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In Stephen Mullens v HMRC [2021] TC8112, the First Tier Tribunal (FTT) upheld discovery assessments charging income tax on £40m of payments omitted from a lawyer's tax returns. The taxpayer claimed these were gifts from his wealthy client. 

  • Mr Mullens received payments totalling £40 million between 1999 and 2013.
    • Payments of £2.25m were made to induce the appellant to resign as a partner in a law firm to enable him to work exclusively for Formula 1 and the Ecclestone family.
    • Three payments totalling £36m (£21m, £10m and £5m respectively) were made to Mr Mullens by Mrs Ecclestone.
    • A payment of £187k was made to cover a family holiday to Mauritius by Mrs Ecclestone.
  • As part of a Code of Practice (COP) 9 investigation, Mr Mullens completed a Contractual Disclosure Facility (CDF) in 2012 admitting that he had fraudulently omitted the following from his tax returns:
    • Interest accrued on the payments (rather than the receipt of the payments themselves).
    • A payment of £200,000.
    • A capital gain.
    • VAT on imported diamonds worth $3m.
  • Mr Mullens disclosed the payments above in the CDF but contended that they were not taxable as income as they were gifts wholly distinct from any business relationship.
  • HMRC raised various Discovery assessments and issued Closure notices in 2016 on the basis that the 'gifts' received were taxable as income for services provided to the Ecclestone family.
  • The assessments also disallowed Capital losses claimed on stolen jewellery.
  • Mr Mullens Appealedto the FTT.

The FTT found that:

  • Mr Mullens had a longstanding professional relationship with the Ecclestone family and had been instrumental in the restructuring of the family finances.
  • Mr Mullens did not call witnesses, including the Ecclestones, who could have aided his case, the FTT considered that this omission was relevant.
  • There were inconsistencies with Mr Mullens' defence to the FTT and his testimony in prior litigations. The FTT could not consider him a witness of truth and concluded that he had deliberately concealed facts from HMRC.
  • The relationship between Mr Mullens and Mrs Ecclestone was not “so actuated by philanthropic sentiment that she would give Mr Mullens tens of millions of pounds, in a series of unexpected bolts from the blue”.
  • Except for the white space in his 99/00 tax return, Mr Mullens did not make any disclosure about the payments until his response to the CDF where he stated they were gifts.
  • It was implausible that the £2.25m payment received to resign as a partner was anything other than a payment for future services and should be taxed as income accordingly.
  • Mr Mullens could not establish that the £21m payment was a gift from Mrs Ecclestone.
  • Evidence provided by Mr Mullens to support the payment being a gift was signed after the COP 9 letter had been received, years after the payments were made and concluded it could not be relied upon.
  • The payment was a commission for a multi-billion dollar share sale orchestrated by Mr Mullens and was paid shortly after the sale completed.
  • The £10m payment in May 2008 was also not a gift, the FTT rejected Mr Mullens’ evidence.
  • This payment related to his extensive involvement in tax enquiries involving Mr and Mrs Ecclestone which were settled in March 2008.
  • On 1 May 2012, Mrs Mullens received a payment of £5m.
  • Evidence provided to show that the payment was a gift was written a week after HMRC had issued their COP9 letter, not at the time of the payment.
  • The payment was made in respect of services provided as part of German litigation into the Ecclestone affairs.
  • The 'holiday payment' was indeed a gift, it had a different feel and was paid to Mr and Mrs Mullens’ joint account. 
  • It represented the sort of gift, of the sort of size, for the sort of reason a generous employer could make to a highly valued employee as a demonstration of goodwill and solicitude for their wellbeing and that of their family.
  • The discovery assessments had been validly raised as:
    • Mr Mullens had acted deliberately and fraudulently.
    • Based on the information provided, HMRC could not have been expected to be aware of an insufficiency of tax until the CDF had been received.
    • The discovery had not become stale.
  • The capital loss claim of £1.6m on the stolen jewellery was allowed as:
    • Mr Mullens purchased the item and was the beneficial owner.
    • The jewellery was a matrimonial asset.
    • The jewellery was high-grade investment jewellery and only used for special occasions.
  • The VAT assessment on the illegally imported diamonds had been made in time as fraudulent conduct had been accepted by Mr Mullens as part of the CDF.
  • Arithmetic errors in the calculations due to incorrect exchange rates were allowed.
  • The quantum of late payment penalties were upheld.

Useful guides on this topic

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Code of Practice (COP) 9 Changes
COP 9 is a civil procedure used in selected cases where HMRC suspect tax fraud but do not wish to bring a criminal investigation. The taxpayer is given the opportunity to make a full disclosure under a contractual arrangement called a Contractual Disclosure Facility (CDF). Taxpayers have 60 days to respond once an offer is made.

Contractual Disclosure Facility (CDF)
If HMRC writes to a taxpayer because tax fraud is suspected and intends to investigate using Code of Practice 9, a CDF contract will be offered.

Penalties: Deliberate Behaviour
Enhanced tax penalties apply in cases where a taxpayer's deliberate behaviour results in a potential loss of tax revenue.

How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic? 

External Links

Stephen Mullens v HMRC [2021] TC8112


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