The Commissioners for HMRC v Bashir Ahmed Jafari

By a decision (the “Decision”) of the First-tier Tribunal (Tax Chamber) released on 13 November 2019, the FTT dismissed the appeals of Mr Jafari against various decisions that HMRC had made regarding his income tax liability for tax years from, and including, 2008-09 to, and including, 2013-14. However, the FTT allowed Mr Jafari’s appeal in respect of a discovery assessment that HMRC had made in respect of the 2009-10 tax year (the “Discovery Assessment”) on the basis that the “discovery” on which HMRC relied was “stale” (using the expression adopted by the Upper Tribunal in Charlton v Revenue and Customs Commissioners [2012] UKUT 770 (TCC)).

In its judgment in Revenue & Customs Commissioners v Tooth [2021] UKSC 17, the Supreme Court decided (at [76] of the judgment) that, if HMRC have made a “discovery” which qualifies as such, the discovery cannot cease to qualify by mere passage of time. The Supreme Court, therefore, has held that the concept of “staleness” on which the FTT relied in its reasoning cannot cause an otherwise valid discovery assessment to become invalid. HMRC appeal against the Decision on the sole ground that the discovery on which HMRC relied to justify the making of the Discovery Assessment was incapable as a matter of law of becoming “stale” and the FTT erred in concluding otherwise.

These proceedings were initially stayed pending the resolution of the Tooth litigation. Following release of the Supreme Court’s judgment in Tooth, the Tribunal wrote to Mr Jafari to ask him to explain the basis on which he was defending HMRC’s appeal. In parallel, HMRC were engaging in similar correspondence with Mr Jafari since, on its face, the judgment in Tooth appeared to suggest that the FTT’s conclusion on “staleness” involved a clear error of law.

Mr Jafari’s response, given by his representative, was simply to confirm that he was contesting the appeal. By directions issued on 25 November 2021, the Upper Tribunal required Mr Jafari to set out his grounds for contesting HMRC’s appeal. Mr Jafari failed to comply with that direction so on 11 January 2022, the Upper Tribunal made a direction in “unless” terms (the “Unless Direction”) requiring Mr Jafari to provide his grounds, warning Mr Jafari that a failure to comply with this direction could lead to him being debarred from defending HMRC’s appeal. The Unless Direction also required Mr Jafari to set out his views on a proposal, put forward by HMRC, that their appeal against the Decision could be disposed of on the papers and without a hearing.

Mr Jafari failed to provide any grounds for contesting HMRC’s appeal within the deadline specified in the Unless Direction and indeed by 27 April 2022, when I prepared this decision, Mr Jafari had not provided any such grounds in even belated compliance with the Unless Direction. Nor did he provide any views on HMRC’s application for the appeal to be decided on the papers.

Accordingly, on 2 February 2022, the Upper Tribunal made further directions (the “Debarring Directions”) as follows:

The appeal is being determined by a single Upper Tribunal judge in accordance with paragraph 13 of the Practice Statement issued by the Senior President of Tribunals on the Composition of Tribunals made on 10 March 2009.

HMRC’s power to make the Discovery Assessment derives from s29 of the Taxes Management Act 1970 (“TMA”) which provides, so far as material, as follows:

It can be seen from this provision that in all cases there needs to be a “discovery” falling within s29(1) before an officer or the Board are entitled to make a discovery assessment. Only in cases where a taxpayer has “made and delivered a return under section 8 or 8A” is it necessary for HMRC to satisfy either condition set out in s29(4) or s29(5) as a precondition to making a discovery assessment. It is well-known that HMRC bear the burden of establishing that there has been a discovery. If the conditions set out in s29(4) and s29(5) are relevant, HMRC bear the burden of establishing that either of those conditions is met.

The TMA sets out time limits within which discovery assessments must be made. The normal position, set out in s34 of TMA was, at the applicable time, that a discovery assessment had to be made within 4 years of the end of the year of assessment to which it relates.

The Discovery Assessment was made over 8 years after the end of the 2009-10 tax year. Therefore, it would have been out of time under the general rule. However, s36 of TMA contains an extended time limit as follows:

Where HMRC wish to rely on the extended time limit set out in s36, they bear the burden of proving that the requisite conditions are satisfied.

References to numbers in square brackets are to paragraphs of the Decision unless I specify otherwise.

After setting out a summary of the various discovery assessments and closure notices that were under appeal, the FTT disposed of all HMRC’s decisions under appeal other than the Discovery Assessment as follows:

It would have been better if the FTT had spelled out precisely what was meant by Mr Jafari’s decision to “offer no case in respect of the closure notice and discovery assessments” and to “withdr[a]w his evidence and submissions”. If Mr Jafari was withdrawing his appeals to the FTT against all of HMRC’s decisions, then the FTT should have said as much and followed the procedure applicable to withdrawals set out in Rule 17 of the FTT’s rules of procedure (the “FTT Rules”). The result of a complete withdrawal would have been that there was no longer any decision for the FTT to make because HMRC’s decisions were no longer under challenge. If, by contrast, Mr Jafari was saying only that he was advancing no positive case of his own, but still put HMRC to proof on those issues on which they bore the burden, the FTT should have said as much and gone on to make findings on those issues rather than saying, at [4], that it would make no findings on factual issues (with some limited exceptions).

The effect of Mr Jafari’s statement at the start of the hearing was therefore unclear. However, whatever he meant by it, it seemed to apply to the Discovery Assessment just as much as the other HMRC decisions under appeal. The FTT proceeded on the basis that it remained entitled to make some decisions on the Discovery Assessment (see [15]) and indeed that HMRC bore the positive burden of establishing that the requisite discovery had been made applying the principles of Burgess and Brimheath v HMRC [2015] UKUT 578 (TCC). The FTT did not, however, apply the full logic of this proposition to other discovery assessments that HMRC had made. For example, it did not consider it necessary to make findings whether HMRC had made “discoveries” in connection with those other discovery assessments, whether the requirements of s29(4) or s29(5) were met as necessary and whether the extended time limit in s36 of TMA was available to HMRC in relation to those discovery assessments made more than 4 years after the end of the tax year to which they related, for example that for the 2008-09 tax year.

Whether Mr Jafari had made a return under s8 or s8A of TMA as regards the 2009-10 tax year was an issue of some potential relevance. If he had made such a return, then HMRC would bear the burden of establishing that one of the conditions set out in s29(4) or s29(5) was met. By contrast, if he had not, HMRC would have no such burden. The FTT made no express finding as to whether Mr Jafari had submitted a return for 2009-10. It did, however, at [8] to [10], record submissions made by HMRC’s presenting officer and quoted extracts from HMRC’s skeleton argument that suggested that:

The FTT evidently accepted that something like this had happened because it based its conclusion that the Discovery Assessment was invalid on its finding that HMRC had “discovered” the insufficiency of tax by 24 February 2016 at the latest (when it issued its purported “closure notice”) but that discovery had become “stale” by 15 August 2018 when HMRC made the Discovery Assessment (see [11]). That conclusion led the FTT to allow Mr Jafari’s appeal against the Discovery Assessment even though his appeal against other HMRC decisions failed.

Having reached that conclusion, the FTT did not make findings on whether either condition set out in s29(4) or s29(5) was established as regards the Discovery Assessment. That was understandable, since HMRC’s position, set out in their Statement of Case, was that it was not necessary for findings to be made on s29(4) or s29(5) with HMRC pleading:

HMRC now accept this pleading (which was not settled by Mr Chacko as he was not instructed before the FTT) was wrong in law. The relevance or otherwise of s29(4) or s29(5) does not depend on whether a taxpayer has given a notice under s7. It depends on whether the taxpayer has delivered a return under s8 or s8A.

HMRC’s single ground of appeal succeeds. Paragraphs 80 to 84 of the Supreme Court’s judgment in Tooth demonstrate that the FTT was wrong in law to conclude that the “discovery” on which HMRC relied had become “stale”.

HMRC rightly recognised, in helpful and clear written submissions made by Mr Chacko of counsel, that simply identifying the above error of law did not make their task complete. They also needed to explain what should happen to the Decision in the light of that error of law. The Upper Tribunal’s powers in that regard are set out in s12 of the Tribunals, Courts and Enforcement Act 2007 (“TCEA”). By s12:

The FTT’s conclusions as to staleness were clearly material to the Decision since they underpinned the decision to allow the appeal against the Discovery Assessment. I will, therefore, set the Decision aside.

HMRC invite me to remake the Decision in such a way that Mr Jafari’s appeal against the Discovery Assessment is dismissed, so that the Discovery Assessment stands good. They submit that the only difference that the FTT identified between the Discovery Assessment and HMRC’s other decisions under appeal was that the Discovery Assessment was perceived to be “stale”. Since that conclusion involved an error of law, they argue that it follows that the Discovery Assessment should now be treated in the same way as the other HMRC decisions under appeal.

Mr Chacko, however very fairly and consistently with his duties to the Upper Tribunal, himself pointed out in his written submissions that following such a course is not entirely straightforward. I consider I need to determine the following issues before I would be in a position to remake the Decision as HMRC suggest:

Rule 17 of the FTT Rules is relevant to the first issue, set out in paragraph 25(1) above. It provides, so far as material, as follows:

There are competing indications from the FTT Decision as to what the FTT might have thought that Mr Jafari was doing. If the FTT had thought that he was withdrawing the entirety of his case, it is difficult to understand why it would have gone on to write a full decision that allowed an appeal against the Discovery Assessment. It would have been more natural, in that case, for the FTT to have released no decision and simply notified the parties under Rule 17(2) that the appeals were withdrawn orally at the hearing.

However, and by contrast, if the FTT thought that Mr Jafari was simply putting HMRC to proof on those matters on which they bore the burden, the FTT would not have limited its analysis of “discovery” to the Discovery Assessment. It would have needed to make findings as to why it was satisfied that there had been the requisite discovery as regards all other discovery assessments. It would have needed to decide whether s29(4) or s29(5) was satisfied as regards other discovery assessments since, while HMRC considered that those conditions were not relevant to the Discovery Assessment itself, they had specifically pleaded that the condition in s29(4) was satisfied in relation to discovery assessments for 2012-13 and 2013-14. The FTT would also have had to consider the availability of the extended time limit in s36 of TMA.

In my judgment, the FTT did not turn its mind sufficiently to the effect of Mr Jafari’s statements at the beginning of the hearing. I considered whether it was appropriate to remit this matter back to the FTT. However, that is not a course that either party has urged me to take. If Mr Jafari had wished to argue that the Decision could be defended because, on the true construction of his statements at the beginning of the hearing, he was simply putting HMRC to proof, he could, and should, have made that point in a Response to HMRC’s Notice of Appeal. He was given ample opportunity to do so. Moreover, it is difficult to see what would be gained by remitting back to the FTT a question as to the effect of Mr Jafari’s statements. The difficulty is not in knowing what Mr Jafari said: that is recorded at the Decision itself. Rather, the difficulty is in understanding what Mr Jafari meant. Remitting that matter back for reconsideration would simply be to invite further analysis, no doubt tinged with knowledge given by hindsight, of what Mr Jafari was saying. Moreover, there could be no guarantee that Mr Jafari would participate in such a process given his lack of engagement with proceedings in this Tribunal.

Therefore, I consider that the more appropriate course is to form my own conclusion on the effect of what Mr Jafari said given that I do at least have the FTT’s summary, set out at [4] and [5], of what was actually said. I consider that the following aspects of that are significant:

In my judgment, these considerations support a conclusion that Mr Jafari was withdrawing the entirety of his appeals to the FTT. The FTT should have taken that withdrawal at face value and not gone on to make findings on matters that were no longer in dispute. In my judgment, the correct course for me, given the error of law in the Decision, is to set the Decision aside and remake it in a manner that gives proper effect to Mr Jafari’s withdrawal of the entirety of his case. That consideration means that I will remake the Decision such that all the appeals against HMRC decisions that were before the FTT are to be dismissed.

For completeness, had I not reached the conclusion set out in paragraph 31 above, I would have reached the following conclusions on the issues summarised in paragraph 25:

My conclusions in paragraphs 31 and 32 both lead me to the same conclusions. The Decision is set aside and remade in such a way that all appeals that the FTT addressed in the Decision are dismissed.