Judgment summary
This appeal concerned discovery assessments for capital gains tax and income tax issued to Mr and Mrs Anderson under s 29 Taxes Management Act 1970, together with associated penalty assessments under s 100 TMA and schedule 24 Finance Act 2007 (para 1).
The assessments related to capital gains arising from the sale of four veterinary practices to a company wholly owned by the Appellants, VWJ Limited, and, in Mr Anderson's case, undeclared income from rental properties (paras 8, 18-24).
The Tribunal considered whether the discovery assessments were validly made and in time, whether Mr Anderson had adduced sufficient evidence to displace the income tax assessments, and whether the Appellants' behaviour was careless or deliberate for penalty purposes (para 83). The Tribunal dismissed both appeals and confirmed the assessments and penalties set out in the Appendix (para 101).
Background
Mr and Mrs Anderson, both veterinary surgeons, ran a veterinary practice in partnership from four locations, Bromley North, Orpington, Biggin Hill and Bromley South (para 8). They retired in 2005 and moved to Antigua, leaving day-to-day management to senior veterinary surgeons (para 8).
Between 2010 and 2012 the four practices were sold to VWJ Limited, a company wholly owned by the Appellants, with disposals on 2 March 2010, 21 October 2010, 7 April 2011 and 7 April 2012 (para 8).
Neither Appellant declared any capital gains from these disposals in their self-assessment tax returns for 2009-10 to 2012-13, other than a vague reference in Mr Anderson's 2012-13 return that gains had been received but not finalised (para 9). Mr Anderson also failed to declare income from certain rental properties in most years between 1996-97 and 2014-15 (para 9).
HMRC opened various enquiries between 2013 and 2017, including a Code of Practice 9 investigation from July 2014 after suspecting fraud, which the Appellants declined to resolve through the contractual disclosure facility (para 13). HMRC subsequently identified properties beneficially owned by the Appellants, including a house in multiple occupation, and issued Decision Letters on 3 February 2017 (paras 16-22).
Discovery and penalty assessments were issued on 28 and 29 March 2017 (para 25), and closure notices followed on 21 February 2019 (para 34). The Appellants' appeals to HMRC and subsequently to the Tribunal were made late, but permission to appeal out of time was granted by Judge Sukul on 15 March 2021, having regard to postal and communication difficulties (paras 38-40). Extensive case management followed, including an unsuccessful HMRC application for an unless order, before the substantive appeals were heard on 28-29 July 2026 (paras 41-61).
Core dispute
The dispute concerned three issues: first, whether HMRC had established that the s 29 TMA discovery assessments were valid and made within time; second, whether Mr Anderson had adduced sufficient evidence to displace the income tax assessments on rental property income; and third, whether the Appellants' behaviour in omitting the capital gains, and Mr Anderson's behaviour in omitting rental income, was careless (as the Appellants contended) or deliberate, or in earlier years fraudulent (as HMRC contended), for the purposes of the extended time limits and penalties (para 83).
By the time of the hearing, the Appellants accepted the quantum of the CGT assessments and accepted that their omission from the returns was careless, but they did not accept that it was deliberate (para 54). Mr Anderson also disputed the income tax assessments on rental income but did not give evidence or provide sufficient particulars to support his position (paras 47-48, 94).
Court findings
The Tribunal found that Officer Taylor was a credible and helpful witness, and noted that neither Mr Anderson nor Mrs Anderson chose to give evidence, relying instead on Officer Taylor's evidence and submissions made in an earlier interlocutory hearing (paras 6-7).
The Tribunal held that HMRC had discovered an insufficiency of CGT and income tax and were entitled to issue discovery assessments provided the condition in s 29(4) TMA was met (para 88). Given that the Appellants were partners in a substantial veterinary practice and sold it to a company they wholly owned, the Tribunal found it more likely than not that they knew capital gains would arise and ought to have been declared, and concluded that the omission was deliberate rather than merely careless (para 90).
As to the rental income, the Tribunal found that the properties concerned were near to or connected with the veterinary practices, that Mr Anderson had previously declared rental income and therefore knew such income was chargeable, and that his omission of it was deliberate (para 91). Because the inaccuracies were deliberate, the extended 20-year time limit under s 36(1A) TMA applied, and the discovery assessments were valid and made in time (para 92).
On quantum, the CGT assessment was not disputed (para 93). As Mr Anderson had adduced no evidence to displace the income tax assessment on rental income despite claiming he could demonstrate the accuracy of his figures, the Tribunal held, applying Walsh v HMRC and Nicholson v Morris, that the assessment must stand good (paras 94-95).
On penalties, the Tribunal found that the deliberate omission of capital gains meant the schedule 24 FA 2007 penalties on both Appellants were properly imposed (para 98). It further found that Mr Anderson deliberately failed to declare property income for 2008-09 to 2014-15, attracting schedule 24 penalties, and that his conduct in relation to 1996-97 to 2007-08 amounted to fraudulent filing under s 95 TMA (para 99). In the absence of any challenge to quantum, co-operation or disclosure quality, the level of penalties was accepted as appropriate (para 100).
The Tribunal also confirmed that the assessments and penalty assessments had been properly served under s 115 TMA, having been posted to the Antigua address stated on the self-assessment returns, and noted that HMRC's conduct regarding correspondence was not within its jurisdiction to review (paras 84-86).
Outcome
The Tribunal dismissed the appeals of both Mr Anderson and Mrs Anderson and confirmed the assessments and penalties in the amounts set out in the Appendix (para 101). For Mr Anderson, the total confirmed was £730,630.24, comprising income tax, income tax penalties, CGT and CGT penalties. For Mrs Anderson, the total confirmed was £257,981.16, comprising CGT and CGT penalties. The Tribunal noted that a penalty relating to a 2014-15 capital gain on a disposal of property to Mr Anderson's children had already been discharged following HMRC's withdrawal of the relevant closure notice before the hearing (para 25, 34(2)).
Major issues / areas of contention
- Whether HMRC established that the s 29 TMA discovery assessments were valid and made within the applicable time limits.
- Whether Mr Anderson adduced sufficient evidence to displace the income tax assessments on undeclared rental property income.
- Whether the Appellants' failure to declare capital gains on the sale of the veterinary practices was careless or deliberate for the purposes of s 29(4) and s 36 TMA and schedule 24 FA 2007 penalties.
- Whether Mr Anderson's failure to declare rental income was fraudulent (for 1996-97 to 2007-08) or deliberate (for 2008-09 to 2014-15) for penalty purposes.
- Whether the assessments and penalty assessments were properly served under s 115 TMA given correspondence difficulties between the UK, Antigua and France.