Nottingham Forest Football Club Limited v The Commissioners for HMRC [2024] UKUT 00145 (TCC)

“7. I arranged a visit with John Taylor, the Finance Officer at the Club, … for 16 April 2018. During this visit I discussed with John how the business operated, the VAT treatment of the supplies made, and the accounting systems used. The accounting systems used during the period of my audit were SAGE and then NAVISION. 8. I made subsequent visits to the Club on 20 April 2018 to examine invoices and to download the General Ledger data, and on 9 May 2018 to collect a SAGE back up of the accounting records. 9. The accounting data provided was analysed back in the office and basic checks carried out including checking the quarterly VAT Return calculations from the supporting computerised records to the declared figures. Various figures were shown on the documents provided to support the 08/15 VAT Return declaration which led me to believe the declaration for the 08/15 period was inaccurate. This VAT Return covered the periods 01 June 2015 to 31 August 2015. 10. The actual VAT declaration for the VAT period 08/15 was as below: … [Officer Bell set out amounts declared on the VAT return and in various accounting documents that supported them.] 11. There appeared to be problems when the Club changed accounting systems from SAGE to NAVISION. I believed that the true figures for the period to be the figures on the ‘Adjusted VAT statement’ document dated 29/10/15 of £452,237.27 Output tax and £327,866.96 giving an overall tax liability due to HMRC of £124,370.31. This figure also matched the figure on the ‘Calc and Post VAT settlement’ document dated 07/10/15 showing a liability due to HMRC of £124,370.31 for the period. These figures, added to the incorrect repayment claim made for £348,177 meant that the liability due to HMRC for this period was £475,547. 12. The Club had identified a problem when changing over accounting systems and that their 08/15 declaration was incorrect. The Club submitted an Error Correction Notice on 2 November 2015 for £126,984 but I believed that this didn’t correct the full liability due. 13. The varying figures on the accounting documents provided for the VAT period 08/15 were put to the Club by email of 24 May 2018.”

“[53] I believe during the change-over of accounting systems the new system was not set up correctly resulting in an incorrect repayment claim being submitted for the period. Poor historic records kept by the Club also made it difficult for the current finance team to reconcile previous tax declarations and so the Club were reluctant to accept my findings. The varying figures on the accounting documents provided by the Club to support the VAT period 08/15 declaration were put to the Club to comment on by my email of 24 May 2018 after I had analysed the data. This is the date when I believe the 1-year evidence of fact rule commenced.”

“13. As is well known, the Appellant is a football club based in West Bridgford, Nottingham, currently playing in the Premier League, although during the times material to this appeal the Appellant was playing in the Championship. 14. On 16 April 2018 Officer Bell visited the Appellant to discuss how the business operated and what accounting systems were used. 15. Officer Bell again visited the Appellant on 20 April 2018 to examine invoices and to download general ledger data. A back up memory stick containing data from the Appellant’s previous accounting system, Sage, was then collected by Officer Bell on 9 May 2018. 16. These dates are important because HMRC argues that the knowledge of the facts test was only satisfied at the earliest on 9 May 2018 when Officer Bell received the memory stick containing the Sage data. The Appellant, however, argues that the knowledge of the facts test was satisfied earlier, on 20 April 2018, when Officer Bell downloaded the general ledger data. 17. On 11 May 2018 Officer Bell emailed Mr John Taylor, Head of Finance at the Appellant, indicating the matters into which he wished to look: “Thanks for confirming your agreeing to the email protocol and for providing the SAGE back up. I attach a spreadsheet showing the accounting entries posted to the NAVISION accounting system that I would like to take a look at – Tab1 for Sales and Tab 2 for Purchases.” 18. Navision was the Appellant’s accounting software which replaced Sage. It was not clear from the evidence when Navision started to be used and when Sage ceased to be used by the Appellant. 19. Officer Bell emailed the Appellant on 24 May 2018 to query the 08/15 quarter VAT return. Officer Bell indicated that the Appellant may have under-declared output tax (£88,125) and over-declared input tax (£258,409). The total sum of the under and over declarations was £346,534, owed to HMRC. [The FTT set out the email and some subsequent email exchanges which are not material to our decision.] 25. …. On 26 April 2019 Officer Bell e-mailed the Appellant stating that VAT due to HMRC was, therefore, £348,177. 26. Officer Bell stated that an assessment would be raised for the under-declared VAT if the Appellant agreed the figures. 27. On 26 April 2019 the Appellant e-mailed Officer Bell and indicated that it agreed to the under-declaration figures. 28. A notice of VAT assessment was issued to the Appellant on 29 April 2019, in the sum of £345,561. 29. Notwithstanding the apparent agreement on the quantum of the assessment, on 19 June 2019 the Appellant’s agent notified the intention to appeal the assessment. 30. This was followed on 11 July 2019 by confirmation that a formal statutory review was required. The conclusion of the review was carried out and notified to the Appellant on 28 August 2019. The conclusion of the review was to uphold Officer Bell’s assessment. 31. Mr Pickerill confirmed that HMRC had come into possession of the Sage data on 9 May 2018. Mr Pickerill also accepted that the reference in paragraph 8 of Officer Bell’s witness statement to HMRC receiving possession of the General Ledger on 20 April 2018 was probably a reference to the Navision data handed over on 20 April 2018 – he believed that this was confirmed by HMRC’s Caseflow data system. 32. Mr Pickerill also confirmed that the third paragraph of the email of 11 May 2018 was referring to data from Navision (handed over to HMRC on 20 April 2018). 33. Mr Pickerill was asked whether it was likely that Officer Bell had prepared the spreadsheet attached to the email of 11 May 2018 from the Sage data picked up on 9 May 2018 or whether it was more likely to have been compiled from then Navision data collected on 20 April 2018. Mr Pickerill accepted that to compile the spreadsheet from the data collected on 9 May would have been a “short turnaround.”

“34. It was common ground that, in accordance with the decision of Dyson J in Pegasus Birds, the burden of proof lay upon the Appellant to show that the assessment was made outside the time limit specified in section 73(6)(b) VATA. 35. We should make it clear that there was no suggestion of any kind of wrongdoing by the Appellant. It was apparent that the Appellant’s error arose innocently from the change in its accounting systems. No penalty was charged by HMRC. 36. Mr Smith [on behalf of NFFC] submitted that the emails of 11 May and 22 May indicated that Officer Bell had all the information he needed to make an assessment and that that information was derived from the Navision accounting system handed over to HMRC on 20 April 2018. Therefore, the one-year period prescribed by section 73(6)(b) VATA expired on 20 April 2019. Consequently, the assessment issued on 29 April 2019 was time-barred. 37. Ms Hickey [for HMRC] submitted that the one-year period only started to run from 9 May 2018. She noted that Officer Bell considered that the time period started on 24 May 2018 when he sent the email to the Appellant having analysed the data which he had obtained. 38. Mr Smith suggested that the Sage data did not relate to the 08/15 period. But there was no evidence to this effect. Similarly, Ms Hickey suggested that the reference in Officer Bell’s email of 24 May 2018 to VAT Nominal Accounts 3302 and 3301 were references to Sage. She said that Sage used four-digit reference codes. Again, there was no evidence to support this suggestion. Accordingly, we have disregarded the suggestions made by Mr Smith and Ms Hickey in relation to the Sage data. 39. It was conspicuous that the Appellant did not provide witness evidence to clarify the data that was in the possession of Officer Bell. Such a witness could easily have confirmed, for example, whether the Sage data was irrelevant to the 08/15 period and whether the reference codes related to Sage data. But no such evidence was forthcoming. 40. Instead, we are left with the documentary evidence which, in our view, does not demonstrate that the Sage data was irrelevant to Officer Bell’s knowledge of the facts before 9 May 2018. On the evidence, therefore, it is impossible for us to conclude that the evidence of the facts, sufficient in the opinion of Officer Bell to justify the making of the assessment, came to his (and therefore HMRC’s) knowledge on 20 April rather than 9 May 2018. In other words, the Appellant has failed to discharge the burden of proof on the balance of probabilities. It follows, therefore, that the assessment was not time-barred by section 73(6) (b) VATA.”

“(1) Subject to the following provisions of this section, an assessment under section 73, 75 or 76, shall not be made– (a) more than 4 years after the end of the prescribed accounting period or importation or acquisition concerned, …” (a) more than 4 years after the end of the prescribed accounting period or importation or acquisition concerned, …”

“1. The Commissioners’ opinion referred to in Section 73(6)(b) is an opinion as to whether they have evidence of facts sufficient to justify making the assessment. Evidence is the means by which the facts are proved. 2. The evidence in question must be sufficient to justify the making of the assessment in question: C & E Commissioners v Post Office [1995] STC 749, 754G. 3. The knowledge referred to in Section 73(6)(b) is actual, and not constructive knowledge: C & E Commissioners v Post Office at p.755D. In this context, I understand constructive knowledge to mean knowledge of evidence which the Commissioners do not in fact have, but which they could and would have if they had taken the necessary steps to acquire it. 4. The correct approach for a Tribunal to adopt is (i) to decide what were the facts which, in the opinion of the officer making the assessment on behalf of the Commissioners, justified the making of the assessment, and (ii) to determine when the last piece of evidence of these facts of sufficient weight to justify making the assessment was communicated to the Commissioners. The period of one year runs from the date in (ii): Heyfordian Travel Ltd. v C & E Commissioners [1979] VATTR 139, 151; and Classicmoor Ltd. v C & ECommissioners [1995] V & DR 1, 10.1.27. 5. An officer’s decision that the evidence of which he has knowledge is insufficient to justify making an assessment, and accordingly, his failure to make an earlier assessment, can only be challenged on Wednesbury principles, or principles analogous to Wednesbury: Classicmoor paras. 27 to 29; and more generally John Dee Ltd. v C & E Commissioners [1995] STC 941, 952D-H. 6. The burden is on the taxpayer to show that the assessment was made outside the time limit specified in Section 73(6)(b) of VATA.”

“The relevant evidence of facts is that which was considered, in the opinion of the Commissioners, to justify the making of the assessment. The one-year time limit runs from the date when the facts constituting the evidence came to the knowledge of the Commissioners. … An opinion as to what evidence justifies an assessment requires judgment and in that sense is subjective; but the existence of the opinion is a fact. From that it is possible to ascertain what was the evidence of facts which was thought to justify the making of the assessment. Once that evidence has been ascertained, then the date when the last piece of the puzzle fell into place can be ascertained. In most cases, the date will have been known to the taxpayer, as he will be the person who supplied the information.”

“… in the absence of specific evidence as to when this copy documentation was sent or received, I am not satisfied on a balance of probabilities that any particular copy document was received 12 months or more before the Assessment was made.”

“Overall, I have concluded that the last piece of evidence to justify the making of the Assessment was communicated to the Commissioners when [the] contents of the copy documentation sent to Officer Ansah following his visit on 2 November 2010 came to his knowledge. For reasons set out at [76], I am not satisfied this was on or before 14 November 2010. It follows that, on a balance of probabilities I have concluded that the Assessment was made within 12 months of the last piece of evidence being communicated to the Commissioners.”

“[25] In my view, this guidance [in the judgment of Dyson J in Pegasus Birds] supports the approach contended for by HMRC and adopted by the FTT and the UT below. Proposition 3 emphasises the importance of the word ‘knowledge’ in the sub-paragraph. Constructive knowledge is not sufficient. Yet Mr Jones’s submission amounts in effect to a plea for constructive knowledge to be treated as sufficient. He says that it is enough for the relevant HMRC officer to know that relevant evidence exists, even though he does not know what its contents are. This is constructive knowledge of the facts said to be evidenced by the material in question. Proposition 1 makes the point that in this context there is no distinction to be spelled out of the phrase, ‘evidence of facts’, between knowing that evidence exists and knowing what that evidence reveals about the facts of the case. [26] Section 12(4)(a) sets out the ordinary limitation period which is applicable. Sub-paragraph (b) is clearly intended to operate on a narrow basis. But the interpretation proposed by Mr Jones would make its application very wide, creating the risk that it would subsume the ordinary limitation period in many cases, to an extent which Parliament did not intend. The object of sub-para (b) is to give effect to a principle of fair treatment of taxpayers which is much narrower. If HMRC make a later assessment to claim underpaid tax, relying on a number of factual building blocks based on evidence they have seen, a shorter limitation period is appropriate if they knew about that evidence and what it revealed earlier on but sat on their hands and failed to take prompt action on the basis of it. [27] The structure of section 12(4)(b) itself and the guidance given by Dyson J supports this interpretation. The phrase, ‘sufficient in the opinion of the Commissioners to justify the making of the assessment’, is a reference to the opinion actually formed by the Commissioners at the time when they issue the assessment which is in dispute in the proceedings: see Dyson J’s proposition 4(i). Proposition 4(i) is modified by his proposition 5 if it appears that the officer acting for the Commissioners has behaved irrationally or in a Wednesbury unreasonable way (see Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223) in taking the view that an assessment could not be issued on the basis of some less complete set of evidence than he in fact required to be available before he thought that he could justify making the assessment in question. [28] Paragraph (b) in s12(4) requires that one identifies the evidence taken into account by the officer who issues the assessment as the justification for issuing it (or, under proposition 5, the evidence of which he was aware which ought rationally to have compelled him to reach the opinion that an assessment would be justified at some earlier stage), and compares that with the ‘evidence of facts’ which it is said the Commissioners knew a year or more before the assessment came to be issued. Both elements in the comparison turn on the subjective state of mind of HMRC officers regarding what they understand the evidence available to them actually shows. If the ‘evidence of facts’ known to the Commissioners previously was the same as the evidence of facts which led them to form the opinion later on that an assessment was justified (or, on a Wednesbury approach, should have led them to form that opinion), then it will be clear that the Commissioners have sat on their hands and the special, truncated limitation period in paragraph (b) will apply. [29] It is this comparative exercise to which Dyson J refers in proposition 4(ii). In my view, it is clear that where he speaks of the last piece of evidence being ‘communicated’ to the Commissioners, he means that it is communicated in such a way that the contents of the evidence are in fact known to them. He does not mean that it is sufficient that the evidence is made available to them, although it is not read and digested by them. [30] Despite Mr Jones’s efforts to distinguish the present case from a situation in which documents are made available to an HMRC officer in a general sense, such as where he is simply presented with a room full of documents and told that he can look at anything he likes, there is no viable dividing line to be drawn. In that situation, the officer will not have knowledge of the ‘evidence of facts’ contained in each and every document in the room. It is unrealistic to suppose that Parliament intended that the special limitation period in s12(4)(b) is applicable in such a case. The officer will only have such knowledge where he reads and digests the contents of particular documents. Similarly, in our case, Mr Ansah did not have knowledge of the ‘evidence of facts’ contained in the certificates of conformity until he read and digested their contents, if he ever did. On the findings of fact which were made, this did not happen before the critical cut-off date for limitation purposes of 14 November 2010.”

“For the reasons I have given, I consider that the FTT and the UT applied s12(4)(b) correctly to the facts in this case.”

“When a court makes an assumption about the law, instead of reaching a focused determination in relation to it, the decision based upon it does not carry binding authority under the doctrine of precedent: National Enterprises Ltd v Racal Communications Ltd [1975] Ch 397, 406-408.”

“… there is a principle stated in general terms that a subsequent court is not bound by a proposition of law assumed by an earlier court that was not the subject of argument before or consideration by that court.”

“Like all exceptions to, and modifications of, the strict rule of precedent, this rule must only be applied in the most obvious of cases, and limited with great care. The basis of it is that the proposition in question must have been assumed, and not have been the subject of decision. That condition will almost always only be fulfilled when the point has not been expressly raised before the court and there has been no argument upon it: as Russell LJ went to some lengths in National Enterprises Ltd v Racal Communications Ltd to demonstrate had occurred in the previous case Davies Middleton & Davies Ltd v Cardiff Corpn 62 LGR 134. And there may of course be cases, perhaps many cases, where a point has not been the subject of argument, but scrutiny of the judgment indicates that the court's acceptance of the point went beyond mere assumption. Very little is likely to be required to draw that latter conclusion: because a later court will start from the position, encouraged by judicial comity, that its predecessor did indeed address all the matters essential for its decision.”