Case Number: TC09764
Manchester
Appeal reference: TC/2023/09954
TC/2024/05836
Discovery Assessment – Closure Notices – penalty – appeal dismissed
Judgment date: 23 January 2026
Before
TRIBUNAL JUDGE JENNIFER DEAN
MS SUSAN STOTT
Between
RICHARD BUCKNELL
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Mr G. Wine, Mr D. Hudson and Mr D. Scott of Wine & Co
For the Respondents: Mrs A. Cook, litigator of HM Revenue and Customs’ Solicitor’s Office
DECISION
Introduction
The Appellant appeals against the following decisions:
A Discovery Assessment issued by the Respondents on 1 March 2023 under section 29 of the Taxes Management Act 1970 (“TMA 1970”) in respect of tax year 2018/2019,
Three Full Closure Notices issued by the Respondents on 1 March 2023 and 4 June 2024 under section 28A TMA 1970 in respect of tax years 2019/2020, 2020/2021 and 2021/2022
A penalty assessment issued by the Respondents on 6 June 2024 pursuant to Schedule 24 of the Finance Act 2007 (“FA 2007”).
The total sums under appeal are £83,989.91.
Background
There was no dispute regarding the background to the appeals, and I am grateful to Mrs Cook and Mr Wine for their helpful written submissions from which the following is taken.
The Appellant incorporated a company called Skyline Scaffolding (Northern) Ltd (“the Company”) on 12 April 2012. On 2 January 2024, the Company entered voluntary liquidation, and a voluntary liquidator was appointed.
At the time of incorporation, the Company issued share capital of 10 ordinary shares. The Statement of Capital contained in the Company’s Incorporation Document specified that the Appellant was the sole shareholder who held all 10 ordinary shares.
On 31 August 2018, an Employer Duties enquiry was opened into the Company. On 18 April 2019, this check was expanded to include a check of the Company’s corporation tax returns. The Respondents concluded that the enquiries revealed an overdrawn director’s loan account (‘DLA’) and undeclared benefits in kind for accounting periods ending 2015 to 2019.
The Appellant was the sole director of the Company until Mr Nicholas Gabbitus was appointed as a director on 1 December 2018. The appointment of Mr Gabbitus as director followed the Employers Duties Enquiry that had been opened into the Company. It is the case for the Respondents that Mr Gabbitus did not become a shareholder until 3 April 2023.
It also appeared to the Respondents from their enquiries that the Appellant had understated in his self-assessment tax returns (“SATRs”) the dividends he received from the Company during APE 2017 and 2019.
On 23 November 2020, the Respondents wrote to the Appellant advising that they would be carrying out a check to the Appellant’s SATRs for tax years 2014/15, 2015/16, 2016/17, 2017/18 and 2018/19.
The Respondents contend that the dividends declared by the Appellant were not correct for tax years 2016/17, 2017/18 and 2018/19 as the dividends evident from the Company Accounts did not correlate with the Appellant’s SATRs for the corresponding tax years.
On 26 March 2021, assessments were made in respect of dividends and the benefit in kind arising from the overdrawn DLA for the years 2014/15, 2015/16, 2016/17 and 2017/18. The Appellant did not appeal these assessments, and they do not form part of the appeals before us.
On 21 September 2021, the Appellant’s representatives sent the Respondents an analysis of the DLA for the years ended 30 April 2019 and 30 April 2020. On 11 October 2021, an amended SATR for tax year 2019/2020 was filed by the Appellant. The SATR declared 50% of the dividends paid by the Company for its APE 30 April 2019. The Appellant’s original SATR for this tax year declared no dividends.
On 27 October 2021, Mr Sainsbury, an officer of the Respondents who had taken over the case, wrote to the Appellant to state that the Company accounts filed with Companies House for APE 2019 showed that dividends of £40,000.00 were paid. The Companies House confirmation statements filed by the Company showed the Appellant was the sole shareholder and as such all dividends would be payable to him. Mr Sainsbury was of the view that the Appellant should have declared dividends of £40,000.00 on his return for 2019/2020. Mr Sainsbury noted that there had been no dividends declared in the original return, which was filed on 26 February 2021. Mr Sainsbury took the view that the Appellant’s return for 2019/2020 was incorrect and should be amended to include the dividend of £40,000.00. In addition, Mr Sainsbury added that he was requesting additional information from the Company to enable him to calculate the benefit in kind arising from the fact the DLA was overdrawn during the year.
On 2 December 2021, the Appellant’s representative agreed to amend the SATR for APE 2020 to include the £40,000 dividend.
On 9 December 2021, the Appellant’s representatives sent further correspondence which claimed that the Companies House Register was incorrect, that Mr Gabbitus owned 50% of the Company’s shares, and that 50% of the dividends were distributed to him.
The Appellant’s representatives stated that the Appellant had been paid £20,000.00 of dividends for APE 30 April 2019 and £40,000.00 for APE 30 April 2020. The Respondents requested evidence that Mr Gabbitas owned 50% of the shares.
An Information Notice was issued on 9 February 2022 requesting proof of Mr Gabbitus’ shareholding. Penalties were issued on 31 March and 5 May 2022 for non-compliance.
On 16 March 2022, Mr Scott of Wine & Co. advised that when they were instructed by the Appellant to act as accountants to the company, Mr Gabbitas and the Appellant had presented themselves as equal shareholders. Mr Scott stated that his understanding was that Mr Gabbitus became a shareholder on the date he was appointed as a director, namely 1 December 2018.
On 9 June 2022, an enquiry into the Appellant’s SATR was opened for tax year 2020/2021 under section 9A of the TMA 1970. 33. On the same date the Respondents wrote to the Appellant’s representatives setting out their position in respect of the adjustments for 2018/2019, 2019/2020 and 2020/2021 in the absence of a response to the Information Notice.
Mr Sainsbury stated that the Appellant’s 2019/2020 SATR would be amended to reflect dividends of £40,000.00, and the Appellant’s 2020/2021 SATR would be amended to reflect dividends of £80,000.00, as no evidence had been produced to the contrary. Mr Sainsbury also requested sight of the DLA for 2020/2021 to enable him to calculate the cash equivalent of the taxable beneficial loan for that year and evidence to support certain credits posted to the DLA during APE 2020.
On 20 June 2022, the Appellant’s representatives emailed Mr Sainsbury providing a schedule of movements on the Appellant’s DLA during the tax year 2020/2021. On 21 July 2022, the Respondents sent a letter to the Appellant’s representatives that set out their proposals for tax year 2020/2021. It stated that the return would be amended to reflect £80,000.00 of dividends and the benefit assessable in respect of the overdrawn DLA of £9,987.00.
On 1 March 2023, Mr Sainsbury issued the Discovery Assessment for 2018/2019 and issued Full Closure notices for 2019/2020 and 2020/2021.
On 31 March 2023, the Appellant appealed the decisions issued on 1 March 2023 on the grounds that he did not believe that the amounts of dividends assessed were correct as only 50% of the dividends had been received by the Appellant.
On 4 April 2023, Companies House received a confirmation statement from the company that stated that 5 out of the 10 shares in the Company had been transferred from the Appellant to Mr Gabbitus on 1 December 2018.
It is the case for the Respondents that this contradicted the previous four confirmation statements sent to Companies House. A further confirmation statement was filed with Companies House on 17 April 2023 with no updates.
With regards to the significant control of the Company it was noted by the Respondents that no amended declaration was received by Companies House on or around this time, as the Appellant was, and is, still shown as the sole person with significant control, holding 75% or more of the shares in the Company.
On 24 April 2023, the Respondents sent a letter to the Appellant reiterating their view of the matter in respect of the Discovery Assessment for tax year 2018/2019 and the Full Closure Notices for tax years 2019/2020 and 2020/2021 and offering a review of their decisions.
On 24 April 2023, the Respondents opened an enquiry in respect of the SATR for tax year 2021/2022 pursuant to section 9A of the TMA 1970. A copy of the enquiry notice was sent to the Appellant’s representatives with a covering letter from Officer Sainsbury that requested a copy of the DLA for the Company’s APE 30 April 2022 on the basis this would enable him to check what benefit should have been declared in respect of a loan for 2021/2022. Alongside the request for the DLA, Mr Sainsbury repeated his request for information/documents in support of the Appellant’s position that there had been a transfer of 50% of the shares.
On 21 June 2023, the Appellant’s representative emailed the Respondents accepting the offer of the Respondent’s review but, the Respondents contend, did not address the substantive points in the Respondents’ letter of 24 April 2023.
On 21 June 2023, the Respondents issued an Information Notice pursuant to Schedule 36, FA 2008 in respect of tax year 2021/2022. On 20 July 2023, the Appellant’s representatives emailed the Respondents a copy of Mr Gabbitus’ DLA for APE 30 April 2022 and a copy of the confirmation statement sent to Companies House on 3 April 2023. On 26 July 2023, the Appellant’s representatives emailed the Respondents a copy of the Appellant’s DLA for APE 30 April 2022.
On 14 August 2023, a review conclusion letter was sent to the Appellant which upheld the Discovery Assessment in respect of tax year 2018/2019 and Full Closure Notices issued by the Respondents in respect of tax years 2019/2020 and 2020/2021.
On 18 August 2023, Mr Sainsbury sent a letter to the Appellant’s representatives reiterating his contention that no shares were transferred to Mr Gabbitus on 1 December 2018 but indicating his willingness to accept that 5 shares were transferred on or around 3 April 2023. In the same letter, Mr Sainsbury made it clear that the Appellant and Mr Gabbitus could make a joint claim to gift handover relief under section 165 of the Taxation and Chargeable Gains Act 1992, and that the deadline for making such a claim was 4 years from the end of the year of assessment in which the shares were transferred. If the disposal occurred on 3 April 2023, this deadline would fall on 5 April 2027.
On 11 September 2023, the Appellant made an appeal to the Tribunal against the Discovery Assessment for the year 2018/2019 and Full Closure Notices for the years 2019/2020 and 2020/2021.
On 4 June 2024, the Respondents issued a Full Closure Notice for tax year 2021/2022 pursuant to section 28A of the TMA 1970. Following this on 6 June 2024, the Respondents issued a penalty assessment for tax year 2021/2022 pursuant to Schedule 24 of FA 2007.
On 23 October 2024, Officer Agg issued a review conclusion letter to the Appellant and upheld the decisions in terms of the Closure Notice for tax year 2021/2022 and the penalty assessment for tax year 2021/2022. 58. On 4 November 2024, the Appellant notified his appeal to the Tribunal.
Issues
The following issues fall to be determined:
Whether the conditions for making a Discovery Assessment under Section 29 of the TMA 1970 are met.
Whether the Discovery Assessment is competent, in time and correct.
Whether the Discovery Assessment was excessive.
Whether the conditions for making Full Closure Notices under Section 28A of the TMA 1970 are met.
Whether the amendments to the Full Closure notices for tax years 2018/2019, 2019/2020 and 2020/2021 are excessive.
Whether the decisions for tax years 2018/19, 2019/20 and 2020/21 should be increased pursuant to section 50(7) TMA 1970 for the failure by the Appellant to declare child benefit.
Whether the penalty assessment pursuant to Sch 24 of FA 2007 is competent, valid and whether there are grounds for careless and/or deliberate behaviour.
Whether the Taxation of Chargeable Gains Act applies in respect of the relevant year under appeal, in the event the Tribunal finds that the shares were transferred to Mr Gabbitus on 1 December 2018 or some other date and whether directions should be issued by the Tribunal in order that the Appellant provides a valuation of the shareholding transferred to enable the Tribunal to increase the assessment for all tax years under appeal pursuant to section 50(7) TMA 1970.
The Respondents bear the initial burden of proof to show that the conditions for making the Discovery Assessment under section 29 of the TMA 1970 have been met. The burden then shifts to the Appellant to show that the assessment is incorrect or wrong.
The Respondents bear the burden of proof to show the Full Closure Notices are competent, correct and in accordance with section 28A of the TMA 1970.
The Respondents also bear the burden of proof to show that the penalty assessments raised pursuant to Schedule 24 of the FA 2007 are valid and competent and to show the careless or deliberate behaviour with regard to the penalties charged.
The Respondents bear the burden of proof to establish that the Assessments and Revenue Amendments should be amended to include the High-Income Child Benefit Charge for tax years 2018/2019, 2019/2020 and 2020/2021.
Law
In relation to the discovery assessment, section 29(1) of the TMA 1970 provides:
“(1)If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—
(a)that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed,
(b)that an assessment to tax is or has become insufficient, or
(c)that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.”
The Upper Tribunal confirmed in Jermone Anderson v HMRC [2018] UKUT 0159 TCC that two tests apply. For the subjective test, the officer must genuinely believe there is an insufficiency of tax. For the objective test, the belief must be one a reasonable officer could have.
Section 29(3) requires that either the conditions in section 29(4) or 29(5) are met for a valid discovery assessment. Section 29(4) provides that the Respondents may raise a discovery assessment if the tax loss was caused carelessly or deliberately by the taxpayer or their agent. Section 29(4) provides:
“(4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf.”
Section 29(5) states:
“(5) The second condition is that at the time when an officer of the Board—
(a)ceased to be entitled to give notice of his intention to enquire into the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment; or
(b)in a case where a notice of enquiry into the return was given—
(i)issued a partial closure notice as regards a matter to which the situation mentioned in subsection (1) above relates, or
(ii)if no such partial closure notice was issued, issued a final closure notice, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.”
The burden rests on the Appellant to disprove the assessment per Norman v Golder [1945] 1 ALL ER 0352 in which Lord Greene M.R stated at paragraph D:
“[it is] clear beyond possibility of doubt, that the assessment stands, unless and until the taxpayer satisfies the Commissioners that it is wrong”
Preliminary points
We will address at this point the preliminary issues which arose.
It was noted by the Respondents in their skeleton argument the issue of the benefit in kind of the DLA is not under appeal for tax years 2018/2019, 2019/2020 and 2020/2021. The Respondents also contended that, since no reference had been made in the appeal to the tax charged on the benefit in kind, they did not consider that issue to be part of the appeal. That the benefit in kind element of the decisions has not been appealed was confirmed in the Review Conclusion Letter issued by the Respondents. The Grounds of Appeal relating to the decisions issued on 1 March 2023 (for the tax years 2018/19, 2019/20, and 2020/21) are based solely on the assertion that dividend income was incorrectly assessed by the Respondents
The Respondents submitted, therefore, that the FTT has no jurisdiction to consider the benefit in kind issue in relation to the tax years 2018/19, 2019/20 and 2020/21. Mrs Cook noted that there had been no challenge on this point raised in the Grounds of Appeal and a challenge to the DLA figures was first raised in the Appellant’s skeleton argument served for the purpose of the hearing which claimed that the “DLA figures are incorrect from 2014”. There has been no application to amend the Grounds of Appeal and Mrs Cook contended that there was implied acceptance of the figures, particularly in circumstances where earlier assessments had not been appealed.
Mr Wine, on behalf of the Appellant, explained that the challenge to the DLA figures formed the main thrust of his arguments and he sought to discuss the figures at the hearing.
We agreed with Mrs Cook’s submission that under section 31A(5) TMA 1970, a notice of appeal must specify the grounds of appeal. There was also no application to amend the Grounds of Appeal and we considered that even if we were to treat Mr Wine’s explanation as a formal application to amend, it was simply too late in the day. The Appellant had provided no evidence in support of his submissions in advance of or even at the hearing, the intention was to simply let the Appellant provide oral evidence going through bank statements which pre-dated the years under appeal without any documentary evidence in support. In our view, this was wholly inadequate. There had been ample time for the Appellant to provide the Respondents with particulars of any such challenge in advance of the hearing and, in our view, to allow them to do so in oral evidence after the Respondents had closed their case, would be an ambush and contrary to the overriding objective.
In those circumstances, we concluded that our jurisdiction is limited to determining the issue of dividend income and whether the dividends were correctly declared in the Respondent’s self-assessment tax returns in respect of the tax years 2018/19, 2019/20, and 2020/21.
In relation to the decisions issued for tax year 2021/22 on 4 June 2024 and 6 June 2024, the full decisions were appealed including the benefit in kind element. However, the Appellant had the same difficulty as set out above; no particulars had been served prior to the hearing and the evidence amounted to no more than bald assertions, unsupported and, on occasion, contradicted by the documentary evidence.
We agreed with the view set out by the Upper Tribunal in Fidex v HMRC [2014] UKUT 454 (TCC) at [58]:
“A closure notice might conclude on several issues, and the taxpayer might appeal against only one or some of them. The matter in question is then limited to those against which he has appealed (subject to making an application under rule 5(3) (c) of the tribunal rules)”.
In the absence of any documentary or particularised evidence on the issue, we considered that it would result in procedural unfairness and an ambush to allow the Appellant to pursue the benefit in kind issue.
A further issue related to the Respondent’s contention that the FTT has the power under section 50(7) of the TMA 1970 to increase the Discovery Assessment for the tax year 2018/2019 and the amendments for the tax years 2019/2020 and 2020/2021:
“If on an appeal notified to the Tribunal, the Tribunal decides (a) that the Appellant is undercharged to tax by a self-assessment the assessment or amounts shall be increased accordingly”.
The issue arose from the Respondent’s discovery in February 2024 that the Appellant’s wife, with whom he lives, had made claims for child benefit for two children for the tax years subject to this appeal. Having income more than £50,000, and higher than that of his wife, the appellant was liable to the HICBC but did not declare this on his SATRs.
In those circumstances, the Respondents requested that the Tribunal increase the amount of the assessment and amendments accordingly to take into account the failure of the Appellant to declare the HICBC on his relevant SATRs. As this argument had been raised prior to the hearing and the Appellant had been given prior notice and was able to address it at the hearing, we agreed to consider this issue as part of the appeal before us.
Evidence
We heard evidence from Mr Sainsbury and Mr Bucknell. The following is a summary of the salient points of the evidence.
Mr Sainsbury explained that he was provided with an email dated 22 March 2019 from Licence Trade Consultants, who acted as the Company’s tax agents, which explained that Mr Gabbitus, who had previously worked as a subcontractor for the Company, had recently been made a director of the company. It appeared from the letter that the Appellant’s personal spending using the Company’s bank account had been “accounted for as dividends…The transactions have been put through as dividends as there is no directors loan account.”
Mr Sainsbury compared the amount of dividends to the amount of Mr Bucknell’s personal expenditure using the company’s bank account which the Appellant had supplied and identified that the dividends were insufficient to cover the whole amount of personal expenditure.
Mr Sainsbury concluded that, if no DLA was operated, and the personal spending had not been accounted for as dividends, there was a risk that additional corporation tax was due from the Company.
Between 29 July and 7 August 2020, Mr Sainsbury received copies of statements for two Santander bank accounts covering this period, one in the name of the Company (443), and one in the name ‘Skyline Scaffolding’ (314).
On 14 October 2020, the Appellant told Mr Sainsbury in a telephone call that account 314 was the business bank account that he had used when he carried on the scaffolding trade as a sole-trader. Mr Sainsbury used the bank statements provided to prepare a DLA showing transactions between the Company and Mr Bucknell. Based on what Mr Bucknell had said about the use of account 314, and the fact that this account was not in the company’s name, he treated account 314 as a bank account belonging to the Appellant. He identified transactions he believed were proper to the DLA and treated the Company’s business expenses met from account 314 and transfers from account 314 and other accounts in the Appellant’s name into account 443 as credits in the DLA.
Mr Sainsbury treated the Company’s income deposited in account 314, any transfers from account 443 to account 314 or any other accounts in the Appellant’s name, and payments of the Appellant’s personal costs from account 443 as debits to the DLA.
There were no bank statements covering the Company’s accounting period ended 30 April 2015. Consequently, Mr Sainsbury estimated the movements on the DLA for that period. From the accounts, he knew that Mr Bucknell had been paid no dividends. From HMRC’s PAYE systems, he knew that the Company had paid Mr Bucknell £19,875 of remuneration during the period. He estimated the other movements on the DLA for that period by adjusting the movements orfthe period ended 30 April 2016 to take account of the RPI.
He compared the Appellant’s tax returns for the years ended 5 April 2018 and 5 April 2019 to the Company’s accounts for the accounting period ended 30 April 2018. The Company’s accounts showed that the company paid dividends of £225,682 during the period.
The record at Companies House showed that the Appellant was the sole shareholder of the company during this accounting period and his self-assessment tax returns for the years ended 5 April 2018 and 2019 declared a total of £196,182 of dividends.
Mr Sainsbury concluded that the Appellant had failed to declare £29,500 of the dividends he received and on 23 November 2020 the Appellant was notified that Mr Sainsbury was checking his personal tax position for tax years ended 5 April 2015 to 2019. The letter explained that the Appellant was liable to tax on the benefit in kind of the taxable cheap loan provided, by way of his DLA, by the Company, and why Mr Sainsbury had concluded that the Appellant had failed to declare all of the dividends he received during the year ended 2019.
Wine & Co provided copies of the DLA for periods ended 30 April 2019 and 30 April 2020 in September 2021. Mr Sainsbury requested evidence to support the credits posted to the DLA in January, February and October 2019 and noted that the return for the year ended 2020 omitted the £40,000 of dividends he had received during that year.
On 10 November 2021, a taxpayer amendment was made to the Appellant’s self assessment tax return for the year ended 2020 which increased the amount of dividends declared on the return from nil to £20,000. On 2 December 2021 Mr Wine agreed that Mr Bucknell’s tax return for the year ended 2020 should be amended to include £40,000 of dividends. However, on 9 December 2012 Wine & Co withdrew their agreement that the Appellant was liable to tax on all of the dividends on the basis that the record at Companies House was wrong and 50% of the shares in the Company were owned by Mr Gabbitus.
On 16 March, Mr Scott of Wine & Co sent copies of Mr Gabbitus’ DLA with SSNL for the accounting periods ended 30 April 2019 and 30 April 2020 which included no credits for dividends.
On 21 July 2022, Mr Sainsbury wrote to Wine & Co., setting out his proposals for closure of his enquiry into Mr Bucknell’s return for TYE 2021.
On 1 March 2023, Mr Sainsbury notified the Appellant of the discovery assessment for the year ended 2019 and issued the closure notices for 2021.
The DLA drawn up by Mr Sainsbury showed a debit balance of £483,286 at the beginning of 2019. Content that the movements on the loan account prepared by Wine & Co. were correct, he calculated the closing debit balance on the DLA 2019 as £358,188. Mr Sainsbury explained that this took account of 5/30ths of the total movement on the DLA in April 2019.
The average balance on the DLA for 2019 was £420,737. Mr Sainsbury multiplied this figure by the 2.5% official rate of interest for the tax year to calculate a cash equivalent of £10,518 and entered the figures declared on the Appellant’s tax return for 2019, with amendments to include dividends of £95,682 and the benefit in kind of the taxable cheap loan, into HMRC’s self assessment calculator. This produced a tax liability for the year £19,471.36 higher than that declared in the return.
He calculated the amendments to be made by the closure notice for 2020 as follows: Mr Bucknell declared £20,000 of dividends on his 2020 return. Knowing that this was 50% of the dividends paid by the Company during the year, he amended this figure in the return to £40,000. He calculated the cash equivalent of the taxable cheap loan from the Company as £9,777. He entered the figures declared on the Appellant’s tax return for 2020, with amendments to include dividends of £40,000 and the benefit in kind of the taxable cheap loan, into HMRC’s self assessment calculator. This produced a tax liability for the year £11,287.20 higher than that declared.
He calculated the amendments to be made by the closure notice for the year ended 5 April 2021 as follows: the Appellant declared £40,000 of dividends on his 2020 return. Knowing that this was 50% of the dividends paid by the Company during the year, he amended this figure in the return to £80,000. He calculated the cash equivalent of the taxable cheap loan from the Company as £9,987. He entered the figures declared on the tax return for 2021, with amendments to include dividends of £80,000 and the benefit in kind of the taxable cheap loan, into HMRC’s self assessment calculator. This produced a tax liability for the year £21,928.40 higher than that declared.
Mr Sainsbury considered that the errors arose from behaviour that was careless or deliberate, satisfying the requirement at s.29 (4) TMA70. Had the Appellant or his tax agents taken reasonable care to check the 2019 return against the Company’s records they would have identified that the return did not declare all of the dividends received. Mr Sainsbury therefore concluded that either Mr Bucknell or a person acting on his behalf must have acted carelessly or deliberately by failing to check the tax return. He considered that the omission of the taxable cheap loan benefit arose because the Appellant failed to keep records of personal spending using SSNL’s funds and of the company income received into his bank accounts. He considered that a person taking reasonable care to get their tax returns right would keep full records of their personal spending through company bank accounts and of company income that they took for their own use.
In cross-examination Mr Sainsbury reiterated that he had given consideration to whether the 314 account should be treated as bank account of the company or a personal account. In drawing up the DLA Mr Sainsbury concluded it should be treated as the Appellant’s account for the reasons set out above.
In treating it as a personal account, Mr Sainsbury explained that he did not simply post a debit for every transfer from the Company account to the personal account, he also treated payments as credits to the DLA. All payments he found which related to company business expenditure were credited. Similarly, he explained that he did not make postings to the DLA for personal expenditure – for instance there was payment for a holiday which he did not debit, explaining that if he had treated the account as a business account he would have posted a debit to the DLA.
He confirmed that the statements provided by the Appellant ran from 1 May 2015 and no statements were provided for the earlier years. He had informed the Appellant that he would use the 2015/2016 figures, adjusted using RPI and using estimates where he had, for instance, PAYE information and the evidence that showed there were no dividends for the that year. The Appellant was invited to comment if he disagreed and Mr Sainsbury offered to reconsider earlier years if the statements were provided. No statements were received and no disagreement expressed.
In response to an example in the bank statements showing a payment “FASTER PAYMENTS RECEIPT REF.JPWILD FROM J P Wild Limited” Mr Sainsbury explained that this was a receipt into account 314 prior to the company’s incorporation which related to the business. He treated it as money received by the Appellant belonging to the company and treated it as a debit to the DLA. He explained that there was a list of checks in the Employer’s Duties enquiry and the Appellant had drawn up a list of personal expenditure that the company had paid. The list did not include personal expenditure from 314 so he concluded if there was personal expenditure and no business expenditure from 314, it was not a company bank account. He noted that the previous accountants had confirmed as part of the compliance check that they did not maintain a DLA for any year and it was for that reason that the Appellant provided a list of personal expenditure. The previous accountants had stated that personal expenditure was “dealt with by dividends” but the dividends were not high enough to match the personal expenditure. No DLA was provided by the previous accountants and Mr Sainsbury made informed conclusions using the statements provided as to what each item in the statements related to. All the workings were sent to the Appellant and to Wine & Co for comment and Mr Sainsbury referred us to at least four documents in which this was demonstrated dated17 November 2020, 21 July 2022, 9 January 2023 and 26 July 2024.
Mr Sainsbury stated that payments to Mr Gabbitus was new information. He was aware of some which he reflected in the DLA as credits as the Appellant’s personal account was used to pay an employee/subcontractor. In response to an example of a payment shown on the statements said to be made on behalf of a subcontractor “CARD PAYMENT TO LINLEY AND SIMPSON LIMITE,8,710.00 GBP ON 05-01-2017” Mr Sainsbury said he had been provided with no evidence to support the assertion, and it was the first time it had been raised.
In response to Mr Gabbitus’ appointment as director, Mr Sainsbury explained that it appeared he was not a shareholder until 2023 and so the dividends were attributed to the Appellant in the relevant years. Mr Sainsbury reiterated that no dividends were posted to Mr Gabbitus’ DLA for the earlier years and he had therefore concluded that Mr Bucknell owned 100% of the shares. He had been provided with no evidence to show that when Mr Gabbitus was appointed as director, he also became a shareholder. Correspondence from the previous accountants refers to Mr Gabbitus as a director and it may have been the Appellant’s intention to make him a shareholder but this was not actioned (relying on Rowe v HMRC [2014] UKFTT 909(TTC))
In relation to HICBC, Mr Sainsbury explained that in February 2024, while considering the amendments needed to the Appellant’s 2022 tax return, he became aware that Mr Bucknell had children of child benefit qualifying age, and that he or his household may have claimed child benefit. He received confirmation that Mr Bucknell’s wife had claimed child benefit for two children since 5 July 2010. HMRC’s computer systems confirmed that Mr and Mrs Bucknell had lived together during the years ended 2019, 2020 and 2021, and that Mr Bucknell’s income exceeded that of his wife and exceeded £50,000.
Consequently, he realised that the Appellant would be liable to the HICBC and he used the HMRC child benefit calculator to calculate the amount of child benefit received during the relevant years. Since the Appellant’s total income for each of the years exceeded £60,000, the HICBC for each year is the whole of the child benefit received.
As the Appellant’s returns were filed without declaring receipt of child benefit, Mr Sainsbury concluded that the Appellant either failed to check his return before it was filed, or failed to check if his household had received child benefit. In either case, Mr Sainsbury concluded this would amount to a failure to take reasonable care. He considered that the disclosure of the HICBC omission was prompted, because he did not disclose this error until the enquiry was opened and Mr Sainsbury identified the omission. Disclosure of the error had occurred within 3 years of the error being made. As a result, the penalty range was 15-30%.
Mr Sainsbury concluded that the following reductions were due:
Telling (out of 30): 0, as Mr Bucknell had told him nothing about the amount of HICBC that was due or how the error arose.
Helping (out of 40): 20, as Mr Bucknell had given no help to quantify the HICBC due or find out how the error happened.
Giving (out of 30): 30, as, although Mr Bucknell did not give access to any records to help identify this error, records were not needed from him to do so.
Special reductions were considered under para.11, Sch.24, Finance Act 2007. Mr Sainsbury concluded that there were no circumstances necessitating any further reductions and the penalty charged appeared to accord with the intention of the penalty legislation and there were no special circumstances identified which required reductions.
Mr Sainsbury concluded that the penalty could not be suspended on the basis that he had previously suspended penalties for inaccuracies in earlier tax returns (including the failure to declare the benefit in kind of a taxable cheap loan), but these suspension conditions had not prevented the same errors from being repeated in later returns, and the Appellant had failed to adhere to these earlier suspension conditions.
Mr Sainsbury also considered that the Appellant had acted deliberately in omitting the benefit in kind of the taxable cheap loan because the Appellant received interest free loans from SSNL in all tax years since 5 April 2015. He wrote to the Appellant directly on 23 November 2020, explaining that receiving an interest free loan from SSNL meant that he needed to declare a benefit in kind, and he regularly raised the issue with the Appellant and Wine & Co. between November 2020 and the filing of the Appellant’s year ended 2022 return. By the time that return was filed on 16 January 2023, 4 discovery assessments had been issued charging tax on taxable cheap loans from SSNL in tax years ended 2015, 2016, 2017 and 2018. Therefore when the return for the year ended 5 April 2022 was filed, the Appellant would have known that he had to declare a benefit in kind if his DLA was overdrawn. Even ignoring the adjustments made to the DLA by Mr Sainsbury, the DLA prepared by Wine & Co. was overdrawn during tax year ended 2022. A check of the return would have shown that the benefit in kind was not included and the return was therefore incorrect.
Mr Sainsbury concluded that the Appellant had not concealed the error, that disclosure of the omission of the benefit in kind was prompted, as the Appellant did not make Mr Sainsbury aware of it before he opened an enquiry into the tax year ended 2022 return and Mr Sainsbury identified the omission. Disclosure of the error had occurred within 3 years of the error being made, therefore the penalty range was 35-70%.
Mr Sainsbury concluded that the following reductions were due:
Telling (out of 30): 5, as Mr Bucknell said nothing about this error or how it came about, other than to confirm that he did have an overdrawn loan account.
Helping (out of 40): 5, as Mr Bucknell did not give reasonable help to quantify the tax due from this error or find out how it happened, failed to respond to any questions or actively help calculate the tax due.
Giving (out of 30): 20, as, although Mr Bucknell did give access to a copy of his loan account, an information notice was issued requiring its production before he did so.
No special reductions were given as Mr Sainsbury concluded that there were no circumstances necessitating any further reductions..
The Appellant’s written evidence claimed that the Respondents, specifically Mr Sainsbury, have consistently misrepresented the use by the company of bank account number ending 314.This account was opened and operated by the Appellant prior to the incorporation of the business as a business bank account.
Following the incorporation of the company it was used in conjunction with the company bank account (443) because the Appellant could not obtain an overdraft facility on the company bank account and account 314 had an agreed overdraft facility which he continued using on the company's behalf. He transferred funds into and made payments out of the 314 account on behalf of the company. He provided both sets of statements to his former accountants at the end of the year and that was always how it was dealt with. He understood they produced accounts based on both sets of statements.
There was no mention of a DLA, just dividends and rent for Mr Gabbitus was paid which would be part of his dividends. He had been unable to contact Mr Gabbitus for a number of years but had spoken to him recently; unfortunately, there had not been sufficient time to obtain receipts to support his assertions.
The Appellant stated that the DLA drawn up by Mr Sainsbury includes personal drawings of Mr Gabbitus of £111,404, which should not be included. It also includes company expenses not attributable to appellant such as wages to employee. There are also large payments for rent paid out of bank account 314 and reimbursed from the company bank account 443. Mr Sainsbury has gone back to April 2014 to create a substantial overdrawn position using these transactions which is unfair and incorrect and with which the Appellant disagrees.
The Appellant disputed that the levels of dividends declared are incorrect, explaining that it was always intended, from the point Mr Gabbitus became a director of the company, that he was also a 50% shareholder as he and Mr Gabbitus had started the company together. At a meeting with Mr Forsythe of the Respondent, prior to Mr Sainsbury’s involvement, he had stated that Mr Gabbitus owned half of the company and was advised that in such circumstances Mr Gabbitus should be made a director. His former accountants were to action this and he believed that they had. The Appellant explained that he did not understand the different positions but now accepted that a director and shareholder are different.
The Appellant agreed that there had been private payments into the account and felt let down by his former accountants who had dealt with everything on his behalf. He explained that he has dyslexia and would pass every piece of correspondence to his accountants to deal with.
He agreed that Mr Sainsbury had set out his view on the dividend issue in correspondence but reiterated everything was given to his accountants. He accepted Mr Sainsbury could only act on the information he had and that no answers or evidence had been provided by him to the questions asked or claims he made.
The Appellant agreed that the letter dated 2 December 2021 from Wine & Co would have set out his position at the time. The letter stated:
“With regard to the 2019 Dividends of £40,000 referred to in your letter we agreed with you in our telephone call that the self assessment return for the year ended 05/04/2020 should be amended to include £40,000 Dividend.”
In cross-examination the Appellant disputed with the figures produced by Mr Sainsbury. He believed the use of 314 as a company account had been misrepresented and given more time could go through all of the figures to show they were not all personal, although he accepted in relation to an example of Jet2 that this was not a business expense, he believed he could just use the account and put it on his dividends. He agreed he could see why Mr Sainsbury had treated the account as personal and that he never provided evidence to show otherwise.
He had been told by Wine & Co that Companies House records were wrong and that Mr Gabbitus was recorded as a director and not a shareholder. He took no steps himself but believed Wine & Co had corrected the position. He could not explain why there had been a delay in correcting the position once known, he had trusted his accountants.
He could not explain why the information requested in Mr Sainsbury’s letter dated 23 December 2021 had not been provided and stated that it was the job of the accountants who should have sent the information:
“Please answer the following questions and provide the following information and documents:
a. A copy of SSNL’s share register
b. Copies of notes of the meetings at which the dividends for APE 30 April 2019 and 30 April 2020 were voted.
c. The date on which Mr Gabbitus acquired 50% of the shares in SSNL.
d. How did Mr Gabbitus acquire 50% of the shares? That is to say, did Mr Gabbitus acquire half of Mr Bucknell’s existing shareholding from Mr Bucknell, did the company issue further shares that Mr Gabbitus acquired, did the company buy back half of Mr Bucknell’s shares and then issue these to Mr Gabbitus, or did Mr Gabbitus acquire his shareholding in some other way?
e. If SSNL issued further shares, how many did it issue, how many of these were issued to Mr Gabbitus, what class of share was issued, and how much did Mr Gabbitus pay for them?
f. Was there any change to Mr Bucknell’s shares (for example redesignation) when Mr Gabbitus acquired 50% of the shares in the company?
g. Proof that 50% of the dividends in the 30 April 2019 and 30 April 2020 accounts were paid to Mr Gabbitus.
h. Copies of any legal agreements between Mr Gabbitus and Mr Bucknell regarding the ownership of shares in SSNL.”
Mr Bucknell could not recall the schedule 36 Notice requiring information or the penalties imposed for failure to comply; he reiterated that due to his dyslexia he sent everything to his accountants to deal with but agreed it appeared nothing had been done. He accepted that he was ultimately responsible for his tax affairs and should have done more. He accepted that legally there had been no paperwork before Mr Sainsbury to evidence a transfer of shareholding nor any evidence in response to Mr Sainsbury’s decisions. He was not aware that as far back as 2021 Wine & Co were asserting that the Companies House records were incorrect, he was told by the accountants that everything was in hand.
Mr Bucknell explained he had learned a lot more from the evidence at the hearing and although he had felt that there was a vendetta against him, he understood that there had been time to sort his affairs prior to the hearing. He explained that he works hard at his job and expected the accountants to do theirs. He stood by the claim that he had intended Mr Gabbitus to be a shareholder but understood the respondent’s position. He agreed there was still no evidence of a transfer of shares at the relevant time.
He agreed that the Companies House Confirmation Statement showed no changes but had left it to the accountants, although he vaguely recalled telephone calls where he was asked to send identification each year. He had no idea there had been a delay in making any changes between 2021, when the position was known by Wine & Co, and 2023.
Mr Bucknell explained he had simply handed everything to his accountants and that his paperwork was a mess as he had no understanding about the accounts side of the business. In relation to HICBC, he knew his wife had received the benefit but neither had any idea that it should have been declared although he accepted that was the case and did not dispute the figures.
Submissions for the Respondent
Discovery assessment
Mrs Cook noted there was no challenge to the evidence of Mr Sainsbury regarding the validity, timing or competency of the assessment. Therefore, the Respondents submitted that the requirements of s29 TMA 1970 are met. Officer Sainsbury discovered that the tax assessed was insufficient for the Appellant for 2018/2019. His discovery was made on comparing the Appellant’s SATRs for the tax years 2017/2018 and 2018/2019 with the Company’s APE 30 April 2018 accounts, taken together with the bank statements.
Mrs Cook submitted that, even accepting Mr Wine’s submission that the Appellant had not had access to the bank account statements until 1 year ago, there had nevertheless been ample time in which to dispute Mr Sainsbury’s conclusions. First, the statements were provided by the Appellant who could have retained copies or obtained further copies. Second, the figures were set out in correspondence over the course of many years yet no challenge was ever made. Finally, assessments to earlier periods were not challenged or appealed.
It was not accepted that there was a transfer of shares on 1 December 2018. Mrs Cook submitted that there was no evidence on the topic save for two meetings with the Respondents. At the first meeting Mr Sainsbury not present as Mr Forsythe was dealing with matters on behalf of the Respondent at that time. Although the Appellant was present, Mrs Cook noted that on his own evidence the Appellant had not understood the difference between the positions of director and shareholder. It was also submitted that the Appellant’s recollection, in the absence of evidence in support, could not be relied upon given the passage of time. In relation to the second meeting, there was no challenge to Mr Sainsbury’s evidence which disputed that he was aware of a transfer and his actions thereafter, Mrs Cook submitted, suggested the opposite.
The Appellant accepted there was no documentary evidence of a share transfer, only a change in directorship. Mr Sainsbury’s position is supported by public records from Companies House.
Mrs Cook noted that the amendment to Companies House records was only made on 3 April 2023 yet the Appellant had been aware of the contents of the records since 9 December 2021. In fact, the amendment was only made after the discovery assessment was raised, despite Mr Sainsbury’s warning that the assessment would be issued and that it was based on the records available.
In the absence of any evidence of a share transfer and no alternative calculations provided by the Appellant to show that the discovery assessment is inaccurate, the Appellant has failed to discharge the burden of proof.
Mrs Cook noted that there was no suggestion that the Appellant held less than 100% of the shares of the Company at any time during APE 30 April 2018. Even if the Respondents were to accept that the Appellant transferred half of his shares on 1 December 2018, the Appellant still held 100% of the shares when these dividends would have been voted by the Company. As such, the Discovery Assessment issued for 2018/2019 is correct.
Section 29(3) of the TMA 1970 provides that where a taxpayer has made or delivered a return, he shall not be assessed unless one of the two conditions are satisfied in terms of Sections 29 (4) and (5) of the TMA 1970. The Respondents would contend that both conditions outlined in Sections 29(4) and 29(5) are fulfilled.
The Appellant’s 2018/2019 return was prepared by Licence Trade Consultants (the Appellant’s former tax agents) or by the Appellant himself; which of them prepared the return has not been confirmed. Licence Trade Consultants were, at that time, also the tax agents for the Company. Had the person preparing the return crossreferenced the figures in the return against the Company’s records, they would have identified that the Appellant had not declared all of the dividends he received.
The Respondents contend that the failure to declare all of the dividends must have resulted from carelessness on the part of the Appellant or a person acting on his behalf.
Section 29 (5) TMA 1970 provides that an officer of HMRC may make a Discovery Assessment to correct an insufficiency of tax about which, based on the information made available to him, he could not reasonably be expected to have known before the last date for enquiry into the return. Officer Sainsbury could only become aware of the insufficiency of tax for APE 2019 by comparing the Appellant’s SATR to the Company’s accounts and accounting records. Since these accounts and records are not information included in section 29 (6) TMA 1970, the Appellants contend that the Discovery Assessment satisfies the condition at Section 29 (5).
The Discovery Assessment was made in time as section 34(1) TMA 1970 applies in that the assessment was made within 4 years of the end of the year of assessment that it relates to as it was made on the 1 March 2023, and this is within the 4 year period time limit. Accordingly, the Discovery Assessment was made in time.
Applying Anderson v HMRC, Officer Sainsbury believed there was an insufficiency of tax based on the figures in the Company’s accounts and the figures in the Appellant’s SATR for 2018/2019. The Company Accounts were a matter of public record alongside the Company’s confirmation statements filed with Companies House. In addition, Officer Sainsbury believed that even if half of the Company’s shares had been transferred on 1 December 2018 (which is denied), the Appellant would still be liable to tax on 100% of the dividends paid during APE 30 April 2018, since these dividends were voted and paid prior to the purported share transfer. Mrs Cook submitted that both the subjective and objective tests are met.
Closure Notices – Tax years 2019/2020 and 2020/2021
Mrs Cook submitted that the closure notices are valid under section 28A TMA 1970 on the basis that they state the Respondent’s conclusions and make amendments of the SATR required to give effect those conclusions.
There was no challenge to the evidence relating to the benefit in kind (in respect of the tax year 2021/22 only) and the Appellant did not put forward any alternative figures to demonstrate that Mr Sainsbury’s calculations were incorrect.
In respect of tax year 2019/2020, the Respondents issued the Full Closure Notice which set out Mr Sainsbury’s conclusion that the Appellant should have declared £40,000.00 of dividends on his return on the basis that the Company paid out £40,000.00 of dividends during APE 5 April 2020 and the Appellant held 100% of the shares in the Company. Amendments were made giving effect to the conclusions.
In respect of tax year 2020/2021, the Respondents issued the Full Closure Notice which set out Mr Sainsbury’s conclusion that the Appellant should have declared £80,000.00 on his SATR instead of £40,000.00 on the basis that the Company paid out £80,000.00 of dividends during APE 5 April 2021 and the Appellant held 100% of the shares in the Company. Amendments were made giving effect to the conclusions.
The Respondents do not accept that Mr Gabbitus was a shareholder from 1 December 2018. Mrs Cook submitted that the Appellant provided no evidence to support this assertion and the position on Companies House does not accord with the Appellant’s claim.
Furthermore, confirmation statements filed on 25 July 2019, 21 May 2020, 23 August 2021, and 27 April 2022 did not show any changes to the shareholding of the Company and Mr Gabbitus’s DLA for the Company’s APE 30 April 2019 and APE 30 April 2020 showed no credits for dividends, suggesting that at the time the accounts for those account periods were prepared, Mr Gabbitus had not received half of the Company’s dividends.
Mrs Cook noted that it is only in Mr Gabbitus’s DLA for APE 30 April 2021 that credits are posted for dividends, and the opening balance on the DLA for that AP is in credit by £60,000.00 more than the closing balance for the preceding AP, suggesting that a retrospective prior period adjustment was made to suggest that Mr Gabbitus had been entitled to dividends in earlier accounting periods. However, despite requests, the Respondents have been provided with no bank statements to show that any dividends were in fact given to Mr Gabbitus.
Mrs Cook submitted that the Full Closure Notices for tax years 2019/2020 and 2020/2021 have been correctly issued to the Appellant and that the SATRs were wrong and required amendment.
Section 385 of ITTOIA 2005 states the charge to tax on dividends arises on the person entitled to them. In this case, by virtue of holding all of the Company’s shares, the Appellant was entitled to 100% of the dividends paid by the Company, and thus liable to tax on the same.
Closure Notice – tax year 2021/2022
The Respondents would contend that the Closure Notice for tax year 2021/2022 is valid under section 28A of the TMA 1970 on the basis that it states the Respondent’s conclusions and makes the amendments of the SATR required to give effect those conclusions.
The Closure Notice set out Officer Sainsbury’s conclusions that the Appellant had only declared 50% of the dividends he received from the Company for tax year ended 2022 when he held 100% of the shares, the Appellant had not declared the benefit of a taxable cheap loan from the Company and the Appellant was liable to the HICBC for this tax year as the Appellant’s adjusted income for the year exceeded £50,000.00 and exceeded his wife’s income. Mrs Cook reiterated the reasons for the conclusions and amendments as set out above in relation to the DLA and share transfer, noting that there was no challenge to the HICBC issue.
Penalties
Mr Sainsbury concluded that the tax return for 2021/2022 contained the following three inaccuracies:
An understatement of the Appellant’s dividend income,
Omission of the benefit of the cheap loan,
Omission of the HICBC
In respect of the dividend income, Mr Sainsbury accepted that the understatement of dividend income was neither careless or deliberate so no penalty was charged in respect of the inaccuracy.
In respect of the benefit of the cheap loan, this was a deliberate omission because the Appellant had been notified on 23 November 2020 regarding the charge to tax on the cheap loan benefit, and the subject was discussed in correspondence thereafter. Neither the Appellant nor his representatives responded to questions regarding how this error arose. There was no challenge to calculation of the penalty or the reductions applied.
As set out below, the Appellant accepted that HICBC was due. Mr Sainsbury concluded that this was careless as the Appellant had failed to check if his household had received child benefit, failed to declare the benefit and this amounted to a failure to take reasonable care. Although the Appellant disagreed that he was careless, Mrs Cook submitted that his ignorance was not sufficient and that the onus rests with the taxpayer to ensure his return is correct.
There being no challenge to the validity of the penalty, Mrs Cook submitted that the Appellant had not discharged the burden of proof and the penalty should stand.
HICBC
This was accepted in evidence by the Appellant and in those circumstances it should be included in the liability.
Appellant’s submissions
Mr Wine explained that copies of the bank statements provided to the Respondents were given to the liquidator and the Appellant was unable to obtain copies until 2025 at which point they were analysed by the Appellant and his representatives.
He confirmed that the appeal in relation to 2021/22 included a challenge to the benefit in kind issue. He agreed that no alternative figures had been put forward by the Appellant and explained that the Appellant challenged the principle forming the basis of Mr Sainsbury’s conclusions rather than specific amounts as the issues arising from this appeal have consequences on the liquidation proceedings.
Mr Wine explained that he knew Mr Forsythe who had previously been involved in the case on behalf of the Respondents and he could say with certainty that Mr Forsythe would have offered the Appellant advice at the meeting with the Appellant.
Mr Sainsbury ignored the fact that 314 was a personal account which was used for business expenses and he had made estimations for April 2015 and earlier periods. The Appellant disputes the Respondent’s assertion that the business bank account 314 in the directors’ personal name was not used as a business bank account during the periods under appeal, on behalf of the company. The account was used for the benefit of the company’s trade and expenses incurred through it were on behalf of the company.
The Respondents have gone back to 1 May 2014 and created an overdrawn director’s loan account position by treating the business bank account as a director’s loan account. This has resulted in an overstatement of the overdrawn directors’ loan account position at 30 April 2018. Mr Sainsbury has simply aggregated what has been paid out of account 314 and what has been paid in and treated it as a director’s loan account entry. Mr Sainsbury did not have any bank statements for 2014/15, so his opening balance has been created by taking the YE 30 April 2016 transactions in the bank account and applying the RPI to come up with an artificially overdrawn figure.
The purported opening balance on the directors’ loan account is not defensible and the opening balance on 1 May 2015 should at the very least be nil and the balance on 30 April 2016 should be £8,568.88 in credit. As the opening balance which Mr Sainsbury has created using the 30 April 2016 transactions cannot be substantiated, and it seems clear that company expenses have been included, his entire directors loan account is not valid.
The Appellant submitted that most of the payments that are referred to in the debit column, which Mr Sainsbury attributed to personal drawings, are payments made on behalf of the company.
The appellant does not agree with the Respondents refusing to recognise that 50% of the company’s shares were held by Mr Gabbitus from 1 December 2018 onwards. Mr Sainsbury has relied on Rowe V HMRC (2014) UKFTT909 to claim that “a taxpayer’s mistaken belief that another person is entitled to dividends does not displace the factual position that the taxpayer themselves is entitled to, and liable to tax on, those dividends”. However, the Appellant believes that neither shareholder was mistaken in their understanding of the position. It is a case of the Companies House Register not being kept up to date, which is an administrative error, not a factual one.
It was always the case and understood that Mr Gabbitus was to be a 50% shareholder when he became a director and he accepted appointment on that basis. Mr Gabbitus was not an outside appointment; he was an existing key subcontractor and accepted both appointment as a director and a shareholder to incentivise and retain him within the company.
The bank payments were analysed and discussed with the Appellant who confirmed that the drawings for Mr Gabbitus were payments on behalf of a subcontractor
Discussion and Decision
Before we address each of the decisions under appeal, we will set out our views on the evidence. We found Mr Sainsbury’s evidence clear and compelling. We took the view that his enquiries leading to the decisions were diligent and thorough. It was clear to us that Mr Sainsbury had provided the Appellant with numerous opportunities to provide further information or set out any disagreement with a view to considering his decisions with the benefit of all available information. We agreed with Mr Sainsbury’s oral evidence that for the Appellant to attempt to dispute the figures at the hearing without any prior warning or evidence in support came simply too late in the day.
We found Mr Bucknell to be an honest witness. However, by his own admission his accounts during the relevant period had been “a mess”, although we are told that the situation is now much improved and he has systems in place. Mr Bucknell was candid in accepting that having spoken to his wife, he had become aware that child benefit had been received by the family to which they were not entitled. He also agreed that he had no evidence to support his claims, and we accepted that, to some degree, this was a result of Mr Gabitus being uncontactable for a lengthy period. We considered that Mr Bucknell did his best in giving evidence but ultimately he had little knowledge of relevant matters as he had left everything to his former and current representatives to deal with due to his dyslexia and whilst he believed that matters were being dealt with, he agreed that it was apparent they had not been addressed and that ultimately he is responsible despite having trusted his affairs to those representatives.
HICBC
We will begin with the HICBC issue as this was accepted by the Appellant and we were satisfied that the decisions for tax years 2018/19, 2019/20 and 2020/21 should be amended to include the liability.
Discovery Assessment
There was no challenge to the validity of the discovery assessment and we were satisfied that it was valid, competent and made within the statutory time limits.
The issue for us to determine is whether the conditions under s29 TMA are met and whether the Appellant has shown the assessment to be incorrect.
Again, there was no challenge to Mr Sainsbury’s evidence that he identified a shortfall in declared dividends, having compared the Company accounts and the Appellant’s tax return, which led him to the genuine belief that there was an insufficiency of tax. We were also satisfied that the belief was reasonably held as it was based on the contemporaneous documents and records available to Mr Sainsbury and there was no evidence to the contrary.
In those circumstances, we were satisfied that the requirements of s29 TMA were met.
Having reached this conclusion, the burden then shifts to the Appellant to displace the assessment. The sole ground of appeal in relation to the discovery assessment relates to the dividend issue. We accepted Mr Sainsbury’s evidence that in raising the assessment, he had considered the amount of dividends voted by the Company and compared this to the bank statement supplied by the Appellant. Mr Sainsbury had identified personal expenditure within the statements and formed the conclusion that there was a shortfall in declared dividends by comparing Company accounts and further, that the dividends did not cover the amount of personal expenditure and there was additional tax due. We also accepted the evidence that Mr Sainsbury had based his conclusion on the public records from Companies House, which included confirmation statements made on 12 April 2017, 12 April 2018, 12 April 2019, 12 April 2020, 12 April 2021 and 17 April 2022 indicating that there had been no change to the ownership of the Company’s shares since the annual return dated 12 April 2016, and which showed that the Appellant was the sole shareholder.
We accepted Mr Sainsbury’s evidence as to how he had calculated the assessment, namely:
SSNL’s accounts for the year ended 30 April 2018 show that the company made profits after tax of £411,631. The same accounts show that the profit and loss account had an opening balance of £5,786 and a closing balance of £191,735. This means that only £185,949 of the £411,631 profit for the year was retained by the company. He concluded that the company paid out dividends of £225,682 for the accounting period. The accounting period straddled TYE 2018 and TYE 2019. The Appellant had declared dividends of £130,000 in the first of these tax years, and Mr Sainsbury concluded it was more likely than not that the £95,682 remainder was paid during TYE 2019. The Appellant declared £66,182 in his return for that year, so Mr Sainsbury discovered that he had failed to declare £29,500 of dividends for TYE 2019;
The loan account drawn up by Mr Sainsbury showed a debit balance of £483,286 at the beginning of TYE 2019. Content that the movements on the loan account prepared by Wine & Co. were correct, he calculated the closing debit balance on the DLA for TYE 2019 as £358,188. This took account of 5/30ths of the total movement on the DLA in April 2019. The average balance on the loan account for TYE 2019 was £420,737. This figure was multiplied by the 2.5% official rate of interest for the tax year to calculate a cash equivalent of £10,518.
The calculations above produced tax liability for the year £19,471.36 higher than that declared in the Appellant’s return.
We also accepted that the error was a result of behaviour that was careless or deliberate, and therefore the requirement at s.29 (4) TMA 1970 was satisfied. We agreed with the Respondents that had the Appellant or his agents taken reasonable care to check his the return against the Company, the check would have identified that not all of the dividends received had been declared.
We were also satisfied that the omission of the taxable cheap loan benefit arose because the Appellant failed to keep records of personal spending using Company funds and that this did not accord with a person taking reasonable care to get their tax returns right.
In the alternative, we also considered that the requirement of s29(5) was met as Mr Sainsbury only identified the shortfall in tax for APE 2019 after comparing the Appellant’s tax return to the Company’s accounts; records that were not available to him (s29(6)) and therefore the Respondents could not have reasonably known about the insufficiency at the relevant time.
We considered the Appellant’s evidence regarding the purported transfer of shares to Mr Gabbitus. In short, there was simply no evidence to support this claim and the contemporaneous documents from Companies House contradicted it. Whilst the Appellant gave oral evidence on the issue, he accepted that he was not aware of the difference between the positions of director and shareholder and we concluded that had he been aware, he may well have had the intention to make a transfer of shares but intention cannot alter the fact that this was not actioned and in those circumstances we preferred the documentary evidence.
We also noted, that despite any intention to transfer shares, this was not in fact actioned until well after the issue had been brought to the Appellant’s attention. We accepted that the Appellant had entrusted his tax affairs to his agents, however the fact remains that the records continued to show that the Appellant owned all of the shares and that there was no change to this throughout the relevant period.
We concluded that the requirements of s29 TMA were satisfied and that the assessment was made within the statutory time limits such that it was valid and competent.
Closure Notices (2019/2020 and 2020/2021)
We were satisfied that the Closure Notices were valid and satisfied the requirements of s28 TMA as it stated the Respondents’ conclusions and made amendments to the returns giving effect to those conclusions.
The issue is therefore whether the conclusions have been shown to be excessive.
The only matter arising in the years 2019/20 and 2020/21 was the dividend issue as the benefit on kind loan conclusions were not appealed, as confirmed in a letter dated 29 March 2023 from Wine & Co which stated:
“We refer to the notices of assessment you have issued for the tax years ended 5 April 2019, 2020 and 2021, on the 1 March 2023. We wish to appeal against the same as we do not believe you are assessing the correct levels of dividend income on our client. It is our understanding that our client only received 50% of the dividends that you are assessing.”
In relation to 2019/20, Mr Sainsbury concluded that the Appellant should have declared £40,000 in dividends. For 2020/21, Mr Sainsbury concluded that £80,000 should have been declared. We were satisfied that in both years, the Appellant held 100% of the shares and therefore all dividends should have been declared. We reached this conclusion on the basis of the Companies House records and Confirmation statements taken together with the absence of any cogent evidence to the contrary. Our conclusion was reinforced by the evidence of Mr Sainsbury’s, which we accepted, that Mr Gabbitus’ self-assessment tax returns in the relevant years did not show the receipt of any dividends income.
Closure Notice (2021/22)
We were satisfied that the Closure Notice was valid and satisfied the requirements of s28 TMA as it stated the Respondents’ conclusions and made amendments to the returns giving effect to those conclusions.
For the reasons set out above (see [159]), we were satisfied that Mr Sainsbury was correct in his conclusion that 100% of the dividends should have been declared. We have also set out our reasons for concluding that the Appellant should have accounted for the HICBC in his return.
The Closure Notice dated 4 June 2024 stated:
“Description
Employment benefits you received from Skyline Scaffolding (Northern) Ltd
Our conclusion
You should have declared the benefit of a taxable cheap loan from Skyline Scaffolding (Northern) Ltd with a cash equivalent of £9,546. You did not declare this benefit, so I need to amend your return to include it You received a taxable cheap loan from Skyline Scaffolding (Northern) Ltd during this tax year. You failed to include the benefit of this loan on your tax return. The balance of the loan at the start of the tax year was £463,772, and the balance at the end of the year was £490,848. The average balance during the year was therefore £477,310. The cash for the tax ear 2% . The cash equivalent is therefore £9,546.
Description
The amount of dividends you declared.
Our conclusion
You should have declared dividends of £100,000 on this return. You only declared £50,000 of dividends, so I need to amend your return to include the higher figure. Reason for our conclusion Skyline Scaffolding (Northern) Ltd paid £40,000 of dividends during the tax year ended 5 April 2022. You were the sole shareholder in the company when these dividends were paid, so you should have declared 100% of the dividends.
Description
The High Income Child Benefit Charge (HICBC)
Our conclusion
You should have paid the HICBC for this tax year. You did not declare the HICBC, so I need to amend your return to include it. Reason for our conclusion Your total adjusted income for the year exceeded £50,000, and you had the highest income in your household for the tax year. Your wife, with whom you lived, claimed child benefit for two children. You were therefore liable to the HICBC. Since your income for the year exceeded £60,000, the HICBC is the whole amount of child benefit your household received, £1,827.”
The Closure Notice clearly sets out three distinct areas in respect of which amendments were made. Despite this, the Appellant failed to particularise any grounds of appeal in respect of the three issues. The Appellant’s Notice of Appeal simply asserted:
“We do not agree with the basis on which the tax assessment or penalties have been raised.”
No particulars were provided specific to the taxable cheap loan and that remained the case until service of the Appellant’s skeleton argument which sought to challenge the DLA drawn up by Mr Sainsbury. However, no alternative figures were provided and no evidence was produced to support the Appellant’s challenge.
We agreed with Mrs Cook that the Appellant’s late challenge to the DLA figures under the vague and unparticularised Grounds of Appeal was no more than a backdoor means by which to challenge figures that have been in existence since 2014.
On 26 March 2021, discovery assessments were raised for the tax years ended 5 April 2015, 5 April 2016, 5 April 2017 and 5 April 2018. The letter enclosing the assessments explained:
“I have raised these discovery assessments because I have discovered that you were in receipt of taxable employment benefits in the years ended 5 April 2015 to 5 April 2018 that you did not declare on your tax returns, and you received more dividends than you declared in the year ended 5 April 2017.
You were a director of Skyline Scaffolding (Northern) Ltd during the years for which I am raising discovery assessments. As a result of you holding that office, the company lent you money during the year, in the form of your personal expenditure met through its bank account, company turnover deposited into your bank account, and bank transfers from the company’s bank account to yours. These were employment related loans because they arose from your position as a director.
An employment related loan is a cheap loan if the interest charged on it is below the official rate of interest, or no interest is charged.
You did not pay the company any interest on the loans you received, so the loans were employment related cheap loans. Income tax is payable on the cash equivalent of employment related cheap loans. The cash equivalent is calculated by finding the average balance on the loan account for the tax year, being the opening balance multiplied by the closing balance and divided by two, and multiplying this average balance by the official interest rate for the tax year.”
The assessments were not appealed. As stated in Johnson v Gore Wood & Co [2001] 1 ALL ER 0481:
“If there has been no appeal to the commissioners the debts become absolute and conclusive, and their legal effect cannot be denied.”
Thereafter, in relation to the discovery assessment and closure notices which form the basis of this appeal, Mr Sainsbury provided his views and conclusions on numerous occasions (for example we were referred to letters dated 17 November 2020, 23 December 2021 and 24 April 2023) and invited the Appellant’s comments. No attempt was made by the Appellant to provide alternative calculations or figures, nor was any evidence provided to contradict the conclusions of Mr Sainsbury. That remained the case at the hearing and in those circumstances, we rejected the Appellant’s vague challenge on the basis of an absence of any cogent evidence in support and we concluded that the benefit of the taxable cheap loan from the Company should have been declared.
We should add that our conclusion was not simply based on the absence of evidence from the Appellant. We fully considered the evidence of Mr Sainsbury and the fact that the early unappealed assessments, together with Mr Sainsbury’s careful analysis of the bank statements formed the basis of the calculations of additional tax due and we were satisfied that the amendments sought by the Respondents were accurate.
Penalty
There was no real challenge to the penalty, however we considered the evidence fully in reaching our decision that it must be upheld.
We agreed that the benefit of the cheap loan was a deliberate omission, the Appellant having been aware of the issue since 2020, yet he failed to take any steps to rectify the error and the loan was not declared. Similarly, we considered that the failure to declare HICBC was careless on the basis that, as accepted by Mr Bucknell, the onus rests with a taxpayer to ensure returns filed are complete and accurate. Ignorance, in our view, cannot abdicate a taxpayer from this responsibility. We considered that the Appellant failed to take reasonable care by the standard of a prudent and reasonable taxpayer in the same position.
There was no challenge to the calculation of the penalty or the reductions applied and we were satisfied that the penalties were validly imposed and the reductions entirely reasonable taking into account all of the circumstances of the case.
Disposition
The appeals are dismissed and the assessments for 2018/19, 2019/20 and 2020/21 are increased to take account of the failure to declare Child Benefit.
We were invited to consider whether it would be appropriate to increase the assessments for 2018/19, 2019/20, 2020/21 and 2021/22 to take account of any capital gains liability arising from a transfer of shares on or about 1 December 2018. In light of our finding that there was no transfer of shares, we make no order in this regard.
Right to apply for permission to appeal
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.
Release date: 23rd JANAURY 2026
