Morris & Anor v Revenue & Customs

The statutory time limit for making an assessment under the Taxes Management Act 1970 applies to assessments made by the Revenue, not to a taxpayer’s self-assessment or to a closure notice amending it under section 28A. The closure-notice procedure has its own mechanism for preventing undue delay. In mixed tax and penalty appeals, Article 6 applies to the criminal penalty proceedings but not to the determination of the underlying tax liability. Where the same factual issue determines both sets of appeals, the incidence of the burden of proof may make no practical difference if the tribunal hears and assesses the evidence.

The taxpayers appealed against a preliminary decision of the Special Commissioners on two issues arising from forthcoming appeals concerning their capital gains tax liability for 1997/98 and related penalties. The first issue was whether closure notices served under section 28A of the Taxes Management Act 1970 were subject to the time limit in section 34. The second was whether Article 6 of the ECHR altered the burden of proof in the non-penalty appeals because the penalty appeals were to be heard at the same time. The Special Commissioners answered both questions in the negative.

1. The appeal on the time-limit issue was dismissed. Section 34 of the Taxes Management Act 1970 remained concerned with assessments made by the Revenue. It did not apply to a taxpayer’s self-assessment, and an amendment to that self-assessment by a closure notice could not change its character.

2. The statutory structure supported that conclusion. Sections 9ZA and 28C contained specific time limits for amendments and determinations. Applying section 34 additionally would create inconsistent time limits. Section 36 likewise concerned an assessment made to recover a loss of tax attributable to fraudulent or negligent conduct and could not sensibly apply to a taxpayer’s own self-assessment.

3. Alternatively, even if section 34 could apply to some forms of self-assessment, a closure notice under section 28A did not constitute an assessment within section 34. The statutory language deliberately distinguished an amendment of a return from the making of an assessment. The taxpayer’s ability to apply for a direction requiring the issue of a closure notice provided the appropriate protection against delay.

4. Personal representatives could be treated as the taxpayer for section 28A purposes because they were liable for the deceased taxpayer’s tax. Section 40 merely shortened the period where section 34 applied and did not determine the scope of section 34.

5. The appeal on the burden-of-proof issue was also dismissed. The Revenue bore the burden in the penalty appeals of proving that the returns were incorrect and had been delivered fraudulently or negligently. Article 6 did not apply to the dispute over the tax itself, although it applied to the penalty proceedings. The same factual question—whether the taxpayers were resident in the United Kingdom—would determine all the appeals. Since the taxpayers intended to give evidence, the practical issue was credibility rather than the formal incidence of the burden.

6. The appeals were dismissed, with costs subject to detailed assessment if not agreed. The judge observed that the preliminary determination of the section 34 issue was of doubtful procedural utility, since the issue could have been determined after the full appeals had been heard.

The judgment states that the appeal was from a preliminary decision of the Special Commissioners released on 19 February 2007. The Special Commissioners had answered both issues in the negative. The High Court dismissed the appeal on both issues.