Cherian
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 May 2016 |
| Neutral Citation | [2016] UKFTT 316 (TC) |
| Date | 09 May 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Harriet Morgan
Mr James Onalaja as Counsel appeared for the appellant
Ms Harry Jones, an officer of the Respondents, appeared for the respondents (HMRC)
Income tax – Application for the tribunal to direct HMRC to issue a closure notice under Taxes Management Act 1970 (TMA 1970), s. 28A – Appeal against information notice issued under Finance Act 2008 (FA 2008), Sch. 36 and related penalties – Application refused, information notice varied and appeal otherwise dismissed.
The First-tier Tribunal (FTT) refused to direct HMRC to close their enquiry into a taxpayer's self assessment tax return and dismissed the taxpayer's appeals against an information notice and related penalties. The FTT did however vary the information notice to allow the taxpayer to remove any personal records from the bank and building society statements he was required to provide.
HMRC opened an enquiry into Mr Cherian's (the appellant's) tax return under the Taxes Management Act 1970 (TMA 1970), s. 9A, in relation to his employment income and benefits. As part of the enquiry HMRC issued an information notice under Finance Act 2008 (FA 2008), Sch. 36, para. 1. As the requested information had not been supplied within the deadline given in the notice, HMRC issued a fixed penalty under FA 2008, Sch. 36, para. 39 and then daily penalties under para. 40.
The appellant: applied for the FTT to direct HMRC to close their enquiry into his self assessment tax return; appealed against the information notice; and appealed against the fixed and daily penalties. With regard to closing the enquiry the appellant argued that: the enquiry was unlawful as HMRC had ulterior motives for opening it; HMRC's actions contravened the European Convention on Human Rights, art. 8; and in any event he had supplied sufficient information and documents to enable HMRC to check his tax position. In relation to the information notice the appellant submitted that: he could not be obliged to comply with the notice where it arose from an unlawful act by HMRC; in any event he had supplied sufficient information and documents; and the request for personal bank statements would lead to the disclosure of personal records contrary to FA 2008, Sch. 36, para. 19(2). In respect of the penalties the appellant asserted that: he could not be liable for failing to comply where liability depended on a prior unlawful act of a public authority; in any event he had a reasonable excuse; and it was unreasonable for HMRC to issue daily penalties after he had notified them that he was going to apply for a direction for closure of the enquiry.
The FTT found there to be no evidence that HMRC had any ulterior motive for opening the enquiry. It also found that it was not a case where HMRC had been carrying out enquiries on a prolonged and protracted basis and accepted HMRC's reasons for wanting to continue the enquiry. Therefore regarding the application for the FTT to direct HMRC to issue a closure notice under TMA 1970, s. 28A, the FTT concluded that there were reasonable grounds for not requiring HMRC to issue a closure notice within a specified period and the application was refused.
The FTT regarded the information and documents required by HMRC in the information notice to be reasonably required and therefore it refused the appeal against the information notice. It did however vary the notice to allow the taxpayer to remove any personal records (as defined in the Police and Criminal Evidence Act 1984, s. 12) from the bank and building society statements he was required to provide, in accordance with FA 2008, Sch. 36, para. 19(2).
The FTT refused the appeals against the penalties for non-compliance with the information notice, finding that the appellant had provided no viable argument that he had a reasonable excuse for the failure to comply with the information notice.
The FTT found there to be no evidence which supported the appellant's assertion that HMRC's enquiries and information requests were improperly made and in contravention with the European Convention on Human Rights, art. 8 because they were made in retaliation for challenges made to HMRC by the parties in the Gold Nuts group, by way of harassment and/or to disturb trading relationships.
The taxpayer argued that his tax affairs were enquired into to try to get information on a trade associates, in retaliation for complaints made by the directors of the associates about enquiries into their tax affairs. The FTT found no evidence to support this claim and found that HMRC had valid concerns about the taxpayer's taxable income and benefits and the possibility of him having other non-declared taxable income.
[1] The appellant:
1) applied on 12 November 2104 for the tribunal to make a direction for HMRC to close their enquiry into his self assessment tax return for the tax year 2012/13 (under s 28A(4) of the Taxes Management Act 1970 (TMA));
2) appealed against an information notice issued by HMRC on 4 September 2014 under para 1 of Schedule 36 of the Finance Act 2008 (Schedule 36) (the information notice); and
3) appealed against a fixed penalty of £300 and daily penalties of £600 HMRC sought to impose under paras 39 and 40 of Schedule 36 in notices issued on 7 October 2014 and 7 November 2014 for failure to comply with the information notice.
[2] I note that the tribunal did not proceed to hear the substantive issues at a previous hearing on 8 September 2105 in part as the appellant was not able to attend and the tribunal accepted his submission that he needed to be present to give evidence. The appellant did not attend this hearing and no prior notification or reason for his non attendance was provided to the tribunal. Mr Onalaja confirmed that the appellant expected the hearing to go ahead in his absence and that he had not provided Mr Onalaja with any explanation for his non attendance. I decided that, in such circumstances, having regard to the rules governing the tribunal including the overriding objective of dealing with matters justly and fairly, there was no reason not to proceed.
[3] In making findings of fact I have had regard to the bundles produced to the tribunal, which includes the correspondence between the parties, the witness statement and oral evidence of Mr Stephen Anderson, the HMRC officer currently dealing with this matter, and the witness statement of the appellant. I would note that I have also taken into account a witness statement of Mr Cox, an officer of HMRC who was previously involved in this matter before Mr Anderson took over. This is on the basis that Mr Anderson confirmed in his evidence that the facts set out in that statement are true. As regards the appellant, I have allowed his witness statement to be produced (and note that HMRC did not object) but find that little reliance can be placed on factual assertions made by the appellant in that statement given he chose not to attend and could not be cross examined.
[4] Mr Kevin Straughair, a member of the HMRC Specialist Investigation (SI) team in Newcastle Upon Tyne, notified the appellant, in a letter dated 25 July 2014, that he would be enquiring into his tax return for the tax year 2012/13 under the provisions of s 9A TMA. Mr Straughair noted he would be enquiring into the whole return and requested the provision of specified documents and information by 26 August 2014 (see [17] for further details of the items requested).
[5] The enquiries related to the appellant's employment income and benefits in the tax year 2012/13. In that year the appellant was employed by Venture Pharmacies Limited until 30 November 2012 and took on two new posts, as the sole director of Eurobay Homecare Limited (EHL) from 13 June 2012 and, as one of two directors of Eurobay Homecare (Holdings) Limited (Holdings).
[6] In his tax return for 2012/13 the appellant declared employment income of £23,333 from Venture Pharmacies Limited, employment income of £11,729 from EHL and taxable benefits in the form of a car provided by each of EHL and Holdings. EHL had provided forms P60 in this regard. The appellant had in the previous tax year earned a salary of £35,464 from his role as an accountant with Venture Pharmacies Limited.
[7] Holdings is a company registered in the BVI, which wholly owns the shares in EHL. It has one other director, Bartsec Limited, a company registered in Guernsey. HMRC have not been able to identify the ultimate ownership of Holdings. EHL had substantial turnover in the period in question of over £52 million for the accounting period ending on 31 December 2012 and over £36 million for the period ending on 31 December 2013.
[8] On 11 August 2014 the appellant wrote to HMRC raising concerns about the involvement of SI to perform what were described in HMRC's letter of 25 July 2014 as routine checks. On 3 September 2014 Mr Straughair replied to the appellant stating that SI are part of enforcement and compliance within HMRC and carry out inspections as required. He said his initial checks were with regard to employment income and any benefits received due to the appellant's positions as director. He noted that as none of the information and documents had been provided in response to the informal request of 25 July 2014, HMRC would proceed to issue a formal notice.
[9] On 4 September 2014 Mr Straughair issued the formal information notice with the compliance date stated to be 6 October 2014. Mr Straughair stated he believed the requested information and documents were reasonably required to enable him to check the appellant's tax return for the tax year 2012/13 and set out the penalty consequences for failure to comply.
[10] On 7 October 2014 Mr Straughair issued a penalty notice under para 39 of Schedule 36 for a fixed penalty of £300 as none of the requested information or documents had been provided. In the letter he extended the deadline for compliance with the information notice to 4...
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