A taxpayer has lost his case at the Upper Tribunal (UT) concerning information that HMRC had to have hand to raise discovery assessments.

The taxpayer had been a solicitor in practice and then left his firm for work directly for a wealthy client, the Bernie Ecclestone family.  HMRC discovered that he had received payments from the Ecclestone family that he hadn’t disclosed on his tax returns, the taxpayer had held that the payments were gifts.  The taxpayer lost his case at the First-tier Tribunal (FTT) who had found that the taxpayer couldn’t be relied upon to be a truthful witness.

HMRC held that the payments were income from his business and raised discovery assessments against him.  As HMRC held that the taxpayer had acted in a wilfully fraudulent manner the time limit for raising assessments was 20 years from the end of the tax year of assessment.  The taxpayer argued that the HMRC should be able to show what the payments were for.

The UT disagreed holding that the relevant legislation meant that HMRC only had to show that the taxpayer acted in a wilfully fraudulent manner and that the discovery assessments were raised in time, there was no need for HMRC to know what the payments were for.  The UT found that due to information asymmetry that HMRC could never really know what payments were for where taxpayers concealed information from HMRC.  It was then up to the taxpayer to appeal discovery assessments and provide evidence and arguments as to why they are inappropriate but in this case as HMRC had proved that the discovery assessments were made on time and that the taxpayer had acted in a wilfully fraudulent manner they had satisfied the statutory requirements to raise discovery assessments.

As the discovery assessments were validly raised the evidential burden then fell to the taxpayer to show that the payments were something other than taxable income that HMRC had contended in their discovery assessments.  The taxpayer had not been able to show that the payments were not taxable income so the assessments and penalties were valid.

The decision can be found at: STEPHEN JOHN MULLENS v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2023] UKUT 00244 (TCC) – GOV.UK (www.gov.uk)

This will be an expensive result for the taxpayer, though the large amount of funds requested by HMRC would have been paid over at the conclusion of the first instance trial at the FTT.  The taxpayer was paid many millions by the Ecclestone family and the interest and penalties likely raised at 100% of the tax avoided will mean that nearly all the income earned will have been passed over to HMRC.  In this case, it is highly likely that most of the work performed by the taxpayer will have been earned by HMRC due to the significant penalties charged.  Where the taxpayer had complied with tax law he would have kept more than half of his earnings but in this case may have only kept 10% or so.

Please contact if you have any questions over correspondence from HMRC, we are experienced with tax investigations and can assist.  As this case highlight, avoidance can have serious adverse consequences.