A special commissioner upheld the issue of assessment to recover unpaid income tax where the taxpayer had failed to show on the balance of probabilities that the income tax as declared in his self assessment returns had in fact been deducted from his earnings.

Facts

The taxpayer was a builder who worked for three different employers during the relevant years. He claimed in his tax returns to have suffered income tax by deduction from certain employments. The Revenue contended that the taxpayer's employers did not operate PAYE so that the income tax claimed by him had not been deducted at source from his earnings.

Therefore, the Revenue directed under reg. 42(3) of the Income Tax (Employments) Regulations 1993 that the unpaid tax for the said years should be recovered from the taxpayer. The Revenue issued the disputed assessments to give effect to those directions.

The taxpayer submitted that he should be given credit for the tax deducted from his employments for the tax years in question. The onus was on the taxpayer to demonstrate on the balance of probabilities that the said amounts of income tax were deducted from his earnings, and thereby discharge the assessments against him (see Jonas v Bamford (HMIT) (1973) 51 TC 1 and Hurley v Taylor (HMIT) [1998] BTC 479; (1999) 71 TC 268). The Revenue contended that the evidence adduced by the taxpayer was insufficient to discharge the burden of proof and in consequence the assessments should be upheld.

The taxpayer did not attend the hearing, and failed to put forward a good and sufficient reason for his absence. The commissioner therefore proceeded to hear the appeal in his absence in accordance with reg. 16 of Special Commissioners (Jurisdiction and Procedure) Regulations 1994.

Issue

Whether the taxpayer had shown on the balance of probabilities that the income tax as declared in his self assessment returns had been deducted from his earnings.

Decision

The special commissioner (Michael Tildesley) (dismissing the appeal) said that the decision was concerned solely with the taxpayer's appeal against the discovery tax assessments for the years ending 5 April 1997, 1998 and 1999. The taxpayer had no right of appeal against the issue of the reg. 42(3) directions. The employee's right of appeal against a reg. 42(3) direction under reg. 72B of Income Tax (Pay As You Earn) Regulations 2003 came into force on 12 April 2004 which was after 2 August 2002, the date when the reg. 42(3) directions were issued against the taxpayer.

The taxpayer's grounds of appeal against the assessments were that he should be given credit for the tax he suffered from his employment with the three companies, and that he did not receive any earnings from one company (VB Ltd) in the year ended 5 April 1999. The Revenue conceded that the taxpayer received employment income only from VB Ltd during the year ended 5 April 1999. Their concession had the effect of reducing the original assessment for the year ending 5 April 1999 from £64,799.99 to £32,800.00.

No PAYE tax in respect of deductions from the taxpayer's employment income had been sent to the Revenue by the taxpayer's employers between 6 April 1996 and 5 April 1999. In the light of that finding the onus was on the taxpayer to demonstrate on the balance of probabilities that the said amounts of income tax as declared in his self assessment returns for the years in dispute were deducted from his earnings. The taxpayer chose not to attend the hearing to give oral evidence. Further he did not comply with the Revenue's request for company payroll records and personal bank statements for each of the years in question. The only documents produced by the taxpayer to support his contention that tax was deducted from his earnings were copies of payslips from his employers for the period from 1 April 1997 to 31 March 1998.

The Revenue had placed no weight on the information contained in the payslips because the information on its own did not demonstrate that tax had been deducted from his earnings. Therefore, the taxpayer had failed to satisfy on the balance of probabilities that he should be given credit for the tax he alleged was deducted from his employment earnings with the three companies for the years in question. The Revenue had met the requirements of s. 29 of the Taxes Management Act 1970 enabling them to issue discovery assessments for the years ending 5 April 1997, 1998 and 1999. Accordingly the assessments would be upheld.

(2008) Sp C 681.

Decision released 16 April 2008.