In Kenneth Williams v HMRC [2024] TC09171, the failure of a property developer to notify chargeability to tax and the resultant loss of tax was attributed to his negligent conduct. This meant that HMRC were able to raise assessments into past profits some 15 years after the disposal of the properties.
- The taxpayer started a Property business in April 2004, as a developer.
- Having been in Self Assessment and had filed a 2024 tax return but had closed his old business. HMRC paid him a tax refund and closed his Self Assessment record
- HMRC started making enquiries into the taxpayer’s property disposals in 2014, by 2019 raised Income Tax Discovery Assessments for the years to 5 April 2005 and 2006.
- HMRC also assessed tax-geared Penalties for Failure to Notify Chargeability to Tax.
- The amount of tax due for the two years is just under £12,000 with the penalties of £6,500.
The taxpayer Appealed to the First Tier Tribunal (FTT): he maintained that he had notified HMRC about his property business and submitted 2005 and 2006 returns.
The FTT found that:
- There was no evidence of notification to HMRC.
- HMRC confirmed that no returns had been submitted and there was no evidence to show that they had been.
In terms of the quantum of the assessments:
- Mr Williams could not provide actual receipts to confirm his costs of property development.
- His expenses claimed significantly exceeded the payments out of his bank account.
- There was little evidence to show that payments were made by his parents/partner, as he had claimed.
The FTT decided that it could not rely on schedules produced by the taxpayer they represented a significant overestimate of the expenses incurred and so disallowed the excess claims.
The FTT did accept that the purchase and sale of the two properties amounted to an investment business: Capital Gains Tax (CGT) should apply to the gains made.
It confirmed that Mr Williams’ failure to notify HMRC of his chargeability to tax for the tax years ended 5 April 2004 and 5 April 2005 amounted to a loss of tax through negligence.
It then considered penalties and reductions for cooperation and disclosure and decided that:
- Mr Williams had been less than forthcoming throughout the investigation and had provided information to HMRC which clearly cannot be supported.
- There was a gap of four years before he provided any detailed information about the expenditure and that expenditure was significantly overstated.
- A small reduction of 5% for disclosure was made as Mr Williams did make voluntary disclosure of certain matters such as an additional four properties which HMRC had not included in their original list.
Useful guides on this topic
Profits from dealing or developing land
Profits from dealing in or developing the UK land are treated as trading income. The rules apply UK Income tax or Corporation tax to all profits from trading in and developing UK land, regardless of your country of residence.
Penalties: Failure to Notify
What tax penalties apply if you fail to notify HMRC that you are chargeable to tax? Can they be appealed or reduced?
Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
External link
Kenneth Williams v HMRC [2024] TC09171
