[20]The amendment to the Appellant’s tax returns referred to in paragraph 1(1) above was made pursuant to s.28A(2) of the TMA, which states that at the end of an enquiry into a tax return, a closure notice must make the amendments to the tax return required to give effect to the officer’s conclusions.[21]In relation to the tax year in question, the Appellant has provided neither HMRC nor the Tribunal with records to support the figures used in the calculation of his tax liability. At the hearing, the Appellant and Mr Weller confirmed that the only documentary material provided to HMRC before the amendment was issued was the “statement” sent with the letter dated 28 January 2008 from LJ Weller & Co. At the hearing, Mr McMeeken submitted, and the Tribunal agrees, that this “statement”, which is a single page of handwritten figures, effectively only reproduces the information already contained in the Appellant’s self-assessment. The Tribunal does not accept the Appellant’s explanation for the loss of his records, namely that they were left in the shop when possession of the shop passed to the new owner. The Appellant must have been aware of his duty to retain business records for tax purposes. The Tribunal further notes that HMRC requested information and documents in its letter dated 25 July 2007, and that it was only in December 2007, some five months later, after a £50 penalty had already been imposed on the Appellant for failure to comply with a s.19A notice, that HMRC were informed that the Appellant’s records had been lost.[22]The Tribunal finds that in such circumstances, the officer conducting the enquiry is not required to accept the Appellant’s unsupported claims as to the amount of his takings or profit. Rather, the Tribunal finds that in reaching “conclusions” at the end of an “enquiry” pursuant to ss.9A and 28A of the TMA, the officer must use his or her best judgement in determining the correct amount of tax.[23]The Tribunal finds that in an appeal against an amendment to a tax return giving effect to such best judgment “conclusions”, the burden of proof is on the taxpayer to establish the correct amount of tax due. This is in accordance with the principles established (in different contexts) in Bi-Flex Caribbean Limited v. The Board of Inland Revenue (1990) 63 TC 515, 522 (“Bi-Flex Caribbean”); Pegasus Birds Ltd. v Customs and Excise [2004] EWCA Civ 1015; and Khan v Revenue and Customs [2006] EWCA Civ 89 (“Khan”) at [68]-[76], [78]-[83]. In such an appeal, the officer’s conclusions “are prima facie right and remain right until the taxpayer shows that they are wrong and also shows positively what corrections should be made in order to make the assessments right or more nearly right” (Khan at [69], quoting Bi-Flex Caribbean).[24]The Tribunal finds that the amendment referred to in paragraph 1(1) above was arrived at by the officer through logical reasoning on the basis of what evidence he could reasonably obtain. The mere fact that the Appellant claims that the officer was wrong is insufficient to discharge the Appellant’s burden of proof. The Tribunal does not find the approach taken by HMRC in relation to 2005/06 to have been unreasonable.[25]The Tribunal therefore finds that the appeal against the amendment referred to in paragraph 1(1) above must be dismissed.
(b) and (c) above)
[26]As to the assessments for the years 2004/05 and 2003/04, referred to in paragraph 1(b) and (c) above, the text of s.29 of the TMA is set out above. By virtue of that section, the officer was required to make these assessments if the officer “discovered” that as regards the relevant years of assessment, any income which ought to have been assessed to income tax has not been assessed.[27]As to the meaning of the word “discover” in this context, it was said in Corbally-Stourton v Revenue & Customs [2008] UKSPC SPC00692, [2008] STC (SCD) 907 (“Corbally-Stourton”), at [42] (citing earlier case law) that: ... the legislation do[es] not require the inspector to be certain beyond all doubt that there is an insufficiency; what is required is that he comes to the conclusion on the information available to him and the law as he understands it, that it is more likely than not that there is an insufficiency. I shall call this a conclusion that it is probable that there is an insufficiency”. It was added in that case at [43] that “mere suspicion, something short of a conclusion that it is probable that there is an insufficiency is not enough”. It was further added at [44] that “a ‘discovery’ is something newly arising, not something stale and old” and that “The conclusion that it is probable that there is an insufficiency must be one which newly arises (from fresh facts or a new view of the law or otherwise)”.[28]The Tribunal finds that the correct approach to an assessment under s.29 of the TMA is the same approach as in Bi-Flex Caribbean, the question being whether whether HMRC had a bona fide belief that there had been a loss of tax, and a bona fide belief in the amounts of the assessments: see Momin and others v Revenue and Customs Commissioners [2007] EWHC 1400 (Ch), [2008] STC 2456 (“Momin”), especially at [19]-[20].[29]The Tribunal has found above that HMRC had a bona fide belief that the Appellant had understated his income in his 2005/06 tax return, and that the best judgement conclusion was that the Appellant had a gross profit of 60% in that year. The Tribunal is also satisfied that the officer had a bona fide belief that the amount of the tax lost in previous years in his best judgement could be arrived at by applying the same gross profit figure of 60% to the previous two years (see Momin at [19]-[20]).[30]However, despite this conclusion, by virtue of s.29(3) of the TMA, there being no suggestion that the Appellant did not file his returns on time for the years 2004/05 and 2003/04, he cannot be assessed under s.29 in respect of those two years unless two conditions are satisfied.[31]The first condition is that the reason for the officer’s “discovery” of non-assessed income in these years must be attributable to fraudulent or negligent conduct on the part of the Appellant or a person acting on his behalf (s.29(4)). The Tribunal finds that this condition is satisfied. The amounts “discovered” by the officer were not assessed because they had not been included in the Appellant’s self-assessments, and the Tribunal is satisfied that the Appellant’s failure to include them must have been at the least negligent.[32]The second condition is that the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware that income which ought to have been assessed to income tax had not been assessed (s.29(5)). According to paragraph 4 of the witness statement of Mr Hart, after the Appellant’s 2005/06 tax return was filed, the Risk and Intelligence Analysis Team of HMRC identified the “risk of a low level and declining level of gross profit and net profit over the three years 2003/04 to 2005/06”. It appears that this “risk” was identified merely from looking at the figures contained in the returns, in particular, the level of profit as compared to the amount of expenditure. The Tribunal finds nothing to suggest that a similar “risk” would not already have been apparent from looking at the figures in the 2003/04 and 2004/05 returns at the time that they were filed. Thus, at the time that each of the returns was filed, on the basis of that information contained in the return, an inspector could have been expected to have been aware that it was possible that there was an insufficiency. However, this does not mean that an inspector could have been reasonably expected to conclude that it was probable that there was an insufficiency. The Tribunal is satisfied that it was only after the enquiry into the 2005/06 return had been completed that it was possible for an inspector to be reasonably expected to have concluded that it was probable that there was an insufficiency in relation to the two earlier years.[33]Paragraphs [40] to [67] of Corbally-Stourton deal with the approach that should be taken in applying this requirement of s.29. Noting the approach there taken, in particular at [60], the Tribunal finds that for the reasons given in the previous paragraph the condition in s.29(5) is satisfied in this case.[34]The Tribunal therefore finds that the appeal against the assessments referred to in paragraph 1(2) and (3) above must be dismissed. The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Christopher Staker TRIBUNAL JUDGE RELEASE DATE: 02 December 2009