Judgment summary
This is an appeal by Mr Michael Fury against Discovery Assessments issued by HMRC under section 29 of the Taxes Management Act 1970 for the tax years 2015/16 and 2016/17, and against related Penalty Assessments issued under Schedule 24 of the Finance Act 2007 (1).
The Tribunal found that HMRC had made a valid discovery and that Mr Fury's behaviour in failing to disclose bank accounts and EMR commission income was deliberate (77, 78, 89). However, the Tribunal accepted Mr Fury's evidence that he received only 13% commission on the EMR scrap metal income, rather than the full amount, and held that the Assessments and Penalties had been calculated on an incorrect basis (81, 82, 90).
The appeal was allowed in part, with both the Assessments and the Penalties requiring recalculation on the basis of the 13% commission finding (92, 94).
Background
Mr Fury is a Romany Gypsy who never attended school after the age of 7 and cannot read or write (9). He is self-employed, mainly breeding and selling gypsy cobs, a cash trade, and also works as a haulage driver using his own vehicles (9).
In or around 2015, Mr Fury met Shaun, an Irish Gypsy, who suggested the scrap metal trade. As Shaun could not open an account with European Metal Recycling Ltd (EMR), it was orally agreed that Mr Fury would open an EMR account; Shaun would bring metal, Mr Fury would take it to EMR, cash the cheques, and pass the money and paperwork to Shaun less roughly 13% commission (12).
HMRC opened a section 9A enquiry into Mr Fury's 2017/18 self-assessment tax return on 25 September 2019 (14). Through subsequent correspondence and Schedule 36 Information Notices, HMRC discovered that EMR had made 181 cheque payments to Mr Fury totalling £200,175 over three tax years, and that Mr Fury held 8 bank accounts with undeclared bank interest (20-30).
On 25 March 2022, HMRC raised Discovery Assessments for 2015/16 (£19,933.17) and 2016/17 (£31,788.06), later varied on review to £19,787.57 and £31,642.46 respectively (34, 38). On 22 September 2022, HMRC issued Schedule 24 penalties of £11,081.03 and £17,719.77 for 2015/16 and 2016/17 respectively, totalling £28,800.08, based on deliberate but not concealed behaviour, with a 40% reduction for telling, helping and giving (40).
Core dispute
Mr Fury appealed on the ground that he never traded as a scrap dealer but delivered scrap as a haulage driver, paying the monies collected over to the beneficial owner of the scrap, and that only the monies he received in his capacity as haulage driver (his 13% commission) should be assessable on him (2).
The key issues were whether the situation giving rise to the Discovery Assessments was brought about deliberately by Mr Fury under section 29(4) TMA 1970, whether the Schedule 24 FA07 deliberate inaccuracy condition was satisfied, and whether the quantum of the Assessments and Penalties, calculated on the basis that Mr Fury received 100% of the EMR income, was correct.
Mr Fury also made a debarring application against HMRC under Rule 8(3)(c) and (7)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, and argued that the standard of proof for penalties should be the criminal standard of beyond reasonable doubt (68, 67).
Court findings
The Tribunal refused Mr Fury's debarring application, finding HMRC's case had a reasonable prospect of success (69).
The Tribunal found that HMRC's officer made a valid discovery in accordance with the test in Anderson (deceased) v Revenue & Customs [2009] UKFTT 258 (TC), and that the enquiry into the 2017/18 return was opened in time (70, 71).
Applying the test from Commissioners for HMRC v Tooth [2020] UKSC 17, the Tribunal found that Mr Fury's behaviour was deliberate, relying on his failure to disclose all 8 bank accounts to his agents and his failure to disclose the EMR commission income, despite his literacy difficulties not preventing him from doing so (77, 78).
The Tribunal rejected the submission that the criminal standard of proof applied to penalties, holding that the civil standard, balance of probabilities, applies, and that dishonesty is not an essential element of a deliberate inaccuracy, citing CF Booth Limited v HMRC [2022] UKUT 00217 (TCC) and New Claire Wine Limited v HMRC [2026] UKUT 116 (TCC) (67, 88).
However, the Tribunal accepted Mr Fury's oral evidence, finding him an entirely credible witness, that he received only 13% commission on the EMR income rather than the full amount, and that the Assessments and Penalties, calculated on the basis of 100% of the EMR income, were therefore incorrect and required recalculation (78(2), 81, 82, 90).
The Tribunal found HMRC's allowance of an additional 25% of EMR turnover for expenses to be reasonable, albeit arbitrary, in the absence of adequate information from Mr Fury (83).
The Tribunal held that it had no jurisdiction to police the conduct of HMRC's officers where that conduct had no statutory consequences, citing HMRC v Abdul Noor [2013] UKUT 071 (TCC) and Birkett v HMRC [2017] UKUT 89 (91).
Outcome
Mr Fury's appeal against the Assessments and Penalties was allowed in part (92). The appeal against the amount of the Assessments and Penalties succeeded (93).
Both the Discovery Assessments and the Penalties require recalculation on the basis that Mr Fury received only 13% of the EMR income (94). The Tribunal expressed the hope that the parties would agree the recalculation, failing which the issue of quantum could be referred back to the Tribunal for a paper determination (95).
Major issues / areas of contention
- Whether HMRC made a valid discovery under section 29 TMA 1970 in respect of the 2015/16 and 2016/17 tax years
- Whether the situation giving rise to the Discovery Assessments was brought about deliberately by Mr Fury under section 29(4) TMA 1970
- Whether the inaccuracies in Mr Fury's self-assessment returns amounted to a deliberate but not concealed inaccuracy under Schedule 24 Finance Act 2007
- Whether the civil or criminal standard of proof applies to the determination of deliberate behaviour for penalty purposes
- Whether Mr Fury received 100% or only 13% of the EMR scrap metal income, affecting the quantum of the Assessments and Penalties
- Whether HMRC's 25% blanket expenses allowance against EMR turnover was reasonable
- Whether HMRC should be debarred from taking further part in the proceedings
- Whether the Tribunal had jurisdiction to consider alleged misconduct by HMRC officers