Shaun Harte v The Commissioners for HMRC

This appeal concerns the following decisions of HM Revenue and Customs (HMRC) concerning Shaun Harte (Appellant):

As set out in further detail below consequent upon an enquiry into the Appellant’s 2014/15 self-assessment tax return HMRC identified four categories of error which they considered led to an insufficiency in the Appellant’s self-assessment to income tax. These errors were:

Having so identified the errors HMRC applied what is known as a presumption of continuity and concluded that similar errors are likely to have occurred in the tax years during which the Appellant operated as a self-employed consultant with TTL (including the full tax years 2009/10 to 2015/16). The value of the inaccuracies was assumed to be similar and HMRC adjusted the sum calculated for 2014/15 by reference to the retail price index and assessed in each of the relevant tax years.

As indicated, we are invited to reduce the assessments HMRC having accepted that certain deposits they considered to be income had been incorrectly so treated.

On the basis that the Appellant had income at the level calculated and assessed taking account of all the errors identified in paragraph 2 above HMRC concluded that the Appellant was liable to be registered for VAT. Initially they calculated the relevant date on which the Appellant was required to be registered as 1 December 2009. That was subsequently recalculated as 1 October 2009. The Appellant was subject to compulsory registration with effect from 1 October 2009 and issued a first long period VAT return covering the period 1 October 2009 to 30 September 2019 (Return). The Appellant failed to complete and render the Return with the consequence that HMRC calculated the VAT they considered due by reference to the Appellant’s income as calculated in the CN and Assessments. VAT totalling £380,607.67 was calculated as due and was assessed (Central Assessment). There has been no appeal against the Central Assessment, we were told, on the basis that there is no right of appeal in respect of such assessments which are issued in absence of a VAT return from the taxpayer. We were informed that the Appellant finally rendered the Return in February 2024, the return was a nil return. As a consequence of the Return having now been rendered the Central Assessment is replaced by the nil VAT Return. The declared amount (nil) will, consequent upon the outcome of this appeal, be considered and, where appropriate, a fresh assessment will be issued. The BNP was calculated by reference to the sums considered due under the Central Assessment.

Through the course of the hearing the issues between the parties narrowed. The Appellant accepts that:

Accordingly, the scope of the dispute we have to determine is:

For the reasons set out below we allow the appeal in part.

HMRC bear the burden of proving that they made a relevant discovery and that the discovered loss was bought about as a consequence of the Appellant’s deliberate or careless conduct. They also bear the burden of establishing the circumstances which justify the issuing of the Penalties.

The Appellant bears the burden of establishing that the CN amendment and Assessments remain overstated in their revised amounts.

The standard of proof is the balance of probabilities.

We were provided with a bundle of documents of 1,063 pages. Overnight between the two days of the hearing we were provided with a Supplemental Bundle of documents which the Appellant wished to introduce. HMRC did not object and therefore we agreed to their admission. We note our thanks to Mr Marks who agreed to assist in the production of the Supplementary Bundle such that it complied with the Tribunal Direction on Electronic Bundles.

Mr Marks also provided an analysis of the bank and credit card statements for tax year 2014/15. It is perhaps unfortunate that the assessing officers had not done so/one had not been included in the bundle or by the Appellant who wished to challenge the CN, Assessments and BNP. However, and again with thanks to Mr Marks, the schedule was of material assistance to us.

We were provided with the witness statements of Mr Ian Lawler (Officer of HMRC responsible for the CN and Assessments); Mr Riyaz Patel (Officer of HMRC responsible for the Central Assessment and BNP); the Appellant and Ms Vicki Wood (Financial Controller of TTL). All four witnesses also gave sworn oral testimony.

We note that the documentary evidence was provided to HMRC in a somewhat piecemeal way. HMRC were forced to use their powers to require production of documents and information on one occasion. Other documents were only provided after the CN and Assessments were issued.

The documents provided to us were principally the correspondence passing between the parties, copy bank statements from four bank accounts and credit card statements for three credit cards one of which was a corporate Barclaycard.

The correspondence enabled us to track the chronology of the enquiry and the decisions which then followed.

Two of the bank accounts were joint accounts with the Appellant’s partner, one was in the Appellant’s name only and the final account was in the name of the Appellant trading as Indox. We were provided with bank statements covering the period from dates in 2012 for the joint accounts and the Indox account and from February 2014 when the sole account was opened to 2016. There were a few missing statement sheets but in the main they provided a complete record of the receipts and payments through the accounts for the tax years 2013/14, 2014/15 and 2015/16.

Deposits totalling £182,843.92 were shown in the tax year 2014/15 into three of the bank accounts (the Indox account did not have any deposits in that tax year). HMRC accepted that £19,000 was in respect of a loan from TTL and the Appellant accepted that all but three of the receipts were to be taxed as income. The disputed payments were:

As regards the credit card expenditure HMRC had initially treated all expenditure as private expenditure liable to income tax. HMRC had subsequently been prepared to accept that 10% of the expenditure was reimbursement of expenditure incurred on behalf of TTL. Mr Marks’ schedule had more particularly considered the line-by-line entries to determine the nature of the expenditure. That schedule indicated which particular items were not considered personal expenditure. As part of our consideration of this matter we relied on the schedule but also considered the underlying credit card statements to assess accuracy of the schedule.

We were not provided with any documentary evidence to explain the entries in either the bank statements or the credit card statements i.e. there were no accompanying receipts for expenditure and no invoices in respect of the income from TTL or to explain deposits.

We found Mr Lawler to be a helpful and honest witness. He gave careful and considered responses to the questions put to him in cross examination. Whilst he had inherited the enquiry after the initial CN and Assessments had been issued he had a good command of the material and could explain the decisions taken by him.

Mr Lawler’s evidence set out the course of the enquiry as corroborated by the enquiry correspondence.

He explained that:

As to the Appellant’s conduct Mr Lawler had personally formed the view that given the size of the under declaration of income, the level of personal expenditure, the failure to notify of a change in vehicle and the size of the home office allowance claimed he had concluded that the conduct giving rise to the insufficiency in the self-assessments was deliberate. He maintained his position in this regard when cross examined. It was put to him that a previous officer, when issuing the penalty warning and human rights letters, had indicated that the Appellant’s conduct was careless. Mr Lawler indicated that the previous officer was only issuing warning letters and may not have fully considered the conduct. However, and in any event Mr Lawler formed the view the conduct was deliberate thereby justifying the use of extended time limits in respect of the issue of the Assessments for 2009/10 – 2012/13.

Similarly he formed the view that the Appellant’s conduct justified penalties up to a maximum of 70% of the potential lost revenue on the basis that the errors were deliberate but unconcealed and prompted. We were provided with an explanation as to the basis on which the penalty had been reduced in terms of helping, telling and giving. Mr Lawler was cross examined extensively on his decision to limit the reduction given.

We found Mr Patel to be honest though somewhat vague. It was plain from his evidence that he had been informed of the Assessments. He had simply accepted, without challenge, how those figures had been calculated and determined the due date for VAT registration.

He continued the registration through to 2019 when the return was issued on the assumption that the Appellant continued in business on a self-employed basis in parallel to his full-time employment with TTL from 1 July 2017. In this regard, he did not consider that the Appellant having become an employee provided a reasonable excuse for non-registration. He accepted that in 2017 he had indicated to the Appellant that the Appellant needed to either register for VAT or become employed by TTL but nevertheless had assessed on the basis that there was continuing self-employed income which entitled (or required) the Appellant to be registered for VAT purposes.

Ms Wood was a straightforward and honest witness. She explained that in the relevant period the Appellant would attend regularly at the TTL premise in Wakefield but that he also travelled extensively. His role was sales and he spent much of his time seeking out new business.

She confirmed that she processed invoices from the Appellant for his income and reviewed his credit card expenses. She was clear that no invoices from the Appellant had been provided by TTL because they had never been sought. She implied, but was not asked directly, that such invoices existed.

Mr Harte too was a straightforward witness, and we were clear that his evidence aimed to assist us. He accepted that he had not given sufficient attention to his tax affairs and should have done so but he stated that he was focussed on developing and growing the TTL business and undertaking other ad hoc work.

He provided a coherent explanation regarding the sale of 12 tanker barrels to Flightline. A former contact was moving tanker bases to South Africa and had no need for the barrels. The Appellant knew that Flightline would be interested in taking them so agreed to buy them and on sell. The transaction was undertaken over a few days and was not that of purchasing and holding an asset but a trade. He confirmed that he did not hold any paperwork in respect of the purchase or sale.

In connection with £27,500 received in two tranches on 29 September 2014 and 13 October 2014 he said he thought it may have been for the sale of a Mercedes S class. He found the car troubled his sciatica. He recollected that he had sold it to a cattle dealer who operated in Northern Ireland and Eire. He could not explain why there were split payments and accepted he had produced no documentation in respect of the sale.

Mr Harte was clear that he had made a personal cash loan to Mr Paul Donnelly a long-term friend of his and that Mr Donnelly had repaid him to his bank account. HMRC put to him that Mr Donnelly was a business contact and in that regard referred the Appellant to an entry in his diary for 7 January 2015. We asked Mr Harte to talk us through all entries on the diary page for 7 January 2015. Despite the diary being over 9 years old Mr Harte was readily able to tell us who most of the people referred to were and decipher the technical information in the diary. We were impressed with the ease with which this was done which went very strongly to Mr Harte’s credibility. He was also able to readily demonstrate that his diary was used for personal and business entries. Identifying other personal matters in the diary. He explained that the diary was how he managed his life.

A thorough explanation was provided of how Mr Harte operated his business. From where it was conducted and the calls on his time. He explained the work undertaken in respect of bank entries where the payer was identified. From this evidence we were given a reasonably complete understanding of the role he performed when self-employed and providing services to TTL as that business developed and grew.

HMRC cross examined and put each of their factual conclusions on the evidence to Mr Harte. He readily accepted that there were failings in his tax accounting but maintained his position on the key issues in dispute in particular that he had not deliberately under declared tax.

From the evidence we make the following findings of fact:

The disputes in this appeal are largely factual. However, we must determine, by reference to the facts found, the effect on HMRC’s power to assess and the period in respect of which those assessments may be made of our conclusion that (1) the credit card errors arose despite reasonable care having been exercised and (2) the capital allowance and home office deduction errors were careless.

The legislative provisions relevant to determination of that issue are sections 29, 34 and 36 TMA. So far as relevant those provisions are:

The only authority to which our attention was drawn in resolving this legal issue was HMRC v Raymond Tooth [2021] UKSC 17 (Tooth). However, that case set the scope for determining whether conduct was deliberate and, as accepted by Mr Marks, provided only a general context to the issue we have to resolve.

Having considered how to resolve this issue we identified the following principal authorities as relevant:

Hurley concerned assessments against the taxpayer regarding what the Revenue considered to be under declared turnover arising from two different businesses in which customers often paid cash (a solarium and a used car dealership). In that case the Revenue assessed by reference to a capital statement exercise which they considered demonstrated that the taxpayer must have received additional income which had not been declared. A number of issues required to be determined by the Court of Appeal but relevant to our decision was the question of the extent of HMRC’s burden of proof. In this regard the Court endorsed the High Court’s statement of the relevant propositions of law, so far as relevant here, confirming that:

Hargreaves CA concerns a procedural issue. Mr Hargreaves sought to have the question of the validity of the discovery assessment issued to him determined as a preliminary issue. In that context the Court considered the question as to the nature of the section 29 power and what the taxpayer contended was its draconian effect:

The judgment in Hargreaves UT arises following the hearing of the substantive appeal on the validity of the discovery assessment. The FTT had determined that HMRC had met the burden on showing negligent conduct and that the section 29(5) TMA condition had been met. In his challenge to those conclusions Mr Hargreaves submitted, in the context of the section 29(5) TMA condition that by reference to the disclosures made in his return HMRC would have been aware of some insufficiency in his return and as HMRC therefore had awareness of an “actual insufficiency” (as required in the line of authorities starting with Langham v Veltema [2004] STC 544) they should be precluded from raising a discovery assessment in respect of all actual insufficiencies in the return. HMRC contended that unless they were made aware of each and every actual insufficiency they had the power to assess.

The UT did not consider the point one which was straightforward to resolve but ultimately indicated, by reference to Hargreaves CA that HMRC’s view was to be preferred:

Mullens concerns five discovery assessments and a closure notice issued to Mr Mullens with regard to a number of independent payments made to him across the years of assessment; payments 1 – 3 were made from one source and payments 4 – 6 from a separate but related source. The FTT had found that all payments were income, and that Mr Mullens knew that payments 2 - 5 should have been declared for tax purposes.

The UT notes the context of determining the scope of the power to raise a discovery assessment as a result of negligent or deliberate behaviour as:

In the context of the extended time limits in section 36 the UT states:

With regard to the question whether HMRC bear the burden of proving careless/deliberate conduct in respect of the whole under declaration the UT notes that in Hudson v Humbles (1965) 42 TC 380 (Hudson) Pennycuick J says:

At paragraph 48 the UT summarises the view that the effect of Hudson is HMRC will have met the burden on them (under section 29 and 36) provided that shows a prima face case of income tax not being paid as a result of careless or deliberate conduct before the burden shifts to the taxpayer to show why the assessment is incorrect.

The UT proceeds to consider the judgment in Johnson v Scott [1978] STC again concluding, at paragraph 53, that all that is required is for HMRC to show careless or deliberate conduct. Once shown the door is opened to making a competent assessment which the taxpayer must then displace.

Having considered Hurley the UT states:

We set out at paragraph 7 the issues we needed to determine. As indicated some are determined on the facts, one is a pure issue of law. It is convenient to deal with each in turn.

By reference to our factual findings at 37(11) to 37(15) we determine that the payments of £36,000 from Flightline and £27,500 (unidentified) were income assessable to income tax in 2014/15 (Bank Statement Insufficiency). However the receipt from Paul Donnelley was not income so assessable. Accordingly, receipts into the bank account assessable to income tax in 2014/15 was £157,990.78.

We have determined on the evidence that the Appellant based his business in Northern Ireland for the reasons set out in paragraph 37(3).

By reference to our findings at 37(16) to 37(19) personal expenditure not previously adjusted for (by way of reimbursement by the Appellant to TTL) totalling £12,930.89 must be added to the assessable income in the bank account (Credit Card Insufficiency).

We have determined on the facts (see paragraphs 37(20) and 37(21)) that the Appellant is not entitled to the deductions made in his return in respect of either his personal vehicle (£2,400 capital allowances) (Capital Allowance Insufficiency) or the home office (£4,800 deductible expenditure) (Deductible Expense Insufficiency). Rather we have determined to allow deductible annual expenditure of £3,600 for motoring expenses and £500 for the home office.

Our findings as to the Appellant’s behaviours are as set out in paragraph 37(24) to 37(26).

We consider him to have deliberately failed to account for income received into his bank account.

However, we consider that he carelessly permitted his accountants to make claims to capital allowances and over claimed expenditure for his home office.

We consider the errors arising from personal expenditure on the credit card to have been made despite reasonable care having been taken.

We address below at paragraphs 65 to 78 the consequence of these conclusions on the Discovery Assessments and Closure Notice.

However, in terms of the penalties our findings have the effect of reducing the quantum of the penalties in each year. Pursuant to Schedule 24 paragraph 1 the penalties are calculated on an inaccuracy-by-inaccuracy basis and by reference to the potential lost revenue (calculated in accordance with paragraph 6 of Schedule 24) arising from the particular inaccuracy. HMRC confirmed that each aspect of this appeal was a separate inaccuracy (this despite both the bank account receipts and the credit card expenditure leading to an inaccuracy in income declared in Box 15 of the self-assessment tax return).

As we consider the reductions given by HMRC are reasonable the penalty position is as follows:

The Appellant contended that if we found that his conduct was not deliberate in any regard then the assessments should be reduced to exclude from the charge to tax any amounts which were not brought about by either deliberate or careless conduct. In this regard it was noted that HMRC had not sought to defend any part of the Discovery Assessments on the grounds that they met the section 29(5) TMA condition. It was also contended that the Discovery Assessments for tax years 2009/10 – 2011/12 overstated the tax due to the extent that they included amounts which had been bought about by careless as distinct from deliberate conduct.

HMRC contended that once deliberate conduct had been established in connection with an insufficiency arising in the entry into box 15 on the self-assessment tax return (i.e. the Bank Statement Insufficiency) HMRC could competently assess under section 29(4) TMA for both the Bank Statement Inefficiency and the Credit Card Inefficiency whatever our conclusion as to the conduct giving rise to the Credit Card Inefficiency and that the 20-year time limit provided in section 36(1A) TMA applied.

During the hearing it was put to HMRC than in other cases on which I (as opposed to we) have sat HMRC had conceded that where a taxpayer had proven that a mistake had been made despite reasonable care a discovery assessment should be reduced. Mr Marks contended that a reduction may be appropriate if the insufficiency to which section 29(4) conduct was attributed was of a different nature to that in which the taxpayer had taken reasonable care but here both the Credit Card Insufficiency and that arising from the bank statements led to an error in box 15 on the return and therefore should not be reduced.

We understood HMRC’s position on the Capital Allowance and Deductible Expense Inefficiencies to be that it may be possible for there to be a reduction because they concerned boxes 21 and 57 on the basis of careless conduct.

We have not found this an easy issue to resolve. Whilst we have the authorities referred to above (all of which are binding on us) they all seem to stop just short of the question we need to answer.

We start by considering the judgment in Hargreaves CA. The hypothetical scenario considered by Arden LJ was one in which a taxpayer had treated £100 as not liable to tax in their self-assessment, but HMRC could only show deliberate/careless behaviour in respect of £50. It was contended on behalf of Mr Hargreaves that on a literal interpretation of section 29 TMA HMRC would appear to be entitled to establish the validity of a discovery assessment in respect of the full £100 by demonstrating deliberate/careless conduct in respect of only half of it. That outcome was described as startling.

As noted in Hargreaves UT, in response, Arden LJ does not expressly accept the literal interpretation of section 29 TMA advanced by Mr Hargreaves. However, the UT proceeds on the basis that it more likely that Arden LJ accepted that section 29 TMA did provide for assessment, using Mr Goldberg’s example, for £100 where HMRC could show a prima facie case for an insufficiency (in that example £50 (Insufficiency 1)) and condition within section 29 (be that subsections (4) or (5)) in respect of that insufficiency. On that basis the UT accepted HMRC’s submission that they could raise a valid discovery assessment in respect of both income and capital gains tax insufficiencies on Mr Hargreaves (contrary to the position taken by Mr Marks in this appeal).

We understand this to have been because the “situation” in section 29(1) TMA is an actual insufficiency and, in the hypothetical example HMRC were able to prove Insufficiency 1 and conduct within section 29(4) TMA. As a consequence, a taxpayer faced with the £100 assessment could not challenge the validity of the assessment as a whole and have it set aside simply because HMRC had not proven the statutory conditions to raise a discovery assessment in respect of Insufficiency 2.

However, in Hargreaves UT does not expand its thinking (because it did not need to) on the basis in which Arden LJ was satisfied that despite HMRC having the ability to raise a competent assessment in respect of Insufficiency 2 the draconian effect which concerned those representing Mr Hargreaves did not arise given the taxpayers ability to challenge the assessment as excessive.

Mullens adds analysis particularly in the context of the relationship between the statutory conditions in respect of which HMRC bear the burden for an extended time limit discovery assessment. However, it also provides some additional narrative on the circumstances in which a taxpayer can challenge a discovery assessment once the burden of proof passes to them. In the quote from Pennycuick J in Hudson, in paragraph 49 of Mullens (see paragraph 52 above), it is apparent that one of the bases of challenge could be “that there was no wilful default” in respect of one of the sources of income.

By reference to the UT analysis (in Hargreaves UT and Mullens) we conclude that paragraph 47 of Hargreaves CA is to be read as determining that the statutory conditions to raise a discovery assessment will be met in the scenario hypothesised by Mr Goldberg where HMRC have prima facie evidence in connection with Insufficiency 1 even though there is a further insufficiency of £50 (Insufficiency 2) in respect of which HMRC have not demonstrated section 29(4) TMA conduct. In accordance with section 50(6) TMA the assessment will stand good unless the taxpayer can bring evidence to show that the assessment of Insufficiency 2 is wrong/excessive/incorrect (this language being used across the cases) and thereby overcharges him to tax.

On the basis that Arden LJ was confident that the difficulty associated HMRC’s ability to assess for all identified actual insufficiencies in a period despite having only to show deliberate/careless behaviour in respect of some of the insufficiency and as confirmed in Hudson we consider that it must be open to the taxpayer, when the burden shifts to them, and in order to show that the assessment is excessive, to positively demonstrate on the evidence that, in this example, Insufficiency 2 was not bought about by deliberate/careless conduct and thereby to assess for it overcharges the taxpayer. In this context we consider that is the case because Insufficiency 2 is not itself an insufficiency which could justify the raising of a discovery assessment.

In the present case HMRC met the burden on them to establish a prima face case that the Discovery Assessments are valid applying the extended time limit provisions by showing that the conduct giving rise to the Bank Statement Inefficiency was deliberate and conduct giving rise to the Capital Allowance and Deductible Expenditure Insufficiencies was careless. However, we are satisfied on the evidence that there was no deliberate/careless conduct in respect of the Credit Card Insufficiency such that the Appellant would be overcharged to tax in respect of it. Accordingly, in exercise our powers under section 50(6) TMA we remove that part of the Discovery Assessment that relates to the Credit Card Insufficiency.

We reach a similar conclusion in respect of the Capital Allowance Insufficiency and the Deductible Expenditure Insufficiency in tax years 2009/10 – 2011/12. Those tax years require the extended time limit provided for in section 36(1A). As the Appellant has demonstrated, on the evidence, that the conduct giving rise to these Insufficiencies was careless and not deliberate we consider to effectively assess on the basis that the errors were deliberate is to overcharge the Appellant. Plainly however, the 6-year time limit in section 36(1) TMA applies to these Insufficiencies.

We have found that HMRC have reasonably concluded the presumption of continuity to apply such that HMRC made a discovery that income tax had been insufficiently assessed in each year 2009/10 – 2017/18 whilst the Appellant was a consultant to TTL and carried on certain other ad hoc business activities as a sole trader.

HMRC did not assess for 2016/17 or 2017/18. No explanation was given for this. HMRC confirmed that they would or could not now seek to do so. In our view that concession was correctly made. By the time the enquiry window closed for each of those years HMRC were sufficiently aware of the issues arising including that the Appellant was at least careless and, had they wished to protect their position, could (and in our view should) have opened an enquiry into those years. Strictly the power to assess under section 29(4) TMA is not contingent on HMRC being unaware of the careless behaviour during the enquiry window and, following Tooth, the discovery that the Appellant was at least careless does not go stale. Strictly therefore HMRC may have the power to issue assessments for those later periods however, we would consider it unconscionable for them to do so.

In evidence Mr Lawler confirmed that it was HMRC’s practice to accept direct evidence of under declaration in preference to estimating quantum by way of extrapolation. In this case HMRC have complete bank statement records for 2012/13, 2013/14 and 2015/16. In consequence, we consider that the appropriate basis for assessment for each of 2012/13, 2013/14 and 2015/16 is to take the income receipts shown in the bank account statements for each year. For the reasons given above the Credit Card Insufficiency is not assessable by way of Discovery Assessment. From the figures shown on the bank statements allowable deductions of £3,600 per annum vehicle expenses and £500 per year home office expenses should be given. We consider that these adjustments do not require adjustment for RPI on the basis that for the motoring expenses figure reflects the payments made by TTL which we understand did not vary over the period and the home office allowance is so small that it is reasonable to apply it to 2012/13, 2013/14 and 2015/16.

On the basis that we consider it reasonable to conclude that the Bank Statement Insufficiency was also made in tax years 2009/10 to 2011/12 and absent complete bank statement information for those tax years it is appropriate to apply an RPI adjustment to the 2012/13 income calculation to determine the assessable amount for 2009/10 – 2011/12.

As regards the Capital Allowance Insufficiency and Deductible Expenditure Insufficiency, as we have concluded that the errors were careless HMRC may only assess up to six years and may not therefore assess to recover those adjustments for 2009/10 – 2011/12.

The apparent effect of our conclusion at paragraphs 37(20), 57 and 83 would, on the face of them result in the Appellant being entitled to an income deduction of £3,600 in 2009/10 – 2011/12 but preclude HMRC from assessing for the associated Capital Allowance Insufficiency. In the circumstances we consider it reasonable therefore to restrict the adjustment/deduction for car expenditure in those years to £1,200 thus ensuring that the discovery assessments for those years do not give an unwarranted bonus to the Appellant and ensure the correct tax is assessed. We do so, as far as necessary in accordance with our powers under section 50 TMA.

In consequence of our decision on the Appellant’s income tax liability it is plain that he was required to be registered for VAT.

Although the question of the VAT assessable in consequence of his liability to be registered was not before us we note that our factual conclusion at paragraph 37(17) and 37(18) carries the consequence that the Credit Card Insufficiency represented undeclared turnover for VAT purposes in the period from 6 April 2014 to 5 April 2015. Our conclusion that such income was not assessable under the discovery assessment provisions of section 29 TMA there is nothing to preclude the assessment of an extrapolation of such turnover for VAT purposes.

By reference to the additional income, also representing turnover for VAT purposes the Appellant’s liability to register for VAT arose on 1 March 2009.

There was no dispute as to the law on reasonable excuse. In brief summary a taxpayer will have a reasonable excuse for failure to register where the failure to do so was objectively reasonable by reference to the attributes and situation of the taxpayer in question (see Perrin v HMRC [2018] UKUT 156 (TCC).

The only excuse advanced by the Appellant was that he considered that Mr Patel had told him in 2017 that he had a choice either to become an employee of TTL or become VAT registered.

With respect to the Appellant that excuse can only be relevant as an explanation for why he did not register in 2017 after commencing employment with TTL. As we have found that the Appellant’s business ceased upon his becoming an employee the necessary conclusion which follows is that his liability (and indeed entitlement) to register for VAT purposes also ceased in July 2017. No excuse is needed beyond that date. Had the Appellant had a continuing liability to be registered for VAT purposes we would have needed to consider more fully the circumstances and detail of what the Appellant was told but in the circumstances that is not necessary.

As the Appellant provided no explanation or excuse other than that he had not paid sufficient attention to his tax affairs in the prior period we must find that there is no reasonable excuse for the failure to register such that a penalty of £21,642.12 representing 15% of the Appellant’s turnover in the period for which he was not registered. No reduction can be given for input tax which may have been deductible in the period as the Appellant has made no evidenced claim to recovery.

The appeal is allowed in part.

Of the £560,589.39 originally assessed to income tax we find that £107,344.34 is due.

Of the £336,353.61 originally assessed in inaccuracy penalties £58,089.38 is due.

Of the £54,609 originally assessed by way of belated notification penalty we find that £21,642.12 is due.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.