HFFX LLP & Ors. v The Commissioners for HMRC
[2023] UKUT 73 (TCC)
Mark Campbell v The Commissioners for HMRC
3 November 2023
[2023] UKUT 265 (TCC)
Upper Tribunal
Mr. Campbell argued he shouldn't pay tax on properties he sold because of special rules. The judge agreed he was wrongly taxed on some things, but the judge sent it back to a different judge for a fresh look and a proper hearing, because the first judge made some mistakes about the law.
Key Facts
- •Mr. Campbell sold four residential properties between 2010 and 2016.
- •HMRC issued discovery assessments for income tax or CGT, and penalties for deliberate failure to notify tax liability.
- •Mr. Campbell argued for exemption under TCGA s.222 (job-related accommodation and main residence).
- •The FTT decided against Mr. Campbell on all issues, determining the appeal on the papers without a hearing.
- •HMRC cross-appealed the FTT's finding that Mr. Campbell was not trading.
Legal Principles
Whether activities constitute a trade for income tax purposes involves considering all facts and applying established case law (badges of trade).
Marson v Morton [1986] STC 463, Eclipse Film Partners No 35 LLP v HMRC [2014] EWCA Civ 95, Ingenious Games LLP v HMRC [2021] EWCA Civ 1180
CGT relief under TCGA s.222 requires both job-related accommodation (JRA) and intention to occupy the property as the main residence.
Taxation of Chargeable Gains Act 1992 s.222
For JRA, accommodation must be provided 'by reason of employment', meaning it enables the enjoyment of the benefit; it's not a 'but for' test.
Wicks v Firth [1982] 1 Ch 355, John Charman v HMRC [2021] EWCA Civ 1804, HMRC v Vermilion Holdings Ltd [2023] UKSC 37
Discovery assessments under TMA s.29 are valid if HMRC discovers unassessed income/gains and the taxpayer failed to submit a return (extending the time limit under s.36).
Taxes Management Act 1970 s.29, s.36
Schedule 41 penalties for deliberate failure to notify require proof of intention to not comply with the notification obligation.
Finance Act 2008 Schedule 41, HMRC v Tooth [2021] UKSC 17, CPR Commercials Ltd v HMRC [2023] UKUT 61 (TCC)
Outcomes
HMRC's cross-appeal on trading dismissed.
The FTT, while not perfectly articulating its reasoning, did not err in principle in finding Mr. Campbell was not trading. The FTT considered relevant factors, even if the weight given to each was a matter for their discretion.
Appeal on CGT exemption under TCGA s.222(8) remitted to the FTT.
The FTT erred in law by misapplying the test for 'provided by reason of employment' and failing to make a finding on the intention element; the case required an oral hearing.
Appeal on the validity of discovery assessments dismissed.
The FTT correctly applied the law and found sufficient evidence to support its conclusions regarding HMRC's discovery and Mr. Campbell's failure to submit tax returns.
Appeal on penalties remitted to the FTT.
The FTT erred in law by misapplying the test for 'deliberate' failure to notify and failing to provide reasoning for its decision on penalty mitigation.