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	United Kingdom Special Commissioners of Income Tax Decisions
You are here: BAILII >> Databases >> United Kingdom Special Commissioners of Income Tax Decisions >> Gaughan v Revenue & Customs [2006] UKSPC SPC00575 (11 December 2006) URL: http://www.bailii.org/uk/cases/UKSPC/2006/SPC00575.html Cite as: [2006] UKSPC SPC575, [2006] UKSPC SPC00575

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SPC00575

INCOME TAX - self-employed trader – computation of profits for the year ending on 5 April 2003 –whether income understated and expenditure overstated on return –yes - appeal in respect of this tax year dismissed - TA 1988 S74(1)(a)

TIME LIMITS – whether for the two years ending on 5 April 2001 and 5 April 2002 income which ought to have been assessed to income tax had not been assessed as a result of negligent conduct on the part of the taxpayer or the person acting on his behalf –no – appeals in respect of these tax years allowed - TMA 1970 s 29(1) and (4)

THE SPECIAL COMMISSIONERS

ANTHONY MICHAEL GAUGHAN

Appellant

and –

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS

Respondents

SPECIAL COMMISSIONER: DR A N BRICE

Sitting in London on 14 November 2006

Mr H Naraine, of Messrs H Naraine & Co, Chartered Certified Accountants, for the Appellant

Mr Barry Williams, of the Appeal Unit, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

The appeal

1. Mr Anthony Michael Gaughan (the Appellant) appeals against:

(1) a closure notice dated 16 June 2005 given by the Commissioners for Her Majesty's Revenue and Customs (the Revenue) which made amendments to the Appellant's tax return for the year ending on 5 April 2003; the amendment resulted in an increase of tax due of £8,020.57;

(2) a notice of assessment dated 15 June 2005 in respect of the tax year ending on 5 April 2001 and charging tax of £7,041.42; and

(3) a notice of assessment dated 15 June 2005 in respect of the tax year ending on 5 April 2002 and charging tax of £7,794.98.

2. The closure notice was given under the provisions of section 28A of the Taxes Management Act 1970 (the 1970 Act) because the Revenue were of the view that the Appellant had under-stated the amount of his income and had overstated the amount of his expenditure in his return for the year ending on 5 April 2003. The Revenue accepted that the notices of assessment relating to the tax years ending on 5 April 2001 and 5 April 2002 were given outside the usual time limits but argued that a loss of tax had been discovered attributable to negligent conduct on the part of the Appellant or a person acting on his behalf within the meaning of section 29(4) of the 1970 Act.

The legislation

3. The legislation about the deductibility of expenditure is contained in section 74 of the Income and Corporation Taxes Act 1988 (the 1988 Act) the relevant parts of which provide:

"74 General rules as to deductions not allowable

(1) Subject to the provisions of the Tax Acts, in computing the amount of the profits or gains to be charged under Case I or Case II of Schedule D, no sum shall be deducted in respect of –

(a) any disbursement or expenses, not being money wholly and exclusively laid out or expended for the purposes of the trade, profession or vocation …"

4. The legislation about time limits is contained in section 29 of the 1970 Act the relevant parts of which provide:

"29 Assessment where loss of tax discovered

(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 … 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 … may, subject to subsections (2) and (3) below, make an assessment in the amount … which ought in his … opinion to be charged in order to make good to the Crown the loss of tax. …

(3) Where the taxpayer has made and delivered a return … in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above … 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. "

The issues

5. Thus the issues for determination in the appeal were:

(1) whether, in respect of the year ending on 5 April 2003, in computing the amount of the profits of the Appellant to be charged under Case I of Schedule D income had been omitted or expenditure had been deducted which was not money wholly and exclusively laid out or expended for the purposes of the trade within the meaning of section 74(1)(a) of the 1988 Act; and

(2) whether, in respect of the years ending on 5 April 2001 and 5 April 2002, income which ought to have been assessed to income tax had not been assessed as a result of negligent conduct on the part of the taxpayer or a person acting on his behalf within the meaning of section 29(1) and (4) of the 1970 Act.

The evidence

6. A bundle of documents was produced by the parties. Oral evidence was given by the Appellant on his own behalf. Oral evidence was given on behalf of the Revenue by Mrs Catherine Jane Pankhurst, HM Inspector of Taxes. Mrs Pankhurst exhibited a number of exhibits marked A, B, C, D, E and F.

The facts

7. From the evidence before me I find the following facts.

The Appellant and his adviser

8. The Appellant is a self-employed plasterer and Messrs H Naraine & Co, Chartered Certified Accountants, acted as his representatives at all material times.

The returns for the years ending on 5 April 2001 and 2002

9. On 27 June 2001 Messrs H Naraine & Co sent to the Revenue a completed tax return for the year ending on 5 April 2001. Sent with the return were: an income and expenditure account; a summary of fifteen tax payment vouchers under the construction industry scheme; copies of the fifteen vouchers; and computations of income tax, capital allowances and national insurance contributions. The documents were received by the Revenue on 28 June 2001.
10. Tax payment vouchers under the construction industry scheme are given by contractors to sub-contractors. Each voucher is in respect of a stated month and shows the amount of the payment gross. From this is deducted the amount paid for materials by the sub-contractor leaving an amount liable to deduction of tax. The voucher also shows the tax deducted. The fifteen tax payment vouchers under the construction industry scheme sent to the Revenue on 27 June 2001 related to the months ending on 5 May, June, July, August, September, October, November (two certificates) and December (two certificates) 2000 and January, February, March and April (two certificates) 2001. None of the vouchers showed any amount deducted as paid for materials.
11. In the income and expenditure account sent to the Revenue on 27 June 2001 total income was shown as £22,702 which was the total of the gross payments in the fifteen tax vouchers under the construction industry scheme. Total expenditure was shown as £9,693 of which £2,710 was claimed for materials. The amount for materials was calculated by taking 10% of turnover and making an adjustment. Net profit was thus shown as £13,009.
12. On 3 July 2002 Messrs H Naraine & Co sent similar documents to the Revenue for the year ending on 5 April 2002. The documents were received by the Revenue on 26 July 2002. There were thirteen tax payment vouchers under the construction industry scheme for the months ending on 5 May, June, July, August, September, October (two certificates) November and December 2001 and January, February, March and April 2002. None of the vouchers showed any amount deducted as paid for materials. In the income and expenditure account, total income was shown as £31,948 and total expenditure as £13,437 leaving net profit for the year of £18,511. Of total expenditure, £3,255 was claimed for materials; this was estimated at 10% of turnover with an adjustment.

The return for the year ending on 5 April 2003

13. On 6 April 2003 the Revenue sent the Appellant a notice under the provisions of section 8 of the 1970 Act requiring him to deliver a return for the year ending on 5 April 2003. On 8 October 2003 Messrs H Naraine & Co sent to the Revenue the completed return together with an income and expenditure account; seven tax payment vouchers under the construction industry scheme; and computations of income tax, capital allowances and national insurance contributions. All the documents related to the year ending on 5 April 2003.
14. The return showed no income from employment but did show income from self-employment. The income and expenditure account showed as income work done amounting to £34,496 as evidenced by the seven tax payment vouchers under the construction industry scheme. The income and expenditure account also showed deductions of £16,587, which included £5,174 for materials. The expenditure on materials was estimated as 15% of income with an addition. Net profit for the year was shown as £17,909.
15. The seven tax payment vouchers under the construction industry scheme were issued by different limited companies and covered payments within the months to 5 May 2002 (£4,344); 5 September 2002 (£5,200); 5 March 2003 (£2,963); and 5 April 2003 (four certificates) (£2,862; £10,334; £3,065; and £5,728). Each voucher provided a space for the deduction of any amount for the cost of materials purchased by the sub-contractor but none of the vouchers showed that any such deduction had been made.

2004 - The notice of intention to enquire

16. On 22 September 2004 the Revenue issued a notice to the Appellant under the provisions of section 9A of the 1970 Act of their intention to enquire into the return for the year ending on 5 April 2003. On the same day they wrote to Messrs H Naraine & Co asking if they would send a copy of the accounts for the year ending on 5 April 2003; business books and records including bank statements, cheque stubs, paying in books, invoices and vouchers; and details of any estimates used in the return.
17. The documents requested by the Revenue in their letter of 22 September 2004 were not supplied and on 5 November 2004 the Revenue issued a notice under section 19A of the 1970 Act to the Appellant requiring the Appellant to produce the documents and stating that if he did not comply he might be liable to a penalty. An initial penalty for failure to comply with this notice was imposed on 28 February 2005 and further daily penalties were imposed on 15 April 2005.

2005 - The closure notice

18. No further documents were supplied and, in the light of the information available to them on 16 June 2005, the Revenue concluded that the Appellant had income other than that shown in the income and expenditure account (which was derived only from the tax vouchers under the construction industry scheme). The declared turnover for the year ending on 5 April 2003 was £34,496 and, as there were seven tax vouchers, this amount was assumed to be for seven months work at £4,928 each month. That meant that over a year the Appellant would have earned £59,136. It was assumed that the difference between the amount returned and the amount the Appellant would have earned all came from private work. The reason for this assumption was because expenditure on materials had been claimed as a deduction and, if there had been expenditure on materials under the construction industry scheme, it would have been noted on the tax vouchers. On the basis that income did amount to £59,136, the amount of the expenditure claimed (£16,587) appeared reasonable and was not reduced save for a small amount (£1,233) relating to motor travel.
19. The enquiry was closed on 16 June 2005 when a closure notice was sent to the Appellant which made amendments to the Appellant's tax return for the year ending on 5 April 2003 resulting in an increase of tax due of £8,020.57.

2005 - The assessments

20. On 15 June 2005 assessments were made charging tax of £7,041.42 in respect of the tax year ending on 5 April 2001 and charging tax of £7,794.98 in respect of the tax year ending on 5 April 2002. The amounts of the assessments were arrived at by treating the amount of income returned for each of those two years as the income for seven months only; by identifying from that a monthly income; and then multiplying that by twelve to give an annual income.

2005 - The appeal and the working schedules with expenses receipts

21. On 4 July 2005 the Appellant appealed against the closure notice and the two assessments giving as his grounds of appeal that the amendments sent with the closure notice did not take account of the information in a working schedule which would be sent to the Revenue; that the accounts were correct; and that the amendments were estimated and unjustified. With the appeals were sent working schedules for the three years ending on 5 April 2003 and some receipts for expenditure.
22. The working schedules indicated that the amounts for expenditure had been estimated. The receipts for expenditure totalled £7,448. Most of the receipts related to the year ending on 5 April 2003. Two related to plastering but most (amounting to £6,069) related to purchases from a firm specialising in bathroom suites and plumbing. There was also an invoice dated 14 November 2002 for the purchase of two magnetic vehicle signs with the words "A Gaughan Building" followed by a telephone number. There was also an invoice addressed to the Appellant for the printing of letterheads, invoices and business cards. The highest spending on materials appeared to have occurred in October and December 2002 when no income at all had been returned as none of the seven tax vouchers under the construction industry scheme (as sent on 8 October 2003) related to those months. Some of the invoices indicated that expenditure had been paid using a Visa card but no Visa card statements were produced.

2006 - The interview

23. On 11 January 2006 the Appellant and Mr Naraine attended an interview with the Revenue. During the interview the Appellant said that he was a plasterer and he only carried out plastering work. All his jobs were residential, namely in private houses or flats. When he was a subcontractor he usually supplied the materials and the price quoted for the job was labour only. The Revenue said that they had examined the invoices which had been supplied from which it appeared that several thousand pounds had been spent on plumbing items, including four boilers and three bathroom suites. The Appellant said that he had started to branch out into plumbing work but that it had not been successful. He was asked if this work was private work and replied that it had been for a contractor but he could not remember which one. The Appellant also said that he kept a note of monies owed to him by contractors in a book which, however, was not produced. He said all payments made to him were made by cheque and that he had only one bank account and it was with the Allied Irish Bank. His mortgage payments were made out of that account. All expenses were paid by cash which was drawn out of the bank account. The Appellant did not say that he had been off work in the year ending on 5 April 2003.
24. During the interview Mr Naraine said that the expenses claimed had all been estimated based on discussions he had had with the Appellant but no record of such discussions was produced. Mr Naraine also said that he had not asked for, nor analysed, the Appellant's bank statements.
25. At the end of the interview it was agreed that the Appellant would attempt to locate all his prime records for the year ending on 5 April 2003, including the bank statements, credit card statements, purchase invoices and sales invoices. Notes of the interview were made by the Revenue. Copies of the notes were sent to the Appellant and Mr Naraine and comments were invited. Neither the Appellant nor Mr Naraine commented on the notes.

2006 - The preliminary hearing and the bank statements

26. On 15 September 2005 a Special Commissioner had issued standard directions. The Appellant failed to comply with these directions and a preliminary hearing was held on 24 February 2006.
27. Immediately prior to the hearing on 24 February 2006 the Appellant submitted some bank statements relating to an account with the Allied Irish Bank for the tax year ending on 5 April 2003. The statements were not accompanied by cheque stubs or paying-in books. The Revenue examined the bank statements and found that not all the payments made to the Appellant under the construction industry scheme were credited to this account and they also found that some sums were credited to the account which did not match the construction industry scheme tax vouchers
28. The Revenue's examination of the bank statements also revealed that between 10 April 2002 and 2 September 2002 no cash at all was withdrawn from the account and that only £4,313.57 was withdrawn as cash during the rest of the year. Also, no mortgage payments were made out of this account; The Revenue wrote to the Appellant on 6 March 2006 asking for further information and saying that they could only assume either that there was another bank account or that the Appellant was receiving cash payments which were not banked. No reply to this letter was received.
29. I accept the evidence of Mrs Pankhurst that at no stage were full business records produced. She saw bank statements for only one account; she did not see any complete record of income or expenditure; nor any record of total takings; nor any record of work done; nor any list of the contractors for whom the Appellant had worked (other then the contractors named in the tax vouchers); nor any record of total expenses which could be reconciled with the receipts produced or the estimates which had been made.

The oral evidence of the Appellant

30. In oral evidence the Appellant made a number of statements which were inconsistent with those made at the interview. Although he had said at the interview that all payments were made to him by cheque, he accepted in oral evidence that he did get "a little bit of cash sometimes" from contractors for the purchase of materials. Although he said at the interview that he had a mortgage which he paid from his account, he said in oral evidence that in fact his wife paid the mortgage payments from her separate bank account. Although he said at the interview that he paid for all expenditure in cash he accepted in oral evidence that not enough cash had been taken out of his bank account to meet all the expenditure and he always kept money at home. At the interview the Appellant did not state that he had been off work in the year ending on 5 April 2003. At the hearing the Appellant said that he had missed work and that he had not worked full-time during that year; he had been unemployed. At the interview the Appellant could not remember the name of the contractor for whom he had purchased plumbing supplies although at the hearing he was able to give a name.
31. The Appellant also accepted in evidence that amounts were credited to the bank account which could not be reconciled with the tax vouchers. The Appellant also accepted in oral evidence that that not all the tax vouchers had been paid in to the bank account and stated that he had cashed some at a shop. He also stated at the hearing that he had kept a paper or book which noted the work he had done for which he was owed money but this was not produced at the hearing. He stated that he had never bothered with files or records and had not kept a note of cash spent.
32. Many of the statements made by the Appellant in oral evidence were attempts to explain why the statements made at the interview were inconsistent with the copy bank statements (which were supplied after the interview). Because of the lack of consistency between the Appellant's statements at the interview and the bank statements I did not find the oral evidence of the Appellant to be compelling.

Reasons for Decision - Issue (1) – were the profits correctly computed?

33. The first issue in the appeal is whether, in respect of the year ending on 5 April 2003, in computing the amount of the profits of the Appellant to be charged under Case I of Schedule D income had been omitted or expenditure had been deducted which was not money wholly and exclusively laid out or expended for the purposes of the trade within the meaning of section 74(1)(a) of the 1988 Act.
34. In this issue the burden of proof is on the Appellant to satisfy the Special Commissioners that the closure notice was incorrect. If there is any uncertainty as to where the truth lies, the appeal on this issue must be dismised; Hurley v Taylor (1998) 71 TC 268 at 286F.
35. As far as income was concerned the only income returned was that relating to seven tax vouchers under the construction industry scheme. I accept that those were the only vouchers received by the Appellant. I also accept the evidence of the Appellant that one voucher might cover work done over two months and that sometimes vouchers were issued after payments had been made. However, the fact is that no vouchers at all were issued between May 2002 and March 2003 save for one in September 2002. This is in marked contrast with the tax years ending on 5 April 2001 and 5 April 2002 when certificates had been received each month, with two being received in some months. The lack of tax vouchers for a number of consecutive months raises the question as to what income the Appellant was receiving in those months. It is also relevant that a number of amounts credited to the bank account could not be reconciled with the tax vouchers.
36. As far as expenditure was concerned the amount claimed was £16,587 but receipts had been produced which amounted to a maximum of £7,448. (However, it is also relevant that the amount of expenditure claimed for materials was £5,174 which appeared to be a little less than the amount supported by expenditure receipts.) Although the expenditure claimed included an amount for materials, no amount for materials had been shown on the tax vouchers under the construction industry scheme. All the contractors were limited companies and it was improbable that they would all have completed the vouchers incorrectly. That points to the conclusion that the expenditure on materials was not in respect of work done under the construction industry scheme. Also, the expenditure claimed included substantial sums spent on bathroom and plumbing materials which did not appear to relate to any of the income returned. The Appellant claimed that he paid for all his expenditure in cash but only £4,313.57 had been taken out of the bank account in cash.
37. The Appellant stated at the interview on 11 January 2006 that during the year ending on 5 April 2003 he had started a plumbing business and that it had not been successful. The fact that the Appellant was operating a plumbing business is supported by the fact that very many of the receipts for expenditure were either for bathroom and plumbing materials, or for vehicle signs with the words "A Gaughan Building"; or for letter headings, invoices and business cards. It is also relevant that the highest spending on materials occurred in October and December 2002 when no income at all had been returned from acting as a subcontractor in the construction industry. Although the Appellant claimed that the plumbing work was done for a contractor, and was covered by the tax vouchers, the fact that the purchase of materials was not recorded on any tax vouchers under the construction industry scheme leads to the conclusion that the plumbing work was private work the income from which was not returned. I accept the evidence of the Appellant that he might be given cash by a contractor at the beginning of a project with which to buy materials but in such a case he should not also claim a deduction from his profits for that expenditure. In my view it is reasonable to conclude that some private income was earned by the plumbing business.
38. That conclusion indicates that the Appellant understated his income in his return. The Revenue calculated the understatement by assuming that the amounts in the seven tax vouchers represented payment for seven months and that for the other five months the Appellant earned at the same rate. In my view this was a reasonable assumption. It was also reasonable of the Revenue to conclude that, if income were increased to take account of private work,, then the expenditure claimed was reasonable and should not be reduced. In reaching this view it is relevant that the Appellant's continued failure to provide full records to the Revenue meant that the Revenue had no other information on which to base their figures and on the evidence before me the Appellant had failed to satisfy me that the closure notice is wrong. .
39. The conclusion on the first issue in the appeal is that, in respect of the year ending on 5 April 2003, in computing the amount of the profits of the Appellant to be charged under Case I of Schedule D income had been omitted..

Reasons for Decision - Issue (2) – was there a loss of tax due to negligent conduct?

40. The second issue for determination in the appeal is whether, in respect of the years ending on 5 April 2001 and 5 April 2002, income which ought to have been assessed to income tax had not been assessed as a result of negligent conduct on the part of the taxpayer or a person acting on his behalf within the meaning of section 29(1) and (4) of the 1970 Act.
41. The Revenue accepted that the burden of proof lay with them to show that there had been a loss of tax as a result of negligent conduct. They argued that, as Messrs H Naraine & Co had acted for the Appellant in the two years ending on 5 April 2001 and 5 April 2002 respectively, there was no reason to believe that more care had been taken in drawing up the figures for those two years than had been taken with the figures for the year ending on 5 April 2003. They also argued that the failure of the Appellant to comply with requests for information relating to the year ending on 5 April 2003 was an indication that the Appellant had failed to keep adequate records and had not exercised due care in preparing the returns for the years ending on 5 April 2001 and 5 April 2001. The Revenue went on to say that at the interview they had not been provided with cogent explanations. Further, they relied upon the fact that the Appellant said in evidence that one year was much like another and, if his return understated profits for the year ending on 5 April 2003, then it was likely that the returns for the two previous years had also understated profits.
42. In considering this issue I start with the words of section 29(1) and ask whether the Revenue did "discover that any income which ought to have been assessed to income tax had not been assessed" and, if so, whether this was attributable to negligent conduct.
43. From the authorities cited by the Revenue I have identified the following legal principles. First, that "discovers" means "honestly comes to the conclusion on the information in his possession"; or "has reason to believe"; or "satisfies himself": Earl Beatty v Commissioners of Inland Revenue (1953) 35 TC 30 at 42 Secondly, that very little is required to constitute a case of discovery and that there is a presumption of continuity and that a situation is presumed to continue until there is a change, the onus of proving which is on the taxpayer: Jonas v Bamford (1973) 51 TC 1 at 23F.and 25A. Thirdly, that negligent conduct means "the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a prudent and reasonable man would not do": Blyth v The Company of Proprietors of the Birmingham Waterworks ...1856) 11 EX 781 at 784. Finally, that, even if there are unreliable records which could amount to negligent conduct, the Revenue also have to discharge the burden of showing that there was a loss of tax attributable to the unreliable records and there is an equal possibility that inadequate records could result in a taxpayer paying too much tax rather than too little: Hurley v Taylor (1998) 71 TC 268 at 292B
44. In my view the Revenue have not discharged the burden of proving that there was a loss of tax in the two years ending on 5 April 2001 and 5 April 2002. The first reason for saying this is that, in calculating the understatement of income for the year ending on 5 April 2003, the Revenue relied on the fact that in each of the years ending in 2001 and 2002 tax vouchers under the construction industry scheme had been provided for each calendar month (two for some months). It was the lack of tax vouchers in the year ending in 2003 which led to the conclusion that income had been under-stated in that year but there was no lack of tax vouchers in 2001 and 2002. Thus, in my view, there could be no presumption that the understatement in 2003 also applied to 2001 and 2002.
45. The second reason for concluding that the Revenue has not discharged the burden of proving a loss of tax is that in the year ending in 2003 the Appellant's records were demanded and examined and found to be inadequate. In particular, they revealed the plumbing activity which it was reasonable to assume amounted to an additional source of income. The same comments cannot be made about the years ending in 2001 and 2002. For those years there was no section 8 notice and no notice under section 9A nor 19A. The working schedules supplied at the time of the appeals did relate to the years 2001 and 2002 but the bank statements supplied related only to the year ending in 2003. The expenditure receipts relating to the plumbing activity almost all related only to the year ending in 2003. My attention was not drawn at the hearing to any matters in the working schedules, nor to any matters mentioned at the interview, to support the view that there had been a loss of tax in the years ending in 2001 and 2002.
46. The third reason for concluding that the Revenue has not discharged the burden of proving a loss of tax is that the assessments sought to make good the loss of tax only by reference to income which had been under-stated and not by reference to expenditure which had been over-stated. I accept that the amounts of the expenditure claimed in the years ending in 2001 and 2002 had been estimated but there is an equal possibility that, following Hurley v Taylor, the inadequate records could result in the Appellant paying too much tax rather than too little. However, more importantly, the fact is that the assessments were made to make good under-stated income and under-stated income has not been proved.
47. At the hearing Mr Williams, for the Revenue, accepted that the Revenue did not have the strongest case on this issue and suggested that the two assessments might be reduced to nil. I adopt the suggestion of Mr Williams.

.

Decision

48. My decisions on the issues for determination in the appeal are:

(1) that, in respect of the year ending on 5 April 2003, in computing the amount of the profits of the Appellant to be charged under Case I of Schedule D income had been omitted; and

(2) that, in respect of the years ending on 5 April 2001 and 5 April 2002, the Revenue have not discharged the burden of proving that income which ought to have been assessed to income tax had not been assessed as a result of negligent conduct on the part of the taxpayer or a person acting on his behalf.

49. The appeal against the closure notice is therefore dismissed. The appeals against the two assessments are allowed and each assessment is reduced to nil.

DR A N BRICE

SEPCIAL COMMISSIONER

RELEASE DATE: 12 December 2006

Authorities referred to in argument but not mentioned in Decision:

Baylis v Gregory [1987] STC 297 at 28

Langham v Veltema (2004) 76 TC 259 at 279 [24] and 294 [32] and [33].

SC 3158/2005

50. 12.06