David Christopher Wilby v The Commissioners for HMRC

This appeal relates to a discovery assessment dated 11 April 2011 in the sum of £21,700 (“the Assessment”). The Assessment was made pursuant to paragraph 28 of Schedule 10 to the Finance Act 2003 and was in respect of Stamp Duty Land Tax (“SDLT”) said to have been underdeclared in respect of the purchase on 11 June 2008 of the property known as and situate at 6 Woodstock Close, Pannal, Harrogate, North Yorkshire (“the Property”).

It is appropriate to record some preliminary matters.

First, although Mr Wilby appeared in person, he is a well-respected King’s Counsel and so presented his case at its fullest and with a clear understanding of the issues in the case. I am grateful both to him and to Mr Street for their assistance in this matter.

Secondly, this appeal has had a somewhat tortuous procedural history. The significance of this for the substantive appeal is that HMRC raised a concern that Mr Wilby was going to make allegations of fraud against the officers involved and so in turn intimated that (if such allegations were made and were unsuccessful) an application for costs might be made. In the event, the parties helpfully agreed that no allegations of fraud would be made, with the effect that no associated costs implications would arise.

Thirdly, Mr Wilby was very clear that he did not wish to provide any evidence or submissions as to his reasoning for his calculation of the SDLT in respect of the Property. As such, he does not contend that the amount of the Assessment was wrong if HMRC were right to make an Assessment at all, which entitlement he disputes for the reasons set out below.

Fourthly, Mr Wilby said during his submissions that he had been annoyed by what he perceived to be HMRC’s allegations of wrongdoing. Mr Street helpfully made it clear that the Assessment was not (and never was) based on fraudulent or negligent conduct.

The following background was not in dispute and in any event appears from the documents within the hearing bundle.

By a TR1 dated 11 June 2008, Mr and Mrs Murphy transferred the Property to Mr Wilby. The TR1 stated that, “The Transferor has received from the Transferee for the Property the sum of Five Hundred Fourty [sic] Two Thousand Five Hundred Pounds (£542,500.00).” The official copy entries state in an entry dated 8 August 2008 that, “The price stated to have been paid on 11 June 2008 was £542,000.” For completeness, I note that the official copy entries state that the Property is now registered in the names of both Mr and Mrs Wilby with effect from 11 February 2011. However, nothing turns on this as it is common ground that the relevant acquisition was by Mr Wilby and was as sole proprietor.

Mr Wilby submitted an SDLT return on 24 June 2008 (“the SDLT Return”). The SDLT Return stated that the date of the transaction was 11 June 2008. Box 10 of the SDLT Return asked, “What is the total consideration or value for money or money’s worth, including VAT paid for the transaction reported in this return?”. The answer given was £120,000. Box 60 asked for Mr Wilby’s agent’s name. The answer given was “Kay & Co” (“Kay”). Box 61 asked for the agent’s address. The answer given was Kay’s address in Leeds. The effect of the SDLT Return was that, on the answers given, no SDLT was declared to be due.

By a letter dated 11 April 2011 signed by Mr Daljit Soroya (“the April Letter”), HMRC wrote to Mr Wilby enclosing the Assessment. The April Letter included the following:

“I am writing to you regarding the Stamp Duty Land Tax (SDLT) return that you submitted in respect of the above property.

I have examined the SDLT return and compared the amount declared as paid for the property with information held by the Land Registry. This shows a large discrepancy between the amount on which SDLT has been paid and the actual amount paid for the property. The SDLT1 form submitted shows consideration of £120,000 whereas the Land Registry shows consideration recorded as £542,500.

I believe that you have used an SDLT Mitigation scheme which has incorrectly understated the purchase price on which Stamp Duty Land Tax has been calculated. It is my view that Stamp Duty Land Tax should have been paid on the actual purchase price of the property as recorded by the Land Registry. The payment of any professional fees cannot be taken into account in calculating SDLT.

The information recorded at Land Registry has led to HMRC making a discovery that an insufficient amount of SDLT has been paid.”

The Assessment was also dated 11 April 2011 and was signed by Mr Soroya. The Assessment included the following:

“The assessment covers an additional liability omitted from your Stamp Duty Land Tax (SDLT) return, reference 308518073MZ, discovered following the expiry of the enquiry period.

It has been identified from research that there is a large discrepancy between the amounts on the SDLT 1 and the actual amounts recorded at Land Registry. This led to discovery that an insufficient amount of SDLT has been paid.”

By a letter from Kay dated 6 May 2011 written on behalf of Mr Wilby, Mr Wilby appealed to HMRC against the Assessment.

HMRC initially responded to Mr Wilby’s appeal by a letter dated 12 May 2011 from Mr Kane headed, “Without prejudice to further Argument”. This letter provided an analysis of HMRC’s position by reference to case law that there had been a discovery. This letter also made reference to tax mitigation schemes, giving the impression that HMRC were of the view that a tax mitigation scheme had been unsuccessfully employed by Mr Wilby.

There then appears to be a long hiatus, the reasons for which have not been adequately explained by HMRC. HMRC then formally responded to Mr Wilby’s appeal by a letter dated 8 August 2017. This letter was headed “Without Prejudice”. However, it does not contain any privileged material and in any event both parties have waived any privilege that it may in fact have by its inclusion within the papers before me whether through agreement or by it being included by one party and not objected to by the other. This letter rejected Mr Wilby’s appeal upon the basis of the discrepancy between the SDLT Return and the Land Registry entries and offered him the option of either asking for the decision to be reviewed or to notify the appeal to the Tribunal.

Mr Wilby requested a review by a letter dated 23 August 2017, which was acknowledged by a letter dated 17 September 2017. The review was completed and dismissed by a letter dated 9 October 2017. On 2 November 2017, Mr Wilby issued a notice of appeal to the Tribunal.

Case management directions were initially given by Judge Poole on 29 March 2018. Various applications have taken place relating to witness evidence and disclosure, including those resulting in hearings before Judge Kempster on 16 July 2019 and Judge Scott on 3 November 2020. There is no need to recite the procedural history within this decision.

The parties very helpfully agreed at the outset of the hearing that only the following issues arise for determination:

These issues require the prior consideration of the legal framework and the making of relevant findings of fact.

There was no dispute as to the legal framework.

The power to make discovery assessments in respect of SDLT is provided by paragraphs 28 and 30 of Schedule 10 of the Finance Act 2003, paragraph 31 sets out the applicable time limits, and paragraph 32 sets out the procedure for doing so. In view of the fact that no allegations of fraudulent or negligent conduct are made, the relevant sub-paragraphs are as follows:

“28.

Assessment where loss of tax discovered

(1)

If the Inland Revenue discover as regards a chargeable transaction that

(a)

an amount of tax that ought to have been assessed has not been assessed, or

(b)

an assessment to tax is or has become insufficient, or

(c)

relief has been given that is or has become excessive,

they may make an assessment (a “discovery assessment”) in the amount or further amount that ought in their opinion to be charged in order to make good to the Crown the loss of tax,

(2)

The power to make a discovery assessment in respect of a transaction for which the purchaser has delivered a return is subject to the restrictions specified in paragraph 30.

…

30.

Restrictions on assessment where return delivered

(1)

If the purchaser has delivered a land transaction return in respect of the transaction in question, an assessment under paragraph 28 or 29 in respect of the transaction –

(a)

may only be made in the two cases specified in sub-paragraph (2) and (3) below, and

(b)

may not be made in the circumstances specified in sub-paragraph (5) below.

…

(3)

The second case is where the Inland Revenue, at the time they –

(a)

ceased to be entitled to give a notice of enquiry into the return, or

(b)

completed their enquiries into the return,

could not have been reasonably expected, on the basis of the information made available to them before that time, to be aware of the situation mentioned in paragraph 28(1) or 29(1).

(4)

For this purpose information is regarded as made available to the Inland Revenue if –

(a)

it is contained in land transaction return made by the purchaser,

(b)

it is contained in any documents produced or information provided to the Inland Revenue for the purposes of an enquiry into any such return, or

(c)

it is information the existence of which, and the relevance of which as regards the situation mention in paragraph 28(1) or 29(1) –

(i)

could reasonably be expected to be inferred by the Inland Revenue from information falling within paragraphs (a) or (b) above, or

(ii)

are notified in writing to the Inland Revenue by the purchaser or a person acting on his behalf.

(5)

No assessment may be made if –

(a)

the situation mentioned in paragraph 28(1) or 29(1) is attributable to a mistake in the return as to the basis on which the tax liability ought to have been computed, and

(b)

the return was in fact made on the basis or in accordance with the practice generally prevailing at the time it was made.

31.

Time limit for assessment

(1)

The general rule is that no assessment may be made more than 4 years after the effective date of the transaction to which it relates.

…

32.

Assessment procedure

(1)

Notice of an assessment must be served on the purchaser.

(2)

The notice must state –

(a)

the tax due,

(b)

the date on which the notice is issued, and

(c)

the time within which any appeal against the assessment must be made.

(3)

After notice of the assessment has been served on the purchaser, the assessment may not be altered except in accordance with the express provisions of this Part of this Act.

(4)

Where an officer of the Board has decided to make an assessment to tax, and has taken all other decisions needed for arriving at the amount of the assessment, he may entrust some other officer of the Board responsibility for completing the assessing procedure, whether by means involving the use of a computer or otherwise, including responsibility for serving notice of the assessment.”

The parties rightly agreed that the burden of proof is upon HMRC to demonstrate that it made a discovery and that the assessment was valid (see Burgess and Brimheath v HMRC [2015] UKUT 578 (TCC) at [38] to [43]). If that is discharged, then the burden is upon Mr Wilby to establish that the amount of the Assessment was wrong. However, Mr Wilby does not seek to argue that the amount of the Assessment was wrong; his case is that there is insufficient evidence of a discovery at all, that the subjective and objective tests are not fulfilled, or that the Assessment is otherwise invalid.

It was common ground that the approach to a discovery assessment pursuant to paragraph 30 of Schedule 10 to the Finance Act 2003 is the same as the case law relating to section 29(5) of the Taxes Management Act 1970. I was referred to Commissioners for Her Majesty’s Revenue and Customs v Tooth [2021] UKSC 17 per Lord Briggs and Lord Sales at [72] (“Tooth”) in which the Supreme Court adopted the propositions set out by the Upper Tribunal (Morgan J and Judge Berner) in Anderson v Revenue and Customs Comrs [2018] UKUT 159 (TCC), [2018] STC 1210 at [24] (“Anderson”). The Upper Tribunal stated as follows in Anderson at [24]:

“[24] Since the introduction of self-assessment, there have been comparatively few decisions on the meaning of s 29(1) TMA but there have been rather more as to the meaning and effect of s 29(5) and 29(6) TMA. The principal authorities on s 29(5) and (6) are, now, Hankinson v Revenue and Customs Commissioners [2012] 1 WLR 2322, Revenue and Customs Commissioners v Lansdowne Partners Ltd Partnership [2012] STC 544 and Sanderson v Revenue and Customs Commissioners [2016] STC 638. Although a detailed discussion of the decisions on s 29(5) and 29(6) is not necessary for present purposes, it is helpful to refer to some of the propositions established by those authorities, taken together with the decision in Charlton on s29(1). As will be seen, the decisions identify differences between what is involved under s 29(1) and what is relevant for s 29(5) and 29(6). We consider that the following propositions are now established by the various authorities:

(1)

s 29(1) refers to an officer (or the Board) discovering an insufficiency of tax;

(2)

the concept of an officer discovering something involves, in the first place, an actual officer having a particular state of mind in relation to the relevant matter; this involves the application of a subjective test;

(3)

the concept of an officer discovering something involves, in the second place, the officer’s state of mind satisfying some objective criterion; this involves the application of an objective test;

(4)

if the officer’s state of mind does not satisfy the relevant subjective test and the relevant objective test, then the officer’s state of mind is insufficient for there to be a discovery for the purposes of subsection (1);

(5)

s 29(1) also refers to the opinion of the officer as to what ought to be charged to make good the loss of tax; accordingly, the 5 officer has to form a relevant opinion and such an opinion has to satisfy some objective criterion;

(6)

although s 29(1) directs attention to the position of the actual officer, s29(5) refers to the position of a hypothetical officer: Sanderson v Revenue and Customs Commissioners [2016] STC 638 at [25];

(7)

although there might be some points of contact between the real and the hypothetical exercises required by subsection (1) and subsection (5) respectively, the tests for the two exercises are different: Sanderson at [25];

(8)

the actual officer referred to in s 29(1) is not required to consider whether the test required for s 29(5) is satisfied: Hankinson v Revenue and Customs Commissioners [2012] 1 WLR 2322;

(9)

for the purposes of s 29(5), one question is what a hypothetical officer would have been “aware of”;

(10)

for the purpose of s 29(5), the meaning of “awareness” does not require the hypothetical officer to resolve points of law nor to forecast and discount what the response of the taxpayer might be; it is enough that the information made available to the hypothetical officer would justify an amendment to the tax return: Revenue and Customs Commissioners v Lansdowne Partners Ltd Partnership [2012] STC 544 at [56]; “awareness” is a matter of perception and understanding, not of conclusion; in order to be “aware” of something, it is not necessary to form a conclusion that the thing is more probable than not: Lansdowne Partners at [70]; and

(11)

the purpose of s 29(5) is to provide for a cut-off point beyond which an actual officer is not able to raise a discovery assessment; an actual officer is not entitled to raise a discovery assessment under subsection (1) if a hypothetical officer could have been reasonably expected at an earlier defined point in time, on the basis of the information made available to him before that time, to be aware of the matter which the actual officer claims to have discovered under subsection (1); this cut-off point is not reached if before the defined point in time a hypothetical officer would only have had “a mere whim” that there was an insufficiency of tax or could only have “speculated” as to that possibility: the Upper Tribunal in Sanderson [2014] STC 915 at [50], upheld on appeal, [2016] STC 638 at [35].”

A wide approach is taken to the meaning of “discover”. In essence, it means “to find out” and can be fulfilled not only where a new fact has been discovered but also where it newly appears that a taxpayer has been undercharged, including where there has been a change of view. Lord Briggs and Lord Sales stated as follows in Tooth at [73] and [74]:

“73.

On the question of what qualifies as a discovery for the purposes of what is now section 29(1) of the TMA, Cenlon Finance Co Ltd v Ellwood (Inspector of Taxes) [1962] AC 782 is the leading authority. It was concerned with section 41(1) of the Income Tax Act 1952, the predecessor of section 29. A first inspector agreed the taxpayer’s computation of trading profits and issued an assessment to tax on the basis of it. Subsequently, the file was passed to a new inspector who, on the basis of the same facts as had been before the first inspector, came to the conclusion that an additional sum should have been included in the profit figure and he issued an additional assessment for tax in relation to the revised figure. The taxpayer argued (p 788) that it could not be said that the second inspector had discovered anything new and that it would be unjust to put the taxpayer in peril for an extended period of time (six years under the regime then applicable) when he had made all the facts known to the Revenue at the outset. However, the House of Lords held that there had been a discovery by the second inspector within the meaning of the provision, so that he was entitled to issue the new assessment. Viscount Simonds (p 794), with the agreement of the other members of the appellate committee, approved the judgment of Lord Normand in the decision of the Court of Session in Inland Revenue Comrs v Mackinlay’s Trustees 1938 SC 765; 22 TC 305 and added, “I can see no reason for saying that a discovery of undercharge can only arise where a new fact has been discovered. The words are apt to include any case in which for any reason it newly appears that the taxpayer has been undercharged and the context supports rather than detracts from this interpretation.” Lord Denning observed (p 799), “[e]very lawyer who, in his researches in the books, finds out that he was mistaken about the law, makes a discovery. So also does an inspector of taxes”.

74.

In the Mackinlay’s Trustees case, an assessment to surtax was made in 1935 on a view that the taxpayer was not entitled to certain profits under a partnership deed. In 1937 a different view was taken about that and a discovery assessment was issued to claim the tax in relation to those profits. The change in view about the legal effect of the partnership deed was held to constitute a discovery for the purposes of the provision which became section 29(1) of the TMA. Lord Normand said (22 TC 305, 312):

“I think the word ‘discover’ in itself, according to the ordinary use of language, may be taken simply to mean ‘find out’. What has to be found or found out is that any properties or profits chargeable to tax have been omitted from the first assessment.” Referring to the condition in what is now section 29(1)(b), Lord Normand said (22 TC 305, 312): “I think that, since these words must apply where the person chargeable has delivered a full and proper statement, they are apt to cover the case of a discovery of a mistake in the assessment caused by a mistake in the construction of the partnership deed or, it may be, caused by a mistake in the law applicable to such a deed, even where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based. I do not think it is stretching the word ‘discovers’ to hold that it covers the finding out that an error in law has been committed in the first assessment, when it is desired to correct that by an additional assessment.”

Lord Normand considered that this wide interpretation of the word “discover” in the provision was also supported by its application in relation to the other conditions in the provision.”

The findings of fact required in this case relate to HMRC’s procedure and processes as applied in this case. In making these findings of fact, I keep in mind the burden of proof as set out above. Further, I reach these findings of fact upon the documents before me, the witness statements of Mr Kane and the oral evidence of Mr Kane, which included cross-examination by Mr Wilby. I note that Mr Kane was the only live witness in this case; Mr Wilby was given the opportunity to give oral evidence but he chose not to do so. I also note that Mr Kane was a credible witness who gave his evidence in a clear and helpful manner.

Mr Kane gave the following evidence as to the background and processes involved in the investigation of SDLT returns. I accept this evidence by virtue of the manner in which it was given, its consistency with the documentary evidence, and the absence of sufficient contrary evidence.

Mr Kane also gave the following evidence as to his understanding of the way in which those processes were applied to Mr Wilby’s SDLT Return. Again, I accept this evidence by virtue of the manner in which it was given, its consistency with the documentary evidence, and the absence of sufficient contrary evidence.