Response to Making Tax Digital – Sanctions for late submission and late payment

 

Eaves and Co have submitted a response to the HMRC consultation document of 20 March 2017 in relation to sanctions for late submission and late payment as part of Making Tax Digital.  We have reproduced our response below.

 

Please feel free to comment.

 

Response to Making Tax Digital – Sanctions for late submission and late payment. Consultation document – 20 March 2017

 

This is a very difficult document to respond to, because it is so wrong headed.  When Chancellor Osbourne announced it, it was alleged to be a liberating move.  He has since been relieved of his position.  The legacy of ‘Making Tax Digital’ remains.  My concern is that, as currently drafted, it runs a high risk of ‘Making Tax Dysfunctional’.

 

  1. Fundamentally, if it is such a good idea, and is going to work well, so that ‘businesses flock to it’, there is absolutely no reason to make it compulsory.

 

  1. In a free society, businesses should have the discretion to run their own affairs as they see fit.  The proposals extend the historic system of annual filing to filing 5 income tax returns per year.  This is not ‘liberating’, it is adding extra commercial pressure and cost.

 

  1. The Federation of Small Business puts the costs at 10 times the HMRC estimate.  For bigger businesses the extra costs may be more.  As one provider put it, even the cost of a training seminar may well exceed FSB estimate.

 

  1. These costs would just be a burden if the system was compulsory with ‘sanctions’, as proposed.  If there was a benefit, which added to efficiency businesses would (and should) pay for appropriate software at market price.  No need for Government interference.

 

  1. On this theme, which bit of the equation:-

Government + Big Computer Idea = Cost Effective Happiness

has even been proven true?

 

  1. HMRC say that the Making Tax Digital programme will not save them material costs.  If the benefits therefore ensue to business, should they not be given the choice?

 

  1. There should be no sanctions if they decide their current systems are adequate, or perhaps even better than the HMRC ‘private licensing’ proposals?

 

  1. Everyone should be equal before the law.  Self-employed tax payers already suffer extra burdens in that they are more often called upon to file annual tax returns.  To make it 5 returns per annum is unfair and oppressive, especially if the stress of potential sanctions is imposed.

 

  1. Businesses are already obliged to maintain and produce adequate records to prepare relevant annual returns.  Understandably most view it as an unprofitable burden, accepted as part of the benefit of being a citizen of a democracy such as the UK.  Politicians should recognise though that the equation and relationship are each fragile and based on mutual trust.  To multiply by 5 the burden risks suggesting a taxpayer is untrustworthy and (with sanctions) ought to be punished for errors in compliance.  This is not a route to encourage the levels of voluntary compliance that the UK has been fortunate enough to experience historically.

 

  1. Recent case law on ‘reasonable excuse’ highlights the lack of HMRC sympathy and understanding on the pressures imposed by tax compliance, so would not seem to be adequate protection.

 

  1. In any event, this is starting from the wrong perspective.  Individuals and businesses should be free to act as they see fit to benefit the economy as a whole.  They should not be restricted by regulation to act in accordance with Government dictat, unless the action they propose is harmful.  There is already an obligation on business to keep adequate records.  This should include the freedom to keep them in accordance with specific, tailored business requirements, suitably for the business concerned, rather than following a generic algorithm designed by someone with no knowledge/interest in the particular business.  Surely it is patently obvious such freedom must be better for the UK economy as a whole.

 

  1. To suggest that a single ‘app’ can successfully organise management accounts from every business from baking creak cakes to running a portfolio of investment properties is too bizarre to be believable.  Any accountant will tell you the key profit indicators are going to be different.  The business software market can respond, as appropriate, but buying a government approved Trebant (historic reference) will only end in tears.

 

  1. Distorting the business software market by imposing ‘Government Requirements’ is providing anti free market protection for the software houses concerned.  This must be unfair and an inappropriate use of Government power.  Why?  Would this not be illegal under EU rules whilst we are still a member, pending finalisation of Brexit?

 

  1. In a secular, capitalist society, why can there be an exemption for ‘religion’.  Why not allow a simple commercial decision: ‘This adds cost, stress and burden for (no) business benefit.  I choose (or choose not) not to do it’?  That would allow those believing in Making Tax Digital to move ahead, without distorting the rest of the crucial, small business economy.

 

  1. The benefit claimed by HMRC is that small businesses would keep better records.  Some small business have poor records, it is true, but they tend to be at the bottom end of the spectrum.  As businesses grow, especially when they take on staff, record keeping becomes more important.  To state the obvious, losing a cash receipt when it goes to a pilfering employee costs 100% of the receipt.  This is undesirable for the business!  Compare to saving 20% on income tax?  Bigger business have controls.  Bigger businesses tend (by definition) to make more profits, so the ‘tax saving’ by imposing MTD is I suspect mythical.

 

  1. In any event, to put it into context Tesco recently paid £108m to avoid being prosecuted for financial fraud, plus more again in compensation.  How many window cleaners taking the odd tenner in cash would that amount to?  Compulsory MTD looks like a sledgehammer to crack a nut, and so, in the way of many such initiatives has the appearance of overzealous behaviour by the State for little/no benefit.

 

  1. There may well be an argument to say that the idea is discriminatory in that it prejudices:-

a) Entrepreneurs who do not have English as their first language.

b) Those self-employed with learning difficulties etc., who may well earn a decent living with a ‘hands on’ a labouring job making them proud and independent, but would find quarterly reporting unfairly daunting.  Should they be forced on to Government benefits?  To what end?

c) Entrepreneurs who do not trust electronic intercourse for financial transactions.

 

  1. With regard to the latter HMRC have been somewhat patronising about ‘elderly’ taxpayers.  It is age discrimination in itself?  They have then pointed out that such people often use mobile telephones etc.  True, but there is a huge difference between making a telephone call and engaging with third party electronic transactions which may not be totally secure.

 

  1. The internet is inherently insecure as has been proven by a series of hacks into various Government and Business computer systems.  The NHS was recently severely disrupted by ‘relatively unsophisticated’ hackers.  The CIA has been hacked – despite (presumably) top quality security and operating protocols.  Why would any nation therefore risk putting much of its economic output on to a single system, which is also going to have the ability to demand money?  Do you think the odd criminal or foreign Government might fancy the ability to have even just a day of receipts (I’ll take 31 January, please)?

 

  1. The underlying ethos is that ‘Digital’ is the best.  It is new.  It is the way forward for the future.

 

Fine; then let it compete in the Market Place.  If it is good then there is absolutely no need to make it compulsory and penalise those who trundle along behind.

 

‘Digital’ is best [as a hypothesis].  Prove it by not requiring sanctions.  Freedom for taxpayers to choose.  Yes, comply with the law to submit annual returns but no to 5 times that obligation.  (Choice for business to focus on their own key profit indicators – not arbitrary rules set by centralised dictat.  If we were customers we would have gone elsewhere!]

 

  1. The proposed exemptions for MTD are noted.

 

There is a religious exemption.  How do HMRC intend to ‘police’ claims under that heading.  In this context I note the firm swearing by Elizabeth I on her Coronation, that the State should have ‘no desire to make windows into men’s souls’.

 

What is to happen if someone claims the exemption?

Making Tax Dysfunctional

Those Impossible Situations – A Fair Tax System?

HMRC have over recent years spent a fortune on “Management Consultants”.  Consultants preaching efficiency often talk about an 80:20 rule, pointing out that the majority of “profits” come from the “best” customers.  Great, if you are a focused, private sector profit generator.  What though if you are a Government body, which surely ought to be run by Civil Servants trained to treat all citizens equally?  We are not “customers”, despite HMRC Newspeak.  As a Firm we tend to deal with taxpayer exceptions and unusual situations, so understand that not everyone is “average”.  We believe that the tax system should cater for those who, for whatever reason, do not fit within the “normal” generality.

We are keen that the tax system should be administered fairly, in accordance with the law.

A current fear is that the present HMRC focus on penalties, with much greater fines than in the past, may result in unfairness.  The current system may result in a breakdown of trust.  Currently, it is common place for there to be greater penalties for innocent arithmetic errors in tax computations, compared to deliberate theft, say in terms of shoplifting, which apparently is below the police threshold in most cases.  Current treatment appears bias against the small business or individual taxpayer.

Here is a ‘hypothetical’ situation to consider:

  • A UK resident taxpayer leaves UK part way through year to take up a new job abroad

  • Technically, having been resident at the start of the tax year, he would be resident for the whole of it, but his new job contract means he can expect to meet the conditions for “split-year treatment” for full-time work abroad. This means he is treated as non-resident from the date he leaves the UK.  This would be common sense in most peoples’ view, not tax avoidance.  Practically, in such a situation, it also means he does not write to tell HMRC about his overseas employment.  He pays tax to the local country where he lives and works.

  • However, to get the split year UK treatment, the rules require that the taxpayer be non-UK resident in the following tax year too, by virtue of work abroad. Of course, the happy recipient of the new job offer expects to meet this, because he is going to be working abroad and intends this to continue.

  • Suppose though, for whatever reason; say, illness/ sickness/ redundancy/ war/ sheer misery at the job not being what was promised, the taxpayer returns to the UK after some months. As a result therefore, he becomes UK resident again.  Not only does this affect his tax residence status for the year of return, it also means he fails to meet the conditions for non-residence for the preceding year.

  • As a result of this, the worker is now taxable on all worldwide income for the whole of the previous tax year as well.

  • Technically, HMRC may then argue for late notification and issue penalties, even though the individual involved acted perfectly properly, in terms of his anticipated and existing circumstances at the relevant times for notifying HMRC. The required dates altered after the event, because of changed circumstances!

  • HMRC may say “They may not take the point.” With respect, that is not the principle at stake.  Ordinary, innocent actions should not be subject to a potential fine, which may [or may not] be released by State discretion.   That is not the Rule of Law, but the empowerment of bureaucrats, with obvious dangers of corrupt dealing.  We are not suggesting HMRC are corrupt, but experience with history and other jurisdictions makes the risk…kind of obvious!

We would be interested to hear people’s thoughts on how a fair tax system can potentially impose a punitive penalty on ordinary law-abiding citizens for being as “morally suspect” as to get unexpected illness?

Practical experience and thoughts on the principles welcome!

Making Tax Digital – Your Thoughts Welcome

As you may be aware, new proposed rules on tax compliance, called Making Tax Digital, are being consulted on at present.  We are planning on preparing our own response to the consultation document, and would welcome your thoughts to take on board and incorporate into our thoughts on a response.  In fact, we would suggest you send in your own response, but we would still welcome your input on the points raised.  They are important.

Of the proposed changes, the “digital tax system” is perhaps the one that will cause the biggest changes to advisors, businesses and individuals.  It is under this that the proposed “end of the tax return” would occur.  Individuals will make changes to their digital tax account throughout the year and it is proposed that information would feed in automatically from real-time PAYE and banks and building societies.

A significant proposal is that, under these rules, businesses will be required to keep digital records and to provide quarterly updates to HMRC with summary data from these records.  There appear to be no proposals to help businesses with the cost of appropriate software.  Bearing in mind there would then be an annual taxable profit calculation due after the year end, what is the reason behind the proposal for quarterly reporting?

It is proposed that this would commence from April 2018 for income tax purposes.  The main exemption from the rules will be businesses with turnover of under £10,000, which would seem to help few.

Some of the particular issues that we will look to raise concern the following:

  • The rules are proposed to be mandatory. This certainly raises concerns for certain taxpayers as noted below.  One has to wonder why the rules should be mandatory, when it is claimed by HMRC that they will be welcomed by most taxpayers?
  • Certain individuals and sole-traders may find the rules particularly difficult. These might include elderly taxpayers and those who are not computer literate, or do not own appropriate equipment/software.  Whilst it may be news to those in power, not all people have a PC and certainly not all have mobile phones with internet access (which was claimed to be the solution to not having a PC).
  • Entering sensitive and important financial information on one’s phone may not be ideal in any event. Other HMRC suggestions include asking a family member for help.   However, this overlooks the fact that financial information can be sensitive even (or perhaps particularly) amongst family members.  We feel that this aspect should not be overlooked in the drive towards digital taxation.  We would commend the article in Taxation by Robin Summers FCA on this point.
  • Businesses will be required to submit information to HMRC on a quarterly basis. This could be particularly onerous in the case of small businesses where a multitude of things could [and will for some] cause problems. It may be fine when things are running smoothly, but why add extra burdens?   Life suggests that, unfortunately, there can be upsets…Family problems, business problems, partnership splits, illness, death of [someone] …etc. etc.…  In such circumstances surely no- one would expect the first priority of a business should be to file an HMRC form, ahead of [say] visiting their dying mother?  Once behind, such a short reporting period would make it increasingly difficult to get up to date.  Recent practical experience with HMRC would suggest a “reasonable excuse” let out may be insufficient!  [See previous blogs and recent case law.]
  • Even for the biggest business, access to accurate up-to-date information at short notice could be difficult. Hence, the idea is likely to cause a significant increase in work on administration.  The proposals suggest this would fall disproportionately on small business.  Such businesses, especially start-ups, may therefore decide to opt out of being “HMRC Customers”.  Creating barriers to joining the “Tax Club” would not, in our opinion, appear to be a sensible way forward.  Do people agree?
  • It may be noted that Stock Exchange listed plc’s do not have a compulsory requirement to publish detailed figures every quarter. Why should it be fair to make a small family firm subject to more onerous conditions?
  • The requirement to keep digital records, “as close to real time as possible” again could cause issues for those with limited access to/comfort with technology. There may also be many in businesses where keeping digital records in real time could prove an excessive burden in a practical sense. For example, someone travelling on a music or comedy tour, where time pressures are high.  For them building a pile of receipts is the best that can be hoped for in the short term.  Their Accountants can then help them do the reporting at the end of the year.
  • Business innovation requires flexibility and imagination, not an obsession with bureaucratic record keeping? Such a tight time table as proposed may be ok for a smooth running, continuing business, but growth and change require intensive resource.
  • Importantly, for those with any conception or imagination on what it is like to run a business, [for example, Accountants with real clients] they may blanche at the thought that the first objective of an entrepreneur should be to file Government forms when he is working all hours to try to get a business to produce a profit.  Yes, there should be an obligation to report to HMRC, but there should be a fair interval between striving for an objective and sending in a report on the result.  Sending in a football score after 22.5 minutes is a waste of resource all round. Outcomes can change over time.  Income Tax is based on the profit for the year.
  • Many businesses are seasonal, so use “quiet periods” to catch up with administrative matters. This often enables them to keep staff employed throughout the year, rather than laying them off.  How does the Government wish such businesses to cope with the change?
  • We feel adding extra administrative burdens can only put up an extra barrier to entrepreneurship. Does the Government wish to reduce the economic benefits inherent in the creation of small business, or just encourage them to join the Black Economy?

Of course, others may have other views.  We would like to hear. Please let us know.

The full consultation documents can be found at https://www.gov.uk/government/collections/making-tax-digital-consultations.  Honestly, we would be very interested to hear your thoughts.

The Season of Goodwill is (hopefully) not ended forever, but certainly the Tax Season is Upon Us – “Joseph also went up from Galilee…into Bethlehem to be taxed with Mary his espoused wife, being great with child” (Luke 2:4-7)

As the above quotation shows, paying taxes is nothing new.  As we approach the end of January and the deadline for filing and pay tax for the 2014/15 tax year we write to remind you that Eaves and Co are here to help.

Whether you are an individual struggling to understand your tax return form, or have not registered for HMRC’s Online Services in time, or an accountant needing extra assistance with a complex tax issue, we can help and hopefully ensure you are able to file before the 31 January deadline.   We have specialist extensive professional experience and expertise to deal with those knotty technical problems, plus relevant software and access to HMRC Online filing, so can file returns online at short notice.  All this with friendly service!

On another topic, and as a reminder for clients who are having difficulty raising finance, you may recall from previous messages that we have a contact who is involved in raising finance for all sorts of different purposes. Whatever weird and wonderful schemes your clients wish to consider – talk to Jonathan Smith on (Tel: 07778 523499) or (email jgsmith@jgsfinance.co.uk).  Quote reference ‘EVL’.  His website is www.jgsfinance.co.uk/asset-leasing-contract-hire-sale-leaseback.  This includes arranging loans to pay unpleasant tax bills.

As a reminder, Jonathan Smith qualified as a Chartered Accountant with Arthur Andersen but now works solely in raising finance. He is a man I have worked with over many years, and as a former partner of mine, a man who I trust and can recommend highly.

Reasonable Excuse – Further Successes for Taxpayers in the Courts

Two recent tax cases heard by the First-Tier Tribunal show that the courts continue to interpret the phrase “reasonable excuse” more generously that HMRC internal guidance allows for.

In S Taylor, a taxpayer was somewhat surprisingly found to have a reasonable excuse as he had appointed an agent and relied upon them to deal with the self-assessment form.  HMRC guidance is explicit that relying on a third-party is not a reasonable excuse, however, the Tribunal felt this to be incorrect in these specific circumstances.

The taxpayer delivered his papers to the agent in sufficient time but the agent had been busier than usual and had missed the taxpayer’s return.  The agent had not told the taxpayer this, and the Tribunal therefore felt that he had taken reasonable steps to file on time.

Another case showed a partial success for the taxpayer in Perfect Permit Ltd t/a Lofthouse Hill Gold Club.  HMRC had levied penalties in relation to late employer annual returns for 2008/09 and 2009/10.  The 2008/09 return was submitted more than a year late, whilst the 2009/10 return was filed 47 days late by the taxpayer’s new agent.

The Tribunal found that the failure of the previous agent to submit their returns did not constitute a reasonable excuse and it was up to the company to seek redress from the previous agent.  However, the new agents had encountered difficulty registered with HMRC.  The tribunal agreed that, had HMRC registered the new agents promptly, the return for 2009/10 would have been submitted on time.  As such, the delays caused by HMRC did constitute a reasonable excuse.

We would suggest that taxpayers seek advice where they feel that HMRC are being unreasonable with regard to reasonable excuse claims.  Eaves and Co would be delighted to help and would love to hear from you.

Reasonable Excuse – HMRC Publishes List of Worst Excuses, But Are They Ignoring Genuine Cases?

HMRC have released a list of the 10 worst excuses for missing the 31 January tax return deadline, however there are a number of cases where HMRC’s limited definition for what constitutes a reasonable excuse has been exposed.

 

The list of excuses published by HMRC is as follows:

 

  • My pet dog ate my tax return…and all the reminders.
  • I was up a mountain in Wales, and couldn’t find a postbox or get an internet signal.
  • I fell in with the wrong crowd.
  • I’ve been travelling the world, trying to escape from a foreign intelligence agency.
  • Barack Obama is in charge of my finances.
  • I’ve been busy looking after a flock of escaped parrots and some fox cubs.
  • A work colleague borrowed my tax return, to photocopy it, and didn’t give it back.
  • I live in a camper van in a supermarket car park.
  • My girlfriend’s pregnant.
  • I was in Australia.

 

Whilst these excuses are clearly unreasonable, recent cases have shown that HMRC continue to pursue their internal line that only ‘death, disease or disaster’ would constitute a reasonable excuse.  However, the legislation itself simply states that the excuse must be reasonable.  Recent cases have included excuses such as inability to pay (T James V HMRC), HMRC communication failure (M Styles v HMRC), HMRC system failures (Eclipse Generic Ltd v HMRC) and in the case of Spink v HMRC (2014), it was found that it was reasonable for a taxpayer to assume that tax was not payable until the actual tax status had been established.

 

Each case should be determined on its own facts and we believe HMRC are continuing to refuse reasonable excuse claims in circumstances that are “reasonable” under case law.

Dividends not unlawful according to Tribunal – R Jones, J Jones v HMRC

In a recent case (R Jones, J Jones v HMRC) that initially appears surprising, the First-Tier Tribunal determined that dividends declared by a recruitment consultancy company, which subsequently went into insolvent liquidation, were not unlawful.

The company had been struggling but they were still forecast to make profits at the time dividends were declared.  Unexpectedly, the company’s invoice finance providers demanded immediate repayment of sums owed.  It appears that this was what forced the company into liquidation as they were not able to obtain the funds on demand and were unable to find alternative finance.

On appointing liquidators, the directors were advised to reclassify the sums paid as dividends as salary as there was a risk that they could be unlawful.  There was no evidence presented as to why they believed this to be the case, and the directors admitted to not fully understanding the advice given.  This reclassification took place, but the accounts and company records were not fully updated to reflect this.

The directors declared the salaries on their tax returns, but stated that tax had been deducted, which was not the case as when the payments were made, they were treated as dividends.  HMRC argued there had been a wilful failure by the business to deduct PAYE and National Insurance on these payments of salary, and were therefore seeking to recover the tax from Mr and Mrs Jones.

The directors appealed arguing that the payments had been intended as interim dividends.

The First-tier Tribunal decided that the reclassification amounted to “nothing more than a flawed analysis of the transactions which had taken place”.  The sums were clearly intended as dividends and they did not see any reason as to why they should have been unlawful.  They did acknowledge that the position may have been different if the dividends were unlawful.

The taxpayers’ appeal was therefore allowed, with the sums taxable as dividends as originally intended.

This case highlights the importance of taking correct advice, and of ensuring that dividends are declared in a lawful manner with proper records made.  The taxpayers in this case were able to get the desired outcome, but the position would likely have been resolved more easily if proper advice was taken at the time.

Pity The Fools – Mr Tee Penalty Appeal Allowed Due to HMRC Vagueness

 

Following a prison sentence for benefit and mortgage fraud, a taxpayer in a recent case (Mr Tee v HMRC), was issued a notice by HMRC under FA 2008, Sch 36 requiring him to provide details of payments to workers and his own income as a financial advisor.

 

On failing to respond to the notice, he was issued with a penalty which he appeal, claiming that he had not traded as a financial advisor and that HMRC had already accepted that tax returns were not due for 2009/10 and 2010/11.  At the Tribunal, he also claimed that he had not responded as the police still had his documentation.

 

The Tribunal agreed with the steps taken by HMRC, but found that the actual notice issued was too vague in terms of the information required, as well as being unspecific with regard to the time period in question.  It was therefore very likely that the taxpayer would have a reasonable excuse for not complying.

 

They determined that the taxpayer’s appeal should be allowed, and HMRC should then make a fresh start on their proceedings.

Compensation Pitfall – Don’t Look an HMRC Gift Horse in the Mouth!

In the First-Tier Tribunal case of K Moorthy (TC3952) the judge noted that the taxpayer ended up in a worse position regarding his compensation for loss loss of office following the decision than if he had accepted an earlier offer made by HMRC.

ITEPA 2003, s.401 catches payments made directly or indirectly in consideration of a termination of employment. Unfortunately, in this case the tribunal found that the entire sum of £200,000 which had been paid to the taxpayer fell within the scope of s.401.

Following redundancy in March 2010, the taxpayer argued that he was discriminated against because of his age and subsequently looked to take his case to an Employment Tribunal. As a result of mediation, the Company paid the taxpayer an ex gratia sum of £200,000 as compensation for loss of office and employment. This was paid in 2010/11 under an agreement that the first £30,000 was paid free of tax and the balance subject to a 20% tax deduction. The taxpayer claimed a refund of £34,000, on his tax return, stating the tax had already been deducted and that it should be fully exempt as it was paid to settle his discrimination claim and protect the company’s reputation.

HMRC considered the full amount to be taxable but by “concession and in order to try and reach agreement” offered to treat £60,000 as tax exempt. The taxpayer appealed because he felt the the full amount should be exempt. He also revealed that the Company had previously made a statutory redundancy payment of £10,640.

The taxpayer’s appeal was unfortunately dismissed with the judge ruling that the £30,000 exemption should be reduced to take into account the statutory redundancy payment of £10,640. Further the judge ruled HMRC’s additional £30,000 allowance was an ‘unlawful concession’ that the Tribunal could not take into account.

Clearly, the facts in each compensation for loss of office/employment case are different. As ever obtaining professional advice is sensible. It is possible that suitable advisors could have informed Mr Moorthy that the deal offered by HMRC was a good one and therefore saved him a substantial amount of tax.

Discovery Allowed by Tribunal – N Pattullo v HMRC

The question of what constitutes a discovery remains an area of ambiguity, although recent cases tended to have sided with HMRC’s view that virtually anything can be considered a discovery.

A further recent case was heard on the subject in N Pattullo v HMRC (TC03958), although the decision in the case is unlikely to be too controversial or unexpected, especially considering the case involved an avoidance scheme.  In the current climate, the courts are tending to be reluctant to favour taxpayers in cases where they have used an avoidance scheme.

Mr Pattullo participated in a scheme which generated capital losses of around £2.6m which he reported on his 2003/04 tax return.  HMRC concluded that he had participated in an avoidance scheme and issued a notice under TMA 1970, s.20(1) requesting relevant documents.  The taxpayer did not comply with this request and instead sought a judicial review to revoke the notice, but this request was dismissed by the Court of Session in 2009.

In the meantime, the Court of Appeal had found in favour of HMRC in the case of J Drummond v CRC (2009) which involved a similar second-hand insurance policy scheme.  Therefore, HMRC raised a discovery assessment for £835.400 as they were now satisfied that his original return was incorrect.

The taxpayer appealed, arguing that there had been no discovery as no new information had come to light.  The Tribunal found that the decision in Drummond v CRC constituted a discovery as it converted a “suspicion” of an underpayment of tax into a “positive view”.  It was doubtful that a hypothetical officer would have been aware of these avoidance schemes before the Drummond case was heard.

The taxpayer made a final attempt to protect his position by arguing that the grounds of his appeal should be amended to argue that the original avoidance scheme actually worked.  This was again dismissed by the tribunal who felt that, bearing in mind there were a number of appeals on similar schemes to Drummond pending, he was trying to jump on a “bandwagon” allowing other taxpayers to argue his case for him.  They felt the amendment was too vague and dismissed the appeal.

The final decision will likely not be a surprise to many, but does highlight the current attitude of the courts to the use of such avoidance schemes, and the wide definition of “discovery” that HMRC are using.