The First Tier Tax Tribunal decided in the case of Prince & Others v HMRC that it had no jurisdiction over the application of ESC A19.
It was heard that the application of an extra statutory concession is governed by public or administrative law, and therefore this case needed to be settled through a judicial review.
The taxpayers’ appeals were struck out and we must now see whether a judicial review goes ahead.
Further to this, it appears that should an individual have an issue with how ESC A19 is applied to a particular case, then they should address their complaints to the Adjudicators Office. Following recent literature regarding the subject it appears that they have dealt with complaints regarding HMRC not taking into account exceptional circumstances in the application of ESC A19.
With this in mind, it appears to mean that as the Adjudicators Office have looked into complaints in at least one case, then they should be able to deal with others.
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Following HM Revenue & Customs crack down on tax avoidance, taskforces introduced in May 2011 are now focusing on the activities of various London barristers and other legal professionals who they feel may have unpaid taxes.
HMRC believe that these investigations along with other groups such as hairdressers, tattooists and restaurants in various locations around the country will bring in approximately £19.5m.
This will help them to meet their target of £50m being recovered by the 30 taskforces launched last year.
With the aggressive tactics, it is probable that investigations and enquiries will be on the increase, with HM Revenue & Customs warning that they are “coming after you”.
With recent crackdowns on tax avoidance (highlighted by media coverage), and the introduction of a number of HMRC task forces, the spectre of tax investigations and enquiries is more apparent than ever.
Qualified tax advisors can help by giving advice on HMRC powers and procedures; disclosures, penalties and negotiating settlements when HMRC undertake investigation proceedings.
Such investigations can involve both business and individuals, including those involving potential allegations of serious fraud and Proceeds of Crime Act implications.
More commonly, HMRC will adopt a civil settlement approach, where experience in preparing relevant disclosure reports and negotiating settlements can be vital in ensuring that the taxpayer is able to settle the problem areas in as efficient and cost-effective manner as possible.
Serious investigations can be traumatic, exerting significant pressure on both business and family life. Having experienced advisors is an essential part of the objective of reaching a satisfactory settlement with as little drama as possible.
Technical Enquiries cover another aspect of possible dispute with HMRC. They give the ideal opportunity to deal with potentially grey areas in the legislation, to ensure the client is defended robustly.
Despite the claimed ‘simplification’ of tax rules, the volume of tax legislation continues to increase. The 2012 Finance Bill was the largest ever, weighing in at 686 pages. With this ever-increasing pool of rules, it is inevitable that gaps in the intended legislation will occur.
Experience tax advisors are vital to ensure that the taxpayer’s position is represented fully in such situations. Eaves and Co are very experienced and specialise in providing advice on these sorts of tricky areas and would be delighted to hear from anyone with such concerns.
In the recent case of Mr Shakoor v HMRC, the appellant had failed to disclose the sale of two flats in July 2003 which resulted in significant capital gains. HMRC subsequently raised a discovery assessment for CGT of £49,014 plus a penalty of 70%.
The appellant contended the penalty on the basis that he had taken reasonable care by seeking advice from his accountant. He said the failure to disclose the gain was as a result of negligent advice from his accountant.
The accountant did advise that there was no CGT to pay, and that the disposal of the properties was not reportable on the tax return. However the accountant kept no notes of his advice but said he had relied upon two extra-statutory concessions relating to private residence relief. These clearly did not apply as the appellant had never resided in either property but the taxpayer asked for no explanation of this advice.
The Tribunal found that the taxpayer must have been aware that CGT was due on the properties, and it appeared to be “a case of shutting one’s eyes to what either was or ought reasonably have been seen as incorrect advice”.
The Tribunal did in fact cut the penalty to 30% giving the appellant the “benefit of the doubt” as a result of the poor advice given by his adviser. It observed that the appellant was content to “take a chance on the basis that his accountant had given him comfort, albeit in the rather dubious circumstances”
Under the new penalty regime, which covers the majority of taxes, there are minimum and maximum penalty levels prescribed under the legislation based upon the behaviour and quality of disclosure made by a taxpayer.
However many are unaware that HMRC have the discretion to reduce a penalty below the minimum percentage if the failure (resulting in a penalty) arises as a result of ‘special circumstances’.
HMRC guidance states that this means the circumstances have to be “exceptional”. However a recent tax tribunal found that if this definition was used the results would be too restrictive. The judge said that special circumstances were more akin to “something out of the ordinary, something unknown” and therefore they did not necessarily have to be exceptional.
The effect of this was that HMRC had not correctly considered whether “special circumstances” applied. Upon considering the facts the tribunal found that ‘special circumstances’ did in fact apply and therefore the original penalty was reduced by 60%.
It will be interesting to see whether HMRC use their power of discretion to reduce a penalty more widely in light of this case.
D J Cooper and Partners was formed as a partnership to provide services to one customer. The customer was a limited company which traded as a builders merchants. The partners were also shareholders / directors of the limited company.
HMRC challenged the tax treatment of cars which were owned by the partnership and used by the partners (who were also directors of the limited company). HMRC said that the directors of the limited company should have declared a benefit in kind for usage of the cars which they said were provided because of their office.
The tribunal case hinged on the commerciality of the arrangements and the court held that the partnership was wholly dependent on the company. This structure would not have existed without the connection and the partnership was seen as an attempt to avoid paying tax on what was primarily a personal benefit.