Francis v Revenue and Customs [2005] UKSPC SPC00490 (19 June 2005)

SPC00490

Income tax – self-assessment – exemptions and reliefs – whether Appellant on facts entitled to relief for expenditure and previous losses - no

THE SPECIAL COMMISSIONERS

	B FRANCIS	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

			Special Commissioner:	DR DAVID WILLIAMS

Sitting in public in London on 11 May 2005

The Appellant appeared in person

Mr Ian Mitchell, officer of Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

1	This appeal was listed as a preliminary hearing but as the case dealt with two straightforward questions on which all the necessary evidence was available, and with consent of both parties, I dealt with all aspects of the appeal at the hearing. The documents provided for the hearing by the Respondents (referred to in this decision as “HMRC”, to include its predecessor the Board of Inland Revenue) in draft were accepted as final documents for this purpose. Although the burden of proof was on the Appellant in this appeal, Mr Mitchell agreed that as the Appellant was not represented HMRC would put its case first.  

2	The Appellant appealed against an amendment to his self-assessment for self-employment income for the year 2000-01. He did so because he could not agree an amendment made to that return by HMRC. HMRC did not accept certain deductions for expenses and added £6,400 back into the income for the year as unvouched expenditure that HMRC did not accept was incurred wholly and exclusively for the purposes of the Appellant’s trade. There were also issues relating to a loss claim by the Appellant from previous years. The Appellant set out in his notice of appeal why he did not accept the HMRC amendments but did not offer specific alternative figures. He contended that, apart from periods of illness, he had promptly supplied all necessary information to HMRC. 

3	The Appellant gave evidence under affirmation. Mrs Stephanie Oldfield, now an officer of Revenue and Customs, gave evidence under oath including confirmation of the decisions of the General Commissioners mentioned below. Both parties produced copies of relevant accounts, returns, and records to me.

Losses

4	An amount of losses was determined in 2004 by the Willesden General Commissioners for 1992-93. Those losses are therefore available to be brought forward against later taxable income. But the General Commissioners determined that the losses were losses incurred not as trading losses but losses under Case VI of Schedule D. It is clear law that losses of that nature can only be brought forward against income that falls to be taxed under the same provisions (or, now, its equivalent under the Income Tax (Trading and Other Income) Act 2005). The Appellant did not challenge the decision of the General Commissioners and it stands good.

5	Accordingly, this applies to any subsequent year until it is shown that the activities of the Appellant have ceased properly to be regarded as the General Commissioners have regarded them and have become trading income. The Appellant had returned his income in 2000-01 as trading income, and that is not in dispute. HMRC accept that at some point before the current year the activities became trading activities and suggested that this should be regarded as occurring with the start of the accounts in 1995 on 1 May 1995. In oral evidence, the Appellant explained why he had accepted that his early income was not trading income, and why he had not appealed against the decision of the General Commissioners. Having heard that explanation, and bearing in mind the decision of the General Commissioners, I consider that the approach of HMRC is probably right, and therefore accept it. It follows that losses incurred before that date are Case VI losses.  It is not clear whether those losses were still available to be carried forward to the year now under appeal. But as they cannot be set against trading profits, I do not need to enquire into that.  

6	HMRC set out in the papers its views about other losses since it was accepted that the Appellant was trading. I accept HMRC’s submission that these losses have been fully absorbed against subsequent taxable profits, as I did not hear the Appellant contend otherwise. The substance of the Appellant’s argument to me was an attempt to reopen the issue of the status of the losses found by the General Commissioners. That is now final. 

Deductible expenditure

7	The relevant law is well known and is set out in the papers. The issues that arise in this appeal are questions of fact. HMRC opened an enquiry under section 9A of the Taxes Management Act 1970 in January 2003 into the self-assessment return for 2000-01, incorporating the Appellant’s trading accounts for the year to 30 April 2000. This followed an enquiry into the previous year that was determined by the Willesden General Commissioners in October 2003. The General Commissioners dismissed the Appellant’s appeal and accepted the assessment made by Mrs Oldfield, then an Inspector of Taxes, adding £3,000 back into profits as disallowed travelling expenses and £2050 as disallowed repairs expenditure. That decision was also not appealed and is final.

8	The enquiry leading to the amendment now in front of me followed on from the amendment to the previous year’s self-assessment confirmed by the General Commissioners. It results in a disallowance of expenditure of £6,400 from this self-assessment. Mrs Oldfield explained that this had been decided by reference to the decision of the General Commissioners. They had disallowed 81 per cent of the repair expenditure claimed by the Appellant in the previous year, and 62 per cent of the travel expenses. The same figures had been applied to the current year’s accounts. Expenditure for the costs of newspapers and periodicals had also not been allowed.

9	  As I indicated at the hearing, Mr Mitchell is right in submitting that the starting point for me is the same as that for the General Commissioners. It is section 50(6) of the Taxes Management Act 1970, which, as it applies here, provides:

If, on appeal, it appears to the majority of the Commissioners present at the hearing, by examination of the appellant on oath or affirmation, or by other evidence –

	(a)	that the appellant is overcharged by a self-assessment;
	(b)	…
(c)	that the appellant is overcharged by an assessment other than a self-assessment
the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good.

The burden of proof is on therefore on the Appellant to show why the amendment made by Mrs Oldfield should not stand good, and this has to be shown on the balance of probabilities. 

10	The Appellant’s problem is not so much the proof as the absence of clear evidence one way or the other. While, as the subsection makes clear, the relevant evidence includes the formal oral evidence of the Appellant himself, that evidence has to show that there is some reason why the officer’s figures are less probable than some other figures. 

11	In assessing the Appellant’s evidence, I accept that he has had health problems. But he is also a professional person, and is or should be aware of the need to keep his accounts in good order and also to keep relevant documentation. Having heard from both Mrs Oldfield and the Appellant, I conclude that, for whatever reason, he was not able, when asked by HMRC, to produce adequate accounts to explain either the level of his travel bills as being bills incurred wholly and exclusively for the purposes of generating his trading or similarly to explain the relevance of all the repair bills for which he claimed a deduction. 

12	I do not accept on the evidence I have heard and seen that the Appellant has shown that the foreign travel expenses claimed related to any ongoing trading activity. Nor do I find the lengthy lists of travel costs headed “London Transport and British Rail Travel” evidence of much weight as they consist of long lists of daily items, most of which are for £5.50, described by reference to different clients apparently regardless of the clients’ locations. The lists of taxi and minicab fares are simply lists of sums of money with no clear supporting evidence either of receipts or of operating companies or of details of times and routes of journeys. I am unpersuaded that on this evidence there is reason under section 50(6) to alter the HMRC amendment.

13	The evidence about repairs expenditure was confused by the original listing of what are now contended to be other forms of expenditures (legal fees and general expenses) of several thousand pounds of expenses originally included under the head of repairs in the accounts. But even with that sorted out, and the figure for repairs reduced accordingly, I found the Appellant’s evidence about the inclusion in his accounts of some the remaining repair bills unconvincing.  For example, some without doubt related to other years of assessment and there was no basis for submitting them as expenditure for this year. The test applied by HMRC to those items that were within the relevant period and were contended after revision to be genuine repair bills of the business was the correct test. I accept that this issue was also tested before the General Commissioners for the previous year against similar evidential problems. Having heard and seen the evidence produced, and noting the approach taken by the General Commissioners, I again am not persuaded that the amount accepted by HMRC in the amendments as repairs expenditure is shown by the Appellant to be the wrong figure.

14	I have a little more sympathy over the minor issue of publications and internet costs. I would assume that the internet bills could readily be produced, and note that the accounts already include expenditure on software. Having heard the Appellant’s evidence, I accept that he was likely to have incurred some relevant expenditure on publications, but there is an item in the accounts for subscriptions. And I accept that it was not shown that the Appellant’s business was such that newspapers or magazines could be assumed without more to be business rather than personal expenditure. The Appellant was unable to show me, when I asked, what figure in his accounts reflected the relevant expenditure on newspapers and similar publications and he had no other specific evidence. Mrs Oldfield confirmed that she would still reconsider this matter if invoices or other details were produced. As at the date of hearing that has not been done, and I must agree with the approach of HMRC on this issue also.

Summary

15	This appeal was referred to a Special Commissioner because the Appellant did not wish to take his appeal before the local General Commissioners as he had done with his previous appeals. That is his right, but it does not change the law to be applied or the approach to be taken. In my view, having heard from both parties, the HMRC officers involved in this case were fully justified in applying the approach confirmed by the General Commissioners to the previous year of assessment to this year of assessment also in the absence of better evidence. I have seen and heard no better evidence, and therefore, in accordance with section 50 of the Taxes Management Act 1970, I find that the HMRC amendments stand good and that the appeal is dismissed.

DAVID WILLIAMS
SPECIAL COMMISSIONER

RELEASE DATE: 19 June 2005

SC  3099/04