“173 Valuation of trading stock on cessation (1) If a person permanently ceases to carry on a trade, in calculating the profits of the trade— (a) trading stock belonging to the trade at the time of the cessation must be valued, and (b) the value must be determined in accordance with sections 175 to 178 (bases of valuation). … 175 Basis of valuation of trading stock (1) The value of trading stock belonging to the trade at the time of the cessation is determined as follows. (2) If the stock is sold to a person who— (a) carries on, or intends to carry on, a trade … in the United Kingdom, and (b) is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade for income or corporation tax purposes, the value is determined in accordance with section 176 (sale to unconnected person), 177 (sale to connected person) or 178 (election by connected persons). … 177 Sale basis of valuation: sale to connected person (1) The value of trading stock is determined in accordance with this section if— (a) it is sold to a person who carries on, or intends to carry on, a trade … in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade for income or corporation tax purposes, (b) the buyer is connected with the seller, and (c) no election is made under section 178 (election by connected persons). (2) The value is taken to be the amount which would have been realised if the sale had been between independent persons dealing at arm’s length. 178 Sale basis of valuation: election by connected persons (1) The value of trading stock is determined in accordance with this section if— (a) it is sold to a person who carries on, or intends to carry on, a trade … in the United Kingdom and is entitled to deduct the cost of the stock as an expense in calculating the profits of that trade… for income or corporation tax purposes, (b) the buyer is connected with the seller, and (c) an election is made under this section. (2) The parties to the sale may make an election under this section if the value of the stock determined under section 177 exceeds both— (a) its acquisition value, and (b) the amount in fact realised on the sale. (3) If an election is made, the value is taken to be— (a) its acquisition value, or, (b) if greater, the amount in fact realised on the sale. (4) An election under this section must be made by both parties on or before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occurred. (5) The “acquisition value” of trading stock means the amount which would have been deductible as representing its acquisition value, in calculating the profits of the trade, on the following assumptions— (a) that the stock had been sold in the course of the trade, immediately before the cessation, for a price equal to the value of the stock determined under section 177, and (b) that the period for which those profits were to be calculated began immediately before the sale. … 181 Meaning of “sale” and related expressions (1) In sections 175 to 178 (except in s 178(5) references to a sale include a transfer for valuable consideration. (2) In relation to a transfer which is not a sale— “amount realised on the sale” means the value of the consideration given for the transfer, “buyer” means the person to whom the transfer is made, and “seller” means the person who makes the transfer.” 98. As the appellant was connected with Autoselect Ltd [20] , s 177 ITTOIA applies unless a s 178 election was made. There is nothing in the papers to suggest such an election was made, and obviously it is highly unlikely that one was made given the way the return was compiled. So what should be brought into account is the arm’s length value of the stock transferred. There are two possible escapes from this situation. If the transfer was not for valuable consideration it was not a “sale” within the meaning in s 181. We do not have the accounts of Autoselect Ltd, but it follows, it seems to us, that if the stock transferred is properly to be reflected in GAAP accounts of Autoselect Ltd then either the cost of them is recognised in equity or more likely in a director’s loan account, there apparently being no cash in the company to pay for the cars. It would seem to follow then that there was valuable consideration and so the amount to be brought into account was the arm’s length value of the cars not cost. [21] 99. The second point is the possibility of a late election under s 178 ITTOIA, notwithstanding the time limit in s 178(4) which plainly passed some time ago. Section 43(2) TMA permits a claim to be made where it could not have been allowed but for an assessment and allows the claim to be made up to the end of the tax year following that in which the assessment was made. But no assessment was made in this case. 100. However s 43C TMA provides that: “43C Consequential claims etc (1) Where— (a) a return is amended under section 28A(2)(b) …, and (b) the amendment is made for the purpose of making good to the Crown any loss of tax brought about carelessly or deliberately by the taxpayer or a person acting on his behalf, sections 36(3) and 43(2) apply in relation to the amendment as they apply in relation to any assessment under section 29. (2) Where— (a) a return is amended under section 28A(2)(b) …, and (b) the amendment is not made for the purpose mentioned in subsection (1)(b) above, sections 43(2), 43A and 43B apply in relation to the amendment as they apply in relation to any assessment under section 29. (3) References to an assessment in sections 36(3), 43(2), 43A and 43B, as they apply by virtue of subsection (1) or (2) above, shall accordingly be read as references to the amendment of the return. (4) Where it is necessary to make any adjustment by way of an assessment on any person— (a) in order to give effect to a consequential claim, or (b) as a result of allowing a consequential claim, the assessment is not out of time if it is made within one year of the final determination of the claim. For this purpose a claim is not taken to be finally determined until it, or the amount to which it relates, can no longer be varied, on appeal or otherwise. (5) In subsection (4) above “consequential claim” means any claim, supplementary claim, election, application or notice that may be made or given under section 36(3), 43(2), 43A or 43D(6) (as it applies by virtue of subsection (1) or (2) above or otherwise).” 101. In this case the amendment of the return was not made for the purposes in subsection (1) so it is necessary to see if either of s 43(2) or 43A applies (s 43B is a limitation on s 43A). 102. Section 43(2) however does not apply to an election. Section 42(10) which equates an election with a claim applies for the purposes of that section, but not s 43. And in any case even if it did apply by reference to the amendment of the return, that was made in 2016-17, so the time limit for a claim under that subsection was5 April 2018 , so this section could not assist. 103. Section 43A does allows an election to be made but again only within one year of the from the end of the amendment year, so again the limit was5 April 2018 . Section 43B provides that where an election may affect the liability of another person, that person has to give consent and since Autoselect Ltd had been struck off that would not no longer be possible. 104. The conclusion then is that there is no escape from an additional liability equal to the excess of the market value of the cars over their cost. 105. We have decided that in the circumstances of this case, where HMRC for whatever reason did not even notice the issue or include it in their conclusions and did not seek to argue for an undercharge in the self-assessment as amended, we will not make any adjustment either. 106. Thus our concern now is solely with the recalculations made by Mrs English of the profits from the cars sold before the transfer. This recalculation is as follows: Deposits into bank a/c to04/11/2013 £24,914 Unidentified banking’s add cash banked into wife’s account not matched with cash rents [22]£7,120 Re-calculated sales£32,034 Less as declared£16,849 Increase to profits£15,185 Less loss as accounts£2,636 Taxable profits£12,549 107. This needs some explanation. The deposits into bank are not the total amounts credited to the bank account in the period, but those credits which Mrs English did not allocate to another heading: transfer, capital introduced, refunds and standing orders. She accepted that credits under those headings were not sales of cars. It can be seen that of the deposits some£8,065 could not have been declared in the return (£24,914 less£16,849 ). 108. The amount of£7,120 arises because of an assumption made by Mrs English about an examination, not carried out by her, of Mrs Sharif’s accounts in connection with her failure to disclose cash receipts from rents. That examination had shown cash deposits in excess of the rents so the only possible source for them (asserted Mrs English) was cash from her husband’s car sales. She added that she had also determined that£5,325 of car sales had not been banked. She does not actually say that this amount must be included in the£7,120 but that is the clear implication. 109. We take the second matter first. Mrs English is wrong about unbanked sales. There were four sales she identified where she said not all the sale proceeds were banked. In two cases the exact amount of the sale price in the accounts was banked: amounts of£900 [23] (YL05FND) and£1,440 [24] (MT04ULC) are shown clearly in the bank account. Mrs English is though quite right to say that not all the sales figure in the accounts for a Škoda was banked. The bankings figure was£799 but the accounts figure was£800 , which Mr Akram said was rounding. Mrs English however said that the whole£800 had not been banked. The final case was a sale in the accounts for£4,000 where only£1,400 was banked. Given that Mrs English had accepted that there were part exchange sales and that Mr Akram had correctly accounted for them by returning the gross, in our view it is more probable than not that this was a part exchange. We think this because the£1,400 was paid in otherwise than by a cash deposit at a branch of Lloyds TSB in Sneinton Dale, Nottingham on30 August 2013 [25] which does not otherwise appear on the statements. 110. We therefore find as a fact that what was deposited in Mrs Sharif’s account was not cash sales from her husband’s business. The assumptions made by Mrs English had no basis in fact. 111. This still leaves the£8,065 in unexplained deposits into the appellant’s bank account. It is true that Mrs English having carried out various calculations gave the appellant the opportunity to explain them, and that she accepted that some£5,800 of the total deposits she originally included in her calculations were explained to her satisfaction. Mr Akram nonetheless gave further explanations seeking the removal of£3,250 which he said were rents paid in cash and later banked which Mrs English had not taken into account, although she had accepted that this happened. We find that on the balance of probabilities that that amount of deposits was further rents already declared in the tax return and so must be deducted from the excess. 112. Mr Akram’s final throw of the dice was to point out that the appellant had sold his takeaway business for£11,000 and part of that that could explain the balance left of about£4,815 . Mrs English asked for documentary evidence, but Mr Akram pointed out in his letter of24 March 2017 that he had not had the bank statements back from HMRC so could not determine how much was paid in cash. As far as we can tell he was never given them. This point about the£11,000 is one of the grounds of appeal (the other being the matter in §111). 113. Mr Oborne rightly pointed out that in the case of a closure notice the appellant has the burden of proof. The appellant in turn had raised the issue of the sale of the takeaway as a source of deposits into the account which cannot be unexplained car sales. While HMRC rightly required to be satisfied by further evidence of the bona fides of the claim, the appellant had not done so because, he said, he lacked the bank information which HMRC had held on to. 114. What Mrs English apparently did not realise (she did not mention it in her witness statement) is that she had the documentary evidence about the£11,000 . In her Schedule 36 notice of10 May 2016 (see §25) she asked for statements of a specific Lloyds TSB account, which were supplied by Mr Akram in June 2016. He explained that this account was: “a feeder account (savings act) where his main account which have already been given to you transfers to this one and back again”. 115. The single statement for this account show a receipt paid in of£11,000 on27 February 2013 . Following that there are transfers of£3,000 on 20 March,£3,500 on 28 March,£2,500 on 15 April and£2,000 on16 April 2013 to account ****8612 which is the business account for the car sales. Mrs English’s schedule of deposit into that account starts on5 April 2013 so the first two transfers are not included. Both the amount of£2,500 received on15 April 2013 and that of£2,000 next day were included by her as transfers and not included as unidentified deposits. It follows that the£11,000 from the sale of the business cannot account for unexplained deposits otherwise treated as sales by Mrs English. 116. Going back to the£4,815 balance still unexplained, we have found from our examination of the feeder account statements that had Mr Akram been given them by Mrs English as he had asked, he would have been unable to show the audit trail Mrs English was asking him for, while at the same time she was depriving him of the ability to produce that which she had the means of finding out for herself. 117. We therefore consider that, in the absence of any explanation,£4,815 of the excess bankings not otherwise explained were from the sales of cars. Applying this to Mrs English’s figures in §106 the recalculated sales are£21,664 and the increase to profits£4,815 , so that after accounting for the loss of£2,636 as declared the profit would become£2,179 . 118. But that is not the end of the story [26] . We have noted from individual sales records for the cars disclosed in the accounts that the average mark up on the purchase price was 16% (though there were wide fluctuations either side). But there was a purchase price for every sale in the various schedules produced by HMRC and the appellant. The revised excess of takings over purchases in Mrs English’s figures show on its face a more than 100% mark-up, but that is a misleading comparison because it was obvious that Mrs English’s figures gave no credit at all for the purchase price of the cars that she said must have been sold outside the books and accounts. 119. Were this a matter of HMRC making a discovery assessment under s 29 TMA in the amount of the additional tax that Mrs English said was due, we would have had no hesitation in saying that her assessment would not have been to the best of her judgment. An officer making a discovery assessment is required to make a fair estimate of the tax loss – as was said in Johnson v Scott (HM Inspector of Taxes) 52 TC 383: “When, in para 7(b) of the Case Stated, the Commissioners state that (with certain exceptions) the Inspector’s figures were ‘fair’, that is, in my judgment, precisely and exactly what they ought to be - fair. The fact that the onus is on the taxpayer to displace the assessment is not intended to give the Crown carte blanche to make wild or extravagant claims. Where an inference, of whatever nature, falls to be made, one invariably speaks of a ‘fair’ inference. Where, as is the case in this matter, figures have to be inferred, what has to be made is a ‘fair’ inference as to what such figures may have been. The figures themselves must be fair.” 120. There is in our view no distinction to be drawn between a discovery assessment and an “assessment” [27] under s 28A of the additional amount of tax due following the conclusion of an enquiry [28] . Fair inferences must always be drawn even if there is no evidence to support them [29] . 121. So while we agree that Mrs English has shown that it is more likely than not that the figures in the tax return and the accounts supplied subsequently are incorrect (beyond their overstating sales by£1 [30] ), we consider that what has been omitted is the profit on sales of£4,815 , not just the sales. Given the facts of the appellant’s known trading we draw the inference that the omitted sales gave rise to a margin on cost of 20% so that the additional profit is one-sixth of£4,815 , ie£802 , from which we deduct the overstatement of£1 to arrive at£801 . That additional profit is still less than the loss as returned so the effect of our findings is that the loss is reduced to£1,835 . 122. Having held this we have to say by how much we should reduce the amended self-assessment in order to fulfil the duty put on us by s 50 TMA. We know from the closure notice of6 February 2017 that the amended figure of tax in the self-assessment was£5,628.46 , but in the correspondence section of the bundle no calculation of how this figure was reached was attached. What appears to be the calculation showing this figure was tucked away in the bundle in the tax return for 2013-14 and shows a revised figure of income tax of£4,014 and Class 4 NICs of£431.46 (both based on a trading profit of£12,549 ) but in addition there is a figure of£1,183 called “student loan repayments”
“I have included a revised figure of additional duties for the year 2013/14 because student loan figure has changed”. 123. The change must of course have been from nil, as this was a totally new item. It puzzled us so we had to research it to find out why it was there in the closure notice tax but had not been explicitly mentioned [31] before 6 February. 124. The answer is that the tax calculation with the closure notice reflected a calculation made by the HMRC computer system when the figures for the amended profit were input into it. Under the Education (Student Loans) (Repayment) Regulations (SI 2009/470) (“SL Regulations”) there is a liability to repay a portion of any student loan and the amount of the repayment is 9% of so much of a person’s income as exceeds the relevant threshold. 125. Regulations 30 and 31 of the SL Regulations provide: “30. For the purposes of establishing the amount of the repayment which a borrower is required to make for a tax year under regulation 29, HMRC may require the borrower— (a) to include such information as may reasonably be required, in a return required to be made and delivered undersection 8 of the 1970 Act ; and (b) to deliver with the return such accounts, statements and documents as may reasonably be required relating to information contained in the return as a result of paragraph (a). Returns to include self-assessment 31. —(1) Subject to paragraph (2), every return made and delivered by a borrower undersection 8 of the 1970 Act must include a self-assessment, namely— (a) an assessment of the amount of the repayment which, on the basis of the information contained in the return and taking into account any relief or allowance mentioned in regulation 29 the borrower is required to make for the tax year under regulation 29; and (b) an assessment of the amount payable by the borrower by way of repayment, being the difference between the amount of the repayment which the borrower is assessed to make for the tax year under sub-paragraph (a) and the aggregate amount of any repayments deducted from earnings under Part 4 during that year. (2) Section 9(2) to (3A) (self-assessment) andsection 9A (power to enquire into returns) of the 1970 Act apply to a self-assessment under this regulation as they apply to a self-assessment under section 9(1) of that Act, and any references in the Taxes Acts to those sections is to be construed as a reference to them as extended by this regulation.” 126. The appellant’s self-assessment of his student loan repayment would have been nil. The section 9A enquiry letter in this case referred to it being a check to ensure that the appellant was paying the right amount of “tax”, and that he would be told if there is additional “tax” to pay. 127. It does not seem to us that regulation 31(2) of the SL Regulations has the effect of making that enquiry letter an enquiry into the student loan parts of the return and self-assessment. They are treated a separate matters, and the tailpiece to regulation 31(2) does not turn an income tax s 9A TMA enquiry into one into income tax and student loans. We find that as no separate s 9A enquiry was made into student loan repayment issues, the closure notice showed an incorrect amount of “tax” as becoming due for payment. HMRC’s computer was also wrong to amend the return and self-assessment to show an amount of student loan repayment. The remedy for HMRC in this was a discovery assessment of the student loan repayment under s 29 TMA as applied with necessary modifications by regulation 34(1) of the SL Regulations. 128. The SL Regulations contrast with the position for Class 4 NICs, also relevant here.Section 16 Social Security Contributions and Benefits Act 1992 (“SSCBA”) provides: “16.—(1) All the provisions of the Income Tax Acts, including in particular– (a) provisions as to assessment, collection, repayment and recovery, and (b) the provisions ofPart VA (payment of tax) and Part X (penalties) of the Taxes Management Act 1970 ; and … shall, with the necessary modifications, apply in relation to Class 4 contributions under this Act … as if those contributions were income tax chargeable under Chapter 2 of Part 2 of theIncome Tax (Trading and Other Income) Act 2005 in respect of the profits of a trade, profession or vocation which is not carried on wholly outside the United Kingdom.” 129. Thus a s 9A TMA enquiry into the income tax parts, particularly the self-employment parts, does encompass an enquiry into Class 4 NICs matters. 130. The upshot of all this is that we need therefore to reduce the income tax in the self-assessment from£4,014 to£1,137.20 , that is by£2,876.80 . 131. And we need to reduce the Class 4 NICs from£431.46 to nil, as the revised trading profit is below the Class 4 lower earnings threshold of£7,755 . 132. We also reduce the purported amended self-assessment of a student loan repayment amount from£1,183 to nil, on the basis that it was invalid. But we would have made that reduction anyway in the light of our findings about the profit, as we have no information from HMRC to show how it was calculated and so we do not know what the relevant income threshold was in 2013-14 for the appellant’s type of plan. 133. The need to show the reduction in the amount of tax in our decision is confirmed by the decision in R (oao Archer) v HMRC[2017] EWCA Civ 1962 per Lewison LJ at [22]. The Schedule 24 FA 2007 penalty for 2013-14 134. The penalty explanation schedule (“PES”) issued by Mrs English on19 January 2017 in relation to the car sales trade said that the appellant’s behaviour in omitting income from car sales was deliberate. This was she said because: “You traded in the sale of used cars for a short period. From a detailed analysis of the deposits into the bank account after deduction all known sources of deposits and cash rents the deposits exceeded recorded sales. It is apparent that have also used 2 bank accounts held in your wife’s name to bank cash income. You must have known at the time you submitted the Tax Return that it was inaccurate because you had sole responsibility for the running of the business and must have known how many cars were sold.” 135. What is said here about the appellant’s behaviour would if correct justify a penalty of the basis that the inaccuracy in the return as to the amount of the loss or profit was careless. But for the penalty to be deliberate HMRC has to show that the behaviour was tantamount to fraud, ie that the appellant knew that what he did was to make an inaccurate return and that he did so dishonestly. That requires some compelling evidence not mere assertion that “he must have known”
“ 13— (3) For tax years— … (b) commencing on or after6 April 2008 , where the date on which the return is due to be filed [33] is on or after6 April 2009 , Schedule 24 to theFinance Act 2007 (penalties for errors) applies in relation to the assessment of penalties and appeals against the assessment of penalties in connection with Part 3 as it applies to penalties in connection with income tax. 40 —(4) For tax years commencing on or after6 April 2008 , where the date on which the return is due to be filed is on or after6 April 2009 , Schedule 24 to theFinance Act 2007 (penalties for errors) applies— (a) in relation to anything done for the purposes of or in connection with the ascertainment of liability of a borrower to make a repayment under this Part as it applies for the purposes of or in connection with the ascertainment of liability to income tax; and (b) in the case of returns, statements, declarations, accounts, information or documents for the purposes of repayments under this Part as it applies for the purposes of income tax.” 148. But as a result of our decision the PLR becomes£160.20 , and so the penalty is£26.43 . 149. In the PES Mrs English had stated that the amount of the penalty which she would suspend was£0.00 . This was a correct decision as suspension is only possible where the penalty is for careless conduct, not deliberate conduct. We have held that the conduct was careless, so does that mean we can consider suspending the penalty? 150. Paragraph 15(3) Schedule 24 FA 2007 allows an appeal against a decision of HMRC not to suspend a penalty. But paragraph 17(3) provides that on an appeal under paragraph 15(3) the tribunal may order HMRC to suspend the penalty only if it thinks that HMRC’s decision not to suspend was flawed. The difficulty with this formulation is that in a situation where HMRC say the conduct was deliberate, the obvious interpretation is that the decision not to suspend was not flawed because HMRC were obliged not to suspend it. 151. It would however be unfair if HMRC could suspend a penalty where they agree the conduct is careless, but the Tribunal could not do so where they find that the conduct was in fact careless, not deliberate as HMRC had argued. In our view a “flawed decision” here must encompass a case where HMRC have made an error as to the nature of the conduct. But that is not all that is required: the decision has to be flawed when considered in the light of the principles applicable in proceedings for judicial review (see paragraph 17(6)). Here our view is that there was no evidence, or no sufficient evidence, available to the decision-maker on which, properly directing herself as to the law, she could reasonably have formed the view that the conduct was deliberate, and so her decision was flawed in the judicial review sense. 152. We can therefore decide whether to order the suspension of the penalty by HMRC. We have decided not to so order, but simply because of the amount involved,£26.43 . The cost to HMRC of arranging for the suspension, setting conditions and then monitoring them and the cost to the appellant of complying with any conditions set would be out of all proportion to the value of the penalty. Tax years 2007-08 to 2012-13: were there valid discovery assessments? 153. In her witness statement Mrs English described her discovery thus: “During the course of my enquiries it has been discovered that business income from the 3 intermediaries Hungry House, Just Eat and Fillmybelly Ltd was banked into a bank account held in the name of Miss Fatema Shaikh the wife of Mr Sharif. Mr Sharif ran the takeaway business from9 October 2006 to11 February 2013 . In the absence of any satisfactory evidence that the income was included in the daily gross takings figure I have come to the conclusion this was omitted business income of the takeaway business run by Mr Sharif.” 154. We noted the use of the agentless passive voice in the first sentence here. Mrs English was not enquiring into Miss Shaikh’s returns, nor was she enquiring into the appellant’s income tax returns for years before 2013-14. The first mention of this “discovery” was in Mrs English’s note of the meeting on13 January 2017 where she said that “from examination of her bank accounts it was noted that whilst Mr Sharif was trading as a takeaway Just Eat, Hungry House and Fillmybelly.com had been deposited into her bank accounts”. 155. On11 May 2016 she had said that an enquiry into Miss Shaikh’s returns was being carried out by a colleague, Mrs Richardson. In a letter of19 January 2017 she also used the passive voice. She also said that to protect the interests of HMRC discovery assessments were being issued – passive voice. Nowhere does she claim to have herself made a discovery. 156. But assuming that she it was who was claiming to have made a discovery, we think she did in fact make one. She may not have herself obtained the bank statements of Miss Shaikh herself, but she did examine them and find the entries which it was reasonable for her to suspect related to Mr Sharif’s business. 157. But can it be said that she honestly and reasonably made the assessments she did in the amounts she did in order to recover the tax loss she had discovered? We do not think it can be said that she did. We say this for four main reasons. 158. The first is her decision to calculate the tax loss for six tax years on the basis of one month’s figures extrapolated to six years, firstly by multiplying one month’s figures by twelve and then applying the RPI upwards and downwards to the month’s figures. In doing this she was allegedly applying the “presumption of continuity”. 159. The second reason is not just that she had taken one month’s figures as representative of six years, but that her one month’s figures were in fact nothing of the sort. 160. Mrs English’s witness statement says this under the heading “Income from the takeaway”: “I have used the known income from these sources for the month of April 2011 for Fillmybelly & Hungry House and April 2013 for Just Eat£1,170.74 x 12 months to arrive at the annual sales£14,048 . I have calculated the additional sales for other years by taking the additions for the year 2011/12 and relating these back and forwards by reference to retail price index to take account of inflation. I have excluded the year of commencement being 2006/07. …” 161. Under the heading “Conclusion” she said: “In March 2017 the missing bank statements for the wife’s account were received and an analysis prepared of the deposits into her account from intermediaries for the tax years 2007/08 to 2012/13. I compared the actual figures from this source with the estimates included in my settlement proposals. I have increased sales by£79,634 and the total banking’s (sic) are£62,766 . In 2012/13 the declared sales are£50,278 and the combined deposits into Mr & Mrs Sharif’s accounts are£51,535 being greater than that total of declared sales. This casts serious doubts over the agent’s explanations. The agent maintained that these sales had been declared I requested the sales record and an explanation of how the additional deposits into the wife’s account had been recorded. This was not received and no adjustments have been made to the original figures as shown in this witness statements.” 162. Mr Akram raised the question of the use of one month’s figures in the grounds of appeal. He also raised with Mrs English in cross-examination the use of Just Eat figures from a different month to that for the Hungry House and Fillmybelly figures. We asked Mrs English to take us to her workings. 163. These showed that in the calendar month of April 2011 there were receipts of£705.79 from Hungry House and Fillmybelly, but none from Just Eat (and this was apparent from the bank statements). 164. They also showed that in the calendar month of April 2013 there were receipts from Just Eat of£464.95 , but none from Hungry House and Fillmybelly (and this was also apparent from the bank statements). 165. We also noted that in 2011 there were Just Eat figures in only February and March 2012 of£69 and£103 respectively. 166. We asked Mrs English why she had taken Just Eat figures from another year. She had no explanation other than that there were no Just Eat figures in April 2011. 167. We consider that what she did was not just unreasonable but was a wholly wrong thing to do. She was in fact taking two months’ figures and multiplying them by 12 to get an annualised figure. 168. They did not get any anyway near justifying the assessments she caused to be made. It is of no consequence that in some years the actual figures in Miss Shaikh’s account were higher than even the figures Mrs English used. 169. The third reason is that a presumption of continuity exercise is a relevant thing to do when HMRC are unable to get the information they need to calculate a more accurate figure [34] . Yet Mrs English must have had the bank statements in front of her for at least 2011-12 onwards and probably we think from mid-2007. We say this even though there is a reference to “missing statements” being received in Mrs English’s witness statements (see §161). This seems to be a reference to a statement made by Mrs English in a letter of13 March 2017 to the appellant in which she said: “During the telephone conversation Mr Akram confirmed the bank statements for your wife’s account have been received but he needs more time to go through them[.] …” 170. It seems to be too much of a coincidence for the reference to “missing statements” in the witness statement to be a reference to Mrs English herself receiving them to allow her to carry out an analysis – especially as Mr Akram later provided his analysis and referred to being unable to obtain statements from HMRC as well as the bank, but only for some early 2007 statements. 171. We conclude therefore that Mrs English must have had the bank statements for all the years to which she applied the “presumption of continuity” exercise even if some were missing for the first part of 2007-08. We also assume that the reason why she did not make assessments for 2006-07, the first year of the takeaway, was because she didn’t have any bank statements for that year. 172. The fourth reason for finding that what she did was not a reasonable way of proceeding, not to best judgment and based on an unreasonable opinion, was the undue haste in which things were done. 173. She said she had to protect the interests of HMRC [35] and so was making the assessments for six years. What interests needed protecting at that time? In January 2017 she was in time to make an assessment for 2012-13, indeed she had two more months at least in which to make the assessments. But she went much farther than assessing 2012-13. She assessed the five years before then. Yet all the years before 2012-13 were already out of date for assessing, so how was she protecting the interests of HMRC in relation to those years? The HMRC practice of making “protective” assessments refers to the making of an assessment shortly before the expiry of the normal time limit (see Enquiry Manual EM 3341) and protects the interests of HMRC in the sense that it may not have been possible at the stage of an enquiry reached, and it may not become possible, to establish careless or deliberate conduct so as to justify an assessment by reference to the tests in s 36 TMA. 174. The more questionable aspect of “undue haste” is this. On 13 January at their meeting Mrs English had just told Mr Akram of her concern “recently transpired” about Miss Shaikh’s accounts. Mr Akram said the credits were in the accounts and Ms English asked him for an audit trail. Mr Akram said he would not be in a position to reply until after 31 January because of the SA filing season. 175. Despite this, on 19 January, 6 days later and well before 31 January, the date Mr Akram had told her he would be very busy filing SA returns, Mrs English said she was going to raise assessments and gave her figures. She did not refer to the audit trail she had requested. She accused the appellant of dishonesty over the matters in question in a PES also issued on 19 January. 176. In his letter of February 2017 in response Mr Akram gave an explanation for the use of the appellant’s wife account to receive payments from the takeaway intermediaries and added: “… you have not even given the client a chance to prove whether he has declared these or not in any of his years. So Mr Sharif would like to compile the paperwork for this for each year to show he has shown them in his accounts and that he is given a chance not just a wild assessment without any evidence whether it has been included in his accounts.” 177. We agree with Mr Akram’s characterisation of what Mrs English did. We do not agree that Mr Oborne succeeded in his mission to show that “the calculation of the suppressed income is reasonable”. 178. Finally we note that Mr Oborne did recognise in his skeleton that which Mrs English didn’t, that to succeed in showing that the discovery assessments for years before 2012-13 HMRC, and Mrs English in particular, would have to justify them by reference to the appellant’s conduct in omitting the income being at least careless (2010-11 and 2011-12) or deliberate, ie fraudulent, for years before 2010-11. She made no pretence, contrary to HMRC’s instructions [36] , of saying why she thought that careless or deliberate conduct was involved. 179. We have no hesitation in holding that the discovery assessments failed to meet the requirements of s 29(1). 180. Had we not done so, Mr Oborne would have had to rely on s 29(4) (careless or deliberate conduct) for years before 2012-13 and s 29(5) (insufficient disclosure of a tax loss) for 2012-13. We are also unhesitating in saying that had it been necessary to consider these under subsection (4), we would have found that HMRC had not shown that the conduct of Mr Sharif in relation to the takeaway business was careless or deliberate. It is not sufficient for them to say that that the appellant had not shown the audit trail: it is for HMRC to show that the amounts in the accounts of Mr Sharif’s wife were not included in the accounts ( Burgess & anor v HMRC[2015] UKUT 578 ) and that was because of his carelessness or fraud [37] . They have come nowhere near to doing so. Penalties under Schedule 24 FA 2007 181. These obviously fall. There is no potential lost revenue as result of our decision on the assessments. We do not think that there is any point in trying to decide whether, had we upheld the amendment for 2013-14, we would have been convinced by HMRC’s arguments that the behaviour of the appellant was deliberate. So it is irrelevant that at the hearing Mr Akram and Mr Sharif expanded on the explanation they had given to Mrs English and which in the interests of justice we allowed them to do. But we would have accepted their explanation had it been necessary. 182. As to the discovery assessments, we say the same, but we do make a point about one matter. 183. In the PES for the amendments HMRC had said that the behaviour was deliberate but not concealed. In that for the discovery assessments they say it was “deliberate and concealed” something which leads to higher penalties. The reason given for the “concealed” description is that the appellant used his wife’s bank account to conceal the business income. Yet that is also what he was accused of in relation to the car sales where the behaviour was not “concealed”
“In the production of his plays Cohan was obliged to be free-handed in entertaining actors, employees, and, as he naively adds, dramatic critics. He had also to travel much, at times with his attorney. These expenses amounted to substantial sums, but he kept no account and probably could not have done so. At the trial before the Board he estimated that he had spent eleven thousand dollars in this fashion during the first six months of 1921, twenty-two thousand dollars, between July first, 1921, and June thirtieth, 1922, and as much for his following fiscal year, fifty-five thousand dollars in all. The Board refused to allow him any part of this, on the ground that it was impossible to tell how much he had in fact spent, in the absence of any items or details. The question is how far this refusal is justified, in view of the finding that he had spent much and that the sums were allowable expenses. Absolute certainty in such matters is usually impossible and is not necessary; the Board should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making. But to allow nothing at all appears to us inconsistent with saying that something was spent. True, we do not know how many trips Cohan made, nor how large his entertainments were; yet there was obviously some basis for computation, if necessary by drawing upon the Board’s personal estimates of the minimum of such expenses. The amount may be trivial and unsatisfactory, but there was basis for some allowance, and it was wrong to refuse any, even though it were the traveling expenses of a single trip. It is not fatal that the result will inevitably be speculative; many important decisions must be such. We think that the Board was in error as to this and must reconsider the evidence.”