[2012] UKFTT 263 (TC)
TC01956
Appeal number:
TC/2011/01732
INCOME TAX
– PAYE Regulation 80 determinations – Information on employers’ end of year
return inconsistent with business records – whether sufficient evidence to
displace determinations – No – Appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
|
|
ABDUL KAHIM T/A
BALTI NITE
|
Appellant
|
|
|
|
|
|
|
- and -
|
|
|
|
|
|
|
|
THE
COMMISSIONERS FOR HER MAJESTY’S
|
Respondents
|
|
|
REVENUE &
CUSTOMS
|
|
|
TRIBUNAL:
|
JUDGE JOHN BROOKS
|
|
|
PETER LAING
|
Sitting in public at Eastgate
House, Newport Road, Cardiff on 19 January 2012 with written closing
submissions received from HMRC on 30 January 2012 and from the Appellant on 15
February 2012
Latif Mohammed, Counsel,
instructed by IRMAA Associates for the Appellant
Jack Lloyd of HM Revenue and
Customs, for the Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
This is an appeal against the following Determinations made by HM
Revenue and Customs (“HMRC”) under Regulation 80 of the Income Tax (Pay as You
Earn) Regulations 2003 which were issued to Mr Abdul Kahim on 19 November 2010:
2004-05: £1,774.30
2005-06: £4,474.14
2006-07: £5,075.06
2007-08: £4,194.66
2008-09: £444.40
2.
The appeal is on the grounds that HMRC has not considered the P60s for
all employees; that HMRC has assumed, without evidence, that there are more
employees than declared on the employers’ annual return; and all the employees
earn less than their personal tax code, ie the calculations did not reflect
their personal allowances.
Law
3.
Unless otherwise stated all references to Regulations are references to
the Income Tax (Pay as You Earn) Regulations 2003.
4.
If an employee commences employment without providing his employer with
parts 2 and 3 of Form P45 he is required, under Regulation 46, to provide
information including his national insurance number, his full name, sex, date
of birth and full address including postcode to the employer in a signed Form
P46. Regulation 49 requires the employer to send the P46 to HMRC “on making
the first relevant payment [ie payment net of tax] to the employee.”
5.
Regulation 21 provides that, on making a payment to an employee and
employer “must” deduct or repay tax in accordance with the relevant tax
code. The tax deducted is then paid by the employer to HMRC under Regulation 68.
6.
If it appears that tax may be payable under Regulation 68 which has not
been paid, a determination may be made by HMRC under Regulation 80, “to the
best of their judgment”.
7.
Such a determination is subject to the appeals provisions of the Taxes
Management Act 1970 (“TMA”)(Regulation 80(5)).
8.
Section 50(6) TMA provides that if, on an appeal, it appears to the
Tribunal that an appellant is overcharged by an assessment (which by virtue of
Regulation 80(5) must be read as referring to a determination) it shall be
reduced accordingly but “otherwise the assessment … shall stand good.”
9.
In the decision of the Court of Appeal in T Haythornwaite & Sons
v Kelly (HM Inspector of Taxes) (1927) 11 TC 657 Lord Hanworth MR,
referring to a previous incarnation of this enactment, said, at 667:
“Now it is to be remembered that under the law as it
stands the duty of the Commissioners [and from 1 April 2009 the Tribunal] who
hear the appeal is this: Parties are entitled to produce any lawful evidence,
and if on appeal it appears to a majority of the Commissioners by examination
of the Appellant on oath or affirmation, or by other lawful evidence, that the
Appellant is over-charged by any assessment, the Commissioners shall abate or
reduce the assessment accordingly; but otherwise every assessment or surcharge
shall stand good. Hence it is quite plain that the Commissioners are to hold
the assessment as standing goods unless the subject – the Appellant –
establishes before the Commissioners, by evidence satisfactory to them, that the
assessment ought to be reduced or set aside.”
Evidence
10.
We heard oral evidence, under oath or affirmation, from Mr Kahim, the appellant,
his accountant, Mr Zahir Minhas and Mr Lyndon Beard an employer compliance
officer of HMRC.
11.
We were also provided with a witness statement signed by Mr Mohammed
Kamal Khan on 22 October 2011 and a ‘Statement of Employment’ signed by him on
the same day as well as a ‘Statement of Employment’ signed by Mr Hakim Khan on
12 December 2011.
12.
On the morning of the hearing we were provided with a document headed
‘Statement of employment’ signed by Mr Hakim Khan on 18 January 2012 and an
undated ‘witness statement’ signed by Mr Mohammed Kamal Khan which states that
when informed that Mr Kahim had lost his P46 he told Mr Kahim to fill in a new
P46 “and put my name in the space provided for signature.”
13.
In Mr Hakim Khan’s statement he confirms that he worked for Mr Kahim and
states that he believed he signed a P46 in 2004 but signed a new P46 “recently”
as Mr Kahim told him that he “had lost the record.” There is then a reference
to the ‘Statement of Employment’ signed on 12 December 2011 and a statement
that Mr Beard (of HMRC) “fed me the information about my employment which is in
my statement. I can verify that the information given to Mr Beard is not
correct. I cannot remember what happened 7 years ago.”
14.
Given that we did not have the benefit of hearing from either Mr
Mohammed Kamal Khan or Mr Hakim Khan and that neither of their statements
contains a “statement of truth”, where their evidence is inconsistent and
conflicts with that of Mr Lyndon Beard we prefer that of Mr Beard who gave
sworn evidence before us.
15.
We also prefer Mr Beard’s evidence, which we found to be to clear and
consistent, to that of Mr Kahim and Mr Minhas who we did not find to be
particularly convincing witnesses.
16.
For example, having strongly asserted that P46 forms (which had been
supplied to HMRC after the Notice of Appeal had been sent to the Tribunal) were
signed by his employees in 2004 and 2005 Mr Kahim accepted that this could not
have been the case when it was pointed out to him that the forms were printed
in January 2006. Also, when questioned in regard to the same P46 forms Mr
Minhas, who accepted that they had been completed retrospectively, was only
able to answer in vague terms, eg saying that they “might have been” completed
in his office and that the handwriting “might” be that of someone in his
office.
17.
On the basis of this evidence we make the following findings of fact.
Facts
18.
Mr Kahim was the proprietor of a restaurant and takeaway trading from
November 2004 to June 2008 as the ‘Balti Nite’.
19.
On 19 November 2007 Mr Lyndon Beard of HMRC opened an ‘Employer
Compliance Review’ into Mr Kahim’s PAYE records. On 11 December 2007 he met
with Mr Kahim who told Mr Beard that the restaurant had four employees and gave
details of their names, rates of pay and hours worked. He said that none of the
employees had provided him with P45s when they started employment and none had
been asked to complete a form P46.
20.
This concerned Mr Beard as did the lack of wages records and the fact
that there did not appear to be enough employees to run the restaurant.
21.
Having reviewed the information provided by Mr Kahim and the further
information from Mr Zahir Minhas of IRMAA Associates, Mr Kahim’s accountant, Mr
Beard discovered discrepancies that certain names were mentioned in the
business records but not shown in the end of year returns (P35s) submitted to
HMRC. These included Mr Hakim Khan who was listed as a manager on a wages sheet
and a Mr Dil Raj who signed the “streamline” sales vouchers and was commented
on by customers in a restaurant “guestbook” eg an entry on 28 October 2005 says
“food was excellent Raj is the best waiter ever, top man”.
22.
Although Mr Kahim was asked to explain these discrepancies in a meeting
held at HMRC’s offices on 1 December 2009 he could only say that those
mentioned in the records were not employees. Mr Beard was not satisfied with
the explanations given him by Mr Kahim and Mr Minhas in relation to these
people despite a third meeting, on 15 April 2010.
23.
Mr Beard had asked for P45 or P46 forms at the meetings and in telephone
conversations with Mr Kahim and his accountant, Mr Minhas. A schedule to Mr
Beard’s letter of 27 April 2010 to Mr Minhas had asked “are there any further
records including forms P45 and P46 forms which have not yet been made
available for review?” The reply from Mr Minhas, in his letter of 23 July 2010,
was an unequivocal “No”.
24.
In the circumstances Mr Beard concluded that Mr Kahim, as an employer,
should have deducted basic rate tax from the wages he paid to his staff. He
therefore issued calculations based on the P35s and estimated the wages of the
additional employees not included on the returns. In the absence of an
agreement to the calculations on 19 November 2010 formal Regulation 80
determinations were issued covering the period 2004-05 to 2008-09 (which are
the subject matter of this appeal).
25.
The determinations were upheld following a review by HMRC which concluded,
in a letter to Mr Kahim dated 1 February 2011:
You were unable to provide any forms P45 or P46 for
any of your employees for the period concerned; therefore it is correct that
tax is due at basic rate, without any personal allowances, in respect of all
these employees, as it has been include in the determinations under appeal.
26.
Mr Kahim appealed to the Tribunal on 1 March 2011.
27.
On 23 August 2011 Mr Minhas sent copies of P46 forms “for all employees”
to the Tribunal and to Mr Beard. In total there were 11 forms and the
handwriting on each of the P46 forms, which had been printed in January 2006
and completed subsequently to the appeal being made, was similar. Every form
had the same incorrect spelling of the business address. Four employees were
listed as having the same address but not recorded on the electoral records for
that address. There was doubt as to whether the signatures on the forms were
genuine. Also National Insurance numbers were missing on two of the P46 forms
and some of the National Insurance numbers did not match the names of the
employees.
28.
Mr Beard visited the addresses shown on the P46s and found that none of
the employees were living there and in the case of nine of the employees was
unable to verify that that had ever lived at the addresses shown on their P46.
29.
Although Mr Mohammed Kamal Khan no longer lived at the address shown on
his P46 Mr Beard was given a forwarding address at which he visited Mr Khan who
said that he had not signed the P46 and had not been asked to complete such a
form. In December 2011 Mr Beard was also able to locate Mr Hakim Khan. Although he confirmed that he had signed a P46 within
the last few months his answers concerning his employment at the Balti Nite in
relation to wages and hours worked were very vague.
Submissions
30.
As there was not time for oral closing submissions on the day of the
hearing we directed, with the agreement of the parties, that Mr Lloyd would
provide written closing submissions on behalf of HMRC within 14 days of the
hearing to be followed by Mr Mohammed’s written submissions, on behalf of Mr
Kahim, 14 days later.
31.
Mr Mohammed contended that this was a “classic case” of procedural
errors rather than one of tax avoidance or evasion, there was no actual loss of
tax which if paid would be claimed back by the employees as personal
allowances. He referred to the evidence of Mr Minhas which he urged us to
accept in its entirety.
32.
In addition Mr Mohammed raised concerns about the manner of HMRC’s
investigation into Mr Kahim’s affairs pointing out that he was first
interviewed by HMRC without Mr Minhas being present and that because, as well the
PAYE issue with which we are concerned, VAT and income tax matters were also raised
in the interviews which were carried out by more than one HMRC officer there
were opportunities for “glaring misunderstandings and genuine errors.”
33.
However, the main thrust of his argument is that HMRC should have
accepted the P46s, sent to HMRC on 23 August 2011, retrospectively and that the
grounds for rejecting these were “nebulous, flawed and contradictory”. Mr
Mohammed submits that Mr Beard could have resolved the issue relating to the
P46s when he visited the restaurant by obtaining the information from the staff
directly and that by failing to do so he was the author of his own misfortune
“for which the appellant should not be penalised.”
34.
For HMRC, Mr Lloyd reminded us that the burden of proof is with Mr Kahim
to demonstrate that the Regulation 80 determinations were excessive and
submitted that we should prefer Mr Beard’s evidence over that contained in the
witness statements of Mr Hakim Khan and Mr Mohammed Kamal Khan whose evidence
had not been subject to cross examination.
35.
Mr Lloyd contends that although retrospective P46s can be accepted by
HMRC this is by concession and, as the P46s in this case do not contain
sufficient information to comply with Regulation 46 they cannot be regarded as
valid and consequently, as Mr Kahim had failed to establish otherwise, the
amounts in the determinations are correctly charged and the appeal should
dismissed.
Discussion and Conclusion
36.
The issue for us to determine is whether the evidence adduced by and on
behalf of Mr Kahim is sufficient to establish that the Regulation 80
determination ought to be reduced or set aside.
37.
Having considered this evidence (in paragraphs 10 – 16) and, for the
reasons stated above, preferred that of Mr Beard over that of Mr Kahim and his
witnesses we find that Mr Kahim has not adduced sufficient evidence to displace
the determinations which were, in our judgement, based on fair and reasonable
inferences drawn from the information provided to HMRC in P35s and Mr Kahim’s
records. Therefore, unless he can rely on the information provided in the P46s
submitted on 23 August 2011 Mr Kahim’s appeal cannot succeed.
38.
In the absence of evidence to the contrary from Mr Kahim’s employees we
are, on balance, with the exception of Mr Hakim Khan, unable to accept that the
signatures on the P46s submitted on 23 August 2011 are genuine. Therefore these
do not meet the requirements of Regulation 46. As such they cannot be valid and
consequently cannot be relied upon to displace the determinations.
39.
With regard to Mr Hakim Khan’s P46, given his inability to recall
details of his employment, that it was completed after the appeal had been notified
to the Tribunal and that it included an incorrect address we find that this too
cannot be relied upon to displace or reduce the determinations.
40.
In the circumstances we are compelled to dismiss the appeal.
41.
This document 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 Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. 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.
JOHN BROOKS
TRIBUNAL JUDGE
RELEASE DATE: 19 April 2012
