I have never subscribed to that concept, although I do support the concept of simplicity, which inevitably means that I would accept a degree of inequity and inconvenience if this resulted in an understandable system. But the integrity of the tax system must surely work both ways. To my mind the arguments the Revenue put forward in the Court of Appeal in Schuldenfrei v Hilton undermine that integrity. I would not seek to defend Mr Schuldenfrei. It appears he made a capital gain of £3m, which he declared. There was then an argument over allowable losses and, when this was resolved, the inspector mistakenly issued an amended assessment reducing his original estimated assessment to nil. Mr Schuldenfrei kept quiet. Later the Revenue realised its mistake. 'Too late,' said Mr Schuldenfrei, 'an amended assessment is a section 54 agreement'. The Revenue was not prepared to forgo £1m of tax. It listed the assessment before the commissioners. Mr Schuldenfrei raised as a preliminary point that his appeal had been settled by agreement. He lost before the special commissioners, in the High Court and now in the Court of Appeal. I suspect many readers will be saying 'and a good thing too!'. From my viewpoint as a taxpayer I echo that. But as someone who cares about the tax system I think the Revenue should have foregone the £1m rather than countenance the damage to the tax system the case creates. When I started in tax in the 1960s, the Revenue practice when settling a dispute was normally to write a letter stating that the appeal is settled under section 54. That ceased to be general practice years ago and for the last 10 to 20 years they have, in many cases, simply issued an amended assessment, which the taxpayer had paid if it showed tax due, or filed if it did not. The Revenue has now convinced the Court of Appeal that an amended assessment is no more than 'a notice addressed to the taxpayer purporting to record that adjustments have been made to the original assessment ... It does not, by its nature, require a response of any kind. Less still does it invite acceptance of an offer.' In law, the Revenue said, an agreement requires an offer and an acceptance. Mere silence cannot constitute an acceptance. The effect seems to be that there are now thousands, if not millions, of open assessments where the taxpayer wrongly believes he has a section 54 agreement. There is no time limit on settling an appeal; open appeals remain open forever. If I sent in computations (pre self-assessment) I did not 'offer' to settle the liability in the figure shown. Accordingly those appeals are still open. Sometimes the Revenue also issued a form stating that the appeal was settled under section 54 but, in the absence of an offer, that is now clearly not a valid section 54 agreement either. It is possible that the courts will deem my computations to be an 'offer' in such circumstances. But what about where the Revenue challenged the figures and I agreed adjustments? Often such cases ended with the Revenue sending me a computation and issuing the amended assessment. If, as was often the case, I was content with that, there was again no agreement. Lord Justice Schiemann seems to have been conscious of this wide-ranging effect of his decision because he twice emphasised that the amended assessment was not an offer 'in the context of this case'. But how can a standard Revenue form have one effect in the context of one case and a different effect in other cases. Of course it can't! It is wholly unreasonable for the Revenue to adopt a system for settling appeals and come along years later and say: 'Ha, ha we fooled you. Our system didn't settle appeals at all'. Of course they won't actually revisit those millions of cases. They will say 'It's OK. You can rely on us to pretend that we really agreed them.' But I find that equally unacceptable. It would have been far better to forgo Mr Schuldenfrei's tax than to undermine the procedure the Revenue itself created. - Robert Maas is a partner with Blackstone Franks.
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