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Cite as: [2004] UKSC SPC00451, [2004] UKSC SPC451

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Cook v HM Inspector Of Taxes [2004] UKSC SPC00451 (29 November 2004)

SPC00451

INCOME TAX — relief for error or mistake — TMA 1970 s 33 — whether part of claim out of time— yes — whether conditions for relief satisfied — motoring expenses — returns made on basis of actual cost but taxpayer seeking to benefit from fixed profit car scheme — conditions not satisfied — appeal dismissed

THE SPECIAL COMMISSIONERS

IAN FRASER COOK Appellant

- and -

PAULINE WOOD (HM INSPECTOR OF TAXES) Respondent

Special Commissioner: Colin Bishopp

Sitting in public in North Shields, Tyne and Wear on 19 October 2004

The Appellant appeared in person

June Kennerley of the Northern England Regional Appeals Unit for the Respondent

REASONS FOR ORAL DECISION

I informed the parties at the conclusion of the hearing of this appeal that it would be dismissed. My reasons now follow.

The appeal is by Ian Fraser Cook, who carries on business as a consulting engineer, against the Respondent's refusal to allow him relief, in accordance with s 33 of the Taxes Management Act 1970, by reason of an error or mistake in his returns for the years 1990/91 to 2000/01 inclusive. Three issues arise: first, whether (as the inspector contends) Mr Cook's claims for some of those years are out of time; second, whether s 33 applies at all; and, third, the arithmetic of Mr Cook's claims, assuming all or any of them are allowed in principle. I was not, however, asked to deal with the last of those issues, which it was agreed should be deferred to another occasion, should Mr Cook be at least partially successful on the first and second issues.

Mr Cook represented himself at the hearing, while the inspector was represented by June Kennerley of the Revenue's Northern England Regional Appeals Unit. Both parties provided me with a number of documents. Although Mr Cook addressed me to some extent on the facts of the case, I heard no formal evidence.

Mr Cook's claim relates entirely to the manner in which the expenses he incurred in running a car for the purposes of his business were treated in his annual returns. Relief was claimed in those returns by reference to the expenses actually incurred; Mr Cook claims that, instead, he should be allowed to take advantage of the Fixed Profit Car Scheme which, he says, would result in the increase of the relief available to him in each of the relevant years. Such limited information as I had about the arithmetic of the claims suggested that that might not necessarily be correct.

The inspector's case is that Mr Cook's claim was made by him in a letter dated 31 October 2002 and received on 1 November 2002. There is no doubt that a claim was made in that letter and in unequivocal terms. Mr Cook, however, relied upon a letter, which he wrote on 21 January 1997, in reply to a letter he had received from the Revenue about the then recent introduction of self assessment. That letter referred to the need for taxpayers in Mr Cook's position to make payments on account and offered the opportunity, by use of form SA303, to apply to reduce those payments on account. Mr Cook's reply, after acknowledging the Revenue's letter, went on to say:

"I have been reviewing your tax demands and the monies paid for the last 6 years and consider that there has been an error in the computations and there appears to have been an overpayment of tax by this Practice.

I would therefore ask you to forward form SA303 in order to make a claim to reduce my payments on account as I consider that there are errors in the submission of the allowable expenses."

Those two paragraphs, Mr Cook said, were sufficient to amount to a claim for relief under s 33 and consequently the applicable time limit (to which I shall come shortly) should be calculated from the date of that letter.

Mr Cook accepted that he had not pursued the matter any further, in between his letter of 21 January 1997 and his further letter of 31 October 2002 and he accepted too that in the intervening period he had submitted further returns, claiming relief for the cost of running his car on an actual cost basis. Mr Cook's explanation was that, in the intervening period of almost six years, he was pre-occupied by other matters and he had not realised, first, that he had overlooked taking the matter further and, second, that the accountants, who at the time were completing his tax returns for him, were continuing to claim relief on an actual cost basis. Those assertions are somewhat undermined by a further letter written by Mr Cook to the Revenue on 11 March 2004 in which he mentioned, with the intention of supporting his claim, that he had been unaware of the fixed profit scheme until shortly before his letter of 31 October 2002.

Section 33 of the Act has been amended during the course of the period with which I am concerned. The earlier version applies to years of assessment up to and including 1995/96 and the later version to the subsequent years. Since the Revenue accept that the claim in respect of the subsequent years was made in time, I do not need to consider the statutory provisions relating to that time limit. For the earlier years, s 33 (1), so far as material, read as follows:

"(1) If any person who has paid tax charged under an assessment alleges that the assessment was excessive by reason of some error or mistake in a return, he may by notice in writing at any time not later that six years after the end of the year of assessment … in which the assessment was made, make a claim to the Board for relief …"

Mr Cook acknowledged that the time limit for each of the years up to and including 1995/96 had expired before he wrote his letter of 31 October 2002 and that his claims would be in time only if he could satisfy me that his letter of 21 January 1997 amounted to a claim falling within s 33. The Board has a discretion to allow a late claim, which it has declined to exercise in this case, and there is no appeal to the Special Commissioners against that exercise of discretion: see Steibelt (Inspector of Taxes) v Paling [1999] STC 594, especially at p 602 where Sir Richard Scott VC reviewed the authorities.

It seems to me quite clear that Mr Cook's letter of 21 January 1997 cannot reasonably be considered to be notification of a claim falling within s 33. The only error referred to is an "error in the computations" which seems to me, if it points to anything at all, to point to an error of arithmetic. It certainly cannot be said to put the Revenue on notice that Mr Cook was seeking to change the basis upon which he was claiming the relief of motoring expenses, the more so if, as I am satisfied, he was unaware at the time he wrote the letter that an alternative method of calculating motoring expenses was available to him. It seems to me that if a claim is to be made, the notification of it must have a reasonable measure of particularity. Had Mr Cook followed up his letter, promptly, with adequate detail of the basis on which he made his claim, it might well be arguable that the date of his letter should be taken as the determining point for the application of any time limit. However, he did not do that; almost six years went by before he took the matter any further and, as I have said, in the meantime he continued to render his returns on what he now maintains was an incorrect basis. Accordingly, I agree with Ms Kennerley that the claim made in 2002 in respect of the years of assessment up to and including 1995/96 was made out of time. As I have indicated, I have no jurisdiction to extend the time limit by overriding the Revenue's exercise of its discretion not to do so itself.

I mention briefly in passing that during the course of the correspondence, Mr Cook had sought to rely on s 42(8) and (9) of the 1970 Act but since those provisions apply to an incapacitated person (which Mr Cook is not) they are of no relevance in this case. Mr Cook did not pursue the point at the hearing.

The inspector's case is that, even though Mr Cook's claim for relief in respect of the years from 1996/97 onwards was made in time, it cannot succeed because of the provisions of sub-s 33(2A), which applies to years of assessment from 1996/97 onwards in the following terms:

"(2A) No relief shall be given under this section in respect of –

(a) an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time it was made; or

(b) an error or mistake in a claim which is included in the return."

It was common ground that Mr Cook's claims for relief had been based on the actual expenditure he incurred, that expenditure being claimed as a deduction when computing his business profits as a self employed person. The fixed profit scheme became available fur use by self-employed persons in the year of assessment 1996/97. The scheme was originally non-statutory, though it has more recently acquired a statutory foundation. The manner in which it was to be applied was described in the Inland Revenue's Tax Bulletin Issue 22 of April 1996, in the following terms:

"Inspectors will not object to taxpayers computing their expenses using a fixed rate per business mile provided that:

the rate used does not exceed the appropriate Fixed Profit Car Scheme (FPCS) mileage rate for the car at the time it is used. These rates are published annually by the Inland Revenue (most recently in a press release dated 28/11/95 announcing the rates for 96/97);

the annual turnover of the business at the time the car is acquired does not exceed the VAT registration threshold (currently £47,000);

no other motoring expenses (other than interest on a loan used to purchase the car) are claimed and no capital allowances are claimed on the car (since the FPCS rates already contain an element to allow for depreciation);

such a basis is applied consistently from year to year so that any change to or from an 'actual' basis (including one required by a change in turnover relative to the VAT registration threshold) takes place only when one car is replaced by another."

Ms Kennerley's first point was that even if Mr Cook were able to overcome the time limit with which I have already dealt, he could not in any event have taken advantage of the scheme for years of account before it was introduced. Since the scheme is a concession from what would otherwise be the statutory requirement, that argument seems to me to be bound to succeed. Secondly, she said, Mr Cook could not take advantage of it in any event. He did not qualify, by reason of his not having elected to change from one method of accounting for his motoring expenses to the other on a change of vehicle. One of the facts agreed in the case was that there had been no change of vehicle in any of the tax years from 1996/97 to 2000/01 and for that reason alone, Ms Kennerley argued, Mr Cook was not entitled to amend his claim from one based on actual cost to one based on the scheme. The VAT registration threshold is not, I think, a material consideration since Mr Cook ceased to be registered from January 1996, when his turnover fell below the threshold (though it would have been a factor had his claims for the years 1995/96 and before survived). One of the qualifying conditions for relief under s 33 was that the taxpayer "has paid income tax" which Mr Cook had not. He had, in fact, been in prolonged dispute with the Revenue about the amount of his tax, which had resulted in the making of various Court orders against him, but he had not in fact made any payment for the relevant years. Lastly, he had breached the terms of Tax Bulletin 22 because in his revised tax computations, submitted in support of his application for relief pursuant to section 33, he had included claims for capital allowances.

While I am not convinced that the last of those points would disqualify Mr Cook from obtaining relief under s 33, since it seems to me that his revised calculation could be amended to eliminate capital allowances, he had no answer to the remaining points. In essence, his argument amounted to no more than a complaint that it was unfair that he should pay tax on one basis when, if he were allowed to use another, he might pay less. That, of course, is not a sufficient reason for me to allow his appeal: Mr Cook must satisfy me that he qualifies for relief within the terms of s 33. Since his claim is for relief from his own (or his agent's) mistake, it necessarily follows that he must bring himself squarely within the qualifying conditions of s 33 if he is to succeed.

It was quite clear to me that he has not done so and in those circumstances I concluded that his appeal must be dismissed.

COLIN BISHOPP

SPECIAL COMMISSIONER

Release Date: 29 November 2004

SC/2004/3054