Walsh v Revenue & Customs [2014] UKFTT 114 (TC)

FTT-Tax
Walsh v Revenue & Customs
[2014] UKFTT 114 (TC) · 2014-01-23
[33]As Judge Sinfield noted in Guide Dogs for the Blind Association v HMRC [2012] UKFTT 687 (TC) at [16] the presumption of continuity is only a presumption which may be rebutted . And in Dr I Syed v HMRC [2011] UKFTT 315 (TC) at [38] the tribunal said:
“In our view this quotation [from Jonas v Bamford ] expresses no legal principle. It seems to us that it would be quite wrong as a matter of law to say that because X happened in Year A, it must be assumed that it happened in the prior year. An officer is not bound by law and in the absence of some change to make or to be treated as making a discovery in relation to last year merely because he makes one for this year. This tribunal is not bound to conclude that what happened this year will happen next year. It seems to us that Walton J is instead expressing a common sense view of what the evidence will show. In practice it will generally be reasonable and sensible to conclude that if there was a pattern of behaviour this year then the same behaviour will have been followed last year. Sometimes however that will not be a proper inference: there will be occasions when the behaviour related to a one off situation, perhaps a particular disposal, or particular expenses; in those circumstances continuity is unlikely to be present.”
The Years in Question 21. We start by considering the years for which assessments had been made on the basis of bank accounts etc. The conclusions we reach under these headings take into consideration our later discussion of the overall amounts of money available to Mr Walsh and his expenditure in each of the years. We there conclude that such considerations do not cast doubt on our conclusions in the following sections. 22. 2004/05 23. The evidence from Insight’s accounting records and the accompanying invoices from 2005 recounted below (para [42]) indicates that Mr Walsh issued monthly invoices to Insight during this period for the work he did for it. 24. Mr Walsh’s Barclays bank account received payments of £1200 from Insight in May, June and December 2004. A further £1200 credit appeared in July. Deposits made into this account in June, August, September and October and November of similar amounts matched payments out of his mother's account at Barclays bank. His mother's cheques had sequential numbers starting 100001. It was thus likely to have been a new account. The amounts of the deposits (and the cheques) gave us the clear impression that they filled in the gaps in the payments of £1200 per month in which Mr Walsh was not receiving in those months from Insight. 25. We concluded that it was likely that the sums received from his mother were routed through her new account for his benefit and in return for the work he did for Insight. We asked Mr Walsh whether this was the case and he said it was not. But he gave no explanation for his mother's new account, the regularity of the payments and then matching to his normal £1200 monthly payment from Insight. We therefore did not believe him. 26. Thus we concluded that Mr Walsh's income from Insight included all the amounts credited to his Barclays account in that year. In total that was £11,440. This is consistent with the 2005 invoices referred to above. 27. Mr Walsh had told us that during the year he had worked for about two nights a week for Insight and earned about £110 per night. Over the year that amounted to £10,500. We concluded that this was consistent with income from Insight of £11,440, the amount credited to his bank account. 28. In addition Mr Walsh’s card balances were reimbursed by Insight. HMRC accepted, on the basis of calculation for 2005/06 that, because of the prevalence of petrol payments (which would relate to filling the van to go to London), about 85% of card costs were the reimbursement of expenses incurred by Mr Walsh for the purposes of his work. The total reimbursed in this year was £12,387. There was no evidence before us on which we could conclude that any of the expense other than 85% was for the purposes of Mr Walsh's work. We therefore concluded that 15% of this figure or some £1,850 was additional income from Insight. 29. The evidence from Insight in 2005/06 indicated that in addition to credit card reimbursement and direct payments, Insight made payments for medical and other insurance for Mr Walsh. The total amount of them in that year with some £490. It seems to is likely that a similar payment was made in 2004/05. 30. Thus we conclude that Mr Walsh's net assessable income from his work with Insight in 2004/05 was £13,780. There was no evidence that he had other taxable income in this year. 2005/06 31. For this year Mr Walsh's tax return declared income from his work at Insight of £9,682, being gross turnover of £10,960 less expenses of £1,278. 32. An extract from Insight’s accounting ledger for payments to Mr Walsh for the 12 months from October 2005 shows payments made under four headings: payments as a subcontractor, credit card expenses reimbursed, accidental death, Royal Sun Alliance, and critical illness. The latter three total £40.91 per month. The monthly total of these figures appeared on invoices from Mr Walsh to Insight. These invoices were dated the first of each month and were in a numbered sequence number starting (for 1 October) with 23. 33. The subcontractor payments over the 12 months average about £4000 per month. These payments are all reflected in credits to Mr Walsh's doctors bank account for that year. An analysis of Mr Walsh's Barclays account shows that the payments from Insight for that year totalled £15,885. There is also an unexplained receipt in its account of £923.45. 34. A schedule of credit card payments reimbursements and shows reimbursement of £9628.30 this year. HMRC accepted that about 85% of that was related to reimbursed petrol. There was no evidence that any of the remainder represented expenses incurred for the business. We conclude that 15% x £9628 = £1,444 represented additional income from Insight bracket or was not shown to be other than that). 35. We conclude that Mr Walsh's taxable income for this year from Insight comprised: (1) £15,885 direct payments (2) £1,444 of credit card expense reimbursement and (3) 12 x £40.91 = £490.92, the benefit of insurance payments, That is a total of £17,819. 36. Our consideration of Mr Walsh's lifestyle and our estimate of his expenses did not indicate to us that Mr Walsh had income from other sources and this year. 37. We conclude that Mr Walsh's total income from Insight for this year was £17,819. 2002/03 38. For this year Mr Walsh's tax return declared dividend income of £11,666 and £4400 in salary. Both of these amounts we understood derived from Insight. 39. In the two preceding years Mr Walsh had declared a similar salary and dividends of £23K and £30K. Thus his aggregate income for these years was some £15K higher on average. 40. We accept that Mr Walsh ceased to be a director of Insight in October 2002. We accept that there after he would not have received emoluments as a director. 41. The documents before us included invoices rendered by Mr Walsh to Insight for the 12 months from 1 October 2005. These invoices were sequentially numbered and dated the first of each month. The 1 October 2005 invoice was numbered 023. It seems likely to us that prior to 1 October 2005 the invoices had been rendered monthly as part of the same sequence. That meant that it was likely that the first invoice had been dated 1 December 2003. Thus formal payments to Mr Walsh as a contractor did not appear to have started until December 2003 in the 2002/03 year. 42. We accepted Mr Walsh’s evidence that he was, by the autumn of 2002/03 drinking heavily and not really bothered about work, but that he gradually got himself sorted out. We conclude that it is unlikely that he did much work for Insight after October 2002 and thus that it is unlikely that payments of at the level of those received after November 2003 would have been received before that date. 43. Nevertheless we were not convinced that Mr Walsh would have received no payment for the little work he did after October 2002. If for example he had worked one day a fortnight in over the remaining six months of the tax year he would have received some £1200. He said that he did work on some days. It also seemed likely to us that the insurances paid on his behalf in the period after October 2005 were paid in earlier years. That would add some £490 to his profits from the year. We conclude that all this suggests that he received, either as employment income or as other income, some £2,000 in addition to his salary this year. 44. We have noted that in prior years Mr Walsh had received dividends from his shares in Insight. It appears that in October 2002 to his shares were transferred to his mother. The following five years’ tax returns declare no dividend income but it re-emerges in 2009/10. At a meeting in October 2005 Mr Walsh’s then accountant is recorded as saying that the dividends on the shares has been voted but not actually paid. That seems to us unlikely in view of the steady flow of dividends in earlier and later years. We conclude that they were paid to his mother. 45. HMRC did not contend that dividends belonged beneficially to Mr Walsh (with Mrs Walsh acting as a mere nominee). The re-emergence of Mr Walsh's dividend income suggests the shares were later transferred back to him. That suggested that the transfer to his mother might have been part of some family arrangement, perhaps intended to avoid for a period the clutches of the CSA. Such an arrangement could be a settlement for tax purposes. However the evidence before it was not enough to conclude that the dividend income should be imputed to Mr Walsh under the settlement provisions in the intervening period. 46. We conclude that Mr Walsh's declared income for 2002/03 should be treated as increased by £2000 - either as additional employment income or as part of the profits of a contracting business. 2003/04 47. Mr Walsh's evidence was that during this period he began to come to terms with his problems. 48. Our conclusions on the invoice sequence indicated that he would have started formal invoicing in December 2003 for work done in November 2003. 49. The subcontracting payments on the later invoices were on average £1412 per month. Allowing for some inflation five months’ worth of payments would have been some £7100. 50. To this should be added a sum for insurance (again we think that £490 is likely) and for credit card reimbursements (for which we think that £600 is likely for the six-month period). We therefore put his earnings as £8150 for the six months. 51. There was no evidence of unreimbursed expenses to reduce his earnings, despite the claim in his tax return. We conclude that (apart from reimbursed petrol credit card costs) that there were no deductible expenses. 52. Again it seems likely to us that Mr Walsh did some work earlier in the year and was paid for it. That would have been in a way which was apart from the formal invoicing mechanic. Taking Mr Walsh's statement to us that he did go into work now and again but for less than two days a week, we put this at £2000 for the period. 53. We conclude that Mr Walsh's income from Insight in this year was £10,150. Overall comparison of income and expenditure 54. On our rough estimate of Mr Walsh's expenditure of £25,000 for 2002/03 and £15,000 per annum for the remaining years, the income which we believe he received would have exceeded his expenditure/fall short in over the whole period by some £10,000. 55. There was evidence that Mr Walsh had lent £14,000 to his brother in 2005 and some rather cloudy evidence about a loan of £20,000 from his mother and of £10,000 to Insight. We think that the loan from his mother is likely to have been part of his attempt to hide his assets from the CSA and may have represented dividend income which he had received from Insight. But as we have said HMRC had accepted that at the beginning of the period Mr Walsh had withdrawn £52,000 in cash. We concluded that any excess of expenditure (including the loan to his brother) over income would have been funded by this cash and that the evidence did not support a conclusion that he had other sources of income or that his income from Insight was greater than that we have determined. Conclusions 56. We determine the appeal as follows: Year Taxable Profit Salary from Insight Dividends 2002/03 nil 6,400 11,666 2003/04 10,150 Nil Nil 2004/05 13,780 Nil Nil 2005/06 17,819 Nil Nil Rights of Appeal 57. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. 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. CHARLES HELLIER TRIBUNAL JUDGE RELEASE DATE: 23 January 2014