Momin & Ors v HM Revenue & Customs

Discovery assessments remain valid where HMRC honestly concludes, on information reasonably available, that tax has been lost and honestly assesses the amount due. Some estimation or guesswork is permissible, particularly where the relevant facts are peculiarly within the taxpayer’s knowledge. The assessment is prima facie correct unless the taxpayer shows both that it is wrong and, generally, what correction should be made. The assessment may be invalid where it has no intelligible basis even as an approximation. The weight given to investigation evidence and the calculation of suppressed profits are matters for the fact-finding tribunal, absent an error of law or a conclusion unsupported by the evidence.

The appellants appealed by way of case stated from the General Commissioners concerning discovery assessments on partnership profits from a restaurant for the years 1995/96 to 1999/2000. The Commissioners found that HMRC had made a bona fide discovery of lost tax, that the appellants had suppressed income, and that the original assessments were excessive but remained valid. They substituted lower profit figures. The appeal concerned whether HMRC had honestly assessed the amount of tax lost and whether the revised figures had a proper evidential basis.

1. The appeal was dismissed. Both questions of law stated by the General Commissioners were answered affirmatively.

2. Under section 29 of the Taxes Management Act 1970, the relevant inquiry was not confined to whether HMRC had discovered a loss of tax. HMRC also had to have an honest belief, based on proper grounds, in the amount assessed. The Commissioners had applied that test when their findings were read with the submissions and evidence before them. There was therefore no error of law.

3. The approach in R v Commissioner of Taxes, ex parte Hooper [1915] 7 TC 59 established that HMRC may be mistaken in its discovery, provided that information existed on which it could honestly conclude that tax was chargeable. The approach in Bi-Flex Caribbean Ltd v The Board of Inland Revenue [1990] 63 TC 515 recognised that an assessment may involve guesswork. It remains prima facie correct until the taxpayer shows that it is wrong and, generally, identifies the appropriate correction. The qualification that an assessment made on no intelligible basis may be set aside did not apply.

4. The totality of the material available to HMRC, including observations and test purchases, information about the business, and evidence concerning the appellants’ lifestyle and finances, provided a proper basis for the assessments. The Commissioners were entitled to determine the weight of Ms Beard’s evidence and to accept the revised calculations. Evidence from VAT tribunal decisions concerning different cases did not require its rejection.

5. The appellants had provided no figures for their partnership earnings and had accepted that they were equal partners and that income had been suppressed. The Commissioners were entitled to conclude that HMRC had acted with due care and diligence and had honestly believed in the amount assessed. Their determination of quantum was a factual assessment open to them on the evidence.

• High Court (Chancery Division): The appeal by way of case stated from the General Commissioners was dismissed. Both questions of law were answered affirmatively.