Anthony Outram & Anor v The Commissioners for HMRC

A finding of a deliberate inaccuracy requires proof that the particular taxpayer knowingly submitted an inaccurate return intending HMRC to rely on it. It is a subjective inquiry. A tribunal must not substitute its own conclusion about the legal or factual position, or the taxpayer’s failure to take reasonable care, for findings about the taxpayer’s actual knowledge and intention.

On a review under the Tribunals, Courts and Enforcement Act 2007 and the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, the First-tier Tribunal may amend its reasons, including by adding reasons, if the statutory gateway and procedural safeguards are met. The review power is not confined to clarifying existing reasons.

Anthony Outram & Anor v The Commissioners for HMRC was an appeal from the First-tier Tribunal’s decision, [2021] UKFTT 126 (TC). The taxpayers had claimed trading losses in their 2005/06 self-assessment returns through arrangements marketed as tax avoidance. They accepted before the First-tier Tribunal that the losses were not available.

The remaining substantive issue was whether the extended 20-year time limit for discovery assessments applied because the loss of tax had been brought about deliberately. The appeal also challenged amendments which the First-tier Tribunal made to its original decision during the permission-to-appeal process.

The central question was whether the First-tier Tribunal had lawfully reviewed its decision and had applied the required subjective test when finding that the taxpayers deliberately submitted returns claiming non-existent losses.

1. Appeal allowed. The Upper Tribunal set aside the First-tier Tribunal’s revised decision for a material error of law and remitted the appeals for a fresh hearing before a differently constituted First-tier Tribunal.

2. The First-tier Tribunal had reviewed, rather than merely corrected, its original decision under Rule 41. Although its communications caused confusion, the revised decision expressly recorded that it had been amended under that rule. The taxpayers had been given the opportunity to make representations on the three substantive amendments relied upon in the appeal.

3. Section 9(4) of the Tribunals, Courts and Enforcement Act 2007 did not restrict the substance of amendments made following a valid review. Subject to Rule 41’s gateway conditions, procedural safeguards and the overriding objective, the First-tier Tribunal could amend its reasons, including by recording additional reasons. The Tribunal declined to follow the contrary approach in JS v Secretary of State for Work and Pensions [2013] UKUT 100 (AAC) and Vital Nut Co Ltd v HMRC [2017] UKUT 192 (TCC). Ground 2 was dismissed.

4. The applicable test for deliberate inaccuracy was subjective. It required a finding that each taxpayer knowingly provided an inaccurate return intending HMRC to rely upon it. The First-tier Tribunal had correctly stated that test, but its reasoning did not lawfully apply it.

5. Its conclusion that the taxpayers knew they were not carrying on a qualifying trade appeared to rely on the tribunal’s own conclusion that there was no trade. It made no sufficient findings about what the taxpayers understood a qualifying trade to be, or what they knew about their own activities. Its later emphasis on their failure to ask questions, read documents or check matters applied an objective reasonable-care analysis instead of determining actual knowledge and intention.

6. The error was material. HMRC’s alternative reliance on blind-eye knowledge could not be determined because it had not been pleaded before the First-tier Tribunal, and the Upper Tribunal could not fairly remake factual findings without having heard the evidence.

• Upper Tribunal (Tax and Chancery Chamber): Allowed the taxpayers’ appeal, set aside the revised First-tier Tribunal decision under section 12(2)(a) of the Tribunals, Courts and Enforcement Act 2007, and remitted the case for a fresh hearing.
• First-tier Tribunal (Tax Chamber): Dismissed the taxpayers’ appeals in the original decision, [2021] UKFTT 126 (TC). It later issued a revised decision after a purported review and again dismissed the appeals.