Chadwick – Discovery assessment on wrong person cannot be remedied by section 114 TMA

In Chadwick (as trustee in bankruptcy of Mrs Gloria Oduneye-Braniffe) v The National Crime Agency [2017] UKFTT 656 (TC), the First-tier Tribunal (FTT) has held that an assessment issued to a trustee in bankruptcy was a gross error that could not be cured by section 114 of the Taxes Management Act 1970 (TMA).

Background

In 2013, following an investigation by the National Crime Agency (NCA) into the trafficking of Class A drugs, Mrs Oduneye-Braniffe (the taxpayer) was arrested on suspicion of money laundering and subsequently declared bankrupt. In October 2014, she was advised that no further action would be taken against her in relation to money laundering.  

On 22 April 2015, using revenue powers provided under the Proceeds of Crime Act 2002, the NCA issued to Mr Chadwick, the taxpayer's  trustee in bankruptcy (the Appellant), discovery assessments for tax years 2004/05 to  2008/09, inclusive (the Assessments).  

It was common ground that the Assessments had been addressed to and served on the wrong person, as it is the bankrupt who is assessable, although any right of appeal is vested in the trustee in bankruptcy. 

The NCA sought to rely on section 114(1), TMA, to argue that the error was of no consequence.  Section 114(1) provides as follows:

"(1)  An assessment or determination … which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding."

The NCA argued that both the taxpayer and the NCA understood the intent was to assess the taxpayer to tax and she was not misled or confused.

FTT decision

The appeal was allowed.

In the FTT's view, the NCA clearly intended to assess the Appellant. In its letter of 22 April 2015 to the Appellant, the NCA referred to "you" as meaning the Appellant, not the taxpayer. 

The FTT concluded that the Assessments contained a gross error (as the Appellant was not assessable on the income that had been assessed), that such an error was capable of misleading the taxpayer and the Appellant. Whether either was actually mislead was immaterial, although the FTT considered it was possible that the taxpayer could have formed the view that she was not liable to pay the tax and NICs assessed and that the Appellant would take care of it.  The FTT concluded that the Assessments were not "in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts" and accordingly the error could not be cured by section 114(1), TMA.

The FTT held that the Assessments were invalid and should be cancelled.

Comment 
 
Regular readers of our weekly blog will recall that in January 2017, we discussed the FTT's decision in Chartridge Developments Limited [2016] UKFTT 766 (our blog can be found here). In that case, HMRC unsuccessfully attempted to rely upon section 114 to cure a defect in penalty notices.

This case provides further helpful guidance and analysis on the scope of section 114. It confirms the need for accuracy on the part of HMRC, and other organisations such as the NCA when using revenue powers. Section 114 cannot be relied upon to remedy gross errors which are likely to mislead the taxpayer.

A copy of the decision can be found here.