In R Atherton v HMRC [2019] UKUT 41 (12 February 2019), the UT found that a discovery had not become stale by the time an assessment was issued and that the taxpayer had been careless.
Mr Atherton was a partner in a hedge fund. He hired a firm of accountants (‘F&L’) to complete his tax returns. F&L then introduced him to NTA, which recommended the Romangate scheme to shelter his 2007/08 partnership income of £5m by creating an employment loss, thus reducing his tax liability from £2m to nil. Mr Atherton implemented the scheme and made a ‘fairly lengthy disclosure’ in the white space of his 2007/08 return. The Romangate loss itself was claimed in box 20 of his return entitled ‘Your share of the partnership’s trading or professional losses’.
HMRC opened an enquiry into the return and, following further correspondence, initiated a claim against Mr Atherton. However, in December 2013, NTA wrote to HMRC accepting that because of retrospective legislative changes, the scheme was ineffective. Finally, following the release of the Supreme Court’s decision in Cotter [2013] UKSC 69, HMRC reached the view that the enquiry opened in 2009 was invalid and issued a discovery assessment.
The first issue was whether the discovery had become stale by the time the assessment was issued. HMRC had opened an enquiry in 2009 on the basis of an insufficiency of tax; therefore, argued the appellant, the discovery had become stale by the time the assessment was issued in 2014.
The UT found that although the 2014 discovery related to the same issue as the 2009 discovery, namely the Romangate loss, it was a different discovery. The new discovery was that Mr Atherton should have been treated as having made a claim for relief in his tax return. The UT added that the same officer could make ‘successive different discoveries’ in relation to the same tax liability.
Agreeing with the FTT, the UT also found that Mr Atherton had been careless, when using the box 20 entry of his tax return to ‘force a year 2 loss’ into a year 1 tax return, without providing any explanation.
Finally, the UT rejected the argument that Mr Atherton’s carelessness was not what had brought about the insufficiency of tax. The test is set out in TMA 1970 s 29: it is whether the taxpayer took reasonable care to avoid creating the insufficiency of tax; no causal link between the carelessness and the insufficiency tax is therefore required.
Why it matters: The UT observed that ‘forcing’ a claim into a tax return will not be careless if the taxpayer has reasonably relied on advice. However, Mr Atherton had been ‘impliedly’ advised to use box 20 by F&L, which was acting on his behalf for the purpose of TMA 1970 s 29(4); and ‘carelessness by F&L should be treated in the same way as carelessness by Mr Atherton’.
In R Atherton v HMRC [2019] UKUT 41 (12 February 2019), the UT found that a discovery had not become stale by the time an assessment was issued and that the taxpayer had been careless.
Mr Atherton was a partner in a hedge fund. He hired a firm of accountants (‘F&L’) to complete his tax returns. F&L then introduced him to NTA, which recommended the Romangate scheme to shelter his 2007/08 partnership income of £5m by creating an employment loss, thus reducing his tax liability from £2m to nil. Mr Atherton implemented the scheme and made a ‘fairly lengthy disclosure’ in the white space of his 2007/08 return. The Romangate loss itself was claimed in box 20 of his return entitled ‘Your share of the partnership’s trading or professional losses’.
HMRC opened an enquiry into the return and, following further correspondence, initiated a claim against Mr Atherton. However, in December 2013, NTA wrote to HMRC accepting that because of retrospective legislative changes, the scheme was ineffective. Finally, following the release of the Supreme Court’s decision in Cotter [2013] UKSC 69, HMRC reached the view that the enquiry opened in 2009 was invalid and issued a discovery assessment.
The first issue was whether the discovery had become stale by the time the assessment was issued. HMRC had opened an enquiry in 2009 on the basis of an insufficiency of tax; therefore, argued the appellant, the discovery had become stale by the time the assessment was issued in 2014.
The UT found that although the 2014 discovery related to the same issue as the 2009 discovery, namely the Romangate loss, it was a different discovery. The new discovery was that Mr Atherton should have been treated as having made a claim for relief in his tax return. The UT added that the same officer could make ‘successive different discoveries’ in relation to the same tax liability.
Agreeing with the FTT, the UT also found that Mr Atherton had been careless, when using the box 20 entry of his tax return to ‘force a year 2 loss’ into a year 1 tax return, without providing any explanation.
Finally, the UT rejected the argument that Mr Atherton’s carelessness was not what had brought about the insufficiency of tax. The test is set out in TMA 1970 s 29: it is whether the taxpayer took reasonable care to avoid creating the insufficiency of tax; no causal link between the carelessness and the insufficiency tax is therefore required.
Why it matters: The UT observed that ‘forcing’ a claim into a tax return will not be careless if the taxpayer has reasonably relied on advice. However, Mr Atherton had been ‘impliedly’ advised to use box 20 by F&L, which was acting on his behalf for the purpose of TMA 1970 s 29(4); and ‘carelessness by F&L should be treated in the same way as carelessness by Mr Atherton’.
