A used car dealer ignored HMRC notices requesting information, prompting HMRC to pluck out of the air figures of £342,943 as taxes and penalties.
Turning a deaf ear upon HMRC’s request for being cooperative in their review process could be intimidating. This is quite evident from a recent case S Cussens v HMRC  UKFTT 543 (20 August 2019) in which the First-Tier Tax Tribunal (FTT) claimed that the Revenue used figures “plucked from the air” to agitate a taxpayer in a dispute over a tax bill of more than a quarter of a million pounds.
Cussens had been trading, as a sole trader, in buying and selling low end, cheap second-hand cars. In the aforementioned case, the Revenue issued an income tax assessment against him based on the fact that he had failed to declare trading profits from 2005 to 2016. These assessments for 2005 to 2016 totalled to £272,840 along with a sum of £114,842 as penalty assessments relating to 2010 to 2016. Further penalty assessments for 2005 to 2009 were later issued totalling £70,102. Thus, making the total amount at stake in the appeal to be a whopping £343,943.
HMRC took their estimate of the sales for 2015-16 and deducted 50% for expenses scaling back the previous years’ results using the Retail Price Index. Cussens took to appeal against HMRC’s assessments and related penalties. In the appeal, he stated that he had no income over the relevant years apart from a meagre income as a part share in a rental property that was “nowhere near to taking over and above the single person annual allowance for any of those years”. He also laid bare the fact that he suffered from health difficulties as a result had received Enhanced Employment and Support Allowance (EESA) from the Department for Work and Pensions for 2014-15 and 2015-16.
It seems that the respondents relied upon information emanating Worldpay which had a heading “Waltham Cars,” with the appellant described as the “principal”. It also contained a mobile telephone number which, we heard, is the appellant’s father’s mobile telephone number (he being the alter ego of Waltham Builders Ltd).
HMRC’s representative was asked to throw light on how the 50% figure had been worked out to ascertain the net profit figure, she stated that “there was nothing that she was able to say about that figure or how it had been arrived at”.
The real clincher here is that the ultimate purpose of the Revenue behind raising such an exorbitant demand, through assessment, was to frighten the taxpayers so that they engage properly in the matters under review. Since Cussens had been behaving “ostrich-like and buried his head in the sand rather than engaging with the issues involved in this appeal”, thus the Revenue decided to issue assessments almost “in terrorem”, to coax the appellant into responding to their requests for information. It is noteworthy that although the assessments raised on the appellant were “so wild, extravagant and unreasonable”, it trapped the appellant in responding to Revenue’s demands. This case has blown the lid off the repercussions of being unaccommodating towards Revenue’s review process. As a taxpayer its high time that we realise that it is our responsibility to engage properly into matters under review by HMRC’s.