Joanne Lunn and Vanilla Monsoon Ltd v The Commissioners for HMRC
[2024] UKFTT 509 (TC)
Clive Kingdon & Ors v The Commissioners for HMRC
7 November 2022
[2022] UKFTT 407 (TC)
First-tier Tribunal
A business transferred from partners to a company. The taxman was late and had bad information, so the partners won and don't have to pay extra tax.
Key Facts
- •Appellants (Clive Kingdon, Terry Stead & Anne Kingdon) were partners in Rota Rod (Partnership) and shareholders in Rota Environmental Services Ltd (Company).
- •The Partnership's business was transferred to the Company in 2005; the date of transfer is disputed (March/April vs. August).
- •HMRC amended the Partnership's 2005/2006 return, claiming additional income based on a letter from the appellants' former advisors (Lunn & Co) stating a 2 August 2005 transfer date.
- •Significant delays in HMRC's investigation (over 6 years) and the appellants' initial use of Lunn & Co (later found guilty of tax fraud) hampered the case.
- •Evidence was scant, relying heavily on conflicting letters from the appellants' previous accountants (Lunn & Co and Pearlman Rose) and HMRC.
- •The appellants had limited knowledge of tax and accounting, relying entirely on Lunn & Co.
Legal Principles
Discovery amendments to partnership returns
Taxes Management Act 1970 (TMA)
Extended time limits for discovery assessments
TMA
Penalties for negligent submission of incorrect returns
TMA
Standard of proof in tax appeals
Case Law
Abuse of process due to inordinate delay
Case Law (Nuttall v HMRC [2022] UKFTT 192)
Negligence defined
Blyth v Birmingham Waterworks Co 1856 11 Ex 781
Outcomes
Appeals allowed.
HMRC failed to prove the business transfer occurred on 2 August 2005. The Tribunal found the evidence supporting a transfer date at the end of March or 1 April 2005 to be more credible, based on contemporaneous letters and the appellants' consistent lack of awareness of the intricacies of the tax returns.
Discovery amendments deemed incorrect.
Based on the finding that the transfer date was not 2 August 2005, the additional income claimed by HMRC was deemed incorrect.
Penalties not imposed.
Appellants reasonably relied on their accountants (Lunn & Co) and lacked the necessary accounting expertise to identify the discrepancies. Their behaviour was considered responsible once the competence of Lunn & Co became questionable.