Champions Fun Learning Centre v Revenue & Customs (INCOME TAX/CORPORATION TAX : Exemptions and reliefs) [2018] UKFTT 516 (TC)

FTT-Tax
Champions Fun Learning Centre v Revenue & Customs (INCOME TAX/CORPORATION TAX : Exemptions and reliefs)
[2018] UKFTT 516 (TC) · 2018-06-14
[28]“In Pipe v Revenue and Customs Commissioners [2008] STC 1911 at para 51, Henderson J said that a mistake may be too fundamental or gross to fall within the scope of the subsection. I agree. The same applies to omissions. ” 112. In [51] the only case mentioned by Henderson J is Baylis . 113. In our view then the assessments that purported to be for the periods 6 April 2012 to 5 April 2013 and 6 April 2013 to 5 April 2014 cannot stand, as there were no such accounting periods. 114. That leaves just the assessment for the year ended 5 April 2015. The cases on s 114(1) such as Baylis and Pipe have made it clear that an important question when considering s 114(1) is whether the recipient of a notice of assessment would be misled by the notice, and that that is an objective test. In R (oao Archer) v HMRC [2017] EWCA Civ 1962 Lewison LJ said at [36]:[36]“the test under section 114 must be an objective one: see Pipe v HMRC at [51]. However, in applying an objective test the reader of the closure notice must, I think, be taken to be equipped with the knowledge that Mr Archer and KPMG had, including knowledge of what had led to the enquiry and what HMRC's conclusions were.”115. So here the question is whether a reader of the notice equipped with the knowledge of HMRC’s enquiries would be misled, and would he know how much he had to pay and how that amount was arrived at? In our view the answer is no [22] . There is an unexplained discrepancy between the amount in the right hand most column of the last line and the amount shown before the details and as the amount of tax which should be sent to HMRC. There is an unexplained discrepancy between the amount on which the tax is shown as charged and the amount of income on which the tax arises, an unexplained use of a tax rate of 25%. Finally the figure used of £18,300.75 is shown on the penalty schedule and elsewhere as being the figure for the previous tax year, 2013-14. We draw comfort from the case of Pitcher v HMRC [2017] UKFTT 406 (TC) (Judge Kevin Poole) while acknowledging that there, unlike here, Judge Poole was dealing with a penalty. And in his correspondence Mr Hewitt seemed to have accepted at one stage that not all the donations were “tainted” yet the amount shown as payable in one place is the total amount. We do not see how the appellant, or anyone in his position, could have been sure what the amount to pay was.116. We also say that the number of errors made the case one where the mistakes were too fundamental as well as being too misleading to be cured by s 114(1) TMA.117. HMRC suggested in their skeleton and supplementary submissions that s 114(2) TMA applied, not s 114(1). In particular they say that the assessing system used for cases other than those for self-assessment, EMTP, shows a figure of £15,777.25 so there is a discrepancy between the notice and the assessment, which can be cured by s 114(2).[118]In Pipe Henderson J said at [51] “However, Baylis v Gregory , as I have already pointed out (see paragraph 30 above), was not a decision on section 114(2) at all, and the language of section 114(2)(b) is clear and unqualified. The force of the words ‘any variance’ is that no variance of any description between the notice and the determination is to invalidate the determination. I accept that there may come a stage where the error or discrepancy in question is so fundamental in character that it could not properly be described as a ‘variance’ at all; but in my judgment a mistake about dates of the type made in the present case gives rise to a ‘variance’ within the ordinary and natural meaning of that word.” 119. In Pipe the position was rather different from this case. The appellants there did not produce grounds of appeal until the hearing of the General Commissioners and they were concerned with a wrong date in the notice of determination (the equivalent of a notice of assessment for Part 10 TMA penalties). They did not appeal against the fact of imposition or the amount. That is important because at [49] Henderson J said:[49]“Accordingly, acceptance that a mistake had been made in the Penalty Notices implied acceptance that the underlying determinations had been made for the correct dates. ” 120. We do not see why this follows. What the appellants there knew was that certain dates stated in the notice were wrong (not the date of the notice). They were trying to use the error as a way of invalidating the collection of the substantial daily penalty, but they went about it the wrong way. They could have had no idea whether the determination matched the notice or even if the determination referred to the dates at all. The phraseology of their appeal may have been clumsy or inept, but we do not see why saying there is a mistake in the notice inevitably carries the implication that the determination itself does not contain that error. If however Henderson J meant no more than that the appellants’ failure to put the actual determination in dispute meant that they could not rely on any error in it, then it is clearer to us at least. And indeed Henderson J held that as there was no appeal against the determination itself it was not incumbent on HMRC to show that the determination was correct and there is nothing in the decision which points to what the determination itself said. 121. In this case though the appellant has put the whole basis of the assessment in dispute: they haven’t objected to the form or content of the notice in this appeal. It is in my view incumbent on HMRC to show, faced with what are serious and significant errors on the notices, that the actual assessment is not infected by the same errors. As Judge Thomas pointed out in Eric Scowcroft v HMRC [2018] UKFTT 295 (TC) , in the days of computerised assessing, the scope for any variance between the assessment itself and the notice should be very limited. We would expect that the result of the inputting of figures by Mr Aspinall resulted in the making of an assessment in those figures and that the computer would automatically print, or cause to be printed, a notice of assessment that reflected those figures. 122. HMRC have said in their submission that the figure of £18,300.75 is wrong, and that the correct amount payable of £15,777.25 is evidenced by Mr Hewitt’s letter of 20 January 2017 and the figure entered into the EMTP system. But the first is not evidence of the assessment, and the second is unsupported by evidence of what was input into the EMTP system. On 4 June 2018 Ms Mulder wrote to the Tribunal including two further exhibits, one of which was a screenshot from the EMTP. We have several problems with this if it was intended as evidence of the assessment. First, it is headed “Champions Learning Centre LLP” which we assume is the LLP Mr Brown said was set up and which Mr Hewitt wrongly thought was the appellant. Second, the only charge details on it relate to Class 1 and 1A National Insurance Contributions. Third, the “Accounting Period” boxes are blank. Fourth, the date of raising the charge is 24 January 2017. The only faint resemblance to the assessment in question is that the “To date” is given as 5 April 2015. 123. We cannot accept that there is sufficient, or indeed any, evidence to show that there was any variance between the assessment and the notice. That means that section 114(2) is not in point. 124. We therefore hold that all the assessments are invalid, and that invalidity cannot be cured by s 114(1) TMA. 125. We also add that our decision that Schedule 1A TMA does not apply means that it is not necessary to consider whether a tax charge for 2014-15 could arise simply by putting a figure into EMTP so as to be reflected in the statement of account between HMRC and the appellant and thereby collectible. This alternative argument was put forward by HMRC we think because they realised that the errors in the paragraph 52 assessments were possibly fatal and wanted another string to their bow. Because of our decision, paragraph 52 is the only available string. But we are not attracted to this argument based on the EMTP even if there had been evidence of the how the EMTP system works and of the relevant details. Discussion - penalties 126. Penalties were charged under Schedule 24 FA 2007 on the basis that the charity had committed a careless error in submitting the claims, producing, said the letter of 20 January 2017 from Mark Hewitt, a penalty of £9,486.71 which he said was 15% of the potential lost revenue (“PLR”). This therefore represents total PLR of £63,244. He added that he had decided to suspend the penalty for 12 months and that if the appellant implemented the conditions before the expiry of that period, the penalties would be cancelled. 127. The penalty explanation schedule attached to the letter of 20 January 2017 shows in the narrative that the penalty was 18%, not the 15% shown in the letter. The penalty table at the end shows: Period PLR £ Penalty £ Amount to be suspended £ Amount of penalty we cannot suspend £ 2012-13 737.50 132.75 132.75 0 2013-14 18300.75 3294.13 3294.13 0 2014-15 15942.75 2869.60 2869.60 0 2015-16 17723.50 [23] 3190.23 3190.23 0 128. We have added a further row of our own Total 52704.50 9486.73 = 18% 129. On 10 May 2017 a letter without a signature block or signature was sent to the appellant by HMRC Wealthy & Mid-sized Business [24] Compliance. It purported to be a Notice of Penalty Assessment with assessment number 396871685 (the same number as on the paragraph 52 assessments – see §84). It showed a total penalty charged of £9,486.71 and the total amount suspended was £0.00. That according to the notice left a total amount now payable of £0.00. There was in the notice of assessment a table splitting the penalty into “tax periods” which were the same tax years as those for the assessments, save that there was also a penalty for the year ended 5 April 2016, and this was repeated on a schedule NPPS2 attached to the letter which was the notice of assessment. 130. Also sent on the same day was a Notice of Penalty Suspension, telling the appellant about the penalties HMRC were suspending, which were the whole. It sets out conditions the appellant had to meet by 20 January 2018, noting that the suspension period started from 20 January 2017. If the condition was met the penalties would be cancelled. 131. On 13 November 2017 Mr Hewitt wrote to appellant about the penalties. He said that HMRC was withdrawing the penalty of £3,190.26 relating to the year ended 5 April 2016. This was because they had yet to finalise the tax position for the year. They reserved the right to reissue the notice once the Tribunal had determined the tax position. 132. HMRC have the burden of showing that the penalty assessments are validly issued, and that there were inaccuracies in a relevant document. The appellant is required to show that there were no, or fewer, inaccuracies and that any reduction given for co-operation etc was insufficient. To consider this we examine the relevant paragraphs of Schedule 24 FA 2007, the provision under which the penalties were purportedly assessed. 133. Paragraph 1 requires there to have been shown to be an inaccuracy in a document given to HMRC which is listed in the table. The first relevant item in the table is “Return, statement or declaration in connection with a claim for an allowance, deduction or relief.” The question is whether the ChR1 is such a document, bearing in mind that it is completed and transmitted online. 134. The answer is in paragraph 28(h) Schedule 24. “Giving a document” includes communicating information to HMRC in any format and by any method (whether by post, fax, email, telephone or otherwise)”. Here it must be “otherwise” ie over the internet. 135. And we are satisfied that the ChR1 is either a return or a statement. But we do not think that a company’s ChR1 is given in connection with a claim for an allowance, deduction or relief. What a company that bears income tax by deduction has is an entitlement to repayment of the tax as a result of the exclusion of its income from the charge to income tax. There is no allowance or deduction involved and in our view a person is entitled to a relief from tax only if they would otherwise be chargeable. 136. The only other item is the final “sweep up” provision, any document which is likely to be relied upon by HMRC to determine, without further inquiry, a question about repayment to a person. It is clear that HMRC do not make routine enquiries into ChR1s. Routinely they simply repay the amount included in the return, often on the same day as it is received. Are HMRC thereby relying on the document to answer a question about repayment? We do not think so. It is the ChR1 which is the claim form, and for charitable trusts it is a form containing a claim to exemption and hence repayment (see s 538 and s 538A ITTOIA). If HMRC were to enquire into a claim and they received an inaccurate response from the claimant that would fall within the sweep up item as it would be an inaccuracy in a document given in relation to a claim for relief. 137. From this we hold that penalties cannot be imposed on a charitable company for inaccuracies in the ChR1. 138. But lest we be wrong, we continue to examine Schedule 24 on the basis that the ChR1 is within paragraph 1 Schedule 24. 139. We doubt that even on this assumption that there is an inaccuracy in a relevant document which amounts to or leads to a false or inflated “claim” to repayment of tax (paragraph 1(2)(b)), because of the meaning of “claim” in the Taxes Acts. Nevertheless we proceed. 140. Paragraph 1 requires the inaccuracies penalised to be careless or deliberate. Whether they were careless inaccuracies is something we determine when we come to look at the question whether there were gift aid payments which were not qualifying ones. HMRC do not suggest that there was any deliberate (ie fraudulent) conduct by the appellant. To anticipate §208 we have held that any inaccuracies were not careless, and so we could also end there, but we proceed. 141. HMRC have correctly determined that the maximum penalty for a careless inaccuracy is 30% of the PLR (paragraph 4(2)(a). 142. The normal rule for calculating PLR applies here. It is the “additional amount due or payable in respect of tax as a result of correcting the inaccuracy”. By paragraph 5(2)(a) Schedule 24 that phrase includes an amount payable to HMRC having been erroneously paid by way of repayment of tax. That is the amount shown on the ChR1 which is referable to the inaccuracies. The actual amount depends on whether there are inaccuracies and in what amount, but there is one matter we mention here. 143. For the period ended 5 April 2013 the appellant submitted a ChR1 requesting repayment of £7,401, which was paid. It then submitted a replacement claim for £11,181.25 explaining the circumstances. It was clearly thereby requesting and expecting a repayment of £3,780.25, the difference. Instead HMRC repaid £11,181.25. The repayment of another £7,401 was a careless error, but not by the appellant. HMRC may recover it by assessment if they can, but the PLR for these periods cannot exceed £11,181.25. On being asked about this at the hearing HMRC accepted that a penalty would not be appropriate on the second amount of £7,401. 144. The reduction for disclosure given by HMRC is 80%, which reduces the 30% maximum by 80% of the difference between the minimum 15% and 30%, resulting in a penalty of 18%. We do not consider this to be the correct reduction, for the simple reason that Mr Hewitt told the appellant that the reduction would be 100%. Why his penalty explanation schedule showed 80% we do not know, but in view of his letter we would reduce the penalties to 15%. 145. Paragraph 13 relates to assessment of the penalties. Three things are required of the person making the assessment, that they should make it, that they should notify the appellant and that they should state in the notice a tax period in resect of which the penalty is assessed. The first two were done. As to the third the tax periods were stated as the years ended 5 April 2013, 2014, 2015 and 2016. There is no problem in relation to the year ended 5 April 2015 and 2016 as those years coincide with the appellant’s accounting periods. But the assessments for 2013 and 2014 are inaccurate as they do not state the correct periods, and they cannot stand, and s 114 TMA cannot cure them for the reasons given above. 146. By paragraph 13(2) any procedural rules of TMA 1970 relating to income tax assessments apply to the penalty assessments. These include s 30A(3) TMA which requires the notice of assessment to state the date on which it is issued and the time for appealing and s 30A(4) TMA which prevents any amendment to it except by law (ie determination by the Tribunal or deemed determination by s 54 TMA agreement). 147. In this context it is difficult to understand what Mr Hewitt means by “withdrawing” the penalty assessment for the year ended 5 April 2016. See Baylis at 62 TC 1 at p 124. 148. Section 30A(1) TMA requires that an assessment which is not a self-assessment shall be made by an officer of HMRC. It is clear that Mr Hewitt made the paragraph 52 assessments, but there is no clue as to which officer of the HMRC, or indeed whether any officer of HMRC, made the penalty assessments. Certainly no named officer issued the notices of assessment, which did not come from Mr Hewitt’s department of HMRC. 149. The absence of a name on the notice makes it impossible for the recipient to comply with s 31A(1)(c) TMA which is applied to penalty assessments by paragraph 16 Schedule 24. Who is the “relevant officer”, the “officer by whom the notice of assessment is given” (see s 31A(4)(b))? If it were important to determine this matters we would hold that the assessments do not comply with paragraph 13(2) and so are invalid for that reason (see in this connection Craig Shaw v HMRC [2018] UKFTT 381 (TC) (Judge Nigel Popplewell)). 150. But going on through Schedule 24, paragraph 13(3) gives the time limit for making the penalty assessments. In this case it is 12 months from the date of the end of the appeal period for the paragraph 52 assessments. That appeal period has not ended so the assessments are in time. But that is so only in relation to the penalty assessments for the periods up to that ended 5 April 2015. There is no assessment for the year ended 5 April 2016. That being so paragraph 13(3)(b) applies so that the time limit is 12 months from the date the inaccuracy is corrected. The inaccuracy has not been corrected, so the question is can a penalty assessment be made before a paragraph 52 assessment has been. We think not, because there is no PLR. PLR can only be calculated when the inaccuracy has been corrected (paragraph 6(1)). Here it hasn’t been. So the penalty assessment for this period is invalid for yet another reason. 151. HMRC may suspend a penalty. By paragraph 14(1) they must give notice in writing of the suspension, which notice must state what part of the penalty is suspended, a period of suspension of not more than two years and the conditions to be complied with by the appellant. 152. In this case Mr Hewitt said in his letter of 20 January 2017 that he had decided to suspend the penalties for 12 months to enable the trustees of the appellant to implement changes recommended in an attached document NPPS100, and that if the trustees met the conditions the penalty would be cancelled. He asked the trustees to sign and return the penalty suspension confirmation by 20 February 2017. The penalty explanation schedule also said that the penalties were suspended. 153. But on 10 May 2017 the penalty assessment was issued showing no amount suspended and no amount payable. Also on 10 May 2017 a notice of penalty suspension was given including some suspension conditions. The notice showed that the penalties were suspended and that at the end of the suspension period HMRC would write to the appellant to ask them to confirm that the conditions were met. 154. There is no further correspondence in the bundle on suspension. It seems therefore that the appellant has not satisfied HMRC that the conditions of suspension have been complied with. Nor is there any evidence of an appeal against the suspension conditions imposed by HMRC. The penalties have not therefore been cancelled, and so would be payable but for this decision. We should point out to HMRC that there is nothing in Schedule 24 that requires the appellant to formally agree the terms of suspension. Evidence of compliance with the conditions by the deadline is all that is required. 155. At the hearing HMRC asked us to reset the suspension conditions to run from a period of one year from the date of the hearing. Had we not found the penalty assessments invalid we would have declined to do that. Firstly the appellant has not appealed against the conditions of suspension. Secondly we would have had no jurisdiction to reset the period unless the appellant appealed against the decision to suspend. What has happened is that HMRC has set conditions that expired in early 2018. It would have been for HMRC to judge whether those conditions had been met. If they were not satisfied by the appellant the penalties would have ceased to be suspended. 156. The upshot of all of this is that all the penalties are cancelled. Discussion – the gift aid payments 157. HMRC say there are four issues for the Tribunal:(1) Whether there has been a double payment of “Gift Aid relief” to the claimant.(2) Whether the payments made to the appellant are gifts at all.(3) Whether if they are gifts, the conditions for them to be qualifying donations are complied with as to (i) refunds or (ii) benefits above the limits.(4) Whether the volunteers’ donations of their entitlement to expenses are qualifying donations. 158. We agree that this delineates the issues. We consider them separately . Duplication 159. HMRC’s arguments on this point is that the 12 December 2014 claim must have duplicated in part the 7 April 2014 claim. 160. Mr Brown does not deny that HMRC paid over £7,000 twice, but says that this was HMRC’s fault as he had made it clear in the white space that the second claim as cumulative, not additional, and so replaced the first claim. 161. We find that there was a duplicated repayment, and that it is recoverable. Were the payments gifts? 162. HMRC say a “gift”, to be within the definition in s 416 ITA 2007, must be a voluntary disposition. They cite Osborne v HMRC [2010] UKFTT 368 (TC) in support. In this case the contributions are mandatory, as evidenced by the Constitution article 5(r) (§11); the references to fees, fixed donations etc on the website (§15); the questionnaires completed by four parents who said the payments they made “were in support of tuition for their children, rather than donations” (§§179 to 182); the 2015 Financial Statements at 2.3 referring to a condition of membership being to “meet CFLC fees/donation stipulations” and the PayPal donation page (§17). 163. Further HMRC say a gift does not include a payment in return for a service, citing Tolley’s commentary on Gift Aid. They point to the offering by the appellant of learning programmes and compare this to school fees which Tolley’s commentary says are not eligible for gift aid. 164. Mr Brown had provided a statement of case for the hearing, which he amplified in oral submissions. 165. He said that the passages from the website that Mr Johnson had highlighted in his witness statement about membership fees regarding children under 18 were ambiguous. 166. Mr Brown also said that the appellant had always sought to follow HMRC guidance and referred to statements in their guidance on membership schemes about under 18s. 167. He also pointed out that not all contributions to the charity are made by parents/guardians. There are volunteer refunds, donations from the general public and supporters of the charity. He pointed out that about 15% of parents do not make donations. 168. He produced at the hearing statements made by some of the donors who had responded to HMRC’s questionnaires. 169. He maintains that all payments are voluntary: they are “suggested donations”. 170. We deal first with the donor questionnaires and responses. The questionnaires are a standard form (CTYAUD8). The top part of page 1 asks three questions. (1) Have you made a payment(s) ( sic ) to the charity? (2) Did you complete a Gift Aid declaration giving the charity permission to claim Gift Aid on your payments? (3) Have you received anything in return for your payments to the charity? If yes, please give details below in a White space box. 171. To the right of each question are two boxes. The heading for the first column of boxes is “No” and for the second is “Yes”. 172. Below the white space box is the question in bold “Do your payments fall under any of the following categories?” After that, but not in bold is written “(Tick all that apply)”. 173. The list is General donations; Membership; Admissions; Sponsorship; Donated Goods; Collections and Other (which has a single line box for completion below it, we assume, to describe what the “other” is). 174. To the right of each item is a box. The column of boxes is under the column of boxes for the first three questions which is headed “No”. 175. The second page asks for “information about your payments”. There are boxes for payment type (Cash, cheque, etc), frequency of payment and approximate total donated during the period specified in the letter. 176. There is then a large white space box for “Any other relevant information”. 177. The accompanying letter from Mark Hewitt gave the period as “27 February 2014 to 5 April 2015”. The questionnaires were said to be to “help” Mr Hewitt with the charity’s claim. It also informed the recipient that if they wanted to cancel the Gift Aid declarations they should tell the charity. 178. One responder to the questionnaire had ticked all the boxes “no”, emphasising that “No” applied to the “category” questions. They added that “this was tuition which my daughter goes to after school and I paid £40 every month by direct debit that is all I know about it”. 179. Another also ticked every box “No” and added “I have never made a payment/donation” and “I do not give consent for any payments to be taken from my account”. They added in a letter “I was not aware that I had committed to a gift aid scheme. Therefore I would like to cancel my Gift Aid Declaration.” 180. A third ticked the “Yes” box to the first question after having ticked and crossed out the “No” box. The other two questions were answered “No”. They said they paid by direct debit £120 per month, and added “The payments I pay for are not for charity or the Gift Aid declaration. They are specifically for my daughter private tuition.” 181. The fourth ticked “Yes” to the first and third question, and put “?” against the second. She added that she received in return for the payments “Tuition for 1 child 2 days £120.00”. 182. Mr Brown’s documents were from the second and third responder. 183. The first document was on the appellant’s notepaper and was addressed to the “Magistrate”. It said :
“This letter confrims ( sic ) that I made voluntary donations to Champions Fun Learning Centre up to 2015/16 to help the charity with their objectives. The letter I received from HMRC was confusing and I didn’t understand what it was saying and someone helped to write the response. I also signed the declarations again.” 184. It is signed with recognisably the same signature. 185. The letter from the other responder was identical even as to the typo. 186. We cannot give much weight to either the responses to the questionnaires or the letters produced by Mr Brown. We accept that many of those to whom the questionnaires were sent did not have English as their first language. We also accept that recipients may well not have understood the questions or the purpose of the questionnaire and may have thought that either they or the charity would get into trouble if they gave the “wrong” answer. But we cannot be sure either that the letters produced by Mr Brown were understood by the writers. We have no doubt that the letters were drafted by Mr Brown and say what he wanted the recipients to say. 187. We also have some doubts about the appropriateness of the layout of the questionnaire. The accompany letter says “I understand you may have made a donation …”
. The first box for the question “Have you made a payment to the charity” is “No”. Since this is a random selection HMRC can have no suspicion that the 10% of those on the schedule of donors are the ones who did not make payments and the overwhelming likelihood is that the recipient did make a payment. It seems to us psychologically odd to put “no” as the first possible answer. 188. But we do give some weight to the responses because they all show that the recipients thought they were paying a monthly sum for tuition of their children. 189. Mr Brown maintains that the appellant was running a membership scheme and that the donors were getting membership benefits for their contributions. 190. Membership subscriptions are covered in Chapter 3.37 of the HMRC Guidance. We are sure that all readers of this decision are aware of, and probably members of, charities which operate a membership scheme. The main text is:
“3.37.2 Most membership subscriptions aren’t gifts, they’re made to gain access to the facilities and services provided by the charity. However, membership subscriptions paid to charities that secure voting rights and the right to attend a charity’s AGM are gifts provided they meet the conditions in the next paragraph. These payments will, of course, still have to satisfy the benefit rules referred to above. 3.37.3 The conditions referred to are that the: · payments do no more than secure membership of the charity · payments don’t secure a right to personal use of any facilities or services provided by the charity 3.37.4 The provision to members of, for example, periodic newsletters explaining the work of the charity, or opportunities to visit and view the work of the charity wouldn’t breach these conditions. So, a wildlife conservation charity that allowed members admission to its sites to view its conservation work wouldn’t be regarded as providing services or facilities for personal use. The payment of a subscription to a charity to simply receive a copy of its magazine isn’t a payment to become a member of the charity. Such a payment is the purchase of a magazine subscription and can’t be Gift Aided. 3.37.5 Similarly, the opportunity to take part in activities by which the charity carried out its charitable objectives are acceptable as long as the activities don’t amount to making personal use of its facilities. So, a youth organisation that provided various activities in furtherance of its broader educational objectives wouldn’t be regarded as providing services or facilities for personal use. 3.37.6 Membership subscriptions that secure the right to personal use of facilities or services aren’t gifts. So, for example, subscriptions that are made in order to obtain for an individual or individuals’ tuition, coaching or other educational instruction are not gifts. Similarly, subscriptions to a sports charity or a charitable film society are not acceptable if they secured for members the free or discounted use of, say, a golf course or a swimming pool or the viewing of films that aren’t available on similar terms to non- members. 3.37.7 Where a charity separates that part of the membership subscription that simply gives the basic rights of membership and does no more than cover the basic administration costs of the charity from any part that relates to the provision of services or facilities the membership element can be a gift. So, for example, a sports charity that charges a basic membership subscription, with additional, variable, training or playing charges depending on the member’s standard, could regard the basic membership as a gift. The additional training or playing charges couldn’t be treated as gifts. A charity that charges a standard membership fee that covers membership and participation couldn’t treat any part of the subscription as a gift if participation in the activities involved personal use of services or facilities.” 191. The reference by Mr Brown to under 18s comes from the following passage: “Paying other people’s subscriptions 3.37.10 The payment to a charity to secure individual membership rights for a person other than the donor aren’t gifts to the charity. This includes an individual membership purchased for a family member (spouse, parent) that’s not secured as part of a family membership scheme. This is because although the payment is made to the charity the gift is to the person whose membership subscription is being paid. However, this doesn’t extend to payments made in respect of a donor’s minor children (children under 18 years of age). So, a payment that satisfies the conditions to be treated as a gift if made in respect of the donor personally will be accepted as a gift if it’s made for their minor child.” 192. It seems to us that Mr Brown has misinterpreted this passage. It doesn’t say that where services are provided to a minor any payment made by the parent or guardian for membership will be a gift. 193. But although Mr Brown has foresworn any suggestion that the appellant runs a school, one of his arguments seems to reflect something that the Guidance deals with in connection with educational charities at 3.34 [25] : “3.34.1 This section explains when educational trusts (Trusts) can claim Gift Aid in respect of payments made to such Trusts by parents and persons connected to a pupil. 3.34.2 A Trust is established to provide education for children as an alternative to state education. Parents may pay for textbooks, exercise books, exam fees and consumable materials. However, they’re often not required to pay any set fees to cover the costs of tuition and other overheads, but instead may make payments described as donations. 3.34.3 The payment of fees to a charity isn’t a gift to charity and so fees paid to a Trust aren’t eligible for the Gift Aid Scheme. Whether non-fee payments (donations) made by parents (and persons connected to them) to a Trust qualify as Gift Aid payments depends upon the surrounding circumstances and the situation for each Trust is judged on its own merits. 3.34.4 There’s a cost in providing education for a child and if that cost is met in consequence of the Gift Aid payments being made to the Trust then that cost is a benefit for the purposes of the Gift Aid Scheme. This includes the cost of tuition, heating and lighting of premises and other administrative costs, which would be taken into account by a private school in setting fees. Whether or not a benefit is received ‘in consequence of’ the Gift Aid payments is a question of fact to be determined in the light of the surrounding circumstances. In particular, it’s important to consider whether the Trust would be able to meet the costs of providing the education in the absence of the donations. In considering whether the level of fees is sufficient to cover operating costs trusts can take account of reliable, ongoing income sources such as endowments, but not one-off or periodic donations or grants where no binding commitment exists. 3.34.5 As far as alternative sources of funding are concerned, these are relevant only in as much as they form part of all the circumstances a court might look at in deciding whether the overall funding structure was genuinely able to maintain the activities of the charitable trust to the extent that additional contributions from individuals receiving a benefit were unnecessary. 3.34.6 Where the trust has a genuine fee structure in place HMRC will accept that the benefit of receiving education arises from payment of the fees. Consequently, the receipt of education wouldn’t be received as a consequence of making donations over and above the fees and so those donations could qualify for Gift Aid. A genuine fee structure is one where fees are charged in respect of all students and the fees are set at such a level that enables the Trust to operate without needing additional support. 3.34.7 Where there’s no fee structure or only nominal fees are charged, insufficient to enable the trust to operate without additional donations the additional donations give rise to a benefit. Such consequential benefits will generally be in excess of the benefit limits for donations made by parents and persons connected to them and so the donations will usually fail as Gift Aid payments. 3.34.8 Where there’s no fee structure or only nominal fees are charged, but sufficient alternative, unconnected, funding sources can be clearly identified, there will be no benefit arising as a consequence of donations from persons connected with the children receiving education. In situations where this is clearly the case, providing the other Gift Aid criteria are met, Gift Aid relief might be available on those donations.” 194. It seems to us from the accounts we have set out that less that 60% of the appellant's annual income comes from parental contributions. What we do not know is how much of the expenditure, particularly on salaries etc relates to the tuition. On this basis we would not be prepared to say that all or some of the parental donations are not gifts without a further and more detailed analysis of the accounts [26] . Refunds 195. As to item (3)(i) (refunds) HMRC refer to s 416(3) ITA 2007 which provides that a donation cannot be subject to a condition for repayment. The appellant’s website says that if a pupil is not able to attend a refund may be possible. That discretion means that there is “a condition as to repayment”. 196. We do not consider that the possibility of a refund of itself is such a condition. If any particular monthly payments were refunded then we would agree that they were not gifts. Benefits 197. As to item (3)(ii) HMRC say there is a benefit in the form of education received by an associated person, the child of the donor, and it is received in consequence of the donation. 198. In any event the small benefits rule is broken, as the appellant has stated that the payment by the donors is £5 to £8 per week and the real cost of providing tuition is between £25 to £30. 199. Mr Brown says that HMRC are looking at these figures the wrong way round. He says that the benefit is about 16% of the value of the services provided which is small in relation to the donation 200. We agree with HMRC that the provision of tuition is a benefit where the donation is made by a parent, as the child would be an associated person within s 417 ITA 2007 read with s 993 and s 994(1)). Where the payment is made by a guardian the test must be whether the child is connected within the meaning of s 417 as so read: it is not a given, as it is with a parent/child connection. 201. We agree with HMRC that the small benefits provisions in s 418 do not apply. The value of the benefit is, absent any other suggestion, the cost to the appellant of providing the service and the size of the benefit is not to exceed a percentage of the donation, not the other way round. Volunteer payments 202. As to item (4) HMRC say that the appellant must physically pay the expenses to the volunteer who can then choose to hand it back. Only then is there a “payment of a sum of money” (s416(2) ITA 2007). Mr Brown seems to accept this. We are not so sure. The case from which HMRC derive their views on this is clearly Peter Anthony Simpson and others as Trustees of the East Berkshire Sports Foundation v HMRC [2009] SpC 00732 (Special Commissioner Howard M Nowlan) at [34] to [39]. 203. The crucial point to us is that the appellant is liable to pay the expenses claim by the volunteers, and it meets this liability by issuing a cheque which it has the funds to meet, so that its resources are diminished. The action by the volunteer in returning it, tearing it up or simply not presenting it has the effect that, sooner or later, the diminution in resources is reversed. That situation could be achieved though with more palaver by the volunteer giving a cheque for the same amount to the appellant and the appellant cashing it. The appellant then runs the risk that the payer may not be good for the amount of the cheque. 204. HMRC accept that such an exchange of cheques would amount to payment of a sum of money and this is trenchantly supported by Special Commissioner Nowlan at [39]. To draw a distinction between the two situations is to us picking at nits. 205. We are also struck by Condition EA in s 416(6A) which treats certain waivers as not being gifts if certain conditions apply. The assumption that could be drawn from this is that other waivers can be gifts. 206. We therefore would uphold the appellant’s contention on the volunteers’ waivers. Conclusions 207. Although it is not be necessary for our decision as we have held that all the assessments are invalid, it may be worth pointing out that had we not so found, the assessments would have had to be reduced to take account of the fact that contrary to the implication from the assessments, not all of the gift aid payments failed to qualify. Not every donation was made by a parent whose child was receiving tuition. Given the lack of information we would have had to make a decision in principle and ask the parties to agree figures. Carelessness? 208. Having decided that the only disqualified donations were parental contributions, we consider whether the actions of the appellant in making the claims was careless, as otherwise the penalties imposed could not have stood even if they were not flawed for the reasons we have given. In our view they were not. Mr Brown has been conscientious in examining HMRC’s website in relation to membership schemes and other matters, and although he has an incorrect view of what constitutes a benefit in the circumstances of this case, we do not think it was careless of him to come to that view. Observations 2015-16 209. No assessment has been made for the accounting period of the year ended 5 April 2016. Nor has a repayment been made. We cannot understand why not. HMRC would have assumed that Schedule 1A applies (including as modified by regulation 3 SI 2013/937 in relation to the GASDS claim). But nowhere in the papers can we see that HMRC have informed the appellant that they would enquire into the claims for that year. They are now out of time to do so. Simply telling the appellant that they would not repay is not the opening of an enquiry. They must then repay the full amount. Interest 210. The assessments were said in HMRC’s letters to carry interest from the date on which the income was chargeable to tax, which date was said to be a date 9 months following the end of the “accounting period”
. We struggle to see where that date comes from. Paragraph 52(6) Schedule 18 provides that interest runs on a paragraph 52 assessment from the date that the payment being recouped was made. Those dates were 5 April 2014, 12 December 2014, 14 April 2015 and 14 April 2016: none is 9 months from the end of an accounting period. But any interest that has been paid will in any event be repaid following the cancellation of the assessment. 211. The papers are also silent about repayment interest. By s 826(3) ICTA repayment interest runs where what is being repaid is income tax in respect of a payment received by a company (s 826(1)(b)) from that date after the accounting period ends to the date of payment. The evidence is that all repayments of income tax suffered were made after the relevant account period, so we would have expected repayment interest to have been paid. But HMRC have not sought to recover repayment interest. This is either because they have not paid any when they should have done, or, if they have paid it, because they have no power to recover it. If it is for the first reason, then they should now pay the repayment interest. If non-recovery is because HMRC do not think they have a power of recovery, then we think they are correct. The only mechanisms for recovering overpaid repayment interest are s 30 TMA or paragraph 52 Schedule 18 FA 1998. The former only applies to repayment supplement given by s 824 ICTA (not this case) and paragraph 52(1)(b) Schedule 18 only applies to recovery of repayment interest to which s 826(8A) applies and that subsection does not apply to a payment of repayment interest where the tax is income tax falling within s 826(1B). 212. We reiterate that we have no power to adjudicate on questions of interest, and in the absence of assessments to recover overpaid repayment interest there can be nothing for us there to adjudicate on. But we suggest that HMRC look into these questions. Decision 213. The assessments made for the years ended 5 April 2013, 5 April 2014 and 5 April 2015 are, in accordance with s 50(6) TMA, reduced to nil. 214. The penalty assessments made for the years ended 5 April 2013, 5 April 2014 and 5 April 2015 are, in accordance with paragraph 17(1) Schedule 24 FA 2007, cancelled. 215. 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. RICHARD THOMAS TRIBUNAL JUDGE RELEASE DATE: 28 AUGUST 2018 [1] This review is not a statutory review under sections 49A to 49I Taxes Management Act 1970. Nor is it “independent” which is what Mr Brown was asking for. [2] Section 471, coupled with s 414 and s 424 Income Tax Act 2007 (“ITA”), is the last remnant in the Tax Acts of Lord Addington’s scheme for deduction and retention at source of income tax on annual payments enacted in 1803. The donor retains tax at the basic rate, and so gets relief, by giving the charity an amount net of income tax at that rate, and so can be seen to retain and keep the income tax deemed deducted. The donor gets relief at the excess of the higher rates over the basic rate by an extension to the basic rate band (see s 414(2) ITA), thus reflecting predecessor provisions of the Income and Corporation Taxes Act 1988 (“ICTA”) which did not say so in quite such clear terms, something which caused much misunderstanding in the case of Chappell v HMRC at both Upper Tribunal and Court of Appeal level. Where the donation is not paid out of profits or gains (ie income) of the donor, an assessment to recover some or all of the basic rate tax is made under s 424 ITA, which is also much clearer than its ICTA counterpart. [3] It has occurred to us to wonder what is meant to happen if the charity does not claim or is refused repayment of the tax deemed deducted. Since the tax element of the grossed-up amount will not have been applied for charitable purposes does that mean that in that situation the donor has a CT liability in respect of the income tax element? The problem does not arise in this case in the years assessed because the income tax was repaid and was presumably applied for charitable purposes. But it could arise in relation to the appellant’s accounting period for the year ended 5 April 2016 where the repayment has been withheld. [4] Although much of TMA applies to CT, section 117(1)(a) FA 1998 provides that Parts 2 (returns) and 4 (assessment and claims) of TMA do not apply so far as they relate to CT. It follows from this that s 42 (including Schedule 1A) TMA is (at first sight at least) inapplicable to this situation. [5] Very oddly the repeal was not made by Schedule 19 FA 1998 which contains multitudes of repeals consequent on the enactment of CT Self-Assessment in Schedule 18. Schedule 27 is the standard repeals schedule used in Acts at that time. [6] There are contra-indications in paragraph 57(1A) Schedule 18 which explicitly excludes from Schedule 1A TMA a claim for repayment of income tax treated as having been paid “by virtue of … section 471 of the Corporation Tax Act 2010 (gifts qualifying for gift aid relief: charitable companies)”. In our view this proceeds on the same misunderstanding as paragraph 9 (see fn.8), or else when it uses the term “claim” it means something other than a claim provided for by a provision of the Corporation Tax Acts or the Taxes Acts. [7] See Self Assessment Claims Manual SACM 2005 & 2010. [8] It must be noted that in relation to repayment of income tax, paragraph 9 Schedule 18 FA 1998 refers to “a claim by a company for any repayment of income tax called for by virtue of … section 3 of the Corporation Tax Act 2009 (exclusion of income tax charge in case of UK resident company or income within chargeable profits for corporation tax)” and “a claim by a company for repayment of income tax treated as having been paid by virtue of … section 471(2) of the Corporation Tax Act 2010 (gifts qualifying for gift aid relief: charitable companies), ..”. In our view this is also based on a misunderstanding of the position. [9] Why, we wondered at first, did s 30 TMA not apply here? It is a provision dealing only with over-repayments of income tax. Section 117 FA 1998 (see fn.4) only applies (Part 7) Schedule 18 in place of Part 4 TMA so far as that Part relates to CT. In this circumstance we are not concerned with CT, but income tax, as paragraph 52 Schedule 18 recognises. Maybe the specific overrides the general or it is simply more appropriate to use paragraph 52. But in any event paragraph 52 is appropriate. [10] Section 826(8A) ICTA applies to excessive amount of repayment interest paid to a person. There is no information in the papers about any repayment interest added to the repayment of income tax. See §211. [11] In Schedule 18 FA 1998 a reference just to “tax” is a reference to CT. [12] GASDS stands for “Gift Aid Small Donations Scheme”. Payments made under the GASDS relate to small donations (under £20) which do not have to be accompanied by a gift aid declaration. The rules governing them are in the Small Charitable Donations Regulations 2013 (SI 2013/938). They contain a complete code for the administration of claims for “top up payments” under GASDS (the equivalent of repayment of income tax deemed paid, a rule which does not apply to GASDS). GASDS top up payments are required to be claimed as Schedule 1A TMA is applied with modifications and the regulations contain information powers and assessment powers which differ from those applying to normal gift aid payments. As no assessment has been made for 2015-16 to recover anything the question whether such an assessment would cover GASDS does not arise. [13] We discuss the interest position at §§211 to 213 while recognising it is something not within our jurisdiction. [14] I can see no number or reference on the three assessments that is different one from another. [15] It will have become apparent that we do not think that Schedule 1A applies. But here we look at it in its own terms. [16] In this connection see R (oao Archer) v HMRC [2017] EWCA Civ 1962 where HMRC’s failure to amend was cured by s 114(1) TMA, a subsection which is discussed below at §§103 to 124. [17] Schedule 1A TMA derives from s 42 TMA and by s 42(1) can only apply to a claim made under a provision of the Taxes Acts. [18] 59 TC 337 [19] [2008] SpC 692 [20] Although HMRC do not says so, this is an implicit reference to s 113(1B) TMA which validates this “two person” procedure which was the subject of the decision in Burford v Durkin (HM Inspector of Taxes ) 63 TC 645. [21] 62 TC 1 [22] We have take into account Mr Brown’s submissions that he was confused as to what he was supposed to pay, but as the test is objective it clearly cannot be determinative. [23] This figure does not include the GASDS top up payment, probably correctly. [24] The appellant is neither wealthy, mid-sized or a business! [25] The text refers to trusts, but we do not see why it should not apply to charitable companies. [26] We might also wish to consider whether the elaborate provisions in sections 420 and 421 ITA, which were clearly designed to help well known major charities with formidable lobbying power who provide access to land and buildings, discriminate against charities of the appellant’s type and size.