Appeals, disputes and investigations

Taxpayer win on discovery assessment

The First-tier Tribunal (FTT) has found that a taxpayer who did not declare payments from a business had not appreciated that they were self-employment income. His behaviour was not deliberate and the discovery assessment was cancelled as out of time.

This case was about the correct taxation of large payments from the business to the taxpayer in 2012. At the time he was director and sole shareholder, but not an employee and the payments were not declared on his return.

The taxpayer’s agent stated that the money was repayment of a loan, which was a purely verbal agreement. The taxpayer, in his 80s and seriously ill, told HMRC that he did not remember receiving it and that if there had been a mistake in tax treatment then perhaps his accountants had erred. He later explained that it had been a personal loan that went through company accounts for unknown reasons. HMRC contended that it was a payment to him as a consultant and taxable as self-employment income, as he had remained involved with the business throughout. A discovery assessment and penalties were issued.

The FTT found that the payment was not in relation to a personal loan and that it was likely for services to the business. However, the insufficiency of tax in the self-assessment was not deliberate on the taxpayer’s behalf, so the discovery assessment was out of time. HMRC had not proved that the taxpayer knew that the money was self-employment income, and he left all matters to his accountant. The penalty was also cancelled.

Yip v HMRC [2024] UKFTT 434 (TC)

From Tax Update July 2024, published by Evelyn Partners LLP