PML Accounting Ltd v The Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
JudgeSir Ross Cranston
Judgment Date07 April 2017
Neutral Citation[2017] EWHC 733 (Admin)
CourtQueen's Bench Division (Administrative Court)
Date07 April 2017
Docket NumberCase No: CO/575/2016

[2017] EWHC 733 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Sir Ross Cranston

(Sitting as a Judge of the High Court)

Case No: CO/575/2016

Between:
PML Accounting Ltd
Claimant
and
The Commissioners for Her Majesty's Revenue and Customs
Defendants

Mr Stephen Cragg QC and Mr Ben Elliott (instructed by Bird & Bird) for the Claimant

Mr Akash Nawbatt QC and Mr Sebastian Purnell (instructed by HMRC) for the Defendants

Hearing date: 21 and 22 March 2017

Approved Judgment

Sir Ross Cranston

INTRODUCTION

1

In the course of an enquiry into whether some of the companies which are clients of the claimant are managed service companies, and whether the claimant itself is a managed service company provider under the relevant tax legislation, the Commissioners for Her Majesty's Revenue and Customs ("HMRC") issued an information notice to the claimant under the Finance Act 2008. As a result the claimant provided HMRC with some information and documents. In an appeal against the penalties imposed because the information and documents were incomplete, the First-tier Tribunal (Tax) ("the Tribunal") held that the information notice was invalid and therefore the penalties could not stand. Consequently, HMRC returned the documents to the claimant and undertook not to rely on them.

2

In this rolled up hearing for judicial review ordered by Langstaff J, the claimant's case is that HMRC (1) must delete or destroy information provided in response to the information notice and work product derived from the information and documentation provided, and (2) must undertake not to make use of the information and work product for any future purpose. HMRC has refused to do this and contends that it ought to be able to continue its enquiry and the separate criminal investigation it has launched. An important plank of its defence is that the Tribunal had no jurisdiction to decide that the information notice was invalid.

3

Among the issues which arise for determination are (1) whether the Tribunal was estopped or otherwise lacked jurisdiction to consider the issue of the information notice's validity; (2) the status of the Tribunal's findings in this judicial review if it lacked jurisdiction; (3) whether HMRC's retention of information and work product is in breach of the rights of the claimant or its clients under Article 8 of the European Convention on Human Rights ("ECHR" or "the Convention"); and (4) whether in any event the court should refuse it relief as a matter of discretion.

BACKGROUND

4

The claimant is a company incorporated in 2007 providing accounting, tax and corporate services to contractors and consultants. That includes the preparation of accounts and financial records, PAYE and VAT registration, tax computation, the preparation and submission of tax returns, company formation and administration, pension and insurance assistance, invoicing services, and other accounting, tax and corporate services and advice. In 2012, the claimant had between 700 and 800 clients, many of whom were road haulage drivers. The claimant's sole director is Paul Hazell. The shares in the company are held equally by him and his two brothers. They play no role in its day-to-day business.

HMRC's civil enquiry

5

In early 2012 an inspector of taxes, Mr Mark Dootson, began investigating whether the claimant was a managed service company provider under Part 2 Chapter 9 of the Income Tax (Earnings and Pensions) Act 2003 ("the 2003 Act") and so potentially liable for tax debts owed by the personal service companies of its clients. As an alternative to employing the claimant's clients directly, national haulage firms and others engaged the services of the claimant's clients through their personal service companies.

6

Essentially Mr Dootson was concerned with how the claimant acted as regards those personal service companies. He examined material HMRC already had, public records such as those at Companies House, and information from third parties. Early in the piece he raised in an internal memorandum whether, in the event of issuing an information notice, HMRC should issue a first or third party notice, in other words, whether as explained further below it should approach the Tribunal first for approval for the notice to be issued.

7

Mr Dootson also considered early on that to conduct an enquiry it would be fairer to the claimant to establish whether it was a managed service company provider under the 2003 Act before commencing enquiries into the companies of the claimant's clients. He was conscious that adopting the latter approach could have had an adverse impact on the claimant's reputation since it could have given the impression to the claimant's clients that it was in some way operating inappropriately.

8

HMRC's formal enquiry began on 6 August 2012, when Mr Dootson wrote to the claimant stating that he was investigating whether the arrangements with its clients would bring it within the managed service company part of the 2003 Act. He suggested a face to face meeting but there was no response. Eventually he made direct contact with Paul Hazell, who promised a letter. That letter, of 3 October 2012, said that the claimant's agents, Hazell Minshall & Co, a firm of accountants, would be dealing with the matter. The principal of that firm is Richard Hazell, the father of Paul and his brothers. In a letter of 24 October Mr Dootson again requested a face to face meeting or, in its absence, information and documentation.

9

With no response from the claimant or its accountants, on 26 November 2012 Mr Dootson issued an information notice to the claimant under Schedule 36 to the Finance Act 2008 ("the 2008 Act"). Before doing so he had obtained confirmation within HMRC, from his manager and from the Central Policy section, to this course of action. In his witness statement Mr Dootson explains that he was careful to restrict his request to documents which impacted on the claimant's own tax position and did not extend to that of the claimant's clients.

10

The notice stated its purpose as to "check the company's Chapter 9 ITEPA 2003 position… to give proper consideration to the application of the Managed Service Company Legislation". The notice went on to state that this meant that the information had to be provided, that the date for this was 11 January 2013 and that, in the event of non-compliance, penalties could be imposed. The claimant's appeal rights were also explained.

11

The information and documentation requested was set out in a schedule to the notice. It concerned the claimant's business and the manner in which it was marketed; information on advice to clients regarding whether to establish companies; financial records including the claimant's bank statements; financial records including bank statements of a sample of twelve of its clients; service agreements and contracts between itself and the sample clients; and schedules showing salaries, expenses, dividends, bonuses, tax liabilities and fees payable to it for the sample clients.

12

There was no response to the notice and Mr Dootson tried to make contact with the claimant and its accountants, Hazel Minshall. That was unsuccessful. On 7 December 2012 Hazel Minshall wrote that it wished to appeal against the notice, since it and the claimant needed more time to comply. The letter set out the reasons for the request.

13

In a letter of 11 December 2013 Mr Dootson agreed to an extension until 24 February 2013. Because Hazel Minshall had used the word "appeal" in its letter of 7 December, Mr Dootson also sought clarification as to whether the claimant was appealing the information notice itself or was requesting an extension of time. That same day Hazel Minshall replied that all it was seeking was an extension of time. Hazel Minshall said:

"The appeal was in relation only to the request to extend the deadline."

14

On 28 February 2013 Hazell Minshall provided responses to the information requested in the information notice. On 8 March it delivered sixteen boxes of documents to HMRC's office in Sheffield. (Mr Dootson had in fact granted a further extension of time.) The documentation included the claimant's brochures, welcome packs, client application forms, administration forms, and marketing and advisory material; its bank statements; an incomplete set of bank statements relating to its clients; an incomplete set of invoices it issued to clients for services provided; an incomplete set of client payslips; and client corporation tax statements and company accounts.

15

Following his review of the material, Mr Dootson wrote on 15 March 2013 to Hazell Minshall, with a copy to the claimant, that the information requested was incomplete in a number of respects, and that a number of documents were missing. In an attempt to assist he identified that these were the claimant's bank statements showing fees collected for the period 6 April 2011 to 6 April 2013; bank statements relating to eight of the sample clients; the records it used to calculate salaries, dividends, taxes and other items for four of the sample clients; its fee invoices for four of the sample clients; payment notifications for four of the sample clients; bank mandates; and sales invoices relating to five of the sample clients. In conclusion Mr Dootson added that he would issue a penalty notice and warned the claimant of its liability to daily penalties for continuing failures.

16

An initial penalty notice of £300 was issued on 20 March 2013. The claimant appealed the penalty notice on 15 April 2013 and the same day requested a further extension of time for compliance. Mr Dootson wrote on 2 May requiring full compliance in a fortnight. On 12 July 2013 Hazell Minshall wrote to Mr Dootson stating that it and the claimant intended to...

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