Leslie Smith v Commissioners for Her Majesty's Revenue and Customs
Decision date: 24 February 2010
Neutral citation: [2010] UKFTT 92 (TC)
Overall AI summary confidence: high
Short overview
This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.
AI confidence in this short overview: high
This appeal concerned whether Mr Smith's accounts for 1998–2002 complied with applicable accounting standards and thereby showed a true and fair view, and whether HMRC had made valid "discoveries" and could issue extended assessments relying on negligent conduct by his accountants. The tribunal found the accounting treatment (recognising income only on customers' valuation certificates and minimal WIP) did not comply with SSAPs/FRSs and did not give a true and fair view for 1998–2002, allowed HMRC's discoveries for those years (and 1998–1999), and treated the accountants' failure to prepare GAAP‑compliant accounts as negligent conduct enabling extended assessments. Appeals for 1995–1997 were allowed.
Ratio decidendi
This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.
AI confidence in this ratio decidendi summary: high
Accounts prepared for tax purposes must follow applicable accounting standards (GAAP) and give a true and fair view; departures from those standards require exceptional justification. Negligent conduct for the purpose of permitting extended assessments under the TMA can be established where a person acting on the taxpayer's behalf (here, the accountants) falls below the care reasonably to be expected of a professional accountant in that role.
Obiter dicta
This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.
AI confidence in this obiter dicta summary: medium
The tribunal indicated that industry practice alone does not justify a departure from accounting standards and that accounting policy must reflect the entity's circumstances and the standards' requirements. It also noted that VAT billing or self-billing arrangements do not, by themselves, determine revenue recognition under GAAP.