[2011] UKFTT 121 (TC)

TC00997

Appeal number: TC 2010/2557

DISCOVERY ASSESSMENT – the Appellant mistakenly claimed business taper relief in respect of a chargeable gain on a disposal of land which had been previously let for the growing of grass for silage for a term of less than 365 days – the mistake resulted in the Appellant’s  self assessment for tax in 2004/05 being insufficient – the Appellant accepted that the letting was farmed by the tenant – the Appellant argued that the 2004/05 return was made in accordance with the prevailing practice at the time – No persuasive evidence of a prevailing practice which treated short term lettings for the growing of grass as a trade where the owner did not occupy the land wholly or mainly for the purpose of farming – Appeal dismissed – assessment confirmed. 

FIRST-TIER TRIBUNAL
TAX 

	MRS DEBORAH N EVELYN	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

			TRIBUNAL: MICHAEL TILDESLEY OBE 

Sitting in public at Tribunals Unit, 3rd Floor Bedford House, 16-22 Bedford Street, Belfast BT2 7DS on 10 December 2010

Richard Todd, Chartered Tax Adviser, of Wilkins Hegarty for the Appellant

Paula O’Reilly, Tribunal Presenter, for HMRC

© CROWN COPYRIGHT 2011

DECISION
The Appeal
1.	The Appellant appeals against a discovery assessment dated 15 September 2009 in the sum of ₤33,362.40 for the year ended 5 April 2005. 
2.	The discovery concerned the application of business taper relief to a capital gain arising from a disposal of land. HMRC decided that the Appellant was not entitled to the relief because the partnership of which the Appellant was a partner was not carrying out the trade of farming. The discovery increased the taxable capital gain from ₤39, 496 to ₤122,902 for the year ended 5 April 2005.
3.	The Appellant contended that the assessment did not meet the legal requirements of discovery. The Appellant asserted that her declaration of capital gains in the 2004/05 return complied with the practice generally prevailing at the time it was made. The land disposed of had been previously let for the growing of grass under an agreement of less than 365 days with no right of renewal. According to the Appellant, such lettings in Northern Ireland were known as lettings in conacre. The Appellant stated that at the time she made the 2004/05 return owners of lettings in conacre were regarded by HMRC as being engaged in a trade which entitled the owners to claim business taper relief on gains arising from disposals of land previously subject to conacre. The Appellant pointed out that HMRC had allowed business taper relief in similar circumstances on a previous land sale  in the year ended 5 April 2001.
4.	HMRC submitted that the legal requirements for a discovery assessment had been met. According to HMRC, at the time of making the 2004/05 return it did not treat all owners of lettings with the conacre label as being engaged in trade. HMRC’s longstanding practice had been to consider each case of conacre on its own individual merits. The critical question was whether the owners remained in occupation of the short term lettings for the purposes of farming.  In this case the Appellant did not remain in occupation for the purposes of farming despite the conacre label attached to the letting. Thus HMRC had considered the Appellant’s claim for business taper relief in her 2004/05 return on its own facts, which complied with the current practice at the time. HMRC stated that it did not make sufficient enquiry into the Appellant’s 2000/01 return which led to the error of allowing business taper relief on the land disposal in that year. HMRC indicated that it would not take any action to recover the excess taper relief for the year 2001.
5.	The dispute in this Appeal was not about whether the Appellant as part of the partnership was engaged in the trade of farming when granting short term lets of the land or about the tax treatment of lettings in conacre in general. Another partner had withdrawn his appeal before the General Commissioners on the correct tax treatment of the said disposal of the land. The Appellant’s representative indicated at this hearing that the Appellant was not challenging the correctness of HMRC’s ruling disallowing business asset taper relief on the land disposal. The dispute was about whether the Appellant’s error in claiming the relief was because she made the return on the basis or in accordance with the practice generally prevailing at the time. The Appellant asserted that the prevailing practice at the time was that lettings in conacre constituted a trade. The Appellant had the burden of proving on the balance of probabilities the details of the prevailing practice. If the Appellant establishes that the return was made on the basis of prevailing practice, the discovery assessment is defeated by virtue of the provisions of section 29(2) of the Taxes Management Act 1970 (TMA 1970).
The Law
6.	Section 29 of the Taxes Management Act 1970 sets out the legal requirements for making a discovery assessment. Essentially an assessment for unpaid tax can be made within six years after the end of the year of assessment to which it relates provided the conditions of section 29 are met. The relevant provisions for this Appeal are as follows:
(1)     If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a [year of assessment]--
(a)     that any [income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax,] have not been assessed, or
(b)     that an assessment to tax is or has become insufficient, or
(c)     that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.
(2)     Where--
(a)     the taxpayer has made and delivered a return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment], and
(b)     the situation mentioned in subsection (1) above is attributable to an error or mistake in the return as to the basis on which his liability ought to have been computed, 
the taxpayer shall not be assessed under that subsection in respect of the [year of assessment] there mentioned if the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made.
(3)     Where the taxpayer has made and delivered a return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment], he shall not be assessed under subsection (1) above--
(a)     in respect of the [year of assessment] mentioned in that subsection; and
(b)     ... in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
(4)     The first condition is that the situation mentioned in subsection (1) above is attributable to fraudulent or negligent conduct on the part of the taxpayer or a person acting on his behalf.
(5)     The second condition is that at the time when an officer of the Board--
(a)     ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment]; or
(b)     informed the taxpayer that he had completed his enquiries into that return,
the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.
(6)     For the purposes of subsection (5) above, information is made available to an officer of the Board if--
(a)     it is contained in the taxpayer's return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment] (the return), or in any accounts, statements or documents accompanying the return;
(b)     it is contained in any claim made as regards the relevant [year of assessment] by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim;
(c)     it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer ...; or
(d)     it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above--
(i)     could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or
(ii)     are notified in writing by the taxpayer to an officer of the Board.
(7)     In subsection (6) above--
(a)     any reference to the taxpayer's return under [section 8 or 8A] of this Act in respect of the relevant [year of assessment] includes--
(i)     a reference to any return of his under that section for either of the two immediately preceding chargeable periods; and
(ii)     where the return is under section 8 and the taxpayer carries on a trade, profession or business in partnership, a reference to [any partnership return with respect to the partnership] for the relevant [year of assessment] or either of those periods; and
(b)     any reference in paragraphs (b) to (d) to the taxpayer includes a reference to a person acting on his behalf.
The Evidence
7.	Nigel Anketell who held the position of Tax Director and estate planning specialist for PriceWaterhouseCoopers (PWC) at its Belfast Office gave evidence for the Appellant. HMRC called Peter Lees, a Grade 6 Technical Adviser, based in Millennium House, Belfast, to give evidence.  
 The circumstances of the Transactions in 2000/01 and 2004/05     
8.	 The Appellant was one of seven partners of a partnership known as Bellevue Properties. The seven partners belonged to the same family. In 1982 they inherited land at Kilmore Road, Lurgan from their father.
9.	On 22 January 2003 HMRC opened an enquiry into the Appellant’s tax return for 2000/01 regarding the gains on a disposal of land. The enquiry comprised an opening letter from HMRC stating that land lettings were not a trade, and a telephone call in response from the Appellant’s representative who said that conacre lettings were peculiar to Northern Ireland and treated as a trade. The representative advised the HMRC officer dealing with the enquiry to contact Mr Kennedy, Tax Inspector in Belfast, who confirmed that the land disposed of was let as conacre which constituted agricultural land and a trade eligible for higher taper relief on the chargeable gain. HMRC on receipt of this information from Mr Kennedy closed the enquiry into the Appellant’s 2000/01 tax return and allowed business taper relief on the chargeable gain.
10.	In August 2004 the partnership disposed of a parcel of land on Kilmore Road which had been previously let to tenants on short terms for the purposes of growing grass for silage. The term of the lettings would normally run from March to November in any one year. The partnership return for tax year 2004/05 stated that its business was conacre lettings. Further the partnership declared that its total proceeds from disposals of chargeable assets in the year 2004/05 were ₤1,850,000.
11.	The Appellant declared in her 2004/05 tax return taxable gains in the sum of ₤39,496 which represented the gain from her share of the proceeds of the land disposed of by the partnership. The Appellant arrived at the sum of ₤39,496 by claiming business asset taper relief on her share of the proceeds. 
12.	The 2004/05 tax returns of the Appellant and the partnership did not include detailed information about the chargeable land disposal, and the computation for the chargeable gain.  
13.	HMRC opened an enquiry into one of the other partner’s tax return for 2004/05. The basis of the enquiry was whether business asset taper relief was allowable on the partnership’s disposal of land on Kilmore Road in August 2004. 
14.	As part of the enquiry into the other partner’s tax return HMRC spoke to Robert Graham & Co, the partnership’s letting agent for the land on Kilmore Road. The agent explained that the land at one stage was a no go area due to the activities of youths from a neighbouring housing estate especially during the Troubles. The land was subsequently let for six months on conacre terms to a tenant for the growing of grass for silage. The tenant was responsible for fertilising and weeding the land. The land was not fenced off or used for the keeping of livestock due to the proximity of the nearby housing estate. HMRC concluded that the tenant was the real farmer of the land not the partnership.
15.	On completion of HMRC’s enquiries in the other partner’s tax return Hill Vellacot, the agent for the partnership, accepted that Bellevue Properties did not occupy the land at Kilmore Road for the purpose of husbandry. Further the agent conceded that in those circumstances the partnership’s letting of the land was not in the nature of a trade, and that business asset taper relief could not be claimed on its disposal. 
16.	 The enquiry into the other partner’s tax return progressed through to the Appeal stage and was listed for hearing before the General Commissioners when the partner withdrew his Appeal.
17.	On 15 September 2009 HMRC opened an enquiry into the Appellant’s tax return for 2004/05 and issued a discovery assessment in the sum of ₤33,362.40. The enquiry letter stated that
“Following an in-depth review of the use of land at Kilmore Road was put prior to its sale in August 2004, I have come to the opinion that the partnership of which you were a partner was not carrying out the trade of farming. In view of this, business asset taper relief will not be due for the whole period from 6 April 1998. You will be entitled to personal asset taper relief up to 5 April 2004 and due to a change in the rules business asset taper relief for the period 6 April 2004 to the date of disposal.
18.	HMRC issued discovery assessments against two other partners in respect of the chargeable gain on the disputed land disposal. Those partners have not appealed against the assessment. HMRC did not assess the three remaining partners as they were outside the jurisdiction.
The Evidence relating to Previous Practice 
19.	The Appellant called Mr Anketell who was an experienced tax professional and a director of PWC in Belfast, which had seven branches in Northern Ireland.  Mr Anketell stated that one third of agricultural property in Northern Ireland was let in conacre, which was universally regarded by the Northern Ireland tax community as a trading activity. In his experience it was extremely rare for HMRC to challenge the trading categorisation of conacre income in self assessment returns. Also retirement relief when it was available had been widely claimed without challenge on capital gains arising from disposals of land let on conacre. 
20.	The Appellant referred to HMRC’s Business Income Manual in particular paragraph BIM 55065 which was last updated 7 October 2003 and stated that
“Land let for grazing or grass keep is normally let under an agreement for a period of less than 365 days – often, in fact, 364 days – with no right of renewal. The agreement is effectively a licence over the land and avoids creating a legal tenancy which might give the grazier security of tenure.
Under such a grazing agreement, the owner normally remains in occupation of the land as occupying it wholly or mainly for the purposes of husbandry. The owner is therefore farming and is chargeable on the grazing rent under Case 1 of Schedule D. Thus for instance, a farmer who ceases to keep his or her own livestock and commences instead to grant short term grazing licences over farm land of which he or she remains the owner or tenant is treated as continuing the same trade of farming”.
21.	The trial bundle contained an article entitled Where are we now with conacre? by Kate Troughton LLB T.E.P published in Farm Weekly dated 10 September 2010. The Appellant relied on the following extract from it which stated
“The old HMRC manual confirmed the position as in Northern Ireland lettings for less than one year are called conacre. It has been agreed for income tax purposes that the Grantor of these licences is deemed to be conducting a business and HMRC will allow business relief where the conditions are fulfilled and agricultural relief is not wholly applicable”.
22.	Ms Troughton in the same article, however,  pointed out that
“As we are all well aware by now the recent Tax Law case relating to the Estate of Mrs Eileen McClean deceased (the infamous “McClean case”) has placed the subject of how conacre land is regarded  for tax purposes in Northern Ireland firmly in the headlines.
To get a clear picture we need to look at the pre-McClean situation. Put simply, land let in conacre was treated for all purposes of taxation as farming. It was accepted that a landlord had to have active involvement, for example, through drainage, cutting hedges, maintaining fences, maintaining water troughs and access routes”.
23.	The bundle also included another article entitled Conacre Lettings and Inheritance Tax posted on the internet by Fitzpatrick & Kearney Limited, a firm of chartered accountants practising in Newry.  Although the article was primarily concerned  with inheritance tax, Fitzpatrick and Kearney expressed its view on the definition of conacre for tax purposes which was
“The definition of conacre for tax purposes has developed over many years and involves a degree of land husbandry. To prove a valid conacre the farmer letting the land should retain responsibility for fertilizing, seeding, hedge cutting, drainage and other areas of land maintenance on the tenants behalf”.
24.	HMRC called Mr Lees who joined the Inland Revenue on 1 July 1985 and has been a Grade 6 Technical Adviser since June 2002 based in Millennium House, Belfast. Mr Lees’ responsibilities included the giving of specialist technical advice to Treasury Officials, Ministers, and HMRC colleagues on the application of income tax law to farming.  Mr Less explained that for historical reasons farming was almost unique in income tax law. All the descriptors for determining trading were set aside for farming and provided the statutory definition of farming was satisfied then farmers were deemed to be trading.  In 2004/05 section 832 of ICTA 1988 defined farmland as land in the UK that is occupied wholly or mainly for the purposes of husbandry and farming is construed accordingly. 
25.	Mr Lees explained the history of conacre which was originally created to allow the landowner to provide a means by which his agricultural labourers could be fed without creating tenant rights. In its original form the landowner designated a small strip of land out of a field that he himself farmed. The landowner ploughed the land and prepared it for planting. The landowner retained ownership of the crop until he was paid in cash or in kind by his labourers at the end of the season. The conacre tenant was given access rights to plant, tend and harvest the crop. In this way the landowner ensured that he kept control over the land.  
26.	In the modern environment conacre lettings, however, were either whole fields or whole farms. Current practice often involved the tenant carrying out all the acts of husbandry required to farm the land. According to Mr Lees, conacre today covered a wide range of situations from an owner selling surplus grass that he has done everything to produce to the other extreme of a non-resident owner who created a tenancy in everything but name. Thus Mr Lees asserted that under conacre it was no longer a truism that occupation of the land resided with the owner. In those circumstances HMRC was required to consider each case involving conacre on its individual facts in order to determine whether the owner of land occupied it wholly or mainly for the purposes of husbandry.  
27.	Mr Lees stated that HMRC’s practice was to treat income received by the owner from conacre lettings as trading income, only if he occupied the land wholly or mainly for the purposes of husbandry.  Mr Lees confirmed that this practice had been longstanding which had not changed and in existence at the time when the 2004/05 returns were made. 
28.	Mr Lees was not surprised with Mr Anketell’s evidence that HMRC rarely queried the status of the income from conacre lettings in self assessment returns because it carried no tax impact in relation to income tax. The trading status of conacre only became an issue when the capital taxes were engaged.
29.	Mr Lees did not consider HMRC guidance at BIM55065 assisted the Appellant. In his view the guidance was not a blanket rule that allowed all land owners who grant grazing licences to be treated as trading. Mr Lees pointed out that the majority of cases involving grazing licences were between two real farmers which explained the use of the word normally in the guidance because the farmer granting the licence would inevitably retain occupation of the land for husbandry purposes.  Finally Mr Lees believed that the guidance directed the reader to the statutory definition of farming with its reference to occupying the land wholly or mainly for the purposes of husbandry.
Reasons
30.	The Appellant accepted that the partnership did not occupy the land at Kilmore Road wholly or mainly for the purposes of husbandry. The circumstances of the conacre letting in relation to Kilmore Road were such that the partnership had no active involvement with the land, and that the tenant was the actual farmer of the letting. Thus the partnership’s letting of the land at Kilmore Road in conacre did not constitute a trade, which meant that the partnership and the Appellant were not entitled to claim business taper relief on the chargeable gain arising from the disposal of the land.
31.	This dispute was, therefore, restricted to whether the disputed assessment dated 15 September 2009 met the legal requirements for discovery under section 29 of TMA 1970.  The Appellant’s error over business taper relief resulted in an under declaration of the chargeable gain in her 2004/05 return, which rendered the self assessment for tax insufficient for that year. HMRC through its enquiries discovered the Appellant’s error and the resulting insufficiency which entitled it to assess the Appellant for the tax due under section 29(1) TMA 1970 provided the requirements of sections 29(2) and (3) were met.
32.	Section 29(3) prevents HMRC from making a discovery assessment unless one of the two conditions specified in sections 29 (4) and (5) is met.  In this Appeal HMRC relied on the condition specified in section 29(5), namely that the Appellant did not make available information before the expiry of the  enquiry window for the 2004/05 return which would have alerted  HMRC to the probability of an insufficiency in the self assessment.  
33.	Sections 29(6) and (7) of TMA 1970 define what is meant by available information. Essentially the Appellant would have had to provide information about the claim for business taper relief in or with her tax returns for 2002/03 to 2004/05 or in or with the partnership returns for those years or in connection with an enquiry into those returns. The information provided by the Appellant in relation to the chargeable gain in her 2000/01 return did not meet the statutory definition of information available. 
34.	The Appellant did not challenge HMRC’s evidence that the condition in section 29(5) was met. In those circumstances HMRC did not rely on the condition in section 29(4) of fraudulent or negligent conduct on the part of the Appellant’s or a person acting on his behalf to justify the discovery assessment.
35.	The Tribunal, therefore, finds that HMRC discovered within the requisite time period an insufficiency in the tax assessed for 2004/05. Further HMRC could not be reasonably expected to have been aware of the insufficiency from the information made available by the Appellant. Thus HMRC was entitled to make a discovery assessment unless the Appellant could demonstrate that her error or mistake regarding business taper relief was made on the basis of practice generally prevailing at the time of the 2004/05 return.
36.	The sole issue in this Appeal is whether the Appellant’s error or mistake in claiming business taper relief on the chargeable gain in respect of the disposal of land at Kilmore Road was made in accordance with the practice generally prevailing at the time of the 2004/05 return. The onus is on the Appellant to prove on the balance of probabilities that the error was made in accordance with prevailing practice. If the Appellant is successful in establishing that the error was so made, HMRC would be precluded from making a discovery assessment by virtue of section 29(2) of TMA 1970. 
37.	The Appellant argued that her claim in the 2004/05 return for business taper relief was consistent with the prevailing practice at the time it was made which treated all disposals of land in conacre as a trade for tax purposes.  Further HMRC had since 2004/05 changed its view on the correct tax treatment of lettings in conacre which was evidenced by the subsequent issue of the discovery assessment against the Appellant.  
38.	The Appellant’s evidence in support of  her argument comprised the following:
(1)	Mr Anketell’s testimony which demonstrated the widely held view by the tax profession in Northern Ireland that the letting of land in conacre constituted trading activity.
(2)	The note of HMRC’s telephone conversation dated 10 April 2003 dealing with the enquiry into the Appellant’s 2000/01 tax return. The note revealed that HMRC Officer Kennedy based in Belfast confirmed that the letting of agricultural land was conacre, which was a business or trade and eligible for business taper relief.
(3)	The wording of  BIM 55065 which suggested that under land let for grazing for a period of less than 365 days the owner normally remained in occupation of the land as occupying it wholly or mainly for the purposes of husbandry. In this Appeal the partnership’s letting in conacre equated with a grazing agreement for less than 365 days. 
(4)	A note of a telephone call dated 27 November 2009 between Mr Tait, the assessing officer, and the Appellant, in which the following was recorded:
“The Appellant said she was keen to use Freedom of Information to obtain the date when HMRC stopped treating conacre as a trade. Mr Tait explained that as far as he was aware there was no such date. They discussed the history of conacre and Mr Tait said that it is now the case that there was a wide range of circumstances surrounding the use of the land  and who is actually occupying the land and carrying out the acts of husbandry. In view of this each case has to be treated on its own merits”.
The Appellant relied on Mr Tait’s use of now the case which implied that HMRC’s practice of treating each case on its own merits was a recent development.
39.	The Special Commissioners in Peter John Rafferty v HMRC [2005] STC (SCD) 484 at paragraph 114 considered the meaning of the wording of section 29(2) in particular, the return was in fact made on the basis or in accordance with the practice generally prevailing at the time:
“We construe section 29(2) as a protection to the taxpayer from an assessment where the Revenue have changed their mind on a doubtful point in a sense adverse to the taxpayer.  It would in our judgment go too far to construe it, as Mr Goldberg urged us to do, as a bar on the Revenue from raising a discovery assessment in particular circumstances where they had not publicly adopted a practice.  We agree that a practice generally prevailing has to be a practice, or agreement, or acceptance over a long period whereby the Revenue agreed or accepted a certain treatment of sums in particular circumstances.  In the circumstances of this case, for there to have been such a practice, the Revenue would have had to have agreed or accepted that a consideration such as that received by the appellant from Fortuna was to be treated for tax purposes as having been capital and not income.  There was no evidence of such a practice”.  
40.	Henderson J in HMRC Commissioners v Household Estate Agents Limited [2007] 78 TC 705 at 732 and 733 confirmed that the Appellant had the burden of proving the constituent elements of section 29(2), and elaborated further upon the construction of the practice generally prevailing at the time:
“Without attempting to give an exhaustive definition, it seems to me that a practice may be so described only if it is relatively long-established, readily ascertainable by interested parties and accepted by HMRC and taxpayers’ advisers alike”.
41.	The Appellant’s submission focussed on the nature of the prevailing practice at the time of making the 2004/05 return without having regard to the nature of the error. In the Tribunal’s view the correct construction of section 29(2) required an analysis of the prevailing practice in the context of the error made by the Appellant. In short the prevailing practice must justify the particular error committed by the Appellant. The facts of this case showed that Appellant claimed business taper relief in respect of the chargeable gain on a disposal of land by the partnership which did not occupy the land wholly or mainly for the purposes of husbandry. Thus the Appellant’s error was that she claimed business taper relief on the basis that   the partnership’s letting of the land in conacre was a trading activity despite the fact that the tenant farmed the land not the partnership.
42.	On the Tribunal’s construction of section 29(2) TMA 1970 the Appellant has to establish that the prevailing practice at the relevant  time  treated lettings in conacre where the owner did not farm the land as trading activities. In this respect Mr Anketell’s evidence did not assist the Appellant because it covered the general position of lettings in conacre rather than addressing the specific circumstances of the Appellant’s case. The parties did not ask Mr Anketell whether he considered the partnership’s letting of the land at Kilmore Road fell within his definition of conacre. 
43.	The views of Ms Troughton and Fitzpatrick & Kearney undermined the Appellant’s position. They stated that lettings in conacre would be treated as trading activities for tax purposes provided the owner took an active involvement in the farming of the land. Their evidence was also significant as it seemed to represent the views of the tax professionals in Northern Ireland and that their interpretation of the tax treatment of conacre lettings appeared to be of longstanding.
44.	The Tribunal finds that Mr Lees’ evidence was an accurate statement of HMRC’s position regarding conacre lettings. Mr Lees confirmed that HMRC would only treat lettings in conacre as trading when the owner of the land occupied it wholly or mainly for the purposes of husbandry. This practice had been longstanding within HMRC and necessitated the examination of conacre lettings on an individual basis particularly when capital taxes were involved. 
45.	The Tribunal accepts that the enquiry of the Appellant’s 2000/01 return did not conform to the standards expected by Mr Lees. The Tribunal, however, considers HMRC’s mistake in respect of the 2000/01 return did not support the Appellant’s contention of the existence of a prevailing practice whereby HMRC treated all owners of conacre lettings as being engaged in a trade. The reality was that HMRC did not make a sufficient enquiry into the circumstances of the Appellant’s 2000/01 land disposal which resulted in HMRC erroneously accepting the Appellant’s computation of the chargeable gain. 
46.	The Appellant portrayed Mr Kennedy as HMRC’s expert on farming in Northern Ireland. Mr Kennedy was the Officer at Belfast who said that higher taper relief was due on the chargeable gain in 2000/01. The Tribunal is satisfied that Mr Kennedy had no involvement with the formulation of HMRC’s policy on farming and conacre lettings. Further the record of Mr Kennedy’s conversation showed that he had no dealings with the partnership, and that his response about higher taper relief was based solely on information displayed on the computer screen. The Tribunal finds that the actions of Mr Kennedy did not compromise Mr Lees’ evidence on HMRC’s policy on the tax treatment of  conacre lettings. 
47.	 The Tribunal agrees with Mr Lees’ construction of BIM 55065 which emphasised that the owner of the short term grazing would only be trading if he remained in occupation of the land as wholly or mainly for the purposes of husbandry. The structure of BIM 55065 was such that the charging of grazing income under Case I of Schedule D was dependent upon the owner remaining in occupation of the land for farming. The extract of BIM 55065 in the bundle relied was last updated 7 October 2003 which confirmed that this was the policy applied by HMRC at the time of the 2004/05 return.  The wording of BIM 55065 gave no support to the Appellant’s proposition of a prevailing practice in 2004/05 which treated all short term grazing lets regardless of individual circumstances as a trade. 
48.	The Tribunal did not agree with the Appellant’s interpretation of   Mr Tait’s use of the word now in the note of his telephone call dated 27 November 2009. In the Tribunal’s view Mr Tait was applying the word now to describe the wide range of circumstances surrounding the use of land in conacre. The word now was not  being used to signify a recent change in HMRC’s treatment of those lettings for tax purposes. 
49.	The authorities indicated that the defence of prevailing practice comes into play when there is uncertainty about the correct tax treatment of a particular transaction, which gives protection to the tax payer. The evidence demonstrated that HMRC and taxpayers’ advisers alike held a longstanding consensus about the categorisation of conacre lettings for tax purposes. Essentially the owner must remain in occupation of the letting for farming in order for the letting to be treated as a trade or part of a trade. In the Appellant’s case, the partnership’s letting of land on Kilmore Road was not a  valid conacre. The Appellant’s error in claiming business taper relief on the chargeable gain in 2004/05 return was made on the basis of her misunderstanding of the correct tax treatment of conacre lettings not on any prevailing practice. In short there was no persuasive evidence of the existence of a prevailing practice which permitted an owner of land let in conacre to treat his activities as a trade regardless of whether he remained in occupation of the land for farming. 
Decision
50.	The Tribunal holds that the Appellant has failed to demonstrate on the balance of probabilities that the insufficiency of the tax assessed in the 2004/05 return was attributable to an error or mistake made on the basis of prevailing practice in existence at the time of the 2004/05 return. The Tribunal is satisfied that the assessment issued on 15 September 2009 complied with the provisions of section 29 of TMA 1970. The Tribunal, therefore, dismisses the Appeal.       
51.	 The Appellant suggested that the Tribunal may not be able to comply with the orders sought by HMRC following dismissal of the Appeal. The Appellant, however, did not dispute the quantum of the assessment. In those circumstances the Tribunal confirms the assessment issued on 15 September 2009 in the sum of ₤47,766.32 of which ₤33,362.40 was attributable to the error concerning business taper relief.
52.	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.

MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 16 February 2011