Judgment summary
Mr Mohammed Maasher, a self-employed Arabic translator who also received property income, appealed against a Closure Notice issued on 19 March 2024 under Section 28A(1B) and (2) TMA 1970 in relation to his 2020-2021 Self-Assessment Tax Return (1). HMRC had disallowed a range of business expenses, and the amount in dispute was varied several times, with HMRC ultimately seeking a further revised figure of £14,585.05 (2, 21).
The Tribunal heard evidence from HMRC officer Freja Watkiss, Mr Maasher, his wife Ms Noor Makarem and his daughter Miss Farah Maasher (33). The Tribunal found the appellant and his family witnesses entirely credible (83) and found HMRC's case inconsistent and unclear, noting that later officers reached different conclusions from Ms Watkiss without giving evidence themselves (84).
The Tribunal held the Closure Notice was validly issued under Section 28A(1B) and (2) TMA 1970 (81), but concluded that Mr Maasher had discharged the burden under Section 50(6) TMA 1970 of showing the amounts included were excessive (82). Most disputed expenses, including subcontractor costs paid to his wife and daughter, use of home apportionment, property repair expenses, travel and subsistence costs, and certain capital allowances, were found to be allowable (87-101). Charity donations and a £240 payment to a knee specialist were disallowed as not wholly and exclusively for the purposes of the trade (98, 102-103).
The appeal was allowed in part, with the parties directed to confirm within 28 days whether quantum and the penalty issue had been agreed or whether a further hearing was required (106-107).
Background
Mr Maasher is a self-employed Arabic translator who travels between court, the police station and solicitors' offices, and also receives income from two properties (4). On 31 January 2022 he submitted his tax return for the year ending 5 April 2021, declaring turnover of £84,202, self-employment expenses of £41,663, property income of £14,438, and property expenses of £8,000 (later corrected to £10,700), with total tax and NICs of £8,889.91 (5).
On 15 December 2022 HMRC opened an enquiry under Section 9A TMA 1970 into the turnover, expenses and property income and expenses (6). Through 2023 the appellant's agent provided information correcting the turnover figure to £90,223 and amending expense figures (7-9). HMRC issued a first Pre-Closure Notice on 4 August 2023 and a second on 9 January 2024, each proposing different revised figures (10-12).
On 19 March 2024 HMRC issued the Final Closure Notice, increasing turnover to £90,233.08, decreasing expenses to £15,051.51, and decreasing property income to £8,437.24, producing a liability difference of £12,990.13 (13-14). Following an independent review request, a View of Matter letter on 1 May 2024 reverted to earlier expense figures, and a Review Conclusion Letter on 14 January 2025 varied the amount to £16,058.31 (15-17). Mr Maasher appealed to the Tribunal on 11 February 2025 (18).
Core dispute
The issues were whether the Closure Notice was correct and issued in accordance with the relevant legislation, and whether the amendments made were excessive (19-20). HMRC also sought a further variation of the closure notice figure to £14,585.05 (21).
HMRC bore the burden of showing the closure notice was competent, correct and in accordance with Section 28A TMA 1970, after which the burden fell to Mr Maasher under Section 50(6) TMA 1970 to show the amounts were excessive (22-23).
The principal disputed items were subcontractor payments to Mr Maasher's wife and daughter, use of home expenses, property repair expenses arising from tenant damage, travel and subsistence costs, charity donations, capital allowances on vehicles and a laptop, and a payment described as a knee specialist fee (86, 98, 100-102).
Court findings
The Tribunal found the Closure Notice met the requirements of Section 28A(1B) and (2) TMA 1970, as it informed Mr Maasher the enquiry was complete, set out conclusions, and made the required amendments (81). The burden then fell to Mr Maasher, which the Tribunal found he discharged (82).
The Tribunal found HMRC's case inconsistent, noting that officers who took different views after Ms Watkiss's involvement did not give evidence, and that Ms Watkiss could not speak to the increased figure sought by HMRC (84). The Tribunal also found that evidence submitted by Mr Maasher, in the form of emails whose attachments were blocked, had not been properly considered, which it described as contrary to the overriding objective (85).
The Tribunal accepted the evidence of Mr Maasher, Mrs Makarem and Miss Maasher as credible and reliable (83). It found the subcontractor payments of £12,000 and £6,000 respectively were incurred wholly and exclusively for the purposes of the trade and were allowable, despite the absence of payslips, timesheets or rotas (87-88). It preferred an apportionment of use of home expenses by one third rather than HMRC's one fifth (89).
Property repair expenses relating to damage caused by an evicted tenant were found allowable notwithstanding the absence of formal receipts for some cash payments (90-91). Car-related and travel and subsistence expenses were found allowable, the Tribunal noting inconsistency in HMRC accepting the vehicle was used for business while disallowing associated travel costs, and in allowing accommodation but not related travel (92-97).
Charity donations were disallowed as not wholly and exclusively for the trade, notwithstanding the appellant's fairness argument about reliance on an earlier allowance (98). Capital allowances relating to a new car, a laptop and a balancing allowance on the sale of an old car were found to have been wrongly disallowed given the evidence provided (100-101). A £240 payment described as relating to a knee specialist was found not to be wholly and exclusively for the trade and was disallowed (102-103).
On the penalty, the Tribunal noted it appeared to have been imposed primarily due to expenses being disallowed, most of which the Tribunal found were in fact allowable, and observed that the basis for non-suspension of the penalty was arguably flawed (104-105).
Outcome
The appeal was allowed in part (106). The Tribunal directed that within 28 days the parties must confirm to the Tribunal whether the issues of quantum and the penalty had been agreed or whether a further hearing was required (107).
Major issues / areas of contention
- Whether the Closure Notice issued on 19 March 2024 under Section 28A(1B) and (2) TMA 1970 was validly issued.
- Whether the amendments made to the appellant's self-assessment return in the Closure Notice were excessive.
- Whether HMRC could seek a further revised figure of £14,585.05 when the officer giving evidence could not speak to that figure.
- Whether payments to the appellant's wife and daughter for subcontracted translation and clerical work satisfied the wholly and exclusively test under Section 34 ITTOIA 2005, absent formal payslips, timesheets or rotas.
- The correct apportionment of use of home expenses (one third versus one fifth).
- Whether property repair expenses arising from tenant damage, some paid in cash without formal receipts, were wholly and exclusively for the purposes of the property business.
- Whether travel, subsistence and vehicle-related expenses were wholly and exclusively for the purposes of the trade.
- Whether charity donations could be claimed as a business expense, and whether removing a previously allowed expense on review was procedurally unfair.
- Whether capital allowances on a car, a laptop and a balancing allowance on the sale of an old car had been correctly disallowed.
- Whether a £240 payment relating to a knee specialist was an allowable business expense.
- The basis and validity of a penalty imposed for careless behaviour, given the Tribunal's findings on the underlying expenses.