Accountant v HM Inspector of Taxes
| Jurisdiction | England & Wales |
| Judgment Date | 08 June 2000 |
| Date | 08 June 2000 |
| Court | Special Commissioners (UK) |
special commissioners decision
DR A N Brice
1. Accountant (the Appellant) appeals against a Notice dated 19 November 1999 given by the Respondent under section 19A of the Taxes Management Act 1970 (the 1970 Act).
2. Section 19A(1) of the 1970 Act provides that the section applies where an officer of the Board gives notice under section 9A(1) to the taxpayer of his intention to enquire into the return on the basis of which a taxpayer's self-assessment was made. It was agreed that a notice under section 9A(1) had been given to the Appellant and had been given in time.
3. Sub-sections 19A(2) and (6) provide:
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(2) For the purpose of enquiring into the return… the officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which shall not be less than 30 days) as may be specified in the notice -
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(a) to produce to the officer such documents as are in the taxpayer's possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which the return is incorrect or incomplete… and
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(b) to furnish the officer with such accounts or particulars as he may reasonably require for that purpose…
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(6) An appeal may be brought against any requirement imposed by a notice under subsection (2) above to produce any document or to furnish any accounts or particulars.
4. In order to enquire into the Appellant's 1996/97 return the Inspector required the Appellant to produce statements relating to all interest-bearing bank and building society accounts for the year ending on 5 April 1997 and statements, paying-in books and cheque books for all bank and building society accounts used by the Appellant and his practice for the period from 1 September 1994 to 31 August 1996 inclusive. The Inspector also required the Appellant to prepare and furnish a balance sheet for the practice. The Appellant argued that he had no personal bank account; that his client account was a current account; and that a certificate of tax deduction from his bank was sufficient to check the interest on a general deposit account. He also argued that, as he had not prepared a balance sheet, he was not required to produce it.
5. Accordingly, the issues for determination in the appeal were:
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(2) whether the Respondent could reasonably require the Appellant to produce documents relating to his personal and undesignated clients' bank and building society accounts; and
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(3) whether the Inspector could reasonably require the preparation and furnishing of a balance sheet under section 19A(2)(b).
6. Each party produced a small bundle of documents. The Appellant's bundle included a copy of the Inland Revenue Press Release dated 31 May 1996 entitled "Discovery and Disclosure under Self-Assessment" and a copy of a booklet entitled "Enquiries into Tax Returns by Local Tax Offices". The Appellant also provided copies of page 23 of Taxation Practitioner of December 1996; an extract from "Eyewitness" of January 1997; and paragraphs 393, 394, 395, 396, 402 and 403 of Inland Revenue Manuals.
7. From the evidence before me I find the following facts.
8. The Appellant is an accountant and registered auditor and practices on his own account at premises in London under the name of his firm.
9. Early in 1988 the Appellant raised with the Inspector of Taxes the question as to whether he was required to account for interest on his clients' accounts. The Inspector wrote to the Appellant on 3 March 1988 and his letter included the following paragraphs:
With regard to the point raised about your clients accounts you may be required to account for interest in one of the two following ways:
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(a) You may maintain a separate designated account for each client and account to them for interest.
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(b) or
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(c) Pay to the client a sum equivalent to the interest which would be accrued if the money was deposited in a separate designated account. This method usually follows deposits of money into a general client deposit account.
Under (a) above, the interest is assessable direct on the client and when passed over you should advise your client of the amount of interest and that it should be included in his personal tax return. You should also retain details yourself and you may be required to forward a return under s 18 Taxes Management Act 1970.
Under (b) you will be assessable under Case III on the interest received less the amounts paid in lieu of interest to your clients. You should again maintain a complete record in support of any set off claimed and should advise the client to return payments to him in lieu of interest on his personal tax return as assessable under Case VI of Schedule D. As it is not interest, but is in lieu of interest, it is not assessable on him under Case III.
10. The self-assessment return for the year ending on 5 April 1997 contained Q10 which asked for details of interest from United Kingdom banks, building societies and deposit takers where tax had been deducted. In his return the Appellant recorded that the gross amount of such interest before tax was £1,354.00; that the amount after tax had been deducted was £1,084.00; and that the amount of tax deducted was £271.00.
11. On 11 June 1999 the Inspector of Taxes wrote to the Appellant and said that he intended to make some enquiries into the Appellant's 1996/97 tax affairs. To enable him to commence those enquiries he asked to be supplied with certain information. The information was not supplied and on 14 July 1999 the Inspector wrote again to the Appellant. He referred to his letter of 11 June 1999 and said that he had not received the items listed. He gave notice under section 19A of the 1970 Act that the Appellant was required to produce the documents within 30 days. The documents were not supplied and on 19 November 1999 the Inspector wrote again to the Appellant giving notice under section 19A of the 1970 Act and requiring the production of the documents listed in the letter by 5 January 2000.
12. The documents listed in the letter of 19 November 1999 were:
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(2) All business records relating to the accounts of the firm covering the period 1 September 1994 to 31 August 1996 inclusive, including all records of income and expenditure together with any invoices issued in respect of the turnover and invoices/receipts in respect of the expenditure claimed.
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(3) A profit and loss account for the period 1 September 1994 to 31 August 1996 together with a balance sheet as at 31 August 1996.
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(4) Bank/building society statements, passbooks etc. in respect of all interest-bearing accounts held for the year ended 5 April 1997.
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(5) Dividend counterfoils for the year ended 5 April 1997.
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(6) Bank statements, paying-in books and cheque book counterfoils and/or building society, etc. passbooks relating to all bank etc. accounts used by you, including the business accounts for the firm, covering the period 1 September 1994 to 31 August 1996 inclusive.
13. On 3 December 1999 the firm's bank sent the Appellant a certificate of deduction of income tax. That indicated that, for a business account in the name of the firm, and for the year to 5 April 1997, interest paid gross amounted to £1,354.59; tax deducted amounted to £270.92 and net interest was £1,083.67.
14. On 17 December 1999 the Appellant appealed against the notice of 19 November 1999 on the grounds that some of the items mentioned fell outside section 19A. Reasons for Decision
15. The arguments of the parties were addressed both to the specific issues in the appeal and also to some more general matters. It is convenient to consider the general matters first, as they relate to both issues, and then to consider the specific issues. The general matters were:
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(2) whether the information required under section 19A was limited to existing documents;
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(3) whether the information which could be required under section 19A was limited to that mentioned in section 12B so that the information required under section 19A was limited to documents used to prepare the return; and
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(4) whether the information in section 19A was limited to documents which the taxpayer considered as most appropriate to check the return.
16. I consider each of these separately and then consider the specific issues in the appeal.
17. The Appellant argued that section 19A did not apply to documents which were not in existence and would have to be created especially to comply with the notice. He referred to the contents of two Inland Revenue Manuals being an "Enquiry Handbook" and an "Investigation Handbook" which indicated that it was not appropriate to ask the taxpayer to undertake work and that requests for extensive analyses were not appropriate at the opening stages of a inquiry. This argument related primarily to the preparation of the balance sheet.
18. The Respondent argued that under section 19A(2)(b) the Inland Revenue could ask for accounts and particulars, which were not in existence, to be prepared..
19. During this hearing reference was made on a number of occasions to Inland Revenue publications and to taxation journals. Although these are of undoubted interest this decision is based solely on the legislative provisions and on the legal authorities as applied to the particular facts of this appeal.
20. Section 19A(2) has two parts. Subsection (2)(a) refers to "such documents as are in the taxpayer's possession or power". Certainly documents which are in the taxpayer's possession will be existing documents. But it may be that a taxpayer does not have, say, a bank statement although he is entitled to ask his bank for one. That would be in his "power". Thus, section 19A(2)(a) relates only to producing...
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