Mohammed v Revenue and Customs (INCOME TAX AND NATIONAL INSURANCE - discovery assessments and related penalties) [2025] UKFTT 331 (TC) (14 March 2025)

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Mohammed v Revenue and Customs (INCOME TAX AND NATIONAL INSURANCE - discovery assessments and related penalties) [2025] UKFTT 331 (TC) (14 March 2025) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09459.html Cite as: [2025] UKFTT 331 (TC)

DECISION

Introduction and summary

1. This was Mr Mohammed's appeal against discovery assessments and penalties for the years 2001-02 to 2015-16. The assessments totalled £1,105,812.54 and the penalties totalled £998,420.22. However, in the period before the hearing, HMRC obtained further information from Mr Mohammed; the parties held settlement discussions and a number of issues were resolved.

2. At the hearing, HMRC asked the Tribunal to reduce the assessments and penalties for all but three of the years to reflect the further information, but to increase the assessments for those three years to take into account a newly disclosed Santander bank account. According to a schedule handed up at the hearing, the assessments would then total £699,353.51 and the penalties £515,522.81, although the latter figure was incorrect [1].

3. In relation to the assessments, the issues remaining in dispute were as follows:

(1) whether they were validly made;

(2) whether the assessment for 2005-06 had been made in time. This issue depended on the effect of Taxes Management Act 1970 ("TMA"), s 36(3), which allows a person who has been issued with a discovery assessment on the basis of his deliberate behaviour, to make late claims to reduce the amount of that assessment;

(3) whether Mr Mohammed ran a fish and chip shop called "the Happy Chip" (sometimes referred to as "the Happy Chippy") in a partnership with his brother, Mr Sajit Mohammed ("Sajit"), such that Sajit was entitled to 90% of the profits;

(4) whether the trading profits assessed on Mr Mohammed as arising from the Happy Chip should be reduced because that business was run as a partnership with Sajit;

(5) whether certain legal costs were deductible from those trading profits. Those costs related to hearings before the Upper Tribunal Lands Chamber ("the UTLC") following a compulsory purchase order ("CPO") issued by Newcastle City Council ("the Council") for 15 Waterloo Street, Newcastle ("15WS"), the property from which the Happy Chip originally operated;

(6) whether rental profits assessed on Mr Mohammed should be reduced on the basis that he was in a joint venture ("JV") with a Mr Simmonds;

(7) the amount by which the capital gains should be reduced to reflect two rollover relief claims; and

(8) whether the assessments should be increased for three of the years to reflect the profits shown in the Santander bank account.

4. In relation to the penalties, the issues were:

(1) as regards those issued under TMA s 95, whether Mr Mohammed's behaviour was fraudulent;

(2) in relation to some of the penalties issued under Finance Act 2007, Sch 24 ("Sch 24") for submitting inaccurate tax returns, whether Mr Mohammed's behaviour was deliberate and concealed, and in relation to the others, whether it was deliberate;

(3) in relation to some of the penalties issued under Finance Act 2009, Sch 55 ("Sch 55") for late filing, whether Mr Mohammed's behaviour was deliberate and concealed, and in relation to the others, whether it was deliberate;

(4) whether the penalties should be further mitigated, in particular to take into account Mr Mohammed's co-operation with HMRC after the appeal had been notified to the Tribunal; and

(5) whether the effect of Mr Mohammed's legal dispute with the Council constituted special circumstances.

5. Having considered the submissions of Mr Hickey, on behalf of Mr Mohammed, and of Mr Marks, on behalf of HMRC, and taking into account that Mr Mohammed's and Sajit's evidence was unreliable in all key respects for the reasons explained at §18ff, we found as follows:

(1) With the exception of that for 2005-06, the assessments met the competency requirements for a discovery at TMA s 29 and the time limit provisions in TMA s 36.

(2) The assessment for 2005-06 was set aside as out of time, see §113ff. It had been reduced by a capital allowances claim made under TMA s 36(3), and in relation to the remaining sum due, HMRC accepted that Mr Mohammed acted carelessly rather than fraudulently. HMRC nevertheless submitted that because the original assessment (before the s 36(3) claim) had been issued on the basis of Mr Mohammed's fraudulent behaviour, the time limit was 20 years. We did not agree.

(3) We accepted that Mr Mohammed and Sajit were in partnership, but found that this was not on a 10:90 basis; instead, Mr Mohammed was entitled to a greater share of the profits than Sajit.

(4) In any event, HMRC's assessments had been made on the basis of the sums in Mr Mohammed's bank accounts, and we found that none of the money in those accounts belonged to Sajit. Thus, the existence of the partnership did not cause any reduction in the profits assessed on Mr Mohammed.

(5) We decided that the legal costs were not wholly and exclusively for the purposes of the Happy Chip business and rejected Mr Hickey's submission that an identifiable proportion of the costs related to that business. Our conclusions are summarised at §244.

(6) Although Mr Mohammed provided a JV agreement to support his case that his property profits were shared with a Mr Simmonds, we found that this agreement was never in force, and that in any event HMRC had based their assessments on the money in Mr Mohammed's bank accounts, and none of that money belonged to Mr Simmonds.

(7) HMRC had correctly calculated the capital gain arising in 2012. The earlier gain had occurred in 2005-06 and HMRC were out of time to assess that year.

(8) We increased the assessments for three of the years under TMA s 50.

6. Turning to the penalties, we found as follows.

(1) In relation to the TMA s 95 assessments, we agreed with HMRC that Mr Mohammed's behaviour was fraudulent.

(2) In relation to some of the Sch 24 penalties, we agreed that Mr Mohammed's behaviour was deliberate and concealed, and that for others, it was deliberate.

(3) In relation to the Sch 55 penalties, we agreed with HMRC that Mr Mohammed had acted deliberately, but found that Mr Mohammed's actions did not satisfy the statutory definition of "deliberate and concealed".

(4) T he mitigation given was correct, and in particular:

(a) the Tribunal had no power to change the mitigation by taking into account how a person behaved after the appeal had been notified to the Tribunal; and

(b) in the alternative, Mr Mohammed's behaviour was in any event not such as to justify any further mitigation.

(5) HMRC's decision that there were no special circumstances was flawed in a judicial review sense, because no reasons had been given for that conclusion, so we had the jurisdiction to consider that issue. However, we went on to find that Mr Mohammed's legal dispute with the Council was not a special circumstance.

7. The Appendix to this decision sets out the final position as the result of this judgment, which is that the assessments total £696,154.39 and the penalties total £517,656.53.

8. This was a complicated case covering fifteen years of assessments, and we were grateful for the assistance of Mr Hickey and Mr Marks. Both provided extensive skeletons, with Mr Hickey's running to 85 pages, and those of Mr Marks totalling 50 pages.

9. In this decision we have referred to the appellant, Mr Thariq Mohammed, as Mr Mohammed. We have referred to his various family members by their first names, because some have the same initials. We have taken that approach for clarity, and mean no disrespect by so doing. All legal provisions are cited only so far as relevant to the issues being considered.

The procedural background

10. On 2 August 2019 Rainer Hughes LLP ("Rainer Hughes"), on behalf of Mr Mohammed, filed and served his list of documents in accordance with the Tribunal's directions. That list contained 749 identified documents. The following further applications to admit evidence were then made:

(1) on 8 November 2019, Mr Mohammed's second list containing 15 documents;

(2) on 25November 2019, Mr Mohammed's third list containing 177 documents;

(3) on 27 August 2020, Mr Mohammed's fourth list containing 83 documents;

(4) on 13 October 2020, Mr Mohammed's fifth list containing 1 document;

(5) on 17 November 2020, Mr Mohammed's sixth list containing 10 documents;

(6) on 22 December 2020, Mr Mohammed's seventh list containing 25 documents;

(7) on 9 June 2021, Mr Mohammed's eighth list containing 19 documents;

(8) on 17 June 2021, Mr Mohammed's ninth list containing 1 documents; and

(9) on 5 January 2022, Mr Mohammed's tenth list containing 1 documents.

11. HMRC did not object to the admission of these extra documents and the Tribunal allowed their admission. On 6 and 9 March 2023, Rainer Hughes filed two additional applications to rely on further documents. HMRC did not object and they were admitted. There is further background about these applications in the interlocutory decision published under reference [2023] UKFTT 375 (TC); that decision also explains why a thirteenth list of documents and a second witness statement from Mr Mohammed were not admitted. One of the key reasons for that refusal was that this evidence was filed and served shortly before the substantive hearing listed for May 2023.

12. Unfortunately that hearing had to be postponed because Mr Marks was unwell, and it was relisted. On 1 June 2023, HMRC applied for permission to file and serve a further witness statement with exhibits from Officer Martin Bland, the HMRC decision maker. Mr Mohammed did not object, and on 6 June 2023, Judge Redston gave permission. At the same time she also gave Mr Mohammed permission to file and serve witness evidence in response to Officer Bland's new evidence. In relation to other evidence, she directed as follows:

"Further evidence will not be admitted after 13 October 2023, unless the Tribunal gives permission. In the light of the length of time which has already elapsed, and the extensive evidence already filed and served by the Appellant, permission will only be given if there were to be an exceptionally good reason why it had not previously been filed and served, and if its late service did not prejudice the other party's preparation for the hearing."

13. On 20 July 2023, Mr Mohammed and Officer Bland subsequently met to try and narrow the issues in dispute ("the Meeting"); in advance of the Meeting, Mr Mohammed provided Officer Bland with some 300 pages of extra documents. Officer Bland filed and served a further witness statement and exhibited the new documents; the witness statement and the new documents were then admitted into evidence by the Tribunal.

14. Mr Mohammed subsequently applied to admit more documents. Judge Redston admitted some of these into evidence, but refused others on the basis that they were either not relevant or there was no good reason why they had been provided so late.

15. The hearing was relisted for four days on a face-to-face basis in January 2024, taking into account the availability of the parties and their representatives. However, that hearing overran, essentially because of the evidential issues explained below, and it was relisted for a further two days by video. For unavoidable reasons, that resumed hearing did not take place until January 2025.

Evidence

16. The Tribunal was provided with both documents and witness evidence.

Documents

17. HMRC supplied a main document bundle and three supplementary bundles: these totalled 7,532 pages. In the course of the hearing, Mr Marks asked for permission to hand up further bank statements; copies of two of Mr Mohammed's tax returns and schedules setting out the position following the Meeting. Mr Hickey did not object, and these documents were admitted into evidence. For his part, Mr Hickey asked for a revised schedule relating to the legal costs to be accepted into evidence; Mr Marks did not object and we also admitted that document.

Mr Mohammed's witness evidence

18. Mr Mohammed provided three witness statements, all of which ended with statements of truth. The first was signed on 7 November 2019; the second on 14 March 2023 and the third on 12 November 2023.

Changes to the first witness statement

19. On the first day of the hearing, Mr Marks said in opening that:

(1) Mr Mohammed's first witness statement said he had taken legal action against the Council because he felt that the compensation paid for 15WS was "but a drop in the ocean next to the money the Council was earning from their land grab" and that he "felt cheated". Mr Marks went on to say that this demonstrated that the legal costs were not "wholly and exclusively" for the purposes of the trade; and

(2) even if Mr Mohammed succeeded on the partnership issue, that would not result in the assessments being reduced. This was because HMRC had calculated the shortfall in Mr Mohammed's income by reviewing the funds in his bank accounts, and that money belonged to Mr Mohammed, not to Sajit.

20. Mr Mohammed was called to give witness evidence on the following day. When asked by Mr Hickey whether he adopted his first witness statement, he said he had brought a different statement to the Tribunal and wanted to replace his first witness statement by this new statement. The Tribunal decided that it was not in the interests of justice to allow Mr Mohammed to replace his first witness statement at this extremely late stage. In coming to that decision, we took into account in particular that:

(1) the original witness statement had been filed and served over four years previously;

(2) Mr Mohammed had subsequently filed and served two supplementary witness statements, and in neither did he correct or change the evidence given in his first witness statement;

(3) Mr Mohammed had also filed and served multiple sets of documentary evidence, but had not amended his first witness statement at the same time;

(4) on 6 June 2023 Judge Redston had directed that new evidence would only be admitted if "there were to be an exceptionally good reason why it had not previously been filed and served, and if its late service did not prejudice the other party's preparation for the hearing". Not only was Mr Mohammed unable to explain why he had not changed his witness evidence earlier, it was plain that introducing a new witness statement when Mr Mohammed was already in the witness box would prejudice HMRC's preparation for the hearing; and

(5) more generally, it was not fair to HMRC to admit a replacement witness statement at this very late stage.

21. We issued that interlocutory decision to the parties orally. Mr Mohammed then said he could not adopt the first witness statement unless he was allowed to make over twenty changes.

22. We decided to adjourn to allow Mr Mohammed to identify the points he wished to change on the face of the first statement, but that as he was in the witness box, we advised him that he was not to consult with his advisers or others. We also told Mr Mohammed that the Tribunal would allow Mr Marks to cross-examine him on the nature and extent of the changes he was proposing to make, and on the reasons for those amendments.

23. Mr Mohammed's main changes to his first witness statement were as follows:

(1) He deleted the references to having taken legal action against the Council because he felt that the compensation paid for 15WS was "but a drop in the ocean next to the money the Council was earning from their land grab" and that he "felt cheated".

(2) He included statements that the bank accounts in his name were "linked" accounts which Sajit had authority to use.

(3) He removed a sentence which read "As for who runs the business, the eldest is seen by the younger siblings as being in charge. Traditionally, the eldest male child".(Mr Mohammed was the eldest in his family).

(4) He inserted statements expanding the role played by Sajit in the Happy Chip business and reducing his own role. For example, the sentence which previously read "I was the one paying the suppliers and all the bills of Happy Chippy" was changed to "I was the one with the chequebook paying the suppliers and all the Happy Chippy delivery invoices which Sajit instructed me to pay".

(5) He added statements to the effect that the dispute with the Council related to loss of profits. For example, the witness statement originally said that the Happy Chip "was heavily involved in the legal fight to gain compensation from the Compulsory Purchase Order (CPO) made against 15 Waterloo Street". That was changed to:

"the Happy Chippy...was heavily involved in the legal case to gain compensation for the loss of profits from 2000-2008 paid gradually over a period of years using the partnership chip shop money selling hot food from the Compulsory Purchase Order (CPO) made against 15 Waterloo Street."

(6) He stated for the first time that Sajit was "the nominated partner dealing with the accounts".

24. Mr Mohammed sought to explain why he was now rejecting significant parts of his own witness evidence, by saying that the statement had been drafted by Mr Webb of Churchill Tax Advisers, which was advising him at the time. Mr Mohammed said Mr Webb had put words into his mouth which were not accurate or true, and that he had he signed the statement, even though he knew it was incorrect in multiple respects, because (a) Officer Bland "was pressuring us"; (b) he "didn't understand what was going on" and (c) he had "just come out of the Lands Tribunal".

25. In cross-examination, Mr Marks put to Mr Mohammed that all the new evidence was "completely unreliable" and that the changes had been made to improve his position; in particular, the first two changes had been triggered by Mr Marks' opening submissions the previous day.

26. Although Mr Mohammed denied that this was the position, we have no hesitation in agreeing with Mr Marks because:

(1) Mr Mohammed had signed the witness statement which ended with a formal statement that he believed the facts within it to be true.

(2) He accepted under cross-examination that he had been present at the time the witness statement had been drafted.

(3) The witness statement contained a great deal of detail, for instance in relation to opening hours and the plan to open a night club. It is not credible that Mr Webb would have had sufficient detailed knowledge of Mr Mohammed's business to manufacture that evidence.

(4) The witness statement also included evidence about the role of siblings in an Asian family and Mr Mohammed accepted that Mr Webb was not from the same ethnic background. We agree with Mr Marks that it is not credible that Mr Webb inserted that evidence into Mr Mohammed's witness statement.

(5) Mr Mohammed has been professionally advised by Rainer Hughes, a well known and experienced firm of solicitors, since at least December 2017, when his Notice of Appeal was filed with the Tribunal. If, as Mr Mohammed now says is the case, he signed a materially incorrect witness statement on 7 November 2019, almost two years later, it is not credible that he would not have mentioned this to Rainer Hughes, or to Mr Hickey, who was instructed by Mr Mohammed on a direct access basis in 2023. Instead, these alleged errors were first mentioned after Mr Mohammed entered the witness box.

(6) One of the reasons Mr Mohammed gave for signing a witness statement which he knew to be incorrect was that he had "just come out of the Lands Tribunal". However, the final UTLC judgment was issued on 20 July 2017, over two years before Mr Mohammed signed the statement.

(7) Another reason given by Mr Mohammed for making these late amendments was that he "didn't understand what was going on". We do not accept that. Mr Mohammed owned multiple properties, had numerous bank accounts, ran a rental business and instructed solicitors, accountants and counsel not only in relation to the UTLC claims and these proceedings, but also in relation to other appeals against the Council's decisions.

(8) Mr Mohammed also said he signed the witness statement because he was "under pressure from Mr Bland". This too is not credible: the assessments and penalties were issued in April and May 2017 and Mr Mohammed's appeals were notified to the Tribunal on 22 June 2018, over a year and five months before he signed this witness statement.

(9) There is no independent third-party evidence of the existence of any "linked accounts" and the first time this was put forward in evidence was in these amendments to his witness statement.

(10) Two of the main areas in which the witness statement was changed reflected points in HMRC's case which Mr Marks had highlighted the previous day. We agree with Mr Marks that by amending the witness statement to remove references to his motivation, and to include references to "linked accounts", Mr Mohammed was seeking belatedly to improve his case.

(11) Mr Mohammed's other amendments related to Sajit's role in the partnership, and to the claim against the Council as being for "loss of profits". We again agree with Mr Marks that in making these changes, Mr Mohammed was seeking to strengthen his case that Sajit was the majority partner in the partnership, and that the legal costs were revenue and not capital.

27. We therefore do not accept the changes made to Mr Mohammed's witness statement and have not relied on them to make any finding of fact. In addition, Mr Mohammed's radical changes to his evidence also affect our assessment of his overall credibility. We find that other passages in his witness statements were also designed (like his later amendments) to put forward a version of events which would help his case, rather than constituting a straightforward account of what had happened and why.

Other evidence

28. Other parts of Mr Mohammed's evidence also lacked credibility. In particular:

(1) In his oral evidence, he said it was only after the UTLC case had come to an end that he became aware that the Council had sold the land on which 15WS had stood for £10,443,776. However, as Mr Marks pointed out, the evidence filed on his behalf at the UTLC included a copy of the Land Registry document which gave that figure, see §213, so Mr Mohammed plainly knew this information before the UTLC hearing.

(2) Mr Mohammed's evidence that he was in a partnership with Mr Simmonds between April 2009 and April 2013 lacked credibility for the reasons explained under Issue Five.

(3) Although the Land Registry recorded a property called Ascot House as being owned by Mr Mohammed and two of his siblings, Mr Mohammed filed a third witness statement stating that it was in his sole beneficial ownership. We rejected that evidence for the reasons explained under Issue Six.

Mr Mohammed's mental health

29. In assessing Mr Mohammed's evidence, we took into account that in his first witness statement (dated 7 November 2019), Mr Mohammed said he was not working because of ill-health which "has been going on for nearly two years" and had "manifested itself in anxiety, extreme stress, and the inability to fully understand day to day activities". The Bundle also included a letter from an NHS mental health practitioner dated 3 July 2019, saying that Mr Mohammed had been "assessed as suffering with depression and anxiety that impacts on his day to day life and his ability to manage his daily living tasks".

30. That evidence was, however, all dated some five years before the hearing of his appeal. Mr Hickey did not submit that Mr Mohammed was unable to give oral evidence during the hearing. We found his oral evidence to be clear, well-referenced to the documents, and showed that he had a good grasp of the issues and the matters of disputed fact. We also took into account that between 2 August 2019 and 6 March 2023, Mr Mohammed had identified and provided numerous extra documents to Rainer Hughes, and subsequently filed two supplementary witness statements and attended the Meeting with Officer Bland at which he was able to refer to and explain a complicated capital allowances report and numerous other documents (see §95). We find that any depression or mental health condition did not prevent Mr Mohammed from giving evidence in the course of the hearing.

Mr Mohammed's evidence overall, and credibility

31. Once Mr Mohammed had set out the changes he wanted to make to his first witness statement, he gave evidence-in-chief led by Mr Hickey, was cross-examined by Mr Marks, answered questions from the Tribunal and was re-examined by Mr Hickey.

32. Mr Marks submitted that Mr Mohammed's evidence on the key issues in dispute was entirely unreliable, and he was not a credible witness. We agree. Where his evidence was challenged, we have not accepted it unless it was supported by independent contemporaneous third-party documents.

Sajit's witness evidence

33. Sajit gave two witness statements and followed Mr Mohammed into the witness box. He gave evidence-in-chief led by Mr Hickey and was cross-examined by Mr Marks. He began his evidence by explaining that he suffers from a number of medical conditions, including "brain fog"; that he tends to forget things and has mild dyslexia. That evidence was unchallenged and we accepted it.

34. In his first witness statement, which was signed on 7 November 2019, he made no mention of "linked" bank accounts, but when he entered the witness box he gave oral evidence that he and Mr Mohammed "always had joint and linked accounts". We agreed with Mr Marks that Sajit had changed his evidence so it was consistent with that in his brother's amended witness statement.

35. Taking into account in particular Sajit's change to this significant part of his evidence, together with his own admitted memory difficulties, we find that he too was not a reliable witness and place no weight on those parts of his evidence which were challenged by Mr Marks, unless it is supported by independent contemporaneous documents.

Mrs Mohammed's witness evidence

36. Mr Mohammed's mother, Mrs Zenin Bibi Mohammed ("Mrs Mohammed"), filed and served a witness statement on 15 September 2023. As she spoke little English, the Tribunal Service made arrangements for a professional interpreter to attend the hearing at a time she was able to be present, and the timetable for the hearing was adjusted to accommodate her attendance.

37. However, on the morning of the day she was due to give evidence, Mr Hickey informed us that Mrs Mohammed would not be attending. No reason was given. Since Mr Marks was unable to cross-examine her, we decided to place no reliance on her witness statement and have not done so.

Ms Zeibeda Sattar's witness evidence

38. Ms Zeibeda Sattar, one of Mr Mohammed's sisters, provided a witness statement about a loan to Mr Mohammed. That evidence was not in dispute and we accepted it.

Officer Bland's witness evidence

39. Officer Bland carried out the investigation into Mr Mohammed and made the assessments He joined HMRC since 1985 and worked in the Fraud Investigation department since 2013, although he had retired by the time of the hearing. He provided two witness statements, was cross-examined by Mr Hickey and re-examined by Mr Marks. We found him to be a wholly credible witness.

The UTLC Judgments

40. Issue Four concerns the legal costs incurred in relation to claims brought by Mr Mohammed and other family members against the Council for compensation following the CPO ("the Claimants" and "the Claims" respectively).

41. There were two UTLC hearings before Upper Tribunal Judge AJ Trott FRICS; the first took place in early 2015 and ran for nine days. Judge Trott issued an interim decision on factual matters under reference Thariq Mahmood Mahommed and others v Newcastle City Council [2015] UKUT 439 (LC) ("the first UTLC Judgment"). The second hearing took place over 11 days in April and May 2016, during which both parties put forward expert evidence. On 20 July 2017, Judge Trott issued the final judgment under reference [2016] UKUT 415 (TC) ("the second UTLC Judgment"). Permission to appeal was refused both by Judge Trott and by the Court of Appeal.

42. The UTLC Judgments included findings about the following:

(1) The property at 15WS from which the Happy Chip business was originally operated, and about 4 Waterloo St ("4WS"), to which the Happy Chip business relocated after the CPO.

(2) Certain leases said to have been entered into by Mr Mohammed (of the one part) and each of the other four family members (of the other part), which the UTLC found to be shams [2].

(3) The accounts and tax returns put forward by the Claimants, which were found by the UTLC to contain unexplained discrepancies and to be unreliable [3].

43. Judge Trott also found that

(1) Mr Mohammed and Sajit lacked credibility [4]. In particular, during the first hearing, Judge Trott recorded that Mr Mohammed "acknowledged that he had lied" in a letter written to the Council in 2004 [5].

(2) A large part of the total Claim made by Mr Mohammed and his family members of £8.54m was "grossly exaggerated" and "simply unsupported by the evidence" [6].

(3) The Claimants' conduct "was manifestly and consistently unreasonable both before and during the proceedings" [7] such that the UTLC awarded the Council its legal costs on an indemnity basis. Those costs came to £900,000.

Reliance on the UTLC Judgments?

44. The parties made submissions as to whether, and if so to what extent, this Tribunal could rely on and/or have regard to, the findings contained in the UTLC Judgments. It was common ground that we could rely on those Judgments to make findings of fact in relation to the following:

(1) the make-up and quantum of the Claims

(2) the determination of the Claims by the UTLC;

(3) the reasons for the award of indemnity costs and the quantum of those costs;

(4) the Claimants' representation by Counsel and the fact that Counsel had been instructed by CJ Thompson, a firm of solicitors;

(5) the Claimants' reliance on expert evidence; and

(6) the fact that Mr Mohammed's accounts and those of other Claimants were prepared by an accountant called Mr Newton, who was not called as a witness in the UTLC proceedings.

45. Mr Marks also sought to rely on the UTLC's findings that the lease agreements were shams; that the Claimants' accounts were unreliable and that Mr Mohammed and Sajit lacked credibility. Mr Hickey submitted that other than in relation to the points set out at §44, the UTLC's findings were not binding on this Tribunal, because the issues and the parties were different and as a result we were not prevented by the principles of res judicata or issue estoppel from coming to our own conclusions.

46. We agree that res judicata and issue estoppel do not apply. However, there is other possibly relevant case law. In Hollington v Hewthorn & Co Ltd [1943] KB 587 the Court of Appeal considered whether findings of fact in an earlier case were evidence in subsequent proceedings involving the same party but a different other party. The ratio of that case was summarised by Leggatt J (as he then was) in Rogers v Hoyle [2013] EWHC 1409 at [93]:

"...it is the duty of a court to form its own opinion on the basis of the evidence placed before it; and that it would not be proper for the court in forming that opinion to be influenced by the opinion of someone else, however reliable that person's opinion is likely to be. In so far as the evidence before the later court is the same as the evidence before the earlier court, the later court is in as good a position to draw inferences and conclusions from the evidence. In so far as the evidence is different, the opinion of the earlier court does not assist the court's task."

47. He added at [104]:

"As in the case of the rule which excludes opinion evidence generally, therefore, the true justification for the rule in Hollington v Hewthorn, as I see it, is not that the opinion of an earlier court is irrelevant but lies in the requirements for a fair trial. The responsibility of a judge to make his or her own independent assessment of the evidence entails that weight ought not to be attached to conclusions reached by another judge - all the more so where the party to whose interests the conclusions are adverse was not a party to the earlier proceedings. That, I think, was the principle which the Court of Appeal was expounding in Hollington v Hewthorn."

48. Those passages were later affirmed on appeal, see [2014] EWCA Civ 1409, where Clarke LJ gave the leading judgment.

49. In Re W-A (children) (foreign conviction) [2022] EWCA Civ 1118 at [50]–[51], the Court of Appeal found that the principle in Hollington v Hewthorn did not apply to family proceedings, because "such a rule is incompatible with the welfare-based and protective character of the proceedings" and "in family proceedings all relevant evidence is admissible".

50. In Consumers Association v Qualcomm Inc [2023] CAT 9, the Competition Appeal Tribunal ("CAT"), chaired by Bacon J considered both (a) the above case law and (b) Rule 55 of the CAT Procedural Rules 2015, which provides that the CAT "may give directions as to...the issues on which it requires evidence, and the admission or exclusion from the proceedings of evidence. She then said at [19]:

"We reject Qualcomm's submission that the rule in Hollington v Hewthorn, if it applies, is binding on this Tribunal. No cogent basis has been made out as to why a High Court rule of evidence should necessarily bind this Tribunal and we accept [the Consumer's Association's] submission that the discretion given to this Tribunal as to the evidence to be admitted is broad."

51. However, she went on to say at [23] that it would nevertheless "not be appropriate to attach any weight to the findings reached by other courts, tribunals or regulators", and continued:

"The principal reason for this is the reason given by Christopher Clarke LJ in Rogers v Hoyle, being that it is for this Tribunal to assess the evidence and make primary findings of fact. Relying upon the evaluative judgments of other decision-makers necessarily circumvents that role. To place weight on their findings, however distinguished or authoritative, risks the decision being made at least in part on evidence which is not before the Tribunal."

Approach of this Tribunal

52. Having considered that case law and the submissions of the parties, we consider that the position is as follows:

(1) The rule in Hollington v Hewthorn is not binding on this Tribunal. Like the family court and the CAT, this Tribunal may "admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom", see Rule 15(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 ("the Tribunal Rules").

(2) However, that Rule must be interpreted consistently with the overriding objective at Rule 2(3) of the Tribunal Rules. In our view, it is not in the interests of justice to make our decision by reference to evidence which is not before us. As Bacon J said in Qualcom, it is for this Tribunal to assess the evidence and make primary findings of fact, and relying upon the evaluative judgments of other decision-makers necessarily circumvents that role.

53. We thus disregard the UTLC's findings on credibility and reliability, and have come to our own view, having heard the witnesses and considered the documentary evidence. The only part of the UTLC Judgments which we have found to be facts are:

(1) those summarised at §44, namely the claims made against the Council, the outcomes of those claims, the award of indemnity costs, the appellants' representation; the experts they instructed, and the role of Mr Newton; and

(2) the evidence put before the UTLC by the Claimants (but not the UTLC's findings as to whether that evidence was credible or reliable).

54. Apart from the UTLC Judgments themselves, the Bundle also included the following, both of which were filed and served by Mr Mohammed for the purposes of this hearing:

(1) The Claimants' "re-re-amended" skeleton argument for the UTLC hearing, dated 31 January 2015; this set out the Claimants' starting point for that hearing. There was no good reason why we should not take into account the information within it as to the Claims which had been made, and neither party asked for it to be excluded.

(2) A witness statement from Mr Jonathan Irvine, a surveyor who gave evidence for the Council. Mr Hickey placed reliance on this statement and Mr Marks made related submissions, but did not ask us to find that it was unreliable. We have therefore taken it into account.

Findings of fact

55. On the basis of the evidence summarised above, including both our findings on credibility and our limited reliance on the UTLC Judgments, we find the facts set out below. There are additional findings of fact later in this decision; any such findings are identified as such.

Mr Mohammed and his family

56. Mr Mohammed is the eldest in his family. As well as Sajit and Zeibeda, his siblings include Mr Masriq Mohammed ("Masriq") and Ms Shabreen Mohammed ("Shabreen"). Officer Bland considered, and we agree, that Mr Mohammed was "an experienced business person". As well as his role in the Happy Chip, he operated multiple bank accounts, bought and sold properties from which he ran a letting business, dealt with the Council on planning issues to do with his properties and was the driving force behind the UTLC case. He was thus the de facto head of his family: a role accurately reflected in his first (unamended) witness statement where he said that "as for who runs the business, the eldest is seen by the younger siblings as being in charge. Traditionally, the eldest male child".

The freeholds of 15WS and 4WS

57. In March 1996, Masriq purchased the freehold of 15WS for £40,000. In September 2000, he transferred it to Mr Mohammed . Masriq also owned the freehold of 4WS and this was also transferred to Mr Mohammed in September 2000.

The Happy Chip and other businesses

58. From at least September 2000, a fish and chip shop called "The Happy Chip" (sometimes also referred to as "the Happy Chippy") was operated from 15WS. The Happy Chip catered in particular to the LGBTQ+ community who frequented nearby bars and nightclubs.

59. It was common ground that Sajit worked in the Happy Chip; that he decided what purchases were required; that he paid suppliers and employees in cash and that he took the takings home each day, leaving only the float, and that Sajit and his wife Kishwar lived on money received from the Happy Chip. It was also common ground that Mr Mohammed did some work at the Happy Chip. There was a dispute as to whether Sajit worked for Mr Mohammed, or whether they were in partnership. We make further findings about this under Issue Two.

60. In his oral evidence, Mr Mohammed said a convenience store known as "Sajways" was also operated from 15WS, and that the name was "a play on words for Safeway", the well-known chain of supermarkets; Sajit's evidence was that the name was a play on words for the sandwich chain "Subway" because the convenience store sold sandwiches. We find that the name "Sajways" referred to the convenience store.

61. At some point after he acquired 4WS from Masriq, Mr Mohammed converted two of the floors into an apart-hotel called "the City Express Apart Hotel", which he managed.

The CPO

62. In 2002, 15WS was acquired under a compulsory purchase order ("CPO") by Newcastle City Council ("the Council"). In March 2003, Mr Mohammed instructed Dickson Dees LLP ("Dickson Dees") to object to the CPO, but the objection was unsuccessful.

63. The Council gave Mr Mohammed notice to leave 15WS on or before 26 January 2004, but Mr Mohammed refused to give possession on that date. The Happy Chip continued to trade from 15WS until early February 2004, when the business moved to part of 4WS, known as "Unit 1". Mr Mohammed's evidence, which was unchallenged and which we accepted, was that he "got up early and spent all day relocating" so that the business could reopen the same evening and not lose trade. The property at 15WS was knocked down later the same year.

64. Mr Mohammed was unaware that planning permission would be required for the Happy Chip to operate out of Unit 1, and on 9 February 2004, the Council served a planning contravention notice on him. Dickson Dees made a retrospective application on the basis that the Happy Chip would close between 12.30 am and 8 am. On 5 April 2004, the Council wrote again, because it had been informed that the Happy Chip remained open as late as 5 am. On 22 July 2004, the Council granted Mr Mohammed's application on condition that the Happy Chip was closed between midnight and 8 am.

65. On 24 November 2004, the Council served an enforcement notice relating to unauthorised use of Unit 1 by the Happy Chip on Mr Mohammed and Sajit and "the Owner/Occupier" of 4WS . The Happy Chip subsequently moved a second time, to another part of 4WS known as Unit 2, which had an unrestricted planning permission.

66. The CPO was part of a development plan under which the Council also acquired other properties. That wider area was sold by the Council to a developer on 18 April 2006 for £10,443,776. The developer built housing, and the character of the area changed.

67. In November 2009, Mr Mohammed, Masriq, Sajit, Kishwar and Shabreen filed the Claims. On 9 August 2012, the Council paid "disturbance compensation" of £96,750 plus net interest of £16,736.42 to Mr Mohammed, Sajit and Kishwar for the relocation of the fish and chip business carried on at 15WS. The sum of the payment for the freehold and the disturbance amount totalled £289,428.75. We make further findings about the Claim and the Council's payments under Issue Four.

Properties

68. During the relevant period, Mr Mohammed owned the following properties in addition to 15WS and 4WS; some or all of these gave rise to letting income:

(1) 38 Elswick Road, which was converted into an HMO (House in Multiple Occupation) with 13 letting rooms;

(2) 11 Elswick Road, a shop with flat above;

(3) 13 Clovelly Terrace, a semi-detached house;

(4) Kensington House (also described as Kensington Hall, Kensington Lodge and East Lodge), a care home, which was sold in September 2005;

(5) 295 Elswick Road, acquired in 2007;

(6) Ascot House, acquired in March 2012; and

(7) 1 Moor Crest Terrace, a one bedroom flat, acquired in February 2013.

69. There was a dispute as to whether Kensington Hall and 295 Elswick Road were beneficially owned entirely by Mr Mohammed, or whether he and Sajit were joint owners, and a further dispute as to whether Ascot House was owned entirely by Mr Mohammed, or by him together with three of his siblings. We make further findings about those matters under Issue Six.

Mr Mohammed's and Sajit's tax returns

70. Mr Mohammed had been in self-assessment for many years before the relevant period. He submitted tax returns for 1996-97 to 1999-00 in which he declared income as a sole trader from the Happy Chip. He was subject to a tax enquiry for the period up to 5 April 2001, and settled that enquiry by making a payment of tax.

71. In his 2001-02 tax return for, Mr Mohammed declared a profit of £20,000 from an (unidentified) partnership, plus £2,000 from land and property. Officer Bland was subsequently told by Mr Mohammed's then accountant that this partnership was with "an un-associated third party". Mr Mohammed did not give evidence that this was incorrect, and we find as a fact that this partnership was not with Sajit.

72. In his returns for 2002-03 through to 2009-10, Mr Mohammed only included land and property income. The partnership box at the beginning of the return was not ticked in for any year. That for 2005-06 disclosed a capital gain which was said to have been reduced to nil by the annual exemption. Mr Mohammed signed all the returns up to the date when they were computerised (in 2007-08), other than that for 2001-02. By signing, he confirmed that "the information I have given on this Tax Return is correct and complete to the best of my knowledge and belief".

73. Mr Mohammed did not file returns for 2010-11, 2011-12, 2014-15 or 2015-16. He filed returns for 2012-13 and 2013-14 only after Officer Bland had issued his "view of the matter letter", see further below.

The enquiries and assessments

74. Meanwhile, Officer Bland had begun to consider the information available to HMRC about Mr Mohammed. He could not reconcile the value of properties held by Mr Mohammed with the income on his tax returns. On 27 January 2014, he wrote to Mr Mohammed and Sajit telling them he intended to enquire into their tax affairs under Code of Practice 9 ("COP9"), because HMRC suspected serious tax fraud had been committed. He offered both Mr Mohammed and Sajit the Contractual Disclosure Facility ("CDF"), which guarantees recipients that they will not face a criminal prosecution if they make a full disclosure and pay the tax, interest and an appropriate penalty.

75. On 4 February 2014, Mr Steve Bartlett telephoned Officer Bland. Mr Bartlett worked for John Nisbet Associates ("JNA") who had been appointed to act for Mr Mohammed and Sajit. Officer Bland's contemporaneous note of that conversation begins:

"[Mr Bartlett] confirmed he had received the CDF and said that he thought one might have been issued earlier. He has met with his clients and said that there was clearly a lot of cash flying about, including a suitcase of cash apparently brought in from Dubai. He was planning on making a voluntary disclosure if he hadn't heard from me."

76. On 28 March 2014, Mr Bartlett informed Officer Bland that Mr Mohammed denied tax fraud and had declined the officer of a CDF. He attached to his letter Mr Mohammed's denial form; Mr Mohammed had ticked the box saying he would co-operate with the COP9 investigation.

77. On 7 April 2014, Officer Bland and another officer, Mr Mike Vickers, met Mr Bartlett. His contemporaneous note of that meeting includes the following:

"[Mr Bartlett] has outlined [to Mr Mohammed] what will be required by HMRC, including sight of all statements for all bank accounts. The brothers are apparently reluctant to provide all accounts although [Mr Bartlett] has advised them that HMRC can use formal powers to make the banks provide the required information. The brothers have also indicated that they may not
attend a meeting with HMRC and [will] only conduct the enquiry through correspondence. [Mr Vickers] said that whilst there was nothing to say that the brothers had to meet HMRC this wasn't what was expected if co-operation was being offered and started to erode the abatements awarded for penalty purposes."

78. Mr Bartlett also confirmed that he had seen some accounts for Mr Mohammed's business for 2003 to 2007, but was concerned about the level and source of the capital introduced, and he mentioned a figure of around £2,000,000.

79. On 11 June 2014, Officer Bland issued Mr Mohammed with a Notice to provide information and produce documents issued under Paragraph 1 of Schedule 36 to Finance Act 2008 (a "Sch 36 Notice). Mr Mohammed did not respond. On 21 July 2014, HMRC issued Mr Mohammed with a £300 penalty, but there was still no response. On 3 September 2014 and 5 November 2014, HMRC charged Mr Mohammed daily penalties of £1,760 and £1,500 respectively, but Mr Mohammed did not respond to the Sch 36 Notice.

80. Between January 2015 and February 2016, HMRC issued Tribunal approved third party notices under Sch 36, para 2 to a number of different financial institutions; to the Council and to Hathaways, a firm of solicitors which had acted for Mr Mohammed in relation to property transactions. As a result of the information received, Officer Bland became aware of the following:

(1) Twenty-one bank accounts in the name of Mr Mohammed, some of which held income identifiable as rent and some of which related to the Happy Chip;

(2) various property transactions carried out by Mr Mohammed;

(3) the amounts paid to Mr Mohammed by the Council in relation to the CPO;

(4) the UTLC case; and

(5) that during a customer review of Mr Mohammed's banking arrangements at Lloyds TSB in 2007, Mr Mohammed had told the bank that the turnover at the Happy Chip was £8,000 - £10,000 per week; that his income from property letting was £3,645 per month and that the latter figure would soon increase.

81. Officer Bland informed Mr Mohammed that he had obtained information from third parties. On 7 December 2015, Mr Mohammed responded, saying he did not agree that the FTT should have allowed the Sch 36 application, and that he was "preparing a lot of documents and evidence [which] will hopefully address any issues outstanding". No documents were sent. On 24 March 2016, Mr Mohammed again emailed Officer Bland, saying he would submit a report covering all years "from 2000 to the present time". No report was provided.

82. On 19 May 2016, Officer Bland warned Mr Mohammed that if he continued not to provide his tax returns for 2010-11 through to 2013-14, HMRC would issue determinations. No return was filed. At some point before 22 June 2016, HMRC issued a determination for 2012-13 of £110,000.

83. On 22 June 2016, Mr Mohammed emailed Officer Bland, asking for an explanation of the amounts he was being asked to pay. Officer Bland explained that if Mr Mohammed wanted to displace the determination, he had to submit his tax return, adding that Mr Mohammed "will know what taxable receipts [he] had in the year and the allowable expenses which can be set against them".

84. On 25 August and 9 September 2016, HMRC issued determinations for the tax years 2010-11 and 2013-14 respectively.

85. Shortly before 29 March 2017, Mr Mohammed appointed Christopher Bailey Accountants ("CBA") to act for him, although subsequent correspondence with Officer Bland on behalf of Mr Mohammed was with Mr Salhan of Salhan Accountants. The link or connection between Mr Salhan and CBA (if any) was unexplained.

86. On 29 March 2017, Officer Bland issued a "view of the matter" letter to Mr Mohammed, with a copy to CBA. The letter said that his enquiries were complete, and included the following information:

(1) Mr Mohammed had fraudulently and deliberately submitted incorrect returns; the loss of tax was due to Mr Mohammed's "deliberate behaviour" and "the omissions from [his] returns are due to fraud".

(2) Assessments would shortly be issued for 2001-02 through to 2015-16.

(3) The trading profits assessments would be based on the related income in the bank accounts provided as the result of the Sch 36 Notices, less trading expenditure which was identifiable on the bank statements. Income tax and Class 4 NICs would be calculated on the net figure.

(4) The property assessments would be based on the related income in the bank accounts, less an estimate of costs.

(5) Capital gains assessments would be made in relation to the disposal of two properties, East Lodge and 15WS.

(6) The overall sum assessable was £1,105,812.54.

(7) In addition, penalties totalling £529,684.93 would be charged.

87. Mr Salhan then completed Mr Mohammed's 2012-13 tax return; Mr Mohammed signed it on 24 April 2017, and it was filed with HMRC the following day. The "white space" included the following note (wording as in original):

"The legal structure of the business in respect of the Happy Chip is a matter of discussion with HMRC as it has been an ongoing dispute. Save the client avers it is a partnership in which Mr T Mohammed has a 10% interest. The return has been represented for ease under the self-employment section but with only the 10% being return [sic], until the matter is finally adjudicated by the First Tier Tax Tribunal."

88. The white space also included this note:

"the legal structure in respect of income from property in this return has been reported as income from properties, save it is a partnership in which Mr T Mohammed owns 60% and this is also an ongoing issue with HMRC. The same approach as supra has been adopted in respect of income from property."

89. Also on 24 April 2017, Mr Salhan filed Mr Mohammed's 2013-14 return with similar white space notes; he also emailed Officer Bland a response to his letter of 29 March 2017; a telephone call followed. Mr Salhan repeated what was in the white space, but Officer Bland did not accept that this was the case; neither did he accept other points made by Mr Salhan about losses, legal costs and rollover relief.

90. On 27 April 2017, Officer Bland issued the assessments, which as he had said in his "view of the matter" letter, totalled £1,105,812.54. Penalties followed on 25 May 2017. Mr Salhan appealed the assessments and penalties on behalf of Mr Mohammed, and asked for a statutory review. We make further findings of fact about the assessments under Issue One and about the penalties under Issue Eight.

91. Meanwhile, on 22 May 2017, Mr Salhan had informed Officer Bland that Mr Mohammed was "amenable to a meeting" but that this could not be held until after the end of Ramadan on 28 June 2017. A meeting was subsequently arranged for 17 July 2017 which Mr Mohammed had said he would attend, but he did not do so and Mr Salhan was unable to explain his non-attendance.

92. On 6 October 2017, Officer Bland made a without prejudice offer of settlement, which Mr Salhan recommended to Mr Mohammed, but Mr Mohammed refused the offer. Salhan Accountants then resigned as Mr Mohammed's advisers, and in December 2017 Mr Mohammed instructed Rainer Hughes.

93. Rainer Hughes asked HMRC for an extension of time to submit additional information, and the review officer, Mrs Hogan, agreed to extend the deadline to 16 February 2018. Rainer Hughes did not provide any further information.

94. On 23 May 2018, Mrs Hogan upheld the assessments; she also upheld the quantum of the penalties but asked Officer Bland to cancel them as the legislation quoted on the notices was incorrect. Officer Bland vacated the penalties and on 6 June reissued them, citing the correct legislation. On 22 June 2018, on behalf of Mr Mohammed, Rainer Hughes filed a Notice of Appeal at the Tribunal in relation to the assessments and the penalties.

Subsequent discussions

95. Mr Mohammed subsequently instructed Churchill Tax Advisers to engage in ADR; this appears to have been conducted by phone. It concluded on 14 January 2019 without resolving the dispute; the HMRC facilitator said that "there has been clarity brought to a number of the issues".

96. Rainer Hughes filed Mr Mohammed's list of documents on 2 August 2019; the list included 749 identified documents, and was followed by 12 supplementary lists during the period from 8 November 2019 through to 9 March 2023, as set out at §10 above.

97. The hearing was listed for May 2023, but was postponed, and on 20 July 2023, Officer Bland and Mr Mohammed held the Meeting to try to narrow the issues in dispute; before the Meeting, Mr Mohammed provided Officer Bland with a further 300 pages of documents, including bank statements from an account with Santander, from which most of the legal fees for the UTLC case had been paid; HMRC had not previously seen those statements.

98. Officer Bland understood the purpose of the 2023 Meeting was to settle the whole of the dispute, but in the event no settlement was reached. However, the parties did agree the following:

(1) issues relating to capital allowances, supported by an analysis carried out by Moore Stephens LLP; this had been supplied to Mr Mohammed on 23 January 2019;

(2) certain capital gains adjustments consequent upon the information in the Moore Stephens Report;

(3) that a £110,000 deposit in one of Mr Mohammed's Lloyds bank accounts had been transferred from his sister Ms Sattar and was not taxable on him; and

(4) that various bank deposits were internal transfers and did not count as Mr Mohammed's income.

ISSUE ONE: VALIDITY OF THE ASSESSMENTS

99. Issue One was whether the tax and NIC assessments were validly made and in particular, whether this was true of the year 2005-06.

The Legislation

100. We begin with the legislation. The two key provisions are TMA s 29 and s 36.

TMA s 29

101. TMA s 29 is headed "Assessment where loss of tax discovered" and the current version reads:

"(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment

(a) that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed,

(b) that an assessment to tax is or has become insufficient, or

the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.

(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above

(a) in respect of the year of assessment mentioned in that subsection; and

(b) in the same capacity as that in which he made and delivered the return,

unless one of the two conditions mentioned below is fulfilled.

(4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf. ..."

102. The words in italics were substituted by FA 2009, Sch 39, para 3 for the previous wording, which read "is attributable to fraudulent or negligent conduct on the part of". The Finance Act 2008, Schedule 39 (Appointed Day, Transitional Provision and Savings) Order 2009 ("the Transitional Order"), para 2(2) provided that the change in wording took effect from 1 April 2010.

TMA s 36

103. TMA s 36 is headed "Loss of tax brought about carelessly or deliberately etc". The current version reads:

"(1) An assessment on a person in a case involving a loss of income tax or capital gains tax brought about carelessly by the person may be made at any time not more than 6 years after the end of the year of assessment to which it relates (subject to subsection (1A) and any other provision of the Taxes Acts allowing a longer period).

(1A) An assessment on a person in a case

(a) involving a loss of income tax or capital gains tax brought about deliberately by the person, ...

(b) attributable to a failure by the person to comply with an obligation under section 7;

(c) attributable to arrangements in respect of which the person has failed to comply with an obligation under section 309, 310 or 313 of the Finance Act 2004 (obligation of parties to tax avoidance schemes to provide information to Her Majesty's Revenue and Customs); or

(d) ...

may be made at any time not more than 20 years after the end of the year of assessment to which it relates (subject to any provision of the Taxes Acts allowing a longer period).

(1B)-(2) ...

(3) If the person on whom the assessment is made so requires, in determining the amount of the tax to be charged for any chargeable period in any assessment made in a case mentioned in subsection (1) or (1A) above, effect shall be given to any relief or allowance to which he would have been entitled for that chargeable period on a claim or application made within the time allowed by the Taxes Acts."

104. This provision too was amended by FA 2009, Sch 39, para 9; it previously read:

"(1) An assessment on any person (in this section referred to as "the person in default") for the purpose of making good to the Crown a loss of income tax or capital gains tax attributable to his fraudulent or negligent conduct or the fraudulent or negligent conduct of a person acting on his behalf may be made at any time not later than 20 years after the 31st January next following the year of assessment to which it relates.

(2) ...

105. Para 2 of the Transitional Order provided that the change took effect from 1 April 2010, but para 7 read:

"Section 36(1A)(b) and (c) of TMA 1970 (fraudulent and negligent conduct) shall not apply where the year of assessment is 2008-09 or earlier, except where the assessment on the person ("P") is for the purposes of making good to the Crown a loss of tax attributable to P's negligent conduct or the negligent conduct of a person acting on P's behalf."

How the provisions apply

106. The Tribunal's reading of these provisions, including in particular the Transitional Order, is as follows:

(1) from 1 April 2010, HMRC have the power to make a discovery assessment if the situation in s 29(1) was brought about carelessly or deliberately by the taxpayer;

(2) from the same date, there is a twenty year time limit where the loss of tax was brought about deliberately and a six year time limit where the loss of tax was brought about carelessly; and

(3) para 7 of the Transitional Order only applied to failure to notify cases and avoidance scheme cases, and was not relevant to this appeal.

107. In other words, because the assessments were issued in 2019, the provisions we have to consider are those introduced by FA 2009, and not those which were in force prior to 1 April 2010, even though some of the assessments were raised for those earlier years. However, the earlier provisions are relevant to the case law discussed at §117ff.

The pleadings

108. It was common ground that the burden was on HMRC to establish a prima facie case of deliberate or careless behaviour in order to meet TMA s 29(4), and that if HMRC satisfied that burden, it was for Mr Mohammed to displace the assessment, see for example Hudson v Hudson (1965) 42 TC 380 per Pennycuick J.

109. Mr Marks submitted that HMRC had plainly met the prima facie requirement: Officer Bland had discovered significant sums in Mr Mohammed's bank accounts which represented undisclosed income from trading and property, as well as unreported gains on several properties. Officer Bland had issued the assessments on the basis that the loss of tax was due to Mr Mohammed's "deliberate behaviour". HMRC's pleaded case was that Mr Mohammed acted deliberately, and this was reiterated by Mr Marks. Mr Hickey did not dispute that HMRC had met the "competence" requirements for a discovery, and we agree.

110. The burden was also on HMRC to show that the assessments had been made within the statutory time limit of 20 years for deliberate behaviour. This was pleaded in HMRC's Statement of Case; Mr Marks reiterated that Mr Mohammed had clearly acted deliberately because he knew he had assessable trading and property income, but had either under-declared that income, or not declared it at all; he had also failed to declare capital gains. HMRC thus met their burden in relation to the "pleading" requirement in relation to time limits as they had in relation to competence.

The substantive issue: deliberate behaviour?

111. Apart from the assessment for 2005-06, which we consider separately below, Mr Hickey did not seek to argue that any of the assessments were out of time because Mr Mohammed did not act deliberately. However, in relation to the penalties, Mr Hickey did submit that Mr Mohammed did not act either deliberately (in relation to penalties from 2008-09) or fraudulently (in relation to earlier penalties).

112. We decided it was in the interests of justice to treat Mr Hickey's submissions about the lack of deliberate/fraudulent behaviour in the context of penalties as also relating to time limits as well as to penalties. However, to avoid repetition and so as not to make this decision even longer, we have set out both parties' submissions on whether Mr Mohammed acted deliberately for years other than 2005-06 as part of Issue Eight. Had we decided that he did not act deliberately, we would have taken that conclusion into account in relation to the time limits for the assessments. However, as is clear from our findings under Issue Eight, we upheld HMRC's conclusion that Mr Mohammed acted deliberately and we thus find that the assessments were issued within the statutory time limits.

The year 2005-06

113. The background to the parties' submissions about this year are to be found in TMA s 36(3). This provision allows the tax charged by an assessment to be reduced by "any relief or allowance" to which the person would have been entitled had a claim been made within the statutory time limit.

114. Mr Mohammed relied on s 36(3) when he submitted his capital allowances claim in 2019 on the basis of the Moore Stephens Report. Officer Bland accepted that, as a result, Mr Mohammed's profits would reduce for most years, and for 2002-03, 2003-04 and 2004-05 the profits were eliminated. That much was common ground by the time of the hearing.

115. In 2005-06, capital allowances eliminated the trade profit, leaving in charge capital gains tax ("CGT") of £3,199.12. This CGT had arisen because Mr Mohammed's representative had miscalculated the amount a rollover. Mr Marks accepted that this error was careless and not deliberate.

116. Mr Hickey submitted that, as the error was careless, the assessment time limit was six years under TMA s 36(1), and as the assessment had been made in 2017, it was out of time. Mr Marks disagreed. His submission had two legs:

(1) The entire assessment remained in full force and effect until the parties asked the Tribunal to exercise its power under TMA s 50(6) to reduce it because of the late capital allowances claim. That subsection reads:

"If, on an appeal notified to the tribunal, the tribunal decides

(a) that the appellant is overcharged by a self-assessment;

(b) that any amounts contained in a partnership statement are excessive; or

the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good."

(2) Section 36(1A) provides that a 20 year time limit applies where there is (his emphasis) "an assessment on a person in a case involving a loss of income tax or capital gains tax brought about deliberately". In Mr Marks' submission, in a case such as this, where the assessment was originally issued on the basis of deliberate behaviour, it was irrelevant that part of the loss of tax encompassed within the assessment was attributable to careless behaviour. By way of example, if a person made a deliberate error of £100, and a careless error of £1,000, these could be combined in a single assessment for which the time limit was 20 years, because the case "involved" a loss of tax which had been brought about deliberately.

117. In making that second submission, Mr Marks relied on two cases, Hurley v Taylor [1999] STC 1 ("Hurley") and Hargreaves v HMRC [2016] EWCA ("Hargreaves"). He also referred to Harte v HMRC [2024] UKFTT (TC), a decision of Judge Amanda Brown and Mr Bell, who is also a member of this Tribunal. Mr Marks represented HMRC in Harte.

Hurley

118. In Hurley at p 8, Aldous LJ, giving the lead judgment with which Kennedy and Potter LJJ both agreed, endorsed several propositions from Park J's decision at the High Court. Mr Marks emphasised the italicised words in proposition 4:

"1 . By s 36 (1) of the Taxes Management Act 1970 an assessment to income tax can be made on a person outside the normal six years period (but subject to a maximum 20 years cut-oft) "for the purpose of making good to the Crown a loss of tax attributable to his fraudulent or negligent conduct".

2. This requires the Revenue to show: (1) fraudulent or negligent conduct by the taxpayer; and (2) a loss of tax attributable to it.

3. On appeal to the commissioners the burden rests on the Revenue of establishing 2(1) and (2). If they do not discharge the burden the appeal should be allowed...I will call this "the s 36 burden".

4. The burden does not rest on the Revenue to any greater extent than the s 36 burden. If they establish some fraudulent and negligent conduct and some loss of tax attributable to it they have satisfied s 36. From then on s 50(6) takes over and applies as it does for in-date assessments: that is to say, thereafter the burden rests on the taxpayer to establish that the assessment is wrong..."

Hargreaves

119. In Hargreaves, Arden LJ gave the leading judgment with which Underhill and Sales LJJ both agreed. Mr Marks relied on the following passage, which he said essentially mirrored Mr Mohammed's position:

"[46] Mr Goldberg submits that the power to make a DA [discovery assessment] is penal in its effect. He submits that, if the taxpayer makes a small mistake, the door is open to HMRC to reopen the computation of all tax for the relevant period. This is because 'the situation mentioned in subsection (1) above' (used in sub-ss (2) and (5)) is that 'any income which ought to have been assessed to income tax' has not been assessed. Thus, if the taxpayer had treated income of £100 as not liable to tax, and HMRC assesses the full £100 to tax but HMRC can show that the conduct condition is met only in respect of £50, then on a literal reading of s 29 it would appear to follow that the whole of the assessment meets the conduct/officer condition and is validly made. This is a startling conclusion.

[47] I do not consider that this difficulty exists. I accept the submission of Mr Nawbatt that, once HMRC have shown that the conduct/officer condition is met, the taxpayer can show that the amount assessed is excessive. The position under s 29 is analogous to that where an assessment is made under s 36 TMA on the grounds of the taxpayer's fraudulent or negligent conduct: see per Aldous LJ in Hurley v Taylor (Inspector of Taxes) [1999] STC 1 at 8."

Harte

120. In Harte, the Tribunal found that there were three types of error: deliberate, careless, and simple oversight which was not careless. After carefully considering the case law set out above, together with two other authorities, the FTT decided at [77] and [78] to reduce the assessment under TMA s 50(6). In relation to the careless errors, the FTT held:

"We reach a similar conclusion in respect of the Capital Allowance Insufficiency and the Deductible Expenditure Insufficiency in tax years 2009/10 - 2011/12. Those tax years require the extended [20 year] time limit provided for in section 36(1A). As the Appellant has demonstrated, on the evidence, that the conduct giving rise to these Insufficiencies was careless and not deliberate we consider to effectively assess on the basis that the errors were deliberate is to overcharge the Appellant. Plainly however, the 6-year time limit in section 36(1) TMA applies to these Insufficiencies."

121. Thus, despite considering the earlier case law, the FTT in Harte decided that the time limit for careless errors was six years, whether or not there was also a loss of tax attributable to deliberate behaviour in the same tax years. Mr Marks informed us that HMRC had received permission to appeal Harte to the UT on the basis that the Tribunal had failed properly to apply Hurley and Hargreaves.

Discussion

122. We disagree with both of Mr Marks' propositions.

123. In relation to his submission that the assessment remained in full force and effect until the parties asked the Tribunal to exercise its power under TMA s 50(6), we accept that once made, assessments cannot normally be altered other than under that provision, because TMA s 30A(4) reads:

"After the notice of any such assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts."

124. TMA s 50(6) and (7) is such an "express provision of the Taxes Acts", and assessments are regularly changed by the Tribunal using the power given by those subsections. However, s 36(3) is another such "express provision". It states that "if the person on whom the assessment is made so requires, in determining the amount of the tax to be charged under s 36(1) or (1A)],,,effect shall be given to any relief or allowance".

125. Mr Mohammed relied on s 36(3) to make claims, and the effect of those claims is to change "the amount of the tax to be charged for any chargeable period in any assessment". Mr Mohammed's claim therefore had the effect of reducing the assessment in accordance with that "express provision". The appeal we have to decide is thus against an assessment to capital gains tax caused by a careless error, and the applicable time limit is six years.

126. We also disagree with Mr Marks' second point. In both Hurley and Hargreaves the version of s 36 being considered by the Court of Appeal was different from that which applies to the 2005-06 assessment. Under that earlier version, the 20 year time limit applied to errors caused by negligence as well as by fraud. Given the change in the law to introduce a shorter period for assessing careless errors, we reject Mr Marks' submission that a 20 year time limit applies to a careless error which happens to be included in the same assessment as a deliberate error. That runs entirely counter to the purpose of the provision. Neither Hurley or Hargreaves provides authority for HMRC's view, because the law was different at that time.

127. We also note that the earlier version did not use the words "a case involving a loss of income tax or capital gains tax", the words now relied by Mr Marks, so the case law on which he relies does not provide any authority for the weight he placed on the word "involving".

128. We therefore find that the 2005-06 assessment (as reduced following the claim made under s 36(3)) is out of time and thus invalid.

NICs

129. When Mr Marks closed his submissions on the assessments, the Tribunal asked about the NICs included therein. In response, Mr Marks made further submissions to which Mr Hickey responded. Having considered the views of the parties together with our own view, which we had shared with the parties, we find that the position is as set out below.

130. Section 16 of the Social Security Contributions and Benefits Act 1992 ("SSCBA") is headed "Applications of the Income Tax Acts and destination of Class 4 contributions", and includes the following provisions:

"(1) All the provisions of the Income Tax Acts, including in particular

(a) provisions as to assessment, collection, repayment and recovery, and

(b) the provisions of Part VA (payment of tax) and Part X (penalties) of the Taxes Management Act 1970, and

(d) ...

shall, with the necessary modifications, apply in relation to Class 4 contributions under this Act...as if those contributions were income tax chargeable under Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005 in respect of the profits of a trade, profession or vocation which is not carried on wholly outside the United Kingdom..."

131. HMRC are therefore able to issue a single discovery assessment to cover both income tax and Class 4 NICs, and that assessment is subject to the same time limits as if it contained only tax.

132. SSCBA s 16(1)(b) extends the TMA s 95 penalty provisions to Class 4, and FA 2007, Sch 24, which provides for penalties for errors for years after 1 April 2008, provides at para 5(3) that "tax includes National Insurance Contributions". It follows that penalties can be charged on NICs in the same way as on tax.

ISSUE TWO: PARTNERSHIP

133. We first set out the parties' positions, and then our findings.

The Parties' positions

134. It was common ground that (a) both Mr Mohammed and Sajit were involved in the trade carried on at the Happy Chip, and (b) some of the income in Mr Mohammed's bank account derived from that trade.

135. It was Mr Mohammed's case that the Happy Chip business was run as a partnership between him and Sajit which had ended on 5 April 2013; that he received 10% of the profits and Sajit received 90%, and that as a result, the income allocated to him by HMRC was too high.

136. HMRC's position was that the Happy Chip business was run by Mr Mohammed, with Sajit as his employee; but if it was run as a partnership, Mr Mohammed was the majority partner and his profit share was not 10%.

The nature of partnership

137. Whether or not there was a partnership between Mr Mohammed and Sajit is a mixed question of fact and law, see Spicer Ltd v Mansell [1970] 1 WLR 333 at 335. Section 1 of the Partnership Act 1890 defines a partnership as "the relation which subsists between persons carrying on a business in common with a view of profit". In Lineker v HMRC [2023] UKFTT 340, Judge Brooks provided a helpful summary of the authorities, which included the following:

"(1) It is critical to determine (objectively) whether the parties intended to create a partnership (Tiffin v Lester Alridge LLP [2012] EWCA Civ 35 at [21];

(2) In determining their intention all the features of their agreement must be considered, regard is to be given to the "substance of the relationship, not the words used by the parties to describe it" (Sotheby's v Mark Weis Ltd [2020] EWCA Civ 1570 at [84];

(3) It is not conclusive that someone is held out to the outside world as a partner, "one must in every case look at the terms of the relationship to ascertain whether or not it creates a true partnership" (Stekel v Ellice [1973] 1 WLR 191at 473);

(4) Although it may provide "some evidence" their business is a partnership business, the terms used by the parties to describe their relationship will not be conclusive (Patel v Barlows Solicitors (a firm) [2021] 4 WLR 6 at [107];

(5) While a fixed remuneration does not preclude a finding of a partnership, it is in most cases a strongly negative indication of one (Mohammed Young Legal Associates Ltd v Zahid Solicitors (a firm) [2006] 1 WLR 2562 at [33]);

(6) Although s 1(1) of the Partnership Act 1890 refers to the aim of making a profit, it "studiously abstain[s] from reference to any necessity that it be shared." The partners are free to arrange for their remuneration in any manner they choose including by agreement that one partner should receive specific sums irrespective of profits (Tiffin v Lester Alridge LLP [2012] EWCA Civ 35 at [41];..."

The evidence

138. The evidence as to whether the Happy Chip was run as a partnership was confused and inconsistent. It included:

(1) a Partnership Agreement;

(2) a statutory declaration;

(3) accounting records and financial accounts;

(4) documentary evidence;

(5) evidence from the UTLC proceedings; and

(6) witness evidence.

139. We next summarise that evidence followed by our conclusion.

The Partnership Agreement

140. Mr Mohammed and Sajit had signed a document entitled "Sajit Mohammed and Tariq Mohammed - Partnership Agreement - Happy Chip Leisure Group" ("the Partnership Agreement"). It was dated 1 June 2001, and began by saying that:

"the Partners shall carry on business in Partnership as Hot Food Takeaway under the firm name of 'Happy Chip Leisure Group' at 4 and 15 Waterloo Street Newcastle upon Tyne or such other place as the Partners shall agree".

141. We have already found as a facts that:

(1) the Happy Chip operated only at 15WS until it moved to 4WS in early 2004; and

(2) until then no hot food takeaway business operated out of 4WS, see the findings about the requirements for planning consent at §64.

142. It was thus surprising that a document dated 1 June 2001 referred to a "Hot Food Takeaway" business being carried out at 4WS as well as at 15WS. However, it was not part of HMRC's case that the Partnership Agreement was a sham. Instead, Mr Marks submitted that the following key terms were not carried out in practice:

(1) the partners will keep books and records of the partnership;

(2) the financial year of the partnership ends on 31 May;

(3) a balance sheet and profit and loss account is to be prepared as of that date on an annual basis;

(4) the spouses of the Partners shall be entitled to a salary from the partnership at such amount as is agreed between the Partners; and

(5) the capital and the profits of the Partnership shall "unless the partners otherwise agree belong to the Partners in the following shares...: Sajit Mohammed 90% Tariq Mohammed 10%";

143. The following points were not in dispute

(1) No accounts were drawn up a partnership between Mr Mohammed and Sajit, so there was no balance sheet and no profit and loss account whether for the 31 May or any other date.

(2) There was no bank account in the name of the Happy Chip or the Happy Chip Leisure Group.

(3) Kishwar was not employed to work at the Happy Chip but instead worked as a partner with Sajit, see further below.

144. Mr Marks submitted that it was clear from this that the Partnership Agreement was not in force, and thus the provision stating that the profits were to be split on a 90:10 basis was not in force either. We agree with Mr Marks that no reliance can be placed on the Partnership Agreement,

The statutory declaration

145. Sajit signed a statutory declaration on 7 May 2019, stating that he had entered into a partnership with Mr Mohammed on 1 June 2001 to operate a business known as the Happy Chip, and that under that agreement he employed his wife Kishwar and paid her a salary.

146. However, that evidence is inconsistent with his own witness statement which says that Kishwar was a partner in the business. The statutory declaration also includes other statements about bankings which are inconsistent with the other evidence, see Issue Three. We place no reliance on this declaration.

The accounting records and financial accounts

147. The Bundle included financial accounts for a partnership between Sajit and Kishwar headed "Mr K and Mr S Mohammed t/a the Happy Chip Leisure Group". They are for the nine years from 2000 to 2008 inclusive, and are supported by SAGE accounts, including drawings by the partners, and trial balances which show that the bulk of the expenditure was on food, as would be expected from this type of business.

148. Mr Mohammed's oral evidence was that these accounts were "supposed to be amended" to include his name. We do not accept that he gave any instruction to that effect, because he gave this evidence for the first time at the hearing; it was not in any of his witness statements, and was unsupported by any contemporaneous documents (such as a letter to Mr Newton).

Documentary evidence

149. The documentary evidence contained numerous inconsistencies. The following were broadly supportive of the existence of a partnership:

(1) The letter of enforcement issued by the Council served on Mr Mohammed and Sajit, albeit also on "the Owner/Occupier" of 4WS.

(2) The planning decision issued by the Council dated 21 May 2008, in response to an application made by Sajit, addressed to "Mr S Mohammed c/o T Mohammed & S".

(3) The documentation supporting the Council's payment of £96,750 to Mr Mohammed, Sajit and Kishwar for disturbance to the Happy Chip business.

150. However, other documents state that the Happy Chip was run by Mr Mohammed alone, including the following:

(1) A letter dated 24 March 2004 from Dickson Dees, which describes Mr Mohammed as "the owner of the 'Happy Chippy' located at 15 WS" who has "moved his business to No 4 WS and resumed trading".

(2) Mr Mohammed's application dated 1 December 2004 to appeal a planning decision relating to 4WS. This said that

"prior to February 2004, the appellant [ie Mr Mohammed] owned and ran a hot-food takeaway from No 15 WS...in relocating his business, the appellant sought to replicate that business in another property, owned by him, across the street at 4 WS."

(3) In the same application, Mr Mohammed said he was "willing to offer an undertaking" relating to the opening hours.

The UTLC proceedings

151. Mr Hickey relied on the witness statement by Mr Irvine, a senior surveyor at the Council, which he submitted "confirms Sajit and Thariq were involved in the business together". However, the witness statement in fact said that:

(1) Mr Irvine understood Mr Mohammed to own the Happy Chip and to be involved in its operation; but

(2) Mr Mohammed had subsequently said Sajit owned the Happy Chip and this was a "surprise" to Mr Irvine;

(3) Mr Mohammed had also told Mr Irvine that as a result of the CPO, the business had been extinguished because he was charging Sajit rent, and that rent was "too expensive" for Sajit to afford.

152. Far from Mr Irvine having "confirmed" the existence of the partnership, he recorded that Mr Mohammed had told him that he was renting the Happy Chip premises to Sajit, and that it was Sajit's business.

153. Mr Hickey also relied on the finding in the first UTLC Judgment at [154] that "The Happy Chip and Especially 4 You are run as family partnerships". However:

(1) Mr Hickey's overall position in relation to the UTLC Judgments were that the findings were not binding on the Tax Tribunal because the principles of res judicata and issue estoppel did not apply. We agreed with that submission. He cannot then cherry pick from the findings.

(2) In any event, the UTLC did not make a finding that Mr Mohammed and Sajit were running the Happy Chip in partnership. Indeed, Judge Trott also recorded his doubts as to whether the Partnership Agreement was genuine, see [194(iv)].

The witness evidence

154. Finally, we considered the evidence given by Mr Mohammed and Sajit. Both amended their statements from the witness box and we found both witnesses to lack credibility. We are thus hesitant about placing weight on the evidence in their statements. However, given that it was common ground that they were both involved in the Happy Chip business and also having taken into account Sajit's health conditions, we find as facts that:

(1) Mr Mohammed's role was to deal with the business administration; and

(2) Sajit did most of the day to day work in the shop, which he "loved" and he "enjoyed the interaction with customers".

Conclusion on the existence of a partnership

155. As is clear from the above summary of the evidence, this was a difficult issue to resolve. However, we are just persuaded that the Happy Chip was run as a partnership between Mr Mohammed, Sajit and Kishwar. They were all involved in the business, Sajit and Kishwar lived on money generated by the Happy Chip (see §59) and there was no evidence that they were paid a wage. It was also common ground that some of the money in Mr Mohammed's bank accounts was profits from the Happy Chip.

156. In making that finding, we have placed no reliance on the Partnership Agreement or the statutory declaration for the reasons we have already given. We recognise that our finding is, inconsistent with the statutory accounts drawn up by Mr Newton, but those accounts also cannot be reconciled with Mr Mohammed's role in the business or his banking of profits, neither of which was in dispute.

157. We therefore find that the financial accounts drawn up for the Happy Chip by Mr Newton were incomplete and incorrect. This finding is consistent with the Claimants' evidence given to the UTLC [8], which was that all the accounts contained "discrepancies" and "omissions"; the UTLC went on to hold [9] that "the accounts are not reliable".

The profit share

158. It was Mr Mohammed's case that he was entitled to 10% of the profits of the Happy Chip, with Sajit being entitled to 90%. He relied on the Partnership Agreement and his witness evidence. HMRC's position was that Mr Mohammed was the majority partner and this was reflected in his profit share. We considered all the evidence, including in particular that set out below.

The Partnership Agreement

159. Mr Mohammed relied on the clause in the Partnership Agreement which said that "the capital and the profits of the Partnership shall "unless the partners otherwise agree belong to the partners in the following shares...: Sajit 90% and Mr Mohammed 10%". However, we have already found that the terms of the Partnership Agreement were not carried out in practice. In any event, the clause itself states that the profit share is only 90:10 if the partners did not "otherwise agree". We place no weight on the Partnership Agreement.

The witness evidence

160. Mr Hickey also invited us to rely on the witness evidence given by Mr Mohammed and Sajit. As explained earlier in this decision, both significantly changed their witness statements from the witness box in order to bolster this part of their case, and we have rejected those changes as lacking in credibility. We also find both witnesses to be unreliable in other respects, see §28, §32 and §34. We therefore place no reliance on their evidence that Mr Mohammed's share of the profits was 10%.

Mr Mohammed's tax returns

161. Mr Hickey invited us to rely on Mr Mohammed's 2012-13 tax return, which as we have already found, included a note that Mr Mohammed "avers" that the Happy Chip business was run as a partnership of which he had a 10% interest. We place no weight on that note either, because this return was signed by Mr Mohammed on 24 April 2017, around a month after Officer Bland sent Mr Mohammed his "view of the matter" letter, which stated that he owed almost £1.5m in tax and penalties, and we find on the balance of probabilities that the note was included in an attempt to reduce those assessments.

Mr Mohammed's share?

162. On the balance of probabilities we instead find that Mr Mohammed received the greater part of the profits of the partnership. We come to this conclusion because:

(1) Mr Mohammed described himself in the application dated 1 December 2004 to appeal a planning decision as the person who "owned and ran" the Happy Chip business;

(2) on 9 February 2024, the Council served a planning contravention notice on Mr Mohammed for operating the Happy Chip from 4WS;

(3) Dickson Dees, acting under instruction, described Mr Mohammed in a letter to the Council on 24 March 2004 as "the owner" of the Happy Chip and said he "ran an established and successful business" from 15WS before the CPO and had subsequently moved to 15WS to "continue" his previous business;

(4) Mr Irvine, the Council surveyor, similarly understood that Mr Mohammed "owned" the business;

(5) During a customer review of Mr Mohammed's banking arrangements at Lloyds TSB Bank in 2007, Mr Mohammed had told the bank that the turnover at the Happy Chip was £8,000 - £10,000 per week, and the clear implication was that the major part of the related profit would belong to Mr Mohammed; and

(6) this finding is consistent with Mr Mohammed's evidence (before the deletion of the final sentence when he amended his statement from the witness box) that:

"When an Asian family goes into business, it is essentially a partnership from the first moment it begins...As for who runs the business, the eldest, is seen by the younger siblings as being in charge. Traditionally, the eldest male child."

Overall conclusion on Issue Two

163. For the reasons set out above, we find that the Happy Chip was operated as a partnership between Mr Mohammed, Sajit and Kishwar, that Mr Mohammed was not entitled to only 10% of the profits, but instead to the greater part of the profits from that business .

ISSUE THREE: BANK ACCOUNTS AND INCOME

164. As a result of the Sch 36, para 2 notice to various banks, Officer Bland identified twenty-one bank accounts in Mr Mohammed's name, six with Barclays, thirteen with Lloyds/TSB and two with NatWest. From his review of those accounts, he identified income and expenses relating to the Happy Chip and issued his assessments accordingly.

165. Mr Mohammed's case was that Sajit owned part of the income from the Happy Chip held within his bank accounts. We next consider the related bank statements and then Mr Mohammed's and Sajit's witness evidence.

Joint accounts

166. Four of Mr Mohammed's bank accounts were held jointly with Sajit:

(1) Lloyds Account xxx0160. Sajit became a signatory on this account on 14 June 2012, twelve days before the Council's interim payment of £226,000 was paid into it, and he remained a signatory at least until 29 November 2013, some seven months after it was accepted that any partnership no longer existed.

(2) Barclays Accounts xxx6117, xxx7420 and xxxx0937. The first of these accounts was in Mr Mohammed's sole name until 2 January 2014, when Sajit was added; the other two were in Mr Mohammed's sole name until 22 January 2014, when Sajit was added. Thus, they became joint accounts some nine months after it was accepted that no partnership existed.

167. Plainly, the last three accounts have nothing to do with any business partnership between Mr Mohammed and Sajit. Given that on Mr Mohammed's case, the partnership had been in operation since 2001, we also do not accept that the first account, which became joint just before the receipt of the payment from the Council and more than a decade after the inception of the partnership, was used by Sajit in relation to the Happy Chip business.

Mr Mohammed's witness evidence

168. As noted earlier in this decision, Mr Mohammed amended his witness statement from the witness box. One passage originally read:

"We had always used each other's bank accounts and we were happy to maintain this state of affairs. Sajit said he did not want to incur business charges so I was happy for my accounts to be used. He used the business accounts...."

169. It was amended to include the words shown in bold

"We had always used each other's linked and joint bank accounts and we were happy to maintain this state of affairs. Sajit said he did not want to incur business charges so I was happy for the linked and joint bank accounts to be used. We used these business accounts,"

170. Another passage originally read:

"We decided to pay money into my bank accounts because l was the one paying the suppliers and all the bills of Happy Chippy. We did not have a business bank account, because business banking is expensive and at times restrictive. We did not see that it would be a problem to use my account as Sajit had a bank card and could make withdrawals as and when he needed to."

171. That passage was amended to read:

We decided to pay money into the joint and linked accounts because l was the one with the chequebook paying the suppliers and all the Happy Chippy delivery invoices which Sajit instructed me to pay. We did not have a business bank account, because business banking is expensive and at times restrictive. We d id not see that it would be a problem to use the linked and joint accounts as Sajit had a bank card and could make withdrawals as and when he needed to.

172. Against the background of that new evidence, Mr Mohammed also relied on four other accounts, which he said were "linked".

(1) Two Lloyds accounts in Mr Mohammed's name, where the first line of the address read "TM and S".

(2) Two were Barclays accounts:

(a) Account xxxx8457 in the name of "Mr Thariq Mohammed trading as Sajways". The name "Happy Chip Leisure Group" was added to the account in March 2012, just before the payment of £96,750 was made by the Council to Mr Mohammed, Sajit and Kishwar for disturbance to the Happy Chip business.

(b) Account xxx1105, which was Mr Mohammed's sole name; the account was called "Sajways Properties".

173. Mr Mohammed said that it was clear from the reference to "TM&S" and to "Sajways" (see §60) that Sajit had access to these "linked" accounts.

174. Mr Marks submitted that Mr Mohammed had changed his evidence at the last minute, because he belatedly realised that even if he were to win the partnership argument, this would not avail him because HMRC's assessments were based on the money in his own bank accounts.

Sajit's evidence

175. Sajit signed his witness statement on 7 November 2019; it made no mention of "linked" bank accounts. However, when he entered the witness box after Mr Mohammed, he too changed his evidence and said "we always had joint and linked accounts".

Held in trust?

176. Mr Hickey invited us to find that, in any event, some of the money within Mr Mohammed's bank accounts was held in trust for Sajit, and that the lack of any documentation to that effect was because it was a family relationship. There is, however, no reliable evidence on which to make any such finding and we do not do so.

Conclusion on Issue Three

177. We agree with Mr Marks that Mr Mohammed changed his position in an attempt to improve his case. Mr Mohammed provided no documentary support for the existence of these so-called "linked accounts", or even any coherent explanation as to how a bank would allow Sajit access to a bank account on which he was not named as a signatory. We agree with Mr Marks that the concept of linked accounts was Mr Mohammed's invention, with no basis in fact, and find as a fact that that his bank accounts do not include Sajit's share of the profits from running the Happy Chip.

178. We therefore reject Mr Mohammed's case that the tax assessments should be reduced because Sajit owns 90% (or, indeed any) of the trading profits included in his bank accounts.

ISSUE FOUR: LEGAL COSTS

179. The legal costs were one of the main battlegrounds in this appeal. Mr Mohammed's case was that the part of the fees paid by him in pursuit of his claims against the Council were deductible from his trade profits, so as to reduce or eliminate most of his assessable profits.

Findings of fact

180. We begin by making some further findings of fact about the Claims, the outcomes of the UTLC hearings and the total legal costs.

Findings about the Claims

181. In October 2009, Mr Mohammed, Sajit, Kishwar, Masriq and Shabreen each separately instructed CJ Thompson ("CJT") to act for them in relation to "a claim to recover losses which you have incurred". Although the Claims were made by five family members, they were initiated and driven by Mr Mohammed, who as the eldest male child was seen by the others as being "in charge". We note that Judge Trott came to the same conclusion [10], saying that Mr Mohammed "gave the majority of the evidence for the claimants and was recognised by them all as being the leader of the family's business interests".

182. CJT's letters of engagement stated that the claims had to be filed before 26 November 2009 because that was the deadline for claiming compensation from the Council. CJT filed and served the Claims for all five family members by that deadline. At some point before the hearing began, Kishwar decided not to proceed, although she did not formally withdraw.

183. Some of the Claims were made on the basis that Mr Mohammed had granted the following leases:

(1) to Sajit for part of 15WS, from which the Happy Chip operated ("Unit A");

(2) to Shabreen for another part of 15WS from which she was said to have operated a clothing and jewellery business called Especially 4 You ("E4Y") together with her sister Zeibeda;

(3) to Masriq, in relation to a different part of 15WS from which he was said to have operated a Convenience Store ("the CS").

184. The Claims were repeatedly amended, as was the quantum the Claimants said was due to them from the Council. By the time of the first UTLC hearing, the total was £8,764,200 made up as set out below [11].

(1) Claims by Mr Mohammed for £2,022,685 being:

(a) compensation for the freehold of 15WS of £810,000;

(b) severance and injurious affection to 4 WS of £985,000; and

(2) Claims by Mr Mohammed and Sajit for "disturbance and other losses in respect of their interests in the Happy Chip" totalling £5,518,962. Of that sum, £2,385,404 was claimed for "post-valuation date losses"; £1,658,500 for "non-commencement of business" and £566,680 for "shadow period losses". The balance related to the relocation of the Happy Chip to Unit 1 (£468,371) and its further relocation to Unit 2 (£449,731).

(3) The other Claims were as follows:

(a) by Sajit, compensation for the loss of the lease for Unit A of £70,000 and for severance and injurious affection to 4WS of £260,000, making a total of £330,000;

(b) by Masriq, for the loss of the lease relating to the CS, of £35,000, and other losses including for disturbance, loss of goodwill, and "blight period losses", totalling £789,668. These claims were made on the basis that there had been "total extinguishment" of the CS businesses as a result of the CPO.

(c) by Shabreen, for disturbance, loss of goodwill, blight period losses and relocation costs totalling £58,161; the CPO was also said to have caused the total extinguishment of this business [12].

185. On 22 June 2012, the Council made Mr Mohammed an interim payment of £192,678.75 for the freehold of 15WS, to which interest of £41,663.48 was added. Tax of £8,332.70 was deducted from the interest, leaving £33,330.78, so the total payment was £226,009. As we have already found, on 9 August 2012, the Council also paid "disturbance compensation" of £96,750.00 to Mr Mohammed, Sajit and Kishwar for "the relocation of the fish and chip business", plus net interest of £16,736.42. The sum of the payments for the freehold and the disturbance amount was £289,428.75.

186. The Tribunal was not provided with the correspondence between CJ Thompson and the Council which preceded those payments, but we make the reasonable inference that they came about because of the Claims. However, the Claimants did not settle, but continued with their legal action.

Findings of fact about the hearings and the outcomes thereof

187. The first hearing took place between 26-30 January and 2-5 February 2015, and judgment was given on 6 October 2015. Judge Trott found that the four leases said to have been entered into by Mr Mohammed with other Claimants were shams, which had been created at least in part to increase the compensation payable under the Claims [13].

188. The second UTLC hearing took place in April and May 2016, with judgment given on 20 July 2017. By that date, the Claims had reduced from £8,764,200 to £7,856,357. The part said to be owed to Mr Mohammed and Sajit in relation to disturbance and other losses had reduced from £5,518,961.64 (63% of the total) to £5,044,004 (64% of the total) with the balance of £2,812,353 being for other amounts, including the value of 15WS [14].

189. In the course of the second hearing, as Judge Trott put it:

"the claimants have conceded the loss of profits and disturbance claims of CS and E4Y, the claim for severance and injurious affection to 4 W St and their claim for compensation for loss of light to 4 W St. They had already conceded, following the Tribunal's interim decision, their claims for the open market value of the purported leasehold interests in the reference property and for losses arising from a second move to Unit 2 at 4 W St."

190. By the time the second hearing ended, the Claims had further reduced to £667,106, of which £550,000 related to the value of the freehold for 15WS [15] and the balance of £117,106 to "disturbance and other losses" [16].

191. Judge Trott held that the open market value of 15WS was £190,000, slightly less than the £192,678.75 already paid by the Council to Mr Mohammed. In relation to the disturbance and other losses, he found as follows [17]:

(1) The claim for costs of making 4WS suitable for the Happy Chip's trade had already been reduced to £53,837, but the correct figure was £32,500 [18];

(2) the cost of new equipment had been reduced to £8,295, none of which was found to be properly evidenced [19];

(3) legal fees of £40,543 had been claimed for planning permission to use 4WS as a hot food takeaway, and legal fees relating to appealing various enforcement notices; of this £11,535 was found to relate to the CPO [20];

(4) the costs of complying with planning conditions was said to be £13,981, of which £380 was held to be properly claimable [21]; and

(5) a sum of £450 representing the time spent by Mr Mohammed and Sajit relocating the business was allowed [22].

192. Of the £117,106 claimed for disturbance, only £44,865 was therefore found to be due from the Council, so £54,563.75 less than the amount already paid to Mr Mohammed and other family members. That difference was subsequently recovered by the Council along with the related interest.

193. In closing submissions, the Claimants' counsel asked the UTLC to award "such sum as it considers would be fair" in relation to loss of profits [23]. However, Judge Trott also decided that the Claimants had failed to provide evidence that they had suffered a loss of profits [24], saying [25] that this part of the Claim was "unsustainable" and "not supported by proper factual or expert evidence".

194. He went on to award the Council its legal costs of £900,000 on an indemnity basis because the Claimants' conduct had been "unreasonable" [26]. He said the Claims had been "grossly exaggerated", and that this exaggeration had been "deliberate" because the Claimants had known the true facts but presented a different version to the UTLC [27].

195. On 20 July 2017, CJT applied on behalf of the Claimants for permission to appeal to the Court of Appeal against the UTLC Judgments, but was unsuccessful.

The total legal costs

196. In addition to the indemnity costs award against the Claimants of £900,000, the Claimants also incurred legal costs of their own. The Claimants subsequently challenged the costs charged by CJT, and in the course of that litigation instructed Century Consultants Ltd, a costs specialist firm.

197. COR Business Services (Northern) Ltd ("COR") calculated that the Claimants' total costs were £923,748, a figure based on bank statements where available and cheque book stubs where statements were not available. The bank statements considered were the Barclays accounts xxx7420 (£376,082) and xxx6117 (£13,720); the Lloyds account xxx0160 (£17,967) and a Santander account (£393,979); that gave an overall total of £801,748.

198. Those totals were supported by schedules, but none has any detail as to what was being paid, other than the name of the payee. All but around £70,000 of the sums identified in account xxx7420 was paid after 5 April 2016, so after the end of the last tax year which was assessed by HMRC; those amounts include payments dated February and March 2017 relating to the PTA application and also to the Claimants challenge to CJT's costs, including payments to Century Consultants Ltd. We therefore place no reliance on these totals.

199. A further figure of £122,000 entitled "county court costs" was added to the bank payments of £801,748 to arrive at the total of £923,748. We know from documentation in the Bundle that on 3 July 2020, the Claimants agreed to pay CJT £122,000 in addition to the sums already paid; and we also know that on 19 August 2020, the High Court entered judgment against the Claimants for that figure. On the balance of probabilities we find that CJT subsequently had to resort to the county court to enforce that judgment. There was no documentary information as to the basis on which the Claimants had agreed to pay the £122,000. However, as the second UTLC hearing took place between 18 April and 5 May 2016, and as CJT acted for the Claimants in their subsequent PTA application, we find as a fact that at least part of the £122,000 related to years after the final year of assessment which was in issue, namely 2015-16.

200. We thus find that that the starting point used by COR for the calculation of allowable legal costs to be unreliable. However, our decision on Issue Five would have been the same, whatever the starting point for that calculation, for the reasons given below.

The Parties' submissions

201. Mr Mohammed's case was that:

(1) the disturbance and other losses claimed from the Council were revenue not capital items;

(2) the related legal costs were wholly and exclusively for the purpose of the trade of the Happy Chip; and

(3) an "identifiable proportion" of the total legal costs had been incurred "wholly and exclusively" for the purposes of the Happy Chip trade; and

(4) that identifiable proportion was £423,213. Mr Mohammed relied on the schedule prepared by COR setting how that figure had been calculated.

202. HMRC's case was that:

(1) Mr Mohammed's motivation was to get a share of the Council's profits for himself, and the purpose of incurring the costs was thus not (or not only) to increase the trading income from the Happy Chip;

(2) no identifiable proportion of the costs was "wholly and exclusively" for the purposes of the trade of the Happy Chip; and

(3) even if that were not the case, all but an insignificant proportion of the disturbance and other losses were capital and not revenue items.

The legal principles

203. We begin with the legislation and the related case law.

The legislation

204. The Income Tax (Trading and Other Income) Act 2005 ("ITTOIA") s 33 reads:

"In calculating the profits of a trade, no deduction is allowed for items of a
capital nature."

205. ITTOIA s 34 reads:

"(1) In calculating the profits of a trade, no deduction is allowed for

(a) expenses not incurred wholly and exclusively for the purposes of the trade, or

(b) losses not connected with or arising out of the trade.

(2) If an expense is incurred for more than one purpose, this section does not prohibit a deduction for any identifiable part or any identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade."

The case law

206. In Mallalieu v Drummond [1983] 2 AC 861, 57 TC 330 ("Mallalieu") at 870, Lord Brightman explained the "wholly and exclusively" test, which at that time was set out at s 130(a) Income and Corporation Taxes Act 1970 ("ICTA"):

" To ascertain whether the money was expended to serve the purposes of the taxpayer's business it is necessary to discover the taxpayer's "object" in making the expenditure: see Morgan v Tate & Lyle Ltd. [1955] AC 21, 37, 47. As the taxpayer's "object" in making the expenditure has to be found, it inevitably follows that (save in obvious cases which speak for themselves) the commissioners need to look into the taxpayer's mind at the moment when the expenditure is made. After events are irrelevant to the application of section 130 except as a reflection of the taxpayer's state of mind at the time of the expenditure.

If it appears that the object of the taxpayer at the time of the expenditure was to serve two purposes, the purposes of his business and other purposes, it is immaterial to the application of section 130 (a) that the business purposes are the predominant purposes intended to be served.

The object of the taxpayer in making the expenditure must be distinguished from the effect of the expenditure. An expenditure may be made exclusively to serve the purposes of the business, but it may have a private advantage. The existence of that private advantage does not necessarily preclude the exclusivity of the business purposes. "

207. Thus, in order to see whether the "wholly and exclusively" test is met, it is necessary to "look into the mind" of a taxpayer, and object must be distinguished from effect. Lord Brightman continued at p 175 by saying:

"I reject the notion that the object of a taxpayer is inevitably limited to the particular conscious motive in mind at the moment of expenditure. Of course the motive of which the taxpayer is conscious is of a vital significance, but it is not inevitably the only object which the commissioners are entitled to find to exist."

208. In BlackRock HoldCo 5 LLC v HMRC [2024] EWCA Civ 330, Falk LJ gave the leading judgment with which Nujee and Jackson LJJ both agreed. Having considered Mallalieu, she went on to discuss subsequent case law, and then summarised the relevant principles as follows:

"a) Save in "obvious" cases, ascertaining the object or purpose of something involves an inquiry into the subjective intentions of the relevant actor.

b) Object or purpose must be distinguished from effect. Effects or consequences, even if inevitable, are not necessarily the same as objects or purposes.

c) Subjective intentions are not limited to conscious motives.

d) Further, motives are not necessarily the same as objects or purposes.

e) "Some" results or consequences are "so inevitably and inextricably involved" in an activity that, unless they are merely incidental, they must be a purpose for it.

f) It is for the fact finding tribunal to determine the object or purpose sought to be achieved, and that question is not answered simply by asking the decision maker."

Wholly and exclusively?

209. We considered two issues under this heading: Mr Mohammed's reason for initiating the Claims and the involvement of the other Claimants

Finding of fact as to Mr Mohammed's purpose

210. There was disagreement as to the reasons why Mr Mohammed pursued the claim at the UTLC. In his original witness statement, before its amendment during the hearing, he said (our emphasis):

"Sajit and 1 decided to initiate legal proceedings against Newcastle City Council as we felt that the compensation we had received for the loss of the property and the business was but a drop in the ocean next to the money the Council was earning from their land grab. The land was transferred for nearly £10,500,000. I exhibit as TM1 a copy of the lease between Newcastle City Council and the developer. And that figure is the land price, not the value that can be realised out of the subsequent development. That is what annoyed Sajit and I, the fact that we felt cheated. It was not as if the Council were building a structure or undertaking the development. Instead I lost my property and Sajit his livelihood so that a private company could develop land that until the compulsory purchase was not available to them [to] develop. Additionally, rather than try and buy each property singly they effectively got the council to do their dirty work for them. Whilst individuals may have acted within the law, the corruption of society, that such a thing can happen is outrageous."

211. Mr Marks submitted in opening that the emphasised phrases supported HMRC's case that the Claims were pursued because Mr Mohammed felt that the Council was "profiteering" from the Council's "land grab", and Mr Mohammed felt he and his family "should have a cut of it".

212. The changes Mr Mohammed made to this witness statement after entering the witness box included removing the phrases emphasised in the passage above. We have already agreed with Mr Marks that the reasons given by Mr Mohammed for making these and other changes to his witness statement were not credible.

213. In his evidence-in-chief, Mr Mohammed also said he only became aware of the sum paid to the Council after the final decision of the UTLC. However, as Mr Marks pointed out, the evidence filed on behalf of the Claimants included a copy of the Land Registry document which gave that figure. Thus, we reject Mr Mohammed's evidence that he was unaware, until the conclusion of the UTLC hearing, that the Council had transferred the land for £10,443.776.

214. We agree with Mr Marks that Mr Mohammed's purpose in initiating the Claims was that, when he found out how much money the Council had made from on-selling the site, he felt cheated and wanted a significant share of that money. The Claims were thus not made wholly and exclusively for the purposes of the Happy Chip trade.

The other Claimants

215. Mr Marks also submitted that the wholly and exclusively test was not met for a further reason: the Claims were pursued, and the legal costs incurred, because all five Claimants wanted compensation for wide range of different losses, and the Claims were thus not made wholly and exclusively for the purposes of the Happy Chip trade.

216. Mr Mohammed relied on Garforth v Tankard Carpets Ltd [1980] STC 251. In that case, the appellant obtained its raw materials from JLT, an associated company. JLT borrowed money from a bank, secured by a guarantee from another associated company, TPL. The appellant provided a further guarantee, and was subsequently called upon to pay under that guarantee. The appellant then claimed that the cost was wholly and exclusively for the purposes of tis trade, but the Special Commissioners held that in deciding to give the guarantee, the appellant had had regard not merely to its own trade requirements but also to the requirements of the other two companies, JLT and TPL. This was held to be fatal to the appellant's case. At the High Court, Walton J held at p 349-350 as follows:

"Although the point does not, in view of this finding of primary fact, arise, it must in the nature of things be extremely difficult for any directors of two associated companies in the position of the taxpayer company and JLT to be certain in whose best interests, or, rather, in whose exclusive interests, any step which they take is being taken. Obviously, there is nobody but themselves to say what was in their own minds; and obviously, again, it must require a superhuman effort of mind (of which extremely few persons, if any, are capable) to rule out entirely from consideration the possibility of benefit to one's other company when concentrating on the exclusive requirements of just one of them. In my judgment, commissioners should be extremely slow in coming to any conclusion that the act was done solely for the benefit of the trade of one of the companies concerned, and should in general do so only where there are wholly separate findings of primary fact not depending on the say-so of the directors concerned. I cannot resist the impression that in 99 cases out of 100 the correct primary fact to find will be that which was in fact found in this case; namely that in such a situation as the present the interests of all the companies were considered together. This is in accord with all the probabilities in the present and, indeed, most foreseeable cases."

217. Mr Marks said that the position was essentially the same here: the legal fees had been incurred for the purpose of all the Claimants, and their interests had been "considered together". We agree: the Claimants had a common purpose of obtaining more compensation from the Council and that purpose was not wholly and exclusively for the Happy Chip trade.

Identifiable proportion?

218. Mr Hickey submitted that, even if the whole of the legal fees were not expended wholly and exclusively for the purposes of the Happy Chip trade, there was nevertheless an identifiable proportion" of those legal fees which were so incurred. He supported his submission by the COR schedule, which as we have already noted, begins with the total figure of £923,748. Mr Hickey said that it was possible to arrive at the "identifiable proportion of that figure" by the following three stages.

Stage 1: the costs of the other Claimants and experts on capital items

219. The purpose of Stage 1 was to eliminate (a) the share of the legal fees relating to Claims made by Masriq, Shabreen and Kishwar, and (b) the costs paid to experts who had given evidence on the value of various Claims for capital payments. The schedule sets out the following steps:

(1) The total of £923,748 was split into costs paid to CJT of £701,194 and the balance of £222,554 paid to others.

(2) From the CT figure, "costs paid by other Claimants"; costs paid "for" or relating to other Claimants, and costs of experts which related to Claims for capital payments were said to have been deducted. Mr Mohammed did not provide the detailed working papers supporting any of those deductions.

(3) The net figure after the deductions was £505,057.

(4) To this was added 90% of the "other costs" figure of £222,554 (ie £200,299), on the basis that 10% of those costs related to the other claimants. No explanation was given for that 10% figure.

(5) As a result of those calculations, the total legal fees which were said to relate to Mr Mohammed's and Sajit's Claims for loss of profits, disturbance and relocation was £705,335.64.

Stage 2: the share of the Claims made

220. Stage 2 was to split the Claims made between capital and revenue items, as follows, with cross-references to earlier paragraphs of this decision:

	Ref	£	% of total
Mr Mohammed Claim for capital items	§184(1)	2,022,685	26%
Sajit Claim for capital items	§184(3)(a)	330,000	4%
Happy Chip revenue items (being £5,518,962 less £778,912)	§184(2)	4,740,050	60%
Partnership capital [28]		778,912	10%
Total		7,871,647

Stage 3: apportioning the legal costs

221. The final stage was to use those percentages to apportion the £705,335.64 of legal costs calculated under Stage 1 as relating to Mr Mohammed and Sajit, so that 60% of those costs were apportioned to Happy Chip revenue items, giving a figure of £423,213.

Discussion

222. Mr Marks submitted that the approach set out above does not satisfy the statutory test, because the £423,213 is not an "identifiable proportion of the expense which is incurred wholly and exclusively for the purposes of the trade". We agree, for the following reasons:

(1) The statute requires that an identified proportion of the expense be incurred wholly and exclusively for the purposes of the trade.

(2) There is no information as to how the expense, ie the fees charged by the barristers and solicitors, related to the different Claims. For example, the fee notes issued by the barristers simply refer to advising, reading, drafting and settling and to charges for a "brief" or a "refresher".

(3) There is no necessary correlation between the value of the various Claims made, and the fees charged. A claim for relatively a small sum can take up a lot of legal time and result in large share of the costs; a claim for a large sum can be simple to address and so cost relatively little.

(4) The COR calculation allocated the legal costs on the basis of the original Claim of £8,764,200 (see §184), but this was reduced by almost £1m by the time of the second hearing; it was further reduced in the course of that hearing, and the Claimants finally ended up with less than had already been paid to them by the Council. The figures thus changed throughout the litigation as the Claimants abandoned various parts of their case. No reason has been given as to why the allocation was based on the original figure (which was plainly exaggerated).

223. That is sufficient for us to decide this issue against Mr Mohammed. We add that there were also issues about the starting figure, see §198ff, as well as about the Stage 1 figures, given the lack of supporting schedules and the unexplained allocation to Mr Mohammed and Sajit of 90% of the non-CIT costs, see§219.

Revenue or capital

224. Mr Marks also submitted that, in any event, almost all the Claims were for capital and not revenue items, and so disallowable for that reason too. Mr Hickey's position was that all the £5,518,962 claimed as "disturbance and other losses" was revenue, apart from the adjustment of £778,912 identified on the schedule as "partnership capital".

225. On the basis of the skeleton argument filed by the Claimants for the UTEL case, we find as facts that the figure of £5,518,962 was made up as follows:

(1) post-valuation date losses of £2,385,404; this was claimed because the premises at 15WS had been "extinguished";

(2) shadow period losses of £566,680;

(3) non-commencement of business of £1,658,500 on the basis that CPO prevented the Claimants from developing a restaurant and club at 15WS as they had envisaged;

(4) relocation to Unit 1 of £468,369, which included:

(a) extensive works including the construction of walls, adjusting floor levels and installing ventilation;

(b) equipment including a chest freezer and vegetable preparation machines;

(d) advertising expenses; and

(e) 750 hours of Mr Mohammed's and Sajit's time, valued at £50 per hour

(5) relocation to Unit 2 of £449,731; this included significant expenditure on adapting the premises, as well as Mr Mohammed's and Sajit's time.

226. We begin with the first three of the above Claims, and we consider the relocation costs separately at §237ff.

The parties' submissions on the first three Claims

227. Mr Marks submitted that if any amount had been payable by the Council in relation to the first three Claims, those sums would have been capital, and the same must be true of any related legal costs. He relied on Glenboig Union Fireclay Co Ltd v HMRC [1922] 2 WLUK 115, 12 TC 427 ("Glenboig"). The appellant in that case had mineral rights over fireclay beds which extended under the line of the Caledonian Railway. The Railway paid Glenboig compensation for not working those beds; this was calculated based on the profits Glenboig would have earned. Lord Buckmaster, giving the judgment of the majority, held at p 114:

"In truth the sum of money was paid to prevent the Fireclay Company obtaining the full benefit of the capital value of that part of the mines which they were prevented from working by the railway company. It appears to me to make no difference whether it be regarded as a sale of the asset out-and-out, or whether it be treated merely as a means of preventing the acquisition of profit that would otherwise be gained. In either case the capital asset of the Company to that extent has been sterilised and destroyed, and it is in respect of that action that the sum of 15,316 was paid. It is unsound to consider the fact that the measure adopted for the purpose of seeing what the amount should be was based on considering what were the profits that would have been earned...there is no relation between the measure that is used for the purpose of calculating a particular result and the quality of the figure that is arrived at by means of the test. I am unable to regard this sum of money as anything but capital money"

228. Mr Marks submitted that the position here was the same. He said that Mr Mohammed and Sajit were:

"working the asset of 15 Waterloo Street to produce revenue receipts. That asset was taken away from them and they were no longer able to produce trade receipts using that asset."

229. Mr Hickey's position was that the facts were closer to those in Able (UK) Ltd v HMRC [2007] EWCA Civ 1207 ("Able"). In Able, as Moses LJ said at [1] of the judgment:

"[the taxpayer] used its land as a landfill tipping site. Following service of a Compulsory Purchase Order in respect of part of the site, the taxpayer was kept out of possession of that part for just over three years, between August 1992 and November 1995, when withdrawal of the Order was confirmed."

230. Able was paid compensation, and claimed it was a capital payment. The Court rejected this: Moses LJ giving the leading judgment with which Collins and Buxton LJJ both agreed, said at [14]:

"The value of the land depended upon its capacity, as a landfill site, to produce profits from the deposit of waste. That capacity was temporarily interrupted by the service of the CPO. But its capacity was not in any way exhausted... The temporary interruption to the use of the site had no permanent impact on the site as source of profit from the deposit of general waste."

231. Mr Hickey relied on the fact that after the CPO, the Happy Chip continued its trade at 4WS, and thus Mr Mohammed and Sajit were claiming compensation for the loss of profits for the continuing trade.

The Tribunal's view

232. For the reasons set out below, even if an "identifiable proportion" of the legal fees related to these Claims, we agree with Mr Marks that they would not have been allowable as revenue costs.

Post-valuation date losses

233. The Claim was for post-valuation date losses of £2,385,404 for the extinguishment of 15WS. On the authority of Glenboig, were such a payment to have been received, it would have been capital, because 15WS had "been sterilised and destroyed" as a result of the CPO.

Shadow period losses

234. The concept of shadow period losses originates from Director of Buildings and Lands v. Shung Fung Ironworks Ltd [1995] UKPC 7 ("Shung Fung"). Until that case, it was an established principle that compensation could not exceed the cost payable for total extinguishment. The Privy Council held in Shung Fung that there might also be cases where that approach did not fairly reflect the loss: for example, where the owner had invested in a business which had not yet begun trading.

235. We therefore find that the Claim for shadow period losses is linked to, and caused by, the extinguishment of the premises at 15WS, and it is therefore capital for the same reasons as the post-valuation date loss Claim.

Non-commencement of business

236. It is clear that if 15WS had been developed to include a restaurant and a club, those new developments would have been part of the enduring structure of the trade (see Atherton v British Insulated & Helsby Cables (1926) 10 TC 155 and Anglo-Persian Oil Co v Dale (1932) 16 TC 274). It follows that a payment to compensate Mr Mohammed for being unable to develop 15WS would also be capital, just as in Mallett v Staveley Coal and Iron Co Ltd [1928] 2 KB 405, on which Mr Marks relied, sums paid for the surrender of rights to work certain seams of coal were held to be capital.

Relocation costs

237. The Claims included relocation costs of £918,102 (£468,3712 plus £449,731, see §184(2)), made up as set out at §225(4) and §225(5).

238. Of that total, £778,912 had been excluded from the amounts said to constitute revenue items, see §220, leaving £139,190 which was said to be revenue. However, we did not know which of the relocation costs had been identified as capital and which as revenue.

239. It is clear from the information provided that most of the relocation expenditure included in the Claims was on capital items. The Bundle also contained a detailed capital allowances claim relating to the refurbishment of 4WS in the amount of almost £640,000, which the Tribunal was informed had been accepted by HMRC.

240. We accept that some small amounts do related to revenue costs, such as advertising. However, we have not been provided with any detail as to the quantum of those costs. The burden on this issue rests on Mr Mohammed, and we find that there is insufficient evidence as to what (very small) part of the relocation costs related to revenue items.

Conclusion on revenue/capital

241. Thus, even if it there was an "identifiable proportion" of the legal fees which related to relocation cost claims, almost all the costs were capital, and there is insufficient evidence as to the cost of the small element which is revenue.

Claims were "exaggerated"

242. Mr Marks also submitted that the Claims were grossly exaggerated, and so were not allowable for that reason either. Mr Hickey responded by saying that whether or not a legal cost is deductible is not "results dependent", and it was irrelevant that the UTLC had not allowed most of the claims made.

243. Because we agree with HMRC on the points discussed above, we have not needed to address those further submissions.

Conclusion on Issue Four

244. The assessments are not reduced by any part of the legal costs, for the following reasons:

(1) Mr Mohammed's purpose in initiating the Claims was that, when he found out how much money the Council had made from on-selling the site, he felt cheated and wanted a significant share of that money. The costs were therefore not wholly and exclusively for the purposes of the Happy Chip trade.

(2) The costs were incurred on behalf of all the Claimants, and so were not wholly and exclusively for the purposes of the Happy Chip trade for that reason.

(3) The methodology for apportioning some of the costs so as to arrive at an "identifiable proportion" was flawed in numerous respects.

(4) Even had it been possible to allocate some part of the legal costs to the part of the Claims which related to the Happy Chip, all but a very small amount of those Claims were for capital items, and there was no documentation or other particularisation to support the very small amount of revenue costs.

ISSUE FIVE: PROPERTY INCOME

245. As set out at §68, Mr Mohammed received rental income from a number of properties. Mr Mohammed did not provide any evidence as to how much of the income in his bank accounts related to rental income, so the split between trading and rental profits had been estimated by Officer Bland.

246. By the time the appeal was heard, Mr Mohammed did not challenge that split, other than in one respect. His case was that between 1 April 2009 and 4 April 2013 he was in a joint venture ("JV") with a Mr Michael Simmonds, such that Mr Simmonds received 40% of the rental income and Mr Mohammed received 60%, and in consequence the sums identified as rental income in Mr Mohammed's bank account should be reduced by 40%.

247. HMRC's case was that they did not accept that the JV agreement was valid or effective, and that even if it was, none of the money in Mr Mohammed's bank belonged to Mr Simmonds.

The evidence

248. The Tribunal was provided with the following:

(1) a JV agreement signed by both Mr Simmonds and Mr Mohammed, and dated 1 April 2009. Mr Mohammed's evidence was that the JV came to an end on 4 April 2013.

(2) Mr Mohammed's 2012-13 tax return filed by Mr Salhan on 24 April 2017. This did not include a partnership page, but did include a property page, which said that Mr Mohammed was renting out a single property, with income of £239,326 and expenses of £345,248, giving a loss of £105,922. The white space of the return included a note which said:

"the legal structure in respect of income from property in this return ahs been reported as income from properties, save it is a partnership in which Mr T Mohammed owns 60% and this is also an ongoing issue with HMRC."

(3) a bank statement in the name of "Mr Mohammed Simmonds, Simmonds Properties, 4 Waterloo Street", dated 4 September 2019, and

(4) financial accounts drawn up by Mr Newton for the JV for the years ending 5 April to 2010 to 5 April 2012. There were no accounts relating to the final year of the alleged partnership.

249. Under cross-examination, Mr Mohammed accepted that there was "nothing to back up the accounts", in other words, there were no books of account. In addition, there was no witness statement from Mr Simmonds; Mr Mohammed said he had asked him to give evidence but had not received a response.

The Tribunal's view

250. Mr Marks submitted that Mr Mohammed has failed to meet his burden of proving that between April 2009 and April 2013 he was running his property letting business as a joint venture with Mr Simmonds in accordance with the terms of the JV agreement. We agree. We find as a fact that the JV agreement was never in force, and in making that finding we rely in particular on the following:

(1) The JV agreement provides that both parties have to make a capital contribution, but the figure for Mr Mohammed is blank.

(2) The JV agreement also stated that "accurate and complete books of account of the transactions of the Venture will be kept in accordance with generally accepted accounting principles" and will "reflect all the Venture's transactions", yet there were no accounting records.

(3) The JV agreement states that the funds of the JV will be held in a separate account and not "commingled" with other money. Mr Hickey placed reliance on the bank statement included in the Bundle in the name of Mr Mohammed Simmonds. However, that was dated 4 September 2019, over six years after the alleged JV had terminated. No bank statements were provided for the period during which the JV was said to have existed.

(4) Although Mr Mohammed provided financial accounts also drawn up by Mr Newton for the JV for the years ending 5 April to 2010 to 5 April 2012, these are prefaced by the statement that they were prepared from the "accounting records and from information and explanations provided to us", but as there were no books of account, there was no reliable basis for the figures in those accounts.

(5) Moreover, the financial accounts have numerous and obvious deficiencies: taking those for 2014 as an example, around 25% of the expenses include "cheque payments" and a further 27% are recorded as unspecified "administration expenses", while a further 10% was for "rent and rates", although there could be no "rent" as the properties were owned.

(6) When the JV was signed, Mr Mohammed owned four properties either absolutely or together with his siblings but the JV did not name or otherwise specify the properties.

(7) Mr Marks challenged as uncommercial and improbable an agreement under which Mr Mohammed would give 40% of the profits of those properties to a JV partner who did not own the properties, and we agree.

251. Even had the JV agreement been in force, we would also have agreed with Mr Marks that Mr Mohammed has not met his burden of showing that 40% of the property income in his bank accounts belonged to Mr Simmonds. It is not credible that Mr Simmonds would have allowed Mr Mohammed to retain all the income, and it is also not credible that he would not have required reliable and accurate accounting records so that his share could be calculated and paid out. We therefore find as a further fact that all the money in Mr Mohammed's bank accounts which has been identified as relating to properties belongs to Mr Mohammed and no part belonged to Mr Simmonds.

ISSUE SIX: CGT

252. There were two CGT issues for determination, the first of which related to a gain made in 2005 and the second to a gain made in 2012.

The 2005 gain

253. The care home known as Kensington House was sold in September 2005. The legal title belonged to Mr Mohammed's sister, Zeibeda Sattar. However, in 2009, following HMRC's enquiries into Ms Sattar's tax affairs, Mr Mohammed and Sajit signed a declaration stating that they were joint beneficial owners of the property. Neither included a share of the gain on their tax returns. Mr Mohammed made a rollover claim in relation to the subsequent purchase of 295 Elswick Road, which was also acquired in his and Sajit's joint names.

254. HMRC did not accept that the beneficial ownership of either Kensington House or 295 Elswick Road was shared between Mr Mohammed and Sajit, and asked us to find that both properties were beneficially owned by Mr Mohammed, but did not provide an explanation for this submission.

255. We would thus have decided this point in Mr Mohammed's favour. However, for the reasons explained at §113ff, we have already determined that HMRC are out of time to assess Mr Mohammed for this year.

The 2012 gain

256. On 22 June 2012, the Council paid Mr Mohammed £192,678.75 for the loss of 15WS, and that receipt gave rise to a capital gain. On 1 March 2012, Ascot House was purchased for £465,000. The land registry title says that "title absolute" is held by Mr Mohammed, Sajit and their mother, Mrs Mohammed.

257. Mr Mohammed's case was that he was the sole beneficial owner of Ascot House, and in consequence he could roll all of the gain arising from 15WS into its purchase. Mr Marks did not accept that Mr Mohammed was the sole beneficial owner and invited the Tribunal to find as a fact that the legal ownership was the same as the beneficial ownership so that Mr Mohammed owned one-third of Ascot House.

The witness evidence

258. On 15 September 2023, Mrs Mohammed signed a witness statement in which she said she was not a beneficial owner of Ascot House and had provided no funds towards its purchase, and that Mr Mohammed wanted to put the property into the names of other family members as well as himself "in case anything happened to him". As explained at §36, arrangements were made for Mrs Mohammed to attend the hearing to give evidence, but she did not do so. No reason was given. We place no weight on this witness statement.

259. On the same date, Sajit signed his second witness statement in similar terms to that of his mother. He said that Mr Mohammed "had been solely responsible for the payment of the purchase price and I have made no contribution towards it" and that the property had been put into the names of family members "so that if anything happened to him then the property would be owned by family members".

260. Under cross-examination, Sajit changed his position, saying he had provide funds to purchase the property, but that this money had been borrowed from his sister Zubeida Sattar. On re-examination he reverted to the position in his witness statement. Given those changes of position and our overall assessment of his credibility, we declined to place reliance on his evidence unless it was supported by independent contemporaneous documents.

261. Mr Mohammed's evidence about Ascot House was included in his third witness statement, and was robustly challenged by Mr Marks. We have found Mr Mohammed to be an unreliable witness, who gave self-serving evidence to bolster his case, and we similarly place no weight on his evidence about Ascot House unless it is supported by independent contemporaneous documents.

Documentary evidence

262. The Tribunal had the following contemporaneous documentary evidence:

(1) The engagement letter for the purchase of Ascot House; this was issued by Hathaways to Mr Mohammed and signed by him.

(2) A schedule of fees charged by Hathaways to Mr Mohammed.

(3) The standard enquiry form for the transaction, on which the name of the buyer was blank.

(4) Hathaways' completion statement, which is headed "client: T Mohammed, S Mohammed, Mr Mohammed and ZB Mohammed". It thus included Masriq as well as Mr Mohammed, Sajit, and their mother, Mrs Zenin Bibi Mohammed.

(5) The Land Registry title deed, which as noted above, says that "title absolute" is held by Mr Mohammed, Sajit and Mrs Mohammed.

(6) A letter from Birmingham Stamp Office dated 12 June 2012 addressed to Mr Mohammed, describing him as "Purchaser (1)" and confirming receipt of £13,950.

263. On 16 March 2012, Mr Mohammed's bank account xxx7561 recorded a receipt from the account of a third party for £100,000. On 22 March 2012, the same account recorded a second receipt of £320,000 entitled "deposit", and on the same date, payment of £418,500 to Hathaways. It was common ground that the £418,500 was the bulk of the purchase price, and that a deposit had been paid earlier. We make the reasonable inference and find as a fact that the two receipts were made by other family members to part-fund the purchase of Ascot House.

Discussion

264. There is a well-known maxim that "equity follows the law", which in this context means that the beneficial ownership of a property reflects the legal ownership unless that presumption is displaced. In Stack v Dowden [2007] UKHL 17, Lady Hale and Lord Hope confirmed that this maxim continues to be valid; Lord Hope said at [4] that:

"...in a case of sole legal ownership the onus is on the party who wishes to show that he has any beneficial interest at all, and if so what that interest is. In a case of joint legal ownership it is on the party who wishes to show that the beneficial interests are divided other than equally."

265. The onus was thus on Mr Mohammed to show that he was the sole beneficial owner of Ascot House. The engagement letter with Hathaways and the related invoice provide some support. However, we also took into account that:

(1) there was no documentary evidence to explain why, if, as Mr Mohammed said was the case, he was the sole beneficial owner, Hathaways issued the completion statement on the basis that they were acting for four clients, or why they subsequently registered the title in the name of three of those clients; and

(2) a total of £420,000 was paid by other family members to part-fund the purchase of Ascot House.

266. Having assessed and weighed the evidence, we find that Mr Mohammed has failed to displace the burden of showing that beneficial ownership was different from the legal ownership. It follows that we also reject Mr Mohammed's and Sajit's evidence to the contrary as unreliable.

267. As Mr Mohammed is the beneficial owner of only one-third of Ascot House, the amount of rollover relief is restricted. There has been no challenge to the computation of that restriction, and we uphold HMRC's related CGT calculation.

ISSUE SEVEN: USE OF TMA SECTION 50

268. Mr Marks asked the Tribunal to use its power under TMA s 50 reduce the assessments for all but three of the years, to reflect the agreements entered into at the Meeting, and the loss disclosed by the Santander account for one of the years. Mr Marks also asked the Tribunal to increase the profits for three years, when the Santander account showed that there were further undisclosed profits. Mr Hickey agreed with the reductions, but submitted that there should be no increases to the assessments.

269. We agreed with the parties that the assessments should be reduced under s 50(6) for the reasons given by Mr Marks, so Issue Seven concerns only the use of s 50(7) to increase the assessments for three of the years.

TMA s 50 and the case law

270. TMA s 50 is headed "Procedure" and reads:

"(6) If, on an appeal notified to the tribunal, the tribunal decides

(a) that the appellant is overcharged by a self-assessment;

(b) that any amounts contained in a partnership statement are excessive; or

the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good.]3

(7) If, on an appeal notified to the tribunal, the tribunal decides

(a) that the appellant is undercharged to tax by a self-assessment6

(b) that any amounts contained in a partnership statement6 are insufficient; or

the assessment or amounts shall be increased accordingly."

271. In Tower M'Cashback v R&C Commrs [2011] UKSC 19 ("Tower") at [15], Lord Walker adopted and approved the following paragraph from the judgment of Henderson J (as he then was) when that case had been decided by the High Court:

"...There is a venerable principle of tax law to the general effect that there is a public interest in taxpayers paying the correct amount of tax, and it is one of the duties of the commissioners in exercise of their statutory functions to have regard to that public interest...For present purposes, however, it is enough to say that the principle still has at least some residual vitality in the context of section 50...."

272. In Glaxo v HMRC [1996] STC 191, Millet LJ, giving the only judgment of the Court of Appeal with which Sir Ralph Gibson and Legatt LJ both agreed, held that:

"Section 50(7) of the Taxes Management Act 1970, however, preserved the right, and as it seems to me the duty, of the commissioners to increase the assessment on the hearing of the taxpayer's appeal if the evidence shows this to be appropriate."

273. The reference in both Tower and Glaxo to "the commissioners" is to the general or special commissioners, and thus now to the Tribunal. The judgment in Glaxo was affirmed by the Supreme Court in Project Blue v HMRC at [86], where Lord Hale confirmed that by virtue of s 50(7)"the FTT is bound to increase the amounts of tax due if the taxpayer has been undercharged".

The position of the parties

274. Mr Marks submitted that, after the assessments had been made, Mr Mohammed disclosed a further Santander bank account which showed he had additional property income and related expenses; these sums had not been taken into account in the assessments for 2010-11, 2011-12, 2012-13 and 2013-14. When those amounts were included, the assessments for the first three years increased, but those for the final year reduced. Mr Marks asked the Tribunal to use s 50(7) to increase the assessments for 2010-11, 2011-12 and 2012-13 in consequence.

275. Mr Hickey did not dispute that the Santander account contained income which had not been taken into account, so there was no dispute about the evidence. However, he asked the Tribunal to take into account that it was Mr Mohammed who disclosed that account.

The Tribunal's conclusion

276. As is clear from the case law, where the evidence shows that the assessment is too low, it is our duty to increase it. There is no exception for cases where the evidence is provided by the appellant. We therefore agree with Mr Marks and use our power under TMA s 50 to increase the assessments for those three years to include the Santander amounts.

277. Mr Hickey made further submissions about the disclosure of the Santander account in the context of penalties, which we consider below.

ISSUE EIGHT: PENALTIES

278. Mr Mohammed was originally assessed to penalties totalling £998,420.22 for the tax years 2001-03 through to 2015-16. However, the penalties were linked to the tax underpaid, so the capital allowances claims and certain other matters accepted by HMRC had the effect of reducing the assessments for all years except 2010-11, 2011-12 and 2012-13, as explained under Issue Seven. It was common ground that (if penalties were due) they should be reduced for the years where HMRC accepted that the assessments should be reduced, so that they were based on those lower amounts.

279. The issues in dispute were:

(1) Whether Mr Mohammed was liable to penalties for years before 2008-09 under TMA s 95, and if so, whether the amount of abatement was correct.

(2) Whether Mr Mohammed was liable to penalties for 2008-09 and 2009-10 under Sch 24 for submitting inaccurate returns.

(3) Whether Mr Mohammed was liable to penalties for 2011-12 to 2014-15 under Sch 55 for submitting late returns.

(4) If the answer to questions (2) and/or (3) was yes:

(a) whether the amount of mitigation was correct, including whether Mr Mohammed's behaviour since the appeals were notified to the Tribunal was relevant to abatement/mitigation; and

(b) whether there were "special circumstances".

The Facts

280. The facts are set out at §74ff, but we repeat key points here for ease of reference:

(1) On 24 March 2014, Mr Mohammed refused the CDF and on 7 April he refused to attend a meeting with Officer Bland, but said he would communicate by correspondence.

(2) No information was forthcoming, and on 11 June 2014 HMRC issued Mr Mohammed with a Sch 36 Notice. Mr Mohammed did not respond to that Notice, or to the subsequent fixed and daily penalties.

(3) On 24 March 2016, Mr Mohammed emailed Officer Bland, saying he would submit a report covering all years "from 2000 to the present time", but no report was provided.

(4) Between January 2015 and February 2016, HMRC issued Tribunal approved third party notices under Sch 36, and obtained bank statements, property documents and other material.

(5) On 7 December 2015, Mr Mohammed emailed Officer Bland, saying he did not agree that the FTT should have allowed the Sch 36 application, and was "preparing a lot of documents and evidence [which] will hopefully address any issues outstanding". No documents were sent to Officer Bland.

(6) On 24 March 2016, Mr Mohammed emailed Officer Bland, saying he would submit a report covering all years "from 2000 to the present time". No report was provided.

(7) On 29 March 2017, Officer Bland issued his "view of the matter" letter saying that he was about to issue assessments totalling £1,105,812.54 and penalties totalling £529,684.93.

(8) On 24 April 2017, Mr Mohammed filed two of his outstanding returns; these included information in the white space about his alleged 10% partnership share of the Happy Chip and 60% share of property profits.

(9) After the assessments were issued, but before the statutory review, Mr Mohammed told Officer Bland he would attend a meeting, and it was arranged to avoid Ramadan. However, Mr Mohammed did not attend, and gave no reason for his non-attendance.

(10) On 22 June 2018, on behalf of Mr Mohammed, Rainer Hughes filed a Notice of Appeal at the Tribunal in relation to the assessments and the penalties.

(11) On 2 August 2019, Rainer Hughes filed Mr Mohammed's list of documents; this included 749 identified documents, and between November 2019 through to November 2023 that original list was followed by 12 supplementary lists.

(12) After the hearing was postponed, Mr Mohammed and Officer Bland held the Meeting to discuss the appeals, and agreement was reached on a number of issues.

Years before 2008-09

281. We first set out the law, followed by the parties' submissions and our view.

The legislation

282. In the years before 2009-10, the relevant legislation was at TMA s 95. It was headed "Incorrect return or accounts for income tax or capital gains tax" and read:

"(1) Where a person fraudulently or negligently—

(a) delivers any incorrect return of a kind mentioned in section 8 or 8A of this Act (or either of those sections] as extended by section 12 of this Act, or

(b) makes any incorrect return, statement, or declaration in connection with any claim for any allowance, deduction or relief in respect of income tax or capital gains tax, or

(c) submits to an inspector or the Board or any Commissioners any incorrect accounts in connection with the ascertainment of his liability to income tax or capital gains tax,

he shall be liable to a penalty not exceeding the amount of the difference specified in subsection (2) below.

(2) The difference is that between—

(a) the amount of income tax and capital gains tax payable for the relevant years of assessment by the said person (including any amount of income tax deducted at source and not repayable), and

(b) the amount which would have been the amount so payable if the return, statement, declaration or accounts as made or submitted by him had been correct."

283. The TMA does not define fraud, but in Derry v Peek (1889) LR 14 App Cas 337, Lord Herschell referred to fraud being proved where it is shown that a false representation was made "(1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false". In the same case, Sir Horace Davey (as he then was) said:

"Fraud never has been and never will be exhaustively defined, the forms which deceit may take being so many and so various. There is a negative characteristic: it must be something which an honest man would not do; not merely what a logical or clear-headed man would not do."

284. TMA s 100 is headed "Determination of penalties by officer of the Board", and reads:

"(1) ...an officer of the Board authorised by the Board for the purposes of this section may make a determination imposing a penalty under any provision of the Taxes Acts and setting it at such amount as, in his opinion, is correct or appropriate.

(2)-(3) ...

(4) After the notice of a determination under this section has been served the determination shall not be altered except in accordance with this section or on appeal.

(5) If it is discovered by an officer of the Board authorised by the Board for the purposes of this section that the amount of a penalty determined under this section is or has become insufficient the officer may make a determination in a further amount so that the penalty is set at the amount which, in his opinion, is correct or appropriate."

285. TMA s 100B is headed "appeals against penalty determinations" and subsection (2) provides

"...on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but—

(a) in the case of a penalty which is required to be of a particular amount, the Commissioners may—

(i) if it appears to them that no penalty has been incurred, set the determination aside,

(ii) if the amount determined appears to them to be correct, confirm the determination, or

(iii) if the amount determined appears to them to be incorrect, increase or reduce it to the correct amount".

286. The legislation thus gives the HMRC Officer the discretion to set the penalty at the amount he considers to be "correct or appropriate". There were no provisions similar to those introduced subsequently, relating to the mitigation of penalties for disclosure. Instead, HMRC's practice was to apply non-statutory abatements to reflect seriousness, co-operation and disclosure. The meaning of those terms and how they were applied can be found in HMRC's Enquiry Manual at pages 6051 to 6089.

Findings about the s 95 penalties

287. Mr Mohammed filed returns in the years 2001-02 through to 2007-08; Officer Bland decided that Mr Mohammed had acted fraudulently, and issued the penalties on that basis. However:

(1) the assessments for 2002-03 through to 2003-04 inclusive were subsequently reduced to nil because of the capital allowances claims made under TMA s 36(3). We agreed with the parties that the penalties for those years should in consequence also be reduced to nil under s 100B(2)(i);

(2) in relation to the year 2005-06, HMRC subsequently accepted that Mr Mohammed had acted negligently rather than fraudulently, and we have found that the assessment for that year was out of time, see §113ff. There is thus no penalty; and

(3) we are thus concerned only with the three years 2001-02, 2006-07 and 2007-08.

Fraud

288. Mr Hickey submitted that Mr Mohammed did not act fraudulently, but had been overwhelmed by the move from 15WS to 4WS and by the subsequent litigation with the Council. He relied on Mr Mohammed's evidence that his fight with the Council became "all-consuming" and he had become "obsessed"; in his witness statement he said that in consequence he was:

"neglecting many things including my family, my other business interests and the tax investigations that were going on in my life...the legal battle with the council completely took over my life, to such an extent that the crisis left me with no mental powers to give consideration to any other issue. I appreciate that this is wrong, but the fight with the council seriously affected my health and undermined my entire life."

289. That evidence was challenged by Mr Marks, who asked us to find that Mr Mohammed had acted fraudulently because (a) he knew the figures in his tax returns were wrong, but (b) he submitted them anyway.

290. We agree with Mr Marks, for the following reasons:

(1) In Mr Mohammed's 2001-02 return he said his profits from land and property were £2,000. At the time he owned several properties, and Officer Bland's review of his bank accounts showed that his profits were much greater than the £2,000 in his return. Mr Mohammed plainly knew that was the position.

(2) In the same return he did not include any sum from the Happy Chip, although again it was clear from his bank accounts that he was making significant profits. Mr Mohammed knew that was the position.

(3) In the other returns, Mr Mohammed did not disclose any profits from the Happy Chip, and he also stated that his property profits were less than the personal allowance. This was wrong and Mr Mohammed knew that was the position.

(4) In addition to the evidence from the bank accounts, Mr Mohammed told Lloyds TSB Bank in 2007 that the turnover at the Happy Chip was £8,000 - £10,000 per week; that his income from property letting was £3,645 per month and that the latter figure would soon increase. Mr Mohammed knew that his trading and property income was significantly more than he had included in his tax returns, but did not disclose it.

(5) We find as a fact that Mr Mohammed's failure to file accurate tax returns was not because he was under stress, whether because of the move to 4WS or for any other reason. He was able to manage his property portfolio and work as a partner in the Happy Chip throughout the period from 2001 to 2009; he was also able to sell Kensington Hall in 2005 and acquire 295 Elswick Road the following year. He did not file a compensation claim against the Council until November 2009, and so the process of that claim is irrelevant to these earlier years of assessment.

291. We find as a fact that Mr Mohammed filed incorrect tax returns despite knowing that the figures were incorrect. He thus acted fraudulently.

Abatement

292. Officer Bland abated the penalties by 5% for disclosure, 10% for gravity and nil for co-operation, making a total abatement of 15%.

293. Mr Hickey submitted that 0% for co-operation was inappropriate, because Mr Mohammed had appointed John Nisbet Associates to act for him, and Mr Bartlett of that firm had met with Officer Bland. We do not agree. At that meeting Mr Bartlett told Officer Bland that Mr Mohammed would respond to questions by correspondence, but Mr Mohammed did not do so. Simply appointing a representative who meets HMRC does not constitute co-operation if the taxpayer does not fulfil the promises made on his behalf by that representative.

294. Like Mrs Hogan, the HMRC Officer who carried out the statutory reviewer, we were surprised Officer Bland had given Mr Mohammed a 5% discount for disclosure, given that he had not disclosed anything in advance of the assessments (apart from making a series of incorrect returns). Officer Bland's 10% abatement for gravity was also generous, given the number of years and the quantum of the tax involved. We thus considered whether to reduce the abatement from 15% to 10% or even 5%. However, Mr Marks had not submitted that the abatement was too high. We rejected Mr Hickey's submission but decided not to reduce the abatements.

Conclusion

295. For 2001-02, 2006-07 and 2007-08, the penalties are reduced to reflect the lower assessments for those years, but using the same 15% abatement figure.

296. There is no penalty for the years 2002-03 through to 2004-05 because the quantum of those assessments has been reduced to nil by the capital allowances claim. For the year 2005-06, the assessment was out of time so there is no penalty, see Issue One.

Years 2008-09 and 2009-10

297. TMA s 95 does not apply to tax years after 6 April 2008. For years 2008-09 and 2009-10, HMRC imposed penalties under Sch 24.

The legislation

298. Sch 24 is headed "penalties for errors", and the relevant provisions are as follows.

299. Sch 24, para 1 states that a penalty is payable where the taxpayer gives HMRC a document containing an inaccuracy which amounts to, or leads to, an understatement of the taxpayer's liability to tax, and the inaccuracy was careless or deliberate.

300. Para 3(1)(a) defines an inaccuracy in a document given to HMRC as "careless" if it is "due to the failure...to take reasonable care", as "deliberate" if the inaccuracy is deliberate but the person "does not make arrangements to conceal it", and "deliberate and concealed" if the inaccuracy is deliberate and the person "makes arrangements to conceal it (for example, by submitting false evidence in support of an inaccurate figure)".

301. Para 4(1)(a) sets the penalty for a careless inaccuracy at 30% of the "potential lost revenue"; at 70% for a deliberate inaccuracy and 100% for a deliberate and concealed inaccuracy.

302. Para 5 defines "potential lost revenue" as the additional amount due or payable in respect of tax as a result of correcting the inaccuracy.

303. Paragraph 9 includes the following provisions:

"(A1) Paragraph 10 provides for reductions in penalties

(a) Under paragraph 1 where a person discloses an inaccuracy which involves a domestic matter...

(1) A person discloses an inaccuracy...by

(a) telling HMRC about it,

(b) giving HMRC reasonable help in quantifying the inaccuracy and

(2) Disclosure

(a) is "unprompted" if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy[, the supply of false information or withholding of information, or the under-assessment]1, and

(b) otherwise, is "prompted".

(3) In relation to disclosure "quality" includes timing, nature and extent."

304. Para 10(1) states that HMRC shall reduce the penalty (but not below 15%) if the person liable for the penalty has made a "prompted disclosure", and the reduction must take into account the "quality" of the disclosure. Paragraph 9(6) says that the "quality" of the disclosure includes its "timing, nature and extent".

305. Para 11 provides that HMRC may reduce a penalty "if they think it right because of special circumstances".

306. Para 13(1) provides that where a person becomes liable for a penalty, HMRC shall assess the penalty, notify the person and state in the notice a tax period in respect of which the penalty is assessed. Para 13(2)(a) provides that a penalty assessment "shall be treated for procedural purposes in the same way as an assessment to tax (except in respect of a matter expressly provided for by this Act)".

307. Para 15(1) and (2) gives the person a right to appeal to the Tribunal against the imposition of a penalty, and against the amount of a penalty.

308. Para 16 reads:

"An appeal under this Part of this Schedule shall be treated in the same way as an appeal against an assessment to the tax concerned (including by the application of any provision about bringing the appeal by notice to HMRC, about HMRC review of the decision or about determination of the appeal by the First-tier Tribunal or Upper Tribunal)."

309. Para 17(1) and (2) provide that on an appeal against the imposition of a penalty the Tribunal has the power to affirm the decision or cancel the decision, and on an appeal against the amount of a penalty, the Tribunal can affirm the penalty, cancel the penalty, or "substitute for HMRC's decision another decision that HMRC had power to make".

310. Paragraph 17(4) provides that if the tribunal substitutes its decision for HMRC's, it may rely on the special circumstances provision at para 11:

"(a) to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or

(b) to a different extent, but only if the1 tribunal thinks that HMRC's decision in respect of the application of paragraph 11 was flawed."

311. Paragraph 17(6) provides that "flawed" in the above provision means "flawed when considered in the light of the principles applicable in proceedings for judicial review".

Findings of fact about the application of Sch 24 to Mr Mohammed

312. Officer Bland decided that Mr Mohammed's behaviour in relation to the Happy Chip was "deliberate and concealed" because he had submitted a later tax return stating that he was only entitled to 10% of the profits of the Happy Chip, when this was not true. As there was no unprompted disclosure, the applicable penalty range was between 50% and 100%. Officer Bland gave mitigation of 5% for "telling" but none for co-operation or giving access to records, and the penalty was therefore 97.5% of the tax assessed.

313. In relation to the property income, Officer Bland decided that the behaviour was deliberate, because Mr Mohammed knew he had more profits from property than he had disclosed. As there was no unprompted disclosure, the applicable penalty range was between 35% and 70%. Officer Bland gave the same 5% mitigation, so the penalty was 68.25% of the tax assessed.

314. In relation to both elements of the penalty, Officer Bland considered the "special circumstance" provision but decided that there were no special circumstances.

Deliberate: Happy Chip and property profits

315. In HMRC v Tooth [2021] UKSC 17, the Supreme Court said at [47] that:

"...for there to be a deliberate inaccuracy in a document within the meaning of [TMA] section 118(7) here will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement."

316. At [33] and [45] the Court said that the meaning of "deliberate" in TMA s 118(7) was to be read as having essentially the same meaning as the same word used in Sch 24. It was therefore common ground before us that, for a person to be found to have acted deliberately within the meaning of Sch 24, that person must have had an intention to mislead HMRC as to the truth of the relevant statement.

317. Mr Marks submitted that Officer Bland had been correct to find that Mr Mohammed had acted deliberately in filing tax returns which significantly understated his profits from the Happy Chip and from property. Mr Mohammed's bank accounts contained large sums from both sources and he knew that the figures he was entering in his tax returns were incorrect. Mr Hickey submitted that Mr Mohammed did not act deliberately because he was obsessed with and distracted by his dispute with the Council, and/or because he was not experienced in tax matters.

318. We have no hesitation in agreeing with Mr Marks. In relation to the dispute with the Council, we reject Mr Mohammed's evidence (set out §288) at that the dispute "left [him] with no mental powers to give consideration to any other issue", and we find as facts that in both years he was able to run his property business, the apart-hotel and the Happy Chip and operate his numerous bank accounts at the same time as instructing solicitors in relation to the UTLC case.

319. In relation to his knowledge of tax, Mr Mohammed was an experienced businessman who had been in SA for many years. He had numerous bank accounts and multiple properties. He was fully aware of the profits of the Happy Chip and the property businesses, and he knew those profits should be included in his tax returns. We find as facts that Mr Mohammed knew that the figures he was entering in his tax returns were incorrect, and that he consciously omitted the true figures in order to mislead HMRC as to the correct position.

Deliberate and concealed: Happy Chip profits

320. In Leach v HMRC [2019] UKFTT 352 at [105]ff, the FTT (myself and Mr John Robertson) considered the meaning of "concealed" in the phrase "deliberate and concealed". We held that to conceal an inaccuracy meant to hide it, or prevent it from being visible. We also agreed with the definition in HMRC's Compliance Handbook at CH81160 that, to meet the statutory description, the person has to "take active steps to cover their tracks".

321. At the time Officer Bland issued the assessments, he had seen only the assertion on Mr Mohammed's 2012-13 and 2013-14 tax returns that Mr Mohammed "avers" that the Happy Chip was a partnership in which he had only a 10% interest. The position was the same at the time of the statutory review, and also when Officer Bland issued the penalties. The Tribunal was not told when Mr Mohammed provided HMRC with the Partnership Agreement, but it was referred to in his grounds of appeal to the Tribunal.

322. In their Statement of Case, HMRC said that Mr Mohammed's contention that he was only a 10% partner in the Happy Chip business was an attempt to conceal the truth, and this engaged the "deliberate and concealed" penalty provisions. Mr Hickey submitted that there was "no evidence of any inaccuracy being concealed (for example, by submitting false evidence in support of inaccurate figures)".

323. We again agree with HMRC. Officer Bland's "view of the matter" letter was issued on 29 March 2017, and Mr Mohammed then knew that HMRC had access to his bank accounts and were aware of the significant sums contained within them. Mr Mohammed subsequently instructed Mr Salhan to inform HMRC that he was only a 10% partner in the Happy Chip partnership; Mr Salhan provided this information to HMRC on 24 April 2017.

324. We have already found this statement to be false, and we further find that it was made to conceal the amount of the inaccuracy, or, in the words of the Compliance Handbook, so Mr Mohammed could "cover his tracks" by seeking to hide 90% of the profits. The fact that the Partnership Agreement was only provided subsequently does not make any difference: concealment does not require the provision of a document, but can also be by misdirection or the giving of false information.

Mitigation: before the appeal

325. As noted above, Officer Bland gave mitigation of 5% for "telling" but no mitigation for co-operation or giving access to records. Mr Hickey submitted that a further reduction for telling was appropriate because Mr Mohammed had appointed JNA, and Mr Bartlett of that firm had met with Officer Bland in 2014.

326. HMRC's guidance at CH82442, rightly in our view, says that "telling" encompasses

(1) admitting the inaccuracy;

(2) disclosing the inaccuracy in full; and

(3) explaining how and why the inaccuracy arose.

327. In deciding on the amount of mitigation, it is necessary to consider the "timing, nature and extent" of the "telling", see para 9(6). Mr Bartlett told Officer Bland that Mr Mohammed would respond to questions by correspondence, but Mr Mohammed did not do so. He did not "tell" Officer Bland that he had filed an inaccurate return or explain the extent of the shortfall in his disclosed income. We thus reject Mr Hickey's submission that this meeting forms the basis for further mitigation.

Mitigation: after the appeal

328. Mr Hickey also submitted that the penalties should be reduced under all three headings, because since the appeal was notified to the Tribunal, Mr Mohammed had engaged with ADR; provided extensive documentation and taken part in the Meeting with Officer Bland, as a result which various issues in dispute had been resolved.

329. We are not aware of any other case in which it has been submitted that the Tribunal should take into account, when deciding whether to mitigate a penalty, a person's behaviour after the appeal has been notified to the Tribunal.

330. Sch 24, para 9 says that mitigation applies if the person "discloses an inaccuracy" by telling HMRC about it, giving HMRC reasonable help in quantifying the inaccuracy and allowing HMRC access to records for the purpose of ensuring that the inaccuracy is corrected. We accept that the provision does not say when the disclosure can take place in order for the mitigation provisions to apply. However, we find that the disclosure must take place before the appeal is made to the Tribunal. We come to that conclusion because of the wording of the relevant statutory provisions:

(1) A HMRC Officer self-evidently cannot take into account, when deciding on the mitigation and issuing a penalty, any behaviour of the person after the penalty has been issued and appealed to the Tribunal.

(2) Para 13(2) provides that a penalty assessment "shall be treated for procedural purposes in the same way as an assessment to tax (except in respect of a matter expressly provided for by this Act). It follows that once the assessment is made, it cannot be altered by HMRC, because TMA s 30A(4) reads:

"After the notice of any such assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts."

(3) There is no express provision allowing HMRC to mitigate a penalty after it has been issued.

(4) Para 17(2) allows the Tribunal to "substitute for HMRC's decision another decision that HMRC had power to make", but as HMRC do not have the power to mitigate a penalty after the assessment has been made, the Tribunal also cannot mitigate based on the taxpayer's subsequent behaviour.

331. The Tribunal can of course mitigate a penalty for matters which were present before the assessment was made, and so could have been taken into account by HMRC: for instance, if records sent in by a taxpayer were overlooked by the HMRC officer, the Tribunal can remake the penalty decision taking into account that disclosure.

332. We also note that parties at the Tribunal are required by Rule 2 of the Tribunal Rules to co-operate with each other, and a failure to co-operate may result in sanctions. It would be very surprising if complying with that obligation had the effect of changing the amount of a penalty which was under appeal.

333. Moreover, were Mr Hickey to be correct:

(1) There would be no incentive for taxpayers to disclose information to HMRC in the course of an enquiry; they could simply "sit on their hands" and see what assessment HMRC would issue, knowing any later disclosure would reduce the penalties. This would undermine the purpose of the penalty provisions, which is to reward early and full disclosure; and

(2) if a taxpayer's evidence at the Tribunal included a new false assertion, designed to conceal the extent of his liability, the Tribunal would also be able to increase the penalty by reducing the mitigation.

334. However, as this appears to us to be a novel point, we also make our decision on the following alternative basis. If we are wrong in our reading of the statutory provisions, so that a person's actions after notifying an appeal can be taken account by the Tribunal so as to change the amount of mitigation, this would not assist Mr Mohammed, for the following reasons.

(1) Mr Mohammed's disclosure of documents was piecemeal and extended for over three years from August 2019 to November 2023; this required HMRC continually to reassess the documentary landscape in order to put together and amend their own case. The negative effects of this tardy and piecemeal disclosure more than outweigh any co-operation shown by Mr Mohammed in attending the Meeting with Officer Bland on 20 July 2023.

(2) Almost none of the documents provided by Mr Mohammed satisfy the statutory description of "telling" HMRC about the inaccuracies in his return. Instead, their purpose was to bolster his case. This includes in particular:

(a) emails, receipts and other documents to support his case that his interest in the Happy Chip being only 10%;

(b) the JV agreement and related material, with the aim of reducing the amount assessed on him as property income; and

(c) documents relating to the expenses for the UTLC case, with the aim of using those costs to reduce his taxable income.

(3) Most of the reductions to the assessments have not come about because of any disclosure by Mr Mohammed, but as the result of:

(a) the late capital allowances claims made under TMA s 36(3) based on the Moore Stephens Report. Those claims were given effect because the relief is statutory; and

(b) adjustments to the capital gains figures made by Officer Bland following a detailed review of the Moore Stephens Report, and they were thus a side-effect of the capital allowances claim rather than a disclosure by Mr Mohammed.

(4) Mr Hickey relied in particular on Mr Mohammed's disclosure of the Santander accounts in the run up to the Meeting. However, as Mr Marks pointed out, that disclosure was required as part of Mr Mohammed's evidence in relation to the legal costs, because the greater part of the related payments were made from that account. The legal costs issue was raised, and the related evidence filed, in order significantly to reduce the assessments and related penalties. Sch 24, para 9(5) provides that in giving mitigation, it is necessary to take into account "timing, nature and extent". The nature of this disclosure was to support Mr Mohammed's case, and the timing was very late.

(5) True it is that the 2005-06 assessment was reduced as the result of Ms Sattar providing a witness statement (which was accepted by HMRC) in which she said that £110,000 in Mr Mohammed's bank accounts was a loan from her, and so should not be included in his assessable income. But the penalty issued in relation to that year was under TMA s 95 (which has no mitigation provisions) and it has been set aside in any event because the underlying assessment was out of time.

Special circumstances?

The parties' submissions

335. Mr Hickey submitted that Mr Mohammed's involvement in the CPO constituted "special circumstances" which should have resulted in a reduction in the penalties. Mr Marks asked the Tribunal to confirm that Officer Bland had been right to conclude that there were no special circumstances.

Does the Tribunal have jurisdiction?

336. As is clear from paras 17, the Tribunal only has jurisdiction to consider special circumstances if HMRC's decision was flawed, as that term is considered in the light of the principles applicable in proceedings for judicial review. In Associated Provincial Pictures Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 at 229 Lord Greene set out what has become the classic exposition of when a decision was so unreasonable as to be flawed:

"a person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting 'unreasonably'. Similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority."

337. There is a helpful summary of the current position in Halsbury's Laws of England, Judicial Review, in the chapter "Substantive Grounds for Judicial Review" under the heading "Ultra Vires and Illegality: Errors of law". It reads:

"A public body will err in law if it acts in breach of fundamental human rights; misinterprets a statute, or any other legal document, or a rule of common law; frustrates the purpose of a statute or otherwise acts for an improper purpose; takes a decision on the basis of secondary legislation, or any other act or order, which is itself ultra vires; takes legally irrelevant considerations into account, or fails to take relevant considerations into account; admits inadmissible evidence, rejects admissible and relevant evidence, or takes a decision on no evidence or on the basis of a material mistake of fact; misdirects itself as to the burden of proof; fails to follow the proper procedure required by law; fetters its discretion or improperly delegates the decision; fails to fulfil an express or implied duty to give reasons; acts arbitrarily or discriminately; or otherwise abuses its power."

338. One of the reasons a decision will be flawed in a judicial review sense is therefore that the decision maker failed to take relevant considerations into account. The difficulty here is that, while Officer Bland said that HMRC considered there were no special circumstances, he did not say what factors had been considered.

339. A decision may also be flawed if it "fails to fulfil an express or implied duty to give reasons". It is incumbent on HMRC to consider whether or not special circumstances exist, and in our judgment this includes an implied duty to give reasons for their decision, including what factors have been considered.

340. We find that Officer Bland's decision was therefore flawed, and this gives us the jurisdiction to consider for ourselves whether or not there were special circumstances.

Approach to be taken by the Tribunal

341. In Barry Edwards v HMRC [2019] UKUT 131 (TCC), the UT cited and agreed with the statement made by Judge Vos in Advanced Scaffolding (Bristol) Limited v HMRC [2018] UK FTT 744 (TC) at [101] and [102]:

"101. I appreciate that care must be taken in deriving principles based on cases dealing with different legislation. However I can see nothing in schedule 55 which evidences any intention that the phrase "special circumstances" should be given a narrow meaning.

102. It is clear that, in enacting paragraph 16 of Schedule 55, Parliament intended to give HMRC and, if HMRC's decision is flawed, the Tribunal a wide discretion to reduce a penalty where there are circumstances which, in their view, make it right to do so. The only restriction is that the circumstances must be "special". Whether this is interpreted as being out of the ordinary, uncommon, exceptional, abnormal, unusual, peculiar or distinctive does not really take the debate any further. What matters is whether HMRC (or, where appropriate the Tribunal) consider that the circumstances are sufficiently special that it is right to reduce the amount of the penalty."

342. Judge Vos added at [225] that:

"The right approach for the Tribunal is to look at all the relevant circumstances and consider whether, in the particular case in question those circumstances are special. I see no reason to limit this to circumstances which...operate on the particular taxpayer in question as opposed to those which could affect a larger number of taxpayers. It is up to HMRC or, where relevant, the Tribunal to decide based on all of the facts of the particular case whether the circumstances in question are, in that case, special."

343. Those comments were made in the context of Sch 55, but it was common ground that the same approach should be taken to essentially the same provisions in Sch 24.

Whether Mr Mohammed's dispute with the Council constituted "special circumstances"

344. Mr Hickey submitted that Mr Mohammed's dispute with the Council constituted "special circumstances" such as to entitle him to a reduction in the penalties. Mr Marks disagreed, saying that (a) there was no reliable factual basis for this submission, and (b) there was no reason why the dispute was relevant to Mr Mohammed filing inaccurate returns.

345. It is clear from the case law that the phrase "special circumstances" should not be given a narrow meaning, but it is plain from the statutory context that the circumstances must not only be "special" but also be such as to justify a reduction in the penalty. In other words, the circumstances must be relevant to the taxpayer's failure to file incorrect returns.

346. We agree with Mr Marks that Mr Mohammed's involvement in the dispute with the Council was not a special circumstance such as to justify a reduction in the penalties. He had filed incorrect returns for previous years before he filed his claim against the Council, and he continued to do so in 2008-09 and 2009-10. The dispute with the Council did not change his approach. We have also already rejected Mr Mohammed's evidence (set out §288) at that the dispute with the Council "left [him] with no mental powers to give consideration to any other issue", see §318.

Conclusion on Sch 24

347. We find as follows:

(1) the penalties for 2009-10 and 2010-11 which relate to the Happy Chip are 97.5% of the tax assessed; and

(2) the penalties for 2009-10 and 2010-11 which relate to the property income are 68.25% of the tax assessed.

Years 2010-11 to 2015-16

348. HMRC imposed penalties under Sch 55 for the tax years 2010-11 through to 2014-15.

Schedule 55

349. FA 2008, Sch 55 is headed "penalty for failure to make returns etc" and reads:

"1. (1) A penalty is payable by a person ("P") where P fails to make or deliver a return, or to deliver any other document, specified in the Table below on or before the filing date.

(2) Paragraphs 2 to 13 set out—

(a) the circumstances in which a penalty is payable, and

(b) subject to paragraphs 14 to 17, the amount of the penalty.

(3) If P's failure falls within more than one paragraph of this Schedule, P is liable to a penalty under each of those paragraphs (but this is subject to paragraph 17(3)).

(4) In this Schedule—

"filing date", in relation to a return or other document, means the date by which it is required to be made or delivered to HMRC;

"penalty date", in relation to a return or other document, means the date on which a penalty is first payable for failing to make or deliver it (that is to say, the day after the filing date).

(5) In the provisions of this Schedule which follow the Table—

(a) any reference to a return includes a reference to any other document specified in the Table, and

(b) any reference to making a return includes a reference to delivering a return or to delivering any such document.

	Tax to which payment relates	Return or other document
1	Income tax or capital gains tax	(a) Return under section 8(1)(a) of TMA 1970
		(b) Accounts, statement or document required under section 8(1)(b) of TMA 1970

2. Paragraphs 3 to 6 apply in the case of a return falling within any of items 1 to 5 and 7 to 13 in the Table...

5. (1) P is liable to a penalty under this paragraph if (and only if) P's failure continues after the end of the period of 6 months beginning with the penalty date.

(2) The penalty under this paragraph is the greater of

(a) 5% of any liability to tax which would have been shown in the return in question, and

(b) £300.

6. (1) P is liable to a penalty under this paragraph if (and only if) P's failure continues after the end of the period of 12 months beginning with the penalty date.

(2) Where, by failing to make the return, P deliberately withholds information which would enable or assist HMRC to assess P's liability to tax, the penalty under this paragraph is determined in accordance with sub-paragraphs (3) and (4).

(3) If the withholding of the information is deliberate and concealed, the penalty is the greater of

(a) the relevant percentage of any liability to tax which would have been shown in the return in question, and

(b) £300.

(3A) For the purposes of sub-paragraph (3)(a), the relevant percentage is

(a) for the withholding of category 1 information, 100%...

(4) If the withholding of the information is deliberate but not concealed, the penalty is the greater of

(a) the relevant percentage of any liability to tax which would have been shown in the return in question, and

(b) £300.

(4A) For the purposes of sub-paragraph (4)(a), the relevant percentage is

(a) for the withholding of category 1 information, 70%...

14. (A1) In this paragraph, "relevant information" means information which has been withheld by a failure to make a return.

(1) Paragraph 15 provides for reductions in the penalty under paragraph 6(3) or (4) where P discloses relevant information that involves a domestic matter...

(1B) Sub-paragraph (2) applies where

(a) P is liable to a penalty under paragraph 6(3) or (4) and P discloses relevant information that involves a domestic matter...

(2) P discloses relevant information by

(a) telling HMRC about it,

(b) giving HMRC reasonable help in quantifying any tax unpaid by reason of its having been withheld, and

(1) P is liable to a penalty under this paragraph if (and only if) P's failure continues after the end of the period of 12 months beginning with the penalty date.

(3) If the withholding of the information is deliberate and concealed, the penalty is the greater of

(a) the relevant percentage of any liability to tax which would have been shown in the return in question, and

(b) 300.

(3A) For the purposes of sub-paragraph (3)(a), the relevant percentage is

(a) for the withholding of category 1 information, 100%...

(4) If the withholding of the information is deliberate but not concealed, the penalty is the greater of

(a) the relevant percentage] of any liability to tax which would have been shown in the return in question, and

(b) 300.

(4A) For the purposes of sub-paragraph (4)(a), the relevant percentage is

(a) for the withholding of category 1 information, 70%...

...

24. (1) References to a liability to tax which would have been shown in a return are references to the amount which, if a complete and accurate return had been delivered on the filing date, would have been shown to be due or payable by the taxpayer in respect of the tax concerned for the period to which the return relates.

(2) In the case of a penalty which is assessed at a time before P makes the return to which the penalty relates

(a) HMRC is to determine the amount mentioned in sub-paragraph (1) to the best of HMRC's information and belief, and

(b) if P subsequently makes a return, the penalty must be re-assessed by reference to the amount of tax shown to be due and payable in that return (but subject to any amendments or corrections to the return)...

27.(1) This paragraph applies for the construction of this Schedule.

(2) The withholding of information by P is

(a) "deliberate and concealed" if P deliberately withholds the information and makes arrangements to conceal the fact that the information has been withheld, and

(b) "deliberate but not concealed" if P deliberately withholds the information but does not make arrangements to conceal the fact that the information has been withheld."

350. Sch 55 also sets out essentially the same provisions about special circumstances, appeal rights and the jurisdiction of the Tribunal as are included in FA 2007, Sch 24.

Findings of fact about the application of Sch 55 to Mr Mohammed

351. Mr Mohammed did not file tax returns for the years 2010-11, 2011-12, 2014-15 or 2015-16. Returns for the years 2012-13 and 2013-14 were filed on 24 April 2017, so more than 12 months after the due date.

352. Officer Bland decided that Mr Mohammed had acted deliberately in relation to the tax year 2010-11 and 2011-12, and issued penalties allowing 5% mitigation. In relation to the CGT element of 2012-13, he came to the same conclusion. For the trade and property profits of that tax year, and for 2013-14 and 2014-15, he decided that the failure was "deliberate and concealed", and applied a 5% penalty to the higher base figure. No penalty was issued for 2015-16; the reason for this was not explained to us.

No liability or careless

353. Mr Hickey submitted that Mr Mohammed had been overwhelmed by his dispute with the Council and his failure to file had not been careless (let alone deliberate) and all the Sch 55 penalties should be set aside.

354. In deciding whether a person acted carelessly, his conduct of is to be assessed by reference to a prudent and reasonable taxpayer in his position: see, for example, Atherton v HMRC [2019] STC 575 at [37] and HMRC v Hicks [2020] UKUT 12 (TCC) at [120].

355. We have already rejected Mr Mohammed's evidence that the dispute with the Council "left [him] with no mental powers to give consideration to any other issue". We have also found as facts that in the years 2010-11 through to 2014-15, he continued to operate his multiple bank accounts, run his property business, and run the Happy Chip as well as his other businesses operating from 4WS including the apart-hotel, and that the UTLC proceedings did not prevent him from carrying out any of those tasks. In addition, there were significant gaps in the UTLC proceedings:

(1) the Claim was made in November 2009, but the first hearing did not take place until January and February 2015;

(2) there was then a further gap until the first UTLC Judgment was issued in October 2015;

(3) the second hearing did not take place until April and May 2016; and

(4) there was then a gap of over a year until July 2017 when the second UTLC Judgment was issued.

356. We find that the prudent and reasonable taxpayer in the position of Mr Mohammed would have ensured that he filed his tax returns by the due date for each of the relevant years. We reject Mr Hickey's submission to the contrary.

Deliberate

357. Officer Bland issued the penalties on the basis that Mr Mohammed acted deliberately in failing to file his returns because he knew he was required to do so in order to report his trading and property profits and his capital gains, but he nevertheless decided not to do so, knowing that this was wrong.

358. Mr Marks asked the Tribunal to uphold the finding of deliberate behaviour for the reasons given by Officer Bland. Mr Hickey repeated his earlier submission that Mr Mohammed had been overwhelmed by his dispute with the Council and had not acted deliberately. We disagree for the reasons set out at §355 and for the following further reasons:

(1) Mr Mohammed was an experienced businessman who had been in SA for many years; he knew he had an obligation to file returns, and had received multiple reminders and smaller late filing penalties.

(2) His behaviour when he was informed of the COP9 enquiry was consistent with his failure to file returns: he refused to provide information, to meet Officer Bland or to engage with HMRC, despite being issued with a para 1, Sch 36 Notice and penalties for failing to comply with that Notice.

(3) When he was told Officer Bland had obtained documents from third parties as a result of the para 2 Sch 36 Notice, his engagement was limited to filing returns so as to displace the related determinations. The information in those returns was wrong, and Mr Mohammed knew this was the case.

359. We therefore agree with Officer Bland and Mr Marks that Mr Mohammed's failure to file his returns was deliberate, because he knew he had to file his returns but did not want to provide that information to HMRC.

Deliberate and concealed

360. Officer Bland decided that some of the penalties should be charged on a "deliberate and concealed" basis, because Mr Mohammed's late filed 2012-13 and 2013-14 returns included the statements that he was only a 10% partner in the Happy Chip and only a 60% partner in the property business. HMRC's Statement of Case said that by making those statements in his returns, Mr Mohammed had "knowingly misrepresented" his business and property activities "to understate his tax liability".

361. However, Sch 55, para 72(2) provides that deliberate and concealed applies where "P deliberately withholds the information and makes arrangements to conceal the fact that the information has been withheld". We considered that this might apply, for example, where a person deliberately failed to file a return but on challenge by HMRC wrongly states that he was non-resident and so had no obligation to file.

362. Mr Mohammed did not make any such arrangements. He never concealed his failure to file the returns. The "deliberate and concealed" provision therefore does not apply to the years 2012-13 and 2013-14.

Mitigation and special circumstances

363. Officer Bland gave Mr Mohammed mitigation of 5% for "telling" in each of the years in question on the basis that he had accepted that the returns were late. Officer Bland gave no mitigation for helping or giving, on the basis that Mr Mohammed had given no help to HMRC and had not given any related documents. He considered whether special circumstances applied but decided they did not.

364. Mr Marks and Mr Hickey made essentially the same submissions on mitigation and special circumstances as in relation to the earlier years, and our analysis and response is the same.

Conclusion on years 2010-11 to 2014-15

365. For the reasons given above, we find that Mr Mohammed is liable to a penalty for deliberate (but not concealed) behaviours in relation to each of the years 2010-11 through to 2014-15. The mitigation remains at 5% and there were no special circumstances.

OVERALL CONCLUSION AND APPEAL RIGHTS

366. For the reasons given above, we agree with Mr Hickey that the assessment for 2005-06 was out of time, and we also find that none of the penalties issued under Sch 55 are to be charged on the basis that Mr Mohammed's behaviour was "deliberate and concealed". However, we reject Mr Mohammed's case on the other Issues.

367. The final figures set out in the Appendix have been recalculated on the following bases.

(1) All but three of the assessments are reduced under TMA s 50(6)(c) to reflect the points accepted by HMRC before the hearing and (in relation to 2013-14) to reflect the Santander figures.

(2) The assessment for 2005-06 is set aside as out of time.

(3) The assessments for 2010-11, 2011-12 and 2012-13 are increased under TMA s 50(7)(c) to reflect the Santander figures.

(4) The penalties issued under Sch 55 for 2012-13 and 2013-14 are to be reduced on the basis that Mr Mohammed did not satisfy the statutory description of "deliberate and concealed", but with the same 5% mitigation applying to the lower base.

368. At the hearing, the parties offered to provide an amended schedule for consideration by the Tribunal, based on our conclusions. However, given the small number of changes, we have decided that this is not necessary.

369. However, if the parties were to identify any errors in the calculation of the final figures, they have permission to notify the Tribunal within 21 days after the date of issue of this decision and ask for the figures to be amended. For the avoidance of any possible doubt, this does not give the parties permission to ask the Tribunal to revisit the other figures in the schedule or to suggest substantive amendments to the reasoning which led to those figures.

Right to apply for permission to appeal

370. This decision contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Rules. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. That time limit is unaffected by §368. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.

Release Date: 14^th MARCH 2025

APPENDIX

Year	Declared	Officer Bland Assessment	Before hearing	Final assessment	Officer Bland Penalty	Before hearing	Final penalty
2001-02	P/ship: 20,000 Prop: 2,000	21,652.70	5,709.38	5,709.38	18,404.00	4,852.97	4,852.97
2002-03	Prop:36,400	20,526.00	Nil	Nil	17,447.00	Nil	Nil
2003-04	Prop:32,760	22,486.60	Nil	Nil	19,113.00	Nil	Nil
2004-05	None	30,298.32	Nil	Nil	25,753.00	Nil	Nil
2005-06	CG: <AEA	180,156.13	3,199.12	Nil	153,132.00	2,719.25	Nil
2006-07	Prop:2,311	60,083.88	7,916.26	7,916.26	54,471.00	6,728.82	6,728.82
2007-08	Prop:1,230	68,635.46	39,015.19	39,015.19	58,339.00	33,162.91	33,162.91
2008-09	Prop:1,106	73,252.46	55,892.24	55,892.24	63,162.10	54,494.93	54,494.93
2009-10	Prop:1,395	133,192.52	111,765.92	111,765.92	120,347.44	108,971.77	108,971.77
2010-11	No return	71,314.79	92,363.00	92,363.00	48,653.23	90,053.93	90,053.93
2011-12	No return	54,724.28	87,894.38	87,894.38	37,328.09	59,987.91	59,987.91
2012-13	CG rollover	98,581.14	113,818.25	113,818.25	179,140.00	77,680.96 [29]	77,680.96
2013-14	No profits	60,953.90	59,329.92	59,329.92	101,541.45	40,492.67	40,492.67
2014-15	No return	104,193.76	60,409.76	60,409.76	101,588.91	41,229.66	41,229.66
2015-16	No return	105,760.60	62,040.09	62,040.09	Not Issued	N/A	N/A
Totals		1,105,812.54	699,353.51	696,154.39	998,420.22	520,375.78	517,656.53

[1] The total penalty figure omitted a penalty issued for the year ended 5 April 2002 and included the wrong figures for two penalties issued on a deliberate and concealed basis.

[2] See [103] and [105] of the first UTLC Judgment

[3] See [174] and [195] of the second UTLC Judgment

[4] See [17]-[[27] of the first UTLC Judgment and [97] of the second UTLC Judgment

[7] See [188] to [195] of the second UTLC Judgment

[11] By our calculations, there is a difference of £9.724 between the total recorded in the second UTLC judgment and the detailed amounts in the skeleton argument, but nothing turns on that.

[17] See [16]-[18] of the second UTLC Judgment

[20] See [152] - [160] of the second UTLC Judgment

[21] See [141] - [149] of the second UTLC Judgment, in particular [149]

[22] See [396] of the first UTLC Judgment.

[27] See [165]-[167] and [193 of the second UTLC Judgment

[28] Despite being entitled "partnership capital" it appears from the parties' skeleton arguments that the figure of £778,912 was made up of relocation costs, but we were unable to identify how the £778,912 had been calculated. However, nothing turns on this for the purposes of our decision.

[29] As noted on the first page of this decision, the penalty and that for 2013-14 was recalculated as a percentage of the lower assessment figure, but has not taken into account the deliberate and concealed nature of penalties charged on the profits (but not on the gains), see §352. As we have reduced those penalties in any event, we have not thought it necessary to recalculate those two figures on the schedule handed up to us.

First-tier Tribunal (Tax)