Thompson
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 February 2013 |
| Neutral Citation | [2013] UKFTT 103 (TC) |
| Date | 06 February 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 103 (TC)
Judge Guy Brannan, David E Williams CTA
Hennessy Thompson, H A S Thompson & Co accountants, appeared for the Appellant
Karen Weare, presenting officer, appeared for the Respondents
Income tax - information notice - FA 2008, Finance Act 2008 schedule 36 subsec-or-para 1Sch. 36, para. 1 - onus of proof - whether information or document reasonably required by officer - yes - whether documents in appellant's possession or power - yes - whether certain information constituted appellant's "statutory records" resulting in no right of appeal against the relevant part of the information notice - yes - appeal dismissed
1.This is an appeal by Mrs Eudora Thompson ("Mrs Thompson") against an information notice issued by the Respondents ("HMRC") on 16 May 2011 pursuant to Finance Act 2008 schedule 36 subsec-or-para 1paragraph 1 Schedule 36 Finance Act 2008 ("information notice"). Mrs Thompson lodged her appeal on 23 June 2011.
2.The main issues in this appeal are whether Mrs Pask, the officer conducting an enquiry into Mrs Thompson's tax returns in respect of the years ended 5 April 2004, 2005, 2006, 2007 and 2008, reasonably required the information and documents specified in the information notice to check Mrs Thompson's tax position and whether the information and documents were within her possession or power. The appeal also raises an issue whether some of the documents required by the information notice constituted part of the appellant's statutory records, within the meaning of Finance Act 2008 schedule 36 subsec-or-para 62paragraph 62 Schedule 36 Finance Act 2008 ("Schedule 36"), from which no appeal lies to this Tribunal by virtue of Finance Act 2008 schedule 36 subsec-or-para 29paragraph 29(2) of Schedule 36.
3.Mrs Thompson was the founder and Chief Executive Officer of a company called Zynap Limited ("Zynap"), a position which she held from August 2002 to 3 September 2007.
4.Zynap went into administration on 3 September 2007.
5.In her tax returns for the periods referred to in paragraph 2 above, Mrs Thompson claimed expenses (primarily travelling expenses) incurred in the course of the performance of the duties of her employment/office.
6.HMRC (Mrs Pask) opened an enquiry into Mrs Thompson's tax return for the year ended 5 April 2007 on 16 February 2009 and, at the same time, opened enquiries into the tax returns for the other years referred to in paragraph 2 above.
7.The procedural history of this information notice is somewhat complicated and is as follows.
8.An information notice was issued to the taxpayer on 10 June 2010. That information notice contained seven separate requirements. Only two of these (effectively paragraphs 1 and 2 of the information notice of 16 May 2011 referred to in paragraph 13 below, although the "Nemo loan" issue does relate to self-employment expenses for the tax year ended 5 April 2008) requirements are relevant to the information notice currently under appeal.
9.Mrs Thompson's accountants requested a statutory review of the 10 June 2010 information notice. The outcome of that review was notified to Mrs Thompson and her accountants by a letter from HMRC dated 10 December 2010.
10.So far as is material to the current appeal, the review concluded that the first two requirements of the information notice should be limited to documents in respect of the tax year ended 5 April 2007. The two requirements were, first, a request for credit card and/or bank statements as evidence that Mrs Thompson had personally incurred expenditure which she claimed as expenses incurred in performance of the duties of her employment in respect of the year ended 5 April 2007. Secondly, HMRC required a schedule of all payments received from Zynap during the year ended 5 April 2007 detailing what each payment represented (e.g. salary, bonus, and expenses) and the period to which the salary and bonus related.
11.The review required compliance in respect of the above two requirements within 30 days of 10 December 2010.
12.Mrs Thompson's accountants appealed on her behalf against the information notice of 10 June 2010. Before the hearing of the appeal (which was due to take place on 12 May 2011), HMRC withdrew from the appeal because of a technical problem. The nature of the problem was not explained to us. Nonetheless, the upshot was that the information notice of 10 June was withdrawn by a letter from HMRC dated 16 May 2011.
13.HMRC (Mrs Pask) issued a new information notice on 16 May 2011. This is the information notice which is the subject of this appeal. The information notice read as follows:
In this context "document" means anything in which information of any description is recorded. This includes any records held on computer, magnetic tape, optical disk (CD-ROM/DVD), hard disk, memory stick, flash drive, floppy disk or other recording media.
(2) Credit card and/or bank statements as evidence of your claim to have personally incurred expenditure of £33,904 in the course of your employment with Zynap Limited during the year ended April 2007.
(3) A schedule of all payments received from Zynap Limited during the year ended 5 April 2007 detailing what each payment represents (e.g. salary, bonus, expenses) and the period to which the salary and bonus related.
(4) Documents confirming the loan with Nemo was secured on the property and relates to either its purchase or renovation costs.
14.Mrs Thomson appealed to this Tribunal on the basis that HMRC was estopped from issuing a second Finance Act 2008 schedule 36Schedule 36 notice because the effect of withdrawing from the original appeal was that her case succeeded and that HMRC should not be allowed to issue a second notice. The Tribunal (Judge Short and Mr Midgley) decided that it had no jurisdiction to prevent HMRC from issuing a second Finance Act 2008 schedule 36Schedule 36 information notice i.e. one which reflected the terms of the statutory review. The Tribunal's decision was released on 6 October 2011.
15.A penalty notice for failure to comply with the information notice was issued 15 February 2012. This has not been appealed.
16.Mrs Thompson has now appealed against the information notice of 16 May 2011.
17.The hearing took place on 10 April 2012 but was adjourned, part-heard, and was resumed on 2 November 2012. At the resumed hearing we requested further written submissions from both parties on the question whether paragraph 3 of the information notice related to the appellant's statutory records within the meaning of Finance Act 2008 schedule 36 subsec-or-para 62paragraph 62 of Schedule 36 - an issue which related to the jurisdiction of this Tribunal.
18.The following witnesses filed witness statements and gave oral evidence on behalf of the appellant, Mrs Thompson:
(2) Mrs Thompson
(3) Mr Anthony Davenport - chief financial officer of Zynap from 8 January 2001 to 3 September 2007.
(4) Mr David Doughty - chief technical officer of Zynap from 10 August 2000 to 3 September 2007.
19.On behalf of HMRC, Mrs Natasha Pask, an officer within the Personal and Capital Gains Compliance Team of HMRC, filed a witness statement and gave oral evidence.
20.In addition, both parties produced bundles of documents and correspondence.
21.As noted above, Mrs Thompson was the founder and chief executive officer of Zynap.
22.Mrs Thompson had originally qualified as a chartered accountant but her role at Zynap was on the business rather than the accounting side. As chief executive officer she reviewed management accounts and forward-looking statements prepared for investors. She was also a signatory on Zynap's bank account. However, if a person was a recipient of a cheque another authorised signatory had to sign the cheque.
23.Zynap's business involved the development and exploitation of software in the Human Resources sector. Mr Davenport described the brilliance of Zynap's software as leading to the company's downfall. It was the perfect tool for large multinational companies but Zynap itself was a small, undercapitalised company. Zynap was a small company doing business with "giants" such as UBS, AstraZeneca and the NHS.
24.Zynap was consistently cash poor. The company had continual cash flow problems. There were frequent board meetings to consider whether to continue trading and, eventually, by the end of August 2007 it was decided that the company should cease to trade. The cash flow situation had been problematic for years before that. Every year Mrs Thompson had to inject funds into the company or forego salary. Zynap eventually went into administration on 3 September 2007.
25.Mr Doughty's and Mr Davenport's evidence, which was unchallenged in the following respects, was that executive and non-executive directors would often not be paid their salaries, bonuses and expenses. The unpaid amounts were substantial and spread...
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