TSS Fire Limited & Anor v The Commissioners for HMRC
[2024] UKFTT 717 (TC)
Joanne Lunn and Vanilla Monsoon Ltd v The Commissioners for HMRC
6 June 2024
[2024] UKFTT 509 (TC)
First-tier Tribunal
A woman and her company were caught underpaying taxes due to incorrect accounting practices by her father's firm. The tax authority's investigation confirmed the underpayment was intentional, leading to additional tax assessments and penalties being upheld by a tribunal.
Key Facts
- •Joanne Lunn and Vanilla Monsoon Ltd (VML), a company wholly owned by Ms. Lunn, appealed income tax and corporation tax discovery assessments and penalties.
- •Tax returns and accounts were prepared by Christopher Lunn & Company (CLAC), run by Ms. Lunn's father.
- •HMRC's investigation, stemming from a raid on CLAC's premises, revealed inflated expenses claimed by Ms. Lunn and an artificial trading arrangement between Ms. Lunn and VML.
- •Ms. Lunn claimed expenses were properly incurred and the arrangement was legitimate.
- •HMRC argued the expenses were artificially inflated and the trading arrangement was a mechanism to reduce taxes.
Legal Principles
For a deduction to be allowable for income tax purposes, expenditure must be incurred wholly and exclusively for the purposes of the trade.
Section 34(1) of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005)
Whether a trade exists is a question of fact, considering all available information.
Eclipse Film Partners No 35 LLP v HMRC [2015] EWCA 95, Ransom v Higgs [1974] 3 All ER 949, Marson v Morton [1986] 1 WLR 1343
Discovery assessments are valid if an officer reasonably believes there's insufficient tax, and this belief is objectively reasonable.
Anderson v HMRC [2018] 4 All ER 338
A person acts on another's behalf if they take steps the taxpayer could or would take, including completing returns, filing returns, or corresponding with HMRC.
John Hicks v HMRC [2020] UKUT 0012 (TCC), Bessie Taube Trust v Revenue & Customs [2010] UKFTT 473 TC
Deliberate inaccuracy means an intention to mislead the Revenue or recklessness as to whether it would do so.
Tooth (case not fully cited in document)
A taxpayer completing a self-assessment return has a duty to take care and submit an accurate return.
Colin Moore v HMRC [2011] UKUT 239 (TCC)
Careless inaccuracy is due to failure to take reasonable care, judged by the standard of a prudent and reasonable taxpayer.
David Collis v HMRC [2011] UKFTT 588 (TC)
Outcomes
Discovery assessments for Ms. Lunn and VML were validly raised.
HMRC's belief in insufficient tax was reasonable; CLAC acted on behalf of both appellants; the loss of tax was deliberately brought about; time limits were met.
Penalties were correctly charged.
Ms. Lunn and VML were negligent in delivering inaccurate returns; the quantum of penalties was reasonable.