Analysis
The appellant (Mr Bingham), a sole practitioner, was a solicitor practising under the style of Bingham & Co. His practice, predominantly based on property transactions, prospered to such an extent that Mr Bingham was able to amass substantial sums of personal funds, which he deposited in a number of bank and building society accounts. These were subsequently consolidated in a money market account held jointly with his wife, to which were later added their children. Mr Bingham believed that the beneficial ownership of the funds could be changed by making them account holders and signatories, and the interest earned was apportioned between the several account holders according to how many persons held the account. HMRC raised assessments on Mr Bingham for income tax on the interest earned not only for the years 2005/06 to 2009/10, but also ‘out of time’ discovery assessments for the years from 1996/97 to 2004/05. In addition, interest and penalties were claimed. HMRC’s decision, that all interest accruing on the accounts was properly assessable on Mr Bingham, was confirmed by an appeals review officer on 27 November 2009. Mr Bingham appealed.
Held (allowing the appeal in part)
There was no evidence that Mr Bingham had made a disposition of a beneficial interest in the accounts and, as there was no doubt that the monies funding the accounts were exclusively furnished by him, in the absence of any evidence to the contrary, the beneficial ownership of the funds in the accounts remained with Mr Bingham and it was he alone who should therefore account to HMRC for the whole of the interest earned – income tax was chargeable on Mr Bingham as the person ‘receiving or entitled to’ the interest. Although it may have been Mr Bingham’s intention to establish a jointly held fund assessable to all family members except himself, he remained a signatory and was entitled as any other member of the family to sign away monies from the accounts. In legal terms, this arrangement could not be considered as other than an informal family settlement of which the settlor was Mr Bingham. Accordingly, Mr Bingham was chargeable under the ‘settlor interested’ provisions of s660A of the Income and Corporation Taxes Act 1988 (now s619ff of the Income Tax (Trading and Other Income) Act 2005). It was impermissible to extend the essentially concessionary taxing provisions set out in s282A ICTA 1988 (now s836 Income Tax Act 2007), by which a married couple living together would be treated without further enquiry as joint owners of an account and taxed in equal shares, to children of the family. As regards the ‘out of time’ discovery assessments, HMRC was not precluded from raising these by any knowledge it possessed that Mr Bingham was the sole provider of the funds or that he had made such disclosure as would preclude them from making a ‘discovery’ of the insufficiency of tax paid within the meaning of s29 of the Taxes Management Act 1970. HMRC was only precluded from making those assessments because there was no basis for suggesting Mr Bingham had acted negligently in the completion of self-assessment tax returns (it being accepted that this was not the case of fraudulent conduct). His appreciation of the true legal position concerning the jointly held accounts may have been at fault but that did not mean he was negligent – Mr Bingham simply had an honestly held but incorrect belief that he was properly entitled to apportion the interest earned on the accounts according to what he believed were the relevant beneficial interests of members of his family who were account holders. Accordingly, it was not an appropriate case for the imposition of penalties.
JUDGMENT JUDGE HACKING Introduction [1] This was an appeal by Mr Andrew John Bingham against a decision made by HMRC on 20 May 2009 and confirmed by an appeals and review officer of HMRC on 27 November 2009 that all interest accruing on bank accounts of which the appellant, his wife and children were signatories …Continue reading "Bingham v HMRCC [2013] UKFTT 110 (TC)"