UK and International Tax news
FTT Hears Appeal In Discovery Assessment Case
Wednesday 28th August 2024
The First Tier Tribunal has recently heard an appeal in a discovery assessment case involving failure to notify chargeability to tax.
In Williams v HMRC [2024 UKFTT 411TC], HMRC had issued discovery assessments on the basis that the taxpayer had been negligent in not notifying chargeability to tax.
The taxpayer entered into a number of property transactions during 2004 – 2006 but HMRC only raised enquiries in 2014 into these property dealings. In 2019, they concluded that the taxpayer had made taxable trading profits in the two tax years ended 5 April 2005 and 5 April 2006 and issued assessments totalling approximately £14,000. They also assessed penalties of around £8,000 [55%] on the basis that the taxpayer had failed to notify HMRC that he was chargeable to tax for the relevant years.
Following a review which concluded in February 2023, HMRC accepted that their calculation of the profits was overstated and that the amount of tax due for the two years was just under £12,000 with the penalties correspondingly reduced to just under £6,500.
The taxpayer appealed against the assessments and penalties and maintained that he wrote to HMRC on 22 June 2004 to notify HMRC that he had commenced a property business as a sole trader and listed four properties he had purchased in April and May 2004. There was a dispute as to whether the 22 June letter did notify HMRC of the taxpayer’s chargeability to tax for the tax year ended 5 April 2005 as no copy of it could be presented to the Tribunal.
The taxpayer stated he submitted a tax return for the tax year ended 5 April 2005 but could not say exactly when this was done. HMRC had no record of receiving the tax return and suggested that no tax return was submitted.
The FTT found numerous and significant inconsistencies in the evidence provided by the taxpayer on the submission of tax returns for the relevant periods and considered the evidence unreliable. HMRC also maintained that their records showed no trace of the 2005 or 2006 tax returns having been submitted. Given this, the FTT considered that it was more likely that no tax returns were submitted and that the taxpayer had not notified HMRC of his chargeability to tax for that period.
After detailed consideration, the FTT held that HMRC was able to rely on the 20 year time limit for making the discovery assessments as the loss of tax was attributable to negligence.
With regard to penalties, generally HMRC has discretion as to the amount and can make reductions for disclosure, cooperation and seriousness. The Tribunal has the power to reduce penalties if it considers they are excessive. In this case, the Tribunal considered the penalties set by HMRC at 55% to be excessive and reduced them by 15% to 40%.
As the FTT stated in its opening remarks, “it may be surprising that HMRC are able to make assessments almost 15 years after the tax years in question in circumstances where they do not suggest that there has been any deliberate default by the taxpayer. However, where there has been a failure to notify chargeability to tax and the loss of tax is attributable to negligent conduct, HMRC are able to issue assessments going back 20 years”.
If you would like more information on the case, please contact Keith Rushen on 0207 486 2378.
Contact Us