![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |||||||||
First-tier Tribunal (Tax) |
||||||||||
PLEASE SUPPORT BAILII & FREE ACCESS TO LAW
To maintain its current level of service, BAILII urgently needs the support of its users.
Since you use the site, please consider making a donation to celebrate BAILII's 25 years of providing free access to law. No contribution is too small. If every visitor this month gives just £5, it will have a significant impact on BAILII's ability to continue providing this vital service.
Thank you for your support! | ||||||||||
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Bianchi v Revenue & Customs [2015] UKFTT 248 (TC) (03 June 2015) URL: https://www.bailii.org/uk/cases/UKFTT/TC/2015/TC04442.html Cite as: [2015] UKFTT 248 (TC) |
[New search]
[Context]
[View without highlighting]
[Printable PDF version]
[Help]
[2015] UKFTT 0248 (TC)
Appeal number: TC/2013/08115
INCOME TAX - closure notice -disputed expense claims for consultant work- charged from Appellant’s companies to Appellant - no evidence of services supplied onus on taxpayer to demonstrate that expenses properly incurred for purposes of trade - case dismissed.
FIRST-TIER TRIBUNAL TAX CHAMBER
Mr Gerald Bianchi
Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S Respondents
REVENUE & CUSTOMS
TRIBUNAL: JUDGE Rachel Short
Christopher Jenkins (Member)
Sitting in public at St Catherine’s House, 5 Notte Street, Plymouth on 18 May 2015
Mr Fass, accountant of Lustigman and Co, Chartered Accountants and the Appellant in person
Mr Colin Brown, presenting officer for the Respondents
© CROWN COPYRIGHT 2015
DECISION
1.
This is an appeal against a closure notice served by HMRC on 8
July 2010 in respect of Mr Bianchi
’s personal tax return for the 2005 - 6 tax
year. In that closure notice HMRC disallowed a number of expenses claimed as
deductions by Mr
Bianchi
against the profits of his trade on the basis that Mr
Bianchi
had not provided any information to substantiate those claims.
2. The expenses in question were: £32,050 cost of sales and a further £7,096 of miscellaneous business expenses for travel, advertising and promotion and legal costs.
3.
Mr Bianchi
submitted his personal tax return for 2005-6 on 21
February 2008 and HMRC opened their enquiry into that return on 27 April 2009,
making a request to see all books, record, documents and receipts used in the preparation
of the tax return. A closure notice was issued on 8 July 2010. Mr
Bianchi
appealed to this Tribunal on 9 September 2013.
4.
Mr Bianchi
’s appeal was made late on 21 December 2010 but HMRC
confirmed that they had accepted the appeal should be treated as made in time.
Facts.
5.
Mr Bianchi
was a quantity surveyor. He retired in March 2007 and
spent the next two years travelling abroad, returning to the UK in the summer
of 2009. During that time renovations were carried out at his residential UK
property from which he had been carrying out his business.
6.
Mr Bianchi
was a sole trader and used the trading name
“Abbeywood Kingstone and Co”. For the latter part of his career he worked on a
consultancy basis and provided some of his services through two UK companies;
Palex Services Limited (“Palex”) and Chalfont Consultancy Services Limited
(“Chalfont”). Other surveyors also provided their services through these
companies, but they were set up and run by Mr
Bianchi
, who was a director of
both.
7.
The cost of sales deduction of £32,050 claimed in Mr Bianchi
’s
2005-6 tax return related to payments by Mr
Bianchi
to those companies for
services provided by them to him. The gross earnings declared in Mr
Bianchi
’s
tax return were £71,500.
8.
HMRC made numerous requests for sight of documents relating to
the expenses claimed in Mr Bianchi
’s 2005 - 6 tax return from April 2009 until
February 2010 and eventually issued an information notice under Schedule 36
Finance Act 2008 on 9 February 2010. While some information was provided to
HMRC relating to other aspects of Mr
Bianchi
’s tax return, no information was
provided about the expense deductions claimed other than eight handwritten
invoices from Palex and Chalfont addressed to Abbeywood Kingstone and Co.
The law
9. Expenses are deductible in calculating the profits of a trade only if, in accordance with s 34(1) Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”) they are incurred “wholly and exclusively for the purposes of the trade".
Evidence
10.
We saw the correspondence between HMRC, the Appellant and his
advisers from 12 February 2008 to 8 July 2013 and eight invoices made out by
Chalfont and Palex to Abbeywood Kingstone and Co during 2005-6. Those were
handwritten invoices which Mr Bianchi
said had been completed by him. They
referred to “surveying services” but gave no further details of the services
provided or who had provided those services to Mr
Bianchi
through Chalfont or
Palex. The total value of the invoices was £99,900 excluding VAT.
Mr
Bianchi
gave oral evidence to the Tribunal.
11.
Mr Bianchi
told us that he used Chalfont and Palex to provide an
umbrella organisation under which a number of surveyors could provide their
services and as a shelter from potential litigation against any of the
individual surveyors. If a large property client was looking for surveying
services they would approach an agency which provided surveying services who
would in turn contact Chalfont or Palex. Mr
Bianchi
and his colleagues would
then sometimes sub-contract their services to Chalfont and Palex to carry out the
required surveying work.
12.
Chalfont was set up in 2004 and Palex was set up in 2002. They
were wound up in 2008 and 2009 respectively. Mr Bianchi
provided his services
to those companies but also received services from those companies; for example
if he was asked to undertake a task for which he needed additional surveying
services. He was not an employee of either of those companies.
13.
Mr Bianchi
retired in 2007 and spent the next two years
travelling abroad with his wife while their house in the UK was being
refurbished. All of his documents were put into storage and were not accessible
by him or his accountant Mr Fass. That was why it had taken so long to give
HMRC the evidence which they required.
14.
When asked to explain what services had been provided by
Chalfont and Palex to him Mr Bianchi
gave rather confused answers, initially
referring to work provided by him to those companies. He could not specify in
any detail what work had been provided by Chalfont and Palex to him but said
that this would have been done if he had been approached to undertake work
which he could not do alone, when he would utilise the sub-contracted services
of other surveyors through one of those companies. Initially both he and Mr
Fass said that they did not have any further details of the services to which
those invoices related.
15.
During the course of the Tribunal hearing Mr Bianchi
did say
that he had further details of the work done for him by Chalfont and Palex in
the form of a spreadsheet on his laptop, which he tried to extract during the
Tribunal hearing. This information had not previously been seen by HMRC. It
transpired that this information only provided dates and invoice amounts taken
from Mr
Bianchi
’s own sales ledger rather than any further information about
the services provided by the companies to Mr
Bianchi
.
Mr Fass oral evidence.
16.
Mr Fass told us that as Mr Bianchi
’s accountant he worked from
information provided by Mr
Bianchi
, which he initially said included bank
statements but later said amounted only to information provided by Mr
Bianchi
in the form of a spreadsheet and the company’s VAT returns, to complete Mr
Bianchi
’s accounts as a sole trader and his tax returns. Mr Fass said that he
did not see the invoices provided to Mr
Bianchi
when he was completing Mr
Bianchi
's accounts and tax returns.
HMRC witness evidence
17.
We also saw a written witness statement from Mr John Laity of
HMRC who was Mr Bianchi
’s compliance officer. Mr Laity was not called to give
oral evidence.
Appellant’s Argument
18.
The Appellant’s argument was that the expenses were properly
claimed as deductions in his 2005-6 tax return. There had been difficulties in
providing the documents relating to those expenses to HMRC because of Mr
Bianchi
being abroad and the renovation work done at Mr
Bianchi
’s property in
the UK which meant that documents were not accessible. Documents had been
provided in 2009 but HMRC were still refusing to accept the deductions claimed.
19. The Appellant also pointed out that the payments in question made to Chalfont and Palex had been declared and taxed in the hands of those entities and so should be deductible for the Appellant.
HMRC’s argument
20.
HMRC’s argument was that the onus of proof was on Mr Bianchi
to
demonstrate that the expenses which he had claimed in his tax return were
expenses wholly incurred for the purpose of his trade. The information provided
by Mr
Bianchi
had not demonstrated that, or provided sufficient details of what
the expenses actually related to at all. Mr Brown said that HMRC had not even
been provided with evidence relating to the miscellaneous expenses claimed
(£7,096), let alone for the larger sub-contractor payments (£32,050). HMRC
pointed out to the Tribunal that the total of the invoices submitted by Mr
Bianchi
which he said related to 2005-6 exceeded Mr
Bianchi
’s income for the
year and were more than double the actual expenses claimed in his tax return.
Decision
Facts found:
21.
The Tribunal found that HMRC had requested documents relating to
the expense deductions claimed in Mr Bianchi
’s 2005-6 tax return on a number of
occasions but Mr
Bianchi
and his advisers had only provided the basic invoices
which had been issued by Palex and Chalfont during 2005 and 2006.
22.
HMRC’s information requests had been made after Mr Bianchi
had
returned to the UK and Mr
Bianchi
had not explained why he had not been able to
provide any other documents in support of his expense claims.
23.
In order to succeed in this appeal Mr Bianchi
needs to
demonstrate that the expenses which have been claimed can properly be treated
as incurred wholly and exclusively for the purpose of his trade as a consultant
quantity surveyor. On the basis of the evidence provided to the Tribunal and
the evidence provided to HMRC during the rather lengthy process of resisting
HMRC’s closure notice, Mr
Bianchi
has failed to produce any evidence to
substantiate the basis of these claims other than the generic invoices about
which, when asked to do so by the Tribunal, he could provide no further
details.
24.
The fact that the disputed sub-contractor payments were taxed in
the hands of the recipient companies, Palex and Chalfont is not relevant to the
question of their deductibility by Mr Bianchi. Those entities are subject to
corporation tax as separate taxable entities and there is no assumption in the
UK tax code that there should be symmetry of tax treatment as between payer and
recipient of payments such as these.
25. In these circumstances there is little doubt that the Appellant has failed to demonstrate for the purpose of s 34 ITTOIA that the expenses can be treated as deductible expenses incurred for the purposes of his trade and for that reason this appeal is dismissed
26. 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.
RACHEL SHORT TRIBUNAL JUDGE
RELEASE DATE: 3 JUNE 2015