Pulak Rakshit & Ors v The Commissioners for HMRC
[2023] UKFTT 1044 (TC)
EF Brosch & Ors v The Commissioner for HMRC
31 October 2023
[2023] UKFTT 945 (TC)
First-tier Tribunal
Taxpayers used a dodgy tax scheme and HMRC caught them. Even though they tried to explain it, they didn't explain it clearly enough for a normal HMRC officer to understand they were avoiding tax, so the court said HMRC was right to assess the back taxes.
Key Facts
- •Appellants used ineffective SDLT avoidance schemes ('Jeepster' and 'Hummer') promoted by Cornerstone Tax Advisers.
- •HMRC issued discovery assessments after the enquiry windows closed.
- •The schemes aimed to reduce SDLT liability using s 45 of the Finance Act 2003.
- •HMRC's awareness of the schemes' ineffectiveness began on April 1, 2010, upon receiving challenge letters from counsel.
- •A preliminary issue was raised: could a hypothetical officer have reasonably been expected to know about the tax loss based on the appellants' disclosure notes?
- •Appellants argued that HMRC's awareness was sufficient due to a 2007 letter (Needham Letter) indicating the schemes were ineffective.
- •HMRC did not waive privilege on 2007 legal advice.
Legal Principles
Discovery assessments can be made if HMRC couldn't reasonably be expected to be aware of tax loss based on available information.
Paragraph 30(3) of Schedule 10 to the Finance Act 2003
The hypothetical officer is a person of general competence, knowledge, and skill with reasonable legal understanding.
Sanderson v HMRC [2016] 4 WLR 67; Beagles v HMRC [2019] STC 54; Carter & Kennedy v HMRC [2022] STC 270
Adequate disclosure must clearly alert HMRC to the insufficiency, not just prompt further inquiry.
Langham v Veltema [2004] STC 544; Sanderson v HMRC [2016] 4 WLR 67; Hicks [2020] STC 254
Adverse inferences cannot be drawn from a refusal to waive legal professional privilege.
Sayers v Clarke Walker [2002] EWCA Civ 910; Samuel Smith Old Brewery v Philip Lee [2011] EWHC 1879 (Ch)
The hypothetical officer's knowledge is reasonable in the circumstances of the case, not an average level.
Charlton v HMRC [2013] STC 866
Outcomes
Appeals dismissed.
The information in the SDLT1 returns and disclosure notes was insufficient to alert a reasonable hypothetical officer to the tax loss, even considering the Needham Letter. The disclosure did not provide the necessary detail or analysis to understand the tax implications of the scheme.