DECISION
Introduction
1.
This decision concerns an application from the Appellant to “reinstate”
his appeal relating to various disputed tax (and associated penalty)
liabilities arising from a back duty investigation.
2.
The Appellant had appealed to the Tribunal against the various
liabilities. The proceedings had been stayed while negotiations took place
between the parties. Eventually the Tribunal was informed that agreement had
been reached and therefore no steps were taken by the Tribunal to progress the
matter to a hearing.
3.
It appears there was a misunderstanding between the Appellant (whose
English is very poor) and his adviser as to the basis on which he agreed to
settle the investigation and appeal. HMRC argue that the appeal has been
settled by agreement under section 54 TMA/section 85 VATA94. The Appellant
seeks to resurrect his appeal.
The facts
4.
HMRC had carried out a long running investigation into the tax affairs
of the Appellant. The details are largely immaterial, save to say that there
were very few significant business records to work from and in the resulting
negotiations there were ultimately two major points of disagreement. First,
the applicable gross margin to be applied in deriving sales figures and profit
could not be agreed and second, there was a dispute about whether a significant
part of the Appellant’s purchases had been made not for the purposes of his own
business but as a favour for a business acquaintance who ran a separate mobile
catering business with a blue van in his own right.
5.
In November 2011, HMRC issued assessments and an amendment in respect of
allegedly unpaid income tax and class 4 NICs for the years 2001-02 to 2007-08
inclusive and associated penalties.
6.
In September 2011, HMRC also issued VAT assessments in respect of the
calendar year 2001 and the period from 1 May to 31 July 2002 (in the total sum
of £2,941.93) and in respect of the periods from 1 January 2004 to 31 July 2007
and for the single day of 1 November 2007 (in the total sum of £39,272.04).
7.
In November 2011, HMRC also issued dishonest evasion penalties under
section 60 Value Added Tax Act 1994 (“VATA94”) in relation to the VAT claimed
(these penalties were subsequently withdrawn and replaced by penalties issued
on 22 August 2012).
8.
Shareef & Co became involved only at a late stage in the
investigation, in December 2011. The Appellant’s previous advisers had not
conducted the matter well and did not co-operate with the transfer of papers to
Shareef & Co. It was also very difficult for Mr Shareef to communicate
with the Appellant (who spent a great deal of time during the relevant period
in Turkey, where his mother was very ill) and quite often he was only able to
obtain instructions through the Appellant’s son.
9.
The precise details of the various reconsiderations and reviews
requested and carried out are unclear on the evidence before us, but the
outcome, up to 23 April 2013, appears to have been as follows (for subsequent
developments, see below):
(1) HMRC ultimately discharged all VAT assessments, on the basis that the
original assessments were withdrawn as incorrect and replaced by new
assessments, which were made out of time.
(2) HMRC nonetheless imposed dishonest evasion penalties (originally they
informed the Appellant in November 2011 of total penalties of £11,862.12, but
subsequently notified revised penalties on 22 August 2012 totalling £14,041;
both penalties were charged at the rate of 60% of the relevant VAT).
(3) Following a statutory review, HMRC formally upheld the income tax and
class 4 NIC amendment and assessments on 13 March 2012, in the total sum of
£22,991.66.
(4) HMRC imposed penalties on 15 November 2011 in respect of the income tax
and class 4 NIC matters at a rate of 45% of the tax, totalling £10,347. This
was confirmed by them on a statutory review which was notified on 25 June 2012.
10.
On 10 April 2012 a Notice of Appeal was sent to the Tribunal by Shareef
& Co, attaching various correspondence. It was not clear precisely what
the appeal related to, and as there appeared to be at least two strands to the
matters being appealed against, the Tribunal divided the appeal into two, with
an appeal against the original direct tax amendment/assessments being addressed
under reference TC/2012/04697 and an appeal against the VAT matters being
addressed under reference TC/2012/05125.
11.
Following the HMRC review of the direct tax penalties, a further appeal
was notified to the Tribunal on 25 July 2012 in relation to those penalties,
addressed by the Tribunal under reference TC/2012/07526.
12.
Whilst it can be seen that the VAT appeal (TC/2012/05125) was commenced
before HMRC’s issue of revised dishonest evasion penalties on 22 August 2012,
that appeal has been treated by the parties as now relating to those revised
penalties. All assessments for VAT having been withdrawn by HMRC, the
dishonest evasion penalties are the only issue outstanding in relation to VAT
matters, however the amounts of those penalties was further amended in April
2013 (see below).
13.
Negotiations continued between the parties and Shareef & Co had a
meeting with HMRC on 4 September 2012, at which provisional agreement in
outline appears to have been reached, at least on the method of calculation to
be used in ascertaining the underdeclarations of takings. On 6 September 2012,
HMRC sent a fax to Shareef & Co setting out their understanding of the
proposals that had been discussed at the meeting, and asking Shareef & Co
to reply after discussing it with the Appellant. This was followed up by a
more formal letter from HMRC dated 14 September 2012, in which it was stated
that:
“I am prepared on a without prejudice basis to reach an
agreement under section 54 TMA 1970 with Mr Tuncel to base additions to
turnover and profit for the 7 years 2002 to 2008 inclusive on a GPR of 63%.
Revised computations of liability are attached.
If this offer is accepted I will amend the direct and
indirect tax penalty determinations accordingly.”
14.
Mr Shareef does not appear to have confirmed his agreement at the time,
but much later on 23 April 2013 he wrote to HMRC, apologising for the delay and
sending them a copy of a letter which he said he had dictated but apparently
not sent on 8 October 2012, accepting HMRC’s proposals following the meeting,
but asking for an improved penalty weighting. The material part of that letter
read as follows:
“It was a pleasure to meet you on 4 September 2012 and thank
you for your letter dated 14 September 2012.
I accept your proposals as outlined in your letter regarding
the 63% margin. In addition, whilst I appreciate this is Mr Tuncel’s second
enquiry, I do strongly feel his shortcomings were a combination of very poor
advice from his former accountant and his poor command of the English
language. Indeed, I found communicating with him very difficult and frequently
spoke to his son. For these reasons would you agree a penalty weighting of
25%?
Will you please let me have a summary of what is the total
amount now due for all taxes, penalty and interest?
I look forward to hearing from you.”
15.
It should also be mentioned that from September 2012, the Tribunal
issued various directions and other correspondence to Shareef & Co in
relation to the case management of the appeals, and received no response from
them. Ultimately, the Tribunal issued a Direction on 12 April 2003, warning
that the appeals would be struck out unless the Appellant complied with the
various outstanding Directions. It may well have been this Direction which
finally spurred Shareef & Co into action by sending their letter dated 23
April 2013 referred to above.
16.
In response to Shareef & Co’s letter dated 23 April 2013, HMRC sent
a number of formal letters to the Appellant:
(1) A letter dated 23 April 2013, which included formal “determinations”
under section 54(3) Taxes Management Act 1970 (“TMA”) in respect of the
outstanding appeals against income tax and class 4 National Insurance
contributions for the years 2001-02 to 2007-08, on the basis of the figures set
out in the September 2012 correspondence. The total liability was £22,033.57,
a slight reduction on the amounts earlier assessed.
(2) A letter dated 26 April 2013, which included formal “determinations”
under section 54(3) TMA in respect of the associated direct tax penalties for
the same years. The revised amount was £9,915, again a slight reduction from
the earlier figure. The weighting was the same as before (55% abatement, 45%
penalty rate).
(3) Two further letters dated 26 April 2013, in which the Appellant was
formally notified of amendments to the earlier assessments for dishonest
evasion penalties in the reduced sums of £1,023 (for the period from January
2001 to July 2002) and £7,796 (for the period from May 2003 to July 2007). The
total penalties now notified were therefore £8,819. The reduction reflected a
reduction in the weighting from the previous rate of 60% to 45% (the same
penalty weighting as the direct tax penalties); we have not been able to follow
the calculation in detail, but it presumably also reflects a reduction in the
amount of undeclared turnover as agreed following the 4 September 2012
meeting. It is fair to say that the basis of the penalty is somewhat unclear
to us at this stage, and in particular it is not clear that the penalty relates
solely to underdeclarations of takings, as other matters were supposed to have
occurred in addition which gave rise to undeclared VAT liabilities.
17.
It is important to note that the letters in relation to the VAT
penalties were expressed as notices of amendment of the earlier penalties, and
not as letters recording an agreement of the penalties for the purposes of
VATA94 section 85. They do however contain the following paragraph:
“Following negotiations with Ms Naish of the Local Compliance
Fraud Team in Bristol a revised under declaration of takings was agreed. This
has now led to the need to amend the Civil Penalty assessment that was raised.”
18.
When the Tribunal was informed by HMRC of the expected settlement, it
issued a Direction on 10 May 2013, staying all proceedings until 28 June 2013
and requiring the Appellant, by 12 July 2013, to inform the Tribunal that he
wished to continue with his appeal and to comply with the outstanding
Directions – in default of which, the proceedings “will be struck out without
further reference to the parties”.
19.
On 27 June 2013, HMRC wrote to the Tribunal, asserting that “[t]he
appeals against the various assessments and penalty determinations have all
been settled by agreement. The Appellant has not withdrawn from the agreement
within the time allowed, meaning the dispute is now settled.” The Tribunal
sought confirmation from Shareef & Co by letter dated 2 July 2013,
requiring a response within 28 days and by letter dated 23 July they wrote back
to the Tribunal as follows:
“Thank you for your letter dated 2 July 2013.
Please accept this letter as notification that we wish to
continue with the appeal and for the case to be reinstated.”
20.
This letter was only received by the Tribunal as a copy letter attached
to a further letter dated 6 August 2013.
21.
Ultimately, the matter of whether the appeals (or any of them) should be
“reinstated” came before us in the form of an application heard on 10 January
2014.
Submissions of the parties
Submissions from HMRC
22.
Mr Brown argued first that the appeals had all been settled by agreement
in accordance with sections 54 TMA and 85 VATA94; to the extent we might
disagree with him on that, he submitted that the appeals should be struck out
for non-compliance with the Directions issued on 10 May 2013.
23.
Much of his submission on the first point revolved around the matter of
the authority of Shareef & Co. In the event, Mr Shareef did not dispute
that his firm had actual authority to negotiate with HMRC on behalf of the
Appellant, or that they had ostensible authority to agree the matters that they
had. Mr Brown’s reference to IRC v West [1991] STC 357 was not
therefore necessary, as it turned out.
Submissions on behalf of the Appellant
24.
Mr Shareef submitted that any agreement reached with HMRC was based on a
misunderstanding of his instructions from the Appellant, due to his obviously
great language difficulties and the long periods when he was unable to contact
him due to his absence abroad with his mother. The crucial misunderstanding
was in relation to the “famous blue van”, i.e. the question of whether some of
the known purchases of the Appellant should be regarded as having contributed
to his own turnover, or whether they were just sold on to the business
acquaintance who ran his own mobile catering business through the “blue van”.
He asked the Tribunal for permission to continue the appeal so that this issue
could be properly heard and determined by the Tribunal at a later hearing.
The law
25.
The crucial provision in this case is section 54 TMA, which provides (so
far as relevant in this case) as follows:
54 Settling of appeals by agreement
(1) Subject to the provisions of this section,
where a person gives notice of appeal and, before the appeal is determined by
the tribunal, the inspector or other proper officer of the Crown and the
appellant come to an agreement, whether in writing or otherwise, that the
assessment or decision under appeal should be treated as upheld without
variation, or as varied in a particular manner or as discharged or cancelled,
the like consequences shall ensue for all purposes as would have ensued if, at
the time when the agreement was come to, the tribunal had determined the appeal
and had upheld the assessment or decision without variation, had varied it in
that manner or had discharged or cancelled it, as the case may be.
(2) Subsection (1) of this section shall not
apply where, within thirty days from the date when the agreement was come to,
the appellant gives notice in writing to the inspector or other proper officer
of the Crown that he desires to repudiate or resile from the agreement.
(3) Where an agreement is not in writing—
(a) the preceding
provisions of this section shall not apply unless the fact that an agreement
was come to, and the terms agreed, are confirmed by notice in writing given by
the inspector or other proper officer of the Crown to the appellant or by the
appellant to the inspector or other proper officer; and
(b) the references
in the said preceding provisions to the time when the agreement was come to
shall be construed as references to the time of the giving of the said notice
of confirmation.
(4) ….
(5) The references in this section to an
agreement being come to with an appellant and the giving of notice or
notification to or by an appellant include references to an agreement being
come to with, and the giving of notice or notification to or by, a person
acting on behalf of the appellant in relation to the appeal.”
26.
Section 85 VATA94 follows the same pattern and, for the purposes of this
appeal, is to the same effect.
Discussion and decision
Introduction
27.
For section 54 to be engaged, it is clear that there must be an
“agreement”, either that the original assessment/decision is “upheld without
variation”, or that it is “upheld as varied in a particular manner”, or that it
is “discharged or cancelled”. The agreement does not need to be in writing,
but it is clear that an agreement must be reached.
28.
If there is an agreement but it is not in writing, then for section 54
to be engaged, appropriate written confirmation as to the existence of the
agreement and its terms must be given by one party to the other.
29.
Once agreement has been reached, the taxpayer has a 30 day “cooling off”
period, during which he can effectively cancel the agreement. Where the
original agreement was not in writing, that 30 day period runs from the date on
which the written notice is given which sets out the terms agreed.
30.
We are satisfied that Shareef & Co were acting on behalf of the
Appellant in his appeal for the purposes of section 54(5).
31.
The first question, therefore, is whether (and if so, when) an agreement
was reached between HMRC and Shareef & Co in relation to each of the
matters under appeal.
The amendment/assessments for income tax and class 4 NICs
32.
Dealing first with the income tax and class 4 NIC amendment/assessments,
it is quite clear to us that an agreement was reached on the variations to be
made to the original assessments/amendment. HMRC set out the amounts proposed
in an appendix to their letter dated 14 September 2012, and when Shareef &
Co’s letter dated 23 April 2013 was sent by fax (with their letter dated 8
October 2012 attached), we are satisfied that agreement was reached as to the
agreed variations to the earlier assessments/amendment. We consider the
agreement to have been made in writing at the moment when Shareef & Co sent
that fax on 23 April 2013 (though if we are wrong in this, then HMRC’s
confirmation of the agreed variations in their letter of the same date would in
our view count as a valid written confirmation of the unwritten agreement
already reached and the result would be the same).
33.
Once agreement has been reached in writing (or has been confirmed in
writing), then section 54 TMA is engaged and the only statutorily permissible
means of cancelling that agreement is through the “cooling off” provisions of
section 54(2) TMA. It is common ground that no notice was given within 30 days
under that sub-section purporting to repudiate or resile from the agreement and
accordingly we find that section 54(1) applies to this agreement. Thus, so far
as the income tax and NIC amendment/assessments are concerned, “the like consequences shall ensue for all purposes as
would have ensued if, at the time when the agreement was come to, the tribunal had determined
the appeal and had… varied it…” in the manner agreed.
34.
This means that, for the purposes
of the Appellant’s application to “reinstate” the part of his appeal that
relates to the income tax and NIC amendment/assessments, we are required to
assume that the Tribunal has already determined that part of the appeal on the
basis agreed. In such a case, the doctrine of res judicata means that
it would be an abuse of the Tribunal’s process to permit the appeal to be
re-opened, because the Tribunal would thereby be allowing the parties to
re-litigate an appeal which had already been deemed by statute to have been
determined on an agreed basis.
35.
Thus, in relation to the
agreement reached on the income tax and class 4 NIC liabilities for the years
2001-02 to 2007-08, we must strike out the appeal and refuse the Appellant’s
application for its reinstatement.
36.
In relation to the penalties, the
position is less clear.
The direct tax penalties
37.
Dealing first with the direct tax
penalties, it is clear that Shareef & Co’s letter dated 8 October 2012 did
not even purport to agree a settlement – on the contrary, it requested a
reduction in the applicable penalty rate. When they issued the letter referred
to at [16(2)] above, therefore, HMRC could not be said to have been confirming
the terms of an agreement, what they were really doing was refusing the request
for a reduction in the penalties. In short, therefore, we consider that the
first essential pre-requisite of a binding section 54 settlement – namely an
agreement between the parties – was absent. The fact that HMRC sent a letter purporting
to record such an agreement does not change this fact and therefore we do not
consider a settlement to have been reached within section 54 TMA.
38.
But we must then consider Mr
Brown’s second submission. He argues that the appeal should in any event be
struck out for non-compliance with the Tribunal’s “unless” order dated 10 May
2013.
39.
It is quite true that this order
has not been complied with. But we have a general discretion to vary the terms
of any direction made by the Tribunal or to relieve a party from the
consequences of non-compliance, and in this case we consider it appropriate to
do so. We have regard to the communication difficulties that Mr Shareef has
experienced with the Appellant and we also note that he received a letter from
the Tribunal dated 2 July 2013, which indicated that he had a further 28 days
to apply for reinstatement of the appeal. His letter dated 23 July 2013
seeking to do so, even though it was first received by the Tribunal on 9
August 2013 under cover of a letter dated 6 August 2013 from Shareef & Co,
was a matter of days late and we would not consider it appropriate for the
Appellant to be wholly shut out from pursuing his penalty appeal before the
Tribunal in such circumstances.
40.
We therefore find that there has
been no agreed settlement of the direct tax penalties for the purposes of
section 54 TMA, and the appeal may therefore continue in relation to those
penalties.
The VAT penalties
41.
Similar observations apply in
relation to the VAT dishonest evasion penalties, with the extra point in the
Appellant’s favour that not only did HMRC refuse Shareef & Co’s counter
proposal as to the reduction in the weighting, they also issued amendments to
the assessments for the penalties in question and did not even purport to record
the terms of any “agreement” for their settlement in the amended amounts.
Unresolved issues
42.
If the penalty appeals are to be permitted to
continue, one potentially important question arises from this decision. If the
appeal in relation to the amounts of the direct tax liabilities have been
settled by agreement, does that mean that the Appellant is unable to contest
the calculation of the “amount of the difference” referred to in section 95 TMA
and/or the “amount of VAT evaded” referred to in section 60 VATA94? To put it
another way, must the Appellant now accept, for the purposes of the penalty
appeals, the underdeclarations of turnover that were accepted on his behalf in
the settlement of the income tax and NIC amendment/assessment appeal?
43.
We consider the effect of the deeming provision in
section 54 TMA to be that the Appellant will be precluded from arguing, in any
appeal in relation to the direct tax penalties, that the “amount of the
difference” for the purpose of section 95 TMA is anything other than the amount
agreed in the settlement of the appeal against the amendment/assessments. In
particular, it will not in our view be permissible for the Appellant to re-open
the issue of the “famous blue van” in an attempt to reduce the penalties.
Similarly, in relation to the VAT dishonest evasion penalties, it will not be
permissible for the Appellant to argue that the undeclared turnover figure
which underlies the agreed settlement of the direct tax appeal is incorrect.
This does not of course preclude any other attack on the validity of the
penalties or their amount.
Summary and conclusion
44.
We find that the appeal in relation to the income
tax and class 4 NIC amendment/assessments for the periods 2001-02 to 2007-08
has been settled by agreement on the basis set out in HMRC’s letter dated 23
April 2013. The appeal in relation to that issue must therefore be struck out
(see [35] above).
45.
We find there to be no such agreement in relation
to the direct tax penalties or the VAT dishonest evasion penalties and we are
prepared to allow the appeal in relation to each of those matters to continue
(giving relief for non-compliance with the Directions issued on 10 May 2013),
insofar as it refers to those matters (see [40] and [41] above).
46.
In the future conduct of the appeal relating to the
direct tax penalties and/or the VAT dishonest evasion penalties, the amount of
undeclared sales of the Appellant is deemed to have been determined on the
basis set out in the agreement referred to at [44] above and the Tribunal will
therefore have no jurisdiction to consider any argument that the amount of
undeclared sales so agreed is in fact excessive (see [43] above).
47.
With a view to progressing the penalty appeals to a
hearing, we make the following Directions:
(1) The appeal in relation to the direct tax penalties shall be dealt with
under reference TC/2012/07526 and the appeal in relation to the VAT dishonest
evasion penalties shall be dealt with under reference TC/2012/05125. Both
appeals shall be case managed and heard together.
(2) The Appellant shall, no later than 56 days after the date of release of
this decision, confirm to the Tribunal and to HMRC if he wishes to continue
with his appeal against any of the penalties. If he fails to do so, then his
appeal will be wholly struck out.
(3) In relation to all penalties the Appellant wishes to appeal against, he
shall deliver to HMRC and to the Tribunal, so as to be received by both of them
within the same 56 day period, a combined statement setting out in reasonable
detail the grounds on which he appeals against each such penalty (within the
requirements of paragraph [43] above).
(4) HMRC shall, within 42 days of the receipt of such combined statement,
deliver an amended combined statement of case addressing the grounds of appeal
made out by the Appellant.
(5) Upon receipt of such amended combined statement of case, the Tribunal
will make further Directions to progress the outstanding matters to a hearing.
(6) Should either party apply for permission to appeal against this
decision, the time limits set out above shall be suspended pending the outcome
of such application and any subsequent appeal.
48.
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: 7 February 2014
