Tager & Anor v Revenue And Customs [2018] EWCA Civ 1727

[2018] EWCA Civ 1727Case No A3/2017/1433
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
[2015] UKUT 40 (TCC)
[2015] UKUT 663 (TCC)
[2017] UKUT 84 (TCC)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 20/07/2018
Before
LORD JUSTICE McCOMBELADY JUSTICE KINGLORD JUSTICE HENDERSON
Between
(1) ROMIE TAGERAppellants(2) THE PERSONAL REPRESENTATIVES OF THE ESTATE OF OSIAS TAGER deceasedAppellantTHE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMSRespondentsTHE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMSAppellants(1) ROMIE TAGERRespondents(2) THE PERSONAL REPRESENTATIVES OF THE ESTATE OF OSIAS TAGER deceasedRespondent
Ms Hui Ling McCarthy QC (instructed by Withers LLP) for Appellants and cross- RespondentsMr David Yates (instructed by the General Counsel and Solicitor to HMRC) for Respondents and cross-AppellantsHearing Hearing dates: 18 and 19 April 2018
Judgment ApprovedLord Justice Henderson :Introduction
[1]If a tax system is to operate fairly and efficiently, it is essential that taxpayers should provide prompt, full and accurate answers to legitimate requests for relevant information made by the tax authorities. Without such information, it will often be uncertain whether a liability to tax has arisen; and even if liability is not in issue, payment of the correct amount of tax will often depend on detailed facts concerning the taxpayer’s affairs which would otherwise be unknown to the authorities, and which frequently only the taxpayer is able to supply.[2]In 2008, Parliament enacted a new regime conferring powers on the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”) to obtain information and documents from taxpayers. The new regime replaced and expanded provisions previously contained in the Taxes Management Act 1970 (“TMA 1970”), which had themselves developed in scope and complexity over the years. Before the introduction of the new legislation, the key provisions were contained in sections 20 and following of TMA 1970, as substituted by the Finance Act 1976 and subsequently amended. The new 2008 code was introduced by section 113(1) of the Finance Act 2008, which simply said:
“Schedule 36 contains provision about the powers of officers of Revenue and Customs to obtain information and to inspect businesses.”
[3]The scope of schedule 36 is wide, but for the purposes of these appeals we are concerned only with the powers of an officer of HMRC to obtain information from the taxpayer, as opposed to information from third parties, and with the penalties which may be imposed for failure to comply with a notice requiring such information to be provided (defined in paragraph 6 of the schedule as an “information notice”).[4]Paragraph 1(1) of schedule 36 provides that:
“An officer of Revenue and Customs may by notice in writing require a person (“the taxpayer”) – (a) to provide information, or (b) to produce a document, if the information or document is reasonably required by the officer for the purpose of checking the taxpayer’s tax position.”
By virtue of paragraph 64(1), a person’s “tax position” means “the person’s position as regards any tax, including the person’s position as regards - (a) past, present and future liability to pay any tax, …”. The taxes covered include, by virtue of paragraph 63 (as amended in 2009), all the main forms of direct taxation, including income tax and inheritance tax (“IHT”), as well as VAT.

(a) to provide information, or (b) to produce a document,

[5]The basic penalties for failure to comply with an information notice are provided for by paragraphs 39 and 40, the former of which imposes liability to a fixed penalty of £300, and the latter of which applies if the failure continues after the date on which the fixed penalty is imposed, rendering the person in default “liable to a further penalty or penalties not exceeding £60 for each subsequent day on which the failure… continues.”[6]In addition to those fixed and daily default penalties, paragraph 50 of schedule 36 empowers the Upper Tribunal, on an application made by HMRC, to impose an additional tax-related penalty on a person in default who has become liable to a fixed penalty under paragraph 39. This provision had no counterpart in the legislation previously contained in TMA 1970, and we were told that this is the first case in which it has been invoked by HMRC.[7]Because of its central importance, I will here set out the main relevant provisions of paragraph 50:
“50 Tax-related penalty (1) This paragraph applies where- (a) a person becomes liable to a penalty under paragraph 39, (b) the failure… continues after a penalty is imposed under that paragraph, (c) an officer of Revenue and Customs has reason to believe that, as a result of the failure…, the amount of tax that the person has paid, or is likely to pay, is significantly less than it would otherwise have been, (d) before the end of the period of 12 months beginning with the relevant date…, an officer of Revenue and Customs makes an application to the Upper Tribunal for an additional penalty to be imposed on the person, and (e) the Upper Tribunal decides that it is appropriate for an additional penalty to be imposed. (2) The person is liable to a penalty of an amount decided by the Upper Tribunal. (3) In deciding the amount of the penalty, the Upper Tribunal must have regard to the amount of tax which has not been, or is not likely to be, paid by the person. (4) Where a person becomes liable to a penalty under this paragraph, HMRC must notify the person. (5) Any penalty under this paragraph is in addition to the penalty or penalties under paragraphs 39 or 40. … (7) In sub-paragraph (1)(d) “the relevant date” means – (a) in a case involving an information notice against which a person may appeal, the latest of - (i) the date on which the person became liable to the penalty under paragraph 39, (ii) the end of the period in which notice of an appeal against the information notice could have been given, and (iii) if notice of such an appeal is given, the date on which the appeal is determined or withdrawn, and (b) in any other case, the date on which the person became liable to the penalty under paragraph 39.” (a) a person becomes liable to a penalty under paragraph 39, (b) the failure… continues after a penalty is imposed under that paragraph, (c) an officer of Revenue and Customs has reason to believe that, as a result of the failure…, the amount of tax that the person has paid, or is likely to pay, is significantly less than it would otherwise have been, (d) before the end of the period of 12 months beginning with the relevant date…, an officer of Revenue and Customs makes an application to the Upper Tribunal for an additional penalty to be imposed on the person, and (e) the Upper Tribunal decides that it is appropriate for an additional penalty to be imposed. … (a) in a case involving an information notice against which a person may appeal, the latest of - (i) the date on which the person became liable to the penalty under paragraph 39, (ii) the end of the period in which notice of an appeal against the information notice could have been given, and (iii) if notice of such an appeal is given, the date on which the appeal is determined or withdrawn, and (b) in any other case, the date on which the person became liable to the penalty under paragraph 39.”
[8]It is worth noting, at this early stage, some significant features of the power to impose a tax-related penalty. First, such a penalty may only be imposed by the Upper Tribunal, on an application for that purpose made by an officer of HMRC. Counsel were unable to cite any direct parallel for conferring the power to impose a penalty exclusively on the Upper Tribunal, which normally exercises an appellate jurisdiction from decisions of the First-tier Tribunal (although it does of course also have an originating jurisdiction in relation to judicial review). This alone is a clear indication that the power to impose a tax- related penalty was intended by Parliament to be reserved for serious cases, which would need to receive a high level of judicial scrutiny. Secondly, it is a pre-requisite for the imposition of such a penalty that an officer of HMRC must have “reason to believe” that “the amount of tax that the person has paid or is likely to pay, is significantly less than it would otherwise have been”, and that this state of affairs is “a result of the failure” to comply with the information notice. In other words, there needs to be a causal link between the taxpayer’s failure to comply with the notice and the loss of tax (whether in the past, or prospectively), but it is enough if the officer of HMRC has reason to believe in the existence of such a causal connection. Thirdly, there is no upper limit on the amount of the penalty which may be imposed by the Upper Tribunal, and the only guidance which Parliament has chosen to give to the Upper Tribunal in deciding on the amount of the penalty is that it “must have regard to the amount of tax which has not been, or is not likely to be, paid by the person”. Furthermore, the obligation is only to “have regard” to that amount, which is itself likely to be uncertain, not only because it may be prospective, but more importantly because the situation will by definition be one in which the taxpayer has failed to comply with a notice requiring the production of information reasonably required for the purpose of checking his tax position. Indeed, the question may arise at a relatively early stage in HMRC’s enquiries when little is known about the precise amount of tax that has not been paid, or is likely not to be paid.[9]The appellant taxpayer, Mr Romie Tager QC, is, and was at all material times, a self-employed barrister with a thriving commercial and chancery practice. He took silk in 1995, and was for many years head of Selborne Chambers in Central London. Regrettably, as I will have to explain in some detail later in this judgment, he failed over a period of several years to comply with many of his most basic obligations as a taxpayer, not only in relation to his personal tax affairs, but also in relation to the estate of his late father, Mr Osias Tager (“Mr Tager senior”), who died intestate on 26 March 2005. Although no grant of representation to the estate of Mr Tager senior has ever been taken out, it is common ground that Mr Tager acted as his father’s de facto administrator, and that he is to be treated for IHT purposes as his father’s personal representative: see sections 199(4) and 200(4) of the Inheritance Tax Act 1984 (“IHTA 1984”). Acting in that capacity, and nearly three years after the due date, Mr Tager eventually provided an IHT account relating to his father’s estate on 26 January 2009, using the prescribed IHT 400 form and supporting schedules. This disclosed a total chargeable estate of £684,449 and IHT payable of £168,579.60.[10]The position with regard to Mr Tager’s personal income tax returns, shortly stated, is that he was routinely late in filing them, but he made substantial payments on account which were intended to be (and in fact usually were) amply sufficient to cover his outstanding liabilities to income tax and interest when they were eventually established. In particular, on three different days in April 2012 Mr Tager filed his income tax returns for 2008/09, 2009/10 and 2010/11. The last dates by which the returns should have been filed were 31 January 2010, 2011 and 2012 respectively. On 28 August 2012, HMRC opened enquiries into each of those returns under section 9A of TMA 1970. Meanwhile, HMRC had also made several enquiries and requests for further information arising out of the IHT account which Mr Tager had belatedly filed in January 2009. In the absence of any response at all to those enquiries, over a period stretching from July 2009 to August 2011, HMRC issued an initial information notice to Mr Tager in respect of IHT on 16 September 2011, but this was subsequently withdrawn on 8 November 2012, partly as a result of concerns whether Mr Tager had in fact received it at the correct address.[11]As will appear, the end result of Mr Tager’s repeated failures to comply with the information notices subsequently served on him was the imposition by the Upper Tribunal of tax-related penalties in the aggregate sum of £1,246,020 in March 2015, later reduced (following the correction of some acknowledged errors) to £1,075,210.

The relevant information notices, and the initial penalties imposed on Mr Tager

[12]I have now sketched the background to the issue of the three information notices with which these proceedings are directly concerned. The first notice, issued on 22nd November 2012, related to Mr Tager’s personal income tax position and HMRC’s ongoing enquiries into the three late returns which he had filed in April 2012. The notice requested information and documents under the following headings: gift aid payments; capital investments; self-employment; investment income; and “other”. Under the first heading, details were sought of gift aid payments for the period from 6 April 2008 to 5 April 2011. Under the third heading, Mr Tager was asked to provide a breakdown of irrecoverable debts totalling £198,250 which he had written off during the period 7 April 2007 to 6 April 2008, together with details of why he considered those debts to be bad and of any action taken to recover them. Under the final heading, a list was attached of 52 companies showing Mr Tager’s interests in them as director and/or shareholder, and whether his interest was direct or indirect. He was asked to confirm that the list showed the full extent of his interests, and if not to provide full details of any omissions or corrections.[13]There is no dispute that this notice was duly received by Mr Tager. He was informed of his right to appeal against it, but did not do so. The date specified for compliance with the notice was 22 December 2012, and Mr Tager was duly warned that if he failed to comply he might have to pay a fixed penalty of £300 without further warning, and further daily penalties of up to £60 per day if he remained in default.[14]The second notice related to the IHT account for the estate of Mr Tager senior. It was dated 17 December 2012, and required information as set out in thirteen numbered paragraphs. The requests included the following: a) Why had nothing been included in the IHT account for bank and building society accounts? b) What accounts did Mr Tager senior use in order to pay credit card and other bills? c) What was the precise number and type of shares held by Mr Tager senior in each of four named companies at the date of his death? d) Details were also sought of his shareholdings in a further list of nineteen companies, and Mr Tager was asked whether his father had sold or given away any shares in the last seven years of his life (giving full details of any such disposals and the consideration received for them). Mr Tager was also required to provide full details of any additional companies not already listed in which his father had an interest when he died. e) Details were sought of any charitable donations made by Mr Tager senior in the last seven years of his life, and Mr Tager was asked “Precisely what enquiries did you make, and of whom, to establish that your father did not make any gifts in the last seven years of his life?”. f) Finally, details were required of the deceased’s interests in his residence at 963 Finchley Road, London, in respect of which Mr Tager had entered separate figures for the freehold reversion and the leasehold in the IHT account, with a combined value of £489,950. He was now asked whether a professional valuation had been undertaken in respect of his father’s interests in the property (and, if so, to provide a copy); to provide full details of his father’s leasehold interest in it (together with a copy of the lease); and to provide copies of any other documentation relating to his father’s interests in the property.[15]The information requested by the second notice had to be provided within 35 days. Mr Tager was again informed of his right to appeal against it, but chose not to do so. He was also warned of his potential liability to fixed and daily penalties if he failed to comply.[16]The third notice was sent to Mr Tager on 15 January 2013, under cover of a letter which thanked Mr Tager for providing some of the information requested by the first notice, but pointed out that much was still outstanding. The new notice listed the information still required in nine paragraphs. The specified date for compliance was 14 February 2013. As before, Mr Tager did not appeal against the notice and he was therefore under an obligation to comply with it. On the same occasion, because of his partial failure to comply with the first notice, a fixed penalty of £300 was imposed on him.[17]Mr Tager’s accountants provided some information in response to the third (income tax) notice on 12 February 2013, but thereafter no further information was supplied in response to either of the income tax notices, and on 8 April 2013 HMRC imposed on him a further fixed penalty of £300 for his failure to comply with the third notice, as well as daily default penalties amounting to £3,120, at a daily rate of £40 for his continuing failure to respond fully to the first notice. Mr Tager did not appeal against these penalties, nor did he take any steps to supply the outstanding information. This led to the imposition of further daily penalties, at the rate of £40, for the first notice and £20 for the third. By the time when HMRC applied to the Upper Tribunal for a tax-related penalty under paragraph 50 of schedule 36, on 12 December 2013, penalties totalling £17,540 had been imposed on Mr Tager for his failure to comply in full with the two income tax notices, all to no avail. Presumably he regarded the sums as too insignificant to be worthy of his attention. They were deducted from the amount standing to the credit of his self-assessment account.[18]As for the IHT notice, Mr Tager appears to have simply ignored it. He did not reply to any of the requests for information, nor did he instruct any professional agents to deal with the matter on his behalf. This inaction led to the imposition of a fixed £300 penalty on 11 March 2013, followed by daily penalties at the rate of £60 which amounted to £9,000 by 12 December 2013 when HMRC made a separate application under paragraph 50 for a tax-related penalty in respect of Mr Tager’s continuing failure to comply with the IHT notice. In due course, and after appropriate notice had been given to Mr Tager, these sums too were settled by deduction from money held on account by HMRC.

The applications for tax-related penalties

[19]HMRC’s two applications for tax-related penalties under paragraph 50 of schedule 36 were made, as I have said, on 12 December 2013. Each application was made by a duly authorised senior officer of HMRC, Mr Robert Brown in the case of the application relating to the IHT notice, and Mr Jonathan Hawkins in relation to the application concerning the income tax notices. Each application briefly set out the relevant facts, including the service of the relevant information notices, the complete or partial failure to comply with them, and the history of fixed and daily penalties imposed to date. It is enough to quote the following passage from the application relating to the IHT notice:
“15. The Respondent has not supplied any of the information or documents required, nor has he answered any of the letters or telephone calls HMRC has made to him. No explanation has been given by the Respondent for his non-compliance with the information notice and neither the notice nor any of the penalty assessments have been appealed against. 16. So far, the various penalties issued (totalling £9,300) have had no effect on the Respondent’s behaviour and he continues to ignore the Applicant’s repeated requests for the information which has now been outstanding for nearly 12 months since our information request, which was served on 17 December 2012. 17. HMRC is now making an application under Paragraph 50 Schedule 36 Finance Act 2008 for the Upper Tribunal to impose an additional tax-related penalty as the Respondent has still failed to comply with the original information notice.”
[20]Each application was later supported by a witness statement of the authorised officer, which set out the detailed history of Mr Tager’s non-compliance both before and after the issue of the information notices, and gave full particulars of all the penalties already imposed. Each officer then sought to identify the appropriate figure for tax at risk as a result of Mr Tager’s failure to provide information requested by the notices, and explained why HMRC took the view that a tax-related penalty was now required.[21]In relation to the two income tax notices, Mr Hawkins identified the tax at risk as at least £235,112, based on the information available to HMRC, other publicly available information, and the reasonable conclusions that could be drawn from that material. The figure of £235,112 comprised the following elements: a) £8,812, which represented an outstanding instalment of the catch-up charge imposed on barristers following the change from a cash basis to an accruals basis in accounting for the profits of their business. Mr Hawkins recognised that this amount did not relate to any of the information required under the information notices, and that the Upper Tribunal might therefore disregard it, but he included it “for the Tribunal’s information” since it was a matter that remained to be agreed before the tax enquiry was closed. b) £147,000, representing tax on the Gift Aid of £575,000 which Mr Tager had claimed for the three relevant tax years, but which had not been substantiated; and c) £79,300, representing tax on the bad debts of £198,250 which Mr Tager had claimed against his profits in the relevant returns, but which again (according to Mr Hawkins) had not been substantiated.[22]Mr Hawkins went on to explain that the amount of tax at risk was in his view “at least” £235,112, because the risk could not be accurately quantified without the full information requested in the notices. Further risks identified by Mr Hawkins included: a) Mr Tager’s investment income, and his directorships and shareholdings, in the light of information held by HMRC which suggested that he was connected with 52 companies in either or both of those capacities; b) capital allowances, in respect of which HMRC had been unable to confirm that the computations submitted were correct; c) trusts, including a family trust of which HMRC had no details although they had been told that Mr Tager was not a beneficiary; and d) the lack of clarity about the estate of Mr Tager senior, including the possibility that Mr Tager might have received assets from it which generated an income tax liability in his hands.[23]Under the heading “Why is a tax-related penalty required?”, Mr Hawkins said this:
“77. It is clear that the action taken to date to encourage the Respondent to comply (including assessing numerous daily penalties) has not been sufficient to convince the Respondent that he needs to comply with the legal notices requiring him to produce the information. 78. In addition to this, the Respondent’s tax returns for the tax years ended 5 April 2012 and 5 April 2013 are outstanding. Penalties are currently being charged in relation to these outstanding returns. 79. Since the opening of the enquiry, the Respondent has taken no further action to obtain a repayment of the large credit which was paid on account and he has not co-operated with our enquiries to help speed up the process to achieve this. The behaviour shown by the Respondent in relation to his legal responsibilities has not been altered by the penalties charged to date and therefore the only avenue left for HMRC is to ask the Tribunal to impose a substantial tax-related penalty.”
[24]As to the level of the penalty, Mr Hawkins acknowledged that there was little guidance available, but suggested that the aim of paragraph 50 was “to encourage compliance whilst not being disproportionate”. Mr Hawkins then said that the Tribunal might be assisted by further information concerning Mr Tager’s history of income tax compliance, which included the following: a) Since the introduction of self-assessment in 1997, Mr Tager had submitted his returns by the filing deadline on only two occasions; payments on account had been made at approximately the right time, but his returns were habitually late. A table was attached setting out the details. b) HMRC had previously opened enquiries into four of his returns, for the tax years ended 5 April 2003 to 5 April 2006 inclusive, and on these occasions the returns were found not to be correct and additional tax was due. The enquiries were settled by agreement, with payment of a total sum of £74,400, including penalties of £16,173.22.[25]Mr Hawkins concluded by expressing the view that only “a substantial penalty” would bring about a change in Mr Tager’s behaviour, and avoid the risk that he might see the payment of penalties by deduction from the large credit on his account “as a reasonable “price” to pay for not having to comply with his legal obligations to file tax returns on time and to provide further information and documents to HMRC when required to do so.”[26]I now turn to Mr Brown’s evidence in support of the application relating to the IHT notice. He began by describing the long history of non-compliance by Mr Tager, after contact was first made with HMRC in March 2006 by the agents then dealing with Mr Tager’s income tax affairs. The letter from the agents informed HMRC that Mr Tager was overseeing the estate, and enclosed a cheque for £140,000 on account of the IHT payable by the estate. The due date for provision of the IHT account (which was then in form IHT 200) was 1 April 2006, but this date passed without any account being sent, and further correspondence from HMRC went unanswered. Eventually, Mr Tager did return a telephone call on 23 October 2007, when he said that the delay was due to the discovery of two further loan accounts, confirmed that there might be a further £150,000 of IHT to pay, and agreed to deliver the outstanding account within six weeks. No account was delivered during this period, however, and further correspondence again went unanswered.[27]HMRC therefore took steps to apply to the Special Commissioners (the predecessor body to the FTT) for the award of a penalty under section 245 of IHTA 1984. A hearing eventually took place on 4 July 2008, which Mr Tager attended in person, although he had failed to respond to numerous attempts to contact him over the previous month. At the hearing, Mr Tager gave an undertaking to the Special Commissioner (Dr Avery Jones) that he would file the IHT account by 31 July 2008. On that basis, an initial penalty of £100 was imposed and the question of daily penalties was adjourned to await developments. Mr Tager then failed to comply with his undertaking, and the matter was re-listed for a further hearing in January 2009. This elicited a telephone call from Mr Tager, saying that he was faxing the last few documents to his accountant and that the account would be on its way. In the light of this information, the hearing was vacated and (as I have said) the account in form IHT 400 was eventually delivered on 26 January 2009. It was signed by Mr Tager, with a declaration confirming, among other things, that it was correct and complete to the best of his knowledge and belief (including the information contained in the schedules), and that he had made the fullest enquiries reasonably practicable in the circumstances to find out the open market value of all the items shown in it.[28]Upon examination, it soon became apparent that the account was in various respects incomplete or inaccurate. For example, the form said that only one child had survived the deceased, whereas Mr Tager had previously informed HMRC that there were three children, including himself. Again, the form stated that Mr Tager senior held no bank or building society accounts, which seemed highly improbable in the absence of any evidence of how he paid for normal household expenditure. The case was therefore allocated to a senior compliance officer, Mrs Elizabeth Clark, who wrote to Mr Tager on 17 July 2009 with an initial list of enquiries seeking information and clarification of a broad range of points arising from the return. There was no response to this request, or to a series of reminder letters between August and October 2010, when it was explained to Mr Tager that if no response was received within the next four weeks, an information notice under schedule 36 would be issued. There was again no response to this letter, but HMRC failed to issue a notice, and nothing then happened until late August 2011 when Mr Tager was given a further two weeks to supply the outstanding information. Once more, there was no reply, and a first information notice was therefore issued on 16 September 2011, requiring production of the outstanding material within thirty days.[29]Yet again, there was no response from Mr Tager. Mr Brown goes on to explain how this led to the imposition of an initial fixed penalty of £300, followed by several tranches of daily penalties at the maximum rate of £60, until on 8 November 2012 the decision was made to withdraw the information notice issued in September 2011 and to cancel all the subsequent penalty notices based on Mr Tager’s failure to comply with it. According to Mr Brown, there were two reasons for this decision. First, there was some doubt within HMRC (Mr Brown describes it as “a conservative view”) about whether or not the notices had been received by Mr Tager, even though they were sent to the contact address shown for him on the IHT account. The second reason was that further research had revealed the existence of further shareholdings which should have been included in the return, and for which HMRC required further information from Mr Tager.[30]It was against this background of prolonged and inexcusable non-compliance, including failure to honour an undertaking given to a Special Commissioner, that the IHT information notice with which we are concerned was finally issued on 17 December 2012, following Mr Tager’s yet further failure to respond to a letter dated 8 November 2012 which had given him a last chance to provide all the outstanding information requested by 10 December. Despite the deplorable background which I have recounted, however, the new notice had no more success than its precursor in eliciting a response from Mr Tager.[31]Mr Brown went on to provide his estimate of the tax which had not been, or was not likely to be paid, within the meaning of paragraph 50(3) of schedule 36, which he described for convenience as “the tax at risk figure”. His estimate was at least £1,103,210, made up as follows: a) £203,020, attributable to information received from the District Valuer on the open market value of Mr Tager senior’s residence; b) £74,000, attributable to the estimated open market value of his shares in a company called Greenquest Limited; c) £14,000, attributable to the value of a failed potentially exempt transfer; d) £800,000, representing the estimated open market values of his holdings in other unquoted companies; and e) £12,190, attributable to an omitted account with Bank of Scotland.[32]As I have already mentioned, the relevant schedule to the IHT account showed separate values for the freehold reversion and the leasehold interest in Mr Tager senior’s residence at 963 Finchley Road. Despite the request in the information notice, no details of any valuation had been provided. Nor was it apparent why the leasehold and freehold interests should not be combined, given that Mr Tager senior appeared to own them both, with the result that the estate should be treated as including the unencumbered freehold interest in the property. On that footing, the District Valuer had reported an informal valuation of £997,500, which Mr Brown exhibited to his statement. The difference between that figure and the combined values shown in the return was £507,550, on which IHT at 40% would be £203,020.[33]In relation to the shares in Greenquest, Mr Tager had declared in the account that their value was £25,000, although no details were given of his father’s shareholding. Given this lack of detail, Mr Brown explained how HMRC had conducted a search of publicly available information filed at Companies House concerning UK companies, which generated a schedule showing 42 directorships apparently held by the deceased at the date of his death. HMRC’s Shares and Assets Valuation team was invited to consider this schedule, together with the limited disclosure of corporate interests held by Mr Tager senior in the IHT 400. On the basis of this material, the value of the deceased’s shareholding in Greenquest at his death was estimated at £210,000, i.e. £185,000 more that the returned value of £25,000. The tax attributable to that increase would be £74,000.[34]Referring to an email from Sara Mitchell of the Shares and Assets Valuation division, where she said that her estimates of value were really only “best guesses” based on the limited information available to her, and that her opinion of value should be treated “with extreme caution”, Mr Brown commented:
“226. The penultimate paragraph of Sara Mitchell’s email illustrates the difficulties faced by HMRC when it comes to valuing companies. This is a corporate structure in which there are many inter-company loans, and in particular these are companies with significant holdings of property. In Shares and Assets Valuation’s experience, property companies will often show the value of properties at “cost price”, or have the properties re-valued only periodically. 227. Without knowing whether the properties in these companies are included at true market value at or around 25 March 2005, or whether they are included at cost or a figure based on a value some years before, it is impossible (without further information from the Respondent) to know whether the figures in the accounts are accurate or seriously under-valued. This underpins how relevant the information sought in the Information Notice is to assist in calculating the correct value of the share – and ultimately the tax arising. 228. It is worth noting that the property market generally was strong in 2005, so any property which is included at cost or at a previous valuation date would be likely to have an open market value of at least that amount.”
[35]The figure of £40,000 in respect of a failed potentially exempt transfer related to information obtained by the valuation team that Mr Tager senior had transferred thirty of his forty shares in a company called Leverwin Limited to a named individual on 10 December 2002. Since Mr Tager senior died within three years of this transfer, the full value of the shares transferred would prima facie be taxable on the death of the transferor. The assigned estimated value of £35,000 was said by Mr Brown to be at the very bottom of the range of values estimated by Ms Mitchell.[36]As to the deceased’s holdings in other unquoted companies, Mr Tager had failed to provide any of the information requested in the IHT notice, and all the difficulties to which Ms Mitchell had alluded in her earlier email obviously applied. Mr Brown acknowledged that it would be possible to make sense of the inter-company loans only if one had reliable information about the entire corporate structure, and that with property companies, much depends on the valuation of the properties and any mortgages secured on them. He said that “[s]ome further work was done, and in particular extensive searches were done to try and establish the properties owned by the companies.” He said he was satisfied that HMRC had done all that was reasonable in the circumstances to establish that shares had been omitted from the IHT account, and that research had been undertaken to try to establish an estimate of value. The “best estimate” put forward by the valuation team for the deceased’s apparently undisclosed holdings was £2 million, on which IHT at 40% would be £800,000. In Mr Brown’s opinion, “HMRC has taken an extremely conservative view of the tax at risk on this aspect.”[37]Finally, Mr Brown explained that data available to HMRC about interest payments made by banks to UK residents revealed that Mr Tager senior held an account with Bank of Scotland with a balance in 2008 of £30,457.22, and in the absence of any figures for earlier years 40% of that amount had been taken as an estimate of the tax attributable to the account on Mr Tager senior’s death.[38]Mr Brown concluded his statement by saying why HMRC considered a tax-related penalty to be required, and addressing the question of the appropriate level of the penalty. He pointed out, correctly, that it was always open to HMRC to issue a best of judgment notice of determination under section 221(3)(b) of IHTA 1984, and (subject of course to Mr Tager’s rights of appeal) to collect the tax due in that way. On the other hand, since HMRC had not yet concluded their enquiries, and the information requested from Mr Tager might reveal the existence of further unknown assets, HMRC’s concern was that the true level of tax owing might in fact be much higher than the estimated figure of approximately £1.1 million. He also rehearsed a number of general considerations similar to those advanced by Mr Hawkins, before inviting the Upper Tribunal to impose a penalty of 100% of the tax likely to be at risk on the conservative basis which he had followed. He said, in the penultimate paragraph of his statement, that this approach would be “similar to other cases of deliberate concealment/non-compliance”.[39]On 14 February 2014, the Upper Tribunal (Judge Colin Bishopp) gave directions for the future conduct of the two applications and listed a hearing to take place on 8 May 2014. Pursuant to those directions, on 14 March 2014 HMRC filed and served their statement of case (settled by their counsel, Mr David Yates) together with the witness statements of Mr Hawkins and Mr Brown in support of the applications. Mr Tager then had until 11 April 2014 to serve his statement of case, together with a list of documents and any witness statements on which he intended to rely at the hearing. Regrettably, Mr Tager chose to ignore these directions, and failed to provide any pleading, list of documents or written evidence within the prescribed period, or indeed at any time before the hearing. All he did was to file a brief skeleton argument on 6 May 2014, which was itself in breach of a direction requiring his skeleton to be provided by the previous day.[40]This skeleton argument did not engage in any way with the detail of HMRC’s case, but instead asked for a final opportunity to demonstrate that Mr Tager had a genuine ability and intention to comply with the outstanding information notices. He acknowledged his default in responding to them, and said that there were “personal, family, and professional reasons” that would explain his default, although he accepted that those reasons could not justify his non-compliance with the notices or his lack of communication with HMRC. He said that he had made significant progress in gathering the information and evidence needed for compliance, and expressed confidence that he would be able to satisfy HMRC that there was “probably relatively little (if any) tax outstanding for which I am liable”. He said he had taken “radical steps” substantially to reduce his professional commitments over the next six weeks, so that he could concentrate on remedying his serious defaults, with help from Chantrey Vellacott in relation to his personal tax affairs. He offered to supply the necessary information in relation to income tax by 30 May, and in relation to IHT by 13 June 2014. He accepted, realistically, that penalties were appropriate in his case, but submitted that the approach to their quantification, and the ultimate amounts imposed, should be adjourned until he had been given a final opportunity for compliance.[41]The Upper Tribunal refused to grant Mr Tager’s application on paper, but he renewed it at the hearing on 8 May 2014, at which he appeared in person. The application for an adjournment was resisted by HMRC, but Judge Bishopp decided to accede to it on the basis of express undertakings given by Mr Tager to the Upper Tribunal, and incorporated in the directions made by it, that he would comply with the notices by the dates specified in his skeleton argument.[42]Judge Bishopp explained his reasons for adopting this approach in the decision which he released on 6 March 2015 (“the First Decision”), following the adjourned hearing which took place on 10 October 2014.

Judge Bishopp said:

“15. I took the view on that occasion [i.e. on 8 May 2014] that Mr Tager commanded little sympathy. His prolonged failure to comply with the notices was substantially unexplained, and his failure to honour an undertaking to the Special Commissioner and various promises to HMRC is unexplainable. Compliance, even partial compliance, with the notices between service on him of HMRC’s applications and the hearing would have been a significant factor in his favour but, as he agreed, he had done nothing and instead, as Mr Yates said, had left any response, and an inadequate response at that, to the last minute. Nevertheless, I decided that his undertakings should be accepted, and that he should be given a last chance. 16. I did so for two, quite distinct, reasons. The first is what I perceive to be the objective of Schedule 36, taken as a whole, namely to ensure that the information which will ensure that the correct amount of tax can be determined is provided. It seemed to me that if I simply imposed a penalty that objective might be frustrated, since Mr Tager would have little remaining incentive thereafter to comply with the notices. HMRC might continue to impose daily penalties, but if the imposition on him of penalties already amounting to more than £30,000 had not resulted in compliance one could have little optimism that relatively modest daily penalties would have much effect. In addition, Mr Tager recognised when offering his undertakings that the Upper Tribunal is a superior court of record. A breach of the undertakings, since he is a practising barrister, would have serious professional consequences for him. I was persuaded that those consequences represented a real incentive to compliance and that the public interest in ensuring that the correct amount of tax is collected made it appropriate to allow the last chance Mr Tager requested. 17. The second reason was derived from the fact that this was untested legislation, and from my view that it posed some difficulties of interpretation on which I would welcome further submissions. I shall expand on my concerns later, but briefly stated they are twofold: that the draftsman may have contemplated that, in some circumstances, the penalty should stand as a proxy for the tax; and that the heading to para 50, “Tax-related penalty”, taken with the phrase requiring the Upper Tribunal to “have regard to the amount of tax…” does not make it clear whether a tax-geared penalty is contemplated (with the obvious difficulty of assessment when the amount of underlying tax is unknown) or that the tribunal is merely enjoined to take some account of the scale of the tax in issue in its determination.”
[43]Judge Bishopp emphasised, at [19], that the dates specified in the undertakings were those suggested by Mr Tager himself, coupled with assurances that he could meet them. The judge gave further directions by which HMRC were to notify the Tribunal and Mr Tager whether they were satisfied with his compliance, which would enable Mr Tager to make good any errors or omissions, and the applications were then to come back to the Tribunal, on the footing that the extent and promptitude of his compliance would be a material factor in the determination of the amount of the penalty under paragraph 50. Judge Bishopp added (ibid):
“… had there been full compliance, it should have been possible to make an, at least reasonably close, estimate of the income tax and inheritance tax for which he is liable.”
[44]Most unfortunately, as is common ground, Mr Tager failed completely to comply with his undertaking in relation to the IHT notice. On 16 June 2014, three days after the agreed deadline, he sent an email to HMRC stating that he had been unable to locate all the necessary documents in respect of his father’s estate, but he thought they might be at his son’s house, in which case he should be able to respond adequately to the notice within a further week. Despite this explanation, nothing further had been received by 24 June, or by 1 July, on each of which dates HMRC notified the Tribunal of Mr Tager’s default. Furthermore, the default remained wholly unremedied until on 8 October 2014, only three days before the resumed hearing on 10 October, Mr Tager served a witness statement relating to his father’s estate, to which various documents were exhibited.[45]The position regarding Mr Tager’s compliance with his undertaking in relation to the income tax notices is less straightforward. It is now common ground that Mr Tager did in fact comply with the outstanding matters in the income tax notices by 30 May 2014, and Judge Bishopp acknowledged this in a subsequent decision (“the Second Decision”) which he released on 7 December 2015, following further hearings in February and July of that year. At the time, however, HMRC took the view that Mr Tager had only partially complied with the income tax notices by 30 May 2014, and that this remained the position down to the hearing on 10 October 2014. Judge Bishopp agreed with the submissions to this effect addressed to him by Mr Yates at the October hearing, although he also agreed with Mr Yates that the continuing non-compliance with the income tax notices was “by then relatively modest, although still more than trivial and technical”: see the First Decision at [21].[46]The information which (as is now common ground) provided sufficient compliance with the income tax notices was contained in a letter dated 29 May 2014 from Chantrey Vellacott DFK LLP to Mrs Brown, together with supporting documents. The documents included evidence of donations made by Mr Tager during the relevant years. A breakdown was also provided of the aged debt which Mr Tager had written off, giving the names of the debtors and the amounts owed by them. This was accompanied by a generalised description of the well-known difficulties faced by barristers in private practice in obtaining recovery of fees, at a time when they were still unable to contract for the provision of their services. The letter also commented on Mr Tager’s directorships and shareholdings, confirming that most of the details in HMRC’s schedule were correct but also making certain corrections to it. Further correspondence ensued, in which Mrs Brown asked for further information about certain matters, including the debts written off. She was not satisfied with the general explanation which Chantrey Vellacott had given, and asked for further particulars in respect of each of the debts listed, including why the debt was considered to be bad and what action, if any, had been taken to recover it. She also pointed out, correctly, that the figure for gift aid had been overstated by £5,000 for the year 2009/10.[47]Against this background, Mr Hawkins made a second statement on 26 September 2014 for the purposes of the forthcoming adjourned hearing before the Upper Tribunal on 10 October. He revised his estimate of the income tax at risk down to £89,361.73, comprising £8,812 in relation to the barrister’s catch up charge, £1,249.73 in relation to the overstated gift aid in 2009/10, and £79,300 in relation to the bad debts of £198,250, which Mr Hawkins said “have still not been substantiated”. Mr Hawkins went on to explain that some of the other concerns mentioned in his first statement had been dealt with following the receipt of further information, including the concerns about capital allowances and trusts, but in his view there were still additional risks concerning Mr Tager’s investment income, directorships and shareholdings. It was still not known in what capacity Mr Tager held his shareholdings, nor was it known which shares had been received by him from his father’s estate.[48]A second statement was also made on the same day by Mr Brown, dealing with the IHT position. In the complete absence of any further information from Mr Tager, Mr Brown increased his “conservative” estimate of the IHT at risk to £1,171,020. Part of this increase was attributable to Mr Tager senior’s bank account, which Mr Brown now estimated to have contained at least £200,000 on the strength of a comment thought to have been made by Mr Tager at the hearing on 8 May when he apparently referred to bank accounts of his father’s with “hundreds of thousands of pounds in”. The remainder of the increase was attributable to a further review of the evidence relating to shareholdings in the estate by a senior valuer, Mr Gordon Wheeler. This updated valuation was contained in an email from Mr Wheeler to Mr Brown dated 23 September 2014. Both Mr Wheeler, in his email, and Mr Brown, in his statement, were at pains to point out how uncertain this estimate was, given the continuing absence of such basic information as the beneficial interest held by Mr Tager senior in each of the unquoted companies at the date of his death, and a full breakdown of the inter-company loans. Mr Brown continued to press for the imposition of a penalty set at 100% of the amount of tax at risk, “similar to other cases of deliberate concealment/non-compliance”. He said that, in HMRC’s experience, “this is the single worst case of non-compliance with an information notice and lack of co-operation, indeed lack of engagement with the request and the statute underpinning it, that we’ve seen.” Mr Tager’s witness statement of 7 October 2014[49]As I have said, on Wednesday 8 October 2014, only one clear day before the adjourned hearing, Mr Tager belatedly served on HMRC a witness statement (dated the previous day) and a short skeleton argument. The statement contained an apology for Mr Tager’s failure to comply with his undertaking relating to his father’s estate. He sought to explain his default by referring to difficulties which he had encountered in locating relevant documents following a house move some five years earlier. As will become apparent, this explanation cut little ice with the Upper Tribunal. In addition, and for the very first time, Mr Tager provided some important information concerning his father’s estate:(1) In relation to 963 Finchley Road, Mr Tager explained that about a month before his death his father had transferred the freehold (but not the leasehold) of the property into the joint names of himself and a Mrs Frommer with whom he had lived as man and wife since 1980; Mrs Frommer had died in March 2006, and the freehold represented the main asset in her estate. This information explained the separate references to the freehold and leasehold interests in the IHT 400, and Mr Tager was now able to support it with a copy of a professional valuation of the separate interests which he had obtained from Talbots Professional Services Limited (“Talbots”) in September 2006 for probate purposes. The Talbots valuation had been conducted without a building survey, but with the benefit of an inspection which indicated that substantial structural repairs were likely to be needed. Talbots’ best estimate was that a sum in the region of £100,000 or more would be needed to upgrade the property to satisfactory condition. Subject to that caveat, and to various other assumptions, Talbots estimated the open market value of the freehold interest with vacant possession as £780,000 on 7 March 2006, and £740,000 on 26 March 2005. They also gave separate figures, with supporting calculations, for the values of the separate freehold reversion and leasehold interests on those two dates.(2) With regard to his father’s bank account, Mr Tager explained that he had no personal knowledge of any bank account held by his father when he died, and Mrs Frommer had been unable to provide any relevant information. He therefore assumed that his father did not operate a personal bank account, but relied instead on director’s current accounts which he had with two of his companies. Mr Tager said he first became aware of his father’s account with Bank of Scotland when he read Mr Brown’s statement, although he had subsequently discovered two pages of bank statements which showed a credit balance of approximately £31,000 in March 2005, and a receipt into the account of £50,000 in January 2005 which Mr Tager had paid to him as part of the price under a share sale agreement made between them: see(3) below. (3) The share sale agreement between father and son was evidenced by a copy letter dated 10 January 2005, which read materially as follows:
“My dear Romie, As we finally agreed yesterday I am setting out what we have agreed about my shareholdings in the Tager Group. I agreed to sell you all my shareholding in our property companies [fourteen are then listed] (but not Greenquest or Pidom) for £110,000. You will pay £50,000 now, and the £60,000 next year. We will discuss when. We agreed this price on your promise to ensure over the next 5 years (please Gd) that a minimum of £2 million will be gift aided out of profits to Solev and Hatzlocho by all our companies including of course Faircastle. Of this I agree that £1 million should go towards a major capital project of your choice and the rest will be used to continue to support the charities which we have been giving to. …”
[50]In his statement, Mr Tager explained the share sale as follows:
“At the time of the transaction my father was finally accepting that his health was deteriorating, and he began to take steps to put his affairs in order. It was his idea that I purchase these shares; I was reluctant and embarrassed to discuss the subject with him. He insisted (for reasons that I cannot recall) to exclude the Pidom shares that he held. I insisted on the Greenquest shares being excluded, because it has always been important to me that my shareholding in Greenquest was the same as my sister Helen’s trust. We “haggled” over the amount that I would pay; ultimately I was offering £100,000 and my father wanted £120,000. We split the difference at £110,000, and with £60,000 being deferred until the following year. Throughout our negotiations my father insisted that the profits from these companies over the next 5 years be used to fund our family charity companies. We eventually agreed on a maximum [sic: the letter refers to a minimum] of £2 million, half of which could be used for a major a project of my choice. That of course made the shares much less valuable to me than they would otherwise have been.”
[51]Before moving on, I would make two comments about the share sale agreement. The first is that Mr Tager evidently wished to rely on his promise to pay a minimum of £2 million to the two charitable companies (of which he was a governor and member) as showing that he provided full consideration for the sale, and there was accordingly no diminution in his father’s net estate as a result of the transaction. That view of the matter, however, rests on a misconception. The quantum of a transfer of value is measured for IHT purposes by reference to the consequent diminution in value of the transferor’s estate (see section 3(1) of IHTA 1984), and since the £2 million was not payable by Mr Tager to his father, and did not discharge any legal liability owed by Mr Tager senior to the charitable companies, it follows that for IHT purposes the share transfer was made at a very substantial undervalue, and should have been entered as such on the IHT 400. The second comment, as Mr Yates pointed out to Judge Bishopp on 10 October, is that the provision for payment of a minimum of £2 million by Mr Tager is a helpful contemporary indication that HMRC’s estimate of the value of Mr Tager senior’s private shareholdings, hedged around by uncertainties though it was, may not have been far wide of the mark, or at least could reasonably have been so regarded.[52]Mr Tager also explained in his statement that the IHT 400 had been prepared by him with the help of his father’s accountant, who was also responsible for auditing the accounts of most of the family companies. Mr Tager said he had left the accountant to fill in the earlier parts of the form, and a number of inaccuracies were included which Mr Tager had not noticed before he signed it. Mr Tager duly apologised for this, but it remains symptomatic of the careless way in which he had set about a task which required his full attention and scrupulous accuracy. At the end of his statement, he accepted that there would be some additional IHT payable which he estimated as being of the order of £75,000, including interest.

The hearing on 10 October 2014 and the First Decision of the Upper Tribunal

[53]At the hearing on 10 October 2014, Mr Tager again appeared in person and HMRC were represented by Mr Yates. By way of written evidence, the Upper Tribunal had before it the statements of Mr Hawkins and Mr Brown, and the statement which Mr Tager had belatedly served on 8 October. Mr Tager also gave oral evidence at the hearing, although his evidence was taken informally and combined with his oral submissions. Despite the relative informality of tribunal proceedings, it would in my opinion have been preferable, particularly in a penal case of this nature, if steps had been taken to keep Mr Tager’s oral evidence and his submissions separate, and if he had been sworn in before giving his evidence in the usual way.[54]In the First Decision, which was released on 6 March 2015, Judge Bishopp began by setting out some of the background and the history of events since the earlier hearing on 8 May 2014. He recorded, at [23], that Mr Tager did not challenge the evidence of either Mr Hawkins or Mr Brown, with the result that neither officer gave oral evidence. The judge then referred to some of the evidence given by Mr Tager, recording at [27] that he had paid on account substantially more than he truly owed, and that all of the penalties imposed so far had been met from the surplus on his tax account. The judge continued, at [28]:
“I am bound to say that I find it difficult, if not impossible, to understand why a man of Mr Tager’s means who is, as he claims, anxious to pay the correct amount of tax on his income does not engage an accountant or tax adviser to deal with his tax affairs for him if he is unwilling or insufficiently skilled to do so himself … Of course, no-one is obliged to incur the cost of professional help; but the fact that, despite knowing that he had long-outstanding enquiries into his affairs and that he was suffering penalties, Mr Tager chose not to seek sufficient assistance necessarily undermines his claim that he wished to be transparent about his affairs. It is an obvious conclusion that the money he has forfeited by reason of the penalties imposed on him so far could have been more usefully employed in engaging a professional to put his affairs in order and keep him out of danger of incurring penalties in the first place. I regret to say that I am not satisfied that Mr Tager is as keen to be open and candid about his affairs as he would have me believe…”
[55]The judge then commented, at [29], that although Mr Tager had now provided some information about his father’s business activities and family history, on which he expanded as he gave oral evidence, the judge “was not left, at the conclusion of the hearing, with a clear understanding of what the deceased’s assets might be.” In his view, the information provided did not come “even close to compliance with the terms of the notice.”[56]Judge Bishopp then described Mr Tager’s evidence about the difficulties he had encountered in finding his father’s records when he moved home in 2009, continuing as follows in a passage which merits quotation in full:
“33. I find that explanation extraordinary, and in parts incredible. As I have said, I can accept that Mr Tager may have had some difficulty in identifying all of his late father’s assets, and in putting an accurate value on those he could identify, but it is impossible to believe that he did not realise that he could explain to HMRC what his difficulties were, and attempt to reach agreement on the best available information. Instead, he delayed delivery of the inheritance tax return despite the numerous reminders which led to the application to the Special Commissioners to which I have referred, even then breaching the undertaking he gave. The return was incomplete when he submitted it, and he did nothing to remedy its deficiencies until three days before the October 2014 hearing when he served his witness statements. Even then the information was manifestly insufficient; it is quite obvious from what Mr Tager has supplied that more information is necessary if even an approximate estimation of the value of his late father’s estate is to be made. I can accept that complete documentation, sufficient to support an accurate appraisal, is out of Mr Tager’s reach; but I cannot accept that, within a period of more than nine years from his father’s death, Mr Tager could assemble so little if he truly was attempting to be cooperative. 34. I also find it impossible to believe that a leading member of the bar would consider it appropriate to offer an undertaking to a court or tribunal that he would take certain action without having first checked that it was within his power to do so. Mr Tager had ample forewarning of the May 2014 hearing and could easily have checked, in advance of that hearing, what material was at his disposal, and could have made enquiries about what he found to be missing, in an attempt to obtain it from elsewhere. In giving his undertaking in respect of his compliance with the inheritance tax notice he was, at the least, reckless; and it seems to me that I must take everything he told me with a measure of caution. I am, again, unconvinced that Mr Tager has been as candid as he should be about his late father’s affairs, and what he knows of them. 35. In summary, I am satisfied that Mr Tager has made little attempt to comply with his tax obligations in a general sense and, more particularly, has failed to act with proper diligence in responding to the information notices. He has, rather, dealt with them with no sense of urgency, in that he has paid little heed to the deadlines for compliance; he has behaved as if partial compliance is acceptable, with little evident recognition that it is for a taxpayer to be open and honest about his relevant affairs; and although, at the May hearing, he indicated that he recognised that nothing less than full compliance would suffice he had, by the time of the October hearing, still failed to comply in full with any of the notices [as I have noted, it is now common ground that Mr Tager had in fact complied with the income tax notices]. As I have indicated, I have no explanation of, still less excuse for, the dilatory, if not casual, character of Mr Tager’s approach. The manner of his limited compliance gives no grounds for confidence that it approaches completeness, or that reliance can be placed on what he has said. A matter of additional concern is his repeated failure to honour promises made to HMRC and undertakings made to the Special Commissioner and to me, again with little evident recognition of the seriousness of those failures.”
[57]In the next section of the First Decision, running from [36] to [47], the judge examined the wording and purpose of the power in paragraph 50 to impose a tax-related penalty. He began by contrasting the power in paragraph 50 with the regime for fixed and daily penalties in paragraphs 39 and 40, and the power in paragraph 49A to impose increased daily default penalties of up to £1,000 per day where there has been failure to comply with a notice relating to persons unknown under paragraph 5. The judge identified the primary purpose of those provisions as being to encourage compliance. By contrast, the imposition of a penalty under paragraph 50 depended only on the prior imposition of a fixed initial penalty of £300 under paragraph 39, but there must in addition be reason to believe that tax has been, or is likely to be, lost by reason of the non-compliance with the relevant notice. This did not mean that a paragraph 50 penalty had no incentivising purpose, because there would be an opportunity for the taxpayer to comply with the notice after the application for the penalty was served on him and before the application was heard. As the judge said, at [40]:
“His doing so, even if belated, is likely to have a material bearing on the scale of the penalty, at least if the tribunal is satisfied his compliance is now complete.”
[58]Where, however, the taxpayer’s compliance was only partial, or non-existent, the potential for the penalty to operate as an incentive would be at an end by the time of the hearing. Moreover, there was unlikely to be much scope for the imposition of sequential penalties under paragraph 50, because an application under paragraph 50 has to be made within 12 months after the taxpayer incurs the initial liability to a paragraph 39 penalty. It is true that continuing daily penalties under paragraph 40 could still be imposed, but they were unlikely to prompt compliance if the threat of a paragraph 50 penalty had failed to do so. “It follows”, said the judge at [41], “that, in most circumstances at least, para 50 represents a last resort.”[59]The judge then considered how far it would be right to regard a paragraph 50 penalty as an alternative means of recovering the tax in question. He pointed out, at [43], that nothing in paragraph 50 precludes HMRC from assessing the tax due, once they have sufficient information to do so. Further, although paragraph 50 requires the tribunal to have regard to the tax lost or potentially lost, it does not impose a tax-geared penalty. As the judge commented (ibid):
“Indeed, it is difficult to see how, in a practical sense, it could be geared to an unknown amount of tax, yet in the case of egregious non-compliance with an information notice it is unlikely that the true extent of the tax due could ever become ascertainable.”
[60]For those reasons, the judge was not persuaded that a paragraph 50 penalty was “intended to operate as a proxy for an assessment, or to be a mainly or wholly restitutionary penalty”. Rather, in his view, the purpose of such a penalty “is essentially punitive”: see [44]. Further, although the amount of tax unpaid was a factor to which the tribunal must have regard, it was not the only consideration.

The judge continued, at [45]:

“If I am right in my view that para 50 is an essentially punitive provision it seems to me that the draftsman must have assumed that other factors which ordinarily play a role in the determination of a penalty would be taken into account as a matter of course. Those factors include, in the context of this case, the gravity of the offence, the duration of the non-compliance, whether there has, ultimately, been full compliance and if not the extent to which information and documents remain outstanding. Contrition and other mitigating features plainly have a role to play.”
[61]The judge then observed that the “reason to believe” on the part of an officer of HMRC is the gateway for the making of an application under paragraph 50, and although it is possible that the taxpayer’s default may have been remedied by the time of the hearing, “it would be an odd result if a hitherto non-compliant taxpayer could avoid any penalty at all by last-minute compliance”: see [46]. The judge considered that “even last-minute compliance would merit a reduction in the penalty which might otherwise have been imposed”, but he saw nothing in paragraph 50 to suggest “that it should lead to absolution” (ibid).[62]In the next section of the First Decision, running from [48] to [65], the judge considered how paragraph 50 should be applied to the facts of the case. He began by recording Mr Tager’s submission that a tax-related penalty would be inappropriate, since any outstanding income tax liability would be more than covered by his payments on account, and his estimated additional IHT liability of £75,000 represented only a “relatively minor residual dispute” between HMRC and himself which could be resolved by agreement or, failing that, by assessment and appeal. Mr Tager offered his apologies to HMRC and to the tribunal for his conduct, which he recognised was unacceptable, but he submitted that there was no irremediable prejudice to HMRC and that this was not a case for imposing substantial penalties. He did not suggest that any penalty “should be tempered by reference to his means”: see [52].[63]On behalf of HMRC, Mr Yates recognised that there was a qualitative difference between Mr Tager’s approach to the income tax notices (to which, on any view, he had largely responded) and his approach to the IHT notice, in respect of which there had been no compliance at all until shortly before the October hearing, and even then his compliance remained plainly inadequate. Mr Yates submitted that it would be appropriate to impose a penalty of 100% of Mr Brown’s revised estimate of the tax at risk, i.e. £1,171,020.[64]As

the judge rightly said, at [56]:

“The unnecessary diversion of HMRC’s resources by an uncooperative taxpayer over a prolonged period such as has occurred in this case is wholly unacceptable. If all taxpayers behaved as Mr Tager has done the administration of tax would become impossible. It is not a case in which the taxpayer has been overwhelmed by demands he was ill-equipped to meet, or has suffered illness or some other misfortune; nor is it a case of a minor failing of little lasting consequence. I cannot disregard the fact that Mr Tager has failed to honour several promises including his undertaking to this tribunal…”
[65]At [57],

the judge expressed his agreement with Mr Brown:

“that there is a proper comparison to be drawn between para 50 penalties and those imposed for deliberate concealment since the mischief targeted by them is materially the same, that is the intentional or, at least, prolonged withholding from HMRC of the information they need in order to assess the correct amount of tax.”
The judge then referred to the regime of penalties for failure to make or deliver returns by the due date contained in schedule 55 to the Finance Act 2009 (“FA 2009”), commenting that Parliament has there provided that in some cases penalties may be imposed at a rate of 200% of the relevant tax. The judge then said (ibid):
“I do not think an enhanced penalty is warranted here; but I am of the view that the starting point must be 100%.”
[66]Having identified this methodology, the judge proceeded to apply it to the income tax part of the case. He acknowledged the practical difficulty for the tribunal in having regard to an amount of tax which it could not ascertain, but repeated his view that the “plain purpose of the provision” was “to impose a penalty when all else has failed”: see [60]. He then said, at [61]:
“The conclusion I have reached is that I should have regard to the amount of tax attributable to the claims for relief which Mr Tager has made but not justified. They were (among other items he has justified) the target of the information notices. It seems to me that, if I am to respect the purpose of the legislation, and to impose a penalty when one is so plainly merited, it is necessary to find a proxy for the tax at risk.”
After eliminating the £8,812 referable to the change of accounting basis, which did not form part of either income tax notice, this left a sum of £80,549 attributable to Mr Tager’s claims for bad debt relief. Taking that as his starting point, the judge was not persuaded that the “limited mitigation” which he had identified in relation to the income tax notices should lead to a substantial reduction from that figure. He continued, at [62]:
“What Mr Tager eventually did was, to borrow a common phrase, too little too late. His earlier conduct as I have described it was, not to mince words, disgraceful. In my view he merits no more than a modest rounding down of the penalty, which I determine at £75,000. If it is necessary to impose separate penalties for the two notices (a matter on which I was not addressed), I determine them at £37,500 each.”
[67]Turning to the IHT notice, the judge observed at [63] that Mr Brown’s estimate of the tax at risk was supported by his detailed written evidence, limited though that evidence might be, and was based on conservative valuations. The judge commented that Mr Tager had not required Mr Brown to attend for cross-examination, but had merely “put in what he must have known was a wholly inadequate statement exhibiting a few documents and making an unsubstantiated assertion that the estate was worth materially less than Mr Brown had estimated.” The judge continued (ibid):
“As I have said, I am not persuaded that what Mr Tager has told me is credible; on the contrary, I am satisfied that the tax which is at risk is more likely than not to be at least the £1,171,020 which Mr Brown has calculated.”
[68]In the judge’s view, there was “nothing to be said by way of mitigation” of Mr Tager’s failure to comply with the IHT notice. The evidence which he had produced at the last minute “was manifestly inadequate”, and in the years since his father’s death “he repeatedly and persistently fobbed HMRC off.”

The judge continued, at [64]:

“His conduct towards the Special Commissioner can only be regarded as contemptuous; and his reckless offer of undertakings to this tribunal, followed by his, as I perceive it, insouciant attitude to his non-compliance, are of a similar character.”
[69]Accordingly, Judge Bishopp was satisfied that a penalty of 100% of the tax at risk, namely £1,171,020, must be imposed. Together with the £75,000 penalty in relation to income tax, this made a total of £1,246,020. For the avoidance of any doubt, the judge added, at [65], that payment of these penalties “does not discharge the liability to pay such tax as is found to be due”.[70]In the final three paragraphs of the First Decision, the judge dealt briefly with Mr Tager’s undertakings to the Upper Tribunal. The judge recorded that, although he had taken account of Mr Tager’s breach of his undertakings as part of the overall background, he had not augmented the penalties he would otherwise have imposed because of them. In the judge’s view, it would be inappropriate to increase statutory penalties for that reason, and although they were connected, Mr Tager’s failure to comply with the information notices, and his failure to honour his undertakings to the tribunal, were separate matters. The breaches of undertaking could not, however, be ignored, and the parties were invited to provide written submissions about the action, if any, which the tribunal should take in that regard.

Subsequent developments: the Second and Third Decisions of the Upper Tribunal

[71]Although the First Decision was not finally released until 6 March 2015, it was sent out in draft to the parties, in accordance with the Upper Tribunal’s normal practice, in (I infer) late January 2015. This finally prompted Mr Tager to seek legal advice, and solicitors and counsel (Withers LLP and Ms Hui Ling McCarthy, now QC) were instructed to act for him. As a result, an application was made to Judge Bishopp on 5 February 2015 when he agreed to defer publication of the First Decision for a short period. Nothing now turns on that application, or the reasons for it. Shortly afterwards, Mr Tager also instructed accountants to deal with his and the estate’s tax affairs, and to provide all the information which HMRC required.[72]It is common ground that in June 2015 Mr Tager finally complied with the IHT notice and the undertaking which he had given to the Upper Tribunal in May 2014. Meanwhile, on 27 March 2015, Mr Tager made an application to the Upper Tribunal to set aside and remake the First Decision. This application was heard on 8 July 2015, when Mr Tager was represented by his new legal team.[73]The application to remake the First Decision was made in reliance on rule 43 of the Tribunal Procedure (Upper Tribunal) Rules 2008 (“the UT Rules”), which so far as material provides as follows:
“(1) The Upper Tribunal may set aside a decision which disposes of proceedings, or part of such a decision, and re-make the decision or the relevant part of it, if – (a) the Upper Tribunal considers that it is in the interests of justice to do so; and (b) one or more of the conditions in paragraph (2) are satisfied. (2) The conditions are – … (d) there has been some other procedural irregularity in the proceedings.” (a) the Upper Tribunal considers that it is in the interests of justice to do so; and (b) one or more of the conditions in paragraph (2) are satisfied. (2) The conditions are – … (d) there has been some other procedural irregularity in the proceedings.”
[74]Ms McCarthy submitted that there had been procedural errors in the proceedings which culminated in the First Decision sufficient to warrant its being set aside in accordance with rule 43. The judge set out these alleged errors at [11] of the Second Decision, which was released on 7 December 2015. On behalf of HMRC, Mr Yates accepted that there were certain factual errors which needed to be corrected, but submitted that this could and should be done by exercise of the slip rule in rule 42 of the UT Rules, and that the jurisdiction under rule 43 was not engaged.[75]The judge agreed with Mr Yates that the conditions for application of rule 43 were not satisfied. The judge was also not persuaded that he should, instead, make the necessary changes in accordance with rule 42, which provides that:
“The Upper Tribunal may at any time correct any clerical mistake or other accidental slip or omission in a decision or record of a decision by – (a) sending notification of the amended decision, or a copy of the amended record, to all parties; and (b) making any necessary amendment to any information published in relation to the decision or record.”
In the judge’s view, this jurisdiction was confined to the correction of accidental mistakes made while committing the decision to writing. He acknowledged that this led to “a rather unsatisfactory result”, in that there were acknowledged errors in the First Decision which he was powerless to correct. He took the view, however, that there was another possibility, to which neither party had adverted at the hearing, whereby the errors could be dealt with without the necessity of an appeal. He considered that he had still not finally determined HMRC’s original applications for paragraph 50 penalties, because of the outstanding matter of Mr Tager’s undertakings. On that footing, it would be open to him to revisit his original assessment of the tax at risk, and it would accord with the overriding objective in rule 2 of the UT Rules for him to do so. Accordingly, the pragmatic course would be to give HMRC and Mr Tager’s accountants a reasonable opportunity to agree the amount of IHT payable, and to hear further argument on the question only if they were unable to reach agreement. In either case, once the resulting figure had been ascertained the judge said he would be willing to amend the amount of the penalty on an arithmetical basis. (a) sending notification of the amended decision, or a copy of the amended record, to all parties; and (b) making any necessary amendment to any information published in relation to the decision or record.”[76]With regard to Mr Tager’s undertakings, the judge said he was now satisfied that Mr Tager had indeed complied in time with the letter of the income tax notices, and this was no longer disputed by Mr Yates. Conversely, Mr Tager now accepted that his compliance with the IHT notice was both late and incomplete, and that he was accordingly in breach of his undertaking relating to that notice. The judge said he thought it unnecessary to impose a further financial penalty for that breach, in the light of a certain course of action which Mr Tager had agreed to follow and which the judge was satisfied should not be publicly disclosed. We have not been informed what that course of action was, but the judge said at the end of the Second Decision:
“It is, I think, sufficient to record that I am satisfied that what he is to do will be burdensome and that it represents sufficient recognition of the gravity of his behaviour for which, it should be remembered, he is also to suffer a substantial financial penalty.”
[77]Unfortunately, the solution devised by Judge Bishopp in the Second Decision turned out to be far from the last word in this sorry saga. Disputes emerged about the meaning and effect of the Second Decision, and in particular whether it was intended to give an opportunity for Mr Tager to submit further evidence as to the correct amount of income tax and IHT due. In February 2016, Mr Tager sent HMRC a valuation report produced by BDO LLP which valued the shares relevant to the IHT position of the estate of Mr Tager senior. Following further correspondence, it was agreed that another hearing needed to be listed to resolve the differences between the parties, and directions for this purpose were given on 2 September 2016. The hearing was listed to take place on 26 October 2016. On 10 October, HMRC were served with a witness statement of Stephen Hawkins of Knight Frank, exhibiting a report on the valuation of the properties which were held by the companies whose shares were the subject of the IHT dispute. The hearing then took place on 26 October, with the parties represented as before. This led to the Third Decision, which was released on 24 February 2017.[78]In short, Judge Bishopp now accepted (with a degree of reluctance: see the Third Decision at [28]) that it was not open to him to revisit the quantification of the income tax and IHT liabilities which he had adopted in the First Decision, apart from the correction of errors within the scope of rule 42 of the UT Rules. That conclusion seems to me, with respect, clearly correct. The mere fact that the question of Mr Tager’s undertakings had been left open at the end of the first main hearing in October 2014 could not confer jurisdiction on the Upper Tribunal to revisit questions of valuation which it had finally determined in the First Decision. Accordingly, the only adjustments which the judge felt able to make were ones falling within the scope of rule 42. On that basis, he directed that the IHT penalty be reduced from £1,171,020 to £1,000,210, reflecting(a) the fact that the credit balance of Mr Tager senior’s Bank of Scotland account at the date of his death was now agreed to have been only £12,190, and(b) a concession made by Mr Yates at the October 2014 hearing which the judge acknowledged he had overlooked, to the effect that a value for the Finchley Road property greater than £740,000 could not be supported. No adjustments were made to the penalty of £75,000 imposed in relation to the income tax notices, even though agreement had by then been reached that Mr Tager was entitled to all of the bad debt relief claimed, and that the only relevant income tax unpaid was £1,250 in respect of the over-declared gift aid payments of £5,000.[79]So far as IHT is concerned, the parties remained nearly £1 million apart, mainly because HMRC were still relying on an estimated value of £2 million for the share portfolio which Mr Tager senior had transferred to his son shortly before his death. The parties also remained £100,000 apart on the value to be attributed to 963 Finchley Road. By April 2018, however, this gap had very significantly narrowed, and on 16 April 2018, two days before the start of the hearing in this court, agreement was finally reached that the total amount of relevant unpaid IHT was £195,471. This figure was based on an agreed value for 963 Finchley Road of £670,000, and an agreed value for the shares transferred by Mr Tager senior to his son of £257,406, after deducting the consideration paid of £110,000 and £6,000 in annual exemptions. The agreed valuations of the relevant shareholdings were based on discounts of between 60% and 80%, largely referable (as I understand it) to the prospects of recovery of inter-company debts. I should also record that the figures were agreed by Mr Tager “without admission and for the purposes of settlement only”: see BDO’s letter of 16 April 2018 to HMRC.

The grounds of appeal

[80]Mr Tager now appeals to this court against all three Decisions, with permission granted by the Upper Tribunal. In granting permission,

Judge Bishopp said:

“As I indicated in the decisions, the relevant legislation is difficult to interpret and even more difficult to apply, and I may well have fallen into error in my own approach. This was in addition the first application of its kind to reach a hearing, and it is plain that further consideration at a higher level is appropriate.”
[81]The grounds of appeal, updated to take account of the agreement reached on 16 April 2018 about the tax unpaid, may be summarised as follows:(1) The penalties of £1,075,210 in aggregate are far in excess of the amount that a reasonable Upper Tribunal, properly instructing itself in the law, should have imposed where the total amount of tax unpaid is now agreed to have been income tax of £1,250 and IHT of £195,471.(2) The Upper Tribunal erred in law in the following critical respects: a) it erred in its interpretation and application of paragraph 50(3) of schedule 36; b) it made findings of facts which fall to be corrected on Edwards v Bairstow grounds as erroneous in point of law (see Edward v Bairstow [1956] AC 14); c) it was wrong to accept HMRC’s evidence and to reject Mr Tager’s evidence where HMRC failed to cross-examine Mr Tager on material parts of his evidence, including in particular his bad debt relief claims, the unquoted shareholdings and the valuation of 963 Finchley Road; d) it failed to give any reasons for its decision to prefer HMRC’s evidence in relation to those matters; and e) it was wrong to change its mind in the Third Decision and decide not to revisit the question of the tax at risk and quantum.[82]Accordingly, it is said, the Upper Tribunal should have set aside and remade the First Decision pursuant to its powers under rule 43 of the UT Rules, on the basis of the evidence before it as at the hearing in October 2016. Since the Upper Tribunal did not follow that course, the position now is that this court should remake the decision or remit the matter to the Upper Tribunal for a rehearing, in either case on the basis of the tax figures which have now been agreed.[83]By a respondent’s notice, HMRC invite us to uphold the Upper Tribunal’s order on the following different or additional grounds: a) In determining the amount of the penalty, it was not necessary for the Upper Tribunal to satisfy itself of a specific figure of “tax at risk”, but was sufficient for it to “take some account of the scale of the tax in issue in its determination”: see the First Decision at [17]. b) The Upper Tribunal ought to have held that, upon HMRC adducing the evidence that they did, the evidential burden shifted to Mr Tager to show why HMRC’s figures for the “tax at risk” were incorrect or flawed, and that Mr Tager had failed to discharge any such evidential burden. c) The Upper Tribunal, in addition to finding Mr Tager’s evidence “wholly inadequate”, ought to have found that he was not putting forward any positive case or evidence about the valuation of the shares, nor was he inviting the Upper Tribunal to carry out a valuation of them. d) There was no need for the Upper Tribunal to have regard to the thresholds for tax-geared penalties, and in the circumstances of the present case it was still appropriate for the Upper Tribunal to impose the penalties that it did without regard to those thresholds.[84]Although Ms McCarthy QC did not abandon the contention that the Upper Tribunal was wrong to change its mind on the issue of jurisdiction in the Third Decision, I have already expressed my view that the Upper Tribunal was right to do so, and Ms McCarthy did not develop the contention in her oral submissions. In practice, it soon became clear that the issue could be relegated to the background, because if we considered that the Upper Tribunal had materially erred in law in any of the other respects contended for, it would then follow that the decision below could not stand, and it would be necessary for us either to remit the matter or to remake the decision ourselves. If we reached that position, the clear preference of both counsel was that we should remake the decision, not least because Judge Bishopp has now retired.

The power to impose tax-related penalties: general considerations

[85]Since this is the first occasion on which any court or tribunal (apart from the Upper Tribunal below) has had to consider the scope and purpose of the power conferred by paragraph 50, it is appropriate that I should make some general observations on the subject, apart from the points which I have already noted at [8] above. The task is made no easier by the complete absence of any admissible background material, so far as counsel have been able to discover, which might throw light on Parliament’s purpose in introducing this entirely new provision in 2008. Some points are, however, in my opinion reasonably clear.[86]First, the provision is a penal one, and it must be taken to be reserved for serious cases of non-compliance with information notices, typically where imposition of an initial fixed penalty of £300 and continuing daily penalties at the relatively modest rate of up to £60 per day have failed to secure compliance. While I would not go as far as the Upper Tribunal in saying that it is necessarily a last resort, in practice I find it hard to envisage circumstances where it would be appropriate for HMRC to make an application under paragraph 50 until fixed and daily penalties have been imposed for a significant period to no avail. Further, as I have already noted, the fact that a paragraph 50 penalty may only be imposed by the Upper Tribunal is a clear indication of the exceptional nature of the jurisdiction.[87]Secondly, a link has to be established between the taxpayer’s failure to comply with the relevant notice and the amount of tax that he has paid or is likely to pay. An officer of HMRC must have “reason to believe” that, as a result of the failure, the amount of tax paid or likely to be paid “is significantly less than it would otherwise have been”. The test of “reason to believe” is a subjective one, subject to a basic requirement of rationality. It is common ground that it was satisfied in the present case, in relation to both the income tax and the IHT notices. I would add that I see no harm in the use of the phrase “tax at risk”, which Judge Bishopp adopted as a convenient shorthand to describe the significant shortfall in tax paid or likely to be paid contemplated by sub-paragraph (1)(c), provided that it does not become a substitute for the statutory language, or divert attention away from the need to establish a causal link between the failure to comply with the notice and the tax unpaid.[88]Thirdly, the Upper Tribunal must decide that it is appropriate for an additional penalty to be imposed: see sub-paragraph (1)(e). In agreement with the Upper Tribunal, I consider that this condition makes it clear that the Upper Tribunal should have regard to the usual considerations which apply when the imposition of a tax penalty is in question, including such matters as the reasons for non-compliance, the extent to which the position has been remedied, the gravity and duration of the non-compliance, the presence of aggravating or mitigating factors, the availability of other methods for HMRC to recover the tax at risk (most obviously by making an assessment, if necessary on a best of judgment basis), and generally the need to achieve a fair and proportionate outcome, having regard to the interests of the public purse and the general body of taxpayers as well as the circumstances of the non-compliant taxpayer himself.[89]Fourthly, the Upper Tribunal is expressly enjoined by sub-paragraph (3), in deciding the amount of the penalty, to “have regard to the amount of tax which has not been, or is not likely to be, paid by the person”. There are some important things to note about this provision. In the first place, although it echoes the language of sub-paragraph (1)(c), it is not qualified by reference to the officer’s “reason to believe”. On the contrary, the language seems to me to require the Upper Tribunal itself to form a view on the amount of tax unpaid or likely to be unpaid. That view must be formed on the basis of the evidence before the Tribunal, and as a matter of general principle when penalties are in issue, the onus is firmly on HMRC to satisfy the Tribunal of its amount.[90]That said, however, the obligation on the Upper Tribunal is only to “have regard to” the amount of tax shown to be at risk as a result of the failure to comply with the notice. The judge was in my view correct to hold that the penalty is not intended to be a proxy for recovery of the unpaid tax, and Parliament has deliberately decided against providing for a fixed or mechanical relationship between the amount of the tax unpaid and the amount of the penalty. Indeed, a regime of tax-geared penalties would often make little sense, and could give rise to insuperable practical difficulties, in a situation where HMRC are by definition still trying to obtain the necessary information about the taxpayer’s tax position.[91]There is accordingly a clear contrast to be drawn between the deliberately non-prescriptive language of paragraph 50 on the one hand, and the carefully calibrated regime of tax-geared penalties for failure to make returns etc on or before the filing date contained in schedule 55 to FA 2009. That schedule extends, as one would expect, to personal income tax returns, and to the delivery of accounts under section 216 of IHTA 1984. The schedule provides for the imposition of an initial fixed penalty of £100, and daily penalties of £10 if the failure continues during the period of three to six months after the initial penalty date. If the failure continues for more than six months, a further penalty may be imposed of £300, or (if greater) 5% of any liability to tax which would have been shown by the relevant return. Paragraph 6 of the schedule then provides that, if the default continues after one year has elapsed from the penalty date, and where information is deliberately withheld which would enable or assist HMRC to assess the taxpayer’s liability to tax, the taxpayer becomes liable to a further penalty, the amount of which depends on two variables: the category of the information withheld, and the nature of the taxpayer’s deliberate conduct.[92]There are three categories of information, the first of which applies if the information involves a domestic matter (as in the present case). Where the withholding of the information is “deliberate and concealed”, the penalty (subject to a minimum of £300) is, in relation to category 1 information, 100% of any liability to tax which would have been shown in the return. If, however, the withholding of the information is “deliberate but not concealed”, the relevant percentage is reduced to 70%. Paragraph 27(2) then explains that:
“The withholding of information by P [i.e. the person concerned] is – (a) “deliberate and concealed” if P deliberately withholds the information and makes arrangements to conceal the fact that the information has been withheld, and (b) “deliberate but not concealed” if P deliberately withholds the information but does not make arrangements to conceal the fact that the information has been withheld.” (a) “deliberate and concealed” if P deliberately withholds the information and makes arrangements to conceal the fact that the information has been withheld, and (b) “deliberate but not concealed” if P deliberately withholds the information but does not make arrangements to conceal the fact that the information has been withheld.”
[93]I have referred to these provisions in schedule 55 to FA 2009 in some detail, because it is clear that the judge used them as a guideline when considering the level of Mr Tager’s culpability, and in taking 100% of what he considered to be the tax at risk as his starting point.

Discussion

[94]In her oral submissions, Ms McCarthy made it clear that she did not challenge the basic methodology which the Upper Tribunal had adopted in arriving at the amount of the penalties, by first making a finding of the amounts of unpaid tax and then taking an appropriate percentage of those amounts to reflect the circumstances of the case. As she said, that was in principle a rational way to proceed, and it could not be said to be erroneous in point of law given the wide discretion vested in the Upper Tribunal by paragraph 50. Although Ms McCarthy had various criticisms of the Upper Tribunal’s acceptance of the amounts of unpaid tax put forward by HMRC in the evidence of Mr Hawkins and Mr Brown, the heart of her case was that the judge seriously erred in principle by taking 100% of those amounts as both the starting point and (to a large extent) the finishing point of his analysis.[95]In broad terms, Ms McCarthy’s criticisms of the judge’s approach may be grouped under two headings. First, she submitted that HMRC’s figures for the tax unpaid should have been heavily discounted to reflect the manifold and acknowledged uncertainties to which they were subject. Secondly, she submitted that the judge drew a flawed analogy with the regime for tax-geared penalties in FA 2009 schedule 55, and wrongly equated the present case with one of deliberate concealment under that regime.[96]In my judgment, each of these criticisms is well-founded. I will begin with the judge’s acceptance of HMRC’s estimates of the amounts of tax unpaid. In the case of the income tax notices, it is now common ground (and the judge himself accepted in the Second Decision) that in October 2014 he had proceeded under the misconception that Mr Tager was in breach of his undertaking and had still failed to comply with the notices. That error must have significantly influenced his approach to the imposition of an appropriate penalty, even though he agreed with Mr Yates that the matters he wrongly thought to be still outstanding under the notices could be characterised as relatively minor. More importantly, however, it was apparent from Mr Hawkins’ second statement that nearly all of the tax at risk figure (after deducting the irrelevant barrister’s catch up charge) was accounted for by Mr Tager’s claim for bad debt relief, in the sum of £79,300. That apart, the only other tax at risk related to the overstated gift aid of £5,000. In taking 100% of the tax at risk figure as his starting point, the judge said in the First Decision, at [61], that he “should have regard to the amount of tax attributable to the claims for relief which Mr Tager has made but not justified”. But that comment, with respect, seriously misrepresented the true position in relation to the bad debt claims. In the letter from his accountants dated 29 May 2014, Mr Tager had provided a breakdown of the relevant debts and an explanation of the familiar difficulties faced by barristers in recovering them. HMRC, as was their right, decided to ask for further information before allowing the bad debt claims, but on any reasonable appraisal it must have been obvious that the claims were probably well-founded and would in due course probably have to be allowed in full (as in fact happened). After all, the amounts in question were not obviously excessive for a barrister of Mr Tager’s earning capacity, they covered a period of one year, and they were set out in a letter from his accountants. On any view, as it seems to me, the judge should have taken as his starting point only a fraction of the £79,300 attributable to the bad debts, together with the £1,250 odd attributable to the gift aid.[97]The position with regard to the IHT notice is different, and rather more complex. Mr Tager was in admitted breach of his undertaking, and he completely failed to engage with the directions given by the Tribunal for the substantive hearing in October 2014. The evidence which he finally provided was inexcusably late, and it left both HMRC and the judge in a difficult position, because there was no time for it to be properly answered or digested before the hearing. The judge would in my view have been justified in refusing to admit Mr Tager’s evidence at all, but HMRC did not ask him to take that step, and commendably both the judge and HMRC did the best they could in a difficult situation for which Mr Tager was solely responsible. In those circumstances, I would not wish to be unduly critical of the judge for taking as his starting point the figures for tax at risk put forward by Mr Brown in his evidence. I am fortified in taking that view by two considerations. First, Mr Tager did not seek to challenge any of Mr Brown’s evidence, nor did he require Mr Brown to attend for cross-examination. Secondly, the share sale agreement with his father which Mr Tager belatedly produced could naturally be read as indicating a valuation well in excess of £2 million for the shares which were sold, with at least £2 million of that value being earmarked by the parties for the ultimate benefit of the family charitable companies.[98]Nevertheless, although Mr Brown’s figures may have provided an acceptable starting point, I see force in the argument that the judge should then have discounted them by a substantial proportion before using them as a yardstick for the imposition of a tax-related penalty. The information available to HMRC was very limited, as the communications with the Shares and Valuation Division referred to by Mr Brown made clear, and the valuations were subject to fundamental uncertainties which could only be resolved when a full picture became available of all the companies in which Mr Tager senior was interested, with up to date valuations of the properties which they owned and full details of the network of inter-company indebtedness. Furthermore, the onus was on HMRC to establish the amount of tax unpaid for the purposes of paragraph 50, but no first-hand evidence from the Valuation Division had been placed before the Tribunal. That was perhaps understandable, at a time when Mr Tager was refusing to engage at all with the proceedings, but it did mean that the valuation evidence available to the judge at the October 2014 hearing was of an indirect and secondary nature, quite apart from the necessarily speculative basis upon which much of it rested.[99]For all these reasons, I think it is strongly arguable that the judge erred in principle in failing to apply a substantial discount to Mr Brown’s figures for the shareholdings, even making due allowance for the fact that both Mr Brown and the judge regarded the estimates as conservative. The imposition of a tax-related penalty under paragraph 50 is a serious matter, and there has to be a solid foundation for the tribunal’s own assessment of the amount of tax unpaid or likely to be unpaid.[100]Although I see much force in Ms McCarthy’s arguments on this last point, it is unnecessary for me to reach a final conclusion on them because I am in any event satisfied that her second main ground of challenge to the judge’s approach must succeed. As I have already explained, the judge directed himself in the First Decision at [57] that there was “a proper comparison to be drawn” between penalties under paragraph 50 and those imposed for “deliberate concealment” under schedule 55 to FA 2009, with the result that his starting point should be 100% of the tax at risk. This was in my view a clear misdirection, for two main reasons.[101]The first reason is that in paragraph 50 Parliament has deliberately refrained from enacting a prescriptive tax-geared system of penalties such as that to be found in schedule 55 (which was in any event enacted a year later). The only requirement in paragraph 50 is that the Upper Tribunal must “have regard” to the amount of tax unpaid. This language means what it says, and does not in my judgment require any gloss. Clearly, there must be some relationship between the amount of tax which the Upper Tribunal finds to be unpaid and the penalty which it decides to impose, but the nature of the relationship, and the way in which the Tribunal gives effect to it, will depend on the circumstances of the individual case, and should not in my view be influenced (except perhaps as part of the general background) by prescriptive penalty regimes enacted to deal with other types of default by taxpayers.[102]The second reason, even assuming it to be appropriate to have regard at all to schedule 55, is that the concept of “deliberate concealment” clearly denotes a course of conduct which will usually, if not invariably, be dishonest. The definition of “deliberate and concealed” in paragraph 27(2) of schedule 55, quoted above, refers to a case where the person in question “deliberately withholds the information and makes arrangements to conceal the fact that the information has been withheld”. But it has never been part of HMRC’s case that Mr Tager was guilty of conduct of that nature, as Mr Yates expressly confirmed to us. An allegation of deliberate concealment would have been akin to an allegation of fraud or dishonesty, and as such would have had to be distinctly pleaded, and established by evidence commensurate with the gravity of the charge. Many disobliging epithets can be used to characterise Mr Tager’s deplorable conduct in this case, and a selection of them may be found in the three Decisions as well as in this judgment; but they should not be permitted to blur the important distinction between conduct which is dishonest (or akin to dishonesty) on the one hand, and conduct which is grossly, or even recklessly, negligent, on the other hand. Mr Tager was assuredly guilty of conduct of the latter type, but not the former.[103]I should add that I have considered whether the judge’s error on this point should fairly be disregarded on the basis that it made no difference to his overall conclusion, or in other words was immaterial. I do not consider, however, that such an analysis is open to us. The comparison drawn by the judge in the First Decision at [57] formed an integral part of his discussion of how paragraph 50 should be applied in this case, and it is the only explanation which he gives for his decision to take 100% of the tax at risk as his starting point for the quantum of the penalty. Furthermore, it is a point to which he returned in the Second and Third Decisions. In the Second Decision, at [26], he said (obiter) that he “would not accede to Ms McCarthy’s argument that Mr Tager’s conduct is to be equated with carelessness”, and added:
“I remain of the view that the better comparison is with deliberate concealment.”
Similarly, in the Third Decision,

the judge said at [13]:

“I took the view in my first decision that the measure of the appropriate penalty in this case was 100% of the “tax at risk”,… I arrived at 100% on the basis that Mr Tager’s failure, in respect of all the notices, was comparable in gravity to deliberate concealment which, by virtue of other paragraphs of Sch 55 and similar penal provisions, is set at 100% of the tax liability concealed, and that conduct of the kind in which Mr Tager engaged should attract a similar level of penalty.”
Accordingly, there can be no doubt that the judge regarded this as an integral part of his reasoning.[104]The conclusions which I have now reached are enough to show that the determination of the penalties under appeal by the Upper Tribunal cannot stand. It is therefore unnecessary to consider the other alleged errors of law upon which Mr Tager relies, or (so far as I have not already dealt with them) the points raised in HMRC’s respondent’s notice. The important question therefore is: what should now be done? Under section 14(2) of the Tribunals, Courts and Enforcement Act 2007, we may (but need not) set aside the decision of the Upper Tribunal, and if we do set it aside, we must either remit the case to the Upper Tribunal with directions for its reconsideration, or re-make the decision ourselves. If we decide to re-make the decision, section 14(4) provides that we may make any decision which the Upper Tribunal could make if it were re-making the decision, and (importantly) that we may also make such findings of fact as we consider appropriate.[105]It is clear, for the reasons already given, that the Upper Tribunal’s decision on the amount of the penalties must be set aside. In that event, the preference of both parties (as I have already said) is that we should re-make the decision ourselves, rather than remit it to the Upper Tribunal. I agree that this is the preferable course for us to follow, particularly as any remitter would have to be to a differently constituted Upper Tribunal in view of Judge Bishopp’s retirement. Furthermore, now that agreement has been reached on the amounts of income tax and IHT unpaid, we are in principle in as good a position as the Upper Tribunal to assess the appropriate amount of the penalties.[106]The question remains, however, whether we should perform that exercise by reference to the facts as they are now known to be, or whether we should do so by reference to the facts originally found by the Upper Tribunal. In oral argument, Mr Yates maintained, although he did not press, the submission that we should adopt the latter course, but I have little hesitation in rejecting it. It would be an unreal exercise in archaeology, and potentially unfair to Mr Tager, if we were to shut our eyes to the agreement on the tax position which has now been reached, and to impose penalties on the basis of the position as it was mistakenly estimated to be by HMRC in October 2016. We have the power to make such findings of fact as we consider appropriate, and if permission is needed to adduce as fresh evidence the agreement which has now been reached about the unpaid tax, I would grant it. On the other hand, I see no reason for us to depart from the judge’s general assessment of Mr Tager’s conduct, and his account of the whole history of this extraordinary case, particularly as he had the benefit of hearing and seeing Mr Tager himself at the two hearings in May and October 2014.[107]The tax unpaid (ignoring interest) is now agreed to have been income tax of £1,250, in respect of the tax year 2009/10, and IHT of £195,471, which should have been duly accounted for, broadly speaking, by no later than the deadline for the delivery of the IHT account for the estate of Mr Tager senior on 1 April 2006. Regard must be had to those figures in fixing the amount of the penalties, and also to the length of time (approximately twelve years) for which the IHT remained unpaid. It is material to note, in this connection, that the outstanding IHT cannot be treated as covered by the substantial payments on account which Mr Tager made to cover his personal income tax and capital gains tax liabilities, because it seems that those payments would in any event have been exhausted by the end of the July 2014 if Mr Tager had filed his self-assessment returns on time. So much is apparent from a note helpfully supplied to us by Mr Yates shortly after the hearing, with which Mr Tager was in substantial agreement.[108]Although there will be many cases where it is an acceptable approach to fix the amount of a penalty under paragraph 50 by applying a percentage to the tax found to be unpaid, and although the court or tribunal must of course always have regard to that amount, I do not consider that it is always necessary to show a demonstrable link between the tax unpaid and the penalty imposed. It is enough if the amount of the tax unpaid, taken in conjunction with all the other relevant circumstances, informs the determination of quantum and yields a result which is proportionate to the scale and nature of the taxpayer’s default. When the focus is broadened to take account of these wider considerations, the truly extraordinary nature of the present case becomes all the more apparent. The lamentable history which I have related would be wholly unacceptable from any taxpayer, let alone a leading and successful barrister. Mr Tager fully deserves all the harsh things said about him by the judge, and Ms McCarthy wisely did not seek to suggest otherwise. On the other hand, we must also bear firmly in mind that Mr Tager has not been accused or found guilty of any dishonesty, and that the judge was wrong to take “deliberate concealment” as his yardstick.[109]Taking everything into account, the conclusion which I have reached is that the appropriate penalties to impose would be: a) for Mr Tager’s failure to comply with the income tax notices before 29 May 2014, £20,000; and b) for his much more serious failures to comply with the IHT notice, a penalty of £200,000.[110]If the other members of the court agree, I would therefore allow Mr Tager’s appeal and substitute penalties in the amounts which I have indicated.

King LJ:

[111]I agree.

McCombe LJ:

[112]I also agree.

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