A special commissioner reached a decision in principle as to the quantum of undeclared profits to be included in adjusted income tax assessments following the taxpayer's agreement that there were undeclared profits from his trade.

Facts

The taxpayer carried on an ironing business with his wife. His house and adjoining buildings had been searched by police acting under a search warrant. Money, documents and controlled substances were seized during the search. A small amount of controlled substances were found in the taxpayer's house and he pleaded guilty to the charge of possessing them. Larger quantities of drugs were seized from a detached garage adjacent to the house which was used as a workshop and for the ironing business. The taxpayer was charged with the supply of controlled substances but the charge was not proceeded with. The taxpayer subsequently appealed against estimated notices of assessment for 1997-98 to 2002-03 to income tax under Sch. D, Case 1 and for National Insurance contributions (‘NICs’) on the basis that he was carrying on the trade of drug dealing. The assessments were made on the basis that the taxpayer's income exceeded that returned for 2000-2001 and 2002-2003 by extrapolation to the other periods. A special commissioner allowed the taxpayer's appeal, but, on appeal to the High Court, Mann J directed by consent, and upon the parties having agreed that were undeclared profits from the ironing trade, that the appeal be allowed to the extent that there were undeclared profits from an ironing trade; and the appeal be remitted to the special commissioner solely to determine the quantum of the undeclared profits and to adjust the assessments accordingly.

Issue

What was the value of the drugs and whether such value should be included for each of the years in question; and whether four cheques represented the proceeds of a one-off sale of jewellery by his wife as the taxpayer claimed or were the proceeds of part of a systematic dealing in jewellery such that an equivalent amount should be included for each of the years in question.

Decision

The special commissioner (Adrian Shipwright) (ruling accordingly) said that it was agreed that the onus of proof was on the taxpayer to show that the Revenue's determination and figures were wrong. A schedule setting out the Revenue's calculations was attached to a draft order produced by the Revenue. It was by reference to those figures that discussions between the parties had taken place The parties agreed that the wholesale value of the drugs was about £4,300 and the street value £11,500. It had been found that the cache of drugs belonged to the taxpayer and he was not carrying on a trade of dealing in drugs. However, in all the circumstances, the drugs should be included at their street value of £11,500 as they belonged to the taxpayer for his use to feed his drug habit.

On the other hand, four cheques totalling £5,600 should not be included since the taxpayer's evidence was accepted that they were in connection with the sale of jewellery belonging to the taxpayer's wife and were not part of the proceeds of a trade of dealing in jewellery. There was nothing to show that they were part of an ironing trade.

Accordingly, the value of the drugs was their street value of £11,500 and such value should be included for each of the years in question; and the four cheques represented the proceeds of a one-off sale of jewellery by his wife as the appellant claimed and were not the proceeds of part of a systematic dealing in jewellery. Consequently, an equivalent amount should not be included for each of the years in question. The parties would be left to agree the figures with liberty to apply if they were unable to do so.

(2007) Sp C 620.
Decision released 20 July 2007.