Lee v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 07 November 2008 |
| Date | 07 November 2008 |
| Court | Special Commissioners (UK) |
special commissioners decision
Dr David Williams
Michael Feng, accountant, for the Appellants
Mike Faulkner and Jenny Langley, officers of Revenue and Customs, for the Respondents
Income tax and corporation tax - self-assessment - enquiry into return - Taxes Management Act 1970, Taxes Management Act 1970 section 28As. 28A - scope of power to direct that an enquiry be closed - whether power should be exercised - decision on own facts
A special commissioner decided that, on the facts of the case, it was not appropriate to direct an enquiry into the taxpayers' affairs to be closed, but took the opportunity to review the scope of the tribunal's power to make such a direction.
L, her husband and a company of which she was the only shareholder applied to the court to require the closure of all current enquiries being made by Revenue and Customs in respect of each of the taxpayers for each of the relevant tax years from 1998 to 2007. The applications were made under Taxes Management Act 1970 section 28ATMA 1970, s. 28A in respect of the individual taxpayers and under the equivalent provision for corporation tax (Finance Act 1998 schedule 18 subsec-or-para 33FA 1998, Sch. 18, para. 33) for the company.
Whether the special commissioner should require the closure of the enquiries into the taxpayer's affairs.
The special Commissioner (David Williams) (dismissing the applications) said that the applications were for the most part misconceived. There was no set form provided in law for a s. 9A notice. It was required only that the notice was in writing to the taxpayer and that it met the legislative requirements. Taxes Management Act 1970 section 9A subsec-or-para 1Section 9A(1) required that the notice indicated clearly that the officer was giving notice of his or her 'intention to' 'enquire into' one or more returns. No precise words had to be used, but that intention must be clear. While it might be best practice always to refer specifically to Taxes Management Act 1970 section 9As. 9A (or the corporation tax equivalent) and to the specific return to be the subject of enquiry, that was not necessary in law. But entirely general language in a letter might not be adequate notice engaging s. 9A. In particular, an indication of relevant dates was needed because Taxes Management Act 1970 section 9A subsec-or-para 2s. 9A(2) provided a specific window with regard to any return. The section expressly provided for a limited time in which an enquiry might be started. And it did not empower a general investigation into a taxpayer's affairs. The consequence to the Revenue, if proper language was not used in a s. 9A notice, was that the Revenue might later have to establish that the far stricter requirements of Taxes Management Act 1970 section 29s. 29 were met.
An enquiry, once notified, continued until an officer gave the taxpayer notice closing the enquiry. No time-limit was set for the time that an officer might spend on an enquiry. If a taxpayer considered that an enquiry had gone on too long, then he or she might make an application under Taxes Management Act 1970 section 28As. 28A to a general or special commissioner asking the commissioner to direct the enquiry to be closed. Taxes Management Act 1970 section 28ASection 28A applied only to valid enquiries under s. 9A. It did not apply to other forms of investigation. In particular, it did not apply to investigations related to the potential use of s. 29 (assessment where loss of tax discovered). Section 29 made provision to avoid an overlap between investigations linked with that section and s. 9A enquiries. That emphasised that the two were separate. Section 29(3)-(7) limited the powers of an officer under that section where the taxpayer had delivered a return under s. 8. One limit was that the s. 29 powers could only be used after either the window under s. 9A had passed in respect of that tax return or the officer had closed an enquiry into that tax return (Taxes Management Act 1970 section 29 subsec-or-para 5s. 29(5)).
It followed that an officer had no power to act under s. 9A until a self-assessment return had been made by a taxpayer. Any investigation before a return was made had to be authorised by other powers. The court could not direct an officer to give a notice of enquiry. He or she was at liberty to do so at any time within the window following the delivery of any self-assessment return. Further, the court had no power under a Taxes Management Act 1970 section 28As. 28A application to direct the closure of an investigation that was not a s. 9A enquiry. When a valid s. 28A application was made, the court had a duty to direct the closure of a properly notified enquiry into a self-assessment return unless satisfied that there were reasonable grounds for not doing so.
Applying those principles to the present applications, the company had made one tax return to date. Regardless of the proper filing date, the window for giving notice of an enquiry into that return was still open (Finance Act 1998 schedule 18 subsec-or-para 24FA 1998, Sch. 18, para. 24). No notice of an enquiry had been given to the company in respect of that return and the court had no power to make any direction about that return.
L's husband had provided his self-assessment returns to the Revenue for the tax years 2005, 2006 and 2007 on 10 December 2007. The window was still open in respect of each of those years (TMA 1970, Taxes Management Act 1970 section 9A subsec-or-para 2s. 9A(2)). His previous returns had been submitted in time and the windows for the 2004 and previous returns had closed. On the evidence before the tribunal, no s. 9A notice had been served in respect of any of those returns. If the Revenue were conducting investigations into the husband's affairs, then those were not matters over which the court had jurisdiction.
As regards L, the court had no jurisdiction to make the direction for which she asked in respect of any return other than that made for 2004-05.
Furthermore, in exercising the tribunal's discretion to direct closure of an enquiry, it was right to have in mind that Revenue and Customs, since the merger of the two separate direct and indirect tax departments, properly might use information about investigations regarding possible failures to comply with the requirements of VAT law (or PAYE provisions or other tax matters) as relevant to possible failures to comply with the obligation to make a full return for income tax purposes. There was relevant evidence of test purchases within the period relevant to this return and weight would be given to the fact that L accepted, in the light of the evidence, that her original return for the year was not fully in accordance with the statements she signed at the end of the return with regard to trading income. There were unresolved questions about whether L made timely disclosure of any taxable income by way of saving income on accounts and no direct evidence had been received to suggest that that was no longer so. Thus there were good grounds for the s. 9A enquiry to be opened in this case.
If an enquiry was closed at too early a stage it might result in matters that could have been resolved between the parties being resolved instead through an appeal. Moreover, a refusal to direct closure now did not prevent a later application to stop the enquiry if later events showed that to be justified.
1. There are three linked sets of applications before me. They relate to Mrs Lee, her husband, and a company of which I am told she is the only shareholder. I am asked to require the closure of all current enquiries being made by Her Majesty's Revenue and Customs ("HMRC") in respect of each of taxpayers for each of the relevant tax years from 1998 to 2007. The applications are made under Taxes Management Act 1970 section 28Asection 28A of the Taxes Management Act 1970 ("TMA") in respect of Mrs and Mr Lee and under the equivalent provision for corporation tax (Finance Act 1998 schedule 18 subsec-or-para 33paragraph 33 of Schedule 18 to the Finance Act 1998 ("Schedule 18")) for the company. Most of these applications are misconceived. Before I deal with the one application that I find properly made, I must strip away the matters outside the scope of my powers.
2. All individual taxpayers are required, if asked to do so, to complete self-assessment tax returns for any tax year in accordance with Taxes Management Act 1970 section 8section 8 TMA. An officer of Revenue and Customs ("Officer") may, under Taxes Management Act 1970 section 9Asection 9A TMA, start an enquiry into any self-assessment income tax return submitted to HMRC by a taxpayer. (The directly equivalent power for corporation tax and companies is in Finance Act 1998 schedule 18 subsec-or-para 32Schedule 18, paragraph 32. I refer only to the income tax provisions below, as those for corporation tax are direct equivalents and are in Schedule 18).
3. An Officer wishing to conduct an enquiry into a self-assessment tax return must give notice to the taxpayer that he or she intends to do this. He or she can give notice only within a "window" of time allowed by section 9A(2) TMA. There are no preconditions that the Officer must meet when deciding to make an enquiry. But it must be an enquiry into a return. Notice cannot...
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