Appeal Number TC/2010/08134

[2011] UKFTT 180 (TC)

TC01049

Appeal number TC/2010/08134

Income tax – appeals against assessments out of time - permission to appeal refused – Appellant’s conduct – summary dismissal of other appeals – no reasonable prospect of success.

FIRST-TIER TRIBUNAL

TAX

ARSHAD ALIAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMSRespondents

TRIBUNAL: Christopher Hacking (Judge)

Alan Redden (Member)

Sitting in public at City Exchange, Leeds on 28 January 2011

The Appellant in person

Mr G Forbes, a Senior Officer and Mrs S Baynes an Officer of and for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

1

DECISION

The appeals

1.These appeals concerned applications for permission to appeal out of time direct tax assessments raised by the Revenue in respect of the tax years 2000/2001; 2001/2002; 2003/2004 and 2005/2006. They also concerned appeals against assessments for the tax years 2002/2003; 2003/2004 (a supplementary assessment for this year); 2004/2005 and 2006/2007in which although the appeals had been made two months late the Revenue had been prepared to accept the appeals out of time but had not been successful in securing the cooperation of the Appellant in resolving disputed matters so that the assessments were made final.

The Appellant and his businesses

2.It is helpful in understanding the matters in dispute to say something of the Appellant and his business history. The following account is taken from information supplied by the Appellant to the Respondents and is not disputed.

3.Mr Ali left university in 1994 having studied business and law taking up a position with a firm of solicitors, Rafiq & Co. He left this firm in 1996 to become head of another solicitors firm’s Criminal (Crown Court) Department In 2000 Mr Ali joined a claims firm in Blackburn, Chancery Medical, where it was represented to him that he was to become a director. This promise was made as part of a verbal agreement with the firm’s principal. He became dissatisfied with this firm’s business conduct and, after 5 months work and no pay, left to set up his own business.

4.The Appellant’s new enterprise was also in the field of personal injury claims and carried on its business under the trading style Peoples Claim Line (“PCL”). After 4 months of trading Mr Ali incorporated a company Expert Medical Limited (“EML”) which procured expert medical reports for use in connection with the claims being handled by PCL. PCL was a partnership carried on by the Appellant, one Saghir Bashir and a Mr Satar Zaman.

5.After 5 months of trading PCL ceased to trade and a further business enterprise was established by the same parties as were involved in PCL. This was Peoples Claim Bureau (“PCB”). A Ravinder Heer was taken on as a partner in this business which continued until 2006 when a number of disputes arose between the partners. For the purposes of this decision the details are unimportant save that it is claimed by Mr Ali that his signature was forged on several cheques totalling around £30,000 to £40,000.

6.In 2004 Mr Ali had established another business, AS Car Hire (“ASCH”), this time, as its name suggests, in the car hire sector. This would no doubt be complementary to the businesses of PCB and EML as it supplied replacement vehicles where the client’s vehicle had been damaged in an accident, the client having only 3rd party insurance cover so that the cost of the vehicle would be included as part of his/her claim. Mr Ali had invested £60,000 in this business borrowing this sum on the collateral of his uncle’s house.

7.ASCH was a partnership between Mr Ali and a Mr Saddique who had not introduced any capital. Mr Saddique also played some part in the matters leading to the dispute within PCB in 2006. ASCH encountered problems and again there was a dispute between Mr Ali and a number of other parties including Mr Saddique and Mr Bashir. At the time it ceased to trade ASCH had creditors of £636,000. Again the particulars of these matters are outside the scope of this decision although it is claimed by Mr Ali that one of the reasons he is unable to deal with his tax affairs is that he is unable to secure the cooperation of any of his former partners in disclosing documents or information which would enable him to contest the Revenue’s assessments.

The Appellant and the Revenue’s enquiries

8.Mr Ali last paid personal income tax on 31 May 2001 in the sum of £207. When the Revenue commenced its formal enquiries into his tax affairs in January 2008 he had filed no tax returns and paid nothing whether generally on account of his tax liabilities or otherwise. When it was put to him at a meeting with Revenue officers in April 2008 that fraudulent conduct was suspected he declared that as he had not submitted any tax returns he could not therefore be considered to have engaged in fraudulent activity. The tribunal makes no comment in this regard other than to say that this simplistic notion is considered by it to be unsound in law.

9.It is clear to the tribunal that at some date before January 2008 the Revenue had become aware of one or more of the various enterprises in which Mr Ali was involved and had conducted enquiries into these activities. A letter was sent to Mr Ali on 23 January 2008 stating the Revenue’s intention to carry out an investigation which would extend to cover all businesses both past and current in which Mr Ali had been involved as well as income from all sources. It was suggested that a meeting to discuss these matters should take place and, after some difficulties with available dates, such a meeting was held on 24 April 2008 at the offices of Mr Ali’s accountants, Rehman Michael & Co in Leeds. That meeting commenced at 10.30 am and finished at 5.25 pm. During the course of the meeting. Mr Ali was present with his accountant Mr Anwar Choudhary. Mr Tim Clark and Ms S. Spencer represented the Revenue.

10.The meeting covered a wide range of subjects. Mr Ali explained his role in the various businesses referred to above as well as some details of his personal property holdings both in the UK and overseas. What is clear from the minutes of that meeting which were in evidence before the tribunal,is that the Revenue needed a great deal more information from Mr Ali in order to assess correctly his liability in respect of tax. It was agreed that Mr Choudhary then acting on behalf of Mr Ali would prepare a report covering all of the matters reviewed and constituting a full disclosure of all of Mr Ali’s affairs.It was required by the Revenue that he would submit that report to the Revenue within 6 months. A formal certificate as to the accuracy and completeness of that report would be required from Mr Ali. The text of that certificate was provided in the minutes of the meeting. Should any materially false documents or statements be provided or made, Mr Ali was warned that a criminal investigation might be conducted with a view to prosecution. The cost of the report would be borne by Mr Ali. Mr Ali was asked whether he would agree to the Revenue having access to his accountant’s working papers. Mr Ali agreed. If there was any delay in the submission of the report or if no satisfactory payment on account had been made assessments would be issued

11.Following this meeting no substantial progress appears to have been made in the preparation of the promised report. Mr Malik at Rehman Michael & Co had tendered to the Revenue on behalf of his client, Mr Ali, a cheque for £5,000 on account generally of his tax liabilities. This cheque had been dishonoured. Mr Malik was asked in a letter dated 24th August 2009 to arrange for a payment to be made in a substantially larger sum. No such payment was forthcoming. By this time the 6 months period limited for the presentation of the report and certificate concerning Mr Ali’s tax affairs had long expired.

12.In a yet further attempt to progress the matter a further meeting took place on 27 August 2009, the Revenue being represented on this occasion by Sarah Baynes and Sue Spencer. Mr Ali and Mr Malik attended, again at the offices of Rehman Michael & Co.It is clear from the minutes of that meeting that there was still a significant amount of information required from Mr Ali. Mr Ali answered questions put to him concerning properties he had bought and sold, property lettings, the use made by Mr Ali of an Aston Martin motor car provided by EML, finance agreements undertaken by EML and other matters including the discovery of a yet further business or scheme entered into with a firm of solicitors which appeared to provide commissions for referred business. A constant problem appeared to be the total lack of documentary evidence supporting what Mr Ali said.. Mr Malik agreed to provide documentation relating to the extant litigation in which Mr Ali was involved as well as preparing a control account for ASCH. In the event neither appeared.

13.During the course of these enquiries and investigations a number of fixed and daily penalties were imposed on Mr Ali for failure to provide tax returns for the years 2000/2001 to 2003/2004. These totalled £2,880. Nothing was paid. The returns for the period 2004/2005 to 2006/2007 were submitted during the enquiry but these did not include all of Mr Ali’s taxable income and the returns themselves were expressed to be estimates.

14.Also during this period Mr Ali had admitted his liability for the years 2004/2005 and 2006/2007 in a sum of £33,287.12. Again nothing had been paid.

15. Business cheques relating to ASCH totalling some £970,000 had been passed through Cheque Converters for cash in addition to which substantial monies had been diverted into an account in Mr Ali’s sister’s name.

16.Although this is not directly related to the matter of the instant appeals the tribunal notes that quite apart from the income tax assessments now disputed two VAT assessments were raised in respect of ASCH on 27 January 2009 for VAT due in respect of the period 17 September 2004 to 12 November 2004 in the sum of £4,261.03 and for the period 15 November 2004 to 23 June 2006 in the sum of £102,269.61. The former is in relation to a period before the business was registered. There is no right of appeal in this case. The latter representing the difference between sales invoices held and output tax on the VAT returns could have been appealed but was not. No payments have been made in respect of these liabilities.

The assessments

17.The tribunal has been asked by the Appellant for permission to appeal out of time the following assessments:

2000/2001 £6,748.65

2001/2002 £13,964.95

2003/2004 £28,784.60

2005/2006 £47,864.38

18. In considering this appeal the tribunal has taken account of the Appellant’s submissions as stated in his appeal notice. In this he says that he had instructed his accountants to “make all necessary appeals” and that from the correspondence “it appears that appeals have not been received, accepted or allowed.” He goes on to state that he had not been able to liaise with his accountants as he had been absent at the material time dealing with family matters in Pakistan. He contends that “the amount of tax, penalties and interest involved is very substantial, which will result in bankrupting my family and therefore it is imperative that due process and fairness prevails…”

19. The above representations by the Appellant relate also to the appeals which were allowed by the Revenue but which, in the absence of any resolution of the Appellant’s tax affairs, have resulted in further disputed assessments as follows:

2003/2004 £633.60 (amended assessment - additional tax)

2004/2005 £3,475.43

2005/2006 £20,179.38

2006/2007 £19,547.56

The hearing

20. The tribunal heard from Mr Ali at the hearing of these appeals. He contended that he had cooperated with the Revenue in their enquiries and we accept that up to a point that is true. Unfortunately Mr Ali had not made a full disclosure of his affairs as promised at the April meeting and the tribunal is led inevitably to the conclusion that his cooperation was limited to answering questions put to him based on the Revenue’s enquiries rather than volunteering all of the information required to produce accurate assessments. This conclusion is supported by the late realisation by the Revenue of the further business referred to at paragraph 12 above known as Compensate.In our judgment Mr Ali has not shown any real willingness to meet his responsibilities as demonstrated by the failure to pay penalties and the issue of a worthless cheque. The history of this matter is one better characterised by delay on the part of Mr Ali with a view to avoiding the inevitable consequences of trading for 8 years with a complete disregard for his duty to file returns and account for tax properly due.

21. Mr Ali told us that the crux of the matter was Mr Saddique with whom he is in dispute. He said that the Revenue should be directing their enquiries to Mr Saddique rather than to himself. He accepted that he was not able to produce documentary evidence sufficient to displace the assessments. This was, he told the tribunal, because he was in litigious proceedings with his erstwhile partners and it was they rather than he who held whatever documents there might be relating to the businesses in which he had been involved.

22. What Mr Ali wanted to do, he said, was to agree with the Revenue a global figure covering all of the assessments being a figure which would reasonably reflect his lifestyle and asset base. As regards the businesses with which Mr Saddique was concerned he told the tribunal that “I only want parity”

The “out of time” appeals (paragraph 17 above)

23. On behalf of the Respondents Mrs Baynes confirmed that Mr Ali had only sought to appeal the assessments detailed at paragraph 17 above some 20 months after they were raised. He had been asked for a great deal of information but had simply not complied with requests. The discovery assessments made were based on actual information obtained by the Revenue in the course of its enquiries and pursuant to third party notices. Exceptionally the assessments in respect of income derived from ASCH were in the nature of “best judgment” estimates but were themselves based on factual information which had been obtained.

24. The tribunal places no credence on the suggestion advanced by the Appellantthat he was unable to liaise satisfactorily with his accountant over the 20 months it took before he appealed to the tribunal: nor do we accept the suggestion that he thought that his accountant had effectively lodged valid appeals. We find that Mr Ali was not able or chose not to provide his accountants with the information they would need to resolve his tax affairs. How he can believe that they were in any position to advance the enquiries by the Revenue we do not know. We accept that Mr Ali was in Pakistan attending to family matters for a time in or about October 2010 but that cannot provide a proper excuse for the considerable delay in appealing these four Notices of Assessments. We find that there is no reasonable excuse for failing to make these appeals on time.

The substantive appeals against the assessments (paragraph 18 above)

25. The position concerning the remaining four assessment notices (listed at paragraph 18 above) is rather different. In these cases the Revenue accepted the appeals as validly made and sought to try and agree the same. We find that the Appellant did not cooperate fully and completely with the Revenue in this exercise. We further find that the Appellant was not in fact able to assist the Revenue in relation to many of their enquiries, particularly concerning ASCH as he possessed no documents or records beyond those discovered by the Revenue as a result of its third party enquiries. For the same reason he could not reasonably expect to be able to provide evidence sufficient to successfully contest the assessments. Indeed at the hearing the Appellant told the tribunal as much.

26. In relation to these assessments the Appellant’s appeal was a substantive one rather than simply constituting a request for permission to appeal. This had been recognised by the tribunal, the intention at this hearing having originally been to make directions for a full hearing of this appeal in due course. Having regard to the position outlined by the Appellant however this course was seen by the tribunal as wholly impractical. There was no reason to suppose that the tribunal would be any more successful in obtaining information whether from the Appellant or from third parties than the Respondents had already been. By his own testimony the Appellant could not produce documentary or any other evidence to suggest that the assessments were incorrect. In the case of the business of ASCH it was questionable as to whether much, if any, documentary evidence beyond that which the Revenue had already obtained existed.

27. The Appellant had a history of making promises which he did not keep. The tribunal could not rely on him to cooperate in bringing these matters to a conclusion. To embark on the lengthy process towards a full hearing was to do a significant injustice to the Revenue which had throughout this matter extended to the Appellant every opportunity to assist both himself and the Revenue in bringing this matter to a conclusion. In this respect the tribunal notes that in its decision letter of 27 July 2010 and in previous correspondence the Revenue hadtaken account of a number of representations made by Mr Ali whether in relation to his rental income or to other matters in favourably (to the Appellant) amending the assessments. The tribunal was satisfied on the evidence that the assessments raised were reasonable and substantially correct beingin the main based on actual information concerning the Appellant’s affairs. Where this had not proved to be possible estimates had been made on a best judgment basis based on such information as had been obtained by the Respondents.