[2010] UKFTT 459 (TC)

TC00724

Appeal number: TC/2010/1294

INCOME TAX AND NI – understated self-assessment – appeal against amendments and against penalty under section 95 TMA – burden of showing amendment should not stand not discharged – appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	MR ABDUL MAJID	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	ADRIAN SHIPWRIGHT (JUDGE)
		LESLEY STALKER (JUDGE)

Sitting in public in Brighton on 10 August, 2010

Mr P.K. McKenna, Chartered Accountant, for the Appellant

Joyce Ballingall of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

Introduction

1.	This is an appeal by Mr Abdul Majid (“the Taxpayer”) against:

(1)	 The Respondents’ (“HMRC”) amendments to his self-assessment return for 2004 – 2005 which increased the Income Tax and Class IV National Insurance Contributions by £6,406.20 (£1,018.20 to £7,424.40);

(2)	A civil penalty of £1281.00 under section 95 Taxes Management Act 1970 (“TMA”) for an incorrect return.

The Issue

2.	Essentially, the issue in this case was whether the return understated the Taxpayer’s income for the year 2004–2005. HMRC said it was understated by some £20,338. The question then is whether the Taxpayer has discharged the burden of showing that the amendments to the self assessment return should not stand.

3.	There is no allegation of fraud or criminal conduct in this case. The penalty is a civil penalty for an incorrect return.

The Evidence 

4.	We were provided with an agreed bundle of documents.  There was no witness evidence.

Findings of Fact 

5.	From the evidence we make the following findings of fact.

(1)	The taxpayer carried on business as a self employed taxi driver mainly working the night shift. He said in correspondence he worked five days a week for 10 hours a day.

(2)	He operated as a licensed private hire car from Gatwick Airport through Checker Cars. Checker Cars ran the franchise at Gatwick Airport and supplied customers for the driver.

(3)	The Taxpayer used a Vauxhall Omega 2.2 car (“the Car”) to do this.

(4)	The Taxpayer did not keep proper business records.  There was no record of takings and tips for the year in question.

(5)	The Taxpayer has four children who were all at college in London during the year in question. 

(6)	HMRC accepted that the Taxpayer’s daughter drove the Car to Mile End during University term time and allocated 15,000 miles for this.

(7)	Checker Cars, we were told, charged 20% commission but there was no evidence led that this was the case or of the amount of commission paid. 

(8)	The tariff during the year in question was £1.65 per engaged mile (i.e. taking the customer to the customer’s destination not the return journey without a passenger).
 
(9)	The Taxpayer’s return for the year in question was based on the “business fuel used during the year” as per the Taxpayer. There was no third party corroboration of this. 

(10)	The Taxpayer said that the business fuel for the year cost him about £3,382 there was no third party corroboration of this as being the full figure. At an average price of a £3.70 a gallon this amounted to 914 gallons.

(11)	At an average of 28 mpg this gave a mileage of 25, 592 and an engaged mileage of 12,796.

(12)	At a tariff of £1.65 per engage mile this gave takings of £ 21,110.  It ignores tips.

(13)	This was disputed by HMRC who used the local council records to work out the mileage.

(14)	The mileage taken from the local council records was 69, 941 miles being the difference between the May 2005 reading of 22 3, 281 and the May 2004 reading of 153, 340.  This was the essential basis of the adjustment.

(15)	It was said that one of the taxpayer’s daughters used the car to visit her then fiancé (now husband) in Blackburn.  There was a letter from the husband but not the daughter in the bundle.  This read:

"I write in respect to your recent query in relation to my wife visiting me before marriage during the period of 2004/2005.

I was engaged in May 04 to Mr A.K. Majid's daughter Anila.  After our engagement we met on a weekly basis or so at… Blackburn.  This was my flatmate's family home located near Manchester.  Other than this we also met on many occasions at Manchester University for training days and for pre- registration interviews during the 04/05 academic year.

I can verify that during the period mentioned, May 04 to May 05, my then fiancée would use her father's car to make the journeys.  She found using a larger vehicle was easier to make such lengthy trips."

(16)	This is interesting but somewhat general in nature.  We did not have the benefit of hearing the witness in person or of having the evidence tested by cross-examination.  We did not have the benefit of any evidence from Anila.  Accordingly, it is hard to treat this as more than general assertion.  For example does the phrase "my then fiancée would use her father's car" mean that she always did, occasionally did, would if it was available, would if she could.

(17)	We were told that Anila had her own car, a Vauxhall Corsa which we understand was capable of making the journey.

(18)	 We do not find it proves that Anila used the car to go to Blackburn [and all] or?  that it has been shown that 25,000 miles should be allocated to this. In reaching this conclusion we have reminded ourselves that the standard of proof is the balance of probabilities. We find that this standard has not been met.

(19)	HMRC mitigated the penalty by 80%.

The Submissions of the Parties

The Appellant’s Submissions in outline

20.	In essence, the Appellant submitted that he had made a proper return on a proper basis. Any discrepancies were accounted for by the trips to Mile End during University term time and by his daughter to Blackburn. Accordingly, the appeal should be allowed.

HMRC’s Submissions in outline

21.	In essence, HMRC submitted that:

(1)	The amendments were properly made on a proper basis;
(2)	No evidence had been led to show that they should not stand;
(3)	The penalty regime was thus engaged as an incorrect return had been made;
(4)	The amount of the penalty imposed was proportionate and reasonable in all the circumstances;
(5)	Accordingly, the appeal should be dismissed.

Discussion

22.	The question for determination here is whether the Taxpayer has shown that the amendments to the Taxpayer’s self-assessment return should not stand the onus being on the Taxpayer.
23.	In our view the Taxpayer has not discharge this burden.  We consider that HMRC's estimates are reasonable and proportionate. They do not include tips and allowance has been given for extra fuel etc. for example.

24.	The Taxpayer’s position is a "bootstrap" argument depending on the cost of fuel during the year as to which he still has incomplete records.  This was not subject to third party corroboration.  The use of the local authority records seems a better starting point.

25.	It follows that the penalty regime is engaged.  The question then arises whether they should be allowed to stand.  We consider that the amount of the penalty is reasonable and proportionate in the circumstances of this case.  We also considered whether there was any reasonable excuse in the circumstances and for the sake of completeness we record that we considered that there was not.  Accordingly we confirm the penalty and the amount of the penalty.

26.	We have found that 

(1)	the amendments made by HMRC to the self-assessment return should stand; and
(2)	the penalties regime was engaged and the amount of the penalty was reasonable and proportionate

27.	   Accordingly, the Appeal is dismissed.

28.	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.

	ADRIAN SHIPWRIGHT

TRIBUNAL JUDGE
RELEASE DATE: 30 September 2010