J & F Wilson Plumbing & Heating Limited & Anor v The Commissioners for HMRC

Introduction

1. On 14 November 2022 and 21 December 2022 respectively, the Appellant Company and the Appellant (together “the Appellants”) appealed against discovery assessments, closure notices and penalties issued by HMRC relating to accounting periods 2013 to 2021.

2. We were grateful to the parties who had made significant efforts both prior to and since the submission of the Notice of Appeal to narrow the issues. The only issue that remained for us to determine concerns cash receipts paid into the personal account of Mr Wilson and cash purchases of vehicles. The quantum of the cash was not in dispute, nor was the validity of the assessments.

3. In summary, HMRC contend that the cash in dispute represents undeclared trading takings of the Company which resulted in assessments to the Company and benefit charges on Mr Wilson as the director for an overdrawn loan account.

4. Mr Scott helpfully set out in his skeleton argument that the alternative position set out in HMRC’s Statement of Case (namely that the cash receipts arose from a separate sole trade carried on by Mr Wilson) was no longer pursued.

5. The Appellant maintains that the cash came from gambling and that the deposits are not taxable. Preliminary issue

6. Prior to the hearing, HMRC sought an order that the Appellant be barred from giving oral evidence on the basis that no witness statement had been served on behalf of Mr Wilson contrary to the Tribunal’s Directions dated 13 November 2024, and no application was made by the Appellants to extend time for service or seek permission for Mr Wilson to give oral evidence.

7. Again, we are grateful to both Mr Scott and Mr Jennings for indicating that they were both content that the notes of meetings contained within the hearing bundles would be relied upon as Mr Wilson’s evidence with no supplementary written evidence and that Mr Wilson was available for cross-examination.

8. The remaining preliminary issue raised by HMRC was the weight to be given to the witness statement of Ms Louise Wilson, the Appellant’s mother, who did not attend the hearing. As we will set out in due course, we were satisfied that the Appellant’s evidence was sufficient for the purposes of determining the issue and in those circumstances, we attached no weight to the untested evidence of Ms Wilson. Background facts

9. There was no dispute about the background to this appeal and, in light of the limited issue to be determined, we will summarise the salient facts for information purposes. The following is taken from the parties’ written submissions.

10. On 30 June 2009, the Company was incorporated. On 6 July 2009, Mr Wilson was appointed as director and has remained the sole director since.

11. On 29 April 2021, Officer Christopher Earles wrote to the Appellants requesting outstanding returns and raising initial concerns in relation to the company accounting periods and financial years ended 2018, 2019 and 2020. The initial issue identified was a means risk associated with the Appellant clearing a mortgage value and paying a large deposit on the purchase of another property

12. On 6 July 2021, the Appellants’ agent wrote to HMRC providing bank and credit card statements, and analysis of Mr Wilson’s personal bank receipts. The agent accepted that some company card receipts were paid into Mr Wilson’s personal account. The analysis also showed payments received in respect of cars, and other deposits shown as personal.

13. On 24 August 2021, the agent provided further information, including means stencils, credit card statements, and rental statements. It was also stated that sums deposited into Mr Wilson’s personal account came from gambling windfalls, and that the cleared mortgage was funded from the maturity of an investment bond and ISA savings. The property was refinanced to release £160,000 and reserves in the director’s accounts were used to pay the large deposit on the new property.

14. On 18 November 2021, Mr Earles opened enquiries into the company tax returns.

15. On 20 January 2022, HMRC wrote to the Appellants setting out agreed accounting adjustments, including representations that company income had been mis-routed to the director’s personal account. The Appellants agreed that mis-routed company income should be treated as company takings. In the absence of any supporting evidence, HMRC rejected explanations that the large cash deposits, and cash used to fund vehicle purchases, were from gambling windfalls.

16. In March and June 2022 Mr Earles issued discovery assessments and closure notices for the tax years 2013 to 2021 to the Appellant Company and Mr Wilson.

17. In July 2022 penalty assessments were issued to both Appellants. The cash issue

18. HMRC’s position is that vehicles were sold for a total of £43,781 between June 2017 and February 2020. In the meeting between the parties, Mr Wilson had stated that cash was used to purchase these vehicles. Mr Earles estimated that the cash used to purchase these vehicles was approximately £37,446.

19. The amount relating to the vehicles, added to cash deposits into Mr Wilson’s account produced a total cash availability of approximately £135,000, which Mr Earles concluded should be pro-rated over the six years under review giving the amount of undeclared cash income as £22,500 per annum.

20. These adjustments to company takings annually led to an overdrawn DLA thereby creating a charge under s 455 Corporation Tax Act 2010 and a beneficial loan on Mr Wilson Mr Scott clarified that HMRC only seek to assess the income tax on the value of the beneficial loan.

21. Mr Wilson maintains that the cash came from gambling. Evidence

22. Mr Earles provided a witness statement and gave oral evidence. He explained that in 2021 when Mr Jennings was instructed, the tax returns for the years ended 5 April 2018, 2019, 2020 and 2021 were filed. During the course of his involvement, Mr Jennings had explained that the record-keeping by Mr Wilson and the previous agent was wholly inadequate, and so he had used Mr Wilson’s personal bank and credit card statements to calculate taxable income received during the relevant years.

23. Mr Earles set out the information he had received in his investigations. He was told by Mr Jennings that the Baden Street address was purchased in 2005 for £100,000 with a £95,000 mortgage and was Mr Wilson’s private residence until 2018 and had subsequently been let. The mortgage was paid off during the period of occupation, but the property was refinanced in 2018 to release funds of £160,000. The address at Old Trough Way was purchased in November 2018 for £340,000 and had been Mr Wilson’s private residence since then. The deposit was funded by the £160,000 mortgage on Baden Street, a family loan and personal funds. He enclosed an analysis of receipts into the bank accounts, which showed credit-card payments received on behalf of Mr Wilson, some payments received in respect of cars, and other deposits shown as personal.

24. On 24 August 2021 Mr Jennings provided further information. He stated that the settlement of the mortgage on Baden Street was funded from the maturity of an investment bond and savings from an ISA and the refinancing of Baden Street released £160,000. Cash amounting to £59,000 by June 2018 and which had been paid into Mr Wilson’s bank accounts was from gambling, which he had since given up. Funds from the Company had been paid into Mr Wilson’s accounts and reserves had built up in those accounts which were used to pay the balance of the deposit on Old Trough Way.

25. Having reviewed the information Mr Earles had concerns about the identification of the source of the cash deposits into Mr Wilson’s bank accounts as gambling winnings and income identified as resulting for the sales of cars, motorbikes and car parts. Mr Earles summarised the concerns as: (i) the lack of taxable income declared by Mr Wilson over a significant period meant it was possible that the income was actually taxable income earned from work done by the Company. (ii) the amount of the gambling winnings meant that Mr Wilson was either extraordinarily successful, or that he gambled significant amounts, which would itself be concerning as to the source of the funds used to gamble. (iii) the passage of time between the period of gambling and the filing of the returns was highly likely to mean that evidence would be limited.

26. On 7 September 2021 Mr Jennings advised that Mr Wilson was adamant that he had never taken cash from customers and refused to do so. He asserted that some of the receipts shown on the bank statements were for payments for work done for friends, noting that these payments could easily have been taken in cash leaving no record but instead could be identified in the bank statements. The letter stated: “Whilst I understand your concerns regarding the possibility of cash being received for work done and therefore an under-declaration of sales Mr Wilson is adamant that he has NEVER taken cash from customers and refuses to do so. It is interesting to note that a number of the receipts identified on personal bank statements were for work done “for friends”. Whilst I have advised him that this still needs to be recorded as sales it would have been just as easy to take cash from friends and such sales would never have been identified. He confirmed, again, that he does not take cash.”

27. On 18 October 2021 it was reiterated by the Appellant that the cash was the proceeds of gambling from approximately 2009 to 2018. He also provided details of sales of vehicles identified on the bank statements between June 2017 and December 2020

28. At a meeting with Mr Jennings and Mr Wilson on 1 April 2022 Mr Wilson explained to Mr Earles the personal difficulties he had suffered, why he did not accept cash for work done and how the cash income was earned through gambling. He explained that during 2013 his partner suffered nine miscarriages in six months, and he was diagnosed with peritonitis, leading to an operation which went wrong, resulting in 103 stitches and which still caused problems. Mr Wilson’s appendix ruptured in 2013 and as he could not work, his football friends started taking him to race days, where he started betting small amounts. He ended up attending more meetings and betting more. Mr Wilson had stated that he began associating with footballers and car dealers who had contacts and provided good tips and he could make £4,000-£5,000 on a good day, although he did sometimes lose. Mr Earles noted that Mr Wilson was unable to produce any evidence to support his statements about gambling.

29. In oral evidence, Mr Earles confirmed that he had not reviewed the documentation provided in respect of two vehicles as this had post-dated his involvement in the case.

30. He explained that the assessments and closure notices he had issued were mutually exclusive and that he had taken the view at the time to cover both, but he confirmed HMRC’s position that the source of the disputed cash was either from work done for the Company or gambling. To his knowledge, all the information that could be provided by the Appellant had been, however the information available was limited.

31. Mr Earles stated he had concerns from the outset as no returns had been filed prior to Mr Jennings’ involvement and as no business records were available, his review had relied on the bank records. The deposits and transfers in the statements were significant. It was possible that vehicles had been purchased prior to the dates of the statements available, but no evidence was provided to clarify the situation.

32. Mr Earles explained that in considering the penalties, he had taken a pragmatic view as Mr Jennings had filed returns and provided information in circumstances where there was a lack of records. He had concluded that penalties should be imposed for careless behaviour, but that the penalties (which did not relate to the cash issue and which did not form part of the appeal) could be suspended.

33. He had considered the computations supplied by Mr Jennings which the Appellant relied on to show that it was unreasonable to assert that the cash deposits came from earnings in a period during which the Appellant had significant health problems and was unable to work and had difficult family circumstances. Mr Earles explained that there could have been cash deposits in earlier years but without any earlier bank statements this was unknown. He stated that it was impossible to identify with certainty when and in what amounts cash was obtained. In those circumstances, he believed that his calculations and conclusions, which split the total sum equally over the years under enquiry, were fair and reasonable assumptions in the absence of any evidence to the contrary.

34. Mr Earles noted that both his computations and those provided on behalf of the Appellant were based on assumptions, but he took the view his more likely on the balance of probabilities and that the cash came from income earned. He had taken into account the Appellant’s period of ill health but other than the Appellant’s assertion, there was no evidence which altered his conclusions, and he had not found Mr Wilson reliable given that his accounts had been shown to be incorrect.

35. In relation to whether a person with cash available would pay bills by credit card, he stated that in his experience it depends on personal circumstances and it is not beyond the realms of possibility that a person would keep cash entirely separate to avoid detection; it is a matter of speculation and Mr Earles explained he reached his conclusions on the facts before him without prejudging the situation.

36. Mr Wilson explained that he had been brought up in environments which promoted gambling and had gambled with friends from football for years. He gave details of his ill health which started in 2013 (see [28]) which left him unable to work save for small jobs which he continued to do in order to provide for his newborn child. He explained that his partner had suffered from postnatal depression and his insurance had not covered him for the injury he had sustained. During the period he was off work, his friends took him out as he was suffering from depression and after his operation “everything had gone wrong”. He explained that at first, the trips out were social, and gambling had given him a sense of confidence but then it had taken over and he became addicted to the point that he was gambling more than working and hiding it from his partner. This continued up to 2017, at which point his partner was aware he was working and paying the bills but was not aware of the extent of his gambling. Ultimately, she had given an ultimatum that she and his child would return to her family in Berkshire which led him to stop gambling.

37. The meeting notes (which were relied upon as Mr Wilson’s evidence in chief) dated 1 April 2022 recorded: “[Mr Wilson] doesn’t like cash and has never dealt with cash. From 2009 when his business started until 2013 he was living a different lifestyle. Since 2013 everything has gone differently. He socialised with footballers and owners of car dealerships. He split up with his previous partner. His current partner suffered nine miscarriages in six months during 2013. [Mr Wilson] was diagnosed with peritonitis in August 2013, this was three weeks before his first baby boy was born. Between August 2013 and July 2014, an operation went wrong resulting in [Mr Wilson] needing 103 stitches. [Mr Wilson] still has complications due to internal scarring resulting in stomach cramps and bowel problems. He is still being monitored. Between 2013 and 2014 [Mr Wilson] started to socialise with different people. [Mr Wilson] couldn’t pick his son up due to his health issues. He felt he had to get out house as he had been feeling suicidal. His football friends would take him to race days where he started betting small amounts. He ended up attending more organised days and betting more. … The payments that were made into the wrong bank account happened as work was done for friends. … [Mr Jennings] considered that when he took [Mr Wilson] on as a client, the work of the previous accountants was the worst mess he’d seen in a forty-year career. … [Mr Wilson] said he doesn’t go on holidays, have silly cars or a silly house. He saves unless money needs to be spent. … [Mr Earles] reiterated that [Mr Wilson] is in a cash trade. [Mr Wilson] explained that his father had been accused of fraud in a cash trade. [Mr Wilson] has always been told not to deal with cash and has always stuck with that. He uses card machine, currently he uses the stripe system. … [Mr Wilson’s] gambling started due to his depression and his stomach issue. He was housebound and he couldn’t drink and didn’t smoke. The only thing he felt he could do was attending horse racing and dog racing. Initially he started to place small bets, to get out of the house. His habit got out of control and he didn’t know how much he was winning. He was trying to keep active as he felt he could have ended his own life in 2014. Everything he wanted to do; he was unable to. He couldn’t lift his child, his partner had postnatal depression, his friends picked him up. In 2018, his partner asked him to stop gambling. She told [Mr Wilson] that she would take the children away. [Mr Wilson] had to stop as he was about to lose his family. [Mr Wilson] was spending more time with friends and gambling than he was at work. Although he was making an income, his jobs weren’t being done on time and his partner was getting knocks on the door. His employees were asking questions. He started with small bets, £2 or £3. He met people who were giving out tips. Each bet started to rise to £10. He would either bet for a win or each way. [Mr Wilson] went from initially being sceptical to putting more money down. He went to Wetherby, Ripon and Pontefract dog racing. There were days where every race was lost, but some races where a win would be big. [Mr Wilson] stated that thirty bets with £10 spent each soon adds up. [Mr Wilson] was often gambling more than working. He was doing quotes but spent more time with people who weren’t working. Gambling is [Mr Wilson’s] release. Having children at home and his own and his partner’s depression meant that only way to escape was through gambling. He had good and bad days. Gambling was how [Mr Wilson] dealt with the mental health side of things, including his partner’s postnatal depression. [Mr Jennings] said the earning capacity of company shows that it is not possible for that amount of money to be earned through normal trading. … [Mr Earles] asked about the miscommunication regarding the timing of [Mr Wilson’s] gambling. [Mr Jennings] explained that the miscommunication had come about as [Mr Wilson] talks quickly and can become emotional. [Mr Jennings] hadn’t initially understood when the business had started, he had thought that period related to the gambling. [Mr Jennings] had realised when he discussed in further detail that the gambling started when [Mr Wilson] got ill. [Mr Wilson] has always had games and poker nights as he played football. These took place inside homes previously and not at races. His friends started at the races in 2012. [Mr Wilson] started in 2013. [Mr Wilson’s] appendix ruptured at Leeds Festival that year. He wouldn’t have survived if he hadn’t been fit and healthy at the time. [Mr Wilson] lost 9 stone in 3 days. … [Mr Wilson] was told what bets to put on by various people from football. He gave examples of how £100 on 25 to 1 horse was £2.5k. This wasn’t every time, but did happen. The people giving tips were not people he knew personally, but the people he was socialising with were footballers and car dealership owners and they had contacts. [Mr Wilson] doesn’t know the contacts. He was in a place where there were people in the know. The people he was with would lose £1,000 and not care. [Mr Wilson] sometimes won and sometimes didn’t. He wouldn’t go with more that £100 at the start. Sometimes he would take £1000, but not every day. There were times when there were big wins, but he didn’t win every time. A £50 each way bet on horse at 5 to 1 would be £300. 3 or 4 bets a day that win and 2 that lose, meant [Mr Wilson was winning every time. When he had a good day, he could come back with £4,000 or £5,000. This happened more often than not.”

38. Mr Wilson explained he did not monitor the amount he accrued. He was given tips and some did well, others lost. At the start, in 2013, he did not place large bets as money was tight, but the amounts he gambled increased as did the frequency of attending races and he was hiding it all away: he did not “splash the cash” as he had always worked, earned and saved. As a result of these matters, his relationship has broken down. It was clear the issue was an emotive matter for Mr Wilson who was anxious that we understood that he accepted he had made mistakes and he had held his hands up to those and rectified them as soon as possible, however even having lost his relationship he maintains that the cash came from gambling. He also explained that these matters had cost him financially and that he was in the process of litigation against his former accountant who had failed to file returns.

39. Mr Wilson accepted he had no evidence to demonstrate his gambling, explaining that he had hidden it from his then-partner and did not keep receipts or take photos.

40. When asked about employees, Mr Wilson explained that during his period of illness he had no employees. Thereafter, he had a number of trainees. Submissions on behalf of HMRC

41. On behalf of HMRC, Mr Scott submitted that the Appellants have advanced no documentary evidence capable of supporting the gambling explanation. Across the correspondence, Mr Scott contended, the gambling narrative materially shifts in timeframe, mechanism and scale, and is wholly uncorroborated by bookmaker accounts, betting slips, exchange records or financial evidence.

42. By contrast, HMRC’s case is grounded in contemporaneous banking evidence, agent admissions, and objective schedules of cash movements. In these circumstances the Appellants have failed to discharge the burden of showing the assessments are excessive.

43. Mr Scott cited Gutteridge v HMRC [2006] STC (SCD) at [100]: “The issue of the burden of proof arises if the appellant advances no evidence or if the appellant advances evidence but that evidence is so unsatisfactory as to leave the tribunal in real doubt as to whether it has any value…But given the comments of Lord Russell [in Joseph Constantine Steamship], the weight of the evidence necessary to raise the issue to a point at which the appellant would succeed unless the respondents advanced their own evidence would be light”

44. HMRC also cited Wood v Holden [2006] EWCA Civ 26 , in support of the proposition that once a party advances a coherent, evidentially supported narrative, the other side must meet it with evidence, not conjecture. HMRC submitted that the Appellants’ gambling narrative is incoherent and is not evidentially supported. However, HMRC have advanced a case based on the documentary evidence available, and on the balance of probabilities is much more likely than the Appellant’s unevidenced gambling assertions.

45. In response to the Appellants’ computations and submission that the amounts of cash were incapable of being earned, Mr Scott submitted that if the cash built up evenly over time, this amounts to £22,500 per annum which is capable of being earned over four or five large jobs each year, noting that although it is substantial in proportion to the declared turnover for the Company for the earliest years under review, it is less than 10% of the peak reached in period ended 28 February 2018.

46. Mr Scott accepted that there was evidence of purchases in relation to two vehicles, save for which the quantum is more or less agreed.

47. The Appellant accepted he had no documentary evidence to support his assertions which, Mr Scott submitted, is insufficient to displace the burden in this case. The Appellant must prove that the cash was not income from trading by proving the source was gambling but has failed to do so.

48. Furthermore, Mr Scott submitted, there are inconsistencies in the timeline of the narrative given by the Appellant which undermines the evidence. Despite the Appellant’s evidence of a spiralling addiction with increasingly high stakes, HMRC do not accept that it is feasible for the Appellant to have won £130,000 from gambling. The only credible explanation is that the source was company receipts. Submissions on behalf of the Appellants

49. Mr Jennings noted that Mr Wilson had remained adamant that the source of the cash was gambling. Whilst it was accepted that there was no documentary evidence in support of the assertion, this was explained by the fact that the gambling had been kept secret from Mr Wilson’s partner. The gambling stopped in 2018 after his partner threatened to leave and take the children with her.

50. Mr Wilson’s illness and the postnatal depression suffered by his partner together with childcare issues made it impossible for Mr Wilson to work outside normal working hours and it was more often the case that his working days were curtailed due to family commitments. Due to his illness and that of his partner, there were extended periods between 2013 and 2018 where it was impossible for Mr Wilson to work at all which is inconsistent with HMRC’s approach of spreading the cash element over 6 years in order to argue that the under-declaration of earnings was achievable.

51. Mr Wilson has remained adamant of his position, despite the toll it has taken on his mental health and the breakdown of his relationship with his partner. Mr Wilson has been consistent in his explanation throughout the lengthy period as follows: a) The first request for a meeting with HMRC to discuss gambling in April 2022 b) The request for a review of the case in June 2022 c) The appeal to the FTT in November 2022 d) Alternative Dispute Resolution in March 2023 e) The appeal hearing in March 2026.

52. Mr Jennings noted that by including cash in the earnings of the Company, calculations show that this gives an hourly rate which is both unachievable and inconsistent with subsequent hourly rates. Indeed, on Mr Wilson’s stated hourly rate of £30, £135,000 equates to 4,500 hours of extra work. However, on the basis that trades people have a tendency to undertake work at a discounted rate “for cash”, the extra hours required to achieve this level of earnings would be considerably more.

53. No cash has been banked since 2018 which is consistent with Mr Wilson’s assertion that the receipts were for gambling which stopped in 2018. As the enquiry by HMRC did not commence until 2021, if cash had been received for work done this would be evidenced with further banking of cash. Credit cards have been used extensively for very small personal and business payments rather than use cash and if the gambling winnings had not been hidden, payments to High Court for judgements could have been avoided. Between 2012 and 2018 Mr Wilson made cash withdrawals totalling almost £10,000 which would reflect the fact that some cash was needed to fund expenditure. If the cash receipts had been for work done, it would have been logical to use that cash. This again, Mr Jennings submitted, reflects the fact that the gambling winnings were hidden from Mr Wilson’s partner.

54. Documentation has been traced for the purchase of some of the vehicles which were previously assumed to be purchased for cash.

55. In support of the Appellant’s case, Mr Jennings cited McMillan v HMRC [2020] UKFTT 0082 (TC) noting the following similarities: (i) The vast majority of the Appellants documents were bank and credit card statements. (ii) The Appellant was not obliged, under HMRC Self Assessment Guidance, to retain records beyond 22 months after the end of the tax year to which they relate. (iii) The Appellant has cooperated fully with HMRC throughout their protracted enquiries without suggestion from HMRC to the contrary and the Appellant’s case as to the source of sums challenged by HMRC has never changed in its essential elements. (iv) No records had been kept by him of gambling winnings. (v) He had at all times gambled in cash so as to avoid unwelcome attention and possible recognition at bookmakers. (vi) Cash was kept in a safe. (vii) The Appellant eventually recognised that his “unhealthy” lifestyle could not continue as it was affecting his relationship with his partner.

56. Mr Jennings accepted the following differences between the Appellants’ case and that of the taxpayer in McMillan : (i) Deposits into Mr Wilson’s bank accounts were sporadic in both timing and amounts which does not resemble profits or income. (ii) Mr Wilson’s lifestyle does not suggest ample funds available over a significant period of time. (iii) Mr Wilson, via the Company, was engaged in a trade. However, calculations and supporting medical records clearly indicate that it would have been impossible to generate excess income. (iv) The partner of the taxpayer in McMillan case stood by him. As a result of the impact of gambling and the almost 5 year enquiry into his tax affairs, Mr Wilson’s relationship with his partner has broken down.

57. Since engaging Mr Jennings and delivering outstanding returns, assessments (save for the disputed cash element) have been agreed and paid. The disjointed manner of Mr Wilson’s thinking can be seen in the meeting notes and was present in his oral evidence. The passage of time will naturally affect his memory of dates. However, Mr Wilson has maintained a consistent position since making the appeal. Decision

58. There is no dispute about the law in this appeal. HMRC bear the burden of demonstrating that there is a loss of tax and that the assessments, closure notices and penalties are procedurally correct. There was no challenge to this, and we were satisfied that the assessments, closure notices and penalties satisfied the relevant legal provisions and that they were competent and in time.

59. There was also no dispute between the parties that winnings from gambling are not taxable as income.

60. The burden then shifts to the Appellants to demonstrate that the assessments are excessive and to establish the correct position. The issue in the appeal turned on the Tribunal’s findings of fact in this regard. We have not found it necessary to set out each and every submission of the parties nor to rehearse the evidence in full but, in reaching our Decision, we have considered with great care all of the material before us together with the authorities relied upon by the parties.

61. We begin by setting out our findings on the evidence of the witnesses. We found Mr Earles was a credible witness who had clearly spent a great deal of time and effort during the course of his enquiries. We considered that his approach had been fair and reasonable and that his evidence was clear and cogent. We could understand the concerns that he had and, given the limited information and documentary evidence available, why he was unable to accept the Appellant’s assertions and reached the conclusions that he had.

62. That said, as Mr Earles indicated, the issue fell to be determined by the evidence of the Appellants who bore the burden of displacing the assessments. We agreed that the information provided to Mr Earle called for explanation, the question for us to determine was whether the explanation was sufficient to discharge the burden on the Appellants.

63. We found Mr Wilson to be a credible and truthful witness, and we accepted his evidence in full. We accepted that as a result of the Appellant suffering a period of serious illness, together with his then-partner’s postnatal depression, he had been limited in the work he could undertake. We were reinforced in our view by the financial evidence contained within the bundle which showed a far lower turnover in the earlier years reviewed by HMRC (at the height of Mr Wilson’s difficulties) which we considered supported Mr Wilson’s account.

64. We considered HMRC were justified in their position given the absence of records, however we did not accept the submission that it is only documentary evidence which can discharge the Appellants’ burden. Whilst we noted HMRC’s reliance on HMRC v Household Estate Agents Ltd [2007] EWHC 1684 at [47] for the proposition that the Tribunal “cannot speculate or reconstruct a case absent of evidence”, in this appeal the Appellants’ evidence was adduced in the meeting notes and by way of cross-examination.

65. We also considered that Hargreaves v HMRC [2014] UKUT 395 was of limited assistance in this case as the majority of periods under review related to periods in respect of which the Appellant was under no legal obligation to retain records. Moreover, we accepted the Appellants’ explanation, which was supported by the meeting notes dated 1 April 2022, in which Mr Jennings had indicated that the work of the previous accountant fell far below that to be expected of a professionally engaged accountant. Even taking into account that Mr Wilson’s record-keeping was poor, we were not satisfied that this was a case in which he had deliberately failed to keep any records for the purposes of avoiding liability. Our view was reinforced by the evidence that work carried out and paid into the wrong account had been easily identified, as explained in a letter from Mr Jennings to Mr Earles dated 29 December 2021: “Work was done on an ad hoc basis for relatives, friends and acquaintances. In the main invoices were not raised for this work as Mr Wilson did not fully appreciate that income from such sources were taxable! The fact that the income was immediately evident from the personal bank statements is a clear sign that Mr Wilson never sought to hide the receipts and provides some support for his contention that he refused to take cash for work undertaken. … Mr Wilson has insisted from our initial discussion that he does not accept cash for work undertaken. There is no evidence from my review of all documentation provided that there are any cash transactions related to his business affairs other than a very small amount of out of pocket expenses. Mr Wilson’s contention regarding cash is supported by the payments made into personal accounts for work done which are all bank transfers. Mr Wilson subscribes to card payment systems to ensure he does not receive cash for work done.”

66. We rejected HMRC’s submission that there were material inconsistencies in the Appellant’s narrative. By way of example, HMRC noted that cash deposits appear in the Mr Wilson’s account before the alleged start of gambling. However, Mr Wilson’s evidence has always been that he had gambled, but that the extent to which he did so increasingly spiralled in line with the deterioration of his health and stressful personal circumstances.

67. HMRC also highlighted inconsistencies in the timeline of whether gambling began in 2012 or 2013. As we have stated, we accepted the evidence of Mr Wilson that he had always gambled to a small extent but that the start of the addiction began in or around 2012/2013 and we were satisfied that any lack of clarity had arisen as a matter of miscommunication between Mr Wilson and Mr Jennings and had been explained early on in the course of the enquiry, as demonstrated in a letter from Mr Jennings to Mr Earles dated 16 February 2022: “Cash Upon further discussions it would appear that there has been a misunderstanding over the timeline and the circumstances of when the cash funds were generated….It would now appear that it was in 2013 when he became ill that he began to gamble when his football club friends understood that he was unable to work and attempted to provide him with both a distraction and the means to support his family. Over time the gambling became an issue with his partner and despite considerable winnings on occasions there was concern as to the addictive nature of the gambling. Following an ultimatum from his partner all gambling ceased around 2017/18. I apologise for any erroneous comments made as I did not refer my original letter back to my client for factual confirmation. … It can be easily confirmed that Mr Wilson’s health and personal circumstances were extremely difficult in the period between late 2012 and early 2014 and his earning capacity was severely restricted. In addition to hospitalization for a ruptured appendix Mr Wilson suffered from sepsis and was unable to work for some months. At the same time his partner suffered several miscarriages before giving birth in September 2013 ” (our emphasis)

68. We were also satisfied that any inconsistencies were not material and did not undermine the credibility or reliability of the Appellant’s evidence. We found that, in the main, the Appellant’s explanation had remained consistent since HMRC’s involvement began and that any minor differences were reasonably explained by the passage of time.

69. We accepted Mr Wilson’s evidence that he saved his winnings and did not live a lavish lifestyle. We were also satisfied that the absence of any documentary evidence such a ticket stubs or betting slips was down to the fact that the Appellant was hiding his increasing addiction from his former partner. We also consider that Mr Wilson’s evidence that he stopped gambling after an ultimatum from his former partner in 2018 is consistent with the lack of any further cash deposits from that point. Given that this pre-dated HMRC’s involvement, there would be no reason for the deposits to stop entirely for a number of years contrary to the sporadic pattern in the preceding years.

70. In relation to the purchase of vehicles, it was accepted by HMRC that the Appellants did provide evidence in respect of two vehicles which demonstrated that the vehicles had been paid for by bank transfer and on hire purchase. In our view, this supported the Appellants’ account in oral evidence and leant further credibility to his explanation. However, in light of our findings on the cash issue, we do not need to address this further.

71. Ultimately, determination of this appeal is a matter of value judgment and one that can be decided on the evidence of Mr Wilson, as noted in Gutteridge at [101]: “In this case however Mrs Gutteridge did give evidence. That evidence was robust and believable. It was also supported, and I shall explain later, by evidence from Mr Gutteridge. If that was all the evidence before me I would hold for the Appellant.”

72. Having heard and assessed the evidence on behalf of the Appellants, we have concluded that the source of the cash was gambling. Conclusion

73. The appeal is allowed. Right to apply for permission to appeal

74. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 18 March 2026