UT/2023/000126 - [2025] UKUT 00145 (TCC)

The FTT considered the effect of s319 POCA in a section dealing with the qualifying condition in s317. It concluded at [100] that it was not necessary for the NCA to establish that any of the income assessed arose from criminal conduct.

The FTT returned to consider s319 and whether it could save the validity of assessments which had not specified a source at [113] and [114] of the FTT Decision. It did so in the context of rental income as follows:

“[113] Mr Butt accepts that for those years he filed a tax return he did not include any rental income despite it being received by him during that period. However, Mr Blades submits that this cannot be part of the loss of tax discovered. He says that the rental income was not included in the s 29 TMA assessment and therefore whether Mr Butt deliberately omitted it from his tax return has no bearing on the validity of the assessment. This is, he says, because there is nothing on the face of the assessments to suggest that rental income has been assessed.

[114] However, this argument fails to take account of the fact that the assessments on Mr Butt, unlike those in Chadwick, specifically refer to s 319 POCA. Given that s 319(2) POCA provides that an assessment under s 29 TMA “must not be reduced or quashed because it does not specify (to any extent) the source of the income” we do not consider this to be a ground on which to conclude the assessments are invalid.”

It is not clear why the FTT was referring to section 319(2) in this context because that subsection only deals with income not otherwise chargeable to tax. In any event, the Appellants argue that the FTT erred in law in concluding that s319 POCA relieved the NCA of the need to make good its case that the Appellants derived taxable income from money laundering or other criminal activities which they themselves carried on. In particular, the FTT’s interpretation of s319 was wrong in law. They say that s319(1) is not on point so far as the burden on the NCA to show loss of tax is concerned in that it simply prevents an assessment which does not identify the source from being invalid for that reason. Mr Sykes submitted that the provision simply enables the NCA to establish a “discovery” for the purposes of s29(1) TMA. It was not concerned with relieving the NCA from specifying a source when it came to “loss of tax” in s29(4) TMA. Further, it was not relevant here because the NCA had in fact identified a source, namely the trade or money laundering albeit as set out in Ground 1 the Appellants argue the NCA had not satisfied the burden they bore to show a tax loss from that source.

The Appellants drew further support for their view on the ambit of s319(1) from the Explanatory Notes when POCA was enacted which state as follows:

“Section 319: Source of income

455.

Assessments to income tax raised by the Inland Revenue are required to specify the source of the income in question, such as a particular trade. This is not the case for capital gains tax or corporation tax. This section enables the Director to raise income tax assessments where he discovers a loss of tax even where he cannot identify the source of the income in question.

456.

The section does not extend to the assessments raised by the Inland Revenue, whose practice and powers will remain unaffected. Because of this, the section stipulates that when the case is transferred back from the Director to the Inland Revenue, any ‘no-source’ assessment made by the Director is invalid.”

Accordingly, say the Appellants, the FTT was wrong to consider the assessments could be saved by s319(1). The section did not apply because here a source was specified. The inapplicability of the section, where a source was in fact specified, was also supported by the FTT decisions in Rose v Director of the Assets Recovery Agency [2006] SpC 543and Chadwick v NCA [2017] UKFTT 656. The NCA says that the relevant tribunals were wrong about what they said about the scope and effect of s319.

Mr Sykes acknowledged in oral submissions that this ground was very much a subsidiary issue. His primary point remained under Ground 1 that the burden lay on the NCA to show the loss of tax by reference to a particular source, the point under Ground 2 being simply that s319(1) did not stand in the way of that. Given our conclusion on Ground 1, based on Mullens, it is not strictly necessary for us to deal with Ground 2.

Further, the debate on the interpretation of s319(1) is also irrelevant because we cannot see that the FTT actually deployed s319 in the way the Appellants suggest, to explain why there was no burden to show a tax loss arising from a trade of money laundering. The FTT’s analysis at [113] and [114] was that the discovery assessments were not invalidated in respect of rental income simply because rental income was not mentioned. It did not use s319 as a basis to justify the NCA not having to establish a loss of tax arising from a trade of money laundering. That is a sufficient basis to dispose of Ground 2.

In the circumstances we would prefer to leave arguments as to the scope and effect of s319 POCA to a case where it is determinative of the issues.