TC09568 - [2025] UKFTT 00820 (TC)

We were provided with a bundle of documents. Mr Stenhouse gave oral evidence on behalf of himself and his wife. He was cross examined on that oral evidence. Mrs Stenhouse also gave oral evidence. From the documentary and oral evidence, we find as follows:

In 2009/2010, Mr Stenhouse and a colleague went into business together. Their business was the purchase of residential properties from builders who had built but couldn’t sell those properties, and then letting them out.

Mr Stenhouse and his colleague were unable to obtain mortgages for properties they wished to purchase. This was because they were self-employed. However, lenders were prepared to lend to employees. So many of the properties were purchased in the names of; their respective spouses, a friend, and his colleague’s father (as they were in employment). We were told (and this was not challenged either before us or in correspondence) that the intention was that those individuals would have no interest in the rent derived from those properties, nor did they have any liability for those mortgages. The benefits and liabilities were solely those of Mr Stenhouse and his colleague.

Mr Stenhouse was responsible for organising the relevant tax returns. Rather than simply treating the individuals as bare trustees and returning the profit (income less allowable expenses) on the returns of himself and his colleague, (and so avoiding the need to submit any returns for the legal owners) he computed the net profit for each of those owners, and then deducted an equivalent amount by way of management fee payable to himself and his colleague. He did this on the advice of his accountant. This methodology has not been challenged by HMRC in correspondence nor before us at the hearing.

For each of the tax years from 2012/2013, to date, Mr Stenhouse and his wife completed and submitted timely self-assessment tax returns to HMRC.

HMRC opened enquiries into the tax returns submitted by Mrs Stenhouse for the tax years 2015/2016, 2016/2017 and 2018/2019. They opened enquiries into the tax returns submitted by Mr Stenhouse for the tax years 2016/2017 and 2018/2019. Those enquiries were subsequently closed without any adjustments to the amount originally submitted in those returns. We were told by Miss Brown that the reason for this was that HMRC had insufficient information on which to make any adjustments via a closure notice. This was because the appellants had not supplied any information in response to the information notices.

In March 2018, October 2018 and December 2018, HMRC served information notices on Mrs Stenhouse. These requested disclosure of bank statements and also copies of invoices and detailed breakdowns of rents received and various outgoings. Mrs Stenhouse failed to supply that information, and accordingly, HMRC subsequently sent penalty notices to her, the earliest on 20 April 2018, and the latest on 16 May 2019.

HMRC also served five information notices on Mr Stenhouse (in October 2018, April 2019, September 2019, January 2021 and March 2021) requesting similar information. Mr Stenhouse failed to respond to those notices, and so HMRC issued him with penalty notices for those failures, the earliest on 7 December 2018, and the latest on 3 March 2021.

Each of those penalty notices explained to the recipient, under the heading “What to do if you disagree” that “If you disagree with our decision to charge this penalty, you can appeal. You need to write to us within 30 days of the date on this notice, telling us why you think our decision is wrong. We will then contact you to try to settle the matter. If we cannot come to an agreement, we will write to you and tell you why. We will then offer to have the matter reviewed by an HMRC officer who has not previously been involved in the case. We will also tell you about your right to go to an independent tribunal”. It also explained that if the recipient made an appeal, they did not have to pay the penalty whilst the appeal is being considered, and that further information about appeal and review rights could be found from fact sheets available on HMRC’s website.

HMRC also served discovery assessments on the appellants. As regards Mr Stenhouse, the discovery assessments were issued as follows: for the tax year 2012/2013, on 27 March 2019; for the tax year 2013/2014, on 3 April 2020; for the tax year 2014/2015, on 27 March 2019; for the tax year 2015/2016, on 3 April 2020.

For Mrs Stenhouse, the discovery assessments were issued as follows: for the tax year 2012/2013, on 27 March 2019; for the tax year 2013/2014, on 3 April 2020; for the tax year 2014/2015, on 27 March 2019.

Each of the discovery assessments contain similar information to that contained in the penalty notices concerning what the recipient should do if they disagreed with the notice of assessment. Under the heading “What to do if you disagree”, the recipient was told that “If you disagree with this notice of assessment, you can appeal. To do this, you need to write to us within 30 days of the date of our assessment, telling us why you think our decision was wrong. We’ll contact you to try to settle the matter. If we can’t come to an agreement, we will write to you and tell you why…”. It then goes on to explain the right to request an independent review, that tax would be postponed if an appeal was made, that interest might be payable on any tax due, even if payment was postponed, and where the appellant could find further information about appeals and reviews (on the www.gov.uk website).

A note of HMRC’s telephone conversations on 13 March 2018 was included in the bundle. There were two telephone conversations. The first with the appellants’ accountant who “advised that he has requested documents from Mrs Stenhouse a number of times however she has still not provided these”. The second was with Mrs Stenhouse who apparently confirmed that the opening letter had been received and the accountant was in the process of dealing with the response. It was the oral evidence of Mrs Stenhouse that she had never spoken to the accountant, and she could not remember any telephone conversation with an HMRC officer on 13 March 2018. Given that this is her birthday, it was her view that she would have remembered any such telephone conversation.

On 3 July 2018, Mr Stenhouse sent an email to HMRC. This followed up a telephone conversation that he had held with the officer two weeks previously. It explains the nature of the appellants property business and the ownership of the properties and the way in which income and outgoings were dealt with in the tax returns of the relevant individuals.

It was Mr Stenhouse’s oral evidence that with this email he sent a copy of the spreadsheet which he would send to his accountant on an annual basis in order to enable the accountant to compile his and his wife’s tax returns. However, there is no evidence of such an attachment on the face of the email and HMRC have no record of receiving it. We were not pointed to any evidence in the correspondence, referring to the spreadsheet nor the fact that Mr Stenhouse had sent it to HMRC on 3 July 2018.

A record of a telephone conversation which took place on 6 December 2018 between an HMRC officer and the appellants’ accountant records that, in connection with the recent information notice, the accountant was in touch with Mr Stenhouse who was very busy dealing with a VAT enquiry/inspection. It records that the agent had told Mr Stenhouse that this was not a reasonable excuse and that he needed to respond. It also records the agent as saying that Mr Stenhouse is not good at doing things on time and leaves things to the last minute.

On 19 September 2019, HMRC sent an email to Mr Stenhouse (“the 19 Septemberemail”). It deals with the tax affairs relating to Mrs Stenhouse. It recorded that discovery assessments had been issued on 27 March 2019 to protect HMRC’s position. Those assessments are issued as he had provided no information to help HMRC check his tax affairs. The officer therefore had no option but to disallow all expenses that had been claimed.

It also records that the officer had made clear that the assessments will stand if they were not appealed and that they had not been appealed at that date. He had been in contact with his colleagues in debt management who were in the process of commencing legal action to obtain the unpaid taxes. It records that Mrs Stenhouse had spoken to those colleagues and that the debt should be reduced to nil.

That email then goes on to record that the assessment still stood at the date of that letter and that the officer had notified debt management of this. It went on to say “Should you disagree with the assessment you will firstly need to send me your appeal. You will as a first step, have to tell me why your appeal is late so that I can determine if you have a reasonable excuse. You will then need to detail precisely what you are appealing and tell me why you are appealing it. You will also need to provide any documentation required to support your appeal. If you would like that tax stood over pending the outcome of your appeal (should it be accepted), you will need to specify this. Please let me have your response as soon as possible”.

On 17 November 2022, HMRC sent an email to Mr Stenhouse explaining that his tax adviser should be able to provide advice on his options going forward; the notice of assessment explains that the appellant could appeal to HMRC within 30 days of receipt; he could submit a late appeal request to HMRC which HMRC may accept if there was a reasonable excuse and a request was made without unreasonable delay after that excuse ended; and should HMRC not accept his late appeal, he could appeal direct to the tribunal.

On the same day Mr Stenhouse responded explaining that his accountant had written to HMRC notifying them of his intention to appeal “months ago quoting the case numbers and has further chased but had nothing back from them as yet, where are the contact details for the tribunal in case it gets that far”.

On 21 December 2023, the appellants’ accountant sent a letter to HMRC’s debt management team recording that Mrs Stenhouse had been issued with a demand for payment arising from determinations made by HMRC; HMRC had requested bank statements and mortgage offers which the appellants had tried to obtain but which were unavailable; the statements were requested in June 2019 but due to Covid, account closures, moving bank, and the archive team being on furlough, the statements were not received until June 2022; those statements show that no tax is due for those years and the determinations should be cancelled; it states that their client wished to make an appeal under the Special Relief provisions of the TMA and that the appellants’ MP had contacted HMRC in an attempt to have the enforcement action suspended.

It also went on to state that “our client wishes to submit a late appeal for the determinations made for 2013, 2014 and 2015”.

It is clear from HMRC’s letter to Mr Stenhouse of 19 January 2024 that a similar letter was sent to HMRC, on his behalf, by the accountants.

HMRC accepted those letters as late applications for appeals against the discovery assessments and the penalty notices. In letters dated 19 January 2024 in respect of both appellants, HMRC rejected those applications.

On 31 January 2024, Mr Stenhouse notified his appeal to the tribunal. On 14February 2024, Mrs Stenhouse notified her appeal to the tribunal.

In oral evidence, the appellants made the following assertions of fact.

In May 2018 their 18-month-old daughter was admitted to hospital with severe sepsis. She stayed in hospital for about a week. Thankfully she has now made a full recovery. The penalty notices had been received during that period and they were not given much attention since, unsurprisingly, the appellants were focusing on the health of their daughter.

Reference in the documents to a VAT enquiry related to a VAT enquiry in respect of a company and had nothing to do with the rental properties.

Mr Stenhouse had been told by an HMRC officer over the telephone, in connection with HMRC’s compliance checks into their returns, that HMRC would be making determinations for various tax years as if they failed to do so, they will be time-barred. He was also told that they would have a right of appeal against those determinations.

Their accountant was not responsible for dealing with the tax appeals until 2022.

They had originally used RBS, as their bankers but changed to TSB in 2017. They therefore had no access to the RBS online statements. Mr Stenhouse tried to obtain copies of the statements requested by the information notices via customer services, attending at branches of RBS and via telephone calls. In September 2019 he provided a mandate to allow HMRC’s case officer to contact RBS to obtain the bank statements.

During Covid, in April 2020, RBS was working with a reduced number of staff and the archive team, which was responsible for obtaining copies of the bank statements, had been furloughed.

Although the documents they had received explained that the determinations could be appealed, to do so they would need the bank statements to prove there was no tax due. They therefore could not make an appeal until they had received the bank statements. It was his understanding that no appeal can be made until he had evidence that there was no tax to pay.

In June 2022 he collected the bank statements from a branch of RBS. These provided proof that mortgages and other expenses were being paid in respect of the properties. He therefore contacted his accountant telling him that they now had all the information to prove that no tax is due. The accountant wrote to HMRC. That letter was never acknowledged.

Copies of the invoices (in respect of both rental income and outgoing expenses) were not, in his view, sufficient evidence of the income and outgoings of the business. These could only be ascertained from the bank statements which showed where the money came from and where it went to.

He accepted that he could, and should have, obtained and retained hard copies of the bank statements for the years in question.