[2011] UKFTT 111 (TC)

TC00987

Appeal number: TC/2010/02303

Appeal against HMRC’s amendment to Self Assessment return for the period 2006/2007 - disallowed expenses – whether wholly and exclusively incurred for the purposes of trade

FIRST-TIER TRIBUNAL

TAX 

	MR. STEVE MOULTON	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL:  Miss J. Blewitt (TRIBUNAL JUDGE)
						Mr S. Bird (MEMBER)

Sitting in public at Cardiff on 19 October 2010

Mr Moulton, the Appellant, appeared unrepresented

Mr Ward, HMRC Local Compliance, Appeals & Reviews

© CROWN COPYRIGHT 2011

DECISION

1.	The Appellant’s 2006/2007 self-assessment tax return contained the following information:
(a)	Employment details in respect of the Appellant’s employment at Wickes
(b)	Self-employment details in respect of the Appellant’s trade as a carpenter/fitter. A claim to set off a business loss of £9,951 was made against employment income from Wickes, resulting in an overpayment to the Appellant in the sum of £2,188.56.
2.	By virtue of Section 9A Taxes Management Act 1970 (“TMA”) HMRC gave notice on 27 June 2008 of their intention to enquire into the Appellant’s tax return for the year ended 5 April 2007. The enquiry was concluded by notice to the Appellant on 4 September 2009. 
3.	Under Section 28A TMA 1970 HMRC amended the Appellant’s tax return for the year ended 5 April 2007 to take account of over claimed expenses on the following basis:
(a)	No analysis of the expenses clamed in the sum of £20,251.00 was provided by the Appellant;
(b)	Included within the amount was the cost of a vehicle rented by the Appellant’s mother. No evidence was produced by the Appellant to show payments were made by him;
(c)	The Appellant had undertaken work to convert a property occupied by his mother equating to the cost of the rental of the vehicle at paragraph 3 (b) above. An amount equal to the value of this work was not declared within the self-employment income;
(d)	An amount claimed in the sum of £1,551.00 related to personal items and therefore were not deemed to be wholly and exclusively incurred in performance of the Appellant’s trade.
4.	Following a request for review by the Appellant on 8 December 2009 under Section 49C TMA 1970, the amendment was upheld on 18 January 2010 resulting in an increase in tax due in the sum of £2,189.44.
5.	In summary, the Reviewing Officer concluded as follows:
(a)	That by virtue of Section 34 Income Tax (trading and Other Income) Act 2005 the Appellant is entitled to deduct expenses from trading income to arrive at the taxable profit if they have been incurred wholly and exclusively for the purposes of the trade;
(b)	That she had considered the correspondence, bank statements and business records provided by the Appellant;
(c)	That the expenses disallowed relate to £8,400.00 for vehicle hire and £1,551.00 relates to cigarettes/newspapers/family holiday/children’s toys;
(d)	That the vehicle hire cost was disallowed by Ms Mahor on the basis that the Appellant stated his mother bought the vehicle on his behalf due to the fact the Appellant could not obtain finance. The Appellant told Ms Mahor that his mother paid the finance costs of the vehicle and that the Appellant carried out renovation work on his mother’s property in exchange for use of the vehicle. The Appellant stated to Ms Mahor that he did not pay his mother towards the cost of the vehicle and that his mother did not pay for the renovation works undertaken by the Appellant. The use of the vehicle was on the basis of an informal arrangement and that there is no basis or evidence produced by the Appellant to support his calculation that the arrangement equates to £700.00 per month as a business expense;
(e)	That the use of the vehicle was an informal arrangement and that the Appellant’s mother owned and paid for the vehicle from her bank account at £357.00 per month;
(f)	That the £8,400.00 claimed by the Appellant as a business expense was not paid to him by his mother;
(g)	That use of the vehicle formed part of the arrangement between the Appellant and his mother relating to renovation of her property;
(h)	That the Appellant has failed to include in his accounts a figure to reflect the renovation work and has only included a value for use of the vehicle;
(i)	That the amounts claimed in respect of personal items are not allowable on the basis that they are not wholly and exclusively for use within the business;
(j)	That the original decision of Ms Mahor dated 4 September 2009 be upheld.
6.	The Appellant appealed by way of Notice of Appeal, undated but received at the Tribunals Service on 23 February 2010. The grounds of appeal annexed to the Notice can be summarised as follows: 
(a)	That Ms Mahor (Officer of HMRC who made the amendment) has failed to understand the Appellant’s situation despite being in possession of all requested information;
(b)	That Ms Mahor has passed totally inaccurate and untru information to the Review Officer;
(c)	That it is clear from statements contained within the Reviewing Officer’s letter to the Appellant dated 18 January 2010 that the Reviewing Officer was given ether an incomplete file or provided with false information;
(d)	That it is accepted that the Appellant inadvertently claimed for the occasional packet of cigarettes which was included within his petrol purchases;
(e)	That the Appellant accepts claiming for a working holiday which must be disallowed as family members accompanied him;
(f)	That it is grossly unfair to disallow the claim for vehicle rental as the rental was from a family member and the Appellant had taken advice from HMRC on the issue. All paperwork relating to the rental agreement was provided with the exception of old MOT certificates;
(g)	No claim was made for children’s toys;
(h)	The Appellant accepts that the amounts relating to cigarettes and the working holiday should be disallowed but maintains that the amount claimed in respect of vehicle rental should be allowed.
7.	At the hearing both parties agreed that the only matter in issue before the Tribunal concerned the sum of £8,400 claimed as a business expense relating to a vehicle purchased for the Appellant by his mother under a finance agreement taken out in her name. The Appellant conceded at the outset of the hearing that the remaining expenses totalling £1,551 were items of a personal nature and could not be claimed as business expenses.
8.	By virtue of Section 50 (6) TMA 1970 the burden of proof is on the Appellant to show that the amendment has been overcharged. 
9.	The Appellant gave evidence to the Tribunal that during the relevant time he worked at Wickes 5 days a week, including weekends and that he did not earn a high salary in this employment. The Appellant stated he started a kitchen design business, “CAD Design” which took up his evenings. The Appellant also bought and sold discontinued stock for Wickes. 
10.	The Appellant told the Tribunal that he and his brothers had renovated his mother’s home, which he described as a “mother and son thing.” The Appellant stated he had not been paid for the work, which was still ongoing and that he continued to work full time at Wickes. 
11.	The Appellant stated that he needed a vehicle for his design business, however due to his financial situation he could not obtain finance. His mother, who was aged 80 at the relevant time, purchased a Landrover Freelander. Due to the fact that the vehicle was purchased under a finance agreement ownership had to remain in his mother’s name. The Appellant stated that he was responsible for insuring and taxing the vehicle and that he used it. 
12.	The Appellant stated that the finance agreement was settled prior to the agreed date for final instalment and that he had paid £8,400 towards the amount due, as shown in his accounts. The Appellant stated that he was advised by HMRC to claim the vehicle as rental, which was subsequently disallowed. 
13.	In response to questions asked, the Appellant stated that he could not recall when the date on which the finance agreement was settled as that was information known only to his mother, but that he had made payments to his mother every month. The Appellant stated that he knew the finance agreement had been settled as his mother had told him to cease his monthly payments to her. The Appellant stated that the sum of the monthly payments was arrived at by dividing £8,400.00 over 12 months. The Appellant stated that he had believed the payments made to his mother were in the sum of £700 per instalment, but he could not be sure when payments were made or provide any explanation as to the source of the payments.
14.	The Appellant told the Tribunal that he accepted that his mother had purchased the vehicle to help him and that he did not expect to receive payment on the renovations to his mother’s house until after his mother’s death. 
15.	Mr Ward on behalf of HMRC submitted that if the Appellant claimed the cost of the vehicle as £8,400.00 and that, as previously stated, the renovations to his mother’s home were undertaken to the same value, then first, the work should be included within the Appellant’s accounts as income and second, the amounts cancel each other out. HMRC invited the Tribunal to confirm the assessment for the reasons set out in the review letter of 18 January 2010.
16.	The Appellant responded that undertaking such work to the level of £8,400.00 was physically impossible; his role was delivery of goods, supervisory and a small amount of building work. The Appellant maintained that he had paid £8,400.00 to his mother, but conceded that he could provide no evidence, either documentary or oral, as to when payments were made, although he believed it to be from a Nationwide account. The Appellant stated he had not kept any record of payments made and that his mother told him one day that the amount due had been paid.
17.	In reaching its decision, the Tribunal had regard to the explanations previously given by the Appellant in correspondence with HMRC and his oral evidence during the hearing.
18.	The Tribunal noted that in a letter from the Appellant to Ms Mahor of HMRC dated 6 April 2009, in response to a request for further information regarding the 2006/2007 tax year, the Appellant had stated that he had to pay his mother £700.00 per month to pay the finance agreement and that after the settlement figure of £8,400.00 was paid the vehicle would belong to the Appellant. 
19.	In a letter from the Appellant to Ms Mahor dated 9 July 2009 the Appellant stated, in relation to the renovation work to his mother’s home: “I supervised the project and when required delivered materials etc. My payment for this work was to have my mother take out a finance agreement (which I was unable to do) in her name so I could have use of the vehicle...” The Appellant went on to state “As payment for the works that I was doing to her house, Mrs Hawkins, my mother, took out a finance agreement in her name so I could have a vehicle. I had to pay Mrs Hawkins £700.00 per month for the use of that vehicle.” 
20.	The Appellant sought to persuade the Tribunal that his mother, having taken out a finance agreement to purchase the vehicle, was then reimbursed by the Appellant over a twelve month period. The Appellant submitted that payment by way of instalments is expenditure which falls within the definition of expenses wholly and exclusively incurred for the purposes of his trade as a kitchen designer.
21.	On the basis of the contradictory oral and documentary evidence, the Tribunal was not satisfied that the payments allegedly made by the Appellant to his mother had in fact been made. The Tribunal noted the inconsistencies in the various accounts given by the Appellant, for example, in the letter from the Appellant to HMRC dated 9 July 2009 the Appellant suggested that he had undertaken work for his mother and that his payment for the work was to require his mother to take out a finance agreement in her name so he could have the use of a vehicle. The Appellant stated in oral evidence that he could not be sure how much or when any sums had been paid or where the money for payments came from. The Tribunal found as a fact that in the absence of any documentary evidence to support the Appellant’s account of payments having been made, either in the form of bank statements showing payments/withdrawals made monthly in the sum alleged or any record of payments made, that the Appellant’s mother had purchased the car and made it available to the Appellant in consideration for the works done as part of a private arrangement.
22.	There was no evidence before the Tribunal to show that if there was any expenditure on the vehicle, that this was incurred wholly and exclusively for the Appellant’s trade in his design business and the Tribunal could therefore not be satisfied that the sum of £8,400 claimed, or any part of it, was in fact a business expense.
23.	The appeal is dismissed. 
24.	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.

TRIBUNAL JUDGE
RELEASE DATE: 10 FEBRUARY 2011