Mark Campbell v The Commissioners for HMRC

On an appeal from the First-tier Tribunal, the Upper Tribunal may intervene only for an error of principle or where the only reasonable conclusion on the facts was different. It must not re-weigh relevant factors. The badges of trade are indicators, not a checklist, and no single badge is decisive.

For the job-related accommodation exemption, the tribunal must separately consider whether accommodation was provided by reason of employment, whether residence was necessary for proper performance of the duties, and whether the taxpayer intended to occupy the relevant dwelling as their only or main residence. A finding under the ordinary main-residence exemption cannot simply be transferred to the statutory intention condition.

For deliberate failure to notify, HMRC must prove intentional non-compliance. Carelessness or what a taxpayer should have known is insufficient.

Mr Campbell appealed against the First-tier Tribunal’s decision concerning income tax or capital gains tax on profits or gains from four residential-property disposals, and penalties for failure to notify liability to tax. HMRC cross-appealed the FTT’s conclusion that the activities did not amount to a trade.

The Upper Tribunal considered the trading framework, the job-related accommodation exemption in section 222(8) of the Taxation of Chargeable Gains Act 1992, the validity of discovery assessments, and the categorisation and mitigation of penalties. It dismissed the cross-appeal and Mr Campbell’s challenge to the assessments. The remaining issues were set aside and remitted.

1. Trading. The cross-appeal was dismissed. The FTT had considered the decision as a whole, applied the correct framework and made detailed findings. The badges of trade supplied common-sense guidance, but were not a checklist and no badge was decisive: Marson v Morton [1986] STC 463. The Upper Tribunal could intervene only for an error of principle or where trading was the only reasonable conclusion on the primary facts: Eclipse Film Partners No 35 LLP v HMRC [2014] EWCA Civ 95.
2. Job-related accommodation. The FTT had erred in law under section 222(8) of the Taxation of Chargeable Gains Act 1992. The exemption contains separate JRA and intention conditions. “By reason of employment” was not the same as asking whether residence was necessary for performance of the duties. The applicable approach was to ask what enabled the person to enjoy the benefit, without requiring employment to be the sole cause: Wicks v Firth [1982] 1 Ch 355; Charman v HMRC [2021] EWCA Civ 1804. The issue was set aside and remitted to a differently constituted FTT for an oral hearing on all four properties.
3. Discovery assessments. The appeal was dismissed. HMRC bore the burden of establishing both a discovery and the failure to comply with section 7 of the Taxes Management Act 1970. The FTT understood that burden, made the necessary findings and had evidence before it.
4. Penalties. The findings that the failure to notify was deliberate and that HMRC’s mitigation should be upheld were set aside. Applying HMRC v Tooth [2021] UKSC 17, HMRC had to establish intentional non-compliance. References to what Mr Campbell should have known, his lack of records and failure to make enquiries did not satisfy that test. The mitigation issue was also remitted because the FTT gave no reasons for accepting HMRC’s methodology.

• Upper Tribunal (Tax and Chancery Chamber): [2023] UKUT 265 (TCC) dismissed HMRC’s cross-appeal and Mr Campbell’s challenge to the validity of the assessments. It set aside the FTT’s decisions on job-related accommodation, deliberateness and penalty mitigation, and remitted those issues to a differently constituted FTT.
• First-tier Tribunal: decision released on 8 February 2022. It rejected the trading and exemption arguments, upheld the assessments and closure notice, and upheld the penalties.