“During the period Mr Smith acquired a non-qualifying second hand insurance bond for£532,695 . This bond was subsequently redeemed in full, on6 March 2001 for an amount of£483,228.93 .
“In calculating the capital gain arising on the final surrender the proceeds are again the amount received on surrender. However, s.37 TCGA 1992 provides that sale proceeds which have been taken into account for income purposes should not be taken into account for capital gains purposes. As the proceeds of£483,228.93 have been taken into account above in calculating the chargeable event gain, the proceeds for capital gains tax purposes are.-
“Gave details of this case [ie Mr Smith] and agreed to follow the same process as in the case of [Miss X – another taxpayer].
“I refer to [the Newsboard Message] about which you contacted me earlier this year. We have now been able to finalise our thoughts on how the artificial losses being created with second hand life assurance policies by taxpayers such as yours may possibly be challenged. I attach a copy of my paper on this topic for your information.”
“2.5 Before putting forward any technical arguments along the lines described in 2.2 and 2.3 it is essential that you obtain all the facts and evidence. Some of these cases might be sufficiently serious for colleagues in SCO [Special Compliance Office] to become involved. The following are some of the details and questions that SCO might want to ask, although third party information powers may have to be used to obtain information and documents' not actually in the power or possession of the taxpayer: [list of 12 categories of information]
“Tony Hiron on sick leave 21/11/02 to 3/3/03. No action during that period and therefore SA window for Enquiry already closed 31/1/03. Too late!”
“Officers from Special Civil Investigations ('SCI') Bristol are responsible for co-ordinating the H M Revenue & Customs ('HMRC') response to the tax mitigation arrangements involving second hand life insurance policies. I am writing to let you know the current position in relation to the scheme.
“I have been reviewing your client's tax return for the year 2000/01 in connection with the capital loss claimed in connection with the surrender [of] a second hand insurance bond.
“I recommend that the enquiry be opened under Code of Practice 8. This is a marketed avoidance scheme and there is no evidence of fraud at this stage. As mentioned above our potential arguments at this stage appear to be “all or nothing” arguments. As a result there has to be a degree of speculation involved with the enquiry. However this is a marketed scheme involving the creation of capital losses which are not reflected by the economic losses involved. … The s 9A enquiries will need to be opened by31 January 2003 . Once the facts are established the further advice of Capital & Savings will be sought.”
“DC stressed that [his department] would be reluctant to run with purely technical issues even though the Strand Futures case left the door open on s 37. … This was possibly not going to be a case that could be settled without being tested. … [DC] would not per se need to see the papers until we had firm evidence to support contentions that the scheme did not work and matters could not be concluded via negotiations.”
“This case is a spin-off from the McKie … scheme [registration number] where technical arguments are being formulated with the assistance from Head Office Specialists. … SHIPs arrangements were heavily sold by Kidsons … Exactly how the scheme works is highlighted in David Cass’ Newsboard Memo … Currently there are four main areas of interest on the McKie case although it is too early to say yet whether all these will apply to Baker Tilly/ Kidsons as facts have not been fully established. These issues which are currently being considered by Head Office Specialists are: (a) section 37 CGTA 1992 … (b) beneficial ownership … (c) section 548 ICTA 1988 … (d) stamp duty … [(e)] self-assessment … This will be Code 8 [ie Code of Practice 8 investigations] … I recommend that this is registered under Code 8 as a Scheme Registration … DD approval will be required however this case was discussed with [senior HMRC officials] … Around 30 Section 9A Notices have been drafted by the clerical section and will be issued once Scheme Registration is agreed. Pending Head Office advice I would imagine the first step will be to agree with Baker Tilly which particular cases are subject to ongoing enquiries and establishing the different ways in which SHIPS operate.”
“A discovery assessment can be made merely where the original inspector changes his mind, or a new inspector takes a different view.”
“[162] We suggest, unless and until a higher court takes a different view, this point is no longer open as regards this tribunal. In our view, HMRC can raise a discovery assessment under s 29(1) TMA, subject to the conditions referred to below, if it newly discovers—which includes a change of mind—any of the circumstances set out in sub-s (1)(a)–(b) apply ie in summary, that insufficient tax has been assessed or excessive relief has been given.”
“[31] … Auld LJ (see[2004] STC 544 at [30], 76 TC 259 at [30]) identified the issues as being: (a) whether awareness or inference of actual insufficiency (of tax) is required to negative the condition, or whether awareness that it was questionable would suffice; (b) whether account should be taken of enquiries the inspector could reasonably have been expected to undertake, and the likely result of such enquiries; and (c) whether the relevant information before the inspector is simply that emanating from the taxpayer, and any inference that could reasonably be expected to be drawn from it, or whether it may also include other information before the inspector, such as a form P11D.
'[36] … only when the taxpayer or his representatives, in making an honest and accurate return or in responding to a s 9A enquiry, have clearly alerted him to the insufficiency of the assessment, not where the Inspector may have some other information, not normally part of his checks, that may put the sufficiency of the assessment in question …'
“On a proper understanding a discovery assessment can only be foreclosed if the taxpayer has clearly alerted in his return the officer to the insufficiency of tax which the officer has asserted he has newly discovered, thus rendering it not a new discovery but rather something on the information provided by the taxpayer that the officer should have been aware of during the enquiry window. In my judgment on a proper construction the section clearly places the emphasis on the adequacy of the disclosure by the taxpayer. That fits in with the underlying purpose of the scheme. Thus the taxpayer is given the right of early finality. However, there is a corresponding duty on the taxpayer to clearly alert the officer to the insufficiency. If he does not the officer can newly discover an insufficiency. Accordingly I broadly accept counsel for the respondents' argument that in terms of the section it is for the taxpayer (once a newly discovered insufficiency is asserted) to prove that he has clearly alerted the officer to the insufficiency.”
“[107] … The critical question in the case before me then becomes: should the information contained in the white space in the taxpayer's return have clearly alerted an officer having regard to the general knowledge and skill that might reasonably be attributed to him, of an insufficiency of tax? If it should have there could be no reasonable or sensible possibility of an assessment in terms of s 29; ...
“[110] It is clear looking to Dr Branigan's affidavit as a whole that he, as a result of his examination of the taxpayer's return, has reasons to believe that Mr Pattullo was a participant in a CRC Mark II Scheme which is a tax avoidance scheme … The avoidance scheme involves an interpretation of the relevant tax legislation …
“[114] As is pointed out in his affidavit by Dr Branigan the white space does not contain the following:
'7. … (10) taxpayers who adopt a different view of the law from that published as HMRC's can protect against a discovery assessment after the enquiry period. The returns and accounts would have to indicate that a different view had been adopted by entering comments to the effect that they did not follow HMRC's guidance on the issue or that no adjustment had been made to take account of it …'
“Fourthly, and of fundamental importance in this case, we ask how the notional officer, aware of, and only aware of, the information clearly attributed to him by sub-s 29(6), should be taken to consider the rights and wrongs of the self-assessment. Do we treat the officer as having to consider this question, in his 'dark room' without any reference to the law, books, manuals and other guidance? Should we, in the alternative, treat the officer as proceeding in the way that we would have expected, and indeed in the way that HMRC themselves would have expected? That approach, on the present facts, would clearly extend to considering the law and to seeking specialist guidance in the way rendered obvious by the disclosure of the SRN. Granted that deeming the officer to sit and worry in his dark room without guidance is indeed the last manner in which we would expect the officer to proceed, is this unrealistic state of affairs one that we are compelled to adopt by statute or by any authority?”
“ - it was absolutely obvious from the information given in the white spaces of the returns, that the three appellants had participated in artificial tax avoidance schemes to generate capital losses; and
“[120] We have already suggested, in para [115] above, that where the notional officer, or even the distinctly above average officer, might well not have been expected to perceive doubtful matters of tax law in relation to the type of situation canvassed in that paragraph, it would not be appropriate to expect the officer to question the return unless doubt was expressly drawn to the officer's attention in the return. Absent such a 'flag' in the return, the officer could also not be assumed to have sought guidance from others into a matter that anyone could have missed. The fact that remote specialists within HMRC might have readily appreciated that the legal basis, on which the self-assessments had been submitted, were challengeable would be completely irrelevant. Thus in that situation, sub-s 29(5) protection might only be secured if the points were aired or flagged in some way by the return.
“[56] In the end, this part of the appeal boils down to a very short point. The question, to adopt the formulation used by Auld LJ, is whether the hypothetical inspector having before him [stated documents] would have been aware of 'an actual insufficiency' in the declared profit. … I do not suggest that the hypothetical inspector is required to resolve points of law. Nor need he forecast and discount what the response of the taxpayer may be. It is enough that the information made available to him justifies the amendment to the tax return he then seeks to make. Any disputes of fact or law can then be resolved by the usual processes.”
“It seems to me that the key to the scheme is that the Inspector is to be shut out from making a discovery assessment under the section only when the taxpayer or his representatives, in making an honest and accurate return or in responding to a s 9A enquiry, have clearly alerted him to the insufficiency of the assessment, not where the Inspector may have some other information, not normally part of his checks, that may put the sufficiency of the assessment in question.”
"HMRC must show that the notional officer, relying on all of, but no more than, the subsection (6) information would not have arrived at the belief, at the end of the enquiry window, that there had been an under-assessment, and that in order to rectify matters a new assessment was justified, and that assessment had a reasonable chance of being sustained."
"granted that deeming the officer to sit and worry in his dark room without guidance is the last manner in which we would expect the officer to proceed, is this unrealistic state of affairs one that we are compelled to adopt by statute or by any authority?"
“[162] We suggest, unless and until a higher court takes a different view, this point is no longer open as regards this tribunal. In our view, HMRC can raise a discovery assessment under s 29(1) TMA, subject to the conditions referred to below, if it newly discovers—which includes a change of mind—any of the circumstances set out in sub-s (1)(a)–(b) apply ie in summary, that insufficient tax has been assessed or excessive relief has been given.”
“[11] Various procedures within HMRC failed to result in enquiries being opened into the taxpayers' returns. It was only when Mr Cree, the officer in charge of co-ordinating all investigations into so-called SHIPs (second-hand insurance policies) schemes of the nature of this case, became aware in March 2009 of what had happened, and called for the papers, that consideration was given to the making of assessments under s 29. He did not make those assessments immediately; instead he waited until after the Court of Appeal's judgment in Drummond ([2009] STC 2206 , 79 TC 793 ) and after it became clear that there would be no appeal to the Supreme Court.
“… It seems to me that the key to the scheme is that the Inspector is to be shut out from making a discovery assessment under the section only when the taxpayer or his representatives, in making an honest and accurate return or in responding to a s 9A enquiry, have clearly alerted him to the insufficiency of the assessment, not where the Inspector may have some other information, not normally part of his checks, that may put the sufficiency of the assessment in question. If that other information when seen by the Inspector does cause him to question the assessment, he has the option of making a s 9A enquiry before the discovery provisions of s 29(5) come into play. That scheme is clearly supported by the express identification in s 29(6) only of categories of information emanating from the taxpayer. It does not help, it seems to me, to consider how else the draftsman might have dealt with the matter. It is true, as Mr Sherry [counsel for taxpayer] suggested, he might have expressed the relevant passage in s 29(5) as “on the basis only of information made available to him”, and the passage in s 29(6) as “For the purposes of subsection (5) above, information is made available to an officer of the Board if, but only if,” it fell within the specified categories. However, if he had intended that the categories of information specified in s 29(6) should not be an exhaustive list, he could have expressed its opening words in an inclusive form, for example, “For the purposes of subsection (5) above, information … made available to an officer of the Board … includes any of the following”.'”
“[186] Mr Way [counsel for taxpayer] argued that because materially identical white space disclosures made by two other taxpayers prompted other officers to launch enquiries within the one-year 'window' this should be taken as an indication that the appellant's white space disclosure was sufficient for the condition in s 29(5) to prevent a discovery assessment. We disagree. Veltema is clear authority that it is not enough that the disclosure should have alerted an inspector to the need to make further enquiries. The disclosure must alert the hypothetical inspector to an objective awareness of an actual insufficiency.”
“[92] We accept that the test is not whether the officer should have opened an enquiry. There is a clear distinction between cases where the information made available to the officer merely raises questions, which can only be resolved by the obtaining of further information, and those where the available information provides awareness of an insufficiency that is sufficient to justify the making of an assessment. Langham v Veltema is an example of the former case; Lansdowne an example of the latter. Where the enquiry window remains open, it will often be the case that an officer, faced with a taxpayer's return that could itself justify an assessment, will open an enquiry in the normal course. That may either resolve an issue in favour of the taxpayer, or provide confirmation of the need to make an amendment to the taxpayer's return. Once the enquiry window has closed, that option is no longer available, but the mere fact that an officer might have made such enquiries had it been open for him to do so, does not mean that he cannot reasonably be expected to have been aware, from the information he does have available, of the insufficiency so as to justify the making of an assessment. The test is one of awareness, and not one of certainty or even probability. It is, as Moses LJ said in Lansdowne (at [70]), a matter of perception and of understanding, not of conclusion.”
“[53] We think it is plain from what Auld LJ said in Langham v Veltema that the question to be addressed is the awareness of an officer, and not on what an officer might do. We do not consider that it is the right approach to take as a starting point a hypothetical officer with limited knowledge and then to assume, however glaringly obvious it might be to do so on that hypothesis, that the officer would seek guidance from other 'real' officers within HMRC. That is not what s 29(5) requires the tribunal to consider. We do not accept that the strictures adopted in Langham v Veltema are confined to enquiries concerning facts. In our view, the language of awareness in s 29(5) precludes any assumption that a notional officer would consult more specialist colleagues. …
“[69] … The legal points were not complex or difficult. As the Chancellor points out (at [56]), awareness of an insufficiency does not require resolution of any potential dispute. After all, once an amendment is made, it may turn out after complex debate in a succession of appeals as to the facts or law, that the profits stated were not insufficient. I have dwelt on this point because I wish to leave open the possibility that, even where the taxpayer has disclosed enough factual information, there may be circumstances in which an officer could not reasonably be expected to be aware of an insufficiency by reason of the complexity of the relevant law.”