In K Rotberg v HMRC (TC03780 – 7 July 2014), the FTT found that the taxpayer’s accountant had been negligent and that a reassurance given by HMRC had not given rise to a legitimate expectation.
Mrs Rotberg had made disposals of shares on which she had claimed rollover relief. HMRC amended her return on the basis that the relief was not available. However, her accountant had a file note evidencing a conversation with HMRC, during which he had received confirmation that rollover relief would be available.
The first issue was whether HMRC had been entitled to make a discovery assessment under TMA 1970 s 36(1) on the basis that Mrs Rotberg (or her accountant Mr Michell) had been negligent. The FTT found that Mrs Rotberg’s reliance on Mr Michell had been reasonable, as there had been no indication that he was unable to advise her appropriately. However, Mr Michell had been negligent. The FTT pointed out in particular that shares are ‘conspicuous by their absence’ from the rollover provisions (TCGA 1992 s 155). Furthermore, nothing in the guidance notes accompanying tax returns suggested that a disposal of shares which may be subject to a rollover relief claim should not be included. Mr Michell had therefore not met the standard of the ordinarily competent tax adviser which he purported to be.
The second issue was whether Mrs Rotberg had a legitimate expectation as a result of the conversation between Mr Michell and HMRC. Referring to Aspin [1987] STC 723, the FTT held that the jurisdiction of the FTT in direct tax cases is limited to considering the application of the tax provisions themselves. There is therefore no jurisdiction for the FTT to apply the public law principle of legitimate expectation, ‘even in a case where a relevant degree of assurance is provided before the event and the taxpayer has done something to his detriment’ (in this case not claiming EIS) in reliance on that assurance. The FTT added that, in any event, the confirmation provided by HMRC to Mr Michell fell ‘well short of the threshold at which a legitimate expectation could be regarded as having been created’
Why it matters: The FTT admitted reaching its conclusion ‘without enthusiasm’. Mrs Rotberg was faced with a considerable tax liability, which she could have avoided had she been advised to claim EIS within the deadline. It was also regrettable that her accountant was given such blatantly wrong advice by HMRC.
In K Rotberg v HMRC (TC03780 – 7 July 2014), the FTT found that the taxpayer’s accountant had been negligent and that a reassurance given by HMRC had not given rise to a legitimate expectation.
Mrs Rotberg had made disposals of shares on which she had claimed rollover relief. HMRC amended her return on the basis that the relief was not available. However, her accountant had a file note evidencing a conversation with HMRC, during which he had received confirmation that rollover relief would be available.
The first issue was whether HMRC had been entitled to make a discovery assessment under TMA 1970 s 36(1) on the basis that Mrs Rotberg (or her accountant Mr Michell) had been negligent. The FTT found that Mrs Rotberg’s reliance on Mr Michell had been reasonable, as there had been no indication that he was unable to advise her appropriately. However, Mr Michell had been negligent. The FTT pointed out in particular that shares are ‘conspicuous by their absence’ from the rollover provisions (TCGA 1992 s 155). Furthermore, nothing in the guidance notes accompanying tax returns suggested that a disposal of shares which may be subject to a rollover relief claim should not be included. Mr Michell had therefore not met the standard of the ordinarily competent tax adviser which he purported to be.
The second issue was whether Mrs Rotberg had a legitimate expectation as a result of the conversation between Mr Michell and HMRC. Referring to Aspin [1987] STC 723, the FTT held that the jurisdiction of the FTT in direct tax cases is limited to considering the application of the tax provisions themselves. There is therefore no jurisdiction for the FTT to apply the public law principle of legitimate expectation, ‘even in a case where a relevant degree of assurance is provided before the event and the taxpayer has done something to his detriment’ (in this case not claiming EIS) in reliance on that assurance. The FTT added that, in any event, the confirmation provided by HMRC to Mr Michell fell ‘well short of the threshold at which a legitimate expectation could be regarded as having been created’
Why it matters: The FTT admitted reaching its conclusion ‘without enthusiasm’. Mrs Rotberg was faced with a considerable tax liability, which she could have avoided had she been advised to claim EIS within the deadline. It was also regrettable that her accountant was given such blatantly wrong advice by HMRC.
