[2010] UKFTT 325 (TC)                                      

TC00610

	Appeal number: TC/2010/01595

Income tax - appeal against HMRC refusal to postpone income tax payable on amendment to self assessment return

FIRST-TIER TRIBUNAL

TAX 

	Mr David Gradel	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	MRS. S.M.G. RADFORD (TRIBUNAL JUDGE)						MS. E. BRIDGE			

Sitting in public at Holborn Bars, London on 16 June 2010

Mr G. Moment of Simmons Gainsford for the Appellant

Mr J. Ferguson for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	This is an appeal against the HMRC decision to refuse the Appellant’s request to postpone the tax due following amendments made by HMRC to his self assessment tax returns for years 2006 and 2008.
Background and facts
2.	Amendments were made under Section 9C TMA 1970 to the Appellant’s self assessment tax returns during an enquiry under Section 9A TMA 1970.
3.	The amounts charged by the amendments were £112,500 for 2006 and £9,000 for 2008.
4.	The Appellant submitted his 2006 tax return on 30 January 2007 and subsequently amended it on 14 August 2007 within the statutory time limit.
5.	The amended tax return contained self employment pages for the first time with a figure of work in progress and an additional amount to be charged based on a spreading relief adjustment under Schedule 15 Finance Act 2006. Such relief is available on the first adoption of accounting standard UITF 40.
6.	The local compliance office of HMRC started an enquiry into the amendment and the enquiry was then referred to HMRC’s Specialist Investigations. 
7.	One of the issues in the investigation was a payment of £625,000 made by Property Equity Investment (Holdings) Limited (“the Company”) to the Appellant on 10 April 2005. This was credited to the Appellant’s director’s loan account and described as being payment for consultancy services provided by him for the period 2003 to 2005.
8.	This amount was entered on the amended 2006 return of the Appellant as income from self employment following the adoption of UITF 40 and an adjustment under the spreading relief provisions of Schedule 15 of Finance Act 2006 was claimed. This resulted in the chargeable income for the year being shown as £1,666 out of the total £625,000.
9.	A payment of £50,000 was made in similar circumstances on 31 March 2008 and again credited to the Appellant’s director’s loan account.
10.	HMRC contended that these monies were not self employment income but rather employment income which was paid to the Appellant for performing his duties as a director of the Company.
11.	The Appellant and his representatives have met with HMRC but do not agree with the HMRC contentions. 
12.	In the absence of agreement and to protect its interests HMRC issued determinations under Regulation 80 Statutory Instruments 2003, number 2682 and Section 8 decisions under the Social Security Contributions (Transfer of Functions) Act 1999 on 24 September 2009. These were issued as HMRC contended that the Company had failed to operate PAYE and deduct the appropriate income tax and Class 1 National Insurance Contributions from the payments of £625,000 for 2006 and £50,000 for 2008.
13.	On 27 November 2009 an amendment was made by HMRC under Section 9C TMA 1970 to the Appellant’s 2006 tax return to include the employment income and tax credit shown on the Regulation 80 determination. This amendment was issued to charge the additional higher rate tax arising on the income for the year as the determination only charged tax at the basic rate in the absence of an issued tax code.
14.	On 1 December 2009 an amendment was made by HMRC under Section 9C TMA 1970 to the Appellant’s 2008 tax return to include the employment income and tax credit shown on the Regulation 80 determination. This amendment was issued to charge the additional higher rate tax arising on the income for the year as the determination only charged tax at the basic rate in the absence of an issued tax code.
15.	Letters dated 7 and 9 December 2009 were received from the Appellant’s representative to appeal against the amendments and to request a postponement of the tax thereby due. The grounds of the appeal and request were stated as being that the Regulation 80 determinations were under appeal and the monies were not employment income.
16.	The question of employment/self employment has been reviewed by HMRC on request and the decision that the monies so earned by the Appellant were employment income has been upheld. The Appellant’s representatives have indicated that it is intended to appeal this decision to the Tribunal.
17.	HMRC wrote to the Appellant’s representatives on 7 January 2010 to explain why amendments had been made to the Appellant’s tax returns for 2006 and 2008 under Section 9C TMA 1970. The investigation by HMRC has established debts to HMRC by both the Company and the Appellant. These include debts arising as a result of returns submitted by the Appellant before any amendment by HMRC. Requests to settle these outstanding debts and to cover further liabilities  have been made on numerous occasions by HMRC but only minimal amounts have thus far been forthcoming.
18.	As of 15 June 2010 the Appellant’s self assessment statement showed debts outstanding of £202,480.23 excluding the amounts the subject of this postponement hearing. It also excludes the two general payments on account made against liabilities totalling £55,806.55.
19.	A request was made on 7 June 2010 to delay today’s hearing on the grounds that the Appellant’s representatives required more time to consider whether the issue of the employment status would be taken further with the Tribunal; that an offer had been made to settle the enquiry by taxing all of the £625,000 received in 2006 as self employment income and thus withdrawing the claim for spreading relief made on the amended return; that a signed undertaking had been provided by the Appellant to the effect that properties held within the group he controls would be sold.
20.	HMRC refused the request to postpone the hearing and referred the request to the Tribunal. The Tribunal refused the request on the grounds that it was made very late and the reasons for such request were not compelling.
Appellant’s submissions
21.	Mr. Moment submitted on behalf of the Appellant that the tax should be postponed until the question of whether the income was from employment or self employment had been decided by a Tribunal. If a Tribunal decided that it was self employment then the Appellant could use UITF 40 in order to spread the payment of the tax.
22.	The Appellant accepted that there was tax to pay but was asset rich and cash poor. He was trying to sell properties to raise the cash but having some difficulty in doing so.
HMRC’s submissions
23.	In order to ensure HMRC’s interests are fully protected the amendments under Section 9C TMA have been put in place to pursue the collection of the debts owed by the Appellant by whatever formal means are available to HMRC. Code of practice 8 clearly sets out that HMRC will take action to pursue debts if payments on account are not made as an investigation progresses.
24.	There is an acceptance by the Appellant that there will be personal tax to pay in respect of the monies he received from the Company. An offer has been made to settle this matter by treating the income as from self employment and all chargeable in the 2006 year. This would give tax payable, at 40% of £625,000, of £250,000. The amount of tax put into charge at this time by HMRC as a result of their amendment to the tax return is £112,500 with a further £9,000 for 2008. HMRC submitted that by this offer the Appellant was suggesting that the amount that should eventually be charged on the personal return is more than is currently being charged by HMRC. HMRC were not able to agree to charge the income as self employment income. However if the amount charged by the amendment was paid then the substantive issue of whether the payment was for employment or self employment could deal with any other issues in due course.
25.	The Appellant had signed an undertaking to make a payment of £200,000 on or around 10 July 2010 but should the Tribunal refuse the postponement application the Appellant would be given 30 days to make the payment which would be a date after the proposed date for meeting the undertaking. When this was put to the Appellant’s representatives and it was suggested that the Appellant’s application for a postponement therefore be withdrawn, the Appellant refused to do so on the grounds that this would still not clear the further liabilities on the self assessment statement of some £125,000. Apparently the Appellant stated that he would prefer to concentrate on selling the properties rather than addressing HMRC’S intention to pursue the monies due to them.
26.	On several occasions during the HMRC investigation the Appellant had stated that he would release funds and forward payments to start to satisfy his liabilities but despite this no monies apart from £55,000 have been forthcoming and this amount was far below that which was required. A personal statement of assets and liabilities was requested from the Appellant as far back as 30 June 2009 to enable HMRC to assess his ability to make payments but this too remained outstanding although Mr Moment said that it had recently been sent.
27.	The Appellant has had established arrears on his self assessment since the start of the HMRC investigation. The last payment made under the normal operation of the self assessment system was 27 March 2009 despite various dates having passed since then. Interest continues to accrue on the amounts owed.
28.	HMRC contends that to protect its interests any liabilities considered due by them must be established in law at the earliest opportunity. The Appellant has failed to make payments that are due and proper such as that due on his non employment income on 31 January 2010 and action has been required by the HMRC Debt Management department. Although a letter was issued by them on 28 May 2010 regarding payment of the amounts on the self assessment statement giving 14 days to reply no response was received and the intention was to take this forward by court proceedings.
29.	The Appellant has a very poor compliance history. Although he has signed his tax returns he has not made any payments. The Appellant was issued with a personal tax return for the 2009 year which required submission by 31 January 2010. Despite several requests this has not been forthcoming. It was therefore necessary to issue a determination of the estimated liability which gave rise to a charge in the amount of £70,000 on 22 April 2010. The Appellant’s representatives stated that they have not been able to submit the return as they still await the P11D which has not been provided by the Company which the Appellant controls although they have constantly reminded him of the need to provide this.
30.	Even after the Section 9C TMA amendment there has been no improvement and HMRC are still pursuing payments due on account.
31.	Mr Ferguson for HMRC contended that not only did the Appellant have properties to sell but the Company also owned more than £1 million’s worth of art work.
32.	HMRC submitted that they would only obtain payment if such payment was legally enforceable which is why they oppose a postponement of the tax due. It was clear that liabilities would arise for the two years in question on monies credited to the Appellant’s loan account whether a later Tribunal found these payments to be a result of employment or self employment.

Findings	 
33.	The Tribunal found that the Appellant’s compliance history was consistently very poor. Apart from tax owed as a result of payments made to the Appellant in the 2006 and 2008 tax years, as of 15 June 2010 the Appellant’s self assessment statement showed debts of some £150,000 (taking account of the £55,000 paid on account.
34.	The Appellant has still not submitted his tax return for year 2009 which ws due on 31 January 2010.
35.	The Appellant owes tax for the 2006 and 2008 years whether these payments are found by a later Tribunal to be the result of employment or self employment.
36.	The undertaking produced by the Appellant is legally unenforceable and therefore of little effect. The amount offered in this undertaking is more than that sought by HMRC  as a result of the amendments to the tax returns.
37.	The Tribunal agrees with HMRC that it appears that HMRC will only be able to obtain any payment if such payment is legally enforceable.
Decision
38.	The appeal against HMRC’S refusal to postpone the tax due following amendments made by HMRC to the Appellant’s tax returns is hereby dismissed.
39.	The Appellant’s request to postpone such tax is hereby refused.
40.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

S.M.G.RADFORD 
TRIBUNAL JUDGE

RELEASE DATE: 8 July 2010