© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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G1: Direct tax assessments
Types of direct tax assessment
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Discovery assessments to recover loss of income tax or capital gains tax (TMA 1970, s.29)
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Assessment to recover excessive repayment of tax (TMA 1970, s.30)
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Discovery assessment and determination for corporation tax (FA 1998, Sch 18, para 41)
Liability to tax does not depend on an assessment (but recovery does)
“there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay.” (Whitney v. IRC 10 TC 88 at 110 - applied to calculation of potential lost revenue for penalty purposes in HMRC v. Robertson [2019] UKUT 202 (TCC)).
“Their Lordships are unable to accept this submission. It proceeds upon the assumption that it is the assessment which imposes the liability to tax, whereas in truth that liability can only be imposed by the application of the charging and relieving provisions of the Act.” (Golden Bay Cement Co Ltd v. CIR [1998] STC 1172 at 176).
“An assessment is the quantification by the Commissioner of the statutorily imposed liability of the particular taxpayer to tax for the year in question…So, as Kitto J said in Batagol v Commissioner of Taxation of the Commonwealth of Australia (1963) 109 CLR 243 at 251–252, it is “the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case”.” (CIR v. Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 at 690, cited in Golden Bay Cement Co Ltd v. CIR [1998] STC 1172 at 1176).
“Although [the taxpayer] is technically correct in saying that tax is imposed by statutory charging provisions rather than by assessment, the Taxes Acts do not always use these expressing with perfect technical accuracy.” (Hankinson v. HMRC [2011] EWCA Civ 1566, §14).
“…the words 'overcharged by any assessment' in s 50(6) may be said to have been rather loosely used, since liability to tax is not imposed by an assessment.” (Walters v. Tickner [1993] STC at 628).
Correct person to assess
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Trustees (income)
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"(1) Income tax charged on income arising to trustees of a settlement may be assessed and charged on, and in the name of, any one or more of the assessable trustees.
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(3) In subsection (1) “the assessable trustees” means—
(a) the trustees of the settlement in the tax year in which the income arises, and
(b) any subsequent trustees of the settlement." (TMA 1970, s.30AA(1), (3))
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Personal representatives
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"(2) Income tax charged on income arising to the personal representatives of a deceased person may be assessed and charged on, and in the name of, any one or more of the assessable representatives.
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(4) In subsection (2) “the assessable representatives” means—
(a) the persons who, in the tax year in which the income arises, are personal representatives of the deceased person, and
(b) any subsequent personal representatives of the deceased person." (TMA 1970, s.30AA(2), (4))
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Meaning of assessment
Assessment used in more than one sense
“The word “assessment” is used in our income tax code in more than one sense. Sometimes, by “assessment” is meant the fixing of the sum taken to represent the actual profit for the purpose of charging tax upon it. In another context the “assessment” may mean the actual sum in tax which the taxpayer is liable to pay on his profits.” (Commissioners for the General Purposes of the Income Tax for the City of London v. Gibbs [1942] AC 402 at 406, Lord Simon – Lord Macmillan said that the word was used in the Act in no less than eight different senses (at 424)).
“It is not disputed that, depending on context, the word “assessment” in the TMA is capable of meaning either an assessment by HMRC or a self-assessment by a taxpayer, or both. It is also common ground that in certain provisions of the TMA the word refers exclusively to an assessment by HMRC. An important example of the latter is s.34(2), which HMRC accept only applies to HMRC assessments. Another example is s.36.” (R (oao Higgs) v. HMRC [2015] UKUT 92, §25, Barling J).
See also: Hallamshire Industrial Finance Trust Ltd v. IRC [1979] STC 237 at 241 et seq.
Ordinary usage is something which determines the amount of tax payable
“We accept that in ordinary usage an 'assessment to tax' is something which determines the amount of tax payable and therefore at first sight that a determination under s 28C could be called an assessment of, or to, tax. The question however is whether that meaning of assessment is that intended by s 31.” (Bartram v. HMRC [2011] UKFTT 471 (TCC), §19).
Statutory context may indicate that a substantive determination is not an assessment
“The words of ss 28C and 30A indicate that 'assessment' was not intended to include 'determination'. The provisions of ss 100 and 100C and of the repealed s197 FA 1994 support that conclusion. The scheme of s 28C suggests that no appeal is intended to be given against amounts in a determination and in turn that no right of appeal to this tribunal is intended to be given by s 31 against a determination.” (Bartram v. HMRC [2011] UKFTT 471 (TC), §34).
“The case law indicates that not every substantive determination is an “assessment””. (Moyes v. HMRC [2014] UKFTT 1030 (TC), §49).
Adjustments made in the course of a mechanical process are not assessments
“[The p800 reflects] a reconciliation of the taxpayer’s PAYE record. It is not the result of the ordinary assessment process, by which—quite outside the PAYE system—a taxpayer’s income, gains, allowances and reliefs are determined, a calculation of the tax is made, the calculation is notified to the taxpayer and (subject to appeal) the amount so calculated becomes payable; nor is it akin to the adjustment of a self-assessment return, by closure notice or discovery assessment. It is, rather, an adjustment made in the course of the mechanical process I described at the beginning of this decision by which the PAYE system attempts to deduct the correct amount of tax over the course of a tax year. That some of that tax may be due in respect of a previous year seems to me irrelevant, since it is one function of the PAYE system to recover such under-payments.” (Prince v. HMRC [2012] UKFTT 157 (TC), §31).
Document purporting to be an amendment to a self-assessment is not an assessment
“We consider that notwithstanding the terms of HMRC’s letter dated 6 November 2013, which referred to an assessment to be made in accordance with section 153A(4) TCGA, the Disputed Decision issued on form CT620 AMD on the following day (7 November 2013) was quite clearly, and in accordance with its terms and the supporting Notes which accompanied it, and amendment. If (contrary to HMRC’s primary submission) it matters for any relevant purpose whether the Disputed Decision is an assessment or an amendment, it is an amendment rather than an assessment. This is because a taxpayer is, in our judgment, entitled to know from its face the nature of a decision addressed to him by HMRC – compare Vodafone 2 v Revenue and Customs Commissioners SpC 479 [2005] STC (SCD) 549 at [17].” (Benham (Specialist Cars) Ltd v. HMRC [2016] UKFTT 330 (TC), §37).
Relevance of extended meaning of “assessed to tax” and ”charged to tax by an assessment”
“In the Tax Acts and the Gains Tax Acts, any reference (however expressed) to a person being assessed to tax, or being charged to tax by an assessment, shall be construed as including a reference to his being so assessed, or being so charged:
by a self assessment under section 9 or 11AA of the Management Act, or
by a determination under section 28C, 28D or 28E of that Act (which, until superseded by such a self-assessment, has effect as if it were one).” (FA 1994, s.197, repealed in respect of corporation tax (effective 30 June 1999)).
“…I am not satisfied that s 197(1), FA 1994 defines a determination as 'an assessment'. I think its purpose is much more likely to be have been to counteract arguments by taxpayers in the context of the newly introduced self-assessment system that they had not been 'assessed to tax', or been 'charged to tax by an assessment', under the applicable statutory provision if they had either made a self-assessment or had been issued with a determination.” (Bartram v. HMRC [2012] UKUT 184 (TCC), §46 – in any event, TMA is not part of the “Tax Acts”).
Letter indicating intention to raise assessment not an assessment
"[67] I cannot accept Mr McDonnell’s argument that the March letter would have been understood to have been an assessment. It opens by stating: “I am writing to advise you that I intend raising” Discovery Assessments and that “The assessments will bring into charge”. It went on to state that Officer Peoples intended issuing the assessments in 30 days time. Under the heading “Interest” she stated “If I raise the assessments you will be charged interest …”.
[68] She went on to explain that penalties would be due under Schedule 24 Finance Act 2007 and “Once the level of the penalty has been determined I will advise you of this before the assessments are issued.”
[69] Under the heading “What you need to do” she pointed out that before she issued the assessments, she would like to give the appellant the opportunity to comment and/or enter into a contract. She concluded by stating that if she did not hear within 30 days she would assume that the calculations were agreed and she would then issue the assessments. The letter is written in very plain English.
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[76] I agree with him that, looking at Hallamshire Industrial Finance Trust Limited v IRC [1979] 1 WLR 620 at page 625 where Browne-Wilkinson J held that while there is no particular form for an assessment, it should at its minimum state the amount of tax payable. Further, in Baylis v Gregory [1989] AC 398 the Court of Appeal held that a valid assessment must specify the year of assessment to which it relates. One can see that there are few, if any, formal requirements for an assessment.
[77] However, although I was not referred to it I am very conscious of Lord Dunedin’s very well-known statement in Whitney v Commissioners of Inland Revenue [1925] UK HL TC 10 88 when describing the three stages in the imposition of a tax. The second stage is the assessment and he states very clearly that “But assessment particularises the exact sum which a person is liable to pay”. (emphasis added)
[78] The March letter simply does not do that. It indicates the sum that HMRC think is likely to be due but invites comment and further submissions and says that, effectively, the issue is open for discussion.
[79] I find that the March letter is not an assessment and nor does it contain assessments." (Vekaria v. HMRC [2023] UKFTT 288 (TC), Judge Scott)
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Determinations that are not assessments
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P800 (Prince v. HMRC [2012] UKFTT 157 (TC) – adjustment made in the course of a mechanical process, §31).
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Section 28C determination of tax due in default of self-assessment return (Bartram v. HMRC [2012] UKUT 184 (TCC) – context indicates that determination not an assessment).
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Direction that employee liable for under-deducted PAYE (Moyes v. HMRC [2014] UKFTT 1030 (TC), §55).
Form of assessment
Form (general)
“Every assessment, determination of a penalty duplicate, warrant, notice of assessment or determination or of demand, or other document requirement to be used in assessing, charging, collecting and levying tax or determining a penalty shall be in accordance with the forms prescribed from time to time in that behalf by the Board, and in a document in the form prescribed and supplied or approved by them shall be valid and effectual.” (TMA 1970, s.113(3)).
Must state clearly that a discovery determination has been made and the amount
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“Although, there is no prescribed form for a discovery determination, we consider that the appropriate record, whether in electronic or physical form, must state expressly and clearly that a discovery determination has been made on the taxpayer and in what amount.” (Nijjar Dairies v. HMRC [2013] UKFTT 434 (TC), §46)
But see Rebecca Thomas TC04092 XX
HMRC have argued:
“[TMA 1970, s.30A] makes it clear that, if a notice is to have the status of an assessment, it must satisfy certain formal requirements, not least the obligation to advise the taxpayer affected of the right of appeal…As a P800 does not state the time within which an appeal must be made, and is not one of the forms prescribed for the making or notification of an assessment, it does not satisfy the requirements, and cannot be regarded or treated as an assessment, or even as if it were an assessment.” (Prince v. HMRC [2012] UKFTT 157 (TC), §28).
“The 8 November 2011 HMRC letter does not fulfil the requirements in s 30A for an assessment. In particular, that letter was not served on the person being assessed but rather on the Appellant’s agent, and does not state a time limit for appealing (s 30A(3) TMA).” (James Moyes v. HMRC [2014] UKFTT 1030 (TC), §30).
To contain assessing officer’s name (direct tax)
“The procedural rules for an assessment to income tax which is not a self assessment are in s 30A TMA. The penalty assessments in this case conform with s 30A(3). But they do not show the name of the officer who issued them. While this is not a requirement laid down in s 30A(3) it seems to me that from s 31A TMA (notices of appeal) it is a requirement to name an officer who made the assessment as otherwise the recipient of the assessment cannot know who to appeal to.” (Rai v. HMRC [2017] UKFTT 467 (TC), §104, Judge Richard Thomas).
Schedule 24 penalty assessment must identify period
“[82] The notice of assessment dated 11 December 2015 clearly falls foul of paragraph 13(1)(c) [requirement for notice of penalty to state tax period]. The effect of an invalid notice is that the penalty charged by an assessment cannot be enforced, and that invalidity in the notice may be cured by the issue of a fresh notice that is without the error making it invalid. The question though is whether an error in complying with paragraph 13(1)(c) necessarily invalidates the assessment…
[83] There are clear indications in Schedule 24, including paragraph 13, that it does. Paragraph 13(1)(c) itself requires the notice to state the tax period “in respect of which the penalty is assessed”. That makes it very difficult to imagine that the assessment is not itself required to state that period. It is also necessary for the period for which an assessment is made to be known and obtainable by HMRC from their computer record of it to enable the time limits in paragraph 13(3) to be workable. In addition paragraph 6 of Schedule 24 can only work on the basis that the period is assessed as well as notified.” (Gekko and Company Ltd v. HMRC [2017] UKFTT 586 (TC), §§82…83, Judge Richard Thomas).
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May have to be by an officer of the board
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"(1) Except as otherwise provided, all assessments to tax which are not self-assessments shall be made by an officer of the Board." (TMA 1970, s.30A)
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“We do not accept that a high level decision taken by HMRC to impose penalties in these cases comprises a determination by an officer of the Board for the purposes of Section 100 TMA 1970. Whilst it is true that such a high level decision was accepted by the Court of Appeal in Donaldson as fulfilling HMRC’s obligation to give notice to a taxpayer pursuant to paragraph 4 of Schedule 55 Finance Act 2009, that was in the context of paragraph 4 which, as set out above, states that "HMRC decide that such a penalty is payable". This is in stark contrast to Section 100 TMA 1970 where the determination is to be made not by HMRC but by an officer of the Board.” (Thornton v. HMRC [2018] UKFTT 568 (TC), §25, Judge Popplewell).
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Dividing responsibility for completing assessing procedure
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"(1B) Where the Board or an inspector or other officer of the Board have in accordance with section 29 of this Act or paragraph 41 of Schedule 18 to the Finance Act 1998, or any other provision of the Taxes Acts, decided to make an assessment to tax, and have taken all other decisions needed for arriving at the amount of the assessment, they may entrust to some other officer of the Board responsibility for completing the assessing procedure, whether by means involving the use of a computer or otherwise, including responsibility for serving notice of the assessment on the person liable for tax" (TMA 1970, s.113(1B))
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"(4) Where an officer of the Board has decided to make an assessment to tax, and has taken all other decisions needed for arriving at the amount of the assessment, he may entrust to some other officer of the Board responsibility for completing the assessing procedure, whether by means involving the use of a computer or otherwise, including responsibility for serving notice of the assessment." (FA 2003, Sch 10, para 32)
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Multiple sources of income in single assessment
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(2) All income tax which falls to be charged by an assessment which is not a self-assessment may, notwithstanding that it was chargeable under more than one Part or Chapter of ITEPA 2003 or ITTOIA 2005, be included in one assessment." (TMA 1970, s.30A(2))
Assessment not to be impeached for lack of proper form if substance and effect clear
“An assessment [or determination], warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.” (TMA 1970, s.114(1)).
“An assessment or determination shall not be impeached or affected –
(a) by reason of a mistake therein as to –
(i) the name or surname of a person liable, or
(ii) the description of any profits or property, or
(iii) the amount of the tax charged, or
(b) by reason of any variance between the notice and the assessment or determination.” (TMA 1970, s.114(2)).
“…the point was taken…that the further assessment was invalid on the ground, as a point of form, that it failed to state the amount of gross income on which the further assessment was raised…I do not find there is any inadequacy of form. If there had been any inadequacy of form it would have been cured by s 114(1) of the Taxes Management Act 1970.” (Vickerman v. Mason’s Personal Representatives [1984] STC 231 at 235).
See A4: Defective form and errors
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Tax year/period is crucial and cannot be saved by s.114(1)
“The judge took the view that section 114 will enable an assessment expressed to be for one year to be treated and take effect as an assessment for another year provided that the Crown can show that there was a genuine mistake and that in all the circumstances there was no real possibility that the taxpayer was in any way misled. While I again have some sympathy with this view, which was supported by Mr Sher in this court by way of alternative submission, I do not find myself able to concur in it, since I do not think it is warranted by the wording of the section.” (Bayliss v. Gregory [1989] AC 398 at 437 per Slade LJ).
“We do not consider that what was said in Baylis v Gregory or in Sokoya leads to a different conclusion. The former concerned the validity of a formal demand, for which there is a prescriptive statutory framework, by which a taxpayer is made liable, subject to appeal, to make a payment to the state. One can well understand why protection of the taxpayer demands formality and complete absence of ambiguity in such a case. The latter concerned a penal provision: the taxpayer was said to be liable to a penalty for his alleged failure to comply with an information notice by a date which had been incorrectly identified. In other words, he was said to be liable to a penalty for failing to do something which he could not lawfully have been required to do; moreover, it is well established that in a penal context any ambiguity must be construed in favour of the person penalised. We see no true parallel between those cases and this.” (GDF Suez Teeside Limited v. HMRC [2017] UKUT 68 (TCC), §118, Newey J and Judge Bishopp).
“If the case were one where HMRC had to rely on s 114(1) to cure the defect in the penalty notices, I would agree with Mr Conolly that the mistake was of too fundamental a nature to fall within the scope of that subsection. It was indeed a gross error, and one that, viewed objectively, might have been misleading, because it could have led the recipient to believe that an earlier determination had been made by the Commissioners in or before April 2004, and that such earlier determination had either not been notified at all or the notification had gone astray.” (Pipe v. HMRC [2008] EWHC 646 (Ch), §51, Henderson J).
Unless it can be worked out without difficulty (e.g. penalty that runs from a particular, stated date)
“In my view, the failure to state the period in the notice of assessment in the present case falls within the scope of section 114(1). Although the period was not stated, it could be worked out without difficulty. The notice identified the tax year as 2010-11. Mr Donaldson had been told that, if he filed a paper return (as he did), the filing date was 31 October 2011. The SA Reminder document informed him that, since he had not filed his return by the filing date, he had incurred a penalty of £100. It also informed him that, if he did not file his return by 31 January 2012, he would be charged a £10 daily penalty for every day the return was outstanding. This information was reflected in the notice of assessment. Mr Donaldson could have been in no doubt as to the period over which he had incurred a liability for daily penalty. He knew that the start date for the period of daily penalty was 1 February 2012 and the notice of assessment told him that the end date of the period was 90 days later. The omission of the period from the notice was, therefore, one of form and not substance. Mr Donaldson was not misled or confused by the omission. The effect of section 114(1) is that the omission does not affect the validity of the notice. I do not, therefore, need to consider the further argument advanced by Mr Vallat based on section 114(2) of TMA.” (Donaldson v. HMRC [2016] EWCA Civ 761, §29)
Start date for penalties wrong (not saved under s.114(1))
“The position is however different in relation to the four penalty notices which contain the wrong date for the last date by which the ATED returns should have been filed. This was due to HMRC’s misunderstanding of the ATED legislation. This error affects the calculation of all of the dates for the various penalties and is clearly not “in substance and effect in conformity with or according to the intent and meaning of” the ATED legislation. This is not like the position in Donaldson where information was missing as opposed to wrong. It is also not cured by any other part of the penalty notices as these do not contain any explanation as to what the cut-off date for filing the ATED returns should have been.” (Chartridge Development Ltd v. HMRC [2016] UKFTT 766 (TC), §60, Judge Vos).
APN specifying two different amounts not saved under s.114
“The underlying defect which gives rise to their difficulty is contained in the original APN; the saving in subsection 114(1) only applies where the relevant “assessment or determination, warrant or other proceeding” is “in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts”. Where an APN is required to “specify the payment (if any) required to be made under section 223 and the requirements of that section” but it specifies two different such amounts, I do not consider the APN (which, for this purpose, I consider to be some “other proceeding” within the meaning of subsection 114(1)) can properly be said to be “in substance and effect in conformity with or according to the intent and meaning of” the relevant provisions.” (Pitcher v. HMRC [2017] UKFTT 406 (TC), §71, Judge Kevin Poole).
Section 114(2): Gross error in notification does not affect validity of a correct assessment
“Before leaving Baylis v Gregory, I would emphasise that Slade LJ said in terms (see [1987] STC 297 at 323, [1989] AC 398 at 437) that s 114(2) had no application to the facts of that case. I infer from this that the mistake made by the Revenue must have been not only a mistake in the form of the notice of assessment sent to the taxpayer's agent, but also a mistake in the assessment itself which was written in the assessment book. If the entry in the assessment book had been correct, and the only error was in the notice, the Revenue would presumably have been able to rely on s 114(2)(b).” (Pipe v. HMRC [2008] EWHC 646 (Ch), §30, Henderson J – notice referred to penalty for default in April but penalty was actually for September).
“Any variance” is broad expression but might not cover every error
“The force of the words 'any variance' is that no variance of any description between the notice and the determination is to invalidate the determination. I accept that there may come a stage where the error or discrepancy in question is so fundamental in character that it could not properly be described as a 'variance' at all; but in my judgment a mistake about dates of the type made in the present case gives rise to a 'variance' within the ordinary and natural meaning of that word.” (Pipe v. HMRC [2008] EWHC 646 (Ch), §51, Henderson J).
No record of penalties separate from notice, therefore s.114(2) does not apply
“It was not suggested to me that there is any separate record maintained by HMRC of its penalty decisions which might differ from what is contained in the penalty notices…If this is right, there is no scope for s 114(2) TMA 1970 to apply as, in this particular case, there cannot be a variance between the assessment or determination (i.e. the decision) on the one hand and the notice on the other – they are one and the same thing.” (Chartridge Development Ltd v. HMRC [2016] UKFTT 766 (TC), §§52…53, Judge Vos).
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Consequence of lack of form
Further step to identify if penalty invalid
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“None of these cases provide authority for the proposition that, just because there is a mistake in a penalty notice/assessment which cannot be ignored as a result of s 114 TMA 1970, the penalty must be cancelled. It is in my view therefore necessary to examine the penalties which have been assessed and to determine whether, on the basis of the information in the penalty notice and the legislation in question, HMRC was correct in deciding that the taxpayer was liable to a penalty.” (Chartridge Development Ltd v. HMRC [2016] UKFTT 766 (TC), §69, Judge Vos).
Legislative requirements
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“It should be remembered in reviewing the four penalty notices in question in this case that there are two specific statutory requirements in relation to the dates which must be shown on the penalty notice. The first (in accordance with paragraph 18(1)(c) schedule 55 FA 2009) is that, for each penalty which is chargeable, the notice must state the period in respect of which the penalty is assessed. The second relates to daily penalties. Paragraph 4(1)(c) schedule 55 FA 2009 requires HMRC to give the taxpayer a notice specifying the date from which the daily penalty is payable and that date cannot be earlier than the end of the period of three months beginning with the day after the last day on which the ATED return should have been filed (paragraph 4(3)(b) schedule 55 FA 2009).” (Chartridge Development Ltd v. HMRC [2016] UKFTT 766 (TC), §70, Judge Vos).
Examples
(a) Start date of penalty before default (invalid)
“This does not therefore comply with paragraph 18(1)(c) as a penalty would be due for failing to file the return by 2 October 2013, not 10 May 2013. The £100 penalty is not therefore valid.” (Chartridge Development Ltd v. HMRC [2016] UKFTT 766 (TC), §72, Judge Vos).
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(b) Start date inadvertently valid (penalty invalid)
“The fact that, unlike the position in relation to Tilehurst, the period for which the daily penalties have been charged in respect of Chancing Rye is a period which HMRC could legitimately have chosen is clearly more by luck than judgement. HMRC intended to charge a daily penalty which started on the earliest possible date allowed under paragraph 4 schedule 55 FA 2009 – i.e. from the date when the return was three months late. However, the decision which is evidenced in the penalty notice is a different decision – it is a decision to charge daily penalties starting from a date which was 25 days later than the end of that three month period. HMRC’s decision that a penalty was payable by Chartridge for the period for which they thought they were charging the penalty was therefore clearly incorrect on the basis of the dates stated in the penalty notice. Chartridge could not work out from the penalty notice whether HMRC had got it right and my conclusion is that HMRC’s decision that a daily penalty is payable should therefore be cancelled.” (Chartridge Development Ltd v. HMRC [2016] UKFTT 766 (TC), §90, Judge Vos).
Content of assessment
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SDLT
"(2) The notice must state—
(a) the tax due,
(b) the date on which the notice is issued, and
(c) the time within which any appeal against the assessment must be made." (FA 2003, Sch 10, para 32)
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Must contain a statement of the tax payable
“I therefore reach the conclusion that there is nothing in the 1970 Act which forces me to the conclusion that the assessments referred to in ss 29 and 50 of the Act need not include a statement of the tax payable. I therefore decide that the assessments there referred to are assessments of the tax actually payable. A man should be told what tax he has to pay, not merely given the information from which a skilled adviser would be able to decide the tax eventually to be demanded.” (Hallamshire Industrial Finance Ltd v. IRC [1979] STC 237 at 242).
No requirement to state statutory basis
“I consider that the Tribunal was undoubtedly right to hold that the mistake in referring to regulation 4(8) in the original notice of assessment did not render that notice invalid. As the Tribunal held, there is no obligation on HMRC to identify the excise duty point in making their assessment.” (TDG (UK) Limited v. HMRC [2015] UKUT 167 (TC), §30, Rose J).
“…we will determine whether there is any requirement to state in a notice of assessment the statutory provision under which the assessment is made. We agree with [HMRC] that there is no statutory provision requirement the notice of assessment to state this.” (Gunn v. HMRC [2011] UKUT 59 (TCC), §8).
“It does not matter, in my judgment, what power previous to the assessment the Revenue purported to be relying on.” (Vickerman v. Mason’s Personal Representatives [1984] STC 231 at 235 – at best the taxpayer will get an adjournment to deal with the actual basis).
No requirement to state the source of income
There is no absolute requirement that HMRC state the source of the income they are assessing, but this does not remove the duty to explain the reason for the assessment. Only occasionally, for example, where the assessment is based on the taxpayer’s lifestyle being inconsistent with his declared income, therefore, will it unnecessary to identify the source of income.
“HMRC are not obliged, in raising assessment under section 29 TMA to identify the source of the income which they are assessing. Looking at Mr Martin’s lifestyle and the assets known to her, Mrs Hodge formed the opinion that Mr Martin had undeclared income. HMRC would not be concerned, in assessing tax, whether the income was derived from criminal activity. The assessments stand unless Mr Martin explains why they are wrong.” (Martin v. HMRC [2015] UKUT 161 (TCC), §58).
May be based on estimates
“The element of guess-work and the almost unavoidable inaccuracy in a properly made best of judgment assessment, as the cases have established, do not serve to displace the validity of the assessments, which are prima facie right and remain right until the taxpayer shows that they are wrong and also shows positively what corrections should be made in order to make the assessments right or more nearly right. It is also relevant, when considering the sufficiency of evidence to displace an assessment, to remember that the facts are peculiarly within the knowledge of the taxpayer…” (Bi-Flex Carribean Ltd v. IRC 63 TC 515, PC).
“Given the authority above, we have not accepted Mr Kamal’s arguments that the validity of the assessments is vitiated by the fact that they were based on estimates as to the amount of money that Mr England was due from Mr Jenner.” (England v. HMRC [2016] UKFTT 627 (TC), §66).
“In other words, once the Crown has made a fair inference on the known facts as to the potential lost revenue, the onus of showing that the assessments raised are incorrect shifts to the taxpayer.” (Allan v. HMRC [2016] UKFTT 504 (TC), §30).
Doubtful that estimated assessment needs to be identified as such
“If (which we doubt) it is necessary to identify an estimated assessment as such in the notice of assessment, that was done by the covering letter enclosing the notice of assessment.” (Gunn v. HMRC [2011] UKUT 59 (TCC), §10).
Assessment identifies the amount of tax, not the amount subject to tax
“The reference to ‘assessment’ in [what is now TMA s.29(1)] is plainly a reference to an assessment of the tax to be charged, and it would seem to me to be odd to give 'assessment' in one part of the section a meaning different to that which the word should bear in another part of the section.” (Vickerman v. Mason’s Personal Representatives [1984] STC 231 at 235).
Validity of assessment is a question of law not dependent on HMRC’s purported justification
“…the validity of the assessment is, in my judgment, simply a question of law and may be established by the Crown as a matter of law without regard to the erroneous reasons put forward in correspondence that preceded the assessment.” (Vickerman v. Mason’s Personal Representatives [1984] STC 231 at 234).
Challenge validity of assessment on statutory appeal
Objections only to be taken on appeal against assessment
Income tax and capital gains tax
“(8) An objection to the making of an assessment under [TMA 1970 s.29] on the ground that neither of the two conditions mentioned above [in s.29(4) or (5)] is fulfilled shall not be made otherwise than on an appeal against the assessment.” (TMA 1970, s.29(8)).
“(2) An objection to the making of any assessment on the ground that the time limit for making it has expired shall only be made on an appeal against the assessment.” (TMA 1970 s.34(2)).
Corporation tax
FA 1998, Sch 18, para 42(3) and 46(3).
“[The taxpayer] said that one of the purposes of s 29(8) was to prevent the taxpayer from challenging the issuing of an assessment by judicial review. That is undoubtedly right.” (Hankinson v. HMRC [2011] EWCA Civ 1566, §26).
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SDLT
"(5) Any objection to the making of an assessment on the ground that the time limit for making it has expired can only be made on an appeal against the assessment." (FA 2003, Sch 10, para 31)
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Not a separate appeal
“[Section 29(8)] makes the competence of a discovery assessment a possible ground of appeal, not a separate appeal.” (Hargreaves v. HMRC [2014] UKUT 395 (TCC), §33).
Notice of assessment
Income tax and CGT
"(3) Notice of any such assessment shall be served on the person assessed and shall state the date on which it is issued and the time within which any appeal against the assessment may be made." (TMA 1970, s.30A(3))
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Corporation tax
"(1) Notice of an assessment to tax on a company must be served on the company stating—
(a) the date on which the notice is issued, and
(b) the time within which any appeal against the assessment may be made." (FA 1998, Sch 18, para 47(1))
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SDLT
"(1) Notice of an assessment must be served on the purchaser." (FA 2003, Sch 10, para 32)
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Notice is different to assessment
“One cannot have a notice of an assessment until there has been an actual and valid assessment.” (Honig v. Sarsfield [1986] STC 246 at 247, Fox LJ).
“An assessment or determination shall not be impeached or affected…by reason of any variance between the notice and the assessment or determination.” (TMA 1970 s.114(2)(b), implicitly recognising the difference).
Failure to give notice leading to discharge of assessment
“In their post-hearing submissions the Respondents accepted that they did not properly notify the Appellant of the imposition of the penalty for either 2008/09 or 2009/10. As they accepted that they had not met the conditions set out in Paragraph 16(1)(b) of Schedule 41, the Respondents sought to withdraw their opposition to this aspect of the Appellant’s appeal…We agree that, prima facie, no penalty under Schedule 41 was properly notified to the Appellant. Therefore we allow the Appellant’s appeal against the penalties imposed upon her for late notification of chargeability for 2008/09 and for 2009/10.” (Catal v. HMRC [2016] UKFTT 311 (TC), §§60…61)
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Assessment not to be altered except in accordance with Taxes Acts
"(4) After the notice of any such assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts." (TMA 1970, s.30A(4))
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"(2) After that notice has been served on the company, the assessment may not be altered except in accordance with the express provisions of the Taxes Acts." (FA 1998, Sch 18, para 47(2))
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"(3) After notice of the assessment has been served on the purchaser, the assessment may not be altered except in accordance with the express provisions of this Part of this Act." (FA 2003, Sch 10, para 32)
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Only the Tribunal may alter an assessment
“…it is not in dispute that, the taxpayer having appealed the original assessment, it could be altered only by a determination of the General or Special Commissioners under s 50 of the Taxes Management Act 1970, or by an agreement under s 54 of the Act, neither of which had occurred at the date when the May 1993 notice was issued.” (Schuldenfrei v. Hilton [1999] STC 821, §38).
“the 1970 Act confers no general power on an inspector to vacate an assessment. Significantly, s 29(6) specifically provides:
‘After the notice of assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts.’
In the present case, therefore, s 29(6) would, in my opinion, have clearly precluded Mr Rothwell from altering the relevant assessment so as to reduce the sum assessed to a nominal sum. It is perhaps more debatable whether s 29(6) on its true construction would itself have prohibited him from withdrawing or vacating an assessment. Nevertheless, Mr Sher was, in my judgment, right in submitting that (a) the vacation of an assessment has to be effected properly if it is to be valid, and (b) in the absence of any statutory authority for the purported ‘vacation’ by Mr Rothwell, his entry in the assessment book which purported to record a vacation was not properly made and had no legal effect.” (Craven v. White [1987] STC 297 at 321, see now TMA 1970, s.30A(4)).
“I was shown a copy of a ''notice of amended assessment'' dated 13 October 1999 in respect of period B. [The Revenue] submitted that, whatever status this document had, it was not an assessment, and it did not and could not have the effect of amending or altering the assessment which had previously been made for this period… Accordingly, on the facts which appear from the Case Stated, there is no legitimate basis for saying that what are referred to as amended assessments in the Case Stated were in fact assessments properly so called. Their true nature may be obscure, and may depend on the circumstances, but in practice, in the present case, they were notifications of the effect of allowing a claim, either to loss relief or, consequentially, to relief by way of the setting off of advance corporation tax.” (Guthrie v. Twickenham Film Studios Ltd [2002] STC 1374, §§20…25).
“Our suspicions that all was not straightforward were aroused when HMRC stated that we had before us appeals against amended assessments. We asked Mrs Levy how it was possible for an assessment which is not a self-assessment to be amended by HMRC otherwise than as a result of a determination by a Tribunal or its deemed equivalent, an agreement under s 54 TMA. She had no answer and agreed with us that the purported amendments were a nullity, as therefore were the purported appeals against them.” (Marsh v. HMRC [2017] UKFTT 320 (TC), §48, Judge Richard Thomas).
“The Tribunal asked Mr Oborne on what authority the assessment could be amended by HMRC. He accepted that, other than by a s 54 TMA agreement which was not relevant here, it could only be done by the Tribunal under its powers in s 50 TMA. We observe that s 30A(4) TMA is still good law…And officers of HMRC might like to reflect that it is only just over 50 years since the repeal of a provision which charged a penalty of £50 on any person who “makes, causes, or allows to be made, in any assessment, any unauthorised alteration” – s 50(1) Income Tax Act 1952.” (Norman v. HMRC [2015] UKFTT 0303 (TC), §102).
But note an apparently contrary view in the context of TMA s.54(4) (discontinuance of appeal):
“As I have already set out above, Orchid had never appealed against any decision that it should pay £74,166. Orchid appealed against HMRC's decision that the partnership's profit should be increased by £1,146,102 or, in the alternative, by £444,996. By the time of the withdrawal, HMRC had conceded its primary case and I consider that the decision under appeal was that the profit should be increased by £444,996. It follows that, under section 54(4), the consequence of Orchid's withdrawal of its appeal is that the decision that the partnership's profit should be increased by £444,996 is upheld without variation.” (Orchid Properties v. HMRC [2012] UKFTT 651 (TC), §28).
Claim to vacate all or part of assessment on grounds of double taxation
A taxpayer may make a claim for all or part of an assessment to be vacated where the terms of TMA 1970 s.32 are met. In essence, what is required is double taxation. See XX, above.
Penalty for failing to notify HMRC that assessment or determination understates T’s liability
“(1) A penalty is payable by a person (P) where—
(a) an assessment issued to P by HMRC understates P's liability to a relevant tax, and
(b) P has failed to take reasonable steps to notify HMRC, within the period of 30 days beginning with the date of the assessment, that it is an under-assessment.
(2) In deciding what steps (if any) were reasonable HMRC must consider—
(a) whether P knew, or should have known, about the under-assessment, and
(b) what steps would have been reasonable to take to notify HMRC.
(3) In sub-paragraph (1) “relevant tax” means any tax mentioned in the Table in paragraph 1
(4) In this paragraph (and in Part 2 of this Schedule so far as relating to this paragraph)—
(a) “assessment” includes determination, and
(b) accordingly, references to an under-assessment include an under-determination.” (FA 2007, Sch 24, para 2 – applies to VAT as well)
Paying correct amount is not notification of underassessment
“We do not consider that payment of an amount to an HMRC bank account alone can constitute notification of an underassessment. We consider that notification requires a positive action to bring to HMRC’s attention that the amount of VAT due for a particular period is more than the amount assessed. A payment into a bank account does not bring attention to an underassessment and could, for example, have been made in error.” (Silvergate Support Services Ltd v. HMRC [2017] UKFTT 388 (TC), §45, Judge Fairpo).
Penalty where T did not know of under-assessment but should have known
“We found that the appellant did not affirmatively know about the under-assessment, until such time as its newly-appointed accountant had prepared the VAT return for the 11/15 period (and that time was more than 30 days after the assessment). However, we also found that the appellant should have known about the under-assessment, because a reasonable and prudent taxpayer in its situation would have taken care to understand the significance of the assessment being an under-assessment (as this point was highlighted in the assessment itself) and would then have turned its mind to calculating if there was an under-assessment.” (Dharex Ltd v. HMRC [2017] UKFTT 71 (TC), §37)