Steven Hague v The Commissioners for HMRC
[2024] UKFTT 139 (TC)
Kenneth Williams v The Commissioners for HMRC
16 May 2024
[2024] UKFTT 411 (TC)
First-tier Tribunal
Mr. Williams didn't tell the taxman about his property business on time. The taxman tried to get back taxes from years ago. The judge said the taxman could because Mr. Williams was careless, but the judge lowered the amount Mr. Williams owed because the taxman made some mistakes and some of his profits were from investments, not his business. The judge also lowered the penalty.
Key Facts
- •Mr. Williams engaged in property development between 2004-2006.
- •HMRC issued discovery assessments in 2019 for unpaid income tax and penalties for the tax years 2005 and 2006, totaling over £20,000 initially.
- •HMRC's initial profit calculation was overstated; the revised amount due was nearly £12,000.
- •Mr. Williams argued that he notified HMRC about his property business and that HMRC disallowed legitimate expenses.
- •The case revolved around the 20-year time limit for discovery assessments under section 36(1A) Taxes Management Act 1970 (TMA) and the failure to notify chargeability under section 7 TMA.
- •A dispute arose over whether two properties were part of Mr. Williams' trading activities or separate investments.
- •The Tribunal considered the validity of the assessments, the amount of expenses allowed, the nature of profits (trading vs. capital gains), and the penalties.
Legal Principles
20-year time limit for discovery assessments under section 36(1A) TMA applies if loss of tax is attributable to a failure to notify chargeability under section 7 TMA and negligence.
Taxes Management Act 1970
Section 7(1) TMA requires notification of chargeability within six months of the tax year's end; however, notification before the year's end is sufficient.
Taxes Management Act 1970
The test for determining whether a venture constitutes a trade is whether the operations involved are of the same kind and carried on in the same way as those characteristic of ordinary trading.
Commissioners of Inland Revenue v Livingston (1926) 11 TC 538
One transaction of buying and selling does not make a man a trader, but repeated systematic transactions do.
Pickford v Quirke (1927) 13 TC 251
HMRC has discretion to set penalties under section 100 TMA, which the Tribunal can reduce under section 100B TMA if excessive.
Taxes Management Act 1970
Outcomes
Appeal allowed in part.
The Tribunal found that Mr. Williams did not notify HMRC of chargeability for the tax years 2005 and 2006, but the assessments were valid due to negligence and the 20-year time limit.
Assessments reduced.
HMRC's disallowance of expenses was partially incorrect; an additional £20,500 in renovation costs was allowed, allocated proportionately across the properties.
Profits from 7 and 13 Dollond Street subject to Capital Gains Tax.
The Tribunal found that Mr. Williams intended these properties for long-term rental, not trading, despite their eventual sale.
Penalties reduced to 40% of the tax due.
The Tribunal acknowledged Mr. Williams' cooperation but noted inconsistencies in his evidence, reducing the penalties to reflect a higher reduction for seriousness (30%) and a small reduction for disclosure (5%).