TC09555 - [2025] UKFTT 00748 (TC)

We find the following facts from the documentary evidence and the oral testimony of Officer Pinder.

As accepted by Counsel for the 3KH Officer Pinder candidly accepted that she formed her view as to the insufficiency of the 3KH’s corporation tax returns based on the detailed investigations undertaken by Officer Beard. She explained that throughout the enquiry she had visibility of his investigation through HMRC’s system “caseflow” and that Officer Beard kept her appraised of its progress and explained to her the basis on which he had formed the view that there was suppression of VAT both in connection with cash sales made at TSM and as a consequence of a failure to declare sales made at TSL. He had explained to her the basis of his calculations. On the basis of the analysis in those letters she was satisfied that the turnover which had been assessed to VAT had not been reported for accounting or corporation tax purposes and thus formed the belief that there was an insufficiency of tax that had been assessed by 3KH. She did not consider she needed to interrogate the underlying information as she trusted, from experience having previously worked alongside Officer Beard, that his investigation had been thorough, and his conclusions were rooted in the information provided.

In the letter of 16 May 2018 regarding the VAT Assessments 3KH were notified “due to the cash suppression identified, HMRC will also consider whether the additional net sales will result in Corporation Tax becoming payable. You will be contacted separately regarding this.”

That separate contact was made on 23 May 2018 by Officer Pinder who notified 3KH, MJ and MB:

“I believe that the company’s self-assessment tax calculation for [accounting periods ended 29 July 2014, 31 July 2014, 31 July 2015, and 31 July 2016] are inaccurate. This is because of the reasons set out in the letter sent to you by my VAT colleague Mr Beard.

The cheques carried out by my colleague have revealed that the turnover declared in the company accounts is inaccurate …

my colleague has explained the basis upon which he has arrived at the revised figures in his letter.

…

This is a pre-decision letter. You have been provided with 21 days by my colleague in which to consider the proposed assessments and offer any explanation and/or documents that she would have liked to have taken into account.

Please therefore provide any explanation and/or documents to me by 8 June 2018” (original emphasis)

On 23 May 2019 Officer Pinder again wrote to 3KH in the following terms regarding accounting period ended 31 July 2017:

“I believe that [the trading and profit figures for account period ended 31 July 2017] are inaccurate. This is because of the reasons set out in previous correspondence exchanged with my colleague Mr Jonathan Beard and explained further in his letter issued 23 May 2019.

…

<y colleague has provided you with detailed explanations of how he has arrived at the revised figures therefore I do not intend to repeat these here.”

In our view Officer Pinder’s conduct was, in all the circumstances, entirely reasonable and proportionate. She relied on the though investigation undertaken by Officer Beard and identified that the sales that he considered had been suppressed for VAT purpose had also not formed part of the tax calculations for corporation tax purposes. She thereby made a discovery. She believed that there was an insufficiency, and that belief was objectively reasonable.

In each of the pre discovery assessment letters Officer Pinder informed 3KH and the directors that without an alternative explanation she was of the view that the suppressed profits had been extracted by the directors; in this regard the letters were in identical form:

“My view is that the additional sales should be treated as extractions of funds from the company by you as the directors. The proposed adjustment to the directors loan account will be a debit to reflect the full amount of the extractions for the period. However, should you be able to provide evidence to the country, I will review the position accordingly.

No further explanation was provided, and we consider it reasonable for her to have therefore formed the reasonable belief that the under declared profits arising from the suppressed sales had been extracted by MJ and MB as participators. As such there was discovery in this regard.

In so finding we reject the Appellant’s contention that Officer Pinder had no more than a suspicion that there was an insufficiency in 3KH’s return.