Stephen Mullens worked as a lawyer and adviser to the Ecclestone family of Formula One fame. Between 1999/00 and 2012/13, Mullens received six payments totalling just under £40m, which he did not declare in his respective tax returns. Mullens claimed that these payments were gifts and not related to business.
HMRC issued discovery assessments under section 29 TMA 1970 in respect of the first four payments Mullens received, relying on the extended time limits available in section 36(1) and (1A) to make the assessments. This gives HMRC an extended time limit to open an enquiry to six years for careless conduct, and 20 years for fraudulent or deliberate conduct.
While HMRC also issued a discovery assessment for the fifth payment, this was within the usual four-year discovery time limit, and the sixth payment was dealt with by way of a closure notice, which amended that return to include the relevant payment.
HMRC also issued penalty assessments in relation to the payments.
The first tier tribunal (FTT) determined that each of the six payments was taxable, reflecting Mullens’ income made in return for services he had provided to the Ecclestone family interests. Similarly, the FTT found that the penalties issued for the relevant years had been correctly assessed.
Leave to appeal
Mullens challenged the FTT’s decision and was granted leave to appeal to the upper tribunal.
The case before the UT was narrower in scope and concerned an assessment appeal against the extended time limits HMRC had used when assessing the first four payments he had received (amounting to around £24m). Mullens also appealed against the associated penalty assessments for those years ([2023] UKUT 00244 (TCC)).
Regarding the assessment appeal, it was common ground that, for HMRC to prove its case, it bore a burden of proof in two respects.
- First, HMRC had to establish that the pre-condition set out in s29(4) TMA 1970 was present – essentially, that a loss of tax had been brought about carelessly or deliberately by Mullens, or a person acting on his behalf.
- Second, HMRC had to establish that the requirements of s36(1) or (1A) TMA were met so that it could make an extended time-limit discovery assessment.
Mullens’ counsel argued that HMRC had failed to discharge its section 36 burden. In other words, for HMRC to issue discovery assessments under the extended time limits, it needed to show, in addition to culpable conduct, that there was an actual loss of some tax in the years of assessment covered by the extended time limit.
This included a need, so Mullens argued, for HMRC to establish matters such as the taxable source from which his payments derived, the status of those payments as income (not capital), and that they were taxable in the specified years.
Culpable conduct
Ultimately, the UT concluded, in relation to this case, that: “As a matter of statutory construction, if HMRC has discharged a section 29(4) burden, it need do nothing further to discharge a section 36 burden beyond proving that the [extended time limit] assessment in question was made within the six-year or 20-year period specified in s36(1) or s36(1A) of TMA as the case may be. Nothing in the authorities we have been shown, including [Hurley vs Taylor [1999] STC 1], alters that conclusion.”
The UT also made the point, in rebuttal to Mullens’ argument that HMRC also needed to establish specifics such as the taxable source of the payments, that where HMRC can produce evidence that, prima facie, showed a loss of tax as a result of culpable conduct requiring an explanation from the taxpayer, HMRC can still meet its section 36 burden if the taxpayer’s explanation was not accepted. It would then fall to the taxpayer to displace the assessment: there was nothing unfair or unexpected in that as it is the taxpayer who has the relevant information.
The UT decision
Ultimately, the UT rejected Mullens’ argument that the FTT misdirected itself on the section 36 burden, finding that the FTT’s approach had been correct and that discharging the section 36 burden required HMRC to show nothing more than what was required in connection with its section 29(4) burden.
As to the penalty appeal, the UT determined that HMRC had made valid penalty assessments.
The appeal was dismissed.
It’s worth noting that, in this case, the UT also went into some detail discussing the case law and broader legislative history regarding the discovery assessment provisions, with a particular focus on Hurley vs Taylor [1999] STC 1.
