TC09158 - [2024] UKFTT 00369 (TC)

Mr Boyle submits that the Assessment, dated 11 March 2015, is out of time because all of the relevant evidence was held by HMRC following the first visit to the Appellant’s premises on 5 December 2012. In further amplification of this argument, he submits that the conclusion of the visit on 5 December 2012 was that there was no evidence of smuggling activity on the Appellant’s site.

Mr Carey, on the other hand, submits that at that stage (i.e., in 2012), what had taken place was little more than HMRC trying to identify matters that were relevant to the Assessment, without having sufficient evidence to proceed to make the Assessment. In this respect, he submits that the assessing officer was not part of the team (the FIS) that visited the Appellant’s premises on 5 December 2012. Mr Carey further submits that additional investigative work was required to be undertaken before an assessment could be raised because of the requirement to assess the first duty point: Davison & Robinson. The witness statement provided by the drivers who were identified as having collected the Goods from the Appellant’s premises then provided sufficient evidence such that HMRC could proceed to make the Assessment, after Mr Boyle had denied that the Appellant had any involvement in alcohol in 2014 when Officer Idowu visited the Appellant’s premises.

In reliance on DCM, Mr Carey submits that it is the evidence which justified the assessment which was in fact made, and not the hypothetical assessment that might have been made, which is significant

The burden of proof is upon the Appellant to show that the Assessment was issued out of time: Pegasus Birds Ltd v C & E Comrs [1999] STC 95 (‘Pegasus Birds’), at [101] – [102]. In Pegasus Birds, the court concluded that the correct approach for a tribunal to adopt is:

Dyson J held that the test is a subjective, rather than an objective, one. The Court of Appeal approved the test formulated by Dyson J: at [2000] STC 91. The court further made clear that it is the task of the tribunal to assess whether, as a matter of fact, the officer held the opinion in question. In a later case involving the same taxpayer, the court clarified the test to be applied in determining whether an assessment was to best judgment: [2004] EWCA Civ 1015. The correct test is whether there has been an honest and genuine attempt to make a reasoned assessment (per Carnwath LJ at [22]). These principles were reaffirmed by the Supreme Court in DCM. In Lithuanian Beer Ltd v R & C Comrs [2018] EWCA Civ 1406 (‘Lithuanian Beer’), at [24], the Court of Appeal accepted that the propositions in Pegasus Birds equally apply to excise duty assessments, and to the time-limit specified in s 12(4)(b) FA 94. As held by the Upper Tribunal in Rasul, at [10], in reference to the decision in Pegasus Birds:

“10.

…The person whose opinion is to be imputed to HMRC is the person who decided to make the assessment, regardless of which person within HMRC acquired the knowledge of the facts in question…”

In Lithuanian Beer, the Court of Appeal considered the importance of the word “knowledge”, finding that “constructive knowledge” was not sufficient. It is not, therefore, enough for the relevant HMRC officer to know that relevant evidence exists, if he does not know what its contents are, as this would amount to constructive knowledge of the facts said to be evidenced by the material in question. Furthermore, the court was satisfied that there is no distinction to be spelled out of the phrase “evidence of the facts” between knowing that evidence exists and knowing what that evidence reveals about the facts of the case. The court further considered that the last piece of evidence is “communicated” to the Commissioners when it is communicated in such a way that the contents of the evidence are, in fact, known to them. This requires the evidence to be digested by HMRC, and not just made available to HMRC.

By analogy, the court considered a situation where an HMRC officer is presented with a room full of documents and told that he can look at anything that he likes. The court found that in this situation, the officer will not have knowledge of the “evidence of facts” contained in each and every document in the room. The court held, at [26] to [30], that:

“26.

…If HMRC make a later assessment to claim underpaid tax, relying on a number of factual building blocks based on evidence they have seen, a shorter limitation period is appropriate if they knew about that evidence and what it revealed earlier on but sat on their hands and failed to take prompt action on the basis of it.

27.

… The phrase, “sufficient in the opinion of the Commissioners to justify the making of the assessment”, is a reference to the opinion actually formed by the Commissioners at the time when they issue the assessment which is in dispute in the proceedings…

28.

Sub-paragraph (b) in section 12(4) requires that one identifies the evidence taken into account by the officer who issues the assessment as the justification for issuing it (or, under proposition 5, the evidence of which he was aware which ought rationally to have compelled him to reach the opinion that an assessment would be justified at some earlier stage), and compares that with the "evidence of facts" which it is said the Commissioners knew a year or more before the assessment came to be issued. Both elements in the comparison turn on the subjective state of mind of HMRC officers regarding what they understand the evidence available to them actually shows. If the "evidence of facts" known to the Commissioners previously was the same as the evidence of facts which led them to form the opinion later on that an assessment was justified (or, on a Wednesbury approach, should have led them to form that opinion), then it will be clear that the Commissioners have sat on their hands and the special, truncated limitation period in sub-paragraph (b) will apply.

29.

It is this comparative exercise to which Dyson J refers in proposition 4(ii). In my view, it is clear that where he speaks of the last piece of evidence being "communicated" to the Commissioners, he means that it is communicated in such a way that the contents of the evidence are in fact known to them. He does not mean that it is sufficient that the evidence is made available to them, although it is not read and digested by them.

30.

…The officer will only have such knowledge where he reads and digests the contents of particular documents…”