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

The Second Appellant submits that the FTT erred in concluding that she deliberately brought about a loss of tax.

Section 36(1A)(a) provides for an extended time limit where a loss of tax is brought about deliberately. Section 36(1A)(b) provides for an extended time limit where a loss of tax is attributable to a failure to notify chargeability.

The FTT dealt with this issue at [128] and [129] as follows:

“[128] The NCA contends that Mrs Begum deliberately failed to notify taxable income to HMRC and therefore s 36 TMA applies. Mr Blades contends that Mrs Begum, who accepts that she had income and did not file any tax returns, did not knowingly bring about a loss of tax. However, we disagree. Although Mrs Begum relied on Mr Butt, an individual is nevertheless responsible for his or her own tax affairs. This is clear from the many decisions of the Tribunal in which an appellant has sought to rely on a third party to do something he or she have done.

[129] We also consider that Mrs Begum cannot properly rely on what Mr Blades described not being fortunate enough to have received a good standard of education. As recognised by Simon Brown J in Neal v Customs and Excise Commissioners [1988] STC 131 at 136, albeit in relation to VAT, there is a distinction between the primary law including the requirement to notify liability and other aspects which less directly impinge upon such liability. In our view Mrs Begum would have known that there was a requirement to notify HMRC of a liability to tax but deliberately chose not to so. Therefore, the extended time limit of s 36 TMA applies and the assessments were made on time.”

The position for tax year 2008-09 and prior years was that the extended time limit under s36(1A)(b) for failing to notify chargeability applied only where the loss of tax was attributable to negligent conduct. For tax year 2009-10 and subsequent tax years it was not necessary for HMRC or the NCA to show negligent conduct and any failure to notify chargeability was sufficient to justify the extended time limit. The parties did not address us in detail on the different requirements or criticise the FTT Decision for not clearly identifying the different requirements between s36(1A)(a) and (b) or within s36(1A)(b). The FTT seems to have considered that there was a requirement to show deliberate conduct even in a case where it was alleged that there was a failure to notify chargeability. In effect the FTT was applying a higher test of deliberate conduct than the test of negligent conduct required by the statutory provisions for some of the relevant tax years.

Subject to that point, the FTT discussed at [116] the meaning of “deliberate”, referring to the Supreme Court’s decision in HMRC v Tooth [2021] UKSC 17. This was in the context of Mr Butt, and at [117] it concluded that it was more likely than not that Mr Butt knew he had not declared all of his income in each of his tax returns. It followed that his omission leading to the loss of tax was deliberate.

The Second Appellant relies on the following submissions in support of Ground 5:

In our view, none of these arguments establish any errors of law regarding the FTT’s conclusion in respect of Mrs Begum:

It was not only the acceptance of rental income that led the FTT to consider that Mrs Begum had undeclared income. The NCA had to establish a prima facie case that there was some loss of tax and it was not necessary for it to identify the source of the income. The basis for finding undeclared income included unaccounted for expenditure and deposits which did not only relate to rental income. It was open to the FTT to find that Mrs Begum deliberately brought about a loss of tax.

Clearly Mrs Begum could not be assessable on someone else’s income. The FTT’s conclusion was not based on Mrs Begum failing to declare Mr Butt’s income. There was no finding by the FTT that all of Mrs Begum’s unaccounted for receipts came from Mr Butt’s income. The NCA’s case in relation to Mrs Begum was based on sums coming into her accounts, and transactions and assets in her name. The NCA considered there was no corresponding income source to fund her expenditure. At [111] the FTT had also found that she had “access to funds and a lifestyle that exceeded” the declared income “and for which there [was] no other justifiable or credible explanation”. The basis of the prima facie loss of tax in respect of Mrs Begum was thus unaccounted for expenditure without any identification of source. Mr Sykes made the point that no source was identified but for the reasons discussed under Ground 1 that was not necessary. He also pointed out that having a house is not income but that was not the basis on which the assessments were made. As explained it was specific amounts of expenditure and bank deposits that were unaccounted for.

The FTT’s point regarding Neal was clear enough. Most people would be taken to know that income was chargeable to income tax and should be notified to HMRC. This did not involve a complicated area of law. In other words, Mrs Begum’s lack of education did not stand in the way of an inference that she knew her income ought to have been notified. Questions of mental state such as those involved in determining a person’s knowledge may not necessarily be resolved by direct evidence but will frequently involve the drawing of inferences from the surrounding circumstances. It is difficult to see how it can be said the FTT lacked sufficient evidence to draw the inference of deliberate conduct. The evidence included evidence of the transactions to which Mrs Begum was a party, the assets she held, and her lifestyle and expenditure. The FTT also heard evidence from Mrs Begum herself although it was unable to derive much assistance from that evidence. There was clearly some evidence from which the FTT could build a picture of Mrs Begum’s knowledge and from which it was at least open to it to infer what Mrs Begum knew as to her obligation to notify chargeability.

In the circumstances we are not satisfied that Ground 5 establishes any material error of law.