UT/2022/000157 - [2024] UKUT 00346 (TCC)

The only relevant test of whether the assessment met the best judgment requirement was whether the mistakes in the assessment were “consistent with an honest and genuine attempt to make a reasonable assessment” (Chadwick LJ, Rahman No. 2 [32]). There was no other test. It was inappropriate for the FTT to place such reliance on Mr Foster’s failure to take into account relevant material (Carnwath LJ, Pegasus Birds [22]).

There was no element of dishonesty in this case. Dishonesty on the part of Mr Foster was not pleaded. Mr Foster had decided not to refer to the bank statements knowing that they could only affect the taxpayer adversely. Mr Foster was simply seeking to find the fair figure as required by the case law principles on the basis that a best judgment assessment would almost always be an estimate. The assessment was not arbitrary.

In relation to Ground 4, it was wrong to conclude that the FTT reached its conclusion entirely on the basis that Mr Foster failed to take into account one set of evidence, the York Wines bank statements. That submission was misleading. It ignored the other findings of fact made by the FTT of other shortcomings in the assessment.

It was not true that Mr Foster had simply made an honest mistake. It was clear from the FTT Decision, that the FTT took a very dim view of Mr Foster’s evidence. It found that he was deliberately misleading (see, for example, FTT [51], [53]-[57]).

The findings of the FTT did not support the submission that Mr Foster was acting with integrity and seeking to find a fair figure. He deliberately ignored relevant evidence and chose to rely upon the SAGE accounting records of a known fraudster.

The information in the York Wines bank statements was relevant to the methodology used by Mr Foster in compiling his assessment. The suggestion that the failure to take into account the information in the York Wines bank statements was generous to the respondents simply missed the point. It was correct to say that, if the information from the bank statements was fed into Mr Foster’s calculations, principally the cash/bank ratio, the result would have been detrimental to the taxpayer. However. that analysis ignored the fact that what the information showed was that the entire methodology was questionable and produced outlandish results.

It was also wrong to suggest that the respondents had not questioned Mr Foster’s honesty and integrity. They had, both in opening and closing submissions before the FTT. The FTT’s findings (see above) demonstrated that the FTT shared the respondents’ concerns.

The FTT identified the correct legal test. Given its findings, the FTT was entitled to reach the conclusion that it did – that the entire assessment should be set aside. It was not acting perversely in doing so.

There were other material deficiencies in the methodology adopted by Mr Foster. He failed to take into account significant payments made by SA, which were not for the purchase of alcohol. This called into question the ratios used by Mr Foster that were fundamental to his methodology and to the quantum of the assessment.