United Kingdom Special Commissioners of Income Tax Decisions

Colley & Anor v HM Inspector of Taxes [2005] UKSPC 00483 (7 June 2005)

SPC 00483

Capital gains tax – exemptions and reliefs – whether appellants entitled to relief for a transfer on gift of the goodwill of their partnership to a company – no

THE SPECIAL COMMISSIONERS

PETER COLLEY and NICHOLAS SIMON HILLBERG Appellants

- and -

MRS T CLEMENTS Respondent

(HM INSPECTOR OF TAXES)

Special Commissioner: Dr David Williams

Sitting in Cardiff on 21 and 22 March 2005 in public

Mr Munn, FCA, of Carstow & Co, accountants for the Appellants

Mr A J Mear, HM Inspector of Taxes, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1. Mr Colley and Mr Hillberg ("the Appellants") separately appealed against decisions made by the Respondent inspector of taxes (referred to in this decision with her colleagues as "the Inspector") to amend their income tax self-assessment returns for the year to 5 April 2000. The appeals were originally listed for hearing by the Bridgend General Commissioners but were transferred to the Special Commissioners at the application of the General Commissioners. A Special Commissioner directed that as the main point in the two appeals was essentially the same, the two appeals should be determined together.
2. I heard the appeals together as directed. Evidence for the Appellants was given by Mr Colley and by Mr Jonathan Rees, a chartered accountant with Shepherd Hallett, the firm of accountants acting for the appellants at the time of the events relevant to these appeals. Expert evidence was given for the Inspector by John Leslie Hailwood, a chartered accountant employed as a compliance accountant by the Respondents. The Inspector had, as directed, produced a bundle of documents and of authorities, a draft statement of facts, a witness statement in the form directed, and a skeleton argument. The accountants representing the Appellants formally agreed the statement of facts at the hearing. They did not produce any of the other directed documentation despite having agreed the terms of directions for production. Because of that, I set out what I consider to be the position more fully than I would otherwise in order to make clear what I accept as relevant evidence. I do so as documents were produced, and facts disputed, at the hearing by those acting for the Appellants without proper notice to the Inspector. I thought it fair to the Appellants themselves to accept some of this, but the Inspector rightly sought to reserve the position on issues introduced in this way.

The facts and issues in dispute

3. The following facts are found from the agreed statement of facts and other unchallenged documents. The Appellants had been in partnership in the fashion retail clothing business. No details of any partnership agreement were produced. It was accepted that, in accordance with the Partnership Act 1890, they were equal partners in the partnership.
4. The Appellants transferred their partnership business to a limited company, Hacker Limited ("Hacker") with effect from 1 September 1999. Hacker started trading that day, and the partnership ceased to conduct the business transferred at the same time. Hacker was incorporated some time before, but had been dormant until it started trading. Its share capital consisted at that time and subsequently of 100 £1 issued ordinary shares. Sixty were held in the name of Mr Colley and forty in the name of Mr Hillberg. The Appellants were also the two directors of Hacker, and Mr Colley was the company secretary. No documentation relating to the transfer of the partnership business or the business assets was produced to me or, indeed, appears to have existed. It was agreed that Hacker was a close company in the control of Mr Colley.
5. Mr Colley's self-assessment tax return for the year to 5 April 2000 was signed by him on 11 June 2000 and received by the Inspector on 27 June 2000. This showed that he was in partnership during the year and stated a share of partnership profits, but showed no disposals of any chargeable assets. The declared self-assessment for the year was £11,352.60.
6. Mr Hillberg's self-assessment tax return for the year to 5 April 2000 was signed by him on 13 May 2000 and received by the Inspector on 18 May 2000. This showed that he was in partnership during the year and stated a share of partnership profits, but showed no disposals of any chargeable assets. The declared self-assessment for the year was £11,353.40.
7. The partnership tax return for the Appellants' partnership was signed by Mr Colley on the same day as his own return and was received by the Inspector on the same day as that return. It showed that the final day of trading was 31 August 1999. It showed a net profit for tax purposes for the year to that date of £132, 235. It showed net business assets at that date, including those profits net of drawings, of £254,560.
8. A company tax return in form CT600 was received for Hacker for the year to 31 August 2000 by the Inland Revenue on 9 March 2001. It was signed by Mr Colley but undated. It was accompanied by a directors' report and financial statements. The directors' report was signed by Mr Colley as company secretary and was dated 27 February 2001. Under Note 6 to the accounts (intangible fixed assets) goodwill of £250,000 was "brought introduced" for 2000, there being no equivalent sum in 1999. Of that sum, £12,500 was amortised during the year, the balance of £237,500 being carried forward. Note 9 to the accounts (creditors – amounts falling due after one year) noted that the balance in the directors' loan account stood at £207,221 for 2000, the equivalent figure for 1999 being nil. This reflected a credit to that account during the year of £250,000.
9. Shepherd Hallett were agents to the Appellants for all the above filings. On 2 May 2001 Shepherd Hallett wrote in reply to a letter from the Inland Revenue stating that the goodwill was acquired from the partnership business, and that it had been valued at twice the maintainable profits of the business by the directors (the Appellants).
10. On 24 August 2001 the Inspector wrote separately to the two Appellants giving notice of enquiries into their self-assessment returns including enquiries about the transfers of goodwill to Hacker. Both letters invited a computation of any gain arising from the disposal of the goodwill and any claim under section 162 of the Taxation of Chargeable Gain Act 1992 ("TCGA"). Shepherd Hallett replied to both letters for the Appellants. Both replies contained the statement that:

"Our client sold his share of the goodwill … to Hacker Limited for £125,000 which was credited to his directors loan account."

Both letters then purported to offset the sale proceeds of £125,000 by a claim for retirement relief, leaving a nil chargeable gain.

11. The Inspector replied to both these letters on 7 December 2001. In both replies the Inspector noted that the age of the Appellant was below that at which retirement relief could be claimed in the absence of ill-health leading to a cessation of business. The writer of the letter noted however that the Appellant continued in business after the disposal, in the capacity of company director and therefore presumed that ill-health was not relevant. But the letter invited further information.
12. On 1 February 2002, again in very similar letters, Shepherd Hallett replied to these two letters noting the comments on retirement relief. The letters then stated:

"We would therefore be grateful if you could accept this letter as a formal claim under section 162 TCGA 1992 in respect of the chargeable gain arising on the disposal of goodwill by our client.

The gain arising on this goodwill has been rolled over against the base cost of the shares subscribed for by our client in Hacker Ltd."

This appears to have crossed with other letters from the Inspector because the first of those paragraphs was repeated in each of two letters from Shepherd Hallett to the Inland Revenue dated 15 February 2002.

13. The Inspector's replies to the two letters of 15 February 2002 were dated 25 February 2002. These both acknowledged the section 162o claims but rejected them on the ground that relief under section 162 of that Act was subject to the mandatory condition that a business transferred all its assets and liabilities as a going concern to a company in exchange for shares. That had not happened here. These letters also note that telephone conversations occurred between Shepherd Hallett and the Inland Revenue on 11 May 2001 and 14 February 2002.
14. Shepherd Hallett sent a single reply to these letters, dated 28 February 2002. This letter states:

"The goodwill … was gifted to Hacker Limited by our clients under the provisions of section 165 TCGA 1992.

No consideration has been received by our clients in respect of the transfer of the goodwill and there has been no credit to our clients directors loan account in hacker Limited in respect of the goodwill. The accounts of Hacker Limited for the year ended 31 August 2000 will be restated to reflect this fact.

…

The opening statement of affairs for Hacker Limited is therefore as detailed in our letter of 15 February 2002. You will note from this opening statement of affairs that no credit has been made to the directors loan account in respect of the goodwill that was gifted to the company."

15. A copy of "the amended accounts in respect of Hacker Limited for the year ended 31 August 2000" was sent to the Inland Revenue on 26 March 2002. Although the letter was headed by the names of the two Appellants it was stated to be a formal amendment to the corporation tax return of Hacker as well as a claim for relief under section 165 for the gift of the goodwill to the company. The letter stated that the original accounts contained an error in that the goodwill was reflected in the balance sheet. The claim under section 165 TCGA was repeated in a letter under the heading "Hacker Ltd" to the Respondents on 21 June 2002.
16. This was followed by an attempt by the Inspector to agree a statement of facts. The initial draft was not agreed, the reasons for rejection being stated in a letter dated 3 April 2003 from the accountants for several reasons, including:

- the net current assets of the partnership were sold to the company at market value; there was no transfer as a going concern.

- no shares were issued in exchange of partnership assets and consequently section 162 TCGA could not apply.

- the original accounts showed a sale of the goodwill by the partners to the company but "after consulting Financial Reporting Statement 10 it was decided that the goodwill should not be recognised in the balance sheet as

the statement confirms that only goodwill purchased from non-connected parties should be recognised. The amendment to the accounts was for accounting reasons rather than taxation reasons. The amendment to the accounts was necessary in order for the accounts to comply with the appropriate financial reporting statement."

- the goodwill was gifted to the company and an election under section 162 made.

17. This account shows the history of the claims for the Appellants not to pay capital gains tax on the gains realised on the transfer of their partnership business to Hacker, and the associated tax position of Hacker. It was first asserted – for Hacker on 2 May 2001 – that Hacker acquired the goodwill of the partnership at a figure that was twice the maintainable profits of the business, on a valuation made by the directors of Hacker. This was £250,000. It was asserted for Mr Colley on 30 November 2001 that he had sold his share of the goodwill to Hacker for £125,000 but that he was entitled to retirement relief. A similar assertion was made for Mr Hillberg on the same day. When this was rejected by the Inspector because of the ages of the Appellants, a claim was made separately for both Mr Colley and Mr Hillberg on 1 February 2002 under section 162 TCGA on the ground that the goodwill had been rolled over against the base cost of the Hacker shares. This was at least implicitly based on an exchange of the goodwill for shares. When this was rejected by the Inspector because there were no relevant shares, a claim was made separately for both Mr Colley and Mr Hillberg under section 165 TCGA. When this was rejected by the Inspector on the grounds that this required the goodwill to have been gifted, it was asserted jointly for the Appellants on 28 February 2002 that the goodwill of the partnership had been gifted to Hacker.
18. It is obvious from this summary that the assertion made on 28 February 2002 was the opposite of the assertions made on 2 May 2001 and fundamentally different to that made on 30 November 2001. It is perhaps not surprising, given this history, that there has been a failure to agree the facts underlying the claim that section 165 TCGA applied. I agree with Mr Mear for the Inspector that these issues are:

- did the appellants make a disposal of goodwill to Hacker Ltd?

-if so, did Hacker Ltd give consideration for that disposal?

The law

19. The argument before me was concerned with the facts. I do not need to set out the relevant law at any length as it was fully presented in the papers produced by the Inspector.
20. The relevant parts of section 165 TCGA are:

(1) If –

(a) an individual (the transferor) makes a disposal otherwise than under a bargain at arm's length of an asset within subsection (2) below, and

(b) a claim for relief under this section is made by the transferor and the person who acquires the asset (the transferee) …

then, subject to subsection (3) and sections 166, 167 and 169, subsection (4) below shall apply in relation to the disposal.

(2) An asset is within this subsection if –

(a) it is, or is an interest in, an asset used for the purpose of a trade profession or vocation carried on by –

(i) the transferor …

(3) (not relevant)

(4) Where a claim for relief is made under this section in respect of a disposal –

(a) the amount of any chargeable gain which, apart from this section, would accrue to the transferor on the disposal, and

(b) the amount of the consideration for which apart from this section the transferee would be regarded for the purposes of capital gains tax as having acquired the asset …

shall each be reduced by an amount equal to the held-over gain on the disposal.

(5) (not relevant)

(6) Subject to part II of Schedule 7 and subsection (7) below, the reference in subsection (4) above to the held-over gain on a disposal is a reference to the chargeable gain which would have been accrued on that disposal apart from subsection (4) above and (in appropriate cases) Schedule 6, and in subsection (7) below that chargeable gain is referred to as the unrelieved gain on the disposal.

(7) In any case where –

(a) there is actual consideration (as opposed to the consideration equal to the market value which is deemed to be given by virtue of section 17(1)) for a disposal in respect of which a claim for relief is made under this section, and

(b) that actual consideration exceeds the sums allowable as a deduction under section 38,

the held-over gain on the disposal shall be the amount by which the unrelieved gain on the disposal exceeds the excess referred to in paragraph (b) above.

21. In addition, the Inspector referred to sections 17, 18 and 286(6) TCGA. Her contention, which was not challenged by the Appellants and was fully consistent with the evidence, was that Mr Colley, having the majority shareholding in Hacker, was connected to Hacker within the terms of section 286. Accordingly, section 18 TCGA applied. By section 18(2) Mr Colley and Hacker are to be treated as parties to a transaction otherwise than by a bargain at arm's length. It further followed, by reason of section 17(1)(a) TCGA the acquisition and disposal were to be assumed to be at market value. In the opinion of the Inspector that applies to this case. But this is subject to the exception in section 17(3) if there is no consideration in money or money's worth for the acquisition. The Appellants contend that this exception applies. The Inspector also contended that Mr Colley was assessable on a Schedule E emolument by reason of that connection also, if consideration was given. Mr Colley did not agree. But no point was taken on the terms of these provisions or on the relevant facts, so I do not need to set them out.
22. As no issue therefore arose between the parties other than whether the disposal was a gift either in fact or as a matter of general law, I do not need to go beyond these provisions.

The Appellants' case

23. The Appellants maintained that as a matter of fact no consideration had been given by Hacker to either Mr Colley or Mr Hillberg for the transfer of the goodwill from the partnership to Hacker. This was so notwithstanding that it was accepted that at a result the transfer implicitly involved a transfer of value from Mr Hillberg in his capacity as an equal partner to Mr Colley in his capacity as controlling director of Hacker. This implicit transfer was put to Mr Colley in evidence and he agreed that this was the case.
24. In order to maintain this view, the Appellants also had to maintain that their initial statements to the Inspector were incorrect in fact, and also that the original accounts of Hacker both as submitted to the Inspector and as filed at Companies House were incorrect. The Appellants went beyond that to contend further that once the corrected accounts had been filed, the original accounts ceased to exist as evidence. They also contended that there was no evidence that the Appellants had received consideration for their goodwill. They finally contended that the Inspector (that is, a colleague) had accepted the Hacker accounts as corrected and so could not contend to the contrary as against the Appellants.
25. Mr Colley's statement in evidence was that the original accounts were incorrect and that the revised accounts, showing no consideration for the transfer of the goodwill, were correct. He accepted this notwithstanding that he had signed, and was responsible as a director, for those accounts. He also contended that the valuations of £250,00 was "very excessive". In reply to questions from Mr Mear, Mr Colley agreed that he had only become aware of the dispute a couple of months before the hearing. He was taken to the accounts and reports of directors for Hacker, and agreed that either he or Mr Hillberg had signed them. He also agreed that he was aware, as a broad overview, of his responsibilities as a director. But he had relied on the professional advice he had received as he accepted that he did not completely understand the accounts. When the various entries in the accounts were put to him, he accepted that they were there but regarded it as a paper exercise from which he had never had any money. But he could not explain how the sums said in the accounts to have been taken out of the directors' loan account by him had been withdrawn unless it was as wages. With regard to the correction of the accounts, he could not recall realising that the accounts were in error or asking the accountants to correct them. In so far as he could recall what brought it to his attention it was probably the tax bill for tax on £250,000. He would have asked the accountants to deal with that, as would anyone else in his position.
26. Mr Colley was then taken to the dates shown on various documents put in evidence. When shown the letter closing the enquiry into his return for the year to 2001, sent to him by the Inspector dated 1 August 2002, he confirmed that this might have been the letter that alerted him to the problem. He was shown the copy of the Accounts of Hacker for the year to 31 August 2000 submitted to the Inspector on 9 March 2001 and that the date shown on the directors' report against his signature was "27/02/01". He did not know why, in the same document, the date of signature of the balance sheet by Mr Hillberg had been altered from "2000" to read also "27/02/01", or why it had been necessary to change it. He was also shown the copy of the same accounts as submitted to Companies House. He agreed that the date against Mr Hillberg's signature on the balance sheet was "20 May 2002". He was then shown the revised accounts of Hacker for the same period submitted to Companies House. He agreed that he had signed the balance sheet on those accounts, and that the date was states as 20 June 2001, the "2001" being a correction for the typed number "2002". He did not know why this date had been altered to make it earlier than the typed date. He was finally shown another version of the accounts of Hacker for the year to 2000, on this occasion sent to the Inspector with a covering letter dated 21 June 2002. He agreed that this version of the accounts had been signed by him – the same signature as appeared on the revised accounts submitted to Companies House – but that there was no date against his signature, and the "2002" as typed in was uncorrected. He also agreed that he had signed the directors' report in the same accounts, and that this was undated in the version sent to the Inspector in June 2002, but had been dated 30 June followed by an unclear figure that could be 2001 or 2002 on the version sent to Companies House. He agreed that he must have signed the reports and accounts without a date being added at that time. He could not now recall when he did sign. He had not himself inserted the dates.
27. With regard to the underlying decision about the transfer of the goodwill, he was asked when it was decided that the transfer had been a gift. His reply was that they may not have agreed it but that is what happened.
28. Mr Reese then gave evidence. He was the accountant who acted for the Appellants in connection with the current dispute. His evidence was tendered at first as expert evidence. Mr Mear objected that proper notice had not been given of this. I agreed, and indicated that I would accept the evidence as it related to the transaction, not as expert evidence about accounts generally.
29. In his statement Mr Reese confirmed that there was no formal agreement transferring the assets of the partnership to the company. He also accepted that he had not seen any evidence to support the terms of the transfer though he could not be categorical that there was none. It would be his standard practice to have a written agreement if there was a sale. He also stated that he had never seen any evidence of consideration. However, when asked about who had transferred the business to the company, he stated that he had not done this and he did not know who had. He had not been involved personally and could not recall who was involved. He had become involved personally only when the tax investigation was opened. But he accepted that the contentions that the Appellants were entitled to retirement relief and rollover relief under section 162 TCGA were errors. When it was put to him, after he had been taken to several of the letters and the different sets of accounts, that the original accounts were correct and there was nothing to correct in them, he denied that. He could not assist on the problem of the dates on the documents, save that none were in his handwriting and he did not recognise any of the handwriting. And he did not accept that the correction of the accounts was because of the tax issues rather than errors in the accounts or accounting practice.
30. The Appellants also sought to introduce issues from, and correspondence about, the corporation tax returns and self-assessments of Hacker into the case. No notice had been given, as it should have been, that these issues were to be raised and specific documents produced. I allowed some to be admitted against Mr Mear's objections, so that the issue could be explored a little further. But I indicated that the Inspector would need to be given a fair opportunity to reply to any new issues introduced in this way and if necessary that I would allow an adjournment for that to happen and would consider an application for costs if I made that decision. In the outturn, no adjournment was requested and nothing of note emerged from the new letters. I do not accept from the evidence I saw that any decision taken by any colleague of the Inspector about Hacker's corporation tax position assists the Appellants in this enquiry.

The Inspector's case

31. For the Inspector, Mr Mear contended that the original accounts were the correct accounts. The revised accounts received by Companies House in March 2003 were not properly revised, as there was no error justifying the correction. Any change in the view taken about the transfer of the goodwill had been taken after the date on which the original accounts were prepared and were therefore not relevant. The original accounts were therefore to be considered in evidence. The value of the goodwill had been agreed and was not in dispute. The Inspector contended on the evidence of the original accounts that there had been consideration for the transfer whether or not the Appellants had received cash. The original accounts had shown the £250,000 credited to the directors' loan accounts. That was money's worth, as the accounts themselves evidenced. This was shown by the sums offset against the credit in the loan accounts in the original accounts.
32. The Inspector submitted a lengthy report with annexes from Mr Hailwood as an expert witness. Mr Hailwood gave evidence in support of his report. He confirmed his view that if the goodwill was sold by the partners to Hacker, then the original accounts submitted by Hacker were correct. If there was a gift of the goodwill on or before the date of signing the original accounts, then the revised accounts were correct. But if the decision that the transfer had been a gift was dated after the date of the original accounts, then the original accounts, and not the revised accounts, were correct.
33. In reply to questions from Mr Munn, Mr Hailwood confirmed his view that if the original accounts were properly corrected then the revised accounts replaced them. But the original accounts would only cease to exist if that was so. He had seen no evidence that there was an error. With regard to the directors' loan accounts, he accepted that it was normal for directors to draw down rounded sums on them and then sort the matter at the end of a year.

My decision

34. I do not set out the Inspector's argument in full in this case because, with no disrespect to Mr Mear's full exposition, it comes back to one central issue. It is whether the Appellants have or have not persuaded me on the balance of probabilities that the Inspector's alterations to their self-assessment returns are incorrect in law or fact.
35. To discharge that burden, the Appellants have to show that not only the original accounts submitted both to the Inspector and to Companies House were wrong about the stated consideration for the transfer, but also that this as because of an error when those accounts were originally signed. They also have to show why they relied on the original accounts in their self-assessment returns and in the representations made for them by their agents in correspondence from those returns being submitted in 2000 until the error was discovered.
36. The Appellants have not succeeded in meeting that evidential burden. I accept that there appears to be no documentary evidence of what happened at the date of actual transfer. But I draw no specific conclusion from that, save that it clearly rules out a roll-over in exchange for shares. It would in my view have been good practice to document the transfer whether it was by sale or by gift. The oral evidence about the details of the transfer is weak. Mr Colley stated that he left it to the accountants, and I accept that that is probably what happened. He was asked to sign various documents and he did so. He received no cash at the time or later. He was concerned that he should receive a larger share of the benefit of the transfer to Hacker, and he did by means of his 60 per cent shareholding in Hacker. Beyond that he was concerned only that he did not pay more tax than was necessary, a view that would be expected of anyone in his position but does not argue to any particular conclusion. I accept that he was not aware of the details even though he signed, and therefore should have read and agreed, the original accounts. Mr Reese was unable to shed any light on what happened. I accept that he was not aware of who arranged the transfer, but he was unable either directly or indirectly to confirm anything beyond his own role after the tax dispute had crystallised. And I was offered no evidence from anyone who claimed to have been involved in the details as an adviser or intermediary at the time the transfer was made. My conclusion is that no clear decision was taken at the time by the partners about how the transfer should take place. They accepted the arrangements made for them.
37. What were those arrangements? The only documentation dating before the tax dispute crystallised consists of the original set of accounts and the accompanying directors' report, the self-assessment returns, and the letters to and from the Inspector and colleagues. These all points in one direction. Those advising the Appellants advised that the transfer of the goodwill was to be taken as at market value – the amount of which is not now in dispute. It was taken as £250,000. It was presented at the time as the valuation of the Appellants. That sum was shown as goodwill introduced in the original accounts. After amortisation, the balance was shown as an intangible fixed asset. This was balanced by adding a credit of £207,221 to the directors' loan account, as against a debit of £100 in the previous year. The credit was shown as falling due after one year. If that is correct – and it was not only prepared but also signed as correct in 2001 – then Mr Colley would also be correct in saying that he received no actual cash from the transfer itself. It would be reflected in the existence of the credit in the loan account and the value of the shares held in Hacker. That is consistent with the original claim that the Appellants had made a gain on the transfer, but were seeking to discharge the tax liability by reference to retirement relief. If there had been no gain, as is now contended, why was retirement relief claimed, however mistaken the facts about the claimants' ages (as against the transactions causing the gains) that claim might have been? I can see no persuasive explanation for that.
38. I have heard and seen no firm evidence – as against assertion – that the original accounts, and the statements made on the same factual basis on which they were drawn up, were wrong at the time they were first signed and so needed correcting. I take the signatures to the original accounts to have been added in or about February 2001. I have in particular been shown no minutes of the Board of Hacker to explain why it was thought necessary to restate the accounts, nor of any written recommendation to it, nor any other document disclosing that a correction of the accounts was in consideration because of factors that arose before that date. The revised accounts bear a date that purports to be in June 2001 (corrected, but not completely, from 2002 on page 4 and left somewhat unclear on page 1), but they were not filed with Companies House until March 2003, and the copy of the revised accounts sent to the Inspector in June 2002 was undated. Bearing in mind that there is a typed date of "2002" on those accounts, this suggests that the revised accounts had not been dated until at the earliest late June 2002 – and possibly some time after that - and that the date was added after signature. I heard and saw no evidence that persuaded me that this was not so. On that basis, the revision of the accounts took place only after queries had been raised about the earlier accounts by the Inspector. This is not persuasive of an error that, as was contended for the Appellants, arose from accounting considerations at the time of the transfer rather than tax considerations that emerged later. Nor is that contention consistent with the earlier mistake made about the retirement relief claim. Nor was I offered any evidence for the Appellants to explain how that mistake came to be made by them or their advisers.
39. This case falls to be decided entirely by reference to the power given to me by section 50(6) of the Taxes Management Act 1970. If it appears to me by examination of the appellant on oath or affirmation or by other evidence that the appellant is overcharged by a self-assessment, the assessment shall be reduced accordingly, but otherwise the assessment shall stand good.
40. In summary, I am not persuaded by the submissions or evidence for the Appellants. The fact that the original accounts of Hacker were replaced by other accounts does not remove those earlier accounts from the evidence. Accounts cannot just be rewritten at whim. It has to be shown that there was a valid reason for restating the accounts before the revised accounts displace the earlier accounts. I am not satisfied that there is a sound reason for regarding the original accounts as needing replacement so far as those accounts are relevant to these appeals. Accordingly, I do not accept the revised accounts have displaced the original accounts in these appeals. There is therefore no sound evidence to lead me to question the basis of fact on which the Inspector has approached the self-assessments of either Appellant. Any changes made in those accounts were the result of later considerations or other reasons.
41. Accordingly, under section 50(6), the Inspector's contentions stand good. The claims under section 165 TCGA fail, and I confirm that the claims under section 162 and for retirement relief must also fail.
42. The Inspector's amendment to Mr Hillberg's self-assessment for the year to 5 April 2000 stands good. This is on the agreed basis that the profits from property letting are revised to £3408 and partnership profits should be revised to £49,215. In addition, on the basis accepted by me Mr Hillberg made a chargeable gain in respect of his disposal of goodwill to the partnership of £106,250 after taper relief but before the annual exemption. As a result, the amount of the self-assessment as amended is £54,211.40.
43. In relation to Mr Colley, there is again an agreed adjustment to profits of £3408 for profits from property to the self-assessment. In addition it is clear that he is connected to Hacker by reason of his majority shareholding. Accordingly, sections 17 and 18 of the Taxation of Chargeable Gains Act 1992 apply. It has been agreed between Mr Colley and the Inspector that the market value of the transfer of goodwill for those purposes is £100,000, and this must be put into the self-assessment. The additional £25,000 of the £125,000 received for the transfer of goodwill is assessable as a Schedule E emolument on Mr Colley under section 154 of the Income and Corporation Taxes Act 1988. Mr Colley's self-assessment for the year to 5 April 2000 is to be amended accordingly. If there is any dispute on the final figures for this assessment then it is to be referred to me or another Special Commissioner for decision.
44. I add a final paragraph about the conduct of this case for the Appellants. Those representing the Appellants failed to comply with several of the Special Commissioner's directions for the hearing of this case notwithstanding that they themselves had agreed those directions some time ago. I was not persuaded of any good reason for any of the failures, let alone the cumulative effect of them. I indicated that on this occasion it would not affect the decision I took about the Appellants' appeals and it did not. But I drew attention during the hearing to both Regulation 21 (orders for costs) and Regulation 24 (penalty for failure to comply with tribunal direction) of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994.

DAVID WILLIAMS

SPECIAL COMMISSIONER

RELEASE DATE: 7 June 2005

SC 3081/04