Michael Neilson v The Commissioners for HMRC [2025] UKFTT 868 (TC)

[2025] UKFTT 00868 (TC)Case No TC09586
FIRST-TIER TRIBUNAL
TAX CHAMBER
Venue EdinburghHearing Heard on: 10 September 2024 Written submissions received: January 2025Date Judgment date: 17 July 2025
Appeal reference: TC/2022/02543
INCOME TAX – whether corrective action form can be used to make further consequential amendments to a tax return – no – whether conclusion in closure notice that no amendment to a self-assessment return is required is appealable – no – appeal dismissed
Before
TRIBUNAL JUDGE ANNE FAIRPOTRIBUNAL MEMBER IAN SHEARER
Between
MICHAEL NEILSONAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentThe Appellant appeared in person for in personMs Arnold, litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]The appellant (Mr Neilson) appealed against amendments to his 2007/08 self-assessment tax return made by a closure notice issued on 25 October 2019. Background Self-assessment return

Background

[2]Mr Neilson’s self-assessment tax return for 2007/08 was filed on 19 August 2010. The calculation of income tax due was £0 and the return included (as relevant) the following:(1) an amount of “other taxable income - before expenses and tax taken off” (box 15) of £1,000,000;(2) a net loss in self-employment (trading in used cars) of £1,108,228 (box 63);(3) a claim for £1,025,390 of the losses to be set against other income for the same tax year;(4) a claim for £82,838 of the losses to be carried back to previous tax years;(5) the disclosure (in summary) that the ‘Working Wheels’ tax avoidance scheme had been used.[3]It was not disputed that there had been no amendment to Mr Neilson’s tax return within the statutory time limits for amendments of self-assessment returns.

Enquiry

[4]HMRC opened an enquiry to Mr Neilson’s tax return on 3 August 2011. On 3 October 2011, Mr Neilson’s adviser wrote to state that the amount of £1,000,000 was an ex-gratia payment which was not contractual and had been made voluntarily by the payer (WM). Further correspondence followed.[5]An Accelerated Payment Notice and a Follower Notice were issued to Mr Neilson following the conclusion of the Flanagan & ors v The Commissioners for Her Majesty’s Revenue & Customs [2014] UKFTT 175 (TC) litigation.[6]A corrective action form was submitted on 24 November 2015. That sought to remove the self-employment trading loss entry at box 63 and also to remove the amount of £1,000,000 from box 15 of Mr Neilson’s return.[7]Following correspondence, HMRC issued a closure notice on 25 October 2019, for £397,138.72. Mr Neilson asked for an independent review of that decision, on the basis that the payment of £1,000,000 was a gift so that no tax was due. Following the statutory review, the assessment was varied upwards to £409,159.52 to include Class 4 National Insurance Contributions as the reviewer considered that the amount of £1,000,000 was taxable as trading income rather than other taxable income. The reviewer also stated that, in the alternative, the income was still taxable as other income.[8]Mr Neilson appealed to this Tribunal on 5 April 2022. His grounds of appeal were that the amount of £1,000,000 had been a gift and that the tax provision had been made in full by the donor (WM), such that no tax should be due from Mr Neilson.[9]HMRC contended that the closure notice amount should be upheld, rather than the varied amount of the statutory review. They also contended in their skeleton argument that the corrective action form did not operate to amend the return, that the closure notice had confirmed the contents of the return and that, as there was no right of appeal against amounts in a self-assessment return which had not been amended by HMRC, the Tribunal had no jurisdiction to consider the appeal.[10]At the hearing, Mr Neilson contended that these points had not previously been raised by HMRC in their statement of case and that they should be precluded from relying upon them. HMRC disagreed that the points had not previously been raised but nevertheless made a formal application to introduce these points in argument.[11]We noted the overriding objective in The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the Tribunal Rules) but note also that we are required to reach a conclusion on the basis of the law, and cannot disregard the law simply because an argument may have been raised at a late stage. We therefore allowed HMRC’s application and asked the parties to provide written submissions on these points after the hearing in order to ensure that Mr Neilson had more time to consider the points raised.

Mr Neilson’s criticisms of HMRC

[12]Mr Neilson made a number of criticisms of HMRC’s handling of the enquiry into his tax affairs, including a complaint that they relied upon documents in their list of documents in these proceedings which he had not previously seen. There is nothing in statute which permits the Tribunal to amend an assessment such as this as a result of HMRC’s handling of enquiries, as the Tribunal has no freestanding jurisdiction over HMRC. As such, we make no findings with regard to these criticisms. The Tribunal directions require parties to disclose documents on which they rely in the proceedings; we have no jurisdiction to exclude such documents simply because they may not have previously been disclosed in the course of the enquiry before proceedings in this Tribunal started.[13]Mr Neilson also complained that HMRC were relying on documents from “unnamed” persons and evidence that he considered was hearsay; he contended that these were inadmissible evidence. We note that, even if an application to exclude such evidence had been properly made to the Tribunal, the Tribunal Rules allow this Tribunal to admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom (Rule 15(2)(a)). We also note that the burden of proof in this appeal is on Mr Neilson to show that the payment was a gift.

Corrective action form - whether effective to amend box 15 of Mr Neilson’s tax return

[14]Mr Neilson contended that he had amended his self-assessment tax return by means of the corrective action form which had been submitted to HMRC on 24 November 2015, such that the amount of £1,000,000 in box 15 had been removed and so the closure notice conclusion that no amendment should be made to box 15 did not mean that the amount of £1,000,000 was taxable.[15]The form submitted to HMRC contained handwritten additions to the typewritten text in the form provided to Mr Neilson. The additions are underlined in the following:
“… I am amending my self-assessment tax return, by elimination of the two entries in box 15 (other income) and box 63 (net business loss before tax). Please refer to the letter from [the adviser] dated 15 October 2015 explaining the circumstances of this case and the conditions of amendment.”
[16]The form stated that the additional tax due as a result of the amendment was zero. The accompanying letter from Mr Neilson’s adviser noted that Mr Neilson was only prepared to take corrective action if his tax return was amended as requested on the basis that it was “grossly unreasonable to consider only one part of the transaction”.[17]HMRC contended that the corrective action form could not be used to make amendments to the tax return other than those required to counteract the tax advantage asserted to result from the avoidance scheme shown in the related follower notice.[18]Mr Neilson contended that this had not been argued by HMRC until shortly before the hearing and that the litigator “seeks to undermine the Tribunal’s jurisdiction” with argument by ambush. He stated that he had complied with HMRC’s requirements in respect of amending his tax return for 2007/08.

Discussion

[19]Whether or not statute permits an action is a question of law: it is not something which depends upon when an argument is raised by a party. It is well-established that this Tribunal has no freestanding jurisdiction over the fairness of HMRC’s actions (see, for example, Hok Ltd [2012] UKUT 363 (TCC)). Whilst the Tribunal has wide case management powers and could potentially have refused to consider late arguments raised HMRC, it does not follow that we could make a finding that is not permitted by law.[20]It is, obviously, preferable for arguments to be properly raised in advance to ensure that the other party can consider the argument and their response. It was for this reason that the Tribunal requested written submissions, to ensure that Mr Neilson had time to consider the arguments put forward by HMRC and respond.[21]The relevant legislation is s208 Finance Act 2014. That states:
“s208 Penalty if corrective action not taken in response to follower notice … (4) The necessary corrective action is taken in respect of the denied advantage if (and only if) P takes the steps set out in subsections (5) and (6). (5) The first step is that (a) in the case of a follower notice given by virtue of section 204(2)(a), P amends a return or claim to counteract the denied advantage; (b) in the case of a follower notice given by virtue of section 204(2)(b), P takes all necessary action to enter into an agreement with HMRC (in writing) for the purpose of relinquishing the denied advantage. … (9) No enactment limiting the time during which amendments may be made to returns or claims operates to prevent P taking the first step mentioned in subsection (5)(a) before the tax enquiry is closed (whether or not before the specified time). (10) No appeal may be brought, by virtue of a provision mentioned in subsection (11), against an amendment made by a closure notice in respect of a tax enquiry to the extent that the amendment takes into account an amendment made by P to a return or claim in taking the first step mentioned in subsection (5)(a) (whether or not that amendment was made before the specified time). (11) The provisions are (a) section 31(1)(b) or (c) of TMA 1970, (b) paragraph 9 of Schedule 1A to TMA 1970, (c) paragraph 34(3) of Schedule 18 to FA 1998, (d) paragraph 35(1)(b) of Schedule 10 to FA 2003, and (e) paragraph 35(1)(b) of Schedule 33 to FA 2013.”
[22]s208(9) clearly extends the time limits for amending a return in this case only to enable the taxpayer to take the action in s208(5)(a): that is, to “amend [their] return … to counteract the denied advantage”.[23]Where the time limits for amending a tax return have lapsed, we conclude from the wording of the legislation that the provisions of s208 FA 2014 only permit a taxpayer to amend their tax return in order to counteract the denied advantage. No other amendments can be made as part of taking the corrective action required by s208 FA 2014. It does not give taxpayers the opportunity to amend their return to remove the tax liability that results from the counteraction of the denied tax advantage.[24]We find that the amendment to box 15 sought by the handwritten additions in the corrective action form was not an amendment which took the required corrective action (ie: counteracted the denied tax advantage).[25]Mr Neilson did not contend that it did; his argument was (in summary) that as he considered that this amount was a gift, it was not fair that this amount should be regarded as taxable if the Working Wheels scheme did not operate to shelter the tax charge which had been created when the amount was shown as taxable in his tax return.[26]Considering the parties’ arguments we conclude that the handwritten amendment in respect of box 15 of the return was not counteracting a denied tax advantage: it was trying to remove the tax liability which arose as a result of the denied tax advantage being counteracted. There is no scope within the provision of s208 FA 2014 for such an amendment to be made either as part of or in addition to the corrective action.[27]Accordingly, we find that the additions to the corrective action form did not amend Mr Neilson’s tax return to remove the amount of £1,000,000 from box 15.

Closure notice - effect on box 15 of Mr Neilson’s return

[28]The closure notice amendments were to the losses claimed by Mr Neilson, and ancillary matters. There was no amendment made to the box 15 entry of £1,000,000.[29]The closure notice stated (in respect of Mr Neilson’s claim that the box 15 entry was a non-taxable gift) that:(1) no claim within the statutory time limit had been made to amend Mr Neilson’s self-assessment tax return in order to re-categorise the amount of £1,000,000 as a gift; and(2) that the behaviour was either careless or deliberate so that no consequential claim following HMRC’s amendment to the return could be made following the closure notice; and(3) evidence held by HMRC demonstrated that the income was taxable.

Whether that statement is an appealable conclusion

[30]In Jörg Märtin [2018] UKFTT 660 (TC) the Tribunal held that a statement that no amendment would be made is not an appealable conclusion within the meaning of s31(1)(b) TMA 1970. The decision noted (at [25]) that “… legislation should not be interpreted literally if a literal interpretation is absurd. It is absurd for the legislation to be read as giving a taxpayer a right of appeal against a conclusion that his tax return was correct. The taxpayer made the tax return: he was under an obligation to ensure it is correct … if [the taxpayer] no longer thinks his return correct, he has the right to amend it … he does not need a right of appeal against a conclusion that the return does not need amending.”[31]HMRC therefore contended that Mr Neilson had no right of appeal against the closure notice in respect of the amount included at box 15.[32]Mr Neilson contended that HMRC had not raised this argument until their skeleton argument was provided, less than three weeks before the hearing. He submitted that the Tribunal had jurisdiction to consider a closure notice which he contended was fundamentally flawed and unfair. These contentions were made on the basis that the information relied on by HMRC in reaching the closure notice conclusion was unlawfully provided by a third party in breach of data protection and in breach of procedural unfairness. He further contended that HMRC had failed to pursue other information which they had requested from WM and that this was a gross procedural error which prejudiced Mr Neilson.

Discussion

[33]As already noted, whether or not statute permits an action is a question of law and we have addressed above the lateness of the argument.[34]We note Mr Neilson’s contentions that the closure notice was flawed and unfair because the information used by HMRC in reaching the closure notice conclusions may have been provided in breach of data protection and/or procedurally unfair, and that HMRC had not pursued information from a third party and thereby prejudiced Mr Neilson. However, our powers with regard to closure notices are limited by statute and do not include any freestanding jurisdiction to consider the underlying information which may have been part of the enquiry proceedings. We also note that it is clear from case law that where the burden of proof is on a taxpayer, HMRC are not required to do the taxpayer’s job of providing evidence in support of the taxpayer’s position.[35]The closure notice does not specifically state that box 15 of Mr Neilson’s return is correct and so that no amendment will be made in respect of it, but the effect of the letter is clear: HMRC consider that there is no scope for him to amend the return and do not, in any case, accept his contentions regarding the nature of the payment.[36]We agree with the decision in Jörg Märtin and find that the effective conclusion that box 15 of Mr Neilson’s return is correct, and that no amendment should be made there, is not an appealable conclusion. We do not consider that Parliament intended that a taxpayer who has not amended their tax return within the statutory time limits should be given a second opportunity to do so by contesting a conclusion by HMRC that does not amend their tax return.[37]Even if HMRC’s statements with regard to box 15 were capable of being appealed, we consider that the outcome would remain the same: that box 15 of Mr Neilson’s tax return is not amended and he is taxable on the amount of £1,000,000. Considering each of the statements:(1) That Mr Neilson was out of time to amend his return: Mr Neilson did not suggest that any amendment had been made other than his contentions as to the effect of the corrective action form which we have not accepted (see above).(2) That no consequential claim can be made because of the behaviour which led to the amendments which are made by the closure notice: where permitted, s43C TMA 1970 allows an out-of-time claim for a relief, election or allowance to be made where a tax charge arises as a result of an amendment made by HMRC to a tax return. However, regardless of the behaviour requirements, s43C does not enable the out-of-time amendment of an entry on a tax return in the manner contended for by Mr Neilson.(3) That the amount of £1,000,000 was taxable, given other evidence available to HMRC: we consider that this statement does no more than confirm that, even if Mr Neilson had been in time to amend his return, HMRC would not have agreed that the amount was not taxable. We do not consider that this statement amounts to an appealable decision. Where no amendment to the tax return has been made in time and where no out-of-time amendment, relief, election of allowance can be claimed, any such appeal would be no more than academic at best. If we are wrong on this, we have considered Mr Neilson’s submissions regarding the nature of the payment below.[38]Accordingly, regardless of the reasons, the amount of £1,000,000 was declared as taxable other income on Mr Neilson’s self-assessment tax return for 2007/08. That return was not amended to remove that amount before the statutory time limits for amending the tax return expired. The handwritten additions to the subsequent corrective action form did not have the effect of amending that entry in the return. HMRC’s closure notice did not amend that entry in the return nor would any of their statements regarding the box 15 entry have any effect to enable such an amendment even if able to be appealed.[39]As the return has not been amended by either Mr Neilson or HMRC, and there is no right of appeal against entries made by a taxpayer in a self-assessment tax return, it follows that we find that the amount of £1,000,000 is taxable other income for Mr Neilson for the 2007/08 tax year, as set out in his tax return.

Tribunal powers - s50 TMA 1970

[40]s50 TMA 1970 gives the Tribunal powers to amend an assessment where the Tribunal decides that an appellant is over-charged or undercharged by a self-assessment.[41]Mr Neilson made no specific contentions as to this provision.[42]HMRC contended that s50 TMA 1970 only permits the Tribunal to increase or decrease an assessment within scope of “the matter in question” under appeal and that, in this case, that the matter in question was the conclusions stated or amendments made by the closure notice. A review by HMRC is similarly limited to the “matter in question” (s49A(2) TMA 1970) and, to the extent that the review reached any conclusion about the nature of the £1,000,000 receipt, that was outside the scope of the review and so could not be effective.

Discussion

[43]s49G TMA 1970 provides that where there has been a review, on an appeal to the Tribunal “the tribunal is to determine the matter in question.” The review must also be of “the matter in question” (s49B(1) or s49C(1) TMA 1970 as relevant).[44]We note the decision of the Upper Tribunal in Shinelock [2023] UKUT 107 (TCC) at [57], quoting Daarasp [2021] UKUT 87 (TCC) at [25]:
“(2) … On any appeal, the FTT will form its own view on the law, without being restricted to what HMRC state in their conclusion or the taxpayer states in the notice of appeal. Either party can change its legal arguments, but such changes in argument cannot be used as an ambush, and the FTT must be astute to prevent this, by using its case management powers: Tower MCashback at [15], [18]. (3) That does not, however, mean that an appeal against a closure notice opens the door to a general roving inquiry into the return. The scope and subject matter of the appeal will be defined by the conclusions stated in the closure notice and by the amendments (if any) made to the return (as well as the overriding question of fairness): Tower MCashback at [15]. … (8) “[T]he matter to which the appeal relates” for the purposes of section 49I(1)(a) must be the [conclusion and/or] the amendment and either the conclusion or the amendment is therefore the “matter in question” which the FTT is required to determine by section 49I(1) of the Taxes Management Act 1970. That then restricts the ambit of the appeal at the conclusion of which the FTT may decide that there has been an overcharge or an undercharge and so make a reduction or an increase in the assessment pursuant to section 50(6) or (7) of the Taxes Management Act 1970 as appropriate. There is a limit on the jurisdiction of the FTT which is not simply a matter of ensuring procedural fairness. Any purported exercise by the FTT of a broader power to consider matters beyond that would be an error of law: Investec at [70].”
[45]The “matter in question” is therefore the conclusions and amendments in the closure notice issued to Mr Neilson, to the extent that those are appealable. As noted above, we find that the closure notice contained no appealable conclusion in respect of box 15 of Mr Neilson’s tax return and made no amendment to box 15 of his return.[46]We find that the “matter in question” in this appeal therefore cannot encompass the contents of box 15 of Mr Neilson’s tax return in a way which allows us to exercise the powers in s50 TMA 1970 to conclude that Mr Neilson has been overcharged by that entry in his tax return.[47]We have already noted Mr Neilson’s comments that he considered that HMRC had introduced the jurisdiction point at a late stage in proceedings and note again here that any such lateness does not mean that we can make a decision that is not otherwise permitted by law.[48]Accordingly, as a conclusion that no amendment is required to an entry on a self-assessment return is not an appealable conclusion (see above), and the closure notice did not make any amendment in respect of box 15 (as noted above) of Mr Neilson’s return, we find that s50 TMA 1970 does not operate to give us power to consider whether or not Mr Neilson has been overcharged by box 15 of his self-assessment.[49]The Upper Tribunal in Shinelock further concluded that the scope of the “matter in question” cannot be altered by the subsequent review process (at [64]). They concluded that “[t]he scope of the closure notice was to be determined, in context, at the time it was issued, on the basis of the understanding of a reasonable recipient standing in the shoes of the taxpayer. Subsequent discussions … would not retrospectively extend the scope of the matter in question.”[50]Following Shinelock, we conclude that the fact that the review conclusion letter purported to recategorise the amount of £1,000,000 as trading income rather than taxable other income does not mean that there is any scope for us to consider whether or not Mr Neilson has been overcharged by box 15 of his self-assessment return. Whether tax provision by the donor in respect of the amount received extinguishes Mr Neilson’s tax liability[51]Mr Neilson’s grounds of appeal contended that WM had made provision for the tax, if any, on the amount of £1,000,000. We had limited evidence as to this, although it seems possible that the reason for the implementation of the Working Wheels tax avoidance scheme in Mr Neilson’s return may have been intended as such provision.[52]In correspondence, Mr Neilson alternatively asserted that WM had “made tax provision [in full] for the gross proceeds that he received … and therefore establishes the gift payment is made to me from net (after tax) proceeds.” Mr Neilson also contended in his skeleton argument that there had been a “fundamental duplication” of the tax sought as WM had participated in a tax avoidance scheme for the gross amount before making the payment to Mr Neilson.[53]However, there is no provision in statute for the transfer of a self-assessment tax liability to a third party in this context. There is, similarly, no provision in statute which exempts a receipt from tax simply because the payer has paid tax on the funds from which the monies are paid. If Mr Neilson considers that WM promised to make good the tax on the amount, that is a matter which he will need to pursue with WM directly. It does not and cannot remove Mr Neilson’s tax liability to HMRC.

Nature of the payment

[54]For the reasons set out above, we have concluded that the appeal should be dismissed. In case we are wrong on that, and as the parties provided evidence and made submissions on the nature of the payment, we have set out our views on this issue.[55]It was common ground that the payment of £1,000,000 was made to Mr Neilson by WM.

Evidence

[56]Mr Neilson contended that he had received this amount on 8 August 2007 as a gift and that it had been unexpected. He had not raised an invoice for the amount, it had not been a contractual payment and it had been paid voluntarily by WM. If he received it as income of his consultancy business, there would have been an invoice for the payment.[57]He contended that this was supported by a letter from WM’s tax advisers to HMRC dated 3 October 2011, which stated that the amount was received as an ex-gratia payment after the conclusion of a business deal. We note that these were the same advisers who had completed Mr Neilson’s tax return, in which the amount was described as “other taxable income”. He also contended that he had not issued an invoice for the payment and that his bank statements showed that the amount was a gift.[58]Mr Neilson stated that WM had told him that WM “had paid his tax avoidance plan fee” to the advisers and so had made provision for the income tax before making any payment to Mr Neilson or others. Mr Neilson's tax return including this amount as ‘other taxable income’ had been prepared for him by WM’s tax advisers and he had had no involvement other than providing the information for the return. Mr Neilson had not paid them any fee to complete the return on his behalf. He had expected the return to be a nil return because the payment had been a gift. Mr Neilson also contended that the return had been completed by WM’s adviser without his approval, although he had provided the information required by them to complete the return.[59]Mr Neilson accepted that he had worked with WM on an arms-length basis, looking at a number of property-related opportunities. In the hearing, Mr Neilson explained that the £1,000,0000 payment had been made by WM from the sale proceeds of a transaction which had been considered to be deadlocked. The deadlock had been solved in 2007. In correspondence, Mr Neilson stated that he had been approached by WM in order to look at how the deadlocked transaction might be taken forward and had done so, although he had had no input into the eventual solution. Notes of a meeting between HMRC and Mr Neilson on 8 February 2017 state that “MN was looking for angles to bring all of the parties together to no avail” in respect of this transaction.[60]HMRC contended that WM had confirmed that the payment had been connected to work which Mr Neilson had done for him. They also contended that the reference to the payment being ex-gratia in the letter of October 2011 did not mean that it was a gift; an ex-gratia payment would still be taxable if it was received in connection with or in the course of a business.

Documents provided to the Tribunal

[61]In a letter to HMRC dated 15 October 2015, Mr Neilson’s advisers stated that the payment was made from the taxed profit of a limited partnership venture between three parties. The payment had been made because the original intention to involve Mr Neilson in the venture was aborted after Mr Neilson had been persuaded to give up full-time employment in order to participate in the venture. There had been no agreement to pay him the amount. Any work which Mr Neilson had done in respect of the venture had been invoiced, and declared for tax, through his company. The payment had been made to Mr Neilson’s personal bank account, not the company bank account.[62]The bundle included a document entitled “M2 Piccadilly disposal May 2007 … Settlement agreement Nov 08 version … Mr MA Neilson” which set out a calculation of an amount of £1,279,972 which was described as “MAN’s proceeds”, calculated from the “Ballymore gross proceeds”. Amongst the deductions were payments described as “MAN consultancy costs” (which were declared in Mr Neilson’s business) and a payment made to MAN of £1,000,000 on 8 August 2007. Mr Neilson contended that this document could not be accurate as it showed a balance of the amount owing to him as being in a directors’ loan account which WM had subsequently claimed was entirely due to WM.[63]Notes of a meeting held on 12 September 2007 were also included, which showed that Mr Neilson was present. The meeting was stated to be in respect of the attendees’ “discussion earlier in the month regarding a potential tax planning technique that could be used to shelter their exposure to the profit and or gain on the development known as lnacity Tower … At the last meeting there was some discussion as to whether the profit from this transaction would be regarded as income or gains in the hands of the parties and after discussion it was agreed that for MN and [redacted in the bundle] any monies would be treated as consultancy fees and would be regarded as income whereas the balance of the monies could be either income or gains in the hands of [redacted in the bundle]. As this would be charged at 40% anyway it was prudent to consider the Working Wheels business opportunity as in the first year of trading it was expected that a trading loss would accrue and that under current legislation it was possible to shelter both income and gains with trading losses. … Each of the persons present stated that they understood the risks and were happy to proceed. There followed a general discuission [sic] as to the likely allocation of the funds during which it was suggested that MN would recieve [sic] approximately £1.2m and that . . would reward [redacted in bundle] from his share. Each of the parties signed the application forms as appropriate and left date and amount blank details to be provided as soon as possible.”[64]After this, the notes state that Mr Neilson left the meeting. The bundle included an email from Mr Neilson dated 5 days later (17 September 2007) in which he provides information for his tax return to the adviser who had been present at the meeting. There was also a signed engagement letter and associated signed documents all dated 18 September 2007 in order to implement tax planning. Mr Neilson had no recollection of any of these.[65]In the hearing, Mr Neilson stated that he did not recall the meeting and had not seen this note at the time, nor had he any idea where it had come from. He did not accept that the meeting notes made it clear that he had attended and that the Working Wheels tax avoidance scheme had been discussed. He did not accept that he had signed any application forms. Mr Neilson contended that this was a retrospective note made by the advisers, and that it was unlikely that any such meeting had taken place on 12 September 2007 given that the payment had been made in August 2007.[66]He did accept that he had been invited to meetings with accountants but did not recall any conversation regarding the finality of the avoidance plan. He contended that the meeting notes nevertheless showed that he would be receiving consultancy fees, and that these would have been invoiced through his company and paid into the company’s bank account.

Discussion

[67]The letter sent to HMRC by WM’s advisers in late 2011 was sent just over a year after they submitted Mr Neilson’s 2007/08 tax return (filed 19 August 2010) in which the amount was stated to be “other taxable income”. The letter stated that the payment was made ex-gratia, voluntarily, and non-contractually. The letter does not state that the payment was a gift. A payment which is made ex-gratia, voluntarily, and non-contractually may still be taxable income of the recipient if it was received in connection with a business activity (see, for example, Falkirk Ice Rink Ltd [1975] STC 434).[68]Mr Neilson also contended that his bank statements showed that the payment was a gift: we do not agree. His bank statement simply states that £1,000,000 was received by CHAPS on 8 August 2007. It does not state who made the payment nor what the purpose of the payment was. To the extent that this was an assertion that WM’s bank statement would show this, we were not provided with WM’s bank statements and so cannot make any such finding. Mr Neilson suggested that HMRC should have obtained those bank statements but, as noted already, the burden of proof in this context is on Mr Neilson to show why the receipt is not taxable. HMRC are not required to find the evidence for him.[69]The lack of an invoice issued by Mr Neilson or his business for the money also does not mean that the payment must have been a gift.[70]Mr Neilson did not clearly explain why WM might have made a gift of £1,000,000 to him other than to say in a meeting with HMRC that WM was “generous to a fault”. He stated that the payment had been made out of the proceeds of a property transaction, that Mr Neilson had worked with WM on property-related opportunities and that WM had asked him to assist with that transaction although he had had no input into the eventual solution.[71]Considering the evidence, we find that the payment was made in connection with Mr Neilson’s business activities with WM, notwithstanding that Mr Neilson had not been responsible for resolving the deadlock on this particular transaction. There was no suggestion that there was any non-business relationship between Mr Neilson and WM which might have been the reason for the payment.[72]On the balance of probabilities, we conclude that the payment to Mr Neilson was not a gift. Whilst it might not have been a contractual or otherwise agreed upon payment for specific services, we find that it was paid to Mr Neilson in connection with and arising from his business activities and so is taxable income.

Conclusion

[73]As set out above, we find that:(1) an amount of £1,000,000 was recorded as other taxable income in box 15 of Mr Neilson’s tax return;(2) the handwritten amendments to the corrective action form did not amend Mr Neilson’s tax return to remove the amount of £1,000,000 from box 15 of the return;(3) the closure notice did not amend box 15 of Mr Neilson’s tax return; and(4) there is no scope for this Tribunal to consider whether or not Mr Neilson has been overcharged to tax by box 15 of his tax return.[74]As such, we find that Mr Neilson is taxable on the amount of £1,000,000 received.[75]Even if the return had been amended, we also find that the amount of £1,000,000 was received in connection with Mr Neilson’s business activities and is therefore taxable income.[76]We find that Mr Neilson’s tax liability is not reduced or discharged because a third party may have paid tax on the proceeds from which this payment was made, or because that third party may have agreed to be liable for tax on the amount.[77]The appeal is therefore dismissed.

Right to apply for permission to appeal

[78]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: 17th JULY 2025

Cited in 1 later judgment