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Cite as: [2007] UKSPC SPC649, [2007] UKSPC SPC00649

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Hankinson v Revenue & Customs [2007] UKSPC SPC00649 (13 November 2007)

Spc00649

PROCEDURE – Preliminary hearing – Discovery assessment – Whether competence of discovery assessment should be dealt with in advance by way of preliminary hearing

THE SPECIAL COMMISSIONERS

DEREK WILLIAM HANKINSON Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE & CUSTOMS Respondents

Special Commissioner: SIR STEPHEN OLIVER QC

Sitting in public in London on 29 October 2007

Robin Mathew QC, instructed by Cowgill Holloway, chartered accountants, for the Appellant

Ingrid Simler QC, instructed by the general counsel and solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Mr D W Hankinson, has appealed against a discovery assessment dated 24 January 2005 made against him in respect of the tax year 1998/99. He has also appealed against a notice of determination dated 30 November 2006 that he was ordinarily resident in the UK in the year of assessment 1998/99. He claims that he was neither resident nor ordinarily resident in the UK in that year and that the discovery assessment lacks competence as there was no negligence on his part when he completed his tax return.

Mr Hankinson has applied for a preliminary hearing to determine the issue of whether the "discovery" assessment (of 24 January 2005) is competent for the purposes of section 29 of Taxes Management Act 1970 ("TMA"), such hearing to be conducted separately and in advance of any hearing to determine the residence question.

The question of competence arises under section 29 as follows.

By section 9 TMA, a taxpayer must include in his return a self-assessment which, by section 8(1A)(a), he must make and normally deliver by 31 January of the year following the year of assessment ("the filing date"). His return should disclose all the relevant information and correctly assess, on the basis of it, the tax due. HMRC may then enquire into the return by issuing a formal notice within twelve months after the filing date (section 9A). At the end of any such enquiry HMRC may amend the return (section 28A(2) TMA and issue a closure notice (section 28A(1) and (3) TMA). If HMRC make no enquiry and the taxpayer has not amended his return, the self-assessment return becomes final on the expiry of that twelve months enquiry period ("the enquiry window"), subject only to the possibility of making a "discovery" assessment under section 29 TMA.

The discovery procedure in section 29 enables HMRC, where it discovers an insufficient assessment, subject to one or other of the two conditions, to make an assessment in the amount or further amount necessary to make good the loss of tax (section 29(1) and (3) TMA).

The first condition ("culpable mistake") is fraud or negligence on the part of the taxpayer in failing or failing properly to assess his liability to tax (section 29(4) TMA) – to which a further time limit of 20 years applies.

The second condition ("innocent mistake"), which applies when an HMRC officer is out of time to make an enquiry under section 9A(2) of TMA into the taxpayer's return, is that 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 " such failure (section 29(5) TMA – to which a further time limit of 5 years from the filing date applies pursuant to section 34 TMA).

HMRC relies on both section 29(4) and (5) of TMA in this appeal.

Mr Robin Mathew QC for Mr Hankinson explained that Mr Hankinson's case at the preliminary hearing, if granted, would be that he had made his 1998/99 return in accordance with then prevailing practice. He explicitly answered the questions put which reflected the provisions of "IR20". He supplied all the information that he ought properly to have supplied in terms of section 29(5) and succeeding provisions. Specifically, the "Non-residence" part of his return for 1998/99 stated that he was not resident and not ordinarily resident in the UK, that he had spent 56 days in the UK and that he had been "employed abroad under a full-time working contract of employment for the whole of the 1999 tax year." On that basis, it was argued, there was little overlap between the discovery point and the other resident and ordinarily resident issues referred to in paragraph 1 above. On that basis the "discovery" issue could be dealt with as a discreet matter and was, therefore, a suitable candidate for a preliminary hearing.

HMRC will contend that the situation that the 1999 assessment to tax was insufficient is attributable to negligent conduct on Mr Hankinson's part. Ingrid Simler QC, for HMRC pointed out that the evidence that will be relevant to the determination of Mr Hankinson's resident and ordinarily resident status will also necessarily be relevant to the issue of whether he negligently completed his tax return on the basis that he was not a resident. In this connection it will, she said, be relevant to determine, for example, whether the facts on which any professional tax advice given to Mr Hankinson was based accurately reflected the actual facts of Mr Hankinson's life at the time and whether and to what extent Mr Hankinson actually followed the tax advice that he had been given. Thus, so the argument continues, the question whether it can be shown that Mr Hankinson was negligent in filing his self-assessment for that year cannot be reached at a preliminary hearing independently of the residence question.

The issue under section 29(5) of TMA is whether at the relevant time (i.e when the enquiry period ended at the end of January 2001) the Inland Revenue could not have been reasonably expected, on the basis of the information made available to them before that time, to have been aware that chargeable gains that should have been assessed had not been assessed. (The basis of these proceedings concerns substantial chargeable gains made during the period of Mr Hankinson's alleged non-residence and non-ordinary residence.) A section 29(5) issue will call for the determination of matters that are common both to that issue and to the issue of Mr Hankinson's resident and ordinarily resident status. In other words, the issue of whether or not Mr Hankinson was negligent in treating himself as non-resident and not ordinarily resident for the purposes of the self-assessment return will depend on same sub-stratum of facts as will be relevant to the issue of whether he was in fact neither resident nor ordinarily resident during 1998/99. For both issues therefore a full hearing of all the facts and evidence including that relating to his resident status will be required to determine both issues.

I was referred to the well known guidance of the House of Lords in Tilling v Whiteman [1980] AC 1 at 18-19 (Lord Wilberforce) and 25 (Lord Scarman) where the latter said:

"Preliminary points of law are too often treacherous short cuts. Their price can be, as here, delay, anxiety and expense".

Our case management objective must be to save expense and ensure that the matter is dealt with expeditiously and fairly. Consistent with that objective, the purpose of a preliminary hearing can only be to decide issues that will dispose of the case or at least substantially reduce the area of dispute. The reasons that I have given in the in the preceding paragraph, this is not the case here.

For those reasons I think that the proper approach is to determine both issues at the full hearing.

I therefore dismiss Mr Hankinson's application. I should add that the Special Commissioners Rules (SI 1994/1811) authorise the publication of decisions in principle and of final determinations. This is not such a decision or determination. Nonetheless the hearing was public and I gave an oral decision in the course of the hearing. I therefore propose that this written decision be published unless either party, within seven days of the release of the decision, notifies an objection in writing.

SIR STEPHEN OLIVER QC

SPECIAL COMMISSIONER

RELEASED: 13 November 2007

SC 3053/2007