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Ground 2 – Discovery assessments
Ground 2 – Discovery assessments
This was not a ground of appeal raised on behalf of Mr Rafferty, but was one that was raised by Judge Jones when granting permission to appeal.
It became clear from Mr Quinn’s submissions and our questioning that he did not understand the nature of HMRC enquiries or discovery assessments. He referred us to HMRC’s letter of 4 June 2020 in which the HMRC investigating officer states that she will be issuing a closure notice for 2014/15 and tax assessments for 2001/2002 through to 2013/2014, and for 2015/2016 and 2016/2017. Mr Quinn submitted that:
as the enquiry into 2014/15 was “closed”, no tax was payable for that tax year; and
for the same reason, HMRC had not “discovered” anything.
Mr Quinn referred us to his letter to HMRC of 13 October 2017 and to the Rafferty/HMRC table which he submits provided a complete explanation of Mr Rafferty’s finances. Mr Quinn submits that the FTT in reaching its decision did not take account of all the documentary evidence.
Mr Quinn submits that there was a lack of candour and that the FTT relied on misinformation. He refers in an email of 5 April 2024 to HMRC to a “so-called suspicious document”:
My client also wants the HMRC Officers explanations of the following events. At the 21.01.20 Tribunal Hearing the Judges were just about to order a Closure Notice on the 14/15 Enquiry when [HMRC officer] intervened with a concern of a suspicious document that needed explained before 14/15 was formerly closed. The Judges accepted the request in good faith and ordered the so called suspicious document to be explained. Subsequently it was explained by my client, proved to be completely innocent and it was obviously so. The Judges order was honored by my client and therefore a Closure Notice was to be formally issued by 21.04.20 as per point 3 of Judge Staker Direction dated 30.01.20. It was not. I have reviewed the HMRC Bundle for that Hearing and the so called suspicious document of concern was not in their Bundle and then how could it have been a matter of such concern for HMRC to stop the Judges from determining an immediate Closure Notice on 21.04.20. I believe this last minute introduction of a so called suspicious document was a fake Red Herring document issue designed to prevent the Judges from carrying out their legal duty and a deliberate interference in the Judicial Process. Consequently, and without any influence of the fake suspicious document, the HMRC officers ignored the Tribunal deadline of 21.04.20 and finally issued a Closure Notice for 14/15 on 04.06.20, after I demanded it to be issued, but immediately declared they had found Discovery. They did not. It subsequently transpired that a figure detailed in a document that had been withheld from the Respondent and the Judges before the 24.02.22 Hearing and only handed over during this second 24.02.22 Hearing after a Judge asked for sight of the Discovery evidence that prompted the Further Assessments for 01/02 to 16/17. It was another document not in their Hearing Bundle that they relied on at a Hearing. I refer you to Case (2019) UKFTT 692 (TC) which is another of which is another of [HMRC officer’s] cases that lacked candour.
We briefly note that the decision to which Mr Quinn refers in his email relates to discovery assessments, and criticism is made of the HMRC litigator (who also represented HMRC before the FTT in this case) for failing to cite to the Tribunal the decision of the Court of Appeal in Tooth on “staleness” in relation to discovery assessments. Although the decision of the Court of Appeal in Tooth was subsequently reversed by the Supreme Court, it was clearly wrong for the HMRC litigator not to have referred the FTT in that other case to then state of play in relation to staleness in discovery assessments. However, failure to refer the tribunal to case law is a very different matter from lack of candour in relation to evidence – and the decision in Case [2019] UKFTT 692 (TC) does not in our view provide any grounds for suspecting that the HMRC officer concealed evidence from the Tribunal. The “so-called suspicious document” was raised in Mr Rafferty’s application to the Upper Tribunal for permission to appeal, and permission to appeal on this ground was refused. The reasons given by Judge Jones were as follows:
Any procedural irregularity in relation to the document produced and relied upon by HMRC during the hearing is not material because [Mr Rafferty] had the right to make full written submissions on this document after the hearing where he could address any points that he wanted to rely upon on in his favour. It is clear that was able to and did file full written closing written submissions for the FTT appeal after the hearing.
Although in his submissions Mr Quinn did not address the law arising in respect of Ground 2, Ms Sheldon did.
It is unfortunate that the FTT’s decision does not set out the statutory provisions relating to discovery assessments, nor the relevant case law. Nor does the decision address in terms why the conditions relating to discovery assessments were satisfied. If it had done so, it is highly unlikely that Judge Jones would have granted permission to appeal on this ground.
Ms Sheldon referred us to the decisions of the Court of Appeal in Flannery and Another v Halifax Estate Agencies Ltd [2000] 1 WLR 377 and English v Emery Reimbold & Strick Ltd, D J & C Withers (Farms) Ltd v Ambic Equipment Ltd, Verrechia v Commissioner of Police of the Metropolis [2002] EWCA Civ 605.
In English, Lord Phillips MR said the following:
[24] We are not greatly attracted by the suggestion that a judge who has given inadequate reasons should be invited to have a second bite at the cherry. But we are much less attracted at the prospect of expensive appellate proceedings on the ground of lack of reasons. Where the judge who has heard the evidence has based a rational decision on it, the successful party will suffer an injustice if that decision is appealed, let alone set aside, simply because the judge has not included in his judgment adequate reasons for his decision. The appellate court will not be in as good a position to substitute its decision, should it decide that this course is viable, while an appeal followed by a rehearing will involve a hideous waste of costs.
[25] Accordingly, we recommend the following course. If an application for permission to appeal on the ground of lack of reasons is made to the trial judge, the judge should consider whether his judgment is defective for lack of reasons, adjourning for that purpose should he find this necessary. If he concludes that it is, he should set out to remedy the defect by the provision of additional reasons refusing permission to appeal on the basis that he has adopted that course. If he concludes that he has given adequate reasons, he will no doubt refuse permission to appeal. If an application for permission to appeal on the ground of lack of reasons is made to the appellate court and it appears to the appellate court that the application is well founded, it should consider adjourning the application and remitting the case to the trial judge with an invitation to provide additional reasons for his decision or, where appropriate, his reasons for a specific finding or findings. Where the appellate court is in doubt as to whether the reasons are adequate, it may be appropriate to direct that the application be adjourned to an oral hearing, on notice to the respondent.
The approach of the appellate court
[26] Where permission is granted to appeal on the grounds that the judgment does not contain adequate reasons, the appellate court should first review the judgment, in the context of the material evidence and submissions at the trial, in order to determine whether, when all of these are considered, it is apparent why the judge reached the decision that he did. If satisfied that the reason is apparent and that it is a valid basis for the judgment, the appeal will be dismissed. This was the approach adopted by this court, in the light of Flannery’s case in Ludlow v National Power plc (unreported) 17 November 2000; Court of Appeal (Civil Division) Transcript No 1945 of 2000 . If despite this exercise the reason for the decision is not apparent, then the appeal court will have to decide whether itself to proceed to a rehearing or to direct a new trial.
In the light of the decision of the Court of Appeal, we are required to review the FTT’s decision in the context of the material evidence and the submissions made at the hearing.
HMRC’s statement of case refers to the relevant statutory provisions for discovery assessments (s29 TMA) and the conditions that HMRC must satisfy in order to make a discovery assessment:
S29(1) allows HMRC to issue an assessment if an Officer of the Board discovers that any income which ought to have been assess to income tax has not been assessed.
HMRC contend that having reviewed the bank statements for 2014/15 they have discovered that lodgements exceed declared turnover and in absence of documentary evidence to demonstrate the source of these amounts they have been assessed to income tax. HMRC believe this practice to have continued outside the enquiry year so there is a liability to tax. S29(1) is therefore satisfied.
For the years 2001/2 to 2011/12 there was a failure to notify chargeability therefore the further conditions of S29 do not need to be satisfied.
To satisfy S29(4) HMRC must demonstrate that the loss of tax was brought about by the careless or deliberate behaviour of the taxpayer.
HMRC viewed the evidence and found that the appellant held a taxi licence from 08 October 1997. He admitted at interview on 16 February 2017 that he had commenced self-employment as a taxi driver years ago. HMRC view the behaviour leading to the failure to accurately return income from this source as deliberate therefore S29(4) is satisfied. If it is not found to be deliberate then HMRC state the behaviour was at least careless so S29(4) remains satisfied and HMRC are entitled to issue assessments.
Year | Return Issued | Return Due | Return Received | Enquiry Window Closed |
2012/13 | 06/04/2013 | 31/01/2014 | 01/11/2013 | 01/11/2014 |
2013/14 | 06/04/2014 | 31/01/2015 | 21/08/2014 | 21/08/2015 |
2015/16 | 06/04/2016 | 31/01/2017 | 24/10/2016 | 24/10/2107 |
2016/17 | 06/04/2017 | 31/01/2018 | 29/01/2018 | 29/01/2019 |
The table above shows the dates self-assessment returns were received from the appellant and the date the enquiry window closed.
It is HMRC’s position that when they discovered the insufficiency of tax for these years, following submission of the bank statements on 02 February 2020, they were not entitled to open an enquiry into these returns as the enquiry window had closed. S29(5) is therefore satisfied.
The assessments were issued on 04 June 2020.
S36 (1) allows for an assessment to be made at any time not more than 6 years after the end of the year of assessment if the loss of tax was brought about carelessly. HMRC’s position is that the loss of tax for 2015/16 was brought about deliberately, but if not deliberately then at least carelessly, by the appellant so they are permitted to issue an assessment.
S36 (1A) allows for an assessment to be made up to 20 years after the end of the year of assessment if the behaviour that brought about the loss was deliberate. HMRC’s position is that by not declaring the full level of his turnover as a self-employed taxi driver for the years 2009/10 to 2014/15 the appellant acted deliberately and therefore HMRC are entitled to issue assessment.
Similar statements are made in HMRC’s skeleton argument before the FTT.
It is clear from the FTT’s decision that it had accepted HMRC’s submissions on the issues of fact and law relating to the discovery assessments. At [235] the FTT said:
The Tribunal held that the conditions contained in section 29 TMA to allow assessments to be made for the years 2001/02 to 2013/14 and 2015/16 to 2016/17, had been met on the facts and submissions put forward by HMRC.
We therefore read back paragraphs 11.6 to 11.21 of HMRC’s statement of case and its skeleton argument into the FTT’s decision.
Having done so, we are satisfied, and find, that the FTT made no error of law by misapplying and/or misinterpreting the (statute and case) law when upholding HMRC’s discovery assessments. We are satisfied, and find, that the FTT
identified and applied the correct legal test of what constitutes a discovery and the relevant case law;
identified and applied the correct burden of proof (being upon HMRC) that there had been a discovery;
addressed and give reasons for rejecting Mr Rafferty’s argument that there had been no discovery; and
explained and give sufficient reasons why HMRC was entitled to make discovery assessments.
Mr Quinn complains that some of the material on which HMRC’s discovery was based had been previously provided to HMRC. This is irrelevant. Even if the information had been previously provided to HMRC, new facts are not required for a discovery to be made. Ms Sheldon referred us to the decision of this Tribunal in HMRC v Charlton Corfield & Corfield [2012] UKUT 770 (TCC) which states at [37] that:
In our judgment, no new information, of fact or law, is required for there to be a discovery. All that is required is that it has newly appeared to an officer, acting honestly and reasonably, that there is an insufficiency in an assessment. That can be for any reason, including a change of view, change of opinion, or correction of an oversight.
We address the issue of time limits for discovery assessments in the context of deliberate behaviour under Ground 3.