Judgment summary
This appeal concerned discovery assessments raised under section 29 Taxes Management Act 1970 (TMA) for the tax years 2005/06 to 2013/14 and penalty determinations issued under section 7 TMA and Schedule 41 Finance Act 2008 (FA 2008) (para 1). As varied, the assessments amounted to £415,942.10 and the penalties to £214,980.18, a total of £630,922.28 (para 1).
The assessments related to what HMRC described as "unidentified taxable income" and what the Appellant described as "unidentified (or unexplained) lodgements" in his bank accounts (para 3). The Appellant had originally argued that the deposits were explained by loans, but by the time of the hearing his case had shifted to reliance on separate High Court litigation, Miah v Miah [2020] EWHC 3374 (CH) ("Miah HC"), and a subsequent Tomlin Order dated 27 March 2025 settling that litigation (paras 20, 28, 127).
The Tribunal found that the discovery assessments were competently and timeously raised, that Officer Stoddart's figures were fair, that the Appellant's behaviour was deliberate (attracting the 20-year time limit), that neither the Judgment/Order nor the Tomlin Order affected the validity or quantum of the assessments, that litigation costs were not deductible, and that the penalties were lawfully imposed and correctly mitigated. The appeal was dismissed and the assessments and penalties upheld (paras 284-286).
Background
HMRC opened an enquiry into the Appellant's tax affairs on 28 February 2014 after concerns about failure to notify chargeability to tax and substantial unexplained bank deposits (para 71). Except for 2008/09 and 2009/10, no tax returns had been filed for 2000/01 to 2013/14 (para 71). The Appellant owned a property portfolio (acquisition cost over £1.8 million), ran a takeaway and restaurant business, and gambled at a casino (paras 75, 87, 95).
Despite requests, information requested under a Schedule 36 FA 08 Information Notice was largely not provided (paras 74, 76, 90, 194). Estimated assessments totalling £696,155.24 were issued on 24 March 2015 (paras 85-86). Following further correspondence, revised figures were produced, and the Review Conclusion Letter of 14 December 2016 varied the assessments to £415,942.10 and the penalties to £214,980.18 (paras 108, 112).
HMRC's forensic evidence and information from the Bangladesh Tax Authorities cast doubt on the authenticity of loan documents said to explain the deposits (paras 107, 113). Separately, four of the Appellant's brothers brought High Court proceedings (Miah HC) claiming beneficial interests in 17 disputed properties; judgment was given on 8 December 2020, finding the Appellant had given largely untruthful evidence and had not accounted for rents to his brothers (paras 20, 23, 210, 229). A Tomlin Order dated 27 March 2025 settled that litigation on negotiated terms, under which the Appellant retained certain properties, transferred others, agreed to pay £50,000 towards costs, and accepted responsibility for HMRC liabilities on the disputed properties before 9 December 2020 (paras 127-132).
Core dispute
The core issues were (1) whether the discovery assessments under section 29 TMA were validly and timeously made; (2) whether the assessments met the fairness test in Johnson v Scott [1978] STC 48; (3) whether, taking into account the Miah HC Judgment, Order and the Tomlin Order, the Appellant had discharged the burden of showing the assessed amounts were excessive, including whether litigation costs of £517,908.17 were deductible; and (4) whether the penalties under section 7 TMA and Schedule 41 FA 08 were lawfully imposed and correctly mitigated (para 164 and Appendix 3).
The Appellant argued that the discovery assessments were arbitrary and not made to "best judgment" (relying on Van Boeckel v C & E Commrs [1981] STC 290 and Pegasus Birds Ltd v Commrs of HM Customs and Excise [2004] EWCA Civ 1015), that most of the unidentified deposits derived from monies belonging to his brothers or from casino winnings, that he had accounted for rents to his brothers, and that litigation costs incurred defending the High Court claim should be deducted as wholly, necessarily and exclusively incurred for the rental business, leaving no assessable income (paras 30, 158-160, 205-209).
HMRC argued that the assessments were properly and reasonably made on the information available, that the Appellant bore the burden of displacing them under section 50(6) TMA, that the Tomlin Order was simply a negotiated settlement between the Appellant and his brothers with no bearing on tax years long past, and that the alleged costs were not deductible in any event (paras 36, 220-221, 238).
Court findings
On the first issue, the Tribunal found HMRC's officers held a reasonable belief in an insufficiency of tax, applying the two-step test in Jerome Anderson v HMRC [2018] UKUT 0159 (TCC) (paras 168-169). The Appellant conceded he had failed to file returns or declare property income, and the Tribunal found his behaviour deliberate, engaging the 20-year time limit under section 36(1)(A) TMA, so the assessments were validly and timeously raised (paras 171-181).
On the second issue, applying Johnson v Scott and noting that section 29 TMA requires HMRC to assess the amount which "ought in [its] opinion" to be charged (not, since 3 May 1994, "best judgment" as such, though the Tribunal treated the VAT "best judgment" cases as informative), the Tribunal found Officer Stoddart's approach restrained and the figures fair given the Appellant's persistent failure to provide information (paras 182-204).
On the third issue, the Tribunal held that the Tomlin Order was merely a negotiated settlement device staying the High Court proceedings and could not rewrite tax history for years of assessment a decade earlier (paras 214-217). It rejected the claim for deduction of litigation costs (£517,908.17, including £65,658.52 of interest), holding such costs were, at best, capital in nature, involved duality of purpose (citing Mallalieu v Drummond [1983] UKHL TC 57 330), and were in any event largely unvouched (paras 219-228). The Tribunal found, on the balance of probability, that the Appellant had received the rental income throughout the assessed periods, relying partly on paragraph 16 of the Tomlin Order (paras 240-246). It rejected the Appellant's arguments concerning loans (adopting the High Court's findings that his evidence on loans was untrue), gambling income, monies said to be introduced by his brothers, and disputed mortgage payments and "workings", finding no credible evidence to displace HMRC's figures (paras 247-272).
On the fourth issue, the Tribunal found the Appellant's behaviour deliberate and prompted, so no reasonable excuse defence was available for the Schedule 41 penalties (which apply only to non-deliberate conduct) and none had been established for the section 7 TMA penalties either (paras 277-280). It agreed there were no special circumstances warranting reduction and upheld the penalty abatements applied by HMRC (paras 281-283).
Outcome
The Tribunal varied the discovery assessments under section 29 TMA for 2005/06 to 2013/14, in terms of section 50(6) TMA, to the amounts set out in Appendix 1, totalling £415,942.10 (para 284). The penalties for the same years, totalling £214,980.18 as recalculated in the Review Conclusion Letter, were upheld (para 285). The appeal was dismissed (para 286).
Major issues / areas of contention
- Whether the discovery assessments issued under section 29 TMA 1970 were validly made and within the applicable statutory time limits (para 165).
- Whether the assessments met the fairness test derived from Johnson v Scott [1978] STC 48, and whether reliance on VAT 'best judgment' cases such as Van Boeckel was appropriate (paras 182-204).
- Whether the High Court judgment in Miah HC and the subsequent Tomlin Order had any bearing on the validity or quantum of the discovery assessments or on the penalties (paras 214-218, 274-275).
- Whether litigation costs incurred in the High Court proceedings, totalling £517,908.17, were deductible against rental income (paras 205-228).
- Whether the Appellant discharged the burden of showing the unidentified bank lodgements were explained by loans, gambling winnings, or monies introduced by his brothers (paras 247-265).
- Whether the Appellant's failure to notify chargeability to tax was careless or deliberate, affecting the applicable time limit under section 36 TMA (paras 172-180).
- Whether the penalties under section 7 TMA and Schedule 41 FA 2008 were lawfully imposed and correctly mitigated, including whether a reasonable excuse or special circumstances applied (paras 276-283).