United Kingdom Special Commissioners of Income Tax Decisions

You are here: BAILII >> Databases >> United Kingdom Special Commissioners of Income Tax Decisions >> County Pharmacy Ltd v Revenue and Customs [2005] UKSPC SPC00495 (03 August 2004)
URL: http://www.bailii.org/uk/cases/UKSPC/2005/SPC00495.html
Cite as: [2005] UKSPC SPC495, [2005] UKSPC SPC00495

[New search] [Printable RTF version] [Help]

County Pharmacy Ltd v Revenue and Customs [2005] UKSPC SPC00495 (03 August 2004)

SPC00495

INCOME TAX – Car and Fuel Benefit – is a motorhome a car within the meaning of s168(5)(a) ICTA 1988 – yes – motorhome provided for personal use and by reason of employment – taxpayer liable to pay income tax on car and fuel benefit – Appeal dismissed.

DISCOVERY ASSESSMENT – No tax return produced in evidence – is evidence of the tax return a necessary pre-requisite for making a decision about whether the Revenue has complied with the condition of s29(5) TMA 1970 - yes unless destroyed or lost – the burden of adducing evidence of the return rests on the taxpayer- no evidence adduced – discovery assessment validly made.

NATIONAL INSURANCE CONTRIBUTION – Class 1A NIC – Company liable to pay additional Class 1A on car and fuel benefit – Appeal Dismissed.

SPECIAL COMMISSIONERS

COUNTY PHARMACY LTD Appellant

- and -

HM REVENUE and CUSTOMS Respondents

DENNIS ALLEN HAYWOOD MORRIS Appellant

- and -

HM REVENUE and CUSTOMS Respondents

Special Commissioner : Michael Tildesley OBE

Sitting in public in Birmingham on 14 July 2005

Dennis Morris appeared in person acting for himself and the Appellant Company in his capacity as managing director

Peter Death, HM Inspector of Taxes, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

The Appeal

Mr Morris was appealing against an assessment made on discovery for the year ended 5 April 2001 and against an amendment to his self assessment for the year ended 5 April 2002. Both Appeals concerned the alleged omission from his tax returns of the benefit of a car and car fuel made available to him by reason of his employment with County Pharmacy Ltd. The sums of tax involved were £5,097 for 2000/01 and £6,664 for 2001.02.

County Pharmacy Ltd was appealing against a decision under section 8 of the Social Security Contributions (Transfer of Functions) Act 1999 that it was liable to pay Class 1A National Insurance Contributions for the period 6 April 2000 to 5 April 2002 in respect of the car and fuel benefit made available to Mr Morris in his employment as director. The sum involved was £2,881.25.

The Issues in Dispute

The three Appeals shared the same issue in dispute which was whether a motor vehicle, an Elddis Autostratus (a motorhome) registration number S 203 YON, provided by County Pharmacy Ltd and available for private use by Mr Morris was a "car" within the meaning of section 168(5) of the Income and Corporation Taxes Act 1988 (hereinafter referred to as ICTA 1988). The Respondents contended that it was a car in which case Mr Morris was liable to pay tax on the car and fuel benefit, whilst County Pharmacy Ltd was liable to pay additional Class 1A National Insurance Contributions in respect of the said benefits. Mr Morris, on the other hand, submitted that the Elddis Autostratus was not a car. He proposed that the benefit of the vehicle to him should be taxed either on the basis that the Elddis Autostratus was a van or as an asset made available to him by his employer. In both situations his tax liability would be significantly less than an assessment based on the rules for car and fuel benefit.

A supplemental issue in dispute arose during the course of the hearing which was whether the Respondents met the necessary conditions for making the discovery assessment for the year 2000/01. Where a tax payer has delivered a return no discovery assessment can be made under section 29 of the Taxes Management Act 1970 (hereinafter TMA 1970) unless one of two conditions was fulfilled. The Respondents relied upon the condition in section 29(5) of the TMA 1970 which was that the period for making enquiries into the return had expired and during that period an officer of the Board could not have been reasonably expected on the basis of information provided on behalf of Mr Morris to be aware that the assessment to tax was insufficient. The problem in this Appeal was that the Respondents had not retrieved Mr Morris' return for 2000/01 so that they did not have the primary evidence of the information disclosed by Mr Morris about the tax treatment of the Elddis Autostratus. Instead the Respondents relied on computer records summarising Mr Morris' return and the P11D submitted by his employer to justify the discovery assessment. The issues raised concerned:

(1) whether evidence of the tax return was essential for making the decision about whether the Respondents have complied with the condition of section 29(5) TMA 1970

(2) whether the legal burden of proving that the Respondents had complied with section 29(5) rested on the taxpayer or the Revenue.

The Evidence

I heard evidence from Mr Morris, the Appellant, and Mrs Tracy Scott, HM Inspector of Taxes, who carried out an "Employer Compliance Review" of County Pharmacy Ltd between 10 March 2003 and 26 March 2003. I also received in evidence separate bundles of documents prepared by the Appellants and Respondents respectively.

The First Disputed Issue: Was the Elddis Autostratus registration number S 203 YON a car within the meaning of s 168(5) of ICTA 1968?

The Facts Found

Mr Morris has been the Chairman and Managing Director of County Pharmacy Ltd since 1972, which traded from 15 Wordsley Green Shopping Centre, Wordsley, Stourbridge dispensing medicines and selling related goods to members of the public with an annual turnover in excess of £1 million.

In August 1998 County Pharmacy Ltd purchased the Elddis Autostratus for use by Mr Morris who loaned the purchase price to the company. The price agreed between the Appellants and the Respondents for the purposes of the Appeal was £36,193 which included VAT. The vehicle was registered on 3 August 1998.

The Explorer Group Ltd manufactured the Elddis range of motorhomes and marketed them as leisure vehicles. The motorhomes were not designed for the carriage of goods or for commercial use. The Elddis Autostratus provided to Mr Morris was 24 feet long, seven feet and three inches wide, weighed in excess of 3,550 kilograms and powered by 2.5 litre diesel engine . Mr Morris registered the vehicle with DVLA under the taxation class of "Private Light Goods". The vehicle had not been modified to meet the specific needs of Mr Morris.

The Elddis Autostratus was built on a Peugeot Boxer chassis, which included a cab for two people. The construction of the Autostratus, however, did not simply involve the placing of the living quarters on top of the chassis. According to Mr Morris the Boxer chassis was lengthened to support the living quarters which were incorporated with the cab, the back of which was removed, so as to form a single coach built vehicle. The living quarters incorporated cushioned seats which could be made into a bed, a fold down table, wall to wall cupboard units, an electric fire, a cooker, a sink and a portable television set.

Mr Morris used the Elddis Autostratus principally as a mobile office where he kept the business records for County Pharmacy Ltd. He was unable to access the office at the shop premises because of his difficulties with climbing stairs. The office which was above the rear of the shop was later converted into a storeroom. Mr Morris' normal routine would be to work from the Elddis Autostratus in the morning when it was stationary outside his home. At 1.30pm he would drive the vehicle a short distance to Wordsley Green Shopping Parade, park it at the rear of the shop where he continued his work. The vehicle was also used for the weekly visit to the cash and carry to obtain stock for the business. Mr Morris occasionally used the vehicle for leisure purposes, travelling once to Lymington and on another occasion to Scotland. The recorded mileage for the Elddis Autostratus in October 2002 was 15,911 miles.

The Elddis Autostratus was insured and taxed for private and business use. Mr Morris accepted that his company did not prohibit him from using the vehicle for private use. Mr Morris made no financial contribution to County Pharmacy Ltd for his personal use of the vehicle. The fuel for the vehicle was charged to the Company account.

In 2001 Mr Bourne, VAT Inspector, conducted an inspection of the VAT accounts and records of County Pharmacy Ltd. He advised Mr Morris that it was not necessary to pay scale charges on the fuel for the Elddis Autostratus as it was a van not a car and that it was a "company burden". Mr Morris in turn informed his accountant of the advice who decided that the vehicle should be declared as a van for the purposes of employee benefits under the income tax legislation. Thus Mr Morris declared the Elddis Autostratus as a taxable benefit under the "vans" category in his 2000/01 and 2001/02 tax return. Previously County Pharmacy Ltd had declared another Elddis Autostratus as car benefit in the 1999/2000 P11D for Mrs Morris, the Appellant's wife.

In March 2003 Mrs Scott, HM Inspector of Taxes, carried out an "Employer Compliance Review" of County Pharmacy Ltd. She noticed a change of description from a car to a van on the P11D for Mr Morris. Mrs Scott formed the view that the Elldis Autostratus should be classed as a car for the purpose of calculating employee benefits for income tax. Mrs Sellars, Compliance Officer, issued assessments for unpaid tax for the years 2000/01 and 2001/02 on 7 April 2004 and 13 May 2004 respectively.

Mr Morris suffered permanent damage to his hip joints by the constant jumping in and out of the Elddis Autostratus. He also experienced vertigo from the rocking movement of the vehicle whilst working inside it. At the time of Mrs Scott's visit Mr Morris was in the process of exchanging the Elddis Autostratus for a newer version which had an automatic outside step with the living area located between the four wheels of the vehicle. The redesigned living area would make the vehicle more stable to work in which would alleviate the vertigo symptoms. As a result of his dispute with HM Revenue and Customs Mr Morris attempted to cancel the purchase of the new vehicle. He was unable to do so and the new vehicle has not been moved from outside his house pending the resolution of this dispute.

The Law

Section 167 of ICTA 1988 applies the rules regarding taxation of car and fuel benefits to employed directors earning £8,500 or more per annum. County Pharmacy Ltd employed Mr Morris as managing director. His earnings exceeded £8,500 per annum.

Section 157 of ICTA 1988 sets out the rules for the taxation of car benefit:

1) Where in any year in the case of a person employed in employment to which this Chapter applies, a car is made available (without any transfer of the property in it) either to himself or to others being members of his family or household, and -

a. it is so made available by reason of his employment and it is in that year available for his or their private use; and

b. the benefit of the car is not (apart from this section) chargeable to tax as the employee's income,

there is to be treated as emoluments of the employment, and accordingly chargeable to income tax under Schedule E, an amount equal to whatever is the cash equivalent benefit in that year.

2) The cash equivalent of the benefit in the year concerned shall be ascertained in accordance with Schedule 6.

Mr Morris accepted that the requirements of section 157 were met in respect of the provision of Elddis Autostratus to him except for the requirement that the vehicle was not a car. Thus County Pharmacy Ltd made the Elddis Autostatus available to Mr Morris by reason of his employment. Mr Morris agreed that the vehicle was insured and taxed and that it was available for his personal use.

Where fuel is provided for a car the benefit of which is chargeable to tax under section 157 of ICTA 1988, section 158 of ICTA 1988 imposes a scale charge based on the type of fuel used and the size of the car's engine. Mr Morris accepted that County Pharmacy Ltd paid for the fuel used in the Elddis Autostratus. He made no personal contribution to the cost of the fuel.

Section 168(5)(a) of ICTA 1988 defines "car" for the purposes of section 157 of ICTA 1988:

"car" means any mechanically propelled road vehicle except –

i) a vehicle of a construction primarily suited for the conveyance of goods or burden of any description,

ii) a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used,

iii) a motor cycle as defined in section 190(4) of the Road Traffic Act 1972, and

iv) an invalid carriage as defined in section 190(5) of that Act.

Thus Mr Morris has to demonstrate on the balance of probabilities that the Elddis Autostratus was not a "car" as defined in section 168(5)(a) ICTA 1988 to avoid paying the additional tax due by the application of sections 157 and 158 ICTA to the provision of the Elddis Autostratus and the fuel to him by his employer, County Pharmacy Ltd. I am satisfied that the Elddis Autostratus was a mechanically propelled vehicle. The question about whether it was a "car" for income tax purposes depended upon whether Mr Morris can show that the vehicle fell within one of the four exceptions to section 168(5)(a) ICTA1988. Clearly exceptions iii) and iv) dealing with a motor cycle and an invalid carriage did not apply to the Elddis Autostratus.

My Decision on whether the Elddis Autostratus was a Car

Exception i) to section 168(5) (a) ICTA 1988 concerns a vehicle of a construction primarily suited for the conveyance of goods or burden of any description. The facts found showed that the construction of the Elddis Autostratus was primarily suited for leisure purposes. The vehicle was equipped with fixed and moveable furniture, washing and cooking facilities and heating apparatus. The construction was ill-equipped for the conveyance of goods. The means of access to the vehicle were doors designed for the access of people not goods. The fact that Mr Morris used the vehicle for the carriage of business stock between the cash and carry and his shop was irrelevant. Exception i) was concerned with the vehicle's construction not the actual use the specific vehicle was put to by its owner.

The other aspect of exception i): "carriage of a burden of any description", implied that the burden must be separate and apart from the vehicle and capable of being loaded on and off the vehicle. The facts found demonstrated that the Elddis Autostratus did not consist of two separate parts: the chassis and the cab of one part and the living quarters of the other part. The Autostratus was constructed as a single integral unit. I am, therefore, satisfied that exception i) of section 168(5)(a) did not apply to the Elddis Autostratus.

Exception ii) excludes vehicles which were of a type not commonly used as private vehicles and unsuitable to be so used. Millet J in Gurney v Richards [1989] 62 TC 287 at 299 stated that exception ii) should be applied to "the vehicle in the condition in which it was provided to the taxpayer and in which it was expected to be used by him" Megarry J in Roberts v Granda TV Rental Ltd [1970] 46 TC 295 examined the meaning of the phrase: "of a type not commonly used as private vehicles and unsuitable to be so used" in the then legislation (proviso to section 16(3) of the Finance Act 1954) of dealing with investment allowances which used identical wording to that in exception ii) of section 168(5)(a) ICTA 1988.

The proviso to section 16(3) of the Finance Act 1954 read as follows:

"Provided that no investment allowance shall be made under this subsection in respect of expenditure incurred on the provision of road vehicles unless they are of a type not commonly used as private vehicles and unsuitable to be so used or are provided wholly or mainly for hire to or for the carriage of members of the public in the ordinary course of a trade".

Megarry J noted at 310 that the phrase: "of a type not commonly used as private vehicles and unsuitable to be so used" consisted of a double condition, namely, "of a type not commonly used as private vehicle" and also of being "unsuitable to be so used". At 313 Megarry J stated that "type is a word not used at any very high level of abstraction: instead of a few broad categories there may be many categories, with a vehicle moving from one to the other with comparatively small alterations". Megarry J then went on at 316 to examine the construction of the remaining parts of the phrase. "Private" was used in the sense of domestic, pleasure or social purposes. "Suitable" bore the meaning of fitted for, adapted or appropriate, and "unsuitable" the opposite meaning. "Commonly" meant usually or ordinarily or generally, though not necessarily in the sense of constituting a majority.

The facts found in this Appeal were that

(1) The Elddis Autostratus provided to Mr Morris was constructed for use as a leisure vehicle.

(2) The living quarters of the vehicle had cushioned seats which could be made into a bed, foldaway table, wall to wall cupboards, sink, electric fire, cooker and portable television.

(3) There had been no adaptations to the construction of the Elddis Autostratus to meet the specific requirements of Mr Morris.

(4) Mr Morris used the Elddis Autostratus principally for the purposes of a mobile office and fetching goods from the cash and carry. The construction of the vehicle was unsuitable for these uses.

The legal interpretation of exception ii), a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used, required me to examine the condition in which the Elddis Autostratus was provided to Mr Morris and the expected use of the vehicle not the actual use made of the vehicle by Mr Morris. The facts found demonstrated that the Elddis Stratus was constructed to be used for the purposes of leisure, which fell within the definition of a private vehicle as it was intended to be used for domestic, pleasure or social purposes. The vehicle's construction had not been adapted for use as a mobile office nor for the carriage of goods. The design of the vehicle together with the furnishing and fittings were eminently suitable for the purposes of leisure trips and holidays. The Elddis Autostratus was wholly unsuitable for commercial use, which was partly evidenced by the various ailments suffered by Mr Morris arising from his use of the vehicle as a mobile office. Further the construction of the vehicle did not lend itself to the carriage of goods. I am satisfied that the Elddis Autostratus was of a type commonly used as a private vehicle and suitable to be so used. Therefore, the Elddis Autostratus provided to Mr Morris did not meet the criteria of exception ii) to section 168(5) of ICTA 1988.

Mr Morris submitted that the Elddis Autostratus was not a motor car which he supported by producing an article from the June 2003 edition of " Motor Caravan and Motor Home" magazine. The article contained the views of two accountants, one of whom considered that a motorhome to be a van for VAT and income tax purposes. The other accountant expressed the view that the most probable basis of taxing a company motorhome would be as an asset being made available to a director. Mr Morris also produced the opinion of a Mr Roger Bradbury of I.R.P.C, which gives legal advice to the National Pharmaceutical Association. Mr Bradbury opined that a motorhome was clearly constructed for the conveyance of goods or burden. I have not found the opinions of the two accountants and Mr Bradbury helpful because the opinions were not based on a detailed analysis of section 168(5)(a) ICTA 1988. Further they did not apply their analysis to the facts of this Appeal.

Mr Morris also contended that the Elddis Autostratus was not a motor car for VAT and vehicle excise duty. The Respondents accepted Mr Morris' contention for the purposes of this Appeal but argued that it was not relevant because the income tax treatment of the Elddis Autostratus was governed by section 168(5)(a) ICTA which applied a different test for a car from that applied in the VAT and excise duty legislation. I agree with the Respondents' view.

I find that the Elddis Autostratus provided to Mr Morris was a car within the meaning of section 168(5)(a) of ICTA 1988. County Pharmacy Ltd provided the Elddis Autostratus to Mr Morris' because of his employment as Managing Director. The vehicle was available for personal use. Therefore, Mr Morris was liable to pay income tax on the cash equivalent of the benefit of the car and fuel in accordance with schedule 6 ICTA 1988 and The Income Tax (Cash Equivalents of Car Fuel Benefits) Order 2001 SI 2001 no 635.

The Amount of Tax Owed

The cash equivalent of the car benefit was calculated by reference to a percentage of the list price of the car which included optional extras, delivery charges and VAT with adjustments made for the amount of mileage and age of the car. The assessments for unpaid tax issued by Mrs Sellars on 7 April 2004 and 13 May 2004 were computed on the footing that the list price of the Elddis Autostratus was £28,000. In the 2001/02 assessment she gave a reduction of 25 per cent for the age of the vehicle on the basis that it was more than four years old as at 1 April 2002.

The evidence heard by me showed that the list price of the Elddis Autostratus was £36,193 and that it was first registered on 3 August 1998 which meant that the vehicle was not four years old on 1 April 2002. I, therefore, find that the cash equivalent of the car benefit for 2000/01 and 2001/02 should be increased to £9,048 for each of the tax years. The figure was arrived at by multiplying the list price of £36,193 by 25 per cent which was the appropriate multiplier for vehicles with an annual mileage between 2,500 and 17,999.

The fuel benefit for the tax years in question was computed on the basis of the scale charge for vehicles with a diesel engine of 2,466 cc which produced figures of £3,200 and £3,620 for 2000/01 and 2001/02 respectively.

The tax consequences of the computations for car and fuel benefit were that the assessment for 2000/01 was increased from £3,880 to £5,097 and the amendment to the assessment for 2001/02 was increased from £4,973 to £6,664.

Second Disputed Issue: Were the Respondents entitled to make a Discovery Assessment for the year 2000/01?

Unfortunately this second disputed issue only arose during the course of the hearing on 14 July 2005. The issue was first identified by the Respondents in their skeleton argument to me. Mr Morris had not read the skeleton argument prior to the hearing because of delays with the post arising from the document being damaged in transit. Mr Morris conducted his Appeal in person without the assistance of professional representation. Mr Morris did not question whether the Respondents met the legal grounds for raising a discovery assessment because he probably did not understand the technical requirements. It was Mr Death on behalf of the Respondents who out of fairness to Mr Morris highlighted the legal pre-conditions for discovery assessments and the potential dispute concerning the impact of the absence of Mr Morris' tax return for 2000/01 upon section 29(5) TMA 1970. In these circumstances I have treated the raising of the issue as an objection to the making of the discovery assessment in accordance with section 29(8) TMA 1970.

Mr Morris submitted his tax return for 2000/01 by the due date of 31 January 2002. Mr Morris relied on his accountants to prepare his tax return because of the complex nature of his tax affairs. Prior to submission of the tax return Mr Morris alerted his accountants to the view of Mr Bourne, VAT Inspector, that the Elddis Autostratus was a van predominantly used for company business. The accountants secured a repayment of VAT and declared the Elddis Autostratus as a van in the 2000/01 tax return which differed from the tax treatment of another Elddis Autostratus for Mr Morris' wife in 1999/00 where it was declared as a car. The closing date for the Respondents to make enquiries into the 2000/01 return was 12 months after the filing date of 31 January 2002. Their enquiries into Mr Morris tax affairs commenced in April 2003, more than 12 months after the filing date. Therefore the Respondents were only entitled to raise an assessment for the unpaid tax by way of discovery which are governed by the provisions of section 29 TMA 1970.

Section 29(1) TMA 1970 permits the making of an assessment where an officer of the Board (alternatively referred to as an Inspector) discovers that income which ought to have been assessed to income tax has not been assessed. The requirements of this subsection has clearly been met in Mr Morris' case because the Elddis Autostratus should have been declared as a car with the consequential charge to income tax for car and fuel benefits.

The assessment power under section 29(1), however, is subject to the conditions in subsections 2 and 3. Section 29(2) TMA 1970 disallows a discovery assessment if the tax return was completed on the basis of prevailing practice. There was no evidence to support the assertion that the prevailing practice for computing tax on the benefit received from the provision of a motorhome was on the basis that it was a van. In those circumstances the Respondents have satisfied the requirements of section 29(2).

Section 29(3) TMA 1970 prevents the making of a discovery assessment unless one of the conditions in either section 29(4) or 29(5) TMA 1970 have been satisfied. The Respondents have relied only on the condition in section 29(5) which states that

"(5) The second condition is that at the time when an officer of the Board –

(a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment or

(b) informed the taxpayer that he had completed his enquiries into that return,

the officer could not have been reasonably expected on the basis of the information made available to him before that time to be aware of the situation mention in subsection (1) above".

Section 29(6) TMA 1970 defines the categories of information upon which the Inspector is expected to make his judgment under section 29(5):

(6) For the purposes of subsection (5) above, information is made available to an officer of the Board if –

(a) it is contained in the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment, or in any accounts, statements or documents accompanying the return;

(b) it is contained in any claim made as regards the relevant year of assessment by the taxpayer acting in the same capacity as that in which he made the return or in any accounts, statements or documents accompanying any such claim;

(c) it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer, whether in pursuance of a notice under section 19A of this Act or otherwise; or

(d) it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above –

(i) could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or

(ii) are notified in writing by the taxpayer to an officer of the Board.

The Court of Appeal in Veltema v Langham [2004] STC 544 CA concluded that an Inspector of Taxes was to be shut out by section 29(5) from making a discovery assessment only when the taxpayer or his representative in making an honest and accurate return have clearly alerted him to the insufficiency of the assessment.

The problem with this Appeal was that the Respondents had not obtained a copy of the 2000/01 return submitted on behalf of Mr Morris from their archives so they could not state categorically what information had been provided to them about the tax treatment of the Elddis Autostratus. The Respondents did not suggest that the return had been lost or destroyed. Further Mr Death for the Respondents accepted that they had powers to require a copy of the return from Mr Morris or his representative but had not exercised them.

Mr Death suggested that I could draw inferences about the information provided by Mr Morris from the summary of the computer printout of Mr Morris' 2000/01 return and the P11D returns for 1999/2000 and 2000/01 for Mr and Mrs Morris submitted by their employer, County Pharmacy Limited. Those documents showed that Mr Morris declared a car benefit in respect of a Land Rover Discovery in 1999/00 and a van benefit only in 2000/01. The computer printout summary of the 2000/01 return, however, was no substitute for the actual return. The P11D did not fall within the categories of information defined by section 29(6) because the Company submitted them. Mr Morris when asked by Mr Death at the hearing could not recall what information was included in his 2000/01 return, although he believed that his accountant would have explained the circumstances to the Inspector of Taxes regarding the tax treatment of the Elddis Autostratus.

The absence of the 2000/01 return raised two questions:

(1) Was the return essential in order to make a determination about whether the Respondents have complied with section 29(5) TMA 1970?

(2) Upon whom did the legal and evidential burden rest in respect of the requirements of section 29(5) TMA 1970?

The satisfaction of the condition under section 29(5) that the Inspector could not have been reasonably expected to be aware of the insufficiency is dependent upon what information was provided by the taxpayer. Section 29(6) TMA 1970 circumscribes the categories of information which the Inspector has to consider for the purposes of section 29(5). The taxpayer's return is at the core of the information requirements imposed by section 29(6) TMA 1970. I, therefore, conclude that consideration of the contents of the return together with any accompanying documents was essential in order for me to make a decision about whether the Respondents have complied with the condition in section 29(5) TMA 1970. I disagree with Mr Death's proposition that I can infer the nature of the contents of the return from the computer print-out summary of the return and the P11D provided by County Pharmacy Ltd because the inferences would amount to speculation on my part. There was no suggestion that the 2000/01 return had been lost or destroyed when different arguments might apply.

Mr Death presented the issue of discovery on the footing that the legal burden rested with the Respondents to establish that they had complied with the condition in section 29(5) of TMA 1970. Section 29(8) TMA 1970, however, states that

"An objection to the making of an assessment under this section on the ground that neither of the two conditions mentioned above (sections 29(4) & (5), my italics) is fulfilled shall not be made otherwise than on appeal against the assessment".

I am of the opinion after considering the wording of section 29(8) that the legal burden of proving that the Respondents had not complied with the condition in section 29(5) rests with the taxpayer on the balance of probabilities. Thus in this Appeal it would have been Mr Morris' responsibility to have adduced evidence of his tax return and accompanying documents to establish that he had made an honest and accurate return and alerted the Revenue of the potential insufficiency of the assessment. The evidential burden would then shift to the Respondents to show that the Inspector could not have been reasonably expected from the information provided by Mr Morris to be aware of the insufficiency of the tax.

Mr Morris has not adduced evidence of his tax return and accompanying documents for 2000/01. I am, therefore, satisfied that he has not established on the balance of probabilities that the Respondents have failed to comply with the condition in section 29(5) TMA 1970. Thus the discovery assessment for 2000/01 was validly made.

The 2001/02 assessment involved a different process. The amendment to Mr Morris' self assessment was made following an enquiry by an Inspector under section 9A TMA 1970 and completion of that enquiry. The various time limits for the process were complied with. I am satisfied that the amendment was properly made.

The Appeal of County Pharmacy Ltd

This Appeal was against the additional Class 1A National Insurance Contributions due from the company arising from the car and fuel benefits provided to Mr Morris by reason of his employment in the tax years 2000/01 and 2001/02.

The outcome of the company's appeal depended entirely upon my decision about whether the Elddis Autostratus provided to Mr Morris was a car for the purposes of income tax. I have decided that the Elddis Autostratus was a car and that Mr Morris was liable to pay income tax on the car and fuel benefits for the tax years in question. In view of my decision the company's Appeal fails and is liable to pay additional Class 1 A National Insurance Contributions for the years 2000/01 and 2001/02 in the sum of £2,881.25p after allowing for the Class 1A contribution for the Elddis Autostratus as a van.

Summary of My Decisions

I have made the following decisions in respect of the Appeals before me:

(1) The Elddis Autostratus provided to Mr Morris by reason of his employment with County Pharmacy Ltd was a car within the meaning of section 168(5)(a) of ICTA 1988.

(2) Mr Morris was liable to pay income tax on the cash equivalent of the benefit of the car and fuel provided to him by County Pharmacy Ltd.

(3) County Pharmacy Ltd was liable to pay additional Class 1A National Insurance Contributions in respect of the benefit of the car and fuel provided to Mr Morris.

(4) The discovery assessment for 2000/01 in respect of Mr Morris was validly made.

I, therefore, dismiss the Appeals of Mr Morris and County Pharmacy Ltd and uphold the following assessments:

(1) The assessment of income tax for 2000/01 against Mr Morris in the sum of £5,097.

(2) The assessment of income tax for 2001/02 against Mr Morris in the sum of £6,664.

(3) County Pharmacy Ltd shall pay an additional sum of £2,881.25 for Class 1A National Insurance Contributions in respect of the tax years 2000/01 and 2001/02.

I make no order for costs.

MICHAEL TILDESLEY OBE

SPECIAL COMMISSIONER

RELEASE DATE: 3 August 2005

SC 3012/2005