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Assessments cancelled as not based on fair inferences

Assessments and penalties were cancelled when a tribunal held that HMRC had not based them on fair inferences.

HMRC assessed a taxpayer for 12 years for trading in cheap second hand cars. HMRC used estimated sales figures and assumed that 50% was profit. The taxpayer said that in all years his income was below the personal allowance.

When HMRC makes a "best judgment" assessment, it is bound by six principles:

 (1) The respondents must have some material upon which a best judgment assessment can properly be based.

 (2) The respondents are not required to undertake the work which the taxpayer would ordinarily undertake so as to arrive at a conclusion about the exact amount of tax due.

 (3) The respondents are entitled to exercise their best judgment power by making a value judgment on the material available.

 (4) The Tribunal should not treat an assessment as invalid simply because it takes a different view as to how the best judgment could or should have been applied to the material available to the respondents. Before the Tribunal interferes, it needs to be satisfied that the purported best judgment assessment was wholly unreasonable.

 (5) The Tribunal is to start by assuming that the respondents have made an honest and genuine attempt to arrive at a fair assessment.

 (6) It is for the Tribunal to arrive at the proper sum for the tax payable in the event that it decides that the assessment(s) fail to satisfy the best judgment criteria.

A further case has held that an assessment must follow a sound methodology.

The tribunal found that the 50% figure had been "plucked from the air". Also, there had been no serious consideration as to the taxpayer's actual level of income.

The case report can be downloaded from here.

Sebastian Cussens [2019] TC 7337 [19.09]