In Isaac Aboagye Frempong vs HMRC [2024] TC09347, the First Tier Tribunal (FTT) confirmed that an inquiry raised by HMRC to assess undeclared income was valid since the payments received were receipts for payment of services as a tax agent.
- Mr Frempong came to the UK in 2009 and claimed to have worked as an employee via the PAYE system only.
- He began claiming employment expenses through his Self Assessment return in 2010.
- HMRC opened an enquiry into his 2012 return under S.9 Taxes Management Act 1970.
- By 2014 a criminal investigation had been opened with HMRC alleging Mr Frempong was acting as a tax agent.
- In 2016, HMRC issued Closure notices for the open enquiries and adjustments were made to the relevant tax returns to disallow the employment expenses.
While gathering evidence for the criminal investigation, HMRC identified numerous deposits in a four-year period totalling £304,547 into Mr Frempong’s bank account. Spreadsheets outlined payments made from ‘clients’ and payments listed as ‘commission’, some of which matched the payments made into Mr Frempong's bank account. Invoices were also discovered along with a contractual agreement for tax advice given to a person named as a ‘client’.
Subsequently, a Discovery assessment was raised for his 2010 return in accordance with S29 Taxes Management Act 1970 and during the investigation HMRC raised discovery assessments for a further three years.
Mr Frempong, persistently denied having any knowledge of the payments in question and he initially denied knowledge of the spreadsheets, later acknowledging the documents but claiming his wife had created them.
The FTT found that the discovery assessments were valid basing their decision on the subjective and objective tests applied in Jerome Anderson v HMRC [2016] UKFTT TC05314:
- Subjective test: was there an insufficiency of tax?
- Objective test: was the officer’s belief a reasonable belief to make?
Both tests were met and the discovery assessments were deemed valid.
The FTT found that Mr Frempong had acted deliberately intending to mislead HMRC given that the receipts were significantly higher than his PAYE income and not trivial amounts.
The FTT raised the point that Mr Frempong had a university degree in accountancy and would not be unaware of his tax obligations.
The burden of proof fell on Mr Frempong to argue the assessed amounts were incorrect. The FTT rejected his explanations stating that he was running a sophisticated and large operation as a tax agent for several years and deliberately misleading HMRC by not declaring the income.
The appeal was dismissed.
Useful guides on this topic
Discovery assessment and time limits
What is a Discovery Assessment? When can HMRC make a Discovery? What are the time limits for Discovery Assessment?
How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
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Isaac Aboagye Frempong vs HMRC [2024] TC09347
