Kabir v Revenue & Customs [2014] UKFTT 707 (TC)

FTT-Tax
Kabir v Revenue & Customs
[2014] UKFTT 707 (TC) · 2014-07-22
[24]Regulation 49 of the PAYE Regulations requires an employer to send a form P46 to HMRC “on making the first relevant payment [ie payment net of tax] to the employee.” Under Regulation 21 of the same Regulations an employer, on making a payment to an employee “must” deduct or repay tax in accordance with the relevant tax code. Any tax deducted shall then be paid to HMRC in accordance with Regulation 68. If it appears to HMRC that such has not been paid, they may make a determination under Regulation 80 of the PAYE Regulations:[7]… to the best of their judgment and serve notice of their determination on the employer. Appeals against any such determinations are, by virtue of Regulation 80(5) PAYE Regulations, subject to the appeals provisions of the TMA (to which we refer below). 25. A further requirement on an employer, imposed under Regulation 73(1) of the PAYE Regulations, is to deliver an employers’ annual return, a P35, to HMRC “before 20 May following the end of a tax year”. Regulation 73(10) provides that: Section 98A of TMA (special penalties in case of certain returns) applies to paragraph 73(1).[PAYE Regulations]” 26. Section 98A TMA which sets out the liability to penalties for non-compliance with the PAYE Regulations provides:(1) PAYE regulations…may provide that this section shall apply in relation to any specified provision of the regulations.(2) Where this section applies in relation to a provision of regulations, any person who fails to make a return in accordance with the provision shall be liable— (a) to a penalty or penalties of the relevant monthly amount for each month (or part of a month) during which the failure continues, but excluding any month after the twelfth or for which a penalty under this paragraph has already been imposed, and (b) if the failure continues beyond twelve months, without prejudice to any penalty under paragraph (a) above to a penalty not exceeding (i) in the case of a provision of PAYE regulations, so much of the amount payable by him in accordance with the regulations for the year of assessment to which the return relates as remained unpaid at the 19 th April after the end of that year, or (ii) …(3) For the purposes of subsection (2)(a) above, the relevant monthly amount in the case of a failure to make a return— (a) where the number of persons in respect of whom particulars should be included in the return is fifty or less, is £100… 6. Section 118(2) TMA, so far as is material to this appeal, provides: …where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.[8]There is no definition in the legislation of a “reasonable excuse”, which has been held to be “a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]). 27. Under s 9A TMA an Officer of HMRC may enquire into a tax return that has been filed by giving notice of his intention to do so to the taxpayer within the time allowed. In the present case it is not disputed that notice of an enquiry into Mr Kabir’s return was given within the statutory time limit, ie 12 months after the day on which the return was delivered to HMRC. 28. Section 28A TMA provides:(1) An enquiry under section 9A(1) of this Act is completed when an officer of the Board by notice (a “closure notice”) informs the taxpayer that he has completed his enquiries and states his conclusions. In this section “the taxpayer” means the person to whom notice of enquiry was given.(2) A closure notice must either— (a) state that in the officer’s opinion no amendment of the return is required, or (b) make the amendments of the return required to give effect to his conclusions.(3) A closure notice takes effect when it is issued. 29. Insofar as it applies to this appeal, s 29 TMA provides: (1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment— (a) that any income which ought to have been assessed to income tax…. have not been assessed, or (b) that an assessment to tax is or has become insufficient, or (c) that any relief which has been given is or has become excessive, the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax. (2) … (3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above— (a) in respect of the year of assessment mentioned in that subsection; and (b) in the same capacity as that in which he made and delivered the return, unless one of the two conditions mentioned below is fulfilled.(4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf.(5) The second condition [is not applicable to the present appeals] 30. It is for HMRC to establish that the conditions for making a discovery are satisfied (see HMRC v Household Estate Agents [2008] STC 2045 at [48], Poulter v HMRC [2012] UKFTT 670 TC at [20] Rhodes & another v HMRC [2013] UKFTT 431 (TC) ) that the question of whether this condition has been satisfied was a matter for the Tribunal and not the individual tax inspector who made the discovery (see Hankinson v HMRC [2012] STC 485 ) 31. As with the appeals against determinations (see above) s 50(6) applies to appeals against amendments to a self-assessment tax return made under s 28A TMA and discovery assessments made under s 29 TMA. Section 50(6) TMA provides: If, on an appeal notified to the tribunal, the tribunal decides – (a) that the appellant is overcharged by a self-assessment; (b) … (c) that the appellant is overcharged by an assessment other than a self-assessment [which by virtue of Regulation 80(5) PAYE Regulations must also be read as referring to a determination], The assessment or amounts shall be reduced accordingly but otherwise the assessment … shall stand good. 32. In the decision of the Court of Appeal in T Haythornwaite & Sons v Kelly (HM Inspector of Taxes) (1927) 11 TC 657 Lord Hanworth MR, referring to a previous incarnation of this enactment, said, at 667:
“Now it is to be remembered that under the law as it stands the duty of the Commissioners [and from 1 April 2009 the Tribunal] who hear the appeal is this: Parties are entitled to produce any lawful evidence, and if on appeal it appears to a majority of the Commissioners by examination of the Appellant on oath or affirmation, or by other lawful evidence, that the Appellant is over-charged by any assessment, the Commissioners shall abate or reduce the assessment accordingly; but otherwise every assessment or surcharge shall stand good. Hence it is quite plain that the Commissioners are to hold the assessment as standing goods unless the subject – the Appellant – establishes before the Commissioners, by evidence satisfactory to them, that the assessment ought to be reduced or set aside.”
Discussion and Conclusion 33. Mr Bradley, for HMRC, submitted that the decision, determination, amendment and assessments had been made on the basis of information provided by Mr Kabir. He explained that, having made the amendment for 2010-11, HMRC had made the discovery assessments for 2008-09 and 2009-10 on a reducing basis of 25% each year to reflect likely growth of the business following its establishment. 34. As Mr Kabir had not included his income from the Chutney Mango in his 2008-09 and 2009-10 self-assessment tax returns and omitted any reference to income from benefits, MGM Advantage and Scottish Equitable from his 2010-11 self-assessment tax return we accept Mr Bradley’s contention that this was at the very least “careless” and as such HMRC were entitled to make the discovery assessments. 35. We also agree with Mr Bradley that the penalties had been imposed in accordance with the legislation and note that these have, where possible, been mitigated by 75% to allow for co-operation and disclosure by Mr Kabir. 36. For Mr Kabir, Mr Ahmed emphasised the difficulties faced by the business, Mr Kabir’s poor health and that Chutney Manga was a family business that may have employed school leavers on a part time basis. He submitted that any assessments made by HMRC should be fair and just and that in the present case as they were estimated they could not accurate. He also argued that Mr Kabir had always intended to comply with the legislation, although accepted that he had not done so, and in the circumstances his appeals should be allowed. 37. However, Mr Ahmed was not the first to raise the issue of the unsatisfactory nature of estimated assessments. Mr Justice Walton in Johnson v Scott (HM Inspector of Taxes) (1978) 52 TC 383 at 394, in a passage approved by the Court of Appeal (at 403) in that case, said: “Of course all estimates are unsatisfactory; of course they will always be open to challenge in points of detail; and of course they may well be under-estimates rather than over-estimates as well. But what the Crown has to do in such a situation is, on the known facts, to make reasonable inferences. When, in paragraph 7(b) of the case stated, the Commissioners state that (with certain exceptions) the inspector's figures were 'fair' that is, in my judgment, precisely and exactly what they ought to be, fair. The fact that the onus is on the taxpayer to displace the assessment is not intended to give the Crown carte blanche to make wild or extravagant claims. Where an inference of whatever nature falls to be made, one invariably speaks of a 'fair' inference. Where, as is the case in this matter, figures have to be inferred, what has to be made is a 'fair' inference as to what such figures may have been. The figures themselves must be fair.” 38. In our view the s 8 SSCTFA decisions, the determinations under Regulation 80 PAYE Regulations, s 28A TMA closure notice and s 29 TMA assessments were made on the basis of “fair” inferences drawn from the information provided by Mr Kabir and his professional advisers. Therefore, as is clear from Haythornwaite and Johnson v Scott it is for Mr Kabir to adduce satisfactory evidence to displace these. 39. Also in the absence of any such evidence it follows that the decisions, determinations, amendment and assessments must “stand good”. 40. As Mr Kabir has not submitted P35s and has not provided any evidence of a reasonable excuse for the failure to do so, we find that the penalties must stand. 41. We therefore dismiss the appeals and confirm the penalties. 42. By way of postscript we should add that, although we understand that Mr Kabir did travel to the Tribunal premises, he chose, for health reasons, not to attend the hearing. When it became clear that no evidence was to be adduced on his behalf we referred to Haythornwaite and the onus being on the appellant to displace the assessments etc. and allowed a short adjournment for Mr Ahmed to explain this to Mr Kabir and take further instructions. However, having done so, Mr Ahmed confirmed that Mr Kabir did not wish to give evidence or attend the hearing but would rely on Mr Ahmed to make submissions on his behalf. Right to Apply for Permission to Appeal 43. 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. JOHN BROOKS TRIBUNAL JUDGE RELEASE DATE: 22 July 2014