Shamsul Arefin v The Commissioners for HMRC [2025] UKFTT 522 (TC)

[2025] UKFTT 00522 (TC)Case No TC09512
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 10 and 11 April 2025Date Judgment date: 8 May 2025
Location: Taylor House London
Appeal reference: TC/2022/02228
TC/2022/02229
INCOME TAX – discovery assessments following contract disclosure facility report – dispute as to quantum – appeal allowed in part
PEMALTIES – whether further mitigation should be given – no – appeal refused
Before
TRIBUNAL JUDGE AMANDA BROWN KCMR LESLIE HOWARD
Between
MR SHAMSUL AREFINAppellantMRS NAZMUN NAHARAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentMr Hossin of S Uddin & Co Ltd for AppellantMr Kadir and Dr Heal both litigators of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]These appeals concern discovery assessments (issued by HM Revenue & Customs (HMRC) pursuant to section 29 Taxes Management Act 1970 (TMA)) and penalties (issued pursuant to Schedule 24 Finance Act 2007) following disclosures made by Mr Shamsul Arefin (SA) and Mrs Nazmun Nahar (NN) (together Appellants) under the contract disclosure facility (CDF).[2]HMRC issued the following discovery assessments on 4 February 2020 (Assessments) and penalties on 3 November 2020 (Penalties). The quantum of the Assessments (and correspondingly the Penalties) were reduced following HMRC’s review. In March 2025 the parties engaged in an alternative dispute resolution process. Whilst the process was unsuccessful in resolving the dispute in full certain further concessions were made by HMRC. HMRC invited us to uphold the Assessments and Penalties in the following amounts: Tax yr ended SA Assessment SA Penalty NN Assessment NN Penalty 05/04/2010 11,113.10 7,362.43 7155.00 0 05/04/2011 17,068.78 10,027.91 11,979.00 7,037.66 05/04/2012 19,988.38 11,922.17 20,530.00 12,240.37 05/04/2013 25,681.66 15,315.78 22,621.42 13,517.89 05/04/2014 31,917.55 18,979.37 25,569.31 15,249.78 05/04/2015 15,634.88 9413.30 11,471.00 6967.02 Total 121,404.35 73,020.95 99,285.73 55,012.45

Procedural matters

[3]This matter was listed for hearing for 10 and 11 April 2025. On 27 March 2025 the Appellants served a document which was headed “Witness statement”. That document was jointly signed by the Appellants and referenced documents which had, in the main, previously been provided to HMRC. No witness statements had been previously served in compliance with the Tribunal’s case management directions. The document was not served with any application for witness evidence to be admitted late. We agreed to hear any application for witness evidence to be admitted late at the start of the hearing.[4]At 23:37 on 9 April 2025 the Tribunal received an application to postpone the hearing. The basis for the application was that Md Shahabuddin (the Appellants’ representative) had been unwell in the week leading up to the application being made and had concluded that he was too unwell to attend. The application indicated that Mr Hossin would attend the hearing with a copy of the application. I refused the application on the papers when I saw it early on the morning of 10 April 2025 and invited that it might be remade at the start of the hearing and indicated that in order for it to be granted we would need to renewed application to be accompanied by medical evidence.[5]Mr Husaain attended the hearing without the Appellants; he renewed the application for postponement. He explained that Mr Shahabuddin had been to the doctors that morning and and been issued with a prescription, but no doctor’s note. Mr Hossin also explained that NN was feeling unwell, and that SA had stayed at home to look after their children. He indicated that he had little experience of the matter but that if the hearing was not postponed, his instruction was to remain at the hearing and to contribute where he could.[6]In the absence of medical evidence concerning Mr Shahabuddin, and with no satisfactory explanation of the absence of the Appellants (who should, presumably, have arranged childcare for the hearing given that both Appellants were expected to attend the hearing) we refused the application for postponement. We considered it to be in the interests of justice and in accordance with the overriding objective that a matter concerning Assessments and Penalties issued 5 years ago should be heard.[7]It is our view that Mr Hossin was placed in a very difficult position by his employer and his client, and he managed his contribution to the hearing very well in all the circumstances. However, on the basis that Mr Hossin was present and was instructed to participate we did not need to determine whether to proceed in the Appellants’ absence under rule 30 Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.[8]Having determined to proceed we considered whether to admit the document provided on 27 March 2025 as a witness statement. We refused to admit it in that capacity for the following reasons:(1) On reading it, it was, in the main, submission and not evidence.(2) Neither of the Appellants had chosen to attend thereby precluding HMRC any opportunity to cross examine them as to the accuracy of any factual statements contained within it.(3) It had been served only 9 working days before the hearing and was not accompanied by an application that it be admitted late.(4) On 3 December 2023 the Appellants, through their representative, had confirmed that they did not intend to serve witness statements (including from themselves) in connection with the appeals.[9]We did, however, determine to treat those parts of the document which represented submission as the Appellants’ skeleton argument (no other document representing a skeleton argument having been served despite directions requiring one to be served no later than 21 days before the hearing).

The dispute

[10]In consequence of the admissions made through the CDF there is no dispute that the Appellants have deliberately failed to declare certain heads of income from their self-assessment tax returns for all years other than the year ended 5 April 2010. It is also accepted that the Assessments and Penalties were raised in accordance with the requirements of section 29 TMA and within the extended time limits provided for under section 34 TMA. Accordingly, the dispute between the parties on the Assessments for tax years ended 5 April 2011 – 2015 is a narrow one concerning the quantum of the Assessments. As regards tax year ended 5 April 2010 the Appellants contend that there was no income to assess.[11]We set out the detailed points of dispute below in the section entitled Specific Challenges to the Assessments (paragraph 57 to 60 below) as are they are better understood once the evidence has been narrated.[12]As regards the penalties the Appellants only challenge is that the penalty percentage is too high.[13]The burden of proof rests with the Appellant to establish that the Assessments overstate the tax due from them and that HMRC have failed to give full mitigation when determining the level of penalty to impose. They must do so on the balance of probabilities and by reference to the evidence.[14]We are entitled to consider all of the evidence available to us. Where we take a different view of the evidence to that taken by HMRC we may reduce the Assessments where we consider, on that evidence, the Assessments overstate the Appellant’s liability even if HMRC’s view of the evidence was a reasonable one. A similar approach may be adopted when considering whether HMRC have adequately reflected the co-operation given by the Appellants in calculation of the penalty percentage to be applied.

Evidence

[15]We were provided with a bundle of documents consisting of 2185 pages. We reminded the parties of the guidance provided by the Upper Tribunal in the judgment in Adelekun v HMRC [2020] UKUT 244 (TCC) that we could not be expected to take account of every document in the bundle. Instead, we would take account of documents to which we were expressly referred.[16]We were provided with two witness statements. The first was prepared by Mr Andy Hartop the assessing officer who has now retired from HMRC. Mr Hartop’s statement effectively introduced and narrated the documents and explained:(1) the basis on which the accepted discovery of an insufficiency was made;(2) the points of the Appellant’s disclosure which were accepted and those which were not; and(3) how the Assessments and Penalties were calculated.[17]As Mr Hartop had retired, he was not available to give evidence or be cross examined. We therefore accepted his evidence only to the extent that it reflected the documentary evidence.[18]The second witness statement was prepared by Mr Benjamin Price the HMRC officer who took over the dispute from Mr Hartop. Mr Price undertook a thorough review of the documents available to Mr Hartop and provided his own conclusions on the documents. In the main he supported the conclusions reached by Mr Hartop inviting us to uphold the Assessments and Penalties in the amounts adjusted following review and ADR and subject to some minor further amendments which we reflect below.[19]Mr Hossin put various questions by way of cross examination to Mr Price. We understand the questions had been prepared by Mr Shahabuddin.[20]We set out below the evidence we have derived so far as it is material only to the issues we have to decide.

Derived from the documents

[21]On 9 November 2016 HMRC send letters to the Appellants stating that they had reason to suspect tax fraud and inviting the Appellants to co-operate with HMRC under the CDF. This offer was accepted on 4 January 2017 and an outline disclosure provided to HMRC.[22]Pursuant to the outline disclosure SA stated:
“Undeclared rental income: - Rental income from two UK property has not been declared properly since 2012 - Rental income from property in Bangladesh has not been declared since 2010/11 Commission income from international students (Bangladesh) - Commission income from international students recruited mainly from Bangladesh, recruited to UK educational institutions has not been declared to HMRC since 2010. Dissolved Company: co no: 08441309 - Dividend income from “St Andrew’s Student Services LTD” from March 2014 to January 2014 … I am the 50% owner of the rental income situated in Bangladesh”
Commission income from international students (Bangladesh) Dissolved Company: co no: 08441309 I am the 50% owner of the rental income situated in Bangladesh”

Dissolved Company: co no: 08441309

[23]SA accepted that the failures identified were deliberate. Confirming that deliberate conduct from 2012 for the UK property income, 2011 for the overseas property income, 2010 for commission income and March 2013 for the dividends.[24]NN’s disclosure stated:
“Rental income: - Rental income from 1 UK property at 54 Brixham Street has not been declared properly - Rental income from overseas (Bangladesh) has not been declared since 2011 Commission income: - Commission income from international student recruitment services mainly from Bangladesh to UK educational institutions not been declared to HMRC since 2010”

Commission income:

[25]Deliberate failures were disclosed from September 2013 in respect of the UK rental income, 2010 from the commission income and 2011 for the overseas rental income.[26]NN’s CDF also explicitly stated:
“I will co-operate with HMRC to calculate and pay the correct amount of tax and interest payable to HMRC for the concerned periods.”
[27]HMRC accepted the CDF on 27 January 2017 confirming that they would not start criminal investigations with a view to prosecution for the tax losses brought about through the Appellants’ deliberate conduct, but that criminal investigation may ensue if there were any omission from the disclosures made under the CDF.[28]A meeting between HMRC, the Appellants and their representative was arranged to progress the disclosure and quantification of tax losses on 26 April 2017. At the meeting SA and NN explained the operation of the respective sole trader businesses recruiting students for an educational establishment that they established and operated from 2009 to 2014 (St Andrew’s College (SAC)) through St Andrews College Limited (SACL)(a company of which SA was the sole or principal shareholder and of which NN, for the majority of the period of operation, was the sole director). SA and NN confirmed that SAC had provided education to predominantly Bangladeshi nationals in the period in which it was licenced as a tier 4 provider (2010 – 2014). SA and NN confirmed that it was the income from these recruitment activities which had been deliberately suppressed.[29]Some details were provided about the purchase of a property in Flansham House by SA which had initially been occupied by SA and NN but rented out from 2012 when a subsequent matrimonial home had been purchased. SA explained that a room in that new property had been let since 2012. The rent obtained from Flansham House was said to have been £850-£1,050 per month and that from the matrimonial home to be £700 per month. Some of the rent received had been declared on SA’s self-assessment return but not accurately. Both properties were stated to have been purchased with a mortgage.[30]NN confirmed that she was the sole owner of a property on Brixham Street. It had been purchased with a mortgage and had been let for between £1,150 and £1,350 per month from 2013.[31]SA and NN explained the purchase of, and letting arrangements for, the property in Bangladesh. They owned a 50% share each. NN’s father was said to manage the property in their absence and to pay them the rent collected on their approximately biannual return trips to Bangladesh.[32]SA provided further explanation of the underdeclared dividend he had accepted as received from a second company through which he taught students.[33]On 3 May 2017 HMRC wrote to the Appellant summarising the meeting and requesting clarification of certain matters arising. They invited a full disclosure report to be prepared.[34]There was a protracted period of a year before the report was submitted to HMRC on 14 May 2018. In that period HMRC wrote to the Appellants and/or their representatives on 6 June 2017, 1 September 2017, 27 October 2017, 18 December 2017, 21 December 2017, 2 January 2018, 5 February 2018, 8 February 2018, 27 March 2018, and 10 May 2018.[35]Through the course of that correspondence the Appellants’ representative sought meetings with HMRC. These meetings were attended by their representative without his clients on 18 September 2017, 17 November 2017. Periodic updates were provided, and extensions requested to the deadline by which the disclosure report would be submitted. However, it was not until HMRC threatened to remove the Appellant from the COP 9 process and take over the investigation unless the report was provided no later than 16 May 2018 that it was finally provided.[36]The report was prepared by reference to 62 appendices and schedules of which 17 (appendices 11 – 18, 19 – 21, 33, 38 – 44) were not provided with the report.[37]The primary source of information for the disclosure was amounts of cash deposited in the Appellants’ bank accounts. It was claimed that these deposits were from various sources: commission income, income from the UK and overseas rental properties and other miscellaneous sums including loans, reimbursement of expenditure incurred on behalf of the companies, cash salaries, and cash dividends. The report calculated the disclosure of commission income by deducting amounts considered attributable to other sources.[38]Tax due was calculated by reference to each income source after deduction of expenses all of which were estimated and in respect of which no underlying evidence was provided. The expenses claimed in respect of the commission income were: accountancy and travel expenses to Birmingham, Manchester and Bangladesh. With regard to the UK property income NN claimed mortgage interest, gas safety certificates, insurance, agency fees, licences repairs, wear and tear, and accountancy fees (no expenses were claimed by SA).[39]We note in particular, that the report narrative accepted that property income had been derived from Flansham House from 2012; however, in the tax liability calculations rent-a-room relief claimed from tax year ended 5 April 2011.[40]Further disclosures were made in the report concerning undeclared employment income and dividends. These disclosures were accepted by HMRC and are not in dispute.[41]The net effect of the disclosures accepted resulted in the Appellants admitting the under declaration of the following tax liabilities: Tax year SA NN 05/04/2011 196.80 5,121.60 05/04/2012 15,961.06 13,878.61 05/04/2013 12,479.97 12,126.47 05/04/2014 8,709.46 16,972.13 05/04/2015 10,127.74 7,292.79 Total 47,475.04 55,391.61[42]HMRC’s review of the report and information provided was apparently hampered by poor engagement by the Appellants. On October 2018 difficulties in engagement were explained as, at least in part, attributed to NN’s ill health for which some documentary materials were provided.[43]HMRC were required to chase provision of the missing schedules and responses to queries in respect of the report on: 6 June 2018, 10 August 2018, 27 February 2019, and 4 September 2019. The number of chasing letters/emails required promoted HMRC to indicate that unless greater engagement was demonstrated HMRC would conclude that the Appellants no longer intended to abide by the CDF. This prompted the Appellants’ representative to write on 15 October 2019 providing some of the information requested and promising the missing appendices and further requested information at a meeting he wanted arranged for November 2019. In the end no meeting could be arranged, and the additional information requested was not provided to HMRC prior to their issuing the Assessments on 4 February 2020.[44]Having undertaken a full review of the information available to them HMRC concluded that the reported disclosure could not been accepted in a number of specific regards:(1) HMRC considered that the banked cash did not represent the full cash receipts of the Appellants. The banking information revealed that very few withdrawals were made from the accounts and without access to unbanked cash the Appellants had no apparent source of funds for day-to-day living and routine financial commitments (such as deposits for car finance agreements). Further, the property purchases made had no evidenced source of funds and it appeared from company information relating to SACL that significant sums (circa £150,000) had been introduced by the Appellants into the company in 2014 again with no evidenced source.(2) Accordingly, it would be assumed that all cash banked was commission income unless it had another demonstrable source.(3) HMRC rejected the adjustments to commission income made in respect of: (a) Some sums claimed as rent a room income (b) Rental income from Bangladesh (c) Cash wages (d) Cash dividends (e) Directors over expenses (f) Share sale proceeds(4) As regards the sums claimed to represent cash wages and cash dividends HMRC preferred a view that as with other salary and dividend payments had been paid by way of bank transfer it was more likely that all salary and dividends (save payments that could be reconciled in respect of salary paid to SA in years ended 5 April 2013 and 2014) were paid by bank transfer with the “missing” payments being made in periods for which the Appellants had failed to produce banking records.(5) Whilst sums were shown on the bank statements has having been received from two particular individuals and were claimed to represent loans HMRC were not satisfied that the sums were loans as the individuals were registered to vote as residents at the Appellants’ properties.(6) As no evidence of expenditure was provided the following claimed expenses were disallowed: (a) Accountancy (b) UK and overseas travel (c) Wear and tear allowance.(7) On the basis that (a) SAC had been established in 2009, (b) the Appellants had ceased or reduced their other paid employment and (c) there was evidence of students being admitted on visas in February 2010, HMRC considered that commission income had been received in tax year ended 5 April 2010 and not only from tax year ended 5 April 2011.(8) Within the disclosure overseas rental income had not been fully declared. There was a discrepancy between NN and SA treatment of such income. HMRC did not accept that there was any evidence of deductible expenditure and considered that the business was profitable. HMRC estimated the overseas rental income for the purposes of the Assessments from the limited information provided assuming £2000 in year ended 5 April 2011 and rising by £1000 per annum through to year ended 5 April 2015.[45]The letter accompanying the Assessments dated 4 February 2020 explained the basis the adjustments made to the disclosure and thereby the sums assessed.[46]Following the issue of the Assessments the representative contacted HMRC to explain that the requested further information and appendices would be provided within the following 2 – 3 weeks. On 2 March 2020 the information and documentation was promised before 23 March 2020 and the Assessments were appealed. No grounds were provided. A further extension of 2 weeks was requested on 14 March 2020. Whilst a further extension was denied, on 22 March 2020 the representative wrote to HMRC explaining that appendix 11 had already been provided and that appendix 13 had been posted. It was claimed that appendix 12 was not available. The remaining missing appendices were listed but not apparently provided. In a call the following day the representative informed HMRC that documents and files could not be sent by email due to their size. HMRC confirmed that they could be posted.[47]Further information was sent on 7 April 2020, but HMRC were informed that accounts for the rental properties could not be sent until after covid restrictions had been lifted. HMRC reviewed the documents provided and by response dated 11 May 2020 noted that bank statements from some accounts and for periods relating to other accounts had not been provided and the majority of the outstanding appendices also had not been provided.[48]On 22 June 2020 the representative promised all outstanding documentation by 26 June 2020. It was not so provided. HMRC chased it in a call on 24 July 2020 and it was promised by 27 July 2020. Some documentation was provided, and it was confirmed that appendices 15 – 17, 19, 21, 33, 39 – 40 remained outstanding. HMRC were asked to confirm what else they considered to be outstanding.[49]No further documents were provided and on 16 October 2020 HMRC issued penalty explanation letters. These letters set out that for tax due in connection with all matters other than overseas rental the penalties were category 1 (domestic) penalties and would be issued at 58.75% for tax years ended 5 April 2011 – 2015 and 66.25% for the year ended 5 April 2010. In respect of undeclared overseas rental income the penalty was fixed at 85.87%. The penalties reflected that the errors were deliberate (but not concealed) and disclosure had been prompted in respect of tax years ended more than 3 years prior to the disclosure. In respect of the overseas property rental income Bangladesh was a category 2 penalty (one involving and offshore matter in a category 2 territory). 45% mitigation had been given for each failure arising in tax years ended 5 April 2011 – 2015 with 15% mitigation for tax year ended 5 April 2010.[50]On 31 October 2020 some of the missing information said to have been included within the appendices was provided, though by no means all and in many regards the information provided was not accompanied by supporting evidence and represented bald statements. By their response to the provision of this information HMRC noted further concerns arising from it and contradictions within it.[51]The Penalties were issued on 3 November 2020. They were appealed on 2 December 2020. The appeal provides no grounds and seeks to explain that the missing appendices are “very difficult to acquire” but would not fundamentally change the tax calculations in the disclosure report.[52]In their view of the matter letter issued on 31 December 2020, HMRC note with particular concern that documents said to have been relied upon to prepare the disclosure report were, by 2020, said not to exist. HMRC confirmed their view that the Assessments properly treated cash deposits as attributable to commission income. HMRC were satisfied that the amounts declared as rental income from UK and overseas properties in the report were assessable but were not subject to the deductions claimed.[53]HMRC accepted an out of time request for review. Following the review HMRC’s position was:(1) That they considered that all cash sums banked and declared in the report represented commission income earned in recruiting students unless it could be established to have been received from another source. There was no evidence of expenditure incurred wholly and exclusively in connection with that trade.(2) On the basis that the SAC had been incorporated in 2009, both Appellants had ceased or reduced other paid income in the tax year 2009/10 and there was evidence of 78 students having been recruited in February 2010 it was reasonable to conclude that the Appellants had earned commission income in that tax year as well as in the subsequent years declared in the disclosure report.(3) The Assessments for income from overseas property were reduced. The review officer accepted the amount as declared in the report for NN and applied it to SA on the basis that they could “see no documentary evidence to support arriving at a higher estimation than that provided by in the disclosure report”. Further, a 10% allowance for expenses was permitted.(4) The sums declared in the disclosure report as received by way of rent for UK properties were accepted except in respect of the rent a room income claimed for Flansham House prior to 2012. There was no evidence of any expenditure incurred.

Derived from Mr Price’s evidence

[54]Mr Price’s review of the evidence resulted in him concluding, in all regards other than on the question of overseas rental income, that Mr Hartop and the reviewing officer had acted reasonably and that the calculations of the Assessments and associated Penalties was correct.[55]However, Mr Price concluded that the sums assessed for overseas rental income were understated by the Assessments following the review conclusion letter. He noted that the Appellants had consistently stated that the property was held jointly by them in equal shares but had provided no explanation for the disclosure which attributed a lower amount received by NN as compared to SA. Further, there was no evidence to support the 10% allowance given on review. We were invited to vary the Assessments to increase the tax assessed on overseas rental income.[56]In response to cross examination Mr Price confirmed that:(1) Whilst there was evidence that shares had been sold in SACL it was considered highly unlikely that the £10,000 deducted from cash banked in 2013 represented proceeds from the share sale. In the first instance by that date the company was not declaring dividends. Further, there was evidence that someone with the same or a similar name to the new shareholder had made smaller payments in earlier years. Mr Price considered the information to be conflicting as to when the shares were in fact sold but did not believe £10,000 represented a credible valuation for the shares.(2) In his view, save where reconciliation was possible on the documents (as was the case for cash salary paid to SA in 2013 and 2014), it was reasonable to conclude that the sums declared as salary/dividend by SACL were more likely to have been paid by bank transfer in a period in which there were no bank statements than paid in cash and deposited into the account in periods for which there were statements.(3) He considered that the penalty percentages allowed were appropriate, but he considered them to be on the generous side given the level of co-operation received.

Specific challenges to the assessments

[57]We derive the specific challenges made from the grounds of appeal and the document served as a witness statement but accepted by us as a skeleton argument. They are made under three heads:(1) Quantifying the amount of turnover(2) Year of assessments.(3) Percentage of Penalties.

Quantifying the turnover

[58]As noted above the Appellants’ disclosure was based on cash deposits made into various bank accounts. The Appellants’ position was that they had paid all sums of cash received by them into the accounts. They identified the amounts said to be income from UK and overseas property. They adjusted the balance of deposits for sums that they claimed was attributable to a share sale, cash dividends, rent a room income, loans received, asset disposal, share sale, and cash salary.[59]Whilst Mr Hossin accepted that there was no evidence to support the position that all cash had been paid in and that bank statements were missing it was submitted that the income adjustments should be made on the following bases:(1) Rent a room income: it was claimed that the Appellants had rented rooms out in both their matrimonial homes. HMRC had accepted that position regarding the second home and should be prepared to accept it for the first home at Flansham House. They contended that they had let out the bedroom in the one bedroomed flat themselves living in the living room.(2) Company records established that dividends had been declared. The total dividend shown as paid by bank transfer in the bank statements demonstrated that it had not been fully paid it was therefore reasonable to assume that the balance had been paid in cash and deposited into the bank account.[60]The following explanations were given to substantiate claims for deductible expenses:(1) DCA expenses: these were sums said to have been paid on behalf of SACL/its students and in respect of which cash had been deposited.(2) Accountancy fees: said to have been incurred in connection with preparation of income and expenditure accounts.(3) Overseas travel: the business of recruiting students required travel to Bangladesh. Copy passports demonstrated that the travel had occurred, and it was reasonable to estimate each trip as costing £500.(4) UK travel expenses: the nature of the recruitment business necessitated travel to Manchester and Birmingham on a weekly basis. 125 miles travel had been used as a proxy for average milage.

Years of assessment

[61]It was disputed that commission income had been received in tax year ended 5 April 2009. It was stated that there were no cash deposits made into one of the bank accounts in that period which supported a conclusion that there was no assessable income.

Percentage of Penalties

[62]It was contended that the assistance given in establishing the tax due warranted a greater level of mitigation than had been provided. Particularly for NN who had been demonstrated to have been unwell in the 2018. It was accepted that some of the appendices to the disclosure report remained outstanding, but it was asserted that they did not impact on the tax calculations as the missing appendices predominantly concerned rental income which represented only 7.45% of the total assessments. The Appellant proposed penalties at 35% for commission income and 45% for rental income

Findings of fact

[63]From the above evidence we find the following facts:(1) In light of the limited information available it was reasonable for HMRC to conclude that the amounts of cash deposited by the Appellants in the various bank accounts was not the total cash received by them from the various income sources. The bank statements show very limited cash withdrawals were made and there is no evidence of how day to day living expenses were funded but from undeposited cash. Further asset purchases (including properties) were made without evidencing the source of funds.(2) Working with the terms of the disclosure report and the appendices which were provided HMRC reasonably determined to assess as commission income the cash deposits without another evidenced source.(3) There are missing bank statements in respect of which there is also no analysis. SACL’s records demonstrate that salaries and dividends were paid. The bank statements available indicate that bank transfers were made in respect of such payments. There is limited evidence that such payments were made in cash. It is therefore reasonable for HMRC to have concluded that amounts of salary/dividend not shown on the bank statements/analysis which was made available were nevertheless paid by bank transfer and recorded on statements not made available.(4) No evidence was produced to support the receipt or deposit of £10,000 in cash in respect of the sale of 5 shares purportedly in 2013.(5) SACL was established in 2009 and the first intake of 78 students into SAC was in February 2010. In the outline and full disclosure report recruitment income was said to have been earned from 2010. Further SA eased employment in August 2009 and NN reduced her hours of employment from January 2010. Accordingly, it was reasonable for HMRC to conclude that commission income was received in the tax year to 5 April 2010 and not only in the subsequent tax years to 5 April 2015. We consider it likely that the income in the 2009/10 tax year related to the 78 students recruited in February 2010.(6) The Appellants did not let a room in Flansham House. Neither the outline disclosure nor narrative in the disclosure report indicated that a room had been let prior to 2012 (the claim was only made in the tax calculations) and, in any event, no evidence has been given as to how a married couple and a lodger shared a one bedroomed flat.(7) There is no evidence that either the Flansham House or Brixham Street properties were furnished lets.(8) There was however, lettings made of Flansham House (from 2012) and Brixham Street (from 2013). Both properties have been demonstrated to have been mortgaged.(9) As accepted by Mr Hossin there is no evidence of any expenses having been incurred wholly and exclusively in connection with either the recruitment or property businesses.(10) The Appellants agreed to a CDF and, after more than 12 months, provided a disclosure report said to have been based on information set out in appendices 17 of which were not provided immediately and 13 of which were never provided.(11) The Appellants’ engagement required HMRC to repeatedly chase for information and documents and to wait more than 12 months for the principal disclosure report. The co-operation provided by the Appellants prompted HMRC to issue the entirely justified threat of withdrawal from the CDF which would have put the Appellants again at risk of criminal prosecution.(12) No income and expenditure accounts were provided in respect of any of the businesses carried on. It is not therefore reasonable to conclude that any expenditure on accountancy services was incurred and deductible. Discussion Quantifying turnover

Discussion

[64]On the basis of our factual findings we consider that HMRC were right to refuse to make the income adjustments claimed to banked cash when determining the commission income from the recruitment business. Thus the basis of assessment for commission income is sound.[65]We also consider that there is no evidence permitting a claim for deductible expenses in respect of UK travel or accountancy services received (in the latter instance regarding either the recruitment business or property businesses).[66]We accept that there is evidence, in the form of passport stamps, of travel to Bangladesh. However, there is no evidence of the purpose of such travel and as a consequence that it was wholly and exclusively incurred for the purposes of either the recruitment business or the overseas property business. We know that at least NN had family in Bangladesh and we conclude that even were there evidence of the expenditure incurred such expenditure would not meet the statutory requirements of section 34(a) Income Tax (Trading and Other Income) Act 2005.[67]Regarding the claimed deductions to property income we took the view (and communicated it in the hearing) that there was evidence within the bundle which supported a deduction for mortgage interest. Whilst only NN had made a claim for deduction, on the basis of the documents it was reasonable to expect HMRC to calculate the interest payments made in respect of both Flansham House when let post 2012 and Brixham Street. HMRC calculated the interest which was evidenced and agreed to allow the expense.[68]We also accept that as the properties were let and mortgaged there must have been safety certificates and insurance costs incurred. There was no evidence as to the cost so incurred other than that claimed by the Appellant. HMRC were prepared to accept that some notional deduction be permitted (£100 for Flansham House and £150 for Brixham Road for each of insurance and gas/electricity certificates for each property) but considered the amounts claimed by the Appellants were unsubstantiated. Whilst we consider that it would have been open to us to simply conclude that the Appellants had failed to meet the burden of proof on them to claim any sum in respect of these matters in the interests of fairness, we consider it appropriate to allow the nominal deduction of £100pa for each of insurance and gas/electricity certificates for each let property.[69]In the hearing we expressed the view that we considered it unreasonable for HMRC to rescind from the view taken by the reviewing officer that a 10% adjustment be given in connection with the overseas rental property. This was on the basis that no new information or evidence had come to light since the review conclusion letter and it simply a case of Mr Price reinterpreting the evidence available and forming a different view. Whilst section 50(7) TMA provides jurisdiction for us to increase an assessment, we consider that we should exercise that discretion with some caution with upward adjustments (even within an overall reduction of assessments) should be based on new evidence or material not previously considered by HMRC but affecting the quantum of assessments. HMRC accepted that position.[70]When we gave that indication, we had not appreciated that Mr Price had also revised the assessment calculation to increase the assessable income received from the overseas property from that determined by the reviewing officer. The reviewing officer had accepted that the income was as stated by NN; Mr Price invited that the assessable income be determined by the higher amounts declared by SA We have reflected on whether it is appropriate to permit this adjustment. Whilst we can see that there is a logic to the adjustment and Mr Price’s position is an entirely reasonable one, the discrepancy between the disclosed figures was apparent to both Mr Hartop and the reviewing officer. Mr Hartop assessed on the basis of an imputed figure and the reviewing officer accepted the disclosed amounts for NN applying them to SA. As with the 10% adjustment there was no new evidence available to Mr Price, he simply interpreted the information differently. We do not therefore consider it appropriate to allow HMRC to use the appeal process as a means of revising the Assessments (or elements of them) upwards in this regard and we consider that the assessment calculation should, in this regard, remain as per the review conclusion.

Years of assessment

[71]As we have found that commission income was received in February 2010, we conclude that HMRC were entitled to assess for commission income received in the tax year to 5 April 2010 at least in respect of the 78 students recruited at that time.[72]HMRC’s assessment estimated the income received at £30,000 for each of SA and NN. As indicated in the hearing we consider that assessment to be overstated. By comparison to the numbers of students recruited in subsequent years and the income declared for the recruitment services we consider that an estimate of £10,000 for each of SA and NN to be more appropriate for that year. It reflects that 78 students represented approximately 25% of the total students recruited in later years. One quarter of the income received in those later years is approximately £10,000.

Percentages of Penalties

[73]We have considered the penalty calculations. There is no dispute that the inaccuracies which are the subject of the Assessments were deliberate. To the extent of the disclosed inaccuracies there is also no dispute that they were not concealed. It is arguable that for the sums which have required adjustment that they were concealed (but that is not the basis of HMRC’s penalty assessment). The disclosures were all prompted by HMRC’s CDF letter. Nor is it disputed that the disclosures for each of the years assessed were made more than three years after the end of the tax year in question. As such the penalty range provided for under paragraph 10A of Schedule 24 Finance Act 2007 requires a range of 45% and 70% for the category 1 penalties and a range of 62.5% and 105% for category 2 penalties. Where within those ranges the penalty should be assessed depends on the quality of disclosure.[74]HMRC’s guidance indicates quality of disclosure will be assessed through the lenses of telling, helping, and giving. HMRC allowed mitigation of 45% in respect of the category 1 penalties for tax years 2010/11 – 2014/14, 15% for the category 1 penalty for 2009/10 and 45% for the category 2 penalty.[75]Mr Price described these reductions as reasonable but generous. We agree. It is plain to us that the Appellants gave the bare minimum level of co-operation. They signed a CDF which declared all the categories of income that they had failed to declare. They attended a meeting to discuss the CDF. However, it then took over 12 months for a report to be submitted, a joint report when HMRC had indicated that they wanted separate reports. HMRC were required to devote resources repeatedly in obtaining the disclosure report and information, something that really should not have been required under the CDF facility. There were inconsistences between the report narrative and the accompanying tax calculations. As we have determined the tax calculations sought to diminish the extent of the inaccuracies in an entirely unevidenced way and so understated the true liability as we have determined it. The report was purportedly based on appendices of information which have never been provided to HMRC and were not produced in these proceedings indicating to us that they may never have existed. In our view the co-operation and quality of disclosure was all but pitiful (even when NN’s periods of ill health are considered). We therefore conclude that the reductions given by HMRC were generous but we do not amend them.

Disposition

[76]For the reasons given we uphold the Assessments and Penalties but in the following varied amounts which we take from spreadsheets helpfully prepared with diligence and agility by Dr Heal; we thank him for his assistance in this regard: Tax year SA Assessment SA Penalty NN Assessment NN Penalty 05/04/2010 £2,881.80 £1,909.19 £1,515.00 05/04/2011 £17,068.78 £10,027.91 £11,979.00 £7,037.66 05/04/2012 £19,688.38 £11,664.55 £20,320.00 £11,982.76 05/04/2013 £23,209.66 £13,782.13 £22,321.84 £13,260.53 05/04/2014 £28,890.35 £17,118.99 £24,102.11 £14,305.89 05/04/2015 £12,629.68 £7,566.39 £8,811.16 £5,322.84 Total £104,368.65 £62,069.16 £88,959.11 £51,909.68

Right to apply for permission to appeal

[77]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. Release date: 08th MAY 2025