Ketan Patel v The Commissioners for HMRC

HMRC requested that this be reduced to £55,008, based on estimated revised profit of £55,000 and foreign bank interest of £8, each calculated using the RPI on the presumption of continuity. The profit figures were based on figures assessed for 2012; the foreign interest was based on figures assessed for 2013.

HMRC requested that this be reduced to £60,008, based on estimated revised profit of £60,000 and foreign bank interest of £8, each calculated using the RPI on the presumption of continuity. The profit figures were based on figures assessed for 2012; the foreign interest was based on figures assessed for 2013.

HMRC requested that this be reduced to £65,007. This amount was based on identified taxable deposits in Mr Patel’s bank accounts of £60,508. The account statements covered a period of 308 days and so the income for the entire year was calculated, on a pro rata basis, to be £71,706. Estimated expenses of £5,000 were deducted, based on analysis undertaken for other years. This gave an estimated revised profit of £66,706, which was rounded down to £65,000. Mr Patel also received foreign bank interest of £7, calculated using the RPI on the presumption of continuity and based on the receipt in 2013.

HMRC requested that the assessment be amended to increase the amount assessed to £170,006. This was based on identified taxable deposits in Mr Patel’s bank accounts of £176,931. Estimated expenses of £5,500 were deducted, based on analysis undertaken for other years. This gave an estimated revised profit of £171,431, which was rounded down to £170,000. Mr Patel also received foreign bank interest of £6.

HMRC requested that the assessment be amended to increase the amount assessed to £790,006. This was based on identified taxable deposits in Mr Patel’s bank accounts of £801,549. Estimated expenses of £5,508 were deducted, based on transactions in Mr Patel’s bank statements. This gave an estimated revised profit of £796,041, which was rounded down to £790,000. Mr Patel also received foreign bank interest of £6.

HMRC requested that the assessment be amended to increase the amount assessed to £120,006. This was based on identified taxable deposits in Mr Patel’s bank accounts of £147,155. This was reduced by £10,800 as HMRC identified that amount as being a refund of an expense incurred on behalf of Woking Hockey Club. Declared VAT of £5,836 was also deducted. Expenses of £7,684 were deducted, based on transactions shown in the bank statements. This gave an estimated revised profit of £122,835, which was rounded down to £120,000. Mr Patel also received foreign bank interest of £6.

HMRC requested that the assessment be amended to increase the amount assessed to £180,007. This was based on identified taxable deposits in Mr Patel’s bank accounts of £212,720. This was reduced by £18,995 to account for two receipts for which evidence was provided to show that they were not income. Declared VAT of £25,178 was also deducted. Expenses of £7,054 were deducted, based on transactions shown in the bank statements. This gave an estimated revised profit of £186,642, which was rounded down to £180,000. Mr Patel also received foreign bank interest of £7.

HMRC requested that the assessment be amended to increase the amount assessed to £180,010. This was based on estimated revised profit of £180,000 calculated using the RPI on the presumption of continuity. Mr Patel also received foreign bank interest of £10.

HMRC requested that the assessment be amended to increase the amount assessed to £185,007. This was based on estimated revised profits of £185,000 calculated using the RPI on the presumption of continuity. Mr Patel also received foreign bank interest of £7.

HMRC requested that the assessment be amended to increase the amount assessed to £190,007. This was based on estimated revised profits of £190,000 calculated using the RPI on the presumption of continuity. Mr Patel also received foreign bank interest of £7.

We did not find Mr Patel a reliable witness: some of his key assertions were contradicted by the available documentary evidence and, on occasion, by his own evidence. For example, he claimed in his grounds of appeal to have commenced self-employment on 1 April 2013 but has previously stated in correspondence with HMRC on 23 April 2018 (and also in a self-assessment return calculation, and in a witness statement) that he commenced self-employment on 1 April 2012. In a meeting with HMRC in March 2011, he described himself as self-employed at that time.

In the hearing Mr Patel initially stated that income which he contended were loan repayments were in respect of equipment for which he (or his family) had paid which had been repossessed and in respect of which, when he discovered that BTB had the equipment, BTB agreed to give him the money when the equipment was sold. He also stated that the repossession of the equipment by BTB was at his instigation, to prevent it being taken by the liquidators to be sold to pay credits. Shortly afterwards, he then stated that he had not realised at the time that BTB had taken the equipment until he saw it in the books when he started working there. We consider it implausible that, if he had gone to some lengths to ensure that equipment was taken out of the hands of the liquidators, he would simply forget (or not realise) that BTB had such equipment. He subsequently stated as set out below that this had been devised as a means of receiving payments without a tax deduction.

Mr Patel also provided inconsistent evidence in respect of other clients. For example, in respect of receipts from Arnaouti Pitta Bread, Mr Patel claimed that these were fees relating to the sale of the business and that there was a large deferred element to the consideration which was payable over three years, and so the elements of the fee should be recognised in December 2016 and December 2017 as the fee might be repayable if the deferred consideration was not paid. He contended that the fee had been reflected in those tax years accordingly. However, the invoice provided made no reference to any deferred element. Mr Patel similarly stated that the relevant VAT had been paid over to HMRC, but the relevant VAT periods did not show any such amount of output tax.

On balance, we consider that Mr Patel’s evidence cannot be relied upon to any great extent and prefer the available third-party documentary evidence. Mr Patel has provided very limited third-party evidence to support his contentions, even where one would expect such evidence to be readily available, relying instead principally on documents such as spreadsheets which he had created with no supporting evidence provided for the entries. His criticisms of HMRC’s analysis of the available information were not supported by any evidence to show how the analysis might be incorrect.

Mr Patel provided background as to his involvement with BTB. We have not reproduced it in detail here, as it primarily involved statements that individuals involved with BTB were (in effect) seeking revenge upon him and that this was the source of HMRC’s information as to his income. From the evidence provided, there has clearly been significant dispute over the years between the various people involved with BTB, including Mr Patel. To the extent that Mr Patel relies on this to suggest that HMRC’s information was inaccurate, we have noted below where the burden of proof lies in each matter and have considered the evidence accordingly.

Mr Patel has been involved in litigation with BTB at various times. In February 2014, he made a witness statement in support of an application to set aside a statutory demand which BTB had made in January 2014 for £184,856.52. The company stated that the claim was in respect of money taken by Mr Patel from BTB’s bank account over a period of time from December 2006.

Mr Patel’s witness statement in respect of that litigation included the following statements (no supporting evidence was provided):

On 15 July 2019, Mr Patel made a further witness statement in respect of a statutory demand dated 28 June 2019 issued by BTB Brew Technology Ltd for the same amount as the statutory demand made in January 2014. This later witness statement contends that the company had not provided any evidence of the debt and that all monies paid by the company to Mr Patel were authorised by a director. There is no reference to Mr Patel having received any of these monies as an employee, or to the repayment of any loan.

The litigation was ended in each case by a consent order, the details of which were not provided.

HMRC argued that Mr. Patel received substantial income from accountancy and consultancy services which he failed to declare in his self-assessment tax returns. His bank statements and invoices showed deposits far exceeding the income declared.

Where records were missing, HMRC had used the Retail Price Index (RPI) to estimate income based on representative years.

HMRC asserted that the deposits into Mr. Patel’s accounts were business income and thus taxable.

Mr. Patel had provided spreadsheets of claimed expenses without supporting evidence. HMRC had disallowed these but allowed some expenses identified from bank statements.

The burden of proof was on Mr. Patel to show expenses were “wholly and exclusively” for business purposes under s34 ITTOIA 2005.

Based on the case of Jonas v Bamford [1973] 51 TC 1 (CA), HMRC had applied the principle that once undeclared income is found, it is presumed to continue unless proven otherwise. They contended that Mr. Patel’s business activities and record-keeping were consistent across years, supporting this presumption.

HMRC argued that all assessments were issued within the applicable statutory time limits:

HMRC contended Mr. Patel’s actions were deliberate, citing:

Alternatively, if not deliberate, his conduct was at least careless.

HMRC acknowledged that they must show that there was a valid “discovery” of underpaid tax. The test is both subjective (the officer believed tax was underpaid) and objective (a reasonable officer would believe the same).

HMRC contended that both tests were met based on evidence from bank statements, invoices, and third-party information.

HMRC maintained that the closure notices were validly issued and meet all statutory requirements.

Mr Patel contended that he had declared all taxable income and that HMRC had relied on biased or incomplete information from people involved with BTB. He also considered that HMRC had not provided a clear audit trail, or detailed analysis of bank statements, to support their figures. He had expected that HMRC would provide a line by line analysis of his bank statements. He also considered that HMRC’s use of estimates was flawed.

Mr Patel argued that his income had changed significantly, particularly when his work with BTB ended, and as such the presumption of continuity should not be used.

The assessments were all issued under s29 TMA 1970 which states, as relevant, that:

The test of whether a relevant discovery has been made is both subjective and objective: did the relevant HMRC officer believe that they had made a discovery and was that belief one that a reasonable HMRC officer would form.

HMRC contended that when Officer Jones issued the assessments for the years ended 5 April 2009, 2010, 2011, and 2013 on 17 July 2015 she believed, based on the documents and information received from BTB Brewing Technology (UK) Ltd, that the Appellant had received income that he had not declared, and that should have been subject to income tax. Further, she believed that this failure to declare the income received resulted in an insufficiency of tax. HMRC further contended that this was a reasonable belief.

Mr Patel contended that he had not been supplied with these documents and that the information might be unreliable as it was provided by someone who he considered had a grudge against him. He did not challenge Officer Jones on her belief that she had made a discovery nor did he submit that her belief that she had discovered an insufficiency of tax was not reasonable.

Although we note Mr Patel’s contentions as to the reliability of the information we note that the threshold for discovery is a relatively low one (Langham v Veltema [2004] EWCA Civ 193) and, considering Mr Patel’s evidence, we consider that the dispute was as to the nature of the payments made rather than that no payments were made.

Given the rather limited information and explanations provided by Mr Patel (in respect of which there is more detail below), we find that Officer Jones made a discovery within the meaning of s29 TMA 1970 and that her belief that there was an insufficiency of tax was reasonable.

HMRC similarly contended that when Officer Jones issued the assessments for the years ended 5 April 2017, 2018 and 2019 on 16 October 2020 she believed that the Appellant had received income that he had not declared, and that should have been subject to income tax. She believed that this failure to declare income had resulted in an insufficiency of tax. This belief was based on an examination of documents and information provided by the Appellant, including bank statements.

Mr Patel asserted that he had declared all taxable income for the relevant years. He did not challenge Officer Jones on her belief that she had made a discovery nor did he submit that her belief that she had discovered an insufficiency of tax was not reasonable.

Given the rather limited information and explanations provided by Mr Patel (in respect of which there is more detail below), we find that Officer Jones made a discovery within the meaning of s29 TMA 1970 and that her belief that there was an insufficiency of tax was reasonable.

s34 and s36 TMA 1970 provide the relevant time limits for issuing discovery assessments, These are:

HMRC contended that the assessments for 2013 (issued 17 July 2015), 2017, 2018 and 2019 (all issued on 16 October 2020) were issued within the ordinary time limit. Mr Patel did not dispute this. We find that these assessments were issued within the ordinary time limits.

HMRC further contended that the assessments for 2010 and 2011 (both issued on 16 July 2015) were issued within the six year time limit in s36(1) TMA 1970 and that the behaviour which gave rise to the loss of tax in respect of the tax years was at least careless.

In addition to the requirement for careless behaviour for the six year time limit to apply, s29 TMA 1970 requires that, where a tax return has been submitted, one of the conditions for a discovery assessment to be raised is that the situation which gave rise to the discovery was brought about at least carelessly.

s118(4) TMA 1970 states (as relevant) that:

“For the purposes of this Act a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation.”

HMRC contended (in summary) that Mr Patel had qualified as a chartered accountant and that he worked in the finance and consultancy sector. He had been submitting self-assessments returns for himself since at least the tax year ended 5 April 2004. As such, they submitted that Mr Patel was very familiar with the self-assessment regime, the preparation of financial accounts and the need to keep and maintain accurate records to support his tax returns.

For each of the tax years involved, HMRC contended that Mr Patel must have been aware that the tax returns which he was submitting did not disclose all of his business income. They contended that this was at least careless behaviour.

Mr Patel denied that he had underdeclared income; he did not make any specific submissions with regard to HMRC’s contentions as to his behaviour.

We note that the burden of proof is on HMRC to show that Mr Patel’s behaviour was at least careless. Considering the evidence before us, set out in more detail below, we find that Mr Patel’s behaviour with regard to his self-assessment tax returns was at least careless: we conclude that he failed to declare income which he knew was taxable and that he also failed to keep the records which he was required to keep by law. As a qualified accountant, he will have been well aware of the requirement to keep such records and he accepted in the hearing that he was aware of this requirement.

For the reasons set out above, as we find that Mr Patel’s behaviour was at least careless, we conclude that the conditions for the discovery assessments have been and that the assessments were raised within the relevant statutory time limits.

We therefore find that HMRC have met the burden of proof on them to show that the assessments were validly raised.

Mr Patel made a number of complaints about HMRC’s approach in this matter: in particular, Mr Patel criticised HMRC for not undertaking a more forensic analysis of his bank statements. He stated in submissions that he “expected to see an excel sheet analysing the bank statements line by line which would then show a complete analysis of receipts and payments with sub totals for various categories”.

It is clear from case law that HMRC are not required to do the work of the taxpayer: the taxpayer is required to keep records and provide, when necessary, explanations of those records. We do not agree that the complaints made by Mr Patel mean that the assessments were not reasonable.

HMRC contended that they had used figures from the information provided by Mr Patel to calculate his income, taking into account his explanations where these were supported. They had deducted estimated expenses as Mr Patel had not provided records of his business expenses claimed. HMRC provided an analysis of Mr Patel’s bank accounts to support the amounts assessed as income for the years ended 5 April 2012-2016, the figures from 2012 and 2016 were used to support the amounts assessed for 2010-2011 and 2017-2019 (respectively) on the basis of the presumption of continuity.

Mr Patel contended that HMRC had not undertaken a detailed analysis of his bank statements and had not provided any workings or audits trail to show how they had arrived at their figures, and there was no guarantee that there was no error in their methodology. He pointed out some errors in some documents produced by HMRC in the course of the enquiry.

Mr Patel also contended that, if he had failed to declare these amounts then he would have had significant funds and would have been willing to pay the tax due. HMRC had not identified that he had any such funds.

Having considered the evidence before us and the submissions made, we find that the assessments in the revised amounts requested by HMRC for these years were reasonable. We note that, in producing assessments, HMRC are not required to undertake forensic analysis of information provided to them. Minor errors in documents in the enquiry did not appear to have been reproduced in the documents which formed the basis of the amounts which HMRC contended should be assessed.

Mr Patel had the opportunity to provide information to show that the analysis undertaken by HMRC was not correct and did not generally do so. The question of what may, or may not, have happened to under-declared funds is not relevant to the exercise to be undertaken in reaching a reasonable assessment.

For the tax years ended 5 April 2010 and 2011, no records were provided. HMRC therefore calculated their estimates by applying the relevant RPI to the figures assessed for 2012 for these years. This was done on the basis of the presumption of continuity, on the basis that the trade was carried out in the same or similar basis in the years in question. HMRC contended that there had been no material change in Mr Patel’s business, even if he may have been employed by some entities in the period.

Mr Patel contended that it was not reasonable to use the principle of continuity because his income had changed significantly when he ceased to be involved with BTB.

For these tax years, no records were provided. HMRC therefore calculated their estimates by applying the relevant RPI to the figures assessed for the tax year ended 5 April 2016 for these years, applying the presumption of continuity on the basis that the trade was carried out in the same or similar basis in the years in question. HMRC contended that there had been no material change in Mr Patel’s business, even if he may have been employed by some entities in the period.

Mr Patel stated that HMRC had not asked for business records and bank statements in respect of these tax years and that it was not reasonable to use the presumption of continuity for years in which income varied.

For the tax years ended 5 April 2010-2011, Mr Patel’s evidence was that he had been involved with BTB during the tax years ended 5 April 2010-2012. As such, we do not consider that this supports his contention that the presumption of continuity could not be used where the figures for the tax year ended 5 April 2012 were used to reach an assessment for the previous two years. With regard to the tax years ended 5 April 2017-2019, Mr Patel did not provide any detail as to how he considered that income had varied in those years in a way which would make it unsuitable to use the principle of presumption of continuity.

HMRC are not required to seek additional information for those years before using that principle. The Court of Appeal in Jonas v Bamford established that once HMRC has made a discovery that a taxpayer has received undisclosed income, it is reasonable for HMRC to infer that such income was received in other years unless the taxpayer can show otherwise:

HMRC requested, as set out above, that the Tribunal amend the assessments to reflect additional information provided following the provision of information by Mr Patel. s50 Taxes Management Act 1970 provides that the Tribunal may increase an assessment or reduce an assessment which is not a self-assessment where the Tribunal decides that the appellant is undercharged or overcharged (respectively) by an assessment other than a self-assessment.

We have reviewed the evidence provided and conclude that, subject to the question as to whether the quantum is displaced by Mr Patel which is discussed below, it is appropriate to make the amendments requested by HMRC as set out above.

We conclude that it was reasonable for HMRC to use the principle of continuity to assess other years. The fact that HMRC did not specifically request documents from Mr Patel in respect of those years does not alter this: the taxpayer may, of course, produce evidence to rebut the presumption of continuity. Mr Patel has not done so.

Having considered the evidence before us and the submissions made, we find that the assessments in the revised amounts requested by HMRC were reasonable.

As we have found that HMRC’s assessments were valid and a reasonable estimate of undeclared income in the circumstances, the burden of proof moves to Mr. Patel to disprove the amounts assessed. There were two general areas of dispute: undeclared income and claimed expenses.

Mr Patel provided HMRC with bank statements that corresponded to the tax years ended 5 April 2012 to 5 April 2016. HMRC’s evidence was that an analysis of these showed that Mr Patel had received more income from his trade than he had declared for tax purposes.

Mr Patel accepted in correspondence that the payers of some of the amounts were clients; HMRC concluded that these were therefore income from his business and these amounts should be included in calculating the income of his business.

Although Mr Patel had provided an explanation for some of the amounts received into his bank account, HMRC contended that some of the deposits remained unexplained and some of the explanations given were not credible.

The following considers the main points regarding undeclared income which were addressed in the hearing and the parties’ submissions.

Mr Patel’s bank statements showed payments from a number of BTB entities in the tax years ended 5 April 2012, 2013, and 2014.

Mr Patel explained that his tax returns for the tax years ended 5 April 2010, 2011 and 2012 showed no employment income from BTB because he considered that payments received from BTB in those years were loan repayments or repayments of money advanced and because BTB did not submit a P35 in respect of those payments. Mr Patel did not dispute that he would have been the person responsible for ensuring that P35s were submitted for BTB.

In the 2014 witness statement made in the course of litigation with BTB Mr Patel contended that the loan arrangements related to equipment which had been sold some years earlier to a company owned by his family (Archers) for which Archers had paid £70,500.

In a subsequent witness statement in respect of litigation with BTB, made in July 2019 and which referred to the same amounts, Mr Patel stated only that payments to him were authorised by directors. There is no reference to him being employed by the company, nor to his earlier witness statement.

When the bank had subsequently called in administrators to Archers, Mr Patel stated that he had advised Mr Prime that the equipment had been paid for by Mr Patel’s family personally and asked Mr Prime to arrange for BTB to retrieve the equipment. Mr Patel’s evidence was that Mr Price told the administrators that BTB had retained title to the equipment, and BTB subsequently took the equipment to Germany. Mr Patel said that BTB did not repay Mr Patel (or his family) when it recovered the equipment. Mr Patel stated that he did not think about this again until a few years later.

In his skeleton argument and the 2014 witness statement referred to above, and in earlier correspondence with HMRC, Mr Patel stated that BTB had agreed that the cost of the equipment retrieved would be treated as a loan with an interest rate of 25% and that Mr Patel’s remuneration from BTB would be paid by way of making repayments in respect of this loan in amounts that ensured that he was paid a specific amount each month (the amount increased over time). In the hearing, Mr Patel stated that the loan was stated to be £70,500 because it was set to cover the amounts which had been agreed to be paid to him for his work.

Mr Patel contended that the loan was evidenced because one of the directors of BTB had signed an undertaking on 1 February 2013 to pay Mr Patel the amount of £199,520.16, which was stated to be the ‘total debt’ of £152,271.81 plus interest, together with any further interest owing at 20% per year from 1 March 2013. This undertaking was stated to be payable from the sale of the first to sell of two properties. The amount stated in the undertaking was paid to Mr Patel a week later, on 7 February 2013.

Mr Patel explained that he had suggested the loan as a mechanism to save the company tax and National Insurance contributions. He contended that this was shown by the fact that the payments were not round numbers and that another director, Mr Kessler, had confirmed the arrangement. He contended that the only beneficiary of these arrangements was BTB, because it did not have to account for PAYE income tax and National Insurance Contributions on the amounts paid. However, in the hearing, he stated that “the whole point of doing this was so that I wouldn’t have to declare it”, indicating that he considered that he was the beneficiary of the arrangements.

In respect of other amounts shown from BTB on his bank statements, Mr Patel contended that, as part of his work for BTB, he would assist with cashflow by directly paying wages and advancing funds on a short-term basis (in the order of days or weeks) to BTB from the tax year ended 5 April 2012 onwards. He provided a schedule which he contended supported this, showing amounts paid by him and received by him. He submitted that these amounts were therefore also not taxable as they were simply repayments of amounts paid by him on behalf of BTB.

This category of payments also included a receipt of over £63,000 shown on his bank account as “advice confirms” on 3 April 2013. Mr Patel stated that this was a repayment from BTB of funds which he had advanced to the company. Mr Patel had not been able to locate any documentary evidence of this; he said that the documents were in old emails which he had backed up but that he did not want to restore the backup in case it caused problems for his emails. He considered that the original payment which he had made to BTB should be evidenced in his bank statements, and the BTB records, but that he did not have access to those documents anymore. He did not provide any explanation as to why he had not kept copies of these documents.

HMRC contended that Mr Patel knew that tax was due on these amounts, even if BTB had not declared them to HMRC.

No documentary evidence had been provided to support the contention that there were any loans or that the repayments were made in lieu of income for Mr Patel’s services. BTB had advised HMRC that there was no loan agreement in place with Mr Patel or any member of his family and that there had been no employment contract between BTB and Mr Patel. HMRC had been unable to locate any PAYE records which showed Mr Patel as an employee of BTB and had been told by BTB that Mr Patel had not been engaged as an employee. The deposits made to Mr Patel’s bank account were made by various BTB entities, which HMRC contended was inconsistent with the claim that the payments related to a loan relationship between a particular BTB entity and Mr Patel or his family.

HMRC also contended that Mr Patel had not provided any evidence to support his contentions that other amounts were repayments of expenses or cashflow advances.

HMRC contended that payments were made to Mr Patel in relation to his trade and were income accruing to Mr Patel and so should be taxed as self-employment income.

Mr Patel’s contention that amounts paid by BTB were loan repayments is not sustainable. There was no documentary evidence of any such loan; although there is reference to a loan in an email from one of the directors, Herbert Kessler, it is in the context of reporting something which Mr Patel had apparently described rather than a clear independent verification of the existence of such a loan. We consider it implausible that Mr Patel would have forgotten about BTB taking equipment which Mr Patel had apparently made arrangements to put beyond the reach of the liquidators of his company. The amount of the purported loan was also stated to relate to amounts which Mr Patel considered were payable to him by BTB rather than any identifiable value of assets or sale proceeds of any assets.

Further, Mr Patel’s own evidence was that these were amounts due to him for work done. The description of them as loan payments was done at his instigation in order that the payments be disguised for tax purposes.

We note that Mr Patel stated that these amounts were paid to his family but also note that the assessments were raised on the basis of amounts paid into Mr Patel’s bank account. An explanation that describes funds being paid to another party cannot provide a credible explanation for receipts into Mr Patel’s account.

We find that the amounts received from BTB in Mr Patel’s bank account were not, therefore, repayments of a loan.

Mr Patel also contended that the work for which he was being paid was employment, rather than self-employment, and that any tax which might be due was properly recoverable from BTB.

No contract of employment, or any terms and conditions of employment between Mr Patel and BTB were provided. In correspondence dated 3 September 2013, Mr Patel advised HMRC that he did not have a contract of employment with the company.

The evidence in the bundle regarding to Mr Patel’s employment status was as follows:

In his appeal to HMRC on 13 August 2015 against assessments for the tax years ended 5 April 2009 to 5 April 2013, Mr Patel stated that he became self-employed on 1 April 2013 and that he had worked full time for BTB Brew Technology (UK) Limited before that.

Mr Patel has, therefore, provided at least three different potential start dates for self-employment, varying from some time before 9 April 2011 to 1 April 2013. On the balance of probabilities, given his statement to HMRC on 9 April 2011 which was not in connection with his own tax affairs, we conclude that he was self-employed before 9 April 2011 and had been self-employed throughout the period of working with BTB. We find that he was therefore self-employed throughout the tax years in question.

Mr Patel also contended that Mr Kessler had confirmed that he was employed. Mr Kessler was not present at the hearing and provided no witness statement. In the bundle there was a letter from Mr Kessler to HMRC, dated 5 February 2014, stating that it “was agreed that Mr Patel would be paid GBP 7,000 net of tax per month plus expenses” and that “Mr Patel had come with [sic] a way to reduce the tax payable by using the loan from his mum”. At no point does Mr Kessler state that Mr Patel had been engaged as an employee. We consider that the wording is equally consistent with Mr Patel being a self-employed consultant and seeking to reduce his own taxes.

The undertaking stated to have been provided by another director also does not assist. We had no evidence from the relevant director as to the purpose of this undertaking; the document does not specifically state that it relates to any loan made to BTB. Mr Patel produced a spreadsheet which he contended explained how the amount had been calculated; this was not supported by any evidence to support the amounts included in the calculation. The director in question was also described by Mr Patel in the hearing as having told the liquidators of Archers that he had retention of title to equipment in order to assist Mr Patel in ensuring that the equipment was not taken by the administrators. The schedule apparently showing payment of the undertaking amount from the proceeds of sale of a property does not show who created the document; it is not on any solicitors’ firm letterhead, for example. In the circumstances, we consider that no weight can be given to the undertaking document produced by Mr Patel.

Considering the evidence, we do not agree that Mr Patel has met the burden of proof on him to show that these were payments of salary, such that the obligation to account for tax on those payments might fall on BTB. We had only Mr Patel’s assertions that he was employed, generally made in circumstances where it would be to his advantage to assert that status: there was no independent evidence that he had been employed by BTB. His contentions that Mr Kessler had supported this are not clearly supported by documentary evidence. In the meeting with HMRC in 2011 Mr Patel stated that he was also engaged by BTB on a self-employed basis.

The panel reviewed the schedule produced by Mr Patel. The schedule does not contain any detail as to what the purported payments made on behalf of BTB were paid for and no supporting evidence was identified by Mr Patel; in Mr Patel’s written submissions, he commented that some of the figures were “most probably a reimbursement of an expense”. The amounts are not consistent with wages payments or payments on behalf of BTB (being generally round figures).

We noted that a number of the payments were made after or on the same day as the correlating amount had been received from BTB. This does not support the contention that Mr Patel was assisting BTB with short-term cash-flow issues in respect of these amounts.

In addition, the schedule showed that Mr Patel received £133,411.58 from BTB: the payments out amount to £49,797.27. The receipts of £133,411.58 include monthly payments to Mr Patel which are similar to the amounts which Mr Patel contended were due to him as salary in his February 2014 witness statement.

Excluding the payments of purported salary, the schedule shows that Mr Patel received considerably more from BTB than he paid out. In the hearing, Mr Patel stated that difference would be expenses repaid to him by BTB. He provided no details or supporting evidence in respect of this contention.

In the absence of any evidence to the contrary, we consider it very unlikely that amounts which were described by the payer on transfer to Mr Patel’s bank account as including reference to “advice” would be anything other than income of his trade. No explanation was given as to when the purported loan had been made, nor why it was not included in the amount which he contended was a loan repayment in February 2013.

On balance, we consider that Mr Patel has not met the burden of proof on him to show that the amounts received from BTB were loan repayments and/or repayments of funds otherwise advanced to BTB by Mr Patel or paid on their behalf by him. We also consider that he has not met the burden of proof on him to show that any of these amounts were paid to him under an employment relationship and not income of his trade.

We find that these payments from BTB were, therefore, amounts received by Mr Patel in the course of self-employment and taxable as such.

A number of the payments received by Mr Patel were received from UKMD Ltd. Mr Patel confirmed that this company was owned by his wife and that these payments were amounts passed on to him from payments by BTB to UKMD Ltd. Mr Patel contended that these were part of the amounts which he described as loan repayments, apparently related to the purported equipment loan, and therefore not taxable on him. In the hearing he stated that he had received post-tax amounts from UKMD. There was no reference to payments from UKMD in his written submissions or skeleton argument.

For the reasons given above, we have concluded that amounts received by Mr Patel from BTB were taxable income of his business. It follows that, given Mr Patel’s explanation of the source, that amounts paid to Mr Patel by BTB via UKMD Ltd were similarly taxable income of his business. The payment to a third party at his direction does not alter that. We note that Mr Patel’s tax returns do not include any employment income from UKMD and there was no evidence to indicate that the amounts received from UKMD were paid to him net of tax.

Mr Patel accepted in the hearing that a payment of £25,000 from Sir Gulam Noon, received in the tax year ended 5 April 2012, was not included in his self-assessment return for that year. Mr Patel’s evidence was that this amount was paid to him because Sir Gulam believed that Mr Patel had been poorly treated when employed by a company of which Sir Gulam was a director. He considered that this was not taxable as it was compensation for poor treatment.

In a letter dated 17 June 2016 sent to HMRC, Mr Patel stated that this amount was a payment of outstanding remuneration.

Mr Patel also contended that the amount was part of a figure of over £71,281.47 which he had claimed as a non-preferential secured creditor in the liquidation of the company and that the total of the payment from Sir Gulam and the amount received from the liquidator was less than the amount claimed by Mr Patel in the liquidation. Mr Patel stated that he did not have any documents in support of this; he had tried calling one of Sir Gulam’s daughters but had not been able to get a useful response and had not seen any point in contacting the trustees of Sir Gulam’s estate.

HMRC contended that this amount was received in connection with work done by Mr Patel and was therefore subject to tax. HMRC contended that if the amount had been in respect of outstanding employment remuneration, the claim in the liquidation would have been made as a preferential creditor.

Having considered the parties’ submissions, we find that this amount is taxable as trading income of Mr Patel; there is no evidence that would indicate that the amount should not be subject to tax and, as Mr Patel has given various different explanations as to the reason for the payment, we do not consider that he has provided any reliable explanation that would support his contention that the amount should not be taxable as his trading income.

Mr Patel’s bank statements showed amounts received from Woking hockey club, totalling £60 in 2011/12, £931.28 in 2012/13 and £22,107.47 in 2013/14. An amount of £10,800 was allowed as a deduction against these amounts in 2014/15 as that amount was identified by HMRC as an expense paid by Mr Patel on behalf of the club in that year.

Mr Patel provided no written submissions about this aspect of the assessments in either his skeleton argument or closing submissions. In correspondence with HMRC he stated that these payments were reimbursement of expenses which he had incurred in his role as Treasurer, paying expenses on behalf of the club and then reclaiming the amounts from the club.

In the hearing Mr Patel stated that he had paid some expenses directly because the club had been unable to obtain a bank card for him, so he had paid for amounts and then been reimbursed. He accepted in the hearing that the club had a bank account and card but stated that this was in the name of the old treasurer and that it had been difficult to get him on the account.

Mr Patel stated that he had also given the club a prepaid debt card to pay for items relating to the club bar. He provided statements for a ‘cashplus’ account for the period 24 August 2012 to 8 July 2015 (although the account appeared to have ceased to be used in March 2014). The statement showed amounts being added to the account, generally monthly, from which payments were made to entities such as Booker. Only one of the amounts added to the account refers to Mr Patel; that is an amount of £750 dated 6 January 2014. All other deposits appear to have been made from the club bank account.

Mr Patel also provided a spreadsheet which he had created headed ‘Reconciliation of funds received’. This covers the period 30 October 2013 to 30 April 2014.

HMRC contended that Mr Patel had described himself as an agent for the club when communicating with HMRC in respect of the club’s tax affairs. As he had not provided any supporting evidence to show that he had incurred any expenses on behalf of the club, they contended that the amounts were trading income paid to him for acting as agent on behalf of the club.

Mr Patel provided no explanation for the amounts received from Woking hockey club in 2011/12 and 2012/13. The reconciliation of funds which he provided does not account for all of the amounts received from the club in 2013/14.

There was no supporting evidence indicated by Mr Patel in respect of the amounts stated to have been paid in his spreadsheet, other than the amount of £750 which was shown to have been paid to the cashplus account in January 2014. Although Mr Patel stated that he had given the card to the club to enable bar supplies to be purchased, it is clear from the statements that only one of the top-up payments to that card was made from Mr Patel’s bank account.

The spreadsheet produced by Mr Patel shows that the club paid him considerable funds long before he had to make any payments on behalf of the club: at one point, the reconciliation shows that the club had paid him more than £14,000 in excess of amounts expended. The effect is that all amounts which Mr Patel says he paid on behalf of the club were apparently paid from funds provided to him by the club; it was not clear why the club could not have paid these directly as the bank was obviously capable of authorising bank transfers. There was no explanation as to why the club should have paid Mr Patel such a substantial amount of money before equivalent expenses were incurred. The total amount shown as received from the club in the spreadsheet was £17,450, approximately £4,500 less than the amounts shown as received from the club in Mr Patel’s bank statements. As noted, the only payment for which any supporting evidence is available is the payment of £750 to the cashplus account in January 2014, which is supported by the cashplus account statement.

Accordingly, the only amount for which there is any supporting evidence as an expense paid by Mr Patel which may have been reimbursed by Woking Hockey Club is the payment of £750 to the cashplus account in January 2014. As HMRC have already requested that the estimated profits to be assessed for this year should be rounded down by over £6,000, we do not consider that it is appropriate to make any further adjustment in respect of this amount.

An amount of £2,578.07 was received by Mr Patel from Coversys Ltd on 1 August 2014. HMRC asked for details of Coversys and Mr Patel advised in a letter of 23 March 2017 that they were a client and, in a letter of 18 April 2019, that this amount was a repayment of expenses incurred. He stated that these expenses were linked to services provided for which he was paid a retainer.

HMRC contended that no sales invoices to Coversys at the relevant time had been provided, and no other evidence of services provided to Coversys had been provided, and they had been unable to identify any deposits which met the description of a retainer.

Mr Patel provided a spreadsheet described as an expense claim relating to Coversys Limited. The spreadsheet contains details of amounts dated April-July 2014; one of the columns is headed “Bank Charges”. A total amount of £2,578.07 is stated to have been “Paid 1/8/14”. There is a further line which states only “31.8.14 999.97”. It was unclear whether that was a further expense claim, and if so what for, or whether it was supposed to refer to a payment. There was no supporting evidence for any of the amounts.

Further, Mr Patel’s written submissions included the statement that he had a contract with Coversys which permitted expenses to be claimed and referred to a document provided in the hearing. This was a document dated 4 October 2015 which was stated to be in respect of termination of an agreement for commercial services between Coverite SPRL, a Belgian company, and Mr Patel as a consultant. That agreement was stated to have been entered into on 1 June 2015. A copy of that agreement was also provided and stated that (in summary) Mr Patel was to advise the company on management of its day to day running, advise on operations in Belgium, to perform the duties of finance director, and advise on possible sale of the company. The consideration due under this agreement was £1,000 per month from 1 June 2015 to 31 May 2016 exclusive of any applicable VAT; Mr Patel would be reimbursed expenses and would be paid a bonus of 20% of net sale proceeds if the company or its assets were sold.

The termination agreement confirmed that the company would pay Mr Patel £28,000 for services provided between 24 April 2014 and 4 October 2015. The payment was agreed to be in full and final settlement relating to any written or verbal agreement made between the company and Mr Patel previously.

This amount was to be paid in monthly instalments of £2,000. At the date of the termination document, £3,000 was stated to have already been paid. An invoice for £25,000 dated 4 October 2015 addressed to Covert was also provided, with the invoice stated to be for the period 24 April 2014 to 4 October 2015.

None of the evidence provided supported Mr Patel’s contention that this was an amount of expenses received in connection with services provided to Coversys. There was no evidence to show that Mr Patel had made the payments which he contended had been reimbursed. The agreement which he contended related to the services in connection with which he had incurred expenses was with a different company (Coverite) and related to services to be provided from 1 June 2015. Although the termination agreement entered into shortly after included reference to services provided from 24 April 2014, it remains the case that the agreement was not an agreement with Coversys. Although the spreadsheet provided by Mr Patel has a column headed “Coverite SPRL” (and an amount of £91.84 in that column), we do not consider that this demonstrates that the amount received by Mr Patel was reimbursement of expenses incurred wholly and exclusively in connection with services provided to Coversys.

Accordingly, we do not consider that Mr Patel has met the burden of proof on him to show that this receipt was not taxable as trading income.

There were, between July 2012 and December 2014, significant amounts which were shown received on Mr Patel’s bank statements with the reference “Advice Confirms”. HMRC contended that these were, on the balance of probability, payments for work done by Mr Patel and therefore taxable income of his business. In correspondence in 2023, Mr Patel explained these as being:

As noted, these two payments have been discussed above and we have concluded that on the basis of the evidence before us, these amounts were taxable as income of Mr Patel’s business.

The other payments are:

On the basis of the evidence before us, we conclude that these amounts were also taxable income of Mr Patel’s business in the tax years in which they were received. The amount received in respect of Arnaouti Pitta was, we find, taxable on receipt. Even if an element of the fee had become repayable in future, for which there was no evidence, the appropriate tax treatment would have been to claim a deduction in the tax year in which an amount was repaid.

In written submissions, Mr Patel contended that the assessments for the tax years ended 5 April 2013 to 2016 were distorted because the sales invoices to customers had not been matched to bank receipts from customers and that it was not possible to see if there had been a repayment of funds advanced. However, he provided no analysis or evidence to support the contention that there had been any such distortion.

Overall, we conclude that Mr Patel has not met the burden of proof on him to displace the amounts assessed by HMRC as undeclared income.

Mr Patel had no clear evidence of any expenses for which he had claimed a deduction. In the hearing he stated that he thought it was enough that amounts were paid from the bank and that he knew what they were for. We find that a rather surprising statement for a qualified chartered accountant and we consider that Mr Patel was in fact well aware that proper records of expenditure are required to be kept.

Mr Patel also stated that proof of expenses had been provided by way of an excel spreadsheet, which had clear dates of payments and that HMRC could have checked these against his bank statements.

The excel spreadsheet provided by Mr Patel for tax years ended 5 April 2017-2019 has no supporting documentation and showed a deduction of £10,975 each year for travel expenses; it seems implausible that precisely the same amount was incurred each year, particularly for the 2017-18 tax year in which Mr Patel’s only declared income was something that he described as a deferred payment relating to a transaction in an earlier year. Other costs such as telephone, subscriptions and insurance are, similarly, identical each year; we consider that it is not plausible that these costs would be precisely the same in each year.

We find that Mr Patel has not met the burden of proof on him to show that any additional amounts should be deducted for expenses incurred.

For the reasons set out above, we find that Mr Patel has not met the burden of proof on him to displace the amounts of the assessments.

Mr Patel made a number of allegations as to HMRC’s conduct of the enquiry into his tax affairs; as noted in the hearing, this Tribunal has no freestanding jurisdiction in respect of HMRC’s behaviour.

However, in the hearing Mr Patel repeated an allegation made in correspondence that HMRC had fabricated a bank statement which indicated that interest of over £4,000 had been received by Mr Patel in the tax year ended 5 April 2017.

HMRC’s evidence was that this was information which had been contained in a return submitted to HMRC by HSBC; when Mr Patel stated that he did not have such an account and provided a bank mandate to HMRC to enable them to check, HMRC had checked with HSBC who confirmed that they had no records that correlated with that return of interest. A copy of the letter from HSBC was included in the bundle. The interest amount was not included in the assessment amounts contended for by HMRC.

Mr Patel contended that, as HMRC had been unable to provide any supporting documents to evidence the printout which appeared to be a Word document with details of the interest, the document must have been fabricated.

This was somewhat surprising, as it was in marked contrast to his contentions that the spreadsheets which he produced without any supporting documentation should be taken to be accurate.

On balance, and for the avoidance of doubt, we consider that on the balance of probabilities, the interest information was extracted from HMRC’s systems and arose as the result of an error made in the interest return produced by HSBC to HMRC.

As noted at the outset, the assessment for the tax year ended 5 April 2009 is reduced to nil as requested by HMRC.

For the reasons set out above, we consider that the remaining assessments were validly raised and that Mr Patel has not met the burden of proof upon him to displace the assessments. We uphold the assessments in the revised amounts requested by HMRC.

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.