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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Moffat v Revenue and Customs (CAPITAL GAINS TAX - entrepreneurs' relief) [2025] UKFTT 663 (TC) (05 June 2025)
URL: http://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09546.html
Cite as: [2025] UKFTT 663 (TC)

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Neutral Citation: [2025] UKFTT 663 (TC)

Case Number: TC09546

FIRST-TIER TRIBUNAL

TAX CHAMBER

Appeal reference: TC/2021/11490

TC/2021/11492

TC/2022/12329

TC/2022/12338

 

CAPITAL GAINS TAX - entrepreneurs' relief - whether "holding company of a trading group" carrying on activities which did not include to a substantial extent - s165A(8) TCGA 1992 - no - appeal dismissed penalty  –  under Finance Act 2007 Schedule 24 -

reliance on agent - reasonable care to avoid inaccuracy - appeal allowed

 

Heard on: 18 to 20 September 2023

Judgment date: 5 June 2025

 

Before

 

TRIBUNAL JUDGE GERAINT WILLIAMS

DR CAROLINE SMALL

 

 

Between

 

ANDREW MOFFAT

CHARLOTTE MOFFAT

Appellants

and

 

THE COMMISSIONERS FOR HM REVENUE AND CUSTOMS

Respondents

 

Representation:

 

For the Appellants:       Michael Thomas KC and Calypso Blaj of counsel instructed by Blick Rothenberg Limited

 

For the Respondents:    Alex Turnbull litigator of HM Revenue and Customs' Solicitor's Office


DECISION

Introduction

  1. This is an appeal by Andrew Moffat and Charlotte Moffat ("the Appellants") against (i) the decisions of the Respondents ("HMRC") dated 15 October 2021 denying their claim for entrepreneurs relief ("ER") in the amount of £887,770.70 and £888,123.80 respectively  on the disposal of their shareholding in Chelsea Yacht and Boat Company Ltd ("CYBC") and (ii) the decisions of HMRC dated 12 May 2022 that the Appellants were subject to penalties (£186,158.04 and £186,133.26 respectively) because they had not taken reasonable care when filing their 2016/17 tax returns which contained the claims for ER.
  2. HMRC disallowed the Appellants' claim for ER as conditions A and B of s169I(5) Taxation of Chargeable Gains Act 1992 ("TCGA 92") have not been met: CYBC was not a trading company as defined and, by extension, Chelsea Marine Ltd was not the holding company of a trading group.
  3. Factual Background

  4. CYBC was incorporated on 2 June 1947 and is located at Cheyne Pier, Chelsea. Its principal activities is the provision of moorings together with services and maintenance, as well as additional optional services including the provision of boat repairs and renovation.
  5. The Appellants incorporated Chelsea  Marine Ltd ("CML") on 21 July 2015. On 12 August 2015, Chelsea Marine (Jersey) Ltd  ("CMJ") was incorporated in Jersey. CML was the beneficial owner of CMJ. On 1 February 2016, CMJ acquired the share capital of CYBC for consideration of £4.3m. In July 2016, a report was made to board of Thames River Moorings Limited ("TRM") in respect of the proposed value of the acquisition of CML for £17.8m. The main asset of TRM was CYBC, the other asset was Cadogan Pier. The Appellants have been directors of TRM since incorporation in 2011. On 1 February 2016, the Appellant's were appointed as directors of CYBC. On 30 September 2016, CML was sold to TRM for £17.8m. This is the disposal in relation to which ER was claimed by the Appellants.
  6. On 21 March 2018, CYBC filed its Corporation Tax Return for the period ending 30 September 2016 with accompanying accounts.
  7. On 9 April 2018, Mr Moffat, on behalf of CYBC responded to HMRC's letter requesting further information of the value of CYBC as at 30 September 2016. Mr Moffat set out why the purchase price of CYBC was so low relative to its true value, the substantial difference was how the business was perceived by the sellers and CYBC. His  view was that the sellers viewed the business as  "akin to a car park" and could not see the potential of the value of longer term mooring licences  or they felt that accessing the increased value would result in a legal dispute which they had no desire to engage. CYBC's view was that the main value was in the long-term mooring licences and there was the potential to increase the annual mooring fees by 60% to be inline with mooring fees charged locally, increasing the length of boats moored at CYBC would increase mooring fees by 58%, increase the number of moorings from 60 to 70 and expand the boat maintenance operations at CYBC. Mr Moffat identified four clear areas where there was substantial value not reflected in the sale price:
  8. (1)          Long licence value with the uplift in value from the marriage between the boat the mooring licence accruing to CYBC. This indicated a value to the business of the long licences of over £120m;

    (2)          Annual mooring fees which are akin to ground rents. CYBC's annual mooring fees are out of line with local mooring fees and there is the potential to increase the fees over the next three years which would underpin a value of £13m-£15m for annual mooring fees (excluding the long licence value)

    (3)          Longer boats. CYBC was not restricted on the length of the boats with an average length of 63.3ft. It was anticipated that over the next five years boats would increase to 100ft which would have a substantial impact on the value of the annual mooring fees which are calculated by the boat's length. This would increase the annual mooring fees from £18.6m to £29.9m.

    (4)          Number of moorings. The area licenced by the PLA is large and would accommodate 70 boats providing an uplift in value of 16% to the above values.

  9. Reliance was placed upon an independent valuation of the long licences provided by Mr Peter Riches of Morley, Riches and Ablewhite. Mr Riches is the lead surveyor to the Crown Estates for their foreshore and moorings in the Southeast. His conclusion was that "the data showed that a 10-year licence at CYBC with vacant possession was worth £12,000 to £14,000 per foot. With 3,800 linear feet, this would place a valuation on the 10-year licences across the moorings of between £45.6m and £53.2m. The net present value of receiving £45.6m to £53.2m every 10 years is £125.4m to £146.2m. This excludes the value of the annual mooring fees and the income and profits from the oldest boat yard in central London." The letter concluded:
  10. "In summary, we strongly believe that the valuation applied to the sale of Chelsea Yacht and Boat Company Limited to Thames River Moorings Limited was in no way undervalued. In our opinion it was a conservative valuation."  

  11. On 2 August 2018, HMRC  wrote to the Appellants advising that should their Self-Assessment Tax Return ("SATR") for 5 April 2017 not be submitted, a Revenue Determination would be issued.
  12. The Appellants filed their SATRs for the year ended 5 April 2017 on 16 October 2018.  Both returns included a claim for ER.
  13. On 10 January 2019, HMRC  issued a Section 9A TMA 1970 Notice of Enquiry to the Appellants for their SATR's for the year ending 5 April 2017.  On the 11 March 2021, HMRC  issued closure notices to both Appellants.
  14. On 25 April 2019, the Appellants' representative, Blick Rothenberg ("BR"), set out why the Appellants were  unable to agree that CYBC was not a trading company. The letter variously stated:
  15. "Firstly we want to make it clear that Mr Moffat's comment, in the letter to HMRC of 9 April 2018, that the mooring fees "are akin to ground rents" was not a technical analysis for a unique situation but a headline comment made for explanatory purposes only and should not be taken out of context or as a substitute for the full answer. 

    Regardless, the company's income from mooring fees accounts for only a small proportion of the total income of CYBC and is not a "substantial" (i.e. over 20%) proportion for ER purposes. 

    Income from non-trading activities 

    CYBC's average "fixed" income per boat is approximately £16,500 per annum, comprising of mooring fees and service charges but excluding income from ad hoc maintenance and repair of boats. The average length of CYBC's vessels is 67 feet and therefore the average income from these fixed fees per linear foot is approximately £246.

    Within the fixed annual fee are the services provided by CYBC's team of 13 staff ... Fees for these maintenance/repair services are charged on top of the fixed mooring and service fees, however in order to provide the clients with certainty the mooring fees and service charges are charged as a single fixed fee, depending on the size and location of the mooring. 

    By way of comparison, there are five 'trot' moorings available in the same area with mooring fees of between £1,000 and £2,137.56 per annum, which is equivalent to approximately £30 per linear foot. A trot mooring allows the boat owner use of the land (being the riverbed below the boat) but without any services, connections or use of pontoons. 

    As you will appreciate, the trot mooring is therefore a useful comparison in terms of estimating the value of the mooring fee element of CYBC's income and in evidencing the additional value provided by virtue of the services rendered. In fact, our clients anticipate that the value of CYBC's mooring fee income per boat would be at the lower end of the range mentioned above by virtue of the fact that the aforementioned trot moorings enjoy exclusive possession, whilst CYBC's moorings do not. On this basis, Mr and Mrs Moffat's view is that less than £2,000 per annum per boat is attributable to mooring fees in CYBC's case.

    The balance of the fixed income in CYBC is attributable to the significant additional services offered and provided to boat owners occupying CYBC's moorings. CYBC occupies a premium space within the London moorings market which is made possible only by the value added by the exceptional and round-the-clock services offered by CYBC. The provision of these services is a trading activity which requires active management and involvement by both Mr and Mrs Moffat and their team of dedicated staff, as opposed to being the passive receipt of rental income.

    Based on a prudent estimate of £2,000 per boat for mooring fees, approximately 88% of CYBC's income is considered to be trading income from services provided to boat owners, before taking into account the ad hoc income relating to repairs and maintenance services provided, which are also trading activities. 

    Profit

    It is important to note that the mooring fee element of CYBC's income is not profitable. CYBC pays £123,588 to the Port of London Authority for its head licence, equating to a license fee of £2,059.80 for each of CYBC's 60 moorings. This cost is directly attributable and broadly equivalent to the company's income from mooring fees. As such, the company's profits are therefore wholly attributable to the trading activities of the business (i.e. the additional services provided over and above the equivalent trot mooring).

    Expenses incurred and time spent by employees of the company in undertaking its activities.

    As noted above, CYBC employs a dedicated team of 13 employees to assist with running the business ... The cost of employing these staff, alongside the cost of materials and tools required, make up the vast majority of CYBC's expenditure and are directly attributable to the various trading services provided to boat owners.  It is therefore estimated that well over 80% of the business' costs of sale and overheads are attributable to the trading part of the business, being the provision of boatyard services and the repair and maintenance of the boats. Additionally, it is clear that the employees' time is dedicated wholly to the provision of these services and a simple trot mooring would not require such staffing.

    ...

    Conclusion

    Based on the above facts and information, CYBC's activities did not, to a "substantial extent", include activities other than trading activities in the 12 months prior to the sale of the shares in Chelsea Marine Limited ("CML") in September 2016. 

    Provision of professional advice received prior to filing tax returns

    No formal written advice was provided to Mr and Mrs Moffat prior to filing their tax returns for the year.  This was because we were in discussion with our clients in relation to the filing of the tax returns and were satisfied that (as set out above) a legitimate claim for ER could be made."

  16. On 9 April 2021, the Appellants appealed the closure notices, the statutory review of the decision on 15 October 2021 upheld the closure notices.
  17. On 6 June 2019, HMRC set out in a letter their views that CYBC was not a trading company for ER purposes.
  18. On 10 July 2019, HMRC sent a Schedule 36 Information Notice to both Appellants and on 29 August 2019, HMRC sent a penalty notice to both appellants for failure to comply with the Information Notice.
  19. On 31 October 2019, BR sent a letter with eight enclosures to HMRC regarding the trading status of CYBC. The letter identified various income streams in the 12 months to 30 September 2016:
  20. "Licence premiums - the licence premiums are paid for the grant of permission to the boatowner to moor their vessel for a set period. The licence premium is a fixed amount paid over the life of the licence and the reverse is recognised over the licence period accordingly. This broadly equivalent to the right to use a houseboat at one location.

    Mooring fees - in addition to the licence fee, a mooring fee is paid by the boatowner. This is a fixed fee, calculated per foot and per annum which is payable in exchange for a number of extensive services, supported by 14 on site members of staff provided by CYBC to its customers.

    Maintenance charge - the maintenance charge is also a fixed annual fee relating to the general maintenance of the boatyard and mooring facilities. It is effectively a reimbursement of maintenance costs incurred by the company, allocated between boat owners relative to the size of their boat and the proportion of the mooring space that this occupies.

    Ad hoc repairs income - this is income received in relation to ad hoc repairs made to boats as and when requested. This income is not fixed and is distinct from the other activities described above.

    Boat building and fitting - this activity relates to the construction and sale of boats, including completing all internal and external fittings."

  21. On 11 November 2021, the Appellants appealed the closure notices to the Tribunal.  
  22. On 6 January 2022, HMRC issued a penalty assessment under Schedule 24 of the Finance Act 2007 to both Appellants for the year ending 5 April 2017. On 20 January 2022, the Appellants appealed the penalty assessments. The statutory review on 12 May 2022 upheld the penalty assessments.
  23. On 16 August 2022, the Appellants appealed the penalty assessments to the Tribunal.
  24. On 8 December 2022, the Tribunal notified the parties that the four  appeals would be  joined and heard together.
  25. The Issues

  26. The issues to be determined by the Tribunal are as follows:
  27. (1)          Were the Notices of Enquiry and Closure Notices validly issued?

    (2)          Was CYBC a trading company for the purpose of ER for the 12 months leading up to the share disposal on 30 September 2016 ("the Period") i.e. was it a company carrying on trading activities whose activities did not include to a substantial extent activities other than trading activities?

    (3)          Were the inaccuracies in the Appellants' tax returns a result of their careless behaviour and, if yes, was HMRC's decision in not suspending the penalties flawed?

  28. It was common ground that the Notices of Enquiry and the Closure Notices were validly issued; we have proceeded to first consider the second issue and then the third issue. We have addressed issue two and three separately and set out our findings of fact relevant to each issue.
  29. Burden of proof

  30. The burden of proof is on the Appellants to show that the amendments made by the Closure Notice were incorrect, and in particular that the ER claim is valid and accurate.  The burden of proof rests with HMRC to show that the penalty notices were validly issued and to demonstrate that the Appellants' behaviour was careless in filing inaccurate SATRs. The standard of proof is the ordinary civil standard, on the balance of probabilities.
  31. Relevant Legislation

    Entrepreneurs' relief

  32. The relevant legislation in force at the date of disposal (30 September 2016) is found in Part 4 of TCGA 92. All references are to TCGA 92 unless otherwise stated.  Section 169H provides for a lower rate of capital gains tax in respect of qualifying business disposals. The first type of qualifying business disposal, a "material disposal of business assets", requires in Condition A that throughout the period of 1 year ending with the date of the disposal the company is the individual's personal company and is either a trading company or the holding company of a trading group.  The time period element in s169I(6) was not in dispute as HMRC accepted that the Appellants had evidenced that they were in discussions to purchase the shares of CYBC prior to 1 October 2015.
  33.  It was common ground between the parties that the conditions for ER to be available are generally satisfied and the sole issue in dispute is whether or not CM is "the holding company of a trading group". Section 169SA  provides that the meaning of "trading company" and "trading group" is given in Schedule 7ZA, which, in turn, refers to Sections 165 - 165A.   Section 165A  relevantly provides:
  34. "165A Meaning of "holding company", "trading company" and "trading group"

    (1)  This section has effect for the interpretation of section 165 (and this section).

    (2)  "Holding company"  means a company that has one or more 51% subsidiaries.

    ...

     (8)  "Trading group"  means a group of companies–

    (a)  one or more of whose members carry on trading activities, and

    (b)  the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities.

    (9)  For the purposes of subsection (8) above "trading activities"  means activities carried on by a member of the group–

    (a)  in the course of, or for the purposes of, a trade being carried on by any member of the group,

    (b)  for the purposes of a trade that any member of the group is preparing to carry on,

    (c)  with a view to any member of the group acquiring or starting to carry on a trade, or

    (d)  with a view to any member of the group acquiring a significant interest in the share capital of another company that–

    (i)  is a trading company or the holding company of a trading group, and

    (ii)  is not a member of the same group of companies as the acquiring company.

    ...

    (13)  For the purposes of this section the activities of the members of a group of companies are to be treated as one business (with the result that activities are disregarded to the extent that they are intra-group activities).

    (14)  In this section–

    "51% subsidiary"  has the meaning given by Chapter 3 of Part 24 of CTA 2010, "group of companies"  means a company which has one or more 51% subsidiaries together with those subsidiaries,

    ...

    "trade"  means (subject to section 241(3)) anything which–

    (a)        is a trade, profession or vocation, within the meaning of the Income Tax Acts,

    and

    (b)  is conducted on a commercial basis and with a view to the realisation of profits."

  35. The Corporation Tax Act 2009 ("CTA 2009") relevantly states:
  36. Section 201 

    (1) Any receipt or other credit item, so far as it falls within—

    (a) Chapter 2 of this Part (receipts of trade), and

    (b) Chapter 3 of Part 4 so far as it relates to a UK property business,

    is dealt with under Chapter 3 of Part 4 ...

    Section 205

    A company's UK property business consists of—

    (a)     every business which the company carries on for generating income from land in the United Kingdom, and

    (b)     every transaction which the company enters into for that purpose otherwise than in the course of such a business.

    Section 207 sets out the meaning of "generating income from land":

    (1) In this Chapter "generating income from land" means exploiting an estate, interest or right in or over land as a source of rents or other receipts.

    (2) "Rents" includes payments by a tenant for work to maintain or repair leased premises which the lease does not require the tenant to carry out.

    (3) "Other receipts" includes—

    (a) payments in respect of a licence to occupy or otherwise use land,

    (b) payments in respect of the exercise of any other right over land, and

    (c) rentcharges and other annual payments reserved in respect of, or charged

    on or issuing out of, land.

    (4) For the purposes of this section a right to use a caravan or houseboat at only one location is treated as a right deriving from an estate or interest in land.

    Penalties

  37. Paragraph 1 of Schedule 24 to the Finance Act 2007 ("FA 2007") relevantly provides that a penalty is payable where (i) a taxpayer files a personal return containing an inaccuracy which amounts to, or leads to an understatement of tax, and (ii) that inaccuracy was careless on the taxpayer's part.
  38. The meaning of "careless" is set out in Paragraph 3 Schedule 24 FA 2007:
  39. "3 Degrees of culpability

    (1)  For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is–

    (a)  "careless" if the inaccuracy is due to failure by P to take reasonable care, ..."

  40. The penalty for a category 1 (Paragraph 4A Schedule 24 FA 2007 explains the 3 categories of inaccuracy: category 1 involves domestic matters and categories 2 and 3 involve offshore matters)  inaccuracy in respect of a careless action is 30% of the potential lost revenue.
  41. Paragraph 10(1) Schedule 24 FA 2007 provides for reductions in penalties where a person discloses an inaccuracy that involves a domestic matter  to a minimum of 15% for prompted disclosure and 0% for unprompted disclosure.  Where the person has made a disclosure, HMRC must reduce the standard percentage to one that reflects the "quality" of the disclosure  (defined as including "timing, nature and extent" ).  A person discloses the matter by (a) telling HMRC about it, (b) giving HMRC reasonable help in quantifying the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment, and (c) allowing HMRC access to records for the purposes of ensuring that the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment is fully corrected.
  42. Where a person's agent submits a personal return that contains a careless inaccuracy, that person is not liable to a penalty provided he can satisfy HMRC that he took reasonable care to avoid inaccuracy:
  43. "18 Agency

    P is liable under paragraph 1(1)(a) where a document which contains a careless inaccuracy (within the meaning of paragraph 3) is given to HMRC on P's behalf.

    (2)  In paragraph 2(1)(b) and (2)(a) a reference to P includes a reference to a person who acts on P's behalf in relation to tax.

    (3)   Despite sub-paragraphs (1) and (2), P is not liable to a penalty under paragraph 1 or 2 in respect of anything done or omitted by P's agent where P satisfies HMRC that P took reasonable care to avoid inaccuracy (in relation to paragraph 1) or unreasonable failure (in relation to paragraph 2).

    (4)  In paragraph 3(1)(a) (whether in its application to a document given by P or, by virtue of sub-paragraph (1) above, in its application to a document given on P's behalf) a reference to P includes a reference to a person who acts on P's behalf in relation to tax.

  44. A person may appeal against (i) a decision that a penalty is payable, and (ii) a decision as to the amount of a penalty.  In relation to (i), the Tribunal may affirm or cancel HMRC's decision, and in relation to (ii), the Tribunal may affirm HMRC's decision or substitute for HMRC's decision another decision that HMRC had the power to make.
  45. Evidence

  46. We were provided with an agreed hearing bundle of documents consisting of 1,047 pages and an authorities bundle. We had the following witness statements:  
  47. (1)          two witness statements from one of the Appellants, Mr Andrew Moffat ("Mr Moffat");

    (2)          a witness statement of  Mr Jeremy Hirmer ("Mr Hirmer") who, since 10 August 2020, is the Marine Operations Officer of CYBC; and

    (3)            two  witness statements of Mr Christopher Smith ("Mr Smith"), an International Tax Specialist at HMRC.

  48. Mr Moffat and Mr Hirmer gave oral evidence and were cross-examined. Questions were put to Mr Smith in examination in chief but he was not cross-examined on his evidence.
  49. Mr Hirmer's evidence

  50. Mr Hirmer's witness statement provided extensive detail of the activities of CYBC as he understood them to exist at the relevant time and the current layout of the marina at Cheyne Pier. He was not employed by CYBC during the relevant period; however, we found Mr Hirmer to be a truthful witness who was trying to assist the Tribunal and accepted his largely unchallenged evidence that, so far as he was aware, the activities of CYBC  had not materially changed (apart from staff  changes) since the relevant period.
  51. Mr Smith's evidence

  52. Mr Smith's two witness statements addressed the background to the appeal, the correspondence with CYBC and Mr Moffat,  his interactions with Mr Moffat and the bases for rejecting the claim for ER and the imposition of penalties. Mr Smith's evidence was not challenged. His witness statement included the following:
  53. Mr Smith has been employed by HMRC since 2012 and  had been working as an   International Tax Specialist for one year and had worked as a direct tax caseworker for 10 years. He became  involved in this matter whilst looking at transactions involving TRML. He considered that the disposal by the Appellants  of CML would result in a charge to CGT but noted that the Appellants'  SATR were overdue for 2016/17. He issued a warning that he would issue a revenue determination if the SATRs were not filed. The SATRs file on 16 October 2016 included a claim for ER. He corresponded with BR setting out his view that CYBC was not a trading company for ER purposes. The correspondence culminated in Mr Smith requesting documents from  BR to support their view that CYBC was a trading company. No response was received and a formal information notice was issued. A £300 penalty was issued on 29 August for the Appellants failure to comply with the information notice. BR provided the requested information and documents and their analysis of CYBC's trading status on 31 October 2019.
  54. On 9 March 2020, Mr Smith and a colleague from the VOA attended a site visit and meeting with BR and Mr Moffat at CYBC. The meeting was the first time (to his knowledge) that Mr Moffat contended that his earlier comments about CYBC's mooring fees being "akin to ground rents" in his  9 April 2018 letter were incorrect as a result of his unfamiliarity with the business. Mr Smith found that contention surprising difficult to accept as Mr Moffat  had been a director of CYBC since 1 February 2016, more than two years before drafting the letter, so had had plenty of opportunity to become familiar with the business and the whole purpose of the letter was to allay Mr Smith's concerns (letter dated 19 December 2017) about the reliability of CYBC's valuation.
  55. The letter from MHA enclosing Mr Moffat's letter dated 9 April 2018 stated that no independent valuation of the company was necessary and that Mr Moffat was "best placed to independently assess value". Mr Smith's view was that Mr Moffat's  comments in the meeting about being unfamiliar with the business in  April 2018 were inconsistent with his  experience of the business and the earlier representations made about Mr Moffat's  ability to accurately value CYBC. Mr Smith thought it reasonable to proceed on the basis that Mr Moffat's comments in the April 2018 letter were reliable, especially as these comments seemed consistent with the documentary evidence available.  
  56. On 12 May 2020, he issued a letter to the Appellants  and BR setting out HMRC's view of the matter and requested further information  and documents be provided in the event that the Appellants disagreed with HMRCs view. The deadline for compliance was extended to 31 October 2020 as Mr Moffat had been affected by Covid and suffered a bereavement. On 16 December 2020,  Mr Smith set out HMRC's view of the matter in a letter to the Appellants  and that he would be amending the Appellants' SATRs to remove the ER claim if no further evidence was provided within 30 days. An extension of the deadline to the end of February 2021 was agreed with BR but no further response was received and the SATRs were amended.
  57. Mr Smith decided that a penalty was properly due as he had concluded that the Appellants had acted carelessly when making their returns which contained errors for the following reasons:
  58. "The capital gain made on the disposal of the Chelsea Marine Ltd shares was large and the disposal was made to a related party, which means there was an added element of complexity for tax purposes ... this transaction, involving a large Entrepreneurs' Relief claim was not routine and not something the taxpayer had encountered before. 

    Given these previous penalties charged for failing to take reasonable care, I would have expected a taxpayer to be even more diligent than they would otherwise, especially when again claiming for a CGT relief. 

    Overall, given the size and complexity of the transaction, its novelty, and the previous penalties charged for careless behaviour I would have expected a taxpayer taking reasonable care to take a higher degree of care than otherwise, including seeking written professional advice if they lacked the expertise to undertake a full analysis of the availability of ER themselves. 

    ...

    If the taxpayers lacked the expertise to carry out such an analysis themselves, it is my view that they should have sought formal advice from a suitably qualified and independent professional as to whether CYBC was a trading company for ER purposes prior to claiming ER. When obtaining such advice, the taxpayers should have taken care to ensure complete and accurate information and documents were provided to the advisor in order to demonstrate reasonable care.

    The taxpayers' agent stated that no formal written advice was provided in respect of the ER claim prior to filing because the agents "were in discussion with our clients in relation to the filing of the tax returns and were satisfied that...a legitimate claim for ER could be made" (letter of 25 April 2019). No further details or evidence was provided in respect of these discussions ... I doubted that a taxpayer taking reasonable care could conclude that ER was due after a mere discussion with their agents (i.e. without being provided with a more formal technical analysis in writing) ... I did not view the agent's statement that they were satisfied a legitimate ER claim could be made following discussions with the taxpayers as sufficient evidence of the taxpayer taking reasonable care

    A taxpayer taking reasonable care would have taken steps to ensure they were fully aware of all the conditions for claiming Entrepreneurs' Relief and that the shares disposed of qualified. One condition of making a successful Entrepreneurs Relief claim is that the shares disposed of relate to a trading company (or a member of a trading group). 

    The taxpayers should have been aware at the time of filing their returns that activities always accepted as non-trading (such as sales of long-licences) were an important part of CYBC's business."

  59. Mr Smith concluded that the disclosure in relation to the error was prompted and the penalty range was 15% to 30%. He concluded that the following reductions were due:
  60. (1)          Telling - 10%. An explanation was provided and Mr Moffat attended a meeting but some of the explanations were contradicted by the documentation and third party information.

    (2)          Helping - the maximum reduction was given as no help was required to quantify the tax loss

    (3)          Giving - 10%. Some documentation was provided and the taxpayer agreed to a meeting but there were serious delays in providing the information necessitating the use of formal information powers and penalties.

    No further reductions were given.

  61. Mr Smith's second witness statement addressed Mr Moffat's recollection of a telephone call with Mr Smith in which Mr Smith  confirmed that ER was available but he did not regard it as clear cut. Mr Smith's evidence was that Mr Moffat's recollection was inaccurate.
  62. Mr Moffat's evidence

  63. Mr Moffat's first witness statement focused on the activities of CYBC and the  services it provided to the boatowners ("Boatowners")  under the maintenance charge. His witness statement relied upon the details of CYBC's activities set out in Mr Hirmer's witness statement. Appended to his witness statement were four mooring licence agreements, the two agreements entered into by CYBC which permit the business to operate and the accounts for the period ending 31 March 2017. His second witness statement addressed the penalties  and whether advice was obtained in respect of claiming ER. We found Mr Moffat's evidence to be, in some instances, self-serving and contradicted by documentary evidence. Notwithstanding those  instances, we have largely accepted Mr Moffat's evidence.
  64. Findings of fact

  65. The issues for determination before us are whether the activities of CYBC "to a substantial extent" involved non-trading activities and were the inaccuracies in the Appellants' tax returns a result of their careless behaviour and, if affirmative, whether HMRC's decision not to suspend the penalty was flawed.  We first make findings of fact in relation to the claim for ER  and  then make further findings of fact in relation to the penalties.
  66. ER

  67. We have made the following findings of fact in respect of ER:
  68. (1)          At all material times, CYBC were party to two agreements that allowed their business to operate. These are:

    (a)          A River Works Licence ("RWL") dated 24 May 1989 between the Port of London Authority ("PLA") and CYBC. The RWL granted a licence to CYBC to retain the "Works". In the Period, CYBC paid approximately £128,000 to the PLA under the terms of the RWL.  This represented  about 15.5% of CYBC's turnover from mooring fees and licences. The "Works" are defined in the RWL as the following structures:

    "Moorings pontoons entrance piers and gangways to accommodate residential craft drydock administrative and workshop barge campshedding vacuum sewage system and mooring piles in the position in accordance with PLA drawings ..."

    CYBC covenanted to perform the obligations set out in the Second Schedule which included:

    Clause (2) To execute and maintain the Works to the PLA's reasonable satisfaction

    Clause (11) To use the Works only for the mooring of residential craft and ancillary office and workshop use and access thereto

    Clause (12) To equip the Works with such life saving and fire fighting apparatus as recommended by the PLA and/or  the London Fire Brigade; and

    Clause (13) To:

    (a) to grant mooring licences and charge mooring fees for  the use of the moorings forming part of the Works

    (b) provide in the mooring licences for periodic reviews of the mooring licences ...

    (c) keep proper and up to date records of all the mooring fees but not maintenance charges derived from vessels whilst they are moored at the Works.

    The Third Schedule set out the procedure for reviewing  the licence fee payable with the provision that a sum equal to twenty per cent of the total mooring fees payable to the Licensee by vessels moored at the Works in the year immediately preceding the review date shall be payable every six years.

    (b)         A Lease dated 13 March 2008  between the Royal Borough of Kensington and Chelsea ("RBKC") and CYBC  of the "land and premises known as Old Ferry Wharf Lots Road  London SW10 0DG" ("the Lease"). In the Period, CYBC paid RBKC approximately £95,000. This represented about 9.5% of CYBC's turnover from mooring fees and licences. The permitted use granted by the Lease was:

    "For the building maintenance servicing and repair of boats houseboats pontoons and gangways for the mooring of three vessels or structures for access to and from moorings in Cheyne Walk and servicing of moorings for office purposes for research for light industry and for storage".

    (2)          In the Period, CYBC offered two types of moorings to the owners of boats ("Boatowners"):

    Houseboat moorings

    CYBC offered space for 60 houseboat moorings. Each boat is anchored, tied up to the relevant pontoon and connected to utilities.

    Trot moorings

    CYBC offered space for eight trot moorings for small water craft but only one was in use in the Period. Trot moorings comprise steel buoys to which the boats are tied using a ring and rope. The boats are not connected to any utilities and  do not benefit from any of the  services or support provided by CYBC.  The trot moorings were removed for maintenance in 2017 and not replaced.

    (3)          CYBC's contractual relationship with Boatowners fall into one or more of the following categories: mooring fees and licences, formal mooring licences and additional services. All Boatowners who use the houseboat moorings pay mooring fees and maintenance charges annually. The maintenance charges are not optional. Boatowners  using the trot moorings only pay mooring fees.  Payment of the mooring fee is payment for the right to moor a vessel for an indeterminate period of time. Payment of the mooring fees is  linked to payment of the maintenance charges as the former cannot be paid without the latter and vice versa. The maintenance charges are charged at cost and estimated at the start of the year.

    (4)          Three types of formal mooring licences were in existence in the Period:

    (a)          A ten year  or five year licence with an option to renew for the same period;

    (b)         A one year licence with no option to renew; and

    (c)          A longer licence, 17 or 23 years, with no option to renew.

    (5)          Not every Boatowner had a mooring licence in the Period as some had expired and had a "periodic licence" as the Boatowner continued to make payments per the terms of the expired licence. Notwithstanding the type of mooring licence, all  required payment of the maintenance charges. Regardless of whether the Boatowner  has a formal mooring licence or not, there is no right to a specific mooring. CYBC reserves the right to move the boat and has repositioned boats for good estate management.

    (6)          CYBC ran the business in a similar fashion as it had been run by the previous owners and, as far as Mr Moffat  was aware, the facts had not changed during the Period. 

    (7)          In the Period, the mooring fees were £138 per foot (calculated by reference to  the length of the boat). The maintenance charge for the Period  was £75.35 per foot with a discretionary discount of £6 per foot for Boatowners who also have a mooring licence.   

    (8)          Each mooring licence was drafted in similar terms and made reference to and provided for the payment of the maintenance charge and contained similar rights and obligations. The 10-year mooring licence dated 12 April 2012 is  representative of the three types of mooring licences in existence in the Period  and, relevantly for these purposes, stated:  

    (a)          "Boatyard" is defined as the boatyard wharf premises and mooring owned occupied or licenced by CYBC at 106 Cheyne Walk and shown on the plan;

    (b)           "Licence Period" is defined by reference to a period of 10-years   with a specified commencement and termination date;

    (c)          "Maintenance Charge" is defined as the maintenance charge payable by the Boatowner  in accordance with Clause 3;

    (d)         "Mooring" means the mooring known as berth [relevant berth number inserted]106 Cheyne Walk London SW10 indicated approximately for the purposes of identification only on the Plan or in such other position as CYBC may from time to time require in writing in accordance with this Licence;

    (e)          "Mooring Fee" means until 28 September 2012 £108 per foot per annum. until 28 September 2013 £115 per foot per annum and until 28 September 2014 £120 per annum, multiplied by the overall length of the Vessel until reviewed;

    (f)           "Mooring Facilities" means the facilities and services set out in the Fifth Schedule;

    (g)         Clause 2 is headed "Licence to Moor" and states that CYBC grants  permission to the Boatowner to moor the Vessel on the Mooring for the duration of the Licence in consideration of the Boatowner: (a) paying a sum of £60,000 on the grant of the Licence; (b) paying the Mooring Fee; (c) paying the Maintenance Charge; and performing and observing the obligations of the Boatowner set out in Clause 3 together with the rights set out in the First Schedule reserving and granting to CYBC the rights set out in the Second Schedule.

    (h)         Clause 3 is headed "Boatowner's Obligations".  The relevant obligations are: pay the Mooring Fee; pay the Maintenance Charge; to pay all utility charges consumed or supplied to the Vessel;  to keep the Vessel   in a riverworthy and safe condition; to keep the Vessel in a good state of decorative repair;   to permit CYBC at all reasonable time on reasonable notice (except in an emergency) to board and enter the boat to inspect its state of repair and riverworthiness; to permit CYBC after having given reasonable notice (except in the case of an emergency)  to alter or relocate the position of the Vessel  in the Boatyard for reasons of safety and/or good management provided that such alternative location shall be as close as possible to the existing location; not to move the Vessel without the prior written consent of CYBC nor to alter or in any way interfere with any part of the moorings including the mooring ropes, wires, chains and gangways; not to use the Vessel otherwise than as a private residential dwelling in the occupation of the Boatowner; at the end of the Licence at the Boatowners own cost to remove the Vessel from the Boatyard forthwith; dry dock the Vessel in 2018 for the Vessel to be surveyed and provide a copy of the report to CYBC; to provide and maintain such fire fighting equipment and means of escape as required by the London Fire and Civil Defence Authority,   CYBC or such other authority may require; to provide and maintain on the Vessel mains water and vacuum drainage systems to the approval of the CYBC and  to permit CYBC to connect such systems to CYBC's  mains water and vacuum drainage installations in the Boatyard and thereafter only to use these systems for the supply of mains water and the disposal of effluent from the sanitary fittings on the Vessel and all gas electricity and water installations and appliances shall be installed in accordance with the manufacturers instructions and all current regulations

    (i)           Clause 4  sets out CYBC's obligations subject to payment of the Maintenance Charge: to administer manage maintain and repair the Boatyard and the Mooring in particular including, the mooring piles ropes wires chains anchors the routes of access to and from the boat gangways pontoons piers safety facilities sewage disposal facilities water supply and the CYBC's electric cables in or upon the Boatyard and so far as practical but subject as provided in this Clause to provide the Mooring Facilities set out in the Fifth Schedule.

    (j)           Clause 5 sets out the provisions for reviewing the Mooring Fee each Review Date.

    (k)         The First Schedule sets out the rights granted to the Boatowner: a right of way for the Boatowner and all persons authorised by him over the wharf pier pontoons and gangways of the Boatyard for the purposes of access to and egress from the boat so long as it is moored on the Mooring and the right to be connected to the utility installations in the Boatyard.

    (l)           The Second Schedule  sets out the rights retained by and granted to CYBC: to use the utility pipes and wires which pass over or under the boat, the right to enter the boat  upon reasonable notice (except in an emergency) inspect and clean the utility infrastructure and to carry out necessary safety work and the right of access on foot over the boat  only at all times for normal purposes connected with the use and enjoyment of the remainder of the Boatyard and other boats for the benefit of CYBC and other licensees or occupiers of the Boatyard.

    (m)       The Third Schedule is headed "Maintenance Charge" and  is stated to be "such fair and reasonable proportion of the aggregate of the costs expenses and outgoings incurred by CYBC ("CYBC's Expenses") in connection with performing its obligations in the Licence". The Maintenance Charge is to be assessed having regard to the proportion that the length of the boat bears to the total length of all boats moored at the Boatyard from time to time subject to licences in a similar form. CYBC's Expenses are deemed to include all the expenses charges and other expenditure reasonably disbursed incurred or made by CYBC in fulfilling its obligations and in providing administering and managing the Mooring Facilities referred to the numbered the Fifth Schedule.

    (n)         The Fifth Schedule is headed "Mooring Facilities and Maintenance" and  lists the following:

    (i)            Mooring Piles and Travellers.

    (ii)         Access Pontoons and Access Gangways.

    (iii)       Lighting and other equipment and facilities.

    (iv)        Mains Electrical Meter Rooms Installations Sub-meter and Cable to Pontoon Outlet.

    (v)          Mains Water Supply Installation to the Vessel's Upstand.

    (vi)        Vacuum Drainage to the Vessel's Upstand.

    (vii)     Pontoon fire Fighting Stations.

    (viii)   Mooring Ropes Wires Chains and Anchors.

    (ix)        Supply of Refuse Sacks.

    (x)          Collection Storage and Disposal of Refuse.

    (xi)        Nightwatchman Patrol.

    (xii)     Reception and Emergency Key Holding.

    (xiii)   Provision of Post Boxes for each boatowner at the Old Ferry Wharf and at Cheyne Walk Pier or at the Beaufort Stairs entrance subject to Post Office Approval Receipt and Sorting of Post or collection from Post Room Parcels Telegrams Registered and Recorded Post held in Reception for collection.

    (xiv)    Pedestrian access to Old Ferry Wharf, Beaufort Stairs,  Cheyne Walk and the Moorings.

    (xv)      Emergency Call-Out.

    (xvi)    Mooring inspection at Weekends and Public Holidays.

    (xvii) Emergency Equipment (temporary gangways ropes lifebelts and pumps) and items required for compliance with health and safety requirements.

    (xviii)                    General inspection and attendance of mooring facilities.

    (xix)     Provision of panel and upstand in Pontoons for British Telecom panels and cables.

    The  mains gas supply is stated not to form part of the Mooring Facilities and Maintenance.

  69. Additional services are offered to Boatowners and provided by CYBC's on-site staff numbering 14  in the Period. The staff ranged from administration/receptionist to carpenters, welders, plumber,  boatyard foreman, boatyard assistants and night watchmen.  Mr Moffat's evidence was that if CYBC did not offer the services that it did, it would likely only need one member of staff (the bosun) to ensure that the mooring ropes are connected properly. Mr Moffat  estimated that 95% of Boatowners  had requested additional services ranging from boat repairs and renovation, fixing of leaks and burst pipes on board to the rebuilding and repainting of new staircases and kitchens. There is a separate charge for the additional services provided. calculated on an hourly rate.
  70. No knowledge of the Thames or boating/marine related matters are  required by Boatowners as CYBC staff deal with all safety and mooring related activities.  This is in contrast to Cadogan Pier (which contains a series of trot moorings) where you are required to be a "boatie" (someone with at least a RYA day skipper qualification)  to moor there as no services or staff are provided. Boatowners mooring at Cadogan Pier require nautical knowledge to safely and securely tie their boats to the trot moorings.
  71. At Cheyne Pier there is an on-site dry dock, metal workshop, carpentry workshop, reception desk, offices and storage rooms. CYBC retains full control over all areas of the marina, Boatowners are not allowed to touch the ropes used to moor the boats, only CYBC staff can tie/untie the boats and connect/disconnect the boat to the utilities provided (water, gas, sewage, electricity and internet). It was Mr Moffat's evidence that no other marina offered the same level of services as CYBC but he accepted that there was no evidence before the Tribunal of the "uniqueness" of the services offered by CYBC nor that all Boatowners chose to moor at CYBC because of the services.
  72. There are normally eight to eleven staff on site on a typical working day. A member of staff comes in for one hour on each day of the weekend and on public holidays to check  the marina. All the CYBC staff can also work at Cadogan Pier, if so required.  CYBC staff time is charged to Cadogan Pier at a commercial rate.  Time-sheets are filled out by staff on a weekly basis, every job has its own code and is recorded. 
  73. The turnover stated in the CYBC accounts for the year ending 31 March 2017 (an 18 month period) was a follows:
  74. Turnover

    2017

    % of turnover

    Mooring fees and licences

     £1,015,612

    49.2%

    Boat Sales

    -

    -

    Maintenance charges

    £392,262

    19%

    Boat fittings and repairs

    £539,987

    26.2%

    Light and heat

    £111,297

    5.4%

    Sundries

    £5,420

    0.25%

    Total

    £2,064,578

     

     

  75. In respect of the accounts for the period ending 31 March 2017 (an 18 month period) Mr Moffat explained that:
  76. (a)          The turnover from mooring fees and licences was £1,015,612 of which approximately 25% is paid to satisfy CYBC's obligations under the RWL and the Lease.

    (b)         There were no boat sales. Boat sales were an occasional part of the business but not part of his future plans for the  business.

    (c)           The turnover from maintenance charges was £392,262 which was payment for the compulsory services charged at cost. The maintenance charges were separated out from the mooring fees and licences as required by the RWL.

    (d)         The turnover from boat fitting and repairs (the additional services)  was £539,987.

    (e)          The turnover from light and heat was £111,297 but he would not describe it as turnover. The cost is charged to boat owners at cost.

    (f)           The turnover from sundries was £5,420 but he could not recall what it related to but most likely comprised the sales of small items.

  77. Mr Moffat estimated that 1% of the time spent by CYBC staff related to mooring fees/licences, 44% of the time related to services covered by maintenance charges and the remaining 55% on additional services requested by Boatowners. He confirmed that he had not gone through the time sheets to work out the time spent on activities and the 1%, 44% and 55% split was his "gut feel". 
  78. Mr Moffat's evidence was that the provision of a mooring licence was standalone activity, mooring fees and maintenance as inextricably linked and you could not have one without the other.
  79. The moorings at  Cadogan Pier were valued in the PLA location index as 16% more valuable than the moorings at Cheyne Pier despite Cadogan Pier not having a boatyard nor a single employee providing any services.  Mr Moffat asserted in his evidence that Cadogan Pier was 16% more valuable because Albert Bridge was very "Instagramable", there was cachet in name and, unlike Cheyne Pier, the boats don't sit on mud for half the day. His view was that when  compared to Cadogan Pier, Cheyne Pier is "a  B grade place with mud" with the World's End housing estate and a busy main road behind the marina. We did not accept his evidence preferring the independent evidence of the PLA index.
  80. Parties submissions

  81. We have considered all of the submissions (written and oral) which have been made to us and taken them all into account in reaching our decision. Whilst we have outlined some of them below, we have not found it necessary to refer to all of them. That does not mean that they were not considered.
  82. Appellants' submissions

  83. Mr Thomas' submissions are summarised as follows. CYBC carried on a single business  of providing moorings together with maintenance and other services to boaters. All Boatowner using the houseboat moorings pay mooring fees and maintenance charges annually. Payment of the mooring fees is payment for the right to moor a vessel for an indeterminate period of time. Some Boatowners  pay for a  formal mooring licences: a one year,  ten year or longer licence. Irrespective of whether a Boatowner  has a formal mooring licence, all pay mooring fees and maintenance charges. These payments are not optional and are inextricably linked. Payment of the maintenance charges provides the houseboat with gas, water, electricity, internet and connection to the sewage vacuum system. The list of maintenance services provided by CYBC is extensive and enables boaters to live comfortably and safely at CYBC without having any detailed knowledge or experience of nautical matters.  CYBC also offers additional services to the Boatowners, the services are requested and charged separately. The level of services provided is reflected in the 14 members of staff that CYBC employs.
  84.  CYBC has at all times retained control of the marina and provides a high degree of services to the Boatowners. Case law confirms that where an owner of property remains in occupation and derives  income from allowing others to use part of the that property together with the provisions of additional services this is a trading activity and not a property business per Griffiths (Inspector of Taxes) v Jackson [1983] STC 184 ("Griffiths"), and Coman v Rotunda [1921] ("Rotunda") 1 AC 1.  The facts show that CYBC, like the hospital in Rotunda, remains in occupation of the marina and carries on a trade. CYBC at all times retains control of the moorings and in that respect is the occupier. The Boatowners  have a licence in form and substance and do not have exclusive possession as CYBC is permitted to board and enter each boat at all reasonable times on reasonable notice to inspect its riverworthiness and repair and to move the boat if necessary for the purposes of safety and/or good management. As CYBC has the continual right of access to the boats CYBC is akin to an hotel owner or landlord of a lodging house.
  85. The activities of CYBC comprise a single trade. That conclusion is not adversely impacted by any statutory provision. Section 207(4) CTA 2009 deems the trading income from mooring rights to also be property income for income tax purposes but this does not mean that the activity is no longer a trade as the effect of s207(4) is to engage the "tie-breaker" in s201(1) CTA 2009 which provides that where any receipt falls within both Chapter 2 CTA 2009 (receipts of trade) and Chapter 3 of Part 4 (profits of UK property business) then the receipt is taxed under Chapter 3 Part 4. There is no equivalent tiebreaker for CGT and nothing which deems any of CYBC's activity not to be a trade. Accordingly, the entirety of CYBC's business consisted of carrying on a trade and ER was properly claimed.
  86. In the alternative, if HMRC are correct that the activity relating to mooring fees and licences is non-trading activity, when CYBC's business is considered as a whole taking account both of the time spent in the component physical activities as well as the composition of the financial measures of activity, then the amount of non-trading activity is not substantial, see Allam v HMRC [2021] UKUT 291 (TCC) ("Allam").
  87. The burden of proof is upon HMRC to show that there was an inaccuracy in the Appellants' 2016/17 tax returns brought about by a failure to take reasonable care. Advice   on ER was obtained initially from MHA  who considered  that a claim for ER was feasible. In light of that view, the Appellants sought the advice of BR. BR had been instructed on the Appellants' personal tax affairs since 2014. Mr Moffat recalls having four or five calls with BR on ER and believed that he given to them the due diligence that MHA  carried out on CYBC. Mr Moffat understood that the claim for ER was defensible and if he had obtained the impression from either MIH or BR that this was a "grey area" beyond a white space disclosure he would have sought Counsel's opinion notwithstanding that it would be heavily caveated. The Appellants' tax returns contained white space disclosures which Mr Moffat part-wrote and reviewed. The Appellants position in respect of the penalties is that (i) there was no inaccuracy because they were entitled to claim ER; (ii) reasonable care was taken to avoid inaccuracy as appropriate professional advice was obtained and (iii) in the alternative, the maximum percentage reduction should be given for disclosure.
  88. HMRC's submissions

  89. Mr Turnbull's submissions are summarised as follows. HMRC's position is that the activities carried out under the heading of "Mooring fees and licences" are non-trading activities and in the nature of exploiting a right over land. Mooring fees are simply that: mooring fees. CYBC's accounts group mooring fees and long licence fees together, with maintenance charges stated separately. It only makes sense to group mooring fees and licences together if they are conceptionally similar and relate to the same underlying activity- the right to moor a houseboat.
  90. The breakdown of CYBC's profits in the four years prior to the Appellants' purchase show that a substantial amount of the profits were recorded as non-trading activity. The services offered by CYBC are  the same as previously offered and remain profits of a UK property business. Griffiths held that it was a "cardinal principle" that the exploitation of proprietary interests in land was not income derived from a trade. Section 207 CTA 2009 provides the meaning of "generating income from land" which means exploiting an estate, interest or right in or over land as a source of rents or other receipts, a right to use a houseboat at only one location is treated as exploiting such a right.
  91. Whilst noting that Mr Moffat stated in his witness statement that there is no right to a specific mooring, it is submitted that even if a houseboat was moved to a different mooring it would still be within the same location, CYBC's moorings (described as the "Works" in the RWL)  satisfy s207(4) CTA 2009. In any event, the Licence  type A defines "mooring" as a specific mooring berth. The decision in Julian Nott v HMRC [2016] UKFTT 106 (TC) ("Nott") set out at [59] five  principles for dealing with income derived from the exploitation of land and property rights. Applying those principles, the income from mooring fees is derived from an exploitation of granting a right to moor a houseboat which is a right of occupation to Boatowners who pay to moor at the "Works", which is broadly in line with the second principle in Nott - "Income derived by an owner from granting or limiting his rights as owner of land in favour of others is not regarded for income tax purposes as the carrying on of a trade.".  
  92. HMRC's position is that the price point which drives the mooring fee is the prime location in Chelsea and not the "exceptional" services provided by CYBC which are said to be part and parcel of the mooring fee. HMRC's position is supported by CYBC's 2014 sales brochure and the PLA location indices which compares mooring prices at different locations on the Thames with the price index attributed to Cheyne Walk and Cadogan Pier being the highest. Cadogan Pier does not have a boatyard nor a single employee offering services to boat owners yet their mooring fees are 16% more valuable than Cheyne Walk which HMRC submits makes clear that mooring fees are not in any way attributable to the services provided.
  93. The activities underlying the mooring fees were substantial per the definition of "substantial" in Allam at [90]: the valuation of £13m to £15m for annual mooring licences in CYBC's letter dated 9 April 2018, the turnover attributed to mooring fees in the 2017 accounts is 49% of the total.
  94. The Appellants did not take reasonable care in filing their returns as they did not receive any written advice from BR to confirm that they were eligible to make a claim for ER. The correspondence confirms that Mr  Moffat was aware or should have been aware that a large proportion of CYBC's activities were non-trading, if the Appellants had sought advice or clarification from BR, it would have been apparent that the agent did not have all the relevant information. Failing to provide BR with sufficient and/or relevant information is careless behaviour as is relying upon the agent to complete the return without checking the return. HMRC have allowed a reduction of 60% for telling, helping and giving access to records which has resulted in a net penalty rate of 21% which is fair and reasonable. There are no applicable special circumstances to reduce the penalty. HMRC's decision to not suspend the penalty was not flawed as HMRC are unable to set conditions which would help the Appellants to avoid becoming liable to further penalties for careless inaccuracies in the future.
  95. Discussion

    Was CYBC carrying on a single trade?

  96. We have not accepted Mr Thomas' submission that s207(4) CTA 2009 is of no application as we are considering ER in the context of TCGA 1992. Section 165A(14) TCGA 1992 defines "trade" as anything which is "a trade, profession or vocation, within the meaning of the Income Tax Acts".  Section 8(4) TCGA 1992 states that "Subject to subsection (5) below, where the enactments relating to capital gains tax contain any reference to income tax or to the Income Tax Acts the reference shall, in relation to a company, be construed as a reference to corporation tax or to the Corporation Tax Acts". The right to  use a houseboat at only one location has been brought within the ambit of a property business by specific statutory reference. S207(4) CTA 2009 provides that a right to use a houseboat at one location is treated as a right deriving from an estate or interest in land and so income derived from granting such rights is non-trading income which is clearly relevant to determining whether the non-trading income would be considered substantial.  In our view, the  starting point is that s207(4) CTA  2009 deems that the income from the right to moor a houseboat at only one location  is income  from a property business unless the Appellants can show that its activities comprise a single trade per the requirements  set out in the  case law relied upon, case law which received detailed consideration in Nott.
  97. In Nott, the Tribunal was considering s266 ITTOIA 2005 (which is identical to s207 CTA 2009) which  provides for a charge to income tax on the profits of a UK property business. The basis of the appeal in Nott was whether certain income received by the Mr Nott was property income or trading income.  Whilst Mr Thomas submitted that we should attach no significance to the decision of the Tribunal in Nott as it was a decision of the Tribunal, his submissions mirrored those recorded in Nott at [39] - that particular weight should be given to the continuing occupation of the marina by CYBC and the extensive level of services provided when determining whether CYBC's activities were all trading activities.
  98. We agree with and adopt the approach of the Tribunal in Nott which relevantly stated:
  99. "Property or Trading

    34.  As discussed above, the tax legislation has long sought to grapple with the dividing line between property and trading income. The starting point in the analysis - what HMRC in their submissions called "the default position" - is that income derived from the exploitation of property is to be taxed as property income. In certain situations, however, the taxpayer may be able to establish that the activities giving rise to the income constitute a trade. While the existence of a trade is ultimately a question of fact, it was argued by both parties that case law establishes certain characteristics as having particular significance.

    35.  Passages from two decisions relevant to this appeal neatly summarise this position. In the decision of the House of Lords in Salisbury House Estate, Ltd v Fry [1930] 15 TC 266 , Lord Macmillan stated (at page 330):

    "A landowner may conduct a trade on his premises, but he cannot be represented as carrying on a trade of owning land because he makes an income by letting it. The relatively insignificant services for which the company makes charges to its tenants are not in my opinion sufficient to convert the company from a landowner into a trader, though the profits so made may quite properly be charged with tax under Schedule D. 

    To hold otherwise would be to invert the rule that the principal follows the accessory." 

    36.  In the more modern case of Griffiths v Jackson [1985] 56 TC5 83, Vinelott J. reaffirmed the force of this principle while helpfully summarising its historical origins (at page 190):

    "It is a cardinal principle of United Kingdom tax law that "income derived from the exercise of property rights properly so-called" by the owner of land (freehold or leasehold) is not income derived from the carrying on of a trade. The words I have cited come from the speech of Lord Macmillan in Salisbury House Estate, Ltd v Fry 15 TC 266 at page 329. The historical origin of the principle is that tax under Schedule A was formerly charged "in respect of the property in all

    37.  On the face of it, income from a business of letting property, such as that in this appeal, would fall naturally within the wording of section 266(1): "'generating income from land' means exploiting an estate, interest or right in or over land as a source of rent or other receipts." It would, on that basis, constitute a "UK property business", the profits of which would be taxable as property profits under section 268 . What factors might indicate that such income would nevertheless fall to be taxed as the profits of a trade?

    38.  Perhaps because section 268 is, in effect, the starting position, consideration of the relevant case law shows that the normal "badges of trade" have not been found to be of particular assistance to the courts in addressing this issue. To take only some of the badges, in relation to income from letting property, a profit-seeking motive, the number of lettings, the nature of the asset, and the nature of the financing, could all be present in a typical property letting business without themselves pointing in the direction of a trade.

    39.  Both parties argued that case law does, however, identify two factors which are to be given particular weight in distinguishing property and trading income, namely whether the taxpayer is in occupation of the property giving rise to the income and the level of services provided by the taxpayer in relation to that property.

    ...

    45.  We now consider the key cases in turn, from which it will be seen that a more nuanced picture emerges.

    46.  The Governors of Rotanda [sic] Hospital was relied on heavily by Mr Nott in his submissions to the Tribunal. He argued that the decision establishes that the most significant factor in categorising property profits as trading income is occupation by the taxpayer of the property from which the income derives. He further argued that most of the other authorities cited by HMRC (which we discuss below) were not materially relevant, because they concerned situations where the taxpayer was not in occupation and where, as a consequence, it was necessary to establish a much higher level and degree of additional services. 

    47.  Rotunda concerned the hiring out by the Governors of the hospital of certain concert, exhibition, refreshment and ball rooms for the purposes of musical or dining entertainment. The rooms were prepared by the Keeper of the Rotunda Rooms, who remained on the premises at all times, attending to lights and fires and regulating the conduct of the patrons. The rooms were equipped for purpose with seating, heating and lighting. 

    48.  The House of Lords held that, on the facts, the activities amounted to a trade, that trade being one of providing and letting rooms for entertainment. In reaching that finding, it was held that the services provided were not merely incidental to the letting of the rooms. In the words of Viscount Finlay (at page 582):

    "Profits are undoubtedly received in the present case which are applied to charitable purposes, but they are profits derived not merely from the letting of the tenement but from its being let properly equipped for entertainment, with seats, lighting, heating and attendance. The subject which is hired out is a complex one. The mere tenement as it stands, without furniture, etc, would be almost useless for entertainment. The business of the Governors in respect of those entertainment is to have the hall properly fitted and prepared for being hired out for such uses."

    49.  Viscount Cave expressed himself in similar terms, at page 585:

    "I am unable to see how the profits in question can be said to be derived from the Rotunda Rooms alone. They result, not from the letting of bare rooms, but from the whole venture, consisting of the equipment, and disposal of the rooms with their fixtures and furniture and the provision of the service of heating, lighting and attendance. They may perhaps be described as profits of a trade or concern in the nature of trade, that is to say, of the business of providing and letting rooms for entertainment ..." 

    50.  Salisbury House Estate, decided in 1930, was relied on by HMRC. The case concerned unfurnished offices which were leased, with the landlord providing lighting, heating, caretaking and other services. Some of the services were optional and only charged for if taken up. The taxpayer also provided and operated lifts in the building, and provided uniformed staff, cleaners, housekeeper and concierge services.

     51.  The House of Lords held that on the facts the total income fell to be taxed as property rather than trading income (as then was, Schedule A rather than Schedule D). Much of the discussion concerned the need for exclusivity amongst the various Schedules. The court remarked that Rotunda "... entirely differs in its facts and appears to throw little light on the law in question before this House" (Lord Atkin at page 321). The ratio for the decision in Salisbury appears to be that on the facts the services offered by the taxpayer were not sufficiently significant to supplant the natural characterisation of the leasing income as property income: see the passage from Lord Macmillan's judgment quoted at [35] above. 

    52.  Sywell Aerodrome concerned income which was potentially assessable under any of the former Schedules A, B or D. The taxpayer's argument was that the income was properly property income taxable under Schedule A, or income from the occupation of land taxable under Schedule B. The income arose from various licences of the aerodrome, and the taxpayer also provided the services of a guardsman and made available first aid appliances and tools.  

    53.  The Court of Appeal held by a majority that the entire income was taxable under Schedules A or B. Having considered authorities including Rotunda and Salisbury House , Lord Greene stated (at page 143):

    "I have so far ignored the one thing done by the company which in my view falls outside the profit-making activities with which Schedules A and B are concerned - viz; the provision of tools and equipment which is a condition of the licence. Compliance with this condition cannot in my opinion change the whole picture and turn what would otherwise be profits covered by Schedule A or Schedule B into profits assessable under Schedule D, any more than would be the case if, for example, under housing bye-laws the landlord of a block of flats were bound to keep fire-fighting appliances on the premises. On principle, however, whatever part of the profits made by the company ought to be apportioned to the provision of this equipment [is a] matter for the Commissioners [and] is assessable under Schedule D. The point, however, is obviously too trivial to lead to any practical result. 

    I have given the best consideration that I can to the authorities which, I must confess, do not appear to me to throw a particularly clear light on the point which we have to decide." 

    54.  Gittos v Barclay is a more modern decision (1982). Its facts are closer to those in this appeal than those in Rotunda , Salisbury House or Sywell Aerodrome , in that the case concerned the taxation of an individual in respect of income from the letting of holiday villas. The High Court held that they could not overturn the findings of fact which had led the General Commissioners to conclude at first instance that the profits were not profits of a trade. Before the General Commissioners, the taxpayer had relied heavily on the presence of many of the conventional "badges of trade". The court rejected an argument raised by the taxpayer that it made a material difference to this question whether the occupiers of the villas were tenants or only licensees. Goulding J's approach echoed that of the earlier decisions discussed above (at page 639):

    "So the real question that was before the General Commissioners in the present case and which, so far as I can see, they properly grasped - and, indeed, they were referred to the Salisbury House case - was whether the activities of Mrs Gittos over and above the mere exploitation of her landed property were significant enough to make her a trader and not a mere landowner who derived an income by exploiting her property. It is not of course possible to give an answer to such a question in general terms. It is a question of fact and degree." 

    55.  The decision in Griffiths v Jackson concerned income from various properties which were mainly let furnished to students and other short-term occupiers. The taxpayers provided various amenities and services, and spent considerable time in collecting rents and looking after the properties. The High Court overturned the decision of the General Commissioners that the taxpayers were carrying on a trade. 

    56.  Vinelott, J. reaffirmed the "cardinal principle" that "income derived from the exercise of property rights so-called" by a landowner is not trading income, in the passage quoted at [36] above. Applying a similar approach to that in Salisbury House he stated (at page 591):

    "Thus, the income derived by the owner of property from letting the property furnished, whether for a short or a long term and whether in small or large units and whether in self-contained units or to tenants who share a bathroom or kitchen or the like, is not income derived from carrying on a trade but is still taxable under Schedule A or, in the case of para 4 [of Schedule A], under Case VI of Schedule D. Of course, if the owner provides services and the services are separately charged or the receipts can be otherwise apportioned in part to the provision of the services any profit derived from the provision of the services will be taxable as the profits of a trade. That was the case in Salisbury House Estate, Ltd v Fry . But the rents the owner derives from the use of the different parts of the property are not receipts of a trade." 

    57.  Vinelott, J. rejected the taxpayer's argument based on Rotunda (at page 592):

    "However, on a close examination of the facts of that case it does not, in my judgment, support his argument. In that case the taxpayers remained in legal occupation of the entertainment rooms and retained control over them. The income was not derived from their property in the rooms, as it would have been if they had parted with legal occupation to someone who had carried out the activities of providing the rooms for public entertainment. That was the ground on which the Rotunda Hospital case was distinguished in Salisbury House Estate, Ltd v Fry . Viscount Dunedin said at page 309:

    "But the rooms were not let to anyone. There was no question of including the rents of the rooms in the profits which were calculated under Schedule D; the hospital was held to be in occupation of the whole premises." " 

    58.  He continued by discussing the relevance and meaning of "occupation" in this context as follows (at page 592):

    "The Rotunda Hospital case, in fact, is a useful illustration of the way in which the owner of land may, without parting with his occupation of it, exploit his rights of property and occupation by carrying on a trade. 

    That, I think, affords the answer to Mr. Sokol's alternative argument. He drew an analogy between the position of these taxpayers and that of a hotel owner or the landlord of a lodging house. It was the analogy of a lodging house keeper which led Rowlatt J. to conclude in Salisbury House Estate, Ltd. v Fry that the taxpayer was carrying on a trade (see page 282). However, as Lord Russell of Killowen pointed out in Westminster Council v Southern Railway Co. [1936] AC 511 at page 530, the landlord of a lodging house remains in occupation and "for the purpose of that business he has a continual right of access to the lodgers' rooms and ... in fact, retains the control of ingress and egress to and from the lodging house, notwithstanding that the power of ingress and egress at all times is essential to the lodger". That was a rating case but in J.A. and J. Dawson v Counsell 22 TC 49 Scott L.J. pointed out that "the occupier for tax purposes is broadly the same kind of occupier as the occupier for rates". The distinction between a hotelier or a lodging house keeper, on the one hand, and the owner of property who lets furnished rooms and provides services is no doubt in practice a narrow one, more particularly in these days of self-service hotels and motels, but the principle is clear and in the present case there can be no doubt on which side of the line the taxpayers' activities fall. It is quite clear from the terms of the tenancy agreements and the taxpayers' form of letter that they let rooms furnished to tenants, albeit with shared facilities and some services."

    59.  Finally, we considered Maclean. While only a decision of the Special Commissioners, this contains a useful review of the authorities discussed above. The following passage from the judgment of J Gordon Reid QC (at page 359) is in our view particularly pertinent:

           "Guiding Principles

    From the authorities cited, I derive, albeit with some difficulty, the following principles. (1) Income derived from the exercise of property rights properly so-called by the owner of land, that is to say the exploitation of the right of property and the right of occupation, is not income derived from the carrying on of a trade. (2) Income derived by an owner from granting or limiting his rights as owner of the land in favour of others is not regarded for income tax purposes as the carrying on of a trade. Thus, income derived from the commercial letting of furnished accommodation, whether for a short or long period, is not generally regarded as income derived from carrying on a trade, even although this activity may properly be described as the carrying on of a business. Business is a wider concept than trade. (3) Activities over and above the mere exploitation of heritable property or turning to profitable account the land, of which he is the owner, may be significant enough to classify a man's business as a trade. Whether the provision of services or other activities are significant enough to cross the line between land ownership and commercial enterprise in land is a question of fact and degree depending upon the nature and extent of the operations or activities concerned. (4) However, the fact that an owner makes the visit to his land by a licensee more attractive by providing various services, eg keeping the property in a proper state and condition, will not turn exploitation of property rights into a trade. 5) Whether income is derived from the location of the land, which is the normal manner in which property in land yields revenue, is a relevant consideration.

    Like so many areas of law, principles can be stated but their application to any given set of facts may be attended with the greatest difficulty. I have not found the reasoning in the authorities particularly easy to apply to the circumstances of this appeal and such principles as I have been able to extract, I have found to be of limited value and of questionable utility in the modern context of carrying on the business (to put it neutrally) of providing serviced apartments."

    60.  Drawing together these various authorities, one striking point is that none of them articulates the determinative criteria in establishing a trade in this context as occupation by the taxpayer combined with a substantial level of additional services. There are "guiding principles" derived from the authorities summarised in Maclean. There are numerous conclusions to the effect that additional services provided by a landlord must be substantial if they are to stand any prospect of displacing the "cardinal principle" and establishing a trade. And there are several pronouncements as to the limited value of the described cases given the importance of the facts.

    61.  In relation to the significance of occupation, it may be that the passage from Griffiths v Jackson quoted at [58] above has been taken by HMRC and others to mean that a trade in this context can be established only where there is occupation by the taxpayer. A close reading of the passage shows that in fact it is not saying this. It is attempting to reconcile the various authorities by observing that continued taxpayer occupation of the land, as in Rotunda, may help to distinguish the lodging house keeper (in Salisbury House) from the property owner who lets furnished rooms and provides services.

    62.  We asked HMRC to amplify the precise basis for the statement in BIM22001, quoted at [41] above, that a furnished lettings business "is only treated as a trade when the landlord remains in occupation of the property and provides services substantially beyond those normally provided by a landlord". We also asked them, in view of Mr Nott's submission that occupation was by far the most significant factor, what relative weight they might attach to occupation and services. HMRC's response to the Tribunal provided an interesting comparison to BIM22001:

    "HMRC does not attach particular weight to occupation or services. We instead examine the nature of the activity that gives rise to the payment."

     63.  HMRC further articulated this approach as a two-fold test intended to identify the true derivation of the income. The first question, they submitted, is "what is the activity giving rise to the payment?". The second question is "what are customers paying for - the use of the land, or a package of services forming part of a trade?".

    64.  While observing that this is essentially the same question posed from different perspectives, we find this a more objective distillation of the case law than the "occupation plus services" test. It may be less granular, but is consistent with the approach in the decided cases, which is to determine, in the words of Lord Atkinson in Rotunda, "what is let, paid for and used" (page 592). Clearly, in reaching that determination, the nature and level of any services offered by the taxpayer will be important if the "cardinal principle" is to be displaced. Whether or not the taxpayer remains in occupation of the premises will also be relevant. But we do not find authority in the cases for the proposition that these two issues are determinative.

    65.  It is nevertheless necessary, and we trust helpful, to consider the submissions of the parties in relation to these two issues, and their application on the facts of this appeal to Mr Nott's letting income.

    66.  Let us deal first with occupancy. In our view, the decisions in Rotunda and Griffiths v Jackson can best be regarded as demonstrating that a property owner who gives up occupation of his property in return for payment is very likely to be generating property income. He is monetising his property asset in the most straightforward way, by, in effect, selling the right to occupy it. Conversely, a property owner who remains in occupation is, all else being equal, more likely to be able to show that, if additional services are being provided, it is (in HMRC's formulation) a package of services forming part of a trade from which his income derives."

  100. We have  proceeded to consider the  factors which may indicate that CYBC's income should, despite s207(4) CTA 2009, fall to be taxed as income of a  single trade.
  101. Occupancy

  102. In our judgment, as confirmed by the findings of fact above, it is clear that CYBC remained in occupation of the marina during the Period. We accepted Mr Moffat's evidence regarding CYBC's occupation of the marina, evidence  which  was supported by the  sample Licences in evidence before the Tribunal. We agree with Mr Thomas that the Boatowners have a licence both in form and substance and do not have exclusive possession as CYBC is permitted to board and enter each boat at all reasonable times on reasonable notice to inspect its riverworthiness and repair and to move the boat if necessary for the purposes of safety and/or good management.
  103. Furthermore, the Licences reserve the right for CYBC and other Licensees the right of access on foot over the houseboat at all times for normal purposes connected with the use and enjoyment of the Boatyard and to move and reposition the boat for the purposes of safety and good estate management. We have not accepted HMRC's submissions in respect of occupancy which misconstrue the restriction imposed upon the number of people permitted to "occupy" moored houseboat and the provision in the RWL referring to "vacant possession" when valuing the open market value of the mooring.
  104. We consider that whether or not CYBC remained in occupation of the marina is a relevant consideration but not, as Mr Thomas submitted, determinative. We agree with the Tribunal in Nott at [66] where Judge Scott stated in respect of occupation "Conversely, a property owner who remains in occupation is, all else being equal, more likely to be able to show that, if additional services are being provided, it is ...  a package of services forming part of a trade from which his income derives."
  105. Services provided

  106. We next  consider whether the services provided by CYBC are such that, as  Mr Thomas submitted,  they change exploiting the right to moor a boat at one location from a property business into a single  trading activity of providing moorings together with maintenance and other services to Boatowners. We have at the forefront of our mind that the case law makes clear that it is a matter of fact and degree whether the services provided are such that they "change the whole picture". The position was summarised by Warner J in Webb (Inspector) of Taxes v Conelee Properties [1982] S.T.C. 913:
  107. "... the owner of land may carry on activities on the land that go beyond the mere exploitation of his proprietary rights in the land and which constitute a trade. Where it is shown that there have been such activities, it is a matter of fact and degree whether they are sufficient to amount to the carrying on of a trade."

  108. More recently in Maclean v Revenue and Customs Commissioners [2007] STC (SCD) 350 "Maclean" (referred to in Nott at [59], J Gordon Reid QC at page 359 stated at point three of the Guiding Principles extracted from consideration of the case law:
  109. "Activities over and above the mere exploitation of heritable property or turning to profitable account the land, of which he is the owner, may be significant enough to classify a man's business as a trade. Whether the provision of services or other activities are significant enough to cross the line between land ownership and commercial enterprise in land is a question of fact and degree depending upon the nature and extent of the operations or activities concerned."

  110. In Nott at [79], Judge Scott stated:
  111.  As the discussion of the relevant case law earlier shows, in order to displace the "cardinal principle", the services offered by a landlord must be such as to convert what is being sold into a package of services of which the accommodation enjoyed by guests or customers is only part. The extract from Lord Macmillan's judgment in Salisbury House quoted at [35] above states that "the relatively insignificant services for which the company makes charges to its tenants are not in any opinion sufficient to convert the company from a landowner into a trader ....". Sywell Aerodrome considers whether the additional services could "change the whole picture and turn what would otherwise be property covered by Schedule A or Schedule B into profits assessable under Schedule D".

  112. Mr Turnbull submitted that the services provided by CYBC are largely comprised of obligations imposed upon CYBC  under the RWL, the Licence  and the Lease. When those obligations are stripped out, the services, which are claimed to be exceptional, are those typically offered by a marina on the Thames. The services provided by CYBC to the Boatowners are set out at 45(8)(n) above and are not repeated here. The evidence before the Tribunal was that other marinas on the Thames did not provide all the services offered by CYBC and only offered, at most, two or three of the services provided by CYBC. Appended to BR's letter date 31 October 2016 were details of the services said to be offered by other marinas which it was claimed supported Mr Moffat's view that no other marina provided the same level of services as CYBC. Mr Turnbull sought to challenge the summary of services provided by other marinas on the basis that the underlying licences had not been provided.
  113. We accepted Mr Moffat's evidence that he had attempted to obtain the relevant licences but had, perhaps understandably, been unsuccessful. The obligations imposed upon CYBC under the RWL, the Lease  or the Licence Agreement are as follows: to maintain the Mooring Piles and Travellers (per the RWL), to equip the Works with fire fighting and safety equipment (per the RWL), to provide and maintain the access pontoons and access gangways (per the RWL and  licence agreement), to provide and maintain the mooring ropes, wires, chains and anchors (per the RWL), permit pedestrian access (per licence agreement and Lease) and carry out mooring inspection (per the RWL). In our view, what was stated by  Lord Greene MR  in Sywell Aerodrome  is apposite to the services  that CYBC is obligated to provide and do not change the whole picture:
  114. "I have so far ignored the one thing done by the company which in my view falls outside the profit-making activities with which Schedules A and B are concerned - viz; the provision of tools and equipment which is a condition of the licence. Compliance with this condition cannot in my opinion change the whole picture and turn what would otherwise be profits covered by Schedule A or Schedule B into profits assessable under Schedule D."  

  115. The remainder of the services comprise: supply of utilities (electricity, water, gas, telecoms), supply of refuse sacks, collection storage and disposal of refuse, nightwatchman patrol, provision of post boxes and emergency call-out. In our judgment, the remainder of the services provided by CYBC are not substantial and do not displace the "cardinal principle" and constitute a trade, the remainder of the services do not extend  beyond services routinely provided under a service charge in residential or office  accommodation with a concierge service. Whilst noting that other marinas only offer  some of services provided by CYBC, we do not consider it to be of such significance  that it "changes the whole picture".  
  116. We consider of note that the services provided under the maintenance charge are provided and recharged at cost. Mr Moffat was clear on that point in both his oral evidence and written evidence. Mr Moffat was asked in re-examination about CYBC's turnover and answered that there was no profit or uplift on the  maintenance charges and that they were independently assessed to make sure that there was no profit margin. BR, in their letter dated 31 October 2019 (at paragraph 15 above) confirmed that the maintenance charge "is effectively a reimbursement of maintenance costs incurred by company". In his skeleton argument, Mr Thomas at paragraph 42 referred to "a margin of 35%" to which was cross-referenced to  footnote numbered  21 which stated "CYBC's standard profit margin". No evidence was adduced as to what CYBC's standard profit margin was nor that it was somehow applied to the maintenance charges nor that the "standard  profit margin" in respect of the maintenance charge was added to the mooring fees. As the services provided under the maintenance charge are provided at cost,  they are not provided on a commercial basis with a  view to the realisation of profits and cannot be categorised as trading activities.
  117. We do not consider that the number of staff (14) stated to be  required to provide the services together with active management by Mr and Mrs Moffat changes the nature of the services such that they can be categorised as trading activities. In Salisbury, the appellant company provided "a staff of some eighty to ninety persons" but despite the high number of staff, Lord Macmillan stated at [330] "The relatively insignificant services for which the company makes charges to its tenants are not in my opinion sufficient to convert that company from a landowner into a trader".
  118. In light of the above, we do not accept that the Appellants have displaced the "cardinal principal" such that CYBC was carrying out a single trade of providing moorings together with maintenance and other services to Boatowners. CYBC was exploiting its proprietary rights in land and the "income derived from the exercise of property rights so called by the owner of land (freehold or leasehold) is not income derived from the carrying on of a trade" per Griffiths at [191].
  119. Non-trading activities and whether substantial

  120. We next proceed to consider whether the non-trading activities are "substantial", per Allam.
  121. In Allam, the UT considered what was meant by trading activities which "do not include to a substantial degree activities other than trading activities". The UT stated:
  122. 90.  Both parties accept that the FTT gave the right meaning to the word "substantial" at [157] of the decision. We agree with the FTT that in this context substantial should be "taken to mean of material or real importance in the context of the activities of the company as a whole". Both parties agreed and we agree that the test is qualitative and quantitative. It is necessary to look at both the nature of the activities and to measure in some way the extent of those activities. Further, the company's activities must be looked at as a whole. It is not appropriate to apply any sort of numerical threshold as suggested by HMRC's guidance.

    ...

    96.  Mr Ridgway's submissions proceeded on the footing that the activities of a company are confined to the actions of its directors and employees; in other words actual human activities. We do not accept that activities in this context are to be construed so narrowly. We accept that the reference to "activities" in s 165A(3) is in the sense of what the company actually does, but the question of what the company actually does must be looked at in commercial terms. In that sense, trading is an activity, but so too is holding an investment property and receiving rents. That is what the FTT meant when it described the activity of holding property and collecting rent as a "passive activity". There may be little action required on the part of directors and employees in such an activity, but it remains an activity in commercial terms. In ordinary language a company might be described as having a principal activity as a holding company. There may be little if any activity on the part of directors and employees as such, but it remains the company's principal activity, even if it also engages in other commercial activities.

    ...

    101.  In our view, the question of what amounts to an activity in the context of a company is a straightforward question. It is what the company does in commercial terms. The question of how to measure the extent of an activity may be more difficult ..."

  123. Mr Thomas  submitted that  the UT in Allam was concerned with the meaning of "trading company" in s165A(3) TCGA 1992  rather than, as in this appeal, the meaning of "trading group" in s165A(8) TCGA 1992 but the provisions are materially identical. We agree. The UT stated at [90] that it agreed with the FTT that substantial should be "taken to mean of material or real importance in the context of the activities of the company as a whole" and that the test is qualitive and quantitative. It continued stating: "It is necessary to look at both the nature of the activities and to measure in some way the extent of those activities. Further the company activities must be looked at as whole." It proceeded to state that the application of the test involves identifying the trading and non-trading activities and then considering how best to measure the non-trading activities to see whether they are substantial in the contact of the company's activities as a whole. The reference to activities is in the sense of what the company actually does, which must be looked at in commercial terms, the test is holistic and both financial and physical measure of activity are to be taken into account. We have proceeded to consider substantial per Allam using the two headings in Mr Thomas' skeleton argument: activity and financial indicators
  124. Activity

  125. Mr Thomas submitted that Mr Moffat's evidence was clear: that approximately only 1% of the time spent on jobs by the CYBC team relates to mooring fees and licences, 44% of the time is spent on services covered by the maintenance charges  and the remaining 55% of the time is spent on providing the additional services requested by the Boatowners. Therefore,  99% of the time is spent on trading activities (predicated on the services provided under the maintenance charge  being trading activities)  versus only 1% on non-trading activities. Mr Turnbull submitted that the 1% of time spent on mooring fees and licences indicated that it was a "passive activity"  which is non-trading in nature but should not be disregarded when considering the business as a whole and did not accept that the 1% of time was accurate as CYBC had to "instruct a legal team to assert its rights" following the substantial increase to  mooring licence premium fees that culminated in a High Court challenge brought by the majority of Boatowners, Howard and ors v (1) Chelsea Yacht and Boat Company Ltd and (2) The Port of London Authority [2020] EWHC 12 (Ch) ("Howard"). We have not accepted Mr Turnbull's submission regarding the time expended by CYBC in defending the High Court challenge as it post-dated the Period. This was confirmed by BR in their letter dated 31 October 2019:
  126. "There is an ongoing High Court action which was filed in Spring 2017 against the company. It claims that the company does not have the legal right to charge licence premiums. Whilst this case has taken up a substantial amount of time and money, it was filed after the relevant date [the Period]"

  127. Mr Moffat's evidence, which we accept, is that the Licence Agreements were in standard form and required little management time. The time breakdown was Mr Moffat's "gut feel" for the Period and  we do not consider it unreasonable or implausible that,  when considering the activities of CYBC in the round,  1% of CYBC's time is attributable to dealing with mooring fees and licences. We agree with Mr Turnbull that, regardless of whether the 1% of the total time spent on mooring fees and licences is regarded as a "passive activity" or trading activity,  it should still be taken into account when considering CYBC's activities as a whole. 
  128. Financial indicators

  129. Mr Thomas submitted that if s207(4) does apply to treat some of CYBC's income as non-trading income then the issue arises as to what income falls within it. Section 207(4) is clear  that it is only the income from "a right to use a ...  houseboat at only one location" and it is necessary to determine the cost of mooring a houseboat at Cheyne Pier without any services, the "bare" mooring cost. Mr Turnbull submitted that, even if the Appellants were correct that there is no right to a specific mooring and boat was moved within the marina,  it would still be located at the "Works" as described in the RWL. We agree with Mr Turnbull that the requirement in s207 CTA 2009 "to use a ... houseboat at only one location" is satisfied as, even if the houseboat were moved for reasons of safety or good management, the houseboat remains at one location,  the "Works".
  130. Mr Thomas submitted that the income recorded in the accounts from "Mooring fees and licences" is in reality comprised of three elements: (i) income from (bare) mooring rights which fall within s207(4) CTA 2009; (ii) mark-up of the "maintenance charges" and (iii) and income in respect of the essential up-keep of the pontoon  infrastructure. Therefore, the right to use a boat at a specific location corresponds to trot moorings (as bare mooring rights) and the way to determine the amount of income within s207(4) CTA 2009  is to use the trot mooring fees at Chelsea Reach as a comparator. Once the income from trot moorings is calculated, the remainder is trading income as, viewed commercially, the maintenance services are not provided to the boaters at cost as, in reality CYBC, seeks to charge an uplift on the "maintenance charges", the uplift being a 35% margin. The "maintenance charge" is only itemised separately  in the accounts as CYBC is obligated under the RWL to record maintenance charges separately. The balance of the mooring fee income is attributable to (iii) as this is not provided free.  
  131. We have no hesitation in dismissing Mr Thomas' submission.  There was no evidence before the Tribunal that the row marked "Mooring fees and licences" in the 2017 accounts  is comprised of three elements and we agree with Mr Turnbull's submission that the income from mooring fees and licences is simply that: income from mooring fees and licences. We do not accept that it is necessary to refer to trot moorings as a comparator to determine the income from the  "bare right" to moor a houseboat at CYBC. Section 207(4) simply refers to the right to use a houseboat at only one location. The legislation does not elaborate further on the meaning of "the right to use a ... houseboat at only one location", in our judgment the words must be given their ordinary and natural meaning in the statutory context without any additional gloss. The context is that the section is defining the essence of a property business  as "generating income from land" and that definition is specifically extended to the right to use a houseboat at only one location.  The "bare right" to moor a houseboat at Cheyne Pier is precisely what the Boatowner is receiving in exchange for payment of the mooring fees. The maintenance charge, which we found as fact was charged at cost,  is itemised and calculated separately to the mooring fees and licences, therefore the income attributable to the right to moor a houseboat at Cheyne Pier  is the amount charged to moor a houseboat at Cheyne Pier. The income from the mooring fees and licences is "generating income from land" and is non-trading income.
  132. We do not accept that the  provision of the "exceptional" services by CYBC is somehow reflected in the cost of the mooring fees and is required to be stripped out. That position is not supported by the evidence before the Tribunal. BR's letter dated 31 October 2019 to HMRC stated:
  133. "As noted, the maintenance charge is effectively a reimbursement of costs incurred in maintaining the facilities and is not profitable. Instead, it forms part of the wider, value add service of the business alongside the mooring fees.

    Mooring fees cover the services that are considered to be exceptional when compared with services offered by other boatyards in the area. These services go over and beyond what is standard, and they therefore do "change the picture" to one in which a customer is paying for a full package of services."

  134. We agree with Mr Turnbull that the cost of the mooring fees at CYBC  is attributable to the market rate for mooring a houseboat at Cheyne Walk  and not the services provided under the  maintenance charges which are always  charged at cost. The CYBC sales brochure from 2014 described Cheyne Walk as "The prime residential houseboat site in London accommodating approximately 20% of all the houseboats on the tidal River Thames". Page 5 of the sales brochure describes the location of Cheyne Walk as "prime" and  how Boatowners moored at Cheyne Walk can access desirable local amenities in Chelsea and the surrounding areas. Mr Riches' advice dated 20 October 2017 (referred to at paragraph 7 above) considered the impact of various factors in determining the premium that can be secured for a 10-year mooring licence relied upon the PLA location indices. The PLA compiles a list of  location indices based upon data from London Property Watch which are used as the basis of charging for River Works Licences. The PLA's location indices enable the PLA to adjust upwards or downwards the basis for charging for River Works Licences depending on the location on the Thames. The PLA location price indices confirm that Cheyne Pier is categorised with the highest location index and is in the same category as Cadogan Walk which does not provide any services to boatowners. We consider it of note that  Mr Riches'  advice on the impact of various factors in determining the premium that could be secured for a 10-year mooring licence at Cheyne Walk makes  no reference to the  services, exceptional or otherwise,  provided at Cheyne Walk.  The letter dated 9 April 2018 from Mr Moffat to HMRC confirmed that mooring fees at Cadogan Pier are 16% more valuable per mooring despite Cadogan Pier not having a boatyard nor offering any services to boatowners.
  135. There is no requirement, as Mr Moffat asserted in evidence,  under the RWL for CYBC to separately itemise the maintenance charge in its accounts. The RWL simply requires at 13(c) of the Second Schedule that CYBC "keep proper and up to date records of all the mooring fees but not maintenance charges derived from vessels whilst they are moored at the Works". We agree with Mr Turnbull's submission that the maintenance charges are a separate category of activities distinct from the mooring fees and licences as evidenced by the separate entry in CYBC's accounts.  In  respect of Mr Thomas'  point (iii),  any  income in respect of the essential up-keep of the pontoon infrastructure is included in the maintenance charge income.
  136. The table at paragraph 50 above shows that 49.2% of CYBC's turnover is income from mooring fees and licences and 19% is income from the maintenance charges. Both of these two activities are non-trading activities and represent 68.2% of CYBC's total turnover which, on any view, is substantial. Mr Moffat's first witness statement at paragraph 8 refers to 25% of CYBC's turnover being  paid to satisfy its obligations under the RWL and the Lease. Para 8(a) stated  that CYBC paid approximately £128,000 per annum to the PLA under the terms of the RWL equating to about 15.5% of CYBC's turnover from mooring fees and licences and paragraph 8(b) stated that CYBC paid approximately £95,000 per annum to RBKC under the terms of the  Lease which equated to about 9.5% of CYBC's turnover from mooring fees and licences. The accounts cover an 18 month period and therefore the amounts payable to the PLA and RBKC must be multiplied by 1.5 to reflect the 18 month period. This  provides a total of £334,500 payable for the right to operate a marina at Cheyne Pier. When this sum is deducted from the mooring fees and licences turnover of  £1,015,612 the figure of £681,612 represents 33% of CYBC's total turnover. As stated at paragraph  86 above, whilst it is accepted that the percentage of time apportioned to dealing with mooring fees and licences is small, 1%, when looked at in commercial terms and its importance to CYBC, it conservatively represents a third of CYBC's total income. That is  substantial in the context of CYBC's activities as a whole. That conclusion is supported by the letter dated 9 April 2018 at paragraph 6 above in which Mr Moffat identified four areas of substantial value to CYBC which was not reflected in the purchase price, two of the identified areas were long licences and annual mooring fees.
  137. The letter dated 9 April 2018 from Mr Moffat to HMRC confirmed in respect of the valuation of CYBC that:
  138.  "The main value [of CYBC] was in the long term mooring licences ... We subsequently did more work on this and our estimate of fair market value was low ... the annual mooring fees have become out of line with the local mooring fees market. There is an opportunity to trend these fee over the next 0-3 years to the market value"

  139. BR's letter dated 31 October 2019 focused on addressing whether, when looking at CYBC in the round, the non-trading activities constituted less than 20% of CYBC's total activities stated:
  140.  "In terms of the tangible fixed assets of the company, CYBC had £1.7m of assets on its balance sheet at the end of September 2016. Apart from a boat it held on its balance sheet ... the rest of its assets were related to mooring fees (80% of the total fixed assets)."

  141. In light of the above, we consider that CYBC was carrying on activities which to a substantial extent included non-trading activities. CYBC's main source of income during the Period was from  mooring fees and licences which was income from exploiting a proprietary interest in land. As stated by BR in the previous paragraph, CYBC's balance sheet recorded that  80% of CYBC's total fixed assets were related to mooring fees.
  142. Conclusion

  143. For all the reasons set out above, ER was not available on the Appellants' disposal of the shares in CYBC and we dismiss this ground of appeal.
  144. Penalties

  145. We have made the following findings of fact in respect of the penalties.
  146. The Appellants' SATR for 2016/17 was overdue and on 2 August 2018, HMRC sent a letter warning that Mr Smith would issue a revenue determination if the SATRs were not filed in due course.
  147. The Appellants' filed their SATRs on 16 October 2018, the SATRs included a claim for ER.
  148. In 2014, MHA had been instructed by CML for a couple of years to advise on the Appellants' corporate tax affairs. Mr Moffat raised and first discussed the possibility of claiming ER with Mr Brendan Sharkey and Mr Nigel May both of MHA in the context of purchasing CYBC. The e-mail dated 19 February 2015 from Mr Moffat's Finance Manager, Edward Petre, to Mr Sharkey copied to Mr May and Mr Moffat colleague with  subject "Next week's meeting" listed items for discussion. Listed at bullet point four was "Entrepreneurs Relief" and at bullet point five was "Tax implications for both MC, Albyns and AM/CM personally". Mr Moffat  was "walked through" what ER was, its purpose and the requirements to claim ER by Mr May of MHA. Mr Moffat was told by MHA that they thought that a claim for ER was feasible. No written advice on claiming ER was provided by MHA to Mr Moffat.
  149. Following that advice, Mr Moffat  approached Ms Caroline Le Jeune of BR for her view on claiming ER. BR advised Mr Moffat on his personal tax affairs. We accepted Mr Moffat's unchallenged evidence that he had between four and five telephone calls with BR to further discuss a claim for ER. We find that it was more likely than not that Mr Moffat would have provided  the due diligence prepared by MHA to BR. Had Mr Moffat  got the impression from either MHA or BR that there was any doubt about claiming ER, he would have obtained Counsel's oral opinion which is what he had done on other matters requiring legal advice. We accept his evidence that he did not consider it worthwhile to obtain a formal written opinion from Counsel as he knew from previous experience that it would likely be so heavily caveated as to be worthless. No formal written advice confirming  Mr Moffat eligibility to make a claim for ER was provided by BR. Mr Moffat did not contact HMRC to ascertain his  eligibility to make a claim for ER.
  150. Discussion

  151. Mr Turnbull's submissions in respect of the Sch 24 penalties imposed because of the inaccuracy in Mr Moffat's SATRs as a  result of his careless behaviour are set out at paragraph 66 above and are not repeated here. Applying the legislation and case law to our findings of fact in respect of the penalties we have concluded that Mr Moffat was not careless and took reasonable care to avoid any inaccuracy.
  152. We agree with Mr Thomas' submission that the test is to consider what a reasonable taxpayer, exercising reasonable diligence in the completion and submission of the SATR would have done. In Hanson v HMRC [2012] UKFTT 314 (TC) at [19] and [21] Judge Cannan stated:
  153. "19. In my view carelessness can be equated with "negligent conduct" in the context of discovery assessments under section 29 Taxes Management Act 1970. In that context, negligent conduct is to be judged by reference to the reasonable taxpayer. The test was described by Judge Berner in Anderson (deceased) v Revenue and Customs Commissioners [2009] UKFTT 206 at [22], cited with approval by the Upper Tribunal in Colin Moore v Revenue and Customs Commissioners [2011] UKUT 239 (TCC): 

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

    21. What is reasonable care in any particular case will depend on all the circumstances. In my view this will include the nature of the matters being dealt with  in the return, the identity and experience of the agent, the experience of the taxpayer and the nature of the professional relationship between the taxpayer and the agent. In my view, if a taxpayer reasonably relies on a reputable accountant for advice in relation to the content of his tax return then he will not be liable to a penalty under Schedule 24."

  154. We found as fact that Mr Moffat had obtained  advice/views on a claim for ER from two reputable firms of accountants. There was no evidence before us nor was it suggested in cross-examination that advising on a claim for ER lay outside the expertise of either MHA or BR. The letter from BR to Mr Moffat dated 12 October 2018 enclosing the tax returns with supporting schedules and tax calculations for the year ended 2017 confirmed:
  155. "As discussed in recent email correspondence, a claim for [ER] has been made ... There is also a risk the that claim for [ER] could be denied by HMRC, either because the company has not been actively trading for a sufficient amount of time, or because of wide ranging anti-avoidance rules. Chis Smith called on 15 October 2018 and mentioned the company had only been owned from February 2016, which was less than 12 months to the date of sale in September 2016 - he therefore questioned whether Entrepreneurs Relief was correct or not. I explained there were pre-trade activities ongoing since September 2015, which met the 12 months test. Chris said he would be reading the disclosure wording on receipt of the tax return carefully and warned that any incorrect claim could result in penalties being charged."

  156. The only risk identified by BR in their letter was that HMRC were concerned that the  12-month ownership condition had not been satisfied. No other risks were mentioned or referred to by BR and there is no disclaimer of liability or caveat  to suggest that  making a claim for ER was contrary to BR's advice. The letter dated 25 April 2019 from BR to HMRC at paragraph 11 above confirmed that BR were satisfied that a legitimate claim for ER could be made:
  157. "No formal written advice was provided to Mr and Mrs Moffat prior to filing their tax returns for the year.  This was because we were in discussion with our clients in relation to the filing of the tax returns and were satisfied that (as set out above) a legitimate claim for ER could be made."

  158. The white space disclosure in box 54 of the SATR provided the underlying details of the claim for ER and was completed jointly by Mr Moffat and BR, the background information was  completed by Mr Moffat and the remainder by BR.
  159. Mr Turnbull additionally relied upon Mr Moffat's failure to contact HMRC to ascertain the correct tax treatment of his disposal of CML on 30 September 2016 submitting that a reasonable taxpayer would have contacted HMRC. We have no hesitation in rejecting this submission. There is no obligation on taxpayers to contact HMRC to ascertain the correct tax treatment of a transaction or any potential claim for relief. Furthermore, HMRC are under no obligation or duty to provide such advice to taxpayers and we would expect any such request to HMRC for advice to be declined and the taxpayer advised to seek independent professional advice. We would be surprised if HMRC replied otherwise. We agree with Mr Thomas' submission that the duty that the taxpayer is under is to correctly complete the tax return and, where appropriate, take advice from  competent tax advisers. That is what Mr Moffat did.
  160. We do not accept  Mr Turnbull's submission that the absence of a formal written advice from either MHA or BR  leads to the inevitable conclusion that Mr Moffat had not acted reasonably.  We found as a fact that Mr Moffat had obtained advice orally from professional and competent advisers and we do not consider it unreasonable to have done so.  HMRC have sought to impose a counsel of perfection upon Mr Moffat when  "The test to be applied ... is to consider what a reasonable taxpayer,  exercising reasonable diligence in the completion and submission of the return, would have done".
  161. Conclusion

  162. For the reasons set out above, we find that the Appellants took reasonable care to avoid inaccuracy in their SATRs and were not careless. We allow the appeals against the penalties.
  163. Decision

  164. As stated above, our decisions on the two matters before the Tribunal are as follows:
  165. (1)          We dismiss the Appellants' appeals in relation to ER.

    (2)          We allow the Appellants' appeals in relation to the penalties.

    Right to apply for permission to appeal

  166. 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.
  167.  

     

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