[2009]UKFTT 55 (TC)

TC00034

Appeal number SC 3170/2007

Appeal; assessment; onus

FIRST-TIER TRIBUNAL

TAX 

	MRS MOIRA McCRAE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Assessment)	Respondents

				TRIBUNAL: 	J GORDON REID QC, F.C.I.Arb (Judge)

Sitting in public in Edinburgh on 13 January 2009

Patrick H Docherty, tax practitioner, Dalgety Bay, Fife, for the Appellant

J I Daley, Inspector of Taxes for the Respondents

© CROWN COPYRIGHT 2009

DECISION

Introduction
1.	There are three appeals to consider.  The first is an appeal against an Assessment for the year 1999/2000.  The second is an appeal against an Assessment for the year 2000/01.  The third is an appeal against an amendment to the Appellant’s self-assessment return for the year 2001/02.  
2.	The Appeals were heard at Edinburgh on 13th January 2009.  Mr Patrick H Docherty, from Dalgety Bay, Fife, appeared on behalf of the Appellant.  He described himself as a tax practitioner and a former Inland Revenue official.  He led the evidence of the Appellant.  J I Daley, Inspector of Taxes of the Appeals Unit appeared on behalf of the Respondents (“HMRC”).  He led the evidence of Miss Susan Davies, an HMRC inspector of taxes.  HMRC produced a bundle of documents. There was no dispute as to the authenticity of these documents or, where appropriate, their transmission and receipt.
Preliminary Issues
3.	In December 2008, it was drawn to the attention of the Office of the Special Commissioners that there were late appeals against a Revenue Assessment for 2002/03 and Revenue Amendments for 2003/04 and 2004 /05.  There were also late appeals against Penalty Determinations for all years from 1999/00 to 2004/05.  HMRC have refused to accept these appeals.  Their reasons are that no explanation had been offered for their lateness and no grounds for appealing had been advanced.  HMRC therefore proposed by letter dated 15/12/08 that the question whether these appeals should be admitted should be determined at the Hearing on 13/1/09 and if admitted the merits of these appeals should be determined at that Hearing.  By letter dated 30/12/08 to each party, the Office of the Special Commissioners stated that the Special Commissioner had agreed to consider these late appeals at the Hearing.  Mr Docherty claimed not to have received a copy of either letter but indicated that he was prepared to deal with the question of their lateness and agreed that I should determine whether these appeals should be allowed to be brought out of time.
4.	Mr Daley referred me to the relevant correspondence and to section 49(1) of the Taxes Management Act 1970 which provides that an appeal may be brought out of time if the inspector is satisfied that there is a reasonable excuse for not bringing the appeal within the time limit and that the application was made thereafter without unreasonable delay.  If, as here, the inspector is not satisfied, the application to bring the appeal out of time is to be determined by the Commissioners.   
5.	The time for appealing the Assessment and the two Revenue Amendments expired on 9/9/06.  The time for appealing the penalty determinations expired on 5/7/07.  In a letter dated 2/10/07 Mr Docherty appealed against determinations for the years 2003/04 2004/05 and 2005/06.  The reference to 2005/06 appears to be an error and it is not entirely clear whether this was an application to bring an appeal against all the penalty determinations.  In any event, the reasons given in the letter were difficult to follow, and did not come close to amounting to a reasonable excuse.
6.	By letter in reply dated 10/9/08 HMRC sought clarification.  Mr Docherty did not reply to that letter.  He claimed that he did not receive it.  He submitted that he had suffered a heart attack.  He also mentioned in a letter sent on about 10/1/09 to the Office of the Special Commissioners that his brother had unfortunately died suddenly.  When those events occurred and how they affected the Appellant’s ability to receive advice from Mr Docherty, or someone else if he were incapacitated, are matters which are obscure and on present information, and impossible to unravel.
7.	I regret to say that I found it difficult to identify any rational explanation for the lateness of these appeals, or the grounds of appeal.  Mr Docherty seemed to think there was an issue which had to be resolved in relation to the application of the Human Rights Act 1998 to him rather than to the Appellant.  I was informed that some discussion about human rights took place before another Special Commissioner in May 2008 and/or in June 2008.  The nature of that discussion is unclear.  There is no mention of it in the Special Commissioner’s Directions dated 7/5/08 or 25/6/08.  According to Mr Daley, the Human Rights point, whatever it was, was withdrawn by Mr Docherty at the second of those hearings.
8.	In the foregoing circumstances, I could not and still cannot identify any reasonable excuse for bringing these appeals out of time.  I therefore refused the application bring appeals out of time, against the Assessment for 2002/03, the Revenue Amendment for 2003/04, the Revenue Amendment for 2004/05, and the penalty determinations for the years 1999/00 to 2004/05 inclusive.  That is the end of these appeals.
9.	Had I allowed the application to bring such appeals out of time, I would have acceded to Mr Docherty’s requested to postpone hearing the merits of those appeals until a later date.
10.	The second preliminary matter was that Mr Docherty, independently of the first preliminary issue, sought a discharge of the Hearing.  The reason for the request is set out in Mr Docherty’s letter to the Office of the Special Commissioners dated about 10/1/09.  Essentially, he has requested HMRC to return the Appellant’s records so that he can examine them or various aspects of them.
11.	Mr Daley, who opposed the application for a discharge, pointed out that he had offered to return the documents in August 2008, but that the issue was not the documents produced but the lack of documentation in relation to various matters such as PAYE records, and details of the Appellant’s income from letting property.  This lack of documentation has been raised in correspondence as long ago as 2006 (e.g. HMRC letter to Mr Docherty dated 14/3/06).
12.	I took the view at the Hearing that the application for a discharge was not justified.  It was apparent from a cursory examination of the voluminous correspondence that the stance taken by HMRC which has led to the appeals identified in paragraph 1 above relates primarily to the alleged lack of records.  Moreover, neither Mr Docherty nor the Appellant herself appears to have taken up the offer made in August 2008 to return the records.  I also took into account the fact that the appeals had been outstanding for a long time; parties and their witnesses were present; and should an issue arise during the course of the Hearing in relation to documents which had not been lodged for the Hearing, the question of adjournment could be re-considered.  I considered that the Appellant would not suffer relevant prejudice if I were allow the Hearing to proceed.  I therefore refused the application for a discharge.
13.	The appeal proceeded in relation to the Assessments for the years 1999/00 and 2000/01, and the Amendment to the Self Assessment for the year 2001/02.  The facts relating to these are set out below.
Facts
14.	The Appellant was the owner of a Tearoom in Falkirk called Brambles, which she bought in about December 1998.  She also owned a number of properties which she bought following receipt of compensation she received in a car accident.  By profession she is a career consultant although she has not worked in that capacity for several years.  Hitherto, she had worked for a number of multinational companies.
15.	When she first acquired Brambles she appointed her sister as manageress.  Her sister was not able to manage the tearoom properly.  Adequate records were not being kept.  The Appellant visited the tearoom only at weekends.  Most of the staff were casual part time labour.  P11 Deductions Working Sheets for which the Appellant was responsible, were not properly completed.  After about seven months, the Appellant began to attempt to put matters in order.  She hired a manageress.  She too was not a success and questions of her honesty were raised.  By late 1999, the Appellant had resolved to sell Brambles and was actively seeking a purchaser.  She eventually sold the tearoom at some point in 2001.  No details of the transaction were produced or spoken to in evidence.  According to the Appellant, the purchaser refused to take over any of the staff describing them as “vagabonds and thieves”.  The Appellant said that she left some business records in the tearoom which she has been unable to retrieve from the purchaser.  Other records were said to have been lost in transit.
16.	The Appellant appears to have had a number of setbacks in her life.  She comes from a large family of fourteen.  One brother, she said was an alcoholic as was one of her sisters (referred to above); another brother committed suicide.  The management of Brambles appears to have been chaotic.  In order to sell Brambles, the Appellant said that she inflated the turnover figures.  Thus, she said, she would be unlikely to overstate the figures for wages in her accounts
17.	On or about 16/4/02 the Appellant signed and subsequently submitted her return for the year 6/4/01 to 5/4/02.  By letter dated 13/2/04 to the Appellant, HMRC opened an enquiry into the Appellant’s Return for the tax year ended 2002.  A statutory notice was issued under section 9A of the TMA.  Various business records were requested from Mr Docherty, who by then was acting for the Appellant.  By April 2004, no documents had been produced.  Accordingly, by letter to the Appellant dated 14/4/04 much the same documentation was required to be produced under section 19A.  The documentation related to (i) a tearoom in Falkirk called Brambles, and (ii) details of rent, expenditure and other matters in respect of various properties owned by the Appellant.   By June 2004, Susan Davies as the HMRC officer dealing with the case.
18.	Correspondence ensued.  The Appellant failed to provide the documents requested.  Miss Davies telephoned Mr Docherty and advised him that the till readings and bank statements were still missing.  According to a typed note prepared by Miss Davies at or about the time, Docherty also said that he was trying to reconcile the PAYE records; that he thought there were about 25 individuals who worked throughout the year and earned about £15 per week.
19.	By August 2005, the Appellant had still not provided bank statements and credit card account statements.  Statutory penalties were imposed.  By the end of the year little progress had been made.  In particular HMRC had repeatedly tried to persuade the Appellant to justify her claim for employee costs of £19,500 when her records with some interpretation could support only about £9750.   Adequate details of income from letting property had still not been produced.  The figure of £19,500 appears to have been an estimate calculated by Mr Docherty on the basis of 25 employees at £15 per week for 52 weeks.
20.	On 11/10/05, a meeting took place at the HMRC Tax Office, Dunfermline.  The Appellant, Mr Docherty, Susan Davies and another HMRC official were present.  The meeting lasted only about ten minutes.  The Appellant did not mention and was not asked about the meeting when she gave evidence. Miss Davies spoke to her note of the meeting in chief.  A copy of these Notes were sent to Mr Docherty.  Mr Docherty cross examined Miss Davies about the meeting.  She said, and I accept her evidence, that the meeting was so short because no progress was being made and the matters Mr Docherty wished to discuss were irrelevant.  When asked whether he had brought the bank statements requested in correspondence, he referred to the Human Rights Act.  When Miss Davies requested primary records, Mr Docherty demanded to see her warrant card.  He referred to the Official Secrets Act for no apparent reason.  He referred to three Inland Revenue officials who (or at least two of  them) had, he claimed, died from overwork.  He declined or was unable to explain the relevance of all this to the Appellant’s tax affairs.  When pressed to do so, he got up and left the meeting.  Mr Docherty did not, in his cross examination of Miss Davies, challenge the accuracy of the typewritten notes of the meeting.
21.	Some form of hearing took place before the General Commissioners in November 2005.  At that hearing, Mr Docherty was asked about the Appellant’s bank accounts.  There is insufficient evidence before me to make any finding as to what was the outcome of that hearing.
22.	By March 2006, little further progress had been made and the Appellant was warned, by letter to Mr Docherty, that a Revenue Amendment for 2001/02 and a Revenue Assessment for 1999/00 and 2000/01 were likely to be issued.  The Appellant was given a further thirty days to provide the appropriate information.  In the absence of a reply to HMRC’s letter dated 14/3/06, the Amendment and Assessments were issued on or about 25/4/06.  The result was an increased tax and NIC class 4 liability of, in total, the sum of £9,486.51 over and above the liability based on the returned figures for these three tax years.  Notice of appeal was intimated by Mr Docherty by letter dated 10/5/06. 
Discussion
23.	I found Miss Davies to be a reliable and credible witness.  She gave her evidence with restraint and in a straightforward manner.  I had reservations about the evidence of the Appellant. Given the picture of her business and financial affairs which emerged, it is difficult to describe her evidence as wholly reliable or credible.  However, even if I accept everything she said in evidence as truthful, that makes no difference whatsoever to the outcome of these appeals.
24.	The investigation the Appellant’s tax affairs for the years in question have taken place over a very long period.  Throughout that period, HMRC have acted with courtesy and patience in the face of persistent difficulties they have encountered as a result of the somewhat bizarre actings by the Appellant’s agent, Mr Pat Docherty.  For some time, he has had what can only be described as a bee in his bonnet about the application to him not the Appellant of the Human Rights Act.  For example, in his cross examination of Miss Davies he referred her to Article 3 of the Convention (Prohibition of Torture) and pointed out that he was never more than fifteen minutes from a coronary care unit.   The correspondence suggests that Mr Docherty does not enjoy good health.  Whether he attributes his present state of health to his long service with the Inland Revenue is unclear, and in any event, irrelevant.
25.	I regret to say I could make little or nothing of Mr Docherty’s closing submissions.  He referred to the badges of trade.  He did not address me on any particular figures or the extent to which the appeals should be allowed.  He did not advance any specific argument which could justify allowing the appeals in whole or in part.  
26.	Mr Daley submitted that the Appellant did not maintain sufficient PAYE records to verify the deductions claimed for wages in her accounts over the period between about 4/12/98 and 31/3/02.  Deductions Working Sheets were not properly completed.  She also did not maintain sufficient records of her income from property letting to verify and substantiate her declared income from 6/4/01 to 5/4/02.  Given the inadequacies of the records, Miss Davies took a realistic view based on the material produced, and that the resulting figures were the reasonable conclusions of a reasonable inspector and they should stand good.
27.	Finally, Mr Daley addressed me on the question of onus under reference to TMA section 50 and to Norman v Golder 1944 26 TC 293, T Haythornthwaite and Sons Ltd v Kelly 1927 11 TC 657, and Jonas v Bamford 1973 51 TC 1, 1973 STC 519.  
28.	In Norman,  an appeal against a Schedule D assessment, Lord Greene MR firmly rejected the notion that the onus of establishing the correctness of an assessment lies upon the Crown (page 297).  It is for the taxpayer to satisfy the Commissioners that the assessment is wrong.  A similar point is made in Haythornthwaite where Lord Hanworth MR said, at page 667, that it is quite plain that the Commissioners are to hold the assessment standing good unless the ...Appellant – establishes before the Commissioners, by evidence satisfactory to them, that the assessment ought to be reduced or set aside.  In Jonas Walton J observed, at page 25, that once the Inspector comes to the conclusion that, on the facts which he has discovered, (the taxpayer) has additional income beyond that which he has so far declared to the Inspector, then the usual presumption of continuity will apply.  The situation will be presumed to go on until there is some change in the situation, the onus of proof of which is clearly on the taxpayer.
29.	In my opinion, there has not been any satisfactory evidence produced to call in question the conclusions reached by HMRC.  In particular, it is apparent that wages were overstated in the year of enquiry and income from letting property understated.  The Appellant has not produced any evidence from which the onus resting on her might be discharged.  In these circumstances, the appeals must be dismissed.
30.	I dismiss these appeals in their entirety with some regret.  As already noted, HMRC have acted perfectly properly throughout and given the Appellant every opportunity to produce relevant business records and to deal with their reasonable enquiries.  At the end of the hearing, the Appellant stated “ I have the documents.  I have been advised not to produce the Bank Statements by Mr Docherty”.  If that is true, then she may wish to review carefully the advice she has received from and the actings of her tax adviser.
J GORDON REID QC, F.C.I.Arb

TRIBUNAL JUDGE
RELEASE DATE: 22 April 2009