Reply to: HMRC Consultative Document - marketed tax avoidance schemes

[LandRover]

FTT confirms that transfer of assets abroad code is contrary to EU law

http://www.taxchambers.com/wp-conten...isher-ToAA.pdf

[eazy]

Another FTT case re Discovery Assessments

Smith v HMRC
http://www.taxation.co.uk/taxation/A...covery-too-far

The decision in the First-tier tribunal case of Smith v HMRC appears to have tipped the balance of discovery in HMRC’s favour and may have far reaching consequences for taxpayers achieving certainty on their returns.

[Rob79]

If an scheme operator did not submit sufficient details why did hmrc issued an SRN to them to use if they were not satisfied with the details? Any users of the scheme that mentioned the (questionable) SRN should have been informed about the same when hmrc received their SA.

The honest answer is because they didn't have to supply anything except the basic details. The process of issuing an SRN is automatic and it was probably several months or years before anybody with a tax brain in HMRC actually looked at the scheme.

HMRC is not obliged to say anything to individual users.

Unfair? Probably.
Frustrating? Absolutely.
Illegal? No.

[Manu]

Thanks guys - I too agree with your view that we may not be on a solid ground. However we have to progress with what is there - don't want to give up fighting without trying. Everything else is already blanketed by the new (blinded by politics) legislation.

If an scheme operator did not submit sufficient details why did hmrc issued an SRN to them to use if they were not satisfied with the details? Any users of the scheme that mentioned the (questionable) SRN should have been informed about the same when hmrc received their SA.

I know all the "Why's" are pointless.

Still haven't heard from the big boys. Maybe they are just holding back on answering any queries and busy gearing up to issue APNs. This would get everyone to shut up and focus on collating money to pay up or go bankrupt lose home/lives.

Agreed.

HMRC are using discovery so pervasively, where there's an SRN, that either they feel they're on solid ground or they're chancing their arm. I lean towards the latter.

[DonkeyRhubarb]

I'm not sure that continuing this line is sensible either.

Agreed.

HMRC are using discovery so pervasively, where there's an SRN, that either they feel they're on solid ground or they're chancing their arm. I lean towards the latter.

[Rob79]

As far as I can tell, neither of these cases involved an SRN on the returns.

The second case refers to Charlton and the presence of the SRN as a contributing factor.

I'd make a couple of comments.

1. I agree the SRN is a contributing factor. I disagree that it is the single most important determinative feature and consider rather that there are other elements to "discovery" that will permit the assessment to be made and defended.

2. Do not bet the mortgage on Charlton. This area of law is evolving and I can see Charlton being distinguished on facts.

The whole point of this particular debate at the moment is just to warn people not to rely upon the one argument, to keep looking for new arguments, to keep your advisers focused and most of all, to NOT place any great hopes on assessments being withdrawn or declared invalid. I think HMRC will find a way here.

I'm not sure that continuing this line is sensible either. We can swap cases all day but we clearly have differing views. Happy to take it offline if you wish?

[DonkeyRhubarb]

http://www.financeandtaxtribunals.go...51/TC03981.pdf

In particular para 35.

http://www.financeandtaxtribunals.go...32/TC03958.pdf

As far as I can tell, neither of these cases involved an SRN on the returns.

The second case refers to Charlton and the presence of the SRN as a contributing factor.

[DonkeyRhubarb]

In manu's case I wonder if there is some deficiency in the DOTAS documentation provided by the scheme provider, and this is why HMRC still feel justified in making their discovery assessment?

I doubt it. The use of discovery, where there's an SRN, is widespread across many schemes.

[Rob79]

Totally agree, which is why I mentioned this case in an earlier post in this thread. To be fair the ruling made a point of saying that the presence of the SRN wasn't the only factor in dismissing HMRC's appeal. However, it set an important precedent that when considering 'information made available' within the context of s29(6), the presence of the SRN on the return is sufficient to alert the 'hypothetical officer' to the contents of generic information provided by the scheme provider (in this case the AAG1 - one of the forms required for DOTAS disclosure - which provides detail on the tax thinking behind the scheme).

In manu's case I wonder if there is some deficiency in the DOTAS documentation provided by the scheme provider, and this is why HMRC still feel justified in making their discovery assessment?

http://www.financeandtaxtribunals.go...51/TC03981.pdf

In particular para 35.

http://www.financeandtaxtribunals.go...32/TC03958.pdf

Pretty much all of it.

Discovery is an expanding area of legal doctrine. Whilst what a judge said 5, 10, 20, 50 years ago has a part to play, in areas like this you need to be aware of what is going on today.

These are lower Tribunal hearings. Discovery as a legal concept (s 29 TMA) is something that higher Courts have shown a keen interest in examining and as such these lower Tier decisions may not stand ultimately. For now though the principles reasoned in the second case in particular are quite worrying.

[Boobetty]

I'm not sure the courts see it like that.
Victory for the taxpayers in the Charlton case as the UT confirms that HMRC's discovery assessments were unlawful - RPC Tax Take

Totally agree, which is why I mentioned this case in an earlier post in this thread. To be fair the ruling made a point of saying that the presence of the SRN wasn't the only factor in dismissing HMRC's appeal. However, it set an important precedent that when considering 'information made available' within the context of s29(6), the presence of the SRN on the return is sufficient to alert the 'hypothetical officer' to the contents of generic information provided by the scheme provider (in this case the AAG1 - one of the forms required for DOTAS disclosure - which provides detail on the tax thinking behind the scheme).

In manu's case I wonder if there is some deficiency in the DOTAS documentation provided by the scheme provider, and this is why HMRC still feel justified in making their discovery assessment?

[DonkeyRhubarb]

The presence or absence of information on a return is not particularly relevant to "discovery".

I'm not sure the courts see it like that.
Victory for the taxpayers in the Charlton case as the UT confirms that HMRC's discovery assessments were unlawful - RPC Tax Take

[Rob79]

If you put an SRN on your return surely it weakens HMRC's grounds for using discovery?

The presence or absence of information on a return is not particularly relevant to "discovery".

It's important when we get to questions about default, failure to comply, perhaps even fraud, but not to whether HMRC has "discovered" that the tax treatment of a particular item has occurred.

Discovery is more about "was the tax treatment of a particular item of income/expense correct in the light of information that subsequently comes to light?"

Information in this sense means perhaps details from a third party (loan documents, trust structure, trust deeds), conversations with whistle blowers about differences between how a scheme was documented and how it was operated, all of which was not available when HMRC made their initial analysis and adopted a particular tax treatment.

More worryingly, discovery also includes situations where the HMRC officer who looked at the initial information and made an assessment is subsequently deemed not to be as competent as a "hypothetical" officer who was more aware of the law, the state of decided cases and HMRC policy. There have even been findings of discovery where an HMRC officer was allowed to go on extended leave without properly briefing their replacement. Personally I think this goes too far but equally unfortunately, I'm not the judge hearing the case.

So, will inclusion/exclusion of SRN weaken HMRC? On balance I think not so far as discovery is concerned.

[eek]

If you put an SRN on your return surely it weakens HMRC's grounds for using discovery?

Well they have to try, but surely a court would throw it out....

[DonkeyRhubarb]

If you put an SRN on your return surely it weakens HMRC's grounds for using discovery?

[Rob79]

Hi manu, can you confirm that you disclosed your scheme's SRN (DOTAS reference number) in a prominent place on your tax return? If you did, this certainly undermines validity of the discovery assessment due to the UTT ruling in the charlton/corfield case. It may be worth asking HMRC why they think their DA is still valid in view of this ruling.

The question of the validity of a discovery assessment arising from the timing of issue is certainly worth keeping in mind.

The fact that an SRN was on a return for a year in which a discovery assessment was subsequently raised I suggest will not be a major factor in determining the validity of the discovery assessment.

"Discovery" in the context of a tax assessment does not necessarily mean that something has been "discovered". For example, an SRN can be disclosed but left off the computer record by clerical error. A subsequent correction of that error would count as discovery.

Equally, HMRC could "discover" that their view of a particular scheme was incorrect and that they can change it.

Unfortunately seeking refuge in the fact that something has been declared to HMRC is not going to work.