One of my hobbies - stamp collecting proving too exciting for me - is collecting quotations from tax cases. Remember that next time you see my approaching you at a party. So I couldn’t resist sharing this gem from a recent tax case report with you.
HMRC’s argument effectively eliminates any distinction between 'careless' and 'deliberate' rendering otiose the necessity for the different conduct related time limits in s 36 TMA. Mr Vallat’s attempt to argue otherwise, saying that if the wrong figures were entered in the right boxes it might be careless but if the right figures were entered in the wrong boxes it would be deliberate, was somewhat reminiscent of, and about as convincing as, Eric Morecambe’s riposte to Andre Previn about 'playing all the notes, but not necessarily in the right order.'
The case concerns a complex tax avoidance scheme, which everybody, including the taxpayer, accepted did not work. The question before the tribunal was whether or not HMRC had the power to assess the tax which would be due following the failure of the scheme. It may come as a surprise to some people, but the process of recovering tax in such cases in not automatic: HMRC have to raise assessments to do this and these are covered by time limits. In this case HMRC could only assess the tax if they could demonstrate that the taxpayer’s behaviour was deliberate. HMRC argued that the way in which the taxpayer had disclosed the scheme was wrong and that the taxpayer has deliberately disclosed the scheme in that way in order to reduce his tax liability. The tribunal disagreed. All of the information relating to the scheme was included on the return: the fact that it was in the wrong place did not mean that the taxpayer had deliberately brought about a loss of tax. Deliberately must mean something more than that. After all a conscientious taxpayer will deliberate when putting entries onto his or her return. It can’t be right that because the taxpayer has deliberated about the entries on his return he is subject to the extended time limits for assessing tax which arise where there is deliberate behaviour. It is the conduct, not the way that it is disclosed on the tax return, which must be deliberate.
In many ways the decision is simply common sense but at the same time the taxpayer has been able to save nearly half a million pounds of tax which would otherwise be due simply because of the way in which he completed his tax return. If nothing else it shows that from HMRC’s point of view defeating a scheme on its technical merits is not enough: ensuring assessing time limits are properly adhered to is equally as important. I suspect that the decision will be appealed because the precise point has, to the best of my knowledge, never been tested before and there are certainly some aspects of the decision which could be challenged. But if nothing else it has given Eric Morecambe a further claim to immortality.
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