Assessment – Appeal

Reid v Revenue and Customs Commissioners: Upper Tribunal (Tax and Chancery Chamber): 27 September 2012

The taxpayer was involved in the 'Garage' music scene from its inception as an 'MC' where he would specify and introduce the music played at clubs and other venues and events which featured Garage music, and rapping over the music. In the early years, as Garage music was establishing itself, the taxpayer received no fees, but received reimbursement for his expenses.

By 1997, when Garage had established itself as a music genre, the taxpayer was being paid performance fees for acting as an MC. The taxpayer would also appear on television shows and award ceremonies for which he received appearance fees. The taxpayer also released two CDs where he was the performer. In 1999, under a separate venture, the taxpayer established a company which acted as an agency/manager for MCs. The taxpayer incurred expenditure in preparation for that business which was represented as a debt owed to him by the company. In April 2001, the Revenue and Customs Commissioners (the Revenue) asked the taxpayer to complete self-assessment returns for the six years to 5 April 2001.

The taxpayer eventually submitted returns but stated they were 'an overview' of his finances for the period as a whole as his financial records were uncertain, having passed between various accountants and, inter alia, key documents, including his diary, appointment books and invoices had been stolen. In July 2007, as the Revenue and the taxpayer could not reach a settlement, the Revenue issued assessments to income tax and national insurance contributions and penalty determinations against the taxpayer. The taxpayer appealed to the First-tier Tribunal (Tax Chamber) (FTT).

The FTT ruled, inter alia, that with regard to years 1996-97 to 2003-04 the submissions made on behalf of the Revenue that the taxpayer had understated in the tax returns he had made and had not demonstrated that the level of profit he had earned had been below that which the Revenue had assumed in making the amendments to the self-assessments.

The FTT dismissed the taxpayer's appeals against the assessments for those years. As to the penalties, the Revenue had imposed them in relation to the unpaid tax for 1996-97 to 2003-04, on the grounds that the taxpayer had been negligent in that he had failed to maintain the records necessary to enable him to submit accurate tax returns. Penalties of 100% of the unpaid tax were abated by the Revenue to 45% to take account of the disclosures made by the taxpayer. The FTT held that the taxpayer had acted negligently in that he had not maintained records, or otherwise paid sufficient attention to his tax affairs, such that he had been unable to submit accurate self-assessment returns on time for the relevant tax years. Accordingly, the taxpayer was liable to the penalty determinations. The taxpayer appealed against that decision to the Upper Tribunal (Tax and Chancery Chamber) (the tribunal).

He contended that the decision of the FTT had not taken account of his allowable expenses, and, by inference, the FTT had provided inadequate reasons for its decision. Accordingly, the matter which fell to be determined was whether the FTT had erred in law by failing to take proper account, in reaching its decision, of evidence before it as to allowable expenditure incurred by the taxpayer in his business as an MC performer in the tax years 1996-97 to 2003-04 inclusive. The appeal would be dismissed.

It was established law that the tribunal had a responsibility to judge whether an assessment based on an inspector's estimate had been 'fair' based on the known facts and reasonable inferences drawn from those facts, and not extravagant or capricious. Subject to that the burden was on the taxpayer to establish from any lawful evidence he might put forward to the tribunal that the assessment was incorrect and should be reduced or set aside. If the taxpayer did not discharge that burden the assessment had to be upheld (see [41] of the judgment).

In the instant case, it was clear from the FTT's decision that it had understood its responsibilities and the approach it had to take. The FTT had had before it all the evidence on which the taxpayer had based his case. The FTT had concluded that the taxpayer's evidence had not been sufficient to displace the amendments made by the Revenue to the taxpayer's self-assessment returns for the years in question, which should therefore 'stand good'. That had been an entirely reasonable conclusion for the FTT to reach.

Accordingly, there was no error on the part of the FTT in reaching its decision to dismiss the taxpayer's appeal with regard to the amended self-assessment returns for the tax years 1996-97 to 2003-04 inclusive. Further, there was no basis to disturb the FTT's decision to dismiss the taxpayer's appeal against the related penalty determinations (see [42], [60], [61] of the judgment).

Stephen Harvey (instructed by Diverse Management) for the taxpayer; Ruth Jordan (instructed by General Counsel and Solicitor to Revenue and Customs) for the Revenue.