Hegarty & Anor v Revenue & Customs (CAPITAL GAINS TAX/TAXATION OF CHARGEABLE GAINS : Other) [2018] UKFTT 774 (TC)

FTT-Tax
Hegarty & Anor v Revenue & Customs (CAPITAL GAINS TAX/TAXATION OF CHARGEABLE GAINS : Other)
[2018] UKFTT 774 (TC) · 2018-08-28
[5]‘The qualifying condition under section 317(1) of ‘reasonable grounds to suspect’ does not involve proof of criminal conduct but a genuine suspicion which is reasonable viewed objectively, see O’Hara … (paras 36 to 39).’ 53. Earlier they had referred to the skeleton argument of counsel for the appellant in that case. They then said:
‘Whether the qualifying condition has been satisfied in the present circumstances will ultimately depend on the evidence from Mr Archer [of the ARA]. But if his evidence were to embody the matters set out in the above extract , our provisional reaction is that the qualifying condition would be more than satisfied.’ [our emphasis] 54. What is important about this extract is the stress on the evidence and that can also be seen in Barrymore and O’
Hara . 55. As to cases on Condition B in paragraph 21 Schedule 36 we note Kevin Betts v HMRC [2013] UKFTT 430 (TC) (Judge Rachel Perez and Lesley Stalker). In that case it was accepted by both parties that HMRC had the burden of showing that any of the conditions in paragraph 21 were met. It was only Condition B that was in issue, and it is clear that a great deal of evidence was given by the HMRC investigator to seek to explain why he had reason to suspect omission of income. 56. Other cases where Condition B was in point and where evidence was given by an officer of HMRC include Nijjar v HMRC [2017] UKFTT 726 (TC) at [15] (Judge Jonathan Richards) and Spring Capital Ltd v HMRC [2016] UKFTT 246 (TC) at [49] to [54] (Judge Barbara Mosedale).” 92. But in this case Miss McKinney, the relevant officer of HMRC, did not give evidence, either by a witness statement or orally. She was in attendance, but was not called despite the appellants having said they put HMRC to strict proof that Condition B had been met and also queried her absence and explained what their submissions would be if she did not give evidence. HMRC’s position, as explained by Mr Marks, was that the facts speak for themselves. 93. Those facts he said were: (1) The land transferred to Niall at a valuation of £100,000 was sold in April 2007 for £400,000 and the transfer to Niall was submitted to the Land Registry on 7 February 2007. The gain was returned for the tax year 2005-06 so on the face of it there was a transfer for undervalue returned in the wrong year. (2) The land retained by the appellants and sold to the developers was claimed to be a business asset so as to qualify for a higher taper amount but there is evidence that the land was not used as a “car yard” and the appellant has admitted as much in correspondence. 94. In fact these were what HMRC put forward to show, were it needed (they said that it wasn’t), that they were able to make discovery assessments on the basis that both appellants deliberately made incorrect returns, but there was nothing else said by Mr Marks in writing or orally that amounted to a case that Condition B was met. 95. It is, as Judge Thomas in Newton suggested, not a high bar for HMRC to surmount. On reflection Judge Thomas thinks that the bar here may be somewhat higher than that in s 29(1) TMA where a discovery is concerned. But if a statutory provision requires a particular person to show their reasons for suspicion, the Tribunal must be in a position to decide whether the officer did in fact genuinely hold that suspicion, and whether the suspicion was objectively justified by reference to the facts put forward. It may be that in a very straightforward matter the facts do speak for themselves, but if an officer is relying on evidence they have that enabled them to form their suspicion, it seems to us to be an irreducible necessity to expose it to the scrutiny of the tribunal and to enable the officer giving their reasons for suspicion to be cross-examined by the appellant and to answer any questions the tribunal might have. 96. In relation to the 2007-08 disposal Mr Marks says that there is evidence that the land was not used as a car yard. But we were not shown it. We presume (because we do not know) that it is the aerial photographs shown to the appellants in the meeting of 26 October 2016 as well possibly as the “plenty” of other photos which have not been shown to the appellants. Taken as a whole the photographs might well have given Miss McKinney reason to suspect that the BATR was incorrectly made. But she did not explain to us, by reference to the provisions of Schedule A1 TCGA 1992, why the fact that an aerial photo on a particular day showed no cars on the land could affect the claim to BATR. 97. As to the “admission” Mr Marks did not show us the documents in which it was made, or where the appellants say that “in fact it was proposed to be used as a car yard” and in what context. Nor did he show whether this admission was made before the issue of the first, second or third notices, or whether Miss McKinney had it in mind when issuing the May 2018 notices, and of course she did not give evidence as to her state of mind or knowledge of the facts at the time she formed her reasons to suspect or even whether she reassessed her grounds to suspect when issuing the second and third notices. 98. We go back to what was said in Khan at §82 (and in [52] and [53] in Newton ). We might well have been able to agree that Miss McKinney’s suspicions were genuine and objectively justified had we heard her telling us exactly what they were and why she held them, and had we heard her answers to any questions Mr Gordon asked her. But we didn’t have that opportunity. 99. We therefore hold that the notices insofar as they related to the BATR claim for 2007-08 do not meet Condition B and we therefore uphold the appeal in relation to 2007-08. 100. As to the other years we are satisfied that the Land Registry document showing the date of application to register the transfer from the appellants to Niall Hegarty was capable of giving Miss McKinney reason to suspect that the date of disposal of the land by the appellants was in 2006-07. We do not think that Miss McKinney’s subsequent admission that the Land Registry documents might be wrong affects the question we have to answer here, but we have not been shown that document so we cannot tell if Miss McKinney has misinterpreted it. 101. Miss McKinney also expressed her reservations about the valuation of the land given to Niall, given the close proximity of the date of the land registry application and the sale to Lennox Thompson for an amount four times greater. We note that these reservations surfaced in the “view of the matter” letter of 31 March 2017, that is in response to the appeals against the first notice, so we are unaware whether she had grounds to suspect an undervaluation at the time she would have expressed those grounds eg to her manager. Nor do we know whether she made reference to her grounds for suspecting an undervaluation and hence a loss of CGT when issuing the second notices. 102. We do have in our bundle Miss McKinney’s application to her manager for the issue of the third set of notices, those under appeal. But there is no reference in that to describe what grounds for suspicion Miss McKinney had, merely that “I have reason to suspect that there has been an underassessment of capital gains tax due to deliberate behaviour” without any more detail. This application was in fact put forward by HMRC to show to the appellants and the Tribunal that the notices had been specifically approved by an authorised person under paragraph 20 (old documents). 103. The application for paragraph 20 authorisation illustrates the points we are making here: this document does speak for itself for its particular purpose because it states on its face that it is a request for an authorisation to ask for documents over 6 years old. It is a matter of verifiable fact whether such authorisation was applied for or not. But in relation to the grounds for reasonable suspicion, no documents or submissions by a presenting officer can explain what was in a person’s mind better than that person giving evidence. If they could the Special Commissioners would not have said what they did in Khan . 104. We do not know why there was no evidence given to the Tribunal by Miss McKinney about the transfer to Niall, but the fact is that it wasn’t and we do not think the facts on this issue such as we have speak for themselves. We therefore hold that Condition B is not met in relation to the transfer to Niall. Discussion - no sensible or reasonable possibility 105. Strictly we do not need to consider the appellants’ discovery assessment point. Our decision is not appealable, so could only be overturned, if at all, on judicial review. But as it was fully argued we set out our views in case they may be of assistance in future cases. The appellants’ submissions 106. Mr Gordon relied on three cases, two of which are strictly binding on us, and the other one, a decision of the Outer House of the Court of Session, is effectively binding on us. But these cases, R (oao Johnson & others) v Dr Nicholas Branigan (HM Inspector of Taxes) [2006] EWHC 885 (Admin) (Stanley Burnton J) (“ Johnson ”), R (on the petition of Pattullo) v HMRC [2009] CSOH 137 (Lord Bannatyne) (“ Pattullo ”) and Hankinson v HMRC [2011] EWCA Civ 1566 (“ Hankinson ”) were all considering s 20 TMA, a provision that was repealed by Schedule 36 FA 2008 which replaced it and other information notice provisions. 107. Although the appellants recognise that Johnson and Pattullo concern s 20 TMA and not Schedule 36 FA 2008 there is, they say, no reason why the restriction imposed on HMRC’s powers ceased to be applicable following the enactment of Schedule 36. We consider whether the decisions in Johnson and Pattullo can be read across to Schedule 36 notices later, after we consider what those decisions actually decided. 108. Mr Gordon also mentions in support that HMRC’s team concerned with the Review of Powers were “keen to confirm” that they considered Johnson to be good law and this is reflected in HMRC Manuals at paragraph 23526 of the HMRC Compliance Handbook:
“A ‘taxpayer notice’ is a written notice to a person requiring them to provide information or produce documents reasonably required to check their tax position. For the use of first and third party information powers to check the tax position of one or more partners at the same time, see CH225600 . If a person has made a Self Assessment return, claim or election for a chargeable period, CH23540, you can only issue a taxpayer notice to check a person’s income tax, capital gains tax or corporation tax position for that period if one or more of the following conditions apply. · There is an open enquiry, see CH23540, into the SA or CTSA return, the claim or the election concerning the matters to which the taxpayer notice relates, or · you have reason to suspect, see CH23560 , that tax may not have been assessed, or tax may have been under-assessed, or tax relief given may be excessive and you could, if necessary, make an assessment or determination to correct the position, see CH23540. ” [The appellants’ emphasis] 109. The appellants also say the application of Johnson and Pattullo to Schedule 36 can be seen to be implicitly recognised by this tribunal in The Barty Party Company Ltd v HMRC [2017] UKFTT 697 (TC) (Judge Rachel Short and William Haarer). 110. The appellants say therefore that these cases demonstrate that in addition to showing that condition B is met, the officer must show that there is a sensible or reasonable possibility of a s 29 TMA assessment, and that that requires the tribunal to consider more than just s 29(1) which is they say replicated in paragraph 21(6). The respondents’ submissions 111. HMRC respond by arguing that there are crucial differences between s 20 TMA and Schedule 36 FA 2008 such that the cases about s 20 cannot be applicable to Schedule 36. In particular, s 20 allows an officer to request: “information relevant to - (i) any tax liability to which the person is or may be subject, or (ii) the amount of any such liability,” and the courts have established that: “the link between the information requested and of ( sic ) a liability that the person ‘is or may be subject to’ meant that the information could only be asked ( sic ) in the immediate anticipation of an assessment being made”. 112. The Schedule 36 regime, they say, makes no such link, as the link was removed by Parliament, so that there is no such requirement as is stated in Johnson and Pattullo that there must be a “sensible or reasonable possibility” of a s 29 discovery assessment. 113. They cite an article by no less than Keith Gordon (counsel for the appellants) that the link was broken by Schedule 36 and say that Parliament had an opportunity to maintain the link but did not do so. 114. They also cite two cases of this Tribunal with neutral citations [2016] UKFTT 361 (TC) (Judge Roger Berner) and [2017] UKFTT 148 TC (Judge Jonathan Cannan) as support for their view of Schedule 36. The cases are without notice ( ex parte as was) applications for a Schedule 36 notice to be approved by the Tribunal. 115. As to CH23526 they say firstly that it merely refers to the technical requirements for issuing a discovery assessment and secondly the argument of the appellant is one that they had a legitimate expectation that the guidance in the Handbook would be followed, and that is not justiciable before this Tribunal. The appellants’ reply 116. In reply Mr Gordon refers to the concerns of the professional bodies that Schedule 36 was diluting the safeguards given by Johnson and Pattullo and HMRC’s confirmation in “roadshows” that HMRC would continue to abide by the decisions so that there was no need for Schedule 36 to contain express protections and that the guidance reflected those confirmations. 117. He also says that the decisions of Judges Berner and Cannan are not binding on us and that they did not have the benefit of oral submissions by the taxpayers, and as they did not refer to Johnson and Pattullo it is unlikely that were brought to the judges’ attention. Our decision 118. We start by considering Johnson . 119. In that case notices under s 20 TMA were issued to three participants in a tax avoidance scheme devised by the notorious peddler of such schemes, T P D Taylor. The notices were issued by Dr Nicholas Branigan, an Inspector of Taxes and the respondent to the application for judicial review. 120. Dr Branigan had,, as he was obliged to do by s 20(7) TMA, obtained the leave of a General or Special Commissioner of Income Tax to issue the notice, so it followed that the Commissioner was “satisfied that in all the circumstances the inspector is justified in proceeding under this section”
. It is only where the Commissioners of Inland Revenue issued the notice (by their delegate, a very senior Inspector) that leave was not required. 121. The appellants were given a written summary of the Inspector’s reasons for his application for consent (s 20(8E) TMA). 122. The case involved an application for judicial review of the decision to issue the notice because there was no right of appeal against a s 20 TMA notice. At [14] to [15] Stanley Burnton J said:
“14. In my judgment it is necessary to read section 20 together with the provisions of section 29 of the Taxes Management Act 1970. Section 29 confers the substantive power on the Inland Revenue to make an assessment to be served on the taxpayer requiring him to pay tax in addition to any which has been previously paid. It is headed ‘Assessment where loss of tax discovered’. Section 20 itself confers no right to call for the payment of tax and of itself imposes no liability to pay tax. That right and that liability are the subject of section 29. An assessment made pursuant to section 29 may be the subject of appeal. It is perhaps not surprising that section 20 does not confer any right of appeal against a notice served under it, given that the notice is, in a sense, an interlocutory step, a step taken in order to obtain information with a view to deciding whether or not the power conferred by section 29 should be exercised. 15. The practical constraint on section 20 is that it can only be used when there is a sensible or reasonable possibility of an assessment under section 29. The power conferred by section 29 is very substantially qualified. It is so qualified no doubt because Parliament considered that generally a taxpayer who has honestly provided a tax return under the self assessment scheme should not be indefinitely liable to a demand for the payment of an amount of taxes beyond that which, by his return, he has disclosed as payable by him. [Our emphasis]” 123. At [19] and [20], having considered the law in s 29 TMA, Stanley Burnton J said: “19. It is accepted by Mr Jones on behalf of HMRC, and in my judgment rightly, that HMRC, or rather an inspector, could not properly serve a notice under section 20 in circumstances where there was no prospect of the conditions imposed on an assessment under section 29 being fulfilled, that is to say where there was no question of fraud or negligence, or where there was no question of an officer of HMRC being able to say that he could not have been reasonably expected on the basis of the information provided by the taxpayer, here Mr Collins, in his tax return, to be aware of the matters giving rise to be tax liability which could be the subject of an assessment under section 29. In practice, therefore, there is a significant limitation on the power to serve a notice under section 20. In the present case, HMRC do not suggest that on the information presently available to them there has been fraud or negligence. What they do say is that they have reason to believe that there is information which they could not reasonably have been expected to be aware of as a result of the receipt of Mr Collins’ tax return which does affect his liability for tax during the year in question. 20. The first question which arises is: what is the test to be applied in determining the availability of the power under section 20 in circumstances where the time allowed by section 9A is expired? As I have already indicated, I accept as a correct statement of the legal position that the power under section 20 is exercisable where what is called for is information which may sensibly lead to a lawful assessment being made under section 29. It is not, therefore, the case, as I understood Mr Price to suggest, that in the absence of fraud or an allegation of negligence the power under section 20 is unavailable. In my judgment, it is also available in circumstances where it may be that information acquired as a result of the service of a notice under section 20 may lead to a valid assessment under section 29.” 124. In order to answer the question in the case under consideration the judge said “it is sufficient to look at the summary of reasons given by the defendant for the service of the notice”
. Having done so

the judge said, at [25]:

“In my judgment, this is not a case which comes anywhere close to its being shown that there is no real or reasonable prospect of the power under section 29 being exercised. In my judgment it follows that the power to serve a notice under section 20 was available, notwithstanding the expiration of the time allowed by section 9A. ” 125. As to the requirement to obtain leave of a Commissioner, the judge said at [27] that: “There is a significant safeguard in section 20 on the power of the Revenue to serve a notice under it. The principal safeguard is the requirement of the consent of a General or Special Commissioner.”
And later in that paragraph: “The requirement under section 20(7) is that the Commissioner must be satisfied that in all the circumstances the Inspector is justified in proceeding under that section. Clearly, under that section the inspector must produce sufficient evidence to satisfy the Commissioner that it is appropriate to proceed under that section. As I have already said, it would not be appropriate to proceed under that section absent the possibility, which must be a reasonable possibility, of an assessment being made under section 29 under the conditions it imposes.” 126. Pattullo was also a judicial review case involving a similar tax avoidance scheme and also involving Dr Branigan. At [6] in his opinion Lord Bannatyne set out what, according to the petitioner’s senior counsel, Mr David Johnston QC, was the issue: “whether HMRC were legally entitled, having regard to the information provided in the petitioners’ said tax return (the white space), to make a discovery assessment in terms of Section 29 of TMA 1970 and, in order to do so, were entitled to serve a discovery notice.” 127. In this case the court had an affidavit from Dr Branigan and at [16] to [24] the judge recites the petitioner’s counsel’s analysis and criticism of that affidavit, and at [25] to [43] counsel’s analysis of the law on discovery assessments. 128. At [49] and [51] Lord Bannatyne recites what senior counsel quoted from Johnson as being particularly important. The paragraphs in Johnson are [14], [15], [20], [22] and [24]. 129. At [73} it was stated to be the position of HMRC’s counsel, Mr Artis, that Stanley Burnton J had correctly expressed the test in paragraph 20 of Johnson . 130. At [90] and [91] Lord Bannatyne started his discussion of the issues and said: “[90] The first point at issue before me is this: in what circumstances is an officer of the respondents entitled to issue a discovery notice in terms of Section 20 of the TMA 1970 [91] This power in my judgement is available to an officer in the circumstances identified by Stanley Burnton J in R ( Johnson et al) v Branigan supra . [at [20]]” 131. At [107] Lord Bannatyne turned to the question whether there was a reasonable or sensible possibility of a s 29 discovery. He said: “Having regard to the relationship between Section 20 and 29 of the Act as I have explained it and having regard to the proper construction of these two sections the first question I require to ask myself is this: have HMRC newly come to the conclusion that it is probable that there was an insufficiency? The respondents are at an early stage in their investigations and are not able to say there probably is an insufficiency. That is what they wish to investigate. They however say they have newly discovered that the petitioner was probably a participant in the CRC Mark II scheme as a result of expert examination of the return and they believe that this may lead there to be an insufficiency. Applying Auld LJ's test that is properly understood a discovery,(a new fact has come to light: the petitioner's membership of the scheme) that in my view at this stage in the process fulfils that part of the test. The critical question in the case before me then becomes: should the information contained in the white space in the taxpayers 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 Section 29 accordingly the respondents would not be entitled to a discovery notice in terms of Section 20. ” [my emphasis] 132. Lord Bannatyne then referred at [110] and [111] to Dr Branigan’s affidavit and said, at [111] to [113]: “111. Dr Branigan's position on a fair reading of his affidavit as a whole is: that (1) he was only able to reach this belief as a result of his specialist knowledge arising from his being the head of the team investigating the CRC Mark II scheme; (2) he is not at this stage able to say that he is aware of an actual insufficiency as he cannot say definitely that the petitioner was a participant. Further, if he was a participant, in the absence of the details of the scheme he is unable to say that he is aware of an actual insufficiency. Thus he is unable at this stage to proceed to a s 29 assessment and requires to proceed to a s 20 notice in order to discover documentation. The situation is accordingly very much on all fours with that in R ( on the application of Johnston ) v Branigan ( Inspector of Taxes ) where a s 20 assessment was held to be competent. 112. Given the position of Dr Branigan therefore the question for the court becomes: is there a clear alerting of an officer within the white space--that officer being one of ordinary knowledge and skill--of the participation by Mr Pattullo in such a scheme of tax avoidance and of an insufficiency in tax arising therefrom? 113 The answer to the above question is that I have not been satisfied by Mr Johnston's submissions that there was such a clear alerting within the white space.” 133. The judge decided at [114] “as is pointed out in his affidavit by Dr Branigan” that the white space information in the return about the avoidance scheme entered into would not have sufficiently alerted the hypothetical inspector to an actual insufficiency of tax. He then concluded at [116] and [117]: [116] Accordingly in my opinion this is a case in which I cannot be satisfied that it has been shown there is no real or sensible prospect of a power under Section 29 being competently exercised. Accordingly in my judgment the right to serve a notice in terms of Section 20 was available. [117] Turning to the question: for what purposes may a section 20 notice be used I preferred the submissions made on behalf of the respondents. In my view a section 20 notice, where there is a reasonable prospect of a section 29 assessment being exercised, can be used to obtain information in order to decide whether the section 29 power should be exercised. That in my view on a proper reading of section 20 is its purpose. I agree with the submission for the respondents that to hold otherwise would be to misread the section. I would agree with what is said by Stanley Burnton J at paragraph 14 in R (Johnson) (et al) v Branigan that section 20 is: ‘a step taken in order to obtain information with a view to deciding whether or not the power conferred by section 29 could be exercised’. That is precisely the use to which it is being put in the instant case. I do not believe that such a use defeats the underlying purpose of early finality of assessment. Its use is of course constrained, as I have said above, by it only being exerciseable where there is a real or reasonable prospect of the power under section 29 being exercised. Thus a section 20 notice can properly be used in the circumstances of this case.” 134. Finally as to Hankinson the only reasoned decision was given by Lewison LJ. At [4] he said:[4]“Section 20 of the Taxes Management Act 1970 (and now Schedule 36 to the Finance Act 2008) also gives powers to call for information. These powers may be exercised after the enquiry window has closed. Notice under section 20(1) and 20(3) may be given by an inspector authorised by HMRC, but it can only be given with the consent of the tribunal. If the inspector gives notice in exercise of these powers he must give the taxpayer a written summary of his reasons for applying for consent: section 20(8E). The giving of a notice under section 20 is a precursor to the making of a discovery assessment; and it can only be done where there is a sensible or practical possibility of a discovery assessment being made under section 29: R (oao Johnston) v Branigan [2006] EWHC 885 (Admin) §§14, 15; R (oao Pattullo) v HMRC [2009] CSOH 137 [2010] STC 107 §91.”135. But as Lewison LJ says at [6] that paragraph and the others before it are undisputed background to the case which was entirely about discovery assessments.136. We acknowledge that all the cases where the “sensible or practical possibility” test has been considered and applied are avoidance cases where it is s 29(5) TMA that is the condition to be met, not as here where it is s 29(4), but we do not consider that that makes any difference to the approach we should take, save only that we should take into account when judging whether there was a reasonable or sensible possibility of a s 29 assessment being competently made (if we consider that that test applies to Schedule 36) the fact that here there is an allegation of conduct which is tantamount to fraud which would require to be specifically pleaded in support of the right to make the assessment.137. It is clear from a reading of Pattullo that Lord Bannatyne approached the “sensible or practical possibility” test by not only examining the facts, ie the entries on Mr Pattullo’s return but by closely considering Dr Branigan’s evidence in his affidavit (there was no oral evidence in the case as it was one for judicial review) and by considering the opposing submissions by counsel on that affidavit, it being notable that counsel for Mr Pattullo went into great detail on the matter.138. But the question remains: is there the same requirement for the showing of a “sensible or practical possibility” of a discovery assessment in Schedule 36? And what are the differences between s 20 and paragraph 1 Schedule 36 and are they significant and relevant?139. There is no right of appeal against a s 20 notice (which is why there had to be judicial review), whereas for a paragraph 1 Schedule 36 case, ie where paragraph 3 Schedule 36 (leave of the Tribunal obtained to the issuing of a notice) is not used, there is an appeal right.140. A s 20 notice requires the leave of a tribunal, but a paragraph 1 Schedule 36 notice does not.141. A s 20 notice is limited to documents which in the inspector’s “reasonable opinion” contain information relevant to a tax liability to which the person is or may be subject (or to the amount) and to such particulars as the inspector may reasonably require as being relevant to such a liability or its amount: a paragraph 1 Schedule 36 notice is limited to information or documents reasonably required by the officer for the purpose of checking the taxpayer's tax position.142. A s 20 notice seeking documents more than 6 years old can only be given if the Commissioner specifically approves its being given and is satisfied, on the inspector's application, that there is reasonable ground for believing that tax has, or may have been, lost to the Crown owing to the fraud of the taxpayer. Under Schedule 36 a notice under paragraph 1 must be consented to by an authorised officer, and a notice for both documents and information that relate to periods for which an enquiry is not open can only be given if Condition B is met, ie that an officer of Revenue and Customs has reason to suspect that, as regards the person, an amount that ought to have been assessed to tax for the chargeable period may not have been assessed.143. From this comparison it can be seen that in relation to a paragraph 1 Schedule 36 notice the safeguards have been significantly relaxed. No consent is required from an independent tribunal either for the notice at all or for old documents, but the corollary is that there is oversight by the Tribunal on appeal against the notice, whereas under s 20 TMA a person seeking to object to the notice had to apply for judicial review.144. We do not see any significant difference between the condition in s 20 that notice is valid only if in the reasonable opinion of an inspector the document contains information relevant to a tax liability to which the person may be subject and the condition in Schedule 36 that a document must be “reasonably required” for the purposes of checking a person’s tax position. And as to information the position is even more finely nuanced: in s 20 TMA the test for particulars ((ie information) is, like the test in Schedule 36, that the documents be reasonably required, the sole difference being that in s 20 the information must be reasonably required as being relevant to a tax liability to which a person is or may be subject but in Schedule 36 must be reasonable required for checking a tax position, which means checking their “past, present and future liability to pay any tax” (paragraph 64 Schedule 36).145. Given this we are slightly unclear about what HMRC is arguing here. They refer to the what the “courts established” without saying which courts. We assume, because they refer to Johnson and Pattullo two paragraphs later in their skeleton, that they mean that it is in those cases that the courts established what HMRC say they did. What HMRC say is that the “no possibility” safeguard arose because of “the link between information requested and a liability to which a person is or may be subject to”, and that Schedule 36 makes no such link.146. We have reread Johnson and Pattullo but can find no evidence in those decisions of any mention of a link such as HMRC say there must be. What we take HMRC to mean then is that the words “is or may be subject to” impose the requirement that there must be a real possibility of a discovery assessment being made. By contrast Schedule 36 does not refer to whether a person is or may be subject to a liability that can be assessed and so enforced. The only test they say is in paragraph 21(6) which replicates s 29(1) and that all HMRC have to show is that an amount that ought to have been assessed had not been or that relief from tax may be excessive.147. We are not persuaded by HMRC’s arguments that there is any material difference between s 20 TMA as it applies to a first party notice by an inspector and a paragraph 1 Schedule 36 notice issued without seeking leave of the tribunal.148. We make clear that neither HMRC guidance, nor any confirmations they may have given about their approach to Schedule 36 in roadshows is relevant to our decision. But we are fortified in our view by what the Compliance Handbook says, while recognising that any complaint that in this case HMRC officers have not followed guidance published to all the world is not within our jurisdiction.149. Nor do we think that the decisions of Judges Berner and Cannan assist HMRC, as, apart from not being binding on us, they were without notice to the appellant and the judges did not appear to have been referred to Johnson and Pattullo . What we have to decide is whether what Johnson and Pattullo decided binds us in interpreting Schedule 36. We do not think Hankinson , even though it refers to Schedule 36, binds us as the reference to Schedule 36 is wholly general and simply confirms that it is a provision about requiring information. The references in it to Johnson and Pattullo are confined to their applicability to s 20.150. Thus the only question for us is whether the decisions in Johnson and Pattullo have the effect that the safeguards they held to be present in s 20 are also in Schedule 36. The first difficulty we have in deciding this question is a certain lack of clarity we perceive about what those cases actually provided for as a matter of law. Johnson says that the need to show that there is a sensible or reasonable possibility of a discovery assessment being issued is a “practical constraint” on HMRC. We are not clear whether this means that whatever s 20 TMA might say HMRC are somehow estopped from issuing a s 20 notice in “no possibility” circumstances (which would perhaps only be enforceable by judicial review proceedings – which both Johnson and Pattullo were) or whether it means that s 20 must be interpreted as incorporating the “no possibility” test.151. It seems to us that a close reading of Johnson shows that Stanley Burnton J was intending to give his interpretation of s 20 TMA. This is apparent from [36]:
“I have reached clear conclusions as to the requirements of the statute and the lawfulness of the notice served in each of the cases before me. There are serious matters of construction which have been raised. I have considered whether it would be appropriate to refuse permission to apply for judicial review or to grant permission and deal with the matter substantively. Neither party has objected to my taking the latter course, having regard to the fact that the notices and their lawfulness must stand or fall on the documents presently before me. The principal questions before me have been questions of construction and the application of the true construction of the statute to the notices and tax returns in these cases. It seems to me, in those circumstances, the appropriate course is to grant permission in each case but to dismiss each claim for judicial review for the reasons I have given. That will enable any challenge to my decision to be made more appropriately.” 152. It also seems to me that this is a construction of s 20 which is designed to avoid absurdity in the more general sense of that term as used in Bennion on Statutory Interpretation , and in particular the absurdity of a process that would be futile as nothing could be done with the information the supply of which is compelled by the notice. Stanley Burnton J’s construction of s 20(1) seems to involve taking a view of what tax liability a person may be subject to at the time when the notice is sought and that a person is not subject to a liability if the there is no sensible or reasonable way of enforcing the liability. Another possible construction is that in the circumstances where there is no such possibility the opinion of the officer about documents cannot be a reasonable one, as required by the opening words of s 20(1) TMA, nor can any particulars be reasonably required. 153. We add, because it a point reflected in the arguments, that it is obvious from Johnson that the question was not whether there was a reasonable possibility of the officer showing that s 29(1) TMA applied, but that there had to be a reasonable possibility that, in a case where it was relevant as it was in Johnson , that one of conditions in s 29(4) or (5) was met, and in both Johnson and Pattullo it was s 29(5) as they were avoidance cases with no suggestion of any culpability or negligence. 154. In interpreting Schedule 36 it has to be borne in mind that it is applicable to a large range of taxes including VAT and that the same precision in relation to chargeability, liability and enforcement that might be found in a provision limited to income tax, CGT and corporation tax will not necessarily be replicated in a provision of much wider scope. Nonetheless in our view the wording of paragraph 1, read with paragraphs 58 and 64 (and sub-paragraph (1)(a) in particular), makes a sufficient link between the information and the liability to tax to enable the Johnson and Pattullo test to be read in, and for absurdity in the sense of futility to be avoided. We would say that a person’s tax position is not being legitimately checked or enquired into if the position is one which cannot be corrected by an enforceable assessment. 155. In the alternative we would construe the phrase “reasonably required” in paragraph 1 as importing the same test. It cannot be reasonable to make a futile enquiry. 156. We do not think that paragraph 21(6) affects this interpretation. That paragraph simply delineates in a very wide way the possible scope of an information notice in a case where a tax return is not being enquired into. It too may be of wider import than the three direct taxes to which s 20 applied. 157. Our conclusion then is that the Johnson test is part of Schedule 36. 158. This conclusion means that we would have needed to consider whether, in this case, s 29(4) TMA would permit HMRC to make discovery assessments for 2006-07 and 2007-08. We have noted that HMRC do not anywhere indicate that they were enquiring into 2005-06, but given the width of “tax position” in paragraph 64(1) and (4) Schedule 36 we think they could at any time check into the position for that year. They would it seems have wished to do that if their position in relation to 2006-07 was found to be wrong, because they queried the private residence relief claimed in the returns for 2005-06 once they belatedly realised that the gain on the transfer to Niall had in fact been returned. 159. It is agreed that it would avail HMRC nothing to have demonstrated that the appellants behaviour in delivering returns containing inaccurate claims and for the wrong year and the wrong amounts of gain was careless, as any assessments made in 2018-19 or later would be substantially out of time in accordance with s 36(1) TMA. They would have to rely on showing that the tax losses as a result of the inaccuracies and omissions were brought about deliberately by each of the appellants. That requires HMRC to show that each of the appellants knew that they were making false or falsely inflated claims in their returns to PRR and BATR. 160. HMRC said in their skeleton (in the event that we agreed with the appellants on Johnson and Pattullo ) that there was a sensible or reasonable possibility of being able to make an assessment under s 29 that met the relevant condition in s 29(4). They make two points (we are rewriting them to some extent): (1) The difference between the valuation of the land transferred to Niall and the sale price is so large that, if the valuation was incorrect and particularly if the return of the gain was made for the wrong year, the entries in the returns are ones which the appellants must have known were incorrect. If that is so HMRC infer that that indicates a deliberate error. (2) If it was to be found that there was no “car yard” nor any real possibility of it becoming a car yard the claim for BATR was deliberately incorrect. 161. After the evidence of Mr Hegarty and Mr O’Neill had been given there was insufficient time left to enable submissions to be made on that evidence and so we requested written submissions which we received. 162. In his post-hearing submissions Mr Marks no longer suggested that any errors in the 2005-06 return, either as to the claim for PRR or the valuation, were brought about deliberately, or that a failure to return the disposal in 2006-07 was deliberate. 163. But he argued that the evidence of Mr Hegarty as to the land showed that he must have deliberately allowed a false claim to BATR because he knew that the partnership was not using all of the land all of the time for business purposes. 164. We should say something about the standard of proof in relation to the “no possibility” point. We are clear that we do not have to decide whether it is more likely than not that there was deliberate conduct by the appellants: nor is the bar as low as it is for paragraph 21(6). It seems to us that there must be an arguable case shown by HMRC that there was deliberate conduct, ie one that is sensible and reasonable and with some prospect of success. 165. We do not need to express a view about 2006-07 (or 2005-06) as no case is put forward. As to 2007-08 in our view HMRC have come nowhere showing that it was more likely than not that there was deliberate conduct leading to a loss of tax by the appellants. This is mainly because we have had no evidence by way of witness statement or orally from Miss McKinney or any other HMRC officer on this question. Mr Gordon referred us to the case of Gardiner & others v HMRC [2014] UKFTT 421 (TC) (Judge Jonathan Cannan) where the judge allowed the appeal because HMRC adduced no evidence to establish a prima facie case of negligence. We think this applies all the more strongly where the allegation is tantamount to fraud. Nor do the undisputed facts left to speak for themselves go anywhere near establishing fraud, any more than they did in Munford v HMRC [2017] UKFTT 19 (TC) (referred to by Mr Gordon in oral argument). 166. HMRC have not adduced any evidence from Miss McKinney to show that there was deliberate, knowing conduct by the appellants or on their behalf (and if so by who) nor do the undisputed facts suggest that there was. It may be that the BATR claim would not if investigated stand up to scrutiny as meeting the conditions in Schedule A1 TCGA 1992 or would only justify a smaller amount of relief, but that is by no means the same as saying that any loss of tax occasioned by an incorrect claim was brought about knowingly. 167. Thus even if we had accepted that Condition B was met, we would have found for the appellants. Decision 168. Under paragraph 33(3)(c) Schedule 36 FA 2008 we set aside both notices. Postscript 169. We have to point out to the appellants, that while there is no right of appeal given to HMRC to contest this decision (paragraph 32(5) Schedule 36), nothing in our decision prevents HMRC from issuing another notice under Schedule 36 FA 2008. Speaking for ourselves (and obviously obiter) we would consider that HMRC were estopped from so doing or that it would be an abuse of process. 170. Nor does our decision prevent HMRC issuing discovery assessments. Nor is any Tribunal hearing any appeals against any such notices or assessments bound by anything we say. We can simply suggest to HMRC that on the capital gains questions here that they have missed the boat and should move on. 171. We were also very surprised to be told by Miss McKinney when we asked that HMRC have not stopped investigating the appellants in relation to their car sales business. We recognise from our knowledge of other cases (see Alan McCord v HMRC [2018] UKFTT 664 ) that HMRC have legitimate concerns about VAT fraud in dealings by car dealers in Northern Ireland selling to the Irish Republic. But it is surely time after so long for HMRC to either say now what their grounds are to suspect the appellants of fraud in relation to such dealings or to give them, people in their 70s, some finality and peace of mind. RICHARD THOMAS TRIBUNAL JUDGE RELEASE DATE: 27 DECEMBER 2018 [1] We refer to res judicata rather than the more up to date “issue estoppel” as that is what Mr Gordon and Mr Marks called it in their skeletons. [2] We note that in Littlewoods (see §58 for citation) Henderson J considered the substantive point (in Part V of his judgment) before the estoppel and abuse of process arguments (in Part VI). At [151] he referred to this seemingly paradoxical approach as having been agreed by the parties. Among his reasons were that “ in relation to some of the arguments on issue estoppel and abuse of process, it is material for the court to consider the strength of HMRC’s case on the underlying issue.”
It has not proved easy for us to determine where in Part VI of his judgment Henderson J does take into account the merits – that is undoubtedly our fault rather than his. But it seems only to be in the discussion about “the Arnold exception” which is not relevant in this case (see§74), and so we have not taken into account our views on the merits when arriving at our decision on the estoppel and abuse issues. [3] We were not told in specific terms that a return had been made by the appellants for 2006-07, but as HMRC did not suggest that there was an open enquiry into a return for those years, Condition A cannot be relevant.

Cited in 7 later judgments