Harrydev Ltd and Another

JurisdictionUK Non-devolved
Judgment Date07 August 2017
Neutral Citation[2017] UKFTT 616 (TC)
Date07 August 2017
CourtFirst Tier Tribunal (Tax Chamber)

[2017] UKFTT 0616 (TC)

Judge Anne Redston, Ian Menzies-Conacher

Harrydev Ltd & Anor

Mr Cheema of Cheema & Co appeared for the appellants

Mrs Rees of HM Revenue & Customs Appeals and Reviews Unit appeared for the respondents

Income tax – Corporation tax – Sch. 36 Notices – Reasonably required – Higher threshold of reason to suspect under para. 21(6) – Documents required to transfer ownership of land – Meaning of failure to comply so as to incur a penalty – Sch. 36 Notices partly upheld, partly set aside – Penalties upheld.

DECISION
Introduction and summary

[1] Mr Sanghera is the director and shareholder of Harrydev Ltd (“Harrydev”). HM Revenue & Customs (“HMRC”) issued Mr Sanghera and Harrydev with Notices under Finance Act 2008, Sch 36, para 1 (“Sch 36 Notice” or “Notice”), requiring the provision of certain information and documents (“Items”). HMRC subsequently issued each Appellant with fixed penalties of £300 and daily penalties of £660 for failure to comply with the Notices. Mr Sanghera and Harrydev appealed against those Notices and the penalties.

[2] No numbers have been given to the Items on the face of the Sch 36 Notices, but for ease of reference in this Decision we have numbered the Items in the order they are set out. There were four Items in the Sch 36 Notice issued to Harrydev, and 31 in that issued to Mr Sanghera.

[3] Of the four Items in the Harrydev Notice, one was withdrawn by HMRC before the hearing, one was satisfied by the company before the hearing, and the Tribunal set aside the other two Items because the documents required did not exist. However, we upheld the penalties because:

  • the company had failed to respond to the Notice within the specified period, and that constituted a failure to comply, see paragraph 50ff;
  • the company did not have a reasonable excuse for that failure;
  • the Tribunal has no jurisdiction to reduce the fixed penalty; and
  • although the Tribunal has the jurisdiction to reduce the daily penalty, we found it to be fair and proportionate, see paragraph 70.

[4] Of the 31 Items in the Notice issued to Mr Sanghera, one was a statutory record and so not appealable to the Tribunal. Of the remainder:

  • eleven were upheld because they were reasonably required under para 1 of Sch 36;
  • two were upheld because HMRC met the higher threshold set by Sch 36, para 21, Condition C, see paragraph 127ff;
  • eight were set aside because the documents required do not exist;
  • Mr Sanghera satisfied one Item by giving information at the hearing; he satisfied a further two Items before the hearing;
  • one item was varied, see paragraph 119;
  • HMRC agreed to withdraw one Item during the hearing, because it was more than six years old, and did not satisfy Sch 36, para 20; and
  • HMRC withdrew the other four Items before the hearing.

[5] The outcome in relation to each of the Items is summarised at Appendix 1. Mr Sanghera is directed to provide the information and documents required under all the Items which have been upheld or varied, by one calendar month from the date of issue of this Decision. No information or document is required from Harrydev.

[6] We uphold the penalties charged on Mr Sanghera for similar reasons to those set out above in relation to Harrydev.

The legislation and the evidence

[7] The relevant legislation is set out as Appendix 2.

[8] The Tribunal was provided with a Bundle of documents prepared by HMRC, which included:

  • correspondence between the parties and between the parties and the Tribunal;
  • Mr Sanghera's 2012–13 Self Assessment (SA) return;
  • various documents relating to five properties which were said to be owned by Mr Sanghera;
  • court documents relating to the eviction of a tenant from a property at Nottingham Road, together with a copy of the tenancy agreement with the new tenant;
  • various pages from the Appellants' bank accounts;
  • a list of Harrydev's sales and purchases for the year ended 31 January 2012 and certain invoices; and
  • the statutory accounts of Harrydev for the years ended 31 January 2012 and 31 January 2013, together with the related corporation tax (CT) returns.

[9] Mr Sanghera provided a witness statement, gave oral evidence led by Mr Cheema, and was cross-examined by Mrs Rees. Some of Mr Sanghera's evidence was unreliable – for example, regarding the furniture he said was held in the properties and the loan he asserted had been made to his friend, Mr Lal. However, we accepted his evidence in other respects, particularly in relation to the absence of certain documents required by the Sch 36 Notices.

[10] Mr Cheema gave oral evidence and was cross-examined by Mrs Rees. He was for the most part a reliable witness, but we found his evidence about the accounting adjustment (see paragraph 43ff) to be entirely lacking in credibility.

[11] Mr Stuart Dyson issued the Sch 36 Notices and penalties. He provided a witness statement, gave evidence-in-chief led by Mrs Rees, and was cross-examined by Mr Cheema. He was an honest and straightforward witness in all respects.

[12] On the basis of the evidence set out above, we make the following findings of fact. We make further findings of fact later in this Decision.

Findings of fact

[13] Harrydev is a company registered for VAT. Its business is the importation and retail of alcohol products. Officers from HMRC's Customs and International Trade and Excise (“CITEX”) team frequently visited the company's premises to check the company's compliance with the customs and excise legislation and regulations. Harrydev also received regular visits from HMRC Officers specialising in VAT, checking whether the company had complied with its VAT obligations.

[14] The CITEX and VAT Officers often asked for documentation and carried out other checks; the requested documents were provided by Mr Sanghera, the director of the company; by his wife who is the company secretary, and/or by or a member of the company's staff.

[15] Harrydev's accounts for the year ended 31 January 2012 show sales of £862k and cost of sales of £833k. After administrative expenses and tax, the company's net profit was £19k. The accounts for the year ended 31 January 2013 show that turnover for that year had dropped significantly to only £70k, very slightly above the cost of sales. After administrative expenses of £8k and a tax credit of £1.5k, the company reported a net loss of £6k.

[16] On 12 December 2012, Mr Dyson opened an enquiry into Harrydev's CT return for the year ended 31 January 2012. Included with that letter was an informal request for information and documents.

[17] On 15 November 2013, Mr Sanghera filed his SA return for the tax year 2012–13. It showed rents received from properties but no income from Harrydev. The properties were 81, 83 and 85 Colchester Road and 5 Nottingham Road. Mr Sanghera's gross income was declared to be £27,677; after tax of £3,914, his net income was £23,763.

[18] On 18 December 2013, Mr Dyson opened an enquiry into Harrydev's CT return for the year ended 31 January 2013. On the same day, he opened an enquiry into Mr Sanghera's SA return for the 2012–13 tax year. During 2014 Mr Dyson and Mr Cheema corresponded on a number of issues; Mr Dyson's correspondence was copied to Mr Sanghera.

[19] In his letter dated 23 October 2014, Mr Dyson summarised 34 points on which he was seeking more information or documents from Mr Sanghera, and concluded “at this stage of my enquiry I am not satisfied that Mr Sanghera's [2012–13] tax return was an accurate reflection of all his taxable sources of income”. In the same letter, he set out five points relating to Harrydev. On 15 December 2014, Mr Cheema provided two pieces of relevant information but said he considered Mr Dyson's information requests to be disproportionate and unreasonable.

[20] On 6 January 2015, Mr Dyson issued both Appellants with Sch 36 Notices, and gave a deadline of 18 February 2015. The information and documents required by the Notices essentially mirror those in his letter of 23 October 2014.

[21] On 23 January 2015, Mr Sanghera's father passed away. On 4 February 2015 Mr Cheema asked for a six week extension of time to comply with the Notices, because of time pressure due to self-assessment and because Mr Sanghera was “busy organising the funeral and other matters”. Mr Dyson sent his condolences, and allowed an extension of time until 27 March 2015.

[22] On 20 March 2015, Mr Cheema wrote again, saying Mr Sanghera had not yet returned to work following his father's death, and that Harrydev was not trading; as a result he had been unable to deal with the Notices. However, he said that “all your points and more have already been dealt with” by other HMRC Officers, and named nine individual Officers together with their work locations. He asked Mr Dyson to supply him with copies of the notes of meetings between those Officers and the Appellants.

[23] On 1 April 2015 Mr Dyson issued each Appellant with a fixed penalty notice of £300. On 29 April 2015, Mr Cheema wrote to Mr Dyson, appealing the fixed penalties on the basis that (a) the bereavement had caused a delay, and (b) the requests were disproportionate and unreasonable.

[24] Mr Cheema's letter was received on 5 May 2015. On 8 May 2015, Mr Dyson issued each Appellant with a daily penalty of £680, being £20 a day. On 28 May 2015, he responded to Mr Cheema's letter. He pointed out that no appeal had been made against either Sch 36 Notice. In relation to the fixed penalties, he said that he did not accept that there was a reasonable excuse for the failure to provide the information and documents. He had given the Appellants a seven week extension following Mr Sanghera's bereavement, a week more than had been requested by Mr Cheema, but the Appellants had still not complied with the Notices. Furthermore, these information requests had previously been set out in his letter of October 2014, so the Appellants had had plenty of time to gather the relevant material.

[25] On 26 June 2015 Mr Cheema made a late appeal against the Sch 36 Notices and appealed the daily...

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