[2014] UKFTT 8 (TC)
TC03149
Appeal number: TC/2013/01525
Income Tax – claim for
overpayment relief refused by HMRC – was there sufficient evidence to support
the claim – no – appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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BRIAN J MELLING
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Appellant
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- and -
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THE
COMMISSIONERS FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE LADY JUDITH MITTING
MARY AINSWORTH
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Sitting in Manchester 27
November 2013
The Appellant appeared in
person
Mr A J O’Grady, instructed by
the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT
2013
DECISION
The appeal
1.
Mr Brian Melling appeals against the following decisions of the
Commissioners:
(1)
2007-2008. Enquiry closure notice issued under para 7(1) (2)
& (3) of Schedule 1A to the Taxes Management Act 1970. Self assessment of
£33,966.25 originally made to remain undisturbed.
(2)
2008-2009. Enquiry closure notice issued under para 7(1) (2)
& (3) of Schedule 1A to the Taxes Management Act 1970. Self assessment of
£26,255.46 originally made to remain undisturbed.
2.
Mr Melling is a Financial Services Consultant trading as “Brian J
Melling Financial Services”. The appeal arises out of a claim made on 15 July
2011 by Mr Melling’s accountant for overpayment relief for the years 2007-2008
in the sum of £53,901 and 2008-2009 in the sum of £55,137. A claim had also
been made at the same time in respect of 2005-2006 and 2006-2007 but had been
abandoned as out of time. The basis of the claim was that in the relevant
years, Mr Melling had paid commission to his son Aiden Melling but had omitted
to claim relief for the commission payment in his returns. The Commissioners
had refused the claims because insufficient evidence had been provided, in
their mind, to support them.
3.
The issue before the Tribunal is therefore whether Mr Melling is
entitled to the relief now claimed. The onus of proof is on Mr Melling and to
allow his appeal we have to be satisfied, on the balance of probabilities, not only
that the payments had been made to his son but also that relief had not already
been claimed in the relevant accounts and returns.
The hearing
4.
On his way to the hearing, Mr Melling had been involved in what we
understand was a minor low speed accident. He was shaken but after a delayed
start he declined our suggestion that we should delay further whilst he sought
medical advice and expressed his wish to proceed.
5.
Mr Melling’s accountant, Mr Andy Liddle, did not represent Mr Melling at
the hearing. Mr Melling informed us that this was because he could not afford
the fee which Mr Liddle was charging for his attendance. It had been Mr Liddle
who had submitted the claims and during the hearing it became apparent that Mr
Melling did not understand how Mr Liddle had arrived at or calculated the
amounts claimed. With the consent of Mr Melling, Mr O’Grady telephoned Mr
Liddle and a loudspeaker discussion with Mr Liddle took place between Mr
O’Grady, Mr Melling and the Tribunal. Mr Melling also spoke privately to Mr
Liddle, in the sense that the discussion was not on loudspeaker. We refer
below to what he gleaned during the course of the discussions with Mr Liddle.
6.
The Commissioners called no oral evidence and Mr Melling presented his
own case but calling no witnesses. He had already put before the Tribunal in
the form of documentary evidence a set of bank statements and copy cheques. He
had also submitted a folder containing ten letters from people supporting the
basis of Mr Melling’s business relationship with his son.
Mr Melling’s evidence and our findings of fact
7.
Mr Melling told us and we accept that during the years 2004 to 2009, his
son Aiden worked with him in a capacity of “mortgage adviser”. His main task
was to process the mortgage applications that came into the firm. For the
first four weeks, he was classed as an employee and accounted for under PAYE.
Thereafter, and thus during the entirety of the period with which we are
concerned, Aiden was treated as self-employed.
8.
There were two elements to Aiden’s remuneration. First, he was paid £300
per week in cash every Friday. Although there is no supporting evidence to
these payments, we accept Mr Melling’s oral evidence both as to the fact and
the amount of the payments. This was a regular practice which Mr Melling would
clearly remember.
9.
Secondly, Mr Melling told us that he also paid his son 20% of the
commission payments which came into the firm. These would be paid by cheque
but randomly, either immediately after he, Mr Melling, received a commission
payment or, on occasion, if Aiden was short of money, in advance of a
commission payment being received. Of this element of the remuneration, we
have rather more difficulty in accepting Mr Melling’s evidence. We accept and
find as a fact that some such payments were made to Aiden. However, we can
find no corroboration of the amount either from Mr Melling’s oral evidence or
from the documents in front of us. Mr Melling, perhaps not unreasonably, has
no recollection of the actual amounts paid. The bank statements show us nothing
and the cheques give little corroboration. Of the cheques we saw, none fall
into the earlier of the two years (2007-2008). Of the 42 cheques we saw which
fell into 2008-2009 (accounting year ending 31 May 2008), none are payable to
Aiden Melling. Some are payable to “Mrs Melling” or “Mrs S Melling”. We were
told by Mr Melling that this was Aiden’s wife. Some cheques which were payable
to third parties had had manuscript comments added on them such as “Aiden car”
or “Aiden Laburnum Street” or “Aiden Comm”. This evidence is so incomplete,
raising more questions than it answers, that we cannot make any finding as to
the amount actually paid to Aiden as this element of his remuneration.
10.
Mr Melling’s task in proving the amounts which he had paid to Aiden was
made all the harder by the fact that when Aiden left, he left abruptly and took
with him a file in which Mr Melling told us he had stored all the receipts
which Aiden would have signed for each payment received. There is now a most
tragic family rift and the file is irrecoverable and we will never know how
much of the payments would have been documented.
11.
In summary therefore, whilst accepting that Aiden was paid by Mr
Melling, we accept that he received weekly cash payments of £300 and we accept
that he received some further remuneration in the form of a percentage share of
commission but as to the actual amount we can make no finding and we cannot
accept the amount put forward by Mr Melling as representing this element.
Had relief for the commission payments previously been claimed
12.
Mr Melling was really unable to help us on this. He, and we so find,
honestly and genuinely believed that relief had not already been claimed but he
readily accepted that he did not understand his accounts. He had parted company
from the previous accountants who had drawn them up and he had no idea how
certain key entries in those accounts had been calculated or made up. As it
was Mr Liddle who had made the claim, he was asked on what basis he had concluded
that no earlier claim had been made. He told us, and this was not disputed by
Mr Melling, that he had not at this stage seen any accounts but that Mr Melling
had come to him and expressly told him that no relief had previously been
claimed and had asked him to pursue a claim now. The calculation of the claim
which he made had been based on Mr Melling’s assertion that he had paid Aiden
£300 per week plus 20% of turnover. The figures claimed by Mr Liddle were
therefore made up in each of the two years of 20% of the stated turnover plus
£15,600 (i.e. £300 per week).
2007-2009
13.
Mr Melling’s last set of accounts, and the only set before us, were to
31 May 2007. These accounts form the basis of the figures returned by Mr
Melling in his 2007-2008 return. The accounts show commission received in the
year as £183,951 of which 20% amounts to £36,790. Administrative expenses
claimed include an item “Commission payable £37,816”. Mr Melling told us that,
other than to Aiden, he paid very little out by way of commission. A Mr
Ashworth gave him the odd introduction on which Mr Melling would make a payment
to him and a firm Kays Estates provided him with a small amount of business and
they also would have been paid something. Mr Melling accepted that only a very
small amount of commission payments could be attributed to these two sources
and certainly nothing like the £37,816 claimed in the accounts. Mr O’Grady put
it to Mr Liddle that given this the most likely explanation of the commission
entry in the accounts was that it included the commission payable to Aiden. Mr
Liddle agreed. Mr Melling told us that he had never seen his 2007 accounts and
he could add nothing to this suggested explanation.
14.
Given the similarity in the figures – i.e. £37,816 claimed and £36,790
representing 20% of total commission, we find that the strong likelihood is
that the relief paid by Mr Melling to his son in 2007-2008 had already been
claimed in the accounts and thus the return. The balance was almost certainly
accounted for by any commission paid by Mr Melling to Mr Ashworth and Kays.
2008-2009
15.
The calculation for 2008-2009 is not so straightforward as there were no
accounts but Mr O’Grady had prepared an extrapolated analysis which we have
developed. This was not challenged by Mr Melling and we think is probably the
best that can be done in the circumstances.
16.
The accounts for 31 May 2007 show the direct cost of sales as £5,097 in
2007 and £4,781 in 2006. It can therefore be safely assumed that they would
probably be around £5,000 in 2008. The 2008 return had shown the cost of goods
bought for resale and goods used at £42,913 which less the direct costs of
£5,097 leaves £37,816 – i.e. the amount of the commission entry. If the same
analysis is applied to the 2009 return, the cost of goods bought for resale is
stated to be £67,768. If an estimated £5,000 is deducted for direct costs and
the balance, as in 2007, attributed to commission, the figure would be £62,768.
Without the benefit of accounts, again the amount of total commission for the
year ended 31 May 2008 can only be extrapolated from the return. This shows
turnover of £197,685. If this is taken as commission, 20% would be £39,537.
Adding in the weekly allowance payment of £15,600, the result is £55,137 – the
precise sum claimed by Mr Liddle.
17.
Given Mr Melling’s evidence of very little commission having been paid
out other than to Aiden, we believe again that the strong likelihood is that
the £67,768 cost of sales figure has to include any commission paid to Aiden.
Summary
18.
To summarise therefore, we believe that on the evidence available to us,
the overwhelming likelihood is that whatever commission may have been paid to
Aiden it has already been reclaimed as a cost of sale in both of the two years
in question. Without further evidence we cannot say this definitively but given
that the onus of proof is on Mr Melling, he has come nowhere near satisfying us
that the claim has still to be made.
19.
For all these reasons the appeal is dismissed.
20.
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.
JUDGE LADY JUDITH
MITTING
TRIBUNAL JUDGE
RELEASE DATE: 20 December 2013
