Tribunal finds HMRC's discovery assessment to be invalid
In Robson v HMRC [2023] UKFTT 226 (TC), the First-Tier Tribunal (FTT) allowed the taxpayer's appeal against HMRC's discovery assessment as it had not been validly raised.
Background
Mr Robert Robson had a varying pay structure and bonus scheme which meant that he had, at times, overpaid tax and become entitled to a tax rebate. In 2016, Mr Robson thought he may be entitled to a further tax rebate and, having been subject to the PAYE regime until that point, sought help from a third party to make a claim to HMRC on his behalf. Mr Robson instructed Capital Allowances Consultants Ltd (CACL), who had been recommended to him by a colleague, and provided it with an agent authorisation code.
On 14 October 2016, Mr Robson emailed CACL explaining that he was unsure whether he could still claim a rebate because HMRC had contacted him claiming he owed over £4,000 in unpaid tax. CACL responded and suggested they could "create an investment" which would "generate a tax credit". They explained that this would clear Mr Robson's debt with HMRC, and they would keep 66% of the tax credit as a fee.
On 12 December 2016, Mr Robson emailed CACL and confirmed that HMRC were no longer seeking the unpaid tax. CACL asked whether Mr Robson still wanted to bring "the claim" and he confirmed that he did.
On 3 January 2017, rather than make a rebate claim on Mr Robson's behalf, CACL submitted a Self-Assessment Tax Return (SATR) which contained claims for Enterprise Investment relief (EIS) and generated a tax credit of £8,250. A similar SATR was filed on 6 April 2017, which generated a further tax credit of £16,513.
On 1 March 2019, HMRC contacted Mr Robson asking for an EIS3 (a document issued by EIS investee companies to investors confirming that the conditions for EIS relief are satisfied). Mr Robson informed HMRC that he had not made these investments which led HMRC to raise discovery assessments in respect of both SATRs, under section 29, Taxes Management Act 1970 (TMA).
Mr Robson appealed the discovery assessments on the basis that he had no knowledge of the claims made and that CACL was acting fraudulently and not as his agent.
FTT decision
The appeals were allowed.
Mr Robson accepted that he was not entitled EIS relief and therefore the only issue for the FTT to consider was whether the discovery assessments had been validly raised.
In the FTT's view, section 29, TMA, requires the filing of a valid return in order for a valid assessment to be made. As stated in HMRC's internal manuals, a return must be signed by the customer or "a person acting in a capacity for the customer". The issue to be determined by the FTT was therefore whether or not CACL was acting as Mr Robson's agent when it filed his returns.
The FTT held that, although Mr Robson had provided CACL with an agent authorisation code, he had only authorised it to raise a claim on his behalf in relation to the tax rebate and had not authorised it to file SATRs on his behalf. HMRC referred to the emails discussed above, in which CACL stated that it could generate investments to create tax credits, but the FTT considered that when Mr Robson instructed it to continue "the claim" he reasonably understood this to refer to the tax rebate. Mr Robson had not seen the SATRs and did not know that they had been completed. The FTT concluded that Mr Robson's honest and credible evidence outweighed the suggestion in the email chain that CACL was authorised to file the returns. The FTT concluded that the SATRs were not submitted by or on behalf of Mr Robson and therefore there were no valid returns and therefore the assessments were not valid.
Comment
This decision provides an equitable result for Mr Robson, who was the victim of a fraud. HMRC was aware of the fraud and a number of other taxpayers were in a similar position. The FTT commented that it was an "unfortunate loophole in HMRC's system that this process was open to abuse". The impact of the decision is likely to be limited as the factual matrix is specific. The decision does however provide a helpful insight into what the FTT will consider when determining whether a valid return has been filed on behalf of a taxpayer.
The decision can be viewed here.