
The Penalty
61.
Under section 95 TMA 1970 HMRC imposed a tax geared penalty on the
Appellant. The maximum penalty permissible under section 95 is 100 per cent of
the tax assessed.
62.
HMRC said that the Appellant had been negligent in failing to declare
any taxable income on his tax return for 2003/04. In HMRC’s view, the
Appellant’s omission was blatant particularly as he accepted that he had
received earnings from his employment with the Nottingham civil engineering
company which amounted to £6,421.82.
63.
HMRC fixed the penalty at 60 per cent of the tax assessed after giving
abatements of 20 per cent for co-operation and 20 per cent for seriousness,
which resulted in a penalty of £16,201.
64.
The Tribunal is satisfied that the Appellant was negligent in not
declaring taxable income in his 2003/04 tax return. Under section 95 the
Tribunal is entitled to take an overall view of the appropriate penalty, and
not obliged to follow HMRC’s approach of giving abatements for various
categories of conduct.
65.
The Tribunal considers that a loading of 60 per cent was high for
negligent conduct. In all the circumstances the Tribunal finds that the
appropriate loading was 45 per cent of the tax assessed which reduced the
penalty after the adjustments to the assessment to £11,216.23.
Summary of the Tribunal’s Findings and Revised Assessment
66.
The Tribunal’s summary is set out in the table below:
|
Deposit Ref.
|
Disputed
Amount
|
Decision
|
Revised Assessment
|
|
|
1
|
£
13,500.00
|
£ 13,500.00
|
Profit from Self
Employment
|
£73,432.00
|
|
2
|
£
11,180.00
|
£ 11,180.00
|
Interest from
bank
|
£ 972.00
|
|
3
|
£
17,047.50
|
£ 17,047.50
|
Total income
|
£74,404.00
|
|
4
|
£
7,000.00
|
£ 7,000.00
|
Less Personal
allowance
|
£ 4,616.00
|
|
5
|
£ 450.00
|
£
-
|
Total taxable
income
|
£69,788.00
|
|
6
|
£
5,000.00
|
£ 5,000.00
|
1,960 at 10%
|
£ 196.00
|
|
7
|
£
4,050.00
|
£ 4,050.00
|
28540 at 22%
|
£ 6,278.80
|
|
8
|
£
2,500.00
|
£
-
|
39280 at 40%
|
£15,715.20
|
|
9
|
£
1,600.00
|
£
-
|
972 at 40%
|
£ 388.80
|
|
10
|
£
3,200.00
|
£ 3,200.00
|
Income Tax
Charged
|
£22,578.80
|
|
11
|
£
580.00
|
£
-
|
|
|
|
12
|
£
254.47
|
£ -
|
Class 4 NI
|
|
|
13
|
£
2,755.00
|
£ 2,755.00
|
26,325 at 8%
|
£ 2,106.00
|
|
14
|
£
100.00
|
£
-
|
43,463 at 1%
|
£ 434.63
|
|
15
|
£
2,500.00
|
£ 2,500.00
|
|
£ 2,540.63
|
|
16
|
£
3,000.00
|
£ 3,000.00
|
|
|
|
17
|
£
350.00
|
£ 350.00
|
Income Tax and
NI due
|
£25,119.43
|
|
18
|
£
350.00
|
£ 350.00
|
Less Tax Paid
|
£194.48
|
|
19
|
£
3,500.00
|
£ 3,500.00
|
Revised
assessment
|
£24,924.98
|
|
20
|
£ 550.00
|
£
-
|
Penalty at
45%
|
£11,216.23
|
|
Total sum
|
£
79,466.97
|
£ 73,432.50
|
Total due
|
£36,141.18
|
Decision
67.
The Appellant asserted that the majority of the deposits were loans from
family and friends to help him refurbish his home in West Bridgford. The
Appellant referred to the cultural practice of Iranian society where loans are
arranged on a personal basis without the requirement of formal documentation. The
Appellant pointed to the difficulties in recalling the sources of small
deposits, particularly in view of the length of time the enquiry took.
68.
The Tribunal accepts the Appellant’s assertions about the general nature
of loan arrangements. The Tribunal, however, found that the arrangements did
not have a bearing on the outcome of this dispute. The evidence demonstrated
that the Appellant had more than sufficient monies to fund the building works
to the West Bridgford property and his lifestyle without the need to resort to
borrow monies from family and friends. The Appellant’s explanations for the
majority of the bank deposits were contradictory and did not make sense. The
Tribunal acknowledged the Appellant’s difficulties with the passage of time in
remembering the details of deposits of small amounts, which has been reflected
in the Tribunal’s decision. The Tribunal, however, considers that these
difficulties were not a barrier in providing plausible explanations for the
larger deposits.
69.
The Tribunal examined the evidence in turn for each of the disputed
deposits, and found that the Appellant had failed to establish on the balance
of probabilities that 13 deposits constituted non-taxable income. As a result
of its findings the Tribunal decided the following:
(1)
The taxable income in dispute is reduced from £79,466.97 to £73,432.50.
(2)
The assessment is reduced from £27,000.78 to £24,924.98.
(3)
The penalty is reduced from £16,201
to £11,216.23
70.
The Tribunal allows the appeal in part.
71.
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.
MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 10 September 2013
