Ripe Limited v The Commissioners for HMRC

This is an appeal against assessments (“the assessments”) issued under para 41 of schedule 18 of the Finance Act 1998 (“FA 1998”) and closure notices (“the closure notices”) given under para 32 of schedule 18 FA 1998 as shown in the table below in respect of the appellant’s corporation tax position in the accounting periods ended on 30 April in each of the stated years:

£10,000 21 December 2022 Closure notice

£9,958.90 21 December 2022 Closure notice

The issues are (1) whether HMRC have validly issued the assessments under the provisions of schedule 18 FA 1998, and (2) whether the appellant correctly claimed a deduction in computing its profits in the relevant accounting periods for a proportion of the sum which it claims was spent on acquiring an intangible fixed asset (“IFA”) under the legislation which is now contained in parts 8 and 9 of the Corporation Tax Act 2009 (“CTA 2009”). HMRC assert that it was not entitled to any such deductions because it did not acquire an IFA as defined under these provisions.

Under the tax regime applicable to a company’s intangible fixed assets, or goodwill in CTA 2009:

Both parties referred to the above provisions but those in place in the accounting periods in question were contained in schedule 29 to the Finance Act 2002 which was re-enacted in CTA 2009 and amended in 2015 and 2019. It was common ground that there is little material difference in the provisions in schedule 29 and those in CTA 2009. The appellant contended, however, that changes made to the legislation shed light on the original intention of the legislation (see below).

The appellant contended that it acquired an intangible asset from Mr Glazer, comprising a licence to use a client list, data and information relating to the clients listed (“the asset”) for around £550,000, during the accounting period ended on 30 April 2008 as described below. In its view, the appellant had custody/a right to the asset and derived economic benefits from it by permitting a related entity to use it in the operation of that entity’s accountancy business for an annual fee.

The appellant made the following submissions as regards changes in these provisions with reference to s 816A CTA 2009 (inserted by Finance (No 2) Act 2015 and subsequently repealed by the Finance Act 2019) and section 879A CTA 2009 inserted by Finance Act 2019:

We have found the facts on the basis of the documents in the hearing bundles and the evidence of Mr Robert Glazer, Mrs Pratimer Glazer and Mr Ragesh Dewani who gave evidence for the appellant. The witnesses attended the hearing and were cross-examined. We found them to be honest and credible.

The appellant was incorporated on 24 April 2007 and is owned by Mrs Pratima Glazer and Mr Robert Glazer who were (and remain) the appellant’s only directors. On 19 April 2007, Mr and Mrs Glazer incorporated Ripe Limited Liability Partnership (“Ripe LLP”) with themselves as the only members to operate an accountancy business.

The appellant was set up to own the asset which Mr Glazer considers he acquired when he and Mrs Glazer ceased to be partners in Glazers Chartered Accountants (“Glazer’s CA”) a general partnership. They retired from Glazer’s CA on or around 31 May 2007. Mr Glazer gave notice of his retirement on 8 June 2006 and served the agreed notice period. Mrs Glazer was a fixed profit partner at Glazers CA until her resignation in April 2006. During his notice period, Mr Glazer met other accountancy firms with a view to joining them but ultimately decided to set up a new accountancy practice with Mrs Glazer which was later conducted through Ripe LLP. Also at that time Mr and Mrs Glazer were negotiating a merger with Mr Dewani who is a chartered accountant who operated Dewanis Chartered Accountants. The witnesses all said, in effect, that they all agreed that the respective client portfolios of both parties at the start of the merger (and any pre-merger liabilities) should be “ring-fenced” so that there was no ambiguity if matters did not work out in the short to medium term and the parties had to separate. Mr Dewani described this as a key issue.

Mr Glazer proposed in his notice of retirement from Glazers CA that he would take his full portfolio of clients with him when he left the firm including those who Mrs Glazer managed. The terms of Mr Glazer’s exit from Glazers CA became a source of dispute with the other partners in Glazers CA.

The partnership agreement between Mr Glazer and the other partners in Glazer’s CA stated this in clause 7:

“7.

The outgoing partner if he shall be living shall not during the period of five years following the succession date directly or indirectly carry on or be concerned or interested in the business of Chartered Accountants within a radius of five miles from any address from which the parties shall have been practising over the previous two years either alone or jointly within or as director manner [sic] agent or employee or [sic] any other person firm or corporation without the prior written agreement of the remaining partners.”

Notes of the discussions between the partners in Glazer’s CA regarding Mr Glazer’s exit from that firm include comments that Mr Glazer wanted to take his and Mrs Glazer’s clients, “which are to be valued as at ...(date) equal to 1 year’s fees for each of those clients (the 12 month period in question to be determined)” and:

“How do you wish to value the portfolio? Average value of fees over last 3 years for clients on the portfolio at the retirement date? Fees in the year ended 31 March 2005, 2006 or 2007? Or an average of them. The point being that that there are many ways to skin a cat. If both parties are satisfied that the portfolio is worth (roughly) the same as my equity stake then we can leave aside the maths.”

On 15 November 2006 Mr Glazer and the other partners of Glazers CA made a joint application, on behalf of both parties, for the appointment of an arbitrator by the President of the ICAEW. In the letter it was noted that as the parties were not in agreement as to which version of the partnership agreement governed the resignation of a partner, they enclosed the relevant extracts from the three most recent versions, all of which provided for the appointment of a single arbitrator by the President of the ICAEW in the event of a dispute. They also confirmed that both parties were in agreement that arbitration was the best way forward in the circumstances.

As shown by a letter of 22 March 2007 from Glazers CA, Glazers CA wrote to clients as regards the departure of Mr and Mrs Glazer from that firm it seems at the end of March 2007. The letter stated this:

“As mentioned in our original submission to you in February, and also in our most recent submission of 9 March, we would like to write to the firm’s clients that are in Robert Glazer’s and Pratima Patel’s portfolios, explaining the options open to them and asking them whether they wish to stay with Glazers or to move their affairs with Robert and Pratima…we are becoming more concerned that if we do not make contact with these clients now, they may get the impression that we are not interested in retaining them should they wish to stay with us. Please can you let us know as a matter of urgency whether you have any objection to us writing to these clients, or if there is any reason why we should not write to them. We will assume otherwise that it is in order for us to do this, and we will send a letter, but it is only right and proper that we check with you first, in case you have any comments.

Hence, in letters of March 2007, the partners of Glazers CA wrote to clients set out in a list to ask them if they wanted to remain clients of Glazers CA or move their affairs to Mr and Mrs Glazer and so to authorise them to pass information and documents to Mr and Mrs Glazer. Mr Glazer said that many of the clients on the list came with him. In the first year of Ripe LLP’s operation most of their files were from those clients. They also then set about getting new clients to get more business. He said that the usual practice on obtaining a new client is to obtain correspondence from the previous accountants but not their files and data – as he was provided with and paid for from Glazers CA as regards the clients who came with him.

The letter to clients enclosed a response slip for the client to complete and return to Glazers CA which was in this form:

“To: Russell Black, Managing Partner, Glazers

(Please tick boxes below, as appropriate)

•

Yes, I would· like to remain a client of Glazers [ ]

•

Please indicate which partner(s) you would prefer to work with:

Stewart Okin [ I

Russell Black [ I

Philippe Herszaft [ I

Darren Specterman [ I

Jessie Kho [)

Any* [ I

If you tick 'any' we will find the most appropriate partner to suit your circumstances.

•

Thank you, but I would like to move my affairs over with Robert Glazer/Pratima Patel and /you have my authority to pass information and documents to them regarding my affairs.

•

I may want to continue using Glazers for certain services only. []

(Please specify) _______________________ _

•

I would like more information in order to make a decision. []

( Please use the space below for comments, or attach your comments separately if you prefer)

•

Please call me to discuss this further. []

Please sign here………………..; . Date……… 07

Please print your name ...........................”

The bundles contained some responses from clients sent to Glazers CA and/or Mr Glazer in April and May 2007. For example, letters dated 18 April 2007 and 2 May 2007 shows there was on-going work when clients on the list transferred their business to Ripe LLP. In the letter of 2 May 2007 to Mr Glazer the client said that she understood that her son had his accounts handled by Mr and Mrs Glazer and she had written to Glazers CA informing them that that she wished to transfer her account to Mr and Mrs Glazer’s firm as it would be more convenient for all their business to be with one firm and that her son’s and daughter’s account had already been put with them.

The state of relations between Mr Glazer and the other partners in Glazers CA at this time is shown by a letter of 14 May 2007 from Mr Glazer to the other partners in Glazers CA as regards clients:

“With respect to clients who have confirmed to you that they will be joining me, until we are advised by Adrian, I will adhere to (a) the terms of our partnership agreement, (clause 12 (7) whereby I will hand over my workload except for those I am continuing to act for), (b) the express wishes of the clients that responded to your letter, (asking, whether they were staying with Glazers or joining me), authorising you to pass information and data to me and (c) the guidance I have received from the Institute, (see below).

1.

In the case of [] payroll file, perhaps l am misunderstanding you? Please could you clarify whether you are saying it was your intention to obstruct the preparation of their June payroll?

2.

With respect to clients ,who have not yet responded to your letter, I volunteered to contact them but you said you would take care of this. I’m not aware that you have done so; and, as previously, we should agree the format/content of any such follow-up.

3.

Please do not raise your concern over the level of work being performed on the clients on my portfolio when it was I who informed you on 18 April that I was unable to book staff to carry out a substantial audit in May: and it is you who have unilaterally decided to allow mv tax assistant to leave the firm before the end of her notice period, even though I have a substantial amount of tax work building up.

4.

Please do not refer to “courtesy”, when you show so little and in particular ,when (a) you failed to consult me on whether my tax assistant should work her notice period and (b) you have recently copied in to your emails, without my approval, our non-equity partner: the terms of my retirement is a matter for the equity partners…”.

The retirement terms were settled on 31 May 2007 by the arbitrator. Mr Glazer was allowed to take clients with him on his retirement from Glazers CA but had to pay £555,271for the client list and data as set out by the arbitrator and in the heads of terms then signed between the partners of Glazers CA.

Among other things, the arbitrator found that:

“In respect of the taking of clients the old Partnership Deed […] provided for [Glazer’s CA] to agree with [Mr Glazer] about [Mr Glazer] continuing to act for clients and the terms under which he did so. In my view, since a substantial amount of goodwill had been paid and is on the balance sheet the terms that [Glazer’s CA] would reasonably agree with [Mr Glazer] would be for [Mr Glazer] to pay [Glazer’s CA] its share of that goodwill debit on the balance sheet.”

He provided a suggested method of calculation and an example calculation for establishing an amount payable to release Mr Glazer from the restrictive covenant. It appears that the sum was calculated as follows:

“…RG capital account @ full goodwill value £394,687

Value of fees being taken over by RG:

RG/PP 2004 fees £546,3812

RG/PP 2005 fees £616,292

RG/PP 2006 fees £503,138

1,665,812 /3 = £ 555,271

Amount due from RG to Glazers for excess goodwill taken £160,584

(* based provisionally on group results for 2006)

Note: Figures to be updated once 2007 group results available”

RG will collect all files from Glazers’ premises, relating to clients he is taking over, as soon as practicably possible subject to permission from Glazers to take the files (to be given on a client by client basis). Glazers will withhold files pending instructions from the client to pass them over, and pending payment of outstanding, fees.

Glazers will allow access to Iris software technicians, to enable them to transfer data for clients for whom full file transfer clearance has been given.”

The arbitrator commented that clause 7 in the partnership agreement is in his opinion a very poorly drafted one and:

“The last part requires the agreement of the ongoing partners to an outgoing partner being entitled to act for clients of the firm. It is not clear whether that requirement is subject to the five year restriction on its own, or with the five mile restriction or neither.

If it was an absolute prohibition it would in my view now be considered by the Courts to be too widely drawn and be unenforceable. However if it was interpreted as relating to the five years, and it is capable of being interpreted that way, it may be enforceable. The more recent partnership deeds, which I have already identified as not having been finalised, indicate that a shorter period was being discussed. Of course the more recent deeds have not been completed and signed.

I find that it would not be unreasonable for the ongoing partners to discuss the terms of the departure of the retiring partner. Indeed this is in effect what they were doing but failed to agree on so many points. It would not seem unreasonable if it was agreed that The Claimant would take clients but for the partnership to be compensated. In my view in the absence of anything to the contrary in the 1998 deed that compensation should be based on the amounts of goodwill paid that are still a debit on the balance sheet, at the percentage of the retiring Claimant partner.”

We note that the arbitrator did not reach any conclusion on whether the restrictive covenant in clause 7 of the partnership agreement was enforceable or not. In his conclusion the arbitrator stated that he awarded and directed that Mr Glazer’s “claim to take clients succeeds but subject to” a number of matters including that Glazers CA were to be reimbursed by [Mr Glazer] by debit to its capital/ current account for [Mr Glazer’s] share of goodwill on the balance sheet”. There was no mention of the restrictive covenant in these conclusions, whether as regards any waiver of that provision or otherwise.

The heads of terms then signed between the partners of Glazers CA on 31 May 2007 contain provisions showing that the intention was for Mr Glazer to have access to the client list and data which but for the agreement he would not have been able to access:

“RG will continue to treat all information that he has about Glazers, its partners and its clients or former clients, as confidential information obtained in the course of his acting as a Chartered Accountant and no data or Information is to be used or divulged by him or any business that he becomes involved in, other than that which is available to an independent third party through the public domain. Glazers will similarly respect confidentiality regarding RG and all ex-clients of the firm….

…RG will collect all files from Glazer’s premises, relating to clients he is taking over, as soon as practicably possible, subject to permission from Glazers to take the files (to be given on a client by client basis). Glazers will withhold files pending instructions from the client to pass them over, and pending payment of outstanding fees.”

On 30 May 2007 there was an exchange of emails regarding importing the data regarding relevant clients onto the systems which Mr Glazer intended to use in the accountancy business which Ripe LLP was to carry on. On 31 May 2007 the person dealing with this confirmed to Mr Glazer that he could create a database with all the clients on it.

Mrs Glazer thought that from August 2007 she and Mr Glazer started having discussions with Mr Dewani, regarding a possible merger between them but nothing could be finalised until the arbitrator gave his award. As they were getting some responses that clients wanted to move with them, they continued discussions with Mr Dewani. She said that understandably Mr Dewani was cautious as the outcome of Mr Galzer’s exit from Glazers CA was uncertain: so this was not a straight forward merger. Also, he wanted to ring-fence their respective client portfolios, just in case the merger did not work, there was no dispute about client portfolios, and they could part ways easily. This did seem a sensible way forward given Mr Glazer’s exit with Glazers CA. She said that the intention in incorporating Ripe LLP and the appellant was that Ripe LLP would be the practice that the appellant’s clients and Mr Diwani’s clients would be serviced from and the staff would be employed from this practice. The appellant was and is owned 50% by her and Mr Glazer and this was how they wanted to reflect all their business ventures and personal assets. In her view using the appellant in this way allowed them to ring fence the asset that Mr Glazer had purchased from Glazers CA. She said that the appellant was also going to be a vehicle for investment in other business ventures that Mr Dewani was not part of such as Docledger Ltd which was incorporated on 23 November 2006 although in the end it did not trade and filed dormant company accounts until it was struck off in 2011. It was supposed to be an outsourcing company that Mr Glazer had been planning with two third parties. One of the parties had a brother who lived in Mumbai.

Glazer CA passed the intellectual property, correspondence files, working papers files and data stored on computers and contained within correspondence and working paper files of the relevant clients to the appellant. Ripe LLP commenced trading on or around 1 June 2007 offering accountancy services. Mr Glazer said that he sold the asset acquired from Glazers CA to the appellant, thereby meeting the requirements of the merger terms. Ripe LLP serviced the clients and rewarded the appellant accordingly. Ripe LLP’s clients included clients who had previously been customers of Glazer’s CA and who were on the client list.

Mr Dewani joined Ripe LLP on 1 September 2007. He was neither a shareholder nor director of Ripe Ltd: so had no claim on the asset which Mr Glazer considered he acquired from Glazers CA. Mr Dewani kept his firm Dewanis Chartered Accountants. He continued in his own practice as well as working with Mr and Mrs Glazer. He mainly worked on his own clients but he assisted on the appellant’s clients where needed.

Mr Dewani produced a document he had prepared when the discussions were going on, headed key merger terms, which he said would have formed the basis of heads of terms between him and Mr and Mrs Glazer although in the event there was no formal heads of terms:

“Client Service - The services provided to clients should not be affected by the merger. The purpose of the merger is to provide an even better service and therefore it is paramount that ..,..,-it is demonstrated to clients that the merger has not diluted any of their expectations including a ~personal touch by RKD. RKD would continue to manage his existing portfolio in the merged practice with adequate staff resources to provide same level of service if not better .. service. , ,);

Client fees - we believe that the fees charged by DCA at present to its clients are very much

in line with the fees that a· well established firm of Chartered Accountants would charge its clientele. Whilst there would be disparity in the charge out rates used by the two practices, the fees charged by DCA do not tend to be at the 'cheaper' end and therefore we would anticipate that there would not be any need for substantial fee changes upon merger. So that client relationships of DCA are not prejudiced it would be essential to ensure that client fees . are not changed dramatically subsequent to the merger. _,.

RICD Role - RKD would join the merged practice as a Partner. It is anticipated that RKD's role would be to manage his portfolio, maintain the goodwill, to grow and develop the business of the merged firm and to participate in the management of the merged practice. It is anticipated that a lot of the hands-on work that RKD performs at present would be delegated to appropriate staff in the merged firm.

Remuneration - In the short term, RKD's remuneration should be set so that he is not _ financially disadvantaged compared to practising as a Sole Practitioner. In the medium to long term, RKD's remuneration & other benefits should be in line with that of the other Partners of the merged practice taking into account his client portfolio, status and responsibility within the merged practice.

Legal title to Client Portfolio - The legal title of the client Portfolio (or the goodwill in regard thereto) introduced by DCA at the start of the full Merger should always remain with RKD.

“Ring Fencing” of Client Portfolio- The respective client portfolios of both the parties at the start of the full merger should be “ring-fenced” so that there is no ambiguity if matters did not work out in the short to medium term and the Parties had to separate. The actual logistics of such a “ring-fence” would be negotiated by both the parties to each other’s mutual satisfaction.

Pre-merger issues - Specific pre-merger issues relevant to each of the practice for example,. any- pre-merger liabilities or contingent liabilities should be 'ring-fenced' so as to keep them separate from the merged practice. This may for example be achieved by both the practices indemnifying each other for any pre-merger liabilities….”

For the appellant’s first accounting period ended 30 April 2008, its balance sheet disclosed as an IFA the asset which Mr Glazer considered he acquired from Glazers at a value or cost of £450,000, with a “Depreciation” charge for the year of £50,000. This intangible asset was the only asset on the appellant’s balance sheet. No contracts or other paperwork, contemporaneous or otherwise, have been provided to document the transfer. The notes to the accounts state, under “accounting policies”: “Goodwill, being the amount paid in connection with the acquisition of a business in 2007, is being amortised evenly over its estimated useful life of ten years”. Mr Glazer said that this was applying the accounting policy of writing-off the cost/value of the asset over 10 years, in accordance with the FRSSE, which defined intangible assets as set out above. This same note appeared in the appellant’s accounts for all periods up to 2015 and it continued to be described in broader terms as goodwill until 2018.

Tax relief on the amortisation of the intangible asset was claimed accordingly. The sum to be paid by the appellant to Mr Glazer for the acquisition of the asset was left outstanding as a debt owed to Mr Glazer of around £500,000 and was disclosed in the accounts within creditors, (having been credited to his director’s loan account), and was paid over a number of years. For Ripe LLP’s first accounting period ended on 31 May 2008, its accounts show a fee payable to the appellant, (as do the accounts for the shortened period ended 31 March 2009).

Ripe LLP’s accounts for the period ending on 31 May 2008 show an amount of £60,000 which was payable to the appellant, as Mr Glazer said, in return for Ripe LLP being able to utilise the asset. This amount was not included in the appellant’s accounts it appears by error. The appellant’s accounts for the period ending on 30 April 2009 and 30 April 2010 show amounts of £50,000 and £54,167 described as turnover which were amounts payable by Ripe LLP. Ripe LLP’s accounts for the period ending on 31 March 2009 show a management charge of £41,667 and its accounts for the period ending on 31 March 2010 show the appellant’s profit share as £75,000.

Mr Glazer said that Mr Dewani approved the accounts, but he had not been able to find a set which Mr Dewani signed; he has a set which only he signed. But there is an email to him dated 18 February 2008 sending him the accounts which were sent to Companies House with an invitation to meet to finalise. He said that the set sent to Companies House not amended and so they must have been approved.

Mr Dewani resigned as a member of Ripe LLP on 31 May 2008, there was no dispute over who owned what and both parties recognised the ring-fencing of the relevant intangible assets as planned. The appellant became a member of Ripe LLP on 1 April 2009. From 1 April 2009 onwards, the appellant received a profit share instead of fees from Ripe LLP.

A solicitor Mr Gordon Oliver drafted a settlement agreement in 2008, which Mr Russell Black of Glazer’s CA sent to Mr Glazer in April 2008 and asked whether they really needed one. Mr Glazer replied by email (using the appellant’s email which showed full contact details of the appellant) on 15 September 2008 stating it would be sensible to complete formalities. Mr Russell responded in December 2008 that the partners of Glazers CA were going to discuss the draft.

On 14 July 2009, Mr Black emailed his other partners about the draft agreement stating that:

“I don’t know what we were thinking in 2007 when we inserted a clause in our heads of agreement to the effect that those heads of agreement would eventually be superseded by a document written by a solicitor.

We should have known that our clearly-written and perfectly workable 3-page document would be turned into a 15 page monster which clouds the issue, and for all we know doesn't even reflect what the two parties intended and agreed.

None of us has read this legal draft in detail, nor have we discussed it, so we're not in a position to comment on any of its clauses. What we do know is that Gordon Oliver intended this as a draft for discussion rather than as the final document, so we certainly wouldn't want to sign it in its current form. And we certainly shouldn’t regard it as having any validity until and unless we do finalise and sign it.

Many of the clauses are probably irrelevant now, having been superseded by events which have already transpired over time, most of them in May 2007.

We have a valid legal written agreement which we have all signed, and I really can’t see any point in investing (ie. wasting) any more time or money in re-writing it in language that none of us finds as clear as plain English.

I propose that the two parties jointly agreeto accept and treat the > heads of agreement as our permanent, legally binding document.”

Another partner, Mr Philippe Herszaft, forwarded that email to Mr Glazer and he responded on 15 July 2009 as follows:

“….Russell sent me this draft in April 2008. He asked whether we really needed it.

On 15/09/08 I emailed:

“I understand your points about the retirement deed and in many ways agree. However, the heads of agreement said we would be producing a deed and I think it would be sensible to complete the formalities as originally intended.

And as Gordon has already produced a draft, I'd hope it wouldn't take too much effort to now finalise it?”

On 1st December 08, RB emailed to see you were arranging a time to meet to go through it. Then you were due to meet in February 09. Of course such meetings did not materialise.

As you know, I contacted Golly and his advice - as per my email to you on 5 March 2009 - was that we should have a formal agreement.

I will now take advice and revert.”

On 12 August 2009 Mr Glazer informed Glazers CA of the advice he had received from a solicitor, Mr Jonathan Sheril, a partner at Yugin Partners, who was engaged to produce a new draft. He said this:

“I have spoken to a solicitor and we think we have a way forward.

The main problems are that:

a)

the Hof T have been signed only by RB and DS and may only be legally binding on them, (although I recall you and SO may well have signed Powers of Attorney?); and

b)

the warranties and indemnities are only in draft form and so are not legally binding.

The proposed way forward is:

a)

to add a front page/a "deed of confirmation" to the Hof A clarifying that all partners have signed and what does Glazers/Glazers Group represent; and

b)

formalising the draft warranties and indemnities and ensuring mutuality.

It would also be helpful if you confirm that any personal guarantees that I had given whilst a partner at Glazers have now been released, including the lease, the overdraft and AG…”

Mr Glazer received a letter of engagement from Yugin Partners dated 21 September 2009 which stated his instruction to “effectively top and tail the current documents entitled ‘Heads of Agreement’ and ‘draft Indemnities and warranties’.”

This process culminated in the partners at Glazers CA and Mr Glazer on 23 June 2010 signing a settlement agreement which included “Heads of Agreement” dated 31 May 2007, attached as a schedule which stated that “This retirement deed is to be read in conjunction with the arbitrator’s award”. It included a clause (clause 7) which prohibits the parties from assigning any rights under it.

Mr Glazer noted that neither the heads of agreement nor the draft indemnities and warranties’ stated that he was prevented from assigning his rights, and so such a clause should not have been in the draft. He said that Mr Sheril has since admitted the clause should not have been included. He added that the settlement agreement drafted by Mr Sheril was signed all parties on 23 June 2010 effectively to “tie up loose ends” albeit that all the material terms had been satisfied by then. At the hearing he said that the settlement agreement was entered into just for completeness and clause 7.1 should not have been in it.

The appellant is registered with the Institute of Chartered Accountants in England and Wales, has its own bank account, insurance cover and is registered with ICO and for VAT. In 2014 it incorporated a subsidiary in India to provide bookkeeping (and later accounts and payroll) services to clients and it receives management fees from “Ripe India”. In 2017 the appellant entered into negotiations to acquire two accountancy practices, (those belonging to sole traders Mr Anthony Miller and Mr Roger Cavendish), but the acquisitions did not complete.

The appellant continued to show deductions of £50,000 for amortisation (described as “Goodwill amortisation”) on an asset described as goodwill in the intangible fixed assets note each year in their annual accounts.

The appellant’s corporation tax returns were submitted on the following dates for each accounting period ended on 30 April in each specified year (1) for 2012, on 27 January 2013, (2) for 2013, on 28 January 2014, (3) for 2014, on 24 December 2014, (4) for 2015, on 13 November 2015. As noted, in the appellant’s accounts for each of the years in question £50,000 of amortisation is claimed on an asset described as goodwill. In early correspondence with HMRC, the appellant referred to the purported intangible asset as goodwill. It was not until a letter from Trident Tax on 4 June 2018 that the appellant contended that the asset was anything other than goodwill.

Mr and Mrs Glazer confirmed that they took advice on the tax treatment of the payment made for the asset they considered they acquired from Glazers CA but at a later time, after they had prepared the accounts, and the professionals consulted gave different opinions. They initially thought it was goodwill and that as such it was an IFA which had to go on the balance sheet. Mr Glazer noted that none of the experts he consulted later said that it was wrong to amortise the sum in the accounts although views differed regarding the precise characterisation of the IFA. The bundles contained a number of opinions given by different advisers which support this statement. Neither Mr or Mrs Glazer considered that the appellant had not acquired an asset in return for the relevant sum due to Mr Glazer.

Mr Glazer said that he never considered transferring the asset to Ripe LLP due to the ring-fencing concerns set out above. Mr Glazer seemed to accept that there was no formal agreement in place for Ripe LLP to pay the appellant for the use of the asset; it was a discretionary matter as to what was paid. He accepted that the appellant did not declare income in the first accounting period but said that was made up for later.

A HMRC officer, Ms Cullen, gave notice of her intention to enquire into the appellant’s return for the accounting period ended on 30 April 2016 on 10 January 2018. Correspondence between the two parties followed. The correspondence shows that by 27 April 2018 Ms Cullen had reached the conclusion that the appellant’s returns were incorrect on the basis that amortisation relief had been incorrectly claimed.

HMRC ceased to be entitled to give notice of an enquiry into the appellant’s corporation tax return for the accounting period ending on 30 April 2015 on 13 November 2016 and into the returns for the earlier periods prior to that date. The only information of relevance made available to HMRC by 13 November 2016 were the appellant’s corporation tax returns and accounts for the respective years. After opening an enquiry into the appellant’s corporation tax return for the accounting period ended on 30 April 2016 Ms Cullen received the first correspondence from the appellant, relating to the asset, on 24 January 2018. We accept that, as HMRC submitted, the precise nature of the asset would not have been known to HMRC prior to that time as in the accounts the asset was described as “goodwill” which the appellant now accepts is not a correct description.

In summary, we have concluded that, in light of all the evidence as set out above, as the appellant submitted:

The assessments made by HMRC are valid only if certain conditions are satisfied

We consider that the tests set out in paras 41 and 44 of schedule 18 FA 1998 are met:

There is no dispute that the assessments for the accounting periods ending on 30 April 2014 and 2015 were issued within the normal time limit of four years after the end of the accounting period in question. The issue is that the assessments for the accounting periods ended on 30 April 2012 and 2013 would only have been issued in time if the six year time limit applies on the basis that the asserted loss of tax was brought about by the careless behaviour of the appellant.

HMRC submitted that (1) in each of the years assessed the appellant incorrectly claimed a deduction for amortisation in computing its corporation tax liability, and in each year that claim resulted in a loss of tax which was brought about through the careless behaviour of the appellant at the time it submitted its corporation tax return for each year, (2) in the appellant’s accounts for each of the years £50,000 amortisation is claimed on an asset described as goodwill. In early correspondence with HMRC, the appellant referred to the purported intangible asset as goodwill. It was not until a letter from Trident Tax on 4 June 2018 that the appellant contended that the purported asset was anything other than goodwill, (3) it is now agreed between the parties that the appellant did not acquire goodwill from Mr Glazer. It was incorrect for the appellant to record “goodwill” in their accounts because neither Mr Glazer nor the appellant were carrying out, or have claimed to carry out, an accountancy business during the periods in question. Rather, Mr Glazer has acted as an accountant through the partnerships he has been a part of, and the appellant was not the entity through which the servicing of clients was conducted, (4) it is the appellant’s behaviour at the time the corporation returns were filed, and the loss of tax brought about, that is in consideration when considering the appellant’s behaviour for this purpose. As noted, at the time of filing for each of the years, the appellant was incorrectly treating the purported asset as goodwill. To take reasonable care, a taxpayer in the appellant’s situation should have either conducted a full and thorough analysis of the purported asset, or obtained advice from a suitably qualified person. Any such analysis or advice would have been documented. The evidence shows that the appellant took neither action until after the enquiry into their returns began. Had the appellant taken reasonable care, it would have been aware that it had not acquired goodwill at the time it submitted its returns for each of the years, and therefore would not have included an entry for goodwill in their accounts, or included a deduction for amortisation of that goodwill in their calculations, (5) the appellant’s two directors are both accountants, and were offering accountancy services through Ripe LLP at the relevant times. A qualified accountant, taking reasonable care in the preparation of the appellant’s accounts and returns, would not have incorrectly made a claim for amortisation of goodwill in the years in question, and (6) the appellant has contended that the identification and classification of the purported asset is a technical question, and they have provided evidence of advice received regarding the nature of the asset. However, this advice was requested and received after the relevant corporation tax returns were filed, and, therefore, do not demonstrate the appellant’s behaviour at the time the returns were filed.

In short, it follows from our other findings that we do not consider there was any loss of corporation tax which was brought about by the appellant’s careless conduct. Therefore, (1) the extended time limit does not apply and assessments for the accounting periods ended on 30 April 2012 and 2013 were not made within the applicable four year time limit, and (2) the test set out in para 43 of schedule 18 FA 1998 is not met.

For all the reasons set out above, the appeal is allowed.

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.