Newton
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 August 2018 |
| Neutral Citation | [2018] UKFTT 513 (TC) |
| Date | 24 August 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0513 (TC)
Judge Richard Thomas, Derek Robertson
Mr David Bedenham, instructed by Rainer Hughes & Co, appeared for the appellant
Mrs Mary Donnelly, litigator in Solicitor's Office and Legal Services, HM Revenue and Customs, appeared for the respondents
Income tax – Check into income tax position – Notice under FA 2008, Sch. 36, para. 1 – Whether officer had reasonable grounds to suspect underassessment – No – As not supported by any evidence – Whether certain items statutory records – No – As the time limit had passed – Notice set aside.
The First-tier Tribunal (“FTT”) set aside a Sch. 36 Information Notice because there was no evidence that the relevant officer had reasonable grounds to suspect an underassessment of tax.
HMRC issued the Appellant (Mr Newton) with an Information Notice pursuant to para. 1 of Sch. 36 to FA 2008. The Notice was extensive and requested “detailed listings of all shareholdings [and] dividends”, a “listing” of all bank accounts and credit/store card statements held solely or jointly, details of any loan accounts from which funds had been withdrawn and evidence of any capital introduced. When the Appellant's agents queried why this information was required, HMRC's officer replied: “based on information I hold there appears to be a shortfall between your client's income and expenditure for the year ending 5 April 2015”. HMRC relied on para. 21 of Sch. 36 and in particular Condition B arguing that after a review of the Appellant's tax returns HMRC had evidence to suggest that income received had been omitted.
After further queries about the evidence, HMRC's officer responded that they wished to give the Appellant ample opportunity to make a full disclosure (for penalty abatement reasons) and so did not want to be specific about risks identified. HMRC stated that they had concerns about “his ability to fund his lifestyle”. The Appellant refused to provide the information on two bases: none of the material amounted to statutory records and the request was no more than a fishing expedition.
With regards to burden of proof, the FTT agreed with the Appellant and with other FTT panels (Cliftonville Consultancy Ltd [2018] TC 06464, Mahmood [2018] TC 06527 and Duncan [2018] TC 06526) and concluded that the burden of proof fell on HMRC. Notwithstanding this, HMRC did not present witness evidence from the relevant officer and had no way of explaining various items of correspondence submitted to the FTT.
The FTT noted that Condition B of para. 21(6) of Sch. 36 was similar in nature to the discovery test in s. 29(1) TMA 1970. Both “discover” and “has reason to suspect” set a low hurdle for HMRC. However, the authorities on the latter test all stressed the importance of examining the evidence from an officer of HMRC as to why they had reasonable grounds to suspect an underassesment of tax. In this instance HMRC's case amounted to unsupported assertion (the relevant tax return was not adduced to show an absence of entries for dividends) and HMRC failed to present a single piece of evidence that suggested or proved that the Appellant did receive dividends from any company. In terms of lifestyle versus income, all there was available to the FTT was a document related to the Appellant's house purchase and loans charged on it but there was no explanation of significance or relevance from HMRC.
In respect of the issue of whether the material requested amounted to statutory records, the FTT held that s. 12B TMA 1970 held the answer to this question. Section 12B sets two distinct time limits for keeping records: the fifth anniversary of 31 January after the relevant tax year for anyone carrying on a trade, profession or business and the first anniversary of 31 January after the relevant tax year for anyone else. In the absence of any evidence pointing to the Appellant carrying on any trade, profession or business, the time limit for keeping records for 2014/15 would have been 31 January 2017. An Information Notice issued on 20 July 2017 could not request statutory records. In addition, the FTT's preliminary view was that a “listing” of information could not be a statutory record in any event. The term “listing” refers to information that does not yet exist and which cannot have been kept and preserved as envisaged by s. 12B. The Information Notice was set aside and the appeal allowed.
This decision is a reminder of the fundamental importance of cogent evidence is support of any assertion or view held by HMRC (and indeed by any appellant). Despite the test of “has reason to suspect” representing a low bar, the FTT will not make inferences of fact based upon a series of clues with no concrete explanation of origin, relevance or deemed consequences.
[1] This was an appeal by Mr Maurice Newton (“the appellant”) against a notice issued to him by an officer of HMRC under paragraph 1 Schedule 36 Finance Act (“FA”) 2008. The notice as modified on a statutory review under s 49E Taxes Management Act 1970 (“TMA”) required the appellant to provide to HMRC information under three headings for the years ended 5 April 2013, 2014 and 2015. Below where the decision refers to Schedule 36 without more it is a reference to Schedule 36 FA 2008.
[2] At 10 am, the time given to the parties and to the members of the Tribunal for the hearing of the appeal, no one for the appellant was present. Enquiries were made of the appellant's solicitors who informed our clerk that Mr Bedenham of counsel had been told that the hearing was at 2 pm and that he was about to catch a train which would arrive at Manchester Piccadilly station at about 1245.
[3] It was not clear on what basis and by whom Mr Bedenham's chambers had been told that the hearing was at 2 pm. The problem we had was that another case had been listed for the afternoon starting at 2 pm, and the problem Mrs Donnelly had was that she had booked a flight to Belfast in the late afternoon which meant she would need to leave Alexandra House by 2.30 at the latest.
[4] We decided to adjourn the hearing to 1 pm and made it clear that we would expect the case to last no more than an hour as we were not prepared to inconvenience the parties listed for 2 pm.
[5] The hearing resumed shortly after 1 pm and finished at about 2 pm. We had been able to read all the papers including both parties' skeletons and we are grateful to both Mr Bedenham and Mrs Donnelly for the succinctness of their submissions.
[6] The parties were agreed that there were three issues.
[7] First, were the notices invalid because they did not meet Condition B in paragraph 21(6) Schedule 36 (the only relevant condition) in that the officer of HMRC who gave the notice did not have reason to suspect an underassessment of income or gains by the appellant.
[8] Second, was any of the information required by the notice “statutory records”. If it was it would have the effect that the Tribunal had no jurisdiction to hear an appeal against that requirement in the notice.
[9] Third, was the information, so far as it was not a “statutory record”, reasonably required to check the appellant's tax position.
[10] We had no witness evidence from HMRC, a matter we comment on later.
[11] We therefore had only the bundle consisting of correspondence between the parties from which we could discern the basic facts of what happened. We narrate what this correspondence said and find as fact that it said it, without coming to any finding about the truth of what it said.
[12] On 25 May 2017 Mrs Sharon Sifleet, a Fraud Investigation Officer based in HMRC's Fraud Investigation Service, Alcohol Team 3 based in Wolverhampton, wrote to the appellant. The letter was headed “Check of your tax position for the year ended 5 April 2015”. Any thoughts that the appellant's tax position might relate to alcohol products duty or customs duties or VAT were dissipated by the first line of the body which said that Mrs Sifleet was checking the appellant's “Self Assessment tax calculation” for the year ended 5 April 2015 as her check showed that there may be inaccuracies. This alleged inaccuracy required her to examine earlier years to see if similar inaccuracies arose.
[13] To assist Mr Sifleet in her check the appellant was asked to provide the items listed in an enclosed schedule by 28 June 2017. Failure to provide them might lead to an assessment under s 29 TMA 1970 or a notice that legally required the appellant to give the information. The letter said that a variety of Factsheets were enclosed. Our bundle contained a document headed “Schedule of information and documents needed to carry out our check” and under the heading “information and documents” it listed:
- A detailed listing of all shareholdings for the years ended 5 April 2013, 5 April 2014 and 5 April 2015.
- A detailed listing of all dividends received in the years ended 5 April 2013, 5 April 2014 and 5 April 2015.
- A listing of all bank accounts operated, solely or jointly, by you in the (sic) 5 April 2013 5 April 2014 and 5 April 2015.
- Please therefore (sic) provide me with all private bank/BS and credit card statements operated (sic) by you either in your own name or names in which you have been interested (sic) (whether solely or jointly with any other person or persons) or which you had power to operate (whether solely or jointly with any other persons); and which are in existence now or which existed at any time during the period from 6 April 2012 to 5 April 2015.
- If you have drawn any funds from a director's loan account in the years ended 5 April 2013, 5 April 2014 and 5 April 2015, please provide a full breakdown of the loan account for years ended 5 April 2013, 5 April 2014 and 5 April 2015 showing each transaction in chronological order.
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Hunter
...of Derrin Brother Properties Ltd) v R & C Commrs [2014] BTC 21, Mathew [2015] TC 04342, Betts [2013] TC 02824, and also Newton [2018] TC 06682 illustrate the circumstances where Schedule 36 information requests had been set aside. [257] Mr Staff submitted that the Appellant's case bears sig......
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Hegarty and Another
...where a statute requires a person to show that they have reason to suspect a state of affairs was considered by this Tribunal in Newton [2018] TC 06682 (Judge Richard Thomas, the judge in this case, and Derek Robertson) (“Newton”), so we will repeat what the Tribunal said there: [50] Paragr......